The Recession and Beyond

Local and Regional Responses to the Downturn

David Bailey, Caroline Chapain

• Publisher: Taylor & Francis
• Year: 2012
• eBook ISBN: 9781136664717
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

How has the recession impacted on firms, people and places? How have local and regional authorities responded? This book aims to answer these questions by offering an overview of the impacts of the recession on people and places and how it has affected local authorities in the UK and other OECD countries. Being 'close to the ground', local authorities are usually at the forefront of dealing with the impacts of recession on people and places. During recessions, they face important challenges: on the one hand they have to cope with increasing demand for services and on the other hand they may face a decrease in their income due to the slowdown in the economy. And with the shift from local government to local governance in the last 10 years, they also have an increasing role in terms of coordinating various organisations in the delivery of local services.

This book begins by looking at the potential impacts of downturns and economic shocks on firms, workers, communities and places, both in the short and long term (Part I). Part II then looks at interventions and responses that local authorities can put in place on their own or in partnership with other local, regional and/or national actors to try to deal with these differential impacts. Building on these insights, part III offers international perspectives, outlining the role of local authorities during the recession in France, Canada and Australia. These examples and cases highlight some key variations in the availability of resources at the local level across countries and shed light on the way particular economic situations and governance contexts influence local authorities' responses. This section also includes work by the OECD LEED Programme which surveys cities worldwide and which looks at the application of the 'Barcelona Principles'.

Overall, the volume makes a fresh contribution to understanding local economic development and governance by providing a unique perspective and original data on the way local authorities have dealt with the recent economic shock across countries. Looking ahead, the book also raises some important issues in relation to local and regional governance and policies to foster long term, sustainable economic recovery. This edited volume will be accessible to and suitable for students and researchers studying economic change, the recession, planning, public policy and industrial policy interventions, and political science.

1 The recession and beyond

Local and regional responses to the downturn

David Bailey and Caroline Chapain

Introduction

The impact of the 2008–09 economic and financial crisis at the local and regional levels and the responses of local authorities and regional agencies have generated a wide range of publications in the UK, Europe and globally.¹ Such work on this most recent downturn is striking in a number of ways. First, we can see a much broader range of issues and responses being covered by researchers in relation to this downturn and its impact than was the case during and after previous recessions. Indeed, while much previous work highlighted the impacts of earlier recessions on UK cities and regions (Gillespie and Owen 1981; Green 1983; Owen et al. 1983; Townsend 1983; Henley Centre 1991; Green et al. 1994), far less was written about local and regional responses during those downturns. The scarcity of information on responses may well be explained by the fact that, overall, local and regional actions were quite modest in comparison with national interventions at the time – see, for example, Townsend (1983) on the 1980s recession in the UK, and Sawicky (2002) on the United States’ 2001 recession. Another explanation may be that the specific impacts of previous recessions on the local and regional scale, and responses, have in the past often been studied via a focus on highly specific examples of recessionary impacts, such as plant closures (see, for example, O’Farrel and Crouchley 1983; Hinde 1994) or – if undertaken with a broader frame of reference – as part of the debate on local authorities and economic development (Mills and Young 1986; Collinge 1992; Tallon 2010).

Given trends of decentralisation and a shift towards multilevel governance (or at least participation) over the past 20 years, along with the reform of local government in some countries with the aim of fostering local democracy and efficiency (Kersting and Vetter 2003; Baldersheim and Wollman 2006; Pike et al. 2006; Tomaney 2009), we might expect to find that local and regional authorities were in a better position to counteract the impacts of the 2008–09 recession as compared with previous recessions, as long as strategic capacity to act at the local and regional levels was actually developed. Understanding the way local and regional governments have been able to respond to this latest economic shock and, in so doing, what difficulties they have encountered may in fact shed some light on the extent of regionalism and localism, and what capabilities have been developed.

