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Developing ‘distinctive’ local industrial strategies

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Local economic development strategies have been criticised in the past for being too generic and unrealistic: if you removed the place name, would you be able to discern where the strategy was written for, and how many places can claim to have a ‘specialism’ in the same sector? These views have led to calls for the Local Industrial Strategies to be distinctive. But what, in practice, should that mean? And how distinctive can we expect them to be?

The What Works Centre for Local Economic Growth is working with 11 partners across the country to support them to make evidence-based decisions with regards to their industrial strategies. Through the course of our work with them, we’ve grappled with what local industrial strategies should look like and in what respects they should differ from the Strategic Economic Plans. It’s clear that as an evolving process and with a fair amount of disagreement between academics on the subject more generally, nobody has all the answers as yet.

The aim of industrial strategies is to improve productivity by coordinating state intervention to support business growth better. The idea is that local industrial strategies coordinate at the sub-national level and the task for local partners is to prioritise interventions based on the characteristics of the local economy and barriers to growth.

Given the nature of local economies and the challenges they face, you would expect a degree of similarity between local strategies.

Jobs and business activity in local economies – particularly urban ones – tend to be spread across a range of different sectors, and it’s quite often difficult to demonstrate a real comparative advantage in any specific one. More importantly, even if an area could demonstrate that it has a particular sectoral strength, it tells you nothing about the case for intervention.

A national view of distinctiveness that requires different areas to focus on different sectors is likely to mean that opportunities to support growth among the wider economy are missed.

A strategy that focuses on specific sectors is unlikely to do much for the wider population or business base within a local economy. By contrast, cross-cutting (or horizontal) interventions, such as skills or transport policies, have the advantage that they span a wide range of sectors and directly target market failures.

Given that many areas face similar challenges, the Government should not expect places to focus on a narrow set of distinctive challenges either. The underperformance of many of the UK’s cities is largely explained by skills – upskilling low-skilled residents and improving school performance will be a priority for many areas in efforts to drive up levels of productivity.

Creating favourable conditions for businesses in places by focusing on the benefits and costs to agglomeration economies, as opposed to cluster policies, is more likely to support diversification and growth over the longer term.

But this doesn’t mean that all local industrial strategies should look the same.

Distinctiveness should be an outcome – not a goal – of well-formulated local industrial strategies. It may take the form of variation in policy mix and priorities – cities in the South East are likely to need to focus more heavily on managing the costs of growth, for example, than their Northern counterparts. Or it may feature in more nuanced ways through the design and delivery of horizontal policies.

And here process, rather than policy, is important. Crucial is striking the fine balance between working closely with the private sector to develop a clear understanding of the barriers to growth and getting them to share the risk but not being captured by vested interests. Equally important in order to have the maximum impact will be coordination across policy areas and with the activities of other local institutions and organisations. And if industrial strategies are about new ways of working and finding more effective ways to support growth, then sharing lessons from past interventions, experimentation and evaluation will also matter.

The team are busy developing a set of guiding principles, some detailed examples of how to apply them in key policy areas, and a new series of toolkits to support local areas in the development of local industrial strategies — all of which we aim to publish shortly. The Centre is also holding a one-day conference on 25 June on how to design and deliver local industrial strategies.

Please get in touch if you’ve got any questions or would like to discuss anything in the meantime.