Written evidence submitted by Dr Elvira Uyarra, Reader, Manchester Institute of Innovation Research, AMBS, the University of Manchester (RDE0026)

 

 

Executive summary

  1. The UK is, by far, the country with the highest income inequality in the EU and one of the most unequal in the developed world, with a huge and widening gap between London and its hinterland and the rest of the UK.

 

  1. Structural weaknesses of the UK economy, especially stagnant productivity and wage growth, have been linked to the excessive territorial concentration of economic activity and investment in R&D and innovation in a small number of sectors and regions at the expense of the UK economy as a whole.

 

  1. Despite much talk about local strategies, the Government’s industrial strategy process has so far largely lacked a place-based orientation.

 

  1. The focus on increasing R&D is unlikely to lead to a structural transformation of the national economy without also paying attention to the uneven distribution of R&D and on the diffusion and adoption of innovation.

 

  1. The gap between richer and poorer communities is likely to widen in the long run.

 

  1. Since the financial crisis, cohesion policies have been more goal oriented, promoting “smart, sustainable and inclusive growth” and regions have been steered towards adopting a smart specialisation approach, which requires an exercise in prioritising certain areas (domains) of investment, before they can receive any funding.

 

Introduction

  1. I am a Reader in innovation policy and management at the Alliance Manchester Business School and Director of the Manchester Institute of Innovation Research.
  2. I teach and research on innovation policy and regional economic development.
  3. I am interested in place-based policies, including smart specialisation and local industrial strategies.

 

To what extent can regional imbalances explain the UK’s poor productivity performance?

 

  1. The UK is, by far, the country with the highest income inequality in the EU and one of the most unequal in the developed world, with a huge and widening gap between London and its hinterland and the rest of the UK. Productivity and R&D spending is highly concentrated in London and the South East, whereas other industrial economies such as Germany have multiple productivity hubs.
  2. The structural weaknesses of the UK economy, especially stagnant productivity and wage growth, have been linked to the excessive territorial concentration of economic activity and investment in R&D and innovation in a small number of sectors and regions at the expense of the UK economy as a whole.
  3. The UK system of governance has proven to be ill-suited to respond to these interregional problems, and has arguably contributed to exacerbate them (McCann, 2016). This system has been, inter alia, characterised by:
    1. a strong centralisation and a culture of conditional localism, whereby decentralisation is conditional on local actors buying into national policy objectives;
    2. the organisation of Whitehall ministries according to function or topic with no holistic overview of how different problems and policies come together to affect specific places;
    3. the short-termism of policy cycles;
    4. lack of institutional memory and stability of policy initiatives, the dominance of a national economic framework that is largely a-spatial, and an undue influence of London in policy and resource allocation (Bailey et al, 2015; Heseltine, 2012).

 

 

How effective have regional bodies been in promoting strong growth across all areas of the UK?

 

  1. Regional policy in the UK has been characterised by lack of stability in terms of funding, priorities and organisational structures, which have in the last two decades included government offices, regional assemblies, regional development agencies and currently, local enterprise partnerships (LEPs).
  2. Until their closure in 2012, RDAs were responsible for regeneration, regional competitiveness, inward regional investment and the development of skills in England.
  3. When RDAs were disbanded many policy levers previously available at the regional level in England were either removed or rescaled upwards to the national level (e.g. inward investment, sector policy, cluster policy, European policy) while some regeneration/economic development functions transitioned to the LEPs.
  4. The disappearance of RDAs and related arm's length organisations left a “missing middle” in delivering government innovation support (Uyarra et al., 2016). Their disappearance has meant a loss of sectoral knowledge and capacity for innovation support implementation in the regions. Local engagement of innovation funding bodies is patchy. Bodies such as the Catapult centres or the now disbanded Smart Specialisation Hub recognise the difficulties of engaging with all the LEPs for the delivery of their support activities.
  5. LEPs are locally led, voluntary partnerships between local authorities and businesses, overseen by the government via BEIS. The ability of the LEPs to respond to the economic challenges tasked with have been questioned given their limited resources and capacity for implementation, and their small scale and overlapping administrative boundaries. Most LEPs do not operate at a geographical scale that is appropriate for the devolved governance of regional and industrial policy.
  6. A recent Commons select committee inquiry into the local enterprise partnerships revealed that LEPs have underspent their Local Growth Fund allocations by over £1.1 billion in the three years to the end of 2017-18. The expected match funding from the private sector and additional private sector investment have also not materialised as expected. Overall, this raised questions as to whether funding is going to areas with the greatest need and whether LEPS are making the best use of public money and contributing to the objective of local growth. It also raises issues about their capacity to manage a future shared prosperity fund replacing the European Union structural and investment funds (ESIF), including their gathering of data and evaluation.