Building such an understanding may also give an advance indication as to how local and regional governments might be able to deal with forthcoming public spending cuts and – in countries such as the UK and France – with significant changes in local and regional governance arrangements that are forthcoming. In the English case, for example, the coalition government has announced the scrapping of Regional Development Agencies and their replacement with Local Enterprise Partnerships (LEPs). Whilst welcomed by some for the its possible decentralisation and ‘localism’ agenda, the shift towards LEPs raises a number of issues in terms of a real recentralisation of powers (on industrial policy, for example) to Whitehall, a cut in resources available for economic development in the English regions, the possible fragmentation of development functions and powers, the loss of skilled RDA staff especially in relation to accessing European funding, and the lack of strategic capabilities and partnership working at the local level (House of Commons 2010; Bailey 2011).

Given both recent experiences and future challenges, therefore, a thorough examination of local and regional responses to the 2008–09 recession appears of particular relevance, and the following questions are especially pertinent: How has the recession impacted on different local and regional authorities, and how have these impacts been affected (mitigated or exacerbated) by the state of their local economies? Did local and regional governments put in place appropriate measures to counteract the local and regional impacts of the 2008–09 recession? Were they able to put in place effective local and regional partnership approaches in so doing? Did they have sufficient financial resources and autonomy and/or were they able to take advantage of national recession response programmes? Finally, how did these responses fit into localities’ long-term development strategies, and how were the latter reviewed in the wake of this experience?

A start on exploring some of these issues has been made by the wide range of work published on the recession noted above. However, a number of significant gaps remain in our understanding of local and regional impacts and responses. This is partly because much of the immediate work on the recession and responses was policy-oriented, and did not always link to the existing academic literature and theoretical frameworks. Work published in the midst of the recession often tended to focus on short-term impacts and responses, characterised by a ‘fire-fighting’ mode. Some presented the overall impacts of the recession on local authorities using empirical evidence such as surveys of local government (see work by the UK Local Government Association, for example, as well as the work from the OECD (Clark 2009)). Towards the end of the recession, it was understandable that work often shifted towards highlighting the importance of planning for recovery and regeneration. As a result, much of this work has provided useful snapshots of information as the recession unfolded. While some of this literature did not distinguish between local authorities, other work focused more specifically on medium-sized cities (Clayton and Morris 2010), core cities (Hutton and Jones 2010) or large metropolitan areas (Clark 2009), leaving aside the impacts of the recession on smaller cities and rural areas. Finally, it should be noted that while international publications often emphasised the differential recessionary impacts and responses across countries due to differences in local, regional and national economic contexts and governance arrangements (CEMR 2009a, 2009b; UCLG 2009; Commonwealth Secretariat 2010), they rarely provided any detailed accounts and understandings of how these differences have played out over time – this is partly explained by their generic scope.

Our approach

In part, building on these initial accounts and aiming to fill gaps in our understanding of recession impacts and responses at the local and regional levels, this book offers a comprehensive and detailed overview of the impacts of the recession on people and places, and how it has affected local and regional authorities in the UK and other OECD countries. In addition, it provides an in-depth discussion of the types of responses that local and regional authorities have put in place to counteract these impacts. To do this, this book brings together a range of UK and international contributions on the topic. These contributions take into account both the short-term and long-term dimensions of recession and include analyses covering various types of local authorities, from rural to urban, small to large, and across different countries. These contributions have been designed to offer a detailed analysis of value to academics, practitioners and policy-makers that identifies:

• the variety of different ways in which the recession has manifested itself locally and regionally, and how these impacts may evolve over time (including impacts on people, places and businesses);

• what targets for intervention have been identified by local and regional bodies, and what policies have been pursued at the local and regional levels, in the context of national efforts;

• case study examples of what different policy responses have been tried in different contexts;

• a strategic framework for analysing local and regional responses, thereby offering new ideas for how policy options can be assessed; this may help local and regional actors make a realistic assessment of their powers and resources, and also those areas and policy tools where intervention is likely to be less effective; and

• recommendations on how councils might approach the task of mitigating the impact of the recession on their local areas, while recognising that ‘one-size-fits-all approaches’ are not appropriate given the wide variety of local circumstances.

