BU's Emeritus Professor Nigel Jump writes the next in a series of economic blogs looking at the impact of Covid-19 on the economy.
In the period ahead, the government seems to suggest its main pillar of UK regional economic policy will be the (recently released) “Levelling Up White Paper” (LU). This document aims to spread opportunity more widely across the spatial economy by focussing on ‘better’ and ‘more’ investment in physical, human, intangible, financial, social and institutional forms of capital beyond the Greater South East (GSE). It includes ambitious targets for devolving power and money, (although there is little if any new funding yet on show) and it identifies twelve policy missions to be met by 2030.
The LU document is heavy on rationale and expectations. It hopes to improve broadband and transport, education and health, immigration and police, boosting basic wages and pushing City growth deals and freeports through a range of diverse funding labels: Towns Fund, Culture Recovery Fund, Levelling Up Fund, Shared Prosperity Fund et al. It talks of a green transformation and moving civil service functions out of the GSE – nothing less than a “new industrial revolution” that combines private productivity, public service, community pride and local empowerment to produce a more equal and resilient economy. It discusses the unlocking of a ‘wave’ of socio-economic potential. Who can argue with the ambition here?
UK geographical disparities are amongst the widest in the developed world, within and between areas of activity and living. These gaps have been driven by many years of global and national dynamics that have helped and hindered different areas of the country in relation to the changing location patterns of old (heavy industry) and new (finance and high technology) sectors, and of educational achievement. It also reflects inconsistent and disrupted policy making on spatial development over the years, which has largely failed to anchor incentives, information and institutions. The White Paper argues that we need a new virtuous circle of capital investment such that the sum of the parts is worth much more productive and social benefit than those parts offer individually.
The panoply of capital investment where more is required is described as:
- Physical capital – infrastructure, machines and housing.
- Human capital – the skills, health and experience of the workforce.
- Intangible capital – innovation, ideas and patents.
- Financial capital – resources supporting the financing of companies.
- Social capital – the strength of communities, relationships and trust.
- Institutional capital – local leadership, capacity and capability
Again, who can argue with that list of capacity and capability areas to improve for the benefit of any local economy?
The twelve missions set for 2030 are very wide ranging – (do look at the White Paper if you want to appreciate the whole gamut of stated ambition). The key thing, however, is that there is a lot of intention without much imminent action. We are told to wait for more detail to emerge as the new “LU Advisory Council” co-ordinates all of Whitehall to the new approach. Only then might an assessment of potential opportunity and impact for our local patch be achieved. It will be important, however, for those engaged in development in Dorset and its hinterland to get ahead of the game: identify, plan, lobby, and grasp the chances and changes that start to emerge.
Whatever the wrapper you put around it – (development agencies, economic partnerships, mayoral authorities, devolved government etc), regional economic development is about adding real value, whilst spreading fairness and opportunity. It is about incentivising investment, restoring resilience and providing potential. As in Germany after the Second World War, or China after the cultural revolution, it is about a combined national and local effort by government, business and people to raise productivity. This means action to improve the usual levers for optimal resource reallocation: investment, innovation, skills, entrepreneurship and competitiveness.
The latest “LU” wrapper for regional development needs to be a driver of new engagement for a greener and more prosperous future. The frameworks and labels may change but the game is the same. If LU is to have any success, it needs good (active and ambitious) leaders who can inspire business and others to join the task. The danger, in our currently divided and dysfunctional polity, is that ‘missions’ get lost, as they have so many times in the last 70+ years, in a quagmire of waste and partisanship.
With hindsight and experience, I remain uncertain about the UK’s long-term regional prospects. Hopefully, however, those with the vigour of relative youth, who will be emerging to “run” the country and its economy for the 2020s/2030s, can create a new environment for regional economic development that positively transforms relative economic performance for the mid 21st century. LU has to be more than a new wrapper for regional economic development. It has to be a long-term but practical tool for raising standards and potential.
Meanwhile, the regional economy pootles along with evidence for January of buoyant demand and constrained supply across southern England. Demand for workers was high and, with order backlogs rising, costs climbed. With inflation at 5.5% (CPI) in the year to January, the recent rise in base interest rates to 0.5% is only the second of a new trend which might eventually see official rates moving back towards 2% and a switch from Quantitative Easing (QE) to Quantitative Tightening (QT). In output terms, the economy is just below where it was before the pandemic (softened by Omicron measures over the winter) and the unemployment rate is low at 4.1% (end of 2021). The “sugar high” of excess monetary growth and debt persists in raising the demand side and exaggerating supply shortages.
At some point, however, the underlying reality of subdued real earnings and uncertain business returns will show through. Writing this on the day that Russia invades Ukraine, with all that might mean for food and energy commodities, share prices and inflation, the danger is that a raft of short-term concerns is threatening the recovery from the worst of the pandemic’s effects on the global economy.