Globalisation’s Losers: The right way to help declining places

21 October 2017
source: https://www.economist.com/leaders/2017/10/21/the-right-way-to-help-declining-places

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Short summary: This article explores the reasons for why globalisation has increased regional inequality in places like the USA, and the policies that can be done to help correct this.

Longer summary: (P = paragraph no.)

• Political parties that are anti-globalisation are on the rise, despite their policies being harmful to their supporters. (P1-2)
• Globalisation means that some cities get incredibly rich (e.g. San Francisco, London) while others become very poor (e.g. Blackpool, Detroit). Economies of scale mean that globalised firms cluster in ‘superstar places.’ (P3-4)
• Despite the wider income between places, people are less likely to move. Big cities are too expensive (because not enough houses are built). Dual-income families depend on two jobs and are less mobile. People are now looking after their parents and can’t move away from them. Welfare payments make people less likely to move from struggling places. (P5-6)
• The way to solve this problem is to:
  • Build more houses in thriving places
  • Remove occupational licensing for workers.
  • Subsidies places that have been left behind.
  • Improve competition policy to allow jobs to be created outside of big cities.
  • Improve the provision of local colleges and training centres.
  • Encourage big firms (e.g. Amazon) to build headquarters in other cities besides the big ones. (P7-9)

Glossary:

Populism: Political movement that encourages a focus on the people within their own country. Example: Donald Trump.

Occupational Licensing: Industry-specific licensing rules that allow professionals to work. State-specific occupational licensing refers to different US states having different

Industrial concentration refers to the number of firms in an industry; more concentrated = fewer firms.

Dynamism refers to how innovative and creative your economy is (more innovative = more dynamic.

Assuaging = to make (an unpleasant feeling) less intense

Quick Questions:

1. What types of policies are those which are described in paragraphs 7-9?
2. Evaluate the best policies to ensure that those worst affected by globalisation are not left behind.
3. To what extent would these policies be appropriate in the context of Cornwall? Has Cornwall been ‘left behind’? Use evidence.

Extended Questions

1. “Economic theory suggests that regional inequalities should diminish as poorer (and cheaper) places attract investment and grow faster than richer ones.” Explain why this will lead to poor places (like Detroit) being less poor and rich places (like San Francisco) being less rich.
2. Economies of scale refer to advantages that large firms (and large cities) have over smaller ones. Explain why having more users will make a social network more attractive to new users.
3. “Soaring housing costs in prosperous cities keeps newcomers out.” Explain what type of supply-side policy could be used to help get workers to move more often.
4. “In America the spread of state-specific occupational licensing and government benefits punishes those who move.” Explain why this will punish those who move and suggest a supply-side policy that would help get workers moving more. (Key word: occupational licensing refers to government-mandated qualifications that an individual must have to work in a particular industry, e.g. qualification to be a teacher/dentist/doctor. In the USA you may need to have a different qualification when moving between different states.)
5. “Unemployment and heal benefits enable the least employable people to survive in struggling places when once they would have had no choice but to move.” Explain a supply-side policy that could help this problem.
6. “South Carolina lured BMW to the state in 1992 and form it built a thriving automotive cluster.” Explain what supply-side policy is being described here, and why it doesn’t always work.
7. “A beefed-up competition policy could reduce industrial concentration, which saps the economy from dynamism while focusing the gains from growth in fewer firms and places.” Key words: industrial concentration refers to the number of firms in an industry (‘reducing industrial concentration’ = encouraging more firms to start up). Dynamism refers to how innovative and creative your economy is (more innovative = more dynamic). Why would these be considered to be supply-side policies?
8. “Bolder still would be to expand the mission of local colleges.” Explain, with an example, why this is an effective supply-side policy. Use any example you want (there are loads in the paragraph!).
9. “Assuaging the anger of the left-behind means realising that places matter, too.” Assuaging = to make (an unpleasant feeling) less intense. What is the main message of this article?