What Works Centre for Local Economic Growth
Presentation on theme: "Local Economic Growth: Do we know (or care) what works?"— Presentation transcript:
1 Local Economic Growth: Do we know (or care) what works?
Prof. Henry Overman Director, What Works Centre for Local Economic Growth September 2017
2 Overview I am not a development expert
Experience of working with UK government for (nearly) 20 years on local growth Broad big picture (Spatial Economics Research Centre) More recently – policy details (What Works Centre for Local Economic Growth) Role of evidence in developing policies to improve growth in lagging regions: do we know or care what works?
3 The UK challenge
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5 Growth (%) Place Region 1991-2001 2001-2011 Great Britain 4.1 7.5
London 7.2 13.1 Birmingham W. Midlands 0.5 7.9 Stoke -0.1 3.2 Manchester North West -1.0 9.3 Liverpool -2.1 1.4 Newcastle North East -0.2 4.4 Sunderland -3.5 -1.3
6 Do we know (or care) what works? The big picture
7 Uneven development: Economic drivers
8 Industry Group Agglomeration Average all manufacturing 0.077
Publishing, printing, repro of media 0.105 Advertising 0.137 Average all services 0.197 Motion picture, video and TV 0.222 Hotels and restaurants 0.224 Finance and insurance 0.251 Public services 0.292 Business and man. consultancy 0.298 Transport services 0.325 Manufacture radio, TV and comms 0.382
9 Working age pop %NVQ4+ (2010)
City Working age pop %NVQ4+ (2010) Oxford 53.7 Cambridge 50.7 Edinburgh 47.4 Brighton 44.1 Aberdeen 43.5 London 40.9 York 39.9 Cardiff 39.8 Reading 39.6 Dundee 36.5
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11 Uneven development Tech change and globalisation
Shift towards services that benefit from agglomeration Uneven development Reinforced by two factors Concentration of skilled workers (Potential) link between concentration skilled workers and strength of agglomeration economies
12 Understanding uneven economic performance
13 People versus place Max/Min p90/p10 p75/p25 Raw Full controls 67% 26%
11% Full controls 16% 7% 4%
14 Persistence
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16 Do we know what works? Strong market forces driving uneven development
Can use government policy to reinforce or counter these market forces
17 Do we care what works? Need realism on policy effectiveness and extent to which we can 're-balance' (Incoming) governments fail to understand or recognise underlying economic factors and extent of the challenge 'Difficult' for constituency-based politician Number one conceptual challenge when trying to help places formulate (place-based) policy?
18 Do we know (or care) what works? The detailed picture
19 What Works Centre for Local Economic Growth
20 What Works Centre
21 Impact evaluation
22 Policy # Studies SMS3 Jobs effect Positive Access to Finance 1450 27 11 6 Apprenticeships 1250 9 7 Broadband 1000 16 10 5 Business Advice 700 23 17 8 Employment training 71 65 33 Estate renewal 1050 21 1 Innovation 1700 63 Public realm 1140 Sports and culture 550 36 4 Transport 2300 29 2 ABIs (EZs and similar) 1300 30 15 EU Structural Funds 18 11 (GDP)
23 People-based policies
Employment Training Shorter (<6 months): best for less formal training Longer programmes: should be skill-intensive In firm > on the job. Co-design programmes with employers Apprenticeships Higher-level apprenticeships deliver the biggest gains More effective for employment than employment training (unless ET involves firms) Little evidence on benefits/costs to firms The Centre's review of active labour market programmes includes 71 evaluations from across the OECD (What works Centre for Local Economic Growth 2016). Around half show positive effects on employment or earnings. Shorter programmes (below six months, probably below four months) are more effective for less formal training. Longer programmes generate employment gains when the content is skill-intensive. In-firm / on the job training programmes outperform classroom-based training programmes. Employer co-design and activities that closely mirror actual jobs increase effectiveness. The Centre has also reviewed apprenticeship programmes, with 27 evaluations making the final cut (What Works Centre for Local Economic Growth 2015). Of the 11 that look at employment effects, nine find positive impacts, with apprenticeships also reducing participants' unemployment post-programme. The effect on wages is more mixed in the five studies that examine these, with a couple of studies finding negative impacts. Higher-level apprenticeships deliver substantially higher lifetime wage gains (based on limited UK evidence). The evidence suggests that apprenticeships are more likely to increase employment than other forms of employment training (unless the latter also involves an in-firm element). Various mechanisms may increase attendance (e.g. pre-qualifications, higher wages and subsidies) but reducing drop-out seems harder to achieve. There is very little evidence on benefits or costs to firms.
