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Innovating to Level Up – devolve, devolve, devolve


Innovating to Level Up – devolve, devolve, devolve

Towns had their moment in the sun...

I remember the day I stumbled across the announcement of the launch of the Centre for Towns on Twitter. I couldn’t contain my excitement. 

Having grown up in Stoke-on-Trent – the city that is a collection of towns, captured most famously in the works of Arnold Bennett – it immediately struck a chord with me. And I wasn’t the only one: suddenly people were talking about towns, buses, communities, and decentralisation. When Boris Johnson coined the term “levelling up”, it seemed like the case had been accepted – we could look forward to a serious attempt to address geographic imbalances across the UK, putting the top down, centrally-controlled powerhouses and engines to bed.

How wrong I was! I had got ahead of myself. Almost overnight, we went from a relatively small number of people working hard to identify how to create lasting change everywhere in the country to a free-for-all. Every day, commentators, academics and think-tankers, who had previously scorned attempts at geographic change, came forward with new solutions. What was striking was how confident the newly converted rebalancers were. Not for them, the doubt of the people who had been working in the field for a long time. The answers were seemingly obvious and had been hidden in plain sight. 

Sadly it wasn't that easy. As we examined the new solutions, it quickly became clear that we were not living in an unprecedented time of innovation in economic policy-making, rather one of repackaging. The strapline “levelling up” had created an opportunity for the policy community to have another push at having their favourite ideas adopted by repositioning them as solutions to create greater geographic balance. 

It was kitchen-sink economics: more infrastructure; increased spending on R&D; skills; planning reform; deregulation; and much more. Unsurprisingly, confusion reigned and very little progress was made.

...before the cities fought back.

Prior to the emergence of the towns’ agenda, economic development over at least the last decade had been dominated by the pursuit of agglomeration – the belief that facilitating the grouping of large numbers of people in dense urban areas was the way to generate innovation and growth (the last Labour Government had used a regionally-led approach but this was abandoned by David Cameron in favour of “city regions” and “city deals”). For a time, the focus on towns challenged the accepted wisdom and the discussion turned to considering alternative approaches. Cities had to take a backseat.

After a period in the shadows, the cities started to fight back. They were successful. Michael Gove’s White Paper set out an ambition to create a ‘globally competitive city” in every region of the UK; the Centre for Cities argued that successful towns are those dependent on successful cities; and the Resolution Foundation placed cities and high-value services at the centre of their levelling up proposals, floating the idea of increasing Manchester’s working population by 300,000.

This cheerleading for agglomeration not only skipped over the failure of the last decade and more’s attempts at rebalancing to make any significant dent in geographic inequality, but also ignored other challenges such as:

  • The shift to home working during Covid increasing the profitability of the UK’s leading professional and business services firms even though there was less agglomeration: any loss of effectiveness being outweighed by cost savings from travel and property;
  • Claims of young recruits losing out from less in-person contact failing to address either how to deal with the demand for flexibility becoming an ever more important factor in recruiting, or the preferences of the YouTube and TikTok generations for video-based learning and interaction;
  • Dealing with the environmental impact of more and more commuting, an inevitable consequence of larger cities and an issue of huge importance to employers and employees – sustainability was the number one theme shaping investment identified by investors responding to EY’s 2022 UK Attractiveness Survey.

I found the case for “globally competitive cities” the most bemusing. What is a globally competitive city? And how many are there? In a decade leading EY's FDI research mentioned above, London was the only UK city investors saw as a global city. One or two UK cities featured occasionally in the rankings, but never at a scale to suggest European leadership never mind global. The UK wasn’t alone; very few European cities made the global list. It really is a meaningless basis on which to base policy.

It’s about places, not cities or towns...

In fact, so entrenched is the belief in agglomeration as the route to geographic rebalancing, its proponents often miss the wood for the trees. The Resolution Foundation research referenced above identifies the 10 most productive areas of the UK, noting the relatively high levels of capital per job in these places. While this is true, a little further digging may have opened up other explanations for the higher productivity. 

The presence of London and Edinburgh in the list, the UK and Scottish capitals with strong financial services, technology and university sectors, is no surprise and tells us very little. Similarly, links to the offshore oil industry account for Aberdeen’s presence in the list. However, the other seven places tell an interesting story.

