Friday, 12 August 2011

Regional development

In the comment section on a recent article by Daniel Hannan, Jedibeeftrix wrote:
A nation-state is effectively a collective agreement that a people are a family, who have sufficient trust in each other to accept indirect governance from representatives of the prevailing will of a majority, it is also a collective agreement to work together for the benefit of the whole rather than the individual. In short it is a marriage which results in a transfer union.

Inevitably there will be richer and poorer parts of the nation-states economy, and if that economy is not to tear itself apart from the strife resulting from a polarising divergence in wealth then there must be a compact agreed by the people that national taxation will be redistributed in a manner the assists less advantaged areas. In short
the rich pay for the poor.

This compact is seen in every developed country, by way of social benefits applied equally throughout the territory, by way of regional development funds to promote wealth creation in poor performing areas, and by concentrating public sector activity in areas of reduced economic potential. It is fundamental to the cohesion and harmony of the society.
I replied:
Though I agree that minimal benefits (hostels, soup kitchens, basic education, basic healthcare) should be available to all citizens, I don't think the government should treat different regions of the country differently.

It is folly to concentrate public sector activity in areas of "reduced economic potential".

Firstly, who determines that the economic potential is reduced? The private sector will do a much better job of this than the government, especially since the economic potential changes over time in response to technological advances.

Secondly, with free movement of people, there's no reason why job-seekers can't move to areas with more economic potential.

Thirdly, areas where there is a large public sector presence become dependent on that presence (in the same way that individuals get trapped on benefits). What happens when we want to vastly reduce the responsibilities of a government department, or eliminate it altogether? What happens if the government simply runs out of money? Far better that the residents are employed in the private sector, doing things that people are willing to voluntarily pay for. And just as living on handouts is bad for the soul, hundreds of government non-jobs are unlikely to boost the spirit of a community.

Finally, note that the government department in the depressed area will be competing with local private enterprises for employees. This will discourage wealth-generating activities, making it harder for the area to return to sustainable prosperity.

"Regional development funds" are a bad idea for similar reasons, but with added scope for corruption.

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