speri.comment: the political economy blog

Fostering ‘Civic Capitalism’ within regional polities

Not all devolution is necessarily ‘good devolution’

Dan Bailey, Associate Lecturer, Department of Politics, University of York

daniel_bailey100At the recent book launch for the new SPERI book, Civic Capitalism, it was suggested by IPPR North Director, Ed Cox, that cities (and particularly cities in the North of England and Scotland) represented the ‘most likely spatial scale for the development of Civic Capitalism’. He pointed to cities such as Manchester, Glasgow and Edinburgh, all of which have enjoyed a dose of devolution in recent years and, as such, now have greater capacity to cultivate alternative varieties of capitalism. The policy-makers at this level, he believed, were the most likely agents of any such change as they were beginning to acquire the institutional capacity to cultivate a more stable and inclusive form of capitalism.

Undoubtedly, devolution has been seen as a laudable development by many on the left who view it as a way to sensitise the democratic processes to local needs and potentially induce more progressive polices than the centralisation of power in Westminster allows for. As Sarah Lyall of the New Economics Foundation notes, there are many potential democratic advantages for communities which could gain control over certain budgets (transport, health and care) and deploy planning controls in line with their more attuned understanding of local needs. As she also points out, this process has already begun in Manchester where £6 billion in health and social care spending was devolved to the Council at the end of 2014 in a move praised by the chair of Greater Manchester Combined Authority, Lord Peter Smith, as a landmark shift from the ‘one size fits all’ dictates from Westminster.

This reflects pressure which has built partly from the widespread recognition that power in the UK is too centralised and from disaffection with Westminster; this is particularly marked now in the wake of the General Election which has left many in the North of England, Scotland and Wales feeling more alienated than ever before. In short, devolution could feasibly sensitise policy-making to the needs of local citizens, perhaps through the Fairness Commission forums.

But we should be still keen to pose some questions: devolution of what? Which powers and functions is Westminster keen to devolve to local levels? And what are the motivations underpinning such inclinations?

It is the motivations of policy-makers in Westminster which are perhaps most interesting here, not least because the timing of this wave of devolution coincides with another round of post-election austerity cuts. It would certainly seem to be the case that delegating responsibility for ‘wielding the axe’ is likely to be an attractive proposition for Westminster. Indeed, as Labour MP for Worsley and South Eccles, Barbara Keeley, noted, in the midst of all those triumphantly heralding ‘Devo Manc’, local politicians are effectively ‘being handed over a funding crisis’. This is also a point made by a host of economic geographers such as Jamie Peck and Neil Davidson. Although this can be seen as strategically duplicitous in its disguising of responsibility, this may not necessarily be a problem. If cuts are to be made, perhaps it is better that locally-situated politicians make those choices.

However, there are other long-term aspects to the devolution issue which hint at the potentially regressive undercurrents driving its promotion in Westminster. The most obvious derives from the mooted possibility of more affluent regions negotiating deals to retain tax revenue generated in areas which are net-contributors to the Exchequer; the effect here would be to stymie the mechanisms of redistribution to the poorer areas of the countries. The EarnBack scheme, which was part of the Manchester negotiations, can be seen as one salient example of this. Essentially, it ensures an increasing retention of tax income over time for each major city – seemingly a subtle institutional mechanism of ‘locking in’ a geographical bifurcation of available funds for investment. In the official government documentation it is framed as ‘incentivising and rewarding growth’.

Yet, more than that, there seems to be a danger that devolution could kick-start attempts to instigate deregulatory and tax ‘competition’ between different polities within the UK. Such a danger would be triggered by what a press release from the London Assembly declared to be the ‘aim’ of devolution: namely, to put under local control ‘property tax revenues streams – including council tax, stamp duty, land tax and business rates – with the ability to reform those taxes’. This could be only the thin end of the wedge. The idea that such devolution could enable local policy-makers to make local areas more appealing to businesses and potential inward investors is conventionally heralded as one of the great advantages of the move. However, creating a country of separate and competing polities which seek to do this could have disconcerting consequences when viewed from the macro level.

Indeed, there would likely be punitive economic consequences for local politicians not seeking to gain these devolved powers. As Neil McInroy of the Centre for Local Economic Strategies predicted, ‘in areas with no devolved powers, and maybe even those outlying boroughs (but still within the city region), there is likely to be an ebb in economic investment, worker flight, and business relocation’.

Such developments could be seen as a preliminary step towards Britain internalising the same ‘race to the bottom’ logic which rationalised deregulation, state retrenchment and tax competition amongst European countries as a response to economic globalisation and the international mobility of capital. Professor Matthew Watson at Warwick University has spoken at length about the risks involved in policy-makers appealing to the concept of ‘competition’ to justify the creation of more business-friendly environments in such a context. Big reductions in corporation tax in recent years have been rationalised as making Britain ‘open for business’. Now the political construction of such even more Darwinian competitive conditions within Britain can be identified.

In general, there is much to be said for the devolution of powers in some areas. But it may be prudent to sound a note of caution and temper excesses of enthusiasm for it as a governing concept. We should be wary that not all devolution is necessarily ‘good devolution’. There is a danger that the policies passed under such a banner could potentially further the conditions under which mobile capital is able to play polities off against each in order to seek out ever lower tax and regulation zones.

Following the General Election, calls for devolution to the regions will be stronger than they have been in some time. But, if devolution is to produce less volatile and more inclusive forms of capitalism, as Ed Cox for one hopes, it will be important to be more discerning of the types of functions being devolved and institute precautions to prevent a deleterious ‘race to the bottom’ emerging across the future devolved regions of the UK.

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