https://cpes.org.uk/om/files/original/cc3c30da4c587c97a6fc74476a1594c7.pdf 81d8599ae4c7ba847346995940a60661 Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Title A name given to the resource Cambridge Economic Policy Review Volume 6 No 2 Creator An entity primarily responsible for making the resource CEPG Date A point or period of time associated with an event in the lifecycle of the resource July 1980 Text A resource consisting primarily of words for reading. Examples include books, letters, dissertations, poems, newspapers, articles, archives of mailing lists. Note that facsimiles or images of texts are still of the genre Text. Text Any textual data included in the document Introduction The Policy Reviews we have published during the past ten years have all been primarily concerned with the predicament of the British economy as a whole. The symptoms of this predicament are not open to question. After a period of full employment lasting for about the first 25 years after the war, albeit with the slowest growth rate of all industrial countries, since the early 1970s output and real income have stagnated, unemployment has risen and the rate of inflation has been high. Our central contention throughout has been that adverse trends in international trade are driving the country into an increasingly serious depression from which, in the absence of a drastic change in policy, there is unlikely to be any spontaneous recovery. Moreover high and rising unemployment will not necessarily bring about lower inflation. The system of ideas which underlies this view is, of course, entirely different from that on which the present government bases its policies. The government's view is that the level of activity cannot, except temporarily, be changed by macroeconomic policies designed to influence aggregate demand. What can be done, it is alleged, is to control inflation by controlling the stock of money. The only contribution to growth a government can make is to create conditions under which market forces work more effectively. The purpose of this Review is to discuss regional and urban policies in the light of the national predicament. A new set of regional accounts (presented in the Appendix) is used to provide a comprehensive analysis of regional problems in the first two chapters leading up to an evaluation of policy options in the third chapter. The fmal chapter considers the conflict between the government and councils over local spending. Throughout the 1950s and 1960s governments operated a wide and increasing range of regional policies. More recently, and most particularly under the present Conservative government, regional policies have become very much attenuated (see Table 1). The government's attitude to regional economic policy is in line with its attitude to macroeconomic management in general. Regional policy measures are increasingly limited to areas with the worst social problems, implying greater reliance on the operation of market forces to produce 'convergence'. We believe that current policies based on 'enterprise-stimulating' tax reductions and industrial reform through monetary discipline betray a misunderstanding not only of how the national economy works but also of how regional economies are related to the national economy. In setting out to devise a system of information relevant to regional problems we naturally start with a model which is consistent with the one we use to describe and analyse the behaviour of the economy as a whole. This is essentially a multiplier model in which real income and output are determined by aggregate demand, subject to a frictional capacity constraint. The system is driven, on the one hand, by net exports and, on the other, by government spending and taxation. However, tax and expenditure policies cannot in practice be used on their own to stimulate output and employment because unless net export demand is adequate, growth policy encounters a financial constraint in the form of a balance-ofpayments deficit before reaching the limits of capacity (because the increase in income induced by the government is partly spent on imports). This explains the crucial role played by international trade; net export demand creates (or destroys) income and output directly and indirectly through the operation of the foreign trade multiplier and these impulses are inevitably reinforced by government policy insofar as this is adjusted to maintain a reasonable ex post balance of payments on current account. This model needs to be adapted extensively to deal with the problems of regional development within a country. One crucial difference between a regional Table 1 The changing force of regional policy Financial year Total government spending on regional policy in real terms (£million, 1975/76 prices) IDC refusalsa (%) 1960/61 1964/65 1969/70 1972/73 1975/76 1979/80 34 75 612 493 611 322 17 26 16 10 12 2 a Refusals of permission for industrial developments in the Midlands and South. 1 and a national economy is that the former does not have autonomy over taxation and public expenditure; to a limited extent local governments can change the burden of local taxation, but they must to all intents and purposes keep their budgets balanced. Nor can they undertake the general policies on trade and industry, exchange rates, or prices and incomes by means of which a national government may attempt to improve the competitive position of a national economy. This means that the expansion of regional economies is strongly governed by external influences and that local governments cannot compensate for losses of income in their area when, for example, exports fail, national taxes rise, or the cost of imports increases. A second crucial difference between regional and national economies is the comparatively high rates of inward or outward migration experienced by the former. As will be shown below, the main mechanism of adaptation to differential growth or decline of regions within the UK has been flows of migration between regions. Another obvious difference between regional and national economies is that the national fiscal system will, in a general way, perform an equalising function among regions where there are income disparities. Thus levels of public service (health, education etc) are maintained at roughly common levels throughout the country, while the generally progressive nature of taxation ensures that the burden of taxation will be greater the higher is the level of income. At the same time the way in which government grants are distributed among local authorities generally ensures that the poorest and neediest parts of the country benefit most. However, although the fiscal system may by its construction tend to redistribute income towards the poorest areas, this redistribution is small and static in its effect. A more important way in which the government influences regional income is the way in which it distributes its own employment and the policies it adopts to shift business employment in favour of areas of highest unemployment. Apart from effects arising from the distribution of government employment, regions' relative growth rates are determined very substantially by the rate of change