Nigel Farage on the campaign trail in Bolsover last year. Images: © LINDSEY PARNABY, Christopher Furlong, Getty Images

Getting somewhere: How the Tories leapt ahead of mainstream economists to give towns their due

Political necessity has forced Boris Johnson to notice that towns want to be taken seriously, as distinctive places. It is high time economists caught up
July 16, 2020

Even the faintest acquaintance with economic history is enough to know that the passage of time is important—a factory worker in the earliest days of the industrial revolution was lucky to have shoes and hungry most of the time, whereas a factory worker today is more likely to feel pinched by the cost of running a car or a Sky TV subscription. Why? Societies develop new technologies, learn how to do things more efficiently and make themselves richer in the process. Mainstream economists recognise this, and build rising productivity and “know-how” into their models. But if time is something economics can cope with, it has—at least until recently—shown much less interest in space. 

There are vast and persistent differences in incomes across countries, regions and cities, and yet economics has not found a general way of approaching this. Despite the advances of “behavioural economics,” which has belatedly acknowledged that we are not guided purely by rational calculations but also by the framing of choices and cultural expectations, the discipline remains stubbornly wedded to the individual as the unit of analysis. In reality, our productivity is determined collectively, by the communities in which we live, and these are in turn defined just as much by place as by time.

The last few years have made plain, too, how place matters for our political views: witness the Brexit rebellion of provincial England and Wales. In truth it might be that, as much as anything else, which has finally shaken mainstream policy wonks into realising that it is worth giving some thought to communities, and the way we belong to them. 

Arid place

I was pleased to be asked by Prospect to write about Martin Sandbu’s The Economics of Belonging as I have just finished writing a book with John Kay on what I thought was the same topic. The field involves a challenging synthesis of economics with recent work in evolutionary biology, political science, neuroscience, moral philosophy and decisions under uncertainty: the more people who are attracted to work on it the better. Unfortunately, if John and I have written a book on the economics of belonging, Sandbu hasn’t. His book is modestly useful as far as it goes, but it is confined to the application of conventional economic policy instruments such as taxes and transfers, with the purpose of reducing national inequality in the ability to consume. It is predicated on the presumption that “belonging” means nothing more than “participating in the economic benefits of.”

Its motivating force is to exonerate globalisation from the blame for inequality, and to argue that if anything it is part of the solution, not the problem. Calling this “the economics of belonging” may indicate deficient awareness of sources of meaning and wellbeing beyond personal consumption. To draw on David Goodhart’s apt concepts of global and local identity in The Road to Somewhere, the book verges on a caricature of “Anywhere” bewilderment at the recent political mutiny of “Somewheres.”

Having lived in Oslo, Oxford, New York and London, and as the Financial Times’s economic commentator for Europe, Sandbu is a fully paid-up Anywhere, even equipped with a PPE degree. He displays PPE’s hallmarks of confidence and lucidity. But he also displays its characteristic weakness: he is not adequately equipped to analyse the highly complex phenomenon of belonging that he claims to have resolved.

His book gives the impression of having been written in the wake of last year’s European parliamentary elections, and the momentary rise of the Brexit Party. As an Anywhere whose professional focus is Europe, he sets out to answer the question of how best this nightmare can be made to go away. And his answer is that enough of those who currently support upstart movements, like the Brexit Party, need to get sufficient extra money to ensure that they revert to their past quiescence. Shorn of its fringe support from the economically disaffected, the shrivelled “hard core” of anti-globalisers, who are culturally averse to the new age of universal individual rights, open borders, and transnational markets, can be safely ignored until they gradually die out. The “liberal” order can then continue to reign: it is potentially good for everyone, if only the details of economic policies are tweaked appropriately.

In truth, at the European level such adjustments would need to be far-reaching. Since Maastricht, the four flagship priorities of the commission have been the internal market, free movement, the euro and the promotion of European identity. Inadvertently, each of these has worked to undermine previous spatial convergence (my critique, given as the keynote for the new commission’s recent conference on “The European Economy in the 2020s,” is in January’s InterEconomics).

