Regional and local economics

Lecture 8a: Return to classical prescriptions: UK regional policy from 1979

Aims & Outcomes Aims

 Examine the how policy changed after 1979   Review the reasons why policies changed and their rationale Examine how effective the “new” policies were.

Outcomes

 Have working knowledge of the types of policy that were used  Be able to explain the rationale for different policies  Be conversant with analysis of outcomes

Regional and Local Economics (RELOCE) Lecture slides – Lecture 8a

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Regional and local economics

Introduction

  1979 a “watershed” - Policy moved from being “top down” (Subsidy, direction & control) to become more “bottom up” (targeted, tied to outputs, competition)  Scale shrank but new types “emerging” (Urban and Local, Enterprise zones and Freeports)

Reasons for change

   

Ideological

The balance of power needed to change

Economic

 Slow national growth,  Greater exposure to “free” trade,  Lack of competitiveness,  Impact of the EU

Government thinking

 The “interests” of companies,  deadweight and displacement,  indigenous potential,  policy.

Consequences

 Abolition of IDCs,  move out of automatic assistance,  reduction in coverage,  decline in budget (resources),  targeted assistance (urban),  aim for “self-sustaining” growth.

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Regional and local economics

Inward investment

Not an overt policy aim

 Less regulation and an end to punitive taxation levels  Access to the European Union market

Competing hypotheses



Dependency

- unequal trading, short-term relationships, little day-to-day control, low-tech & low-skill, external strategic control 

Developmental

- collaboration technology and trust, long-term partnership, “embedded”, developmental and skilled, autonomy

Outcomes

   Co-ordination through UK Trade and Investment See http://www.ukinvest.gov.uk/UKTI-publications/4030715/en-GB.pdf

Last year of full figures (2007) accounted for around $1,300billion; more than any other country excluding the US. Nearly 30% of total US investment in Europe. And 20% of all foreign investment. UK is also the second largest overseas investor .

people work for Japanese companies and 450 international companies have their European HQ’s in the UK.

Nearly 93,000

Regional and Local Economics (RELOCE) Lecture slides – Lecture 8a

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Regional and local economics

Indigenous growth

Arguments for

 Large number of “new” jobs, diversified & flexible industrial base, competition, innovation, improved IR.

Arguments against

 Short life-span, marginal jobs, high stress poor working conditions.

Recession push factors

 Threat of redundancy, pay-offs, reduced barriers to entry, outsourcing, the sale of of non-core activity

.

Dilemmas

   Who to help Turnovers, Trundlers or Flyers Which sectors Manufacturing or services Where to help nodes or uniform

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Regional and local economics

New Technology

Why so important to regional development?

  Positive effect on profitability Transformation of internal competencies

Fundamental shifts in product market

 

Demand

- Rising incomes, fragmented patterns of consumption demand, design and quality increasingly important

Supply

Flexible production, technological “push”, short-run production batches

R&D

   

Applied research

private sector,

Basic

universities & government Concentrated in small number of “key” industries Clusters for

professional

&

lifestyle

reasons, external information vital Bulk in SE but there are exceptions

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Regional and local economics

New Technology (Cont.)

Different patterns of diffusion

 Process rapid, wish to see the “new” technology spread  Product - slow, wish to diffuse the product not the technology

Case for technology based regional policy

 Key element in growth process, clean, dynamic, high-quality, high wage

Spreading the benefits from new technology

 Technology transfer agencies, investment grants, research parks, venture capital initiatives, improved infrastructure

Who/what to target?

 Starters, at growth thresholds, older firms, inward investors, defence spinouts, links between HE and private sector.

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Regional and local economics

Urban policy

Rationale

 Economic support is as important as social support for run-down communities

Main themes

   Co-ordination - integrate public & private investment avoid duplication Enterprise investment “crowded out”, deregulated zones Development “independent UDCs, employed the concept of “leverage”, successor English Partnerships  Severely criticised in retrospective evaluations

Evolution

 Single Regeneration Budget Programme - public private partnership , local government co ordination, inputs “in kind”, dependant on development to lever in Public and EU funding

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Community Economic Development (1990 onwards)

Reasons for emergence

  Increased numbers socially excluded individuals (measurable) Interest in theories of

Social Capital

Differences from other local and regional development

 Truly “bottom up” approach - participation, long-term, explicit social, political & environmental objectives, co-ordination, area based.

