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Leveling Up Is Hard to Do

If clustering of knowledge-based firms resumes as the pandemic fades, the momentum toward ever-increasing geographic inequality risks becoming inexorable. The first step toward addressing the problem is to recognize that a holistic approach to public policy – one that adopts the viewpoint of users and administrators – is essential.
Professional business people connecting together and working remotely for an IT company, isometric infographic

One of the economic challenges facing all Western governments in these uniquely testing times is how to redress geographic inequalities that have emerged over several decades. Tackling this problem will require policymakers to adjust their perspective and adopt a much more holistic approach to economic development.

In the United Kingdom, regional inequality has given rise to its own vocabulary: the “red wall” of longtime Labour but now Conservative electoral constituencies in England’s former industrial heartlands, and the imperative of “leveling up” the country to bring about a more equitable economic balance between the struggling north and the richer south. But many governments face the same challenge of restoring prosperity to rural communities and small towns that have not shared in the economic boom enjoyed by large urban areas.

The pandemic-induced trend of working from home might temper these underlying economic dynamics, but it is unlikely to reverse them. The most productive businesses in today’s services-oriented Western economies are those best able to attract highly skilled employees, and that rely on “tacit” knowledge, or know-how – insights that are impossible to write down in detail.

This type of expertise tends to cluster together, because knowledge workers thrive on the presence of other similar people with whom to share ideas, and they also like environments with abundant cultural amenities. This has produced today’s well-known clusters in technology, the creative sector, finance, and professional services. Platforms such as Zoom and Microsoft Teams have kept such know-how businesses going through the pandemic, but they are an imperfect substitute for exchanging ideas in person: nobody schedules a Zoom meeting to share a serendipitous idea that came to mind while they were making coffee.

If this “superstar” clustering resumes as the pandemic fades, the momentum toward ever-increasing geographic inequality could become inexorable. We might then have to learn to live with large differences in economic outcomes and even life expectancy across the space of a few miles.

There is no shortage of policy ideas to halt or reverse this uneven trend. Infrastructure investment tops the list, and is needed anyway after decades of failure to maintain or enhance assets that are essential enablers of productivity and growth. But many infrastructure projects – some involving new bridges or expansion of broadband – have not had the hoped-for impact on the places they were intended to help. Such investments on their own will be insufficient. Economically disadvantaged areas need other kinds of public and private investment, including in skills, new technology adoption by businesses of all kinds, health, education, and other key social infrastructure.

But even this wish list of desirable policies will not be enough to trigger a virtuous cycle of growth in “left-behind” places in the absence of better coordination of government policies, public spending, and private investment decisions. An economy is like an orchestra: it will not perform if some sections – the woodwinds, say, or the strings – are missing. In unproductive areas, policymakers need to fix the economy’s entire underlying structure by lining up all its parts.

Policymakers must therefore break with the conventional pattern of clever analysts devising a strategy and handing it over to others to implement. Public-interest technology, sometimes referred to as “govtech,” demonstrates the integrated approach that will be needed. As recent books focusing on the United States and the UK make clear, digitizing public services to make them more efficient opens a path to redesigning the processes involved, rather than simply replacing paper with bytes.

The key change in perspective needed to deliver better outcomes more cheaply and efficiently is to design policies from the viewpoint of users and administrators, rather than that of the policy analyst. An abundance of evidence from the US and the UK shows that talking to the people involved reveals vital information. In many cases, the barriers to a government service’s uptake or success may lie in a completely different policy domain, whose analysts would otherwise never imagine that their contribution could be useful. For example, the lack of a bus service or after-school childcare may affect an unemployed person’s ability to take part in a training program. The powerful logic of designing a digital process uncovers the analog landscape through which people are forced to navigate.

Of course, better bus services are not the solution to the leveling-up challenge (although in some countries they may prove surprisingly important). But recognizing the need for a holistic approach to regional development is essential to address the problem. The real breakthrough will come from making such collaboration happen.

Digitalization has been transforming how businesses operate since the 1990s. It can do the same for government policies, so that they better serve all citizens, no matter where they live.

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