Plummy provincialism

Sandbu does offer a sensible critique of financialisation and modern business ethics, but this is hardly original—see the work of Colin Mayer and Rachel Henderson. His main claim, though, is that the economic policies that he proposes—raising the minimum wage, universal basic income and wealth taxes—are radical and innovative. Unfortunately, he was pre-empted here in January by Thomas Piketty’s new tome, Capitalism and Ideology, which over 1,200 pages explores the fiscal policies that might address inequality much more thoroughly, with a particular emphasis upon wealth taxes. Piketty emphasises that a discussion of economic policies has to be set in a historical and social context, which explains the volume’s vast bulk. That crucial recognition would have helped in this book too. 

The Economics of Belonging had, however, already been overtaken by events before Piketty. On 12th December the British political landscape changed dramatically and the Brexit Party became a footnote in history. Despite being a Conservative with a plummy Etonian accent, Boris Johnson was able to present himself convincingly to the provincial working class as the real anti-establishment revolutionary, contrasting with the untrustworthy Marxist cosmopolitan heading the Labour Party. His promise was to rescue them from abandonment. Even if we only focus on the Bs—Bassetlaw, Blyth Valley, Bolsover—we can see why the long-eroding bricks that had made up Labour’s “red wall” since before the war finally crumbled. Johnson lost no time in moving to cement his new coalition. By February, even before the pandemic was overshadowing everything else in British politics, he and his chancellor, Rishi Sunak, were already announcing open-ended commitments to “levelling up” Britain’s grossly unequal spatial economy.

This same—distinctively spatial—inequality had obviously been at the heart of the original Brexit mutiny, which Johnson had ridden to No 10. The Left unthinkingly presumed that the game plan was betrayal—to shelter behind the flag as a nationalist movement, in order to plot a deepening of “neoliberalism.” Far from being gripped by a Thatcherite ideology of market fundamentalism, however, the new government actually is pinioned to levelling up by a pragmatic recognition of a fundamental shift in political identity in many communities of northern England that have, for the moment, lent it a healthy majority. By throwing off their ancestral loyalty to Labour and making themselves into Britain’s new swing marginal seats, these towns have made their votes count for a long time to come. The people of Somewhere—for so long assumed to have “nowhere to go” politically—had hit back decisively at the fringe of Anywhere individualists (aka successful Londoners).

Sandbu must surely approve of this: he accepts the need to equip “individuals and places to thrive in the new economy,” and does include a chapter on how to help provincial cities. But he explains he has left this to the end of the book because all his national egalitarian policies would already go a long way to redressing regional imbalance. Nevertheless, within the limits of the book, his analysis of place-based policies is sound. As he acknowledges, reversing decline in a poor region is complex: many things have been tried, and they have all failed. Correctly, he suggests that what is likely to be needed is a package of policies, and the package he proposes is sensible, if insufficient.

But he misses the three points fundamental to making levelling up work. The first is grasping what the complexity and historic failure tells us—namely, that we don’t and cannot expect to start out with the answers. The challenge of levelling up is an instance of “radical uncertainty,” with the chances of success not governed by known probabilities, but resting on all sorts of known unknowns and indeed unknown unknowns. The overconfidence that pervades the book is entirely misplaced. 

[su_pullquote]“Johnson truly is pinioned to ‘levelling-up’—by the northern towns that have lent him his large majority”[/su_pullquote]

The wise response to radically uncertain terrain is, as Kay and Mervyn King have argued in a recent book as well as an essay in the May issue of Prospect, humility—to face up to everything you don’t know about what needs to be done, and proceed through experiment and learn-as-you-go. This leads to the second great omission. By confining his discussion to national economic technocracy, Sandbu reinforces the delusion that everything could be put right from an all-seeing Whitehall, if only there were the political will to do it.

And yet now with Johnson and Sunak there is, if only out of electoral self-preservation, a clear political will. Whitehall, though, will still not be able to achieve regional convergence. It is too distant from local knowledge to design a context-pertinent package, and too remote (and perhaps too arrogant) to absorb the tacit knowledge that will be generated by learning from experiments on the ground. The problem is not will but Whitehall. 

