A little bit of country life - political lessons from the US elections

The election of Donald Trump has led to a veritable stampede of chicken lickens rushing wildly about crying that the sky has fallen in. I'm pretty sure they're wrong and that, for all Trump's manifest failings, we aren't heading towards nuclear war, chaos and depression. What's interesting is why, faced with the election of Trump, we are getting this reaction. Partly it's not a new phenomenon - my sister reminded me that in 1980 when Ronald Reagan was elected president they (Frances was a student at the Royal College of Music back then) held an 'End of the World Party'. But mostly it's quite simply a fear of 'them', of 'others' - just the same fear as we point to in people supporting Trump.

“You know, you’re the first professor from Madison I’ve ever met, and you’re actually kind of normal.”

The comment comes from Kathy Cramer, who is a professor from the University of Wisconsin at Madison, and reports her meeting people in rural Wisconsin as part of a long term study leading to her book "The Politics of Resentment". Just before this comment, Cramer had said:

Thank God I was as naive as I was when I started. If I knew then what I know now about the level of resentment people have toward urban, professional elite women, would I walk into a gas station at 5:30 in the morning and say, “Hi! I’m Kathy from the University of Madison”?

And here we have the first glimpse of our problem - not just the resentment of rural communities towards urban elites but the belief among urban professionals that such resentment will play out like the less savoury scenes from 'Deliverance' complete with a sinister banjo soundtrack. Here's David Wong from Cracked talking about how half of America lost its mind:

Every TV show is about LA or New York, maybe with some Chicago or Baltimore thrown in. When they did make a show about us, we were jokes -- either wide-eyed, naive fluffballs (Parks And Recreation, and before that, Newhart) or filthy murderous mutants (True Detective, and before that, Deliverance). You could feel the arrogance from hundreds of miles away.

Many Americans only ever fly over or drive through rural America and their image of the communities out there come from books, from films and above all from TV. The image of the thick redneck, the hypocritical preacher and the associated sneering put down of Christianity all play to a belief that the values of folk out there in the backwoods just ain't the same as good progressive folk in the cities. But what are those values? Here's David Wong again:

Basic, obvious truths that have gone unquestioned for thousands of years now get laughed at and shouted down -- the fact that hard work is better than dependence on government, that children do better with both parents in the picture, that peace is better than rioting, that a strict moral code is better than blithe hedonism, that humans tend to value things they've earned more than what they get for free, that not getting exploded by a bomb is better than getting exploded by a bomb.

Or as they say out in the country, "Don't piss on my leg and tell me it's raining."

The foundation upon which America was undeniably built -- family, faith, and hard work -- had been deemed unfashionable and small-minded. Those snooty elites up in their ivory tower laughed as they kicked away that foundation, and then wrote 10,000-word thinkpieces blaming the builders for the ensuing collapse.

And the sad truth is that, as Kathy Cramer found out when she talked to them, people in rural America aren't so very different from those living in the cities. Cramer also talks about the nature of that resentment - things like:

All the decisions are made in Madison and Milwaukee and nobody’s listening to us. Nobody’s paying attention, nobody’s coming out here and asking us what we think. Decisions are made in the cities, and we have to abide by them.

This still makes sense to me if I switch the words Madison and Milwaukee to Bradford and Leeds. As a local councillor serving a ward called Bingley Rural for 21 years, I've heard this sentiment time and time again especially in the most rural, most working class parts of my ward. A sense of 'being done to', a belief that other people (and, yes, there's a racial element to this in Bradford just as there is in Wisconsin) are getting the benefits of decisions, spending and attention. Some of this is true - always and everywhere, governments are most fearful about how people living in cities will respond so give them more attention - but much of it is either a function of isolation or the cost of service delivery in remote rural areas.

The problem is compounded by the economic decline of those rural areas. Some, and we see this in the UK, become places of rural retreat and second homes for that urban elite (creating a whole new set of resentments) but the places that aren't pretty enough or accessible enough simply decline. The best and brightest depart of the city leaving behind the old, poor and ill. And, as Aaron Renn - one of the best and brightest who left rural Indiana - describes, the result isn't pretty:

In Medora we see not only poverty, but nearly complete social breakdown. I don’t recall a single player on the team raised in an intact family. Many of them lived in trailer parks. One kid had never even met his father. Others had mothers who themselves were alcoholics or barely functional individuals. They sometimes bounced around from home to home (grandmother, etc.) or dropped out of school to take care of a problematic mother.

This is the stark picture of rural America's failures but we also see - reported by Kathy Cramer and described by many others - a bunch of rural folk doing what Americans always felt was the right thing: working hard, looking out for the neighbour, sticking by the family. Problem is that, for too many such folk, this doesn't seem to be working quite so well these days:

28.3% of poor families receive child-care subsidies, which are largely nonexistent for the middle class. So my sister-in-law worked full-time for Head Start, providing free child care for poor women while earning so little that she almost couldn’t pay for her own. She resented this, especially the fact that some of the kids’ moms did not work. One arrived late one day to pick up her child, carrying shopping bags from Macy’s. My sister-in-law was livid.

Again, any English politician with ears will have heard the same resentment. I remember a colleague - and I worked for a charity helping people into work at the time - angrily condemning some of her relatives because they'd a car that worked and a foreign holiday but were "on welfare" whereas her and her husband, both working, felt they were barely scraping by.

There's nothing new in all this, it has been gently simmering away in places too many commentators choose to patronise as "left behind" but what has happened over the last ten years or so is an accentuation of the difference and the 'othering' of those communities as, well, just a bit backward. Worse urban-driven, progressive policies actively damage the economy of 'fly over ' USA.

Geographer, Joel Kotkin, describes two Americas - urban 'Ephemerals' in the Democrat-voting coastal states dependent on new media, software and moving money about, and a 'New Heartland' that depends on tangible goods production. Assertive climate change policies, for example, directly impact the economy of this 'New Heartland':

Climate change increasingly marks a distinct dividing line. Manufacturing, moving goods, industrial scale agriculture, fossil fuel energy all consume resources in ways many progressives see as harming the planet. Progressives threaten these industries with increasingly draconian schemes to reduce greenhouse gas emissions. Gone are the days of supporting moderate shifts -- which could work with some Heartland economies -- from coal to gas and improving mileage efficiency.

