Enterprise Issues: All that clusters could be gold - for Britain plc

TO THINK of businesses as disembodied, abstract things is all too easy. That means policy discussions on how to boost productivity and competitiveness tend to focus on rather abstract methods - upskilling, benchmarking and the like. Management theorists get down to more nitty gritty matters, but even they tend to focus on big- picture corporate strategies and human resource policies.

Abstraction is essential, of course, but sometimes we need to remember that business involves actual people. More than that, companies exist in actual places, but it is rare to hear about how place can be made to contribute to the productivity of UK plc.

The competitiveness White Paper published late last year actually had a stab at it, as it focused on the idea of clusters of industrial success.

One of the most noteworthy things about economic activity is that it tends to be heavily concentrated geographically, with specific types of business often close together - cutlery in Sheffield and cotton in Manchester are now software in Cambridge and call centres in Glasgow.

This poses two sorts of policy question. For national governments, the issue is encouraging the development of as many clusters of as many sorts as possible. For local government, it is how to develop as a cluster, probably in competition with other centres. The existing framework for setting policy is not well geared towards addressing these questions at either level of government.

Take the vexed matter of interest rates. Every time the Bank of England has cut rates - six times in seven months - representatives of manufacturing industry have condemned it for not going far enough.

Setting interest rates to suit the economy rather than just the struggling manufacturing sector is equivalent, in Britain, to setting rates too low for the South-east and too high for the North - and too high for the urban centres of traditional industry. There is no way around this, but there are ways in which policies can adjust to take account of geography.

For instance, there is a crying need for national co-ordination of the competing subsidies different areas offer potential inward investors. A national body might well have to take unpopular decisions to designate preferred locations for certain types of investor.

The national government also has an important role in regulatory and competition policies, and in the big-picture planning on transport infrastructure. Many businesses locate in places it is easy to get out of, so decisions about the motorway, rail and air network have a big impact on certain towns at the expense of others.

The policy agenda becomes more difficult at local level. Most local authorities keep policies in separate compartments: economic development, planning, transport, housing, education and so on. Even those with effective enterprise agencies whose job it is to look at the big picture can rarely translate broad conclusions into an across-the-board strategy.

The main conclusion of a recent series of papers on cities is that urban policies need this broad sweep. The summary paper* proposes a series of "policy handshakes" as a device for joining up local policies that have traditionally remained separate.

One obvious example - when you think about it - is that housing and education policy ought to be related because people's decisions about where to live are conditioned by where they want to send their children to school.

Therefore improving a school can regenerate an estate. This matters for business because potential employees will not move to work for a company if they cannot live their lives as they want - people, as well as companies, exist in specific places. Once you start making the links it is hard to stop. Thus education policy affects transport planning too, because if people decide they have to send their children to independent schools it will lead to an increase in car traffic as harassed parents do the motorised school run rather than walking their children to the local school.

A further implication of this train of argument is that policies can no longer be left in the hands of the professions that have traditionally monopolised them.

As the paper puts it, local government has been run - not very effectively - as a form of command and control economy. The authors write: "In many cities the existing political structures and city leadership find it difficult to respond to the speed and nature of change in modern economies."

Professional local government and planning officials have tended to set policies without much sensitivity to the real needs of households or businesses. Anybody who has tried to influence a local authority decision such as the placing of a crossing or traffic island will see the truth of this.

Some of the most successful clusters are in new science parks developed with the direct input of the businesses using them. This is a sign that it has been too hard to generate the same hives of entrepreneurship and wealth creation in existing urban centres, despite their huge advantages such as shops, cafes and bus stops.

The success of the out-of-town science park is a badge of business failure for town centres, just as much as the existence of the out-of-town shopping centre. Many new businesses have decided they will create their own places, but it would boost British productivity if all places could be made as attractive to companies.

*The Richness of Cities: Final Report, by Ken Worpole and Liz Greenhalgh, Comedia and Demos, pounds 15, tel 01509 890068