Reducing inequality is complex and there is no one simple fix; it requires a long-term, multi-faceted approach, with significant levels of funding to be most successful, writes Jeffrey Matsu, CIPFA.
Resilience can be improved when governments embrace a whole systems approach to public financial management. International research by the Chartered Institute of Public Finance and Accountancy (CIPFA) shows the importance of acknowledging that policy outcomes are strengthened when there is deliberate coordination and where policy is understood within a wider context of social and operational types of resilience.
The Covid-19 pandemic has brought the importance of resilience into sharp relief. A country’s capacity to quickly recover from economic shocks can vary considerably around the world. Sound public finances can help recovery, as can strong networks and partnerships that enable the pooling of resources and ideas.
Numerous factors can contribute to stronger resilience. Political will, commitment and support across geographical scales are essential for change to happen and regional inequalities to be addressed. These factors can promote the longevity of political and institutional arrangements that are required for effective partnerships and understanding of others’ intentions. Local leaders can also play a key role in bringing stakeholders together to achieve common goals – especially through alternative approaches to local economic development. Strong anchor institutions have the potential to build capacity and momentum, while social cohesion can be advanced by citizen engagement.
Of equal importance to national resilience is the resilience of places at a sub-national scale. Rather than simply redistribute resources, the aim of public policies such as those outlined in the UK government’s Levelling Up White Paper should be to strengthen factors that contribute to resilience over time.
CIPFA has developed ten international case studies, in partnership with the University of Birmingham, that offer rich insights into successful governance structures, policy approaches and funding mechanisms that can strengthen resilience. For example, in Fukuoka in Japan we investigate the role of initiatives such as start-up support, lower corporation taxes and investment in cultural infrastructure. The city of Leipzig in Germany demonstrates how investing in cluster policy, innovation and structural change funds and small to medium enterprises can be important. The case study in Nantes, France, highlights the development of new high-tech industries and a focus on promoting culture, innovative public procurement policies and citizen participation to diversify the economy.
International research provides perspectives on a range of possible approaches under different governance structures. Although there are limitations on what policies can be successfully transferred across regions, the case studies highlight the features that can best promote more inclusive and sustainable growth. All the initiatives profiled have achieved significant economic and social successes. By considering initiatives that vary in their size, operations and impact, the case studies unveil strategies that can help lift productivity and living standards.
Three key themes emerge from our case studies that we believe can help to inform the work to turn Levelling Up from policy to practice:
- Funding should be sufficient, flexible and well-managed. Devolving decision-making responsibilities without adequate funding can make inequalities worse by favouring the ability of more affluent areas to attract business. Nantes and Leipzig are examples of how tax powers can be designed to prevent existing inequalities from getting worse in low tax areas by using state equalisation policies that take account of a local regions potential financial revenue. Although Saxony, the federal state in which Leipzig is located, raises one of the lowest tax revenues in Germany (€1,300 per resident in 2020), this was increased to €4,000 following the regional redistribution of tax revenues by the national government.To provide a more level playing field, financial mechanisms should encourage long-term flexible funding. The city of Cleveland in the US receives most of its funding from local taxes, while its flagship initiative to build community wealth and a more inclusive economy is based on a 20- to 30-year strategy. Moving away from a system of competitive bidding can also help ensure that funding is targeted to place-based needs. The city of Fukuoka is a great example of what long-term strategic planning of interventions and investments can achieve – the result is the highest start-up rate in Japan.
- Monitoring and evaluation are imperative. Understanding the impact that investments have over the lifetime of a project, rather than only at the bidding or approval stage, can produce more reliable estimates of return on investment. The famous Øresund Bridge linking Sweden and Denmark is an example of a successful bi-national infrastructure project with a diverse set of objectives. The Øresund Integration Index measures five fields of cross-border integration: labour market, transport and communication, housing market, business and culture. It increased from a score of 100 in 2000 when the bridge opened, to 170 by 2012.Conversely, an evaluation of the first five years of the Smart Cities Mission in India indicates that progress has been uneven across the cities targeted by the programme. Less than half of the projects have been completed, funding by the relevant state or local urban bodies has been lower than expected and inadequate skills all contributed to the setbacks. In response, remedial actions have been taken and the completion date extended from 2020 to 2023.
- Public finance professionals are key actors. They have an important role to play in promoting the independence of evaluations, given that some stakeholders may be motivated by short-term political gains. For policies to be successful, governments must recognise that regional inequalities are caused by a range of differences across income, wealth, education, health and social standing. When there is a split between the objectives of funders and local needs this can challenge administrative efficiency and the implementation of spending programmes.Comparative analytical tools can aid in the understanding of financial vulnerability and the ‘value’ of public expenditures. For example, CIPFA’s Financial Resilience Index presents a range of financial risk indicators comparing similar UK local authorities using publicly available data. Also, the CIPFA Value for Money Toolkit draws on 142 metrics from 49 different sources to link service delivery in a way that can promote efficiency and effectiveness. Governments can self-assess specific projects for economy, efficiency, effectiveness and equity using the recently developed GO Lab-CIPFA VfM toolkit extension.
National frameworks such as the UK’s Levelling Up will rely heavily on coordination with local growth plans if they are to succeed. The six foundations around which our case studies have been developed align closely with the UK government’s prioritisation of human and social capital. While technology and digitisation can spur innovation more rapidly than traditional forms of physical infrastructure, the examples make clear an argument for both – particularly when sequenced and scaled appropriately. Moreover, through partnership working and strong leadership, the international cities highlight how devolved decision making can enable poorer regions to compete with richer ones by offering favourable conditions and incentives for businesses.
Regional inequalities develop over decades. Resolving these complex issues requires an understanding of local conditions and the historical context they come from, alongside policy longevity and sufficiency. Through global initiatives such as the Sustainable Development Goals, governments have recognised the need to move beyond traditional economic metrics of success to allow for more holistic measures such as community wellbeing, sustainability and improvements in people’s everyday lives. These new metrics have increasingly become the focus of how major public sector investment projects are assessed in countries such as the UK.
Poverty exists everywhere. The even distribution of opportunities for good jobs and a better quality of life will require significant government intervention to meet all needs across the entire country. The role of public policy is to ensure that desired outcomes are joined up and clearly defined from the outset. Otherwise, there is little point of relieving pressure in one part of the system if it is simply transferred elsewhere.
Finally, expectations need to be managed. Change should be measured along a continuum, with an understanding that productivity may respond slowly to investments in areas most neglected and in need. There is no magic bullet. Policy levers will need to be engaged at all levels of the government and aligned to clearly defined local priorities.
The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.