Instead the demand from the left is for a radically rapid de-carbonization, which will reduce jobs in the Heartland and lower living standards everywhere. In California, Jerry Brown is fretting about ways to curb cow flatulence, an obsession that is unlikely to be popular in Kansas, Nebraska or Iowa.

The result of this is that more small towns lose their reason for existence more quickly - it all feels a bit like 'Other People's Money', the 1991 Danny DeVito, Gregory Peck film about a declining business in small town American. Back then it was an attack on heartless, uncaring capitalism but looking at the film now, it has the same concerns as Trump has hit on in rural America - loss of community, unemployment, off-shoring and wealthy untouchables swishing out from the cities to dump on struggling communities.

But it's no so simple as looking back to a golden age through rose-tinted glasses however much the progressive want to believe. People living in the rural and small town places are looking to a troubled future:

Economic anxiety is about the future, not just the present. Trump beat Clinton in counties where more jobs are at risk because of technology or globalization. Specifically, counties with the most “routine” jobs — those in manufacturing, sales, clerical work and related occupations that are easier to automate or send offshore — were far more likely to vote for Trump.

This reminds me of a recent post of mine asking what we'd do about 'proper jobs for proper blokes' - those routine jobs that are crucial to places like Bradford but which will be the ones our digital, robot-run age will kill off first. But in the city we've the chance to catch up with ourselves - as David Wong points out, this is pretty tricky in a small place:

See, rural jobs used to be based around one big local business -- a factory, a coal mine, etc. When it dies, the town dies. Where I grew up, it was an oil refinery closing that did us in. I was raised in the hollowed-out shell of what the town had once been. The roof of our high school leaked when it rained. Cities can make up for the loss of manufacturing jobs with service jobs -- small towns cannot. That model doesn't work below a certain population density.

The thing is that, while there's plenty of displacement, poverty and loss of work in urban areas, it feels like we can fix that problem, indeed that the government is trying to do just that. Up in the hills away from those big cities is doesn't look that way. Tatty boarded up places linger on and the only change seems to be the buddleia colonising every untended nook and cranny. For some places there's a roll of sticking plaster - the UK's coalfield communities (unlike America's - another argument in the Trump camp) got a load of regeneration cash and this has smartened such places up. But the problem's still there - just as Aaron Renn described above, anyone with any get up and go, got up and went, leaving behind a community in a place with no purpose.

None of this represents the whole reason for Trump's election (any more than does accusations of racism, xenophobia and general horridness) but it has thrown a light on a challenge facing every developed nation - in a time of economic change how do we protect the idea of community and can we create purpose for places that, right now, are losing their reason for existing. And, even if we recognise that places must die if they have no purpose, are we doing enough to ease the transition for the people who're from those places:

The vast majority of possible careers involve moving to the city, and around every city is now a hundred-foot wall called "Cost of Living."

Cities are expensive places that we've chosen (for reasons of keeping them liveable and not too big - or so we claim) to make even more expensive. And perhaps the Trump Presidency is the price we're paying for the selfishness of making the city too expensive?

I have a new explanation for Trump's win that does not involve Weiner or talking about Deplorables or emails. California's zoning codes caused the win. If California had Texas style housing regulations, then 80 million people would live in California and the state would have 100 electoral votes. The state would still vote Democrat (because of the composition of these new voters) and Clinton would have won.

There's some truth in this. Planners - of all stripes - helped created the sort of divided world that made Donald Trump's election possible. And if you think this is a problem, ask how you bring on side those who are victims of those planners, folk patronised by left-wing academics, sacked by climate change policies, and insulted as racists or xenophobes day in and day out by the punditry. What I fear is that you won't do this, you'll call them 'morlocks' and punish them for having an opinion you didn't like.

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Megacities and the Dick Whittington Principle - agglomeration versus central place

The world's most powerful drivers of change - economic, social, cultural and political - are large cities. We don't have to like all this change - Mike Bloomberg's fussbucketry being a case in point - to appreciate that this dynamic is very real. I'm not saying that everything is invented and every innovation takes place in developed world megacities but the evidence does suggest that disproportionately this is the nature of modern development.

I noted this a short while ago in observing that the 'London Problem' isn't really a problem just of London - it started with this Peter Thiel quote:

“If you are a very talented person, you have a choice: You either go to New York or you go to Silicon Valley.”

The same, of course, goes for London - let's call it the Dick Whittington Principle where ambitious, clever people go to where there are lots of other ambitious and clever people because they're more likely to succeed. This Dick Whittington Principle is at the heart of the idea in economic geography of 'agglomeration' where a critical mass of people (or resource availability) drive innovation and through this economic growth. The result is the idea that we need to use attractors for those people - given that, these days, most growth is driven by people not by the availability of other resources. These attractors include universities and research institutes, high technology businesses and cultural industries.

Now this approach produces problems - it runs counter to the idea that growth needs to be inclusive and results in some places being, as it were, left behind. It is this concern that sits behind the RSA's 'inclusive growth' work and the alternative economic models promoted by advocates of new localist approaches such as this from New Start Magazine:

But this agglomeration model – the dominant local economic model for UK cities – creates as many losers as winners and is an outdated approach to city economies that are currently experiencing huge social, technological and environmental change. This dominant model favours city centre economies, skilled workers and high-end jobs. It starts with the physical – buildings and infrastructure – rather than the needs of people. It encourages people to move or commute to areas of opportunity rather than creating jobs close to the neighbourhoods in which they live.

The result, so these people argue, is illustrated by a place such as Greater Manchester where a successful centre in Manchester and Salford contrasts with slightly tatty and declining mill or mining towns like Oldham, Rochdale and Wigan. The success of the city centre simply isn't delivering growth on the periphery of the Greater Manchester urban agglomeration. This same pattern will be seen in West Yorkshire, in Birmingham and on Tyneside.

This displacement - a sort of negative hysteresis - doesn't just create problems for economies but also underlies social disconnection. Although the debate about the 'left behind' and populist politics is a little overblown, the spatial distribution of support for such campaigns is hard to dispute.

