The UK Economy and Its Two Regional Problems, Grupo Milenio

Raise the level of regional disparities in United kingdom Is it a priority? The budget to be presented on March 15th Jeremy HuntFinance Minister, should help answer this question. Unfortunately, recent work indicates that the challenge is more difficult than previously thought.

It turns out that United kingdom It has two regional problems, not one, and as a result, there is also a huge national conflict. A longstanding challenge is the relative vulnerability of areas outside London and the South East. However, since the financial crisis of 2007, we have noticed a new crisis, precisely the slowdown of these previously dynamic areas. The regional disparity has not worsened since then, but this is not due to upgrading. The country is suffering from something worse than growing regional inequality: a national recession, in which even the old engines of growth are faltering.

The paper, Tackling regional economic inequality in the UK: Binding constraints and avenues for policy intervention, was co-authored by Ed BallsThe former Shadow Chancellor of the Exchequer, with Anna Stansbury and Dan Turner, looks at the long-term challenge. The report Capital Losses: London’s Role in the UK’s Productivity Puzzle, by The Cities Center, focuses on the post-financial crisis slowdown in the country’s most prosperous region. These analyzes come to a common conclusion: the country needs a radical liberalization of land use controls.

As the first of these articles indicates, there are several reasons for concern about the regional disparities unleashed by the deindustrialization of the past four decades. One of them is that these disparities are associated with different standards of living, life expectancy, and educational level. Another reason is that they are linked to a “geography of discontent,” which became evident in the Brexit vote. Finally, low productivity levels in large parts of the country translate into relatively low productivity in the UK as a whole.

So what can you do? This report concludes that low percentages of university graduates in lagging regions are no longer an obstacle. Nor is the general lack of funding. More sensible constraints are poor transport infrastructure, lack of support for innovation clusters outside the South East, and restrictions on immigration to London and the South East due to the high cost of housing.

So there are things to do. In particular, it makes sense to invest more in university STEM education, allocate more resources to infrastructure, especially transportation, and increase government spending on high-quality research and development clusters located outside the Southeast.

One of the points this report makes is that migration often goes ‘in the wrong direction’, from the most productive to the least productive. This is also in line with the conclusions of the London report, but the most surprising finding is that productivity growth in London is the same as in the rest of the country since the financial crisis: dismal. Productivity growth per worker in London fell from 3.1 percent annually between 1998 and 2007 to just 0.2 percent thereafter.

One immediate reason is that “super-industries” such as finance, professional services, and information and communications have stopped growing as fast as the external economies with which they compete. Besides, this was already evident before Brexit (although this madness could not be helped). The second explanation is that the cost of commercial real estate has replaced more productive sectors. Finally, the housing “affordability crisis” discourages immigration, both from within and from without. This would have diluted the advantages of bloc that London generated in the past.

The country is in trouble. Deep regional inequality is the legacy of a long period of rapid productivity growth in London and the South East, while the rest of the country became deindustrialized. Then, after 2007, London’s economy stagnated. So, the regional disparity, while still quite large by European standards, is no longer getting worse. But this “cure” is worse than the disease: it worsens the performance of the economy as a whole and thus, among other things, deprives the country of the resources it needs to deal with its challenges, including inequality.

Relaxing planning controls will help London grow faster. A better post-Brexit deal for the sectors London specializes in would also do the trick, but give capital more control over its finances, report notes Cities Centre, would conflict with the urgent need to spend more in weaker areas. Now that all parts of the British economy are failing, the difficulties in addressing regional problems are greater than before. Leveling up is the worst possible response to leveling up challenges.