Elevate Local Economies Through Strategic Policy Interventions

Prioritizing Export-Driven Growth

The foundation of any successful economic strategy lies in boosting the export base. Research indicates that cities with robust export sectors, such as car manufacturing or financial services, tend to have higher productivity levels compared to those relying on local services like retail or food establishments. For instance, Swindon’s thriving export sector significantly contributes to its superior economic performance over Swansea. By concentrating efforts on enhancing export capabilities, cities can attract more investment, create high-paying jobs, and stimulate overall economic activity.

This focus on exports not only drives wage increases but also fosters innovation and competitiveness. Cities should develop policies that support businesses selling beyond local markets, providing them with resources and infrastructure necessary for success. Governments can collaborate with private sectors to identify opportunities for expansion into international markets, ensuring sustained economic growth and improved living standards.

Avoiding Overly Specific Sector Policies

While it is tempting to target specific industries for growth, this approach may not yield the desired outcomes. The government has identified eight broad sectors for industrial strategy focus, which aligns well with the export base. However, narrowing down to subsectors could lead to inefficiencies. Different cutting-edge firms often coexist in environments that offer mutual benefits, making it challenging to isolate one sector without affecting others.

Instead of singling out particular sectors, policymakers should adopt a broader perspective, supporting the frontier of the economy where productivity gains are most likely. National interventions in areas like artificial intelligence regulation may be beneficial, but at the local level, a more generalized approach is advisable. Leaders should prioritize creating an environment conducive to all types of innovative businesses rather than focusing on specific industries.

Broadening Economic Bases Beyond Existing Strengths

Cities often emphasize building on existing strengths, but this strategy can be limiting. Places like Plymouth, Wakefield, Doncaster, and Sunderland rely heavily on a single dominant sector, leaving little room for diversification. A better approach would be to address gaps in the economy and broaden the export base. Expanding into new sectors can introduce fresh opportunities for growth and resilience against market fluctuations.

Diversification ensures that no single industry dictates the city’s economic fate. By investing in multiple sectors, cities can attract a wider range of businesses, fostering competition and innovation. Policymakers should encourage entrepreneurship and innovation in emerging industries, ensuring a balanced and sustainable economic ecosystem. This approach will ultimately lead to higher wages and improved living conditions for residents.

Ensuring Genuine Growth Before Inclusivity

Inclusive growth is a noble goal, but it cannot be achieved without first generating substantial economic growth. Many cities have experienced stagnant wages over the past 15 years, highlighting the need for policies that stimulate genuine economic expansion. Cities with strong export bases tend to see increased spending in local services, benefiting shops, cafes, and restaurants. However, this alone is insufficient for achieving shared prosperity.

The tools for spreading growth effectively lie in labor market and tax policies, not industrial strategy. Industrial policy should be viewed as a means to an end, not a panacea for all economic challenges. City leaders must prioritize policies that generate real economic growth, which can then be distributed equitably through appropriate mechanisms. By focusing on growth first, cities can ensure that everyone benefits from economic advancements.

Recognizing Distinct Roles Within Urban Areas

Different parts of a city or region play unique roles in the local economy. Just as London plays a different role nationally compared to rural areas, city centers and surrounding regions serve distinct functions locally. Large urban centers offer advantages that attract exporting businesses, while rural areas may require different forms of support. Prioritizing resources in city centers can yield significant economic benefits that ripple outward to neighboring areas.

City planners should recognize these differences and allocate resources accordingly. Investing in city centers can boost economic activity, which naturally extends to surrounding regions through employment and consumer spending. This approach ensures that prosperity generated in urban hubs spreads widely, benefiting the entire metropolitan area. Recognizing and leveraging the unique roles of different urban segments is crucial for maximizing economic impact and improving regional prosperity.