The fundamental flaw of Levelling Up
Regional inequality is a symptom – not a cause – of our deep-seated national economic malaise.
For a long time ‘Levelling Up’ was widely derided as a slogan in search of a policy. With last week’s much-delayed Levelling Up White Paper, we now have lots of policies – 400 pages of them. However, the search to identify the essential causes of lower levels of prosperity and growth in some parts of the UK has missed the mark.
Aspiring to raise living conditions for all, with an emphasis on the most deprived, is a worthy goal. But turning hope into an effective plan needs to start with ‘the why’ to identify successfully ‘the what’ that needs to be addressed. For all its length, the white paper fails to unearth what’s been holding back local, regional and national growth and prosperity.
The government continues to evade the fundamental driver for deficient living circumstances countrywide – namely, an economy that has been stuck in depressed conditions for half a century. Redistributing where existing government budgets are spent and giving more of it to local town, county and city leaders to allocate – the two substantive themes of the white paper – will not reverse decades of coast-to-coast decay in productive activities and public services.
An inability to grow the economy and produce new, decent jobs, by developing enough new industrial sectors to replace declining ones, has condemned too much of the population, wherever they live, to hardship and an uninspiring future. A stark illustration of this economic weakness has been the failure since the 1980s to replace the heavy and mining industries, which had previously provided secure jobs and good incomes for many people in the northern parts of England and in Wales and Scotland. Deindustrialisation was much less a problem than the subsequent failure to reindustrialise on a sufficient scale to create good replacement jobs.
On top of the dearth of decent new employment, inadequate economic growth means insufficient resources for public spending on things like healthcare, education, affordable accommodation and public transport. Rooted in economic atrophy, these two basic shortfalls – in decent jobs and public services – impact the vast majority of the population, north and south, rural, town or city dwellers.
There is nothing wrong with a government providing special assistance to parts of the country that have been particularly disadvantaged by industry closures, as long as this targets job creation and does not prop up declining sectors. Also, there is a critical need for public spending on higher unemployment support and proper training for people as they make the transition into better areas of employment. There is nothing wrong, either, in governments spending relatively more on other public services, such as transport, in areas with geographically isolated or dispersed populations.
In a dynamic economy, all this state activity would be helpful. And enabling local leadership for such initiatives, going beyond mayors to include direct popular participation, also makes their success more likely.
However, in an economy held back by insufficient business investment and near-stagnant productivity – the amount people can produce in a given period – this proposed redistribution of resources threatens to merely redistribute the want. Certainly, it is a feeble substitute for the national growth plan that has been necessary for a long time.
Sure, this government will likely be able to point to a few state-backed projects, such as the one underway in Teesside, to showcase some positive results by the time of the next General Election. But priority resource allocation – a tactic famously used by the Soviet Union to camouflage its failing overall economy – won’t raise productivity and common prosperity. Overall, the measures in the white paper and its 12 ‘missions’ are at best localised palliatives. At worst, some of the targeted government spending could help sustain failing businesses and the stagnant economic status quo, when what our economy really needs most is shaking up.
Complacency about the economic challenges
In an attempt to hype up the white paper, Levelling Up secretary Michael Gove wrote that Britain was a jet plane. The goal was to fire up the economy to fly on all engines, not just the one engine in the south east and London. The incongruity of this jet metaphor – usually associated with great speed – points to the government’s perennial complacency about the state of the economy.
Indeed, launching the white paper, Gove claimed: ‘The UK is an unparalleled success story. We have one of the world’s biggest and most dynamic economies.’ This claim belies the reality of an economy where average growth of real output per person barely exceeded one per cent a year in the decade leading up to the Covid-19 pandemic.
Gove did at least recognise the UK’s urgent need for strong economic growth: ‘After two long Covid years we need to get this country moving at top speed again. We need faster growth.’ But the use of the word ‘again’ delusionally assumes that the economy was doing well before the pandemic struck – ‘moving at top speed’, no less.
Moreover, the connection Gove is suggesting between faster growth and geographical unevenness points to the underlying flaw of having ‘Levelling Up’ as the government’s flagship economic programme. This focus assumes that it is regional and local imbalances in performance that represent the main barrier to Britain becoming a stronger economy and raising living conditions for the many.
The Levelling Up agenda is based on a simple assumption: if only everywhere in the country ‘levelled up’ to the best performing region – namely London – then all would be well. Arithmetically this scenario can’t be disputed. If all regions exhibited the same productivity level as the top one, or even rose to at least the median level, then the overall productivity that provides for our incomes would be higher. But a mathematical equation is not a strategy. This white paper and other government analyses have failed to demonstrate that unevenness is the main impediment to faster economic growth.
The white paper also needed to account for the failures of 50 years of remedial regional economic policies. As the consultancy EY notes, ‘despite the launch of at least 40 geographic policy initiatives over the past five decades, the UK remains one of the most regionally unbalanced developed economies’. Governments, of all political colours, have tried to boost productivity in the regions beyond London for decades, but to little effect.
That so many of these policy initiatives have failed to overcome spatial imbalances tells us one of two things. Either these schemes have been too piecemeal to make much difference, or the geographical approach to addressing problems of local deprivation and anaemic economic activity is flawed.
Unfortunately, the government assumes the former. ‘Attempts so far’, reads the white paper, ‘have been insufficient to close the widening gaps’. We can do better this time with a ‘renewed and coordinated focus’: ‘This is the first time a government has placed narrowing spatial economic disparities at the heart of its agenda.’
