4 Theorising regional planning
4.2 Regional growth and development
4.2.1 Structuring the discussion
Regional development has both short-run and long-run dimensions. All regions and sub-regions experience short-run ups and downs in prosperity, and some of the techniques for analysing such changes are discussed in Chapter 8. But the long-run nature of the development of regions, measured, for example, in terms of income, output, population change and employment, can vary widely, and some regions may experience long-run decline while others may have decades of relative prosperity. Similarly, within regions, certain sub-regions may be con- siderably more prosperous than others. What factors account for such varia- tions?
It is generally recognised that regional growth and development may result from either exogenous or endogenous determinants – that is from factors exter- nal or internal to a region, or more usually from some combination of both. A key external determinant is the level of demand for the products and services of a region. Internal determinants relate more to the supply of factors in the region, such as the quality of the workforce, local innovation systems and trans- port and communications. There has been an increasing recognition of the supply side of regional growth, and a bottom-up focus on some of the key actors involved in the regional development process.
The evolving approach to explanations of relative levels and rates of regional growth and development is discussed here in two stages. The first takes a brief overview of some of the traditional/classical theories of regional growth – iden- tifying external and internal, aggregated and disaggregated, and economic and non-economic dimensions. There is also discussion of concepts which seek to explain whether regional growth is convergent or divergent. The second stage focuses on more contemporary determinants of competitive regions, drawing for Theorising regional planning: substantive 63
example on the work of Krugman (1991), Porter (2002, 2003), Parkinson (2004) and others, and covering factors such as innovation, economic diversity and strategic decision-making capabilities.
4.2.2 ‘Traditional’ theories of regional growth Aggregate growth models
These are models which are spatially aggregate, abstracting from space and looking at the region as a whole. Some models focus on growth from the inside, such as the sector theory (Clark 1940) and the related stages theory (Hoover 1948). Both seek to explain regional growth in terms of an evolutionary pro- gression of a region’s economic structure from one based on primary sectors, through secondary manufacturing sectors to one based on tertiary/services sectors.
Other models focus on growth from outside, recognising that regions are not vacuum sealed against all external impulses, but are open to the flows of trade from the outside world. The export base theory (North 1955; Tiebout 1956) provides the classical model, which sees the level of external demand for the products of a region’s export industries as the critical determinant of regional growth. A region’s growth is determined by the exploitation of natural advan- tages and the growth of the regional export base which are in turn largely influ- enced by the level of external demand from other regions and countries. The income from export sales will lead to the development of residentiary activities, capital and labour movements, the development of external economies and future regional growth. In our globalising world the external, national and international environment for a regional economy cannot be ignored. Inter- national economies are becoming increasingly open; there are also major struc- tural shifts towards high-tech industry and consumer and producer services. But will export growth always lead to regional growth, and is export growth solely determined by external demand? If, for example, there are constraints on the necessary infrastructure to service growth or on local business innovation, a region may not benefit much from the external stimulus. As such internal factors can be of considerable importance and are intertwined with the external determinants.
Another strand of theory in ‘good currency’ in the 1980s was that of long waves of regional development (Marshall 1987). Kondratieff identified in the 1920s ‘long waves’ in the world economy, with a cycle of about 50 to 60 years.
Schumpeter (1954) emphasised the role of technology in long-wave formation.
A combination of ideas led to the postulation that the advanced industrial nations had evolved through four Kondratieff cycles, before entering the fifth in the 1980s/1990s associated with major innovations in new technology – micro- electronics, computing, bio-technology and similar industries. Unfortunately, long-wave theory cannot clarify the regional locational requirements for inno- vative development; it merely provides a useful descriptive framework.
