Competitiveness and the post-regional political economy

Abstract

This article seeks to examine how the changing institutional environment concerning local and regional economic development in Britain is related to the changing competitive fortunes of its localities and regions. Drawing on evidence from the UK Competitiveness Index, it is found that the institutional shift toward a post-regional political economy, particularly the demise of Regional Development Agencies and the introduction of Local Enterprise Partnerships, has coincided with an increased concentration of Britain’s economic competitiveness and growth capacity within London, in particular the City of London. Overall, there is found to be continuing divergence in competitiveness between England’s least and most prosperous regions and localities. In the devolved regions of Scotland and Wales, there is little evidence to indicate that their localities are competing any more effectively with their English counterparts. It is suggested that the most effective role for economic development institutions is to act as a guiding light to ensure sustainable local and regional economic models are established.

Keywords

competitiveness competitiveness index economic governance economic institutions Local Enterprise Partnerships political economy Regional Development Agencies regions

Introduction

Institutional theorists suggest that a key means of escaping a downward evolutionary economic trajectory is through the development of efficient institutions that facilitate effective economic development (Acemoglu and Robinson, 2012; Acemoglu et al., 2005; North, 1990, 2005). Institutions consist of the underlying ‘rules of the game’ relating to factors such as the incentive to save, invest, and embrace competition, innovation and technological development, property rights, markets, unbiased systems of law and regulation, and the provision of public services (Acemoglu and Robinson, 2012). In effect, institutions, in the shape of both the tangible and intangible characteristics constituting the political economy of nations and the functioning of their economic systems, are either enablers or constrainers on economic performance, or what is more commonly termed ‘competitiveness’ (Aiginger, 2006; Begg, 1999; Huggins, 2003). Institutional enablers are the conditions and factors that facilitate competitiveness by creating an environment that is conducive for firms to operate at their optimum level. These enablers principally encompass the institutions that support economic actors to take advantage of perceived opportunities. Whilst some of these institutions are fixed across nations, such as law, regulation, and property rights, others, such as the embracement of competition and innovation, are clearly subject to local or regional differentiation.

Places with institutions conducive to enabling economic development are likely to increase their competitive advantage by attracting investment, skills, and talent. Key examples include the ease of doing business, effective government initiatives, and ultimately, the perceptions of businesses and individuals in a region. In this context, the role of government initiated institutions such as Regional Development Agencies (RDAs), Local Enterprise Partnerships (LEPs), and regional government, are potentially key enablers or constrainers on economic development and competitiveness. Enabling institutions will take account of local and regional contextual factors, with complementary institutions developing through repeated interactions. Constraining institutions may limit the directions in which a local or regional economy can develop in the future. Therefore, choices that push places towards the development of a particular set of institutions over another may influence competitiveness in the long term.

This article seeks to examine how the changing institutional environment concerning local and regional economic development in Britain is related to the changing competitive fortunes of it localities and regions. Since the arrival of the Labour Government in 1997 through to the Conservative-Liberal Democrat Coalition Government, which came to power in 2010, the spatio-political economy of Britain has undergone significant change. Under the Labour Government, a distinct regional economic development agenda was introduced through the establishment of regional governments in Scotland, Wales, and Northern Ireland, along with the introduction of RDAs in the nine administrative regions of England. Against a backdrop of global financial austerity, the Coalition Government subsequently replaced the RDAs with Local Enterprise Partnerships (LEPs), which are joint local authority-business bodies established to promote local economic development (HM Government, 2010). By 2013, 39 LEPs had been established, covering the majority of England, and this change in institutional governance is altering the nature of regional and local policy intervention. Although the Government states that Local Enterprise Partnerships will ‘take the form of the existing RDAs in areas where they are popular’ (HM Government, 2010: 10), this has largely failed to materialise, highlighting the radical nature of the changes (Pugalis, 2011; Pugalis and Townsend, 2012). These changes reflect the development of the concept of city regions whereby economic activity clusters around an urban core. In recent years, further powers have been devolved to the governments in the Celtic regions, especially Scotland and Wales, which in some instances has allowed them to act more as nation-state governments in some policy areas. In Scotland, this may become a fuller reality following the proposed vote on independence in 2014.

