By Andrés Rodríguez-Pose, Professor of Economic Geography, London School of Economics. Originally published at VoxEU
Persistent poverty, economic decay and lack of opportunities cause discontent in declining regions, while policymakers reason that successful agglomeration economies drive economic dynamism, and that regeneration has failed. This column argues that this disconnect has led many of these ‘places that don’t matter’ to revolt in a wave of political populism with strong territorial, rather than social, foundations. Better territorial development policies are needed that tap potential and provide opportunities to those people living in the places that ‘don’t matter’.
On 16 October 2008, Tim Leunig, an economist who at the time was working at the CentreForum thinktank, stood in Liverpool’s Cathedral and told a crowd of bemused and worried Liverpudlians that, economically, their home city’s time had passed. Cities and counties in the north of England had “slipped back relative to both the national average and Britain’s most successful towns”, and “regeneration policy [had] failed to regenerate towns” (Leunig 2008).
Despite massive public expenditure by successive governments to promote development in the north of England, the results had been dismal. The economic gap between a prosperous south of England and a declining north had widened (Martin et al. 2016). Development policies were not working, and there was a need to rethink development strategies for those areas of the UK that were lagging or declining (Leunig 2008).
The proposed solution was simple. First, focus on the regions of the country that were prosperous and dynamic (London and the southeast). Second, allow “people in Liverpool, Sunderland, and so on” (Leunig 2008) to move to more affluent places to take advantage of the opportunities on offer.
Leunig demonstrated considerable courage by standing in front of what would have been a polite but mostly hostile crowd. What Leunig did not realise, however, like many academics that preceded and have followed him, was that telling people that where they lived, and where they felt they belonged, did not matter would create a reaction.
The worldwide reaction has, however, come from an unexpected source. In recent years, some of the places that ‘don’t matter’ have increasingly used the ballot to rebel against feelings of being left behind, of lacking opportunities or future prospects. Researchers who focus on interpersonal inequality (such as Piketty 2014) might have predicted this reaction – for which there had been precedents in Thailand and some Latin American countries (Roberts 1995) – would set rich against poor. Instead, lagging or declining regions voted differently to prosperous ones.
We can see this revenge of the places that don’t matter (Rodríguez-Pose 2018) in the 2016 Brexit vote in the UK, the 2016 election of Donald Trump in the US, the 2016 Austrian presidential election, the 2017 French presidential election, and the 2017 German general elections. It threatens to derail the economic and social stability that has helped create the prosperity of the most dynamic cities and regions.
Figure 1 The electoral reaction of the places that don’t matter
Source: Rodríguez-Pose (2018).
Are We Surprised?
Although there will always be claims that a worldwide emergence of populism was on the cards, politicians and mainstream academics have been caught by surprise. They were unprepared for this surge of populism, by its ascent to power, and by the challenges it poses. With a few exceptions, we have been looking at the wrong types of negative externalities, ignoring one important form of inequality, overestimating the capacity and willingness of individuals to move, and overlooking or dismissing the economic potential of many lagging-behind areas.
- The wrong type of negative externalities. Research in economic geography and urban economics shows that agglomeration, for all its advantages, can trigger negative externalities. Traditionally, we consider high land rents, congestion, and pollution as the main negative externalities. While they can certainly stifle development, the real cost has been unexpected social and economic (real or perceived) distress in many non-agglomerated areas.
- Considering territorial inequality as almost irrelevant. Worries about inequality before the outbreak of populism were mostly about interpersonal inequality (Sassen 2001, Piketty 2014). Since the 1970s, wealth has concentrated in an ever-smaller share of individuals at the top of the pyramid, leading to a growing economic polarisation of society. Yet, in the Brexit vote and in the elections of Donald Trump and Emmanuel Macron, there is little evidence that interpersonal inequality played a decisive role. Populism was not most popular among the poorest, but instead in a combination of poor regions and areas that had suffered long periods of decline. The places that don’t matter, not the ‘people that don’t matter’, have reacted. Interpersonal inequality still matters, but the challenge to the system has come from neglected territorial inequalities.
- Overestimating the capacity and willingness of individuals to move. When Tim Leunig encouraged Liverpudlians to move to the southeast, he was expressing the assumption in urban economics that mobility is costless, or at least that it is preferable to move than to stay in a place where there would be a limited chance to find a job (Kline and Moretti 2014). But encouraging mobility, or making it easier to find housing in dynamic areas, would be unlikely to increase the number of people who move to them. Those that stay in lagging or declining regions may be unlikely to relocate because of emotional attachment to the place where they live, age, or lack of sufficient skills and qualifications, among other reasons.
- Overlooking the economic potential of lagging-behind and declining areas. The places that don’t matter have often been characterised as ‘rustbelts’ or ‘flyover states’. Economists argue that “subsidising poor or unproductive places is an imperfect way of transferring resources to poor people” (Kline and Moretti 2014). Nevertheless, few lagging and declining areas have no economic potential. Many once-lagging areas are now leading regions, while former leaders have sometimes declined. Barca et al. (2012) argue that “tapping into unused potential in intermediate and lagging areas is not only not detrimental for aggregate growth, but can actually enhance both growth at a local and a national level”. Shifting attention from places in need of support to more prosperous and dynamic ones also causes distress and resentment in the neglected spaces, sowing the seed for revenge through the ballot.
Dealing with the Revenge of the Places that Don’t Matter
The revenge of the places that don’t matter – reflected in the rapid rise of populism – represents a serious and real challenge to the current economic and political systems. The stakes are high, but there are few solutions.
Doing nothing is not an option, as the territorial inequalities at the root of the problem are likely to continue increasing, creating social, political and economic tensions. Internal migration, as proposed by Leunig, may only be feasible for those with adequate skills.
Gambling on large agglomerations is not a sure bet. In developed countries, big cities are not always the most dynamic engines of growth (Dijkstra et al. 2013). In developing countries, urbanisation without growth is increasingly the norm (Jedwab and Vollrath 2015).
Decentralising and devolving power to less developed cities and regions has also had disappointing economic outcomes (Rodríguez-Pose and Ezcurra 2010). Sticking to existing social and welfare policies can result in permanently dependent populations and territories, possibly stunting economic growth and leading to a rise in social and political tensions.
Development policies for lagging and declining areas offer the most realistic option. This does not mean more policies, but better policies. These policies would be aimed at maximising the development potential of each territory. They would be solidly grounded in theory and evidence, combine people-based with place-based approaches and empower local stakeholders to take greater control of their future (Iammarino et al. 2017).
There is no guarantee that these policies will reduce the risks, but they are the best chance to enhance the opportunities of individuals and workers to thrive and prosper, regardless of where they live. Ignoring these policy options would bypass economic development opportunities and lead to a world in which the revenge of the places that don’t matter will be fully justified as continued economic, social, and territorial conflict. This would erode the economic, social and political foundations on which we build our current and future well-being.
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