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Institutions, Governance and the politics of ‘Levelling Up’

This blog is written by Professor Andy Westwood, the Institutions & governance research theme lead at The Productivity Institute and Professor of Government Practice at The University of Manchester.

In a short blog, it’s a risk to start with academic definitions. But to understand the importance of institutions and governance on either improving productivity or tackling regional inequality it is the right place to begin. It is only through a better understanding that we can really help the policy choices that lie before us.

Our first problem is that the definition of institutions vary across the social sciences and with policymakers. The US economist Elinor Ostrom pointed out that ‘little agreement exists on what the term ‘institution’ means’. Douglass North describes institutions as ‘the rules of the game in a society’ and ‘humanly devised constraints that shape human interaction’. But as other economists do, he distinguishes between ‘institutions’ and ‘organisations’ in the same way that in sport, ‘the rules are different from the teams or the players’.

Both political scientists and policymakers tend to think of institutions and organisations as more similar. In ‘Why Nations Fail’, Daron Acemoglu and James Robinson see them as the ‘order’ and the ‘rules’ but also the institutions of government such as parliaments, central banks and departments that oversee enforcement, infrastructure or trade. They make the difference between economies and societies that succeed or fail.

Giles Wilkes, a former economic adviser to both the Coalition and Conservative Governments, points out the pitfalls: ‘in normal parlance, an institution is an organisation tasked with some function. For economists, it means something slightly different’. He explains that policy ‘must involve choices’ and that ‘politics is an inescapable part of it’.

Nobel Laureate Joseph Stiglitz agrees, ‘because the rules of the game and so many other aspects of our economy and society depend on the government, what the government does is vital; politics and economics cannot be separated’. Or as Karl Popper noted many years previously in ‘The Open Society’, ‘all long term politics is institutional’.

Uniting the different definitions

For the research at The Productivity Institute to have the hoped for impact, it must then understand and bring together the different definitions of institutions and governance. It must think in not just an interdisciplinary way across academic fields but also in a manner that recognises the way that policymakers think and act too.

Take ‘levelling up’ – beyond the pandemic, probably the Government’s most important domestic agenda. It’s success will depend on different layers of government (‘multi-level governance’ in the political science literature) from delivery departments in Whitehall to local and regional authorities and also organisations in the public, private and voluntary sectors too. Most power and resource remains concentrated in Westminster and Whitehall and institutions at the regional and sub regional level are weak, fragmented and subject to frequent ‘policy churn’ by comparison.

But policy change will also depend on the actions and impact of other institutions too. For example, universities and colleges carrying out and applying research or training workers in firms and public services. But so too, local firms and social or civic bodies as well. Mike Kenny and Tom Kelsey of the Bennett Institute at Cambridge have described the value and importance of social and local institutions. Likewise Andy Haldane of the Bank of England, describing the importance of ‘reweaving the social fabric’ after the pandemic. This not only cast further doubt on our definitions of institutions but also on our understanding of infrastructure too.

Tackling inequality across all of the UK

But we do know that tackling regional and local inequalities is a priority for voters as well as for academics researching the UK’s poor productivity. According to recent research from King’s College, 61% of all voters saw inequality between places as the most serious facing Britain. Of that 67% of Labour and 59% of Conservative voters from 2019 General Election saw the gaps between places as the most serious inequality needing to be tackled ahead of wealth, ethnicity, gender, education and age.

Phil McCann notes the UK is ‘the most unbalanced and unequal country across the largest range of indicators’. Paul Collier adding that spatial inequalities have been driven by ‘a 40 year divergence in income, dignity, empowerment and finance between the metropolitan South East and other regions’. There is consensus that significant gaps in productivity follow – within and between regions and as a result, at a national level too.

But policymakers and academics are also likely to disagree on the type, scale and sequence of interventions that might address these inequalities. Andres Rodrigues Pose in ‘The Revenge of the Places that Don’t Matter’ describes the political impacts of ignoring towns, cities and people at the margins of economic activity and policymaking. In both Europe and North America this has seen the election of populist politicians, rejection of ‘rules’ and the dismantling of ‘institutions’.

For Rodrigues Pose, turning around these places and attitudes involves evidence of progress and attention in the short term or ‘a sense of trajectory’. As Boris Johnson said in a recent interview with Tom McTague of the Atlantic, ‘people live by narrative – human beings are creatures of the imagination’.

The effect of symbolic politics

So when it comes to policy, a ‘free-port’ on Teesside or a ‘gigafactory’ in the West Midlands may have just as much – or possibly more impact politically than economically. For now it may be the former that matters most. This shows the importance of ‘symbolic politics’ or the ‘political spectacle’ according to Will Jennings, Lawrence McKay and Gerry Stoker, but also the tensions between different spatial levels:

‘A policy focus on city growth as the engine of levelling up may only reinforce socioeconomic divides between major cities and outlying towns—failing to address the economic decline felt by more peripheral areas. If left as a regional productivity and city growth-focussed agenda, levelling up could end up reinforcing inequalities within regions, failing to counteract the ‘geography of discontent’.

There are many policy choices that might bring only marginal economic benefits, but might carry shorter term political returns. Sometimes they might coincide – such as with a new bus or rail interchange, funding for training or for a new research facility.

But they may also diverge – investment from ‘Levelling Up’ or ‘Towns’ funds in local institutions whether on high streets, in sports clubs or in museums or cinemas – may be more politically symbolic than economically meaningful. But through building a sense of trajectory or narrative, it may also help to build support for longer term investment in other local institutions or infrastructure with more sustained, longer term economic benefits – say in human capital or R&D.

To appear to be unable to choose is to appear to be unable to govern

But, putting some dubious allocations to one side, it is possible that they will have political value and legitimacy, even if varying economic or productivity impact. As academics interested in policymaking, we understand all too well that there are trade-offs between different Government objectives. But we also understand that the same choices apply at different spatial levels and between different types of policy intervention too.

Government rhetoric suggests that they can have everything both ways – that they can rebuild ‘left behind’ towns and build globally competitive cities in every region, or invest in high streets and social infrastructure as well as in human capital and R&D. But limited resources and political capital may suggest otherwise. As Nigel Lawson, a former Conservative Chancellor once remarked, ‘To govern is to choose. To appear to be unable to choose is to appear to be unable to govern.’

Government must make choices about the level of resources and the sequence of investment that best supports their long term political and economic objectives. They must also choose the types of interventions and institutions and the spatial levels in which to prioritise them.

As researchers it helps us to understand these decisions by taking a broader interdisciplinary perspective. As Stiglitz says, we shouldn’t seek to separate economics and politics but rather understand better how they interrelate. Practically that includes more flexible, pragmatic definitions of institutions and governance together with a better appreciation of the policy and decision making process. We should also acknowledge that for overall, longer-term benefits there may need to be some trade-offs between efficiency and equity, especially relating to place. Even if that doesn’t seem quite the right approach for some economists or political scientists.