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Countering the capital orthodoxy

Why Janan Ganesh is wrong about the north and economic agglomeration.

The Corus steelworks in Redcar. Photo: Getty

Janan Ganesh this week wrote a column that flew in the face of all the contemporary evidence on the nature of economic agglomeration; the role of mid-sized cities in developed economies; and the role of public policy in addressing contemporary globalisation.

Despite the most rapid growth taking place in the capital city, 57 per cent of net aggregate growth was generated by so-called "intermediate regions" in the UK. The north of England, for example, also produces a quarter of national economic output; it is twice the size of the Scottish economy and if it were a nation it would rank as the eighth-largest in the EU, ahead of Sweden, Denmark and Belgium.

Economists across the world – OECDMcKinseys to name but two – are increasingly interested in the role of mid-sized cities in driving national economic output and it is now widely recognised that the underperformance of UK cities outside London is the cause of a significant drag on the national economy. In fiscal terms, that drag appears through an ever-worsening gearing between tax generation in London and the south-east – supported by apparently "spatially-blind" policy measures - which is then redistributed beyond the capital city in the form of grants and benefits. That gearing needs to change by releasing the potential of Britain’s city economies.

Ganesh is right to name the strong “impersonal forces and historical trends” that have shaped London’s dominance in recent years and had devastating impact on a deindustrialising north and midlands. But to suggest that the north has never punched its weight is to deny the Industrial Revolution ever took place, even if the majority of its spoils – and those of the wider Empire – did end up stoking London’s stock exchange. It is the same trends and forces that led to the financial crash but again the idea that Northern Rock and Bradford & Bingley were somehow that causes of that crash is quite ludicrous – they were simply the first UK casualties of a global phenomenon.

It is also wrong to suggest that public policy has had – and will have – no purchase on these forces and trends. London’s agglomeration has a huge amount to do with it being the seat of political and cultural as well as economic power. Our own analysis of government spending on economic affairs shows that London has consistently received twice the amount per capita as any other region excluding Scotland and that since 2008/9 this amount has increased more than 25 per cent whilst declining in the rest of the country. In terms of transport infrastructure spending, the current National Infrastructure Plan commits £2,595 per head to London and the south-east compared with just £5 per head in the north-east. In terms of R&D, Scientific Research Council spending is three times as much per capita in London than in any Northern region despite the existence of eight world class universities in the North.

Much international evidence shows that agglomeration can be successfully supported by an active industrial policy which spreads wealth around nations such as Germany and Sweden through a range of effective measures. The problem – as Ganesh quite rightly points out – is that such measures in the UK have been relatively weak and ineffectual, largely hampered by the vested interests of an overly centralised bureaucracy as most recently evidenced in the pathetic government response to Heseltine’s Single Local Growth Fund.

His critique of the “Hezza-Prezza years” is though once again without evidence. The fact that London continued to grow faster than the regions is a function of the growth of the financial service sector rather than an indictment of public policy. And the role that Regional Development Agencies have played in the transformation of cities like Manchester, Leeds and Newcastle should not be underestimated. Although those cities and their hinterlands may not yet have fully made the transition to a post-industrial economy, they are a long way further forward and well-positioned to continue to grow.

Ganesh argues that London that needs a “citywide government of its own”. This is true, but it’s not just London. Central government control over economic affairs constrains not just London but the whole country. Indeed, one could argue that in wresting control of transport and housing, the London mayoralty is doing very well. From Travers’ London Finance Commission, to Heseltine’s No Stone Unturned, to last year’s Northern Economic Futures Commission the message is clear – Whitehall must let go: of transport, innovation, skills, welfare, housing and crucially fiscal powers and incentives if the national economy is to thrive.

One wonders what kind of London Ganesh sees as the outcome of his laissez-faire approach. With the lowest quality of life indicators in the country already, Londoners will surely be concerned at the prospect of a new overcrowded Mumbai? And what might be the constitutional implications of a new city-state like Singapore? This is a debate that has a growing urgency, for if recent reporting is anything to go by it may well be that the biggest legacy of the London Olympics will not be a sporting one but that Ganan’s orthodoxy reigns once and for all.

Ed Cox is the director of IPPR North. Find him on Twitter as @edcox_ippr