What do we Mean by Rural?

I went to a conference about rural economic growth some time ago and, whilst I will look at growth later (DEFRA is promoting a Rural Economy Growth Review), this is an attempt to understand the rural economy and its shape based on some of the statistics used at the conference.

There seem to be quite a number of competing voices and some seeming contradictions, but one of the key issues is to define what we are looking at and what we mean by rural.  When we measure the rural economy (or indeed any economy) we need to differentiate between number of enterprises in any sector, number of employees, and Gross value Added (GVA) as these will vary depending on the nature and efficiency of sector of the economy that we are looking at.

The DEFRA Rural Economy Growth Review showed that businesses in rural England make a substantial contribution to the national economy, with a 28.5% share of the enterprises generating around 22% of national employment and 19% of Gross Value Added (GVA), worth around £200bn. At first sight it also appears that the economic structure in rural areas is broadly similar to that in urban areas, though with a higher proportion of sole traders and partnerships, but this takes us to the question of how we define rural.

It seems an official definition is ‘settlements with a population under 10,000 including small market towns, villages, hamlets and isolated dwellings’.  Within this there are three groupings: R80 – local authority areas where at least 80% live in rural settlements, R50 – those where from 50% up to 80% do so and Significantly Rural – those where from 26% up to 50% do so.  There are 55 Rural 80 local authority areas, 48 Rural 50 authority areas and 55 Significantly Rural authority areas.

This can be divided up even further when it comes to analysing the breakdown of industries in different types of area.  Unfortunately it is not possible to cut and paste graphs into blogger/BlogSpot (or at least I haven’t found a way!) but it appears the information at the conference came from a DEFRA publication ‘Statistical Digest of Rural England’ and the graph I am referring to is on page 108.  This shows the percentage of enterprises by industry from less sparse urban through less sparse and sparse rural towns, then villages through to hamlets and isolated dwellings.

The graph shows that in sparse hamlets, more than half the enterprises are in agriculture, forestry and fishing.  These industries also feature highly in less sparse hamlets (25%) and sparse villages (33%) as well as less sparse villages (16%), despite the fact that they only account for 5% of businesses overall in England.  In the remaining four classifications they account for less that 10% of enterprises.  As the number of agricultural enterprises increases the largest group of other enterprises declines in proportion: this is wholesale & retail trade, repair of motor vehicles, which has the greatest number of businesses in England overall and around 25% of businesses in Sparse Urban and Sparse Rural Town and Fringe areas, but in the area of greatest sparsity (where agriculture is is over 50%) this has fallen to 8%.  Other types of enterprises are also compressed as agriculture grows but not so significantly.

What this is saying to me is that it really depends on what you call rural.  If rural means hamlets and isolated houses then farming is very significant in terms of the number of businesses – but even then only accounts for half of them.  If rural includes towns up to 10,000 in population (e.g. in Worcestershire what were classified as market towns under an earlier government initiative such as Pershore and Bewdley, though Evesham is too big) then the situation changes radically.  This was where the representative of the conference from the NFU got upset when a speaker using the definition of population up to 10,000 at the beginning of this blog said that agriculture only accounts for 2% of GVA even in predominently rural areas (in significantly rural areas it is only 1% of GVA).  Of course, as the man from the NFU pointed out when you include in transport and processing as a result of agriculture the proportion will be higher (6.8% of GVA for the Agri-Food sector in 2010 according to a RuSource briefing (no. 1552)) but it really does highlight the question of what you mean by rural.  Here is part of the table from p. 74 of the Defra report to illustrate the point:

Share of predominantly rural areas GVA
Public admin, health, education	23%
Distrib, transport, food, accomm	20%
Production	17%
Business services	10%
Construction	8%
Real estate	8%
Financial and insurance services	5%
Information, communications	4%
Other services	4%
Agriculture, forestry	2%
Total / all sectors	100%

Having mentioned employment earlier, just a few quick points:  As there are few large firms in rural areas this means that many more people will work in small firms or indeed as sole traders and partnerships.  One of the things that came out of the discussion of employment was the resilience of rural people who will often have a variety of small jobs or work for themselves in order to make sometimes a very modest living.  Another feature of rural areas, and this is so for Worcestershire, is the number of people who commute out to higher paid jobs in urban areas.  This means that average income based on residence is higher than average income based on place of employment.

