Levelling up, not down

Morgan Schondelmeier

July 10, 2020

Levelling up. Closing the opportunity gap. Unleashing Britain’s potential. Slick slogans that delivered an eighty-seat majority are not to be sniffed at. But after the strategy comes the implementation. After high-minded promises, the government is now faced with the task of delivering them.

We were painted pictures of big industrial work sites dotting our cities, new transportation routes connecting our left-behind towns and a surge in jobs across regional centres. But 2019 was a different world to 2020. We were fatigued after years of Brexit battles, but now the government faces not just divorcing the UK from the EU but the increasingly challenging task of guiding the UK through the pandemic and the worst economic downturn in a century.

Yet, for all the focus on coronavirus and the economic recovery, we haven’t heard the last of levelling up — very far from it. The prime minister and the chancellor have invoked the phrase countless times in their daily briefings, landmark speeches and summer budget update. We are seeing in real time how the government is proposing fulfilling promises made a world away.

Let’s look at the goals of the levelling up agenda. Boris says he wants to ensure that “everybody across the country has the same level of opportunity”.

Equality of opportunity is a noble goal, but the government has chosen to focus on interesting aspects of the economy in order to encourage the growth they think will bring opportunity.

Through infrastructure projects, restructuring of funds and even relocation of core government departments, the Tories would like to revitalise the areas of the UK which have been facing gradual decline as we shifted from a manufacturing economy to a service economy. The aim is to create jobs and economic activity in areas where it is currently not already happening. Picking winners to force growth.

But there is a big problem with the current strategy of levelling up. It’s political, rather than economic.

A focus on state-funded infrastructure projects achieves two political goals — creating jobs in specific industries and showing government commitment to certain areas. But it does not achieve the kind of economic growth a true levelling up agenda requires.

Our fascination with large infrastructure projects comes from massive infrastructure expenditure in the US and the UK from the 1930s through the post-war period. In those times, infrastructure had much greater returns on investment as it created new inter-city networks, many more jobs, as labour was mostly manual, and diversified shipping and transport routes creating extensive agglomeration effects.

But transport infrastructure has diminishing marginal returns. Studies show that as we continue to develop, there will be fewer places which will truly benefit from new transport infrastructure, specifically low network density areas.

Look at HS2. With pre-existing infrastructure already providing train transport to and from London and Birmingham and Manchester, we are only gaining a small marginal benefit, in the form of a few saved minutes, at a huge monetary cost. As economist Edward Glaeser says:

I’d be thrilled to save an hour a week in commuting time. But that extra hour is unlikely to turn me into a vastly more creative and innovative person. Transportation infrastructure isn’t a solution for… lacklustre growth rates.

But HS2 is creating a lot of jobs and providing a service for those in Birmingham and Manchester, ticking both of the political boxes.

A second issue with focusing on the political potential of levelling up instead of the economic is that the government is invariably involved in picking winners and losers in an attempt to force change. They are intent on achieving growth for the left-behind areas of this country, especially those who lent their votes to the Conservative party in 2019.

But it is exactly those areas where economic growth is the hardest to achieve. If it were easy or conducive to set up a business or shop or build homes in these areas, it would already be happening.

Instead of trying to use government subsidies or bailouts to keep failing industries in cities they no longer are able to serve, the government needs to look at a national programme of increasing skills, housebuilding, education and, yes, infrastructure.

So what can the government do to meld the economic with the political? Unfortunately for those men that love grand plans, the answer lies in mostly getting out of the way — not a big selling point when the raison d’etre of most governments is to be seen to be doing something.

By relaxing planning laws and freeing up land for building, towns and cities can begin to grow and produce new and enticing neighbourhoods that people actually want to live in. Reducing the burden on businesses and would-be business owners will help to revive lagging high streets in the face of increasing online competition.

Focusing on smaller but much more rewarding east-to-west transportation connections between northern cities and local bus routes. Revising our collective attitude towards the necessity of a university degree and putting more effort into improving elementary education and apprenticeship programmes.

The optimist in me would like to think that governments hold the effectiveness of an economic policy above its political appeal, but we must live in the real world. These may not be the grand gestures you can plaster on the side of a bus come campaigning season, but they will generate organic and meaningful growth across the country.

People voted for Boris because they wanted politics done differently, promises delivered and their voices heard. Delivering real change over empty gestures is the only way to secure those votes stick with him, come the next election.

Author

Written by Morgan Schondelmeier

Morgan Schondelmeier is Head of Development at the Adam Smith Institute.

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