06Supporting growth in the UK’s export base through industrial policy
Policy makers need to focus on strengthening cities’ ability to support exporters, particularly knowledge exporters, as part of strategic efforts to promote economic growth and boost productivity through the industrial strategy.
There are two main approaches to increasing export activity in cities – and boosting levels of productivity. The first is to maximise the benefits of agglomeration by improving businesses’ access to high-skilled workers, increasing density and access to markets. The second is to reduce the costs associated with high concentrations of firms and workers by reducing housing, transport and congestion costs.
The industrial strategy must work with the grain of the UK’s economic geography and make the most of its cities.
High-knowledge exporters are drawn to cities that can offer access to other high-skill firms and workers in spite of higher costs. Policy makers must strengthen cities’ ability to attract knowledge exporters in order to ‘improve living standards and economic growth’. These firms will boost overall economic growth and productivity, as well as create jobs in other sectors.
The benefits that cities offer exporting firms, which by their nature cannot be replicated in every part of the country, are likely to become increasingly important as the UK economy continues to shift towards a more knowledge-intensive service-based economy.
The Industrial policy will be most effective if it reflects the importance of concentration and co-location rather than trying to spread economic activity evenly across the country.
Cities should be the framework for co-ordinating and delivering the industrial strategy
Delivering the industrial strategy requires the involvement and co-ordination of many national and local policy areas and institutions. Government needs to make the most of city regions’ ability to bring different partners together and co-ordinate policy design and delivery up in ways that respond to different areas’ unique circumstances.
Part of this approach will mean giving cities greater flexibility – through devolution deals, co-commissioning and place-based pilots, for example – to integrate policy and investment decisions. However, some policies, such as R&D spending and higher education should remain at the national level. But these policies should be organised and delivered at the city scale, with the aim to encourage the expansion of the export bases of cities.
The success of the industrial strategy will depend on how national and local policy makers can bring together national and local policies to improve the economies of the country’s cities.
The combination and prioritisation of different policies required to boost export activity will vary from city-to-city.
Broadly speaking, in cities with strong economies that are already home to a large number of knowledge exporters, policy should focus on maintaining the existing strengths by managing the costs of agglomeration. But in cities with few knowledge exporters, it will be crucial to ensure that policies are focused on addressing existing weaknesses and strengthening the factors that enable agglomeration. The exact policy mix for individual cities will largely depend on the strengths and weaknesses of their economies, and the degree to which place-based characteristics that enable agglomeration play out. This is discussed further in the concluding section of this report.