It’s time to wake up and smell the coffee: poor places stay poor because of rich places

Professor Calvin Jones argues that no place develops within a vacuum.






South-Wales-Valleys

Economists live in a vacuum. By that I don’t mean we’ve all recently been blasted off to live on the International Space Station (though the world can dream), but rather that our theories and approaches are bereft of any wider context. The economics we use almost wholly a-historical, a-political and a-social. Our laws apply everywhere and nowhere. This problem is currently sending a slow shock through the profession, generated largely from outside the learned professoriate, and taking issue with the way the economists have failed to come to terms with the implications of the credit crunch, and the extent to which socio-economic inequality is undoing the manifest material successes of industrialised rent-capitalism. Piketty’s tome on this is, as I write, the most bought (but I suspect not most-read) book on Amazon US.

Economists’ understanding of prosperity and place is, with a few noted exceptions, just as narrow. Economists – and by extension public policymakers – seek to diagnose, analyse and ameliorate the problems of poor places as if they were hermetically sealed in vacuum jars, with the lid only opened to admit or excrete a few traded goods; some migrant labour; perhaps a soupcon of aid or welfare and an occasional healthy dose of inward flowing capital. We shake the jar, and put it back on the bottom shelf.

The problem with this approach is that we are always looking for explanations for the prosperity gap within poor places. Not enough skills? Not enough roads? Uncompetitive wages? As is if solving these thorny problems will somehow catapult Wales, Sicily, or the Democratic Republic of the Congo to the top (or at least middle) of the domestic or international economic league. This blinkered approach ignores a reality obvious to most non-specialists. No place develops in a vacuum; at least none since the long ago Eden of the Fertile Crescent between the Tigris and Euphrates, where first man and woman decided to swap the thrill and risk of the chase for the drudgery and relative security of tilling the land and herding the sheep.

The reality is that for places, development, prosperity and the fundamental wellbeing of their people is contingent. Contingent on the relationship they have with neighbouring and related places. And what matters most is power and politics, not economics and exports. For example, almost every place outside Eurasia bears a colonial stamp; a history of uneven power politics running through their societies like words through a stick of Blackpool rock. We can see this in the strident economic nationalism and volatility of Latin America. In the windswept deserts of North Africa, soils ruined by Roman grain. In the vast tea (and once opium) plantations of India, the world centre of textile exports until the Brits got there. And in the hanging, brooding slag heaps of South Wales.

If all this matters, if yesterday shapes today, and today shapes tomorrow, then we must re-evaluate how with think about places and prosperity. The Economics of Place is the Economics of Empire, then and now. And this particular spatial applecart is not just solidly tethered, but increasingly cemented in place. We can look around for some sketchy, indicative evidence. For example the ‘problem regions’ of 1930s Britain are largely the ‘problem regions’ of today – eighty years of economic history, a World War, fundamental industrial transformation and the death of an empire has done precisely nothing to rearrange the hierarchy of places in Britain – although regions move apart or sometime squeeze together a bit (as we know and obsess over). No regional policy or social intervention, be this from Westminster-Whitehall or the regions themselves, has done one whit to knock the South East from its perch, move the Midlands from their comfortable mediocrity or drag the North and Wales up by their bootstraps to some semblance of decent economic functioning.

The cynical, spatially oriented post-Marxist (there are one or two) might suggest that this is because the objective of regional policy is precisely not to upset the applecart. Such policies have, in the UK, supported regional employment through the allocation of public service activities; through subsidy-support for firms in problem regions; and through preferential terms for foreign inward investment. It has salved the balm of economic ‘uselessness’ through generous unemployment benefits, universal health care and free education (up to a point); these latter nominal social policies that are also de facto regional interventions. What it has not done is moved any genuine control or autonomy from the core to the periphery. The North East gets Work and Pensions, Wales gets the ONS, but Sir Humphrey and his pet ministers stay resolutely on the Thames. Regions get ‘innovation systems’ and ‘knowledge transfer partnerships’. The ‘Golden Triangle’ of London and the South East gets the bulk of defence and research spending and a frankly staggering level of infrastructure development including, in the last decade alone the Olympics, Crossrail, Terminal 5 and HS2 (which interestingly, although posited as an emancipatory tool for the Midlands and North, starts construction at, yes, the London end). This kind of regional imbalance masquerading as regional policy does nothing but embed existing power relationships and economic dependencies still further. Meanwhile, London keeps welcoming our skilled and enterprising youngsters, eventually giving them back older, less productive and often considerably grumpier.

All this may well be an accident of history; a natural tendency of social organisms to self-organise in interesting ways. When the first joint stock adventurers set out from the Thames for points Oriental in the 17th century, cementing the primacy of the South East over the regions was probably not foremost in their minds. Neither was it the concern of Hooke, Wren and Newton as they debated and created the Royal Society in the new coffee houses of the 17th Century City of London. And today, there are (probably) no nefarious meetings between fat plutocrats in smoke filled, oak panelled London clubs, arranging regional prospects like chess pieces. This does not detract from the key implication of these real relationships, a fact that is un-discussed in mainstream economic literature and development policy: capital behaves differently in different places. It is not only less abundant in poor places (a well known fact) but it, and its benefits, are less ‘anchored’ to poor places, being constantly drawn by the rich core. This is true of financial capital that arises in rich regions, which is far less likely than neo-classical theory suggests to be invested in poor, low-cost regions. It is true of human capital that is born in poor places; much more likely to move, innovate and commercialise in neighbouring or far flung rich places than the reverse. It is true of natural capital, which in many cases cannot be moved, but where pre-existing regulatory, wealth and ownership structures still deposit the benefit largely outside the resource-rich but economically poor locality. And the character of capital in the periphery is problematic, at least in terms of its use. Social capital in a rural backwater may lead to the creation of a community enterprise that struggles against inflexible structures to make headway in creating assets for community renewal. Social networks on a large social housing estate may lead to structures and activities that are clearly economically viable and serve a local need, but which are flatly illegal.

If capital, resources and money are like this: hard to find in poor places, unwilling to move there, and in even the best case, leaving quickly via the nearest Tesco, the implications for regional and local economic policy are stark. Traditional economic policy, whether of left or right stripe, is unlikely to work, at least in delivering the needed economic transformation or rationale. A fundamental change in political relationships is needed to generate economic success relative to the core. And no, Silk will not suffice. Indeed, arguably, under this hegemonic reading, full political independence for a small European country might only see a reordering of relationships with the new capital at the top and with a political elite still skimming off the rest. Complicated stuff.

I feel the ghosts of future commentators queuing up already. Typical whinging Taff, excusing failure. The word ‘socialist’ may also be bandied (although I think that the State, at all spatial scales, is very much part of the problem, not a solution). The words ‘his, ‘on’, ‘shoulder’ and ‘chip’ may be rearranged. Well, maybe. But I’m going to put my time where my mouth is. Over the next year (thanks to the foresight of my employer) I’ll be doing some statistical digging to see whether places ever do claw their way up regional league tables, and if so, whether this is due to political or economic shock. I’ll be getting out to talk to people, businesses and organisations in poor but interesting places to find out how they see prosperity and development, and assessing how this fits with what governments say these places ‘need’. I’ll be trying to find out whether the economics of place really is the economics of empire.

I’ll let you know how I get on @welshecon.

Professor Calvin Jones is Professor of Economics at Cardiff Business School.