1. Economics
July 17, 2018

Here are five common mistakes in local economic policy – and tips on how to avoid them

By Henry Overman

By now, it’s not just economists and policy wonks who know that the UK has a big problem with productivity. After one of the worst decades for productivity growth in the UK’s modern history, people and places are feeling the consequences, from stagnant wages to declining living standards.

The government hopes to tackle these issues through the Industrial Strategy, and has tasked local leaders up and down the country to come up with local strategies to address sluggish productivity in their areas.

But the reality is that local leaders have been writing similar economic development strategies for decades, with mixed success. How can they ensure that the new local industrial strategies (LIS) succeed where others have failed?

To help cities contend with that question, the What Works Centre for Local Economic Growth has published a new report on some of the do’s and don’ts of local economic strategies, based on our comprehensive evidence-base, the insights of academics and a large number of discussions with practitioners in central and local government.

So what are some of the key pitfalls that places need to avoid in the LIS? Our report contains many suggestions, but here’s five for starters:

Don’t compare your apples economy to an orange one. For example, trying to understand employment trends in Hull by comparing them to the national average might be counterproductive, given how much the booming southeast labour market skews the national figures.

Look at trends in a basket of cities with similar characteristics instead: iin Hull’s case, that means cities like Middlesbrough, Stoke or Sunderland).

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Don’t just try to grow your high tech cluster. Be realistic about local strengths and where growth is likely to come from. Don’t assume the trickle-down fairy will turn any high tech growth you can encourage into improved economic opportunities for those struggling at the bottom end of the labour market.

If you want growth to be inclusive, you need policies that directly target people who are struggling.

Don’t just ask your biggest employer what to do. Chances are, they’ll tell you to do whatever is best for them – which might not be the same as what is best for the wider local economy. For example, new (and expensive) transport links might be top of the wish-list for your large pharma company. But it might be better for all of your employers and residents to invest in basic skills across the board.

Don’t spend lots of money on complicated economic modelling. We’re seeing a worrying tendency for many areas to spend considerable amounts of money commissioning consultancies to develop economic models which can supposedly predict the future impact of different policies for their places. Unfortunately, these models produce spurious accuracy, but precious little insight as to the likely effect of many policies.

Planning for a few likely scenarios can give you a better sense of potential changes in your economy at a much lower cost.

Don’t rush in. Go back to fundamentals and make the economic case for intervention. There are some problems that local policy will not be able to address. Some policies won’t work (how would you know?) and intervention almost always brings unintended consequences. Asking a few critical friends – a panel of independent experts, if possible – will help places get a better perspective.

The government has avoided being prescriptive about LIS, which means places have a free hand to act. Avoiding the mistakes that have been made in the past will be crucial in delivering LIS which really get to grips with the economic challenges their areas face – and start to address the weak growth that places up and down the country have seen over the past decade.

Henry Overman is director of the What Works Centre for Local Economic Growth, and professor of economic geography at the London School of Economics.

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