A city's over-reliance on one industry stores up trouble for when a crisis hits.
The recent announcement that Rolls Royce will make 9,000 redundancies is one of the biggest casualties of the current crisis to date.
Derby, where Rolls Royce’s head office is located, will see the largest cuts – 1,500 jobs have been announced in the city so far, with more expected. But the losses in the city are unlikely to be contained to just Rolls Royce. There may well be an impact on the local supply chain feeding directly into Rolls Royce. And there will almost certainly be a knock on impact on the tills of Derby’s shops, cafés and restaurants once they reopen, with implications for the number of people these businesses employ.
This knock on effect occurs because of the different roles that businesses play in an economy. Rolls Royce and other companies in jet engine production are part of Derby’s exporter businesses – firms that sell to regional, national and international markets. These businesses bring prosperity to an area – in Derby, its exporters account for 25 per cent of employment but 33 per cent of output.
And in selling their goods and services elsewhere they bring money into a local economy, which can then be spent in a second type of business – local services businesses, such as hairdressers, gyms and bars.
What is particularly concerning for Derby given this news is that its economy is so focused on jet engine production. The sector employs a lot of people – its 13,000 employees make up 9 per cent of all jobs in the city. But this underplays how dependent the economy is on it. To more fully understand the importance of the sector, we need to look at it in the context of its export base. When doing this we see that the sector accounts for 38 per cent of all exporting jobs. Just two cities have a greater share of exporter jobs in a single industry – Plymouth (boat and ship building, 39 per cent) and Reading (computer programming and consultancy, 40 per cent).
Being so concentrated in a particular industry works well for a city when that industry is performing well, or in the case of Reading, likely to be sheltered from the worst of the current downturn. But it does leave a city exposed if that industry starts to falter. Derby is feeling the effects of this. Given the struggles of aviation, Crawley is likely to find itself in a similar position (31 per cent of its jobs are in air transport).
The UK’s Brexit negotiations will have similar implications. Nissan last week reiterated its concerns over a no deal Brexit for its presence in the UK. A decision to leave the country would have major implications for Sunderland. Automotive accounts for almost one in three exporter jobs in the city. Policies looming in the coming months – most notably policies to support the economic recovery and Brexit negotiations – should take account of the impact they will have on the existing export base of cities across the country, and protect it where possible.
Longer-term policy, particularly the Government’s levelling-up agenda, needs to focus on developing the exporting bases of cities. In some cities, this will be about enlarging the export base. In others, it will need to focus on helping to diversify it, rather than following the familiar refrain of ‘building on strengths’ that makes all too frequent appearances in economic development strategies.
As local authorities and local enterprise partnerships now look to adapt the local industrial strategies they spent two years working on, they will no doubt be wondering whether they use the updated strategy and any forthcoming cash to double down on what they’ve got, or use them to help their places and people living in them to help build up other activities. While this is of course not easy, and will require a number of trade-offs, but the data above suggests it should be the latter.
More aircraft manufacturing jobs in Derby, or automotive jobs in Sunderland, would be good news for both cities in the short term. But be it the current struggles of Rolls Royce, the recent closure of steel on Teesside, or past declines of shipyards and coal mines, being so reliant on one industry stores up trouble further down the line.
Leave a comment
And one of the other major employers in Derby is Toyota, who must alos export a large chunk of their production. What could possibly go wrong? But hey, the people’s will etc etc…….