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Policy challenge: Developing an effective local industrial strategy

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Throughout 2018 we worked with a group of local and combined authorities, LEPs and central government to understand the challenges that they face in designing a Local Industrial Strategy that is evidence-based and builds upon the Strategic Economic Plans that areas have in place. 

Using their experiences, our own evidence base and academic work on industrial strategy and policy design, we have pulled together a set of ideas about how both local and central government might address some of those challenges. We do not view these ideas as set in stone, and will continue to work with local and central government to further develop them and to apply the ideas to a range of policy areas.

1. What is the state of the local economy?

  • The appropriate mix of policies for a LIS will vary across different places.
  • Do not focus on measuring economic performance against high-level numerical targets; clarify high-level local objectives, and monitor and evaluate individual programmes and projects that contribute to them.
  • Choose the most useful comparison for informing specific policy decisions (for example, the national average or a specific group of places with similar characteristics).
  • Sectoral analysis can help to target ‘horizontal’ policies (for example, skills and employment training programmes) and identify local strengths to facilitate coordination with national interventions. But be wary of trying to achieve a particular sectoral composition.
  • Look for new sources of data (data extracted from websites, for example) and find ways to combine quantitative data with qualitative data to build a more granular understanding of the local economy.

2. How is the economy evolving?

  • Recognise, and try to mitigate, the political pressures that will tend to favour support for existing employment over new activity that can help to diversify and grow the economy over the longer term.
  • Use scenario planning, as opposed to complicated, and often expensive, local economic models to structure thinking about the future and potential changes.
  • Be very careful before incurring large fixed costs on a project, and consider options for waiting until there is less uncertainty.

3. Supply side or demand side?

  • Distinguish between supply side (for example, constraints on finance) and demand side (for example, weak business plans) as explanations for under-performance.
  • Avoid ‘build it and they will come’ supply side strategies intended to generate sufficient demand.
  • Use market signals (for example, land prices and wages) to help make decisions, such as where to put specific investments.

4. Targeting the policy response

  • Identify the market failures that impact the local economy and whether these can be usefully addressed at the local level.
  • Identify a range of policy options to address each local development challenge, and compare the intended costs and benefits.
  • Look beyond economic averages to the likely consequences for different types of firms and households.

5. Impact on competition

  • LIS will be designed to change market outcomes. But distorting competition may have a negative impact on innovation and productivity growth.
  • Preferencing particular sectors or large local employers should be justified on the basis that their size means there are large benefits relative to the costs of addressing market failures that affect them; not simply because they constitute a large share of the local economy.
  • ‘Horizontal’ interventions (i.e. not targeted at particular sectors) mitigate any negative competition effects by supporting multiple firms and sectors.

6. Experimentation

  • Experiment to find more cost-effective ways to support economic growth, with a clear idea of what constitutes success (and failure) and observable criteria for monitoring it.
  • Share plans for, and results of, experimentation with other local authorities to identify opportunities for collaboration and so everyone can benefit from your experience.

7. Independent experts

  • Use independent panels (drawing together individuals with the appropriate expertise, no conflicts of interest and protected from political interference) and peer review mechanisms to scrutinise evidence and policy priorities.

8. Sharing the risk

  • Find ways to share the risk of investing by co-funding interventions with the private sector and involving them in the decision-making process.
  • Develop ongoing contact and communication with the private sector to help identify and remove obstacles to growth. But remain autonomous and be careful to avoid ‘capture’ by local vested interests.

9. Evaluation and feedback

  • Evaluation, embedded from the start of the policy design process, helps to improve policy design and inform future decision making, by assessing whether policy has the desired impact and is cost-effective.
  • Evaluation should be proportionate, and focus on specific programmes and projects where good evaluation is feasible.
  • Build in sunset clauses and use monitoring and evaluation to make decisions about whether to continue funding the programme or re-design specific elements.

10. Coordination

  • Coordinate across different stakeholder organisations, related policy areas and spatial levels with a broader vision and objectives in mind.
  • Accountability and transparency is essential to keep everyone informed and on board.
Developing effective local industrial strategies
Using data for local economic policy