Government has a job to do
The Journal (Newcastle) Wednesday 11 December 2002
The North East is now the poorest part of the United Kingdom - poorer than Wales, poorer even than Northern Ireland (despite the ‘troubles’). A couple of years ago the ‘North-South’ divide was dismissed by Government as too simplistic – but such a position was unsustainable and they’ve had to accept that significant regional economic disparities exist within the UK. Led by the Treasury, they have even set themselves a specific target to “reduce regional economic disparities over the long term” - which at least has the benefit of concentrating the minds of Ministers and civil servants. But do they have a sustainable strategy that can deliver this ambitious objective?
At its most basic level, regional economic prosperity is the product of regional variations in productivity and employment. The relative importance of these differs from region to region. GDP per head (the most useful statistical measure) is low in ‘regions’ such as Wales and the North East because of low levels of employment; productivity levels are similar to many wealthier regions. On the other hand, the South West has above average levels of employment but relatively poor productivity. London’s relative prosperity is due to its high levels of productivity, though it has mediocre rates of employment.
Therefore full employment for all UK regions should be the top priority if we are serious about tackling regional disparities. However, the Government’s regional employment agenda is less developed than its regional productivity agenda. Its employment agenda thus far has included the New Deal, the National Minimum Wage, reforms to the tax and benefit system and an emphasis on skills and training. These are what the experts call supply-side policies – designed to get people into jobs that already exist. Such policies are most useful in regions such as London where you have a healthy jobs market, where barriers do include a lack of skills, lack of information and discrimination.
However, tackling low employment in a prosperous region is fundamentally different to tackling low employment in a lagging region. Supply-side measures may not be fully effective in the absence of demand-side measures – what experts say when they mean creating new jobs. While the English regions do have some centres of prosperity (around Leeds or Manchester for example) this is not sufficient to negate the demand-side deficit. The unemployed in Hackney and Hartlepool require very different policy tools to increase levels of employment.
Fighting poverty in London is as important as fighting poverty in the North East – but the way in which it is done must be different in these two areas. London does have areas of extreme deprivation, often right next to areas of extreme wealth, but this does not (despite what the Government were arguing a few years ago) negate the ‘North-South’ divide. It means that the appropriate policy response will be very different.
In theory, the market should act to reduce regional disparities – workers would move from depressed low-wage regions to high-growth, high-wage regions. This would depress wages in richer regions and increase wages in lagging regions. The fact that regional economic disparities have remained consistent for generations indicates a failure of the market to work smoothly - and if we have market failure it is incumbent upon the Government to act.
In theory, there are three main solutions to this problem: encourage workers to move south; restrict development in the south; or create new jobs in the north.
Encouraging workers to move south will only exacerbate the ‘brain-drain’, as the older or less qualified workers are less likely to move. This would give the south a further competitive advantage, creating a vicious circle for the North East. Restricting development in the south doesn’t help much either – while it cannot guarantee that capital or money will travel north, restricting supply can guarantee that land and house prices will increase in the south. It will be the poor who suffer from such a policy – in the south they will have to pay increased housing costs, and in the north the option of inter-regional migration will be even less likely. There may be valid environmental reasons to restrict development in the south, but we have to question the implications for economic development. We should use the carrot, not the stick.
Which brings us back to full employment. The best course of action if decision-makers want to solve regional economic disparities is to create new jobs in lagging regions. Regional Development Agencies (RDAs) like One North East will have their part to play, but we can only start to tackle regional disparities if we have a judicious mixture of top-down as well as bottom-up policies. Central government cannot absolve itself of responsibility by passing the buck to RDAs. Their role is perhaps the most crucial in this debate, but also perhaps the least well developed.
John Adams
Senior Research Fellow
Institute for Public Policy Research
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