Professor Philip McCann holds the Chair of Urban and Regional Economics at The Productivity Institute, Alliance Manchester Business School, University of Manchester. He was previously the Chair of Urban and Regional Economics at Sheffield University Management School when the interview was conducted. He was also previously Special Advisor to two EU Commissioners for Regional and Urban Policy.
This interview was conducted on 14 May 2021.
Q: How would you characterise the UK’s regional growth problem, intellectually?
One thing that stands out with the UK is that the usual diffusion process don’t seem to work. You don’t see this in small countries like New Zealand, you don’t see in any of the Nordic countries, you don’t see in the Netherlands; but you also don’t see it in very big countries like Germany – or even, twice the size again, Japan. Those diffusion processes work. They seem to work all the time across pretty much everything. In the UK, they don’t seem to work.
When we think about diffusion within cities, you can have huge inequalities. Enormous prosperity in Manhattan doesn’t seem to translate to parts of the Bronx or Queens. You see the same things in Madrid or Barcelona. You see these things in San Francisco. This is quite a common reality.
The difference for the UK is the diffusion processes inter-regionally – between concentrations or clusters of cities. You have superstar cities in every country – Munich in Germany, Hamburg. There’s a list of German cities, which are also very prosperous and they’re scattered all around the country. You see the same thing in the US. There are poor cities, we know that, but there’s multiple, prosperous and productive cities across the country. That’s the problem: in the UK, for some reason, that didn’t happen.
That’s why we’re in the situation where we are. It’s partly a data problem. It took 20 years for us to understand what the numbers said. Then you’ve got to change mindset about how you think about the problem, because the standard way of thinking doesn’t work.
In terms of regional policy, my take would be this: I think the Regional Development Agencies were basically the right thing to do. The problem is it was done in the wrong way. What do I mean by that? The RDAs were given budgets which in theory were single pot budgets, meaning that they can do what they want. De facto, that’s not what happened. Those budgets were top sliced off all the different ministries; every minister wanted to intervene to make sure that their money (as they saw it) was being spent in the right way, and they all had veto powers. So, of course, anything that was proposed that was different to what the minister wanted, at the centre, was vetoed. What happened was you got this constant meddling. In the end, all the regional development proposals that came forward, surprise surprise, were all basically the same. And they were all exactly what the ministers wanted.
The problem was that New Labour were trying to do regional development from the centre. It was top down. I understand what they were trying to do. In a sense, it was the right thing to do. It was just completely done the wrong way around. It was top down. My fear about the levelling up fund is exactly the same thing: it’s Whitehall doing it to places, and getting places either to compete for budgets or, as in the case of the RDAs, having a competition to design the right development proposals that would keep the minister happy. This is completely the wrong way around.
You can’t do devolved decision making when the centre controls everything. It’s an oxymoron. It doesn’t work. The RDAs to some extent got trapped in that. But I certainly would not have abolished them: I would have restructured and modified them and also changed the legal powers so that they can start to do things in a much more devolved manner.
This is the problem: the UK is in what’s called a ‘space-blind’ view of the world, which was most clearly articulated in the 2009 World Development Report, Reshaping Economic Geography, which leads to a focus on agglomeration, concentration, connectivity. “Don’t think about lagging places because stuff will diffuse”. Well, when? 70 years? Because it hasn’t defused in 40 years, more than a generation, most people’s working life. If something’s going to defuse, but not for another 100 years, well please just tell me that and I’ll vote you out. The assumption was these things would happen quickly, and actually up until 2009, that was the assumption of mainstream international thinking. The World Development Report is the most obvious report. It’s turned out to be almost entirely wrong.
From this narrative in the 2000s – the one that led to the World Development Report – came this pithy phrase: “people-based versus place-based”. I would describe it, intellectually, as a cul-de-sac. Most people don’t realise, it came from a very obscure book chapter in 1966 by somebody called Winnick. Winnick’s argument was looking at pork barrel politics in Washington and said, “we shouldn’t have place-based, because basically that’s just driven by lobbyists and representatives in Washington each trying to get their own little bit of a pie; all you get is fragmentation, and you get funds allocated to places on the basis of political connections. You’ve got to focus on people”. In some sense there’s an argument there. You want things to go to the people who need it, that’s correct. But the idea that you can divorce this from “place” is nonsensical. That particular book chapter disappeared and was not cited for 20 years. It was resurrected under the Reagan administration, and it was used as a way to abolish federal interventions in places. Well, look where that got these places. It was used as a way of stopping anything which had any prioritisation as much as possible, from the federal level, in terms of trying to help weaker places. It was ideological. it filtered into urban economics very quickly. Urban economists picked up this stuff and this then filtered into the World Development Report.
