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Appendix a Principles of Growth

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Appendix a Principles of Growth Appendix A: Principles of Growth It!is!important!to!establish!the!principles!of!growth!that!will!underpin!the!Growth!Plan!of!Somerset! before!developing!the!detail!of!the!plan.!! 1 Growth(will(be(led(by(the(private(sector( Most!growth!in!Somerset!over!the!period!to!2020!will!be!created!by!the!private!sector,!and!some!by! the!social!economy.!!Direct!job!creation!by!the!public!sector!is!not!expected!to!play!a!role!in!growth! in!the!coming!years.!!Public!sector!intervention!should!only!be!used!to!overcome!market!failures.! Market' failure! occurs! when! a! market! does! not! efficiently! allocate! resources! to! meet! certain! objectives! (in! this! case! promoting! growth! in! Somerset)! due! to! specific' problems' with' the' market' mechanism.!!!The!public!sector!should!only!intervene!in!the!economy!when!markets!are!not!efficient! and!when!the!intervention!would improve!efficiency!i.e.!in!this!case,!promote!growth!in!Somerset.!! The!first!condition!for!public!sector!intervention!is!evidence!that!a!market!failure!exists.!!The!second! condition!is!that!the!intervention!will!make!an!improvement.! As!an!example!in!the!case!of!this!commission,!market!forces!may!lead!to!the!private!sector!creating! jobs! in! places! other! than! Somerset! because! of! barriers! or! perceived! barriers! to! investing! in! Somerset.!!For!example,!Somerset!may!lack!a!key!piece!of!infrastructure!that!is!found!elsewhere,!or! the!perceived!risk!is!high!whereas!the!actual!risk!is!low.!!This!becomes!a!market!failure!when!the! wider!benefits!to!Somerset!of!investing!in!the!missing!piece!of!infrastructure!outweigh!the!costs,!but! the! private! sector! is! unwilling! to! invest! in! the! infrastructure! because! it! cannot! capture! enough! benefits!to!make!it!worthwhile,!or!perceives!the!risk!as!too!high.!!There!is!then!a!case!for!the!public! sector!to!invest!in!the!infrastructure!or!overcoming!the!misperception,!which!encourages!the!market! to!invest!in!Somerset,!which!then!creates!wider!benefits!such!as!more!or!better!jobs!for!Somerset! residents.! 2 Growth(in(Somerset(will(be(driven(by(domestic(and(external( markets( Growth! can! be! created! from! trade! in! domestic! markets! or! external! markets.! ! In! this! case,! the! domestic!market!is!Somerset.!!Everywhere!else!is!an!external!market,!and!this!should!not!be!thought! of!only!as!overseas!export.!!Growth!from!the!domestic!market!must!be!created!by:!either!growing! the!size!of!the!domestic!market!e.g.!more!residents/consumers!in!Somerset;!or!replacing!imports!of! goods! and! services! into! Somerset.! ! External! trade! can! be! in! the! form! of! goods! and! services,! and! inward! investment! and! tourism! are! forms! of! external! trade.! ! ICT! infrastructure! can! mean! that! external!trade!does!not!involve!physical!movement!(of!goods!or!people).!!In!Somerset’s!case,!more! growth/wealth/value!is!likely!to!be!created!from!growth!in!external!trade!than!by!growth!in!serving! the! domestic! market.! ! This! means! focusing! on! externally! tradable! economic! activities! in! which! Somerset!has!competitive!advantage.! ! ! ! 1! ! 3 Somerset(needs(to(build(on(its(competitive(advantages( Competitive! businesses! are! not! spread! throughout! the! economy,! they! tend! to! ‘cluster’! in! interR connected! sectors.! ! Competitive! advantage! emerges! from! areas! of! specialisation! in! the! local! economy.! ! There! are! a! number! of! reasons! why! particular! industries! in! particular! places! are! successful1:! • The!presence!of!particular!factors!of!production!e.g.!skilled!labour,!infrastructure,!and!also!the!natural! environment! • High!demand!for!their!products!and!services! • The!presence!of!suppliers!and!related!industries! • Well!organised!and!managed!companies! • Healthy!rivalry!between!the!companies!in!a!location! In! particular,! innovation! drives! competitive! advantage.! ! Collaboration! is! also! important,! and! the! strongest! competitive! advantage! occurs! when! there! is! sharing! (of! information,! techniques,! technologies!etc.)!as!well!as!competition!between!businesses!in!a!location.! What!this!means!for!Somerset!is!that:! • Priority!should!be!given!to!the!most!competitive!specialist!sectors!(both!currently!and!in!the!future)! e.g.!aerospace!and!nuclear! • Support!should!be!provided!to!other!sectors!with!a!competitive!advantage!e.g.!Food!&!Drink,!Agri! Tech,!Tourism!etc.! • There!should!be!investment!in!high!skills/training!and!infrastructure! • Efforts! should! be! made! to! promote! supply! chain! and! cluster! development!in! areas! of! competitive! advantage! • Investment!should!be!made!to!improve!management!skills! • Support!for!innovation!and!collaboration!in!priority!sectors!will!be!important! 