The issue, however, is that whether we adopt the leftist approach of New Start or the sort of populist approach of Trump, Farage or Le Pen, the solutions on offer result - assuming we accept agglomeration theory - in a sub-optimal outcome. We get lower rates of growth because we want to equalise that growth across every community - preventing (if we can) Dick Whittington from going to London doesn't just mean Dick has less opportunity but, by not bringing together others like Dick, society as a whole is poorer.

Here is what the populists are sadly getting wrong: While cities and rural areas are — and have long been — politically competitive, they are in fact economically complementary.

This thesis - that rural areas (and suburbs for that matter) need cities and vice versa - draws on another central idea of economic geography: central place theory. Here's the basics:

The German geographer Walter Christaller introduced central-place theory in his book entitled Central Places in Southern Germany (1933). The primary purpose of a settlement or market town, according to central-place theory, is the provision of goods and services for the surrounding market area. Such towns are centrally located and may be called central places.

Now leaving aside that Christaller was quite an enthusiastic Nazi, we can see that the central ideas of his work remain perhaps the dominant thesis in modern spatial planning. Anyone close to the UK's local plan process will be familiar with concepts like 'settlement hierarchy' and 'rural service centre' that draw directly from European location theories. It is perhaps time, in economies dominated by services, to start questioning the use of central place theories based on economies dominated by trade in goods. And rather than trying to shoehorn agglomeration theory into the same box as central place theory, we should be seeing them as competing views of modern regional development.

The presumptions that underpin the European single market (and other customs unions) are that central place ideas are correct. By granting the megacities (and Europe really has only one - London) a place on the top of a classic hierarchy of settlements with each dependent on the settlements below, we acknowledge that removing barriers to trade in (primarily) goods results in more economic growth.

If, however, agglomeration theory is correct then this requirement carries less weight. The megacity - London, New York, Singapore, Hong Kong, Tokyo - is divorced from its hinterland. It may be convenient to trade with that hinterland but it is neither necessary or contributing to the success of the megacity. In this model, London's success isn't connected at all to its position at the top of a settlement hierarchy but rather to its capture of the modern world's most important resource - ambitious, clever people. As a global city, Europe needs London but London doesn't need Europe.

It's probably more nuanced than this and the question of what happens in the rest of England remains but, from the perspective of economic geography, the answer to agglomeration or central place gives you the answer to that other question: will Brexit work? And partly this is about the theories in question and their relevance but it's also about policy choices. Regardless of trade deals the UK government has to work out how to capture as much of the modern economy's key resource - human innovation - so as to ensure we get the greatest benefit from agglomeration.

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Why London dominates (or how the London problem isn't really a London problem)

Aaron Renn picks up on how tech superstar, Peter Thiel sort of accidently exposed the truth about Chicago (in Chicago):

“If you are a very talented person, you have a choice: You either go to New York or you go to Silicon Valley.”

The problem for Thiel was that he said this while speaking at an event in Chicago. No surprise, it didn’t go over well. An enquiring questioner wanted to know, “Who comes to Chicago if first-rate people go to New York or Silicon Valley?”

Now leaving aside the responses from miffed Chicago fans (the city that is not the band) Renn raises and explores an interesting point about the USA. Here he borrows from Charles Murray to make his point:

[I]t is difficult to hold a nationally influential job in politics, public policy, finance, business, academia, information technology, or the media and not live in the areas surrounding New York, Washington, Los Angeles, or San Francisco. In a few cases, it can be done by living in Boston, Chicago, Atlanta, Seattle, Dallas, or Houston—and Bentonville, Arkansas—but not many other places.

For those not up on US billionaires, Bentonville in the HQ of Walmart.

Transfer this observation out of the USA and we have the elements of a thesis about why London dominates the UK - indeed, why London is so dominant in Europe. It seems likely that, just as Peter Thiel says, smart people head to one or two places - Renn reports that a quarter of HPY (Harvard, Princeton, Yale) graduates live in or around New York. I've no data for the UK but does anyone want to bet against Oxbridge graduates overwhelmingly living in and around London? We know it's true of tertiary education in general:

Given that most persons aged 30–34 will have completed their tertiary education prior to the age of 30, this indicator may be used to assess the attractiveness (or ‘pull effects’) of regions with respect to the employment opportunities they offer graduates. Map 5 shows tertiary educational attainment by NUTS level 2 region for 2015: the darkest shade of orange highlights those regions where at least half of the population aged 30–34 had attained a tertiary level of education. By far the highest share was recorded in one of the two capital city regions of the United Kingdom — Inner London - West — where more than four fifths (80.8 %) of the population aged 30–34 possessed a tertiary level of educational attainment. The second, third and fourth highest shares were also recorded in the United Kingdom, namely in: Outer London - South (69.3 %), the other capital city region of Inner London - East (68.2 %), and North Eastern Scotland (66.1 %); note that all four regions in Scotland recorded shares above 50%.

The three regions in Europe with the highest concentrations of graduates are all in London which seems to repeat what we've seen from the USA where New York, Boston, Washington and San Francisco dominate. And it means that the UK, by defining its regional achievement through comparison with London, has created an economic development problem. The city's success creates a virtuous circle - the clever, ambitious people are in London doing clever ambitious things meaning that clever ambitious people from elsewhere in the UK - perhaps even in Europe - head to London because that's where clever, ambitious people go to be clever and ambitious. With the obvious result that, the occasional Bentonville or Omaha proving the rule, places elsewhere have to make do with less clever, less ambitious people and as a consequence slower economic growth.

The European data on tertiary education tells us that this supercharged agglomeration effect is pretty consistent - everywhere capital cities and places with a lot of research infrastructure suck up the graduates leaving other places with less of the talent needed to achieve that aim of 'closing the gap' between successful places and less successful places. The problem with London, New York and San Francisco (and, no doubt, were we to look: Hong Kong, Singapore and Shanghai) is that their agglomeration effect sucks the brightest and most able from places that, of themselves, are seen as relatively successful. Clever and ambitious Parisians head to London, just as the brightest in Chicago switch to San Francisco, Washington or New York.

