Blogger . 20/07/2010 09:45:20
By Professor Nigel Driffield, Head of the Economics & Strategy Group, Aston Business School
As the Birmingham Post reports, Birmingham city council, along with promotional bodies Marketing Birmingham and Locate in Birmingham, are looking to create a business ‘A-Team’ to bring in further foreign and domestic investment to the city. The newly appointed team could perhaps take a leaf out of the book of Manchester, and start by examining the evidence available locally. Too often local inward investment policy is a national evidence base, driven by a desire within Whitehall to focus on certain sectors. Locate in Birmingham have started well, by engaging some consultants to identify some sectors that are key for growth, from both domestic and inward investment. I sincerely hope that these are sectors where there is some local competitive advantage, not merely the same sectors that every inward investment agency always claim to be chasing, such as IT, films, biotech and green energy. While all of these are important sectors, likely to play a role in the UK economy, identifying sectors through top down policy seldom helps the local economy.
Perhaps the biggest challenge, and one that may well fall on the new team with the demise of AWM is to distinguish between maximising inward investment, and maximising the benefits of inward investment. Most academic studies, irrespective of their regional focus suggest that the employment created does not justify the size of the subsidy paid to attract firms, so the challenge for policy makers is to seek inward investment that will embed in the local economy, have high levels of local input linkages, and contribute to the local skills base through training. This is easier said than done, and as UKTI has recognised nationally, an empirical question. This is also likely to differ from region to region so the team will have to identify what is good for Birmingham. The final challenge for the new team is that over the last 15 years, high proportions of inward investment have been funded by debt, and this funding is no longer available. Equally, investment from the USA is likely to decline as American firms retrench into home production. Historically this is the main source of technology transfer into the UK.
Both national and local policy makers in the UK are then turning to cash rich firms from Asia, but they are looking to either acquire UK firms or establish themselves within Europe to protect relative new sales at a time when demand is uncertain. Investment from Asia is still strong if firms believe demand is there, but these firms create jobs with below average pay. Overall, the agencies concerned are right to seek to establish an “A team” but the focus must not simply be on selling the city. With budgets under pressure, and an emphasis on value for money, the new team will have to take all of these issues into account, and examine the best available evidence in deciding on target sectors, and even target firms.
To give an example of what may be done, a team of academics from Aston Business School, working with the Manchester City Region identified a number of sectors, some traditional, some less so, that were in a position to benefit significantly from inward investment, building on existing competitive advantages. Similar work for Birmingham would help to build a new evidence base, and give the newly appointed team a flying start.