The writer is a professor at Oxford university. Philip McCann, a professor at Manchester university, also contributed to this article
Joe Biden and Rishi Sunak are facing the same problem — the persistent divergence between regions that began during the Thatcher-Reagan era. But the US president and the British prime minister have chosen opposite economic and political strategies to address it.
In the US, this trend now pits the large cities against the rest; in the UK, the booming South East has left other areas behind. By 2016, anger at the increasing divergence exploded into political mutiny, with despairing voters in neglected regions backing Donald Trump’s presidential campaign and the rupture of Brexit. The geography of discontent mapped the geography of voting in both countries. Yet, these regional divergences had been historically atypical and countries such as Germany, Korea and Japan remain largely free of them.
The processes driving the apparently twin US and UK stories are in fact different. American democracy increasingly came under the influence of the super-rich. Whether right- or left-leaning, they were predominantly based in large coastal cities: their agendas ignored the tragedies in the interior “flyover” states. Biden has a genuine back-story as a representative of a left-behind region. His State of the Union address was a clear reset for Democrat priorities: “My economic plan is about investing in places and people that have been forgotten . . . a blue-collar blueprint to rebuild America.” The Inflation Reduction Act will generate the funds for investment — without austerity.
Britain’s problem is different and less tractable: it is the Treasury. Combining the functions of public finance and economic policy but dominated by the annual Budget process, this all-powerful department has multiple cabinet supplicants. Local government must also beg for funds. Its elite recruits rush to cut spending to match revenues. Investment gets squeezed: without an economics ministry, there is no voice for the future.
While viewing itself as the bastion of economic orthodoxy, the Treasury does not realise that this short-termism is exceptional. Its power is wholly atypical among advanced economies, and hopelessly inappropriate for today’s economic challenges. The UK is the most top-down and highly centralised large state in the industrialised world. Whitehall overrules and crushes local agency, energy, incentives and action, with leaders on the ground denied the powers or resources to solve proximate problems.
OECD-wide evidence tells us that devolving power is essential for fostering national growth — particularly in economically weaker places. The Treasury’s micromanaging approach is doomed to fail. The UK is low on the OECD rankings for growth, civic engagement, quality of life and trust in central government.
Yet the Treasury’s repeated response to failure has been tighter centralisation. In contrast, even the two other large unitary states, France and Japan, have been devolving for decades. That the UK today also has among the highest regional inequalities in the industrialised world is not coincidental. Local priorities have long been relegated: by 2016 voters reacted.
In 2019, Boris Johnson promised “levelling up” but little has changed. Appointing Michael Gove as head of the new department invigorated the plan to renew left-behind regions — his 2022 White Paper even anticipated Biden’s themes and advocated greater local decision-making matched by public investment.
The aim was to outwit the Treasury’s stranglehold and short-termism. The post-unification renewal of formerly East German states, led by Helmut Kohl, demonstrated that it could work. Once much poorer than everywhere in the UK, this region is now richer than anywhere in Britain except the South East.
Sunak has repeatedly had the chance to assist Gove’s shift in direction. Instead, he pushed back. He assigned no money to the levelling up plans; due to Treasury scrutiny and delay, 95 per cent of the money Gove found elsewhere is unspent and will be clawed back. Moreover, as EU support for the UK’s poor regions is replaced, it has also been cut. Sunak’s government has now crossed the Rubicon, stripping Gove of authority to spend and rejecting any serious industrial policy.
Biden and Sunak have chosen diametrically opposing paths: the US will prioritise redirecting growth to left-behind Americans while Sunak imposes further austerity on their long-abandoned British counterparts. It will not take long for us to discover which approach works.
Source: Economy - ft.com
