To achieve genuine regional growth, the government’s devolution agenda must focus on improving firm-level productivity and transforming industrial structures rather than relying on surface-level infrastructure projects, says Paul Ormerod

Andy Burnham’s government is attracting a lot of criticism in the media. Its apparent focus is on lots of rather trivial matters whilst major issues are kicked down the road. 

But the government does have at least one clearly articulated important policy aim, and that is one of devolution. Actions are already underway with regions which already have Mayors. Plans are being drawn up to establish similar structures across England more generally.

The belief is that this will be a key way to achieve the aim of the government of generating “good growth in every postcode”.

I wrote four weeks ago, citing the example of education under the Welsh government as an example, that the policy is not without risk. But this was basically caused by incompetence. Governments at all levels are hardly immune to this charge.

The main obstacle to achieving “good growth in every postcode” is not a lack of competence. It is that a great deal of regional policy over the decades has amounted to sticking plaster rather than healing the wound. 

There has been a lack of the concrete analysis required in order to build successful policies.

Regional inequality remains as wide as ever

In the run up to the 1964 General Election, the then new Labour Leader, Harold Wilson, made several keynote policy speeches. One of these was on regional policy, where he contrasted the “over-congested south and the starved north”.

Fast forward over 60 years, after many different initiatives and billions of pounds spent, to Boris Johnson coining the phrase “levelling up” for his mix of polices. And now we see the new Prime Minister with yet another set of ideas.

The plain fact is that regional inequalities remain as wide as ever, both between regions and across the various local authorities within each region.

The proximate reason why the UK regions remain relatively poor is that the typical firm has lower productivity than its counterpart in London and the South East. It can therefore only afford to pay relatively lower wages and salaries.

This in turn divides into two strands. First, the industrial structure of the regions is more heavily weighted towards sectors of the economy which are inherently less productive.

Second, a very important discovery of recent years is that even within narrowly defined industries, there is a very wide dispersal of productivity (and hence income) levels across firms. The regions have too many firms in the average/low part of any given industry and far too few at the high end.

Strategy should therefore be focused on both changing the industrial structure of the regions and on improving the productivity of existing firms based there.

New roads, improving public transport, modernising shopping centres and such like are desirable things to do. But they do not strike at the heart of the problem.

The shining example of what to do is the Advanced Manufacturing Research Centre (AMRC) in Rotherham, transitioning the area from heavy coal and steel industries to high-tech manufacturing.

Manchester is rightly seen as a success story. But its 38 per cent increase in productivity between 2004 and 2024 is dwarfed by the 64 per cent registered in Rotherham, almost the largest in the UK

Manchester is rightly seen as a success story. But its 38 per cent increase in productivity between 2004 and 2024 is dwarfed by the 64 per cent registered in Rotherham, almost the largest in the UK.

The growth in Manchester has been based on services, legal AI and the like, in and around the city centre. But to turn it into a genuine second city comparable to its European counterparts, this needs to be at least twice as big.

These transformations are a major challenge. Far easier, and far more obvious to the local voters, is to do up a shopping centre. 

The real risk in the devolution agenda is that local leaders fail to properly grasp what needs to be done. 

Paul Ormerod is an Honorary Professor at the Alliance Business School at the University of Manchester. You can follow hm on Instagram @profpaulormerod