Can the UK Level Up? Early Signals and Key Lessons from the US
Below is the Nowak Metro Finance Lab Newsletter shared biweekly by Bruce Katz.
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March 30, 2023
(co-authored with Max Nathanson and Chelsea Gaylord)
One of the most intriguing questions to emerge in the aftermath of the pandemic is whether the confluence of seismic forces will disrupt the seemingly intractable pre-pandemic concentration of growth and prosperity in a small set of cities and metropolitan areas. These forces include the global health crisis itself but also Russia’s war in Ukraine, rising tensions with China, and the return of nation-shaping industrial policies.
National governments in the UK and US are trying, in different ways, to diminish the deep spatial disparities that have defined economic performance in both countries for decades.
The UK is one of the most spatially unequal countries among the world’s largest advanced economies by several measures, including productivity and per capita income, and this inequality has widened in recent decades. London’s growth has overwhelmingly dominated Britain’s economic landscape. The US, for its part, has witnessed the rise of superstar cities. Just 20 metropolitan areas have received over 90% of venture capital since 2012, with the lion’s share going to San Francisco, New York, Boston, San Jose, and Los Angeles.
In both countries, the harsh reality of “places left behind” has exacerbated broader inequities, roiled national politics, and helped drive populist outrage.
To counter these trends, multiple Tory governments have embraced “Levelling Up,” to “renovate the social and cultural fabric of those parts of the UK that have stalled”. As befits a nation that is ruled from the center, these governments have issued a major white paper; established a new Department for Levelling Up, Housing and Communities (DLUHC); and initiated a “whole of government” approach to reduce income and opportunity gaps between the wealthy Southeast and the North by investing in a broad array of focus areas, relocating government assets, and giving local areas more fiscal autonomy.
There is no doubt that “Levelling Up” is a creative, memorable brand (although a bit Monty Pythonesque), and it has acted as a useful framing device to capture the profound divide between London and the rest of the country. It has led to important investments in a range of infrastructure and community building projects and continues to inspire policy and program innovation. In the scheme of things, however, the rhetoric of Levelling Up far outweighs the reality of entrenched disparities. For that reason, Levelling Up has been critiqued as a “sprinkling of investments across a thematically and geographically disparate array of fixed-term projects, rather than a strategic intervention capable of shifting the tectonic plates that lie beneath the country’s stark geographic inequalities.”
As the Levelling Up agenda proceeds, the US experience with industrial policy (or what might be more accurately described as “Industrial Federalism”) may provide some helpful guidance, for good and for bad.
US Industrial Federalism
After years of offshoring, outsourcing, and the finalization of globalization, the US is experiencing a manufacturing moment. Multiple forces are at play, including supply chain considerations, the rapid electrification of the auto sector, expanded demand for sophisticated military weaponry, and national security imperatives requiring companies to produce more domestically.
Extraordinary levels of federal and state investment are leveraging these market and geo-political dynamics to reshore production at scale. With the passage of the American Rescue Plan, the Bipartisan Infrastructure Law, the CHIPS and Science Act, the Inflation Reduction Act and, critically, the 2023 Department of Defense Appropriations Act, the federal government is investing unprecedented levels of funding in advanced manufacturing, research and development, infrastructure, and clean energy. States are also using their own funds to supplement federal allocations with particular attention to the development or refurbishment of advanced manufacturing facilities, centers of research excellence and logistics infrastructure.
As economics journalist Peter Goodman recently reported,
“[T]he result has been an industrial construction boom across the United States. By the end of 2022, the chip industry had dedicated almost $200 billion to build and expand 40 factories in 16 states, generating 40,000 future jobs, according to the Semiconductor Industry Association. A similar sum of money has been promised for American plants making electric cars and batteries, according to the National Resources Defense Council.” 
The renewed focus on advanced manufacturing also reveals assets that are broadly distributed across the country and have been hidden in plain sight. Military production, defense research and development centers, and the nation’s network of advanced energy labs are strong economic anchors. Dozens of cities and metropolitan areas also have specializations in advanced industries which, over many decades, have led to a virtuous alignment with research universities and community colleges so that technology and talent needs can be reliably supplied.
The scaled reshoring of advanced manufacturing, in short, provides a strong foundation for reducing spatial disparities that were largely precipitated by the offshoring of manufacturing in the first place. Couple that with the free-fall of some superstar cities (e.g., San Francisco) as remote work hollows out central business districts, and one has a spatial reshuffling in the making. Levelling Down in some areas enables Levelling Up in others.
