The West Midlands might be better off if it followed the example of Chicago and was given more local fiscal responsibility, says Andrew Lydon.

With a reconsideration of the institutions of regional economic development now under way, a proper assessment is due of what difference Advantage West Midlands has made.

Would other approaches to economic development have been more worthwhile, given that the last 10 years have seen the region falter again?

The Institute for Public Policy Research recently publicised figures which showed that Birmingham plods in the slow-lane in the economic development stakes. We have not progressed like other regions because we relied on reviving manufacturing and that has clearly failed.

In the decade or so since AWM was set up - with 'transport technologies' as one of its longest standing client 'cluster' industries - we have lost Longbridge, Ryton and much else besides.

'Tableware' was also part of a target cluster just as the potteries were disappearing. A creative accounting cluster would be needed to present these AWM clusters as having not actually collapsed since 1999.

Government was mesmerised by China and India 'taking over' world markets, and getting near to hysterical about 'competitiveness'. But manufacturers complained that their main problem was that a sterling exchange rate always seemed to add to their prices here and overseas.

However, sterling was now left in the custody of the supposedly independent Bank of England Monetary Policy Committee, which was not answerable to anyone around these parts.

The inflation figures over the last year have been indicating how an economy like ours needs to adapt to living with China and the emerging economies.

For over 10 years their manufacturing was driving down prices across the world, much to the discomfort and pain of higher paid economies such as ours. But China is now easing off on this.

Indeed in energy and food, they are beginning to drive global market prices up. It looks as if it will become increasingly price competitive to undertake additional parts of the material processing and manufacturing processes nearer to our regional customer base, as China ceases to just be a cheap labour economy. This could increasingly become the basis

of a localised economic renaissance for the manufacturing regions of the old First World.

But a familiar foe is bobbing up to block this road to us here in the UK.

Our sterling exchange rate is at its highest for more than a quarter of a century against the predominant dollar part of the world economy. While slightly slowing the rise in global prices as they are felt in the UK, it will delay the boost to competitiveness that the shift in world prices is bringing.

The US and Europe will get a head start in being able to process and manufacture in the First World. One can imagine the lead the US is set to grab in biofuels, which could blight even more sustainable developments closer to home.

This will have come about because the UK has a reputation for not being able to properly tackle our own inflation and so we tend to have interest rates higher for longer. Plus we have a

London-based financial sector well-practised in taking in the cash that foreigners thus want to bank here to get a piece of the interest-rate penalty that we in the UK have to pay because of how poorly inflation is controlled.

It is no coincidence that we have the most boosted exchange rate and the highest inflation and interest rates among the First World economies. Our dollar problem stems from no one expecting interest rates in the US to go higher - while here they can bank on it.

The US Federal Reserve's reputation for promptly stamping out US inflation is well deserved. The 'Fed' has regional committees who all sit in on the setting of interest rates.

Chicago is Birmingham's twin city. The Federal Reserve Bank of Chicago attends all interest rate setting meetings. It is paired with the Cleveland Fed, so that one of them always has a vote on interest rates.

Besides producing national inflation figures, the US Department of Labor produces two for Chicago, including one for 'manual and clerical workers' in case there should be a difference. These indices all include a representation of how property prices impact on the cost of living - unlike our UK indices.

If one looks on the Chicago Fed's website, one finds that they have even been running an exercise measuring inflation felt by other parts of the social spectrum (eg ethnic minorities, single mother-led families) to ensure that inflation is not affecting them in ways unseen by the Washington-produced indices.

Thus there are no inflation hot-spots spreading stress around the US, which still has a competitive dollar. So it is worth asking whether we in this region might have been better off had Gordon Brown brought regional representation into the Bank of England when he made it 'independent' in 1997?

Would not more effective control of the rising costs of living, including housing costs, alongside a more competitive pound have done more for us than anything that AWM or its counterparts could do ?

Liam Byrne, the new Minister for the West Midlands should think about this. He was not even in Parliament when the current Bank of England model was enshrined, nor when AWM was set up.

Should even a prototype new Bank of Britain begin to meet, and develop a public presence, many of those stuffing speculative cash into London will have to start working out where would be the next best place to stash such 'hot money'.

Longer term investment in production here would be thus made comparatively more attractive than say BMW or Peugeot found it.

The more representative such a proto Bank might be, the more likely a proper balance between the economic needs of the different regions will be found. Regions like ours will clearly seek to avoid either interest rates that push up the cost of housing and erode savings or make the pound uncompetitive.

London and the Home Counties will have to chose whether it wants to voice the habitual mantras of the City or to seek to make the South a region that can pay its people enough to actually live there. These are the issues people want politics to address.

Any such debate will conclude promptly that we need to adopt localised inflation indices. The aforementioned US indices became the template for the German indices in the days of their fondly remembered deutschmark. The model has been much compromised in today's Eurozone. Even Japan and India also adopted the US models, and China has inflation indices that follow this model.

We in Localise West Midlands are already talking to the Office of National Statistics about reforming our inflation indices along these lines.

* Andrew Lydon leads the Regional Prosperity & Inflation Project for Localise West Midlands, the Digbeth based think tank and consultancy.