Growing the economy from the middle out

10 February 2016

Rachel Laurence  - Senior Co-ordinator of the New Economy in Practice team at the New Economics Foundation

A new growth model must place individual livelihoods at the heart of our regional economic strategy

In his new SPERI paper Craig Berry suggests it is crucial to make a connection ‘between the new order and individual livelihoods’.  This resonates with two recent reflections of my own, which have come from my work with a number of communities who are attempting to regenerate their economies from the bottom up.  Some of those communities are within areas where apparently huge economic opportunity feels frustratingly out of reach to those untouched by the office blocks and new infrastructure shooting up around them – like, for example, some of the communities in the poorer housing estates in and around Manchester and Salford.  Other communities lack geographical proximity to new economic opportunities, but are struggling (often heroically, and ingeniously) to regenerate their economies, with very little in the way of building blocks such as infrastructure, investment or footfall – such as in Withernsea, to the east of Hull, or Shiney Row, near Durham.

Thriving communities or a thriving macro-economy?

My first thought is that the current devolution debate – particularly in the context of a regional economic strategy – is a useful lens through which to consider a fundamental question about how we think the economy should work. Is the ultimate goal to improve the experience of individuals and communities where they live and work, or is it to improve the performance of the national economy on the global stage?  And of these, which is the driver, and which is simply the knock-on impact of how we make economic policy?

Devolution could, and should, be an invitation to ensure that the former goal is the fundamental driver for regional and national economic strategy.  However, successful current devolution deals have been based, first and foremost, on presenting a convincing case for how the region in question will contribute towards national growth.  Placing the emphasis on thriving communities is a necessary shift in focus if the devolution process is to avoid embedding and reinforcing a problematic approach to economic development.

Top-down, bottom-up – or from the middle out?

My second reflection is on how, if we’re serious about developing a credible and palatable alternative economic growth model, that works at a regional level? The existing growth model, as Berry outlines, assumes that GDP growth will lead to economic benefits for all.  This has not been the case: our current system fails to deliver distributed economic benefits across the population, or to generate sustainable, resilient economic systems at the local, regional or national level.

So what are we trying to generate through our economic system, if not simply ‘growth’? The New Economics Foundation has recently published work on alternative measures of success at the national level which pinpoints the headline indicators that really would denote a balanced economy. To move towards these kinds of outcomes I would suggest there are four basic aspects of a ‘well functioning’ regional economy:

What kind of economic development approach gets you to this place? The sectors upon which economic development strategy is based are key, both in terms of their direct impact on people’s jobs and wealth, but also in terms of their respective knock-on effects in stimulating other sectors.

When trying to regenerate or stimulate enterprise in areas where both jobs and wealth are lacking, it is crucial to grow sectors that communities can easily engage with, as entrepreneurs or small businesses. The necessary sectors are those which demand activities light on the need for capital investment, and which can easily plug into quick and non-complex supply chains.

Small catering businesses or IT consultancies that can be hired by a slightly larger local business are conceivably within the reach of prospective start-ups with little access to finance and capital. It is far more challenging for people in capital-poor, under-resourced communities to establish businesses that can sustainably tender for lengthy, multi-million pound contracts, with, for example, large multinational high-end growth businesses that are attracted into local areas because they’re seen as inward investment.

Yet, the pursuit of high GDP or GVA growth naturally leads us to favour precisely those businesses and sectors which tend to deliver this kind of growth rapidly – such as finance or high-end technology – and which, crucially, do not need to procure substantial amounts of goods and services from the smaller end of the local economy.  Equally, they do not tend to provide large numbers of mid-level jobs (instead, as Berry notes, they tend to offer either highly qualified, high skilled jobs or very low paid ones).  This leads to the ‘hollowed out’ economy we see now in the UK, with a persistent pursuit of high-value growth sectors, and the correlating fringe of low-value growth sectors around it.

Genuinely rebalancing our economy must be conceived with a focus, not on the top and how wealth trickles down, nor on the bottom and how it up-scales, but rather on the middle – the medium-sized enterprises and strong supply chains that connect the different layers of the economy. Finding, stimulating and supporting the sectors that easily support, or sit within, this middle ground might help to begin to root individual livelihoods back from the periphery into the heart of regional economic strategy.

Rachel’s response to Craig Berry’s new SPERI paper ‘The Resurrected Right and Disoriented Left’ can also be read here. The paper also includes four other responses to the paper from leading thinkers from the worlds of politics, policy and academia.

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