Local stories

The second big problem is that politically, any centralised authority will struggle to justify doing different things in different places—it runs into the accusation of favouritism. The most vital policy to revive regional economies is, therefore, the devolution of political authority over the design and implementation of regeneration strategy to city-regions. This must be matched by sufficient local retention of the revenues of national taxes, supplemented by transfers from the metropole to finance the strategy. By tying a tourniquet of centralist assumptions around his policy discussion, Sandbu excludes the most urgent aspect of reform required.

Besides, finally, as he belatedly acknowledges, the Brexit mutiny was not truly about the inequality of household incomes. Rather, I think it takes us back to culture—the culture of a place as a community constituted by a web of relationships and networks of communication. Such a culture can be (and often once was) proud, or it can be (and too often now is) beset by negative feedbacks and characterised by despair and denigration.

The spatial allocation of activity is fairly stable but potentially highly indeterminate: most of the knowledge clusters on which modern prosperity is built could, in principle, be almost anywhere. Investment decisions are therefore determined by the narratives that circulate in local networks. Despondent narratives discourage investment, trapping poor regions into a locally stable equilibrium. The task is to reset them, and we do not really know how to do it. Covid-19 amplifies some of these uncertainties, but also drags the concept of community centre-stage. Polls show strong support for a sense of togetherness: not the individual rights and group privileges beloved of metropolitan culture, but instead common belonging. It is thus a moment that could give us a political opening.

One obvious question which Sandbu never answers adequately is why Britain’s gross spatial inequality—now the worst of any major OECD society—was allowed to widen relentlessly for 40 years by governments of both right and left. As I argued in The Future of Capitalism and an accompanying Prospect essay (“How to Save Britain from London,” November 2018), I think that the most plausible answer is that the Anywheres distanced themselves from the rest of society. Since both political parties were monopolised by unrepresentative minorities in which Anywheres predominated, the grievances of the provincial working class went unnoticed. 

Sandbu’s hero is my friend Dani Rodrik, but his reading has been selective. Here is Rodrik, writing last year: “cosmopolitan globalists—citizens of nowhere in Theresa May’s evocative language—have managed to revoke their responsibilities within their home nation without in fact taking on corresponding obligations anywhere else. The resulting economic and social polarisation within nations makes it much more difficult to construct a ‘unifying narrative.’” This excellent restatement of the proposition fatally undermines that of Sandbu that the income distribution is all we need to understand the backlash against globalisation.

Rodrik invited me to address his annual conference at Harvard—on the subject of migration—as he wanted me to set out the recent theory of the economics of metropolitan agglomeration, and explain how skilled metropolitans could end up being able to capture too many of the “rents” of agglomeration, rents which rightly belong to the entire country. In the UK, skilled metropolitans are highly productive not, as they tell themselves, because they are individually amazingly talented, but because they are clustered together in the headquarters of the most highly centralised state in the western world, endowed with decades of biased provision of infrastructure and research funding.

The rapid influx of skilled foreigners to London has inadvertently aggravated the consequent transfer of rents from the provincial population to those in London, by turning it into a transfer from citizens to non-citizens. One of the conceits of the “Everywheres” is that governments owe the same obligations to non-citizens as to citizens. This reflects a failure to comprehend the essence of successful society: a dense web of mutual obligations between citizens, implemented by government. Furthermore, had these plum positions been filled by British citizens drawn from the provinces, it would at least have strengthened social bonds between the successful regions and the failing ones. In the event, since the social links of foreigners to provincial Britain were weak, it may have compounded the disdainful detachment of successful people, and the ruinous neglect that went with it.

Both these effects—the transfer of rents, and the weakening of inter-regional bonds—imply that globalisation is not innocent of specifically spatial distributional consequences, quite aside from the job losses that Sandbu does acknowledge in keeping with the conventional analysis. Crucially, the failure of public policy to offset any of this has been part of the political effect of globalisation as we have built it—a system of rules deemed beyond the reach of national governments and elections, which allows the “Anywheres,” who thrive under these rules, to shrug off their responsibilities to fellow citizens—just as Rodrik suggests. 

