Economically struggling places need to look more critically at what they don’t have – not what they do have.
A common rallying cry issued to struggling places is for them to ‘build on their strengths’ to encourage the growth of their economies. But, new research from Centre for Cities shows that the economies that have followed this strategy over the last 40 years are the ones that have struggled. The issue for struggling places is what they don’t have, rather than what they do.
To understand why it is a mistake for cities to ‘build on their strengths’, we can look at cities which have done this, and compare their performance to other cities which have built new strengths and transitioned into new sectors and industries.
Our recent report What levelling up really means: changing the geography of knowledge looked at the amount of knowledge in urban economies from 1981 to 2019 (assessing how ‘complex’ they were). Table 1 shows the industry with the largest share of overall jobs in 1981 and 2019 for Edinburgh, London, and Reading on the one hand, and Aberdeen, Blackpool and Swansea on the other.
Those places which have specialised in new industries in the last 40 years have retained their status as highly economically complex cities. But the cities which continued to specialise in their existing strengths have seen their relative economic performance fall over the past four decades. For example, Blackpool was the 25th most complex economy back in 1981 – it is now 45th. Aberdeen was 18th, and today it is 32nd. And Swansea was the 31st most complex place in the UK, but has since fallen to 56th out of 62.
The reason for this is that whether urban economies are strong or not has little to do with how many eggs are in one basket. Rather, the secret to prosperity is to have lots of specialisms in lots of areas – the more baskets the better!
Prosperous places are those where many ideas are created and shared, and where companies and workers locate to access that knowledge. Paradoxically, developing one specialism in one big industry and sticking to it is a path towards fewer highly specialised jobs and a less complex local economy. Having only one specialism reduces the appeal of the local economy to specialised workers and firms which are outside that sector.
Developing these specialisms is hard. There is no silver bullet that cities can use to make their economies more complex or generate entirely new industries. But the analysis above shows that successful economies are the ones that have been able to adapt and change. Developing new strengths outside the South East is necessary if places and the Government want an approach to levelling up that will deliver greater prosperity across the country.
And so policy, both at the national and at the local level, would be better placed trying to address the issues that stop higher skilled businesses investing in places with unfilled potential, rather than doubling down on the industries that poorer places already have. This will include a mix of investments around skills, transport, commercial property and other areas. But the underlying approach is that economies need to change if they are to improve, rather than produce more of the same.
To level up the country, the Government should encourage the increasingly complex, high-skilled, high-paying sectors that are choosing to locate in big cities.
This briefing uses the theory of economic complexity to show how the economies of Britain’s cities and large towns have developed over time and sets out the implications for how the Government should approach its levelling up agenda.
In advance of the Government’s forthcoming Levelling Up White Paper, this briefing sets out what the levelling up agenda should aim to achieve and a strategy for achieving it.
Levelling up should improve standards of living across the country and help every place to reach its productivity potential, with a focus on improving the performance of the UK’s biggest cities as a means to address regional inequalities.
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