The Medici effect is real in levelling up

It has been a couple of weeks since the publication of the levelling up white paper. The initial reaction involved some piss-taking at references to ancient Jericho and Medici Florence, together with scepticism about how the 12 perfectly laudable “missions” can be achieved without additional funding. But it is worth looking at the whole document, all 300 pages of it, because it says many sensible things

The document is the work of Andy Haldane, who gets joint billing on the preface with Michael Gove. He is a former chief economist at the Bank of England, and his analysis of the problem is spot on. The solutions are perhaps less convincing, but then again that is because they are not easy.

The joint preface says that “while talent is distributed evenly across the UK, opportunity is not”. The authors consider levelling up to be a mission “part economic, part social, part moral – to change that for good”.

The first part of the report documents these geographic disparities with maps showing productivity, income, skills and health. The most affluent parts of the UK also have the highest skills and the best health – and the gap between the richest and poorest areas is both wider than in other OECD countries and widening.

The only measures to buck the trend are life satisfaction and disposable income. Here London does particularly badly, causing the report to say that “the costs of spatial inequality are experienced in London as well as struggling areas”. Poor them.

空间不平等的模式既是宏观的，也是非常局部的——在不同尺度上重复的分形模式。北方不如南方好;工业城镇、沿海度假胜地和周边农村地区表现尤其糟糕;此外，在城市中还有一些严重贫困的地区，没有达到当地政府的平均水平。

Traditional economic theory predicts that low- and high-growth areas should converge as capital seeks out lower costs. The problem is that spatial disparities are very sticky and go back a long way

These “second cities” like Manchester and Birmingham may appear to be doing well but underperform badly compared with similar cities in other countries. This is partly because of London’s dominance but also because of poor transport infrastructure and insufficient density of population to trigger the “Medici effect”.

So, what is this magical effect and how does it work in terms of levelling up? Right at the beginning, the report quotes Joseph Schumpeter’s idea of “creative destruction”. Economic cycles mean that some places rise while others fall. The fall is painful and needs to be mitigated for the people affected, but in the end it allows places to be reinvented. Much later, the report explains that traditional economic theory predicts that low- and high-growth areas should converge as capital seeks out lower costs.

The problem is that spatial disparities are very sticky and go back a long way. Traditional economic theory is clearly wrong: what we need is “new economic geography”. I have writtenpreviously in this column杰弗里·韦斯特(Geoffrey West)的作品，他展示了城市如何随着发展而变得更高效，而企业则恰恰相反。该报告没有参考韦斯特的研究，但提出了同样的观点:规模经济、集聚、活动多样性和人口密度是推动经济增长的因素。这些都是复杂的系统，配方比单个成分更重要。这就是美第奇效应。

It means that successful places are steaming ahead while others are being left behind. The cycles of growth and decline predicted by economic theory have got stuck. The winners continue to win while the left-behind places are in a vicious circle of decline. The question is how we break out of this pattern.

Back to economic theory: the report quotes Krugman’s maxim that a place’s “ability to improve its standard of living … depends almost entirely on its ability to raise output per worker”. This is achieved throughphysical capital(investment in machines, infrastructure and housing) andhuman capital(培训、技能和知识)。To these the report addsintangible capital(innovation and ideas),financial capital(access to money),social capital– (community structures) andinstitutional capital(the quality of local leadership). The last includes a welcome recognition that “the depletion of civic institutions, including local government, has gone hand in hand with deteriorating economic performance”.

These six types of capital hold the key to turning around left-behind places. The report develops them into five pillars and 12 missions. There is not the room in this short column to review the recommendations, and in any case they have been well covered by others, but the analysis is sound.

The problem is how to change things when it requires “rewiring Whitehall to put place at the heart of decision-making”. For all the talk of moon landings, the problem is that a strategy that requires everything to change generally means that nothing will – but we can always hope.