Inclusive economy? Finding Cinderella in the ‘hand & heart’ economy
By Tim Thorlby
5 min read
This is the fourth blog in a short series looking at what ‘inclusive growth’ could look like and how to make it a reality. Here we look at the everyday economy of ‘hand and heart’ jobs and ask what would happen if we invested in this sector more seriously. Is this the missing piece of the jigsaw for local economic development?
1 – The Cinderella Sector
Well, it’s nearly Christmas, so that means it’s Panto season.
“Oh no it’s not!”
(See what I mean?)
One pantomime in particular seems appropriate to this blog series on the inclusive economy – namely, Cinderella. As you will remember, Cinders is a kind-hearted young woman who spends her life tidying up after, and indeed caring for, other people and yet is cruelly neglected.
Well, it turns out that the UK economy has a surprisingly large and important sector within it which is very ‘Cinderella’.
What I call ‘the hand and heart economy’[1] provides an impressive number of jobs for our nation, but it is in dire straits. Sometimes known as ‘the foundational economy’, these are the jobs which provide for society’s essential everyday needs. These are our key workers, our supply chains and our essential services. They include:
Farming and food supply chains
Shops, supermarkets and banks
Cafes, restaurants and hotels
Schools and childcare
Health and social care
Housing
Provision of utilities like gas, electricity and water
Trades of all kinds, from plumbing to cleaning to building
These are the everyday jobs, often very practical or caring (‘of the hand and heart’) without which our society simply would not function.
Rather like Cinderella, though, we take this part of our economy for granted and neglect it.
You won’t find it in the UK’s new (draft) Industrial Strategy[2]. This focuses its attention on eight ‘growth driving sectors’, like advanced manufacturing, and will prioritise investment in places with ‘high-potential clusters’. The focus is very much on ‘frontier’ knowledge-intensive businesses and high tech, high paying jobs which are part of the global economy.
Much as I welcome a bold new national industrial strategy (long overdue), the omission of the foundational economy may be an error.
All is not well in the hand and heart economy. Too many of these essential jobs are low paid, part-time and subject to precarious zero-hours contracts. Too few provide any training or progression. And with some notable exceptions (health and education) there is little investment going into many of these sectors to increase productivity.
There is mounting evidence that investment in the less glamorous foundational economy may be just as important as any ‘priority growth sector’ if we want millions more people to have higher wages, higher qualifications and work more productively.
Without wanting to be too grandiose, this is also touches on one of the key political tensions of our time – a deep unease amongst many communities that the UK economy no longer works for them; that the rush to globalisation in the last couple of decades has left them behind. They may not be wrong.
Addressing the foundational economy may therefore not just deliver economic benefits but may also help us restore a sense of social and political cohesion - which has been disintegrating at pace in recent years.
There is much at stake here.
2 – How Cinderella has been neglected
Defining the foundational economy
The foundational economy includes people working in the private sector (e.g. retail), public sector (e.g. social care and childcare) and the voluntary sector (e.g. charities supporting mental health). It has been described as the ‘infrastructure of everyday life’[3].
It is perhaps no coincidence that Greater Manchester, which has secured more devolved power than most local areas in England, is ahead of the game in thinking innovatively about economic development in England; they have been exploring what the foundational economy means for them and where the potential for improvement lies.
The Mayor of Manchester estimates that 42% of the jobs in Greater Manchester are part of the ‘hand and heart’ economy and includes over 60,000 businesses, many of them small.
The Welsh Government has made the foundational economy the centrepiece of their national economic strategy, recognising that it comprises half of the private sector in Wales.
In Glasgow, they have also been exploring these ideas and have estimated that over 60% of jobs and 40% of businesses in the City Region are in their foundation economy.
It clearly varies from area to area, but on average the hand and heart economy may account for almost half of our economy overall in the UK. It therefore represents a significant part of our national economic life.
It’s (all) about productivity
Productivity in our economy is a big deal. It is perhaps the sort of jargon that makes most people’s eyes glaze over upon hearing it, but it really matters. When national productivity stops rising, living standards also stop improving. In the UK, rises in productivity largely came to a halt in 2008 with the Financial Crash and have hardly risen since.
Paul Krugman, a Nobel Prize-winning economist once said
“Productivity isn't everything, but in the long run it is almost everything”.
Put simply, productivity is ‘output per worker’. If a worker can increase their ‘outputs’ then productivity rises. This usually requires some kind of investment in new skills or better technology or both.
Rachel Reeves, in her first budget in October 2024, has prioritised increasing public and private investment in order to kickstart productivity improvements again.
Productivity is pretty low in the foundational economy, with some exceptions. It is typified by work that is low paid, precarious and low productivity. There is now growing research evidence that investing in higher productivity in these everyday jobs may directly deliver higher pay and better living standards for millions of people in a way that conventional investments in ‘high growth’ sectors will not.
We still need high growth sectors to flourish, just to be clear, but by excluding much of the foundational economy from national economic investment plans, we are missing a big trick. Wealth does not ‘trickle down’ from high paid jobs in any systemic way, and high-growth businesses tend to be clustered in some areas but not others, so if we want a nationally inclusive strategy for raising living standards for every town and city, focusing on these specific sectors alone is not sufficient as a strategy for benefiting the whole economy.
IPPR Scotland explored this issue a few years ago and came to this conclusion:
“It seems clear that relying on job creation in Scotland's 'growth sectors' to boost pay and prospects for the vast majority of Scotland's labour force is not a realistic or sustainable strategy for realising inclusive growth. Instead, Scotland's productivity strategy needs a dedicated focus on high-employment, low-wage sectors in order to drive up productivity and pay across the breadth of the Scottish economy”[4]
3 – The benefits of investing in the foundational economy
Investing in the growth of high-tech sectors may deliver national benefits and also localised benefits to those sectors and those who work in them, but the benefits are not more widely shared. As we have seen over the last 40 years, communities can live side by side with hugely successful business parks and investment zones and never participate in the economic benefits at all. They may be next door to each other, but they exist in different economic worlds, which barely touch.
