Insights

Potholes are not only obstacles in way of improving regional output

Every weekday I cycle along The Mall in Central London. Twice. The Mall is the main road that connects Buckingham Palace to Downing Street and Trafalgar Square. In sixteen years of taking this road as part of my commute I have never seen a pothole. Indeed, there are occasions when the tarmac is so fresh I could eat my dinner off it. By contrast, the condition of the roads across the rest of the country is rather less palatable. There are an estimated 16,000 potholes across the UK and it is likely that this is an underestimate. Compensation for vehicle damage related to potholes quadrupled during 2018. I would venture that none of these compensation claims came from cars driving down The Mall.

I relate this anecdote to illustrate the power of networks and soft power in influencing hard economic outcomes. Outcomes such as the state of the UK’s infrastructure. The Mall is undoubtedly maintained better than Oldham Road, Manchester.  This road has acquired the dubious honour of being the most complained about road in England. As far as I am aware there are no ministerial offices or top Civil Servants working near the Oldham Road. By contrast all 23 cabinet ministers and their civil servants have offices in Westminster. These facts are not unrelated to the state of their respective roads.

The UK has one of the most centralised governments in the developed world. This has reinforced large regional disparities in productivity and infrastructure. The most productive region in northern Europe, by far, is west London. This area produces economic output per person that is more than six times the European Union average. By contrast using the same measure the five poorest regions in Northern Europe can also be found in the UK. It is not that the UK cannot produce world-class growth rates, simply that growth is unevenly distributed.

Recent governments of all colours have tried to address this through the creation of enterprise zones, extending the powers of the devolved administrations, launching the Northern Powerhouse and City Deals, alongside efforts to increase the regional footprint of public sector workers. However, all these efforts stop short of shifting soft power and its network impact out of a relatively small part of Southern England. Proximity matters when it comes to allocating resources. If the Transport Secretary, Chris Grayling, and his department’s most senior civil servants took Northern Rail to work each day I confidently predict that infrastructure investment on the network would improve rapidly.

What is therefore needed is an Industrial Strategy that acknowledges the unique ecosystems created by senior public sector activity. When Theresa May spoke in 2016 about the “good that government can do” I think this is partly what she meant. This is not about pork-barrel spending in the regions. Deeply-specialised commercial ecosystems, seeded by the public sector, can be the basis for growth-enhancing industrial hubs that fuse the best of the public, private and third sector expertise. They can also act as a focal point for bespoke research, development and financing solutions and would form a network of industrial hubs, geographically distributed across the whole of the UK.

The relocation of central government functions would have an explicit aim of supporting innovation in public service delivery and private sector product development. Industrial hubs would mark a return to the place-based economic identity – a strategy with a rich and successful heritage in the UK. While textiles, pottery, linen, steel and coal may no longer be areas in which the UK has a clear advantage, the industrial hubs that these once created in our great cities have a powerful historical resonance. It is an economic model not so much broken, as forgotten.

Consider the impact on the City of Hull and the East Yorkshire region should there be a wholesale relocation of the Department for Business, Energy and Industrial Strategy to the area. This is a city currently supporting the construction of the world’s biggest offshore windfarm – The Hornsea Project – just off the east coast. In the event that this relocation happened, private sector companies seeking to research, finance or influence UK energy strategy would need a footprint in Hull. Such spill-overs and networks need to extend far beyond the tarmac of the Mall.

Previous attempts to increase the regional footprint of the UK’s public sector have stopped short of recommending wholesale relocation. However, the technology to enable virtual co-operation has come a long way in recent years. Enhanced connectivity using televisual networks can facilitate the effective working of cabinet government, parliamentary process and public sector leadership.

Using the public sector to support regional policy also avoids the problem of having an industrial strategy that is about picking winners. Economists and policy advisers now readily acknowledge their inability to foresee the growth industries of the future. While Artificial Intelligence, Distributed Ledger Technology, Genomics and Graphene may sit towards the top of horizon-scanning lists today it is unlikely that these will dominate by 2030. By contrast, we can be confident that certain functions will remain in the domain of the public sector to deliver over many years, forming an anchor tenancy for many sites.

There is also the added benefit that industrial hubs can free up capacity in London and the south east. From the challenges of airport capacity, housing, road and rail infrastructure – these capacity pinch-points are expected to grow as the population of these two regions grows by an estimated 7.6% over the next decade. By contrast the populations of the rest of the UK is expected to grow by just 4.7%. By better distributing economic centres of gravity this pressure can be more equally distributed.

Industrial hubs, either pump-primed through specific regeneration projects or organically through private sector-led network effects have a rich and successful history in the UK and abroad, be it Silicon Valley in California or Media City in Lancashire. Both are examples of where public sector permeance has fused with private sector dynamism to create internationally-relevant industries. Britain-wide industrial hubs need to be embraced if the siren voices of economic protectionism are to be drowned out.

A version of this piece was published in The Times.

 

Simon French

Economics & Strategy