 

 

What lessons can be learnt from the success or otherwise of programs designed to promote regional economic growth so far?  What are the future interventions that the UK should consider?

 

 

  1. The UK is one of the most highly centralised states in the OECD. Except for Scotland and Wales, which benefit from greater devolution, industrial and regional policies in England have been ill-resourced and short lived, characterised by constantly changing priorities, and driven by political expediency and a sort of ‘reinvention’ malaise rather than evidence (Norris and Adam, 2017). Lack of continuity and constantly changing policies and governance structures has generated unnecessary complexity and reduced effectiveness (Uyarra et al, 2016).
  2. Despite much talk about local strategies, the Government’s industrial strategy process has so far largely lacked a place-based orientation. The recent enthusiasm about the entrepreneurial role of the government (Mazzucato, 2015) does not sufficiently acknowledge the differing needs and capabilities of UK regions (Bowman et al, 2015). The ‘challenge orientation’ of the UK Industrial Strategy has more to do with technological and sectoral priorities than with societal challenges affecting real communities (ageing apart) – i.e. it is a more traditional Industrial Strategy than the discussion about challenges suggests.
  3. The current focus on increasing UK R&D intensity (R&D spending as a % of GDP) is unlikely to lead to a structural transformation of the national economy without significant attention to the uneven distribution of R&D and especially to the diffusion and adoption of innovations (which themselves often require R&D investment). Innovation needs to be understood alongside the challenges linked to its processes of adoption and diffusion. This implies that an important goal of innovation policy should be to help upgrade those capabilities of innovation users (in business and society) (Marzocchi et al., 2018).
  4. Demand-side policies, and the potential of using public procurement not just at national but local level are also neglected. Public procurement - worth £270bn a year of goods, works and services in the UK (HM Government, 2017) - is a major influence on the private sector productivity and innovation (Georghiou et al, 2014; Uyarra and Flanagan, 2010). The public sector not only is a major customer for goods and services from the private sector and a potentially key shaper of innovation through regulation. In a recent paper (Uyarra et al, 2017) we argue that public procurement can add value to place-based economic development, particularly when used to address well-defined local needs, or where local strengths in the knowledge base exist that could be used to address local and potentially global solutions.
  5. Furthermore, too much attention is paid to high-tech ‘frontier’ sectors relative to their current or likely future scale, neglecting the more mundane, lower-tech sectors that account for much employment – and potential employment – in lagging regions. UK innovation and industrial policy thinking remains preoccupied with the idea that commercialisation of science and technology discoveries as the key potential driver of innovation-driven economic development. This kind of thinking may be appropriate for some areas of manufacturing but typically far less relevant for the services sectors that make up the vast majority of the UK economy.
  6. Finally, too little attention has been paid to institution and capacity building at regional scale required to make a local industrial strategy work (for instance devolved governance structures, fiscal devolution, regional banks).
  7. The gap between richer and poorer communities is likely to widen in the long run, even more so when we consider that poorer regions may no longer have access to the financial transfers from the ESIF, which for decades have worked to alleviate social and economic inequalities in the UK and other parts of the EU.
  8. Even more importantly than the amount of the resources mobilised, EU Cohesion Policy provided UK regions with a clear framework for long-term development funding. Co-financing requirements and multi-annual programming provided stability and predictability of regional funding in England. The principles of partnership and concentration required that development plans were drawn up in collaboration between local and central government and the EU, and provided a set of clear priorities on which to focus spending.
  9. It remains unclear what shape the Shared Prosperity Fund announced by the government to replace these funds will take, how it will be organised and how it will be linked to the Industrial Strategy – if indeed this latter policy survives the change of Prime Minister.

