Friday, 10 March 2017

What should we do to help make our economy work for everyone?

Posted by Henry G. Overman (SERC, LSE and What Works Centre for Local Economic Growth)

The report of the Inclusive Growth Commission, published earlier this week, asks an incredibly important question: What should we do to help make our economy work for everyone?

Despite being one of the Commissioners, I should confess up front that I don’t share the reports certainty in terms of specific policy reforms that would work.

Some I like a lot, at least at the broader level. I support the general argument that the UK remains overly centralised and that further devolution could include some aspects of social policy. I like some of the detailed recommendations around using a small basket of indicators to measure ‘quality GVA’ – although more for the focus on distributional impacts than the proposed re-labelling. I’d like to see greater consideration given to these indicators in policy development and investment prioritisation. I also quite like the idea of a UK Inclusive Growth Investment Fund incorporating repatriated European Structural and Investment Funds (ESIF) – although I’d want to see that sit alongside a more traditional fund, as well as a non-ring fenced needs-based allocation to local areas.

I flat out disagree with some of the other recommendations. I’m very wary about place-based industrial strategies. Particularly if they involve ‘sectoral coalitions’, local jobs for local people or public procurement procedures that emphasise local purchasing over transparency or value for money. I also remain to be convinced on regional banks.

This list is far from exhaustive, and people that are familiar with my thinking can probably guess which of the remaining recommendations fit in which camp. But, for me, none of this matters relative to the importance of three central messages that emerge from the report.

First, as Stephanie Flanders' introduction puts it: “we need to do a better job of measuring what counts”. As the report argues: “Traditional metrics of economic performance, such as GDP or at a regional level GVA, are a poor guide to social and economic welfare. They also do not tell us anything about how the opportunities and benefits of growth are distributed across different spatial areas and social or income groups.” For me, it is the second part of this argument that is absolutely crucial. I am fed up with seeing arguments for (e.g.) ‘high-tech’ strategies for poorly performing places that don’t (and can’t) spell out how particular investments would ever benefit lower income households in the area.

Second, “investment in social infrastructure – including public health, early years support, skills and employment services – should go hand in hand with investment in physical infrastructure”. Back in 2008, the Manchester Independent Economic Review made a similar point. Right then, and right now.

Third, we need to “align social and economic policy around promoting inclusive growth”. Again, this is crucially important. For many parts of central and local government, the key policy interventions for delivering inclusive growth lie far outside the traditional remit of local economic growth policy.

Forget the details, it’s these three key messages that are central to developing policy that will help make the economy work for all.

[This post first appeared on the RSA Inclusive Growth Commission Blog]