Regional Policy in Britain

Gavin McCrone

• Publisher: Taylor & Francis
• Year: 2017
• eBook ISBN: 9781351594318
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Originally published in 1973. At that time, imbalance in the economic performance of regions had become of increasing concern to politicians and economists in many European counties. British policy was of particular interest: not only because the changes of the 1960s made it more comprehensive than in most other countries; but as some sort of regional policy had been in operation for more than thirty years, many lessons could be learned from its evolution. This book provides a comprehensive study of this aspect of British policy. It starts by outlining the nature of the British regional problem, the case for a policy and the contribution of economic theory to the understanding of the regional question. In later Parts the development of British policy up to 1967 is described along with its impact on the performance of individual regions and different measures are evaluated with a view to increasing the effectiveness of policy. The final chapter outlines the regional policy of the European Economic Community and shows what effect membership would have on British policy.

PART I

THE BACKGROUND

CHAPTER I

THE CASE FOR A POLICY OF REGIONAL DEVELOPMENT

‘The essential concept of the free market is trial and error…. But can you say that this is a valid method of control in matters where you may have to wait two centuries before all the consequences of a decision are apparent?’

Colin Clark

In most countries regional development policies have come about in response to a mixture of political, social and economic pressures, and it is not always possible to say which has played the dominant role. The existence of regional unemployment on a serious scale seems to be the factor which exerts the greatest influence in inducing Governments to take action. But this action is probably prompted as much by the political consequences of unemployment and the social need to give everyone an opportunity for work as by considerations of making the best use of the nation’s economic resources. It is incomplete, therefore, to consider the case for a regional development policy as if it were purely an economic question. Indeed, in many cases Governments would adopt regional policies even if the economic case was shown to be unconvincing. In such cases the economists’ role would still be important, because whatever the factors which gave rise to a policy being adopted, it is the economic development of the country which is being influenced to achieve the desired result. The way in which this can best be done is therefore an economic question.

But, of course, it is seldom that a regional policy can fly in the face of economic possibility and be based purely on political or social considerations. Regional policy may be expensive; and it may, if a misguided policy is persisted in, seriously affect a nation’s wealth and competitive power. For example, if attempts had been made in the nineteenth century to preserve the geographical distribution of population exactly as it had been in the eighteenth, there could scarcely have been an industrial revolution. Moreover, there is no right entitling all regions of a country to equal rates of economic growth. Mont Blanc, though a sizeable part of France, has no economic growth and it would be absurd to suppose it was entitled to any.

In many cases the economic issues are far from clear-cut and lack of data prevents them from being expressed in quantitative terms. A strong body of opinion thus remains unconvinced by the arguments. Thus much effort, which might usefully be devoted to designing an effective policy, is spent in debating the economic merits and demerits of having a policy at all. This is rather a pointless exercise, since the lack of data which makes it hard to prove the case for regional policy on economic grounds also makes it hard to disprove it; moreover, no Government in Western Europe is going to give up its regional policy in the light of such academic arguments. Yet the result in some cases is that policy is pursued in a half-hearted manner. The purpose of this chapter, therefore, is to set out the issues.

I. THE POLITICAL ISSUES

The political implications of the regional problem have been clearly illustrated in Britain by the electoral results of recent years. At the general election of 1959 there was a pronounced anti-Government swing in Scotland and Northern England, two of the areas whose economies were suffering; but the country as a whole was enjoying a boom and the Government’s overall majority increased. In 1964 there was a national swing against the Conservatives, but again this swing was more marked in Scotland and the North than in the prosperous Midlands. Although much has been done to improve regional policy in recent years, the disparities in economic performance still remain; dissatisfaction is still widespread in the regions, particularly after the deflationary policies pursued by Labour. The election of Welsh and Scottish Nationalist Members of Parliament at recent by-elections is without doubt in part a consequence of this; and the regional swing which helped to put Labour in power in 1964 could just as easily put it out again next time. Of course, this type of situation does not hold everywhere. The province of Northern Ireland, whose economy is the most problematic of all the British regions, is dominated in its electoral behaviour by its history and its religion rather than its current economic circumstances. Nevertheless, it is clear that whatever Government is in power in the United Kingdom ignores the regional problem at its own peril.

