South-west doomed to low productivity because of its coastal towns

Let’s start with the good news: there are some regions of Britain where the economic productivity rate is higher than the German average. Now the bad news: there are three of them. Three out of 168.

In fact when it comes economic bang-for-buck, which is ultimately what productivity is, only the London borough of Tower Hamlets, which includes Canary Wharf, would scrape into the German top five. Nowhere in this country can compete with the output per hour generated in Munich, Ingolstadt or Wolfsburg, home to BMW, Audi, and VW.

There is nothing new in the idea that the British economy is less productive than most of its industrialised counterparts. You probably already knew that for every hour worked, the French and Americans generate about 30 per cent more income than Britons and Germans 36 per cent more. You probably know, too, that of all our inequalities, perhaps the greatest is regional. No other European country has as great a gulf between rich and poor areas.

Weak productivity equals weak wages, equals social division, equals many of the problems haunting the country today. But the odd thing is that until now no one had thought to dig deep into the data underlying these problems. That all changes today, with the release of a paper by Richard Davies, Anna Valero and Sandra Bernick from the London School of Economics.

And as it happens, those comparisons with Germany are about the most conventional of all their findings. Consider the location of Britain’s productivity engine, such as it is. You might have assumed the answer was the southeast. In fact, the strongest and most efficient economic activity is to be found on a thin corridor stretching west from the capital along the M4, through Slough and Reading to Bristol.

A glance at the way industries cluster themselves around the country yields further surprises. Far from being overly concentrated in London, it turns out the financial sector is quite widely spread, accounting for 15 hubs outside the capital. If you’re after a sector which is overly concentrated in London, look no further than the creative industry and IT, both of which are almost entirely based there and in the southeast.

In a sense this is even more alarming than the conventional wisdom. Finance is no longer the productivity growth machine it once was, whereas over the coming decades computers and IT are likely to be far more important. Why are they not more widespread?

Examine the numbers closely enough and preconceptions such as the north-south divide also start to dissolve. Yes, London dominates, but there are productivity hotspots all over: Aberdeen and its oil industry; a string of innovative chemicals firms along the banks of the Mersey; the life sciences companies in and around Hertfordshire; university hubs such as Oxford and Cambridge. If anything, Britain’s real economic disparity is not between north and south but between coastal and inland towns.

The most prosperous cities in any country are typically found on the coast. In Britain, that relationship is inverted: seaside towns tend to have more business failures than those inland. Productivity is lower, as is health quality and life expectancy. The prevalent industries are often those with weak output: food services and, more broadly, tourism.

Why? Maybe because the sea is less important to Britain than it was a century ago, when trade was physical goods rather than ideas and services. Maybe because, once trading dwindled, all that was left was fishing and tourism. Much like mining towns in the Welsh valleys, the economy moved on and no one gave much thought about what, or who, would be left behind.

We don’t have the answers because we are still only starting to work out the questions. While Britain’s policymakers do plenty of inflation and fiscal forecasts, little or no work is done into the way economic activity is spread around the country. This is no parochial point: such things matter.

After all, consider Wales, where the central region around Brecon has the unenviable distinction of being the least productive part of Britain. Only 40 or so miles south is a business which single-handedly lifts Wales’s overall productivity: the steelworks in Port Talbot. In much the same way as the Great Wall of China is visible from space, it is one of a few factories in Britain whose productivity can actually be spotted in the national accounts. In other words, those 4,000 jobs matter not just for the employees and their families, but for the balance of Britain’s productivity. Something to dwell on, given Tata Steel’s announcement this week that it is finally selling the plant.

A couple of years ago George Osborne proposed a few reforms that might have helped. Whitehall was to devolve full control over business rates to the regions; local government pension funds were to be pooled to create five or six “wealth funds” to help invest in the infrastructure that could help boost productivity. By the time of this year’s Queen’s Speech, the reforms seemed to have disappeared — casualties of Brexit legislation.

This was always the risk following the referendum. Not sudden economic oblivion but more the danger that Brexit would distract us from the important business of becoming more prosperous. It is already happening.”

Source: The Times, pay wall