Neil O’Brien: No, more economic prosperity doesn’t depend on more social liberalism

13 Jul

Neil O’Brien is MP for Harborough.

Danny Finkelstein took issue with Boris Johnson’s idea of “levelling up” in the Times the other day. He reviewed the work of Richard Florida, a thinker dubbed the “patron saint of avocado toast” for highlighting the role of bohemian urbanites in driving economic regeneration.

Danny concludes from his work that, “Social liberalism and economic prosperity go together.” He argues that: “in order to match the success and power of metropolitan areas, non-metropolitan places need to become more… metropolitan.  The problem with the metropolitan “elite” isn’t that there is too much of it. It’s that there aren’t enough members of it, drawn from a wide enough background and living in enough places.”

I hesitate to disagree with one of the smartest columnists on the planet. But economic growth and social liberalism don’t always go together.

What about the Victorians, combining breakneck growth with a religious revival and tightened public morals? What about Japan during their postwar decades of blistering growth and conservative “salaryman” culture? Over the last 70 years, Britain has become more socially liberal as our growth rate has slowed.

Even in Britain today, it’s highly questionable. London is the richest and fastest growing part of the UK.  But where is opposition to homosexuality and pre-marital sex strongest? London. Where is support for censoring offensive speech highest? London.  The capital mixes liberal metropolitan graduates with religious immigrants. Its success is shaped by both.

Danny’s other argument has more important implications. Is it really the case other places must emulate London to succeed? Like other capital cities across Europe, London has grown faster than the rest of the country since the 1980s. The shift to an economy based on “office jobs” over has favoured the centres of larger cities.

But we shouldn’t get too carried away by the idea that hipster-powered megacities are sweeping all before them. For starters, there are successes elsewhere. Cheshire has high tech in a rural setting, with productivity and wages above the national average.  Milton Keynes likewise, because it’s easy to build there. Productivity in Preston has grown faster than average because it’s a transport hub with advanced manufacturing.

On the surface, large cities outside London have done well.  Since 1997, our 16 largest cities grew their GDP faster than their surrounding areas: Leeds grew faster than West Yorkshire, Manchester faster than Greater Manchester, and so on.

But on average, those cities saw also slower growth in income per head than their surrounding areas. In other words, people became more likely to work in city centres, but that growth was fuelled by people commuting in from smaller places around them. Their growth has been powered more by smalltown commuters than flat-cap wearing uber-boheminans.

It’s right that there are cities outside London that have things in common with it, and might benefit from similar investments. Lawyers in London will soon get Crossrail. So why have lawyers in Leeds waited 20 years for a tram?

But too often Richard Florida’s work leads politicians to focus on shiny cultural facilities. A cool art gallery in West Brom.  A national museum of pop music in Sheffield. It’s not just that these projects flop and close. It’s that they distract from two bigger issues.

First, most people aren’t graduates – so we need a plan to raise their productivity and wages too.

Second, places outside urban centres are perfectly capable of attracting high-skill, high income people – with the right policies.

Britain’s economy is unusually unbalanced compared to other countries.  Pre-tax incomes in Greater London are nearly 60 per cent higher than the national average, but more than 20 per cent below average in Yorkshire, the North East, Wales and Northern Ireland.  These imbalances mean our economy is overheating in some places and freezing cold in others, slowing growth overall. There are no major economies that are richer per head than Britain which have a more unbalanced economy.

But these imbalances don’t represent pure free market outcomes. It’s true that low-skill, low wages places can get stuck in a vicious circle. True that some places on the periphery have very deep problems. Nonetheless, the British state doesn’t do much to stop that – in fact it does a lot to unbalance growth.

Consider how we spend money. Capital spending on transport infrastructure in London is nearly three times the national average. Research funding per head is nearly twice the national average. Nearly half the core R&D budget is spent in Oxford, Cambridge and London. Spending on housing and culture per head in London is five times the national average. We’re “levelling up” the richest places.

We’ve rehearsed these problems for years, but not fixed them. Instead of chasing flat white drinkers, we need to find a cool £4 billion a year to level up R&D spending in other places to the levels London enjoys. Fancy coffee can come later.

Consider our tax system. Overall, the tax rate on business in the UK is about average.  But we combine the lowest headline rate in the G20 with the lowest capital allowances. The combined effect of this is a huge bias against capital intensive sectors, particularly manufacturing.

That in turn has a regional impact, hurting places more dependent on making things: manufacturing accounted for only five per cent of London’s productivity growth since 1997, but nearly 50 per cent in the north west. A hostile tax system is one reason Britain has deindustrialised more than any other G20 country since 1990, and why manufacturing’s share of the economy is half that in Germany or Japan.

