01Implications for Policy

As the Government looks to address the poor productivity performance of the national economy, its policy approach should be guided by the following:

Focus on cities, not sectors. National productivity is held back by the underperformance of cities mainly outside of the Greater South East. This is not because of their inability to attract certain sectors – it is the varying performance of the same sectors across the country that drives the differences. This suggests that a sectoral approach to policy is not the right approach to use.

Focus on addressing the weaknesses that make cities less attractive to high-skilled exporters. Productivity in a city is largely determined by its export base. The main challenge for underperforming cities has been their struggle to attract higher-skilled exporting businesses, with implications for their productivity. If this is to change then these cities need to offer the advantages that high skilled businesses are looking for – namely access to knowledge in the form of high-skilled workers, and increasingly in the case of services exporters, a dense city centre. Any policy intervention should therefore have a clear rationale as to how it makes a city more attractive to such investment.