Tag Archives: Economics

‘Levelling-up’: the government’s plans aren’t enough to promote economic growth and tackle inequality

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The government’s levelling-up plan dodges the hard choices says Henry Overman. Countering the economic forces behind the UK’s spatial disparities requires addressing multiple barriers and allowing differing approaches – and the funds committed so far don’t appear to be proportionate to the scale of the challenge.

The government’s Levelling-Up White Paper focuses on 12 missions that aim to level-up the UK. Lots will be said about whether the government is spending enough (almost certainly not), whether devolving more powers is a good thing (almost certainly), and how much of their plan is different to past efforts (not much, for those of us that remember the 1990s and 2000s).

Setting these issues aside, does the economic strategy make sense? If government spent enough, and gave places the right powers, would pay, employment and productivity gaps narrow? The answer will depend on how government resolves the fundamental tension between the role of ‘globally competitive cities’ (part of mission 1) and other local economies spread across the country. For the economic strategy to work, the evidence suggests that spatially concentrated investment is crucial, but politics and a concern for quality of life make the case for equalising spending.

Many things determine spatial disparities in Britain. The legacy of 1970s deindustrialisation, the ongoing shift from manufacturing to services, and falling communication and transportation costs all play a part in changing the geography of jobs and the demand for different types of workers. Spatial differences in educational attainment, the selective migration of skilled workers and differences in amenities and costs of living help determine the supply of different types of workers. Demand for and supply of skills interact in a way that can be self-reinforcing, meaning large spatial differences can emerge and persist. Levelling-up policy must counter these economic forces if it is to succeed.

One important consequence of these economic forces is that spatial disparities in earnings – which the government wants to narrow – largely reflect the concentration of high-skilled workers. The share of adults with degrees ranges from 15 per cent in Doncaster to 54 per cent in Brighton. High-skilled workers tend to work in better performing labour markets, which further magnifies individual labour market advantages. At least 60 per cent and up to 90 per cent of differences in average wages across areas can be attributed to differences in the types of people who work in different places.

This has important consequences for ‘levelling up’. A pragmatic aim for the economic strategy might be to improve economic performance in some areas outside of London and the South-East – reducing spatial disparities at the regional level, if not necessarily across more narrowly defined local areas. This would allow talented young people in left-behind places to access better paid opportunities without having to move across the country.

To generate these opportunities and counter the self-reinforcing feedback loops – which mean the highest paid jobs are concentrated in London and a handful of other areas – large investments will be needed in a limited number of cities to attract high-skilled workers and the firms that employ them. The mention of globally competitive cities (as part of mission 1) suggests that the government understands this key point.

Why focus on the high-skilled? Because the evidence – much of which is discussed in a report on spatial inequalities by myself and Xiaowei Xu, written for the IFS Deaton Review – suggests that the impact of targeted R&D investment(mission 2), infrastructure (missions 3 and 4), public sector relocation and other place-based policies will be small unless they significantly alter the composition of the workforce in an area. Even a project of the size of HS2, for example, will do little for the economy of the West Midlands unless it somehow improves local educational outcomes for children growing up there or encourages a much larger share of graduates and the firms that employ them to locate there.

And why cities, not towns? Such investments could improve earnings in any area. However, there are many small towns, investment in infrastructure and innovation is costly, and there are only so many public sector jobs to relocate. Focusing on towns, especially with limited funds, does not scale up to produce large effects across lots of areas.

Looking to cities recognises that the advantages of high-skilled areas are self-reinforcing. The concentration of high-skilled firms and workers generates productivity advantages for firms and better labour market outcomes for workers. In turn, this attracts high-skilled workers from across the country. In short, London’s economic advantages stem from the concentration of skilled firms and workers, and from its economic size, and these factors are self-reinforcing. London’s economic strength also spills over to benefit towns and cities across the wider South-East.

To provide a counterbalance to London and the South-East, investment needs to kick-start these self-reinforcing processes elsewhere. The fact that size is one key part of this self-reinforcing cycle explains why that investment needs focusing on cities.

Unfortunately, we need to recognise that these policies are likely to benefit high-skilled workers more than low-skilled workers. For talented children growing up in struggling towns, increased opportunities nearby offer the option of commuting or a small-distance move, making it easier to maintain links with family and friends. Moreover, some of these benefits will trickle down to the lower-paid in the form of moderately higher wages and improved employment rates, but at the cost of expensive housing.

Sadly, while all these trickle-down benefits are possible, London – with its many poor neighbourhoods, expensive housing and high poverty rates – points to the limits of this approach for improving outcomes for those at the bottom of the income distribution. A more equal spread of graduates – and globally competitive cities in each region – may help reduce spatial disparities and may even help improve the overall performance of the economy, but it is no simple fix for improving outcomes for poorer households. To do this, complementary investments must make sure that households can access the opportunities generated.

