Published on 7 March 2022
Share Tweet  Share

Levelling up will only be successful once power is dispersed down

While the government's recent Levelling Up White Paper is strong on the vision aspect, with centrally defined targets or “missions” to improve living standards across the UK, there is less clarity on the execution path, writes Thomas Aubrey.

When a public company announces its long-term strategy, the market generally focuses on the capability of the management team and the execution plan rather than the vision per se. Unsurprisingly what shareholders really care about is results. For companies, execution in most cases is often straightforward given that firms have control over their institutional structure to ensure delivery.

Firms that have taken a more decentralised approach to production have been more successful, as those who are closest to circumstances subject to change are able to adjust their plans more effectively than a centralised bureaucracy. The benefits of decentralised decision-making were identified by Hayek in a famous 1945 article about ‘the knowledge question’. A year later Peter Drucker in his ground-breaking 1946 book, The Concept of the Corporation argued that decentralised production was more likely to be more effective for similar reasons. This point is all the more relevant in today’s ‘knowledge economy’.

When it comes to delivering public policy, things are much harder for multiple reasons. First, the objectives of public policy might be subject to constant institutional change, which has been a major issue for the UK. For example, the Federation of Small Businesses noted that UK policy for small businesses has gone through five different regimes since the 1970s while the US and Germany have maintained the same scheme. Second, highly centralised governments struggle to execute plans for the reasons highlighted by Drucker and Hayek – they don’t know enough about what is happening on the ground. Third, those involved in execution at the local level in centralised countries do not have control over their institutional structure.

While the government’s recent Levelling Up White Paper is strong on the vision aspect, with centrally defined targets or “missions” to improve living standards across the UK, there is less clarity on the execution path. The White Paper accepts that the complexity of funding remains an issue (p.128) and has announced a plan to streamline the funding landscape enabling local stakeholders to better navigate funding opportunities. However, the guiding principles for the review of funding mechanisms have all the hallmarks of a centralised driven system with a continued focus on grants rather than providing devolved bodies with the fiscal tools they need to be successful. This centralised tendency is further strengthened by the plan to appoint Levelling Up directors. (p.125) In addition, there is no additional funding which is something that most commentators have been rightly critical of.

The White Paper does, however, recognise that the Whitehall machine has failed and accepts that decision-making needs to be improved through better information, incentives and institutions (p. 248). Critically the government also accepts that a major factor in these policy failures has been a weakening of local institutions necessary for effective decision-making. (p. 114) As Michael Heseltine noted in No Stone Unturned, it is local people who have the knowledge to define and execute on those objectives. The lessons of Hayek and Drucker, it seems, are beginning to resonate in government too.                                    

This is why the proposed devolution framework in the White Paper is by far the most important component, and ought to become the central focus for levelling up. The devolution framework (p.140) provides a path for city regions and counties to take back control of their economies from central government interference with the goal of creating a single institution across a functional economic area run by a directly elected mayor. Such a body would combine the development and execution of several policy areas including business support and skills, as well as infrastructure, housing and transport. All devolution deals are to be guided by four requirements including effective leadership, sensible geography, flexibility and accountability. (p.137-8) While it is unlikely that devolution will be delivered quickly, there is now a framework as to what is on offer and how it can be attained, which is a significant step forward.

Although the lack of fiscal devolution will clearly hamper the success of these plans, there is a glimmer of hope on the funding side with the government committed to exploring land reform (p. 247). As has been argued here, an amendment to the 1961 Land Compensation Act would free up more than £10bn per annum of additional funding for city and county regions to invest in large scale integrated transport and housing projects.

One of the key success factors of the Scandinavian economies from the mid-1990s was due to the devolution of significant areas of policy in the 1970s and 1980s. In my forthcoming book, I argue that the dispersion of power down to localities and away from the centre not only better reflects the desires of local voters, but also has a secondary order effect in terms of higher levels of income for OECD countries.

The idea of dispersing power can be understood as an alternative policy paradigm to the current economics-inspired “utilitarian framework” within liberal democracies, which crudely looks to directly optimise (generally financial) outcomes. This is why HM Treasury for many years continued to allocate resources to the South East of the country as the projects were generating a better financial return, which has merely reinforced regional imbalances. But this approach is failing liberal democracies as it ignores the two fundamental principles of liberalism: freedom and equality. As the great jurist HLA Hart noted, “Some liberties are too precious to be put at the mercy of numbers.” If liberal democracies continue to prioritise ‘utility’ over freedom and equality, then support for liberalism per se is likely to decline even further.

This is why dispersing power down is central to levelling up. Such a system would enable those who care most about their local environment to develop and execute appropriate policies, while preventing an overbearing and often unknowing central government interfering. Where execution plans are failing, local voters have the option of changing leadership through regular elections to ensure the right policies are delivered. In conclusion, although the UK has in recent decades developed a tradition of not learning from its policy failures, the path to devolution suggests that this may be beginning to change.

Authors

Thomas Aubrey

Thomas Aubrey is the founder of Credit Capital Advisory. He has written widely on financial and economic issues including Profiting from Monetary Policy (2012) and co-authored Prediction Markets: The end...

Back to Top