Decentralization: Stopping the Downward Spiral

Left behind is my new book, written for senior local government officials. I am a professor of economics and public policy at Oxford, working on regional divisions in the UK. Michael Gove appointed me as an official adviser on equal opportunities (albeit unpaid). But my interest was more than academic: growing up in Sheffield, I saw my city’s economy destroyed by misguided national policies and left in a downward spiral, becoming the poorest city in England.

Left behind begins angrily, placing the current crisis in local government finances in the wider context of the UK’s fractured regional economies. It explains why this downward spiral is so common. But its main contribution is hopeful and practical. It describes many examples beyond our shores where locally-made public policies have regenerated places that were once blighted, neglected and desperate.

Decentralization and How to Use It

The book is a resounding plea for the devolution of power and money. English government has become extraordinarily centralised in a highly dysfunctional Whitehall, where the Treasury is far too dominant. Such micromanagement is doomed to failure. It documents the gulf in life chances that is dependent on the lottery of regional and neighbourhood postcodes.

Despite the tight fiscal situation, the new government will rightly be under intense pressure to give local governments the authority and longer budgeting horizons they need to begin the task of renewal. Indeed, the tight fiscal situation should be a driver for decentralization, and only by decentralizing decision-making closer to the problems can management become more efficient.

The principle is subsidiarity. For each goal, the lowest level of authority at which it can be realistically achieved should be delegated. In the case of renewing regional economies, this level is the combined authorities.

For the first time in decades, under a combined government, many fractured regions will have the agency they need to renew their economies. But right now, with a few exceptions, they are not equipped for the task. So what are the priorities for upskilling? I argue that there are three things that are essential.

Finance for local businesses

Outside the south-east of England, regional economies are dominated by small and medium-sized enterprises (SMEs). They once had large firms in high-skilled industries such as steel and chemicals, but as they collapsed they were replaced by loose, low-skilled businesses such as Amazon distribution warehouses and call centres.

Workers in such positions were at the wrong end of the hierarchy of humiliation. Renewal will come initially from the most innovative of these SMEs: those with the ideas and ambition to grow rapidly into national or international businesses. They are currently constrained by a shortage of risk finance. Two-thirds of UK venture capital for SMEs goes to the south-east, where less than a quarter of the UK workforce works.

The combined authority needs to encourage a local venture capital industry, which is finally being done through partnerships with the UK’s two public banks – the British Business Bank and the National Infrastructure Bank. Through partnerships with local universities, the combined authority can encourage spin-outs by providing land on which clusters can emerge, such as the Advanced Manufacturing Park in South Yorkshire – already full just eight years after it was launched.

Training for local people

As these SMEs become pioneering businesses, they will create the skilled local jobs of the future. Local workers need to be equipped with the skills to fill them, and this becomes another key task for the combined authorities.

Colleges of Further Education (CFE) are natural partners for local authorities looking to create stronger pathways from school to skilled trades. The international lesson is that training should be co-funded and undertaken jointly by companies and CFEs. As with SME funding, the downward spiral into mutual antipathy between local business and local government can be decisively replaced by a shared goal of renewal.

Quickly learn what works

While it seems unlikely, mayors of united-government countries can draw inspiration from the way Deng Xiaoping used decentralization to quickly learn how to transform China.

Deng inherited an overly centralized system of government and a deeply impoverished society. By setting goals for regional leaders, he handed them power while admitting that he did not know how to achieve them. Regional leaders learned from each other, and Deng was able to initiate the most spectacular mass poverty reduction in human history. Let us do the same.

Paul Collier is Professor of Economics and Public Policy at the Blavatnik School of Government at the University of Oxford

X – @Blavatnik School