●  We have chronic regional inequality because labour and capital are not as mobile as the economy theory suggests

●  Government have reinforced inequality through Higher Education and capital investment policy

●  Places need strong identities, and investment in social infrastructure

In this and the next three posts, under the heading ‘Community’, I will try to make the case for anew political and economic settlement for the villages, towns, cities and counties of England.The starting point is the extreme imbalance that exists between different places within England. We are, as Professor Sir Paul Collier has shown, the most ‘spatially unequal’ country in Europe, with vast regional disparities in wealth, life chances and life expectancy. These disparities have existed for many decades: the ‘distressed areas’ of the 1930s are the ‘left-behind communities’ of today. Yet the immediate cause of our regional inequality is the doctrine that we have followed for the last 40 years: the doctrine of economic mobility.

The Thatcher government was right to close unproductive coal mines and steel mills and return economic production to the private market. But they (and all subsequent governments) got the next stage, the process of deindustrialisation for the communities concerned, badly wrong.

Economic mobility is the idea that left to themselves, capital and labour will find each other. This is of course how industrialisation happened, in a great spontaneous meeting of financial wealth and agricultural workers in the new cities of the north and midlands. In the late 20th century it was assumed that deindustrialisation would happen in the same way. As the factories closed capital would rush in to take advantage of cheap land and labour, and unwanted workers would slip away to new opportunities elsewhere.

Neither happened, or not enough. It turns out capital needs more than derelict buildings and wrongly-skilled people to invest in. And it turns out places are sticky: people would rather stay with what they know, connected to the places and people they love and care for, than ‘get on their bikes’, as Norman Tebbit said, for a precarious life in a southern city.

According to the doctrine of economic mobility, the role of government is to facilitate the free movement of capital and labour. Investment policy should be ‘spatially blind’ i.e. not concerned about place, but just aimed at wherever the spreadsheets say the biggest return on investment can be found. The calculation of return on investment, however, favours the deployment of capital and labour in ‘high value’ places and professions. So rather than a genuinely neutral policy reflecting the wishes of the public – let alone a policy reflecting the moral obligation to support the people and places affected by deindustrialisation – government has ‘blindly’ reinforced the inequality that existed already.

Private capital has not flowed into the former industrial towns, but continued to seek its returns in London and the South East. Treasury rules stipulate that the public housebuilding budget must be spent on building new homes in areas of high house prices – not on regenerating down-at-heel places to make them more attractive to mobile businesses and workers.

The response to the financial crisis of 2008 has exacerbated the problem. The capital released into the economy by the Bank of England did not seek new investment opportunities in the North and Midlands, but flowed into assets – mainly housing – in the South East. The price of keeping the financial system afloat was greater asset inequality than ever.

On the labour side, a more proactive measure has been taken to induce economic mobility. Higher Education has expanded from 27% of school leavers in 2010 to 38% today. Spending available for HE institutions has grown proportionately, from £9.8bn to £14.1bn, a rise of 43%. Meanwhile spending on Further Education, the alternative to university that teaches the skills of the local economy, has fallen by 33% over the same period, to £3.4bn.

The effect of the expansion of HE means that millions of bright young people have left their home towns to study in a distant city. Some drift home, wrongly-qualified for the local labour market, with their expectations disappointed and a student debt to pay. Many others never come back, fulfilling the doctrine of economic mobility. Yet the doctrine has demoralised its supposed beneficiaries too. The UK has the smallest houses and the longest commutes in Europe. Young graduates carry historic levels of debt and pay high rents for housing they can never hope to own.

The era of ‘austerity’ that followed the 2008 crash slowed the growth in budgets for health, education and welfare. But those budgets did continue to grow. The real costs fell on local government, which was still required to fund the ever-growing demand for social care. The result was a sharp fall in public funding for the social infrastructure of communities – the libraries and parks and youth clubs that give life to places and opportunities for people on low incomes.

Austerity compounded trends in the wider economy, the way we work and shop and socialise, that were already hollowing out local communities. A quarter of all pubs, a quarter of all post offices and a fifth of all libraries have closed since the turn of the century. Independent local retailers have been replaced by chain stores, discount shops, pound shops – or no shops at all, but boarded-up ghosts of an economy that no longer functions.

It doesn’t have to continue like this. There is another, happier possibility, for the trends that are hollowing out our communities could save them too. The pandemic has given us glimpses of a better world: more home-working and more neighbourliness, more family time and a more local life. The digital revolution is making obsolete many jobs and industries; it is also creating different ones, and making the towns left behind by industrialisation viable economic centres once again. The internet could yet save the village, the mining town, the coast.

To expedite this process and ensure it benefits everyone, not just the rich, we need a deliberate political and economic strategy to moderate the doctrine of economic mobility. Of course capital and labour must be free to find each other and perform their reproductive, wealth-creating magic. But public policy can frame the manner of their meeting and its effects.

There is no magic formula here. Paul Collier has written of the ‘radical uncertainty’ involved in reviving poor places. But global evidence and common sense suggest some ingredients are probably in common for all successful revivals. The main ingredients of a new ‘economics of place’ are identity and infrastructure.

Investment demands liveable places. The heritage, environment and culture of a place matter as much as its transport links and business facilities. A place needs a sense of itself to hold its bright young people, and to attract others to settle there. New industries build on the foundations of old ones, whose traces can still be seen. Great Grimsby was once England’s, indeed Europe’s leading fishing port. It is reinventing itself as a centre of offshore wind, while the historic docks, formerly a polyglot entrepot, are transforming into a centre of the creative industries, both proudly local and boldly global.

And places need infrastructure. This obviously includes the capital assets in which people live and work and move around. Transport and broadband are crucial agents of settlement: people will only choose to live in towns that they can get products, information and themselves in and out of.

But just as important as economic infrastructure is the social infrastructure that makes a community, and helps those people without assets of their own. We need a sustained policy agenda to repopulate neighbourhoods with the institutions of community life. These need not look like they used to. A library, for instance, can do without stacks of books. The 21st century library should be a repository of knowledge but also the centre for adult education, a coworking space and an incubator for start-up businesses. It should be the home of local radio and the local node of a grand national strategy for digital inclusion.

Economic and social infrastructure combine in one of the most essential local services of all: a proper system for nurturing local skills. England badly needs an FE sector to rival our great university network. This should be locally managed, led by employers but especially the employers of the future, so that young people (and retraining older workers) help the evolution of their places, transmitting their economic identity from one generation to the next.