Well adjusted? What policy can do to support the losers of economic change

Years ago, while working as an advisor in government, I was asked to think afresh about what policy could do to improve the plight of those on low incomes. I went to see one of the UK’s most respected economists who specialised in issues like wages and productivity. After a long, fascinating discussion he concluded by saying: “I’m afraid there’s only so much that can be achieved by thinking about pay. You really need to go and see an expert on poverty and the tax-benefit system — that’s where the action is.” This I did and, after another scholarly exploration of the issues, I was told that actually the tax and benefit system was pretty limited in what it could achieve. I should talk to a leading labour economist about the drivers of low-pay and employment — that’s what really mattered. Indeed, he knew just the economist I should talk to.

These issues are hardly new: people, places and sectors affected by shifts in trade or technology tend to adjust slowly and painfully, even in economies that are thought to be successful and flexible. But they are certainly being debated with fresh vigour not least in Whitehall, where it’s a good bet that the Autumn Statement will contain new announcements on this theme. You can see why. As Britain embarks on determining its future stance on trade and migration, choices will inevitably be made that greatly advantage some sectors and regions at the expense of others. There will be plenty more adjusting to do.

A first stab — education and industrial policy

Our Downing Street advisor is very likely to be confronted early on with the sage advice that, of course, ‘‘it’s all education, that’s all you can really do’.” On encountering an education expert they’d be told about the folly of grammars, the well-established ingredients of high-performing comprehensives, and the risks of an overly narrow vocational route leaving young people exposed to career risk. They’d also hear concern about deep-rooted regional inequalities: that one in three young people in the North East take part in higher education, compared to half of those in London, is a fact that will replicate the divides of the past for decades to come. Hopefully our seasoned educationalist would offer longer-term perspective too: after all, every Prime Minister since Jim Callaghan has argued some version of “education is our best economic policy.” Even in great success stories like London it takes a decade to make a real difference. And, of course, no schools policy will help today’s workforce: great new ideas for primary school teaching can’t assuage the sacked factory worker.

Next up would most likely be a guru on industrial policy. Here our advisor would hear the latest thinking about multipliers associated with various forms of investment in regional infrastructure, how best to foster university spin-offs, nurture supply-chains in high-value sectors and fill the gap between research and business via the likes of so-called “catapult” centres. They might well be heartened by the sound of these sectoral initiatives, though when the advisor asks what exactly is new about all this given the evolution of policy since 2009 the conversation might dry up. And the time-scales for securing gains may raise eyebrows too: industrial policy is grindingly slow, patient work; the benefits can take decades to emerge. Above all the link between this high-value added sectoral agenda and the plight of all those toiling in mass-employing, low productivity, non-traded sectors may feel hard to trace out.

The next stop — regional approaches

In search of a tighter connection between policy and gains for target groups, the next stop on the tour could be with someone who has studied the history of efforts to rejuvenate the economies of disadvantaged communities, particularly former-industrial regions, cities and towns. They could be regaled with the experience of half a century’s urban programmes (since Harold Wilson’s government first introduced the Urban Aid Programme in 1968), or getting on for a century of regional policy.

The story is very mixed. There is the familiar yet unenlightening conclusion that struggling post-industrial communities need to carve out a future with some high-knowledge sectors, the gains from which will eventually percolate to the rest of the local economy. But it’s a hard transition to make: the share of jobs in knowledge-services in English towns and cities in the early 20th century is a fairly good predictor of their share today. One real cause for optimism, however, has been the renaissance of a number of our big city-centres over the last generation — a process that surpassed the expectations of many and should be given a further lease of energy as and when more economic powers are devolved. Economic history isn’t destiny, but it greatly shapes the odds.

