The following piece was written for the February issue of the New Statesman’s Spotlight supplement, which was focused on the economy of the Northern Powerhouse. In it, we explain why the key to creating and sustaining future growth is to first understand what has been driving it. You can find the original piece here.
Whenever we are faced with big challenges and need to make important decisions, one of the key factors that determines our success is the level of knowledge we have about the nature of our challenge. Although it is possible to have sound insight and still make a wrong decision, making decisions without the facts, or with flawed facts, means we’re really relying on good luck to pull us through.
This principle very much applies when it comes to putting in place measures designed to grow a local or regional economy. If you don’t ﬁrst understand which sectors have been driving growth, and which sectors look set to continue driving growth for the foreseeable future, how can you create a robust strategy to underpin future development, or know which opportunities to prioritise for interventions and inward investment?
This is no less true of the Northern Powerhouse than it is for any other area of the country. If the people and organisations with responsibility for creating a growth strategy and encouraging the attraction of new business into the region are to have success, they need to understand which industries are driving growth, and which look set to drive growth into the future. Of course, this might seem easier said than done, especially since there are so many industries to understand. Where to begin?
Industry clusters across the Powerhouse
We have made the job of identifying growth industries much easier by ﬁrst grouping detailed sectors into “industry clusters” – industries which are tied together by their location, workforce or supply chains. We have then identiﬁed two types of clusters: those that mainly serve local needs, and which therefore aren’t really growth drivers in a region, and those that typically trade nationally and internationally, and can bring growth into the area.
Across all industries in the Northern Powerhouse region as a whole, there were 5.2m jobs in 2017 (we have deﬁned the region as including the following LEP areas: Greater Manchester, Humber, Leeds City Region, Liverpool City Region, North Eastern, and Shefﬁeld City Region). Of that 5.2m, 3.4m were in local, non-tradable industry clusters and 1.8m in tradable clusters. In terms of job growth, the region has seen 285,000 jobs added since 2007, of which 245,000 were in non-tradable clusters, and 40,000 in the tradable clusters.
The story of the growth in those tradable clusters is one of big losses in some clusters being offset by big gains in others. Much of the decline has come through losses in four particular sectors, with ﬁnancial and legal services, printing and publishing, education and knowledge creation, and plastics and vulcanised products accounting for total job losses of 83,000 between them. But at the same time as these sectors have shrunk, a number of others have seen big growth over the same period. The infographic below shows the top 5 tradable clusters in the Northern Powerhouse, according to job growth over the past ten years, and as you can see, it also shows that there is likely to be continued growth in these clusters over the next ﬁve years.
Digging into the area’s sub-regions
Insight such as this should prove helpful to economic developers in terms of establishing a sound strategy for growth, and in understanding where priorities for interventions and efforts to encourage inward investment should take place. Yet, as much as it is essential to look at the Northern Powerhouse as a whole to see which sectors are growing and which are stagnating, it is even more important to get under the hood of the region, as it were, to identify growth patterns at the sub-regional level.
Take the digital cluster, for instance – naturally a focus of many discussions about local economic growth. Although it may well have grown across the Northern Powerhouse region as a whole over the last ten years, and be projected to grow over the next five, this doesn’t necessarily mean that this is the case for all the areas within it. Looking at the data, we do indeed find big differences across the region. For example, whilst Greater Manchester and Leeds City Region added 10,000 and 8,000 digital jobs respectively, the Humber region has seen virtually no net jobs growth. As for projections over the next five years, four-digit growth is expected to continue in Greater Manchester (3,500 jobs), Leeds City Region (2,500), and North Eastern (1,500), whereas Liverpool City Region, Sheffield City Region and Humber are expected to each add around 500 new jobs in the digital cluster between now and 2022.
Playing to strengths
The data shows there are big variations across the region, meaning there may be value in pursuing different strategies and interventions in each of the sub-regions. So whilst it would seem sensible for economic developers in Greater Manchester and Leeds City Region to concentrate on developing their digital cluster, given that it is clearly a strength of both regions, it may make less sense in other areas where their digital cluster has barely grown in the past 10 years, and is projected to show only slight growth in the next ﬁve.
It would surely make more sense for an economic developer to concentrate on the clusters where they have strengths within their area. For example, in the Humber region there has been signiﬁcant growth over the last ten years in tradable clusters such as furniture and wood products (3,000 new jobs); civil engineering (2,000); logistics and e-commerce (2,000); business services (1,500); and food and drink production (1,500). Looking at what is driving or holding back these cluster strengths may well offer the best returns for local economic strategy.
The Northern Powerhouse and the Industrial Strategy
The government’s Industrial Strategy aims to deliver economic growth across the UK, helping to develop “high growth clusters” where appropriate. If this is to become a reality in the Northern Powerhouse, and indeed across the country, those responsible for economic development at the local and regional level will need to identify what their “high growth clusters” are.
As we have demonstrated in this piece, using local level insight is a crucial ﬁrst step to understanding which clusters are driving growth and which therefore represent opportunities for future growth. Identifying which clusters is the very ﬁrst step – there’s much more to be explored in terms of the opportunities of people, place and supply chain to understand how growth can best be enabled. Only on the basis of robust, localised insight can we hope to build a successful strategy, take good decisions, and ultimately foster growth.
To find out more about how we can identify what’s driving growth in your area, go to our Local Sector Strengthfinder page.