How to level up

CAMBRIDGE: The recent publication of the UK government’s 'Leveling Up' White Paper is a significant event. This is not because its bold promise to “level up” the poorer parts of the United Kingdom might deflect attention from the ongoing political crisis surrounding Prime Minister Boris Johnson. Nor is the White Paper especially noteworthy for making redress of historic inequalities the central policy ambition of Johnson’s government. Rather, the significance of the 332-page document lies in its analysis of the problem itself.

As the White Paper notes, successive UK governments have introduced policies to target regional inequalities since the 1920s. The subsequent economic depression accelerated the decline of the 19th-century industrial cities of northern England, Scotland, and Wales, and the fortunes of people living in different parts of the country started to diverge significantly.

While the White Paper divides the century-long history of UK regional policy into six neat phases, previous governments have made many attempts to tackle geographic disparities. In fact, there have been too many, characterised by frequent policy reversals, lack of coordination, and failure to learn from experience.

Much of the commentary on the White Paper has focused on the gap between its analysis of the UK’s systemic and deep-seated geographic inequalities – which are more extreme than Germany’s, despite the legacy of Germany’s ex-communist eastern Länder – and its proposals for change. And, to be sure, the government has announced insufficient funding even to reverse the damage caused by austerity policies following the 2008 financial crisis.

Moreover, non-financial measures, such as a modest devolution of powers to mayors, will still leave regions and localities needing the central government’s permission to take their future into their own hands. Far more devolution and local accountability, including with regard to fiscal powers, is needed to bring the UK into line with other OECD countries.

There is also no evidence that the government has focused on the need for greater consistency and continuity of policies. A linguistic comparison of the Levelling Up White Paper with the government’s own prior economic strategy documents reveals an almost total lack of continuity. They are literally talking a different language in terms of policies, and even key sectors of the economy. Perhaps this conceals an underlying similarity of meaning, but, if so, it is guaranteed to be confusing.

That said, the analysis in the new White Paper is different in important ways. The thinking behind it is set out in the first half, which describes the economy in terms of the assets available for development and as a complex system requiring a comprehensive approach to reform. The second half then ignores this analytical framework, in favour of the usual long list of separate policies. But, by focusing on the set of local "capitals" (human, financial, social, physical, intangible, and institutional), and on the coordination of activity through “missions,” the White Paper nonetheless represents a milestone.

That is because this framework embeds time and collective action as drivers of development. 'Capital' is a broad term for things that can be invested in and maintained to deliver a stream of useful services or resources over time. The value of an asset today depends on what it is expected to return in the future.

One can quibble about the government’s list of different types of capital. For example, it omits natural capital, even though this is correlated with human and social capital and is vital for the economy and human health. Some items on the list are particularly woolly, but crucial nonetheless. Social capital, while the subject of much academic debate, refers to a community’s capacity to act collectively and is strongly associated with good economic outcomes.

But the key point is the embedding of sustainability, broadly understood: Policymakers are stewards of a country’s assets and need to ensure they will deliver returns in the future. Governments should therefore regard local and regional economies in the same way that investors regard intangible and organisational capital as explicitly or implicitly part of a corporate balance sheet, and account for entire portfolios of assets.

In this respect, the White Paper is catching up with many economists’ current thinking about economic welfare and the need for indicators that go beyond GDP. The World Bank’s flagship Changing Wealth of Nations programme pioneered thinking about inclusive capital. Last March, the United Nations approved statistical standards for measuring ecosystem services. And the UN’s current revision of the System of National Accounts, due to be published in 2025, will fill some of these 'missing capitals' gaps in national balance sheets.

The other key point is the need to coordinate policies across domains and levels of government. The White Paper sets out 12 “missions,” a mixed bag of policy inputs (such as increased public investment in research and development outside London and the southeast) and complex outcomes (such as raising healthy life expectancy by five years by 2035). Again, there is plenty to question, including where localities’ own priorities fit into these targets. But the government’s recognition of the systemic nature of the challenge is important.

The UK government’s levelling-up agenda will not transform the fortunes of people in “left-behind” areas in the short term. But we should not expect it to. As Brown University’s Oded Galor points out in an important forthcoming book on the long trajectory of economic development, history is a central policy actor. Actions taken collectively today will determine, for decades to come, whether sustained improvements in living standards are possible in places that have seen little prosperity in decades past.

Diane Coyle, professor of public policy at the University of Cambridge, is the author, most recently, of Cogs and Monsters: What Economics Is, and What It Should Be (Princeton University Press, 2021).

Copyright: Project Syndicate, 2022.

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