The current debate often interprets this as being about ‘better transport’. For many poorer households, however, transport investment generally will not be enough. Again, examples from London illustrate the issues – Barking and Dagenham (areas in the east of London) have good transport links to one of the largest concentrations of employment in the world, but this is not enough to prevent low earnings for many households who live there. If poorer households are to benefit from the kind of investments described above, then they will need help to improve their education and skills.

For some households, the multiple barriers that prevent individuals from being able to access better economic opportunities go beyond education and skills. Many of the ‘left-behind’ places that levelling-up wants to target have high proportions of vulnerable people with complex needs and low levels of economic activity. This compounds their problems, as long-term unemployment, poverty, mental illness and poor health often go hand-in-hand.

Addressing these multiple barriers will involve significant investment not only in education and skills, but also in childcare, and in mental and physical health services. Research suggests that small tinkering and minor tweaks of existing policies will not be enough to tackle the multiple barriers faced in these places. The White Paper recognises these issues with its focus on education (missions 5 and 6) and health (mission 7), but the funds committed so far do not appear to be proportionate to the scale of the challenge.

I have focused on the economics of levelling up but it is important to be clear that spending on levelling-up does not always need to be justified based on economic growth. There are important public good arguments that can justify increased expenditure across a wide range of policy areas. And unlike the economic strategy, there is a strong case that these funds should be equally distributed. For example, it is possible to argue for subsidising rural broadband (part of mission 4) as a public good, while recognising that its economic impacts are likely to be limited. In addition, although such policies, including those around wellbeing (mission 8), pride in place (mission 9) and crime (mission 11) do not specifically target the bottom of the income distribution, they will often benefit poorer households most.

Places matter to people. For many people, the place where they grow up will become the place where they live and work. Disparities in economic opportunities, in costs of living and in amenities provide the context for, and directly influence, the decisions they take and the life they will live.

Improving economic performance and helping to tackle the problems of left-behind places are both important policy objectives. Addressing these challenges requires a new approach to policy, one that allows for different responses in different places. Such variation makes many people nervous. Constituency based politics mean that political messages tend to prefer spending everywhere. However, policy must allow for this variation. Devolved power (mission 12) will help but central government will still need to grapple with the fundamental trade-off between concentrating spending to help achieve the economic strategy while spreading out spending to meet the other objectives.

I would argue that this becomes easier if we remember that we should care more about the effect of policies on people than on places. If this is the case, we should judge the success of levelling-up on the extent to which it improves individual opportunities and on who benefits, rather than on whether it simply narrows the gap between places.

 

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About the Author

Henry Overman is Professor of Economic Geography in the Department of Geography and Environment at the London School of Economics and Director of the What Works Centre for Local Economic Growth. He is Research Director of the Centre for Economic Performance.

https://blogs.lse.ac.uk/politicsandpolicy/levelling-up-the-governments-plans-arent-enough-to-promote-economic-growth-and-tackle-inequality/?utm_source=feedburner&utm_medium=email

The teenager’s poem that reveals the cruel reality of life in modern Britain

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https://poems.poetrysociety.org.uk/poems/welcome-to-tottenham/

Aditya Chakrabortty
To policymakers, poet Giovanni Rose would be just a statistic. But like everyone ignored by politicians, he is so much more

What if a statistic could speak its own truth? What if a stereotype could confound your expectations?

A few weeks back, I was riffling through the local papers when a story jumped out. A schoolboy in Tottenham, north London, had just won an award as a Foyle Young Poet of the Year. At the bottom was printed his poem. Called Welcome to Tottenham, it brought the news from a society that is only a few miles from Westminster but might as well be a whole world away.

When historians such as EP Thompson and Eric Hobsbawm took ordinary people’s lives and perspectives as their subjects, rather than stories of kings and generals, their work was labelled history from below. So let’s call this poem news from below, the headlines as if Liz Truss didn’t matter (imagine) and blue-on-blue combat was a soap playing on a far-off screen. The news, in other words, for the country in which most of us actually live.

Welcome to Tottenham.

Where we wake up to the smell of ‘Chick king’,

Mixed with the odour of the corpse from the night before.

Where we cover our blood stained streets with dried up gum,

Where kids have holes in their last pairs of shoes,

Where daddy left mummy and mummy’s left poor.

Youtube

Giovanni Rose: Welcome to Tottenham.

