The UK economy has two regional problems, not one

Is ‘leveling’ Britain’s regional inequalities a priority? Treasury Secretary Jeremy Hunt’s budget proposals due on 15 March should help answer that question. Unfortunately, recent research suggests that this task is even more difficult than widely believed.

It turns out that the UK has not one, but two regional problems, and as a result, it also has a big national problem. A long-standing problem is the relative weakness of regions outside of London and the South East. However, since the 2007 financial crisis, we have seen a new crisis – a slowdown in these previously booming regions. Since then, inequality in the region has not worsened. But this is not due to leveling up. The country is suffering from something worse than growing inequality in the region. It is a national stagnation, with even the former growth engine shattered.

Addressing regional economic disparities in the UKco-authored by former Treasury Department Shadow Prime Minister Ed Boles, analyzes long-term challenges. Capital Loss: London’s Role in the UK Productivity Puzzle The Center for Cities book focuses on the post-financial crisis slowdown in the country’s most prosperous region. One common conclusion can be drawn from these analyses. It means that the country needs to fundamentally liberalize land use regulations.

As the first part of these papers point out, there are several reasons to be concerned about the regional inequalities caused by deindustrialization in the last 40 years. One is that these inequalities are related to differences in living standards, life expectancy and education levels. Another is that it is related to the ‘geography of dissatisfaction’ presented in the Brexit vote. Finally, low productivity in most parts of the country means that the UK as a whole is relatively unproductive.

So what can you do? The report concludes that the low proportion of college graduates in lagging regions is no longer a constraint. Nor is it a general lack of finances. More plausible constraints are weak transport infrastructure, failure to support innovation clusters outside the South East, and expensive housing constraining immigration to London and the South East.

Then there is work to do. In particular, increase investment in university education in science, technology, engineering, and mathematics; devote more resources to infrastructure, especially transportation; It makes sense to spend more.

One thing the report notes is that migration tends to go “in the wrong direction”, from the most productive areas to the least productive areas. this is, Findings of the report on LondonThe latter’s most striking finding, however, is that London’s productivity growth has been in line with the rest of the country since the financial crisis. Productivity growth per worker in London fell from 3.1% a year between 1998 and 2007 to just 0.2%.

The closest cause is that “superstar sectors” such as finance, professional services and information and communications have not grown as fast as their overseas competing economies. Moreover, it was already clear before Brexit (although that stupidity didn’t help). A second explanation is that the cost of commercial real estate crowds out more productive sectors. Finally, the housing “affordability crisis” discourages domestic and international immigration. That would undermine the agglomeration benefits that London has created in the past.

In other words, the country is in double custody. It has serious regional inequalities, a legacy of long and rapid productivity growth in London and the South East, while the rest of the country was less industrialized. Since 2007, London has also stagnated economically. As such, regional inequality, though still very high by European standards, has stopped getting worse. But this “cure” is worse than the disease. It has worsened the performance of the economy as a whole and, among other things, has depleted the state of the resources needed to meet challenges, including regional inequalities.

Freeing up planning controls should accelerate London’s growth. For the sectors that London specializes in, we need a better post-Brexit settlement. But as a Center for Cities report suggests, giving capitals more control over their financial resources could clash with the pressing need to spend more in more vulnerable areas. . Now that all parts of the UK economy are doing poorly, tackling local problems is even more difficult than before. Leveling down is the worst answer to the challenge of leveling up.

Follow Martin Wolf myFT and twitter The UK economy has two regional problems, not one

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