Written evidence from the Regional Studies
Association
Evidence submitted to the House of Commons Select
Committee on Business, Innovation and Skills, by David Bailey,
Paul Benneworth, Mike Danson and Henrik Halkier on behalf of the
Regional Studies Association.
Authors Affiliations: Professor David Bailey
(Coventry University Business School), Dr Paul Benneworth (University
of Twente, The Netherlands), Professor Mike Danson (University
of the West of Scotland Business School) and Professor Henrik
Halkier (Aalborg University, Denmark)
EXECUTIVE SUMMARY
1. This evidence seeks to draw on an established,
well-informed and respected literature and evidence base on the
role of EDAs (economic development agencies) and partnerships
in delivering economic development at the regional and sub-regional
levels (para 9-12).
2. England's regional economic problem does
not just arise from the underperformance of the English regions,
but also because the greater South East has seduced public investments
for decades, out of an exaggerated fear on the part of national
politicians of undermining London's strengths (HM Treasury, 2001)
(para 12-16).
3. "Good" regional development
agencies help create collective investments whose need is not
immediately visible but which help promote both regional and national
competitiveness (para 17-21).
4. If LEPs are going to be effective, then
they need to be "good" economic development agencies
, with the resources to deliver projects, and not be distracted
by trying to develop strategies to influence national policies,
notably infrastructure, higher education and science policies
(para 22-25).
5. Conversely, central government needs
to clearly commit that powers removed from RDAs will not be centralised
where local partners make it clear that they see good value in
local delivery of business support (para 26-29).
6. There needs to be some element of programmatisation
around how LEPs fit with wider public expenditures, or risk a
reversion to the 1990s situation where the Single Regeneration
Budget and European Funds were being spent to solve problems caused
by other public expenditure (para 30-37).
7. The Regional Growth Fund proposals imply
a number of risks—for example in creating a number of science
parks in urban areas (where private developers can be attracted
as co-investors, suggesting only partial market failure at worst),
and neither funding transformative activities, nor outlying rural
localities. (Para 38-43)
8. If LEPs influence funding, then they
will compete, both within the partnerships but also with each
other. BIS proposals must clearly state how funding will not only
flow to the big urban areas with the "sharpest elbows"
and the greatest capacity to bid. In this regard, a (light-touch)
sub-national tier still makes sense in joining up the work of
LEPs particularly those outside the big cities which may struggle
on many fronts (para 44-49).
INTRODUCTION
9. We welcome the opportunity to comment
on the outline proposals for revising English sub-national policies,
as there seems to be a degree of confusion amongst those making
the proposals. With this evidence, we seek to help the Committee
challenge CLG's and BIS's understanding of those issues before
the full proposals are published.
10. The evidence is written by a team with
considerable experience in relation to RDAs and regional policy,
in England and the UK, but also internationally. This perspective
is helpful in disentangling administrative arguments for sub-national
economic development from clearly expressed political will for
abolishing RDAs. This evidence is being submitted on behalf of
the Regional Studies Association, which has since its foundation
actively supported research into the perennial English/UK regional
problem (cf. Massey, 1977; Roberts, 1983; Harrison &
Hart, 1990; Benneworth, 2001; Hardill et al., 2007; Tomaney,
2010).
11. The Regional Studies Association (RSA)
has provided an international forum to discuss and debate such
issues and to inform debates for almost 50 years. A joint seminar
series in 2001-04 with UK Ministries (DTI, HM Treasury and ODPM)
specifically addressed these concerns in the English context.
More recently joint events with the Smith Institute explored the
future of regional policy in the UK. This evidence base remains
pertinent, complemented by international and collaborative studies
on RDAs and regional policies.
12. Our aim is to provide a wider perspective
by starting from first principles about what is necessary to address
the English "regional problem", how local enterprise
partnerships and the regional growth fund could contribute to
that, and raise some questions which the sponsoring ministries
need to clarify before finalising their proposals to Parliament.
