- Applied Institute for Research in Economics
This article first appeared on the Productivity Insights Network.
For the second time in 13 years, the United Kingdom has experienced a ‘black swan’ (or tail-risk) event that has ruptured economic relations and threatened the collapse of the cash-flows and asset values on which the reproduction of everyday capitalism depends.  The 2007-08 financial crisis has been followed by the 2020 Coronavirus pandemic. The latter has both resulted in significant loss of life and necessitated an extended lockdown that fully halted most aspects of both aggregate supply and demand to a halt for an extended period.
A challenge has been presented to the University of Leeds and other universities in West Yorkshire: to develop a plan for the post-lockdown economic recovery in West Yorkshire. Growth strategies are routinely developed by units of government, often relying on advice provided by professional-service firms (consultancies) optimized for this purpose. So what value can a university add? Government plans reflect political judgements and values (‘inclusive growth’, for example), while consultancies specialize in producing, at speed, analysis of the latest empirical measures of the drivers of economic activity. Universities’ core consists of their academic faculties, whose members’ research plugs into reservoirs of accumulated and emerging knowledge across academic disciplines.
These faculty members’ value added is their capacity to combine core theoretical insights and available evidence – quantitative, institutional, and historical – into proposals for new concepts, processes, products, programs, or institutions. This is their unique value in policy deliberations – the capacity to show how policy choices can break new ground. Yet, at the same time, academics’ ideas about policy can often derided as ‘blue sky’.
Avoiding the perception of academic research is always to be dismissed as ‘blue sky’ and unusable depends on both sides to the policy discussion – both the engaged academics and the public policy-makers – being tolerant and flexible in communicating with one another. These qualities are always important in good policy-relevant work, but the unique ‘multi-dimensional’ circumstances of the current scenario make them especially crucial in these exchanges. The multiple dimensions in question involve both time and space. We elaborate these before proceeding.
A ‘black swan’ strategic response in a country with a multi-level governance structure
An economic strategy to achieve a given goal in any regional or national socio-economy must bring together three distinct components: the substantive issues to be addressed; the policy structures in place that can implement whatever actions are decided upon (and which determine which actions can and cannot be taken); and the relationships between those charged with policy implementation, those charged with initiating or expanding economic activity (employment and business creation), and the communities of academic and policy experts available to provide guidance.
Assembling a useful West Yorkshire economic recovery plan must then involve these three components. But there are several special features about the challenge involved that require special attention. First, the pandemic has occurred at a global scale; it is not just a local problem or deficit requiring attention. As such, the lockdown required by the pandemic has shocked, and even halted, the global economy.
This leads to the second unique feature: the grinding halt of economic activity – and the quickly mounting costs of subsidizing workers’ incomes and firms’ lifeline expenses – has pushed forward the priority of restoring normality. The usual goal-seeking aspect of economic strategies – ‘inclusive growth’ or ‘sustainability’ – is replaced now by the need to ‘build back better’.
This gives us the third feature: huge expenditures of government financing have been needed to avoid collapse to this point, and much more will be needed. Normally, financing at this scale would be associated with grand investment plans for new industries or new housing estates, etc.
However, lurking behind both of these unique features is that the Yorkshire region – indeed, the UK, and the world as a whole – had already fixed on the need to prioritize new investments to meet two global challenges – stopping climate change and meeting the sustainable development goals (SDGs). In the G20’s June 2018 ‘blended finance’ plan for SDGs, national governments would finance the measures needed to attain these targets, with underwriting provided by multi-lateral development banks and the World Bank. The Covid-19 crisis has laid waste to that plan, as national governments around the globe have had to use whatever policy space they can find to sustain their residents in safety. So does this mean that SDGs and climate change are off the agenda? Not if the issue of recovery can be melded together with these longer-term priorities.
This leads to the next defining feature for this strategic problem. What it means to ‘address’ the issues at hand is itself problematic: policy solutions can range from ‘fixes’ to permanent shifts toward sustainable ‘steady-states’. A ‘fix’ only restores a baseline that was already inadequate from an SDG and climate-change perspective. The material issues behind the Black Lives Matter movement have highlighted that the concentration of BAME residents in certain neighborhoods has led to systematic violations of some of the SDG categories, along racial and ethnic lines. To finance recovery with money that was never intended for ‘staying in place’ purposes will only feed populist anger and resentment, on all sides.
