A “rigged” system, the “left behind” and the need to “level” the prospects of UK regions are not phrases you typical hear in the Tory lexicon – but the Conservative Party leadership contest has finally forced the candidates to think about tackling Britain’s economic divide. However, neither has found a way to tackle economy’s structural flaws.
The financial crisis and era of austerity may have magnified these structural problems, but the problems predate both. The UK’s economic performance, measured in terms of labour productivity, has been diverging from international peers and between UK regions for decades. The average British worker is now almost a fifth less productive than the average worker from the G7 group of advanced economies. UK workers also reside in a country that is the most regionally unequal in Europe.
Vague calls for billions to be spent on infrastructure by some candidates at least recognise this fact, but this policy addresses only one part of the UK’s economic muddle. Other issues, such as the UK’s low levels of R&D spending, weak diffusion of best practice across firms, pervasive skills mismatch, shackled local government, credit constrained SMEs, and myopic corporate governance are still as relevant today as they were at the time of the last leadership contest.
These issues cannot be addressed by one ‘silver bullet’ policy. However, there is a unifying theme: a concentration of political and economic decision-making in only a few regions, firms and institutions.
Framed in this way, the solution is simple: a coordinated effort to decentralise Britain.
Plans to decentralise have been proposed before: just ask Michael Heseltine, a previous failed challenger for the Tory mantle. However, these decentralisation plans have been limited in scale and ambition.
Decentralisation must be broader than a policy proposal. It has to become a governing philosophy that guides all policy making. That is the essence of my team’s joint-winning entry for this year’s IPPR Economics Prize.
Applying this philosophy to local government would mean policies that decentralise economic activity and political governance, empowering local people and reducing local business costs. A policy such as mobility funding, which helps households and businesses relocate to new regions, is one such policy within this framework that can encourage a rebalancing of growth.
A reversal of the UK’s regional inequalities will also improve social cohesion, re-legitimise capitalism, and guard against extreme alternatives that are destructive in the long-term.
Decentralisation can also be applied to the private sector. The wide disparity in productivity between the UK’s firms can be addressed by reforming intellectual property law, adopting a system of compulsory patent licensing and incentivising collaboration between firms. Decentralising firm-level decision-making can also reverse the culture of short-term profit extraction by ensuring that the views of employees and local communities are considered in corporate boardrooms.
The financial sector in particular will serve the economy better if it is more local and community-minded. For example, we propose establishing a network of community banks that will be more responsive to the needs of credit-constrained firms and less vulnerable to global financial shocks.
All of these policies and the many more proposed in our winning report should combine as part of a ‘big push’ that can truly achieve inclusive prosperity.
Crucially, a blueprint for decentralisation will only transform the UK economy if it is adopted wholesale. This requires clear strategic leadership from Westminster, especially since implementation will be a long-term project that may straddle more than one parliament. In short, the next Prime Minister must resist the piecemeal efforts of the past and seize the opportunity to build a country that is more prosperous, less economically divided and less disconnected from decisions over its future.
Farooq Sabri was joint winner of the IPPR Economics Prize. The opinions expressed in this article are those of the author only.
