Red wall MPs point to the success of Sunderland’s Nissan plant as the model the current Government should replicate, but almost 40 years on the city is still in need of being ‘levelled up’.
The recent commitment by Nissan to further invest in its Sunderland plant served as a reminder of a previous levelling up intervention by the UK Government. Given that close to 40 years later, over 10,000 people are employed in car and related manufacture in the city, does this suggest that the current government should try this model again?
There’s no doubting that Nissan has brought prosperity to Sunderland and its wider area. When the plant opened in 1984, the city was reeling from the huge job losses in its exporting engines of shipbuilding (the last yard closed in 1988) and coal mining (the last pit closed in 1993). Nissan has since brought many thousands of jobs in a new exporting industry, and it seems likely that the city would have been in a worse position had Nissan not arrived.
What the recent announcement of further investment also reminds us though is that this investment has come at a cost. The current investment has been secured with a reported £100 million from the Government. This follows the £61 million it received in 2016. In fact, Nissan’s time in Sunderland is punctuated with cash handouts ever since it was tempted to the site with the offer of cut price land and tax relief.
Some may argue that this has been a price worth paying, and that the Government should offer further tax breaks or other subsidies. Indeed, it is already doing this through freeports. But it’s important here to reflect on which types of businesses such subsidies tend to appeal to, and what this means for levelling up.
The key to prosperity for an economy is its ability to attract and/or grow those businesses that sell beyond that economy to regional, national and international markets. These ‘exporter’ companies bring money into a local economy that can be spent in bars, shops and cafés, and tend to both be more productive and drive productivity growth.
Because these companies sell to many different markets, they can in principle locate anywhere (as opposed to a hairdresser, say, that locates where it can serve a customer base). But in reality they don’t. Their decisions are driven by the advantages that particular places offer.
High-skilled exporters, which can be in manufacturing or services, locate where they can get access to a pool of high-skilled workers and access to a network of other high-skilled businesses. This is why we see these jobs skewed towards cities in the Greater South East of England, and why these places tend to be more prosperous than the rest of the country. Crucially, such companies are willing to pay a premium for such benefits, as shown by the higher commercial rents in this part of the country.
Because of the more routinised nature of their work, lower-skilled exporters are looking for something different. They too are looking for a pool of workers (making proximity to a city important), but lower-skilled ones. And because the routinised nature of their activities means that they derive little benefit from a network of higher-skilled businesses, they aren’t prepared to pay a premium for this benefit, and so also look for cheaper land. Many areas of the North and Midlands have been successful at attracting in exporting jobs. They’re just lower-skilled.
The exact same patterns play out when looking at the location of foreign businesses. It has long been claimed that there has been a bias in patterns of inward investment into the Greater South East. It’s not necessarily the volume that is the key difference though, but the type of investment. And this is driven by the benefits different places offer.
This sorting doesn’t just happen between different industries. It doesn’t even just happen between businesses within the same industry. It happens even within companies. Heinz produces its food in Wigan, but has its UK HQ in the Shard. Amazon doesn’t have its HQ at one of its many distribution centres, but in Shoreditch. And Nissan does its assembly in Sunderland, but does its engineering in Cranfield and its design in Paddington.
This brings us to a bigger point about Nissan’s investment in Sunderland. It’s ability to employ many thousands of people over many decades is undisputed. But such an investment has helped to replicate Sunderland’s economy, swapping pick axes for the production line of a car plant, rather than helping to reinvent its economy by attracting in higher-skilled activities. Data produced by Cambridge Econometrics for the City Evolutions project shows that in 1983, just before the Nissan plant opened, average wages in Sunderland were 79 per cent of the British average. Fast forward to 2015 and they were 84 per cent of the national average.
It is because of this replication that close to four decades after the intervention, Sunderland is still in need of being ‘levelled up’. In this regard, perhaps the most telling line in the press release was not the £1 billion investment, or the 5,500 jobs that it will create, but that it will safeguard 75 R&D jobs.
Offering subsidies is politically appealing – it’s a clear lever that politicians can point to. But in order to narrow gaps in prosperity, struggling places need to attract higher-skilled activities. These activities aren’t looking for tax breaks. They’re looking for skilled workers.
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