And this leads in turn to the next unique aspect that has to be baked into a recovery strategy: while appropriate and accessible solutions to the ‘black swan’ coronavirus event have proven elusive to date, the same can be said for SDG and climate-change targets. The problem of assuring adequate nutrition for all residents of the UK is not solved; nor is the problem of providing adequate and safe housing for all in the UK has not be solved; nor of access to education and health for all; and so on. And on top of these unknown paths lie the barely explored routes to climate sustainability. We have no maps for how to journey along these pathways. So it means that possibly deep disagreements will occur about what roads to follow, and why. Even the experts are guessing. It must not be forgotten for those engaging in this exercise that policy solutions at scale are expected, even demanded, by political leadership, not successful partial demonstrations. The experts relied on to think about the issues involved have to take this on board and be tolerant and flexible in their mutual discussions.
The sixth defining feature of the Covid-19 regional recovery challenge is that it will unfold in a multi-level fiscal structure, in which only a few of the controls over the resources needed to establish local policy are accessible to sub-national policy-makers. Coordination amongst the various levels of public expenditures and revenues is crucial. But the rules and fiscal purse-strings for governance have been held centrally in the UK since time immemorial. The ‘devolution’ effort to localize structures of governance and public accountability has been unfolding at an uncertain pace for nearly a decade, but is very far from complete.
And this brings us to the final defining feature: the UK government has, since 2009, been committed to austerity fiscal (macroeconomic) policy. So the NHS, social welfare expenditures, school spending, and so on, have been at levels that have left many residents and regions in personal or economic deficit. This has been picked up in reports done by the UK2070 Commission, the Commission on a Gender Equal Economy, and the Runnymede and Joseph Roundtree Foundations. The fact that fiscal rules have been suspended in the immediate wake of the Covid-19 lockdown does not mean that austerity is behind us: to the contrary, many political front-benchers have been insisting that fiscal discipline must be restored as soon as lockdown ends. But since the levels of human need and economic hardship have increased dramatically since March, a return to normal levels of fiscal commitment will lead to further unanticipated human deprivation.
What not to do: the pandemic and the US’s multi-level structure of governance
In the spirit of Monty Python’s ‘how not to be seen’ sketch, it might be useful to consider how the policy response has gone wrong in another country with a multi-level structure of governance. The country in question is, of course, the United States. While newspaper accounts set out the specifics of the policy car-crash unfolding there in real-time detail, author Michael Lewis already identified the problem in a book based on his research in the year after the current US President took office.
In The Fifth Risk, Lewis describes the collision between the immensely complicated federal departments of the US government – focusing on the Department of Energy, which manages all aspects of nuclear strategy and supports or houses much of the US ‘Big Science’ establishment – and the incoming Trump Administration. As Lewis tells the story, the Trump Administration’s appointees are few and far between, and those put in place have typically been ideologues uninterested in the substantive issues handled on an ongoing basis by federal agencies. His ‘fifth risk’ is ‘project management’ – by which he means the oversight and guidance of longer-term programs such as nuclear-waste management, pandemic prevention and response, wildfire control, and so on.
The outstanding example of a policy failure due to this widespread indifference is the Coronavirus pandemic. The Trump Administration did not name a director for the Centers for Disease Control for months after the February 2017 inauguration, did not name replacements for the many appointees whose term of office concluded with the departure of the Obama Administration, and so on. Subsequently, the CDC has had its budget slashed and is now being blamed (among others) for the severity and duration of the crisis. President Trump has made it clear that the federal government no longer is responsible for further responses for testing and control of this pandemic in the US: it is now the responsibility of the 50 governors of the individual states of the Union.
Bottom-up, top-down, and ‘levelling up’? The UK’s unsolved multi-level governance challenge
The challenge of multi-level governance is evident in this US case study. The problems there involve unresolved questions over the structure of government: how resources (even medical equipment) are to be shared out between the federal government and the states; the ability of local authorities to refuse participation in national programs (notably, at the moment, the Affordable Care Act passed into law during the Obama Administration); the expanding power of the Executive Branch in decreeing national policy without recourse to Congressional law-making processes. The chaotic policy response to Covid-19 in the US has led to more and more finger-pointing, and most recently to protests and violence on a scale not seen since the 1960s.
The political relationships of national government with local authorities, and of political parties to political power, is quite different in the UK than in the US. Nonetheless, when the Covid-19 lockdown hit, the country had many unresolved issues involving core political economic issues: the locus of public budget control, the country’s surplus-transfer mechanisms (from wealthier to poorer regions and districts), the relationship of the nation to its trading partners in Europe and in the rest of the world, and the future of immigration and of migrant workers, to name several. These unresolved issues were already heading for a collision. The adverse GDP shock anticipated from Brexit was already on course to capsize or stall the completion of plans for the ‘devolution’ of governmental policy controls before the lockdown. Plans to reduce the public footprint of nation-defining institutions such as the NHS and BBC have been pulled back in the emergency; but no political declarations of restorative public support beyond the lockdown have been made.
