This piece was written for the February issue of the New Statesman’s Spotlight magazine, which focused on the Northern Powerhouse. You can download a copy here.
The government’s Industrial Strategy makes it very clear that the problem of low productivity needs to be tackled at the local level, with one of the pledges being the formation of Local Industrial Strategies that “build on local strengths and deliver on economic opportunities.” This initiative was fleshed out in more detail in October last year, with the publication of the Local Industrial Strategies Policy Prospectus, which stated: “Local Industrial Strategies should set out clearly defined objectives to increase the productivity of the local economy.”
The acknowledgement that these strategies need to be place-specific is welcome, since local economies are often very different from one another. Yet it does raise the question of how those with responsibility for developing and implementing these strategies – Local Enterprise Partnerships (LEPs) and Mayoral Combined Authorities (MCAs) – will go about determining what the particular strengths and weaknesses in their area actually are.
A big part of the answer to this question is better insight into local economies, and the heat map and table below of the Northern region gives a little bit of a taster of what we mean by this.
The map itself is measured in terms of jobs per square mile, but what we have then done is picked out the top five cities, large towns and medium towns in the region, according to population size, and identified a number of different data points for them. In terms of understanding strengths and weaknesses in specific local economies, as Local Industrial Strategies require, the column labelled “Cluster with highest Location Quotient” is of particular interest, but it does perhaps require some explanation.
We have grouped together 563 of the Office of National Statistics’ industry classifications into 49 “industry clusters” based on shared characteristics such as tendency to co-locate, a similar workforce and supply chain connections. This makes analysis of sector strengths easier and more coherent. We have then used a metric called Location Quotient (LQ), which calculates the proportion that an industry makes up within a local labour market, as compared with the proportion that the same industry makes up in the national economy. The national proportion is then allotted a benchmark of 1.0, and so any industry cluster with an LQ over about 1.2 can be considered a regional specialism in which the area has a comparative advantage.
So for instance, we would no doubt have known that the visitor economy is an essential part of the Blackpool economy, but what the data does is to put some flesh on the bones telling us, for instance, that it has an LQ of 3.57, and that it employs 5,600 jobs out of a total of 64,530 in the town (8.7 per cent). We can also dig further into the data to reveal a number of other pieces of insight that are useful in terms of formulating a growth strategy. For instance, in terms of Gross Value Added (GVA), the visitor economy directly adds £123.4m to the Blackpool economy every year, whilst it also has a jobs multiplier of 1.08, meaning that for every 100 jobs that are added to the cluster, another eight will also be added in the wider local economy.
This insight is just a small sample, but with the first Local Industrial Strategies due to be agreed in March, and with the Policy Prospectus making it clear that these should be developed on the basis of “a robust and open evidence base”, this kind of insight is likely to prove indispensable to any LEP or MCA that wants to build their Industrial Strategy on distinctive local strengths.
If you would like to know more about we can help you identify the industry strengths, opportunities and weaknesses in your local economy as part of developing your Local Industrial Strategy, get in touch.