Given this shift toward a post-regional political economy, the remainder of this article examines how the competitiveness of Britain’s localities has fared in recent years through an analysis of the UK Competitiveness Index for both 2013 and 2010, with a view to elucidating some underlying trends.

Place-based competitiveness

The notion of the ‘competitiveness of places’ such as localities, regions, cities, or nations remains an area of contested theoretical debate, with some arguing that firms, and not places, ‘compete’ for resources and markets. Nevertheless, a significant forum of scholarly and practitioner-based research has developed in recent years that has sought to theorize upon and empirically measure the competitiveness of places, in particular, at the sub-national local or regional level. Such competitiveness generally refers to the presence of conditions that enable firms to compete in their chosen markets and that enable the value these firms generate to be captured within a particular locality or region (Begg, 1999; Huggins, 2003). Competitiveness, therefore, is considered to consist of the capability of a particular locality or region to attract and maintain firms with stable or rising market shares in an activity, while maintaining stable or increasing standards of living for those who participate in it (Storper, 1997). Given this, competitiveness may vary across geographic space, as localities and regions develop at different rates depending on the drivers of growth (Audretsch and Keilbach, 2004).

While competitiveness is intrinsically bound to the economic performance of places, there exists a growing consensus that it is best measured in terms of the assets of the local business environment (Malecki, 2004, 2007). These include the level of human capital, the degree of innovative capacity, and the quality of the local infrastructure – all of which affect the propensity to achieve competitive advantage in leading-edge and growing sectors of activity. The influence these assets and other externalities can have on firm competitiveness, such as the ability to attract creative and innovative people or provide high-quality cultural facilities, are all important features of local and regional competitive advantage (Kitson et al., 2004). In other words, competitiveness is increasingly concerned with creativity, knowledge, and environmental conditions, rather than being purely based on accumulated wealth (Huggins, 2003). As Martin (2005) outlines, concern with competitiveness filtered down to the regional, urban, and local levels, particularly the role of local- and regional-based policy interventions to help improve the economic welfare of these places.

UK Competitiveness Index

The competitiveness measurement utilised in this article draws on the UK Competitiveness Index (UKCI), which is considered a useful benchmark for measuring relative economic competitiveness differences across regions and localities. The index was originally published in 2000, with later editions tracking local competitiveness since 1997. In this case, a comparison is made between indices produced in 2013 and 2010. The aim of the UKCI is to construct a single index that reflects, as fully as possible, the measurable criteria constituting place-based competitiveness outlined above.

The full methodology underlying the design of the UKCI can be found in Huggins (2003), but in summary it is important to note that the key concern is to develop a series of indices incorporating data that are available and comparable at the local level, and that go some way towards reflecting the link between economic performance and business behaviour. In essence, a 3-factor model for measuring competitiveness is adopted by the UKCI, consisting of a linear framework for analysing competitiveness based on: (1) input, (2) output, and (3) outcome factors. In order to achieve a valid balance between each of the indicators, in terms of their overall significance to the composite index, each of the three factors is given an equal weighting, since it is hypothesised that each will be interrelated and economically bound by the others.

The variables included in the index consist of: inputs – economic activity rates; business start-up rates per 1000 inhabitants; number of businesses per 1000 inhabitants; proportion of working-age population with NVQ Level 4 or higher qualification; and proportion of businesses operating in knowledge-based sectors; outputs – gross value added per head at current basic prices; labour productivity; and employment rates; and outcomes – gross weekly pay; and unemployment rates. In the following analysis the coverage consists of the 379 local authority district areas in England, Scotland, and Wales (district areas in Northern Ireland are excluded due to issues of data availability). In all cases, an index score of 100 equates to the UK average.

