THE IMPORTANCE OF ACHIEVING THE PSA TARGET

  The broad pattern of regional disparities in the UK has remained remarkably consistent since the period between the First and Second World Wars. Evidence clearly suggests that regional inequalities widened during the 1980s and 1990s[49]. Given the entrenched nature of these disparities the objectives of making "sustainable improvements in the economic performance of all English regions and over the long term to reduce the persistent gap in growth rates between the regions" and "defining measures to improve performance and reporting progress against these measures by 2006" is an ambitious one. Patterns of regional inequality are the result, in large measure, of the historical accumulation of decisions taken by private sector actors. In the current era, the shift to a "knowledge-based economy" is likely to further favour those regions already well endowed with science and technology assets[50]. The process of European integration and associated industrial restructuring, combined with the effects of sterling's appreciation against the Eurozone, is leading to a new round of restructuring in low technology manufacturing operations in lagging regions. The challenge is great but public policy has, and continues to have, an important bearing on the reduction of regional disparities. Our brief remarks will mainly focus on the potential role of public policy in the amelioration of regional inequalities, drawing on a range of studies undertaken in the Centre for Urban and Regional Development Studies over recent years.

  There are evidence problems in meeting this PSA target. It requires overturning long term complex historical trends in socio-economic performance and addressing the multi-dimensional and inter-related foundations of economic growth—productivity, labour supply and technological change[51]. Even more tightly focused targets in health and education are proving difficult to achieve. Boosting regional growth rates is an altogether more demanding task. Nevertheless the setting of the target is of great political importance. Coupled with Labour Party's 2001 manifesto commitment to achieve "full employment in every region" within 10 years, it signals that a new priority is being attached to regional policy for the first time in almost 40 years. Sustainable growth, productivity and employment should be at the heart of regional policy for the 21st century.

  The initial targets of Regional Development Agencies focused on increasing GDP per head in each region in order to increase the number of regions in the UK with a GDP per head above the EU average. Potentially, this objective conflicted with the, arguably more appropriate, objective of reducing inter-regional disparity. As a number of commentators noted at the point when RDAs were created in 1999, every RDA stated its intention to grow at a faster rate than the national average—a statistical impossibility[52]. Even given a significant improvement in growth performance amongst the lagging regions, enhanced growth rates in the more prosperous regions will push the national average yet higher—reproducing inequalities in growth rates (albeit at potentially higher productivity and employment rates).

  The new PSA target is significant because it focuses attention on inter-regional disparities, which should be the proper focus of regional policy. As such it gives a new and more logical focus for regional policy. Implicit in the new approach is recognition that growth levels need to be higher in the lagging regions. Potentially, it draws our attention to need for more explicit inter-regional redistribution of growth: reducing inflationary pressures in the overheating regional growth cores and decentralising this growth to the under utilised and under performing regions.

CAN THE TARGET BE ACHIEVED WITH CURRENT AND PROPOSED POLICIES?

  Enduring regional disparities are not inevitable. There are compelling examples from across Europe and beyond that the right mix of national and regional policies, appropriate institutions and political leadership can improve the relative position of lagging regions[53]. The question is whether these conditions exist, or can be created, in the UK regions.

  One problem, especially within England, is that regional policy has been seen as a closed box. Relatively little attention has been paid to the degree to which wider policy decisions can impact upon the prospects for regional development. National priorities and a concern with national competitiveness and regional interests can conflict. A very clear example of this was the decision to locate the UK Synchrotron facility at Didcot rather than Daresbury, undermining the science base of the North West, and further contributing to further growth of the so-called "Golden Triangle" of science research between London, Oxford and Cambridge[54]. Such decisions, in effect, can work as a regional policy for the prosperous core regions, or "winners' circle", as Stephen Byers described it.

  More broadly, national targets can also have perverse effects at the regional level. For instance, in the area of training policy the government will typically set general targets for raising the numbers of a given qualification and provide resources to assist this. These targets may incorporate some regional variations, which on the face of it represent an acknowledgement of the diversity of local conditions. However, these targets may be much easier to meet in a region like the South East of England, which may have large numbers of people just below the attainment level. By contrast, in a region like the North East, the central problem is more likely to be the existence of significant numbers of people with few or no qualifications. Policy then is poorly matched to local conditions and is distorted by the need to meet national targets. The skills question in the North East though may also be a demand side issue, as evidence by the region's graduate retention problem[55].

