By Indranil Ghosh and Matthias Lomas
UK prime minister Boris Johnson’s government says its determined to “level up” the former industrial heartlands of the North of England with the rest of the country. A significant chunk of the North voted for Johnson’s Conservatives in the 2019 general election after decades of supporting the opposition Labour party. Earlier this month construction finally began on HS2, the high speed rail line connecting London with northern cities that will cost at least £100 billion, which Johnson has approved after years of prevarication under previous governments. Johnson sees HS2 as a key plank of his leveling up agenda.
But while big infrastructure projects are important, experience tells us the real seeds of local economic success lies in giving local areas the powers to craft and fund their own economic development strategies. This is all the more important as regions struggle to lift themselves up from the Covid-induced recession.
Once declining former industrial cities like Pittsburgh provide us with valuable lessons. The second-largest city in the US state of Pennsylvania, it has transformed itself from an ailing former steel town to one of the world’s leading centers in robotics and AI.
As Bruce Katz and Jeremy Nowak chronicle in The New Localism, the city’s rejuvenation began in March 1979, when Carnegie Mellon University’s fledgling Robotics Institute built remote-controlled robots that investigated the wreckage of the Three Mile Island nuclear plant disaster. The economic transformation that followed can be traced to three key factors.
First, Pittsburgh benefitted from the devolution of decision-making power and public finances that US localities enjoy. Forty-four percent of taxes are collected sub-nationally and 20 percent at sub-state level. This affords US municipalities much more autonomy to invest in their future than in the UK, where only 6 percent of taxes are raised locally, and Westminster remains tightly in control of regional allocations.
Second, Pittsburgh used its greater autonomy to forge a local economic development strategy tailored to its strengths. In 1985 a grouping called Strategy 21 was established between the city and county governments, local universities and businesses and philanthropists to diversify Pittsburgh’s economy into innovative sectors and draw in talent from around the world to arrest Pittsburgh’s depopulation. Over the last decade, the robotics and AI sector has drawn big corporations such as Google, Facebook, and Apple into the city, spawned over 450 new ventures, and created over 40,000 well-paid jobs.
Third, Pittsburgh co-opted private capital to power business creation. Its tech sector has attracted almost $4bn in funding over the last decade—impressive for a city of 300,000. Uber chose Pittsburgh as its autonomous vehicle headquarters in 2015.
Since the Conservative-led coalition of 2010-15, the government has long spoken of building a “Northern Powerhouse” to rival the economic success of Southeast England. So why are we still waiting for a Northern city to make a splash on the global stage like Pittsburgh?
Manchester has real strengths in health innovation, advanced materials, digital and creative industries, and professional services. But it has too many people with low skills and economic growth has lagged behind the national average since the recession. It has the most advanced devolution deal of any English authority, with powers over transport, adult education, health and social care, and land use planning. Yet these powers don’t go far enough, and it has little power to collect its own revenue.
On devolution, Johnson has pledged to give other big northern cities the same powers as Manchester. But to really accelerate regional growth, greater autonomy over public finances must be given to individual towns and cities.
Furthermore, where the government really needs to focus is on policies that attract private capital for new business creation and infrastructure. The North has some technological stars outside of Manchester which should be promoted more. The medical research centers and new hospitals clustered in the Liverpool Knowledge Quarter will soon comprise the largest medical campus in Europe. And the British government is working with BP, Royal Dutch Shell, and Equinor in Teesside to build one of the world’s first commercial-scale gas-fired power plant with carbon capture and storage.
The North of England should also capitalize on its local strengths in traditional sectors to catapult itself into the industries of the future. It would do well to emulate the Northern Netherlands which is converting its declining natural gas industry into a clean hydrogen cluster. The region is capitalizing on the fact that the knowledge, infrastructure, and industrial activities are similar for both gasses. Its development plan expects to attract up to €10 billion in investment from 2018 to 2030.
Instead of placing the full burden on the public purse, northern England would also benefit from schemes like the $13bn fund France announced in 2017 to finance disruptive technology innovations in its economy, or a better designed version of the US’s “opportunity zones” which give tax relief for private investments into businesses and infrastructure in economically deprived neighborhoods. This is even more crucial as due to Brexit 2018 represented the lowest number of foreign direct investment projects in the UK for six years.
Boris Johnson and his new finance minister Rishi Sunak have a mountain to climb to close the North-South divide, especially as the pandemic has exacerbated existing inequities. They’ll need to think a lot harder than high-speed train routes.