The book is divided in three parts. Part I begins by looking at the potential impacts of economic shocks on firms, workers, communities and places, in both the short and the long term. Part II then looks at interventions and responses that local authorities can put in place, on their own or in partnership with other local, regional and/or national actors, to try to deal with these differential impacts. Some key chapters in this part of the volume are based on close collaboration with the UK’s Audit Commission, which carried out a detailed survey of local authorities’ responses to the recession in England in May–June 2009 (Audit Commission 2009) based on a strategic framework developed by some of the contributors to this book (Chapain et al. 2009). In particular, the analysis presented in this volume makes use of additional data for English district councils not published in the original Audit Commission report (Audit Commission 2009) and which is analysed here for the first time. Parts I and II of the volume focus more specifically on the UK. Building on these detailed UK insights, Part III offers complementary international perspectives, outlining the role of local authorities during the recession in France, Canada and Australia. These examples and cases highlight some key variations in the availability of resources at the local level across countries, and shed light on the way particular economic situations and governance contexts influence local authorities’ responses. Part III also includes an update of the early analysis of large metropolitan areas’ responses to the recession published by the OECD LEED Programme, which surveyed cities worldwide and drew up the ‘Barcelona Principles’ (Clark 2009).

Across OECD countries, Australia, Canada, France and the UK have experienced the economic downturn to different degrees, and, as such, offer contrasting economic contexts with regard to the study of the impacts of the recession on local and regional authorities, and their responses. Indeed, UK Gross Domestic Product (GDP) declined more than the rest of the OECD countries on average from 2008 to 2009, with France and Canada displaying below average declines. In contrast, the Australian economy – which was growing at a faster rate prior to the recession – continued to grow during the downturn, and is still forecast to grow more rapidly than its counterparts for the foreseeable future (ibid.). Unemployment trends show similar patterns despite differences in the initial levels of unemployment rates across countries prior to the recession: while decreasing, France’s unemployment rate was above the OECD average before the recession, whereas Australia’s rate stood below the OECD average. While all countries have experienced growth in their unemployment rates over 2008–09, unemployment rates in Canada and Australia fell during 2010 and are expected to continue falling over the next few years. This is not the case for France, where unemployment rose to around 10 per cent by early 2010 and had only fallen very slightly by the year end, and in the UK, where unemployment is expected to rise until 2012–13 in the wake of fiscal cuts. Finally, Australia, Canada, France and the UK present different profiles with regard to local, regional and national governance arrangements. While Australia and Canada are examples of federal countries, France and the UK are characterised by centralised governments. Local governments are the responsibility of the states in Australia, of the provinces in Canada, and of national governments in France and the UK. Overall, local governments benefit from high levels of decentralisation, in terms of both spending and revenues, in Canada; they are less dependent on money from upper levels of government (Blöchliger and King 2006; Shah 2006). In contrast, local governments in Australia, France and the UK have a small degree of autonomy, with UK local authorities being the most dependent on money from upper levels of government (ibid.).

Overall, we hope that the volume makes a fresh contribution to understanding local economic development and governance by providing unique perspectives and much original data on the way local authorities have dealt with the recent economic shock across countries. Looking ahead, the book also raises some important issues in relation to local and regional governance and policies to foster long-term, sustainable economic recovery.

