1. Economics
April 24, 2019

To fix the north south divide, we need to talk about human capital

By Elena Hess-Rheingans

There are many names that get thrown around to characterise the emerging political currents of our times: populism, nationalism, or what some genius in a moment of ironic onomatopoetic brilliance endearingly labelled Trumpism.

The comforting story that the “equalising” market forces of neoliberalism will invariably lead to efficient and equitable growth has been debunked as a fairy tale. We find ourselves at a crossroads where we know that our current system is failing but don’t really know how to exit this complex mess.

Inequality is also what many see as being the key to understanding the vote to leave the EU. It’s often said that Brexit has split the country – but actually it has made more visible a long-existing rift, the deepening divide between the south and north of England, and the increasing economic and political disconnect Northerners feel from the rest of the country. This divide manifests itself along various dimensions, including economic productivity, educational outcomes, and even life expectancy at birth (a shocking two years lower up north).

Ever since George Osborne’s famous speech in Manchester, reviving the “Northern Powerhouse” has become the focal point of the government’s policy to address these regional inequalities. His plans includeed massive infrastructure projects and investments into a handful of advanced industries as a way to revitalise the economy and build competitiveness. Osborne’s policies were based on a concept known as “New Economic Geography”, which theorises that clusters of economic activity around urban areas can lead to knowledge spillovers that may potentially spur endogenous processes of productivity growth. In essence, this is a typical “the sum is greater than its parts” argument.

In a more fatalistic interpretation of this theory, however, Policy Exchange has warned against spending resources on an already sinking ship. The North’s dissolution is an irreversible fact: population movements to the more productive South should not only be allowed, but actively encouraged, in order to improve those peoples’ productive capacity.

Last December, “The Big Sort”, a paper by Greg Clark and Neil Cummins questioned the effectiveness of either of the proposed policies, claiming that they disregard the underlying driver behind the regional divergence. The paper argued that the root cause of the distinctly lower productivity in the North does not lie in its inherently worse location characteristics, but instead in the selective migration of individuals. The findings illustrate that for more than a hundred years, Britain has been experiencing “brain-drain”: the selective migration of individuals with high capabilities from the North to the South and that of low-skilled individuals in the opposite direction.

Based on these insights, the authors make an appeal for the government to take a backseat altogether and, above all, limit “unproductive” investment into the North.

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However, this recommendation entirely disregards that the question of how much money should be channelled into the North remains an inherently normative one. It has as much to do with economic considerations as it has with social concerns. As the failure of neoliberalism to deliver on its promises has laid bare, economic efficiency should never be treated as the panacea for our problems, nor as an end in itself. Ultimately, do we want to allow for northern regions to descend into irrelevance or do we strive for a more decentralised distribution of economic and social activity?

If one were to deem the latter worthwhile, the paper can still provide valuable insights into which policies may be the most effective. The key takeaway here is that, if the North is to survive, it needs to find ways to invest in, create, and particularly retain talent. Yet in order to prevent skilled people from leaving, the North must become attractive to professionals not only in economic but also in cultural terms. Attractiveness, however, is not something that will be built overnight but is itself the product of organic processes.

As urbanist Jane Jacobs put it: development is stifled in an environment of efficiency but thrives in one of diversity. Hence, the answer to the revival of the North likely does not lie in the investment into a handful of major industries but instead in the emboldening of diversity within social and economic life. This also includes making the North attractive for entrepreneurship and creative industries.

The relocation of Channel 4 to Leeds may represent a step in the right direction. Whether this can guide the way towards the creation of a decentralised and more equitable society, only time will tell.

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