Text of Lord Sainsbury’s Speech

I am delighted to be here today in Glasgow to discuss how the economies of our great former industrial cities can be reinvented for two reasons. Firstly, because I have a life-long interest in the economy of cities since as a young business executive I sat on the Docklands Joint Committee set-up by the Greater London Council to plan the regeneration of the area devastated by the closure of the London Docks.

My interest was aroused because it is the only Committee I have ever sat on which achieved absolutely nothing, and the reason it achieved nothing was because no one had any idea how to bring new jobs into the area to replace those lost by the closure of the Docks.

And, secondly, because I believe that the levelling up of our cities will only take place if they are given the necessary powers to support new high value-added per capita companies which spring up in them or to attract high value-added per capita companies to them. Local economic growth cannot be engineered by Ministers or civil servants sitting in Whitehall.

In recent decades UK industry has been impacted by fierce competition from the fast-growing Developing Countries. In the face of competition from countries such as South Korea, Taiwan, Singapore and China, many of our great former industrial cities have struggled to grow their economies, and as a result the regional difference between the economic wealth of Southern cities and cities elsewhere in the country has widened.

So, I want this morning to do two things. Firstly, to explain why I think many of our former industrial cities have in recent decades struggled to grow and, secondly, to say what more I think these cities, supported by new government policies, can do to achieve a faster rate of growth in the future.

To understand why some of our great cities have struggled to grow it is important to understand a couple of facts about economic growth. Firstly, what GDP measures is value-added per capita, that is the value of the goods or services sold by an organisation minus the value of the inputs used to produce them, but not minus the wages and salaries of its employees. This is then divided by the number of people used to produce them. This is important because value-added per capita depends both on competitive advantage and production efficiency and, therefore, is impacted by competition.

For example, the Apple iPhone creates a great deal of value-added per capita for the Apple Corporation, which is why it is able to pay its workers high wages and its shareholders high dividends. But this is not because it is produced more efficiently than its competitors, but because the people who buy it believe that it has a competitive advantage over competing products because of its attractive design and the services it offers and are, therefore, prepared to pay a premium for it. Equally, companies which fail to innovate, and who, therefore, lose competitive advantage will see their value-added per capita decline.

The second thing to understand if one wants to explain the slow growth rate of many of our great former industrial cities is that because of different levels of technological innovation and competitive advantage different sectors of the economy have different levels of value-added per capita. For example, in the UK in 2016 the value-added per hour for high-value services such as financial services, legal services or management consulting was £61 per hour. The extraction of crude petroleum and natural gas was £375 per hour. The value-added per hour for manufacturing was £49 per hour, for low value services such as retailing, hotels and restaurants it was £23 per hour, and for agriculture it was £13 per hour.

These figures are obviously important because if a city loses manufacturing jobs which are producing £49 of value-added per hour and replaces them with low value-added service jobs producing £23 of value-added per hour then that will obviously have a very negative impact on the city’s rate of economic growth. And equally if a city loses manufacturing jobs which are producing £49 of value-added per hour and replacing them with knowledge-intensive services producing £61 that will have a very beneficial impact on its rate of economic growth.

Here in Glasgow for example, manufacturing fell from 26 per cent of employment in 1981 to a mere 5 per cent by 2019. However, as a result of strong local leadership and good economic policies, the share of private sector knowledge-intensive business services jobs has increased from 7 per cent in 1981 to 15 per cent in 2019 which is above the British average. This is a relative success story, but Glasgow’s recovery from the damage inflicted by the 20th Century is still incomplete. Glasgow still underperforms nationally in terms of value-added per capita, with GVA per head in 2018 of £29 per hour compared to the national average of £34 per hour.

And this incomplete recovery translates into lower standards for the people of the Glasgow – average weekly workplace wages in Glasgow are £519 compared to the national average of £574.

Looking again at the national scene, over the last thirty years the UK in the ‘race to the top’ with competing countries has shifted slowly towards a higher value-added economy. But this has not been fast enough to give us a good rate of economic growth. And the ability of cities to adapt to the new competitive environment has varied enormously with cities outside of the Greater South East finding it more difficult, though there are important exceptions. Leeds, for example, has managed successfully to reinvent itself, while Bradford has struggled to do so, though the two cities are only eight miles apart.

I think there are three reasons why many former industrial cities have struggled to adapt to the new global economy. Firstly, the industrial revolution in Britain largely took place outside of the Greater South East driven by the emergence of the big industrial cities such as Manchester, Birmingham and Glasgow, and it is the traditional industries in these cities that have suffered most from competition from the newly industrialised countries. The problem these cities have faced is not that they have not been able to generate any new high value-added jobs, but that they have not been able to generate enough to offset the huge losses they have faced in recent years in their traditional industries.

Secondly, the majority of policy interventions by governments such as Enterprise Zones aimed at helping places to grow have tended to reinforce the existing industrial structure by supporting low-knowledge routine activities to reduce unemployment, as opposed to supporting the reinvention of cities by increasing the generation of more knowledge-intensive businesses.