This uncertainty, worsened in the past four years by Brexit, has undercut investment generally, and flatlined UK productivity. Infrastructural and green-economy investments would be ‘smart responses’ to the Covid crisis; but these must work together with restoring the resilience and financial ‘health’ of both household and business sectors across the country. This has not been done.
Instead, the Covid-19 crisis has exposed many ‘holes’ in the planning, accountability, and delivery architectures in the UK, as it has in the US. Multi-level governmental structures, such as that of the UK and US, can carry on in normal times without the pressure points or unresolved linkages in those structures coming to light. In the UK, local authorities’ staff capacity and resources for analyzing, planning, and implementing socio-economic policies on behalf of their regions have been squeezed by years of macro austerity policy.
As long as promised human services have been provided to a minimal standard, and as long as educational, employment, and entrepreneurial processes have produced cash-flows sufficient for social reproduction (‘provisioning’), the ‘holes’ that this has left in local authorities’ capacity has been relatively invisible. The gap has been made up, in part, by fee-for-services offered to these authorities by consultancies. This is where a key difference emerges between the US and UK multi-level governance structures. The 50 states of the United States, together with local units of government (counties, cities, districts, others), account for approximately 50% of all revenues collected annually in the United States. Most public services are provided with intermixed state and federal funding. Some states with higher income levels – including California, Washington, New York, and Massachusetts – have adopted relatively high, progressive state income taxes so as to securely fund those services. And these are states that typically transfer a portion of their net taxes collected to lower-income states.
Scale-appropriate, flexible ‘blue sky’ thinking: how universities can help local authorities
Of course, the local authorities in the UK have nothing like this sort of fiscal autonomy. And the UK lacks the scale and resources to permit the emergence of adversarial politics as bitter and unresolvable as those that have gripped the US at least since the 1980s – if not since the 1964 passage of the Civil Rights Act. Severe societal crises require responses at scale and at speed by those responsible for societal governance. Multi-level structures of governance must, to avoid political ruptures, transmit policy responses and resources smoothly from central to local levels. There is a desperate need in the UK in the current moment of pandemic-driven crisis for policies that respond to local needs.
This is likely to require structural governance reforms. It is likely that UK economic policy approach must make a clearer distinction between meeting human and social needs (indeed, the SDG goals), on one hand, and encouraging innovation, inclusive growth, and competitiveness, on the other. This will likely require a real rebalancing of fiscal policy responsibilities and revenues between national and local levels, along with a clearer delineation of the rules under which surplus recycling amongst regions should occur.
These sorts of fundamental changes may or may not require a wholesale turnover of the national government. What is crucial is that these sorts of questions about economic policy-formation processes and structures not become political footballs between contending rivals. A structure strong enough to sustain changes of government is in order if the UK is to have the stability to steer its own economic course once the invisible backbone provided by its EU membership has been removed from the body politic.
Current events are vividly making this point. The limits on what is acceptable to the current government have already been tested and stretched by the pandemic. The period of recovery from the pandemic, which will be accompanied by an adverse-macro-shock Brexit, will test those limits further. The question is whether the further policy shifts made to avoid national economic depression during the long period of recovery will reflect local needs and political consensus.
This is the context in which University advice for local and combined authorities – in the case of the University of Leeds, for West Yorkshire Combined Authority – must take place. The entire unfolding scenario of fundamental policy debate needs a fair and impartial space for debating the issues; and it needs access to a fairly-mediated evidence base, and it needs well-umpired debates amongst those with different theoretical points of view. The local authorities are too thinly staffed to hire and retain the experts who can provide that space. The university sector, alone among UK institutions, can provide this space. It has survived the turn to fee-based support without surrendering its broader public mission.
The universities can play this role not by turning within, and seeking the advice of their most elite and renowned voices, but by opening up. On one hand, universities should open more fully to what might be termed ‘everyday impact’ – encouraging academic and research staff to come forth with policy ideas, especially those rooted in expressed needs of the people of surrounding communities. And on the other hand, multiple channels to surrounding communities must be opened even wider. The tentative steps toward the ‘anchor institution’ role of universities, and toward encouraging ‘impact’, move in the right direction. Impact in the context of the national REF exercise has too often been interpreted in the context of product invention or of knowledge transfer (from gown to town). Impact activities must also include engagement with communities – dialogues, investments in local initiatives, encouragement of community-building, work with the young.
