The north needs more than a high-speed train line, George

http://www.theguardian.com/commentisfree/2014/jun/23/north-high-speed-train-line-george-osborne

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The chancellor's new enthusiasm is for a high-speed rail link along a Northern axis from Liverpool through Manchester to Leeds and Sheffield. No doubt his promise is cheap when the next general election is close and the Tories need to show their solicitude for the north; delivery will be much more expensive, and construction is a long way away, not least because the initial plan is only to link Manchester and Leeds.

The announcement is significant because it co-opts some northern councils and aligns national government with an increasingly influential explanation for London's economic success and the north's failure. This agglomeration theory is proposed by academics such as Henry Overman at the London School of Economics and endorsed by Evan Davies' recent TV programme Mind the Gap: London vs the Rest, and says that the problem of the north is that it doesn't have a city of 3.5 million and so it can't hack it in the era of globalisation.

Welding together different northern cities with better transport is then a politically congenial fix because, in mainstream pro-market economics, state funding for improvements in infrastructure and training are legitimate interventions because they make the market work better. The taxpayer funds rail and road links and then steps back to let the market do the rest.

But what if this is just wrong, not only as an account of how economies work, and the chancellor's proposal is simply blocking consideration of other disadvantages and better policies? The academic evidence on city size and growth rates is ambiguous because there are many complexities; agglomeration itself is a mysterious and alchemical process between underspecified variables. There are very few simple, general laws about relations in complex social processes, and the announcement of this one is at least premature.

It would be sensible to turn away from seminar room conjecture to the specifics about London's economic success and the north's supposed failure. This contrast is certainly demonstrated if we look at standard measures such as relative output (or GVA), which show London drawing away. But much of that widening gap is caused by specific factors which operate in London and cannot easily be replicated in the north.

Think of London's economic base. The powerhouse is an offshore financial centre for Europe and the rest of the world with a 30%-40% share of many important trades, and a joint venture arrangement which means London-based investment bankers are effectively rewarded with a profit share. We are not going to build another finance centre of this kind in the north; instead northern citizens must live in hope that they do not again have to, as tax payers, bail out London's losses when things go wrong.

And that raises the question of causal relations and whether London's success can be attributed partly to its ability to charge the rest of the country for what keeps it going. That is most obvious in the case of transport improvement and infrastructure, where the Institute for Public Policy Research has pointed out that London is getting thousands of pounds per head of population on transport improvement each year through projects such as Crossrail. One new stretch of high-speed rail is belated and partial compensation.

And what if the role of transport improvement in local economies is more complex, and deficiencies cannot be fixed by a few grand projects? The problem of the north is the spread of low-wage employment, and that means increasing numbers who cannot afford long-distance commuting. The future of local communities depends on capillary, small-scale improvements for what the French call "desenclavement", but these will not happen if the Treasury's money is spent on regional grand projects.

We could go on. Think about the burden of national policy, like interest rates, set to meet London's needs as house prices boom in the capital but not in Liverpool. For all these reasons, many northerners believe that Alex Salmond was right when he argued London is not so much our shining success as the dark star. By blocking discussion of these issues, the symbolic commitment to high-speed rail in the north is more likely to protect London than redress the imbalance.