Monday, November 06, 2017

The model for a new northern economy in Preston? Not really

Preston's pride - BAE Systems at Preston Guild
Sometimes I think I've spent so long away from the coal face of business journalism that I've slipped into a new echo chamber where business owners are the bad guys, where entrepreneurship is a dirty word and all they're good for is to milk them for tax revenue. Yet I'm still a board director of three overtly commercial organisations where that characterisation remains an absolute and outrageous travesty.

The truth is it is the world that has changed. The concern for the left-behinds, the people who haven't benefited from globalisation, who live in communities riven apart by an economic and cultural decay, is righteous. But it has elicited all manner of easy answers and wrong-headed responses, not least that this anger ushered in Brexit, an answer to a problem it can't solve.

Soul searching for a proper response is now proliferating. The author Richard Florida's new book tests his own earlier theories of the creative super-city (think London, New York and San Francisco) which collectively have created 40 per cent of the world's GDP with just 7 per cent of the population. He asks, as I do on a daily basis, where does that leave the rest of us in a world of winner takes all urbanism?

The run-up to the CBI conference saw The Times report the frustration of business in the glacial progress of the government’s industrial strategy and whether it was being taken seriously in the heart of government. Hinting that nice guy Greg Clark was the right man to lead the sort of vocal industrial policy promoted in the past by the likes of Lord Heseltine and Lord Mandelson, CBI’s Carolyn Fairbairn said: “We want to see a real championing of business and of industrial strategy. It has to go beyond BEIS [the business, energy and industrial strategy department] right to the top at the Treasury and No10. We really do believe we are at a watershed moment.”

In the absence of anything concrete, usually down to civil service inertia and political paralysis, it’s allowed a number of fierce critiques of the entire system to grab airtime, many peppered with the code words and trigger warnings about "neo-liberalism", "failed models" and "alternatives to austerity".

There was a piece in the Economist last month about how Preston has used the power of its "anchor institutions" (that's the NHS, Preston's College and UCLAN to me and you), to create the model of a smart-procuring, entrepreneurial state for a guide to how Jeremy Corbyn will govern and encourage a thousand co-operatives to bloom.

It seemed like an attempt to do what economists (as opposed to The Economist writers) often do, look for something that's working and apply a theory to it retrospectively, but it has been the product of some interesting work with the Centre for Local Economic Strategies and Preston City Council.

Lancashire is no stranger to experiments in economic planning and innovation. In much the same way, Lancashire County Council in the 80s was hailed as the cradle of New Labour. Under leader Louise Ellman in 1983, the council created Lancashire Enterprises, whose chief executive was urban regeneration visionary David Taylor (no relation).  It was the very model of a pump-priming activist state, much of the thinking leading to the structure of the regional development agencies under Blair and Taylor's friend John Prescott. The longer-term corporate legacy was a utilities support business Enterprise PLC, now part of Amey PLC, in turn, the UK subsidiary of Ferrovial. But it also spawned Enterprise Ventures, now part of Mercia Technologies, an active venture capital investor in growth businesses in the North, the Midlands and Scotland.

Preston City Council's recent ambition has been created out of a response to local government cuts to its budget, just as Lancashire's response in the 80s was to the wholesale collapse of northern industry. One is a brave, necessary and innovative response, that feels strategic, but is intensely tactical. The earlier one, similarly, fashioned an ambitious response that grew and grew as it proved to have relevance and need. It's not to spot the virtue in a locally based procurement strategy, supporting local businesses.

Much of the work on the Preston example, has been done by Neil McInroy from the Centre for Local Economic Strategies, who has commented in the media that more of the £1bn plus public sector budgets are now spent locally.

Taking that on a stage, Neil's outline case is here, where he argues for 'a new economic agenda', that can replace failed neo-liberalism. But I found myself asking at the end of each paragraph, but what about the businesses who'll create the jobs?

The four pillars of Neil's argument are: to recognise decline; understand technological shifts; build on local strengths; and invest in the economy of care. In many ways, it's a bold and suitably broad synthesis. But I kept coming back to a common niggle I have with many conversations with people on the left, wouldn't life just be so much easier if everyone worked for the NHS?

And then the other question, but where are the businesses?

