How to make a ‘place-based’ industrial strategy work

Growing vines in Kent, part of a cluster of wineries making a success out of white and sparkling wines in southern England. Shutterstock

How to make a ‘place-based’ industrial strategy work

Some locations become well known for the kinds of industry that have once thrived there – tin mining in Cornwall, steel in Sheffield, shipbuilding in Glasgow. But the industrial landscape is not set in stone – it changes. And in order to boost local and national economies, plans need to be made and strategies invented.

One idea that has become popular with politicians is what is known as a “place-based” industrial strategy. It is a key component of the European Union’s 2020 innovation programme, and features heavily in the UK government’s plans for British industry.

Put simply, “place-based” strategies are specifically tailored towards developing a place’s existing advantages, specialisms and capabilities, and diversifying them onto new growth trajectories. These in turn are rooted in a location’s history, culture and geography.

It could mean, for instance, supporting the ceramics industry in Stoke on Trent in the UK, to diversify into related technological fields such as materials science, where new market opportunities lie.

With this approach, the emphasis is upon place – and knowledge – rather than particular sectors. It aims to encourage entrepreneurship and innovation that cuts across traditional sector boundaries.

In this sense, place-based industrial strategies are different to previous “top-down” policies, in which central governments pursue a one-size-fits all solution (such as universal training programmes or tax credits) to spur growth. Instead, policies are geared towards a place’s specific characteristics to spur local – and inclusive – growth.

Local money for local people

The problem is that all industrial strategies require funding. And in a global economy the benefits of publicly funded projects may end up being captured by large private firms – multinational corporations with no allegiance to specific places.

So how can a place-based industrial strategy ensure that the benefits of publicly funded projects are retained within a region – and shared in a way that delivers sustainable and inclusive economic growth? In a forthcoming article in the Cambridge Journal of Economics, we propose the following solution.

Firstly, regional policy makers and businesses need to identify their current (and possible new) competitive advantages. New specialisms often emerge by fusing new technologies with existing expertise and capabilities. For instance in Italy, Emilia Romagna’s machine packaging industry has retained its international competitive position by continually integrating new electronics, information and communication technologies with its traditional mechanical systems. This has opened up profitable opportunities in new (but related) market segments such as pharmaceutical machine packaging.

Regions then need to build platforms which foster growth. These could include establishing strong business and knowledge networks to drive innovation. There is a key role here for large private and public sector “anchor institutions” – embedded in the region – which heavily engage in research and development and can facilitate such network links. The Fraunhofer institutes have long played this role in driving innovation within German regions – and it is hoped that similar initiatives in the UK, such as the new Catapult Centres will bring similar results.

The right formula

It is also important for regions to develop a “place brand”. To be internationally competitive, places need to differentiate themselves and offer unique qualities and bespoke products and services. Motor Sport Valley in Northamptonshire for instance, has established a global reputation for innovation in Formula One. And emerging clusters such as English sparkling wines in Sussex and Kent, have begun to distinguish themselves with their high-quality award-winning wineries.

Regions then need to create “place specific” strengths which are not vulnerable to offshoring and low-cost competition. This may mean local firms developing niche specialisms that are difficult to imitate elsewhere.

Local policy should aim to help firms identify and support the development of such expertise. Highly specialised advanced manufacturing SMEs in the German Mittelstand (the German small and medium sized businesses) have long benefited from such a strategy.

Regional governments ought to consider supporting SME networks that cut across regional and national boundaries to build international collaboration. This is particularly important for firms in peripheral regions, especially if they can forge new relationships with innovators in more advanced parts of the world. This allows knowledge sharing and spurs innovation, which can allow lagging regions to catch up.

Finally, to foster sustainable regional growth, these steps should not be implemented in isolation. They need to be integrated in a long-term strategy and subject to continual review with a strong component of competition law to ensure continued innovation and fairness. Following all these steps will make the strategy more resilient and sustainable – and keep everything firmly in place.

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