With less funding available in the future, Professor Simon Collinson discusses the need for national and local agencies to provide targeted support to the right kind of businesses to help achieve better regional growth.
This blog post was produced for inclusion in the Birmingham Economic Review for 2021.
The annual Birmingham Economic Review is produced by City-REDI, University of Birmingham and the Greater Birmingham Chambers of Commerce. It is an in-depth exploration of the economy of England’s second city and a high-quality resource for informing research, policy and investment decisions.
This post is featured in Chapter 2 of the Birmingham Economic Review for 2021, on Industry and Innovation: Pathways to Prosperity.
Click here to read the Review.
Targeting the right firms for improving growth
The UK government has dedicated a significant amount of public funding to support businesses through Covid-19 lockdowns. Less funding will be available in the future, which means that national and local agencies need to make more selective interventions to have a positive impact on growth. Targeting the right kinds of firms with business support packages, investment incentives, relocation subsidies, skills programmes or R&D incentives can help improve the effectiveness of policies that are designed to boost regional growth, improve sustainability and/or reduce inequalities.
The ‘right kinds of firms’ are those that:
- Have the greatest potential to grow in the future (so, not necessarily those that have grown well in the past).
- Are strongly embedded in a regional economy, with a high percentage of inputs from local suppliers, local employees and local sales, because these contribute more to the local economy through various linkage effects (such as multipliers and spillovers).
- Could contribute to an evolving innovation cluster that will differentiate the region compared to other global clusters.
- Can help attract other firms and talent to the region.
Businesses making an impact in the region
A City-REDI survey of 300 businesses in the West Midlands region, showed that firms in Hospitality and the Business Professional and Financial Services (BPFS) sector are more embedded in the region, with a larger proportion of local suppliers and customers than those in Retail and Advanced Manufacturing (AME). Over two-thirds of the AME firms in our survey source less than half of their inputs from local firms and 43% bought less than 20% locally. Contrasting this, almost 60% of BPFS firms sourced over half of their inputs locally and 22% sourced less than 20% locally. Couple that with the fact that the BPFS sector is much larger, contributing over twice the GVA to the region than the AME sector.
But the ‘right kinds of firms’ could also be those that:
- Focus more resources on upskilling to enable lower-income employees, or the unemployed to improve their household income (reducing inequality).
- Invest more than other firms in sustainable business practices, recycling or achieving net zero CO2 emissions.
- Work with local community groups through active pro-bono contributions and charitable causes.
- Have in place procurement practices that privilege local suppliers, encourage innovation or the above characteristics in sub-contractors.
This might be a challenging list in practice. It requires better intelligence about a region’s business demographics than many regional agencies currently have. Which businesses, what size of firms and industry sectors tick which of the boxes in the two lists above? We need to know the base case in each region, to help the targeting process and track the outcomes.
But this is necessary if we are going to spend scarce public resources efficiently, more selective, targeted interventions will provide a significant nudge to drive a region along a better growth pathway.
This blog was written by Professor Simon Collinson, Director of City-REDI / WMREDI, University of Birmingham.
The views expressed in this analysis post are those of the authors and not necessarily those of City-REDI / WMREDI or the University of Birmingham.