Ed Cox: Cities will be engine room of recovery and the North must not be left behind

These will be carefully negotiated agreements between a first wave of eight core cities – Leeds, Sheffield, Birmingham, Bristol, Liverpool, Manchester, Newcastle and Nottingham – and central government departments, each with a view to unlocking city potential to drive economic growth.

Government interest in the big cities is welcome. Cities have always been the main hubs of innovation and economic development.

The great urban historian, Jane Jacobs, argues that city-regions are the principal drivers of the global economy – not nation states – and it has always been that way.

From the ancient Egyptian city of Ur, to industrial Manchester in the Victorian era, to the present Los Angeles “post-metropolis”, cities have defined national success and prosperity and not vice versa.

This insight is vital as we confront the current economic situation. With vast amounts of time and energy being given to macro-economic policy, it is important not to lose sight of the microeconomic conditions in which we create jobs and prosperity.

Cities will be the engines of economic recovery. Already, London is leading the way in this respect: whether its down to having a Mayor, Crossrail or the Olympic Games, economic prospects for 2012 look far better in the capital than they do in the regions.

There is a chance London will return to 2008 levels of employment by 2014 – four or five years earlier than any Northern region.

But what about the Northern cities? Beacons of revival throughout the 90s and 00s with flashy city-centres and offices aplenty, but hit hardest by public sector spending cuts and still plagued by all-too-prevalent neighbourhoods scarred by poverty and decay.

Leeds, Sheffield, Manchester, Liverpool, Newcastle and smaller cities represent the untapped potential of a bright Northern future.

Far from being sinks of welfare dependency and public sector “non-jobs”, these are the places that are only part-way through a transformation from a labour-intensive, dirty industrial past, to a creative and cleaner post-industrial future. The OECD calculates that up to 2008, the Northern economies contributed more than half of the nation’s economic growth and that it is in these places, rather than the congested capital, from which the most steady and sustainable growth will come. But only if the conditions for growth are supported.

Invention and reinvention have defined the success and prosperity of cities and so a focus on innovation is key. But with double the amount of science and technology funding currently being spent in the so-called golden triangle of London, Cambridge and Oxford, some serious rebalancing needs to be done. Recent announcements about investment in graphene in Manchester bode well, but we need similar developments in programmes such as Leeds’ Innovation Capital.

Successful innovation is also dependent on skills. Our Northern universities have a strong tradition for attracting some of the brightest and the best and migration policy must continue to enable this to happen. But cities must be better equipped to nurture their local talent pool. At present skills policy is over-centralised in Whitehall and cities must be given the powers and money to develop strategies that fit more closely with local labour markets, linking local businesses with local training providers in a more coherent and responsive fashion.

Innovation and skills drive city growth not because people who live in cities are smarter than elsewhere but because of their ability to interact and share ideas.

The “density” of city relationships is key to their success. Recent work by the London School of Economics shows that journeys between Manchester and Leeds are about 40 per cent fewer than you would expect from two similar-sized cities in a modern nation state. This is a significant drag on both cities’ potential and also reduces connectivity with Sheffield, Liverpool and Newcastle.

Investment in Trans-Pennine rail electrification is a good start but is tiny in comparison with Crossrail and needs to herald investment in other significant projects such as the Northern Hub for the railways and Leeds Bradford International Airport’s improvements. Government also needs to decentralise key aspects of local transport planning and funding to cities including greater control over rail franchising.

City growth also requires investment. In such austere times, the kinds of public funding that fuelled the regeneration of the last decades has diminished significantly, but it has not gone altogether, and that which remains needs to be used more effectively alongside private investment.

Tax increment financing, municipal bonds, even a regional investment bank, all hold significant potential but all require the nod from HM Treasury to give cities the freedoms to use existing assets such as pension funds and predicted revenue receipts to raise new capital to invest. Another important step would be to allow cities to rationalise disparate sources of government funding into a single investment fund.

And finally, cities need strong leaders. Characters like T Dan Smith in Newcastle, Joseph Chamberlain in Birmingham, or John Marshall in Leeds all created a vision and context which gave confidence to investors and ambition to local residents.

More recently, Bernstein and Leese have had a similar effect in Manchester, disproving the theory that you need a mayor to fulfil this role. But such confidence is hard-won and, again as London has demonstrated with great effect, the mayoral referenda which lie before the big cities next May represent a once-in-a-generation opportunity to galvanise local leadership at a crucial time of need.

With government apparently willing to cede powers to stimulate local economic growth, now more than ever, cities need a strong and effective voice.

• Ed Cox is director of IPPR North, the institute for Public Policy Research think-tank which is staging a major conference in Leeds today, backed by the Yorkshire Post. Keynote speakers include Deputy Prime Minister Nick Clegg, Cities Minister Greg Clark and Shadow Business Secretary Chuka Umunna.