Giovanni Rose wrote his poem in a few hours on a Covid-era Chromebook handed out by his school. The teenager didn’t need to make stuff up; he jotted down the world he’d been born into. In person, he’s neither swot nor class clown, just a kid who keeps his head down and never swears in front of grownups and talks softly in the same rubbery twang as most working-class youngsters in London today. And with the same unblinking clarity that marks his verse, he knows how strangers see him.

A 17-year-old black boy, he has been stopped and searched by the police on his local high road and off Oxford Street, even once by armed officers when he was, irony of ironies, making a short film against knife crime. To policymakers, he’s a statistic; to ministers he’s a stereotype; and to the media, people like Giovanni are … what, exactly? Case studies, perhaps, to be allotted their 10-second clip on the evening news and then chucked away.

But a democracy that can’t or won’t listen to outsiders such as him is not only missing out: it’s falling down on the job. A political class that hand-waves about “the youth” would be best advised to shut up and listen to them. And the thing about Giovanni, and all the others who get talked over in our politics, is that they don’t fit their cutouts. They are so much bigger.

Giovanni knows wearing joggers and a hoodie gets him marked down as a thug – except they’re comfy, so he puts them on anyway. He grew up in one of the most deprived parts of England but he won’t let that define him either. His GCSEs were a string of 8s and 9s, and if his A-levels come in as predicted he should be off next September to study maths at a top university.

Let me admit also to a personal interest. To go from Giovanni’s childhood, in the shadow of the Northumberland Park estate, and mine, right by Edmonton Green, takes a mere 10 minutes by bus but nearly three decades of history. I grew up under Thatcher; he’s got Johnson. He is black; I am brown. Our paths cross and abut each other. His landscape is mine, almost, but as foreign as time renders everything. And so, after meeting and speaking a few times, he agreed to show me how my old world looks to a teenage boy today.

Where we ride around on stolen scooters,

Where we can’t afford tuition so the streets are our tutors.Advertisement

His childhood home is in a street with a church-cum-foodbank but backs on to a drug house: a small terrace cottage out of which industrial quantities of drugs were sold. Every time police raided, the dealers would jump the fence into his backyard. Too young to know what was going on, Giovanni would panic that burglars were breaking in.

“The last straw for my mum was when a dealer got Tasered by the police in my garden,” he recalls. “It’s kind of funny now. But at the same time, it’s not normal.”

His secondary school has to help hundreds of kids growing up in abnormal circumstances prepare for a world that expects them to behave perfectly normally. “They come in with trauma, having faced violence or sexual abuse,” says Jan Balon, head of the London Academy of Excellence Tottenham. He has recruited what is essentially a mental health unit, which counsels just under 10% of the student body throughout the week. It costs, Balon admits, “a stupid amount of money” but the NHS services are too underfunded and overwhelmed to rely on.

I love but I hate my home,

I still listen to the voicemails of my dead peers in my phone

One night when he was 14, Giovanni was woken by the sound of gunshots. Out of his bedroom window, he could see the aftermath of a drive-by. Seventeen-year-old Tanesha Melbourne-Blake had been killed in a hail of bullets. For years afterwards, the road was decorated with memorials to her.

He was only 15 when a close friend went with a younger mate to try to retrieve a stolen £90 pair of trainers. The friend never came home. A 21-year-old man stabbed him 10 times. Not long before, he’d left Giovanni a voice note on Snapchat. “Just random, like ‘How are you, bro?’” Giovanni used to listen to it afterwards. “Because I missed him.”

Giovanni came into a world where adults of all kinds could not be automatically trusted: not the local gangsters, nor the police. Nor others who purported to be in authority. He was born as the war in Iraq went from false triumph into naked disaster. He started at primary as the financial crisisturned into a global depression. The year after, austerity began. He was seven when Tottenham erupted over the police killing of Mark Duggan and his family home was a mile away from ground zero of the riots that would consume London and then England. And over the past couple of years, he’s been out of school for nearly six months, his wifi breaking amid remote lessons and pleading with his eight-year-old twin siblings not to disturb him during class. But with his own bedroom, he counts among his peers as lucky.

We fight over streets we don’t own

Knife crime’s on the rise because the beef can’t be left alone.

Giovanni’s mum drilled him well, both in studies and on the streets: stick to the main roads, keep looking over your shoulder. He never just goes for a walk without a destination, always knows who’ll be there and when he should be back (roughly: he’s a teenager, after all). He lives in what Yvonne Kelly, a professor of lifecourse epidemiology at UCL, calls “a state of hyper-vigilance”.

“Just constantly worrying who’s about to come up behind him means a high level of cortisol will be swilling around his system,” she says. “If that’s repeated day after day after day, it could make him physically ill.” And so psychological threat can turn into bodily damage.

