Many towns and cities are at a critical juncture
George Osborne’s speech to the Conservative Party Conference, argued The Economist, contained a theory about the changing geography of Britain and what the state should do in response: in short, ‘allow the failing places to fail, but help people move to the boomtowns’.
The Economist implores the government to ‘help people… throw themselves into the forwards churn of globalisation’ rather than compensating them when they find themselves on the receiving end of its exigencies. Personally I would like to see how this argument would go down at the JobCentre Plus in Redcar.
The problem here is that places are not like small businesses – you cannot rely on the edifying power of creative destruction to ensure that they are optimally efficient. Once a town has been categorised as ‘failed’ and the banks, businesses and brains have all been drained, you don’t end up with ghost towns but with huge, sprawling ghettos – a country filled with Detroits and Clevelands.
This is because there are always compelling economic and social reasons to stay in a failed town. Economically speaking, it might make sense for someone with an engineering degree to relocate when employment opportunities dry up in his town, but why would someone on minimum wage move hundreds of miles to take a new job which will pay them the same wage in a town with much higher living costs?
A low-skilled, low-wage worker is not going to move away from their community support network just because the government tells them their town isn’t economically viable. These people will stay and they will find ways to cope. Generally, this creates ‘social disorganisation’ and leads to crime, poverty and a whole host of other social ills being passed down for generations.
As part of a broader piece of research into devolved healthcare, Localis has recently been researching the Troubled Families programme, which targets 120,000 families with complex, overlapping dependencies such as criminality, drug and alcohol abuse, truancy and long-term unemployment. These families cost the public purse £9bn a year.
Unsurprisingly, they tend to be concentrated in impoverished, post-industrial areas. Areas of Manchester, the Midlands and the North East have benefited the most from the programme because of the huge sums of money councils had been spending on coping with the demands troubled families had been placing on public services.
Allowing failing towns to fail will see the emergence of entire communities of ‘troubled families’, reliant on welfare payments, public services and crime to eke out a living in these forgotten towns, and the country will find itself materially worse off as a result.
What does this mean for Redcar?
If we accept the argument that we should not be encouraging people to move out of failed towns by withdrawing all investment and government support, then what should we be doing instead?
Firstly, the government can legitimately provide short-term subsidies to industries that are competitive over the long term. If the pound is allowed to depreciate and the renminbi is allowed to rise (which has already started to happen as the Chinese prepare to take on the dollar as the global reserve currency), and if rising oil prices increase the cost of importing from China, Chinese imports will become less competitive.
Moreover, if the UK starts to invest in infrastructure and if Sheffield continues to produce spoons, the domestic market for steel will rebound to make up for declining imports. Expanding infrastructure investment would continue to benefit the steel industry whilst increasing the long term productive capacity of our economy and stimulating demand now.
What Cameron should have done is invite the most competitive steel companies to submit long-term business plans demonstrating how they will adapt to the changing international market to remain competitive in the long run, in return for an EU-approved short-term subsidy which would have allowed them to weather these temporary headwinds.
However, clearly we cannot rely solely on steel production to fuel the emergence of a Northern Powerhouse. And we can’t continue to plough government money into failing towns to support unsustainable levels of public sector employment – the state is accountable to taxpayers as well as poorer constituents.
But there are a number of innovative strategies which can be pursued – these strategies need to be developed and implemented on the regional and local levels. The devolution agenda pursued by the chancellor will undoubtedly aid this process.
Models for change
We need to look not to Detroit, but to Pittsburgh for an example of how to deal with a struggling city. After the collapse of steel manufacturing in the USA, ‘Steel City’ was thought to be doomed – but after a massive, coordinated regeneration effort, Pittsburgh is thriving once more.
Investment in the city has looked forwards, not backwards, and has been focused on education, research and innovation – all industries in which the US can hope to maintain its comparative advantage for years to come.
As research by the Centre for Cities has shown, historically those cities that have survived are those that have adapted.
Places like Newcastle and Middlesbrough could follow a similar strategy, focusing on their innovative universities and further developing research specialities, investing in the cities’ strongholds of chemicals, engineering and newer industries within the digital economy, whilst using central government money to invest in infrastructure to make the city more appealing to international investors.
The latter strategy could be developed along with the European Union to expand the role of north eastern ports in importing cargo from north-eastern Europe – this would fit with the EU plan to create ‘shipping motorways’ throughout the continent’s seas to combat congestion. This would be particularly relevant to the UK given that 90 per cent of imports from Europe currently enter the country through South Eastern ports.
These strategies should be developed in consultation with smaller, local towns, as well as local and international businesses, Local Enterprise Partnerships (LEPs) and central government as part of a broader North Eastern economic growth plan; this could be modelled on the impressive North East Strategic Economic Growth Plan already set out by the LEP.
Redcar is not Newcastle – but it is close enough to Middlesbrough to benefit from a coordinated regeneration effort there, especially if this was combined with a vast extension of infrastructure in the North East.
The powers which will soon be devolved to the North East as part of its devolution deal – for example powers over adult skills and business support and investment – would go some way to allowing the region to achieve this. But the deal needs to be accompanied by a commitment from central Government to provide enough inward investment to make such an economic strategy feasible.
Many towns and cities up and down the country are now at a critical juncture. Without any action, the whole of the North-East could come to resemble the backwaters of Mississippi, just colder.
But with a combination of ground-breaking local innovation and central government support, the Northern Powerhouse could move from the realms of George Osborne’s fantasies into very concrete (or should I say steel) reality.
Grace Blakeley is a researcher at the think tank Localis. Her views are her own
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