Skills future is sectoral

As recession bites, employers in the UK are crying out for a clearer, more customer-focused system of training

By Tom Bewick

A decade ago, I advised the Government on the introduction of Sector Skills Councils (SSCs), at the time, the ‘missing dimension’ in the UK’s training and education landscape. The councils enable employers to have a real say over their training needs, reducing skills gaps and improving productivity. They cover 90 per cent of the UK’s workforce, 1.7 million businesses and work between the space of industry, government and education.

Today, in the midst of recession, we face new economic challenges that require a smarter, more sectoral approach.  Despite the dedication of over 350 leading employers on independent SSC boards, the Government often bypasses them in favour of the institutions it directly and politically controls, like the Regional Development Agencies (RDAs).

In a crisis, people do one of two things. They ignore it and carry on, in the hope that repeating what they did before will work better. Or they innovate their way out of trouble and make a new future. John Maynard Keynes, the post-war economist much referenced during this downturn, saw his contribution to macroeconomics as a “struggle of escape from [the] habitual modes of thought”, which he had inherited from his classical predecessors. He would have agreed with his contemporary, Albert Einstein, who said: “Insanity is doing the same thing over and over again expecting to get different results.”

It is those habitual modes of thought – or the conventional wisdom driving much of our current training and skills systems – that needs to be challenged. There are four key issues that policymakers need to address.

1) Roll back the Training State

One of the biggest misconceptions around Whitehall at the moment is that national, regional or local governments can create business competitiveness.  The real problem with this approach is that policymakers confuse a good state of training, with the creation of a Training State. They are not the same thing.

The celebrated economist Michael Porter is often credited with the phrase, ‘think global, act local’, although in fact it was a Scotsman and city planner, Paul Geddes, who coined the term nearly a century earlier. A re-reading of Porter, however, shows that he was not a “localist” after all, but an ardent supporter of the sectoral approach.

To find real answers to the determinants of productivity growth, he argues, ‘we must focus not on the economy as a whole [the spatial], but on specific industries and industry segments’.

2) The spatial fallacy

We need to question the trend in some OECD countries to intervene on employment and skills increasingly via regional and local labour market institutions. There is a major role for local players – but to assume that the whole panoply of the nation state can be replicated successfully at every administrative tier of geography is a dangerous fallacy. This sort of approach is also very costly.

In England, for example, there are now regional skills boards, sub-regional boards, city-region boards and there are plans to establish local prosperity boards. These statist structures have built into them the presumption that they are able to second-guess the labour market and provide better skills and prosperity for local communities. The trouble is there is no credible empirical or international evidence that this approach is more responsive to local employment needs.

We need to come back to the main determinants of productivity growth: companies and industrial sectors that innovate. Globalisation and supply chains dictate that increasingly companies will have to operate beyond geographically imposed boundaries. To compete globally these days, companies must act sectorally, especially if they want to take advantage of an increasingly interconnected world.

There is a role for the state in supporting company training. What sector bodies like SSCs do is place ownership for finding strategic solutions to skills gaps and challenges in the hands of those who work or lead in the industry. SSCs have experienced, hard-headed business people and trade unions sitting on their boards, not Government appointees.

3) Supply-side tinkering, instead of real demand-side reform

We talk of a ‘demand-led system.’ The question is whose demand are we talking about? Sector Skills Councils principally describe the skills and attributes that employers demand in order to run their organisations successfully or compete globally. ‘Demand-led’ in the UK has been driven mainly by the demands of parents, students and the education profession, not employers.

This approach is symptomatic of large parts of our education and training systems today – based on inputs (like qualifications), instead of employment outcomes. Although knowledge-based economies undoubtedly need these ‘high-level skills’, there is no real evidence that a mass higher education system causes economic growth.

Nearly everyone agrees that the current skills system is far too complex. There have been a number of avoidable fiascos in recent years as the system has been perennially restructured and loaded with conflicting policy priorities. The National Audit Office found that half of the employee training that was funded from the £1 billion Train to Gain programme would have taken place anyway. The deadweight has potentially resulted in half a billion pounds down the drain.

The UK Commission for Employment and  Skills, a Government body, showed that the UK is currently ranked 11th in the world in productivity levels. They argued that: ‘Unless we act decisively, we will not be in the top eight countries of the world at any skill level.’

Radical reform is required. Employers in the UK are crying out for a clearer, more customer-focused system. That requires Sector Skills Councils that are properly empowered by Government and genuinely led by employers.

So how do we make our skills system simpler and more responsive to economic demand?

4) Put the customer at the centre of the system

If we were designing the system from scratch, our starting point would be with the purchaser of further education and skills training. Government has a role to make sound and strategic investments in the skills and talents that will drive our future prosperity. But it is employers and individuals who are at the apex of any really responsive training system.

We currently support them through a complex network of ‘proxy-consumers’ - the funding councils and student loans companies. We could streamline all sources of state financial support through a single Learning and Skills Bank. The mechanism for distributing funds to students and employers would be via individual and company skills accounts. For the first time this would put real purchasing power in the hands of those who undertake the training.

How would we ensure this free market didn’t lead to a free-for-all of unlimited demands on taxpayer support or poor provision? That’s where the role of government, sector bodies and the regulators would come in. I would see SSCs in future playing the pivotal role, operating between state and market.

A regulator would ensure the market worked fairly. As well as the responsibility for licensing SSCs and regulating qualifications, I envisage the regulator having the power to intervene in areas of market failure or where there is sub-optimal demand for skills.

This simplification would boil the system down to four key players in our employment and skills system (other than learning providers): 

• The Learning and Skills Bank


• Sector Skills Councils


• The regulator


• Impartial advice and guidance services

If the purpose of any industry training is to drive improvements in productivity, then we have to move to a simpler and more market-led approach. This approach needs to be underpinned more clearly by the skills that raise productivity, and therefore long-run economic growth.

Economic theory and international best practice shows that industries – working through sector bodies – are key to raising the bar. Industry sectors are currently an underpowered and underused way of navigating our way out of the choppy waters of recession. We have to move on from the old ways of doing things. It may take a bigger leap of imagination, but if people accept the future is global, it is almost certainly going to be sectoral as well.

To find out more about this article, visit: http://www.ccskills.org.uk

5 October 2009

Tom Bewick. Chief Executive, Creative and Cultural Skills