Helping Places Left Behind

I admire the way The Economist has recently taken on the challenge of supporting globalisation’s losers. Having been a shameless champion of free markets, small government, privatisation and other modern orthodoxies, they have paused to observe the unwelcome side effects, and to try to find some solutions.

The need for action is clear. Inequality is a curse of our times, and neo-liberalism makes it worse by design, in the name of incentive, dynamism and growth. One of the weak spots for Trump that Democrats are not exploiting (being constantly side-tracked into identity issues) is the impact of key policies to exacerbate inequality. Gut healthcare and the poor suffer, and the tax plan will redistribute further to the rich. The main part of this redistribution is due to the love affair the administration has with corporate America. We have already seen the biggest effect, because stock markets have responded to the promises of lighter regulation and lower taxes already. This is touted as a good thing, and in some respects it is, but who is benefiting? Of course it is those who own stocks. That is most of us to an extent, through our pension plans, but it is mainly the wealthy. It was the struggling white working class that elected Trump, and to defeat him the opposition message has to resonate with the same people. That means less talk about civil rights and more about inequality.

The Economist takes this argument a step back, and sees inequality and hopelessness as reasons Trump and other populists get elected in the first place. Hence the need for a story to correct the most glaring negative consequences to halt the tide of populism before it becomes entrenched.

Previous articles have focused on how to help people who have lost out, and recommended the old chestnuts of education and transitional support, as well as help with mobility. The most recent essay instead looked at places. People who lose out are concentrated in rural areas and places where heavy industry leaves. Giving people more weapons to move out from these places is admirable, but tends to make things even worse for those still left behind.

This was an issue even before globalisation turbo charged it. We have hears of Scottish districts populated only be the old and incapable, and of Japanese prefectures becoming older and older. The South of Italy has been a basket place for generations. Now we also have places like Detroit and Baltimore, and smaller districts like parts of north-east Pennsylvania or West Virginia, places where a large employment cluster previous attracted families, and then abandoned them as business dried up.

The symptoms are brutal. Departing people leads to poorer schools, depressed house prices and crime. For those that don’t escape early, there is no escape. The local government has too much infrastructure to maintain and too many pensions to pay, with not enough taxpayers to pay them.

And trends will make this worse, as jobs overall will become scarcer while the old live longer. The slow death of retail will remove more jobs and also civic pride and places to meet. It is no wonder such districts become crime ridden, and readily turn to opioids and populist politics.

Having described the problem, The Economist was disappointing in advocating solutions. Mostly, the discussion centred on enterprise zones or similar initiatives, designed to create new skill and employment hubs. These have a mixed record. I have seen them work myself, while visiting the Algarve and other poorer parts of Europe, where EU structural funds have helped to drag such places upwards.

The article went into lots of detail about which sort of assistance works and which doesn’t, though the evidence is patchy. Just paying subsidies does little, seemingly, and any positive effects vanish once payments stop. Trying to set up new businesses can also fail, unless somehow a cluster emerges, like in South Carolina after BMW elected to build a factory there.

It is no wonder that cities are bidding so aggressively for Amazon’s HQ2. But in a way, that is the problem, because it is another example of corporate power. The bigger winners will be Amazon and its wealthy shareholders, more than the citizens of HQ2.

The Economist’s only slightly radical idea was for the public sector to try create sorts of clusters, for example with research facilities around colleges. This is how things always used to happen. I have submitted paperwork to national vehicle licensing offices in Swansea, Kiruna and Mo I Rana, the last two near the Arctic Circle and all chosen to give stable public sector employment to struggling places.

The must also be mileage in supporting places in efforts at smart rightsizing, as they attempt to get out of the negative cycle of decline with fundamental fixes. Detroit could turn into a positive example here. Key to their latest attempted regeneration is housing, destroying the stock in distressed areas and trying to nudge people into a reshaped city designed for its modern needs. Funding such investment locally is always tough, and the public sector, or some public-private funds, could focus on this.

Linked to this could come some more creative marketing and specialisation of districts. Why does everyone have to have classical employers? Could some cities focus on trying to be ideal places to live for older people, for example? That would imply different priorities in transport, housing, health care and leisure – some rebirth of civic centres perhaps.

However, the real solution might require the Economist and others challenging their real sacred cows. Should the public sector always be reduced, is there a right size for that, and have many developed nations now shrunk it too much? Think of things the public sector usually provides, especially and education and health care. Even if provision is via private contractors, these can be regulated or steered to equalise regional disparity. They offer jobs where wages can be closer to nationally set. And in some areas, like defence or health research, the national government can choose locations to favour regions with other disadvantages.

A universal basic income would help here, and perhaps that will arrive sooner rather than later, as classical jobs become ever more scarce. My alternative to universal income would be paying people for care, an idea that would help reduce inequality even more.

So The Economist and others blame the phenomenon on globalisation, but actually the drive to small central government could be the true culprit. Starving public sector wages and services harm weaker areas disproportionally. You can hardly find a bus in the UK nowadays except on commuter routes.

I am not advocating collectivism or mass nationalisation here, merely a rebalance away from its extreme opposite. Regional hardship is just one of the consequences of the Great Wrong Turning around 1980; indeed almost all the consequences have been negative. We should remember that the Great Wrong Turning was not an inevitable consequence of globalisation, but an active choice by doctrinaire governments. The public have been duped. And that is why we now have the ugly rise of populism. Once The Economist starts to recognise that, then at last the tide might start to turn.