Lord Jim O’Neill’s speech to Devolution South conference

 

‘Devo South: Getting Back on Track’ conference

In November 2017 Lord Jim O’Neill was the keynote speaker at the Southern Policy Centre’s ‘Devo South: Getting Back on Track’ conference.  His speech to delegates can be seen here:

The full transcript of the speech can also be seen below.

“Good morning, thank you Stuart, and thank you John for inviting me.  As I said, it was back some time when this idea was first brought to me, and I said to John [Denham] – and I’ll deliberately repeat it here in front of all of you – “I’m not quite sure what I have of any wisdom to tell you about anything to do with either devolution, but in particular as it relates to the south of England!”  But given that I haven’t got anything else better to do today, it’s very nice to be here.  The other thing I should say, I think it was Stuart [Dunn, former CEO of Hampshire Chambers of Commerce] just mentioned to me, as we were sitting down, that in terms of getting the cast of people in the room present, one person said, “If you’ve got that Jim O’Neill coming, I won’t be attending, unless he apologises!”   Whether that is someone who’s been a victim of past economic advice of mine, or because he’s not a Manchester United fan or, as I rather suspect, he may have been involved in some of the discussions I was in the middle of, on a deal with potentially the Solent area, I don’t know.  But I’m pleased that somebody thought I was sufficiently that important that – it didn’t happen, it was my fault – but there you go.

So, I don’t have any slides as such, although there’s one set of bullet points that I think has been circulated to a few.  I thought I’d touch on four areas, the way I’m going to do it is to try and provoke you guys to indeed rise to the challenge of the title of the event, and give you as frank a view as I usually end up doing with some risk.  Although now that I’m unemployed, it doesn’t really matter what I say.  And feel free to jump in as I’m going along, I certainly don’t plan to take forty minutes, and I think we’ve got quite a bit of time for discussion.

So, the four things I’m going to focus on and try to link them together as I do it is, first of all from 40,000 ft, about the structure of the UK economy, my whole entrance into this topic is actually relatively recent in my professional life.  I left the almighty Goldman Sachs after nearly 20 years, and 30 years plus career in the City four years ago, and I have this, sort of, mantra that I had no idea what it was I wanted to do, but if it couldn’t be better, it had to be different.  And when some people from the RSA approached me about: why don’t you look at something to do with the imbalance of the UK economy, I thought, “Well, that’s different!”  And that’s what led me to this.  So I think it’s important, and it will link to the other bits, as I say, to spend a bit of time thinking about that.  Secondly, with a lot of controversy: does devolution actually mean better decision-making?  Or does it simply mean more bureaucracy?  Thirdly, for any area, and I’m very aware of the fact that within the south there are lots of different kinds of places, what actually is the edge that you want to bring out of your area, in terms of some kind of persuadable focus on devolution?

I’ll say it now and perhaps come back to it, if I remember rightly when, I guess it would be Greg Clark, the Secretary of State of CLG, formerly put out the request around the country for devolution bids, I think we have either 41 or 44?  Not many of them actually got beyond officials, to the attention of the ministers and close advisors that were involved, because there were not that many that had things that stood out that made them look particularly interesting.   Then lastly, what else is there to focus on that’s not in those two or three things?

So, first of all with respect of the structure of the UK, and going back to why I was asked.  As I’m sure some of your know, probably many of you don’t know actually, the thing that I became strangely more known than most students of the miserable profession of economics, is because now nearly 16 years ago I dreamt up this weird acronym ‘BRICs’, to describe the potential rise of Brazil, Russia, Indian and China.  16 years later, some are rising more than others.  As I occasionally joked to some people, maybe I should have called it ICS!

But that’s another story.  But one of the things that was so obvious to me in the build up to what led to me thinking about that – and I used to travel far too frequently around the world – is the power of urban areas in driving economic growth.  And when I was asked by the RSA to lead this commission, it was called the City’s Growth Commission – so clearly that led to a bias straight away, from what the purpose of that Commission was, which meant we were not even thinking about rural areas.  A lot of people ignore the fact that that was the case, but our mission was about cities.  And importantly, in terms of how I approached it as being a chair, we only existed for a year, which was I found attractive, because I’ve no idea whether it was going to be a useful thing that I was doing in my life, but it also meant that we were not scared of sticking our neck out.

