Levelling Up

What is ‘levelling up’, what are the barriers and how do you overcome them?

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On 15 July 2021, UK Prime Minister Johnson gave what was intended to be a major statement on ‘levelling up’ the country. It received a tepid reception, with a general consensus in the UK press that it was vague and repackaged past promises and existing programmes.

Facts

The speech showed that Johnson had been fed a few facts that may have surprised him, but which are familiar to regional science researchers. There are gross disparities in life expectancy between places; ditto in educational attainment, and in per capita incomes. However, health, education and poverty were never connected in the course of the speech, rather they appeared independent sources of bewilderment.

Equally inexplicable to him was the revelation that ‘per capita GDP of the North East of our country, Yorkshire, the East Midlands, Wales and Northern Ireland is now lower than in what was formerly East Germany’. Who’d have thought that? Well, anyone who has followed the databases of Eurostat or the research of the ESPON programme  before Brexit removed the UK from them. Presumably, despite being an MP, Minister and then Prime Minister, Johnson had gone years unaware of such facts.

Causes

In terms of causal analysis, the speech pointed the finger at two factors. One was the ‘chopping and changing – in the last 40 years we have had 40 different schemes or bodies to boost local or regional growth’. His list began with the Abercrombie Plan for London (that will be the one from 1944!), and included the New Towns (a programme ended in England in 1976). The catalogue was not comprehensive, omitting, for example, Regional Spatial Strategies (introduced 2004, scrapped by David Cameron’s Coalition Government).

Another that was missing was freeports which operated from 1984 to 2012, when the Coalition Government discontinued them. Later in his speech Johnson hailed freeports as a means of levelling up. He did not mention the EU report on money laundering and tax evasion risks in freeports. 

The second cause of regional inequality identified by Johnson was left wing councils in the 1980s. As the PM put it ‘for many decades we relentlessly crushed local leadership’, because of them. What’s more ‘the loony left remains pretty loony’, so devolving power, while necessary, is tricky.

And that, readers, is pretty much it in terms of analysis.

Other ways of understanding regional inequality

For at least the last 20 years, regional scientists have focused strongly on agglomeration economies. Put crudely, big cities have economic advantages. These include a supply of labour (both specialist but also on a scale to absorb fluctuations in demand, e.g. through immigration); short supply chains (for components, but also access of clusters of producer services like banking or legal services); and early access to ideas and information.

This means that other things being equal, capitals and major urban areas are likely to grow faster than small towns and rural areas. Spatial inequality exists and is constantly being reproduced.

Governments across the world recognised the benefits that accrued from the growth of their big cities. Those cities were the drivers of, and accounted for a significant proportion of, national economies. Widening intra-national inequalities were an acceptable side-effect – as long as the overall economy was growing. Though the gap between the booming cities and other places was widening, those many of other places were also experiencing better times.

The benefits of aggregate growth, contributed disproportionately by major cities, included tax revenues, which in a centralised country followed disproportionately to central governments. This double disproportionality meant that governments were complicit in sustaining, or even boosting, big city growth, as part of a ‘competitiveness’ agenda.

Specifically, it meant that some of the negative externalities of the growth were addressed by state spending. Congestion and connectivity became key concerns. It is no coincidence that per capita spending on public transport is so much higher in London than in the North-West of England, for example. The Greater Manchester Combined Authority, was getting £680 per capita for transport investment in 2016/17; this was better than other parts of the North of England, but the London figure was £1940.

Then came the banking and finance crisis of 2007/08. As the banks and their London home had become so overweening, they could not be allowed to fail in the way that coal mines, steel works or shipyards had been allowed to close, rotting lives and places that depended on them.

The UK Government spent some £1.1 trillion between 2008 and 2011 in rescuing the banks. The quickest route to national recovery was through growth in London and the South East.

Austerity followed. It was used as a means to further entrench inequalities. In England, the cuts in central government funding to local councils have been much greater in proportionate terms for more deprived authorities. The most deprived all-purpose authorities saw cuts of more than £220 per head compared with under £40 per head for the least deprived. This translates at local level to an increasing differential in terms of loss of jobs and declining services and maintenance of the public realm.

