Three principles for building a resilient economy for a decade of national renewal
19 December 2024
6 minute read
Even as we've heard fewer mentions of "securonomics" from the government since taking office, it's clear that the sentiments behind it remain more important than ever - and that next year's Industrial Strategy White Paper will have to set out plans for resilience as well as growth.
The world has been getting more, not less, uncertain - even since the Budget at the end of October. We saw a further rise in geopolitical tensions following the election of Donald Trump as president. We have seen expectations for inflation and interest rates rise even among neutral observers like the Bank of England and OBR as global risk - and UK borrowing - looks set to increase.
CPP has already published our response to the Industrial Strategy Green Paper, but with the consultation rightly focused on prospects for growth we wanted to set out a separate argument here on resilience.
Building an economically secure and resilient economy - one that is better placed to respond to or bounce back from economic change - will remain a non-negotiable for the government throughout this parliament, even if it never grabs the headlines.
But there is no “one size fits all” solution for resilience. Different places face different challenges. The renewed focus on industrial policy provides a powerful toolkit for promoting resilience, but any plan is only as effective as the people and institutions that implement it.
The path to resilience requires strategic thinking. As Labour maps out the future, here are three principles to consider in building an economy that can withstand whatever the world throws at it.
Industrial strategy needs to take centre stage if we want to make our regional economies more resilient. Places that focus on a narrow range of industries can experience rapid growth, but this specialisation brings significant risks. In contrast, economic diversification offers a more robust defence against disruptions. During the global financial crisis, cities with a mix of traditional sectors and cutting-edge "knowledge industries" weathered the storm much better because when one sector stumbled, others held the line.
But resilience isn’t just about having a variety of industries; it’s about how they work together. ‘Modularity’—where sectors operate independently—can stop a crisis in one area from sinking the whole economy. San Francisco's tech sector, for example, often acts like an economic lifeboat, keeping the city afloat during broader downturns.
Then there’s ‘related variety’, where different but complementary industries coexist and fuel innovation. Germany’s automotive industry is a great example, tied closely to advanced materials and electronics. These connections drive innovation and make quick pivots possible when times get tough. But here’s the catch: interconnectedness can also spread trouble, as seen when COVID-19 disrupted Germany’s car and electronics industries in one fell swoop.
The key is finding the sweet spot between modularity and related variety. Singapore as a city-state does this brilliantly, creating strategic clusters that connect finance, tech, and logistics, while still keeping enough independence to protect each sector from external shocks.
Achieving this balance isn’t something that just happens; it requires a proactive, strategic industrial policy and it needs to respond to different local opportunities and challenges. Policymakers need to craft economic blueprints that don’t just talk about resilience but actively build it, weaving in the right mix of diversity and connection.
A resilient economy isn't just about good strategies—it's about having governance that can adapt and learn in real-time. In an unpredictable world, where crises can upend everything overnight, the ability of our institutions to adjust quickly is crucial.
For governance to be truly adaptive, our institutions—whether local councils or national bodies—must be stable, flexible, and well-funded. They need to offer a reliable framework people can trust while being ready to change course when new challenges emerge.
Decentralisation plays a vital role here. When local authorities have the power to make decisions, they can respond faster and tailor their actions to their community's needs. Greater Manchester’s strong job recovery after the 2008 financial crisis, driven by its devolution agenda, shows the power of local governance compared to areas lacking such autonomy. Evidence from around the world underscores the same point: strong local governance is crucial for economic resilience.
While the broader debate on devolution has its pros and cons, one thing is clear: the government needs to reverse austerity measures that have left local councils underfunded and unable to respond effectively to crises. Strengthening their capacity to act is essential for building resilient local economies.
The UK's regions respond to economic shocks in varying ways, with their ability to recover closely tied to local factors. While some areas rebound quickly, others face prolonged challenges, highlighting the vital role that place plays in shaping resilience.
Cities like London and regions in the South East have consistently demonstrated stronger resilience, as seen during both the 2008 financial crisis and the COVID-19 pandemic. Cities such as Cambridge and Oxford adapted more swiftly, benefiting from their economic structures and local assets.
Place matters because it represents a blend of factors that influence how a region responds to disruptions, including economic diversity, workforce skills, and demographic composition. Regions with more diversified industries, stronger infrastructure, higher skill levels, and younger populations are typically more resilient. However, these advantages are not shared equally across all areas. Recognising and understanding these place-based differences is crucial to developing strategies that ensure all places are better equipped to withstand future economic disruptions.
As the UK aims to jumpstart economic growth, it’s crucial that policymakers recognise the nation’s competitiveness hinges on the ability of all places and people to innovate, thrive, and build economic resilience. The challenges ahead are significant, but they also present Labour with a unique opportunity to reshape the economy by embedding resilience into governance, industry, and local development. This isn't just about surviving the next storm—it's about turning uncertainty into opportunity.