Thursday, 9 May 2013

Regions and Cities

Regional disparities have always been an issue in Britain, going as far back as before World War 2. For instance, before the war each industry was very much based in one part of the country. Finance was in London, textiles in Lancashire/Yorkshire and metalwork in the midlands. No government really thought in terms of regional policy, it only starts to creep into politicians minds during the interwar period because of the depressed states of some old industrial areas.

Measuring regional inequality was and had always been a tough task. Firstly, which places fall into what region? Birmingham, for example, seems to have shifted from being part of the prosperous South in the 30s-60s to now being part of the depressed North. There are many ways that the inequality could be measured: unemployment rates, labour force participation or income per head, for example. As far as unemployment goes, the further we go back the more unequal they are. In the 50s, unemployment was higher in the peripheral regions (N.England, Scotland, Wales) but the regional average was low and acceptable so nothing was done. Through the 60s, 70s and 80s unemployment everywhere rises, especially in the old industrial regions. The South and East are the only regions to avoid double figure unemployment rates in the 80s. From 1990 onwards, unemployment rates have diverged nationwide.

Labour force participation rates show a different story to the one above. They still show large regional variations with the biggest increase in working population taking place in the South. Income per head puts more attention the income in each region. It states that London and the South East have always had the highest levels, but that the South West and East Anglia have improved a lot recently. The North West fell behind after the First World War whilst the West Midlands followed suit in the 1960s.

So what is the cause of these imbalances? Part of the blame is the amount of people employed in declining sectors. As these sectors were all based in the same regions it left them lagging behind. Through the 70s and 80s the blame was increasingly placed on having the wrong mix of industry and services. Too many people were in industry when services was the growing sector. But, if we look at the statistics in a slightly different way we can get a different outlook on things. For example, if you look at female unemployment alone then the patterns diminish. Also, London looks like the best region - but it also lost a lot of manufacturing jobs from 1960-1990 leaving people unemployed. There are periods where East Anglia actually increases its employment in manufacturing.

Imbalances do exist, this is true. But why do they persist? Theory states that market forces should even things out. The first reason the imbalances continue is agglomeration effects. Firms expanding in a sector all seem to cluster together in the same area. This means, despite them perhaps clustering in high wage and rent cost, prosperous areas they benefit in the sense that they are close to skilled/specialist labour, suppliers, customers and the local infrastructure is attracting the correct type of employee. This is why more firms set up in the South - these benefits are more prevalent there. For larger firms, this effect meant that they tended to set up their corporate HQs, legal services and research and development centres in the South whilst their basic distribution and assembly tasks were focused in 'Outer Britain'. Proof of this is that over half of research and development spending in the 1980s came out of the South East of England.

The government make an attempt to rid the country of these regional imbalances from 1945 onwards. Some argue it would distort the market, others argue it was a necessity for faster national growth. The main tools they had was building and land controls and financial aid.

Financial aid could come in varying forms: loans, tax rebates to firms or grants, subsidies or infrastructure developments. Some of this aid came from the central government, some from local government and some from the EU.

1963 is when regional policy starts getting used widespread. It is used to raise growth and combat local unemployment. Before this there just wasn't the available resources to do much regionally. After 1976 this regional funding fell back because there were large constraints on public spending and the money that was available was directed towards inner city problems. More recently, from the 90s onwards perhaps, regional issues are of more importance for political reasons. Financial aid is given but much more selectively, with the focus being on new firms, regional competitiveness and aid to larger firms to attract external investment.

How effective was the policy of regional aid then? In the most assisted areas net job creation stood at around 600,000 from 1960-81. The majority of firms receiving aid said they wouldn't have been able to go ahead in their original form without the aid. But, it had its negatives. Manufacturing employment fell rapidly in assisted areas if you took the aid away - makes the suggestion that job creation was marginal. Firms receiving aid exaggerated the effects to try and get themselves more. Since the 90s, studies have suggested that aid would be useful if it was better targeted, but there haven't been available funds to do this. The problem of different tasks in the North and South persists.

Finally, we can conclude by saying that government policy affects regions differently even if they are not specifically regional policies. Plus, we cannot be sure of that actual effects of job creation because all the estimates vary massively. Make your own mind up.

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