The overall winner of the Young Economist of the Year has been awarded to Henry Wilson-Litt of Harris Westminster Sixth Form School for his submission on ‘Greater Lincolnshire: A Plan for Economic Development’. His submission covers the topic of UK’s ‘levelling up’ agenda, in particular how effort will affect Greater Lincolnshire.
His submission is available to read below.
Greater Lincolnshire: A Plan for Economic Development
By Henry Wilson-Litt
Greater Lincolnshire is a ceremonial county in the East Midlands with a population of around 1.1 million. Since deindustrialisation the area has suffered due to the prominence of industrial heartlands in places like Scunthorpe. This has led to lower productivity employment, less innovation, and makes Lincolnshire a less attractive region for FDI. Gross Value Added (GVA) is 72.7% that of the UK average despite having an employment density of 0.9 to the UK’s 0.87. This indicates the issue lies not in low levels of employment but the productivity of that employment. Hence, this plan with focus on Lincolnshire’s productivity issues by targeting three areas. This being skills, infrastructure, and technology/green industry. Despite this Greater Lincolnshire has several economic advantages. It has a long coastline leading to high density of port areas and provides scope for offshore wind investment. Additionally, the University of Lincoln has strong R&D working in partnership with industry. Grimsby has the largest port in the UK by haulage and generates the largest amount of renewable energy by solar, wind, biomass, and landfill gas in England. Policies proposed in this development plan will attempt to unlock the economic potential of the area by exploiting the scope for skill-intensive, high GVA, low carbon manufacturing. It is important to note here I will use the regional economic framework of ‘New Economic Geography’ perhaps given most notably in Krugman (1991) for theoretical support in my analysis.
First is infrastructure investment. One of Greater Lincolnshire’s constraints on economic development is poor infrastructure capacity leading to transport bottlenecks which raise transport costs for local enterprise. Until recently, Greater Lincolnshire was the only English county to not have a motorway and still has limited access to dual carriage ways, relying on single carriage way A roads and local B roads. This will constrain local enterprise as potential haulage that can be transported is low thereby reducing the incentive to employ large haulage lorries and thereby reducing the exploitation of technical economies of scale as the market size is low. Krugman and other economists describe the ‘home market effect’ as a cause for industrial clustering as firms move to areas a large market to exploit economies of scale and have access to specialist suppliers. Infrastructure investment would widen the extent of the market. Additionally, transport bottlenecks reduce the attractiveness of the areas for FDI as foreign firms are deterred by high transport costs. This is especially damaging as foreign multinationals have been shown to improve outcomes for local wages and firms (Setzler and Tintelnot, 2021) as they tend to be skill augmenting and produce technological spill-overs. Thereby, investment in infrastructure will aid in relaxing these transport bottlenecks allowing firms to exploit internal economies of scale and attracting MNC’s. Policies to promote infrastructure investment include direct public spending, public-private partnerships, and a relatively new policy being ‘freeports’. There has been calls for freeport status for North Lincolnshire, meaning favourable investment tax credits could incentivise private investment in infrastructure as returns to capital in that areas rise. As infrastructure is a quasi-public good there is a risk of under provision by private firms, justifying public spending.
The second area of interest is skills and education. Many business leaders in Greater Lincolnshire have said that the largest constraint on business growth is a skill shortage. Furthermore, young people account for 29% of employment seekers compared to 25% nationally. Those aged 16-24 and 25-34 have fewer level 3 and 4 qualifications that the national average. Thereby, there appears to be labour market inflexibility due to occupational labour market immobility. Another centripetal force outlined in New Economic Geography is ‘thick labour markets’. This means firms are attracted to areas where there is an existing pool of skilled labour in a particular industry. Policies to address this may include greater public provision of vocational education as Greater Lincolnshire only has 6 colleges of further education. This may provide the skills demanded in industries such as engineering, green technology, and steel. Manufacturing and Engineering already accounts for £3.3bn (20%) of North Lincolnshire’s output, employs 43,000 people, and makes up 42% of exports. With MNC’s such as Siemens, Phillips 66, and Tata Steel having operations in the areas. This also provides scope for public-private partnerships in these sectors as private employers require skilled labour. In 2012 Siemens set up an engineering school with the University of Lincoln, showing precedent for this type of venture. Policy in the areas skills should thus promote cooperation between public and private bodies through subsidies and tax credits.
The third area is technological policy and green manufacturing. North Lincolnshire already has a low carbon sector worth £1.2 bn and a long coastline providing areas for offshore wind. Productivity in the manufacturing sector has declined 12% since 2012 and hence green industry should be seen as a sector in which the scope for technological innovation is great potentially causing a recovery in manufacturing productivity. Additionally, 27% of labour productivity growth is attributable to private investment in innovation with spill-over benefits generating a social return of 20%-50%. This indicates technology policy is crucial in boosting GVA with green energy being an infant sector the scope for such investment is great. Policy to address this may include promotion cooperation between public research bodies and private manufacturers in R&D through tax credits and subsidies. Furthermore, the government may want to cover directly a fraction of the cost of some green investments for private firms.
To conclude, many of the policies prescriptions are similar and this is because green industrialization requires a ‘big push’. This is consistent with the ideas of economist Paul Rosenstein-Rodan who argued that as transport, industry, technology all complement each other investment in them must occur simultaneously to be successful. This is important for this development strategy as ultimately skill intensive green sectors will only thrive when they face low transport costs, skilled pools of labour, and incentives to be dynamically efficient.
References:
Krugman, P., 1991. Increasing Returns and Economic Geography. Journal of Political Economy, 99(3), pp.483-499.
Rosenstein-Rodan, P., 1943. Problems of Industrialisation of Eastern and South-Eastern Europe. The Economic Journal, 53(210/211), p.202.
Setzler, B. and Tintelnot, F., 2021. The Effects of Foreign Multinationals on Workers and Firms in the United States. The Quarterly Journal of Economics, 136(3), pp.1943-1991.
Data from lincolnshire.gov.uk
