In this piece Professor Simon Collinson suggests that a different kind of capitalism is key to creating good growth. He highlights some of the signs and causes of failure within our current system, and offers some evidence-based recommendations for ways forward.
A More Inclusive Variety of Capitalism is Needed for Good Growth
Growing socioeconomic divides cause tension. While developing economies often see this as part of their growth transition, advanced nations—despite stable democracies—have failed to ensure fairer wealth distribution over time. Populist short-term fixes have not reversed widening disparities in income and health. Small, incremental tweaks to these systems will not make the difference needed. A reinvention of our ‘variety of capitalism’ is required to build-in more inclusivity.
The US and the UK are particularly notable for the growing divide between the haves and have-nots. But the UK is doubly challenged because it is not growing. In this same series on ‘Good Growth’, Paul Johnson (Director of the Institute for Fiscal Studies), makes a strong argument for ‘The essential and urgent need for growth’ in the UK. Without it, there is nothing to distribute. Greater inclusivity is impossible without growth in productivity and earnings. Various divides stem from a widening gap between thriving regions that generate and benefit from economic growth and those left behind. In the US it is wealthy urban and coastal areas versus the rural heartlands. In the UK the divide between London and the South East and ‘the rest’ has been clear for some time.
The Signs and Causes of Failure
The evidence of failure is clear. Data on productivity (GVA per capita), transport infrastructure (which the current UK government might be about to tackle seriously), education and skills, the distribution of income, assets and wealth, relative poverty, social mobility and health all show high levels of underinvestment and a notable overall slowdown in growth, in much of the country. The polarisation in regional capacity to create wealth is matched by a growing polarisation between those with higher incomes, bigger assets, more life opportunities and better health outcomes, and the rest, left behind.
Most of these issues are flagged in the most recent (in a long line of) industrial strategies (‘Invest 2035’). Similar patterns emerge across other advanced liberal democracies. Europe’s sluggish growth, particularly in Germany, and the US’s high inequality despite stronger expansion reinforce the urgency.
The causes of failure are also becoming clearer. Combining different perspectives and tools from across the social sciences (e.g. at City-Region Economic Development Institute, City-REDI) helps us understand the system-wide cause-and-effect relationships. For example, economists, geographers and econometric modellers, working with innovation management specialists show that the inadequate diffusion of productivity-enhancing practices between firms and places is one of the many causal factors. But this relationship is intimately tied up with the quality of institutions, the influence of finance organisations and the effects of relevant governance structures. These in turn influence, for example, the effective targeting of business support programmes, within a wider range of policy interventions.
Sluggish productivity and deepening deprivation in regional cities compared to London is the result of a long-term underinvestment in infrastructure, education systems (and more directly, skills), and innovation capacity elsewhere. Economic policies in the UK and elsewhere, dictated by a centralized fiscal elite, have disproportionately favoured high-growth regions, using narrow metrics like productivity and return on investment to guide funding and regulation. Such an approach has deepened the rift between thriving and lagging regions, exacerbating income and living-standard disparities. These policies are critical because they translate government rhetoric into real-world investment decisions, shaping business conditions and local opportunities. While current selection mechanisms may deliver quick wins, they are eroding the system’s long-term stability. There has been little progress toward the government’s promised “levelling up.” Even if political will for reform existed, the UK’s structural and governance frameworks remain ill-equipped to deliver meaningful change.
Place-Based, Intelligent Interventions
We know that there is a general need for structural reform, targeted interventions, and greater devolution to foster balanced growth. A more holistic, interdisciplinary approach is essential—one that weighs economic expansion against social inequality, health outcomes, and net-zero commitments. Policymaking must also adapt to local contexts, recognizing that different regions face distinct challenges and opportunities. Crucially, local coalitions—not centralized bureaucracies—should drive interventions, supported by (rather than subordinate to) national government. These stakeholders better understand regional growth dynamics and can mobilize local organizations to co-design and deliver policies. Shifting power in this way would align incentives more closely with inclusive growth, ensuring that decision-makers are directly accountable to the communities they serve.
Beyond this, more detailed recommendations include the need to focus on regional innovation systems that are more inclusive in design and outcomes, rooted in sustainable local growth strategies. This includes a better alignment of skills provision with firm-level demand, targeting (1) skills gaps which have the biggest impact on current productivity and (2) the types of skills needed to support emerging industries. In the former case (1), targeting investment in selected SMEs (small and medium-sized enterprises), including through training programmes for lower-skilled, lower-income workers, improves productivity as well as raising household incomes in poorer communities. This increases regional resilience, and reduces the long-term tax burden from benefits, welfare and health costs.
In the latter case (2), a place-based specialisation strategy, to move a regional economy away from legacy industries into emerging sectors, but only where the region has a latent capability to succeed. Few city-regions in the UK have the critical mass of endowments to underpin competitive advantages in AI, translational healthcare, space, or games software. Despite a lack of empirical evidence to support them, many regions have attempted to win local funding from central government by targeting these kinds of ambitions. We have better data now and can be more ‘intelligent’ and precise with the small amounts of local growth funding we have.
Selecting the right kinds of firms to both save and help to grow is also essential. Those with high levels of embeddedness, creating strong local multipliers, help leverage limited public resources for maximum local impact. This is one example of informed precision that the policy regime needs to apply to improve regional value appropriation. Using existing public procurement expenditure to influence local growth is another. Targeted supplier selection and policy-driven contracting can support better productivity, improved innovation at the local level, or help achieve more ethical and / or more sustainable business practices.
Universities improve skill levels and develop new technologies, processes and knowledge which, in combination, underpin firm-level innovation. So, there is good reason to steer existing and new funding, particularly from DSIT and UKRI, into place-based, industry-led programmes for inclusive growth (and more of this is happening). There is significant potential in the commercialisation of a larger proportion of university-based R&D, better-leveraged to improve local firm-level productivity and innovation.
Otherwise?
Faced with ‘failing states’ and a ‘crisis of democratic capitalism’ globally, our form of democracy is at risk. The wealthy are widely seen as having appropriated the mechanisms of democracy to maintain a system which has made them richer. We are also seeing new examples of the ‘abuse of entrusted (and public) power for private gain’ in countries which had advanced beyond this. Beyond the obvious moral imperative to reduce inequality, failure to address the serious socio-economic imbalances in the UK today could trigger a more fundamental decline in the economy, social cohesion and the political systems that have been key to our historical success.
About the author
Professor Simon Collinson FAcSS is a Tsingshan Chair Professor at the ZJU School of Management, Zhejiang University, focused on research into the management of innovation and international business in China. He is also an Honorary Professor at the University of Birmingham and an Associate at the Bennett Institute, University of Cambridge. Up to May 2024, Simon was the Founding Director of the City-Region Economic Development Institute (City-REDI) and WMREDI at the University of Birmingham Business School, where he was Dean 2012-2016. He was also Deputy Pro-Vice-Chancellor (DPVC) for Regional Engagement at the University of Birmingham (2016-2023). His current research is on inclusive regional economic growth, R&D commercialization, and the management of productivity and innovation. He works with regional and national government, businesses and community organisations in the UK and internationally in these areas.
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