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Beware false dawns in economic policy’s winter

A new landscape for economic development is emerging. But is the shrinking of the state resulting in new thinking? Clare Goff reports

Littering the north of England, incomplete office blocks and stalled housing development schemes await their fate. Reminders of the interventionist economic policies of governments past, they haunt the landscape like relics from another era.

Economic development is at a turning point in the UK. The economic landscape is being redrawn as regional development is dismantled in favour of local partnerships. Special funding that helped generate jobs and growth has come to a screeching halt, leaving many areas in limbo. Economic development teams within councils are struggling to justify their existence as budgets come under pressure.

Cracks in the corporate model are leading to the exploration of new ways of generating wealth, while the future of the traditional economic growth model is being questioned as the need for sustainability rises.

Are we at the dawn of a new era in economic development policy or witnessing its dying days?

The withdrawal of public funding is leading to greater atomisation of economic development functions, as well as greater collaboration. Clusters of small businesses, social enterprises and mutuals are forging new models for economic development and finding that there is strength in numbers; public/private sector partnerships are intensifying as the necessity of working together is heightened.

North East Lincolnshire Council last year outsourced all of its regeneration, planning and housing work to construction firm Balfour Beatty. A public/private partnership is now working on a ten-year plan for the area, including the physical redevelopment of the South Humber Bank, support for inward investment and new renewable energy businesses.

Michele Cusack, assistant executive director of regeneration at the council, sums up the situation many areas find themselves in.

‘We had six projects agreed and the funding rug was pulled,’ she says. ‘We needed to find a way to carry on funding and also to make sure that it’s focused on leveraging in more funding from the private sector.’

While a core strategic team remains at the council, as well as ‘softer’ projects related to worklessness and enterprise, the main economic development and regeneration function is now based at Balfour Beatty.

Ms Cusack says the team is now much more multifaceted than previously, with former council staff working on a wider range of projects and able to tap into the group expertise.

‘This is the way a council needs to be – more invisible. Councils are moving towards being strategic commissioners and enablers rather than deliverers,’ she says.

Do local authority attempts to make themselves ‘invisible’ go against the core public duty of making judgments and decisions on the future of local economies?

As councils strip themselves of non-statutory functions – including economic development – the difficulties of divestment around ‘place’ duties is coming to the fore.

The strong connection between ‘place’ and local economic development has hampered plans by neighbouring councils to share economic functions.

One attempt to share regeneration expertise – between Liverpool and Knowsley councils – unravelled just a few months after it was announced. The most ambitious sharing of services proposal – between Hammersmith and Fulham, Westminster and Kensington and Chelsea councils – will not include a shared planning function, planning being one of only four functions the councils have said they will not be sharing.

As economic boundaries shift and local geographies work more closely together through local enterprise partnerships (LEPs), the sharing of economic delivery and strategy across geographic boundaries may become easier. Thomas Symons, senior researcher at the New Local Government Network and author of a recent report on shared services, says that as LEPs come to represent functioning economic geographies they will create a platform which makes sharing easier and more likely.

But while there are some obvious synergies and cost-savings to be made, successful local economic development depends on a highly tuned understanding of geography and the spatial aspects of place, an understanding that could be lost as functions are outsourced or shared.

If local authorities do decide to take the route of shared economic development and regeneration services, there are a number of principles which should be adhered to, as outlined by the European Services Strategy Unit. These include carrying out shared services for the right reasons and ensuring that a multi-skilled workforce remains on board. Rather than a short-term fix based on efficiency and savings, outsourcing or sharing should take a long-term perspective on how such an arrangement can positively affect the locality.

For in the atomised new world that is emerging, who, aside from councils, will make links between the economy and broader society? Will the unfunded LEPs create a 20-year plan for their localities that supports the conditions for growth?

What’s becoming clear is public sector shrinkage is inevitable and that public sector activity on its own is no longer enough; in the future economic development will be about deep and effective collaboration on a range of levels.

As the public sector’s funding and control of economic development shrinks, that of the private, academic and voluntary sectors will need to increase.