As a result, in many former industrial cities, jobs in declining manufacturing and production industries have been replaced by low-skilled routine jobs with low pay, which are vulnerable to foreign competition and technological change. Coal mines and dockyards have been replaced by call centres and distribution sheds.

Thirdly, for largely historical regions resources and investments in research and innovation have not been spread evenly across the country but concentrated in the Greater South East. Currently, just three sub-regions of the UK – Oxford and its environs, Cambridge and its sub-region, and inner West London – account for 31 per cent of all R and D spending in the UK. Public sector R and D spending is even more concentrated with 41 per cent taking place in these regions.

These factors combined have resulted in the South pulling away from the rest of the country for a century, and since 1911 for every job created in the North, Midlands and Wales 2.3 have been created in the South.

The main challenge which the Government faces, therefore, if it wants to level up the economy, is how does it, working with local government leaders, develop policies which generate high value-added jobs in our big former industrial cities. And I will describe in the next few minutes what I think those policies should be.

But before I do so I think it is necessary to make a general point.
Firstly, if the Government wants to create new high value-added jobs in cities beyond the Greater South East it will have to devolve more powers to the Mayors of our great cities.

I appreciate that in Scotland, unlike in England, Metro Mayors have not yet been introduced. I think this discrepancy needs to be addressed without delay. Having a mayor that operates at the Glasgow city region scale would enable the Mayor to better co-ordinate the policies needed to create the best conditions for the creation of high-tech clusters of businesses and new high value-added jobs. There is no point in trying to do this at the national level, UK or Scotland, where government is both very siloed and largely ignorant of the opportunities and difficulties faced by specific cities.

Keeping this general point in mind, let me suggest three very basic policy changes which the Government could make and implement relatively easily, and which could have a very significant impact on levelling up. They are, firstly, promoting local economic growth by joining up transport and spatial planning at a city level. Joining up transport and spatial planning at a city level can make commuting cheaper and quicker, which in turn generates two major benefits. First it widens labour markets and, secondly, an efficient transport system enables employment and businesses to cluster densely where they have the best access to knowledge, such as in city centres. To achieve such an improvement in city transport, the Government must move statutory spatial planning authority up from local authorities to metro mayors, and some transport planning responsibilities down from central government to metro mayors.

Secondly, I would like to see the job of coordinating the courses run by F.E. Colleges with the labour market needs of a city given to metro mayors. The budget for F.E. Colleges should, therefore, be devolved to metro mayors rather than being allocated by the central Education and Skills Funding Agency, which cannot possibly have any clear idea what are the specific needs of, say, the manufacturing sector in the Glasgow city region.

I should say, in this context, that I think the Scottish Government would do well to look at the new system of T-level qualifications which is being introduced in England. This is a single national system of technical qualifications which is quality controlled by Government and where the knowledge and skills which must be acquired are set by industry.

This is replacing a system where there were thousands of qualifications of varying quality which did not necessarily meet the needs of industry. Also students did not know which qualifications to take, and businessmen did not know what skills a young person had acquired by getting a specific qualification.

If one wants technical qualifications to have the same reputation as academic qualifications this is the route I think one has to take.

I should perhaps add that I am very biased on this particular issue, having been heavily involved in designing and implementing the new system.

Thirdly, the resources of the Strength In Places Fund, which is already in place, and which allocates support to developing clusters across the country, should be increased and the processes it follows for allocating funds improved. This is an excellent initiative which I think has already helped with the Precision Medicine initiative here in Glasgow.

I should add that I think the Precision Medicine initiative is an extremely important project because it will create a knowledge intensive industry which should be globally competitive, and which will therefore produce a high level of value-added per capita.

These three policies should form the foundation stones for a range of other policies. Because if we do not get these policies right, and if our big former industrial cities don’t start producing many more high value-added jobs, I think very little will be achieved.

Finally, you may ask whether the initiatives I have mentioned can make much of a difference to the economic success of a city. I think that it can, and if you are interested you should look at the success of the Research Triangle Park in North Carolina or the Hsinchu region in Taiwan which I describe in my book ‘Windows of Opportunity – How Nations Create Wealth’.

For those of you interested in these things this book has a whole chapter on ‘City and Regional Systems of Innovation’ and how these contribute to their rates of economic growth.

The type of strategy I am putting forward will, however, take time, but in my experience there are very few short-term solutions for long-term problems.

What I first learnt when I was on the Docklands Joint Committee all those years ago is that many social problems arise when the economies of cities are in decline, and the best, and I suspect the only way, to deal with those problems is to restore the economic vitality of the cities. So, what I would like to learn from you today is whether my analysis of the situation faced by our former big industrial cities make sense to you, whether the policies I have suggested the Government adopts are the right ones, and what are the opportunities for economic regeneration here in Glasgow?