  The typical solution proffered to address this problem involves the differentiation of targets at the local or regional level. However, the real issue for regions is not the differentiation of targets, but the differentiation of policy. Decisions made at the regional level would probably produce a different set of priorities in the training system to those that are determined centrally. There is widespread recognition of these problems. The Better Regulation Taskforce, echoing previous criticisms from the Performance and Innovation Unit, argued the RDAs and Local Learning and Skills Councils are subject to many restrictive, centrally imposed performance targets and called for these to be reduced[56].

  Similarly the national procurement decisions of government can have highly uneven regional effects. In the defence sector procurement decisions are made to meet value for money concerns of HM Treasury and the National Audit Office but they have regional industrial policy implications, in general favouring the south. More generally, the government's sponsorship of R&D massively favours the South East of England. Many government policy decisions are made without an assessment, evaluation or even awareness of the likely regional impacts. This is likely to have a bearing on the prospects for meeting the government's target. In England prospects for development in lagging regions are partly dependent on decisions made by a plethora of national government bodies, which spend large amounts of public money but whose activities are rarely coordinated at the regional level. On the contrary, these organisations have an explicitly national mission, which can conflict with regional priorities. There is a case for much stronger region proofing of policies than that currently undertaken by the Regional Coordination Unit in the Office of the Deputy Prime Minister and for assessing the combined potential impact of all government policy at the regional level.

  Recent initiatives represent modest steps toward addressing some of the issues just outlined. The decisions announced in Spending Review 2002 to allocate new responsibilities to RDAs for the promotion of local tourism and the allocation of new responsibilities for planning and transport strategies, suggest a new potential to "join up" strategies in the regions. Similarly the proposals to introduce pilot schemes for the regional management of the Learning and Skills Council and the Small Business Service take this a step further. These are modest steps when measured against the fragmented structure of regional policy delivery, characterised by a crowded stage of actors, often reading different scripts. As the Performance and Innovation Unit noted, the regional level offers great potential for "joining up" policy[57]. Such new opportunities for regions to make policy proposals to feed into national planning places are placing new demands on existing institutions, which in general do not have the policy development capacity necessary for the task. Boosting the research and intelligence capacity at the regional level is likely to be a requirement for the successful implementation of Labour's new regional policy.

THE IMPACT OF CURRENT STRATEGIES AND THE ROLE OF RDAS

  It is far too soon to be able with any certainty whether the RDAs have been able to reduce regional disparities in England. RDAs are a welcome but modest institutional innovation that directly controls less than one per cent of public expenditure within their regions. RDAs are pursuing two separate types of activity, physical regeneration and productive investment; RDAs in the poorer regions have inherited large budgets on the basis of palliative spending in physical and social regeneration, with the corresponding expectation in their regions that they will continue to fund that kind of activity. Their productive investment activity has been extremely limited to date, principally because the budgets to not exist for them to invest in the kinds of science, engineering and technology activities that would materially alter the productivity and economic performance of their regions[58].

  Beyond budgetary limits, there are three indicators which suggest RDAs may be able to shift their activity from palliative to investment spending. Firstly, since the introduction of the Single Programme Budget, a number of RDAs in poorer regions have begun to formulate science strategies and to channel increasing volumes of funds in support of these strategies. Secondly, these "science strategies" reflect that RDAs have been working hard to shape others' investment patterns, but have not always had the direct resources so to do. For example RDAs have been innovative in using ERDF funds to improve productivity and invest in science as we as fund physical regeneration activities. Finally, in the last spending round, the Department of Trade and Industry introduced the Regional Investment Fund (RIF) as a means of investing £50 million in the science infrastructure of poorer regions. Further expansion of their resources and flexibility to address particular regional problems are needed for them to become more meaningful "enablers" for enhancing regional growth prospects.

THE POTENTIAL ROLE OF REGIONAL ASSEMBLIES

  Elected assemblies can play a significant role in delivering policies that are better matched to the diversity of regional conditions. Evidence from elsewhere, suggests that where regions have successfully managed the transition from old to new economic formations, strong regional institutions and clear political leadership have played a notable part[59]. As well as providing democratic oversight of public policy at the regional level, their role is typically that of guardians and developers of long-term policy objectives for social and economic development and environmental improvement. Recent European history offers some startling success stories of regional transformation presided over by regional authorities[60].

  It should be acknowledged though that regional assemblies do not guarantee economic success. There is neither an automatic nor inevitable "devolution dividend" capable of addressing historically entrenched economic deficits that flow from the democratisation of regional governance. Democratic devolution is probably best regarded as a necessary, rather sufficient ingredient for balanced development[61]. The success of regional assemblies depends on the uses to which they are put and the quality of the governance they provide. Successful regional governments generally place themselves at the heart of public and private networks that seek to upgrade the supply-side of the economy. Their task is frequently to build consensus about appropriate strategies for the development of a region and to monitor its implementation, often by arms length regional agencies. Regional assemblies can provide the political leadership and democratic accountability which underpins successful regional strategies, which are conceived and executed regionally.

