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From capitalism grounded to grounded capitalism – Part 2

Even on the left, post-crisis regional economic policy in Britain has been underpinned by pre-crisis intellectual paradigms. This post argues that a ‘grounded capitalism’ approach can transform the British growth model while alleviating regional inequalities

Craig Berry, Deputy Director at SPERI

Craig BerryPart 1 of this essay outlined the scale of the challenge: the long-rooted nature of geographical unevenness in Britain, intertwined with broader capitalist development. Yet while Britain’s geographical inequalities are chronic, they are not inevitable, and should not be a source of despair. Addressing them will not require closing the country off from the global economy, making London poorer, or dismantling the finance sector. In this second part, I advance a more ‘grounded’ approach.

It is noteworthy that many of the left’s traditional instruments for managing capitalism have been largely devised without reference to geographical inequalities. There are few reasons to assume, for instance, that the renationalisation of some industries by central government would in itself make much difference (although this is not to discount the value of public ownership more generally).

The same place-blindness applies to some of the left’s newer ideas too. We must avoid, for instance, the fatalistic temptation of a universal basic income. Some form of citizens’ income may have a role in alleviating poverty, but may at the same time lock in geographical inequalities in earnings. The idea is focused only on our ability to consume, rather than our capacity to produce, and may therefore reinforce key elements of the pre-crisis national growth model.

This is not, in any way, to defend the right’s approach to regional economic policy since the crisis. The twin strategies of the Conservative and coalition governments in office since 2010 – devolution and local growth – have both failed.

The governance of economic development in the English regions is, frankly, dysfunctional. The recent introduction of new institutional layers from the top down has added complexity to an already-overcrowded governance system, which now lacks coherence in terms of strategic co-ordination, planning and funding. Devo-deals at present are little more than partnerships between national and local elites, with few new powers on offer. Meanwhile the democratic accountability of most metro-mayors remains questionable.

Even where metro-mayors might start to work effectively, as central funding is funnelled through mayoral offices, the areas without this new model – likely to be more disadvantaged – risk being further marginalised. Moves towards making all local authorities more dependent on the taxes they raise locally will only reinforce the structural disadvantage of many regions – with innovation in tax policies stymied by new layers of central government conditionality.

The government’s recently announced industrial strategy has given greater prominence to ‘place’ as a pillar of productivity growth. There is now recognition that more resources, rather than clever rhetoric, are required to build regional powerhouses.

But the resources in question remain meagre. Amid a flurry of ‘grand challenges’ and ‘sector deals’, the industrial strategy remains largely blind to the actual economic geography of Britain. It downplays enormous infrastructure gaps and the limited capacity of most areas to contribute substantially to the high-tech industries that the government most prizes.

There remains far too little attention to how scientific and engineering excellence might translate into local economic strengths, and, importantly, to the very large, labour-intensive service sectors, such as care and retail, in which most people outside London and the South East work. We need to think about how these industries can absorb innovation just as much as how to engender new innovation in high-tech industries.

The advocates of urban agglomeration – the highly contested epistemology which underpins the government’s fixation on city-led growth – have too often overlooked the role of the public sector in sustaining successful cities, and been too quick to assume that ‘what works’ in one area can be replicated universally.

When crudely applied, agglomeration counts only local output growth as a measure of success – marginalising the needs of the less productive economic spaces (such as high streets and public parks) which actually enable cities to function. It also brackets off the significant inequalities which have characterised post-industrialism. The juxtaposition of extreme wealth and poverty evident in London is being imported to, for instance, Manchester – with a massive increase in homelessness merely the most obvious symptom.

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So, how can we kick-start sustainable economic development in Britain’s disadvantaged regions? Any progressive agenda must be prefaced by much better data on how local economies actually function, with greater analytical capacity within local authorities in this regard. I would then point to five key shifts required.

Firstly, the other UBI: universal basic infrastructure. No part of Britain should be held back by deficiencies in the hard and soft infrastructures required to support productive activities. This means, for instance, a fairer regional distribution of transport investment, and an end to broadband blackspots. But it also means access to world-class public services wherever you live in Britain.

Secondly, a new settlement between central and local government. This would encompass the extensive devolution of economic powers to local authorities, including powers to ensure firms with a large local footprint operate in the best interests of the local economy. And if a challenge-based industrial strategy is to work, why not allow local and regional authorities to provide national leadership for addressing a particular challenge? A new settlement would also mean, crucially, better representation for regions within the machinery of Whitehall and Westminster.

Even without constitutional change, there is more that local and regional authorities can do to support income growth in their economies. For instance, and thirdly, local authorities can use their own purchasing power – and direct that of locally rooted employers, or ‘anchors’ – to encourage suppliers to create quality career progression opportunities for their workforces, provide support to the voluntary and community sector, and invest in local supply chain development. More effort to democratise local decision-making would also start to address the disconnection many people feel between their lives and how their communities are governed.

Fourthly, while, as noted above, local authorities can seek to support local supply chains, supporting supply chain development in new manufacturing industries must become a major national policy priority. Manufacturing is essential for enabling productivity growth across all sectors, and in the context of Brexit, it is more vital than ever that Britain is able to nurture the kind of local economic conditions that make the country an attractive place to establish large-scale production facilities. It is only through supply chain development that the government’s commitment to advanced manufacturing will create better jobs throughout the country on a meaningful scale.

Of course, any industrial or regional strategy based largely on maximising the benefits on advanced manufacturing, or even high-value service industries, would be too narrowly constituted. We need to develop a much broader conception of how capitalism is embedded in society, by fifthly strengthening the ‘everyday’ or ‘foundational’ economy.

It is in the foundation economy – spanning the public and private sectors – where the basic needs of society are met: providing care, producing food, maintaining the lived environment (both personal and public spaces), enabling mobility, etc. Such activities are not the source of major productivity improvements – but nor should they be. We certainly need to consider how to disseminate innovation into these areas, but for the purpose of improving resilience rather than profitability per se.

In the relative absence of high-growth industries, life in most local economies is more shaped by conditions in the foundational economy than is the case in London and the South East. Yet while the foundational economy is place-dependent, it is not place-specific: it is in every place, driven by fairly constant basic needs. Given that many millions of people work in the foundational economy, better management of the relevant industries could have a transformative impact on livelihoods in Britain, especially among the working class – in terms of job security, as well as pay.

Furthermore, solid foundations help to build individual and social capabilities too, in service of the whole economy – thus the conceptual link between universal basic infrastructure and the foundational economy. Not everywhere can expect to become a national centre or global mega-city. But we can get the basics right in every place.

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Capitalism ran aground in 2008, nowhere more so than in Britain. Too much of what has passed for radical reform since the crisis has been characterised by pre-crisis intellectual paradigms. To address regional inequalities, we need to embrace a more grounded capitalism. This means, at a basic level, the recognition that capitalism needs to be managed strategically if it is to develop sustainably – this is the quintessential tenet of industrial strategy, to which the British state remains resistant.

But a grounded capitalism also means recognising its inherent spatiality, and dependence on a seemingly mundane set of locally embedded economic activities which sustain the social and civic life upon which higher-value economic processes depends. We should of course seek to improve wages and conditions in the less glamorous parts of our economy for reasons of economic justice. It will have greatest impact in the most disadvantaged regions. But economic expediency demands exactly the same: nurturing the foundational economy will enable growth everywhere.

The full version of this essay was first published in the Fabian Society pamphlet, Raising the Bar: How household incomes can grow like they used to, which is available here.

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