 

 

How are national policy makers and policy makers at the local level (such as local authorities or local economic partnerships) currently using the available regional economic data to inform their policy decisions and could the application and use of regional economic data be improved?

 

  1. A first question is the adequacy of existing data for policy delivery at the local level. Many efforts to improve statistics for regional policy making have been short-lived. The 2003 Allsopp review of Statistics for Economic Policymaking focused on the question of whether the changing economic structure of the UK is being properly reflected in the nature, frequency and timeliness of official economic statistics. It made recommendations for improved National and Regional Accounts, and for a statistical system that reflects the balance of the economy and that is not skewed towards particular sectors
  2. As a result of the Allsopp review the ONS regional office was created, which was closed down in 2011. Its recommendations of improved regional GVA statistics have taken a long time to implement.
  3. A second question is the capacity to adequately interpret and use this data at the local level. This is hampered by a shortage of staff with planning and analytical skills necessary to manage/evaluate policies as a result of reductions in local government funding and the tendency to outsource policy analysis and evaluation to third parties.
  4. A third question is the poor institutional and organisational memory afflicting government departments in general that result from the tendency to frequently change economic development institutions and priorities. As a result of this, evidence is lacking about which policies and reforms have been introduced/have worked in the past.

 

August 2019

 


References

 

Allsopp, C. (2004). Review of Statistics for Economic Policy-Making, London: HM Treasury.

 

Bailey, D., Hildreth, P., & De Propris, L. (2015). Mind the gap! What might a place-based industrial and regional policy look like. New Perspectives on Industrial Policy for a Modern Britain, 287-308.

 

Bowman, A., Froud, J., Johal, S., Leaver, A. and Williams, K. (2015) ‘Reframing industrial policy’ in Bailey, D., Cowling, K. and Tomlinson, P (eds) New Perspectives on Industrial Policy for a Modern Britain. Oxford: Oxford University Press, pp.60-78.

 

Georghiou, L., Edler, J., Uyarra, E. and Yeow, J. (2014) ‘Policy instruments for public procurement of innovation: choice, design and assessment’ Technological Forecasting & Social Change. Volume 86, 1–12

 

Heseltine, M. (2016). No stone unturned: In pursuit of growth. Independent report.

HM Government, (2017). Industrial Strategy: Building a Britain fit for the future, White Paper https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/664563/industrial-strategy-white-paper-web-ready-version.pdf

 

Norris, E. and  Adam, R. (2017) All change. Why Britain is so prone to policy reinvention, and what can be done about it. Institute for Government, London.

 

Mazzucato, M. (2015). The entrepreneurial state: Debunking public vs. private sector myths. Anthem Press.

 

Marzocchi, C. Uyarra, E. and Flanagan, K. (2019) Understanding Innovation and Innovation Ecosystems. A technical report for the Greater Manchester Independent Prosperity Review. Greater Manchester Combined Authority, Manchester

 

McCann, P. (2016). The UK regional–national economic problem: Geography, globalisation and governance. London: Routledge.

 

Uyarra, E. and Flanagan, K. (2010) ‘Understanding the innovation impacts of public procurement’, European Planning Studies, 18(1), 123-145. 

 

Uyarra, E., Edler, J., Garcia-Estevez, J., Yeow, J. and Georghiou, L. (2014) ‘Understanding the importance and determinants of barriers for innovation through public procurement. Evidence from the UK’, Technovation, 34 (10), 631–645

 

Uyarra, E., Flanagan, K, Magro, E., Zabala-Iturriagagoitia (2017) “Anchoring the innovation impacts of public procurement to place” Environment and Planning C, 35 (5): 828-848

 

Uyarra, E., Shapira, P. and Harding, A. (2016) “UK policies for low carbon innovation and SME growth. A place-blind policy mix?”  Technological Forecasting & Social Change. 103 (2016): 264-272.