The early days of Theresa May’s premiership saw the creation of a new Department for Business, Energy and Industrial Strategy (BEIS) charged with delivering a comprehensive industrial strategy. The inclusion of “industrial strategy” in its name represents a step change and signals that the Government wishes to take a more active role in shaping Britain’s business landscape.1
The green paper on industrial strategy, published in January, sets out 10 strategic-point plan to improve living standards and economic growth by increasing productivity and driving growth across the national economy. The 10 strategic pillars are science, research and innovation; skills; infrastructure; business growth; procurement; trade and investment; affordable energy; sectoral policies; driving growth across the whole country; and creating the right institutions to bring together sectors and places.
But while the green paper sets out the approach and the tools, the Government has made it clear that it was not intended to be the last word, but instead to start a process of public consultation. This paper – second in this research series – is part of our contribution to shaping Britain’s new industrial strategy, and our response to the official public consultation.2 It argues that place, rather than being a pillar of its own, should be the framework on which the other elements of the industrial strategy are designed and delivered.
If the industrial strategy is to improve the performance of the national economy, then it needs to focus on exporting businesses – the sector of the economy that determines the long-run prosperity of cities and regions.3 These exporters, which we define as those business that sell to regional and national as well as international markets, are important for three reasons. Firstly they generate income that is independent of the performance of the local economy. Secondly they are more productive than local services sector (such as newsagents and hairdressers). And thirdly the income they generate creates demand, and therefore jobs, in local services.
The first report showed that these exporters aren’t distributed evenly across the country. It found that:
- Businesses and the jobs they create were concentrated in cities. This is most acute for city centres, which accounted for just 0.1 per cent of all land, but 14 per cent of all jobs.
- This is even more acute for exporting jobs in services. Around one quarter of these jobs were located in city centres, and just under 70 per cent of the national total were in cities as a whole. Manufacturing exporters have different location patterns, with 80 per cent being in the suburbs of cities or their hinterlands
- Exporters tended to be much more highly-skilled in city centres than elsewhere, reflecting the greater access to knowledge that city centres offer.
But while the data shows cities as a group to be an attractive destination for businesses and jobs, not all cities offer these benefits to the same extent. This manifests itself in the great variation in the nature of export base across cities, and results in the divergence that we see across the country in terms of economic performance.
This report builds on the initial analysis to explore why some cities are more successful than others at building their exporting business base. In particular, it looks at how the characteristics of a place can boost productivity, where policymakers could help this happen, and what this means for different places.
Unpacking the place-based characteristics that shape the export base in cities will allow us to propose which types of policy intervention different cities should prioritise in order to build their base of highly-productive knowledge exporters.
Box 1: Definition of ‘exporters’
Exporters (also known as ‘business to business (B2B)’ or ‘tradeable’ businesses) sell to domestic or international markets. They form the export base of the local economy and include services-exporting activities, such as computer programming, R&D, insurance and pension funding, and goods-exporting activities, such as car, textile and chemicals manufacturing.
We also define knowledge exporters using Census 2011 occupation by industry data.4 The definition comprises broad industrial categories most closely aligned to our more detailed definition using 2-digit codes and the top three occupations (professionals, managers and associate professionals).
The remainder of the private sector economy is made up of local services (also known as ‘business to consumer (B2C)’ or ‘non-tradable’ businesses), such as hairdressers or newsagents, sell directly to the consumer and so serve a very local market.
A full list of how each sector has been defined can be found in the online appendix