Local competitiveness in Britain

As shown by Table 1, localities in London account for the top nine most competitive places in Britain, headed by some distance by the City of London, and followed by Westminster, Camden, and Southwark. The only non-London locality to feature in the top 10 is nearby Windsor and Maidenhead. The most obvious feature of Table 1 is the large growth in the index score for the City of London, which has risen by 85.2 points between the two periods. Clearly, this improvement is relative to other localities across the UK, but it suggests that Britain’s capacity and capability to grow has become more reliant and dependent than ever on the City. The City of London’s score of 773.6 is the highest achieved since the UKCI was first developed, with the previous highest being 744.2 in 1997. The underlying trend, therefore, appears to be that the City is becoming a more important source of competitiveness and future growth for the British economy as a whole. More generally, the change in the indices suggest further economic divergence across Britain, with the standard deviation in scores across all localities increasing from 32.8 on the 2010 index to 36.9 on the 2013 index.

Table 1.

UKCI 2010 and 2013 top 10 localities.

UKCI		Change 2010–2013
Rank 2013	Locality	Region	2013	2010	Rank 2010	UKCI	Rank
1	City of London	London	773.6	688.4	1	+85.2	0
2	Westminster	London	203.4	202.5	2	+0.9	0
3	Camden	London	160.0	160.9	3	−0.9	0
4	Southwark	London	145.1	125.1	10	+20.0	+6
5	Kensington and Chelsea	London	141.1	133.6	7	+7.5	+2
6	Hammersmith and Fulham	London	140.0	141.0	4	−1.0	−2
7	Islington	London	131.6	137.5	5	−5.8	−2
8	Tower Hamlets	London	131.2	137.1	6	−5.9	−2
9	Wandsworth	London	126.5	129.1	8	−2.6	−1
10	Windsor and Maidenhead	South East	123.6	125.4	9	−1.7	−1

At the other end of the scale to the City, the least competitive locality is Blaenau Gwent in the South Wales valleys, which has continued to see an erosion of its competitiveness, and is one of four Welsh localities ranked in the bottom 10 places (Table 2). The fact that all four have seen a drop in their competitiveness score suggests that devolution in Wales has done very little to improve the economic prospects of these localities. Blackpool is the lowest ranked locality in England, followed by another coastal locality in the form of Gosport in South East England. In Scotland, the lowest ranked locality is North Ayrshire, which has seen a significant fall in its competitiveness during the period.

Table 2.

UKCI 2010 and 2013 bottom 10 localities.

UKCI		Change 2010–2013
Rank 2013	Locality	Region	2013	2010	Rank 2010	UKCI	Rank
379	Blaenau Gwent	Wales	71.7	73.4	379	−1.7	0
378	Caerphilly	Wales	78.5	79.0	376	−0.5	−2
377	Blackpool	North East	79.4	79.6	374	−0.2	−3
376	Torfaen	Wales	80.3	80.6	373	−0.2	−3
375	Gosport	South East	80.6	90.0	281	−9.5	−94
374	Rhondda, Cynon, Taff	Wales	80.6	81.6	370	−1.0	−4
373	North Ayrshire	Scotland	81.0	85.6	342	−4.6	−31
372	Redcar and Cleveland	North East	81.1	80.7	372	+0.5	0
371	Knowsley	North West	81.2	78.5	377	+2.7	+6
370	Walsall	West Midlands	81.4	84.1	352	−2.7	−18

Table 3 highlights those localities that have most improved their competitiveness ranking across the 2010 and 2013 indices. The biggest climber is the relatively small locality of Rossendale in the North West of England. Interestingly, Rossendale is best known for being the home of a significant number of artists and their studios, and is perhaps a good example of how creativity can drive competitiveness in more rural economies (Huggins and Clifton, 2011). Greenwich and Barking and Dagenham are the next biggest climbers, forming part of five localities from the Greater South East of London within the top 10 climbers. On the other hand, the biggest fallers are Rushcliffe in the East Midlands (dropping 128 places), followed by Harlow in the East of England (dropping 127 places), and South Staffordshire in the West Midlands (dropping 126 places).

Table 3.

UKCI I top 10 ranking climbers.