The other important thing to say, particularly in the context of what somebody just said last week, we approached it completely independently.  I don’t have any political ideology myself, even though I joined a Conservative government.  And I think one of the reasons why we ended up having an influence is, because that was the facts and we focused on it from the economic rationale as, opposed to anything particularly to do with the politics.  And I’ll say here now, one of many other controversial things – if somebody would have said to me at the start of that, that some of our ideas would be embraced by a conservative government, and a labour party would not be that particularly focused on what we were saying, I would have said, “No way!”  But that was the case.  And, again, I’m sure some of you with sympathies or involved in politics will immediately be thinking: ugh!  But that was the reality of what happened.  And it was the economic aspects of it that attracted George Osborne to embrace key parts of it, separately the whole issue of devolution, which was relevant nationally but, of course, the other part which I’ve become so immersed in, the so-called Northern Powerhouse.

At the core of why I emphasize that is, thinking about basic things about the UK, which we all know but most people actually forget, because they’ve got important things in their daily lives to be getting on with.  But we are first of all a remarkably imbalanced country in terms of the national economy, the dominance of London and the south east is not something that is normal for an economy of our overall so called wealth.  And with it, and I passionately get involved in these debates, with all this focus about so called inequality, actually on simplistic measures of income and equity, for various reasons, but contrary to the popular perception, measured inequality is a bit lower than it was 25 years ago.  What is dramatically wider is geographic in equality as well as intergenerational inequality.  But actual income and equality has not widened for many years, despite what we get bombarded with in a lot of media – but it’s quite rare.

Another aspect of my learnings from pre-BRIC life, I did have a life before having that on my forehead, if you look at other very successful places in the world with contrasting styles, whether it be the US or Germany, they have a lot of places in their countries that contribute, so we are quite odd in that regard.  And I’m deliberately not saying whether it’s good or bad, but it’s odd.  The second thing, and it may be a coincidence, but it is also the case that we are remarkably centrally run, compared to anywhere else in the OECD.  The degree of central control over spending and revenue raising is almost, not almost, it is unparallelled in any other OECD country.  It is very tempting, therefore, to immediately conclude that the two things  I’ve just said are connected, they might not be, but I suspect there are almost definitely some bits which are.  And so the third thing to say, and I emphasise it again here because of what I acknowledged about the south being very diverse and different, and a lot of non-urban areas.  If you want to make a difference nationally, a difference, by definition the places that you’ve got to give the biggest amount of early attention to are the urban areas.  Which, a lot of people who are not in urban areas, quite understandably say: oye! what about us?

But if you are approaching from trying to change the national economy, it is reality that you have got to give primary attention to the urban areas.  Although I quickly add, and something that grows in my own mind, as we have seen with the Brexit vote, actually it was driven by people who were not in urban areas.  So, even if you want to economically focus on that primarily to make a difference, it’s not just people saying: oye! what about me? because it ends up influencing policy, so one has to be very conscious of that.  And since leaving government, I’m even more sympathetic to the issue, which I’ve seen described in your notes beforehand, about how there was this frustration that there appeared to be one approach to devolution, that was designed for urban areas, and there should have been more thought to be given to rural ones.  I’ll come back to that in a second, because it is obviously true.  But, I emphasise again, if you’re trying to focus on it in terms of changing the overall national economic performance, by nature it is the urban areas that you’re going to focus on.

Three other things to say before I go into the second part.  I was just at some sort of all-party parliamentary type discussion about the mayoral thing the night before last.  And to my on-going staggering amazement, still to this day a lot of people get into this amusing game as to: what the hell is the Northern Powerhouse anyhow?  Which is sort of amusing, but in my view a bit silly.  At the core of what is the Northern Powerhouse, and linking it to why I’m deliberately saying it now, what is unique about some parts of the north is that, within 40 miles of Manchester, you have three other big cities – Leeds, Sheffield and Liverpool.  There is nowhere else in Britain that has that.  The whole reason why the Northern Powerhouse, therefore, should be a policy focus, is because of that geographical fact.  Much to the irritation of many other people in the north, particularly those from the north-east, but also many others, unless everybody accepts and focuses on that issue, then the attention on doing what’s needed to get that economically to be a game-changer, will happen.

