The Resolution Foundation report ‘Midlands engine trouble: The challenges facing the West Midlands Combined Authority’ was published a few days ago. It is full of useful material, but it contains two serious errors.

Economic growth depends on investment

The first is that it only tells half the story. It defines the problem of the WM economy in terms of the characteristics of the unemployed: low qualifications and skills, and demographic factors – age, ethnicity and gender – and says almost nothing about investment.

“The most important divide between employment in the WMCA and elsewhere is the gap between ‘low activity’ groups (those who have traditionally been less likely to be in work, such as those with low levels of qualifications, BAME people, single parents and people with disabilities) and the ‘prime’ group (those who are more strongly attached to the labour market, covering white, non-disabled, non-single parent, highly educated, prime-age adults). The difference in the employment rate between these two groups is 33.4 per cent in the WMCA, compared to just 21.7 per cent in the West of England and 24.5 per cent in London. And, in contrast to the impressive increases in employment rates recorded by many ‘low activity’ groups in the rest of the UK in the pre-crisis years, corresponding WMCA employment rates increased only marginally. The employment prospects of younger workers and the low qualified are particularly weak in the WMCA relative to other cities.” (p7)

The report proposes three solutions:

“First, support for groups with low employment rates should be shaped to respond to their needs and to overcome the barriers they face. Second, an industrial strategy needs to be developed for the WMCA that acknowledges the importance of manufacturing but puts a new emphasis on high-end service jobs. Third, and going hand-in-hand with priority two, the WMCA must seek to retain more of the city region’s graduates and improve skill development more generally.” (p 34)

The first point is vital, of course, including doing more to tackle racial and gender discrimination.

The third point is based on the claim that there is a skills deficit. Overcoming it is the key solution in the WMCA’s Strategic Economic Plan to raising productivity and therefore creating economic growth. While it is true that there are skills shortages in some sectors, and we want all workers to be able to improve their skills and qualifications, it is not true of much if not most of the WM economy. In Birmingham for example, according to the latest UK Commission for Employment and Skills ‘Employer Skills Survey’, only some 7% of employers say they have hard to fill vacancies due to skills shortages while some 30% say they have staff whose skills are not fully utilised. In other words under-utilisation of existing skills is a much bigger problem than skills shortages.

The reason for this is that much of the WM economy is low-skill, low-pay, low productivity, low value. It is exemplified by the growth of various forms of precarious work: zero-hours contracts, agency work and fake self-employment. As Paul Mason puts it in today’s Guardian, “Our problem isn’t robots, it’s the low-wage car-wash economy“. And that puts into question the second of the Resolution Foundation report’s solutions: “an industrial strategy” for “high-end jobs”.

The reality is there is no such strategy, because that would require a government strategy for investment (a public investment bank, in John McDonnell’s terms), and there isn’t one. Paul Mason claims that even Mark Carney, governor of the Bank of England, acknowledges in a recent speech that what is needed is public investment by government:

“Carney’s solutions, though couched in language eviscerated in order to avoid offence, boil down as follows. […] he says, we have to stimulate growth by relying less on creating money, and more by creating growth: governments have to start using taxpayers’ money to invest, and redesign the economy so that our dire productivity is reversed.“

The fundamental need for investment is almost entirely absent from the Resolution Foundation report’s 46 pages, which is why I say it only tells half the story. There is just one mention:

“In recent years the wider West Midlands region and the Greater Birmingham and Solihull LEP in particular have performed strongly on attracting foreign direct investment (FDI), with the third highest number of FDI projects after London and the South East. However, not enough of this has manifested itself in the overall growth figures or […] in employment.” (p14).

But that raises the question, why? Where has this investment gone? What is being invested in? How many good long-term jobs are being created? What social needs are being met? And how much is in prestigious property development for short-term profit?

The crucial issue of investment is deliberately ignored in the WMCA’s Strategic Economic Plan, published in June and written not by the CA itself but by the LEPs. In contrast to the prominence of the need for skills development in the SEP there is virtually no data or analysis at all of current investment in the West Midlands economy. A case in point is the separate Technical Appendix to the SEP. It offers seven scenarios for future economic growth, but they are simply hypothetical models based on extrapolating current trends. The document itself contains a list of the 19 variables on which the scenarios are based. Astonishingly they do not include investment as a factor. Yet without investment in new technology and new work processes increasing the qualifications and skills of the workforce only results in more over-qualified workers with under-utilised skills.

The task now for the WMCA should be to draft a completely revised Strategic Economic Plan, drawing on independent expertise, which provides an honest detailed analysis of the current situation of the WM economy, including its gross inequalities of geography, social class, age, gender and ethnicity, and realistic plans and strategies for inclusive growth, not a sales pitch based on evidence-free aspirations.

Councillors on the WMCA Board are responsible for economic development, not the Mayor

There is a second error in the Resolution Foundation report. It repeatedly claims throughout that the responsibility for solving the problem of the WM economy lies with the WMCA mayor to be elected in May. This is typical: “If together the mayor and central government can turn around the city’s long-term employment problem, the benefits of devolution will be obvious.” (p41). The error is repeated in the Guardian report’s quote: “Turning the region’s economic prospects around will be a huge task for the new mayor” (13 December).

This is simply not true. Economic growth strategy, including employment and skills development, is the responsibility of the councilors on the WMCA Board not the Mayor, according to the report ‘Implementing the Devolution Agreement – Provision for Mayoral West Midlands Combined Authority’ approved by the WMCA Board meeting on 10 June 2016. (It’s on pages 119-120 of the Public Reports Pack on the WMCA website.) This is what it says:

4.10 The Scheme details those functions that will be a Mayoral function, a joint Mayoral WMCA/Mayoral function and a Mayoral WMCA function, in summary:

A Mayoral WMCA Function

Exercised by the Mayoral WMCA and not subject to the Mayor’s vote in favour, the Mayor votes as a member.

Current WMCA powers and functions – contained within the WMCA establishment Order – i.e. transport functions currently undertaken by the Passenger Transport Executive (PTE), and economic development and regeneration functions. It is not appropriate that the Mayor is required to vote in favour as such functions are Local Authority functions, exercised concurrently/in parallel and with the Local Authorities. [my emphasis]

To claim that economic development is the Mayor’s responsibility is to fall into the trap that Osborne laid when he insisted on directly-elected Mayors as a condition of his devolution deal. The aim is to sideline councillors as much as possible in favour of, at least in the public eye, a presidential model of Mayor, convenient for government to deal with and subject only to a popular vote every four years.

Richard Hatcher

13 December 2016

First published here: https://birminghamagainstthecuts.wordpress.com/2016/12/13/the-wm-economy-needs-a-public-investment-strategy-for-inclusive-growth-based-on-social-priorities/

 

 

 

 

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