The modern economy: Local authorities have to adapt—or trouble awaits
A region of new ideas
Over the past 30 years in the UK, our political systems have swung from a right-wing, laissez-faire approach, to left-wing reliance on the state. Through the former we have seen rising inequality and a growing awareness that “trickle down” economics has failed, through the latter a hard-pressed bureaucracy and fragmented structures out of place in the modern economy.
An intermediate model looking to bring together public and private sectors—often termed the “entrepreneurial state”—has struggled to get any real traction.
That’s a shame. It’s a model with deep roots in the 19th century municipal companies established by the great Liberal leader Joseph Chamberlain and the entrepreneurs who saw it as their duty to invest in both corporate and social infrastructure.
The combination of public and private sector partners is at the heart of the newly-formed West Midlands Combined Authority, with its first elected Mayor, Andy Street. This has brought with it the abolition of many old structures and the establishment of comparatively new ones, such as Local Enterprise Partnerships and Growth Hubs, along with a soon-to-be re-established Manufacturing Advisory Service which ran for 10 years up to 2015 and proved popular. This re-ordering has brought a good deal of confusion.
As a candidate for the West Midlands Mayoral election, I promoted the idea of our region becoming more independent and less reliant on Westminster. Our region is strong in manufacturing—30 per cent of UK car manufacturing and 3 per cent of the world’s aerospace industry is based in the Midlands. How can we make the most of this enormously valuable capability, not just for the region but for the nation as a whole?
The range of necessary improvements is enormous, and covers planning systems, training for young people, housing and transport. This last issue is especially problematic. Over the past 20 years businesses in the West Midlands estimate that congestion has cost them an estimated £3bn.
“In our region the average gross value added per employee is £3,500 per year less than the national average”
The region has received less than one sixth of the infrastructure investment of London over the past decade and figures from the think tank the IPPR show that over 75 per cent of all infrastructure spending between 2015-2020 is destined for London and the southeast. It can take up to an hour to travel under 10 miles in the Black Country and this problem will not be solved by HS2. One of the challenges the new Mayor has prioritised for his first 100 days has been on “congestion busting,” especially on the M6 motorway.
But we face deeper structural problems. The West Midlands Combined Authority has recently established the Productivity & Skills Commission. It has identified an output gap of £14bn for the region. On productivity, it gives a shocking figure—in our region the average gross value added per employee is £3,500 per year less than the national figure. The call for evidence suggests that 57 per cent of this gap as down to insufficient skills and the drag of unemployment.
Even so, there is cause for optimism. There are 81,755 companies in the region. Of these, 1,480 are medium-sized and a further 7,000 are manufacturers. There are 350 medium-sized companies—meaning they have between 50-250 employees. There is an opportunity for these smaller firms to drive growth, so long as they receive support on the development of skills through apprenticeships.
Companies need to be able to buy more locally, develop local supply chains and hire more young people. This is particularly significant for the West Midlands where 15 per cent of GDP is derived from manufacturing. This is all the more significant in that the multiplier effect from production is bigger than from services—meaning that each pound spent in manufacturing has a greater economic benefit than equivalent investment in IT
Our new Mayor has pledged to double the rate of house building by the end of his first term. This presents a great opportunity to provide first time job opportunities to apprentices. Youth unemployment—which he has pledged to eliminate by 2020—is at 27 per cent in Wolverhampton and at 15.5 per cent across the West Midlands.
To do this, our new Mayor will need to work with local party leaders, whatever their background, bringing together the public and private sectors to identify new growth opportunities. In our region, thanks to our vibrant manufacturing economy, those opportunities are many.
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