For London - regardless of Brexit - this process is likely to continue and, in doing so, for the problems of London (expensive housing, the occasional late train, crime, air pollution and so forth) inevitably become the problems of the UK. Planning policies are adapted to fit London's housing crisis, health policies to reflect the worries of a thirty- and forty-something population, and transport policies designed for the needs of big city commuters. The dominance of London - The London Problem - doesn't just skew the UK's economy but it also profoundly influences the complete range of national government policies. That London Problem isn't really a London problem but results in a national policy programme suited to the clever and ambitious who have - because that's where the opportunities are - headed to London.

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If the British left want an earthly paradise they should look at home.

We all have - and the left especially has - a desire to seek out earthly utopias where the things we think important are revealed and our ideology is justified. For socialists the list is long - from the Soviet Union in the 1930s through Cuba and Nicaragua to Venezuela in recent times. There have been detours through Sweden and Denmark and occasional enthusiasm for Canada or San Francisco. It's all a bit futile:

But the left has always – and perhaps has always had to – cast its net rather wider when looking for shining examples and sources of optimism, revolutionary or otherwise. Sadly, however, the sheer variety of countries in which it has invested its hopes, as well as the sometimes wilful naivety that helped nurture them in the first place, has seen those very same hopes dashed time and time again.

And those hope will always be dashed or at least so long as the left is excited by the idea of being 'anti-market' rather than just 'pro-poor'. It is odd that the chasm in politics left by the enduring legacy of Soviet-style central planning has never been properly filled - even centrist social democrats can't help but tinker with prices, with subsidies, with protectionism and with market fixing. So those social democrat ideas of lifting the poor from poverty, of creating a fair and equal society are crushed because the left simply choose the wrong policies.

The left tend to assume that the heroes of the 'right' are those authoritarians they despise (while enthusing about similar despots who lay claim to leftiness). Yet, if we're to seek for places that capture the idea of neo-liberalism best, that demonstrate how markets work for everyone, we aren't going to find it with authoritarian nationalists. It's more like this:

But Hong Kong too was once a basket case. "Devastated by Japanese occupation, the British colony's population had declined from 1.6 million in 1941 to 600,000 by 1945. Then, after the 1949 communist victory on the mainland, a million refugees arrived. Most of them were penniless."

Hong Kong owes its current prosperity to John (later Sir John) Cowperthwaite, a young official sent out to push the colony's economy toward recovery, which he did by reducing or abolishing taxes. "Even now, Hong Kong has no sales tax; no VAT; no taxes on capital gains, interest income or earnings outside Hong Kong; no import or export duties; and a top personal income-tax rate of 15 per cent.

"During Cowperthwaite's tenure, Hong Kong's exports grew by an average of 13.8 per cent a year, industrial wages doubled and the number of households in extreme poverty shrank from half to 16 per cent."

Indeed those of us who believe in neo-liberalism, who think that open markets, free trade and free enterprise are the route out of poverty - we have loads of examples of how what we believe in works. Whether it's Hong Kong or Singapore, Taiwan or Malta, Chile or Ghana, we can point to example after example of places where adopting the core ideas of laissez-faire led to economic growth and a better life for nearly everyone in those places. With the finest example being Britain itself - the place that started it all off.

So why is it that socialists have stopped being bothered by who owns things and become obsessed with how things are bought and sold. Why is it that the left want us all poorer from protectionism, corrupted by fixed markets and left with shortages or gluts from price-fixing? Whether it's energy prices, rents or, in Venezuela's case, loo paper, how is it that despite two hundred years of solid evidence telling them they're wrong, left-wing governments continue to think they can buck the market?

And why does the left support protectionism. OK it's not the old fashioned approach - the import substitution strategies that near bankrupted Brazil and Argentina or the tariff barriers that fooled European basic industries into believing they were competitive. Rather it's a new approach - we get a local or regional protectionism based on the deluded idea that small businesses are more efficient, greener and resilient - here's one of it's leading advocates David Boyle:

The prevailing economics of regeneration is based on the idea of comparative advantage. Places need to specialise, otherwise – heaven forfend – everywhere will have to build their own radios or cars or anything else.

Or so the old-world economists mutter when you suggest that ‘comparative advantage’ might be taken too far.

Because when it is, what you get is too few winners and far too many losers, places that are simply swept aside in the narrowly efficient new world, where only one place builds radios. Or grows carrots.

The problem is of course that Boyle is simply talking nonsense - as that well-known right-wing economist, Paul Krugman observed:

At the deepest level, opposition to comparative advantage -- like opposition to the theory of evolution -- reflects the aversion of many intellectuals to an essentially mathematical way of understanding the world.

And alongside this we get a set of 'ethical' protections - barriers based on environmental standards, health standards or worker 'rights' that serve to make both poor countries and rich countries poorer. Cries go up for 'anti-dumping' measures that merely serve to make the steel or paper or wool or whatever more expensive thereby reducing economic growth and damaging future prosperity.

Protectionism - whether it's called 'resilience', 'local purchase preference' or anything else - is wrong and benefits a few at the cost to the many:

Many people have argued over the years that U.S. prosperity in the late nineteenth and early twentieth centuries sprang in large part from the high-tariff policies in place during those times. Apart from the economic nonsense this claim exhibits, it is akin to claiming proudly that the great economic success of the mafia in the twentieth century sprang in large part from the organization’s “taxes” (demands for protection money) laid on members of the public.

Yet this economic nationalism is now a core feature of the left's economic policies alongside all sorts of market-fixing ideas - rent caps, energy tariffs, regulatory barriers to entry, de facto guild systems and a strange belief that places can be both part of and separate from the global economy.

Finally the left seem to believe, again despite all the evidence telling us they're wrong, that somehow if we just taxed the rich a little more then there'd be enough money for all their grand schemes. Books filled with reams of statistics tell us that enormous sums languish in supposed 'tax havens' waiting for us to apply the right rules so that lovely lolly ends up in the government's coffers rather than Scrooge McDuck's Caribbean vault.

Again this is just stupid. As if that cash is sitting in piles in some bank - it's not, it's funding businesses, supporting pension funds and a whole host of other useful things. If the government takes a load of it to spend on welfare benefits, doctors wages and what not then it's not available to provide that investment. This might be all fine and hunky dory but it isn't costless - there will be a negative effect on growth, on employment and on interest rates as a result of whacking that big tax on those rich folk's off-shore hoards. Plus, of course, we can only spend it once.

