Productivity Policy Review

Featured image © Julien Eichinger / Adobe Stock

We tend to think about productivity as a long-term issue.  We often review its performance against the long-term trend and we consider underpinning factors that inherently take some time to influence.  How should this translate into policy formulation, and what have been the recent trends in policy?

To complement the evidence reviews on different thematic areas of interest to the Productivity Insights Network, we have conducted a review of policy changes in relation to productivity.  The review focused on policies and the policy narrative over the period from 1997 to present, and as well as looking at specific policy areas relating to business support, innovation, skills and regional/local economic development.

The review found that the policy focus on productivity has waxed and waned, with three periods identified:

• The policy narrative was explicit in the 2000s with the five drivers framework (investment, innovation, skills, enterprise and competition) used as a device for policy formulation and review, both nationally and regionally.

• There was a hiatus in productivity as an overarching policy objective from around 2010 until 2015. This reflected the focus on other issues, notably dealing with public finances.

• An explicit productivity framework re-emerged from 2015 culminating in the recent Industrial Strategy, which established the five foundations framework (ideas, people, infrastructure, business environment and places). This has strong alignment to the aforementioned five drivers.

These periods align with significant changes in the political and economic landscape, notably changes in government and the immediate aftermath of the financial crisis of 2008-09.  The review also found that there has been constant churn in the policy and institutional landscape, both between different administrations and throughout successive governments’ times in office.  In many cases it was the nomenclature that changed with rebranding or repackaging of existing programmes or policies.  Other changes marked a shift in targeting or focus to reflect the issue of the day.  There were three aspects where policy developments have been longstanding and have crossed government administrations:

• The gradual shift towards a new form of industrial policy-making and ultimately Industrial Strategy, which began in 2009 and has continued to the present.

• The increased emphasis on a demand-led skills agenda, highlighted initially in the Leitch Review of 2006.

• The changing nature of innovation policy, with more consideration of societal challenges and the use of demand-pull, as well as supply-push, policies, identified in the TSB’s (now Innovate UK) first strategy in 2008.

Churn in policy has been commented on by others (e.g. see Norris and Adam, 2017), including its relationship with short-term policy cycles, and ministerial changes whereby ministers want to make their own mark.  Resolving the productivity puzzle is a long-term challenge, and such policy churn may in and of itself be damaging to these endeavours.  Greater stability would result in more certainty and allow institutions to mature and develop.

The role of regional/local institutions has similarly changed over the period, especially in England.  Some issues are persistent challenges, though political, economic and technological contexts have evolved.  Regional institutions and devolved administrations were critical in the 2000s and were specifically tasked with improving drivers of productivity.  The current context places greater importance on the local scale through various structures and initiatives including Local Enterprise Partnerships, combined authorities, Local Industrial Strategies and City Deals.  Arrangements and tools have altered, though those adopted previously may provide lessons and insights to inform current developments.

National policy and strategic documentation is important in framing local responses, because it informs how local strategy is developed, structured and delivered.  This is important for productivity, because of the importance of breaking down silos and integrating different issues.  In terms of these institutional and policy-framing issues, we highlight three sets of points:

• Regional Economic Strategies (RESs) were 5-10 year strategies and their priorities had to align with Public Service Agreement targets and the five drivers of productivity. Whilst the strategic development matured over time, this requirement for alignment may have driven a focus on silos.  Prior to the abolition of the regional development agencies, there was the intent to develop Integrated Regional Strategies so that economic priorities were integrated with spatial planning.  In developing and delivering Local Industrial Strategies are there lessons from the RESs, in particular so that they are integrated and can genuinely focus on long-term issues?  And how can funding, and alignment with statutory obligations and planning help?

• How can the local-regional-national interface in delivering the Industrial Strategy work most effectively? There remain debates about the appropriate geographical level for intervention, and our policy review identified how different aspects of policy had been variously regionalised, localised and/or centralised.  Other spatial configurations exist, such as pan-regional working on issues like research and innovation, access to finance, and transport.  This raises issues around the joining-up of policies and programmes to make the most of synergies and avoid duplication.

• Regional Development Agencies were quasi-autonomous institutions, and so they were independent and could consider longer-term priorities that were outside of political cycles. However, it also left them open to criticism as they lacked democratic accountability.  How can LEPs, and local and combined authorities strike the right balance between these factors?

These sets of points highlight three important principles for strategic development, which need to be set nationally and locally.  These are having a long-term outlook, integrating key factors that influence productivity, and having appropriate institutional arrangements.  These three principles are clearly interconnected.  Our policy review suggests that this combination of principles has been lacking in the last 20 years.

Jonathan Cook, Dan Hardy and Imogen Sprackling
SQW
jcook@sqw.co.uk