The nature of the crisis

Before examining the impacts of the 2008–09 recession and local and regional responses, it is important to understand some of the key characteristics of this economic downturn in comparison with previous ones. The financial crisis surfaced with the US subprime mortgage collapse in the summer of 2007, deepened further through 2008, and entered a new phase in late 2008. The ensuing impact was felt throughout the global economy, with concerns over insolvency leading to emergency interventions by governments to recapitalise ailing banking systems and to free up credit markets to ease the impact of the credit crunch on firms and households. Indeed, on a global scale, banks continued to limit access to credit throughout much of 2009, owing to the ‘toxic’ asset overhang and ongoing uncertainty over which institutions would survive. This financial pain spread beyond short-term bank funding markets in advanced economies, and non-financial corporations in sectors such as manufacturing especially found themselves unable to obtain working capital (IMF 2009) and approached governments for support, notably in the automotive sector. As Turner (2009) noted, this impaired ability to extend credit to the ‘real’ economy played a major role in exacerbating the economic downturn, and in turn fed back to undermining banking system strength. Analysis by the IMF (2009) in looking at different types of recessions suggests that financial stress rooted in the banking sector typically has more adverse economic effects than stress in stock markets or exchange rates. In other words, the credit crunch dimension of the recession was always likely to mean a longer recession and slower recovery than otherwise.

By the end of 2010, much (although not all) of the world’s economy was recovering from the major downturn prompted by the most profound and dangerous crisis in ‘mature’ financial markets since the 1930s (IMF 2008),² if not in the history of modern financial capitalism (Turner 2009). In what unfolded as the most severe recession since World War II, the global economy contracted by 0.6 per cent in 2009, with trade volumes down by some 11 per cent (IMF 2010). The GDP contraction in advanced economies was higher, at around 3.2 per cent, ranging from a fall of 0.9 per cent in the newly industrialised Asian economies, through to falls of 4.9 per cent, 5.0 per cent and 5.2 per cent in the UK, Italy and Japan, respectively (IMF 2010). In the UK’s case, the peak-to-trough downturn in the economy was of the order of 6.4 per cent, although unemployment peaked earlier than was the case in previous recessions, and at a lower level than expected – before the impact of fiscal retrenchment from 2011 onwards at least.

Whilst the recession was – as noted above – mainly the result of severe problems and stresses generated in the financial system, it in turn affected all sectors. For example, UK manufacturing output fell by some 15 per cent from peak-to-trough. This reflects both the cyclical nature of demand for manufactured products as well as the ability of purchasers (both downstream firms and consumers) to scale back demand quickly in the very short term. The greatest manufacturing output falls were for those goods whose purchase is often associated with the need for finance, such as cars. Indeed, as the lack of finance intensified with the credit crunch and as consumer demand fell, output was cut drastically in motor vehicle production and associated industries, with heavy de-stocking by original equipment manufacturers. This started to ameliorate in the summer of 2009, and by the end of 2010 roughly half of the drop of manufacturing output had been recovered after a period of rapid growth that year. This had a profound impact on those localities with a heavy emphasis on manufacturing.

From the perspective of late 2010, the global recovery from recession remains fragile and unbalanced, as the IMF (2010) has stressed, with high unemployment posing risks of social upheaval. Indeed, the IMF has made clear the need for central banks to keep interest rates at very low levels, and to consider further injections of money through ‘quantitative easing’ should the slowdown in growth continue. While organisations such as the IMF expect global activity to expand by 4.8 per cent in 2010 and by 4.2 per cent in 2011, they note considerable downside risks and challenges. Banks, for example, face a US$4 trillion ‘wall’ of maturing debt over 2011–13, which may in turn force some governments to delay their plans to repair the damage caused to public finances by the recession. In addition, the world economy faces the challenge of ‘rebalancing’ in a number of ways. The internal form of ‘rebalancing’ is much discussed in the UK context – for example, in terms of the need for private demand to take over from public spending as the main engine of growth. In addition, though, there also has to be an external form of rebalancing so that countries with large trade deficits, such as the US, can export into big emerging economies such as China. At the time of writing, questions remain as to whether this is happening on a scale large enough to rebalance the economy, and how sustainable the recovery actually is. In the so-called developed world, ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• List of Figures and tables
• Notes on Contributors
• Acknowledgements
• 1. The recession and beyond: Local and regional responses to the downturn
• Part I: The recession and its local and regional impacts in the UK
• Part II: Local and regional responses in context in England
• Part III: Local and regional responses: International perspectives
• Index