  In northern Europe, there is evidence that successful regions have typically prioritised an enduring commitment to regional innovation strategies, promoting links between industry and universities in order to raise the technological capabilities of local firms[62]. Typically, the preparation of these strategies requires that hard choices about productive investment should be made within a given region. Strong political leadership and regional consensus building is often a crucial ingredient in this process. The devolved administrations in the UK show signs of developing similar strategies, as exemplified by Project Alba in Scotland, which is seeking to put Scotland at the forefront of system level integration technologies[63].

A COHERENT NATIONAL POLICY

  The assumption behind current regional policy is that the problems of lagging regions reflect supply-side failures. While it is undoubtedly the case that such failures exist in the regions such a focus draws attention away from demand side of the equation. The problems of graduate retention in northern regions demonstrate that demand side failures are equally important[64]. The growth differentials between cores and peripheries, for reasons we have already suggested, can be accentuated by pubic policy decisions. Current proposals to expand airport capacity, alongside proposals to expand house building and related infrastructure in the South East and Eastern regions have been designed with a view to maintaining the competitive advantage of the south, rather "sustainable improvements in the economic performance of all English regions and over the long term reduce the persistent gap in growth rates between the regions". A policy driven genuinely by the latter objective would have plaid much closer attention to opportunities for redistributing economic activity from north to south, making use of underused economic capacity in the north and relieving pressures on land, housing and labour markets in the south.

  The trend toward national spatial planning, which can be seen on countries like Ireland, the Netherlands and France, could have important lessons for the UK. The new National Spatial Strategy in Ireland identifies new growth poles, including national gateways in peripheral regions, which are designed to ease the pressure on the infrastructure in the Dublin region, Key to the strategy is the concept of balanced regional development. The NSS will sustain Dublin's role as the engine of the economy while strengthening the drawing power of other areas, bringing people, employment and services closer together[65]. Similarly the Netherlands has adopted a three tier planning system in which broad strategic objectives are set by the National Spatial Planning Ministry. The provincial and municipal level must integrate their priorities with those of the national planning system. This process is generally achieved through consensus and has been regarded internationally as a success[66]

LESSONS FROM PAST REGIONAL POLICIES

  It has become fashionable to disparage previous regional policies and describe them as "failures". Such a perspective tends to overlook the positive lessons emerging from previous regional policies[67]. Evaluations have demonstrated that previous regional policies, albeit on a much larger scale in the 1960s and 1970s, were successful at creating jobs in lagging regions. These policies were not without their problems. The location constraints and incentives which lay at the heart of the regional policies of the 1960s and 1970s did produce problems of branch plant development in lagging regions. In some sectors though, lasting investment were made, which led in time to the growth of higher functions such as R&D. Generally during this period there was an absence of concern with entrepreneurship and building up of science and technology base. Nevertheless, the key lesson which emerges from this period, coupled with contemporary evidence from elsewhere, is that large scale resource transfers and economic planning can produce significant flows of investment and associated employment gains into lagging regions. Clearly the context for such investment is now very different, with more limited opportunities for attracting mobile production investment to the lagging regions. Yet, the relative success of past policies in influencing private sector investment decisions should provide a stimulus to the development of new policies more suited to the current context. In the new conditions of competition, it is likely that improvements to science and technology and special skill assets are likely to be importance "pull factors" to inward investment[68].

PROPOSALS FOR CHANGE

  Evidence from elsewhere in Europe and beyond, suggests that where regions have successfully managed the transition from the decline of traditional industries to new economic formations based around new technology based industries, this has been the result of locally designed, long-term strategies, with clear and widely supported objectives. Notably, there are good examples of this form of successful restructuring in the Scandinavian countries and elsewhere. We may be seeing the beginnings of such an approach for the first time in a generation in the UK and this approach is to be welcomed, but the effects of such strategies are felt only over the long-term. Such strategies, while conceived and executed locally, require support from central government in the form of discriminatory policies and resource transfers.

  In the short run, the government ought to consider further decentralisation of civil service functions. This may be more difficult in an age of "agencification", which has resulted in a separation policy and delivery functions, but could still be a significant source of direct jobs in lagging regions. More generally, there is case for much stronger discriminatory measures for lagging regions across the piece of the new regional policy—including R&D tax credits, venture capital funding and small firm policies. As far as broader public policy and expenditure is concerned there is a case for exploring the introduction of regional financial plans, which integrate all the spending commitments of government bodies in the region. Such an initiative could be piloted in one or two policy areas perhaps drawing on the experience of the new Swedish regions in this field.

