How Local Industrial Strategies can deliver inclusive growth

JRF’s mission is to inspire action and change to solve UK poverty. We believe a more inclusive economy is a crucial part of that. This briefing draws on five years of our work to set out practical examples of inclusive growth. We aim to spark ideas about how Local Industrial Strategies (LIS) in England can deliver growing economies that allow people in, or at risk of, poverty to benefit from and contribute to a more prosperous economy.

Introduction

What is the purpose of economic growth? The answer to this question should be clear and obvious: to raise the living standards of all citizens. But previous approaches to growing local economies haven’t done this successfully. It’s time for a different approach.

Shop assistants. Baristas. Care workers. Regular jobs undertaken in all towns and cities across the country. Often low paid, they’re not regularly discussed in relation to industrial strategies, with their focus on high-tech manufacturing, digital technology and high-speed transport. But if we are to truly boost earning power across the country, as the Government’s strategy commits to, we need to put people working in these jobs, and those that are currently out of work, at the heart of our industrial strategies.

The vote to leave the European Union in June 2016 was driven, in part, by the frustration of people held back by a lack of good job opportunities in their local areas, leaving many struggling on low incomes (Goodwin and Heath, 2016). Politicians and leaders cannot afford to ignore these citizens and need to develop ideas for how individuals and places can see the benefit of a growing economy.

Ultimately, industrial strategies – and the local and central governments that come up with them – will be judged on whether they are improving the living standards of citizens. This is why they must focus on delivering inclusive growth.

Increasing living standards and reducing poverty will require new approaches to local economic growth. It will need local leaders to develop policies and interventions that have a real focus on how more people can benefit from and contribute to economic growth, and not just increasing the amount of it.

For local strategies to be successful they will need sufficient support from central government. The UK Government must use the upcoming spending review to equip places with the tools and funding to deliver inclusive local industrial strategies.

This briefing suggests some practical policy ideas, such as in-work progression schemes or driving social value from infrastructure investments, for how Local Industrial Strategies can deliver more inclusive growth.

What do we mean by inclusive growth?

Inclusive growth is about enabling more people and places to both contribute to and benefit from economic success (RSA, 2017). More specifically, it is about how poverty can be reduced through the creation of better jobs and better access to those jobs for people in or at risk of poverty. A policy or strategy that does not have a focus on living standards of those at the bottom of the income distribution cannot describe itself as an inclusive growth strategy.

Policy interventions that seek to seed the conditions for the creation of more good jobs (often called the ‘demand’ side of the labour market), and that seek to better connect people to job opportunities (sometimes described as the ‘supply’ side of the labour market) are therefore equally vital (Lupton and Hughes, 2016). Demand and supply-side interventions must be developed together to maximise their benefit.

In practice this means thinking about policies that would boost job creation, at the same time as thinking about skills strategies that would improve basic skill levels and enable people to access those jobs. It means thinking about interventions that can improve the quality of jobs at the same time as thinking about how people can be supported to progress in work. And it means thinking about where jobs are located at the same time as thinking about the costs of and ability to use public transport to get to those jobs.

Why should local industrial strategies focus on inclusive growth?

Local leaders can use the opportunity Local Industrial Strategies present to be explicit about how they intend to improve their local economies and the differences that will make to people’s lives.

We live in an age where poverty’s grip is tightening. A growing employment rate is no longer helping families out of poverty as it once did, and people in many parts of the country are locked out of opportunities to access good jobs. In-work poverty has been steadily rising and one in eight workers now live in poverty (JRF, 2017a). Since the early 2000s, people getting stuck in low-paid jobs, high housing costs and cuts to benefits mean the poorest fifth of households has seen next to no growth in real incomes after housing costs are taken into account (Kumar, 2018).

To loosen the grip that poverty has on people’s lives, we can no longer rely on previous assumptions that prosperity will trickle down. A growing body of evidence is showing, simply driving up output growth and number of jobs in an economy are not guaranteed to improve living standards for people in or at risk of poverty (Lee et al, 2014; Lupton et al 2016; RSA, 2017; Lee and Clarke, 2017; OECD, 2018). This is why we need inclusive growth.

Productivity, earning power and inclusive growth

The industrial strategy has twin aims of boosting productivity and earning power. Both are crucial for inclusive growth.

Productivity matters because it is the key driver of differences in earnings over time and between places, and stagnating productivity is the main driver of stagnating earnings since the financial crisis (NIESR, 2018). Boosting productivity can help improve living standards and achieve inclusive growth.

But too often our efforts to improve productivity are only about the ‘shiny and new’ - cutting-edge firms, supporting growth in our largest cities, and backing technological innovators. Yet JRF’s work shows productivity problems stem from all sectors of the economy (Forth and Rincon-Aznar, 2018). Some of the biggest opportunities to boost productivity lie in our low-pay sectors, such retail and hospitality, and in the long tail of low-productivity firms which are more prevalent in places outside London and the South East (ONS, 2017).

What is more, driving up productivity in a firm or sector is not guaranteed to lead to higher wages for workers in those businesses and sectors (Ciarli et al, 2018). We need to pursue the productivity enhancing interventions that will benefit workers, for example through increased training or better management practices (Innes, 2018). Productivity gains need to generate improvements in living standards for low-paid workers – what is their purpose otherwise?

Earning power matters because it is a key determinant of living standards. But talking about boosting earning power has little meaning if you don’t have a job. While the UK has record employment overall, some people and places are locked out of this success story (Tinker, 2018). For some places boosting employment is the biggest economic issue facing their area, with low employment and low earnings representing untapped potential for economic growth. Local industrial strategies must deliver more and better jobs.

Ensuring all communities can contribute to and benefit from economic prosperity

Where you live has an impact on the quality of jobs and the amount of work that is available to you. Government has acknowledged this with the inclusion of ‘place’ as one of the five foundations of productivity and the commitment to local industrial strategies. But it is important that these, too, recognise the different needs of places in the areas they cover. The experience of poverty for a family living in a city centre is quite different to that of a family living in poverty in a small coastal town.

This means developing place sensitive policies that can address the different challenges people face because of where they live and their proximity to other places that are growing. For example, a city or town that is pivotal to a local economy must rely on identifying and building on their economic assets and connecting residents to opportunities. By contrast, smaller towns or cities in local economies might also use training and the creation of affordable and accessible transport to help their residents take advantage of employment opportunities in larger towns and cities nearby (Pike et al, 2016). Just as a national industrial strategy cannot take a one-size fits all approach, neither can local strategies.

How Local Industrial Strategies can achieve inclusive growth

Local Industrial Strategies are expected to address the foundations of productivity set out by Government in their Industrial Strategy White Paper: ideas, people, infrastructure, business environment, and places.

The following section provides some ideas for how interventions to improve living standards can be framed using four of the five foundations of productivity Government has set out.

This is not intended as a definitive list of inclusive growth interventions but a set of ideas of the types of solutions that might be necessary to achieving more inclusive growth.

The downloads at the bottom of this page explain, in more detail and with the use of case studies, how industrial strategies should prioritise:

• People - improving basic skills and progression in work.
• Infrastructure - investments that deliver employment and training opportunities, building more affordable homes and making buses a key piece of infrastructure.
• Business environment - targeting growth sectors that will provide good jobs, using business grants to incentivise good employment practice, offering support and public recognition to businesses delivering good employment, and practical support to improve job quality in low pay sectors.
• Place - harnessing the collective hiring, training and purchasing power of anchor institutions.