Instruments

  Traditional but applied differently -

subsidy

(credit unions and co operatives),

advisory & managed

(capacity, development through trading organisations for “locals”) New -

LETS

(local barter system), micro credit schemes, social risk capital,

Intermediate LM

halfway-house to employment, deliver product or service, time limited, risky

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Regional and local economics

Impact of inward investment

   UK became a more attractive investment proposition post 1979 1998/99 UK FDI £

38.6bn

,  50% from US ($279bn since 1979);  23% of all FDI in Europe, 40% of Japanese and US investment (France 15%);  second largest recipient after US (China 3rd); Split of FDI 30% new investment, 40% expansions, 30% acquisitions.

Armstrong & Taylor

  60% of manufacturing FDI to 1990 in 4 regions (Scot, West Mid, Wales, North West);  since 1991 pattern continued. But centre/periphery split in manufacturing (67% in periphery) and non manufacturing (64% in core). Japanese investors favour Wales and North. Nature of investment changing.

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Regional and local economics

Impact of inward investment (Cont.) Studies

 Taylor (1991) factors affecting Japanese FDI   Stone & Peck (1996) Foreign owned manufacturing sector Munday

et al

(1995) Japanese owned plants in Wales   Brand,

et al

(2000) FDI in Wales, Scotland and W Midlands smaller output multipliers, productivity, jobs multiplier & RVA higher Hubert & Pain (2000) FDI & technical progress - significant element, positive externalities within and between industries.

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Indigenous potential & SMEs

Regional assistance more effective in assisting small firms than larger ones (Taylor and Wren)

      Small firms 99.2% of firms; 44.7% of employment; 38% of turnover Lower proportion in UK than many competitors and UK regional performance differs; Southern rural good; Industrial heartlands poor for SMEs By late 90s change underway; strong growth in London and Merseyside; evidence that survival rates in periphery improving

Study be Keeble

- little regional difference in profitability; SE more export orientated; peripheral more R&D; all subject to competition. Is north “hostile” environment for SMEs? Self-employment (

Robson

)

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Regional and local economics

Technology & R&D

Manufacturing Sectors

 Pharmaceuticals, Office machinery & computers, Aerospace, Instruments, Electronics, Telecoms.

Location

 South East; growing stake for East, SW & Wales; cluster round London  Link between Technology & R&D

Data



Most R&D in the UK is placed by;

private enterprise (50%), Overseas firms and governments (15%), Research councils & HE (16%) Government (16%).  

It is carried out in;

business enterprises (64%) higher education (20%).

Focus of R&D has been switching between sectors.

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Technology & R&D (Cont.)

National picture

 Almost 140,000 people worked in R&D in 1997; Fall of almost 30% since 1981; Losses in administrative and technical; Number of scientist and engineers has increased by 10%.

Regional picture

    South East accounts for almost 24% of all R&D Business funded R&D East and South East (48%), Government funded South East and South West (47%) Academic funded in London, the South East and Scotland (52%)

Concentration

   Private R&D is dominated by HQ plant of large firms; Top 15 1985 50% of R&D jobs; 57% of private R&D; 79% of Gov. R&D 1997 62% of R&D jobs; 60% of private R&D; 54% of Gov. R&D

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Technology & R&D (Cont.)

Technology transfer & Science parks

   Technology transfer between pure and applied R&D companies/organisations and new technology-based firms (NTBFs) is often through Science Parks See Henneberry an early article (1992) more up-to-date figures from the UK science park associations suggests an estimated annual turnover from science parks £5.5 bn; total of 1.88 million sq m floorspace; employs 73,000 in 3,300 companies; there are 8 further science parks under development and 71 currently in operation. NTBFs - Faster employment and sales turnover growth; greater local multiplier effects; tendency to sub-contact out work locally; minimal displacement effects; more likely to export; may be some deadweight

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Urban policy

Three areas Enterprise zones, UDC; SRB Enterprise zones (study by PA Cambridge consultants)

Study of 22 of the 25 enterprise zones.

