State intervention can boost our economy but only the private sector can rebalance it
The government’s long awaited levelling up white paper was met with a lukewarm reception last week. One of the main complaints was that there was not enough – or in fact any – new money for the regions.
Many localities have become stuck with low levels of productivity and, as a consequence, low levels of income for many of their residents.
In principle, market forces – incentives and the price mechanism – can be used to get them out of the trap. But in this particular context market forces operate only slowly, at almost glacial speed. Many areas of the country have had cheap land and cheap labour for decades, yet we hardly see businesses flocking to them. If they had done so, there would be no need for a levelling up policy altogether.
The upshot is that state intervention can provide a vital boost to kickstart these areas. This kind of growth can ultimately be delivered only by the private sector; the public one, though, is a crucial enabler.
The problem with the advocacy of yet more public spending is the £500bn debt which the government has accumulated over the past two years. At some point, the financial markets will decide enough is enough. Additional large tranches of government debt will then require much higher interest rates before they are accepted.
Exactly when this point will be is essentially a matter of judgement rather than scientific analysis. But we know for certain that we are £500bn nearer the point than we were two years ago.
Within these financial constraints, the white paper sets out an innovative framework for addressing the decade-long issue of levelling up.
A key aspect is that there is a clear statement of the “missions” expected to be fulfilled by 2030. This is much more than a set of metrics with which to judge success: it gives a vision, an aspiration as to what can be achieved. Successful companies know that setting a vision is a vital ingredient of success. Without it, companies lack focus – exactly like most of the regional policies which have been tried over the past five or six decades.
The white paper also takes a much broader perspective on levelling up than the usual. Six drivers of success are identified, each of which is an aspect of “capital”: physical, human, intangible, financial, social, and institutional. Crucially, these need to work in combination, as “the sum of these factors is then greater than the individual parts”.
Devolving powers further to the localities is another very welcome aspect of the policy. Local politicians may still get it wrong, but their perspective is more likely to succeed than a one-size-fits-all approach imposed by Whitehall.
This is particularly important in ensuring there is levelling up within regions, where the disparities are just as wide as they are between the regions themselves and the global Canada.
Finally, there is welcome reinforcement of success, with three Innovation Accelerators, industry-academic clusters based on the model of partnerships in America around Silicon Valley and Boston. The areas concerned – Greater Manchester, West Midlands and Glasgow – have each made promising starts towards this aim.
Overall, the widespread criticism of the white paper is misplaced. Yes, more money would have made it better. Yet it sets out an analytical framework and vision on which success can be built.