Unit 4 Macro: Richard Florida on the Great Reset

What changes are produced by great economic upheavals? The financial and economic crisis prompts a rethinking of the assumptions about how businesses succeed and how economies operate. In a recent edition of the Global Business programme on BBC radio 4, Peter Day met Richard Florida, a renowned economic geographer who has written a new book The Great Reset. Here are some of the notes I jotted down from the programme:

What motivates and what drives recovery from crashes?

* This crisis is a generational event but economies do recover over a fifteen / twenty year period - we are only a small way through it

* The old recipes of policy tend not to work (i.e. a breakdown of conventional macro policies)

* After the bubble has ended, capital tends to moves away from financial speculation towards investment in innovation - because there is money to be made the old-fashioned way by innovating. The problem is that capital has dried up in the wake of the crisis.

* During crises, innovations start to bundle up and cluster and eventually start to attract significant investment even when the financial system is risk-averse and continues to deleverage. We see the emergence of new systems innovations and systems innovators - where innovations can be stitched together in a new production environment - into an infrastructure system that provides the platform for a new burst of growth.

* This crisis may require or might prompt a system-wide reset that could take up to 30 years

The Great Reset is a reset:

1/ Of technology and the many new industries they spawn - speeding up the movement of ideas - striking cluster effects will become more powerful over time

2/ Of entrepreneurship - social entrepreneurship has become mainstream

3/ Of new ways of life and living - a new spatial fix (geographic Keynesianism) - the geography of change - Florida writes about the rise of the mega region (the economic units of our time)

4/ Of new forms of corporation

5/ The global spatial division of labour especially in manufacturing will intensify but perhaps less so with services - i.e. the partial reversal of out-sourcing of service functions that was so apparent less than a decade ago

Mega Regions
Florida has identified up to forty examples of mega regions built around a cluster of successful cities - underpinned by

* High speed rail and airline connections
* Increased renting of property especially in the bigger cities which makes people more geographically mobile and less fixated on property as an investment
* The growth and development of compact walkable communities where people live and work in a flexible way
* Cities with levels of density that are tolerable - that encourages interaction and forces them into the street to meet. Huge tower blocks cause isolation and make urban areas less productive and creative

He sees a shift where cities themselves may become the key economic organising unit rather than monolithic corporations who match people into jobs. Successful cities create human capital externalities focusing on creative industries where the value-added of production is higher.

Little is said in the programme about the chasm in income and wealth inequalities within society and within many of the great urban areas of the world. But Florida does call for a living wage fir the millions of people in basic service jobs in cities. Service workers need to be paid a just wage because cities depend on them.

This was a fascinating discussion - for many years Peter Day has managed to tease out of his interviews some revealing insights from experts, commentators, entrepreneurs who see things a little differently in a world of change.

I have linked below to a recent talk on his new book by Richard Florida for those who want to explore a little more.