Regional economics - what does levelling up mean and how can it be achieved?

In his latest blog post, Paul Ormerod argues that successful levelling up will require both experimentation and risks to be taken with public funds.

The phrase “levelling up” has permeated the political lexicon over the past year or so, but few seem to know exactly how to do it.

Andy Haldane, outgoing Chief Economist at the Bank of England, put some flesh on the bones at a timely Policy Exchange seminar last week.

For Haldane, the levelling up agenda means more than just economic variables, crucial though these are. Health inequalities, for example, are perhaps even greater and deserve just as much attention.

A fascinating point is that inequalities across different places are what statistical physicists call “self-similar”.

This means they show the same features, the same distributions, at different geographic scales. The regional differences in the UK are well known. But the same patterns exist both within the individual regions themselves, and even within the individual boroughs of a region.

This has clear policy implications. Levelling up is not just about making the regions more prosperous. It is about enhancing the prospects of the poorer parts within each region.

Andy Burnham, mayor of Greater Manchester, grasps this point. There is a huge gulf between the northern and eastern boroughs of the city region, and both the booming city centre and leafy Altrincham and Sale in the south west.

Levelling this up is already part of Burnham’s agenda, but other city regions do not seem to have latched on to this in quite the same way.

Haldane does not have a silver bullet to answer the question of how levelling up is to be achieved. He stresses instead the need for actions in a wide variety of areas.

On occasions, a strong emphasis on just one factor is sufficient. For example, Eurostar enabled Lille in France to position itself as a strategic link between not just London, Paris and Brussels, but further afield into Germany.

Estonia’s population of not much more than 1 million makes it much more like a regional city in economic terms. Like all the Eastern European countries it has received large amounts of money from the EU. But the country has concentrated this on digital specialisation , which has proved a great success.

So both infrastructure and other large scale public investments can work. But Haldane’s examples here are the exception rather than the rule.

Building motorways, investing in rail links, developing business parks – this is where most of the vast sums of money spent on regional policy in the UK has gone over the past decades.

But rather than declining, regional inequalities have widened.

These conventional policy measures are rarely sufficient in themselves to generate sustained development. Building on the skills of an area seems an obvious point to add. But the best results come if this is done in a transformative way. Haldane gives the example of the Ruhr with a strong tradition of coal mining. The new generation of industries here are clean energy corporations.

Successful levelling up will require both experimentation and risks to be taken with public funds. The formula for success in any given area may be elusive, but Haldane’s conclusion is that it can be done.