Welcome to Decline.
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A few months ago I stumbled again upon this graph which I think comes ultimately from Ron Martin’s 2015 paper, Rebalancing the Spatial Economy.
Sharing it again on twitter and noting the year of divergence as being 1979, the year Margaret Thatcher became Britain’s Prime Minister, I got some interesting questions.
- Could we go further back in time?
- Could we look at the time series on their own, not just via the cumulative deviation view?
- Could we compare the lines with other countries?
I started reconstructing the time series.
Historical data is hard.
I learned a lot about how hard it is to get even quite recent historical economic data for Britain at the regional level. We used to care about regions a lot less than other countries and a lot less than we do now. The boundaries of our regions have changed, our system of national accounts has changed, and less data has been digitised than I might have imagined. But in the end I got there, and I was relieved to be able to reproduce the data almost perfectly. I was able to go back all the way to 1966 and all the way forward to 2024.
There is just one small problem. I can’t find a London dataset anywhere.
London only become consistently reported as a region separate from South East England (whose boundary with East Anglia and later East England changes over time too) in 1994. My strong suspicion is that the London line in the original graph is reconstructed from an assumption that London’s GDP/capita moved in tandem with the rest of the South East of England before 1994 and its deviation is merely reporting its change in population from 1971 to 1994, but I’m not sure. In any case it didn’t matter, because while a lot of other people were interested in the London line, I wasn’t. So I threw it away.
The North and The South.
First of all, let’s define The North and The South as they are in the original graph. It’s a slightly unusual definition, since we do not typically split Britain in half for analysis.
We split England into North and South often, and then awkwardly admit that the Midlands exists and possibly apologise to the South West of England for forgetting about it. But the now-despised concept of North Britain means that the Scots typically ask us to treat them separately. As do the Irish. And now the Welsh too.
But as so often when reproducing other people’s work it became very clear pretty quickly why this split was a good choice. The North and The South on this map start our time series with almost identically sized economies. In 1966 both The North and The South have GDPs of £400bn in 2024 £s.
Population and migration.
A second note before we get started.
Population is an important part of this story. The UK had net outward international migration for most of the 1960s and 1970s. Migration in and out was just about balanced in the 1980s. High net immigration only began in the 2000s.
There was substantial internal migration within the UK, especially in the 1980s and 1990s. Two features dominated. People generally moved to South East England from the rest of the country and people moved out of big cities. The big cities included London which lost substantial population, but most of the big cities were in “The North” and these depopulated most.
The population of The North was still lower in 2004 than it had been in 1970.
Nineteen-seventy-nine.
Last thing before the graphs.
I’ve decided to label the period when Margaret Thatcher was Prime Minister on many of them. It's no secret that I dislike much of her legacy in my country, especially my part of the country. I grew up in and live in The North and I have written about this elsewhere at length.
But that is not what this piece is about.
I have labelled the time where Thatcher was PM with full respect that she was a Prime Minister who wrote clear manifestos that set out her plan, won elections on those manifestos, and then carried out much of what she promised. There are good arguments that much of what she did was necessary for Britain, especially after the 1976 IMF/Sterling Crisis and in the face of militant unions, and would have needed to happen under someone else if she hadn’t done it. While Norway’s response to finding oil & gas now seems preferable to Britain’s, I am not convinced that the British public would have elected any party promising to do the same at the time. But those debates are for another time.
The economic separation of Britain.
In 1966, at the start of our time series, both The North and The South had GDPs of £400bn in 2024 £s.
In 1976, a decade later, at the time of the IMF/Sterling Crisis, both the North and The South had GDPs of £525bn in 2024 £s.
This equal growth ends shortly afterwards. I will base my calculations off the year 1978.
Since 1978, The North’s economy has grown at an average annual growth rate of 2.3% while the South’s economy has grown at 3.1%. From equal starting points, the South’s economy is today 50% bigger.
This divergence is highlighted when presented in the style of the original graph I was reproducing.
The per capita divergence is less stark because a portion of the population of The North moved to The South as the economies diverged.
Since 1978, The North’s economy measured in GDP/capita has grown at an average annual growth rate of 1.3% while the South’s economy has grown at 1.7%.
International comparisons.
I was asked to look at international comparisons. So I created this graph showing how the economy of The North went from equal strength to France and Germany in 1966 to being far weaker today.
And then I made one final graph.
Welcome to decline.
I tried to reproduce a graph from The Adam Smith Institute a decade ago showing that following Thatcher’s Premiership the UK outgrew similar neighbours. I could not reproduce their finding and discovered that it relied on what I find to be implausible data.
But I could do the analysis using what I consider much more reliable data, and it shows an interesting pattern.
Before Thatcher, both The North and The South had economies that were keeping up with the USA and had been for at least 15 years.
Under Thatcher, the trajectory of The South’s economy clearly changed and for two decades The South converged with the USA.
Under Thatcher, the trajectory of The North’s economy clearly changed and it has been on the same declining trajectory ever since.
In the early 2000s, The South’s economy joined The North’s trend and we have both been declining vs. the USA at similar rates.
At the end of quite a miserable bit of data analysis, this brought me some positivity. Many people in The South have struggled to understand a dislike for Thatcher that is common in The North, even among generally pro-market liberal economists like me. Didn’t she move the UK’s economy to a place closer to what we support than what came before her?
I understand that confusion. My issue with Thatcher is mostly not with that part of what she did, though I have issues with how she did it.
A lot of the negativity that is associated with Thatcher in The North is due to her marking the beginning of 45 years of decline, as shown on the graphs. But now The South has endured a similar decline for 25 years. I don't think Blair is anywhere near as unpopular in The South as Thatcher is in The North, but I do sometimes detect a similar irrationality to the dislike.
People my age in The North were born into decline, while people in The South grew into it, but we are now both firmly in the same place, and now have been for long enough to realise that unless we do something drastically different it will continue. Thinking about it that way is probably more useful than screaming at each other about whether Thatcher or Blair were the bigger constitutional vandals and whether Thatcher was good or bad for the British economy. She was clearly good for half of it. Just not my half.