Taking responsibility for local economic recovery

2^nd February 2015

The trouble with economic recovery is that someone else always has to do it – the bankers, investors, industrialists or mandarins.  What about the rest of us – and what about the places we live in?  Are there no economic levers they can pull to improve their lives?

One of the reasons they think they don’t have levers is that Whitehall has bred local government to the belief that economics was its own fiefdom.  There could be the occasional grant or deal, but only within strict controls. The idea that there were things that local government could do to manage their economic destinies remained anathaema.

Now Manchester is to get new powers, and the same powers have now been agreed for Sheffield – but what will the cities do with these powers when it comes to economic revival?  Or will they just let the Treasury decide economic policy on their behalf?

The trouble is that there is no communication, and little understanding, between the economic localisers and the mainstream national policy makers, who are very sceptical about local economics – at least anything more local than Local Enterprise Partnerships (LEPs).

My new book (with Tony Greenham), People Powered Prosperity, is the result of a project – funded by the Friends Provident Foundation – to translate between the two worlds, interviewing a range of leading economists, including the Treasury, to see what causes the logjam between central economic policy makers and the energy of local economic activists.

It sets out a new narrative for very local economics, based on local financial and enterprise institutions, which might be embraced by national politicians – and by the Treasury.  It is a potentially important intervention to kickstart a vital debate – why mainstream policy makers are so suspicious of revitalising local economies, the only basis for the real devolution of power.

The book includes a foreword by Danny Alexander MP and also proposes two reforms:

• The Treasury must develop a body of practical knowledge about ultra-local economic solutions and local economic resilience. It must set up an ultra-local policy and delivery unit, learning the lessons from the experience of those local authorities in urban and rural areas which are succeeding in developing working solutions to their economic difficulties.

• Small business now earns 51% of value added in the UK economy.  They should therefore be getting a similar proportion of the business investment available in the UK.  If they are not doing so, then it is a sign of serious market failure and we need to provide the intermediaries and institutions which could make this possible.  In the interim, the Government needs to track these numbers regularly – comparing profitability and investment by size of business – and to report on them.

This is not to suggest that small business needs the same kind of investment as big business – that is the kind of assumption that has caused all the problems – but they do require effort, support and some finance.  If half the nation’s wealth derives from small business (and it does), then an effective market would make sure that half the nation’s effort, imagination and wealth was going into developing that half of the economy.

We all know that nothing like that happens.  The vast majority of the effort, imagination and finance bypasses small business altogether.

And therein lies the market failure that a realistic, radical new economic approach might tackle in order to genuinely rebalance the economy – and rebalance the rewards from the economy too.

David Boyle is co-director of the New Weather Institute.  His book with Tony Greenham, People Powered Prosperity, is available now and can be downloaded for free from the New Weather Institute website.