A gear change for growth
Devolving industrial policy to help local economies thrive
10 December 2020
3 minute read
Locally led industrial policy should be central to the levelling up agenda. This paper develops an innovative methodology for identifying where and what should be the basis of intervention, taking into account the existing strengths and assets of places. The analysis highlights sectors in generally low productivity areas which have the potential for rapid productivity growth by proposing a set of selection criteria, learning from what has worked in other countries and past UK programmes.
The analysis looks at local authorities in the bottom third in terms of productivity. Measured as GVA per job filled, this is used as a proxy for areas in most need of levelling up. The criteria for selecting high potential sectors within these places are the following:
- High potential sectors must have above average productivity, measured in terms of output per hour. Due to data limitations, this is determined at the national level.
- Sector GVA must have grown more quickly than the national average over the past 5 years. The logic behind this approach is that existing growth is a decent proxy for future potential growth, with the hope that a snowball effect can accelerate the process.
- Sector must be of a reasonable size. This is to filter out sectors too small to make a meaningful impact. The minimum threshold is set at 5% of local GVA.
- Sector’s size relative to the local economy must be growing. This is measured by positive growth in the sector’s share of local GVA in the past five years.
- Sector share of employment must be within 15 percentage points of sector share of GVA. This is to exclude sectors which have high levels of GVA but low levels of employment and thus limited ability to provide broad-based benefits.
Map of place-based productivity potential across the UK
In the past, place-based approaches to industrial policy in the UK have required local areas to bid for funding from centrally controlled pots. The result has typically been for investment to be driven not by local knowledge and specialisation, but according to centrally determined priorities. Such an approach has largely failed to level up the country and the over-centralisation of political and economic power is holding the country back.
This paper outlines a new way of doing industrial policy, one which contributes to broader economic and social goals set by local leaders. It advocates targeting the broad sectors where local areas already have a competitive advantage domestically, which could be nurtured to support the levelling up of their areas. The approach reconciles the trade-off between the need to give both local leaders more control over their economies and central government assurance that public money is being systematically well spent.