There is no utopia. There is no ideal model of government despite all the efforts of clever men to create one. We don't have the knowledge or capacity to do a better job - in nearly every case - than the market does in allocating scarce resources. So by all means promote socialised forms of ownership. By all means argue for high taxes so as to enable more income redistribution. And by all means argue for greater transparency and openness in markets. But don't lie to people and tell them that you've found a magic system that's better than those markets.

If the left want their earthly paradise they shouldn't need to look beyond Britain. Take the long view and consider how much richer we are than 20, 30, 50 or a 100 years ago. Not just the elite but everyone from the monarch down to the cleaning lady with a severely disabled son. For sure, it's a pretty flawed paradise and one that could be improved but it's as good as anywhere on earth in almost every aspect of life. And capitalism, free markets, free trade and free enterprise are a pretty big part of why that's the case.

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Want a Northern Powerhouse? Then don't ignore success!

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The think tank IPPR North has issued a report rather grandly entitled 'State of the North; Four tests for the Northern Powerhouse'. And, like many people writing about regional economics and economic development, IPPR North assumes that the solution rests with some sort of governmental activism:

If the northern powerhouse is to be successful, economic powers must be devolved to allow northern businesses and policymakers to develop an economic model that supports more productive, resilient and sustainable growth: jobs that pay well, prosperity that is shared, and opportunities for all. This does not mean simply adopting the ‘London model’ in northern cities, which would be unlikely to build the prosperity that the North needs – and indeed would be likely to lead to widening inequalities. Instead, it means finding a more equitable balance between productivity, employment rates and wages. Evidence suggests that raising productivity and employment simultaneously can be challenging, and that in most situations the two are antagonistic.

It all sounds good doesn't it? But IPPR North isn't specific about which 'economic powers' need devolving. We are presented with a barrage of graphs, a narrative heavy on statistics but no help as to what needs to be handed over to cities or regions. In talking about 'economic powers' is IPPR North won't be referring to trade policy, monetary policy or the tax treatment of companies. Perhaps IPPR North are thinking about planning rules - you know being able to put an end to the NIMBYism delaying the economic benefits or fracking in Lancashire and North Yorkshire. Or maybe it's taking over central government investment in science and technology - even when the evidence for that helping economic growth is pretty mixed.

So having asked for devolved 'economic powers' without specifying which powers we're talking about, IPPR North then go on to talk about education and skills. Again we get an avalanche of graphs and statistics showing that gap between the North and the South. But again, amidst calls for 'policy' to change, IPPR North gives no hints as to what should change except to point at better performance in London from early years through to higher skills.

Yet in amongst all this IPPR North repeatedly reject what they call the 'London Model' (although they don't actually describe this model). This does, if it's evidence-based policy-making we're after, seem a little counter-intuitive. After all the entire 'State of the North' report is given over to describing the scale of the gap between us in northern England and the more economically successful South. And the reason for that southern success is pretty simple - London. What IPPR North are saying is 'look there's a really successful place there, we need to be as successful as them but we're not going to do what they did to be successful':

The North’s economy clearly does need to grow in order to generate the wealth and jobs that its citizens need. However, focusing on economic growth in isolation, or in any way adopting the ‘London model’ in northern cities, is unlikely to lead to the kind of inclusive and sustainable prosperity that the North should aim for.

The suggestion here is that London focused on 'economic growth in isolation' - again without describing what this might actually mean - and that there is, somewhere, a different model for economic success. Sadly, IPPR North don't introduce us to the things that might be included in this magical economic development model other than that it involves city mayors to 'run' it alongside a sort of corporate hi-jack by business interests.

If we want that Northern Powerhouse, want to meet the economic aspirations of people in the north then we need to focus on economic growth. Firstly because that economic growth will lead to new employment. Then because when everyone who wants a job has a job, wages will rise. And then, because there is still demand for labour, people will move to the north. With the result that the consumer economy is bigger and can sustain the high added-value tertiary services that make the big difference in London and other successful cities. None of this - bar infrastructure investment - really needs government. Indeed there's a pretty strong case that the size of government in the north is part of the problem not part of the solution.

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Why the 'picking winners' economic strategy fails...

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Picking winners - focusing on local or regional 'specialisation' is a familiar approach to economic regeneration. You'll know of those "cluster" strategies that regional development agencies promoted and will have seen any number of city plans (Bradford's emerging plan being a good example) that say, "we're good at making left-handed widgets and buttered almonds, so our strategy is to become the world centre in these sectors".

This approach is misplaced:

... the idea that cities, states, or countries should specialize in their current areas of comparative advantage is so dangerous. Focusing on the limited activities at which they currently excel would merely reduce the variety of capabilities...that they have. The challenge is not to pick a few winners among the existing industries, but rather to facilitate the emergence of more winners by broadening the business ecosystem and enabling it to nurture new activities.

This isn't to deny comparative advantage, more to observe that this advantage is consequential to trade and, in the real world, hard to pin down. Nor is comparative advantage the driver of these specialisation strategies, rather they are the result of that ridiculous mercantilist belief that cities, regions and countries "compete".

Picking winners doesn't just fail because bureaucrats are bad at picking, it fails because it excludes winners we don't yet know about (or have any chance of knowing about). Bradford has several pretty successful businesses that pimp cars - looking back 15 years ago would anyone have predicted this, let alone see selling fancy alloys and go-faster stripes (I know it's more complicated that this) as a growth sector?

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This is why the idea that cities, states, or countries should specialize in their current areas of comparative advantage is so dangerous. Focusing on the limited activities at which they currently excel would merely reduce the variety of capabilities – or “letters” – that they have. The challenge is not to pick a few winners among the existing industries, but rather to facilitate the emergence of more winners by broadening the business ecosystem and enabling it to nurture new activities.
Read more at http://www.project-syndicate.org/commentary/ricardo-hausmann-warns-that-advising-cities--states--and-countries-to-focus-on-their-economies--comparative-advantage-is-both-wrong-and-dangerous#U8ZldzUK0Gfog7xS.99

This is why the idea that cities, states, or countries should specialize in their current areas of comparative advantage is so dangerous. Focusing on the limited activities at which they currently excel would merely reduce the variety of capabilities – or “letters” – that they have. The challenge is not to pick a few winners among the existing industries, but rather to facilitate the emergence of more winners by broadening the business ecosystem and enabling it to nurture new activities.
Read more at http://www.project-syndicate.org/commentary/ricardo-hausmann-warns-that-advising-cities--states--and-countries-to-focus-on-their-economies--comparative-advantage-is-both-wrong-and-dangerous#U8ZldzUK0Gfog7xS.99

Pointless tears for a lost high street

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Professor Sparks laments the emotional void left by the loss of Woolworths. He makes an important point, putting his finger on the way some retailers can create a sense of attachment that’s more sentimental than economic. But of course sentiment doesn’t pay the bills.

