The apparent divides that have emerged across western society is something that I’ve touched upon numerous times in the past few years, and with breathless projections of looming technological disruption to the labor market only likely to exacerbate this divide, there scarcely seems a more pressing issue facing society today.
It’s an issue that’s explored in a recent report from the Brookings Institute, which explores the situation in the United States that sees many metropolitan areas thriving whilst many smaller towns and rural areas struggle with economic stagnation and social decline.
They begin by exploring some of the reasons why this divide has emerged, and I’ve touched on some of them previously, not least the way innovation and digital technologies increasingly reward dense clusters of knowledge and capital, which clearly benefits larger cities. The report reveals that these areas grew consistently faster than even smaller cities, let alone towns and rural communities, who lagged even further behind.
Indeed, large cities with over 1 million residents accounted for around 72% of the overall employment growth since the economic crisis, with those towns with a population between 50,000 and 250,000 accounting for less than 6%. In smaller communities the picture was even worse, with employment still not returning to pre-crisis levels.
A wake up call
The election of Donald Trump and the vote by Britain to leave the European Union are two well signals of this discontent, but what has changed since then?
The report suggests that top-down investments in infrastructure, such as those seen across the European Union to try and reduce economic divergence between regions, have largely failed to fend off the political challenges of such divergence or helped to place these regions on a more sustainable path towards growth. Indeed, regions such as Poland, which were among the largest recipients of such funding, have also been among the strongest exponents of nationalism in recent years.
Similarly, attempts by regions to provide financial incentives to firms in the hope of attracting employers to them have also largely failed, with the authors suggesting that any boost to employment in these areas is largely down to newcomers migrating there rather than boosts for the native population. What’s more, these funds tend to go towards larger, incumbent firms, which aren’t necessarily the kind that will drive growth.
“In short, the evidence is clear: Two of the most ambitious and expensive stratagems that leaders at home and abroad use to push back against divergence are not working and should be set aside,” the authors explain.
Changing tact
So if those strategies aren’t working, what might do? The authors believe that the key will be something they refer to as ‘place-sensitive distributed development’, which basically strives to mitigate uneven development and ensure economic growth occurs in a wider range of places. They illustrate what this might actually look like via five possible strategies:
- Boost the skills of those in left behind places – with a particular emphasis placed on the kind of digital skills that industry is perpetually crying out for.
- Boost access to capital in smaller towns – one of the core advantages of large cities is that they attract not only skills but capital. This agglomeration effect isn’t present in smaller towns, so support needs to be offered to compensate. The authors recommend the provision of alternative forms of capital to support regional economic growth.
- Invest in technical infrastructure – especially in areas such as broadband access, which continues to lag behind in rural areas.
- Identify key areas that can support regional growth – as with so many change projects, the authors advocate targeting resources in areas that have the best chance of success, at least to begin with, and recommend selecting 10 promising mid-sized regions, or what the authors refer to as ‘growth poles’.
- Support greater mobility – mobility is a contentious issue in this regard, as traditionally people have left the smaller towns for the bigger cities in the hunt for opportunities, but the authors believe that enhancing mobility can nonetheless help towns regain their lustre. Whether this simply shifts the problem elsewhere however, is perhaps harder to judge.
“Our aim is to suggest ways to unleash the economic potential of a greater number of regions, boosting both aggregate output and interregional equity, so that more individuals and places will be able to access economic opportunity no matter where they are,” the authors conclude.
They are humble enough to accept that many of their proposals may actually fail, but they are nonetheless brave enough to tackle an issue that many other parts of society are turning away from. It’s increasingly clear that inaction is no longer an option, so they should be commended for at least getting the ball rolling.
