Why Britpop matters more than British Steel

Deep economic trends are creating the possibility of an urban renaissance. We stand at the threshold of a new era of city brilliance

At last, our cities are starting to get the recognition they deserve. London and a few others will get an elected mayor - not much of a gesture towards the importance of one of the great powerhouses of the world economy, but a start.

The overcentralisation of government means that Britain has far fewer cities than most other countries of the same size. The great, fat toad of Whitehall bureaucracy, whose powers grew even more bloated during the Conservative years even as it spat out surplus civil servants, inhibited the vigour of urban centres outside London and kept the capital itself from realising its full potential.

Now, though, there is a great opportunity for political decentralisation to coincide with deep economic trends in opening up the possibility of an urban renaissance. We stand at the threshold of a new era of city brilliance for the first time since the end of last century, when the very names of London, Liverpool and Glasgow conjured up images of glamour, wealth, excitement and exoticism.

Economic growth has always been essentially urban. The national romantic obsession with the countryside obscures this truth, but the country is a parasite on urban wealth. About four-fifths of us live and work in cities and suburbs. And the number of cranes on the metropolitan skyline is probably one of the best indicators of the nation's economic growth.

The reason for fresh optimism is the slow but enormous impact of new computer and communications technologies on the economy. On the face of it there is a paradox here. Why should particular places become more important at a time when you might think the new technology is making location irrelevant? After all, there are tales ad nauseam about happy telecommuters working from their country cottages. What's more, modern telecommunications are allowing big companies to relocate staff away from expensive cities to cheaper small towns.

But this modern myth of rural renewal assumes that telecommunications and computers are only a substitute for face-to-face contact. In fact, they complement it and make it easier. The Internet makes it possible for two people on opposite sides of the planet to make each other's acquaintance. And what do they do? They visit each other for holidays and they even get married. They would not have known of each other's existence without new technology, and here they are choosing curtains together.

And, after all, the icon of the computer industry, Silicon Valley, is all in one place. Silicon Valley has the easiest access to the latest and best in information technology, yet its computer nerds all hang out together near LA rather than dispersing with laptop and modem to the world's best beaches. As Edward Glaeser, a professor at Harvard University, puts it: "This agglomeration probably occurs because the industry relies so heavily on interactions and has so much knowledge to be transferred across firms and individuals."

At the same time, the cutting-edge industries in modern economies are making personal interaction more and more valuable. The bits of modern economies that are expanding the fastest and producing the most wealth - as Tony Blair recognised with his Number 10 party guest list - include the bits many people still see as frivolous. Financial services, accountancy and the like are important, certainly, and we have a national advantage in those. But so are movies, music, multimedia, fashion, design, software and video games - anything involving creativity. These are the engines of our future wealth and prosperity. Creativity thrives on other people, on the exchange of ideas, on the buzz at parties, on fads and fashions.

It can be hard to get across the point that Britpop is more important for the future of our economy than British Steel. Old-fashioned manufacturing exercises a tyranny over the national imagination and is probably fated to arouse more passion than its actual importance warrants.

The fact remains that the really important industries of the future, which all depend on new technology for their creation and distribution, will make people congregate in the big cities more than ever. The pubs of Soho, the clubs of Manchester, will be the equivalent of the dockside taverns in London and Glasgow a century ago. They will be places where the new wealth-creators, like their merchant forbears, go to gossip, exchange ideas or find new jobs.

The economic revival of cities will launch a virtuous circle, too. The presence of people - especially if they are making a lot of money - creates a demand for more and more people to provide services, whether retailing and restaurants or cleaners and security guards. There are clear signs of this in London. The fastest-growing areas of employment during the current boom have been in precisely these areas. There are staff shortages in central London, unsatisfied even by the constant inflow of young foreigners.

The new economy is going to be more urban than ever, and we are lucky in Britain to have centres of creativity such as London and Manchester, Oxford and Cambridge for science, software and education, and - with luck - Edinburgh as well which could join the premier league once it gets its parliament. But past centralisation means the UK has too few cities.

In most developed countries there is a rule of thumb that the number of cities with a population above a certain size is proportionate to the population level. Thus although the US has nine cities with above four million inhabitants, it also has 20 with more than two million, and 40 cities with more than a million. This pattern is repeated in Germany, Italy and Japan. The UK, in fact, is one of only two for which the rule breaks down. France, overshadowed by Paris and its serried ranks of technocrats, is the other.

Allowing London and a few other big cities to elect their own mayor is only a start. With any luck, it is a symbol of the Government's honourable intention to devolve power. For local politicians will have a better idea of what their thriving local industries need than Whitehall bureaucrats lunching with lobbyists for the big manufacturers before heading home on the 19.45 to Esher.