THE NATURE
OF THE
ENGLISH "REGIONAL
PROBLEM"
13. The driver for the Government's proposals
is in replacing the English RDAs (ERDAs) which are deemed by the
government to have failed because they have not addressed a structural
imbalance in the English economy.
14. This structural imbalance is a huge
and persistent problem for England—it was first recognised
in the early 1930s when the Team Valley Trading Estate in Gateshead
was set up as the first regional intervention; since then there
have been many approaches and policies but the problem of regional
imbalance has remained to this day (Loebl, 1988).
15. There is an increasing recognition that
their intractability is not just the fault of the weakness of
outlying English regions, but also the tendency for public policy-makers
to overinvest in London and the greater South East, out of a fear
of their competitiveness falling, without regard for the opportunity
costs for the wider UK economy.
16. Regional policy should invest in making
the peripheral English regions attractive for public and private
investment, and strengthening the national economy, not (as English
regional policy in the 1990s did) merely compensate for problems
arising from over-concentration of investment in the greater South
East region.
WHAT MAKES
A GOOD
REGIONAL DEVELOPMENT
AGENCY IN
PRACTICE?
17. Although the title of "Regional
Development Agency" (RDA) may be discredited in government
eyes in an English context , RDAs have nevertheless emerged in
the last two decades in Europe and North America as important
actors in supporting the kinds of territorial economy development
necessary to address England's persistent regional imbalances
(Danson et al, 2005).
18. What RDAs can do is support collective
investments addressing market failures with which local actors
are not immediately concerned: people often think in local and
national terms and so underestimate the intermediate level between
local and national. Regional investments can be hard to build
support for because people prefer obvious local investments, but
there is no way—for example—for every local authority
to have an airport (a form of "local myopia").
19. RDAs are in the general sense an organisation
of local actors that come together to encourage co-operation to
identify and develop areas where this local myopia undermines
the development of shared assets that could raise regional competitiveness.
Halkier et al. define RDAs as "regionally based, publicly
financed institutions outside the mainstream of central and local
government control designed to promote economic development"
(1998, p. 17), which are business-like, promote competitiveness,
stimulate endogenous growth, and increasingly stimulate innovative
capacity.
20. The OECD (2009) has stressed that best-practice
local economic development is an activity that defines a path
into the future which co-ordinates other actors in making that
vision a reality. This necessitates a sophisticated understanding
of a range of external factors such as contested investment, investment
returns, business cycles, market trends as well as local assets,
endowments, and places unique selling points.
21. An effective local economic development
strategy must also inspire participants' confidence in order to
act as an effective co-ordination vehicle. All of this requires
leadership skills amongst and across local leaders and their partners
if economic development is to succeed, placing a premium upon
vision, communication, and partnership-building skills, coming
from both local authorities but also businesses.
HOW CAN
LOCAL ENTERPRISE
PARTNERSHIPS BE
EFFECTIVE RDAS?
22. The Local Enterprise Partnership (LEP)
proposals are welcome in the sense that they may free localities
from the top-down national control through literally volumes of
guidance and regulation that characterised the functioning of
the ERDAs. However, what the current proposals do not make clear
is what kinds of regional economic growth drivers will LEPs be
able to influence? The English Strategy for Growth hints
that this will be in the area of infrastructure, higher education,
science and innovation.
23. We would point to the fact that three
of those areas have purely national budgets with very strong pressures
at a national level for control over these elements to remain
exclusively national, excluding local voices. In practice, therefore,
LEPs will be limited to developing "transformational"
projects exclusively in the field of regional innovation/entrepreneurship.
24. This is effectively what European Structural
Funds and the ERDAs' single pot have been funding for the last
five years, so there must be clarity about what will be different
this time around. On the other hand, the LEPs need to ensure that
their current portfolio of long-term investments that will raise
their overall local competitiveness over time are satisfactorily
completed, producing the returns and not being simply scrapped.
25. Development agencies also become the
voice of their localities in discussions around economic development
policy that take place within different levels of government.
It is striking that whilst the devolved territories will retain
their strong voices at the UK and European levels, these proposals
will silence, and strongly disadvantage, the English regions.