This ‘opening’ to the communities around universities will expand the space for policy-related discussions that break through current barriers of imagination or customary activities. The time is right for widening circles of possibility. Many of the ongoing debates inside the academy – degrowth versus renewed economic growth, competitiveness through participation in global supply chains versus renationalization of production, post-petroleum individualized transit versus large-scale collective transport, and so on – are unresolvable so long as they remain inside the ‘ivory towers’. And while national efforts to establish national economic strategies around key industries are admirable, there is no substitute for creating local community-university platforms for social-policy, sustainability, and economic-competitiveness experimentation.
This turn to community-linked universities is not a call to restrict debate within the university; to the contrary, a broad array of ideas in every field is needed to push thinking and human possibility forward. It does mean that academics engaging with communities and with local authorities must make themselves aware not just of future-perfect scenarios but of current resource constraints. That said, the more new ideas see the light, the better. What constitutes ‘blue sky’ – that is, impossible – thinking about policy alternatives is not clear in the current environment: as noted, ecological futures are a work in progress, and innovative solutions to educational, healthcare, and housing deficits are still being worked out. Political voices at all levels have to be heard and validated. Diverse community representation is a must – the people have a right and a need to speak. And universities can provide a critical role in making the people’s voices heard.
The post-Covid moment: policy memoranda, position papers, and strategic syntheses
While imagining how the broader university-community relationship can evolve, the needs of the current moment must be kept uppermost in mind. At present, local and combined authorities with uncertain resources at their disposal, faced with imminent budget crises, need advice. There is a need for policy memorandums – which convey objective, evidence-based analysis with action steps that respond directly to the problems identified in the analysis. Position papers that clearly identify the ‘entry point’ of the author(s) are also helpful, as they clarify the author’s underlying assumptions. There is a key role, too, for in-depth reimagining of how economy and society could be organized, which, we would argue, is most valuable when developed and synthesised in a context and region specific way.
An example might help clarify what we mean by ‘context and region specific’. Consider recent efforts in California, aided by the University of California, to design public policies responding to the dangers of wildfire incidence and losses in that state. The ideas that emerged in these efforts were scaled to what the state could mandate: for example, require the clear-cutting of small brush in perimeters around woodland housing, regulate materials used for roofing in woodland/outlying housing, etc. The definition of the problem could of course be scaled ‘up’. For example, two other factors in ‘global warming’ are the drying out of the state through reduced precipitation, cutting the snowpacks in the Sierras; and groundwater depletion throughout the state due to overpopulation. However, taking on these deeper causes would lead to solutions more radical than are feasible or even thinkable for the California policymaker community. Addressing these wider issues would require national scale analysis and policy, informed by regional scale context. At a national scale, a solution would be to ban people from building their wilderness palaces in remote, fire-risk areas just because they didn’t want to be near other people; but that would not be enforceable regionally. Thus, there is always a balancing aspect that invisibly lies behind effective local and regional policy interventions, and those that must be interlinked with policies at national and indeed global scales.
 Nassib Nicholas Taleb, introduced this term into contemporary discourse with The Black Swan: The Impact of the Highly Improbable. New York: Random House, 2007). Chapter 1 defines it as follows: ‘First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme ‘impact’. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable. … [that is, a ‘black swan’ event involves] the triplet: rarity, extreme ‘impact’, and retrospective (though not prospective) predictability.’
 These terms are worth unpacking. A ‘fix’ in everyday parlance refers to an informal or temporary solution. This term was adapted by David Harvey (he introduced it initially in his The Limits to Capital. Baltimore: Johns Hopkins University Press, 1982) and was subsequently came into common use in human geography (see, for example, Erica Schoenberger, ‘The Spatial Fix Revisited,’ Antipode 36(3) June 2004: 427-33). Harvey portrays capitalism, using a broad Marxian crisis framework, as beset by several crisis tendencies, among which is over-accumulation (under-consumption) – a condition in which productive capacity outpaces consumption and/or investment outlets. When this happens, continued accumulation requires further an expanded number of consumption/investment hubs. The expansion of business service offices or supermarkets can be seen as examples of spatial fixes. A spatial fix is at once necessary but, at the same time, temporary – the value invested in any location only retains its value if another is found. The notion of a ‘steady state’, in macroeconomic theory, refers to a configuration of demand and supply forces that can be reproduced or smoothly expanded through time.
 There is more to be done to retain or earn the public trust – for example, by insuring that all Britons have access to all universities at all levels, regardless of income or racial/minority status. But this is an item readily added to the universities’ agendas, especially in the era of social-policy rethinking spurred by the BLM movement.
 This, of course, will have implications for what is valued in academics’ efforts to meet performance expectations of university supervisors, and for any national efforts – should they remain necessary – to evaluate excellence in academic work.
The views expressed in this article are those of the author and may not reflect the views of Leeds University Business School or the University of Leeds.