Levelling up, Fairness, and Efficiency

By Roger A. McCain

I grew up in a rural area in northern Louisiana, in the United States, a rather poor agricultural region that was losing population. My mother had a saying about that region: “The problem is, everybody here who has any get-up-and-go has gotten up and gone.” I now live in Philadelphia. But regions that are left behind have grown in their political importance. In the words of Michael Gove (quoted in the Economist, Oct. 9, p.57) “You shouldn’t have to leave the places you love to enjoy the future you crave.” Thus, in Britain, the Tory government proposes “levelling up,” and in the United States, divisions within both major parties separate “rust belt” and rural factions from urban/suburban factions.

Gove’s protest seems to be an appeal to fairness. For economists, fairness has been a difficult concept, one that many economists would prefer to ignore while concentrating on efficiency. By the 1980s, however, economists had developed a concept and theory of economic fairness. The powerful work of John Rawls in philosophy, understanding “justice as fairness,” influenced this work and continues to form discussion of fairness in philosophy. A difficulty with most of this work, however, is that it is qualitative: it provides criteria to say that a social situation is fair or unfair in an absolute sense. But public policy usually requires a choice among social situations none of which is perfectly fair. How can we say that one social situation, although not perfectly fair, is more fair than another? To answer that question was the objective of my book, Comparing Fairness: Relative Criteria of Economic Fairness with Applications (2021, Cheltenham, U.K., Elgar), which drew on and adapted learning from philosophy, economics, and cooperative and noncooperative game theory to suggest criteria for judging relative fairness.

Can this be applied to “levelling up?” Chapter 8 addresses inequality and mobility between regions, assessing both efficiency and fairness. It draws a strong conclusion: policies that encourage mobility increase efficiency but decrease fairness. Individuals with more human capital are better able to benefit from migration to regions in which human capital is more concentrated and thus more productive, but in doing so, they leave behind a region with less concentrated and thus less productive human capital. This conflict of efficiency and fairness is no surprise, but it is not inevitable: in relations among generations (Ch 6) and among racial groups (Ch. 12), no such conflict is found. In those applications, unfair arrangements tend also to be inefficient. It seems, then, that “levelling up,” if successful, may exact a substantial cost in inefficient allocation of resources. “Levelling up” will not pay for itself.

But, like any theory, the theory in my Chapter 8 (and Chapter 6) makes some assumptions of fact that may not be so. The purpose of these assumptions is to focus on the implications of some economic tendencies and not on others. Reconsideration of these assumptions of fact might reveal some offsetting tendencies. What then are the assumptions of fact? First, it is assumed that human capital determines product per head. We may recognize that human bodies, labor time, physical and financial capital are necessary to produce goods and services, but labor time will be about proportionate to human capital, and nonhuman capital is more highly mobile and adjusts to the distribution of human capital. If these judgments are true, then we may leave those resources behind the scenes. Second, it is assumed that human capital is more productive in locations where it is more concentrated. That is, there are economies of agglomeration for human capital. Finally, it is assumed that the  barrier that prevents some from leaving the lagging regions are money costs of migration. If people remain in the lagging areas only because they choose not to leave “the places they love,” the unfairness disappears. Some prefer arabica coffee to robusto, and they pay more for it, but there seems to be no unfairness in that. If then, some prefer to live in North Louisiana rather than Philadelphia, and the price is that they give up the future they crave, why should that increase unfairness when the high price of arabica does not? (See pp. 161-163.) If, however, money costs of migration are among the restraints on migration, we may expect fairness issues to arise.

What policies then might reduce interregional unfairness? Subsidies to rural and declining industries have been widely tried, but the recurrence of the issue seems to tell us that they have failed. Improving education in lagging areas may increase efficiency, but will equip more residents of the lagging region to get better jobs in Philadelphia or London, and they will leave. Thus it does not improve interregional fairness. To be effective, it seems, “levelling up” policies would need to affect some of the assumptions of fact that are made in the theory. In this perspective, policies that could improve the productivity of human capital in lagging areas might help to “level up” the standards of life in those lagging areas. Here, the extension of broadband internet to rural areas offers some hope. On the other hand, competition with coders and call center personnel in the cities of less developed countries may not provide residents of Britain and the USA with the future they crave. A case can be made that lagging regions are just inevitable in a productive economy because of the way real human beings learn by imitating one another. (I made that case in McCain, Roger A, Agent-Based Computer Simulation of Dichotomous Economic Growth, Boston: Kluwer, 2000). This poses the question: are there known policies that could “level up” fairness among leading and lagging regions? It will be interesting to see what policies the Tories propose!

Comparing Fairness

Roger A. McCain, Drexel University, US

Read Chapter 1: Fairness in a system of cooperative, joint production here

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