All this shows that the rural economy is complex and multi-layered and that different sectors, particularly agriculture and related industries, will vary in importance according to the type of rural area within that broader definition.  One aspect that is not taken into account in the figures is the importance of agriculture to the landscape.  Even if the number of people employed is now low and the economic numbers perhaps surprisingly small overall, we still rely on farming to shape our landscape and to care for much of the countryside.  The effect of what many of us take for granted is hard to quantify, though there is a cost which comes out of farmers' incomes and is recognised to some extent in the support received from the EU.  Our rural areas are much more than we may at first imagine them to be. 

Unemployment in July 2012 - As Good as it Looks?

Unemployment increased in Worcestershire last month (by 87 to 10,585), which is in line with the trend in the West Midlands region though against the slight fall nationally.

There are a number of ways of expressing unemployment so one has to be very careful to compare like with like.  The headline figures normally quoted in the media are based on ILO (International Labour Organisation) methodology which is a large-scale survey of those available and actively looking for work.  This differs from the other main count, which is Job Seekers Allowance (JSA) claimants (a narrower group, as there will be people who are actively looking for work but who are, for a variety of reasons, ineligible for JSA).  At one time, nationally, these two figures were very similar but over the past couple of decades they have diverged to be around one million apart (ILO 2.56m, claimants 1.59m).

More details on the national figures can be found here.  In the West Midlands region unemployment rose by 7,000 to 235,000 on the ILO count and stands at 8.8%.  This still puts the region above the national level (8.0%) but it is now the fourth worst region in the country, having once been the highest.  A breakdown of regional figures to constituency level can be found here, including a more detailed explanation of the methodology of compiling the unemployment figures.  Despite the West Midlands not being at the top of the table for unemployment as a region it is striking that three of the five worst constituencies are in inner-city Birmingham.  What is also striking is the disparity with other parts of the region, including Worcestershire, where the figures are between 3% and 4%.  What is even more striking is that the figure for Stratford (upon Avon) is 1.3% and that there is a whole swathe of the country to the south east of there that is below 2%.

Of course, just as in Worcestershire, there will be pockets (larger or smaller) where unemployment is higher.  The question is how significant this is against a background where the issue is generally perceived not to be as pressing as it will be in poorer areas.  For it is clear that apart from when large-scale redundancies are made that unemployment affects poorer parts of areas more and that these will often be places where manufacturing or other older industries were prominent.

Turning to Worcestershire, that means our three more urban districts have higher unemployment – Redditch 4.6%, Worcester 4.8%, Wyre Forest 4.6% (Kidderminster 5.3%) – and they were places where manufacturing was, or still is, significant. That is not to deny that many other people suffer unemployment and that there are parts of our rural districts where it is a significant concern.  Figures for Worcestershire can be found in the monthly County Economic Summary prepared by the County Council’s Research and Intelligence section.  Their figures are JSA claimants, and for some reason they use to 2001 census data for calculating percentages, so these are not strictly comparable with ONS data for the region and the rest of the country) that are based on a more recent (2010) estimate of working-age population.

There may be some slight encouragement in the small fall in the long-term unemployed figures, i.e. over six and 12 months (see Figure 5 on p.18 of the County Economic Summary) and similarly for long-term youth unemployment (see pages 25 and 26).  It is difficult to tell if the figures for young people are related to the cycle of the academic year or whether other factors are also important (Figure 7).

There has also been much debate about how unemployment is falling when GDP is falling and we are in the third quarter of a recession.  This was reflected in the differing views of the man from HSBC and deputy regional agent of the Bank of England in my posts of 23 June and 10 July.  Stephanie Flanders (the BBC’s Economics Editor) in her blog weighs the various possibilities.  Unless some of the figures are wrong (and in some cases we are arguing about fractions of a percentage point) it seems there are a lot of people under-employed, either working part-time when they can’t get a full-time job, or who are self-employed doing sessional work but not actually working that much, or that there is quite a lot of labour hoarding going on.  This last possibility is supported by the Chartered Institute of Personnel andDevelopment’s Labour Market Outlook survey, which suggests that many employers are holding onto skilled staff but that if there is no economic improvement soon they will be forced to make redundancies.

