Economists in Regional Development

In this, the latest in our series on the work of economists in various situations, Nigel Jump, Head of Economic Intelligence / Chief Economist with the South West of England Regional Development Agency, describes the expanding role for economic analysis in addressing regional disparities within the UK economy.1

The English RDAs
The English Regional Development Agencies (RDAs) opened their doors for business in April 1999. As they pass their sixth birthday, their work in building economic development is gaining credibility by focusing on delivery and leadership in raising productivity and addressing inter and intra regional disparities. Most regional development economists would argue that these institutions are still in ‘the short run’ with respect to determining the RDAs’ real, sustainable impact on their regional economies. Given the initial time needed for capacity building, the lead-in involved in significant project development and the inevitable lags in measuring and evaluating final impact, it may be some time yet before the outcomes from the RDAs’ work can be assessed sensibly. Nevertheless, the RDAs are changing the nature of the regional economic debate by providing a focus for strategic partnership and priority setting, as well as delivering tangible and intangible benefits to their communities and businesses.

To a greater or lesser extent, all RDAs are involved in community regeneration and sector or ‘cluster’ development, encouraging innovation and entrepreneurship, and the accumulation and dissemination of skills and knowledge. By undertaking and encouraging a range of productive investments that imperfect markets are failing to address, the RDAs hope to boost competitiveness, adding value to economic output and employment.

The RDAs are charged by central government with helping their regions to achieve sustainable development – balancing economic, social and environmental progress to raise the living standards of their regions’ citizens. To this end, they are tasked with supporting central government in its aim of narrowing the UK’s international productivity ‘gaps’, partly by addressing the disparities between English regions — closing ‘North-South’ and ‘East-West’ divides in broad economic performance without restraining the ‘leaders’.

Regional economic strategies
In 1999, one of the first jobs the RDAs faced was to produce, together with the widest possible range of regional partners – Government Offices, Regional Assemblies, local government, business and sector groups, trade unions, voluntary and community groups et al – a Regional Economic Strategy (RES). Based on a thorough analysis of the ‘state of the region’, the RES was intended to provide a strategic framework that could focus regional development over the decade ahead. By highlighting productivity weaknesses and areas where public intervention might address market failure and inspire better economic performance, the RES lays out clear strategic objectives and policy aims. It identifies who, in the region, is responsible for delivery and evaluation and sets broad goals of success.

Each RES is intended to be a truly regional document, owned and acted upon by all institutions concerned with regional development in each of the nine English regions. The RES forms the basis of each RDA’s own Corporate Plans in which the policies and actions to be adopted to deliver the parts of the RES over which the RDAs have influence are specified. In 2005, many RDAs, including my own region in the South West, will be leading the work of all their regional partners to review these important strategic documents.

Why economics and economists?
Given the brief time in which they have been operating and the long-term nature of their work, the RDAs’ ‘success’ is difficult, as yet, to measure. Nevertheless, it has become clear that the RDAs will achieve more if their activities are based on a strong understanding of the structure and trends of their regional economies: the characteristics, functionality and relationships, within the region, between it and other regions and, indeed, internationally. Increasingly, therefore, they have accessed professional economic advice from a range of sources, using private sector research consultancies and other public and private sector sources to provide raw data, analysis and advice on a vast array of economic development topics.

Over time, the RDAs have sought to bolster this largely ‘bought-in’ resource with internal expertise in economics to help their own executives, case officers and partners to focus and agree on the economic realities and priorities of their region and to make resource allocation decisions more efficiently and effectively. Thereby, the RDAs hope to better appraise risk and return and opportunity costs and to evaluate effectively the projects they are delivering, sponsoring, supporting and planning.

The danger for RDAs is that their objectives can be interpreted very widely by partners and pressure groups. From national government to District Councils, from the largest principal urban area to the remotest rural ‘super output area’, from the larger multinational to the smallest SME, demand exceeds supply for the RDAs’ financial and workforce resources. The need to choose objectively and to be able to justify choices publicly means a growing requirement for decision-making based on sound principles of resource allocation and verifiable evidence. The RDA economist occupies an important analytical position in this process.

