I attended an interesting meeting in London of the Transport Economists’ Group on the topic ‘Transport – lifeblood of every city?’.   This looked at the ‘wider economic benefits’ from transport, that is, those over and above the supposed travel time saving benefits of conventional appraisal.   It is argued that such wider benefits arise from the agglomeration of businesses, because productivity increases with city size.

While agglomeration benefits seem well established conceptually, quantification of their scale and net impact is not without problems.  The current methodology is quite technical, which makes it difficult for the non-specialist to assess the outcomes. Moreover, it is recognised that part of agglomeration benefits deriving from transport improvements would be captured as windfall gains by land owners via higher rents, leaving only part for firms and employees.   More generally, it seems hard to identify a significant impact on economic growth of any specific new transport facility in a developed economy.   In these circumstances, there must be a real risk that the proposers of publicly funded transport schemes may take an over-optimistic view of agglomeration benefits – an instance of appraisal optimism.

As an example of a seemingly fine balance between the benefits and disbenefits of agglomeration, consider Fleet Street, the historic central London location of the British newspaper industry since the first national newspaper was published in 1702.  In its heyday, nearly all national newspapers were based in the neighbourhood – editorial offices and print works – surely a prime example of agglomeration benefits.      Editorial staff, journalists, compositors, printers and all the ancillary trades mingled.   Weekday and Sunday newspapers shared staff, and information, both news and professional, was exchanged in the pubs and wine bars.   However, no newspapers are now left in Fleet Street.   Editorial offices are disbursed across London and the printing facilities even further afield.   In 1986 the national press began to move out of Fleet Street, prompted by advances in printing technology which made obsolete the traditional skills of the compositors and allied trades, and allowed printing to be carried out remote from editorial offices.   Staff and cost savings were possible through the new technologies, and the high land values in Fleet Street could be realised by moving to lower value sites in East London and elsewhere.   Restrictive labour practices were left behind.   Location of printing facilities beyond the congestion of central London allowed advantage to be taken of the improving road distribution network for overnight deliveries.

It is clear that the benefits of agglomeration were not decisive in sustaining the newspaper industry cluster.   The benefits to the firms must have been too small, after taking account of the high rents and employee earnings, as well as the potential productivity improvements from computerisation.   As regards the transport options, these encouraged dispersal, given that there was little scope for improvement in freight transport for newspaper distribution out of central London.   A general conclusion is that agglomeration benefits may be far from crucial in sustaining a particular cluster in a particular urban location.

More generally, we need to put our interest in transport into the wider context of the rise and decline of cities.   Cities rise when agglomeration benefits reinforce other positive factors of production.  They decline when the agglomeration benefits fail to counterbalance the lessening of the other factors, or indeed where agglomeration disbenefits arise -  as with restrictive practices in the newspaper industry.  Historically, transport was of first importance in the rise of cities centred on ports and railway interchanges, when the transport of physical goods was dominant.   But in modern, knowledge-based economies, arguably transport is a secondary factor. 

I  doubt whether sophisticated calculations of the magnitude of agglomeration benefits are worthwhile.  Rather, we should plan pragmatically the strengthening of the transport infrastructure of our cites to relieve overcrowding, both present and prospective where population growth is expected.  Given the limited scope for additional road space in city centres (even if it were desirable – which it isn’t for environmental and civic reasons), the effort must focus on rail, both over- and under-ground.