To fight populism, invest in left-behind communities

CAMBRIDGE — As Western democracies become increasingly polarised, rural and small-town voters are regularly pitted against their counterparts in larger urban centres. While this is not a new phenomenon, and certainly not the only factor affecting voting patterns, the rural-urban divide is a significant driver of today’s culture wars. This dynamic, which Economist Andrés Rodríguez-Pose evocatively described as the “revenge of the places that don’t matter”, suggests that the ongoing populist surge largely reflects geographic disparities.

How did the rural-urban divide come to dominate so many countries’ political discourse and development, and how can we address it? Part of the answer lies in structural economic shifts that have made urban living more lucrative. In today’s knowledge-based economy, where value is increasingly derived from intangible sources, gathering people in densely populated urban areas often results in positive spillovers, creating so-called “economies of agglomeration” that offset the inconveniences of city life. While cities have clusters of low-paid service jobs and pockets of severe poverty, they are magnets for highly paid professionals and university graduates.

The economic upheavals of the past 15 years, the Great Recession of 2008-09, fiscal austerity, the COVID-19 pandemic, the energy crisis and the inflationary surge of 2022, have accelerated this trend. People living in “places that don’t matter” have seen quality jobs disappear, public services eroded and their economic prospects rapidly diminish. Seen in this light, today’s populist backlash is hardly surprising, especially when many politicians are part of the thriving urban elite.

To address these ongoing failures and weaken the appeal of populist narratives, Western countries must revitalise small towns and rural communities and ensure universal access to essential public services. But this must be part of a broader national effort that unites citizens from all segments of society around the common cause of enhancing collective wellbeing.

In a recent report I co-authored with Stella Erker and Andy Westwood, we document deep disparities in access to essential amenities such as buses, broadband, hospitals and higher education across English local authorities and explore how to revive small towns and rural areas in the United Kingdom by investing in universal basic infrastructure. We also identify infrastructure and services, both public and privately owned, that are vital for enabling residents to commute to work or medical appointments, provide education for their children, maintain good health and enjoy a decent quality of life.

The provision of public services and infrastructure has a greater redistributive effect than taxation. Hence, by ensuring access to a basic level of infrastructure and services, we can provide everyone with opportunities to improve their own lives and those of their families.

While governments are responsible for delivering public services and infrastructure such as roads and ports, utility-type services like broadband are often provided by private companies. Public infrastructure, however, has been grossly underfunded for decades, and private infrastructure is increasingly exploited by asset managers and private equity owners who hike service charges and cut back on maintenance. This has contributed to a widespread sense that broad social and economic progress stopped in the late twentieth century.

Given the corrosive effect of this narrative, it is crucial to reinvest in the future. As Robert J. Shiller and others have argued, positive narratives have the power to improve economic outcomes. A shared sense of optimism can boost public morale and fuel GDP growth.

This is especially true in today’s complex economies. As economist Paul Seabright notes in his 2004 book The Company of Strangers, humans today are increasingly interdependent. Economic production is now spread across vast and dispersed ecosystems, and virtually every item we use, from our shirts to our smartphones, comprises materials and components sourced from many countries. Many of us regularly purchase items from strangers online, despite having no idea who they are or where they live, and, for the most part, this process unfolds without a hitch.

But the transition to an intangible digital economy has underscored the complexity and fragility of these economic ecosystems. The rise of data-driven digital services has made our lives increasingly intertwined, resulting in network effects that make individual gains contingent on the actions of others. Consider, for example, a ride-sharing platform: The more drivers there are, the more users benefit, and vice versa.

Ultimately, the case for prioritising a country’s collective interests over profits is primarily political, given that deeply polarised societies such as ours often face a bleak future. Still, there is an economic case to be made for investing in public services and the infrastructure that sustains them. By recognising that a shared sense of optimism and a basic faith in the possibility of social mobility fuel economic growth, we can repair the economic damage of the past two decades. A country that overlooks “places that do not matter” risks becoming irrelevant itself.

Copyright: Project Syndicate, 2023. www.project-syndicate.org