Place-Based Industrial Policy: Six Lessons for the UK
JOE PECK, HUW SPENCER, SAMUEL THORPE, AND ANDY WESTWOOD
The UK government is on a mission to put place at the heart of its economic strategy. In the Spending Review, transport investments and ‘place-based’ revisions to the Treasury’s Green Book were notable wins for the North of England and the West Midlands. Last month’s Industrial Strategy White Paper redoubles this focus, identifying key clusters across the country and unveiling a series of initiatives and funds designed to support their growth.
Regional and industrial policies have had chequered histories in the UK, with long term policy and institutional instability, widening economic inequality between towns, cities and regions, and a general failure to ‘level up’. Nevertheless, our improved understanding of what works in place-based industrial policy, along with learning from recent initiatives in the US, should bolster the government in its efforts to tackle regional inequality and boost growth throughout the country.
Two new papers from The Productivity Institute highlight how the government can ensure place is at the heart of its industrial strategy, drawing on recent lessons from the United States and the United Kingdom. Place-based industrial policy will not amount to much if subnational government does not develop the capabilities needed for implementation on the ground. So, too, will these bodies need new powers to support the sectors in their regions with the greatest potential for growth.
The first paper, titled ‘Delivering successful place-based industrial policy’, draws on three detailed case studies from former President Biden’s recent place-based agenda, along with interviews with former federal officials, to examine what it takes to lay the groundwork for effective place-based industrial policy. The second, titled ‘What Capacity and Resources Do Mayors and Strategic Authorities Need to Deliver the Industrial Strategy?’, analyses the local capabilities and institutions necessary for industrial policy implementation in the UK, and discusses how combined authority governments can most effectively build them.
The conditions for successful policy are by no means homogenous on the ground. For example, Manchester, New Hampshire built on years of local and federal investments by winning a ‘Tech Hub’ award that would boost its efforts to commercialise bio-fabrication. In Binghamton, New York, which had seen the biggest fall in manufacturing employment in the state, an ‘NSF Engine’ programme looked to spark a renaissance in innovation-led growth through early-stage investments in battery technology. Meanwhile, Birmingham, Alabama, was awarded $20 million through the ‘Recompete’ Pilot Programme to counteract a longstanding history of disinvestment, racism and industrial pollution in the area through targeted investments that increased access to good jobs through childcare, micro-transit and workforce development. But despite their differences, these case studies share some important insights for the UK.
Overall, we find that those recent successes have been underpinned by a shared economic identity, civic leadership, strong local institutions with policymaking capacity, sustained partnerships between central and regional governments, and a strong pipeline of viable projects. Together, the two reports set out a series of areas in which national and regional governments in the UK, working effectively together, can maximise implementation of place-based industrial policy. Here are six of the most significant lessons.
First, regional industrial policy needs to be done at scale and over the long term. To do so requires targeted capacity-building and the active convening of the partners and institutions that can create and sustain growth. This must be an objective for both central government and its agencies as well as for local leaders and actors.
Second, creating good, well-supported jobs across the regions should be a clear goal of industrial strategy. The government should therefore consider where equity-focused industrial policy can play a role in tackling regional inequalities. This will necessarily entail horizontal polices – like investments in infrastructure, skills and business advice – as well as an enhanced sectoral approach. Creating good jobs is a clear path to higher, long-term productivity growth.
Third, local governments are best placed to understand their regions’ industrial strengths, and hence which firms have the potential to innovate and boost productivity growth. Innovation, for example, is often a localised process, centring around the exchange of ideas and skills between similar companies within an area. Subnational governments can build in-house research capacity to understand where these clusters exist and what kinds of infrastructure, workforce development, and other policy support they need to grow. As the implementation of industrial policy progresses, rigorous evaluation can identify its flaws and successes. These lessons can then feed back into the design of the strategy both locally and nationally.
Fourth, companies need the right people with the right skills in order to grow. In the UK, adult workforce development opportunities tend to be organised locally, where devolved administrations should design and institute workforce development programmes. However, these are poorly resourced and often too disconnected from other parts of the skills system – notably higher education and apprenticeships. Collaboration between subnational governments, employers, and training providers can further elucidate where skills gaps exist within local labour markets and lead to the development of more jointly-administered training and apprenticeship programmes, including at university level.
Fifth, subnational administrations should coordinate with and guide the private sector, with a focus on identifying obstacles to investment and productivity and jointly taking steps to remove them. Government interventions tend to be more cost-effective and foster higher levels of productivity when they are designed with a richer understanding of private-sector needs. Cooperation between the public and private sectors can maximise the sharing of information between the two (allowing each to identify economic opportunities within local areas), give firms the certainty they need to make larger investments, and avoid collective action problems.
Lastly, regional challenges in the US have demonstrated that there are advantages of a competitive process when it comes to once-in-a-generation place-based investments. And even for unsuccessful applicants, well-designed multi-stage processes can serve as an opportunity for improving local capacity and creating a basis for future investments and growth.
The Modern Industrial Strategy should boost the performance of the UK’s largest second-tier cities (such as Birmingham, Manchester, Leeds and Glasgow) by helping them build their infrastructure and institutional capacity. Prioritising higher skills and increased innovation in their key clusters can then drive productivity and wider regional and national growth. So, too, can competitions for allocating mainstream R&D, skills and capital funding, as well as new regional innovation and mission-based funds, serve the same ends.
With a revised ‘Green Book’, a series of supported ‘Industrial strategy zones’, new infrastructure commitments and a raft of additional funding mechanisms designed to boost regional productivity, the government’s intention to secure higher and better-distributed growth is clear. Now, central government departments and agencies must work with mayors and strategic authorities to make these things happen, in order to provide more good jobs and boost living standards throughout the country.