To zoom in on efforts at turning around acute deprivation in urban areas that really have missed out on rising national prosperity, there would be a visit to those who’ve undertaken exhaustive evaluations of the Labour government’s New Deal for Communities: a decade long programme combining renewal of the housing stock, improvements to community safety and a drive against worklessness. They’d likely report that a great deal was achieved in terms of closing various gaps between overlooked communities and the rest — though the record is perhaps less convincing in boosting labour demand in these areas and building bridges between them and the leading-edges of their city’s economy. To learn about past efforts to assist those really at the sharp-end of global shifts there would need to be an examination of the responses to major plant closures — think of the threat hanging over Port Talbot, or the experience of Redcar or Longbridge. Some, like the Longbridge task force, are generally thought to have done a decent job. Yet it was mostly an effective exercise in expediting access to existing national policy commitments on benefits, skills and the like. An essential task, but not a strategic consideration of how over the longer term to revitalise a shell-shocked local economy.

Addressing dispersion, pursuing fresh ideas

These different experts on area-based approaches to economic renewal would all agree, however, that most of the so-called losers from economic change didn’t work in a moth-balled plant or live in a “disadvantaged” community — they’re dispersed all around the country. So the next appointment would be with a labour market expert able to explain how employment and welfare systems can help or hinder those seeking to move to new roles. At this point you can bet there would be the inevitable discussion of the iconic “flexicurity” system which sees Denmark spend six times more than we do (as a percentage of GDP) helping workers to transition to new roles via generous insurance, retraining and career guidance. The contrast with our miserly unemployment insurance, fierce conditionality and indifference to re-skilling might cause pause for thought.

In pursuit of fresh ideas aimed at helping individuals to seize opportunities and ride out bumpy periods in their career our itinerant advisor might seek out an expert on so-called asset-based polices. Individual Leaning Accounts, a personal entitlement to train, were a reasonable idea let down by awful implementation (resulting in fraud), that merits re-consideration. The Child Trust Fund and Saving Gateway attempted to extend capital ownership to ensure that people had something to fall back on, as well as foster a savings habit. Both innovative ideas, killed off by austerity (though the current government has recently resurrected a version of the Saving Gateway). And then there is pension auto-enrolment — an excellent, well executed policy — which has installed policy-plumbing that could be used for purposes over and above pension saving, such as developing workplace saving schemes with incentives for those on modest pay. Somewhere within these different initiatives lies a potential extra layer of support for working people — contributed to by government, individual and possibly employer — that could be drawn on to re-skill and ride out difficult periods. It’s an elusive policy aspiration, some would say it has an over-the-rainbow feel to it, but one with potential.

Moving forward

Where, then, does this whistle-stop tour leave us? Synthesising the judgements of these various experts it would be hard to conclude that the UK has a smart or muscular approach to assisting either people, places or sectors to cope with shifting economic conditions. A cocktail of a low-voltage industrial policy, anaemic regeneration spending, weak regional investment and episodic improvisation in response to acute local economic dislocation is destined to fall short. Mix this with a welfare system heavily skewed towards pushing people into the first job that comes along and an emaciated adult skills system offering little prospect of mid-career re-training, and our national “adjustment” story gets weaker still. And all that is before we consider how our chronic lack of housing supply greatly constrains people’s ability to move to growth areas. Or the failure of government to provide timely financial support to communities experiencing large increases in migration. Let’s not indulge the vogueish view that domestic policy is somehow impotent in the light of global forces: to a very significant degree domestic policy is the problem.

These criticisms, serious though they are, need to be countered with notes of optimism. The pooling of more power over economic governance at the level of the city-region holds out the possibility of more effective strategies for communities and sectors — they need to be developed. Broad rhetorical support exists across the political spectrum for a more assertive industrial policy — it needs to be translated into a higher dosage plan of action. And, above all, let’s not forget that whatever social challenges we face it is far easier to think about tackling them if we are starting from a position, as we are, of record employment levels.

Step back from the detail and the big lesson is clear: governing an open and flexible economy in a manner that secures sufficient economic security and opportunity to command widespread popular consent is hard graft — far harder, in fact, than a generation of politicians and their advisors realised. Any new steps towards economic openness will require major support for those who might be affected.

No, we don’t know the elixir of a successful 21st century adjustment strategy. But there is an awful lot of experience to learn from — for good and bad, at home and abroad — and much that’s new to be tried out. The era in which support for the “losers” was a mere sideshow in the great onward journey of globalisation is well and truly over.

This piece first appeared in Prospect

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