A disaggregated approach – industrial structure analysis
The models discussed above do recognise the importance of industrial structure in the process of regional growth, but their aggregate nature can hide important regional variations. Industry is not homogeneous and some industries grow much faster than others. Similarly some regions grow faster than others. As industrial structure varies from region to region, it is tempting to draw the obvious conclu- sion that there is a causal relationship between industrial structure and regional growth. Industrial structure analysis examines this relationship. Pioneered first in the UK Barlow Report (see HMSO 1940 Appendix II) it was subsequently redis- covered by Perloffet al. (1960) in the USA, and gained popular application in the UK in the 1960s/1970s under the new title of ‘shift-share analysis’ (see, for example, Stilwell 1969). It has also been subject to considerable criticism (Stil- well 1970) partly because it is less a regional growth theory and more an analyti- cal technique. Yet it does still have much to commend it.
The approach requires the isolation of the effects of a region’s industrial structure on its growth over a particular period of time, using a representative variable – normally employment. Total regional employment growth (G) is divided into share (N) and shift (P, D) components, as follows:
The ‘national share’ component (N) represents the amount by which regional employment would have grown if it had grown at the national rate over the study period. This is the norm for the region from which the shift deviations can be measured.
The ‘shift’ component represents the amount by which the regional growth deviates from the national share, being positive in prosperous areas and negat- ive in depressed areas. The net shift can be subdivided into two further com- ponents:
The ‘proportionality shift’ component (P), sometimes known as the ‘structural’
or ‘industrial mix’ component, measures the amount of net regional shift attrib- utable to the mix of industrial sectors in the region. Hence the more nationally fast-growing sectors in the region, the more positive this component will be.
The ‘differential shift’ component (D), sometimes known as the ‘locational’ or
‘regional’ component, is the remainder. It measures the amount of net regional shift attributable to a region’s internal factors – such as good workforce skills and transport systems. It will be positive for a region with locational advantages and negative for one with disadvantages.
A UK application by Stilwell (1969) showed that in the prosperous South East region in the 1960s, only two-thirds of the regional employment growth (G) could be explained by the national share component (N). The remaining positive deviation was explained by the proportionality shift component (P) only, which suggests that the main reason for growth was the mix of nationally growing industries in the region. Indeed, a small negative differential shift factor (D) suggests that some locational factors in the region, such as conges- tion, may have actually been inhibiting the growth potential reflected in the industrial mix. For the North West region, the analysis presented both negative Theorising regional planning: substantive 65
differential and proportionality shift components, as reflected in the poor growth performance of the region in the 1960s.
Convergent or divergent regional growth?
The question of whether the gaps in regional prosperity will widen or narrow over time is one of considerable importance to the regional planner. Factor flows between regions (for example, the movement of capital to exploit lower costs in depressed regions) and the development of diseconomies of scale in the prosperous areas, could in theory lead to convergence. In practice, however, convergence trends may be limited by the immobility of factor movements between sectors and regions, and the failure of diseconomies to have impact on the growth of the prosperous regions. Other, more hybrid, regional growth theo- ries which clearly recognise that regional growth may be more divergent than convergent are the centre-periphery theories of Hirschman (1958), Friedmann (1967) and Myrdal (1957). Figure 4.1 illustrates the general arguments behind such theories. Region A initially develops faster than region B because it pos- sesses certain natural and/or man-made advantages. However, contrary to some growth theories, this initial divergence may not be self-righting, and indeed the process may be cumulative, with ‘the rich getting richer and the poor getting poorer’.
Myrdal explained this process of cumulative causation in terms of spread and backwash effects. The spread effects are those forces favouring conver- gence between the rich and poor regions. As the rich region grows it may demand more products from the poor region thus stimulating its growth. Dis- economies of scale may also affect the prosperous region. However, Myrdal believed that such spread effects would invariably be more than offset by
REGION A (‘Rich’ region) Growing resource base,
market and economic potential
Declining resource base, market and economic
potential
Attractive to industry and
labour
Unattractive to industry and
labour REGION B (‘Poor’ region)
‘Virtuous circle’ ‘Vicious circle’
Figure 4.1 The process of regional cumulative causation.
backwash effects. The increased demand for peripheral goods may not mate- rialise if the peripheral region’s goods are primarily those with a low income elasticity of demand, such as agricultural goods. In addition, and of particular importance, the selective out-migration of capital and skilled labour from the poor region to the rich region may do more harm than good, reducing the ability of the poor region to compete. As already noted, the diseconomies of the rich region may also have little impact being offset by other economic and social benefits.
