Levelling up regional disparities

Marianne Sensier:

Elvira and I have recently conducted research comparing the economic resilience of UK regions in recovery from the 2008 global financial crisis.

What is regional economic resilience? It is defined as the capacity of a regional economy to withstand, recover from and reorganise, in the face of market, competitive and environmental shocks.

The root cause of these shocks could be global, like the current coronavirus pandemic, national like the 1990s UK house price crash, or local like the closing of a factory in origin.

In the UK, we found that regional disparities have widened since the 2008 financial crisis, and these have been further aggravated by cuts to government spending. This has led the Conservative government to make levelling up investment across UK regions, one of its central electoral promises.

In our research, we create an economic resilience scorecard to rank UK regional resilience, and we find that the South East of England has been the most resilient region, with the North East and Yorkshire and Humberside the least resilient English regions, along with Northern Ireland.

The most resilient regions in recovery, have tended to be those with a workforce with higher than average levels of qualifications, and a larger share of managers and professionals.

The sub-regions that were least resilient to the financial crisis, should be targeted with more funding, and effort should be made to increase human resource capacity within these regions. We analysed the resilience of Greater Manchester and found that the city of Manchester was the most resilient district, particularly in the recovery of jobs since the crisis.

But peripheral towns like Bolton and Wigan, continue to suffer, so policies targeted at dense, conglomerations do not seem to have benefited surrounding areas. When we widen our analysis to examine indicators for societal well-being, Manchester ranks poorly for inclusive growth, particularly with poor health and life expectancy outcomes.

So, within Manchester, the proceeds of growth are not being shared equitably to improve life chances of its poorest citizens. Local industrial strategies are being introduced across England to improve productivity and create more inclusive growth, to benefit people and communities.

The challenge now is for localities to increase their resilience as they move into the recovery phase, when the public health dangers have receded.

Elvira Uyarra:

So what are the main implications of our research in terms of public policy?

Well, we know that the skill of the challenge involved in levelling up and recovering from the pandemic, is going to be huge, and it will require significant innovation efforts.

It will also require significant efforts in terms of party sector support for research and development. But these efforts are going to have to be a lot broader and a lot more ambitious than they have been previously for instance, to responding to the financial crisis in 2007.

So, they'll have to be broader in terms of the targets, focus, the goals the instruments, and also the geographies of intervention. So, to give you one example, the government interventions have mainly addressed or tried to promote investment in research, which of course is really important where we have tended to neglect the development and adoption side of technologies, if you like the D of R&D, and actually levelling up.

So it's likely to happen without significant attention to diffusion and adoption of innovations, and particularly by that kind of long-term of less productive firms in the economy.

Relating to this, the focus of policies have also tended to be narrowly centred on high-tech frontier sectors, neglecting the innovation potential of lower-tech sectors, service economy and the foundational economy that we have now found to be so important.

These sectors actually account for a big part of economic activity and employment in regions, so they're very important economically, but they're also very important sources and adopters of of innovation. So there's a lot of potential there. In terms of the instruments, public support for innovation in R&D has tended to narrowly rely on supply-side policy instruments such as R&D subsidies, tax incentives and neglecting other ways in which innovation can be supported.

For instance, the role of the government in driving the demand for innovation through public procurement. In my research, I have actually looked at how governments can play a role as lead users for new technologies as they develop, and therefore kind of demonstrating that they work and is an adoption and diffusion of those technologies.

So policies to take a broader approach, in terms of instruments, but also in terms of goals, rather than supporting innovation for innovation's sake, policies will steer investment towards particular key associated challenges, such as climate change for instance.

These challenges are not only important, but they also have the potential to create those same markets for new technologies. And if you look at the Net Zero agenda for instance, or the need for retrofitting of houses, they offer key opportunities for innovation and economic growth.

And finally, the last key point is that in order to make this all work, we also need to look at the geographical distribution of public investment, about public support for R&D innovation in UK regions, which is currently concentrated in a small number of locations and therefore, making the rest of the UK a lot less resilient to external shocks like we saw in relation to the financial crisis in our research, and we are likely to see that again now after the COVID crisis.

So that needs to be reversed, That's really an urgent need. So just to sum up, we need to be better, more ambitious in our approach to innovation support, moving away from narrow interventions that are all R and no D, that they are concentrated in a few places and sectors in the UK, and that employ a narrow set of tools, and to use a narrow set of goals as well.