Do you feel an emotional void as a result of Woolworths closing? If you do then your levels of emotional sensitivity are far more developed than those of normal people. Now I understand how marketing and advertising - the presence of a brand over the years - can create attachment. Indeed, as a professional marketer I can respond with a smile of quiet satisfaction at the way in which branding sustained Woolworths as a business long beyond the point where it lost its way as a retailer. But emotion at the demise of a shop few of us visited more than a couple of times a year?

Let's weep for the high street, let's mourn the loss of those shops we cherished in our now forgotten youth. We should wipe away a tear knowing that the greengrocer who always called you "John" has gone, that there are so few bakers and that the comfortable retail brands of yesteryear are now just memories.

We should post pictures of our towns in those glory days when we had, we're told, some 'attachment' to the high street. And have long conversations while hunched over these snaps, remembering past ages and regretting the loss of these past institutions.

Show that emotion, call down a curse on the shops that have filled the void left by those old shops. The second hand shops, dens of evil gambling and places where all that's for sale is the false hope of an easy (but expensive loan) - cry out about:

...predators in Food Bank Britain, leeching on a society that struggles to make ends meet and ensuring their users pay over the odds to survive.

But let's not see that remembered past as a guide to some golden future for the high street, let's not pretend that emotion can ever substitute hard reality. Not the reality of poverty - there is less poverty today than there was when those black and white photographs were taken, when people trudged in worn out shoes, back aching to the high street to haggle and hassle for the things a family needed to survive. No it is the reality that our wealth has brought choice, mobility, opportunity and, in doing so, has left those retailers behind. All the tears of happy memory will not change this fact.

Yet people like Julian Dobson persist in painting this myth:

This is why the future of such high streets lies in a very different approach to prosperity. Instead of desperately competing for the spending from enclaves of affluence, high streets need to return economic value to local entrepreneurs and shoppers. This demands access to property at low rent and with business rates set at intelligent levels; it requires active encouragement of local enterprise by councils and chambers of commerce; and it requires community-based networks of trade and exchange that rebuild local loyalty.

Don't get me wrong, I'm with Julian on the tax thing - all taxes do is make business harder. But the pretence that somehow affluence is fading from places like Rochdale, that poverty and the food bank is somehow the norm of living in these northern towns is a distorted, even insulting, picture.

However, the shoppers in Rochdale, in Littleborough and in Middleton, they're on the tram into Manchester or fighting the traffic round the M60 to the Trafford Centre. Or indeed, and this is ever more the case, sat in their onesie on the sofa, smartphone or iPad in hand buying stuff on-line.

There is a future for the high street, not as a dystopic place filled with betting shops and fried chicken takeaways but as a place for leisure and pleasure. This isn't about some form of local protectionism, an impost on prices that further excludes the poorest, but about getting the scale right and the place right. Above all it means fewer shops.

So wipe away the tears, they serve no purpose beyond the memory that invokes them. Instead recognise the reality of 21st century retailing - on-line provides a scale of choice never before available to the consumer. It drives down prices and brings the world's goods to our sofa. Just as there were once 50 shops in Cullingworth (there are now fewer than 15 and four of these are hairdressers), there will be no future need to struggle with heavy bags to that high street of people's memories to face less choice and higher prices than we get either on-line or in the supermarket.

These tears for a lost high street are pointless.

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Local multipliers are something of a myth

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Trendy regional economic development folk like to tell you about "the multiplier effect" arguing that buying locally means that more money "stays in the local economy". We are told - mostly without any real evidence - that this multiplier effect is the magic formula for making poor communities less poor, that it explains how paying higher benefits improves local economics and is the reason why inefficient traditional high streets are better than supermarkets.

Here's an example of this mythmaking from New Start magazine:

Working with the Centre for Local Economic Strategies, Preston Council is researching how much of the procurement spend of institutions – including Preston College, the University of Central Lancashire and Preston Council itself – actually stays in the local region.

‘The findings so far suggest that each institution spends less locally than you’d expect’, Whyte says. ‘There’s scope for us to improve that by looking at how to maximise local spend and supply chains and if there are any gaps in the local market, think about what we could do to fill it.’

The Evergreen model fills those gaps through a network of co-ops supplying food, energy and laundry services to local institutions. Preston Council is considering emulating this approach and has undertaken a number of initiatives to boost and expand local coops, including setting up a Co-operative Guild network.

Sound great doesn't it? But what it covers up is a fundamental factor about local preference - it distorts the market and, in doing so, it raises prices. If local suppliers in Preston know that they won't be squeezed out by a supplier from distant Burnley or, god forbid, Skipton then there will be no need for them to keep prices under control.

Thus we witness the essential fallacy of the local multiplier - the gain made in keeping money circulating locally is taken up in higher prices. It is, at the local level, essentially protectionism - great for the businesses that benefit but awful for the consumers who don't. The money may be circulating for longer but the buyers are paying more than they would be if the system were a free market. There is no gain.

And this is before we start talking about the opportunity cost of public spending:

It is quite misleading to leave public policymakers with the notion that their spending is not at the expense of the private sector because it may be autonomous or have multiplier effects

There may well be a local multiplier but these strategies to promote it are not only ineffective but probably damaging to the local economy (and certainly an impost on consumers).  Apparently though, this is "new economics" and we should be excited:

Until recently experiments in local economics were small-scale and peripheral. But the failures of orthodox approaches are leading even the most successful local economies to find new ways to boost jobs and revitalise communities. With a paucity of ideas and support from central government local areas are now abandoning laissez faire for more interventionist approaches.

Welcome to the latest in a long line of failed and failing regeneration strategies!

