The geography of failure

WHAT ON earth can we do about the North/ South gap? For most people who live north of the Wash it will seem astounding that the Bank of England should have felt it necessary to raise rates yesterday.

Boom - what boom? We shan't know until the bank minutes are released just why the bank acted, but it must be highly likely that the main reasons were a fear that the housing boom of London and the South-east would again sprint out of control and that the strong job growth in the South-east would lead to wage-driven inflation.

But if some parts of the country do probably need higher interest rates, for many parts of the country that can hardly be so. Soaring house prices? In some northern cities you can buy a street of houses for less than the price of a bed-sit in Kensington. Strong demand for labour? Tell that to job-seekers in, say, parts of the North-east or in Liverpool. We have again become, at least in terms of economic opportunities, two nations.

But the divergence is not just North/ South. Regions and cities quite close together often have vastly different economic performance. Cornwall is struggling by comparison with Devon. On the south coast Hastings is depressed while Brighton is booming. You can make similar comparisons between Liverpool and Manchester, or Sheffield and Leeds.

If we could understand why some bits of the country seem able to outpace others, we would begin to be able to tackle the seismic social and economic divides that still exist in what is geographically a pretty small place. The instinct of politicians is to try to patch the problems with public spending, but the cure may be worse than the disease. Bribing foreign companies to set up in development areas may bring in jobs. But not only are those companies likely to take flight if the world economy dips; bringing in outsiders may also inhibit local entrepreneurship.

So what is the explanation? I have no single pat answer. The one thing we do know is that the reasons why some places prosper and other languish are immensely complex - and probably different in different instances. Leo Tolstoy's renowned observation at the start of Anna Karenina - "All happy families resemble one another, but each unhappy family is unhappy in its own way" - also applies to the economic success, or otherwise, of the different regions.

But here are several possible pieces of the puzzle, elements that may help explain the great divide.

First, there is a London effect. The process of globalisation is bringing business to London that will not go anywhere else in the UK: the competitors are not Birmingham or Glasgow, but Paris, Frankfurt or, maybe, Berlin. The relevant element in the competition is time-zone, not country. The fact that London is located in the UK is almost a coincidence: what the global business community is looking for is a global city in the European time zone. London is the most international place on earth: more foreign money managed from London, more banks, more international air flights, more international phone calls. Inevitably the burst of globalisation puts pressure on any aspect of London services that cannot quickly expand to meet demand: flats, houses, hotels and so on.

The London effect spreads quite widely; it moves out to the London commuter zone, but also to places along the M4 corridor such as Newbury, which have good access for Heathrow, another powerful attraction (there is no other point on the globe where you can fly non-stop to 80 per cent of the world's GDP). Associated with the London effect is the growing importance of critical mass. You might imagine that, in an age of instant, cheap and immensely capable communications, people no longer needed to cluster closely together. But the reverse seems to be true.

Human capital has become the key economic resource, and clusters of skills have developed that draw potential employers to particular regions. Places that have such a skill cluster attract more people with those skills, and more skill-rich jobs. London, of course, has many skill clusters, but there are others elsewhere. In the South-east there are hi-tech clusters round Cambridge and along the M4 corridor.

I suspect, too, that London's skill clusters are supported by one other element: the desire of young professionals to meet other young professionals for social reasons. London is not just a gigantic skill pool; it is also a gigantic mating-pool - and a multinational one. No other city in the world has so many non-national professional residents, not even New York.

But fortunately the London-related aspects of the divide are only part of the story. Other parts of the country can also be extremely successful. If you look at examples of such success there seem to have three common factors: good communications; high-quality academic institutions; and a sense of cultural vibrancy.

Thus Manchester benefits from its excellent air service and universities, and from its reputation for having the best clubs in the UK. Much the same applies to other successful cities. Glasgow is coming up because it is fun; Edinburgh because it is gorgeous. Leeds and Bristol are both doing well. Leeds now has a certain swagger to it, while Bristol's university gives the city clout that it would otherwise lack. These are all places where young people want to be - and it may well be that youth, particularly fashionable youth, has itself become a more important element in economic success.

What is noticeably lacking from this tally is politics. Bad local politicians can certainly muck up cities and regions that otherwise might have more of a chance. Liverpool is a prime example of what a generation of dreadful politicians can do to a fine city, while the Glasgow politicians have tried pretty hard, too, to wreck the place. Bristol has suffered from inept local government, as well.

But local governments are in general more competent now than during the dreadful quarter-century between about 1960 and 1985. It would be nice to think that they can now have a really positive impact on regions that are falling behind, but I think we should be sceptical of the ability of politicians - even thoughtful and effective ones - to have much impact. Indeed, it is almost as though we can nowadays get by without them: look at the way London's recent boom started once the GLC was abolished.

There is, however, one area where politicians can almost certainly help: it is to try to make the areas for which they are responsible nicer places to live in. The common theme of all the successful regions is that, like Tolstoy's happy families, they are places where people who have the choice to move, want to live. People with highly marketable skills drive economies forward. But they will choose to live in a place only if it provides a decent lifestyle. Local authorities, of course, know that they can have a powerful impact on the environment for which they have responsibility, but they have not tended to see themselves in the same competitive light as, say, local businesses are forced to do.

If there is a bigger message here, it is surely this. Go back to Tolstoy. Just as successful regions all have certain common characteristics, less successful ones fail because of specific identifiable reasons. These could include poor communications, in which case there is a case for upgrading the airports. They could include poor educational facilities, or a dearth of cultural activities. They would certainly include lack of critical mass, in which case there is a need to identify potential clusters of activity and work to reinforce those.

The key thing here is to understand that the North/ South divide is neither inevitable nor inexplicable. It will not be not easy, but it can be fixed. Moaning about the divide is pointless. What we need is precise, detailed analysis of what has made each region unhappy in its own particular way.