There was, and there certainly has been, post-leadership change with Theresa May, a lot of confusion about that, including in the minds of people close to Theresa May.  A lot of them think the Northern Powerhouse is just some fancy name for giving a load of money to Manchester – that is nonsense.  It is about trying to get the 8 million people that live within that radius of what I, sort of, inarticulately call ‘ManSheffLeedsPool’…I know, not one of my better ones.  But if you think of Bradford and Barnsley or Warrington, and all these places, that is 8 million people.  And if you can get them to behave as one collective group of consumers, or one collective group of producers, that is a game-changer for the future of the United Kingdom, and that is what the Northern Powerhouse is all about.  Now, because of social issues and human life, of course you can’t exclude anybody else from the north, particularly the north east, but that is what is at the core of the Northern Powerhouse.  And I won’t talk any more about it, but I want to emphasise it in the context of things that affect you, in terms of perceptions about what should be done and what needs to be done by government and people locally.  Because I don’t frankly think people close to Theresa May quite get that that’s what it’s all about, partly because of individual and group political battles within the Conservative party, apart from anything else.

The other lasting thing to say, which touching on the comments that we heard from the Vice Chancellor here is that, this is all against the background of a persistently low productivity performance of the country in general.  But it’s evidently, from the data we have, particularly weak in most parts of the country outside of London, and actually Bristol and the urban areas surrounding Bristol.  Which is the one area GVA-wise which is above the national average other than London, most other areas are significantly weaker.  And quite what, why, and all the rest of it, there are many things, but skills and education are almost definitely at the core of it.  So, the comments made about the role of education and particularly in universities, the role of universities in modern life is enormously important, in my opinion.  One of the other things that influenced me in a City Commission approach to all of this, is actually in the United States, with Boston and the North East.

When I first started studying economics in my shorts, it was fashionable in the 1960s to write-off Boston and the North East of the US, in the same way as become the norm about many parts of the [UK] North.  Boston and that area surrounding it, as I’m sure many of you know, is today one of the world’s most vibrant, urban-based communities, and it is almost definitely because of the universities being at the heart of it.  So, when I go back to that third point: what is your edge?  If your universities here, or in your own part of the south, or those educational institutions have some real edge, they should play a big role in the southern devolution house that you want.

So, let me move quickly into the second part.  Here, where I ask: does devolution mean better decision-making, or more bureaucracy?  Here I’m going to bring in some of my own personal observations about the interplay with national politics, particularly following what happened last week, and the fact we have an election.

The fact of the matter is…so first of all, and again it will become more evident now, the reason why I emphasise economics is, most people approach the issue of devolution from national tribal politics which, in my opinion, is wrong.  It is going to be very interesting as we creep through time, because most people in Whitehall just simply don’t get it.  Their first port of call is: what does this mean for my party?  And what does it mean for our political prospects?  As I said already, I was sort of shocked that throughout the days of the City Growth Commission, or the brief time of it and in the immediate aftermath, the Labour Party hierarchy seemed completely unfocused and disinterested in the topic – it may have been a symbol of something broader, who knows.  I think, although obviously many of you will have your own opinions about his motives and the PM’s, at the time, motives, I think what they were attracted to, the idea was, (a) because they had to worry about the Scottish Referendum but, (b) David Cameron’s government and George Osborne’s Chancellery were becoming known as just standing for one thing, which is austerity and reducing the deficit.  I think they saw that the idea of focusing on devolution and trying to do something to change the way the UK operates, gave them a different think.  Whether that’s true or not, that’s what I assumed, because if that’s what they assumed, they would be right, because, as I discussed earlier, it would be a game-changer.

However, a lot of their Conservative party colleagues didn’t get that, and looked at it as: what does it mean in terms of us and our power?  So, there were at least two urban based deals that didn’t happen, frankly because of Conservative party politics.  It would be dressed up for other reasons, publicly, but that’s why it didn’t happen, because if we went for the mayoral thing, wouldn’t that be a way of just simply handing power back to the Labour party?  Now, I say that so candidly because, maybe I’m a bit naive, and my brief 14 months in politics told me I certainly am…

I have some optimism of the six mayoral elections we had last week – was it six?  Four of them went to Tory, I’m pretty sure that there was no expectation of more than two at best, so that might have destroyed the idea that by pursuing that path, is simply handing power back to Labour – I could be very wrong.  And I suspect in terms of the spirit of what you’re trying to do for the PM’s advisors – and I’m sure many of you know better than I – it’s a very tight group, they may be more open to the idea than they might have been two weeks ago, is my suspicion.  Because it won’t seem to be what they thought before.  But, and in the spirit of the second part of the way I split it, more focus on the nature of an ask should be: why is it I’m asking for something?  Is it an excuse for something that we should be doing within our existing structure?  Is it because we really want more responsibility?  Is it because there was some announcement that everybody should be in a bid for devolution, so we thought we better had, because everybody else is?  Or what is it?  Because going back again to what I said in my very opening comments, not that many of those initial ones reach my desk.  The only one that came across my desk, is the one that I ended up having quite detailed discussions with a number of you, who I see still with the bruises, but smiling in the room, and that’s because I think it was pretty credible.

