Where's the money going to come from now?
Town &
Country Planning, January 1999
Imagine you were responsible for employment in a north eastern town, and found the whole caboodle undermined ten years ago when the coal mines closed. Then you fought hard for Far Eastern investment in hi-tech factories, only to lose them again when the Asian economy dipped.
Companies like Fujitsu and Siemens carried with them the hope of a new solution for many communities in northern England - not least in Tony Blair's Sedgefield constituency - when their shiny new factories opened. You might feel like giving up if you watch them boarded up again a year or so later.
Alternatively, you might feel that searching for one silver bullet to drag your local economy into life might have been a mistake from the start.
A decade or more ago, this process used to be known in the USA as 'smokestack hunting'. Bedraggled cities would offer themselves to multinational corporations for their new factories - or maybe even a relocation of their old ones - offering tax breaks and loose environmental regulations. Sometimes they came, but these footloose operations were vulnerable to accepting the next good tax offer that came along.
Under the influence of map-makers Rand McNally and the think-tank Partners for Liveable Places, cities stopped smokestack hunting - realising that they had to make their cities more attractive places to live if they were going to get the investment they needed. The same idea spread across the Atlantic.
But in the north east of England, at least, councillors are increasingly suspicious of the whole idea of inward investment. Or indeed any single solution that means your city remains reliant on one single industry. The new prawn factories in the Philippines - built at great expense in the 1980s with World Bank support - were wiped out overnight by the collapse of prawn prices. In the same way, a chill wind through semi-conductors, which is why Siemens œ1.1 billion plant in North Tyneside went the way of all flesh only three years after being opened by the Queen.
So what can you do instead? One thing is to pay special attention to local companies, and make sure they have the land and capital they need to expand - as many forward-thinking local authorities have been doing all decade.
Even so, the mere hint of a Hyundai factory is sometimes enough for them to forget the bitter lessons of the past few years, and get straight on the plane to Korea. And, in practice, finding the land is often easier than finding the capital.
At least it is for small and medium-sized companies. Ever since the long-forgotten Macmillan Report in 1931, the UK government has recognised that there is a funding gap for the one sector of the economy that creates new jobs rather than just recycling the existing ones. And in the places which need the jobs most seem to give banks a serious case of the jitters.
One answer to this, introduced in a House of Commons ten minute rule bill in the summer by London MP Tony Colman, would have given the banks a legal duty to lend money to smaller businesses in areas where they accept deposits from.
The Colman bill was aimed at borrowing the highly successful US Community Reinvestment Act, put into effect by Jimmy Carter back in 1977. The bill gives them an obligation to meet the credit needs of communities where they are based, and makes them liable to fines if they fail to do so.
In its first 20 years of operation, the CRA has leveraged a staggering $353 billion in lending in low to moderate-income areas. Of course the idea was bitterly fought by the banks, but even Nat West acknowledges that their operations in the USA find that it works very well.
A British CRA isn't the whole answer to replacing unreliable inward investment, but it might be part of an answer. In the meantime, we are going to have to work out how regions can generate more of the wealth and investment they need from within.
The alternative is that our well-being will become increasingly dependent on a few percentage points on half-understood distant stock exchanges of which we know little.
David Boyle is an associate of the New Economics Foundation and the author of Funny Money (www.funny-money.co.uk)
