Local and Regional Economic Development: Renegotiating Power Under Labour

Robert J. Bennett, Diane Payne

• Publisher: Taylor & Francis
• Year: 2019
• Print ISBN: 9781138728349
• eBook ISBN: 9781351749350
• Edition: 1
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

This title was first published in 2000. Since New Labour were elected in 1997, there have been substantial changes made to local and regional economic development policy in the UK. This volume offers an up-to-date overview, setting the new policies within a wider historic context and suggesting future developments. It examines four of these new policies in depth - Regional Development Agencies, New Deal local partnerships, Local Learning and Skills Councils, and the Small Business Service and Business link. In doing so, it offers a critical appraisal of how effective these changes have been in tackling issues such as developing human resources, skills and opportunities, developing land infrastructure and sites, capital formation and development, encouraging innovation, entrepreneurship and technological change and enhancing a supportive institutional context.

1 Renegotiating Local and Regional Economic Development

1.1 Introduction

This book focuses on the renegotiation of power in Britain between the agents that are concerned with local and regional economic development in the period since the election of the Labour government in May 1997. Local and regional economic development has been a long-running concern of both central and local government. The period covered by the Conservative governments from 1979 until 1997 saw many of the former economic development powers of the different agents abolished or modified. Labour was elected with a new agenda which emphasised a re-invigoration of the regional level, a stronger role for local government, greater emphasis on social objectives, a higher degree of consultation with key agents, and an emphasis on partnership between public and private interests. Nowhere more than in the fields of local and regional economic development has this agenda been as fully tested.

The book disentangles how the renegotiations between agents have operated. The interaction of agents has depended on their predisposition to influence government, their power to do so, and on their relative power to influence other interests and agents. We develop an approach that allows the process and outcomes of the negotiations between the agents to be examined. The methods used have been applied extensively in previous studies outside of Britain, for example to assess European Commission decision making,¹ government decision in a variety of countries,² and a variety of other areas. One of our main aims is to apply these negotiation models for the first time to a broad range of UK policy discussions. In the book we assess in detail how negotiations have developed in four case studies that cover the main areas of policy change affecting local and regional economic development in the first three years of Labour's new agenda, up to mid-2000.

These case studies focus on:

• the establishment of Regional Development Agencies (RDAs);
• the development of the New Deal for the long term unemployed through local delivery partnerships;
• the replacement of Training and Enterprise Councils (TECs) by local Learning and Skills Councils (LLSCs); and
• the establishment of the Small Business Service (SBS) structure for local business supports delivered through Business Link (BL).

These policy developments focus on the key dimensions of local and regional development, respectively: physical regeneration infrastructure and inward investment (RDAs); labour market social inclusion and skills development (New Deal and LLSCs); small business startups and endogenous growth (SBS and BL).

The analysis we develop demonstrates how the policy objectives of each agent feed into the policy process that leads to the final outcomes for each of the case studies. We assess winners and loses. We demonstrate the extent of improvement achieved for economic development. And we also assess how alternative scenarios might develop in future negotiations. Because Labour's agenda is not fixed, but is conceived of more as an ongoing project,³ understanding the shape of possible future developments is a crucial part of assessing how the local and regional economy will be influenced by public policy in the future. Each case study assesses in turn:

• the match of actual outcomes with each agent's preferred outcome;
• the winners and losers in each case;
• the extent to which the outcomes of Labour's changes have actually improved the economy;
• how alternative scenarios which gave more power to different interests might have improved the outcomes.

Our chief conclusions, developed in chapters 9 and 10, but presented in the executive summary at the start of this book, indicate that whilst considerable contributions to local and regional development are likely to be achieved as a result of the reforms developed under Labour, there has been a loss of strategic vision, increased fragmentation, and an erosion of economic focus. There is thus still a long way to go before a fully effective institutional structure will be in place that gives a greater assurance that long term economic and social objectives will be secure. In chapter 10 we indicate the key improvements needed.

1.2 Local and Regional Economic Development

Local and regional economic development concerns the development of resources and wealth, employment, and social opportunities at the sub-national level. Generally the local level is associated with local labour markets and/or local networks of inter-business relations. This is also the level at which operate the key agents of local government and many social and voluntary sector bodies, as well as many small business support organizations. The regional level is usually interpreted in the UK as consisting of Scotland, Wales, Northern Ireland and the regions of England. However, the English regions have no fixed or easily definable boundaries. We use for our purposes the nine government statistical regions in England utilized for government purposes. At this scale economic development is chiefly focused on inward investment, major infrastructure, and development of a strategic interface between central government funding priorities and specific regional or local objectives.

Local and regional economic development is concerned with improving each of the five key elements of:

• human resources, workforce skills and social opportunities;
• land, infrastructure and site provision;
• capital formation and investment;
• innovation, entrepreneurship and technological change;
• a supportive institutional context.

