Examination of Witnesses (Questions 134-139)
18 MAY 2004
PROFESSOR STEVE
FOTHERGILL, DR
PETER TYLER
AND MR
JOHN ADAMS
Q134 Chairman: May I welcome you, Dr
Tyler and Mr Adams. Professor Fothergill will arrive shortly.
Could you introduce yourselves, please?
Mr Adams: I work for IPPR North,
which is the Newcastle office of the UK's leading think-tank,
the Institute of Public Policy Research.
Dr Tyler: I am from the Department
of Land Economy at the University of Cambridge.
Q135 Chairman: Welcome to our second
evidence session on regional productivity. We know we have a productivity
problem within the UK compared to our international competitors
and that some UK regions do better than others. In our visits
on this subject to both Pittsburgh and Eastern Germany, we saw
examples of very fast catch-up in terms of underdeveloped regions,
measured both by income growth and productivity. Is the productivity
approach of the UK Government the correct focus to ensure the
regeneration of deprived regions?
Mr Adams: I think the issue that
we have to remember is the ultimate outcome we are trying to promote,
which is output per head of prosperity consists of both productivity
and level of employment. The productivity agenda is the right
one for a government to follow but, at the same time, we also
have to appreciate the regional dimension to employment issues.
In many ways, the politicians in the lagging regions are more
concerned about employment differentials than productivity differentials.
The Welsh Assembly Government, for example, has prioritised
employment over productivity. There is nothing wrong with the
productivity agenda per se but it does have to be balanced
with the employment issues.
Dr Tyler: I think productivity
is clearly an important element but it is really a question of
where we start from. Ultimately, we have to get the level of economic
activity up in our slower growing regions. We are going to do
that by changing the structural base and by bringing together
a whole series of concerted actions by both the market and the
state. Probably in the areas you have been to there are good examples
of where there has been that combined effort to turn areas around.
Q136 Chairman: Professor Fothergill,
welcome. I mentioned before you arrived that we recognise we have
a productivity problem in the UK compared with other countries.
In our visits in this inquiry to Pittsburgh and to Eastern Germany,
we saw a fast catch-up in some of these areas both in income growth
and in productivity. I was asking if the Treasury's approach,
the UK Government's approach, to this issue is the correct focus
to ensure the regeneration of deprived regions.
Professor Fothergill: I must confess
I am rather sceptical about the overall Treasury approach, particularly
defining the regional problem in terms of productivity. Productivity,
in the way that would be understood by the average person, is
probably about how much output any given worker produces in an
hour, a day or a week. In the way that the Treasury has calculated
its figures, it is actually measuring differences between regions
in GDP per head, the amount of economic activity per head. That
is dependent on an awful lot more things other than physical productivity
in the conventional sense. It is dependent on how many people
are actually working. It is also dependent very much on the types
of jobs in different localities. If you have a lot of high value-added
types of jobs in stock broking, as you have in London, then clearly
you are going to have a high GDP per head where those jobs are
located. Where you have the routine production, you tend to get
lower GDP per head. It is not that people are necessarily inefficient
at doing what they are doing in the peripheral lagging regions;
it is often that they simply do not have the high value-added
sorts of activities that we have in large parts of London and
the south-east.
Q137 Chairman: Are you saying from your
paper that if you have these high value-added areas, like finance
and chemicals, they will always be ahead of areas that, say, depend
on tourism or leisure services because of that high value element
and that what we need is positive discrimination in these other
areas? Is that the thrust of your paper?
Professor Fothergill: Broadly,
yes. Clearly, you can make differences at the margins but if you
do have a concentration of extremely capital-intensive industries
like chemicals or steel, then you will tend in that area to have
a high GDP per head, even if the physical productivity of the
chemical workers and the steel workers is no higher than in other
parts of the country. Where you have low value-added activities,
yes, you will get low GDP per head. I think this label "productivity"
is somewhat misleading. If the Treasury is simply going on about
GDP per head, yes, it is right; if it is talking about productivity,
it is almost misleading as it is pointing in a certain direction
which is saying that they do not do things efficiently, do they,
in the poor regions? It is their fault because they are not very
well organised, they are not very productive. I do not think those
are the terms in which I would understand the problem.
Q138 Chairman: Dr Tyler, a wider agenda
in terms of productivity is important. Are the issue of culture
and other elements things that have to be taken into consideration
when you look at the productivity in an area?
Dr Tyler: I would echo the comments
of my colleague, Professor Fothergill. If we look back over a
very long period now, and I suppose I have spent probably the
last 25 years looking back at the evolution of our development
areas, the fact of the matter is that they have grown very much
more slowly than the more prosperous regions. We can get high
productivity growth in those regions, but it is a chicken and
egg problem in a way. We really need to focus on getting new economic
activities in those areas to get the underlying rate of growth
up there. I think the whole set of things comes together, in my
experience, to diversify those economies and make them grow again.
Many of the elements that the current strategy plays to have inherently
got to be correct but they are just not necessarily in the right
order, and there are many other issues, such as culture, that
impact. In my experience, as I spend more time looking at regeneration,
it does seem to me that the institutional factors and how we co-ordinate
endeavour and bring together resources matter very much. All the
elements to have a coherent strategy have to be considered.
Q139 Mr Fallon: You have called for a
whole series of structural actions by the state and by the market,
Dr Tyler, but it is noticeable, is it not, that the special areas
that Baldwin created I think 70 years ago are still the areas
with persistently high unemployment today. Has not regional policy
in fact caused failure? Governments have been trying to do exactly
what you wanted, which is to encourage more rapid growth of employment,
which seems to be a feature of your paper, in these areas, but
it has failed.
Dr Tyler: There is the standard
problem of: what is the alternative position? We have to recognise
that many of our former industrial powerhouses have undergone
enormous competition and change. In fact, what surprises me, to
be honest, in the last 30 years is just how well-adjusted many
of our areas have been, given the nature and scale of the problem
that they have faced. It is not a static issue. We are going to
keep facing across all areas the need for them to reinvent themselves.
Most of the policies of the past have worked to varying degrees,
but of course they have been running very fast to stand still.
My colleagues and I in Cambridge have always referred to this
problem of reversion whereby, after a period of time, unless you
maintain a very strong coherent policy in the more peripheral
regions, what will happen is that the growth will revert to the
south. Every time we see that happen, every time policy goes more
into abeyance, that is exactly what happens: the growth reverts
back to the south.
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