THE JOURNEY AHEAD FOR 2017
Selecting the right title for this review and forward forecast touches on the thoughts that J.R.R. Tolkien might well have struggled with when starting to write the Hobbit series. Never have we been on the cusp of so much uncertainty – a journey into the unknown.
What is clear is that the South West can no longer shelter behind UK PLC to cope with the positive or negative effects of the global markets. What is equally clear is that the South West is as vulnerable as any regional economy to the “Race against the Machine”. The British Retail Consortium predicts that, by 2025, a third of the 3 million jobs in the retail sector will have gone. The Bank of England’s most recent study suggests that Computers don’t just make workers more efficient, they eliminate people from the chain. Potentially 15m of the UK’s 30 million jobs could be at risk to automation. Cast your minds back to the then radical comments of Digby Jones who, in 2011, said: “In less than 10 years there won’t be any work for unskilled people in the UK”. The problem now is that it is not just low-skilled jobs that are vulnerable.
2016 started in turmoil as financial markets everywhere panicked that the Chinese Growth Engine was seizing up. By mid-summer, the UK had shocked the Global markets by voting to leave the world’s biggest trading bloc. If that was not enough, the world’s largest economy then elected a President who seems hell-bent on starting an all-out trade war with the world’s second-largest economy, China. Notwithstanding all of this, 2016 financial markets closed in a stable condition with the global economy recording another year of reasonable growth. The FED, against trend, has had the confidence in December to introduce a second rise in US interest rates.
Against this background and knowing that there are some fundamental problems around the business corner (rising inflation, rising fuel prices, further reductions in Local Government spending, massive uncertainty regarding BREXIT, devolution etc.), what are the challenges and opportunities for the South West economy?
Be comforted that some things have not changed and are unlikely to anytime soon. Delivering infrastructure efficiently is a national disease we cannot seem to cure. Yet more delays for the upgrade of our fragile road network – a source of great joy to Highway Consultants. Hardly a day goes by without a report of a partial closure of our economic lifeline the M5. Alarming increases in the impact of our unpredictable weather systems mean that both Cowley Bridge, Exeter and Dawlish Sea Wall are still accidents waiting to happen. All these are issues we have battled with, to no avail, throughout 2016.
Perhaps the low point, however, was the official recognition (National Audit Office) that Network Rail is not fit for purpose. The latest revelations that the Great Western line electrification will be indefinitely deferred in four sections because the cost budget has tripled to £2.8bn (and rising). This puts the full cost of modernising the Great Western route up to £5.6bn. This escalation means that the DfT are now considering whether these works represent value for money.
Put this into context, just across the Channel, the French built 2 new airport runways in 12 months. Also, from making a decision to build a dual-carriageway from Bordeaux to Toulouse (to transport wings for Air Bus), work started in 3 months.
Whilst there may not be much we can do to improve the delivery of essential infrastructure, there are, however, a number of areas where we are in control of our destiny.
Take for example Productivity. The South West must stand up and be accounted for on this issue. Our productivity is 10% behind the UK average. Worse still, the UK is 20% behind France and Germany and 30% the US.
UK productivity losses in the 1960s and 70s were followed by 20 years of reasonable progress (1.9% pa). We almost kept pace with the EU and, the epitome of efficiency, Germany. The financial crash, however, set us back – largely because of job losses in the highly productive financial services sector. What is also clear is that the UK, and particularly the South West, have also suffered by not keeping pace with the Third Industrial Revolution, the digitisation of knowledge which is slowly destroying analogue businesses.
If the South West had maintained its pre-recession productivity levels it would have been 8% larger than now. Productivity also matters for wages, but these are unable to sustainably grow without efficiency gains. Productivity relies on boosting long-term investment and a more dynamic economy. We have some of the tool-kit we need to achieve this including increasingly improved levels of access to the digital world. The killer question is, are we using this to capacity and if not, why not? This must be our principle challenge for the year ahead.
We need also to capitalise on the progress made to date:
● This year is the great chance to reap the benefits for Torbay from the South Devon Highway. After years of suppressed growth, finally, there is the chance to reach the full potential of an economy rich with assets and ambitious entrepreneurs.
● One of the great missing links on the A30 at Temple will be resolved in time for some of the peaks of the tourist season (due to open in spring 2017).
● The Met Office Supercomputer is a huge boost to the technology credentials of the region. The skill sets surrounding this, and the spin-out capacity from it, will serve this region well for years to come.
● We should continue to thank our lucky stars for the investment at Hinkley. On paper, this should never have got off the ground. It defied economics and politics, but it is underway. This will bring an estimated £2.5bn boost to regional GDP. This is for us to win, as EDF has invested more than enough in getting us to this point. We deserve a good kicking if we fail to rise to this challenge.
There are two areas where we will need the combined efforts of Business, Public Sector and Central Government:
1) Skills. For too long we have bemoaned the lack of relevant skills which match the needs of local businesses and the qualifications of those we educate. For some reason, the rhetoric is never converted into actions? Take one example – why is it that financial education is not a compulsory part of the curriculum? We are ill-equipping our students with financial capability. 2017 would be a good year to set up a South West Consortium to crack this problem.
2) Red Tape. For as many years as I can remember, there have been Task Forces to deal with this paralysis. The move from being a “risk taking” society to an “audit” society took place in the early 1980s. The Gershon Efficiency Review (which cost £43m) concluded that £9bn could be saved in the public sector by reducing this burden (84,000 civil servants). Devolution would be a chance to take matters into our own hands and break the cycle of Central Government control and at a time when the Brexit process will enable a fresh look at regulations. Let us remind ourselves that the UK has one of the most centralised systems in the Western World. We channel record levels of spending through the most sophisticated state departments ever experienced in British History. Elaborate mechanisms of audit inspections, targets and “guidance” have enabled the centre to micromanage business and community life to unprecedented levels.
Finally let me, once again, promote the case for raw, unbridled, impartial and enlightened Leadership.
Once decisions are subordinated then “comply and evade” intervenes, generally to avoid blame (time please to banish the scapegoat hunter). To pull the levers of change requires levers to pull. Leadership, therefore, needs to empower the ability to say “No” and still have the confidence and courage to face the consequences. Many management /leadership programmes are only designed to tackle “tame” problems. In order to rise to the challenges of “wicked problems,” a different animal spirit must be unleashed. Eureka moments are needed, change needs to involve radical rather than conventional thinking. It is not good enough to keep saying we can “do more with less”. How about something really different, instead of the current “National Illness Service”, what about a National Healthy Service?
Our Leadership should and must be driven from our region. It is high time the opportunities of devolution were embraced rather than serving to foster internecine warfare.