These issues, however, are purely matters of Government self-interest. Of much greater potential importance are the effects of serious regional disparities on the cohesion of the State. This problem is most clearly illustrated by Belgium where the rivalry and antagonism between the Flemish and Walloon linguistic areas is undoubtedly aggravated by a sense of economic grievance. The situation is particularly complicated in that both areas claim such a grievance. Flanders because it has traditionally had lower incomes and higher unemployment than the rest of the country, the Walloon area because the run-down of the coal industry and disruption in steel has caused the economy to suffer from stagnation. A strong regional policy in the past might have done much to lessen these disparities and so reduce the disruptive forces.

Of course, Belgium, with its linguistic and cultural division, is particularly prone to separatist tendencies; but they exist also in other countries and may assume importance whenever a regional consciousness based primarily on cultural, linguistic or historical factors coincides with a serious economic grievance. The case of Ireland’s separation from the United Kingdom may be seen in these terms and recent events have shown that separatist tendencies could also arise in Scotland and Wales. As is explained in a later chapter these factors are of the greatest importance for the cohesion of the Common Market and form an important reason for it adopting a strong regional policy.

II. THE SOCIAL FACTORS

Since the war, Governments in most Western European countries have attempted to redistribute income from rich to poor by means of the tax system, and they have also endeavoured to run their economies at full employment. These aims accord with most people’s conception of social justice. To be properly effective, however, both of these objectives require some regional action. A progressive tax system will result in some transfer of real income from rich regions to poor, especially if it is accompanied by strongly developed welfare policies, while the aim of full employment will in many countries necessitate some type of regional policy if it is to be achieved. This has been clearly recognized in the British legislation. Since the White Paper on employment policy of 1944, British Governments have been pledged to full employment.¹ But it was recognized that regional imbalance made it impossible to achieve this goal merely by the operation of monetary and fiscal measures at national level; a regional policy was also required. Theoretically such action might either take the form of influencing the distribution of economic activity or of promoting the mobility of the labour force, or of both types of action combined. To deny that either type of action is necessary would seem an untenable position if full employment is accepted as a national goal.

Which type of action is preferred, will depend on two sets of considerations: first, relative effectiveness and cost; secondly, the preference of individuals concerned and the effect of the policy on their welfare. The effectiveness of different methods of tackling regional unemployment is a purely economic question. The issues here are by no means clear-cut, as will be shown later, since the movement of labour may set up cumulative forces of depression and raise the costs of public investment in congested areas. Nevertheless, even if economic analysis could prove that full employment could be achieved more efficiently or at lower cost by moving labour than by encouraging industry to move, it still does not necessarily follow that it is the right thing to do. For a variety of reasons the population is likely to prefer to be employed in its own region, and this preference may be particularly strong if there is some feeling of regional consciousness based on cultural or linguistic differences. The aim of the state should certainly not be the promotion of economic efficiency for its own sake, but rather the greater welfare of its citizens. It may be that the interests of economic efficiency were served by the forced migration of millions of Irish in the nineteenth century, but the loss of welfare on the part of those whom famine forced to leave was without doubt considerable. These factors may be hard to evaluate; but some attempt to consider them is necessary if a sensible policy is to be reached.

Even more intangible are the benefits which many believe our society obtains from the diversity of its cultural and regional background, differences of custom, of way of life and in some cases of language. Precisely because such factors cannot be scientifically assessed, it is easy to dismiss them in the words of one writer as ‘springing from the less adventurous elements of society. Their resort to regionalism, in other words, is simply an expression of their fear of change.’¹ Yet, the people who express such scorn are so often the representatives of the prosperous regions and the major cultural groups that one is tempted to ask if their attitude is not simply that of the conforming majority impatient with others for wishing to preserve their individuality. One may wonder, perhaps, if they would show the same impatience with regionalism if Britain became part of the European Community and were subjected to pressures which encouraged heavy migration from Britain to Europe or the submergence of British cultural differences in a wider European identity. The fact is that these are intangible matters. Different people will accord varying importance to them and those that are most dogmatic are likely to be the most prejudiced. It is hard to draw any conclusions for policy from this. Nonetheless, considerations of this type should not be overlooked just because they are intangible; it is for the politicians as representatives of the population to give them the importance that accords with their own value judgments.