At the heart of the new regional context, is a drive for RDAs to focus on the very fundamentals of what economics is — analysis of scarcity and choice and effective and efficient resource allocation. Economics and economists have a major role to play in generating evidence based decision making in RDAs: actions that optimise added value in the use of the Agency’s (tax payers’) money for the benefit of all stakeholders in the region.

The range of work
RDA economists are themselves a scarce resource. Apart from London, where the numbers of professional staff and budgets are relatively significant, there are usually no more than one or two economics professionals in each region — either directly employed by the RDA or closely aligned through the Regional Observatories. (Regional Observatories exist to provide economic and other intelligence to regional partners. Their ‘ownership’, structure and focus vary widely from region to region.) Contrast this with the scores of professional economists in key central government departments.

Accordingly, RDA economists have to spread themselves over a wide range of work. This makes the job extremely interesting but also sometimes frustrating. For colleagues, partners and clients, there is a potential, indeed temptation, to involve “the economist” in every issue, whether it be international trade, central government and inter-regional collaboration, regional sector development and local regeneration projects, and/or internal RDA processes of growth and change. My first motto, therefore, is ‘economics is everything but not everything is economics’. RDA economists have to think carefully about their own opportunity costs and how to optimise their own resource allocation.

In broad terms, the RDA economist acts as an analytical anchor for the schemes, and dreams, of colleagues and partners. He/she is a ‘critical friend’ in assessing project outputs and outcomes, and an ‘expert witness’ in the evaluation of strategic plans and policy delivery. Multi-tasking is a pre-requisite, as is an ability to communicate with non-experts, both inside and outside the RDA, whilst defending rigorous professional standards. My second motto is ‘economists are brilliant but not perfect.’ We have a real contribution to make in ‘raising the game’ of regional development professionals, without usurping their roles or claiming too much for the scientific art that is economics. In my experience, the English RDAs are staffed by a wonderful mix of people with public and private sector and business and community experience. The economist is an increasingly essential, but not necessarily sufficient, element in the exciting, but still experimental, field that is current regional development in England. My third motto tries to encapsulate this reality: ‘Economic analysis is vital but should not be the only word.’

Advice
Economists in regional development provide professional, objective advice to a wide range of ‘clients’. Most importantly, this involves briefing members of the RDA Board and Executive Team. The economist will provide interpretation and explanation of events, structures and statistical trends, which may range from developments in the global oil market, through the ONS’ latest revisions to regional GVA (gross value added) statistics, to changes in visitor numbers to a local tourist venue. Importantly, they will need to explore policy impact on market and other incentives likely to affect household and business behaviour.

At another level, the economist will help colleagues to draft and tender research, compile strategies and satisfy government consultation requests. The economist will answer public, press and official enquiries and often will promote external relations through a range of publications and presentations delivered across the “patch” to citizens, businesses, politicians and civil servants – from Whitehall to Town Hall. The RDA economist may be involved directly in data collections by regional surveys.

Analysis
In helping to develop regional strategies and policies and in supporting the delivery of real benefits to the regional economy, the RDA economist will have to analyse trends, structures and incentive-led behaviour patterns in the global and national economy, international markets, individual regional and local markets, and industrial sectors. This will involve the use of a range of research, data and models — in themselves often unreliable, untimely or imprecise and in need of careful interpretation.

The RDA economist will conduct relationships with other economists across government, the private sector and Higher Education. He/she will gather, filter and communicate the essence of others’ analysis to colleagues and partners. He/she may often manage contracts related to specific economic intelligence and research, directing and interpreting contract tenders and critically analysing the results of such work.

Assessment
The RDA economist will probably have to appraise individual projects at various stages of their development – from concept and strategic review, through technical appraisal, to monitoring and evaluation. Careful interpretation and deep understanding of official and other statistical sources and of methods of cost-benefit and impact assessments is vital.

Researchers, partners and colleagues vie to convince the RDA that their ‘scheme’ is the best option for addressing a particular ‘market failure’ in the region. The economist plays a role in guiding the RDA to better choices between uncertain and risky options for investment in human, physical, resource, social and process and ‘brand’ capital.

