Breaking free of London-focused growth

Photo credit:   GeezaWeezer

May 23, 2013 // By: James Meadway

The graph below is perhaps the most important in British politics. It deserves to be far better known. It is taken directly from an Office for National Statistics publication and it shows, for every country in Europe, the spread of wealth between their poorest and richest region, in terms of output per head.

Most EU countries have a gap between their richest and their poorest regions. But the distance between the UK’s richest and poorest regions is, on this measure, hugely and shockingly larger than any other. At one end – the richest area in Europe – is West London (or at least its leafier parts towards the city’s centre). At the other end of the scale is West Wales – earning just 20% of West London’s figure.

This gap in earnings, the product of a long history, has got markedly worse over the last few years. The table below shows, using official figures, the growing distance of each region’s output per person from the UK average.

London in 1989 produced just over one and a half times the UK average. By 2009, however, this output gap had widened to nearly one and three quarters. London shoots ahead of the rest – only the South East of England remotely keeps pace. Every other English region falls behind. Wales, meanwhile, lags further and further behind not just London, but the rest of the country.

What’s been holding our regions back?

This chronic regional lag has its roots in the rapid deindustrialisation of Wales and the north of England from the late 1970s onwards. The 4 million jobs lost between 1979 and 2009 have not been effectively compensated for by our economy’s shift into services. Debt-driven growth has meant London-centric growth, only slightly compensated for by the redistribution of wealth through public sector jobs and payments for unemployment into the regions. The underlying economy has remained weak, the private sector outside of London demonstrating itself unable to supply secure, decent work.

And when the speculative credit bubble collapsed, as it did over 2008, it wasn’t just its chief beneficiaries who paid for it. The whole country was made to bear the costs of London’s casino economy. That is the regional injustice of austerity.

Breaking with the past

The rest of the country cannot rely on finance-led growth, centred on London. nef’s new report for the Welsh TUC attempts to offer the first steps towards a different approach for Wales. If the nation has any prospect of recovery, it must begin to look to its own strengths and resources: the attempt, encouraged by successive governments, to mobilise external financing for its development cannot be relied upon. Flows of Foreign Direct Investment (FDI), heralded as saviour in the 1980s, are turning increasingly to less-developed countries. For the first time ever, last year saw FDI into the less-developed world exceed flows into the developed.

Instead, Wales can look to new ways to mobilise local sources of capital investment. Already a net exporter of energy to the rest of the UK, Wales has a huge potential renewables resource in both wind and water that is as yet untapped. New models of co-operative ownership, breaking the hold of major corporations on energy generation, can allow local communities to share the revenues from generation. And Wales has already an excellent example of mutual ownership in the form of Welsh Water – a major utility owned by its customers.

If those parts of the country outside of London’s charmed orbit are to have any prospects of sustained recovery, they will need to break with failed, earlier model of development: making realistic assessments of their local strengths, and working to them; breaking with a dependence on external finance, driven by the City; looking beyond profit-maximisation to wider, social concerns in order to drive investment.

Click here to read our new report, Towards A Welsh Industrial Strategy

Issues

Macroeconomics, Jobs & Industrial Strategy, Inequality

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