Friday, April 8, 2011

No. We are *not* "all entitled".

I had actually forgotten about this article on regional disparities which has been festering in my drafts for nearly a month now.

Some noteworthy statistics first of all:

1. Average GDP per head in central London is more than nine times larger than in parts of Wales.
2. The ratio of GDP per head in the three richest regions of the UK to the three poorest increased by almost a tenth between 1990 and 2009.
3. Real GDP per head fell by 6% during 2007-09 in poorer areas, such as Yorkshire, the Midlands and Northern Ireland, twice as much as in London.
4. According to the Centre for Cities, a think-tank, welfare benefits account for 28% of residents’ total income in Liverpool, compared with 14% in London.
5. Almost 40% of Liverpool’s jobs are in the public sector, compared with 22% in London.

Several caveats should be read along with that data above:

1. Central London’s income per head is increased by commuters who work in the city but do not live there.
2. The cost of living is cheaper in rural parts than in big cities, which also has the effect of exaggerating inequality.
3. Urban areas will always be wealthier than rural ones because of their higher productivity and their greater ability to attract companies and employees.

Still amongst the OECD countries looked at by the Economist, the UK has the widest regional disparity present in a whole range of factors.

That reality has detrimental effects on both national cohesiveness and, more concretely, the economic life of the UK but finding solutions is obviously a bit more troublesome than baldly stating the problem and should move beyond what was howled out by an activist at recent Labour shadow cabinet public meeting in Nottingham:
"We are entitled. We are all entitled, we live in a modern country."
Before concrete answers are looked at though, several facts needed to be accepted by all who have a genuine wish to see a long-term, structural improvement in such areas:

1. Cities in the north of England, N.Ireland, Scotland and Wales are too much dependent on public-sector jobs and welfare benefits.
2. Labour markets (and by extension people) must be more flexible, moving if needs be in search of work. Logically this should ultimately reduce the labour supply in areas of high unemployment.
3. Education and skills must be improved in poorer areas- one horrific fact mentioned is that only 21% of working-age people in Sunderland, have any form of higher education, compared with 39% of Londoners.

In all three cases, when admitting those facts, there is common a degree of personal responsibility which must be accepted by those who wish to see their area's and their own prospects improve. Money will also clearly be needed but it should never be the driving factor, if we are to see real and lasting change.

But while we all remain "entitled", what chance is there of that real and lasting change taking place?


Wildgoose said...

I am afraid that I'm going to dispute your "facts that need to be accepted".

Not the first of course, which sits in the ranks of the "bleeding obvious".

Your second point is that Labour markets and people need to be more flexible, moving if needs be. It strikes me that they already are - hence the steady drift of population (and jobs) to London and the South East.

Your third point is actually a consequence of the second - people are being flexible and moving to where the jobs are, taking their higher education skills with them, a "brain drain" that once again benefits London and the South East.

I'm a Yorkshireman hailing from a poor area. The problem we have is quite simple. If all the transport links, related businesses, media and political power reside in the South East you are going to need a good incentive to base your business away from those advantages.

Cheaper workers isn't much good when the best workers either move to the South East for better prospects or take safe, well paid (and easy) local government jobs. The regulations and the taxes are just as onerous in both places, which means that the poor areas can only compete for poorly paid and relatively unskilled work.

There is nothing new in this - Keynes identified it in the 1920s and argued that it was bad for the UK and also unwise (at that time) for all our most important industries to be based in easy striking range from the Continent.

There is only one sensible answer and that is to give poor areas the advantages they need to be able to compete with the South East. Basically lower taxes and an easing of the regulatory burden.

A good start would be to instigate a proper Land Tax as this would naturally benefit areas of more plentiful and cheaper land.

O'Neill said...

If all the transport links, related businesses, media and political power reside in the South East you are going to need a good incentive to base your business away from those advantages.

But surely in the modern age, with the internet and the concept of telecommunting those advantages enjoyed by the SE are theoretically removed, or at least reduced? But for some reason, there hasn't been the movement of even the more hi-tec business away to areas like Sunderland- partly again we're coming back to education levels.

Making business easier at the ground level makes sense but I think it makes sense to cut red-tape and company-related taxation full stop across the board... which again, would help create new jobs rather than simply transfering existing ones.

My other suggestion, would be a hard one to sell, but it would be to make life in the public sector not such the good deal, in terms of benefits and (still true) job security. That would make it less attractive for the higher educated who could be the drivers in kick-starting a higher level of local entrepreneurism.

The land tax idea, I'm not sure regional differentation is permitted within the EU, I seem to remember that was cited as an issue with a similar idea with corporation tax?

Wildgoose said...

It's not Education levels per se, it's that those areas with a concentration of hi-tech businesses feed off each other - there's a reason why there are so many hi-tech and computing jobs in Silicon Valley in the USA, the industry has reached a "critical mass" with regards to the availability of talented workers with highly specific skills that then cross-fertilise ideas and techniques amongst the companies they work for. Telecommuting is not sufficient to overcome that, (yet).

I agree with you about the fact the public sector jobs are too attractive, but I would answer that this is made worse by the sheer volume of public sector work there is - local government should just stick to the basics.

Land Tax would work because the same rate would apply but expensive land in the South East would pay more than cheaper land in more deprived areas.

O'Neill said...

Got you with the land tax now, I thought you were arguing for a differential rate of tax.

Re the Silicon Valley example, wasn't the reason for the initial outburst of hi-tech economic activity there due to the high number of qualified and motivated students leaving Stanford and Berkely?

The cross-fertilisation of ideas, economies of scale etc then followed on from that initial base. I

t's admitedly not 100% sure that an increased number of graduates in an area will increase its wealth but the converse is certainly true, I think- a low level of educational achievement breeds on itself killing off regional self-pride, motivation and enterprise?

The Aberdonian said...

I have taken a while to collect my thoughts on this article. Essentially the UK suffers from "London worship" and there are many within the M25 belt who believe if it ain't in London it is inferior.

As I have noted before, much of the depressed parts of the UK were prosperous during the Empire. when the Empire collapsed, the captive markets/resources supply chain went and these parts of the UK have been having hangover after decades of being drunk on Empire. Parts of France suffered the same when the French Empire disappeared - although the French had started on the Common Market/EEC/EC/EU substitute.

Since the collapse of the Empire - and particularly with Thatcher - there has been a constant centralisation of the economy. It is a vicious circle for many future "wealth creators" - they have to move there to get experience, form contacts and then bob's your uncle you are trapped there as no others before you "returned to the provinces" to be wonderful and entreprenurial. And so the cycle goes on.

The UK by and large has a level tax playing field so it is not fiscal deterrents to opening businesses in such areas. It is perception. You saw "The Apprentice" - "The problem with Manchester is that it so 2-years behind London". Witness the whining about the relocation of some of the BBC to Salford - coming from the same bunch who think it is natural for those from outside the South-East of England to have to move down there.