  • Swindon’s strong performance reflects to a significant extent the presence of the Nationwide Building Society, Honda (at the time of the analysis, 2019) at the centre of a manufacturing base generating twice the UK average share of local output, and utility companies;
  • Luton benefits from its airport (transport accounts for almost three times a greater share of local output than the UK average), proximity to London which boosts its relatively large back-office sector, and manufacturing, reflecting its legacy skill base;
  • The two major sources of high GVA per job in Milton Keynes are the wholesale and motor vehicle sectors (the area has a number of head offices and distribution centres) and financial services, allowing the area to achieve high productivity despite its professional services’ sector being less productive than the national average (there is also a question as to how robust the data is to draw conclusions on local productivity – the presence of HQs appears to produce significant uplifts in productivity);
  • North Hampshire’s strong performance is based around specific strengths in aerospace and technology in Farnborough, technology, reflecting the IBM legacy in Basingstoke, and the military in Aldershot, together with its proximity to other strong local economies and commuting to London;
  • Coventry’s productivity is based around the motor industry, centred around Jaguar Land Rover, and HQs from selected sectors such as utilities;
  • Grangemouth’s oil and chemicals activities underpin Falkirk’s strong productivity;
  • and Central Bedfordshire is a place that benefits from agglomeration effects due to its proximity to Luton and Milton Keynes among others.

Rather than the headline focus on capital as the driver of productivity, a deeper investigation would have confirmed how multi-dimensional productivity and geographic economic activity are. Agglomeration helps some places, commuting benefits others, but the presence of a strong local capability, such as manufacturing; the presence of leading, large employers, like Volkswagen; infrastructure, for example an airport; and proximity to a facility of the scale as of Grangemouth can all positively influence local performance.

We shouldn’t be surprised. As work by Mealy and Coyle demonstrated, places are unique, even neighbouring economies can have very different characteristics. The implication is clear: economic development must be designed and owned locally, based upon an assessment of the market opportunities, local capabilities, and the available interventions for a specific place.

...and business...

As well as demonstrating the importance of place, the analysis of the 10 most productive UK places demonstrates how significantly business influences local economic performance. Locations with a sector strength or a flagship employer or a major facility perform strongly. Too much of the levelling up debate has focused on policy solutions rather than seeking to identify how business can help drive change. 

In some ways a geographic blind spot on business is understandable. Over the last four decades, with financialisation dominating the strategic investor agenda, corporate initiatives designed to boost earnings and cash flow such as offshoring, outsourcing, supply chain rationalisation and tax minimisation have weakened the relationship between business and place. No longer do towns and cities produce large amounts of what they consume, increasingly they are dependent on other places for many goods and services, and at best have a position in extended, global value chains in some sectors. 

In Stoke-on-Trent, over the last three to four decades, the well-known decline in the ceramics sector has been accompanied by declines in food production and other supporting sectors such as packaging, with producers locating elsewhere (either in the UK or abroad) in search of economics of scale and scope. There has been partial compensation from growth in employment in storage and distribution, albeit at lower levels of pay and seniority. However, this shift to distribution from production has reduced the demand for high-end services. As a result, the city has also seen its position decline in relative terms in fast-growing service sectors such as accounting and law. In both sectors, the number of professionals has fallen locally despite rapid growth nationally.

Yet at the same time, the organic emergence of a creative digital sector has created a new source of higher value added growth, inducing one of the UK's largest advertising agencies, VCCP, to open a creative office in the city. If we use the ONS’s analysis of local productivity, albeit experimental, Stoke-on-Trent is around the top 10 per cent of UK locations for IT sector productivity.

...meaning we have an opportunity...

Deglobalisation and Covid have increased the awareness of the risks associated with outsourcing, offshoring, global supply chains and the reduced link between business and place. With these shifts coming at a time businesses are increasingly aware of their wider economic and social responsibilities, for the first time in decades, we have the opportunity to engage businesses meaningfully in the economic rebalancing debate.

What does the above discussion mean for national policy? More than anything else, we shouldn’t overstate the role of top down, centrally-driven solutions – levelling up needs to start locally. As the failure of recent policy moves has illustrated, the first thing national policy should do is encourage investment and build consumer, corporate and investor confidence.

Having done this, national policymakers should be looking to cede power, responsibility and resources to local areas wherever possible. For this to be effective, a supporting framework for the aggregation of local activity is required to ensure consistency, enable us to capture synergies, and to identify the requirements for support functions and shared activity (such as transport, health and education) to be run at higher levels of geography. 

This might be a collection of local authorities, a regional grouping or other, potentially varying by sector. All the while recognising the aim to have decisions made as close to the place and people they impact as possible. empower communities.

We need to be brave and push as far as we can, supporting activity at ever greater levels of disaggregation. Over the last few years, I have seen at first-hand community-led initiatives making a real difference for people. Football clubs, arts organisations, etc. 

More recently, having accepted the role of Chair of the Labour Party's Commission on Community Ownership, I have seen the energy, commitment and success of organisations and communities working at all levels of society: building new housing, creating community hubs and launching now social enterprises. 

If we want to level up, we will need to innovate. This means we will have to take risks to succeed and policymakers in Whitehall and towns and cities will need to let go and empower and enable others to deliver. 

Local doesn’t have to mean local authority: we should be willing to invest time and resources and devolve power to allow communities to shape, improve and manage their lives and places.

Mark Gregory is Visiting Professor of Business Economics at Staffordshire University. Mark was a panellist on the ‘Innovation in the Regeneration of Towns’ panel discussion at the IED Annual Conference 2022.