Winner takes all

Read in The Economist of 12 June 2016:

In the UK, just like in many other countries, regional inequality is growing fast. London is the big winner, cities in the North are the big losers. As Richard Florida already forecasted years ago, the world is getting pretty spiky. The principle is simple: ‘success breeds success’. The winner takes all. This feels uncomfortable, to say the least. But in ‘Time for a civic surge’ The Economist writes about “the best opportunities for Engeland’s regional cities for a renaissance in decades” – opportunities they must not waste.  The Economist: “Britain is absurdly top-heavy: whereas half a dozen German cities have economies three-quarters the size of Berlin’s, no English city’s economy is even a quarter the size of London’s.” But can you do anything about it? How to stop London being successful? This is what governments always do: embracing distributive justice by relegating public money from successful cities to struggling cities in the hope markets will follow. Also London-based The Economist thinks the other cities in the UK should grab their chance now. George Osborne, the chancellor in the Cameron administration, has offered to cede billions of pounds of public spending to clusters of cities that agree to join together and be run by an elected mayor. So do it! I’m afraid more countries will follow his model.

Will it work? Surely not. Jane Jacobs was clear about it. In ‘Cities and the Wealth of Nations’ (1985) she dismantled all existing economic theory and argued that a nation is an inadequate unit of analysis for understanding economic life. Differences between cities – some rich and some poor – in one country simply cannot be balanced by redistribution. The point is, countries and also economists, she stressed, do not understand how cities work. Only local production can create wealth, wealth cannot be bought or acquired by loans or grants. The Economist also hesitates, but the magazine only points at some practical objections. It thinks the conditions under which the British government will redistribute taxpayers money will be too troublesome for many cities. They will not collaborate. The editors also point out the danger of incompetence and corruption. They’re right. Nevertheless, “This deal offers a chance to claw back power, make savings and reshape English governance.” I don’t think so. It will only harm the British economy. Trouble is on the road again.