There is likely to be rather more agreement on the social need to preserve the quality of the environment in which the population have to live and work. Economic growth is seldom achieved without costs of this nature.¹ The unrestricted growth of cities and built-up areas imposes heavy costs in congestion, air pollution, loss of recreation space, etc. The siting of public investment projects such as airports raises similar problems, as the Stansted affair has clearly demonstrated. At the other extreme, economic growth and rising productivity imply a declining population in many rural areas and the collapse of some rural communities with resulting hardship to those that have to remain. Of course, in such instances, the costs of economic growth may be much less than the benefits, but it does not follow that they should be ignored. Ideally it is the benefit, net of social and economic costs, which should be considered as a basis for action. If it had been possible to do this in the past, much of the country’s economic growth might have taken place rather differently. In many instances there may be ways of obtaining the same economic growth at less social cost; in others, even if the apparent economic gain seems less, the benefit to the community may be greater if the smaller economic gain implies an even greater reduction in social cost.

This is of considerable importance to the regional pattern of economic activity. The lessons of nineteenth-century economic growth and urbanization, at least as exemplified by the British and Continental industrial towns, are that, left to themselves, free market forces will cause amenity to be lost and a most squalid living environment to be created. There is no reason to believe that unrestricted free market forces would achieve any better results in the twentieth century. Physical planners are therefore concerned with the immense task of urban renewal and of trying to create a new environment with some amenity. It is obviously of great importance that the mistakes of the past are not repeated with the development which takes place in the future. This may mean preserving green space for recreation, preventing the population from becoming too concentrated and avoiding excessive conglomerations of economic activity. Some of these issues can be considered by means of cost/benefit analysis and verge on economic factors which will be dealt with later. The importance of others is extremely hard to evaluate on any agreed basis. It is clear, however, that if unnecessary and undesirable social costs are to be avoided the distribution of economic activity and population over space cannot be left entirely to free market forces.

III. THE ECONOMIC ISSUES

The economic aspects of the case both for and against regional policy were first set out in detail as they applied to Britain by the Royal Commission on the Distribution of Industrial Population.¹ Recently, however, a number of articles have been devoted to this subject and the main line of the argument are now clear.² The case rests on three main points:

(1) that free market forces cannot be relied on to operate satisfactorily in location decisions,

(2) that economic growth requires a policy to ensure that the economy’s spare resources are as far as possible utilized,

(3) that the avoidance of inflation and achievement of steady growth are only compatible if wide differences in regional unemployment rates are avoided.

In addition, the need to utilize existing social capital has been put forward as an argument but this, as will be seen, is not a very strong one. A particularly important application of (i) is the excessive cost arising from congestion in urban agglomerations which have exceeded the optimum size. This case will be discussed separately.

(i) Free Market Forces and the Location of Economic Activity

One of the principal arguments against any attempt to interfere with business location decisions rests on the view that free market forces in this sphere, as in others, will bring about the best use of economic resources. Business, it is held, will naturally choose the locations where it will operate most effectively and, if this is upset, efficiency will be lost. This view ignores the interdependent nature of business decisions and the existence of externalities. A particular location is chosen often not because it has some particular natural advantage, but because a certain range of economic activity is, rightly or wrongly, already there. Even a bad location may, once developed, be superior in the mind of the individual firm to others which are potentially better but undeveloped, since they lack external economies and economies of scale.

Moreover, the free market view presupposes that businessmen are the best judges of a location appropriate for carrying out their activities, and that they do a critical evaluation of cost factors which lead them to a clearly defined optimum. It thus assumes that the costs which came into the busine...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Timetable of Principal Measures
• INTRODUCTION
• 1 THE BACKGROUND
• 2 THE DEVELOPMENT OF POLICY
• 3 AN APPRAISAL OF POLICY MEASURES
• CONCLUSION
• Index