Book review. Paul Collier, Left Behind: A New Economics for Neglected Places.
This is not a book solely concerned with UK regional economic problems, but it is a publication with many useful insights on the topic of relevance to those concerned with policy in this area. Left Behind synthesises regional economics along with the literatures covering moral philosophy, evolutionary social psychology, and radical uncertainty in order to provide wide–ranging answers to the questions surrounding why some locations become and remain economic underperformers and what can be done to reverse the downward spiral of these less fortunate locations.
As we will see in this brief review, when applied to the Northern Irish context, Collier’s advocacy of a place–based approach to development, is particularly persuasive, even if his closely related claims regarding the benefits of political devolution need some moderation. Themes from Left Behind resonate not only due to the region’s long–term economic underperformance in a UK context, but also because of the priority given by the Department for the Economy to addressing regional imbalances within Northern Ireland.
Left Behind also provides a persuasive critique of what Collier, with reference to Voltaire’s Candide, terms ‘Panglossian’ thinking regarding the role of market forces in development. Again, this topic is germane in thinking about the context of Northern Ireland. In the Panglossian framework any economic disruption will prove merely transitory. Following Milton Friedman’s metaphor of a taut harp string being plucked, while these strings oscillate for a fleeting time, they soon settle back to their initial state. Any shock to a regional or local economy will have the consequence of lowering prices in the depressed economy. Friedman’s interpretation of Adam Smith’s invisible hand does the rest. Namely, investors identifying an opportunity, pour money into the depressed economy; such investment inflows bring economic activity and prices back to the initial position while making investors richer. It is the case that if the world operated as the Panglossian approach assumes, the strings would soon oscillate back to their original position, and there would be few (if any) left–behind locations to worry about.
Moreover, as this Panglossian model implies that all (identical) regions can imitate success, this model equally suggests that place–based measures are unnecessary. Yet as Collier argues, referring to examples from around the globe, the real world is far from Panglossian. He starts by observing that a depressed regional economy after a shock will not have rational investors queuing up to invest, instead prudent investors will channel capital into richer (and lower risk) locations. Such prudence will widen rather than narrow economic gaps as investors opt for the safer bet. Collier further contends that once a location has fallen behind economically, there is a risk that political, social, and psychological problems will reinforce each other and “lock in” underperformance. Therefore, sudden slumps, even when they are restricted to a single industry, are quite different to an oscillating harp string.
For example, while Pittsburgh recovered and thrived after the collapse of its steel industry, Sheffield didn’t. Moreover, Pittsburgh’s revival was not an application of downward price adjustment leading to recovery, as in the Panglossian view of economics, instead it was the result of good leadership making good decisions. Collier indicates that Sheffield’s failure to revive was due to the absence of good leadership and he places a lot of blame on the Treasury making poor decisions by applying Friedmanite ideas to the likes of Sheffield. In short, Collier within Left Behind argues Whitehall has far too much influence on the regions, the Treasury has too much power within Whitehall and the Treasury lacks humility despite there being much it should be humble about.
Collier’s alternative policy recommendations are based on two interrelated arguments: firstly, he argues policy should be place–based rather than place–neutral in the sense that there is no ‘one size fills all’ solution to the economic problems of left–behind locations. Areas of policy such as transport, housing and education must all be considered at the local level. Secondly, Collier’s favoured policy menu involves the bottom–up benefits of political decentralisation such as devolution. Hence, place–based approaches imply that contextual knowledge is crucial in creating economic recovery and this contextual aspect is much better understood by people in the left–behind locations themselves. Certainly, one implication of Left Behind for readers in Northern Ireland is that it reminds them that the relationship between the devolved government at Stormont and the Treasury remains of profound significance. Indeed, this significance will only increase as future developments regarding fiscal devolution will bring the Treasury’s relationship with Stormont even more to the fore.
There is, however, minimal explicit reference to Northern Ireland in Left Behind. In one footnote (p.5) Collier attributes its insulation from malign Treasury influence as being due to the need to create a power sharing devolved settlement. Collier’s commentary regarding other locations however provides clues in identifying the appropriate economic strategy in the specific Northern Irish circumstances. By way of illustration, Collier’s commentary regarding the Basque region is of particular relevance. In that discussion (pp.130–33) he notes that political violence compounded the underlying challenges of Basque deindustrialization. He notes that these challenges were only overcome by the creation of Mondragon cooperative businesses, attraction of the Guggenheim Museum and a confident regional government. A community knitted together by social exclusion in short were able to solve economic problems via co–operation. This insight at the very least has plenty of implications regarding the success or failure of any Programme for Government.
Regarding the place–based solutions to economic woes, the evidence base tends to confirm Collier’s assessment. By way of illustration, in my recent paper with Leslie Budd, we demonstrate that new place–based specialisms and capabilities need to be developed and that ‘crowding out’ is not the best way to conceptualise the role of Northern Ireland’s public sector. As with Collier, we see price adjustment as inadequate to the task of solving recurrent problems such as productivity weakness within the region. Furthermore, we also share with Collier that the uniqueness of a region provides it with economic opportunities.
As I have also written elsewhere, devolution needs to take account of institutional geography issues if it is to be translated into economic benefits. A lesson of the institutional geography literature is that the ‘economic dividends’ of devolution are not automatic, instead they depend on the design of the devolved institutions. For instance, the ability of the Northern Ireland Civil Service to formulate and implement economic policies needs developing, as the failures regarding RHI are traceable to weaknesses in the institutional geography within Northern Ireland.
At points in the book, Collier tends to present political decentralisation alone as the source of better policy. Collier is correct that politically decentralised bodies in Pittsburgh or former East Germany have managed to promote economic recoveries; it is the institutional design of these bodies that has been crucial in translating political decentralisation into prosperity. Despite this minor reservation, Left Behind offers many valuable insights on the ways some economies fall behind, others forge ahead and some fall apart.
Dr Graham Brownlow is a Senior Lecturer in Economics within Queen’s Business School. Graham has previously held academic appointments in Dublin, Norwich, and Auckland; prior to these appointments he worked as an economist in Whitehall and managed pension funds in Edinburgh.
