Trickle Down Economics Doesn’t Work: Michael Gove, New Public Management and the Levelling Up White Paper

Posted on: 3 March 2022 by James Coe in Blog

James Coe discusses whether the Levelling Up White Paper reflects a shift away from trickle down economics, towards greater government intervention. James is Head of Sustainability, Policy, and Civic Engagement at the University of Liverpool.

A few weeks ago, I sat in Levelling Up Secretary’s Michael Gove’s session at the Convention of the North and he said the most remarkable thing. In front of an audience of journalists, northern mayors, business people, academics, and other assorted Northerners, he said that trickle-down economics wasn’t working. That not only had it failed but the state must have a role in addressing market failure and that it must make interventions to ensure that the “economic soil is irrigated, it needs to make sure that the climate as far as possible is conditioned for growth.”

This isn’t a repudiation of markets entirely but it is an acknowledgement that markets have both actual and moral limits. It is further than many in his Government have gone or would go. It is even further than the likes of Tony Blair would have gone. In his 2005 Labour Party Conference speech, Blair said:

“The temptation is to use government to try to protect ourselves against the onslaught of globalisation by shutting it out - to think we protect a workforce by regulation, a company by government subsidy, an industry by tariffs. It doesn't work today.”

It is too early to treat Gove’s intervention as a departure from the prevailing economic orthodoxy and it is also too late to acknowledge that market forces alone won’t level up the country. The Levelling Up White paper which Gove was launching does speak to a more interventionist Government. It does suggest, if not wholly commit to, moving resources to where they may have the biggest impact on lives and livelihoods not where it may be best for GDP. And, it builds on a direction of travel established by George Osborne of more powers to more places.

In summary, there is a lot of good stuff in it. However, there is something about reading through its 200+ pages which just feels a bit off, like we have seen this before. It is not that the policies themselves are not good but they exist within a managerial framework which won’t level up in the way many imagine.

The paper’s approach – targets, view of competition, regulation, accountability, and judicious use of public finances – borrows heavily from the playbook of New Public Management (NPM). Social scientists Ewen Ferlie and Peter Steane describe NPM as being about “managers, markets, and measurement.” In short, it is the ideological belief most prominently ascribed to Margaret Thatcher in the UK and Ronald Reagan in the US, that embedding private sector ideas and practices into the public sector will make it more efficient, effective, and responsive to the needs of citizens. Christopher Hood is credited with the most complete description of this amorphous phenomenon, characterising it as being about: “performance management; output control; disaggregation of units; greater competition; private sector style management practices; greater discipline and parsimony in resource use.”

Governments from the 1990s onwards have attempted to frame their reforms as being somehow beyond previous modes of governance: New Labour’s choice agenda or David Cameron’s compassionate conservativism, for example. Despite this, on the basis of the Levelling Up White Paper it seems rumours of NPM’s death may be greatly overexaggerated.

And it is in the pursuit of this model where we find some of the issues at the heart of the proposals. For example, it is sensible to have defined targets over a period of time with measurable outcomes as a determinant of what levelling up actually is. However, without huge investment into those targets the objectives within the Levelling Up White Paper are unlikely to be achieved. It simply doesn’t work to have a parsimony of resource use, as NPM would advocate, as a means of addressing entrenched regional and inter-generational inequalities, even with the clearest targets in the world. The challenge facing the North is not whether it has used resources efficiently, but whether the totality of investment in infrastructure, R&D, and improving the life chances of children is comparatively less than London and the South East.

If anything, we know COVID-19 has shown the need for a bigger state not a smaller one. Work by Mariana Mazzucato and Rainer Kattel demonstrates that smaller states are unable to withstand economic shocks as they cannot recover from disruption to supply chains, and do not have the social infrastructure to enable people to be out of work for large periods of time. COVID-19 has demonstrated not only that the state can intervene extensively through policies such as furlough, but that without a robust public sector the private sector cannot function successfully either. As we have seen, without sufficient oversight there is a risk of poor procurement, wasted public funding, and insufficient accountability. Levelling up requires more funding and more powers, aligned with more accountability.

And it is this accountability which is so important. There is much to be praised in furthering devolution but it is couched in the language of the principal-agent dynamic. This is not to say areas like City Regions should not be accountable for public money, of course they should be, but without more resource devolved government will lean toward being a delivery arm of central government as they compete for centralised funding pots. In its current form, devolution too often feels like a financial contract between central and local government rather than genuine rescaling of power. The key challenge is for local authorities to be accountable not only to a public more generally but to the multitude of publics which make up their regions; a challenge which can only be met through devolution of both powers and pounds.

If we are to till the soil as Michael Gove set out in his speech at the Convention of the North there are parts of the Levelling Up White Paper which speak to this. Infrastructure investment, both digital and physical, is undoubtedly necessary. Focusing investment on skills in areas which have been underserved by investment is good even if the funding is not huge. While looking towards a more rebalanced R&D settlement could be transformative it will only have such an impact if it’s married to coterminous policies around skills, infrastructure, and wider local powers.

There is a future for the UK economy which is based around prosperous regions with distinct strengths supported by further devolution of powers. Achieving this requires not only a greater sense of direction but a clear break from NPM with more resource, more power, and an accountability based on local decision making.