On one level, we in Worcestershire might be thankful that we escape the worst of unemployment compared with some other parts of the country.  But neither should we be complacent for there are parts of our county that are more badly affected and questions need to be asked about what is being done about it (including by the churches).  The hugely uncertain economic outlook and a seeming inability to make much impression continues to raise the question about whether the debate and policy options are too much framed by more of the same.   Almost all of our political parties offer only variations of the same orthodoxy.  So far those asking questions about the wider purpose and future of our economic system are on the margins.  Perhaps when there is a crisis but it is not yet cataclysmic there is a tendency to turn inward rather than seeking the new thinking and step-change that may be necessary.  I will express my concern again that the church maybe too much bound up with its own internal crisis and therefore looking inward to contribute to this debate.

Young Bear the Brunt of the Down-turn

There seems to be more evidence that the distribution of work between the young and the rest of the population continues to get more unequal.  I wrote about this in an article called 'Sharing the Work Around' on 14 June, observing how difficult it seemed for many young people to break into decent employment, or any employment at all, and again on 20 July highlighting a report in 'Lessons from Northern Europe for the UK on Youth Unemployment'.  This looked at reasons why Germany and Scandinavian countries have lower levels of youth unemployment as a result of more commitment and better pathways from education to work.

Now I have come across two further (much shorter) reports, like the last one on the Chartered Institute of Personnel and Development website, that shows that more than a fifth of recent graduates are working part-time, working largely in sales and customer services jobs - probably not what they studied for.  It also says that overall only 63% have actually got a job.  Another article reports that staff aged 16-29 faced a 10 per cent wage fall from 2003 to 2011 and that their wages fell significantly in real terms compared to pay for the rest of the workforce, prompting fears for the health of the economy.  Gavin Kelly of the Resolution Foundation that carried out the research said, “Falling demand in key sectors may well have put downward pressure on young people’s wages as well as on employment levels. On top of this, it’s also likely to have eroded opportunities for career progression – with fewer ladders and more snakes – making it harder to get a promotion or an upward move to a new job (which may well affect earnings mobility over the longer term).”

The Church make a substantial investment in young people through the education system; this suggests it needs to continue that concern when they leave education and encounter an increasingly harsh world.

Unemployment Figures for June 2012

Just a brief update on this month’s unemployment figures.  The Worcestershire figures seem more or less in line with the national headline of a slight fall (though the Worcestershire figures are Job Seeker’s Allowance claimants).  There is also a slight fall in youth unemployment in the county but long-term unemployment continues to rise.  You can find the details in the Worcestershire County Economic Summary.  The headlines about the County are on page 4, a graph of long-term unemployment on page 18 and commentary on page 27 as part of a more general section beginning on page 24 that include information about youth unemployment beginning on page 25.

A summary of the national picture can be found here and an interesting analysis by the BBC’s Home Editor of the issues to do with the figures for the number of people actually in employment and the number of full- and part-time workers.  This ties up quite closely with the observations of the deputy agent of the Bank of England in my post a couple of weeks ago on the more general economic situation.  It appears we may be finding there are more people going self-employed, though it’s not clear how much work they may be finding.  

Lessons from Northern Europe for the UK on Youth Unemployment

I wrote a post called Sharing the Work Around (on 14 June) about my concern that many young people find it very difficult to get into any kind of suitable work whilst others are working very hard, either to hang onto a job or because 'effcieincies' mean they are struggling to get the job done.  Then there are a few who seem to take disproportionate rewards for the work they do whilst others struggle to make ends meet.

I came across an article the other day, which, whilst it doesn't attempt to answer these 'big' questions, none the less raises serious concerns about the way we as a country manage the transition for young people between education and work, and why it can take so long for a young person to get to a secure and suitable job.