24 Firm-based policies Business advice
More consistent effects on productivity than jobs Hands-on / face to face > light touch / online But we don't have decent info on value for money Access to business finance Impacts on productivity / wages / jobs in 50% of cases Effective at dealing with credit constraints But loan guarantees increase default risk The Centre's review of business advice (information, networking and mentoring services) covers 23 evaluations (What Works Centre for Local Economic Growth 2015). Around half of these show positive effects on employment or productivity (more consistently for the latter), while results for sales, profits and exports are more mixed. Programmes that use a hands-on, 'managed brokerage' approach (e.g. face to face consulting) may perform better than those using a light touch delivery model (e.g. online info), but they are also more expensive so may not offer better value for money. A related review of business finance programmes (loans and early stage finance) covers 17 evaluations, and again shows positive effects on firm performance (employment, productivity or sales) in around half of cases (What Works Centre for Local Economic Growth 2016). Programmes have a positive effect on firm access to debt finance, either in terms of the availability of credit or the cost of borrowing (or both), but effects on equity finance are more mixed. There is some evidence that loan guarantees may increase default risk. The Centre also conducted a larger review on aspects of innovation policy, focusing on R&D grants, loans and tax incentives: the latter are targeted at private sector firms, while the former include spending on businesses and on public science (What Works Centre for Local Economic Growth 2015). From 42 evaluations of R&D grants and loans, around half find a positive impact on further R&D spend, innovation or some wider economic outcome; innovation effects are weaker for patenting than for self-reported product/process development. Seven out of 16 evaluations find positive effects on productivity, employment or some other measure of firm performance. Overall, impacts tend to be better for SMEs than for larger firms, and programmes that emphases inter-firm collaboration tend to generate better results. Notably, sector-neutral programmes do just as well, if not better, than programmes targeted at specific industries. For R&D tax credits, 10 out of 17 evaluations find positive effects on further R&D spending, including a recent evaluation of the UK's R&D tax credit. However, only three studies look at economic outcomes, and only one of these finds consistently positive effects. Again, impacts are better for SMEs.
25 Firm-based policies R&D grants and loans
Stronger impacts on reported innovation than on patents 7/16 studies find positive effects on wider firm performance Impacts stronger for SMEs, and for programmes that emphasise collaboration (e.g. FP7) R&D tax credits Very effective at raising R&D spend Little evidence on downstream economic impacts (as yet) Impacts stronger for SMEs The Centre also conducted a larger review on aspects of innovation policy, focusing on R&D grants, loans and tax incentives: the latter are targeted at private sector firms, while the former include spending on businesses and on public science (What Works Centre for Local Economic Growth 2015). From 42 evaluations of R&D grants and loans, around half find a positive impact on further R&D spend, innovation or some wider economic outcome; innovation effects are weaker for patenting than for self-reported product/process development. Seven out of 16 evaluations find positive effects on productivity, employment or some other measure of firm performance. Overall, impacts tend to be better for SMEs than for larger firms, and programmes that emphases inter-firm collaboration tend to generate better results. Notably, sector-neutral programmes do just as well, if not better, than programmes targeted at specific industries. For R&D tax credits, 10 out of 17 evaluations find positive effects on further R&D spending, including a recent evaluation of the UK's R&D tax credit. However, only three studies look at economic outcomes, and only one of these finds consistently positive effects. Again, impacts are better for SMEs.
26 Area-based policies Broadband (fixed line, not mobile)
Positive economic effects in 14/16 cases But targeted on services, skilled workers, urban places Important that firms combine IT with management changes Transport Economic gains from road and rail projects (bigger for more congested/successful places) Productivity effects and property price gains Lack of good evidence on light rail, cycling, walking
27 Area-based policies Enterprise Zones (economic ABIs)
Just over 50% success rate for employment, wages Best design – US Empowerment Zones, which have a local employment requirement Where evalutions test for displacement, they often find it Sports and culture, estate renewal Small / zero economic effects (except on house prices) But evidence of important social welfare / wellbeing gains A review of Enterprise Zones and related 'growth zone' programmes covers 34 evaluations (What Works Centre for Local Economic Growth 2016). Just over half of these show positive effects on employment (typically measured at area level). The best results on employment are for US Empowerment Zones – which have a local employment requirement. There is evidence that positive effects result from displacement in most of the studies that test for it – often from nearby areas. This implies that net local job creation will be smaller than gross zone job creation. Ten studies cover impacts on wages, which may reflect underlying firm productivity changes: of these, half find a positive programme effect. Finally, two further reviews show minimal economic impacts, but important wider welfare effects. Estate renewal programmes provide important housing and amenity benefits, but the Centre's review finds that their economic impact is limited (What Works Centre for Local Economic Growth 2015). On the available evidence, programmes tend to have a limited effect on improving income or employment in the local area. Direct employment impacts from construction are not considered; studies use area-level data so that effects on existing residents are not explored. Similarly, spending on sports and cultural facilities and events deliver wellbeing and amenity benefits, but on the basis of available evidence, measurable effects on the local economy are not large and are more often zero (What Works Centre for Local Economic Growth 2016). Wage/income effects tend to be small, and limited to particular areas or particular types of workers. Effects on trade/tourism are only considered in a few studies and appear to be short-lived.
