EUROPE not the problem but the COALITION sucking the regions dry

Met with Neil McKinroy, director of CLES to share thoughts on the dynamics underpinning regional economics and finances in northern cities. We met in Pinchjos (see new app on http://www.pinchjos.co.uk) always a good place to meet if your in Manchester. I was interested in CLES’s work on whole system analysis which seemed to coincide with my own perspective on how local economic strategies.

Several good reports have been published recently on regional economies by IPPR North, CRESC which show that the North is not only suffering from continuing industrial decline and public sector cuts but also from government’s own commissioning  and investment policies. Perhaps we need to spend more time on how money flows and what type business is benefitting and which are not. Julie Froud et al at CRESC (University of Manchester) showed in a recent article ‘Must the ex-industrial region fail?‘ that between 1997 and 2010 43%of all private sector jobs created were in London and virtually none were in the North East.  They report a widening gap between incomes between those in Yorkshire & Humber, & West Midlands and the South east-  and  say government is the problem and adding to the  worsening of the north /south divide. http://www.cresc.ac.uk/sites/default/files/Bringing%20home%20the%20bacon.pdf

 IPPR North launched ‘Northern Prosperity is a National Priority‘ in Leeds in November which talks about the untapped potential in the northern cities, given that the North has  an economy twice the size of Scotland – a fact largely ignored in Whitehall and the London media. The narrative about the North is largely negative and the region is in desperate need of its own investment bank. 85% of the Coalition’s infrastructure investment is in the Southeast.  While Manchester, Leeds, York and others have leadership committed to innovation and change, without investment in integrative infrastructure, innovation and sustainable private sector growth they are hampered by the government complacency and forms of outsourcing which are taking out as much as they are putting in.

The purpose of good governance is surely find corrective mechanisms to support connectivity and fairness across the UK and to support the growth of SMEs, innovative supply chains and regional resilience. In the Southwest over 85% of all the private sector economy is in small businesses – which are greatly affected by their access into companies and the public sector. One of the things I learnt from the research on government’s procurement was that local, small enterprises in any sector are frozen out by the current gearing of public procurement, because government  is looking to transfer financial risk to larger corporates that have the assets to cope with delivery problems. This public procurement model is sucking the life out the private sector as well as undermining much public service provision. http://www.mbs.ac.uk/cgi/apps/research/working-papers/view/?wld=239

Another example of how business financing is influencing the flow of capital from local firms into larger companies is in energy innovation. A medium sized company in Chester – developing eco-boilers was told by investment banks that financing the manufacture of the boilers would necessitate that they set up another company to become an energy supplier to compete with existing utilities. They did this and are now a competitor in the energy market, based in London employing highly paid traders; meanwhile the core business of technical innovators are removed from the heart of their business and are waiting for the manufacturing of the boilers to fail. What is clear in this case and many  others, is that the problem for growing companies developing innovative eco-products is not just a matter of finance but of understanding the current power of investment bankers to determine their business models.  Just as public procurement is geared to corporates are the expense of local, smaller companies,  investment finance is determining what is financed, the location of companies and what constitutes innovation.

According to CRESC economies in the ex-industrial areas depend on replumbing the financial circuits rather than national loan schemes etc.  I think the way outsourcing is working at the moment reinforces that view. They suggest that local leaders and activists could champion investment in regional infrastructure in particular social housing & mobilise pension funds into regional infrastructure and initiate new financial circuits.  I would add that regional banks are urgently needed to support SMEs and social enterprise;  current public procurement criteria changed,  devolvement of public finances from some departments into the regions for welfare benefits, FE training etc to regional commissioners,  and critique of the influence of investment bank power over utility companies and innovative new firms.

It is not Europe which is the problem but the current Coalition government – even Vince Cable thinks national schemes not regional potential