This is a blog, not a Masters thesis, or even an article worthy of the Economist, so I'll restrict my criticism to the new economic orthodoxy to one single baseline point. Where are the businesses? My starting point is that wealth is created in a business by someone having an idea, spotting an opportunity, selling that service or those value-added goods for a surplus and growing that enterprise, employing people, their families spend that money locally, pay their taxes, replicate that across the entire economy and that's what makes the world go round. Larger existing businesses are enticed to stay, to relocate, and careful coordination of their presence almost certainly contributes to the conditions for even more people to take risks, build another business, which in turn makes that place even wealthier. The fewer people want to do that or do it well, then that place gets poorer.

There's a line at the end of paragraph three that says: "Cities need to invest in social infrastructure and social enterprise and above all, support indigenous small business activity." My question, therefore, is how? To use Lancashire as an example again, the red rose county isn't short of initiatives from the public sector to "support" small business activity. There's the very noble Boost Business Lancashire for a start, which I should declare I have done some work for. But despite these valiant efforts and more, many of the same systemic issues continue to hold northern towns back and no amount of smart procurement can patch it up.  

It brought to mind something Peter Mandelson said as long ago as 2013, that all too frequently ambitious industrial strategies are little more than 'pea-shooter' initiatives; haphazard and ineffective programmes too small to make any kind of difference.

And in this context, are we facing something similar? And what does "democratise" the economy mean, other than letting committees of part-time councillors decide where to spend money? Spending more state money locally isn't a new economic strategy, it's arguably a good thing to do, but it isn't a paradigm shift it's been cracked up to be. 

There is also a need for a regulating, guiding and protecting state, more than has been previously fashionable. But my sense is there are two elephants in the room that the "new economics" thinking doesn't acknowledge. The first is big business. In Lancashire, again, the major anchor institution of Preston isn't even in Preston, but the city would be stuffed were it not for BAE Systems at Warton and Salmesbury, and its supply chain.

The second is that hard infrastructure works. It's not neo-liberal economics to build better roads, rail links and make housing an integrated strategic plank of an industrial strategy, it's sound social investment. The Treasury methodology needs fixing, and an industrial strategy needs to reach deep into all parts of government, including the Treasury if it is to be effective. After all, the return on investment model for Crossrail will not be the same for the Todmorden Curve, but both are necessary.

How we solve a problem like the northern towns and smaller cities haven't been taken seriously enough for decades. But we start from where we are, not where we'd like to be.

1 comment:

Neil mcinroy said...

Michael’s article is a welcome contribution to a growing discussion about a new progressive economic strategy for the UK. The article make a number of useful points.

Firstly it recognises scale of the challenge: the gap between north and south, rich and poor, inner city and outer, city region and peripheral town is structural. Closing these divides requires systemic responses, not policy tinkering.

Secondly it emphasises a realistic, place-based approach. We need economic strategies to engage specifics, not to follow generic templates  based on picking winners.

Thirdly, it calls on the local state to be more ambitious. Local authorities can and should do more for their economy. They need to step out of their comfort zone and become more entrepreneurial and open to innovation.

As Michael says his blog is not a thesis, but his critique of the new urban agenda and new economics is hurried.

Progressive procurement fully recognises businesss questions. It is about growing the whole local businesses base-the economic ecosystem not only cooperatives.

Hard infrastructure does matter, but it's about priorites and balance. Businesses need roads, rails and airports. But they also need social infrastructure and decent public inputs that make entrepreneurial people. People who allow business activity to thrive.

We have to ‘start from where we are, not where we'd like to be’.  The work in Preston has local business at the forefront. Indeed it goes further. Opposed to business support policies (which are important), the work there has the best growth policy. Namely, real £ skin in the game, through providing excellent services and goods to large businesses or public sector organisations. All done at a decent price, with quality. And it's local! What not to like? And more to the pt. What a fabulous basis for expansion and growth. All large businesses were small once.

The work in Preston is but one aspect of a larger movement undertaken by CLES and many other organisations across Europe and beyond. In this there is a desire to counteract the footloose nature of global investment and create some much needed sustainability within the economy and for communities. This 'new economics' is not the mainstream (yet). But neither is it marginal or 'peashooter'. It is happening in all our cities, and towns.

Debate about how we build the new economy is welcome and  important. But we should not stop or look back. There is far too much to do.