A data-led revolution can power the recovery in subnational economic development.
Dr Nicola Headlam, Chief Economist and Head of Public Sector at data company, Red Flag Alert, and the former Head of Northern Powerhouse within HMG
The Levelling Up White Paper is finally out and the general consensus is that while the ambition is laudable, the timing is terrible both from the perspective of funding cycles this FY and next and due to the political instability of the Johnson government.
The 12 missions provide much-needed clarity on what levelling up means, and and binding departments to a shared, cross-government goal, is the only way levelling up has a chance of being realised.
Local government will find some comfort in the emphasis on devolution throughout the White Paper, though what this means in practice is yet to be determined. Further, the devolved leaders that we already have — the city-regional mayors are united in disbelief
Fundamentally, the White Paper consolidates a policy evidence base but rather than novelty some of it harks back to the late 1990s regional development policies of the New Labour government. It also continues the trend of initiative-led regional economic development that has characterised government policy for over a decade now and which has led to huge disparities, not just between regions but between individual places within them. A lost decade in regional economic development.
What might the White Paper have looked like if it had been data-driven, using the kind of insights that are now available thanks to digital technologies?
The above chart shows the proportion of companies in each LEP area with a High Growth Propensity. Not guessing, not gambling. Built showing 2 discretely different economic structures, both need different handling by local government at all levels in order to support growing companies.
Local authorities, combined authorites, growth hubs and LEPs are beginning to grasp the huge opportunities of firm-level micro-data to transform the way they, and their respective LEPs and growth hubs, develop economic policy and deliver business support.
In Liverpool City Region for example, we have provided real-time data on business performance using our own scoring system derived from companies house and other datasets, which acts as an early warning system for companies that are in distress — and those that show propensity for growth. This is enabling the Growth Platform team to take a highly targeted approach, going directly to those firms who could benefit most from growth interventions rather than relying on one-size-fits-all marketing.
Extrapolating from firm-level data also gives us a different view of how the economy is really operating. Traditional economic policy based on official ONS data has several downsides. As well as the obvious time lag, data often isn’t available at the right spatial level — particularly in the case of LEP and combined authority geographies. Economic development officers do the best they can with the data available, but this just underlines the need for a data-led revolution in regional development.
Building up from firm-level data in Greater Manchester, for example, shows that high-growth businesses cluster together in more successful places but that most lack the growth to support the aspirations of their population. Put bluntly, an Innovation Accelerator in Manchester might help individual firms grow but this isn’t going to create the benefits needed to level up a regional economy that has lagged behind London and the South East for decades, even before COVID-19. Futhermore our analysis of the post covid economic scarring has led to us supporting City-REDI, a think tank based within the University of Birmingham in looking across their region.
Likewise, working with the data shows that our definitions of sectors according to current SIC codes are woefully out of date. Most local and combined authorities have a strategy to grow their digital economy, but this often doesn’t reflect the way that digital businesses actually operate. Understanding the sectors of the future is essential for effective skills policy, ensuring we can equip young people with the right skills now to access the jobs of the near future.
We are also understanding more about the behaviours of scale-up companies — again, a priority in most councils’ economic development strategies. Our data highlights that young, knowledge-intensive businesses are those most likely to scale up. However, it also indicates that scale-ups are often likely to leave smaller locations for a bigger city region when they reach a certain level of growth. This has implications for long-term economic policy, particularly in towns and rural areas. Shiny incubators are great for encouraging start-ups and early-stage businesses, but there must be attractive premises for them to move onto, and a strong local skills pipeline, to ensure they stay.
Firm-level data fundamentally changes our view of the economy. Adopting a data-driven approach could be game-changing for local government decision-makers, particularly in an environment with less money and resource where interventions must be targeted with laser-like precision.
As local economies recover from the impact of COVID-19, public and private sectors will have to fight for every pound of growth. This requires a fundamentally different policy-making approach — one that is data-driven and strategic, not based on catchy slogans or isolated initiatives. The Levelling Up White Paper doesn’t do this, but armed with the right data, local government, growth companies, mayoralties and regional entities can.
