Unlocking public procurement as a tool for place-based industrial strategy

ABSTRACT

Recent market volatilities and disruptions have highlighted the perils of industrial atrophy and spatial inequality within advanced economies. Despite growing interest in lifting regional economic performance, entrenched neo-classical frameworks limit the extent of effective government intervention. This paper aims to ameliorate the tension between the free market focus on least-cost procurement and broader requirements for regeneration. Based on our literature review, we propose a novel framework recommending public procurement processes monetarize the significant and overlooked value of domestic investment within advanced manufacturing clusters. The financial benefits of such a strategic place-based approach are likely to be greatest in lagging regions.

KEYWORDS:

• place-based industrial strategy
• public procurement
• advanced manufacturing
• regional development

JEL:

• H57
• L52
• L60
• R12

ACKNOWLEDGEMENTS

We thank the anonymous reviewers and editorial team for their constructive comments throughout the development of this paper. We also thank Dr R. A. Day for his thoughtful suggestions and proof reading of the manuscript at various stages.

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Notes

1. Notwithstanding, Cabral et al. (2006) and Uyarra and Flanagan (2010) find that, over the longer term, cases exist where reduced competition bolsters innovation by enabling innovators to temporarily earn monopoly rents and facilitate standard setting.

2. Grants that support research require firms to make additional expenditures with their limited capital. Public procurement provides steady demand and cash flow to invest (Aschhoff & Sofka, 2009).

3. Victoria’s local councils procure goods, services and works worth about A$$3 billion annually.

4. Going forward, this influences the export competitiveness of services.

5. Service activities that used to be conducted ‘in house’ at manufacturing firms are commonly outsourced.

6. This has been amended in the latest edition of the Green Book (ARUP, 2020).

7. Skills mismatch is a significant challenge across UK regions (Sevinc et al., 2020).

8. World-leading industrial clusters can be located in regions which are otherwise performing poorly.

9. Includes lifting the threshold on the additional cost the government is willing to pay to support a domestic producer, tightening up on exemptions and stipulating greater US content.

10. Making components is generally more valuable and high-tech than assembly. For example, many products that are ‘made in Mexico’ are merely assembled there and include significant US componentry (Wilson & Wood, 2016).

11. Davies et al. (2018) has a breakdown of public procurement by level of government and department in the UK.