4 Somerset(needs(to(work(hard(to(derive(benefits(from( agglomeration(effects( Larger!numbers!and!concentrations!of!people!and!economic!activity!(e.g.!cities)!create!benefits!of! scale,! and! also! greater! opportunities! for! communication,! networking,! cluster! development! and! competitive! advantage,! as! discussed! above.! ! However,! the! largest! town! in! Somerset! has! a! population! around! 60,000,! so! physical! agglomeration! is! limited.! ! Whilst! developing! a! large! city! in! Somerset!is!not!realistic!(at!least!in!the!shortRterm),!there!are!other!ways!in!which!agglomeration! effects!can!be!achieved,!e.g.:! • Linking! places! together! through! infrastructure,! ICT,! transport! etc! e.g.! greater! linkages! between! Bridgwater,!Taunton!and!Yeovil! • Ensuring! that! the! major! towns! are! accessible! from! their! rural/market! town! hinterlands,! thus! increasing!the!scale!of!accessible!population!in!these!towns! !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! 1!Porter,!M!(1998)!The!Competitive!Advantage!of!Nations! ! ! ! 2! ! • Investing!in!growth!in!the!most!accessible!places,!where!it!can!be!enjoyed!by!the!most!people!and!is! most!sustainable! • This!then!allows!specialisation!(and!competitive!advantage)!in!smaller!places! • Linking!places!in!Somerset!to!places!outside!Somerset!e.g.!Bristol,!Exeter!etc! 5 Focus(on(promoting(growth(in(functional(market(areas( Growth!will!be!created!in!functional!economic!market!areas.!!The!functional!economic!geography!of! Somerset!is!discussed!at!chapter!three!of!the!Growth!Plan.! 6 Growth(must(be(built(on(Somerset’s(opportunities( Intervention!and!investment!must!address!market!failures,!and!maximising!opportunities.!!Market' failure!occurs!when!a!market!does!not!efficiently!allocate!resources!to!meet!certain!objectives!(in! this!case!promoting!growth!in!Somerset)!due!to!specific'problems'with'the'market'mechanism.!!!The! public!sector!should!only!intervene!in!the!economy!when!markets!are!not!efficient!and!when!the! intervention! would improve! efficiency! i.e.! in! this! case,! promote! growth! in! Somerset.! ! The! first! condition! for! public! sector! intervention! is! evidence! that! a! market! failure! exists.! ! The! second! condition!is!that!the!intervention!will!make!an!improvement.! 7 Modelling(Somerset’s(Economy( The!figure!below!sets!out!a!simplified!model!which!helps!to!identify!the!areas!(shaded!orange)!in! which! investment! should! be! focused! to! promote! future! growth! in! Somerset.! Whilst! growth! in! Somerset!will!be!influenced!by!global!and!national!factors,!this!plan!focuses!on!those!areas!that!can! be!effectively!controlled!locally.! ! ! ! 3! ! Change,in, Popula=on, Housing, Household, Growth, Growth, Structure, Taxes, Workforce, Growth, Taxes, Public,Sector, Revenue,Growth, Demand/, Business/ Taxes, supply,,of, Economic, Business, skills, Growth, Aspira=on,and, Competency, Access,to,markets/strategic,infrastructure, Consumer, Demand, Growth, Export, Public, Growth, Spending, Growth, ! ! ! ! ! ! ! ! 4! ! Appendix B: SWOT and Barriers The!assessment!of!strengths,!weaknesses,!opportunities,!threats!and!barriers!draws!upon!data!set! out!in!the!latest!State!of!Somerset!Economy!report1.!!Excerpts!from!this!report!setting!out!the!key! data!are!attached!as!an!annex!to!this!appendix.! 1 Current(Strengths(and(Weaknesses( 1.1 Strengths( The! Somerset! Economic! Assessment! (2013)! identifies! a! number! of! strengths! of! the! Somerset! economy.!!These!can!be!summarised!as:! • Most!economically!active!residents!are!in!work! • Somerset!has!a!high!quality!of!life! • Somerset’s! economy! has! grown! marginally! since! 2007,! whereas! the! national! economy! has! shrunk! over!the!same!period! • Growth!has!been!balanced!across!a!range!of!sectors! • Somerset!has!relatively!good!connectivity,!including!to!London!and!Bristol! • The!economy!is!fairly!broad!and!mixed! • Skills!are!reasonable,!particularly!midMlevel!skills! Somerset!is!a!relatively!diverse!area!–!economically,!socially!and!culturally.!!In!terms!of!the!economy,! it!has!a!large!number!of!SMEs!and!high!levels!of!selfMemployment.!!Whilst!there!are!a!number!of! globally!competitive!large!businesses,!they!are!few!in!number.!!Overall!Somerset!has!low!levels!of! deprivation,!although!there!are!some!pockets!in!places!such!as!Bridgwater,!and!some!less!obvious! rural! deprivation.! ! Somerset! has! high! economic! activity! rates,! although! in! places! this! could! mask! underMemployment.!!Somerset!has!a!very!high!quality!of!environment,!and!consequent!quality!of!life! which!attracts!residents.! Accessibility!in!parts!of!Somerset!is!very!strong,!with!the!M5!motorway,!and!mainline!rail!serving! parts!of!the!county.!!Looking!outside!the!county!boundaries!there!is!proximity!to!airports!at!Bristol! and!Exeter,!and!proximity!to!several!large!cities.!!This!accessibility!serves!parts!of!Somerset!well,!and!
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