The research on which it is based arises from a collaboration between the Chartered Institute of Personnel and Development the TUC and IPPR (the Institute for Public Policy Research) and looks at the levels of youth unemployment in this country and compares with other European countries, north and south.  What it finds is that notwithstanding the effects of economic turbulence, there are major difference in countries that invest in high quality vocational education (that is not seen as a poor second to the academic stream) over an extended period and who provide good quality work experience.  There are lessons that can be learned from why Germany and some of the Nordic countries d not have the levels of youth unemployment and insecurity that the UK does.

It points to some reasons why the UK has not been so good at this, but the overall conclusion I draw is that there is a cost in this investment that would be difficult against the current economic backdrop and currently prevailing attitudes, but if we want to reap the benefit of that investment in the future we have got to look seriously at it.  Otherwise, we will go on complaining and, more seriously, we will damage the futures of many of our young people.

The article can be found here.  There is a one page summary at the beginning, but I think the whole article repays attention.

Economic Prospects for the West Midlands

When I last wrote about the talk given by Glynn Jones, the Bank of England’s deputy agent for the West Midlands and Oxfordshire, I said that I would follow this up by writing about the prospects for the West Midlands.  A good deal of this is derived from work done by Dr Jones in his previous job up until 2011 as Head of Economy and Strategy at Advantage West Midlands, the regional development agency until its recent demise due to changing government policy.

Until the present recession the West Midlands region tended to suffer a higher impact on unemployment benefit claims in a down-turn but came back to the national average level of impact more quickly (i.e. we often fell more sharply but then recovered well).  This started to change in the 1990s.  We could say this was due to the decline in manufacturing but the East Midlands, also a manufacturing area, fared better.  Gross Value Added (GVA) growth rates also started to slip away from tracking the national average in the late 1990s – indeed GVA growth per head was the worst of the regions from 2000-2007.

The West Midlands was also the only region in which the private sector contracted in this period with numbers employed made up by the public sector.  A large proportion of the region’s counties and metropolitan/unitary authority areas had below the national average of ‘high value added’ firms with a low proportion of high growth firms – the ones that create the most employment growth.  The region also performed poorly on knowledge-based employment and perhaps surprisingly especially in high value-added firms.  And given its size and importance to the region, Birmingham’s performance  on these measures within the region as a whole has been poor.

We are now seeing some recovery along with improved prospects for manufacturing, especially in exports (though these are now weakening) and particularly in selling into emerging markets.  The position in domestic markets, though, is relatively poorer reflecting the current depressed nature of the UK economy.  There has also been a slight improvement in GVA per head after the long decline noted above, and the differential to the national average on unemployment is beginning to decrease.  There is a large amount of innovation in the automotive sector and its supply chain and this may be having an effect.  However, manufacturing output is still below 2007 levels although the overall decline in production is slightly lower than the headline figures because of the effect on the national figures of the continuing drop in North Sea Oil production.

Productivity generally is weak, though this is predominantly a service sector issue, but it is also true in manufacturing.  When demand rises it may be difficult to meet this efficiently.  There is, though, a debate about how much of this is temporary (due, for example, to hoarding of labour as orders drop off rather than making people redundant) and whether productivity will come back when volumes increase.

We are seeing some repatriation of production to the UK (i.e. manufacturing and other work that was ‘off-shored’ to countries with cheaper labour costs) but this may be over-stated.  It is often in low-volume areas where quality or lead-times are an issue.  Sometimes the production is moved from the Far East, not to the UK, but to Eastern Europe.  That which is moved back to the UK tends to be high value goods that can accommodate higher costs.  Some of this trend is due to increasing labour rates in the Far East but productivity has also risen, and the markets are growing there, so it may still be worth producing close to market.  The service sector is still off-shoring, for example to India.

If there is a growth in production here, whether through repatriation or otherwise, there are concerns about supply-chain capacity (e.g. the factories have gone) and skill issues.  The West Midlands has the highest proportion in England of 16-64 year-olds with no qualifications – and Worcestershire is above the national average for 16-64 year-olds who are economically inactive, though better than the West Midlands region as a whole.