UKCI		Change 2010–2013
Rank 2013	Locality	Region	2013	2010	Rank 2010	UKCI	Rank
181	Rossendale	North West	95.2	87.2	324	8.1	+143
108	Greenwich	London	101.2	94.7	211	6.4	+103
219	Barking and Dagenham	London	93.3	87.2	322	6.1	+103
132	Forest Heath	East of England	99.0	93.2	233	5.8	+101
75	Fareham	South East	105.6	97.2	174	8.3	+99
187	Bassetlaw	East Midlands	95.0	90.0	285	5.0	+98
105	Newham	London	101.5	95.7	196	5.8	+91
260	Torridge	South West	91.2	85.6	341	5.6	+81
211	Allerdale	North West	93.6	89.6	291	4.0	+80
151	Kettering	East Midlands	97.5	93.6	229	3.9	+78

Table 4 highlights the averages scores and ranks for localities based on their regional location. Localities in London and South East England lead the way, followed by the East of England. The most interesting feature of this table is the mean average change in score across the two periods, which highlights that localities in London have shown by far the greatest improvement, rising by 3 points. Apart from localities in London, only those in the North West of England show any improvement overall, rising by 0.4 points, suggesting that the economic promise generated during the time of the North West RDA has not fully dissipated. In the case of the devolved administrations, localities in both Scotland and Wales fail to show any overall progress, and are actually continuing to lose ground.

Table 4.

Average UKCI and rank by region.

UKCI		Rank		Average Change
2010	2013	2010	2013	UKCI	Rank
London	132.0	135.0	85	76	+3.0	+9
North West	91.2	91.6	260	243	+0.4	+17
West Midlands	94.2	91.9	223	240	−2.3	−17
East Midlands	94.3	92.8	221	225	−1.6	−4
East of England	100.1	98.6	157	161	−1.5	−4
Yorkshire and Humber	92.9	91.8	240	239	−1.1	0
South West	97.4	96.3	178	178	−1.1	0
Wales	87.4	86.4	300	304	−1.0	−4
Scotland	94.6	93.7	222	225	−0.9	−3
South East	105.4	104.7	111	111	−0.7	+1
North East	89.3	89.2	283	276	0.0	+7

Whilst there is further divergence in competitiveness across Britain as a whole, within regions there are patterns of both convergence and divergence. The biggest signs of increased divergence occur in London and Scotland, and to a lesser extent South East England. South West England, Wales, and the West Midlands are the most marked in terms of convergence across localities.

From the perspective of England, it is interesting to map the competitiveness scores for localities on to LEP area boundaries. As show by Table 5, LEP areas in the Greater South East of England are by far the most competitive, led by the Thames Valley Berkshire LEP area, and followed by the London LEP area and the Enterprise M3 LEP area (comprising those localities situated near and along the M3 motorway). In general, LEP areas in the south of England dominant the top of the rankings, and apart from the Cheshire and Warrington LEP area, are the only ones performing above the UK average. At the bottom of the ranking are the post-industrial urban economies of the more northern parts of England, with the least competitive being the Black Country LEP area, followed by the Liverpool City Region and the North Eastern LEP area.

Table 5.

UKCI by English LEP areas.

