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The Regional Dimensions of Economic Growth and Recovery

June 9, 2013

This blog has been written by James Silverwood and builds upon his previous post on the dual economy titled ‘The Political Economy of Yorkshire (and Northern!) Devolution’. This blog will examine the regional dimensions of a possible economic recovery with specific focus on the housing market. James is a Tutor in Political Economy and phD student at the University of Hull. He can be contacted on Twitter: @jamessilverwood  or by Email:

james.silvewood@2004.hull.ac.uk.

In the latest Bank of England Inflation Report economic forecasts were made that appear to suggest that economic recovery has nearly arrived. According to the report, over the next three years growth will increase and inflation will fall. This report coincided with a speech by George Osborne claiming that to now discard the Coalitions austerity plan would be tantamount to returning to square one. This growing confidence of our economic policymakers has been bolstered by the avoidance of a triple-dip recession and the possibility that the ONS may revise previous economic growth statistics thus eliminating the double-dip recession from the records. When recovery, and by this I mean a consecutive quarters of positive GDP growth, is firmly underway we can expect much triumphalism on the part of our policymakers as to the wisdom of their economic growth strategy (austerity & supply-side economics) and for this to be distilled to the electorate via newspapers and media appearances.

However it is vital that when this occurs we question the dynamics of the nascent recovery. At this point I will make two predictions regarding economic growth before the 2015 General Election: (i) that the recovery will be largely ‘technical’ and (ii) that the recovery will be ‘narrow’. By ‘technical’ I mean the following; that the recovery, when it occurs, will be modest both in terms of historical experience and by GDP rate. Thus in a ‘technical’ sense according to the economic textbooks the economy will have escaped will have escaped the slump by virtue of recording a positive GDP rate. By ‘narrow’ I mean the following; that the recovery will predominately benefit only certain regions (predominately the South of England) and will be distributed among a small group of persons (typically those already located at the top of the income scale). There are several reasons to suggest this hypothesis; (i) because of the relatively positive economic experience of the South during the economic slump that has highlighted the existence of a dual economy in England and the UK (as illustrated in my previous blog) and (ii) relating to the failure of the Coalition to rebalance the economy away from the pre-bust sectors of growth and the existence of  phenomena such as static average earnings for the majority.

Firstly let us deal with the suggestion of a ‘technical’ recovery and why growth rates will remain modest because it is integral to understanding why the recovery will be ‘narrow’. This deals largely with the inability of the Coalition Government to move the UK economy onto a different and higher economic growth plane. Certainly part of this failure reflects problems in the Eurozone and world economy but also, it reflects economic choices in policy. This blog will not contend itself with embarking upon a debate regarding the merits or demerits of austerity; rather it will content itself with making the following hypothesis. That economic policy by the Coalition government has worked in a manner to reinforce the regions and economic sectors that were prosperous before the economic crash; rather than implementing policies that would encourage diversification into new economic sectors and re-balance the economy.

One illustration of this hypothesis is via continued government support for the housing-market. The help to buy scheme announced in the last budget, which has been roundly condemned by many, should be considered as a £130billion subsidy to an economic sector that runs the risk of inflating another asset boom. Rather than implementing a radical programme of house-building under the aegis of regional/county/city direction, thus increasing the housing supply, lowering prices and consequently bringing mortgages and deposits within reach of younger persons; the government has implemented a policy whose outcome, by supporting demand rather than supply, will serve to increase existing house prices by increasing the quantity of quantity of consumers to housing stock. Given that we have only recently had a housing boom; where during the 2000s house prices rose by over 100% in some cases, this policy can hardly be seen to fit in with the Coalitions criteria of rebalancing the economy and sows the seeds for the next economic crash. Furthermore this prioritisation of the housing market will perpetuate the problems of the dual economy.

Just recently it was announced that the average asking price for a house in London had risen to £509, 870 adding to the fears that a new housing price bubble had started even with the governments Help to Buy scheme in its infancy. It was also reported that some house prices in London are increasing at a rate of £27 per hour with some house prices in Central London having increased by an average of 25% on last year. Recent ONS figures shows that the 15% of households in the South-East have wealth, including house price, of over £1m. This rate falls to 8% for Yorkshire and the Humber. Given the disparity in house prices this rate will only widen as house prices are artificially raised by government policy.

Furthermore if the recovery is to be ‘narrow’ and only benefit a small geographical section of the economy; then rising house prices and rents further inhibits labour mobility to areas of job creation. Whilst London house prices were rising astronomically, an average of £40, 500 in one year; properties in the North of England rose by only 4.2% or £6,182. In a report on the housing market Ed Conway at Sky News showed that the top five postcodes for house prices were in London whilst of the bottom five three were in Wales and two in the North of England. The economy is increasingly illustrating a tendency not only to not create enough jobs in the regions; it is pricing people out of moving for jobs where they are being created.

This leads directly onto questions of the ‘narrow’ recovery. If the recovery remains modest and largely ‘technical’, based upon the same economic sectors as pre-2008 such as the housing market, then we can expect the distribution of the benefits of economic growth to remain largely with the same recipients. From a regional perspective we can thus expect the same regions as before 2008 to benefit from any return to growth. This is because the Coalitions economic policy, by not moving economic growth onto a higher growth plane, has simultaneously done nothing to alleviate the ‘dual economy’ problem that I outlined in a previous blog. As the data becomes available, I believe that this will become evident, in much the same way that economic data during the recession illustrates the differences of experience between London and the Northern regions like Yorkshire & the Humber.

It is thus argued that in the nascent economic recovery to come there are two cogent arguments to deploy; (i) arguing against the efficacy of the recovery by asking the simple question of recovery for whom? If the data illustrates that the same regional disparity that pervaded the bust pervades the boom we can then; (ii) argue AGAINST the attempt to portray recovery as part of a national phenomena and simultaneously strengthen the argument FOR devolved power-structures and decision-making to Yorkshire and the North of England by illustrating the lack of recovery in our region and the paucity of ideas to engender one in Westminster. As such if cleverly marshalled I believe that modest rate of economic recovery, combined with the ‘narrow’ distribution of benefits should work in a manner to strengthen the argument for devolved power-structures for Yorkshire and the North of England.

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