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Telling thoughts about the failure of regeneration...

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“Almost all our local economic policies target business investment, and masquerade as job creation efforts. We abate taxes, apply TIF’s and woo businesses all over the state, but then the employees who receive middle class wages (say $18 an hour or more) choose the nicest place to live within a 40-mile radius. So, we bring a nice factory to Muncie, and the employees all commute from Noblesville.”

Change the places - Muncie to Middlesbrough, Noblesville toStokesley - and you get the gist. We throw incentives at an 'enterprise zone' in South East Leeds - where do the people who take the resulting high skill jobs live? It won't be Seacroft or Beeston but more likely Tadcaster, Mirfield or Denby Dale.

The model doesn't regenerate (although big business and big government rather like it) - here's some more:

In short, the blue (Democrat) and the red (Republican) model produced some success, albeit in different modes (think San Francisco vs. Houston, Chicago vs. Indianapolis), for the “haves” side of the equation but haven’t yet proven equal to the “have nots.” The Economist makes it clear the totaly different policy configurations of the UK haven’t made a dent in it either. Post-industrial blight in much of Europe tells a similar tale. 

The beneficiaries of regeneration - three decades and more of investment - haven't been the poor and deprived. Despite this we carry on with the same approaches and the same strategies.

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Microclusters: a more targeted economic development model?

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Aaron Renn gets the concept of 'clusters' bang on here:

If you look at the list of target industries for any given city or state, you usually find several from the same list of five common items: high technology, life sciences (under various names), green tech, advanced manufacturing, logistics. Take a few from this list, and add a legacy industry if there’s one or two where you are already particularly strong, and there you have it.

The problem is, as Aaron points out, that everybody is chasing the same clusters using the same strategies. And this means that most of the time the winners in the 'cluster battle' are those with a broad economic base, more businesses and greater variety. In the UK that's London and the South East.

The cluster strategies of Yorkshire Forward and the other northern Regional Development Agencies (RDAs) failed to deliver on their general clusters (which, of course, were drawn straight from Aaron's list). However, the concept of 'microclusters' - much more specific business ecosystems - may make more sense for driving economic development:

One way to stand out is a concept I’ve called “microclusters”. That is, rather than simply saying “We’re high tech”, you have some specialty within the broader tech industry where you can be a real national leader.

Indeed the idea of 'high technology' applies to almost every industry so being the place at the forefront in a specific element of on-line business (e.g. encryption or, in the example Aaaron cites, Internet marketing technology) means a more genuine 'cluster' that just having a clutch of businesses that are vaguely connected by the tag: "high tech".

I don't think these 'microclusters' will respond to planning - given the variety of start-up businesses - but they should benefit from inward investment and place marketing. In Bradford -  people are welcome to add to this list - we've two (possibly three) microclusters: the South Asian food business (both running restaurants and also making/distributing meals or ingredients) and blinging up cars. These are growing, have a local economic base as well as a wider appeal and draw on Bradford's distinct advantages.

Perhaps this gives us a different way of thinking about - and perhaps supporting the development of - local economies? What I do know is that it's a better bet than the 'cluster theory' that dominated the economic development strategies of the RDAs - that definitely failed.

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Singapore on the Ship Canal - why it's the economy that matters in regeneration

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The thing about regenerating the North of England is that we appear to have tried everything - sometimes more than once. Or rather we have tried every variation of government intervention. And it hasn't worked.

The latest (and this is definitely a rehash) solution is the 'local enterprise partnership'. Now these things - which seem not to be local, not to be about enterprise and bad examples of partnership - are the favoured vehicle for regeneration. And as Neil McInroy from CLES observes:

I recently participated in a round table debate on growth, with northern business leaders in Manchester. Inevitably, the key vehicle for local economic growth came up – local enterprise partnerships (Leps). Starting with a few shakes of the head and the odd raised eyebrow, that bit of the debate was summed up by one participant who said: ‘I am not sure Leps are fit for purpose in the drive for local economic recovery’. He was understating it, but spot on.

The problem here is that Neil, having identified how LEPs aren't the way to do it, stumbles into that old trap of believing that some other form of government intervention will do the trick. Indeed the solution preferred here combines one good idea and several lousy ones. The good idea is that local councils should lead on regeneration - more to the point, that local councillors (who Neil insists on calling 'elected members') should take ownership of economic development strategies.

The bad ideas are these:

We must aim for business success and private gain with social justice. They are not mutually exclusive.

To be fair, I've really not the foggiest idea what we mean in this context by 'social justice' - it seems to be something that has to be said if you're a bit left-wing but want to talk about the necessity of free market capitalism. The problem is that it leads to mission creep - to setting environmental targets that squeeze out growth, to a misplaced belief that 'social enterprise' is an engine for development and to targeting based on social outcomes such as 'equalities' or 'community cohesion'.

It is evident from the recent fairness and poverty commissions and work in local authorities around social inclusion that there is need to match economic development with social growth.

Here's another example of this mission creep (and a warning that, while it's a good idea for councils to lead, they aren't always good at it). I'm sure Neil knows what he means by 'social growth' but it seems to me that, not only are Northern cities significantly more 'equal' than London, but that this is a direct consequence of their lack of success. More importantly, 'social growth' is a consequence of economic development not an alternative. If you trog round the poorer parts of Manchester or Leeds it's abundantly clear that the poverty results from economic failure compounded by poor government in crucial areas such as education and health. So the starting point for regeneration must be economic - get people into jobs, improve skill levels and encourage business creation.

In some ways we seem confused about what we're trying to do. On the one hand, organisations like CLES promote the ideas of an 'economy for all' that rejects traditional models of economic growth and opts instead for the idea of 'activity', for 'greening' and for more cooperative or mutual organisations. This is fine - although it only works if you set aside the desire to 'close the gap' with wealthier regions in the south - but I don't believe it offers genuine hope to the thousands of people stuck on benefits, in poor housing and with some of the country's worst schools and hospitals.

There is, in this argument, a view that equates the public and private sector in economic terms - ignoring the fact that, in general terms, the public sector doesn't produce but consumes (and we should remember that consumption is more important that production - even the squanderous consumption of the public sector). So in regeneration it is the private sector that matters - not the grandees that end up on LEP boards but all the others, the start-ups, the SME, the little manufacturers and the shops, large and small. Without this there is no growth - there might be spending but there isn't growth.

