Across advanced economies, national averages mask widening divides within countries. Big metros power ahead while many towns and smaller regions struggle to keep up. Our recent UK-Japan study with the City-Region Economic Development Institute (City-REDI) looks squarely at this problem through two ‘second city’ regions – Birmingham/the West Midlands (United Kingdom) and Osaka/Kansai (Japan) – and finds durable institutions, functional regional geographies, flexible finance, and open learning loops are the levers that turn strategy into outcomes.
Institutions that last longer than political cycles
When shocks hit, places with clear mandates and accountable leadership adapt fastest. England’s “trailblazer” devolution deals are instructive: the West Midlands Combined Authority (WMCA) now operates a single, multi-year settlement managed like a department’s budget, bringing the stability needed to prioritise and make trade-offs over several years rather than several months.
Map of the United Kingdom’s West Midlands region
Source: cipfa.org
The multi-year City Region Sustainable Transport Settlement funding, aligned with the single-settlement model, enabled WMCA to rescope and finance Phase 2 of the Wednesbury–Brierley Hill Metro to Merry Hill. This included a £36m over-programming allocation in July 2024, after which government confirmed the £295m scheme and works began in February 2025.
The same deal extends 100% business rates retention for 10 years, worth about £450m. Predictable multi-year settlements and retained business rates strengthen the case for prudential borrowing and other financing tools for capital and programme pipelines, subject to the Prudential Code and HM Treasury rules. In practice, that means authorities can front-fund catalytic infrastructure where the benefits are clear and revenue streams (or the settlement envelope) can prudently service debt.
A clear mayoral mandate plus a single settlement can allow regions to publish five-year outcome compacts (on jobs, productivity, net-zero milestones), align procurement with diffusion targets (e.g., SME participation rates), and trigger in-year reallocation to scale what’s working – without waiting for a new grant round.
For Japan’s second-city regions, the lesson travels: multi-year, outcome-based settlements can back innovation districts, SME diffusion programmes, and brownfield regeneration without constant re-bidding. Flexible finance lets you sequence investments across transport, skills, and firm support – crucial for translating R&D assets into productivity gains and better jobs.
Govern at the scale real economies work
Growth doesn’t respect legacy administrative lines. The West Midlands devolution architecture deliberately spans the labour market, connecting Birmingham, Coventry, Wolverhampton and surrounding authorities, so transport, skills, and firm-level support can be planned as one system.
In Japan, Kansai is a polycentric region anchored by Osaka-Kyoto-Kobe, whose dense university base, manufacturing supply chains and visitor economy operate as a single functional footprint. Osaka’s push to position itself as a global financial city and to use Expo 2025 as a convening platform shows how regional identity can galvanise multi-jurisdictional investment.
Map of Japan’s Kansai region
Source: cipfa.org
Japan offers a complementary institutional lesson: the Union of Kansai Governments (a wide-area body uniting multiple prefectures) coordinates beyond municipal borders on infrastructure, energy, and disaster response. For second-city regions, this kind of shared platform helps align incentives, pool resources for large projects, and speak with one voice to national government and investors.
Governing at functional scale lets leaders link transit stations, skills hubs and innovation districts. In a single programme, a region can synchronise opening dates for a new rail station, adjacent further education provision, and a nearby health-tech anchor so firms can access talent and sites from day one. The result is higher firm survival and faster diffusion than if each city acted alone.
Durable, well-designed institutions reduce churn, protect long-horizon bets (skills, land reuse, innovation ecosystems), and make it easier to publish and stick to outcome compacts with the centre.
Treat major projects as learning platforms
The best places don’t just build – they learn in public. Expo 2025 Osaka, Kansai, is a live example: an international event on Yumeshima Island with 6 months of programming and a large-scale built legacy. Framed right, such a platform can pilot digital services, test mobility and energy solutions, and seed investable districts (e.g., Umeda’s Grand Green Osaka).
Publishing clear metrics and after-action reviews – visitor flows, SME participation, skills pathways into event jobs, post-Expo land reuse – turns spectacle into system learning and strengthens the case for subsequent phases of investment.
Big projects often succeed or fail on the ‘software’: governance clarity, procurement that favours diffusion, and feedback loops that redirect capital toward what works.
Three broader lessons
First, productivity catch-up is possible – if diffusion is the goal. Frontier breakthroughs matter, but diffusion – helping the other 90% of firms adopt proven tech and management – is where most gains lie. Our UK-Japan work underscores the importance of pairing anchor-led districts (universities, hospitals, advanced manufacturers) with SME adoption programmes and skills ladders that include non-degree routes. In Kansai, finance and Expo-linked initiatives can be designed to channel capital and know-how into local supply chains; in the West Midlands, the single settlement allows rebalancing toward firm-facing services when demand is there.
Second, transitions must be locally governed. Net-zero and digitalisation land unevenly. Single settlements and wide-area coalitions give regions room to blend funds across transport decarbonisation, retrofit supply chains, and digital inclusion – managing distributional impacts while crowding-in private finance. The Kansai regional platform’s remit across energy and infrastructure is precisely the sort of cross-cutting capacity that transitions require.
Lastly, trust grows when accountability is visible. Geographies of discontent are, in part, governance problems. Publishing clear partnership agreements, dispute mechanisms and outcome dashboards – as in England’s trailblazer deals – and giving recognisable regional leaders the tools to act can rebuild confidence that public investment is fair and effective.
Engines of renewal
Second-city regions can be engines of national renewal. Give them institutions that endure, geographies that match the market, finance with freedom to prioritise, and the tools to learning and adapt – and they will deliver broad-based, resilient growth.
For more, check out the Making Decentralisation Work report. Discover more work from the OECD on the topics discussed in this blog: Transforming Places, Enhancing Productivity in UK Core Cities, Fiscal equalisation and regional development policies, Place-Based Policies for the Future.
Jeffrey Matsu is Chief Economist at the Chartered Institute of Public Finance and Accountancy (CIPFA). He is a Fellow of Practice at the Blavatnik School of Government, University of Oxford, and an Associate at theCity-Region Economic Development Institute, University of Birmingham.
With extensive experience in connecting policy with practice through evidence-based research, Jeff works with partner governments, accountancy bodies and the public sector around the world to advance public finance and support better public services. His areas of interest include regional economic growth, value for money (VfM) and financial resilience.
Previously, Jeff was responsible for market analysis and thought leadership at the Royal Institution of Chartered Surveyors and co-led the economy theme at the UK Collaborative Centre for Housing Evidence. He was also a senior economist at Morgan Stanley and served on the research staff at the Board of Governors of the Federal Reserve System in Washington DC.
Jeff holds degrees in economics from the University of Washington and Johns Hopkins University.