Here is where the US experiment gets interesting. The embrace of industrial policy sounds neat and polished at the federal level. A string of senior federal officials, including Treasury Secretary Janet Yellen, Commerce Secretary Gina Raimondo, and Brian Deese, the former head of the National Economic Council, have tried to justify the disparate federal spending bills by defining a new “modern supply side economics [which] prioritizes labor supply, human capital, public infrastructure, R&D, and investments in a sustainable environment. These focus areas are all aimed at increasing economic growth and addressing longer-term structural problems, particularly inequality.”
The design and definition of federal policy is one thing; the delivery of national government programs and incentives is quite another. The US is a federal republic with power (and responsibility for execution) shared across multiple layers of government and sectors of society. The federal legislation mentioned above invests trillions of dollars via hundreds of programs across dozens of agencies. The legislation targets a broad array of recipients (e.g., states, general purpose local governments, separate public authorities and agencies, universities, manufacturers, and energy project developers, just to name a few) and distributes the funding via a disparate set of mechanisms, including block grants, competitive grants, low-cost financial products and, in the climate area specifically, tax incentives.
It is safe to say that the Rubik’s Cube is child play by comparison.
But there is intentionality, even genius, in this design. Federal officials, particularly those like former Rhode Island Governor Gina Raimondo and former South Bend Mayor Pete Buttigieg, know that a successful reinvigoration of the nation’s industrial base requires the integration of multiple elements – site assembly and preparation, workforce development, housing production, quality infrastructure, applied research, access to plentiful clean energy – and the full mobilization of a broad array of stakeholders and sectors.
The federal government circa 2023 is incapable of doing this. It is the epitome of fragmentation, vertically organized in a series of rigidly balkanized bureaucracies, mostly created in the mid-20th century when specialized expertise was deified. Cities and metropolitan areas, by contrast, operate horizontally via networks that weave together disparate investments into a whole that is often greater than the sum of the parts. While federal programs focus on singular, technocratic solutions, communities emphasize the connections between different uses and disciplines and routinely link investments in manufacturing with other investments in, among many things, infrastructure, housing, economic and workforce development.
US Early Signals
There are early signals that this federated design is working although, as we describe later, it has its limits and precipitates its own set of spatial winners and losers.
Last fall, the Biden Administration announced winners of the $1 billion Build Back Better Regional Challenge (BBBRC) to advance national competitiveness by scaling advanced industry clusters. The program was flexibly structured, asking communities to define and then leverage their distinctive competitive advantages through an array of investments. It essentially challenged communities to embrace Dolly Parton’s maxim, “figure out who you are and do it on purpose.”
The program attracted an incredible 529 applicants, revealing the national hunger for advanced industries. Smartly structured as a multi-phased process, it provided $500,000 in technical assistance grants to 60 winners of a first phase, and then awarded between $25 million and $65 million to 21 final winners.
The final winners exemplify the distributed industrial power and potential of the United States. In some cases, winning applicants are leveraging the strengths of a long-standing industry cluster like advanced mobility in Detroit or advanced aerospace in Wichita. In other cases, the winners are focused on applying advanced technologies like artificial intelligence across multiple manufacturing sectors, as is the case in the State of Georgia. In still other cases, winning applicants are seeking to be a first mover on a next generation cluster, like the hydrogen energy sector in New Orleans.
In all cases, cities are being compelled to build a new workforce with upgraded skills and competencies as well as innovate radically and rapidly on new design, new materials, and new sources of energy. The tantalizing prospect: cities that were left behind in the prior economy will use federal and state investments to leap frog and find a new position in the post-pandemic economy.
What is particularly exciting about the BBBRC winners is that they are creating norms and models of advanced manufacturing that can be routinized across other communities as the industrial transition proceeds. Here are just a few examples that are likely to scale:
- Buffalo, New York is expanding its exceptionally effective Northland Workforce Training Center (NWTC), located on the distressed East Side of the city. Built initially with state funds, this industry-led public-private partnership prepares local residents for family-sustaining careers in the advanced manufacturing and energy sectors. NWTC partners with area educational institutions to offer for-credit, degree, and certificate programs at no cost to students. It prioritizes student success and program completion by providing access to a wide array of supports including educational and career counseling, child care, wraparound services, financial assistance, mentoring, and financial empowerment training.
- St. Louis, Missouri, for its part, is building an Advanced Manufacturing Innovation Center (“AMIC”) to provide continuous applied innovation and customized skills training to a manufacturing sector led by Boeing and defense-oriented aerospace production. Here again, locational equity is a major focus of the effort, given that the Innovation Center and other related facilities will be located in North St. Louis, one of the most disadvantaged communities in the entire country. Notably, AMIC takes as its model the Advanced Manufacturing Research Centre (AMRC) in Sheffield, England.