LEPs must ensure that England continues to participate in European
projects which seek to guarantee cohesion and competitiveness
across Europe. This is also dependent upon strong political support
from the centre, and there is no suggestion that BIS are minded
to give that support.
WHAT SHOULD
BIS DO TO
ENSURE THAT
LEPS ARE
AS EFFECTIVE
AS POSSIBLE?
26. It is widely accepted that localities
cannot "pull themselves up by their bootstraps". They
must be supported by funding that creates "national"
projects with local impacts, not just in economic development
"silos", but including industrial, science, education,
health and technology policy. Without bending national funds to
help outlying regions and meet their needs, the LEPs will be akin
to a sticking plaster for an open wound.
27. There has been criticism of "identikit
strategies" as promoted by the ERDAs, leading to the apparent
anomaly of 24 nanotechnology centres across the UK. Where these
criticisms are justified by the facts, this tends to be a consequence
of deep-seated pressures within England to homogenise across public
authorities. LEPs must be freed from being forced in a top-down
way to write plans that fit Whitehall bureaucrats' priorities.
28. If the LEPs must compete with one another
for funding, then the partnerships will self-select partners to
strengthen their position in that competition. This will place
"big city" authorities in very dominant positions within
LEPs, particularly if proposals for directly elected Mayors come
to fruition. Likewise, the interests of remote and rural areas
are likely to be neglected as they are powerless to offer attractive
investment proposals. There is no evidence or rigorous scientific
model that validates this privileging of city-regions as effective
or efficient in raising national growth.
29. BIS needs to be clear about how it will
decide between competing claims on the public purse from very
different kinds of transformational project, for example between
a biotechnology centre in Rusholme and a food packaging centre
in Berwick-upon-Tweed. What we can say with certainty is that
the Treasury Green Book is not a good way of doing this, as this
reinforces a bias towards large urban projects.
LEPS AND
THE PROBLEM
OF RECENTRALISATION
VS. DECENTRALISATION
30. The proposals outlined by BIS appear
to involve a substantial recentralisation of powers to Whitehall.
In particular, under the current proposals, responsibility and
policy for inward investment, industrial sector leadership, business
support, innovation, and access to finance (including venture
capital funds), will all be recentralised to Whitehall.
31. This amounts to running a central industrial
policy. We cannot imagine that the government wishes to involve
itself in the costs and staffing demands of managing industrial
policy at the local level. Without local industrial policy, several
promising new sectors would now not be emerging to create significant
local employment. We point to the Niche Vehicle Network in the
West Midlands, or the offshore wind sector and the low carbon
area in the North East as demonstrating the value of an intermediate
coordination level between LEPs and Whitehall in fields such as
cluster policy and innovation.
32. LEPs will have responsibility for local
transport, housing, employment, enterprise and supporting business
start-ups. The split between local and national level over business
support is not clear. However, without LEPs having genuine powers
and responsibilities to tailor local business support to local
demand, local business will have no incentive to engage with the
partnerships, which may leave them as "local authority talking
shops".
33. The £1 billion, two-year regional
growth fund represents a sizeable real-terms funding cut for economic
development outside London. If LEPs are to lead local economic
development, they must have powers to raise their own investments.
There are many overseas examples such as accelerated development
zones or bond issuing powers which would enable LEPs to raise
funding for local economic development in the context of national
budgetary austerity. This would also energise businesses to become
involved in LEPs' work.
34. A possible lack of proposed real powers
(and fundraising ability) for LEPs will be compounded by excessive
fragmentation of delivery under a "bottom up" approach.
The current proposals for selecting LEP areas are unlikely to
produce arrangements which map to "functional economic areas".
They are much more likely to reflect political "horse-trading"
than to make any geographical or economic sense. In the West Midlands,
a LEP covering Greater Birmingham, covering the "Black Country",
North Warwickshire and South Staffordshire could effectively map
to the Birmingham functional economic area. But there is little
prospect of local politicians actually delivering this. At a national
level there is likewise a high risk of a hotch-potch of fragmented—and
hence inefficient—LEPs.
