The Modernization Sequence, Regional Divergences and Mobility
December 5, 2018 4:59 AM Subscribe
How to Get Growth in the Places That Need It Most - "The 2017 tax reform law gave the wrong kinds of incentives to help struggling urban areas and regions." (thread)
"The North can make a steam engine, locomotive, or railway car; hardly a yard of cloth or pair of shoes can you make." - William T. Shermanit isn't just products, but also public goods -- food, shelter, sanitation, transportation, education, health care, child/elderly care, parks, recreation -- and governance:
- "Practically everything is being driven by the shift to knowledge industries that strongly tend to cluster in big cities with lots of talent and near good research universities. You can't understand America without understanding this shift. It's the big picture."
- "Here is a thread about TEXAS, my home state - its politics, its economy, its future, and what it says about America as a whole."
- "Statistics don't quite capture the extent of U.S. poverty. Here's why America is poorer than it thinks."
- "Why are people moving less than they used to?"
- "If the big lesson of 2016 was that rural areas in the North will vote like rural areas in the South, the big lesson of 2018 is that Southern cities will vote like Northern ones."
- "In Midwestern districts (+Pennsylvania, which I think of as part of the 'political Midwest') where at least 35% of the population has a bachelors' degree, Democrats cleaned up, going from a 10-16 deficit in House seats to a 20-6 advantage."
- "Universities are the closest thing we have to a 'magic bullet' for reviving America's declining, forgotten, rural, and left-behind regions."
- "Even as we bemoan high rents in cities like SF and D.C., tons of cities in America are still languishing in poverty. They need economic development."
- "The U.S. economy has long been moving away from 'hands' industries such as mining and manufacturing toward 'minds' sectors such as finance, health and education."
One of the great achievements of the postwar decades was that growth was not just fast but also broad-based. That led inequalities between individuals to narrow, but not just that: it also produced convergence between regions within nations — between their centres and peripheries, between big cities and small towns.How to bring along the left behind - "It is imperative to reconnect lagging regions with activity in the centre."
Strikingly, this phenomenon was universal across the western world.
In the US, average incomes in poorer places grew faster than in richer ones. This held between cities as well as states. Smaller towns kept pace with or outperformed larger ones in terms of wages and employment, as Hendrickson and her colleagues show. In western Europe, too, the income dispersions between regions fell.
Second, all this changed around 1980, more or less everywhere. In parallel with the shift of economic value from factory employment towards high-tech production and knowledge services, the previous economic convergence between places halted and reversed.
In the US, less developed places stopped catching up with more developed ones. Bigger metropolitan areas experienced faster wage and employment growth than middling cities and small towns.
In Europe, regional income differences grew bigger again — both across the continent and within virtually every European country.
And third, while in most countries individual income inequality mostly jumped in the 1980s but then stabilised at a higher level, regional disparities have continued to widen. The financial crisis reinforced this divergence, both in Europe and in the US.
The roots of this divergence lie in the shift of economic value creation from industrial production to services. It is not that western countries lost their manufacturing — they largely produce as much stuff as they ever have — but that they need ever fewer workers for it. Within manufacturing, globalisation has helped rich countries move from low-productivity, labour-intensive products to higher-tech, less labour-intensive ones. And each product is itself produced in ever more automated ways.
The new jobs, meanwhile, are in services, and the well-paid ones are in high-skilled services. These tend to thrive in the biggest cities, whereas manufacturing could do well in midsized towns. And it is high-education jobs that are driving regional divergence, as the striking chart below shows, from research by Elisa Giannone.
The most significant policies fell into three areas where successful policymakers directed more resources than unsuccessful ones: business extension services; customised job training and general policies to increase skill levels; and infrastructure improvement. Examples from Grand Rapids include helping related businesses work together to solve common challenges to expansion, such as the West Michigan Medical Device Consortium aimed at co-ordinating and helping local manufacturers’ shift into supplies for the medical device industry. On skills, better-than-average funding of job training programmes has been complemented with policies to increase skill levels from early childhood and to attract academic institutions and the high-skilled workforce that comes with them...also btw...
This may sound obviously sensible. But it is worth reflecting on why exactly such policies make sense. The economic transformation of the past 40 years has shifted the engine of value creation from a territorially spread-out system of labour-intensive industrial production to more agglomerated activity of knowledge-based and high-tech services. Even manufacturing is now much more dependent on high-level cognitive service-style work (engineering, programming and other problem-solving activities) than on manual, mechanical labour. So if it is an economic fact of life that value-creating activity today congregates where such knowledge-based activity thrives (above all in the big cities), then addressing regional divergence must, at a minimum, intensify the connection between places left behind and those soaring ahead.
- What has worked to take people out of poverty? DeLong: Land reform, nitrogen, and access to markets.
- Georgism as the alternative to capitalism? "The most intriguing technical proposal Collier advances is for an updated 'Georgeism'. The political economist Henry George argued that the foundation of public revenue should be the taxation of rent on land. Collier argues that we need to tax more forms of rent, including that from agglomeration, which now goes to lucky individuals and businesses."