Why the regions are the losers The death of enterprise. Check it out:
(The Daily Telegraph, Via Thomson Dialog NewsEdge) Gordon Brown's decision to pump Britain's economic fringes with vast injections of public spending is fast earning him a reputation as Europe's last great social planner.
But analysis of this regional reliance on the state typically misses the more worrying flipside: the anaemic condition of private enterprise in much of the country.
Private-sector employment in Wales, at 61 per cent of all jobs, is fast approaching a tipping point at which working for a profit-making company will soon become a minority pursuit. Stop an average woman on her way to work in the north-east of England and the odds are she is directly or indirectly employed by the government. In both areas, public spending now accounts for 59 per cent of local gross domestic product (GDP)- nearly twice as much as it does in London and the south-east.
This pounds 73bn of new public money since Brown turned on the taps in 2001 crowds out business activity in a variety of ways. The Engineering Employers' Federation has warned that its members are finding it hard to compete on wages. Try hiring talented middle managers to work in a globally competitive sector such as manufacturing when they can get twice as much for a job in the NHS. A guaranteed pension linked to your final salary is all but impossible to find in the private sector, but on offer to every traffic warden and diversity officer in the country.
Meanwhile, the higher taxes needed to pay for this largesse, particularly payroll taxes such as National Insurance, have hit companies in the regions hardest. No business likes higher taxes, but if you are barely making a profit in the first place then a levy on headcount is far worse than a penny on corporation tax.
What this means is that the Brownite efforts to equalise national living standards has deprived poorer regions of their one big economic advantage: low costs.
The tragedy is that manufacturing therefore favours Hungary over Humberside. Call centres relocate to Bangalore rather than Barnsley. Instead of relieving pressure on the crowded South East, government departments rather than private employers fill the shiny new office parks of Cardiff and Edinburgh. After all, why leave London when a receptionist or cleaner costs only a little less in Newcastle?
But the paucity of private-sector success stories outside the south-east also has a less obvious cultural effect. Where once proud industrial towns could measure their contribution to national prosperity in tons of coal, steel or textiles, many children have only heritage museums and football clubs to remind them what business looks like. Their schools and council offices may be in better shape than in the 1980s, but the spirit of enterprise has been left to die.
Business has much to answer for too. Globalisation has distanced companies from their roots. It is incredibly difficult for anyone to understand how wealth is really created in today's service economy. Those who do manage to punch above their weight on the international stage, such as the City's financiers and traders, do little to explain the source of their riches to a sceptical public. The BBC's laughable depiction of life in Dragons' Den or cartoon tycoons such as Sir Richard Branson or Sir Alan Sugar are no substitute for a guy in his garage creating the next Microsoft or Google.
Meanwhile the masters of the public-sector universe think they know what modern business culture looks like already. The first-class carriages of our overpriced railways are full of well-dressed and well-meaning managers on their way to deliver Powerpoint presentations to conferences at expensive hotels. NHS managers who rarely leave the office are issued with Blackberries to make them feel efficient.
There are exceptions. Cambridge, as we report in this week's business section, is a city far removed in culture from the cosmopolitan rush of London, but just as in touch with the global zeitgeist. Its computer chip industry has become the envy of bigger foreign rivals. Edinburgh has built a globally competitive banking and fund management industry despite the long shadow cast by the City.
Regional development need not be about just bribing Japanese carmakers to stay in Sunderland. Other university towns could follow Cambridge. In the US, several dozen second-tier cities from Austin to Seattle have reinvented themselves for 21st century capitalism. The biggest ambition of many British equivalents is persuading the Government to issue them with a casino licence.
It does not feel this bad, of course. The city centres of Newcastle, Manchester, Leeds and even Birmingham have been transformed by subsidised art galleries and trendy hairdressers that give people the illusion of prosperity. Self-confidence may have improved too, but the complacency makes it much harder to drive through socially divisive solutions such as the abolition of national pay bargaining. It will always be hard to tell a headteacher in Gateshead that he or she is worth half what their counterpart in Reigate is being paid- even if it goes further.
Optimists also argue that this public-sector bias is a necessary part of the transition from industrial Britain to service Britain and that working for the Government is an improvement on being dependent on it for benefits.
There are other signs that it will only get worse. Local Futures Group, a research consultancy, estimates that knowledge economy jobs are even more unevenly distributed and clustered in the south-east than globally competitive manufacturers.
Falling wages and higher regional unemployment may ultimately prove the only way out of this vicious circle. After all, the former Communist countries such as Poland and the Czech Republic watched the East German experience and realised they did not want the EU to throttle their economic future in the name of equality. Here, the Soviet experiment is still being repeated from Fishguard to Faslane.
Copyright 2006 The Daily Telegraph. Source: Financial Times Information Limited - Europe Intelligence Wire.
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