The West Midlands Theory of Growth

Our approach to building a theory of growth for the West Midlands differs from the more traditional approaches that have been followed to developing regional economic strategies in the UK over recent decades. Although there are variations, the essence of the traditional approach:

• Defines an archetype of what a strong economy looks like. In the context of the UK, the archetypal example of what a good economy looks like is very often London.
• Identifies the region’s comparative advantages in key sectors. Traditional strategies focus on which sectors need to increase (or reduce) to better match the sectoral mix of the archetypical regional economy.
• Determines relevant policy levers to maximise these comparative advantages. Traditional strategies usually draw on generalised data and identify general policy lessons for how to realise a region’s comparative advantages.

This approach has its uses—and it is referenced when appropriate in this paper as well as the West Midlands Futures Green Paper—but we believe that its dominant hold over conventional UK economic policy making has been significantly detrimental to the West Midlands, along with many other areas in the country.

We think that the fundamental weakness of this approach is that it ignores that economic challenges and opportunities are not only created by the presence of factors, such as the population’s skill levels or the demand for investment, but also how these factors interact in structural ways over time. For example, how the particular skills of a population interact with the demand for specific types of investment, which shapes the evolution of both over time. When the relationships between these types of variables are place- and time-specific—and so the structure of the challenges matter—simply looking at the presence of different factors or proposing single standards of what good looks like is insufficient. Instead, we also need to look at how these opportunities and challenges are connected as a system.

Therefore, our theory of growth:

• Understands the West Midlands economy as a complex system that is comprised of 12 distinctive, highly related sub-systems. To account for the structure as well as the ingredients of the problem, we have conceptualised the economy as a macro-system comprised of a wide range of factors that interact with one another in a complex fashion to generate the economic outcomes we see in the region. As we outline below, there are distinctive internal dynamics within each sub-system, but it is how they interact and reinforce each other that generates the outcomes of the West Midlands economy.
• Proposes hypotheses reflecting our best, evidence-based understanding of needs to change with respect to each sub-system to realise our vision of growth. Proposing hypotheses allows us to communicate the essence of what we think our challenges and opportunities are and, importantly, allows us to change and adapt our understanding over time.
• Embraces an action-learning approach. In a complex system, being certain that our understanding is correct and will remain so over time is not possible. An action learning approach allows us to test our formulation of sub-systems, our hypotheses, learn from whether they are effective or not, and update our theory of growth accordingly.
• Uses West Midlands specific data and research wherever possible. Our theory of growth brings together a large body of evidence that is specific to the West Midlands, so that our economic strategy is as relevant to the challenges and opportunities we face as possible.

This approach and the twelve sub-systems propose derive from previous research undertaken as part of the West Midlands Futures (WMF) programme. As part of the WMF programme, the WMCA interviewed more than 70 experts in regional economic development and conducted a significant literature review to identify the ‘big questions’ that a long-term vision for the West Midlands should address. This led to:

• The adoption of the ‘grand challenges’ concept to frame the challenge of economic development in the West Midlands.
• The identification of the self-reinforcing ‘low-productivity and low-wage’ equilibrium as the overarching economic grand challenge for the region.
• A list of factors identified that create the region’s ‘low-productivity and low-wage’ equilibrium.
• A systems map proposing how the relationships between these factors sustains this equilibrium over time, which we have presented in the final section of this report.
• The identification of ten common themes from other regions across the world about how to successfully respond to grand challenges.
• Further research about appropriate international comparators for the West Midlands, the everyday economy and the region’s demographic dividend.

All of the insights from these pieces of research, along with additional research projects in specific policy areas, have informed the analysis presented in this paper and build on the State of the Region analysis the WMCA publishes every year. The West Midlands Futures Green Paper is an opportunity for local, regional and national partners to offer their views on the themes covered below and in the Green Paper itself.