In 2009, when the World Development Report was published, there were four other reports published that said the complete opposite – that you have to think place-based. The Barca report in the European Commission; the two OECD reports, Regions Matter and How Regions Grow; and then there was the Latin American Report by CAF. They said completely the opposite. You’ve got to understand the context of place in order to understand the people issue. It’s about people-in-places. The idea of separating them is bizarre – intellectually meaningless – and it came from 1966 when we knew nothing about institutions, technology, spillovers, governance, social capital, all those kind of network functions which are the life blood of how we work and operate. None of that was understood in growth theory in the 1960s. We just treated all production factors like land, labour, capital spending, as being additive and separable – meaning somehow you can take people out of their context and it doesn’t change anything.
Today, of course, the thinking has swung dramatically in the other direction, because we see the political shocks that happened in so many countries. “Place” fundamentally matters. How do you think about building policy for people, which is shaped in context and responds to the place-realities of those people? That’s the big intellectual challenge.
Q: What does the data tell us about how this plays out in practice in the UK?
The first thing is: we have a core-periphery problem, overwhelmingly. We do not have a “city versus towns” problem, or a “big city versus small city” problem. There are five good papers on this, one is by the OECD and four by the ONS.
The “cities versus towns” debate has come from the fact that, in the UK, we look at America. On the 21st of October 2017, The Economist had a special issue on the problem of place – “left behind, left in the lurch” was the title. They had a photograph of some sign post, showing a kind of rundown place. It was obviously a photograph of the US. They did a lot of very good pieces and it was excellent. The problem is that, suddenly, you could see people in the Treasury thinking, “ah that’s what’s happened in the UK, that’s what’s happened”. It’s not.
Towns are left behind less in the UK than in almost any other country in the OECD. I think Belgium is the only one where towns are less ‘left behind’ than the UK, with prosperous small towns in Flanders. In the UK, we do not have a town problem. What we have are problems of towns and cities in certain regions, overwhelmingly. The south of England does have some problem towns, and you can name them mostly on one hand. Clacton plus some other coastal towns, plus Hastings, Havant etc. There’s not that many when you go beyond that. There are hundreds and hundreds of extremely prosperous towns and villages in the south of England. In the north of England, you’ve got places like Barnsley, Doncaster, Blackburn, Burnley, Birkenhead, Rochdale, Oldham, Haslingdon, Rawtenstall, Chorley, Dewsbury, Wakefield, the list goes on and on and on. There are a huge number of very poor towns with serious deprivation problems. But the number of poor towns in the UK is tiny in comparison to the number of prosperous towns. And indeed, even in the poor parts of the country, the most prosperous places are towns, like Chester, Clitheroe, etcetera.
The problem in the UK is not a towns problem. The problem is fundamentally about productivity and interregional inequality: big cities in the UK, outside of the core parts of the country, massively under perform. They don’t even perform at their own weight. It’s not a matter of punching above their weight, they’re not even punching close to their weight. That’s the huge problem in the UK. The cities that should be driving those regions, don’t do it.
We’ve got a two-level problem: London doesn’t drive the rest of the country in the way that anyone had anticipated, and cities like Birmingham, Manchester, Leeds, etc, don’t drive their own regions anything like is anticipated, because they are also massively under punching relative to even their own weight. This is the core problem.
Q: Why do we see diffusion from London to the wider South East – places like Slough or Reading – but not outside of what you describe as ‘the core’? If we did manage to address the regional city problem, how confident are we that the regional economies would see this same diffusion mechanism?
London was turned around, there’s no question. It got lucky breaks, with what happened in financial services after the Big Bang, but a lot of this was by accident. No one had a real understanding of how it was going to play out. It had a lot of well-designed policy interventions. Heseltine’s work on the on the London Docklands was absolutely instrumental. London benefited from infrastructure commitments where it was clear the government was going to commit over 10, 20, 30 years – such as Terminal 4, Terminal 5, Crossrail, Jubilee Line extension etc. The private sector knew that this was serious; London was going to be turned around.