Wealth does not ‘trickle down’, this is a myth, and so economic strategies that prioritise investment in highly specific sectors are very unlikely to address social inequality.
The potential benefits of investing more in our foundational economies include:
Universal - Every local economy in the UK has a foundational economy, so it is relevant to every community – in a way that investing in the ‘biotech sector’, for example, is not; only some areas will benefit from this.
Local spending - The nature of the jobs in the foundational economy are such that increases in pay and productivity will be felt locally and directly and there will also be local multiplier effects as people are more likely to spend their higher incomes in their local economy. The economic benefits of investment in the more high-tech jobs in multinational businesses are much more likely to ‘leak out’ of the local economy (and indeed, the national economy)
Productivity wins - It may be easier for investment to deliver higher productivity in many businesses in the foundational economy as they are starting from a relatively low base. The Government’s 2022 Levelling Up White Paper estimated that increasing the productivity of the UK’s bottom 25% local economies up to match the performance of the middle would add c£50 billion each year to the economy. (So, a city like Sheffield, with 300,000 workers would earn c£700m additional income each year. Worth having.)
Socially useful services – Foundational economy jobs tend to deliver direct improvements in the quality of life for local communities because these are the kinds of goods and services that affect people on a day-to-day basis. If you’ve tried to get a builder or a plumber recently, you will know instinctively what the Government knows – there is a huge skills gap here; we need a lot more skilled tradespeople in the UK.
For example, the Government’s own Construction Industry Training Board recently estimated that the UK needed 250,000 more skilled workers in the Construction sector alone[5], a problem made worse since Brexit closed the door to many European workers. If the Government is going to build 1.5 million new houses, it is going to need to fill this skills gap. Investment in skilling up more people to do these kinds of jobs would therefore be seen and felt across the country in very tangible ways.
4 – How do we get Cinderella to the Ball?
We now have an emerging national Industrial Strategy and every local authority is putting in place a renewed Local Growth Plan, all hoping to promote the UK’s economic development. This is a good thing.
At the heart of most of these strategies will be shiny and exciting investments in high growth, high tech jobs in ‘frontier’ businesses. This is also a good thing; we need more of those.
But it is not enough. The number of jobs in these sectors is relatively small and they are very unevenly distributed between our cities.
What this blog has attempted to highlight is that the less glamorous yet essential ‘hand and heart’ economy also needs direct investment. This is our Cinderella sector. This may be the fastest and most direct way to boost living standards, economic inclusion and greater equality across this country.
It requires a shift in mindset because the foundational economy requires a different approach. This is not about expanding a few ‘winning sectors’ and then trying to share out the benefits afterwards, it is about engineering economic growth that is by its very nature more inclusive. It is achieved by investing in education, training and technology.
In particular, it would require a significant increase in public funding for adult education and training as well as an expansion of apprenticeships. The IFS noted in 2023[6] that public spending on further education had fallen, in real terms, by two thirds in the twenty years since 2003. Truly this is a Cinderella sector. Education is a bedrock of social mobility for many communities and it has been allowed to wither. Inclusive economic growth needs to get this sector all dressed up and off to the ball again.
Training is not the only answer – some sectors, like social care in particular, are quite broken and need investment in pay too. Whilst some of these issues can be addressed locally and regionally, some do require national solutions.
More fundamentally, backing our foundational sector is underpinned by a vision of society and economy which is about more than just ‘maximising gross value’. Simply boosting GDP has never been adequate as a vision for our national life. Don’t we also want an economy that provides fairly paid, dignified and secure work for all those able to work?
We need to expand our economic imagination on what we are looking for.
Let’s get Cinderella to the Ball. Better late than never?
Is Andy Burnham a Fairy Godmother?
As civic leaders in Manchester, Wales and Scotland are showing, no magic wand or fairy godmother is required – rather, bold and visionary leaders who are prepared to do things differently and experiment. We need much more of this local innovation and daring. The approach may well look different in different places.
If we are to see a shift in gear in the UK in making economic growth more inclusive then it will have to address the foundational economy at some point. Like the story of Cinderella, our ‘hand and heart’ sector may appear uninteresting and unglamorous to some at first sight, but as we know, looks can be deceiving.
A fairytale ending to this blog would see these millions of key workers recognised for the essential and dignified work that they do. Investing in them will benefit them and the economic renewal of local communities across the country.
This ending is in the hands of local authority leaders, Government, local business and an active civil society pushing for change.
Oh yes it is!
This blog was written by Tim Thorlby. Please sign up for the email alert if you’d like to know about future blogs, usually published once a month.
Notes
[1] A phrase inspired by David Goodhart’s excellent 2020 book “Head, Hand and Heart” – well worth a read by the way.
[2] Invest 2035: the UK’s modern industrial strategy, published October 2024 by the UK Dept for Business & Trade
[3] A phrase coined in: Froud, J., Sukhdal, J., Moran, M., Salento, A., and Williams, K. (2018)
Foundational economy: the infrastructure of everyday life, Manchester University Press
[4] Quote from: Statham R and Gunson R (2019) How productivity could deliver inclusive growth in Scotland, IPPR.
[5] Construction Industry Training Board, 2023 (CITB is an NDPB overseen by the Dept for Education)
[6] IFS, Annual report on education spending in England: 2023