Despite the best efforts of Advantage West Midlands over its lifespan from the late 1990s until year or so ago I observed many plans and strategies, and no doubt the input of many resources, to try to overcome the problems of the region and its relative under-performance.  Alongside this I also saw, and continue to see, the work of many at county and district level in both the public and private sector to wrestle with these issues.  I would not say their efforts were in vain but it seems to me that beyond certain individual triumphs and generally working hard to keep up, it is hard to see real progress even though AWM was regarded as performing pretty well amongst its peers.  Clearly, some of these difficulties are due to structural changes in the economy over many years, if not decades, that are hard to fight against.  But one perhaps wonders if the UK as a whole finds it hard to see the changes occurring around it in the world and is too slow or unwilling to adapt both its business practices but also its attitudes to the skills and attributes needed and the way in which this burden, or more correctly investment, should be shared.  There is a very interesting article, which I will post separately, about some research on the differences in youth unemployment and the ways that countries manage the transition from education to work.

Incidentally, if you want to read the latest report of the Bank of England’s regional agents dated 18 July, you can find it here.          

Is the Man from HSBC Wrong?

If my last blog about the talk by a senior HSBC economist was optimistic then this, which is a report on a meeting addressed by a representative of the Bank of England, is the opposite.  It should, perhaps, be stressed that the views expressed by Dr. Glynn Jones, who is Deputy Agent for the BoE for the West Midlands and Oxfordshire, were his own; though reading the reports of the Bank’s Monetary Policy Commitee meeting on Thursday, when they agreed to add another £50bn of Quantitative Easing, didn’t sound very different.  Bank of England agents are essentially the eyes and ears of the Bank in the regions and visit a wide range of firms to add ‘anecdotal’ evidence about the state of the economy and of sentiment to the statistics that bodies like the MPC use to make their decisions about interest rates and the like.

If one looks at the growth projections for the UK economy in the Bank’s Quarterly Inflation Report they were revised down in May from February.  It is possible to look at the reports online here.  The expectation is that there may well be a further downward revision in the next report in August.  This is notwithstanding a stimulus into the economy of £325bn of Quantitative Easing before the latest announcement last week that equals 20% of GDP.  QE is only supposed to be used in extreme circumstances and yet we are getting used to it.  We live in extraordinary economic times.  The feeling seems to be from a range of commentators (not just Dr. Jones) that growth in the second quarter of 2012 will be negative, giving three quarters of recession.  The extra bank holiday for the Jubilee will not have helped – some firms can make up lost production, some will never be able to; some, surely, will have done better.

Rather than seeing the improvement in unemployment figures as a sign that the growth figures produced by ONS are wrong as Mr Berrisford- Smith from HSBC did, sentiment seems to be moving the other way as seen in this report from the Recruitment and Employment Confederation that says the employment outlook is bleak.

If we were to see some improvement in the economy it should be appearing now as inflation comes down to nearer wage rises (see the comments of Mr Berrisford-Smith in my last blog), export performance should have improved with the fall in Sterling, and we should be seeing signs of firms investing.  Instead the risks to the economy seem to have crystallised to the downside (in the jargon) and even on the more hopeful predictions we will not return GDP to 2007 levels until 2014 – and that doesn’t include what we might have reached if the economy had carried on growing at a trend rate of 2½% a year.

What we have seen instead is that inflation is stickier than expected – this is not due to the domestic economy where there is spare capacity (though some would suggest more of this has been destroyed than is assumed) and wage growth is low.  We have also had the huge monetary (QE) programme and inflation is still not above 5%.  Rather it is due to external drivers such as imported food prices and clothing costs and although there have been some recent drops in oil prices these have been nothing like what one might have expected from previous recessions.  Global GDP is also slowing: there are concerns about the ongoing buoyancy of the US economy as they come to the end of their fiscal stimulus programme with concerns about their budget deficit (the increase in non-farm payrolls recently are barely enough to prevent unemployment rising); the Chinese and Indian economies are slowing (relatively) and they have higher inflation (which we are importing); and the slowdown in the EU has spread from the periphery to the core, which is serious for the UK because such a high proportion of our exports go there.

There are also big question marks over the impact of the continuing EU crisis on the UK.  It affects confidence and therefore the propensity of firms to invest; there is a risk to our financial system from contagion and stress in financial markets, which leads to an increase in the cost of raising funds; and 50% of our exports go to the Euro area, though on the other hand, emerging markets exports are still holding up quite well (keep exporting the Jaguars and Land Rovers to China).

