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Arguably, one of the greatest problems the UK currently faces is its rampant economic inequality.
OECD figures show that the UK has one of the highest levels of income inequality within Europe, while labour productivity is significantly higher in London and the South East when compared to the rest of the UK. To combat the negative consequences of this, a policy the current British government has introduced in very recent times has been that of “levelling up,” which, in their own words, means “creating opportunities for everyone across the UK.”
The measures taken can be summarised as a series of government investments into a variety of development projects across the UK, with 216 projects having received aid from the government’s £4.8 billion “Levelling Up Fund” so far. More explicitly, these have largely consisted of supporting local firms and industries (such as hospitality and manufacturing), developing and regenerating local infrastructure (such as transport linkages, buildings, etc.), and perhaps most importantly, developing educational and research institutions further. A myriad of case studies around the UK are accessible on the government’s website. Such projects serve as an example of regional “industrial policy” – a sort which is directed towards achieving specific microeconomic objectives by targeting particular firms and sectors. These projects target specific firms and industries with the aim of stimulating regional economic prosperity where it was lacking and thereby decreasing inequality across the UK. Moreover, with some arguing that industrial policy encompasses policy areas such as infrastructure and technology, levelling up begins to bear an even closer resemblance to industrial policy.
This makes levelling up an interesting policy to analyse, as Conservative governments over the past 40 years or so have shied away from utilising industrial policy at an extensive level. If levelling up is to be the future of industrial policy going forward, as well as the Conservative government’s best bet at minimising inequality, it is therefore important to evaluate the success of such a policy. To do so, however, two closely correlated questions must be answered – why is there now a need for “levelling up?” Moreover, why had Conservative governments lost faith in industrial policy?
Why the need for “levelling up?”
It is already well established that the UK is far from the most “equal” society, but how did it come to be this way? Long before the UK became a service economy, it was a powerful workshop economy – one driven by manufacturing and industry. As the Industrial Revolution first began in the UK, its economy followed “Engel’s Law:” in the initial phase of industrialisation, demand shifted from agricultural goods to manufactured goods. By the 20th century, the UK had developed a large, prosperous industrial sector, with a significant portion of manufacturing remaining contained within the north of the country. On the other hand, much of its service sector remained primarily within London and the areas surrounding it.
However, from the 1960s, the structure of the UK economy began changing - manufacturing as a share of total employment began to fall, while the service sector began growing significantly, with this trend accelerating rapidly after the 1980s. This process is commonly known as deindustrialisation – the decline in manufacturing as a share of total employment, either in the form of the absolute loss of jobs in manufacturing, or a loss of jobs in manufacturing relative to other sectors (such as agriculture and services).
With the north of the UK comprising a significant portion of its manufacturing sector, it was inevitable that these areas were to be struck hardest by this structural shift – communities whose employment revolved around large factories and manufacturing firms were torn apart, and many were left without a stable income. On the other hand, those who lived in areas surrounding the capital enjoyed new lucrative job opportunities through a growing service sector.
In other words, deindustrialisation had planted the seeds for inequality to flourish.
While deindustrialisation was a devastating phenomenon for many, it was inevitable – the creations of mankind have, and will continue to, replace even the most productive of workers. As industrial machinery became more advanced and automated more tasks, productivity within the manufacturing sector surged, meaning less workers were required to produce the same level of output as before. Moreover, fierce competition from other prosperous manufacturing nations such as Japan drove many UK manufacturers out of the market.
Deindustrialisation is far from exclusive to the UK – it is a process that has impacted almost every advanced economy to varying degrees. For example, the US saw its prosperous manufacturing industry located within the “Rust Belt” region become virtually vapourised overnight in the 1950s (hence coining the term Rust Belt). What is unique about the UK, however, is the severity of its deindustrialisation – compared to most other advanced economies, the UK has experienced a much more profound decline in manufacturing. The reason for this, and the explanation behind the rapid acceleration of deindustrialisation in the 1980s and death of industrial policy in the UK, can be on the ground of the rise of neoliberalism under the Conservative governments of the time.
The rise of neoliberalism and the Thatcher government:
Before discussing the rise of neoliberalism in the 1980s, it is important to acknowledge the unpromising state of the UK economy before it. The 1970s were marked by extreme economic stagflation as a result of severe oil price shocks. The UK’s industrial sector suffered greatly as a result, evident by the decline in the UK’s shipbuilding industry and car manufacturer British Leyland, both of which required generous government intervention to remain afloat. This was during a time where full employment was the primary concern of the government, meaning much of the UK’s industrial sector was nationalised (or, at the very least, received abundant government support), and trade unions retained significant bargaining power. For these reasons, the government justified utilising industrial policy extensively to support these “lame-duck” industries.
This changed in the 1980s with the rise of neoliberalism, which materialised in the UK in the form of the Thatcher governments between 1979-90. Characterised by a belief in the free market and limited government intervention, the Thatcher government implemented tight fiscal and monetary policy, the extensive deregulation of markets and the privatization of many nationalised industries. The government’s main concern was no longer achieving full employment but was instead maintaining low and stable inflation.