35. A genuine challenge for LEPs is their
capacity/capability to take strategically informed decisions to
engage in partnership working. Work by the Audit Commission looking
at the response of local authorities to the downturn found that
40% of local authorities put actions in place to counter the recession
without strategic information on their area (Audit Commission,
2009). Some RDAs have built up detailed evidence-based knowledge
about their regions, for example in identifying vulnerable places,
firms and sectors. In the West Midlands this informed strategic
decisions on how best to spend public resources during the recent
downturn (Bailey & Berkeley, 2010). This expertise was not
easily, quickly or cheaply acquired, and it is vital that LEPs
do not have to begin from scratch in understanding where they
can most effectively intervene to simulate local economic development.
36. Similarly, expertise in terms of accessing
European funds remains important. RDAs currently have the expertise
to access and administer the funding, and—until very recently—to
match-fund EU structural funding. Some local authorities have
the ability to bid for, win, implement and match EU funding. But
for those LEPs without that experience and capacity, a level between
small LEPs and the centre will be necessary to ensure that they
can access the funds made available. This is vital to ensure that
these funds are invested in the public need, rather than the interests
of large authorities with a bid-writing infrastructure.
37. We appreciate the depth of political
antipathy to regional planning in England, particularly in relation
to the perceived injustices of regional housing targets. However,
regional planning is a very effective way of building trust and
transparency around controversial investments such as nuclear
power or waste disposal, addressing public hostility to these
facilities. These controversies cannot simply be "wished
away". No doubt the government will, as did the last Conservative
Government with Regional Planning Guidance, return to regional
planning once these controversies are politically more pressing
than the desire to abolish regional planning bodies.
CAN THE
REGIONAL GROWTH
FUND HELP
WITH A
REBALANCING OF
THE ENGLISH
ECONOMY?
38. The purpose of RGF is admirable: to
rebalance weaker local economies away from an "over-dependence"
on public sector jobs. This public-sector "over-dependence"
is really a phenomenon of the last five years or so, and a deeper
sectoral imbalance between the regions will need to be addressed
if the RGF is to contribute to national economic performance.
39. The devil will be in the detail, and
in particular, how far the RGF enshrines the principle that it
will flow to regions in proportion to the public expenditure cuts
they face. It is those regions facing the greatest cuts which
need the greatest help to improve their attractiveness for private
high-technology investment.
40. If there is a mechanical appraisal system
that uses the "usual" characteristics of job creation,
innovative nature and private leverage, then there is danger of
favouring projects such as urban science parks and technology
centres involving private developers adjacent to universities.
This may not be the best use of £1 billion over two years,
given the Secretary of State's widely publicised comments about
the duplication involved in having 24 nanotechnology centres.
41. We also raise the question of how the
RGF will deal with events and contingencies if there are simply
two funding rounds? There is a very strong risk of favouring projects
that fit with Whitehall's bureaucratic systems (with public sector
sponsors who know these systems) rather than projects which deal
with real market failures or crises, particularly if these crises
do not conveniently occur three months before the deadline for
the round.
42. In para 34, we point to the importance
of LEPs having the power to raise their own private funding. This
would also provide some resources to respond to contingencies
or shocks (cf Bailey et al, 2009, re the Rover crisis).
43. Rebalancing the UK economy into new
technology sectors that create UK employment is a complex process
that experience tells us the market cannot satisfactorily deliver.
In developing green technologies, public authorities play many
roles, commissioning demonstrator projects, creating demand for
products, enforcing "green" regulation, subsidising
knowledge exchange and innovation, supporting clustering and internationalisation,
and funding education. This makes a co-ordinated multi-level approach
unavoidable, even where policy is delivered at the lowest level
possible, to ensure mutual support between national, regional
and local policies, such as technology foresight, clustering and
innovation (Charles & Benneworth, 2001). Funding arrangements,
including the role of the RGF, must recognise this.
HOW CAN
LEPS BE
MADE TO
WORK FOR
COMMON BENEFIT?
44. The idea of partnership working sounds
admirable. In reality LEPs will face their own tensions and struggles.