Other theorists have supported the concept of divergent regional growth on the basis of the control, as much as the structure, of industry. For example, Holland (1976) argued that the fundamental cause of regional imbalance was capitalism itself, and especially the rising power of multi-national enterprises (MNEs). He saw the latter as concentrating in the most prosperous regions of a country, and remaining there impervious to policy measures to relocate them, and threatening to leave the country altogether if they did not get their own way. This may be an over-rigorous assessment of the activities of MNEs, and many have relocated some or part of their activities to the problem regions. But this may bring its own problems of greater external control and dependency in a peripheral economy – with possible political implications (see Firn 1975, in relation to Scotland).
Social and political factors in regional growth
As noted in the previous section, political and social factors are of considerable significance in regional growth and development, but they have had a low profile in traditional theories. However, there have been some significant con- tributions and these are briefly noted here. Klaassen (1968), for example, noted the importance of social amenities in regional economic growth. On a slightly different tack, Pahl (1970) argued that an individual’s location in a spatial sense fundamentally influenced his/her life chances because of constraints it imposed on access to social facilities, such as education. From practice, the Northern Region Strategy Team (NRST 1975) drew attention to the greater proportion of low socio-economic groups in the North compared with the national average, and with the reverse situation in the South East. Factors such as these may limit the proclivity for entrepreneurship and reinforce social and occupational immo- bility, which may themselves limit indigenous self-help and hinder the adoption of new concepts and technologies.
A contemporary discussion of the role of social factors in economic growth and regional development (Regional Studies Journal 2005), reinforces the importance of ‘social capital’. The term ‘social capital’ is a fuzzy concept, but it has been defined as ‘the networks, norms, relationships, values and informal sanctions that shape the quantity and co-operative quality of a society’s interac- tions’ (Performance and Innovation Unit 2002 p. 5). It can involve horizontal and vertical associations, links within groups (‘bonding’ social capital) and cross-cutting links (‘bridging’ social capital). Storper (1995) stresses the Theorising regional planning: substantive 67
importance of ‘untraded inter-dependencies’ (such as networks of trust and co- operation), which may be important in explaining the relative competitiveness of regions and sub-regions, as will be discussed further below, and in Chapter 8.
Political factorsare of course central in regional policy making, and regional policy decisions are political decisions about the spatial allocation of resources.
Some traditional theories made limited inroads to building political factors into regional growth theories. For example, additional to Holland’s ideas in the pre- ceding section, Kohr (1971) argued the principle of peripheral neglect – with remote regions being seen as out of sight and out of mind of central decision makers. Hechter (1975) argued that regions, such as Wales, may be treated like internal colonies within a nation. The implications of such arguments are the need to manipulate political as well as economic space to generate regional growth, giving greater political weight to the problem regions. Thus regional policy decisions often reflect a trade-off between economic efficiency, equity and political expediency, and this should be recognised in any discussion of regional growth. We return to a more contemporary assessment of the politics of regional planning in later chapters.
4.2.3 Competitive regions – a contemporary approach Overview – competitive regions and cities
Since the 1980s there has been a growing recognition of a range of key determinants in nations, regions and cities which help to explain their relative competitiveness and economic performance in the world. These determinants include a range of largely supply-side factors such as the innovative capacity and the quality of the workforce of an area. These are often discussed with particular reference to the changing nature of economies, with the marked shift towards high-tech industries and knowledge-intensive businesses (see Hall and Markusen (1985) for an early example of high-tech location factors). Some of the key proponents of the competitive approach – such as Krugman, Porter and Parkinson – have already been noted above. An important element in much of their writing is the central role of cities/city regions within the wider context of regions and nations, and the importance of innovative capacity.