Change 2010–2013
Rank 2013	LEP Area	2013	2010	Rank 2010	UKCI	Rank
1	Thames Valley Berkshire	117.7	118.9	1	−1.3	0
2	London	114.5	114.9	2	−0.5	0
3	Enterprise M3	112.0	111.3	4	0.7	1
4	Buckinghamshire Thames Valley	111.2	114.1	3	−2.8	−1
5	Hertfordshire	108.4	110.4	5	−2.0	0
6	Oxfordshire LEP	107.5	108.4	6	−1.0	0
7	Coast to Capital	103.9	104.7	7	−0.8	0
8	West of England	103.3	104.3	8	−1.0	0
9	Cheshire and Warrington	103.2	103.3	9	−0.2	0
10	Greater Cambridge & Greater Peterborough	101.8	103.2	10	−1.4	0
11	Gloucestershire	101.3	102.5	13	−1.3	2
12	South East Midlands	100.7	102.9	11	−2.2	−1
13	Solent	99.5	98.4	16	1.1	3
14	Swindon and Wiltshire	98.8	102.8	12	−4.0	−2
15	Coventry and Warwickshire	97.8	101.2	14	−3.4	−1
16	Northamptonshire	97.8	99.5	15	−1.7	−1
17	Dorset	96.2	97.6	18	−1.4	1
18	Cumbria	95.7	94.1	23	1.7	5
19	Leicester and Leicestershire	95.3	96.2	20	−0.9	1
20	South East	95.1	96.4	19	−1.3	−1
21	York and North Yorkshire	94.6	97.8	17	−3.2	−4
22	Worcestershire	93.8	96.0	21	−2.1	−1
23	New Anglia	93.2	94.0	24	−0.8	1
24	Heart of the South West	93.0	93.3	26	−0.3	2
25	Greater Birmingham and Solihull	92.7	91.9	29	0.8	4
26	Leeds City Region	92.4	93.0	27	−0.6	1
27	Greater Manchester	92.2	92.9	28	−0.6	1
28	Derby, Derbyshire, Nottingham and Nottinghamshire,	92.1	93.7	25	−1.6	−3
29	The Marches	91.6	94.3	22	−2.7	−7
30	Lancashire	90.4	90.2	31	0.2	1
31	Greater Lincolnshire	89.0	89.1	33	0.0	2
32	Stoke−on-Trent and Staffordshire	88.5	90.5	30	−2.0	−2
33	Humber	88.4	89.5	32	−1.1	−1
34	Cornwall and the Isles of Scilly	88.0	88.7	34	−0.7	0
35	Sheffield City Region	87.5	88.1	35	−0.6	0
36	Tees Valley	87.1	85.9	37	1.2	1
37	North Eastern	86.6	87.5	36	−0.9	−1
38	Liverpool City Region	85.8	85.5	38	0.3	0
39	Black Country	84.1	84.9	39	−0.8	0

Although LEPs are relatively new incarnations, it is possible to trace the performance of LEPs areas prior to the establishment of the actual partnerships. Figure 1 plots the annual average growth rates of the LEP areas for the period 1998–2008 against current competitiveness scores, as means of assessing the extent to which previous growth in output is connected with the current competitiveness (which can be considered a proxy of future growth capabilities). Unsurprisingly, there is a very strong relationship, which highlights the path-dependent nature of local economic development, with those LEP areas that witnessed the greatest growth in previous years seemingly best placed to grow economically in the future.

Conclusion

So what trends can be garnered from the above analysis, and to what can these be attributed? The clearest trend is the increased concentration of Britain’s economic competitiveness and growth capacity within London, in particular the City. Previously, especially during the period following the introduction of the RDAs in England, competitiveness had begun to be more evenly spread across the regions incorporating the Greater South East as whole. However, since then a number of localities in East and South East England have seen their competitiveness eroded. It is difficult to attribute this directly to the demise of the RDAs, as the post-2008 financial crisis will clearly have played a role. In reality, it is likely that the confluence of both factors will have affected this situation, resulting in the ‘Golden Triangle’ beginning to somewhat lose its shimmer. The same is likely to be true with regard to the continued divergence in the performance of localities in the most and least prosperous regions of England.

Although LEPs have been introduced, they have lacked the funding power of the RDAs, and do not appear to have taken forward some of the improvements in regional economic capacity and capability that were beginning to become apparent prior to the demise of the RDAs. In particular, the RDAs gave regions, and England as a whole, the opportunity to diversify Britain’s economy away from its dependence on the financial sector by supporting other industries in both the manufacturing and service sectors. The evidence from the preceding analysis indicates that this opportunity has not been embraced, with the spatial distribution of economic competitiveness in England suggesting that the reverse is actually the case.

Outside of England, there is little to suggest that the economic powers and institutions endowed on Scotland and Wales have allowed their localities to compete any more effectively with their English counterparts. This points to the limitations of political institutions in promoting economic development within places ill equipped to compete in a post-industrial economic environment. Indeed, it could be suggested that devolved governments have had the effect of being institutional constrainers, rather than enablers, of competitiveness. To finish on a more optimistic note, it should be stated that the above does not imply that the majority of Britain is economically bankrupt, but that there is a continuing and growing divide between relatively more or less competitive places. However, place-based competition is increasingly global in nature and all localities and regions have an opportunity to find their own niche and economic model within this environment, with the most effective role for economic development institutions being to act as a guiding light to ensure sustainable economic models are established.

Footnotes

Funding

This research received no specific grant from any funding agency in the public, commercial or not-for-profit sectors.

Notes

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