This article is part of a series of articles written by candidates for the Progress strategy board elections. The publishing of this article is not an endorsement of the candidate. You can read Jon Wheale’s candidate statement here
The economy is changing before our eyes, and England’s regions have a part to play in making the most of it, argues Jon Wheale
In the Times this week city region mayors, Andy Burnham and Andy Street, have written of their ambition for the city regions that they represent, and the need to work hard ‘to deliver a revolution in transport, housing and employment for our people’. The devolvement of nimble regional knowledge economies is essential if there is to be a rebalancing of the economy.
Government support is essential if these ambitions are to flourish. Infrastructure requires long-term investment and must be placed in the hands of the users. For example, transport must be transformed and made fit for the regions in which they operate. Technology and transport infrastructure should be fused in our thinking – the transportation of people and ideas as one. Ideas, and their movement, will determine future economic success and address issues of inequality.
This year the Bank of England appointed Professor Jonathan Haskel, to the monetary policy committee. In Professor Haskel’s book, Capitalism Without Capital, he and co-author, Stian Westlake, refer to the post-industrial future and write that ‘over the past thirty years the nature of investment has changed’. The value of physical capital has been surpassed by the rise of the intangible economy. Now investment is ‘in ideas, in knowledge, in aesthetic content, in software, in brands, in networks and relationships.’ Whereas once a business would have held the majority of its capital as physical assets such as its plant and machinery, factories and stock, today’s new economy places far more onus upon intangible assets such as intellectual property and brand recognition. This means fundamental change has and is taking place which should run to the heart of our policy debate. This is because intangible assets and the income generated from them are different to tangible assets.
Haskel writes that intangibles have four unusual economic properties: scalability; sunkenness; spillovers; synergies. Very briefly, the overarching nature of intangibles is that they are not physical assets but still require investment, hold value and deliver income – and therefore influence inequalities. For example, a piece of software can be used over and over again in multiple places at the same time whereas a factory cannot – it is fixed in terms of its scalability. Also, to invest in an intangible asset is a sunk cost – to repurpose an intangible asset is far more difficult than to do so with a physical asset – for example, investing in a specific idea rather than a piece of land. The land could be used for other purposes, but if the idea fails the investment in it is lost. This means early high(est)-risk investment must have government backing – yes, ideas fail but those that succeed drive future economic success. And, by investing in intangibles, such as R&D, spillovers and synergies may be created and take the form of other ideas such as software, design, and supply chains. It means that the proximity of those seeking to develop intangibles to one another is hugely important and underlines the need for business hubs, and the clustering of start-ups and micro-businesses, where innovation can be promoted in physical as well as in virtual space. The economy of today and tomorrow will focus ever more on intangible assets and we need the investment made available and the business environment to allow for this form of growth. Focusing on the distribution of capital and capitalism in the tradition sense would be to miss the point because we must be seeking to harness and shape a future dominated by intangible assets.
The rise of the intangible asset based economy also goes some way in explaining the rise in inequality. Inequality of income results from higher employee pay earned by competing companies which succeed in capturing synergies and spillovers. Inequality of wealth stems from places where spillovers and synergies thrive such as cities, where house prices rise and capital itself is now more mobile, so once accumulated can be transferred across firms and borders. Inequality of esteem – those who cannot access the intangible economy suffer from lower self-esteem, traditional capital based locales are left behind as the intangible assets accumulate elsewhere. This inequality is intertwined with inequality of place – those areas which have not transferred from the traditional industrial past to the intangible asset-based future suffer a level of inequality, which if not addressed, will only accelerate into yet further decline.
What does this mean?
It means that every region of the country must take control of its local economy and grapple with the risks and opportunities which are presented to it as the world is becoming more based on intangible assets. The questions that should be asked are: what are the intangibles that currently exist locally and regionally, such as brand, reputation, knowledge bases, skills, success stories? Can an inventory be created to promote the thriving of those local economies? What are the intangible strengths of a local area and what can it offer? And most importantly, where is investment needed and can finance be accessed to promote local ideas which may create the conditions for economic success? Spillovers and synergies must be identified early, invested in early and promoted.
To do this infrastructure is essential. The National Infrastructure Commission’s recent report provided recommendations that should be enacted: for transport, energy, water, flood resilience, waste and digital connectivity, as well as a recommendation to invest £43 billion in regional city transport, including rail and rapid transit, by 2040.
As centres for spillovers and synergies, the city regions must be in the vanguard of striving towards becoming world leaders in intangibles. To fail to invest in these centres will be to fail to ensure the United Kingdom’s international competitiveness for years to come. Yes, globalisation has brought great benefits, but at the same time people have become detached from receiving those benefits. This must change.
Innovation and infrastructure, technology and transport – our regional and local economies must be given the tools to access the wealth, the income and the esteem that can be derived from their intangible assets. Rapidly growing the digital and creative sectors is the only way to achieve this. Yes, as Burnham and Street have said, ‘devolution to the English regions has led to the transfer of some budgets, powers and responsibilities’, and much more needs to be done to promote hives of business activity aimed at inducing spillovers and synergies. As Dan Jarvis wrote earlier in the year on his vision for the development of Sheffield as a regional hub for the creative and digital industries, there is a pressing requirement to help ‘bridge the gap between research, innovation and commercialisation’. The economic enablers (such as employment training and apprenticeships) and access to finance should be considered pivotal to creating this bridge and the conditions for success. Build on the hard work of the local enterprise partnerships and the mayoral combined authorities, but go further.
Local empowerment of economic decision-making, investment in infrastructure and technology, and the re-awakening of local economic character – the essence of what has always been the bedrock of our great industrial centres – must be brought into focus once again but through a post-industrial lens. Capital and capitalism (in its traditional sense) is vanishing before the rise of intangibles – an enormous opportunity has arrived to promote an ideas and knowledge based economy – to redistribute faster and fairer. But to achieve success and to stay relevant, the government must act as the catalyst by providing the investment and devolving the powers to those at the coal-face of the ‘new economy’.
Jon Wheale is a candidate in the Progress strategy board elections. You can read his candidate statement here
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