The sudden privatization of much of the UK’s manufacturing industries left it vulnerable to competition and market forces, leading to its collapse violently accelerating. Millions of industrial workers were made redundant, and the government refused to intervene due to its neoliberal agenda. In fact, legislation limiting the influence of trade unions acted as a catalyst towards the decline of the manufacturing sector’s share of total employment. On the other hand, financial deregulation resulted in a “Big Bang” within the financial services sector, which saw significant growth within the period of the Thatcher government. Although deindustrialisation was inevitable, its consequences and the destruction of northern industrial communities were significantly expedited by the Thatcher government, and little was done to alleviate this. This, in contrast to the prosperity of the southern financial services in The City, created a stark “north-south” divide.
Industrial policy became eclipsed by competition policy – promoting competitive markets through minimising dominant market positions and anti-competitive behaviour. It more closely aligned with the Thatcher government’s political ideology, as it allowed for free markets to flourish, while industrial policy involved government intervention and was thus deemed inefficient and redundant. The legacy left by the Thatcher government in UK politics resulted in competition policy remaining dominant even today.
Indeed, there are many reasons why the government should focus on promoting competitive markets - competition is paramount to generating creativity and efficiency in markets for economies to prosper. However, so long as structural change remains inevitable, industrial policy should certainly not be neglected. It should not serve as a means to achieve economic stability through supporting declining industries (as it had been attempted in the 1970s) and thereby attempt to preserve stagnation but should instead act as a means to alleviate the negative side-effects of structural change, which in the UK’s case has been rampant inequality. Rather than inducing “shock therapy” in the economy, structural change should be a slow, smooth process that results in a stronger, more prosperous economy. This could only be achieved through using competition and industrial policy in tandem.
Since the 1980s, subsequent governments have fortunately acknowledged the severe consequences of Thatcherite policies and thus identified a place for industrial policy in decision-making. “Enterprise Zones”, the “Plan for Growth” and “Levelling Up” all serve as recent examples of industrial policy implemented by Conservative governments. However, whether these are examples of how industrial policy should be conducted is subject to debate.
Levelling up, industrial policy and moving forward:
How should industrial policy be conducted? How can we minimise the profound effects of, and the inequality created by structural change, instead promoting smooth transitions? For starters, in learning from our mistakes in the 1970s, rather than implementing a “top-down” approach by supporting declining, lame-duck firms as a means of minimising the consequences of structural change, we must instead implement a “bottom-up” approach through increasing labour market flexibility. So long as mankind advances day by day, structural changes will remain inevitable, and so we must directly address the problem rather than avoid it – instead of promoting stagnation through supporting declining industries, even if it reduces economic depravity in the short-run, our labour market must instead adapt to a changing, dynamic environment to achieve a thriving, advanced economy in the long-run. Allowing for competition to flourish and protecting our workers in declining industries should not be treated as conflicting ideas, but as complementary policies.
This can only be achieved through promoting education extensively – so long as our labour market retains access to high-quality education, it will retain a diverse skillset which will make it invincible to any structural shift in the economy. This is key to not only grant access to those in more impoverished areas and declining industries to more opportunities, but towards solving the UK’s “productivity puzzle” – a topic which has also unveiled disparity in productivity across regions in the UK, which has been blamed on a lack of investment in education and R&D within areas other than the South East. If our labour force is more educated, it is bound to be more productive.
Perhaps this is the greatest attribute of levelling up – the implementation of projects which expand upon educational and research institutions that are capable of expanding the skillset of our labour force. Indeed, this is something that the Institute for Government has identified as paramount to the success of the policy, emphasising a “need for a long-term focus on skills.”
Considering this, levelling up appears to offer significant potential. Where it falls flat, however, is its lack of funding. While a fund of £4.8 billion may seem like a respectable size, it is arguably far too low to fulfil the ambitious goals that levelling up sets to achieve. Although a majority of this fund is going towards the northern communities which need it most, as indicated by funding per head in each region, even areas such as the North West and North East that have been allocated some of the highest funding per capita possess figures as low as c.£80 per person. Furthermore, despite retaining a respectable budget, over 90% of the scheme’s fund is yet to be spent. Even though levelling up has the potential to strengthen our economy against structural shocks, and thus strengthen our labour force against future inequality, its lack of funding is bound to limit it in attaining its goals.
While levelling up requires generous investment in education to succeed, it does not mean that a majority of the levelling up fund will be allocated towards this goal. Much of it has also been provided to local businesses and regeneration projects of infrastructure and local landmarks, and while this may be important to these communities, a more objective debate arises over how much of this money is spent where it should be. Other criticisms towards levelling up have included the fact that it does not balance out the budget cuts local councils have received under the Conservative government. Furthermore, it is debatable whether the government possesses superior knowledge to local councils in making decisions on how levelling up money should be spent in each locality.
Considering all the above, while levelling up certainly has potential, it is yet to deliver. Its laughably low budget and mediocre execution are proof that the policy is merely an example of discretionary fiscal policy – government spending made with the intention of garnering public support. The current Conservative government fails to realise the potential of such a policy, instead utilising it as an attempt to garner political support from a demographic it is far detached from. This is also evident through Conservative constituencies generally received greater funding. For this reason, the less fortunate in society remain limited in the economic opportunities they have access to.
And as our economy lies at the precipice of a technological revolution spearheaded by Artificial Intelligence, the vulnerability of our labour force and lack of competent industrial policy in our economy today hint towards an imminent, terrifying structural shock that we are far from prepared for, one which will undoubtedly have the most profound effect on the poorest in our society.