Summary

The Government’s new industrial strategy – its flagship domestic policy – aims to improve living standards and economic growth by increasing productivity and driving growth up and down the country.

Some types of business will have a much bigger role to play in this than others. Exporting’ businesses – those firms that sell their products to regional, national and international markets – are in a strong position to add value to the economy and drive productivity growth. But some exporting firms are more productive than others. It is the high knowledge exporters that employ highly skilled people that will be the most important focus for the industrial strategy.

Some cities, predominantly in the south, have a large number of high knowledge exporting firms, and have highly productive economies. Other cities host a majority of low knowledge exporting firms, resulting in lower productivity.

Implications for cities

Looking at the characteristics of different cities in more detail helps to explain the varying patterns of economic growth.

• Firstly, skills are important – those cities that have been able to attract high-skilled exporters, be that in the city centres or suburbs, tend to have a large number of high-skilled workers living in or around their cities.
• Secondly, density is important for city centres – the greater the number of jobs located in a city centre, the higher skilled the jobs tend to be. As a result costs of commercial space in these city centres can be relatively high.
• Thirdly, proximity to London appears to play a role, with cities closer to the capital doing better than those further away. And finally cost doesn’t appear to be a main factor – those cities that have the largest high-knowledge export base also tend to be more expensive.

Cities with low-knowledge export bases do still attract investment, but for very different reasons.

• Firstly, they provide access to lots of workers, but these workers tend to be lower skilled.
• Secondly they provide lower cost commercial space. While these factors are relatively unimportant for high-skilled exporters, they are important to lower-skilled export businesses (explaining their industrial structure).

Implications for the industrial strategy

These findings highlight the different challenges and opportunities that cities across the country face. Despite this variation there are a number of broad implications for the Government’s industrial strategy if it wants to encourage growth up and down the country.

1. The industrial strategy must work with the grain of the UK’s economic geography and make the most its cities
   Industrial policy needs to take a place-based perspective, building on the strengths of different places and addressing the factors that hold places back. The benefits that cities offer, which by their nature cannot be replicated in every part of the country, are likely to become increasingly important as the UK economy continues to shift towards a more knowledge-intensive service-based economy. Industrial policy will be most effective if it reflects the importance of agglomeration rather than trying to spread economic activity evenly across the country.
2. Making the most of cities requires the integration and co-ordination of many policy areas and related institutions. This is best done at the city scale
   An industrial strategy that recognises place will require decisions to be taken locally and tailored to address the specific challenges and opportunities present in different cities. The powers that cities already have, as well as the on-going process of devolution will allow cities to deliver elements of this themselves. However, some policies, such as research and development spending and high education should remain at the national level. But these policies should be organised and delivered at the city scale, with the aim to encourage the expansion of the export bases of cities. The success of any industrial policy will depend on how policy makers can bring together nationally and locally administered policies to improve the economies of the country’s cities.
3. For cities with high-knowledge export bases, policies need to focus on managing the costs of growth
   Economic success brings challenges as well as opportunities. Demand for space pushes up the cost of housing and commercial property, and it increases congestion on roads. To support the on-going success of successful cities, policy needs to focus on limiting the impact of these costs through facilitating the increase in housing and commercial space and, where appropriate, considering road pricing in conjunction with improvements to public transport.
4. For cities with low-knowledge export bases, policies need to focus on strengthening the benefits that they can offer
   To attract investment from high-skilled exporters, cities need to increase the benefits they can offer to such businesses. Most importantly, they need to increase the number of skilled workers that businesses can recruit from. Given that these businesses increasingly show a preference for a city-centre location, investing in their city centres to make them more attractive places to be located will also be important as they look to increase productivity, wages and career progression opportunities in their economies.