The Glasgow City-Region Economy
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LOOKING FORWARD TO THE FUTURE: THE GLASGOW CITY-REGION ECONOMY Report to the Economic Commission for the Glasgow City Region June 2020 Prof Duncan Maclennan, Prof Alan McGregor and Dr David Waite TABLE OF CONTENTS PREFACE ................................................................................................................................................... 3 CHAPTER 1 – Focusing for the future ................................................................................................ 7 CHAPTER 2 – The baseline ................................................................................................................. 24 CHAPTER 3 – Labour market and skills .......................................................................................... 32 CHAPTER 4 - Innovation ...................................................................................................................... 61 CHAPTER 5 – Infrastructure................................................................................................................ 88 CHAPTER 6 – Fiscal futures.............................................................................................................. 126 CHAPTER 7 – An enlightened future .............................................................................................. 146 PREFACE LOOKING FORWARD TO THE FUTURE: THE GLASGOW CITY-REGION ECONOMY Right Place, Wrong Time? The Economic Commission for the Glasgow City Region was established, in 2016, to help review the progress on the Glasgow City Deal and in 2017 additionally embraced the role of providing more general economic advice to the Cabinet of the city-region. The Commission decided, in February 2019, to undertake a review of the future economic challenges and opportunities facing the City-Region and identify potential policy responses. The drafting of this report took place in the late autumn of 2019 as the Coronavirus outbreak began in Wuhan, China. It was accepted as completed by the Commission at its meeting of 20th January 2020. At that time the UK Foreign Office still regarded the Wuhan outbreak as unlikely to be a major pandemic. As the Commission were anxious not to complicate the concluding processes of the Gateway Review of the Glasgow City Region Deal, it was decided to delay wider circulation of the report until the Gateway results were announced. The favourable results of that Review were intimated to Commissioners on the 20th of May 2020. The long and short versions of this report are now being more widely circulated just as the May peak of Coronavirus infections and deaths in the GCR begins to subside and the economy rapidly slides into a historically deep recession following in the wake of the pandemic. Through the short ‘purdah’ period between the completion and circulation of this report, in less than an economic commentary ‘quarter’, the world economy and its short and medium term prospects have deteriorated rapidly as the public health measures required to counter the spread and consequences of coronavirus-19 (CV-19) have near-‘stopped’ both the demand and supply sides of economies. Trade, travel, labour mobility, daily commuting and patterns of shopping, working and living have altered dramatically. OECD (OECD Outlook, June, 2020) have projected that the UK economy will suffer the greatest loss in GDP in 2020 for any major economy, by 11.5 percent, rising to more than 14 percent if there is a second, autumn pandemic peak, although growth of 9 percent in 2021 is also forecast. UK recovery to 2019 income and employment levels may take until 2025 with fiscal effects running further into the future. Reviews and forecast for the Scottish Economy by the Fraser of Allander Institute (FAI) make it clear that impacts in Scotland and GCR will be no less severe than for the UK as a whole. Andrew Wilson has suggested that it is probably going to be a bit worse in Scotland because of the nature of our sectors and how the virus has behaved north and south of the border. Uncertain Times, and Ideas This report, as submitted in January, stressed that the start of the 2020’s was already a period of high and rising uncertainty about both near and distant futures. The potential effects of Brexit, the increasingly difficult trading relations between the USA and China and policyscotland.gla.ac.uk 3 heightened awareness of the challenges of reducing greenhouse gases were raised frequently in interviews undertaken for the review (and none considered pandemic possibilities; clearly an omission that should be remedied in future regional economic strategy thinking). There was also an apparent, and growing, uncertainty about how to talk about city-region economic issues. In interviews with officials and others multiple narratives were used, sometimes in the same conversation. A progressively widening and lengthening framing of the socio-economic changes, technological challenges and policy dilemmas confronting both city-regions and nations has been reflected in calls for policies to be seen through the lenses of wellbeing, sustainability, inclusion and productivity. This broadening of economic policy perspectives is regarded by many, including the Commission, as different, potentially better ways of regional economic policy thinking. However, embracing broader goals has not, yet, led governments to a new clarity in making, describing and delivering economic policy choices. The terminologies of these overlapping policy narratives are often undefined and imprecise and left to more local, delivery-oriented, levels of government to clarify and implement. There is much uncertainty about what policies mean now let alone about what they might mean in the future we now face. The review maintains a focus on core economic concerns. How the metropolitan economy creates jobs and incomes, distributes wages and profits and offers choices for public and private consumption, and how we augment or deplete natural capital, will still fundamentally shape patterns and changes in wellbeing. Policy, Planning and Positive Roles of Metropolitan Governance Our approach, unfortunately and dramatically affirmed by the post-January spread of the Covid-19 health crisis and the emergence of its significant, negative economic impacts for the city-region and the nation, was sceptical of hard forecasting for the future. We emphasised that city-regions are complex, evolving economic systems. They need to be understood in an evolutionary, complex way rather than through simpler, sectoral, linear modelling of the past and past relationships. They need to be managed as complex systems with the interactions of different orders of government recognised and aligned. Locally, change through flexibility and creativity in metropolitan areas requires effective markets, collaborative institutions, open governance and capable leadership. The roles of metropolitan, and other, levels of government need to be seen not as a ‘distortion’, frustrating the private sector, or as only an essential ‘service provider’ holding up an increasingly fraying welfare state. Our perspective regards the roles of local, metropolitan government as an essential integrator, leader and creator for major investment strategies that would lie beyond the coordinating capacities of the most efficient of private businesses. Similarly, the vertical, often still sectorally-siloed, structures and connections between different levels of government seem to serve a past conception of municipal welfare state roles funded within the fiscal primacy of regional and national governments rather than present needs. Scottish to City-region fiscal imbalances cannot be ignored in the potentially bleak fiscal landscape of the next decade. We were much influenced by Mariana Mazzucatto’s notions of governments and their institutions as creative leaders of complex missions to deliver grand challenges. Much change, despite recent re-localising experiences, will flow from global scales, especially policyscotland.gla.ac.uk 4 trade, innovation and migration, and indeed pandemics, which will be manifested and ‘absorbed’ at local scales, whether metropolitan areas or rural regions. National frameworks must be supportive, but it is primarily within Scotland’s city-regions that firms and citizens and institutions will both adapt to and create Scotland’s place in the new world. Changing Perspectives, Policies and Practice. Within that broad framework of ideas, we explored the content and governance of key dimensions of wellbeing, growth and prosperity, and indeed disadvantage, in the GCR. We commented robustly, and hopefully not unfairly, on aspects of policy and practice for skills, innovation and infrastructure in the city-region and on the framework of policies given to the city by the Scottish and UK governments. Since the report was drafted, Covid-19 has shrunk and frozen the metropolitan economy. There can be no doubt from past experience of the unduly deep cyclical recessions that the city region incurred from the 1930’s until very recent decades, that the city region economy will not only incur deep negative demand shocks, but there will also be sustained, negative supply side effects, such as the corrosive effect of unemployment on human capital, that will last into the long term. The public finance estimates of the ranges of resources available for the city-region, that flowed from the delayed UK budget of March 11th, 2020, were shaped to partially cope with pre-January 2020 challenges. We have used them here. They are