- El Paso, Texas is establishing the El Paso Makes Advanced Manufacturing District to cluster small- and medium-sized businesses with research and innovation assets in order to bring them into the region’s established aerospace and defense supply chain. Smaller firms will benefit from the district’s physical and cybersecurity infrastructure required to participate in aerospace and defense markets, allowing them to scale and opening up higher paying job opportunities to retain local talent. Led by the University of Texas at El Paso, a national leader in aerospace training with diverse talent from the region’s significant rural and Hispanic populations, the strategy offers opportunities for skilled workers and entrepreneurs to build their careers and ideas in West Texas.
The $1 billion BBBRC is a relatively small program in the scheme of things. But the experience with this competition illustrates what is possible as federal (and state) resources rain down at scale. Communities are starting to use the defining elements of BBBRC – building a coalition of multi-sector partners, crafting a narrative around local assets and vision for advancing equitable growth, integrating governance structures that prioritize equity and coordinate federal funding, and aligning disparate projects and funding in pursuit of realizing the overarching narrative – as an approach towards moving the needle on rebalancing growth.
Key Lessons for Levelling Up the UK
For UK observers, several lessons are critical:
- Devolution matters. It is impossible to imagine US Industrial Federalism being a credible strategy without cities, counties, and states having serious fiscal and decision-making power. National competitiveness is strengthened by confident, bottom-up leadership rather than top-down determinism.
- Networks matter. Real success emanates from coalitions of public, private, and civic institutions coming together to design and deliver concrete market strategies rather than writing clever applications that satisfy the whims of national policymakers. Cities are networks rather than governments, and incentivizing sub-national collaboration is critical to achieving national objectives.
- Cumulative impact matters. Having a clear economic strategy, particularly around authentic advanced industrial strengths, helps layer and align the firehose of other funding (e.g., road, transit, energy, water, sewer, and digital infrastructure) that is coming. Without a singular local focus, it is likely that compartmentalized funding streams will lead to a series of disjointed and disconnected projects, with little transformative impact.
But there are other lessons, which the UK would be wise to reflect upon:
- After decades of planning the post-industrial metropolis, many parts of the US have lost the muscle memory of what it means to recognize, steward, and leverage industrial strengths. There is simply no industrial equivalent or stakeholder energy comparable to the 15-minute city meme that now dominates city planning circles. The US needs as much focus on freight thoroughfares as bike lanes if it is to meet the manufacturing moment.
- Given this reality, Buffalo and St. Louis aside, federal industrial policy is likely to lead to industrial sprawl, given the land needs of advanced manufacturing companies and the relative ease of developing greenfields at the periphery of metropolitan areas rather than redeveloping older brownfield sites. The irony of federal place-based investments further distending metropolitan areas and locating manufacturing facilities far from employment centers should not be lost on anyone.
- Many parts of the US lack the capacity to realize the full potential of the industrial transition moment. The US has degraded the public sector for decades and many nonprofit intermediaries, the glue that pulls together local leadership, are similarly underfunded. Building back better requires a fundamental commitment, among levels of government and the business, university, and philanthropic sectors, to bulk up capacity.
- The military industrial complex often “sits behind a fence” in many communities, dramatically diminishing the outsized effect that expanded defense investments can have on local economies. The US Air Force, for example, has a major presence in Dayton, Ohio, but its 30,000+ workers are mostly located ‘on base’ rather than congregating downtown and around the University of Dayton. Even a shift of 2,000 workers could have a measurable impact on the vitality of urban districts as well as commercialization and startups.
The UK and the US are taking different approaches towards closing deep economic divides. While the US is less explicit than the UK about targeting spatial disparities as an overarching policy strategy, the likelihood of rebalancing growth in the US may be stronger due to long standing structural and governance factors. In the end, the ability to realize a modern industrial strategy will come from an aggregate of bottom-up, regional economic initiatives defined by local competitive advantages and enabled by national and state investment.
Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University. Max Nathanson and Chelsea Gaylord are Graduate Research Analysts at the Nowak Lab.
1. Jack Newman and Steph Coulter, “Rishi Sunak Faces a Dilemma Over Levelling Up,” London School of Economics Blog, March 7, 2023
2. Peter S. Goodman, “The Lure of the ‘Made in America’ Sales Pitch,’” New York Times, March 26, 2022