28 What have we learned? Overall success rate = 50%
Effect sizes aren't always very large Perhaps not surprising when we think about what local economic growth policies are trying to do Example: employment training programmes are often working with 'hard to help' clients Example: the majority of firms do not use state business advice programmes; they ask friends, family, colleagues and e.g. accountants for advice (CEEDR 2011)
29 What have we learned? Success rates vary on key outcomes like employment Employment training and apprenticeships are better for raising employment. Firm-focused programmes, not so much. But firm-focused policies can help raise innovation, sales & profits Why does this matter? Many policies have multiple objectives (e.g. 'raising our game'). We need more clarity on what programmes want to achieve, and how First, we can see straight away that success rates vary. Active labour market programmes and apprenticeships tend to be pretty effective at raising employment (and at cutting time spent unemployed). By contrast, firm-focused interventions (business advice or access to finance measures) don't tend to work so well at raising workforce jobs. Second, the evidence does show that some programmes are better at meeting some objectives than others. This matters, since local economic development interventions often have multiple objectives. For example, firm-focused policies turn out to be much better at raising firm sales and profits than at raising workforce head count. That might feed through to more money flowing in the local economy, but if employment is the priority, resources might be better spent elsewhere. We can also see that complex interventions like estate renewal don't tend to deliver job gains. However, they work better at delivering other important objectives – not least, improved housing and local environments.
30 What have we learned? Targeting matters. For example: broadband's economic impacts are higher for SMEs; skilled workers; urban areas But not always. Targeted business advice programmes do no better than generalist programmes Economic vs social rationales. Some programmes are pitched as economic wins, but actually deliver social wins (estate renewal, sports and culture). Broadband is an economic development tool – but isn't it also a public utility? Third, some policies will work best when carefully targeted. Improving broadband access is a good example: SMEs benefit more than larger firms; so do firms with a lot of skilled workers; so do people and firms in urban areas. That gives us some clear steers about where economic development budgets need to be focused. Fourth, it turns out that some programmes don't have a strong economic rationale, but then wider welfare considerations can come into play. For example, if you think of the internet as a basic social right, then we need universal access, not just targeting around economic gains. This point also applies particularly to area-based interventions such as sports and cultural events and facilities, and to estate renewal. The evidence shows that the net employment, wage and productivity effects of these programmes tends to be very small (although house price effects may be bigger). There are many other good reasons to spend public money on these programmes, just not from the economic development budget.
31 Do we know what works? Know more than we used to:
Relative effectiveness of different policies Employment training vs sports and culture Relative effectiveness for different objectives Innovation grants and loans (R&D or employment?) Relative effectiveness for different areas Broadband (urban or rural; services or manufacturing) What determines effectiveness In-work component of employment training Selectiveness of area-based initiatives But not as much as we'd like …
32 Toolkits: employment training
33 Toolkits: business advice
34 Toolkits: Responding to Major Job Losses
35 Do we know what works? Relative effectiveness of different policies
Relative effectiveness for different objectives Relative effectiveness for different areas What determines effectiveness Reminders? Mentors > Subsidised Consultancy > Public Support > Tailored Support? Retraining > Outplacement But not as much as we'd like …
36 Learning from local interventions
How monitor How evaluate Test? Improve How Implement
37 Do we care what works? Understanding evidence and embedding in policy design is difficult – especially when goes against strong prior beliefs There are large capacity and resource constraints, even in a country like the UK Robust policy development and evaluation can be high risk / low benefit, particularly from a local government perspective Centralisers vs localisers Strong views not supported by evidence No systematic pattern national/local effectiveness emerge (emp. training, business advice / finance)
38 Do we care what works? Understanding evidence and embedding in policy design is difficult – especially when goes against strong prior beliefs There are large capacity and resource constraints, even in a country like the UK Robust policy development and evaluation can be high risk / low benefit, particularly from a local government perspective Centralisers vs localisers Strong views not supported by evidence No systematic pattern national/local effectiveness emerge (emp. training, business advice / finance)
39 So what works?
40 What works: The big picture
Make sure institutions are capable of delivering Realism about underlying market forces ('context') Invest in infrastructure in areas where likely to increase productivity and generate jobs Make sure people have the skills they need to access new jobs To improve outcomes for disadvantaged people, focus support on them don't rely on 'trickle-down'
41 Do we care what works? Understanding evidence and embedding in policy design is difficult – especially when goes against strong prior beliefs This is true for academics as well as policy makers There are large capacity and resource constraints, even in a country like the UK Robust policy development and evaluation can be high risk / low benefit, particularly from a local government perspective
42 The big questions Centralisers vs localisers
Strong views not supported by evidence No systematic pattern national/local effectiveness emerge (emp. training, business advice / finance) Overall policy effectiveness Everything works, just spend more Nothing works, don't spend anything Crucial questions? What can we learn about policy cost-effectiveness? What lessons generalise? How do we embed lessons in to decision making?
43 What works: The detailed picture
44 What Works Centre
What Works Centre for Local Economic Growth
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