In some of the most economically successful places in the UK collaboration is already a normal part of life. Both Greater Manchester and Cambridgeshire have long-standing collaborative structures that are models for successful economies.

Partnerships between business and academia in many areas are going strong. The Knowledge Economy Group in Liverpool brings together a range of institutions – including Liverpool University, Liverpool John Moores University and the Northwest Science Council – with the private sector. It plans to secure a further 58,000 jobs in the region by 2022 and make the area a leader in life sciences, advanced manufacturing and creative and digital industries.

One Central Park in Manchester brings together the city’s two universities, plus Salford University, with Manchester Science Parks and the Manchester College to create a business incubation unit. It is a corporate body with regeneration at its heart, using local procurement for all of its services. Community sector hubs create jobs and prosperity and many, like the Blacon Community Trust in Chester, have developed long-term plans for the sustainability of their local areas.

While a broader and more diverse base for economic development activities is welcomed, there is a fear that more will be lost than gained as the public sector withdraws.

Those areas which already have dynamic local economies and strong existing collaborative relationships between the public and private sectors will slip easily into the new robes local areas are being enticed to wear; weaker economies will suffer when the regional development agencies disappear and, without funding, the emerging LEPs will make little difference.

For the economic development issues of Barrow are not the same as those of Cambridgeshire. Without public programmes to counteract the decline of major industries, places like Barrow and Blackburn will inevitably slip further backwards. At a quarter the level of funding of RDAs, the Regional Growth Fund will be spread thinly.

In poorer areas, growth will not happen for the foreseeable future. Some places have too many infrastructural, skills or locational disadvantages; external or indigenous investment capital will either stay away or look to safer options.

Michael Ward, former chief executive of the British Urban Regeneration Association and now an independent consultant, says the creation of the delivery mechanism of LEPs without funding will merely distract attention from budget cuts and job losses and will fail in areas with weaker economies and little history of collaboration. ‘It flies in the face of all experience,’ he says. ‘There has never been a golden age when government stopped spending money.’

Economic growth – even in the most prosperous regions – needs public sector investment in hard infrastructure as well as the soft human capital of skills and education. To compete, Britain needs to do what every other country does and recognise that public sector input is essential. The economic success of all countries, be it Taiwan in the 80s, Japan in the 70s or even Ireland in the 90s is about public investment and economic strategies for development.

Mr Ward believes public money will need to return to disadvantaged areas, that all areas should prepare for the end of this winter of economic policy, and that councils should ensure they retain their capacity for economic development.

‘The capacity to analyse and understand the local economy, and to work out how people will earn a living is more central than ever,’ he says. ‘Local authorities are the building blocks and shouldn’t assume that they should stick to schools and welfare services.’

Amid all the talk of LEPs, RGF and the ushering in of a new era, economic development has maintained its narrow focus. Like New Labour before it, the coalition government has issued white papers and consultation documents on stimulating the economy which fail to question the traditional push for economic growth at all costs, and are separate to – and often in opposition to – its white papers and consultations on sustainability.

The latest job creation craze may be for ‘green’ jobs, but economic development policy has yet to synthesise with the need for resilient futures for places, which includes no-growth and which considers the impacts of peak oil and climate change.

Alongside the fad for outsourcing and sharing, few local areas have so far shown much sign of innovation, of pushing for the creation of resilient models of economic development that go beyond notions of growth to consider the multiplier effects of mutual trading or sustainable procurement, for example.

Economic growth has long been symbolised by cranes and physical development. But the future for places requires more imaginative weavings of culture, arts and the voluntary sector alongside private sector input. It needs to expand its vision of a healthy economy and marry the need for sustainable food and energy sources with the creation of jobs and enterprise.

Most of all it needs to stop building and start thinking, collaborating and joining the diverse elements of its economy together.

As a new dawn rises over economic development the most forward-thinking local economies will be those looking beyond the latest policy twists, understanding the deep needs of their localities and lobbying to ensure they are met.

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