There are things that can and should be done - devolving tax-raising and rate-setting powers back to the local level and, at that local level, carrying through that 'double-devolution' idea to encompass schools, healthcare, leisure provision and much else besides.

But growth - and let's be clear, it's growth that the North needs not some sort of steady-state economy - will not come from this action but from an environment that celebrates business and enterprise however it is organised. From a society that finally escapes from the belief that some grand bloke in a top hat will arrive and give us all jobs for life.

If the North is to have a successful economic development strategy - or strategies - it has to focus relentlessly on the private sector and eschew the temptation to use regeneration plans to save the planet, eliminate poverty or create some mythical 'fairer' society.

Imagine 'Freeport Manchester' - a low tax, low regulation economy supported by local government and featuring investment in skills, education and business creation. A place focused on science and engineering, on export and exchange - a sort of Singapore on the Ship Canal. Wouldn't that be a better ambition?

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The Smith Institute (unwittingly) spots the North's problem...

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Amidst a turgid, dreary and special interest laden report, The Smith Institute, the world's last remaining centre of Brownite thinking, unwittingly nailed the reasons for the North's economic problems:

In the three Northern regions, in the boom years of 2000-08, the majority of the new jobs came directly or indirectly from public funds.

The Labour government, under Brown's chancellorship, borrowed money and spent it on creating public sector jobs. There were no "boom years" outside the public sector in places like Bradford. For a few moments it felt that way but it was a chimera.

Public sector jobs were better paid, had better pensions and (seemingly) offered better prospects. Voluntary organisations, charities and social enterprises were sucked into the government's maw where juicy morsels of grant and contract were served up. The private sector - unless it was simply delivering public contracts - stood no chance.

The North's economy is in such crisis because of that false dawn, because the Labour government conned us into believing that the solution lay in an ever larger and ever more inefficient (and ineffective) public sector. They were wrong and we're paying the price.

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The dark truth about regeneration...it doesn't work

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"Intervention" cried Heseltine and this was parroted by every economic development department, regional development agency and local authority. The echo of this word still bounces around the public sector - something must be done, invest in economic development...intervene, intervene, intervene.

It doesn't work:

...there is virtually no association between economic development incentives and any measure of economic performance. We found no statistically significant association between economic development incentives per capita and average wages or incomes; none between incentives and college grads or knowledge workers; and none between incentives and the state unemployment rate.

Is that clear enough for you? Oh for sure there are specific examples of lovely shiny things that have come from those incentives - an office block here (probably filled with public sector employees), an apartment complex there - but the strategy as a whole hasn't worked. Indeed, it could be even worse:

The only statistically significant association we find is between incentives and the poverty rate.

I'm not suggesting that regeneration actually makes places worse (although I could line up a convincing argument or three to support that contention) but that these incentives don't deal with the underlying reason for the place being poor and declining.

A couple of days ago the chancellor bunged a load more into the Regional Growth Fund - essentially an economic development fund - and a similar amount into market-facing basic research. I can tell you now that this will not do anything to address the problems of declining places. Nor will giving more powers and cash to so-called "local economic partnerships" (these are not local, not focused on economics and not partnerships but otherwise admirable bodies).

But folks, "something must be done" and this means the regeneration boondoggle will continue - Slough (home of Amazon in the UK) are appointing a new boss in this area at a salary of £126,000, for example. And the great regenerator who lands the job won't solve Slough's problems but will doubtless leave behind a masterplan or two, a collection of shiny schemes and a room filled with regeneration and economic development strategies.

Regeneration doesn't work.

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Leeds City Region needs enterprise, excitement and initiative - not sure that's what its getting

Yesterday – following their extravagant summit -  I wrote many a fine word about the problems with Leeds City Region LEP. The unrepresentative, public sector majority board, the Leeds-centric nature of the emerging strategy and the manner in which the ‘plan’ merely revisits the failed plans and strategies of the past thirty years. We appear to have learned little in that time and to have grown an exoskeleton of impenetrable regeneration babble to excuse that lack of learning.

But rather than a diatribe about this, I want to comment on how these bodies can be made to work – but only if we ignore the dominant ‘shiny regeneration’ approach to economic development.

If Local Enterprise Partnerships (LEPs) are to work, it won’t be through fine words and setting targets over which the Partnership has absolutely no control.  And it certainly won’t be by staging a few cosy fireside chats with self-selected business audiences or by buttering up some big property developers or retailers in the hope that they’ll wave their magic business wand and create that “dynamic, low carbon economy” everyone seems to want.

The clue – if we need one – lies in the name. In those two words – “local” and “enterprise”. This isn’t about the nonsensical and mythical “competitive advantage” game (that Porter has so much to answer for) or the Jane Jacobs for property developers that the Centre for Cities peddles. Success comes because people – local people succeed. Success comes from having an enterprising, creative and innovative population.

This isn’t about fast trains, enterprise zones or “City Region Strategies”, it’s about stomping around local communities talking to local folk, chatting with the corner shopkeeper, listening to the aspirations of these neighbourhoods. That’s where the growth will come from – not in revisiting the broken windows fallacy but in the enterprise and initiative of ordinary people.

If the LEPs simply become ways to divvy up grants and to farm the development taxes everyone seems so keen on (which are just another drag on economic growth), then they will fail. So a few bits of the ‘city region’ will benefit from this cash injection while the fundamental problem – our lack of enterprise compared to successful places – is simply not addressed.

Here are a few things I think that a LEP should do:

1. Extend the successful community-based enterprise development work done in Bradford across the city-region
2. Create a network of enterprise colleges under the ‘free schools’ model – concentrating this in the poorest communities
3. Establish a business microfinance system – lots of businesses need a little as £500 to get going and the LEP could help support this sort of lending
4. Sponsor and support business networking, local business hubs and enterprise support – working at the local level

The essence of this is that it is focused on people rather than on grand projects, big business or the ever elusive inward investment. If we have successful, exciting people, we will get successful and exciting businesses. And this will attract more excitement, more success and more business. And that growth in “gross value added” we all seek.

But most importantly, it will be fun.

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