Maybe, but I think you need to explore what my interpretation was about last week’s results, as to whether the appetite is back, because the thing that really stopped it, was the political dimension about votes and Tory party majority.  Two other things about it, if the polls… and remember I said it’s true, I don’t really care about national politics, it all seems a bit stupid to me, but there you go.  If the polls are right, and if the Tories get, I don’t know, 60 plus majority, it would make it easier for those at the centre, if they wanted to do devolution deals, to do them.  The other big place where we never got a deal, and it’s sort of ridiculous, is Leeds, and it gets dressed up in all sorts of crazy things, but it’s because of the marginal Tory, or what’s perceived to be marginal Tory seats in West Yorkshire – that might be changing too.

The other thing I would say lastly about all of that, is the turnouts, even though it was low, certainly from the ones that I’m personally close to, were significantly higher than expected.  Greater Manchester, itself, was nearly twice what they feared the week before would be the case.  So for the process and for those of you…and obviously I know it’s not that many of you who are interested in mayoral type ways of approaching it, I think there will be some pleasure about the turnout in those places that actually voted.  If you look at the turnout for London, the first time they did it, it was not much different, so I think it’s quite encouraging, even though obviously you would want something like that to be higher.

So coming to number 3: what is your asset or edge?  So, what is it that makes you different?  Obviously given my own background and journey into this broad space, it’s easy for somebody like me to see that the urban conglomeration, let’s call it the Solent area, that has the same rationale as the Bristol based area, West Midlands, blah, blah, blah, blah.  Hence why that discussion went the way that it should have ended up… For other areas, you have to think about what is your edge even more.  And here I’ll be slightly contradictory to the spirit and tone of what I said earlier.  Again, partly because of politics, as you all know, we did get encouraged to tiptoe into rural based deals with mayors, which pretty clear to me, despite the fact I was the one that had to have the discussions with them, weren’t likely to succeed.  Because what was there that was so special that some of them were offering, and especially because of the diversity of the areas that were included?  And I think those of you that are looking for deals that have a lot of non-urban aspects to it, you have to think very carefully about: what is the uniquity within it that you are hoping to seriously get, especially as it relates obviously to any transfer of money?  Because otherwise it will get lost in focus pretty quickly.

Other two points relate to it, then I’ll stop.  One is to reiterate what I’ve said about skills and education.  I suspect, but I don’t know, not least because I’m eight months removed, again linked to a possible bigger majority, I suspect there might be a bigger appetite to at least explore aspects of getting close to education devolution.  It was a red area inappropriately in my view, as I used to say to George and David all the time, it was, kind of, ridiculous.  But it was a red area because of the philosophy that originated essentially from Michael Gove, but I suspect that might be more open.  And if it were, that is an area that all parts of the south have a chance to jump into.  And, again, in that regard I reiterate the obvious thing about universities, but in terms of, I think, stating the obvious, to truly be a long term game-changer, basic education and skills, because they’re the things that ultimately matter for productivity, I believe looking at the economics of it, it is pretty almost definitely the case that people in local areas are more likely to have some experience about what are the issues that really matter to that area, rather than just one centrally imposed plan.

But, again, rather than just some simple off the shelf ask, think through what is unique about what it is that you’re trying to persuade these people.  At the end of the day, I mean, Treasury doesn’t seem to be quite as powerful as it was at the moment, but at the end of the day, with good reason, the country with debt to GDP ratio of 90% vicinity, you’re dealing with officials that have been around a long time, who are well: at the end of the day, we’re handing over responsibility that might influence our future debt performance, so we’re only going play our role in trying to persuade a senior minister, if we really believe it’s credible.  And that, of course, is why the Greater Manchester guys were so early onto it, because there are only so many times you can keep Howard Bernstein out of the office.  Thank you.