in their sales to other regions (or abroad). This is in part a cause and in part a consequence of their changing shares of national productive capacity. As with a national economy, the primary impetus of production for external markets has multiplier effects which influence the growth of various other activities such as construction and local services. The reason why some regions have been relatively successful in expanding their sales to other areas is one of the main points discussed in this Review. Expansion in any period is strongly determined by the structure of industry inherited from the past, by the degree of urbanisation - since cities are characterised by contraction of manufacturing industry while new manufacturing employment goes primarily to small towns and rural areas - and by the effects of government policies which influence the distribution of new jobs. It is sometimes supposed that the relative failure 2 of some regions to achieve full employment must sooner or later be reflected in lower real wages and lower product prices and that this is, or must be, the appropriate corrective mechanism. We are clear that no such adjustment process exists. Wages tend to be determined nationally and prices are normally fixed as a mark-up on unit costs. We therefore expect to find (unless the government intervenes on a scale which checks or reverses the process) that the adjustment will take place through some combination of rising unemployment, lower participation rates and net emigration. Thus regional problems show up in the existence of severely limited employment opportunities in certain parts of the country. The shortage of jobs is reflected not only in high unemployment rates but also in limited job opportunities for women (not generally reflected in the official figures for the registered unemployed) and most important of all in emigration of people of working age. The employment shortfall since 1966 in the assisted area regions of the UK is estimated to have been almost a million jobs.* Since job opportunities for women increased in all regions, the burden of unemployment fell particularly on men. The shortfall generated large migratory outflows from all of the assisted areas. The emigrants competed for jobs in the Midlands and South. Indeed it is largely because of migration that the latter regions have shared in the national rise in unemployment. However unemployment remained highest in the traditional blackspots, particularly in Northern Ireland where one in ten are registered as unemployed despite emigration of 7% of the working-age population since 1966. High unemployment and emigration should not be regarded as necessarily emanating from the failure of regions to maintain or increase employment. Several regions with a severe employment shortfall (including Northern Ireland) experienced above-average employment growth. Conversely slowly growing output and declining employment in the South-East and West Midlands have failed to produce the classic symptoms of a depressed region. The paradox is resolved by differences in rates of natural increase in population. In Northern Ireland, Scotland and the North increases in population outstripped employment growth which was faster than the UK average. At the other extreme declining employment in the South-East has been absorbed by a natural decrease in population. Only in the North-West, Yorkshire and Humberside, and now also the West Midlands and Wales, has slow growth in employment been the root cause of relatively severe job shortages. The underlying problem is the lack of a mechanism which can successfully match employment to popula- tion change. Shifts in employment, which owe little to differences in labour costs or productivity, have been counteracted or in some cases accentuated by public policies. Regional policies have successfully diverted some 270,000 manufacturing jobs into the assisted areas, while differential growth in government expenditure caused relatively rapid increases in public sector employment in Northern Ireland and Scotland. New Town and overspill policies reinforced *See page 17. the decentralisation of population and employment from the large urban centres. Public policy has provided a partial link between jobs and people but has not matched the scale of the problem and the major adaptation has had to be made by people moving to the jobs. Differences in employment opportunities have certainly not led to a widening of wage differentials across regions. Only in the South-East (which also has a high cost of living) are wage levels significantly above average and even then by only 6%. The single low-wage region is Northern Ireland but even there wages are now within 8% of the general average after a period in which they have been converging strongly towards the average. In respect of wages the UK is a highly integrated economy in which annual settlements are transmitted reasonably uniformly throughout all regions. Thus wage levels are largely unrelated to the balance between supply and demand for labour. Indeed real incomes have tended to rise fastest where unemployment has been highest. However inequality of employment opportunities does affect levels of income per head of population. The proportion of people who have a job differs considerably from region to region so that average income per person is quite variable. Average pre-tax income per person in the South-East is 45% higher than in Northern Ireland and 30% higher than in Wales. In Northern Ireland's case the high rate of unemployment means that a substantial section of the population have very low incomes; most of the population have incomes close to the UK average while the minority depend on social security. In Wales the problem is different. The low level of per capita income mainly reflects the low proportion of women working; fewer Welsh families have two wage-earners than is common elsewhere. Uving standards differ rather less among regions than is indicated by differences in employment income per head, mainly because of the redistributional effects of taxation and social security. The net effect of personal taxation and social benefits including pensions is to compress the 45% difference between the poorest and richest regions by 15 percentage points. Average post-tax income in the South-East is about 30% above that in Northern Ireland. It is important to realise that these are differences between averages. The largest differences in standards of living occur between the employed and the unemployed wherever they live, or between single-income families and multi-income families wherever they live. It is only because the regional incidence of these groups is uneven that regional income per capita shows the disparities discussed above. The case for government intervention What is the rationale for regional policy if there are not substantial differences in post-tax real income among regions and if unemployment rates prove insensitive to employment growth rates? The answer to this question turns predominantly on the view taken about the causes and consequences of interregional migration. Where emigration is on such a scale that an area becomes seriously depopulated the process