Krugman (1991) has stated that ‘one of the best ways to understand an economy is to study its cities’. Similarly, Porter has highlighted how the geo- graphical clustering of industries helps to explain both the competitive perform- ance of those industries, and the success of the regions and cities in which those clusters are located (Porter 1998, 2003). But what are the key determinants of the economic competitiveness of regions and their cities? Porter’s analysis of the structural and process factors underpinning successful national and regional economies has been very influential. His fundamental argument is that com- petitiveness is based on productivity and that innovation underlies productivity – ‘a region’s or nation’s standard of living [wealth] is determined by the produc- tivity with which it uses its human, capital and natural resources. The appropri-
ate definition of competitiveness is productivity’ (Porter 2002). In the context of globalisation, advanced economies need to concentrate on high value-added products and services and to be innovative in doing so (Porter 2003).
Parkinsonet al. (2004), in their comparative study of what makes European cities competitive, reviewed quantitative data on 50 large cities and canvassed the views of key stakeholders in 30 of the cities. Five factors were consistently identified as the main drivers of competitiveness. These were: innovation systems, quality of the workforce, economic diversity and specialisation, connectivity and stra- tegic decision-making capacity. Subsequent work on the major UK ‘State of the Cities Report’ (ODPM 2005d) reinforced these findings. The Office of the Deputy Prime Minister’s (ODPM) report reinforced also the main thrust of the competitive approach:
The new conventional wisdom is that nations, regions and cities have to be more competitive to survive in the new marketplace being forged by global- isation and the new information technologies. Within government, inter- est has grown in the regional foundations of national competitiveness. The government has focused on the competitiveness of the country’s regions, cities and more recently, city regions, as part of its own aim to improve the productive and innovative performance of the national economy. Sim- ilarly, the European Commission argues that the improvement of the com- petitiveness of cities in Europe’s lagging regions is vital to the pursuit of social coherence.
(ODPM 2005d) Figure 4.2, drawn from the State of the Cities Report (ODPM 2005d), high- lights the key drivers of competitiveness – of relevance as much to regions as to cities. It also makes interesting reference to the underlying theories/concepts.
The links with some of the traditional theories, such as export base and evolu- tionary theory, are evident. Others, such as cumulative causation, are also noted in the report. The following section highlights variations in UK regional com- petitiveness. This is then followed by a brief exploration of the key determin- ants/drivers, and other relevant concepts/theories, such as clustering.
Variations in UK regional competitiveness
Table 4.1 provides an index of UK regional competitiveness, as assembled by Huggins (2003). The underlying three-factor model uses (1) inputs – business density (firms per capita), knowledge-based businesses as a proportion of all businesses, and overall economic participation (economic activity rates); (2) outputs – productivity (GDP per capita); and (3) tangible outcomes – level of average earnings (full-time wages) and rate of unemployment. It reveals very clearly the continuance and deep-seated nature of the north–south divide in economic fortunes in the UK, with the three GSE regions providing the driving force in the UK economy.
Theorising regional planning: substantive 69
This divide is verified at the more city region scale (using Travel to Work Areas – TTWAs) by findings in the ‘State of Cities Report’ (ODPM 2005d).
For example, this shows average weekly household incomes (adjusted for housing costs) and GVA per capita substantially higher in GSE TTWAs, such as Oxford, Reading and Cambridge, than in the nation at large. Visible exports per capita are also much higher in these locations. But for most indicators there are also examples of intra-regional variations – including prosperous pockets in the problem regions (see Chapter 8, Figure 8.1).
Key determinants of competitive regions
For knowledge-driven economies such as the UK, the most significant driving forces are ideas, innovation, highly-educated people and risk investment (ODPM 2005d). Key elements tend to be highly concentrated in a limited number of city regions, enabling them to gain competitive advantage and to export into world markets. Data on innovation is limited, but patent applications and levels of investment and venture capital provide a start. Patent applications are particularly high in the Oxford, Cambridge, Aldershot, Reading, Ipswich and Bristol TTWAs (Figure 4.3(a)). Begg (2002) sees ‘investability’ (how investable an area is) as the key to competitive regions, and determined by public capital (such as transport infrastructure), factor markets and a range of social and gov- ernance factors.
The quality of the workforce is closely associated with the maintenance of an innovation system in a region. The importance of the variations in human Figure 4.2 Conceptualising urban (and regional) competitive performance. (Source:
ODPM (2005d).)