There is a need to avoid ending up with arrangements that either
adhere to the lowest-common denominator, where everyone agrees
because they take no controversial (and therefore important) decisions,
or smooth over tensions by giving everyone something. Overall,
the challenges inherent in delivering sub-national economic development
through partnerships need to be recognised at the outset, as the
absence of dedicated RDAs may exacerbate such challenges (Cameron
and Danson, 1999).
45. One advantage of the ERDAs is that they
forced places to confront and address those tensions (in part
through their strong evidence bases). So, the NWDA compelled Manchester
and Liverpool to develop a sense of how they each contributed
to the other's growth. Those two cities are likely to choose have
their own LEPs who will compete for funding, not developing mutually
beneficial shared projects.
46. A clear tension in LEPs is that those
places that have a strong asset base will be powerful actors,
because they will be able to construct plans that will be attractive
for the RGF. At the same time, it is hard to see how remote rural,
coastal areas and provincial towns will be able to come up with
sensible proposals for plans that will compare favourably against
slick, urban high-technology science city projects.
47. A further problem—raised by Federation
of Small Businesses (FSB)—is the need to recognise the voice
of small business. As noted on business engagement above, there
is a need to avoid a situation where small businesses get involved
with LEPs because they want to win grants. Yet, without a direct
benefit then SMEs will struggle to justify getting involved. Individual
SMEs may get involved with particular projects, but there is a
question of how does the LEP hear the "voice of business"
without just hearing the "voice of a few businesses",
to the exclusion of others.
48. Finally, in looking at the recent performance
of local authorities during the downturn, work by the Audit Commission
found that some 35% actually worked alone and not through any
partnership working (Audit Commission, 2009). LEPs need to offer
"boundary spanning" place leadership, which overcomes
old rivalries and conflicts, and which can help progress towards
difficult decisions based on sound intelligence and a deep understanding
of the locality functions economically. This is a key role in
building leadership in LEPs (see Policy Studies, 2010).
CONCLUSIONS AND
RECOMMENDATIONS
49. The White Paper faces a major challenge,
because it needs to set out a clear vision for narrowing regional
disparities by investing in those weaker regions to start a process
of rebalancing their economies (para 16).
50. BIS needs to be clear that partnerships
can look very different, not only in their composition, but in
their ways of working and activities, otherwise competing for
BIS resources will produce "identikit" responses which
will strengthen Leeds, Manchester and Birmingham whilst weakening
other places such as Liverpool, Bradford and Newcastle (para 27).
51. The details of the RGF are critical,
and the problems with the Green Book need to be learned. For example,
insisting on high leverage may encourage urban property developments;
appraisal on the basis of affected populations may exclude rural
areas and market towns from transformational projects. To address
this BIS may wish to set minimum per capita allocations per LEP
subject to quality thresholds (para 29).
52. Recentralising policy to Whitehall envisaged
in current proposals is greatly injurious to the wider cause of
addressing the English regional problem (para 31).
53. LEPs will need both real powers and
the ability to raise funds if business is to genuinely engage
with the idea and if LEPs are to have a genuine impact on local
economic development (para 34).
54. An intermediate mechanism to "join
up" LEPs work between local and national level is inevitable
to use public money efficiently in a number of areas, including
as a minimum maintaining an intelligence and information gathering
base, pursuing effective cluster and innovation strategies and
accessing EU funding (para 43).
55. Building partnership and strategic leadership
skills in LEPs will be vital to making them work (para 46).
56. The success of the proposals will be on
how far they do actually manage to concentrate investment on the
most disadvantaged regions and their most disadvantaged localities
and start creating polycentric development in England that boosts
overall economic growth. More to the point, regions and localities
will judge those proposals on how successful are they in preventing
the "London Lobby" capturing available funds. This easy
or superficially competitive option we believe will deliver a
sub-optimal outcome for all as the market failures inherent in
the plans and their big city bias will operate and discriminate
against the needs of the weaker peripheral and marginal regions
undermining their contribution to wider dynamic metropolitan regions.
13 August 2010
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