Manufacturing should be a key part of levelling up outside cities: it needs space, not city centre locations. In English regions outside London, wages in manufacturing are about nine per cent higher than in services, and manufacturing productivity grows faster than the economy as a whole.  But Britain’s excessive focus on professional services makes it harder to grow high-wage employment in non city-centre locations.

Consider where we put our key institutions. In Germany the political capital was Bonn, and is now Berlin. The financial capital is Frankfurt. The Supreme Court is in Karlsruhe. The richest place is Wolfsburg, home of Volkswagen. There are major corporate HQs spread across the country. TV production is dispersed because central government is banned from running it.

In Britain, all these things happen in just one city. We’ve talked about this for years, but made little progress.  In recent years, we managed to move one chunk of Channel 4 to Leeds, and a bit of the BBC to Manchester. But that’s about it. Whitehall only wants to move low-end jobs.

The debate on levelling up is frustrating, because we know some things work, but we don’t do them. “Regional Selective Assistance” boosted investment in poor places with tax breaks and subsidies.  Thanks to evidence from natural experiments, we know it boosted growth. Yet it was allowed to wither.

I don’t want us to be just another government promising the world, then not delivering. Politically, it’s vital we deliver. Lots of people who haven’t voted Conservative before put their trust in us last year. It’s telling that the centre point of the seats we won is just outside Sheffield.

We won on a manifesto combining centrist economics, (50,000 more nurses) mild social conservatism, (ending auto early release) and national self-confidence (Getting Brexit Done).  Levelling up is central to all this. We promised voters steak and chips.  We could serve up avocado toast instead, but we shouldn’t be surprised if the voters don’t thank us.

Don’t rule out a second lockdown

26 Jun

We must live with the Coronavirus either until a vaccine against it is available; or until herd immunity, treatments or a viable antibody test reduce its force; or else until or unless it simply runs out of steam.

Which means the “new normal” – complete with face coverings in crowded places, more al fresco eating and drinking, no crowds at big events (at least for the time being), and so on.

Unless we are prepared to risk the NHS collapsing, which is a very distant prospect at the moment, but a long way from being an impossibility.

However, the combination of lockdown fever, furlough, Black Lives Matter, summer and the fledgling test and trace system don’t bode well.

You may well think that polls suggesting support for the shutdown and fear of the virus sit oddly with today’s pictures of teeming beaches at Bournemouth or celebrating crowds outside Anfield.

But those surveys may be out of date; or the respondents have may been telling the pollsters how they think other people should behave, or else different groups of people may have different attitudes.

What’s certain is that long periods of repression are sometimes followed by frenzied outbreaks of celebration, like the austerities of Cromwell’s Commonwealth being followed by the salaciousness of Restoration comedy.

Feast-to-famine, famine-to-feast lurches are built into the economic cycle itself, and woe betide those who proclaim  “an end to boom and bust”.

So it may be that while the dangers of catching the virus in the open air are negligible – as last month’s shift in the lockdown rules seemed to suggest – and Ministers therefore shouldn’t fuss about crowds on beaches…

…There is nonetheless a lotus-eating mood around at present, sustained by furlough, and people driven stir-crazy by lockdown are ready to meet and party and mix in relatively confined spaces.

The potential knock-on problems haven’t been helped by the police’s initial surrender to the logic of mob protest in London and Bristol.

Most people don’t pick up much from politics, but are very sharp in reading the signs of the times.  The disturbances two nights ago in Brixton and last night in Notting Hall may be an indication that weakness has consequences.

Twenty-two police were injured in the first incident – by way of comparison, six were hurt after the recent fascist thuggery in central London (a term we prefer to the more loaded “hard right”).

The Government’s planned response to any local outbreaks of the virus is to follow the South Korean model – or, nearer to home, the German one.

Some 650,000 people in North Rhine-Westphalia are back in shutdown after an outbreak at a meat factory (the combination of close working conditions, migrant workers, and cramped accomodation is a dangerous one).

Boris Johnson and Matt Hancock are hoping that a similar model will be implemented in a similar way if necessary. But that would depend on enough testing taking place and enough tracing working well.

Those traced must also be relied upon to social distance voluntarily and effectively.  If all that doesn’t work, we find it hard to see how a second and further national lockdowns can be avoided.

The very last thing anyone wants to think about as we emerged from such a shutdown is going back into it.  And we hope that it doesn’t happen.

But the fact is that the Prime Minister may not have been right when he said in May that “we have been through the initial peak – but it is coming down the mountain that is often more dangerous”.

The disturbing truth is that we may only be in the foothills of the climb.  Or, to change the image. we like to think that the Coronavirus is fading in the rear view mirror.  But it may only be a trick of the light.