Unequal Competitive Performance Across the UK Regions Michael Kitson (Judge Business School, University of Cambridge) Ron Martin (Department of Geography, University of Cambridge) Maria Abreu (Cambridge-MIT Institute) Maria Savona (Cambridge-MIT Institute) CBR Summit: 29-30 March 2006 Innovation and Governance
Structure � The New Focus on Regional Competitive Performance � Regional Disparities in Performance: The Scale of the Problem � Causes of Regional Growth Disparities: The Issue of Regional Competitiveness � The Policy Challenge CBR Summit: 29-30 March 2006 Innovation and Governance
The New Focus on Regional Competitive Performance � Marked shift in thinking about ‘regional problem’ and ‘problem regions’ in recent years � From ‘structural deficiency of demand’ to weaknesses in the ‘supply-side micro-economics of competitive performance’ � Competitive performance equated with productivity � Focus on raising regional and urban productivity • Both as way of reducing regional disparities in per capita GDP • And as way of boosting productivity of UK economy as a whole CBR Summit: 29-30 March 2006 Innovation and Governance
Productivity in the Regions: the Government’s Objective ‘The Government is… committed to strengthening economic performance across the regions, localities and countries of the UK, and to reducing the persistent gap in growth rates between the regions’ (Budget 2006, 22 March, p.44) CBR Summit: 29-30 March 2006 Innovation and Governance
Regional Productivity Disparities: The Scale of the Problem � Since the mid-1980s, major productivity gap has opened up between London and South East on one hand, and rest of UK on the other � Only three regions have productivity above UK average (London, South East and Eastern) � Productivity growth in the Northern regions has been especially slower � The productivity gap is such that output per employee in South East now more than 28 percent above that in Northern Ireland, and 20 percent above that in North East CBR Summit: 29-30 March 2006 Innovation and Governance
Regional Labour Productivity, 1980-2003 (UK 1980=100) CBR Summit: 29-30 March 2006 Innovation and Governance
Regional Productivity Disparities: The Scale of the Problem � Employment growth has also been unequal across the regions � Highest in South East, Northern Ireland, South West and Eastern region � Some regions have not fully recovered from massive job declines of early-1980s (North East, North West and West Midlands) � South East only region to experience above average growth in productivity and employment CBR Summit: 29-30 March 2006 Innovation and Governance
Regional Growth of Productivity and Employment 1980-2004 CBR Summit: 29-30 March 2006 Innovation and Governance
GVA per Capita 2003 GVA per capita, 2003 GVA per capita (£) 7,000 - 12,000 12,000 - 13,000 13,000 - 14,000 14,000 - 15,000 15,000 - 16,000 16,000 - 17,000 17,000 - 18,000 18,000 - 19,000 19,000 - 20,000 20,000 - 200,000 Source: Local Futures Source: Local Knowledge 0 275,000 550,000 1,100,000 Meters CBR Summit: 29-30 March 2006 Innovation and Governance
Change in GVA per Capita, 1995-2003 Change in GVA per capita, 1995-2003 Change in GVA per capita (%) 15 - 30 30 - 40 40 - 42 42 - 44 44 - 46 46 - 48 48 - 50 50 - 60 60 - 100 Source: Local Futures Source: Local Knowledge 0 275,000 550,000 1,100,000 Meters CBR Summit: 29-30 March 2006 Innovation and Governance
Regional Productivity Disparities: The Scale of the Problem � If recent trends in regional productivity growth are continued, the productivity of the South East will be 40% higher than that of the North East by 2020 � Equalising productivity growth rates will not however reduce absolute regional disparities in productivity, which will continue to widen � Assume, for example, in all regions productivity grows at the UK average for 1980-2003, the absolute gap between South East and North East would widen by 85% by 2020 � To equalise regional productivity levels by 2020 to that in the South East (assuming it maintains its recent growth rate) would mean increasing annual growth rates in North East by more than 2 percentage points (more than doubling the current trend growth rate) CBR Summit: 29-30 March 2006 Innovation and Governance
Regional Labour Productivity Growth Rates, 1980- 2003
Regional Labour Productivity: Actual and Continuation of Historical Trend, 1980-2020
Regional Labour Productivity: Continuation of Historical Trend, 2004-2020 GROWTH DIVERGENCE AND LEVEL DIVERGENCE
Regional Labour Productivity: Actual and Future Growth at the UK National Rate, 1980-2020
