The quiet revolution that could help build a new economy

There is an excellent article by Jenni Russell in this morning’s Times . Drawing on the powerful research of the Resolution Foundation she shows recovery is unlikely to address the divide between the rich, on the one hand, and poor and struggling middle families on the other. Indeed, such is the continuing scale of indebtedness of British households that a recovery which led to rising inflation and interest rates could be catastrophic for millions of people who are currently only just able to pay rock bottom interest rates.

Given both the weak fundamentals of the British economy and the role being played in the recovery by a mini housing boom deliberately engineered by the Government, it is easy to conclude that the debate about new economic models which was precipitated by the 2008 crash has proved to be insignificant. There are multiple imbalances in the economy - geographical, industrial, social – but seemingly the only one really taken seriously by Coalition is that it perceives between the respective sizes of the public and private sectors (not that it is yet having much impact here either). In making (and winning) the case for public sector austerity, the Government makes much of its commitment to the long term yet it is pretty clear that ideas of building the foundations of a new economy have – even if they were ever taken seriously - been replaced by the mantra ‘any growth is good growth’.

As part of a broadcasting project, I have in the last few days been focusing on economic strategy in cities, and particularly city regions. Indeed, the Government deserves credit for having generated - through the establishment of LEPs and various national funding pots – the emergence of bottom-up movement towards city region collaboration. Greater Manchester’s combined authority of ten urban councils is the pioneer but plans are now advanced for city regions around Leeds, Liverpool, Sheffield and even in the traditionally parochial North East.

The perspective of these city regions is both more inclusive and strategic. Yes, they want growth but it has to be growth for the long term, which generates jobs and which holds out the prospect of rising living standards across the locality. As Bruce Katz and Jennifer Bradley from the Brookings Institute argue, cites have learnt the lesson of the crash. The focus is no longer so much on a consumption based model of regeneration (city centre apartments, sports stadiums and shopping malls) and more on seeking to identify, develop and exploit productive capacity. There is, for example, interest in evidence suggesting that investment in activity which leads to exports from cities has significantly greater benign spill over effects than activities which are either circulating money round the local economy or – as in the case of spending in international retail chains – removing money from the economy.

Criticising Government policy in one paragraph and praising it in the other is not simply a sign of my inconsistency it reflects a strange dualism. While at national level the economic debate feels polarised, predictable and short-termist, and while certain ministers continue ritually to trash local authorities, key parts of the Coalition (the Cabinet Office, the Treasury and BIS) are working pretty effectively with predominantly Labour councils to start to develop ambitious local economic strategies. Similarly, while the list of newly created peers might seem to emphasise the way national business interests line up with the Conservatives, at the city region/LEP level Labour Councils and the private sector are trying hard to work together to develop and pursue economic revival.

There have been many previously unsuccessful attempts to create effective regional and sub-regional economic governance in England, and we still remain just about the most centralised system in the developed world. However, my sense is that this time may be different. There are many reason for this including the role of key figures such as Lord Heseltine and ‘core city’ leaders like Manchester’s Richard Lees, but the most important is that when it comes to the two biggest challenges we face – sustainable and inclusive economic growth and affordable public services –the city region is simply much more likely than the nation state to be the place where integrated, and imaginative solutions can emerge.

This may be the beginning of a quiet and long overdue revolution in economic and wider policy making. But given that neither Ed Balls nor George Osborne will win plaudits in their parties by talking up nationally sponsored, locally designed public private corporatism don’t expect local pragmatism to be echoed in national debate any time soon.