Each of these elements constitutes a factor of production necessary for the successful functioning of the economy and the social structures that this supports in any locality or region. Each factor separately contributes to economic development. But its supply depends on different and overlapping agents which have to cooperate with each other if the full potential of economic development is to be achieved. This process of cooperation is central to the analysis in this book. Cooperation has to be an ongoing 'negotiation process'. To achieve cooperation requires a willingness to exchange information, to develop joint policy positions between agents, and to back those positions with commitment and resources. Successful local and regional economies will have successfully built that process of cooperation founded on commitment. Less successful economies usually have gaps in exchange or commitment between agents. This process of exchange and development of commitment we refer to as capacity building.⁴

Capacity building is a concept used to define the development of the potential to influence economic development positively. A strong capacity indicates that the agents that control each factor of production undertake exchanges that ensure a full development of policy commitments, so that each agent is pointing in similar directions and mutually supports the local or regional economy. This does not necessarily imply that all agents agree on all matters, or that all are equally important to the economic development process, or that there is some command and control coordination process. But it does require each agent to fulfil its responsibility in the economic development process. Hence our emphasis on capacity building is one which focuses particular concern on agent objectives, institutional power, agent commitment, and inter-agent exchange of information and adaptation.

1.3 Capacity Building and Endogenous Growth

Our emphasis on the inter-agent exchanges required to assure economic growth draws heavily on the concepts underlying endogenous growth theory, Gordon Brown, when Shadow Chancellor in 1994, drew attention to Labour's interest in 'post-neo-classical endogenous growth theory'. He subsequently continued to develop this framework by focusing on 'the productivity gap' of British businesses with those of other OECD economies.⁵ However, Gordon Brown has tended to interpret endogenous growth and productivity in a narrow sense as recognising the importance of technological change to endogenous growth. Indeed, the DTI has placed considerable emphasis on this since its 1998 Competitiveness White Paper.⁶ However, we emphasise that endogenous growth is not just derived from technological change, but also incorporates institutional development that increases the productive capacity of the economy.

This wider interpretation of endogenous growth theory has been given considerable attention following the publication of a McKinsey report in 1998,⁷ This report emphasised the importance of improving productivity in the UK through reforms to the way in which business and government interface; particularly, to improve the regulatory process. This is an aspect largely ignored by Labour and much criticized by business.⁸ We take this argument further by highlighting the need for a much broader base of inter-agent cooperation to be in place; not only between central government and businesses, but between all the agents that influence the development of the economy; at central/national level, and also at regional and local level.

Endogenous growth theory in part stimulates and in part derives from recognising the importance of technical drivers of change in modern economies. These changes all emphasise the increasing importance of adaptive efficiency within companies, and within those government and other agents and personnel that deal with companies and operate policies that influence the economy. Adaptive efficiency has been given increasing emphasis by almost all commentators as a result of the need to adjust to e-commerce and the 'new economy'.⁹ Mokyr¹⁰ and others have demonstrated through detailed historical analysis that the ability of a society to absorb and benefit from technological change results for the complex interplay of many different agents, all of which are mutually critical. Many of these are influenced by government policy: through the structure of institutions and property rights, through smoothing the hardships created by technological change for its victims, through encouraging a climate of priorities, and by stimulating supportive educational and training attitudes. As Crafts argues, institutions are seen to be 'at the heart of the growth process' in endogenous growth theory.¹¹ It is these institutional structures which Labour could do most to change to encourage local and regional economic development.

A key aspect of the developments required is improvement of the interface between elements of government (departments, agencies, regulatory regimes) and economic agents. Our chief focus in this book is on how this interface operates and can be improved. One aspect of this exchange, that has been developed in the DTI through its 1998 Competitiveness White Paper¹² and subsequent reports, is a focus on encouraging local business clusters. This has drawn from the arguments of Michael Porter,¹³ who emphasises that the competitive underpinnings of nations, regions and localities derives from four mutually reinforcing components:

• factor conditions: the availability of skilled labour, capital, infrastructure and technology;
• demand conditions: the availability of 'local' demand that allows the accumulation of information, assets, skills and inter-agent experiences, that stimulate learning, quality and performance;
• related and supporting industries: the presence of suppliers and customers that are major leaders and form the basis of 'clusters' of development;
• business strategy and competition: the conditions governing how firms are created, merged, compete or cooperate with each other.

Competitive success occurs when each of these components is jointly present in a locality or region. In a similar vein, Rosbeth Moss Kanter has enlarged on the role of local conditions in contributing to the global competitiveness of companies and economies. She focuses especially on the role of: (1) local 'thinkers', as magnets of brainpower channelled into knowledge industries; (2) local 'makers', who specialize in executional competence affecting quality standards, value added and cost effectiveness; and (3) local 'traders' who specialize in connections, networking, overcoming local divergences and grasping global opportunities. In addition, she emphasises the role of minimum standards of support institutions, infrastructure, amenities, diversity of employment, and a positive business climate. She categorizes the two key ingredients as first, the complementary aspects of 'magnets' – to attract a flow of external resources; and second, 'glue' which provides means to hold local communities together and provide appropriate local conditions. This is very close to our arguments developed here. She sees the final outcome as the development of 'skills for collaborative advantage'.¹⁴ Collaboration skills are essentially those of exchange, negotiation and partnership. These are the concepts we develop further in later chapters by focusing on agent exchanges.

1.4 Recognizing the Multi-agent Environment

Local and regional economic development involves a wide range of...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• List of Figures
• List of Tables
• List of Abbreviations and Acronyms
• Executive Summary and Foreword
• 1 Renegotiating Local and Regional Economic Development
• PART I: POWER RELATIONS
• PART II: CASE STUDIES
• PART III: 'UNFINISHED REVOLUTION'?
• Appendix
• Bibliography
• Index