It is important to test claims about the benefits that proposed and completed investments will generate. Colleagues’ and clients’ calculation and interpretation of net added value can be imprecise, indeed biased. There can be an important ‘training’ role for the RDA economist in conveying the meaning of appraisal concepts such as benchmarking, leakage, substitution, displacement and ‘additionality’. The provision and assessment of direct, indirect and induced multiplier effects through input-output and other techniques and of econometric or other forecasts are key elements of the RDA economists’ role.

General questions
The following general questions highlight some of the kind of issues on which a regional development economist might be expected to provide analysis:

• What are the population dynamics of your region?
• What is the industry mix, how is it changing and how does it affect relative productivity?
• How do the sub-regions and urban and rural communities relate to each other?
• What are the spatial priorities of the region, particularly for housing and transport?
• Are there labour skills ‘gaps’ in the region?
• Are local labour markets working effectively?
• Is the region entrepreneurial and innovative?
• How can we develop knowledge networks that promote sustainable, long-term, growth?
• Is the region open to international trade, inward investment and competitive on R&D accumulation, dissemination and use?
• Are the levels and quality of investment in the transport and communications and other infrastructure adequate?
• Should we help the ‘best to be better’ or the ‘worst to catch up’ or what distribution between the two?
• Should we concentrate resources on a few large schemes or spread them as broadly as possible?
• What is the social and environmental impact of our actions?
• What is the nature of intra-regional disparities on productivity and how do they contrast with equivalent differences in disposable incomes?
• Does the geography of the region affect economic performance?
• Do businesses have sufficient access to capital finance?

Project rationale
With regard to specific projects, the economist may be involved in the following appraisal and evaluation issues:

• Is this work closely linked to government targets and the priorities of the RES and the Corporate Plan?
• Are industrial sector and geographical area priorities being adequately considered?
• Will this action promote regional productivity growth, narrowing intra and inter-regional disparities?
• Is a market failure being addressed which justifies public intervention?
• What are the alternative options/opportunity costs of a project?
• What are the associated risks and returns?
• Do we have a benchmark level and trend against which to appraise projected, and evaluate realised, outputs and outcomes?
• Have issues of leakage and substitution, ‘additionality’ and displacement been adequately profiled?
• Have direct, indirect and induced multipliers been factored in?
• Can we estimate the real net value added of outputs?
• Does this investment enhance factor sustainability and productivity?
• Is it spatially consistent and environmentally sustainable?

Conclusion
Given the inherent imbalance between excess demand and limited supply, the RDA economist seldom has a normal day.

• A breakfast presentation to regional entrepreneurs and other partners may be followed by a request for economic data and interpretation from a colleague before dealing with research consultants and writing a briefing for the Chief Executive.
• Representing the RDA at/for a government department consultation on productivity may be followed by appraisal of a specific tourism project and participation in an internal working group looking at improving planning processes.
• An article for the regional press may be written or a radio interview conducted before profiling expenditure on an intelligence acquisition for the accounts department and giving training to case officers on how to interpret and use the Regional Accounts in evaluation of project schemes.
• Meanwhile, a strong evidence-base and analytical summary for the upcoming RES review has to be constructed, a venue for future meetings with various Professors of Economics from the region’s universities has to be booked and HR is asking you to attend interviews for a new ‘Best Practice’ adviser.

Never a dull moment — the work is challenging and exciting. You have to think on your feet yet remain anchored in strong analytical foundations to provide rigorous and consistent advice. You have to be open to a range of pressures from supporters and opponents, strongly aware of the wider public relations role of the Agency as well as local political sensitivities to individual projects. In return, the rewards are many in terms of involvement in a growing field: regional development that has a real, positive and hopefully sustained impact on the lives and well-being of businesses and communities throughout England.

Remember the mottos:

Economics is everything but not everything is economics.
Economists are brilliant but not perfect.
Economic analysis is vital but should not be the only word.


Note:
1. Nigel Jump’s views are personal They do not necessarily cover all aspects of all economists’ activities in every region and do not imply an agreed job description for his own or any other RDA.

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