Regional Labour Productivity: Future Growth at the UK National Rate, 2004-2020 GROWTH CONVERGENCE BUT LEVEL DIVERGENCE
Changes in Regional Labour Productivity Growth Required to Reach the UK National Growth Rate
Annual Regional Labour Productivity Growth Required to Reach the South East Productivity Level by 2020
Changes in Annual Regional Labour Productivity Growth Required to Reach the South East Productivity Level by 2020
The Causes of Regional Disparities in Productive Performance � Key focus by Government on critical ‘drivers’ of regional (and urban ) productivity and competitiveness (Skills, Enterprise, Innovation, Competition, Investment) � Urban policy adds two others (Connectivity, Quality of Life) � Regional innovation and enterprise appear to be the two crucial drivers � But not clear why these factors chosen (what is the theory of regional competitiveness or regional productivity behind the drivers?) � In addition - what drives the ‘drivers’? CBR Summit: 29-30 March 2006 Innovation and Governance
Drivers of Regional Competitiveness/Productivity According to HM Treasury/DTI/ODPM SKILLS EN TERPRISE Management skill s raise entrepreneurship and Skill s raise firms’ Entry of new business excellence. capacity to firms raises New firms create develop and use competition demand for skilled new technology labour INN OVATION COMP ETITION Increasing competition Investment in Increasing encourages physical capital competition creates competition increases firms’ incentives for innovative capacity business investment IN VESTMEN T CBR Summit: 29-30 March 2006 Innovation and Governance
Four Different Aspects of Regional Competitiveness Regional Locational Regional Comparative Attractiveness Advantage • To flows of skilled, creative • Trade key to growth labour • Factor endowments • To mobile capital (productive, • Economic specialisation financial, public sector) • Some factors relatively • To knowledge and technology immobile (Universities) Regional Competitive Regional Absolute Advantage Advantage • ‘ External economies’ key to • ‘ Fundamentals’ key to growth growth • Education base • Clustering and specialisation • Social capital • Innovation • Institutions • Investment • Infrastructures CBR Summit: 29-30 March 2006 Innovation and Governance
The Causes of Regional Disparities in Productive Performance � Cumulative growth processes � Interaction of supply and demand – successful regions have higher net ’exports’ and attract skilled labour and knowledge capital which raises their productive potential � Competing over skilled and educated labour � Long been a ‘drift’ of population to the South of UK � Flows of skilled and educated labour are overwhelmingly in favour of South East and London � ‘Talent magnets’ versus ‘talent drains’ � Research excellence and R&D biased towards the south CBR Summit: 29-30 March 2006 Innovation and Governance
A Cumulative Causation Approach to Regional Growth: A Region in a Virtuous Cycle High Growth and Expanding Demand Agglomeration and Exports Increasing Exploiting Import Propensity Increasing Declining Returns Improving Competitiveness Importing Labour and Capital Increasing Productive Potential
An Endogenous (Self-Reinforcing) Growth View of Regional Competitive Success TALENT: The ‘Learning Education, skills, training. Region’ Well-qualified workforce Entrepreneurship Talent and Indigenous Talent THE COMPETITIVE Technology and Technology REGION attracted from other regions High demand, growth, Productivity and employment TECHNOLOGY: Purposive innovation by local firms; absorption of technology throughout The ‘Innovative regional economy Region’
The Impact of Factor Flows on Regional Growth Disparities S 2 FEC South (with factor inflows) S 1 GDP per capita FEC South (no-factor inflows) N 1 N 2 FEC North (no factor outflows) ) s w o l f t u o r o t c a f h t w i ( h t r o N C E F Time FEC= Full Employment Growth Ceiling
Working Age Population and Total Employment: 1971–2003 (000s) (Source: Rowthorn, 2005)
Growth in proportion of working age population with degree level qualifications 1991-2001 Source: The State of the English Cities Report, ODPM, March 2006
Regional 'Trade' in Graduates (employed minus educated as a percentage of total graduate population, 2001-2002 ) 8 7 6 5 4 3 2 1 0 Northern Ireland Scotland Yorkshire and the London East South East West Midland East Midlands North East South West Wales North West -1 -2 Humber -3 Net Gain/Loss as % Total Graduates Source: Wales (2006)
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