The challenge of successfully “leveling up” and reducing regional inequalities is something I’ve written about numerous times in the past few months. It’s a challenge that many countries face as agglomeration effects tend to naturally concentrate wealth and prosperity where talent and wealth already congregate in larger numbers.
Research from Cardiff University highlights the problem of so-called “bounded rationality”. The authors believe this helps to lock towns into a vicious downward spiral that makes improvement impossible.
Bounded rationality
The notion of bounded rationality, initially introduced by Nobel laureate Herbert Simon, highlights the inherent limitations individuals face when endeavoring to make rational choices, stemming from their constrained access to certain knowledge or their capacity to comprehend that information.
While commonly associated with individuals, recent investigations have unearthed the existence of spatially bounded rationality within cities, towns, and regions. This phenomenon can be ascribed to what cultural theorists denote as the “collective programming of the mind.”
The study found that residents inhabiting the same geographical area tend to embrace shared cultural and psychological mindsets. What’s more, it permeates the decision-making of local government leaders who contemplate curbing expenditure on essential services, consequently impacting both the economic and social well-being of the community.
Electoral habits
Another prominent illustration lies in people’s voting choices, which often exhibit common patterns influenced by bounded rationality. The case of the UK’s Brexit referendum serves as a compelling example, wherein unexpected outcomes emerged at the local level, as areas favoring an exit from the European Union were also predicted to endure the adverse economic ramifications of such a decision.
Indeed, researchers have even suggested that subtle alterations in localized mindsets could have yielded different results in the Brexit vote, underscoring the profound influence of bounded rationality on significant sociopolitical events.
This highlights the ways in which rationality is so often spatially bounded and the beliefs and decisions people make are indelibly linked to local values.
Different values
This has significant implications for attempts to “level up” and help deprived communities as the research found areas such as the north of England and Wales often have very different personality traits to deprived areas of London.
It is important to note that these distinct sets of traits or mindsets do not possess an inherent superiority over one another; however, some align more closely with the United Kingdom’s national economic model. For instance, people in certain London areas exhibit a greater inclination towards prioritizing profit generation within the framework of free market capitalism.
This belief system is intricately intertwined with the UK’s economic structure. Moreover, when a greater number of individuals embrace an entrepreneurial mindset, dedicated to fostering high-growth and highly productive enterprises, it tends to attract a higher concentration of such businesses, thereby reinforcing the local economy.
Conversely, the researchers observed that mindsets emphasizing local community action, as opposed to a spirit of entrepreneurship, are more prevalent in parts of northern England and Wales. While this mindset can yield significant advantages for social development, it does not readily facilitate the improvement of economic fortunes within the existing system, governed by national-level policies and priorities.
Smarter policy
In response to these challenges, the UK government has outlined its “leveling up” agenda, aiming to create a more equitable economic landscape across the nation. The ambition of fostering economic development initiatives and projects across all regions of the UK is commendable, as it is expected to generate positive outcomes.
However, it is doubtful whether this approach alone will bring about the transformative changes that the most disadvantaged areas truly require. The concept of leveling up primarily embodies a top-down, project-oriented strategy toward local economic development, lacking a sustained and systemic approach.
As my own work into the issue found, in order to surmount the enduring challenges faced by these regions, a long-term regeneration strategy driven by effective local decision-making is imperative.
Lack of understanding
To effectively address the deep-rooted challenges facing left-behind areas in the UK, long-term regeneration through local decision-making is needed, rather than relying solely on the government’s “leveling up” agenda.
One of the key weaknesses of contemporary democratic capitalism is the lack of knowledge about the real challenges and potential solutions in many areas. To address this, local authorities should be mandated to provide transparent and accessible information on the local economy and initiatives to tackle challenges, as well as the funding available and any financial restrictions they are facing.
By providing this information, local authorities can help overcome issues of bounded rationality and enable the creation of informed and inclusive development strategies that are established and accountable at the local level. This approach has been successfully adopted in some US cities, and should be implemented in the UK too.
Decentralization of power to local places and improved and inclusive governance are also crucial to addressing the crisis of democratic capitalism. Without these measures, not only will democratic capitalism struggle on the global stage, but its local foundations will also begin to crumble.