The key findings

:   

5,000

companies on the 22 Zones by 1990 employing nearly

126,000

people; about

58,000

(46%) of jobs were additional; additional jobs highest manufacturing lowest for retailing and distribution; Cost per job year £

1,700

; private sector investment was indirect; total public sector cost of the 22 Zones between

£798-£968

million; rates relief 46%, enhanced capital allowances 45 %, infrastructure 9%. Outputs developed; £2 billion of private capital; public to private leverage ratio of about

6,700 1:2.3

acres of land, removal of dereliction;

82% 6,000,000

m 2 of floorspace, 80% of land ;Environmental improvement in the Zones through the of the firms said their current employment levels would remain

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Regional and local economics

Urban policy (Cont.)

Urban Development Corporations London Docklands Development Corporation (Oc & Tiesdell)



Findings -

Single objective wealth creation; community benefits “trickle down”; “pump priming” & asset disposal; Combined development to change image & boost land prices; aided by a buoyant property market and proximity to the City of London’s financial district.  

Outcomes

- Mixed development went to build for sale; only 8,000 by 1987, 36% were “new”; jobs mainly service orientated; provision of training severely criticised; initial transport planning for the area was inadequate particularly the provision of public transport.

Cardiff Bay

(Rowley) - Poor training provision; lack of effective employment; lack of equity in housing provision; UDCs potential “to work” benefit the local economy; need to have more of a community focus.

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Regional and local economics

Urban policy (Cont.)

Review of performance & good practice (Roger Tym & partners)

      Characteristics large-scale vacancy and dereliction, degraded environment, inadequate infrastructure, low resident populations, all close to areas suffering severe economic and social disadvantage.

Output 143,937 jobs, 326 km of road, 2,389 hectares of land reclaimed, 5,029,000 m 2 of new commercial floorspace, investment £6.87 billion private & £1.99 billion public. Hostility diminished over time, policy shifted towards holistic regeneration and multi-agency partnership. Need to kick-start investment and economic activity in areas suffering severe physical degradation Site assembly and reclamation by the public sector are crucial Closer integration to ensure the benefits of investment-based regeneration are channelled to deprived local communities.

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Urban policy (Cont.)

SRB Challenge Fund

 Brought together funding of 20 previous programmes spend £1.4bn pa.

 Organised through Government regional offices, funding allocated via competitive bidding

Study by Dept of land Economy University of Cambridge

 Based on data from 555 successful bids across rounds 1, to 3 of the Challenge Fund, analysed at the Local Authority District level.   Key findings - Positive relationship between degree of deprivation and expenditure, vast majority of deprived areas have received funding; the 20 most deprived LA Districts in England received almost one-third (30%) of total SRB CF; only 19% went to 267 non-deprived areas some of these Districts contained smaller pockets of deprivation or had newly emerging needs. For rounded discussion of programme see Oatley N, (1998)

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Conclusion

      1979 watershed from “top down” blanket intervention, to “bottom up” targeted assistance Mixture of political & economic reasons - most importantly competition. Goodbye to controls, deadweight, displacement & branch plants.

Welcome to innovation, entrepreneurs, de-regulation, value for money & technology Inward investment poses a crucial dilemma - indigenous growth the touchstone - new technology the crucial challenge - the emergence of an integrated approach to urban and local problems Community development the new challenge

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   

Conclusion (Cont.)

Although not an explicit part of regional policy, inward investment has had a profound impact on the regions, manufacturing concentrated in the periphery, increasingly embedded, high tech & high value.

SME growth significant after the 70s, but tends to favour southern regions, some evidence that entrepreneurship is spreading, growth in self-employment also important Spreading technology and R&D to the regions, currently highly concentrated in the South and large firms, need to spread out via, technology transfer (pure to applied) and new technology based firms, some evidence of success.

Urban policy, massive expansion, more focus on property development with less emphasis on permanent jobs and training; needs to become more holistic and focused on host communities.

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