There are three key drivers to the UK economy: consumption, investment (by firms) and government spending.  On the consumer side we have seen a pick-up in mortgage rates whilst the housing market was better in the first quarter than the second due to confidence and the cost of finance.  Consumption represents 60% of demand in the economy and with high inflation (and higher interest rates) consumption has been under pressure – we have seen the growth of the discounters in the high street through the search for value.  As inflation drops the question is will consumers spend or save (or pay off debts)?  The auto-enrolment of pensions (for those not already in a scheme) that is beginning will increase the savings ratio and bear down on consumption.  There are also signs in the housing market of people down-sizing with demand for cheaper properties.

On investment, the question is whether the continuing problems here are due to supply (i.e. banks’ unwillingness to lend) or demand related (the lack of consumer confidence means firms don’t see an expanding market to merit investment).  Opinion seems to be moving towards the latter, which Keynesian economists would favour especially when combined with public sector spending cuts taking demand out of the economy.  There are still a lot of cuts and job losses to feed through in the fiscal austerity programme and this will also have an effect on construction and construction jobs as 28% of construction demand is from the public sector.  Low construction sector spending was one contributor to negative growth in the first quarter of this year.  Normally in a recession it takes nine quarters for investment to recover but companies are still not investing except to meet regulatory requirements and IT changes.  Net lending is negative – i.e. companies are paying off loans and building up cash balances, although there is some bond issuance as an alternative form of cash raising.

As a result of all this, output is flat or even contracting and yet employment is increasing in the private sector, which suggests productivity is deteriorating.  Head-count is deceptive because it is possible to vary hours especially, for example, in retail.  If there is no pick-up in production will this, though, lead to labour shedding with a consequent impact on falling consumption?  Public sector employment is currently falling quite quickly and as has already been said, could fall further in the future. There has been an increase in self-employment, though there is a question about how many of these are productively employed as opposed to trying to go on their own because there are no jobs available.

It is likely that the Bank’s August inflation report will see the growth forecast downgraded again (along with inflation) reflecting the increasingly negative outlook.  The decision last week to inject another £50bn of QE into the economy over the next four months also shows increasing anxiety about the future.  There is concern about the effectiveness of QE – early on it was beneficial but now it is more about confidence and being seen to do something as less of the money seems to escape from the banks and into the economy.  It also punishes savers by driving down particularly longer-term interest rates and pension funds because of the same effect on bonds that they increasingly are buying.  Other liquidity is being injected into the economy through the £80bn finance for lending scheme, which hopefully, will have a more direct impact.  There could also be a view that QE compromises the independence of the central bank and takes the pressure off the government to act – the Bank has been backed into a corner by the government’s fiscal policy.

It is hard on this reading of the present situation and the outlook to feel very optimistic.  Undoubtedly, the level of debt racked up over the past decade or more is still weighing heavily in the background, but many of the policy responses seem to be failing to address the issues adequately.  This appears to be compounded by short-term ‘just enough’ actions, especially in the EU, but elsewhere too, no doubt exacerbated by differences of view on what should be done.  The wider backdrop is the structural change that is taking place in the world economy as economic power moves from the West to the east.

The latest banking crisis and calls in some quarters for an in-depth enquiry into the whole system suggests there is something profoundly rotten about much of our present economic system.  Is it now ‘fit for purpose’ (to use an ugly and over-used term) and what should that purpose be?  I have referred previously to the review by Rowan Williams of both Michael Sandel’s book and a book by Robert and Edward Skidelsky entitled ‘How Much is Enough?  The Love of Money, and the Case for the Good Life’, which uses Aristotelian philosophy to argue for what the ‘good life’ should be and what sort of economy is needed for that.  Should not Christians and the Church also be engaged more actively in this debate?

On a narrower level, Dr. Jones who was previously the Head of Economy and Strategy at Advantage west Midlands, the former regional development agency, also spoke in some depth about the West Midlands economy, its past and its prospects.  I shall look at this in a future blog.