The white paper barely touches on the possibility that the approach itself is wrong. And it neglects the overarching climate of economic depression that explains this record of policy frustration over the past half century.
Without being able to identify the structural and often policy-driven barriers and limitations that have impeded previous well-intentioned geographical economic strategies, how could this one be expected to have better outcomes? The stated aspiration to be better focused sounds positive, suggesting that this is an area where it is thought less can mean more. But the multiple topics, missions and goals within this extremely wide-ranging – some would say diffuse – white paper is the very opposite of ‘focused’.
Geographical unevenness is much more a symptom than a determinant of economic debilitation. Focusing on attacking spatial imbalances therefore risks missing the bigger drivers of productive decay, including the prolonged dependency of businesses on state support. Coming up with a re-directed set of state policies could aggravate the existing problems impeding economic development and growth.
The attraction of Levelling Up
Addressing inequality and imbalance has always appealed to those concerned about the failings of capitalism, because it suggests solutions that avoid disturbing capitalism’s fundamentals. This focus on unevenness and inequality has become even more pronounced since the fatalist notion of TINA (There is No Alternative) gained hold four decades ago.
From the 1980s, and especially with the end of the Cold War, it has become commonplace to assume there is no alternative to the capitalist system. Yet with Western capitalism still lurching from one economic crisis to another, it has been impossible to ignore its failings. The consequent unease about capitalism has mostly settled on it being an unfair, unequal system.
After the big financial crash of 2008, and the lack of much of a post-recession recovery, the problem of imbalance and inequality has become the dominant feature of economic and social commentary. Hence, in British politics, prime minister Theresa May’s emphasis on the ‘left behinds’ was soon followed by Boris Johnson’s subsequent pledge to ‘level up’.
The snag with emphasising imbalances, disproportions and inequalities as being economically important is that they have been an ever-present feature of industrial capitalism. Indeed, as others have shown, inequalities can’t be simply reduced to the specific regional focus of the Levelling Up agenda. Inequalities within regions are larger than inequalities between regions.
The various forms of imbalance flow both from the inherent social iniquity of capitalist property ownership, as well as from the unplanned essence of the market system. Industries and their associated employment are prone to take off and decline in particular localities of a national territory. Because of the unplanned character of capitalism, it is rare for economic change to unfold simultaneously in a proportioned way in every part of the country. Most of the time, uneven economic development is the capitalist rule. Trying to even out capitalism’s unevenness is therefore a Sisyphean task.
More importantly, the focus on geographical imbalances distracts from what should be approached as a national challenge. While declining regions and localities do need to be revitalised, so does the whole national economy.
Economic growth in Britain, and in many other advanced industrialised countries, has been in decline since the 1960s. Average growth of real output per person fell from around 2.4 per cent a year during the postwar boom of 1950 to 1973, to 1.6 per cent a year from the start of the long depression until the end of the Western financial crisis in 2010. On the eve of the pandemic, it stood at about 1.1 per cent.
Worsening imbalances and inequalities, spatial as well as between people, tend to indicate a socioeconomic system that has wider and deeper troubles. When economic growth slows in general, unevenness tends to become aggravated. For instance, the economic struggles of northern England, South Wales and the West Midlands over the past 40 years are a result of the closure of heavy industry and mining in the 1970s and 80s and the subsequent failure to create replacement businesses, sectors, and jobs. This impacts more sharply in particular areas but it reflects the nationwide decay in productive activity.
That Britain has relatively high levels of regional inequality compared to other developed countries is a consequence, not the cause, of its relatively slower growth as a nation. The underlying economic problems are not geographically specific but are manifest across the whole country.
The biggest source of impoverishment within and across all areas is the nationwide decline in productivity growth. The long-term average productivity growth of about two per cent has fallen to near zero since 2007. This stagnation in productivity is why real incomes have hardly improved for so many households over so long a time. Characteristically, Britain’s productivity growth has declined in every region of the UK since before the financial crisis.
The reason for this atrophy in productivity derives from inadequate business investment in new and improved technologies, both in existing and in developing sectors. Again, this is not peculiar to any particular area. These are the fundamental economic problems. They are national in scope, and solutions therefore also need to be national. The task is to regenerate decent rates of growth, not to rebalance a sclerotic economy.
Unevenness and imbalance are persisting features of modern capitalism. By highlighting them as the country’s main obstacle to popular prosperity, the Levelling Up plan ignores the profound influence of depressionary trends. In particular, it eschews the specific role the state has been playing since the 1980s in aggravating Britain’s contemporary challenge of zombification (that is, the state-backed preservation of failing businesses).
This evasion leads to the government looking in the wrong direction, towards more of the same – more state intervention spread more ‘fairly’ across the regions beyond the south east. Yet, instead, the government could actually do something effective, and quicker. After introducing decent levels of unemployment support to finance people as they transition into better jobs, it could start turning off the state-support mechanisms that are getting in the way of economic renewal.
It is obvious that a lot of effort has gone into this bumper white paper, but a huge quantity of plans and missions does not make up for an absence of clarity and purpose. Indeed, breadth of scope can be a weakness, not a strength. It would have been better to produce a short white paper that gets to the heart of Britain’s national as well as geographical economic and social frailties. Helping businesses to create lots of decent jobs around the country could be a positive, cohering national objective.
As it stands, the Levelling Up White Paper amounts to a lot of not very much. It sums up the emptiness of this government’s objectives once it had withdrawn from the European Union. For all its sloganising, this government still has no idea what it stands for.
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