Other non-spatial measures such as changes to the benefits system compounded spatial inequalities, insofar as those receiving such benefits are not evenly distributed across space. Of course, the pattern is more complex than for the cuts to council spending, and has contributed to the growth of poverty and child poverty in London as well as elsewhere. Not all poor people live in poor areas and not all people in poor areas are poor. However, in reducing the incomes of benefit recipients relative to average incomes it increased inequalities, and exacerbated the situation in those parts of the country where the population is disproportionately poor, unemployed, has few qualifications, or is in poor health.

The German Puzzle

Johnson was bemused to find regions in what had been East Germany were better off than significant parts of the UK. Here are some possible explanations. Like the UK, Germany is a rich country: that helps. In addition, levelling up has been a national policy since 1990.

The transport, energy and telecommunications infrastructure has been massively modernised and expanded. Renewable energy and environmental enterprises have played a particularly important role in the recovery in the East.

Germany is a European leader in scientific and applied research, and the level of technical education in East Germany was always high, even before 1990.

No doubt restoring Berlin as the capital of the unified state also helped. In addition, the regions, in Germany have real power and a high degree of autonomy. It is a much less centralised country than the UK, and less in thrall to house price inflation as a prime model for wealth building.

Formation of industrial clusters has been a key part of the reindustrialisation of the East. For example, there is wind power technology in Magdeburg and Rostok, or Dresden, Freiberg and Chemnitz with microelectronics.

Despite what has been achieved since 1990, in the Eastern Lander GDP per capita and productivity still lag behind levels in the former West Germany, and unemployment is higher. However, the gaps are nothing like those between London and West Wales, for example.

In Germany, as across the EU, the idea of ‘cohesion’ – social, economic and territorial – has a traction that it never achieved in the UK. Similarly, the financial equalisation measures in the Federal Republic have been called ‘Solidarity Pacts’: not the kind of terminology you hear in the UK.

Another theme in Germany and in the EU Structural Funds is ‘integration’. It means going beyond a set of discrete ‘projects’. Synergies need to be designed so that skills, infrastructure, health, housing, environmental improvements become mutually reinforcing. That implies some kind of spatial development strategy, but also integration through time. Rather than a series of short-term capital projects, revenue spending becomes important.

What Germany shows is that levelling up is a task that requires more than a generation. Decentralisation, targeted investment and strong investment in R&D are essentials, along with a positive embrace of renewable energy technologies. It is a different trajectory from that followed by UK governments of which Johnson has been a supporter, member and leader. It has produced different results.

It helped that the post-2008 recession was more short-lived in Germany than in the UK, reflecting its inferior status in, and reliance upon, global banking and finance.

What is to be done?

Johnson says that levelling up needs a ‘strong and dynamic wealth-creating economy’. But he gives few clues to how to achieve that, and does not confront the possibility that such an economy does not guarantee greater equality. He talked about ‘relieving the pressure’ in ‘overheated’ parts of the country, while stressing that ‘levelling up is not a jam-spreading operation’.

Piecing the threads together, Johnson’s levelling up seems to mean directing incremental portion of future economic growth to poorer parts of the country, mainly through one-off projects like HS2 or new motorways, freeports, better buses, trains and bike lanes or town funds allocated by central government, though with some county mayors to help tune the fine details locally.

Germany has done much more than that over a 30 year period, and yet differentials remain and company HQs remain obstinately in the west.

To have half a chance of making a difference across the UK, we would need a long-term national spatial strategy, informed by proper research and drawn up by the UK government, devolved administrations and local government organisations. It would seek to rebalance regional relations in the context of the challenges and opportunities presented by the climate emergency and by the need for solidarity and cohesion.

It would form a template for regional-scale plans to fill in the details, and provide a medium- to long-term financing formula that enabled greater local fiscal autonomy and accountability. These regional plans would have a focus on improving intra-regional connectivity in relation to identifying and supporting potential clusters, while conserving and restoring environmental assets. Integration would be a key theme.

There would be many questions to confront, but the secondary cities would need to have a significant role to play as the anchors of functional regions with democratic accountability.

In the short-term, because of the degree of centralisation that is built in, central governments have most levers to pull, and should do so. The gross inequities fashioned over the past decade in the geography of public spending need to be redressed, and decentralisation of power and public sector jobs are important steps. But, there has to be more than short-term fixes, and a recognition that this reducing inequalities is a serious challenge, one requiring broad buy-in, but not to be shirked or reduced to pork barrel politics.