can be seen clearly to have undesirable characteristics. One cost of such a process is that infrastructure such as schools and housing comes to be wasted and the cost of this does not fall in any way on those making the relevant decisions. Another clear problem concerns the well being of those left behind in derelict areas. Serious depopulation is confined only to a small number of areas in Britain. It is to be found for instance in some notorious inner city areas and in districts where whole communities are dependent on industries in severe decline, such as steel. These cases are not at all typical. In many areas high emigration coexists with rising or static population. The case for general regional policies must, therefore, turn substantially on the extent to which migration is involuntary or, rather, the extent to which people should have the right to expect continued employment in the communities in which they live. The evidence strongly supports the view that net migration flows are caused by involuntary rather than voluntary movement. Outward movement occurs where the growth in the number of jobs fails to match the natural increase in population and the main alternative is unemployment. Although some of those affected may also have the alternative of accepting a job beneath their qualifications or experience, this only pushes unemployment onto others in the same area. In order to reach a decision on the value of regional policy, the benefits of bringing jobs to people in their own communities must be set against the cost of so doing. The government now takes the view that the main cost of public policies is to .be measured in strictly cash terms. On this view regional subsidies are indeed quite expensive and it is understandable why they should have been cut down. But to measure the costs of regional policy this way seems, to say the least, myopic. The most important question about regional policy should be whether it reduces or increases national income. When the southern part of the UK suffered labour shortages in the 1950s and 1960s, regional policy almost certainly had a negative real cost; by moving jobs to the North it permitted a higher level of national output. In the 1970s, and prospectively so long as the national recession endures in the 1980s, regional policies will tend to move jobs and reduce migration without much effect on total national income. But if they succeed in attracting foreign investment to assisted areas, or help British firms operating in those areas to compete more effectively, regional policies may still increase national income and augment government revenue. The main effect in a recession is one of redistribution of both jobs and money. Regional subsidies going to firms may be passed on in lower prices, paid out in higher wages or retained as profits. The transfer of income is complex and not necessarily greatly to the disadvantage even of the taxpayer. The financial transfer has to be considered in relation to the social and economic advantages of reduced involuntary migration, preservation of local communities and a 3 ... more even distribution of unemployment among regions. The other important question in a recession is one of exactly who will gain jobs and who will lose them if employment is moved from one place to another, without net job creation. In recent years of generally high unemployment, relatively prosperous areas have objected strongly to measures which remove employment from their communities. This response,although understandable, is less rational that it might seem, since if the jobs had not moved they would mostly have been taken by migrants and unemployment would have risen nevertheless. Indeed since the mid1960s unemployment has risen almost as much in the South as in Wales or Scotland. It is doubtful whether the prosperous areas would gain much from the abandonment of regional policy. The other rationale for continuing and strengthening regional policy is that it is the only effective way eventually to reduce the differentially high unemployment levels in the peripheral regions. Wales provides an example of how a region was rescued from the dire circumstances experienced in the 1930s to a position, 40 years on, in which migration flows have been reversed and activity rates have been rising rapidly. This achievement, largely due to regional policy, is unfortunately now jeopardised since regional policies have weakened and cuts in the steel industry are falling hardest on Wales. The rationale for policies towards the urban-rural shift of population is more problematic. Several million jobs and people have moved out of large city centres since the war. Most of these movements, both planned and unplanned, have occurred without grave social problems and appear at least in part to have reflected changing residential preferences. The problem has been one of residual unemployment in the inner cities. Unemployment among inner-city residents is abnormally high both in the North and in the South. Although it is hard to take a strong view on the best distribution of population and employment, some intervention is necessary to ensure that employment losses do not exceed the voluntary decentralisation of population to the detriment of those least able to move. If national efficiency were increased by the decentralisation of industry (or services) there would be a case for revitalising the traditional policies for the planned dispersal of population. Since the problem appears to originate from the unsuitability of physically constrained urban sites while requirements for floor space steadily rise, an alternative policy direction is to attempt to plan urban areas in such a way that factories have room to expand, or can obtain replacement sites within the same urban area. Similarly firms (whether in manufacturing or services) which do remain in inner-city areas could be encouraged through subsidies to employ inner-city residents in preference to commuters who now take a large share of innercity jobs. Unemployment is now rising everywhere. General cuts in public spending are likely to damage most heavily several problem regions, notably Northern Ireland, which are already most heavily dependent on central and local government jobs. Regional policy has been run down for several years and the government intends further cuts for which the new 'enterprise zones' will hardly compensate. This combination of circumstances will mean, in the North, a return to levels of unemployment similar to those experienced in the early 1930s, and in the South a continued inflow of migrants from worse-hit areas competing for an insufficient supply of jobs. 4 Dublin Core The Dublin Core metadata element set is common to all Omeka records, including items, files, and collections. For more information see, http://dublincore.org/documents/dces/. Title A name given to the resource Introduction Creator An entity primarily responsible for making the resource Members of the CEPG Source A related resource from which the described resource is derived Cambridge Economic Policy Review Volume 6 No 2, pages 1 - 4 Date A point or period of time associated with an event in the lifecycle of the resource July 1980