In a couple of weeks, Giovanni will sit his mock exams, having already faced tests that most of us will never know. And then … well, then he wants to get out of Tottenham, leave all this behind. His hero is the rapper Stormzy, “a rich black man who got out of the hood”. That’s his dream, and now it’s within reach.

“A bit of me feels: ‘I made it out!’ I’m relieved I survived, but I miss this space. Most of my friends are here, most of my memories are here. Even the smell of the chicken shop.”

While he’s revising for his A-levels, ask yourself two questions: how Great can Britain be, if a boy counts himself lucky just to survive here? And what is the value of a childhood home if you’re constantly taught you must leave it behind?

  • Aditya Chakrabortty is a Guardian columnist and senior economics commentator
  • Excerpts from Welcome to Tottenham quoted by kind permission of Giovanni Rose

Guardian UK

We now have a debt structure that will lead to ructions between the EU, the IMF and a Greece asked to consent to suicide

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Costas Lapavitsas
guardian.co.uk, Monday 19 March 2012
Is the eurozone crisis ending with a whimper? This view is currently gaining ground for several reasons. First, the European Central Bank has buoyed banks by supplying €1tn-worth of liquidity since last December. Second, Greek debt has been restructured, a new bailout has been agreed, and a chaotic default averted. More broadly, new rules of fiscal discipline have been agreed to keep feckless peripheral countries in check.

The response from financial markets has been positive. Interest-rate spreads on Italian and Spanish bonds have declined precipitously; stock markets have been rising, including in New York; even some Greek bonds have been upgraded by the much maligned ratings agencies.

Unfortunately, the reality is a bit more complicated. Take the restructuring of Greek debt. When the crisis burst out in 2010, Greece had €300bn of debt, held overwhelmingly by private creditors and governed by Greek law. It would have been a painful but fairly straightforward exercise to default, putting the country back on its feet. Instead, the EU advanced expensive bailout loans, imposed ferocious austerity, and created the worst depression in Greek history. The result was that by early 2012 Greek debt had risen to €370bn. Of that, however, only about €200bn remained in private hands. In less than two years, the EU had saddled Greece with a massive official debt, much of which had been used to retire old debt, allowing large private creditors to exit without losses.

Restructuring in March extricated the remaining large private creditors with as little damage as possible. Lenders surrendered existing bonds of poor quality receiving new bonds with a lower value, plus a significant amount of cash. Since large foreign banks had already written off great volumes of Greek bonds, they were not hit particularly hard. Greek banks faced major losses, but the Greek state has generously agreed to borrow €50bn to recapitalise them. The real damage was inflicted on pension funds and small bondholders, particularly in Greece where the losses have been devastating.

If fresh borrowing by the Greek state to finance the deal is taken into account, the actual reduction of Greek debt in 2012 will be less than 10%. Even worse, Greek debt will become largely official and governed by British law. More than €40bn will be owed to the IMF, which has absolute seniority in repayment.

EU policy has thus succeeded in transforming a debt problem between a state and its private lenders into a debt problem among states and bilateral organisations. When restructuring raises its head again, there will be major ructions between Greece, the EU and the IMF. Ireland and Portugal, both of which will almost certainly need to restructure debt in the future, would do well to avoid the Greek path of switching official and private debt.

And there are still more lessons from the unfolding Greek disaster for the eurozone periphery. The new bailout programme promises growth by crushing wages and liberalising the economy. Yet, as long as Germany continues to keep its own wages stagnant, no country in the eurozone can significantly gain competitiveness by reducing wages. As for liberalisation, it might have been more persuasive if it was actually applied to the monopolistic structures that keep the prices of food and other goods high in Greece. Instead, the plan is to liberalise the operations of doctors, surveyors, petrol stations, tourist guides and hairdressers.

Greece is heading for stagnation, but even that will look desirable compared with the hell the country will face in 2012-13. Amid an unprecedented depression, the government is aiming for large primary budget surpluses, and there will be substantial cuts in investment and consumption. The prospects for economy and society are catastrophic.

It is hard to believe the Greek people will consent to national suicide, whatever might be the obsessions of the Greek elite. The trouble is, however, most sensible options to deal with the Greek crisis have gradually been blocked during the last two years. The path increasingly left to the country is that of social upheaval leading to default and exit from the eurozone. This would inevitably bring political unrest to both Greece and Europe.

The EU has refused to deal with the eurozone crisis through radical measures such as debt cancellation and wholesale reorganisation of the monetary union. Instead it has mollycoddled the banks and imposed harsh austerity. The crisis is thus entering a more complex and dangerous phase that will again play out in Greece in the first instance.

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