A truly social science

So, what do I think the economics of belonging is truly about? It starts from recent research in evolutionary-cum-anthropological biology which shows that humans have evolved to be radically distinctive among mammals (see scholars such as Robert Boyd and Peter Richerson, Joe Henrich and Nicholas Christakis). We are hard-wired to “belong” both to a group of people (pro-sociality), and to a place (territoriality). Most people in Britain live within 20 miles of where they grew up. This is not an anachronism—it is natural. Most of us would instinctively grasp this; it is an oddity of the arid and individualistic character of economics that, until recently, it did not. 

Forcing clever young people to choose between leaving their home for London to take a chance on their talents, and retaining the meaning they get from participation in their community, is a failure of public policy—every uprooted person is a loss of wellbeing, which with different policy might have been avoided. Conversely, attracting “diversity” to London may have boosted productivity, but it has not generated a commensurate upsurge in wellbeing—however fun it has been for some restaurant-loving journalists. On the contrary, despite high incomes and disproportionate public service spending, official data on self-reported wellbeing shows London with the lowest scores in the whole country. Only on one psychologically measured characteristic does it come top: anxiety. The open door, the bravura about London being the global city, and what fun the post-national society provides, seems to have lured people to miserable lives. Even the well off don’t seem too satisfied with it. And of course, Covid-19 is now inducing much reassessment of our lifestyles.

[su_pullquote]“Attracting ‘diversity’ to london has not generated an upsurge in wellbeing—however fun it has been for some restaurant-loving journalists”[/su_pullquote]

It is always communities, whether spatial or not, which serve as the central entities in navigating the social, economic and political decisions that have to be taken, often under conditions of radical uncertainty. Communities are central for decision-taking because they are the vehicles through which the uniquely human practice of emulation occurs. Within communities, narratives circulate: they tell us who we are; how our world works; and how we should bestow our respect or disapproval on others. Crucially, they are the main mechanism by which collective knowledge is shared and accumulated. Our individual decisions are largely based not on observation of the external world—as assumed in PPE economics—but by drawing on this collective brain. And over the course of evolution, this has proved to be rational as a species—most of the time, collective wisdom is far better than our own. 

The coalface of experience

Choices that reflect our belonging are fundamental to our behaviour, and consequently to public policy. At a minimum, to set public policy coherently, it is essential to understand the narratives that different communities have come to believe: this is, in essence, why the official Leave campaign beat the Remain campaign. But public policy can also aim to be more ambitious: new narratives promoted by public figures can potentially become tools to reset the story, something which we are not yet sure how to do, but which the best public officials, like Andy Haldane, the Chief Economist at the Bank of England, do grasp, understanding what will have to be done. This new truly social psychology contrasts with the older individual psychology of “biases” in human decision-taking which Whitehall has gleefully embraced through the “nudge” agenda. “Nudge” tells us that humans are quite bad at calculating probabilities, and are “blind to the obvious”: we are, in short, not as good as a computer at being Economic Man. The assumption is that computer-aided Whitehall expertise knows best, and can shunt us towards better choices.

But this is to misunderstand why we are not good at being Economic Man. Having evolved in an unknowable world in which things like the new coronavirus can suddenly emerge, we survive with the help of a collective brain that learns as it goes, through mutual sharing of decisions taken where tacit knowledge forms—not through Whitehall-issued advice, but at the coalface of experience. Humans are not dumb: we are amazingly creative. We are not blind: we are amazingly good at focusing on the purpose at hand. Without input from creative human purpose, a computer would be blind and dumb.

There is a further layer to the collective brain of a community. Through it, a community can develop common, forward-looking purpose, which is then reinforced by a sense of mutual obligation. A community—whether a place or an organisation—can become morally load-bearing. For most purposes, because communities are closer to the sort of knowledge that comes with doing something specific in a specific real community than Whitehall can ever hope to be, they are better able to build common purposes that are appropriate to needs, and better able to implement them, adjusting rapidly to fresh evidence. Whitehall does not know best; nor, usually, is it well suited to getting us to behave well.

That is a nutshell guide to the economics of belonging, at least as I would understand it. The Economics of Belonging is a competent, confidently articulated survey of the academic economics literature on inequality. But as to belonging, much as I would welcome such a book, I haven’t found it here. For all its sloppiness and crudity, the political debate still looks to be ahead of that of conventional economics.

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The Economics of Belonging by Martin Sandbu (Princeton UP, £20)