  For lagging regions to grow 1% faster than the nation as a whole would be a huge achievement. It would imply growth rates up by half, assuming the national growth rate remains steady at around 2%. In the case of the North East it would then take 20 years to get to the national average. For Yorkshire and the Humber and the North West it would take about 10 years. So economic success measured by closing the gap is a generation away. However, targets on the way are worth looking at. Interim targets could include the rate of new firm start ups, employment of graduates in the region, performance of school children at exams, deprivation statistics, and employment rates and so on[69].

FUNDING

  The government's decision to initiate a study into identifying expenditure flows to the regions is welcome. There is wide agreement that the current funding formula discriminates against the northern English regions, notably the North East[70], insofar as this region (along with Wales and the North West) receives lower public funding per head of population than Scotland, but has demonstrably higher needs. There is an overwhelming case for a needs-based public finance settlement that would provide the lagging regions with a stable framework and increased resources that could underpin a long-term regional development strategy, supported in the short run, allocations under Spending Reviews for programmes of strategic regional importance such as the support for science policy in the North West[71].

50   Gillespie, A, Richardson, R and Cornford, J (2001), "Regional development and the new economy", European Investment Bank Papers, 6, (1): 109-131. Back

51   Bluestone, B and Harrison, B (2000) Growing Prosperity. Berkeley: University of California Press. Back

52   Robinson, P (1999) "Comparing the regions", New Economy, 6(3): 176-8. Back

53   OECD (2001) Devolution and Globalisation: Implication for Local Decision-makers. Paris: OECD; Manor, J. (1999) The Political Economy of Democratic Decentralization, Washington, DC: World Bank. Back

54   Following the outcry that greeted this decision, the Government did allocate funds to the North West to support regional science policy there. Back

55   Goddard, J (1999), Graduate retention and regional competitiveness, Paper presented at CVCP Conference on Stimulating Regional Competitiveness in the UK: The role of Higher Education, London, June. Back

56   Better Regulation Task Force (2002) Local Delivery of Central Policy. London: Cabinet Office; PIU (2000) Reaching Out. The Role of Central Government and the Regional and Local Level. Report of the Performance and Innovation Unit. London: The Stationary Unit. Back

57   See also Tomaney, J (2002) "In what sense a regional problem? Sub-national governance in England", Local Economy, 17(3): 226-238. Back

58   Charles, D and Benneworth, P (2001), "Are we realising our potential? Joining up science and technology policy in the English regions", Regional Studies, 35(1): 73-79. Back

59   David Bradley, Phil Raines, Andrew Gillespie, Martin Sokol, John Tomaney (2002) North East of England: European Strategic Alliances Opportunity Study. Report for the North East England European Management Board. Newcastle upon Tyne: Centre for Urban and Regional Development Studies. Back

60   Andre«s Rodri«guez-Pose (2000) "Economic convergence and regional development strategies in Spain: the case of Galicia and Navarre", European Investment Bank Papers, 5, 1, 89-115. Back

61   Rodri«guez-Pose, op cit. Back

62   Bradley, et al., op cit.; Goddard, J B and Chatterton, P (1999), Regional development agencies and the knowledge economy: harnessing the potential of universities, Environment and Planning C: Government and Policy, 17: 685-699. Back

63   http://www.albacentre.co.uk Back

64   Goddard, J op cit. Back

65   http://www.irishspatialstrategy.ie/ Back

66   van der Valk, A (2002) "The Dutch planning experience", Landscape and Urban Planning, 58 (2-4): 201-210; Premius, H (2002) "Spatial-economic investment policy and urban regeneration in the Netherlands", Environment and Planning C: Government and Policy, 20: 775-790. Back

67   Regional Studies Association (2001) Labour's New Regional Policy: An Assessment. Seaford: Regional Studies Association. Back

68   See OECD, op cit. Back

69   See: Dobbie, B (2002) "Regional government-what is it for and now will it work?", in Tomaney, J, and Pike, A (2002) Towards Regional Government in England. Seaford: Regional Studies Association. Back

70   McLean, I (2000) "Getting and spending: can (or should) the Barnet Formula survive?", New Economy 7(2): 76-80. Back

71   Jones, P (2002) "Barnett plus needs", in Tomaney, J and Mawson, J (Eds.) England: the state of the regions. Bristol: Policy Press. Back