The rest of the cities in the UK have never had that context. Why? Because policy making is traditionally driven by local governments. Cities like Manchester were traditionally very fragmented. There was no stability in the system. It was very localised. There was no thinking about diffusion. People were just making very localised decisions with respect to local issues. The movement towards a more integrated city region approach is a good step in the right direction. You just have to remember that London was doing that over 30 years ago. Glasgow started 25 years ago; Manchester has been doing this for 25 years. It’s been a slow process but they’re starting to get there. For places like Sheffield where I work, or Liverpool where I’m from, you’re coming to this so much later.
What is the solution for Blackpool or Burnley? You need vibrant capital markets in Manchester. For Blackpool, without that, there is very little opportunity or hope for investment to go into the place, because financiers in the core markets in London are not going to spend time on trains wandering around Blackpool, looking for intra-marginal niches. That’s not going to happen. Whereas, if you’ve got well developing capital markets in Manchester, then investors in Manchester have the incentive and interest to do precisely that. The stock markets and the capital markets in Philadelphia are dominated by investors who are hoovering up all the opportunities in the Maryland-Delaware-Pennsylvania area. That’s what they do. That’s precisely what they do. The people in the capital markets in San Francisco are specialised in California. You see this across all the Midwest from the Chicago markets: that’s where they’ve got gains, that’s where they’ve got the incentives. At the moment, the capital markets in our cities are almost non-existent. They’re tiny.
So who, with capital, is going to go and have a look at what opportunities there are in Blackburn? That’s the question. Who’s going to do it? This is why those towns will never prosper unless there are dynamic cities in those regions to help those towns start to re-float. That’s precisely what you see in the US, and also particularly what you see in places like Germany and the Netherlands. That’s the missing part we don’t have. You can’t solve the city problem, which is the fundamental UK productivity problem, by addressing towns’ issues on their own. Politically, that is what many people want. People on the centre right like the towns thing because you can capture all the pro-Brexit votes; but also on the left, the so-called foundational economy people. They’re of a similar mentality, really. The problem is you can’t solve Sheffield by getting Barnsley right. You can only get Barnsley moving by getting Sheffield going.
What you need are governance systems that allow for integration and scale, but also that are variegated. If you’re doing things to do with families and households, those kinds of policies have to be very localised. If you’re doing innovation or foreign investment, it’s on a much bigger scale. This is critical, because we’ve got to think about how to do devolution, that allows variegated ways of developing policy, and in ways also that doesn’t just leave out towns. You’ve got to have a solution that allows places in Lincolnshire or Herefordshire to be part of the story. That’s why I personally have always been much more in favour of a regional structure – regional governance as well as city region – because otherwise the Blackpools and the Burnleys just get left out, they get forgotten. The whole of Lincolnshire gets forgotten. Wiltshire, all of Herefordshire, all these places just fall out of the system.
Q: When you talk about ‘solving’ for a place, what exactly do you mean? What are the outcomes we should be looking for in a place?
What would good look like? The arc between the Low Countries and North Rhine-Westphalia in Germany. Those places – with a dense population, large- and medium-sized combinations of cities. So, through the Netherlands, Belgium and then straight east across the border into Germany, into North Rhine-Westphalia. That includes huge turnaround cities like Dortmund, Duisburg, Wuppertal. You’ve got specialist cities like Dusseldorf, Cologne and so on. That’s what we want to look like. Towns are prosperous in all those places because the cities are prosperous. They’ve turned their cities around; they’ve got fantastic infrastructure. Their connectivity levels are amazing, the way the systems work. They also have very integrative approaches to planning. They think in a very holistic manner about environment, transportation, mobility, housing.
We’ve just got an ad hoc development control system. In the Low Countries and North Rhine-Westphalia, they plan things properly, in the medium- and the long-term. Why is that important? Because then the private sector knows what the rules of the game are and what’s going to be happening in the next 10, 20 and 30 years. The private sector can also plan and invest. We have almost none of those features.
They also don’t assume diffusion will just happen like magic – that London will turn around and everyone else will just grow and prosper, as we thought 20 or 30 years ago. They don’t make those assumptions. They plan for diffusion, they plan for connectivity, they plan for integration. It’s not only across different spaces – cities and small towns – but also on indicators of social wellbeing, or longevity.
ENDS