Contemporary Economic Policy: The Economics of Communities and Place - Research Paper Example

Contemporary Economic Policy The Economics of Communities and Place White Paper For the Department of Communities and Local Government (DCLG) 1. Executive Summary This study examines the extent of mixing in communities and why segregation arises. It provides policy advice for ministers based on theoretical and empirical evidence on the best ways to improve mixing and the likely limitations to the success. This is in line with the UK government’s objective of reducing poverty and improving social equality by encouraging mixed local communities based on ethnicity, tenures and incomes. Community mixing has been an integral part of government policy since 1991. The idea of economically mixed local communities is perceived as an ideal because it is believed to be a mechanism for attaining social equality. But doing so requires concerted government intervention, as segregation is a natural tendency. The poor are better able to intermingle with others and benefit mutually by living in segregated communities. Segregated communities are more likely to find their specific requirements catered for. These are consumption benefits. Moreover, decentralization of production and increasing globalization has the potential for enhancing community economic stability too. Segregation due to economic reasons has two main factors: income and housing. These are affected by conditions in the labour and housing markets respectively. Poor people simply live where they can afford to. Thus poverty is the key problem that must be addressed from all angles as this concentrates poverty in specific areas. An effective policy must have a comprehensive approach that deals with all parts of the web of poverty. The Harlesden City Challenge programme for example also shows the importance of nationwide policies rather than applying them only in specific areas. Access to desirable places is purely competitive. Those who can afford it will be able to buy their way into affluent localities, and those who cannot, will be priced out. Policies aimed at social equality are essential otherwise segregation leads to a sharp demarcation of society in which the poor get poorer and the rich get richer. It should provide opportunities for the poor so as to improve a person’s chances in life. The targets for the main thrust of the policies should be the labour and housing markets such as providing affordable housing in affluent areas, besides a range of other measures such as greater investment in deprived areas. 2. Introduction The objective of this study is to examine the economic aspects related to community mixing and cohesion in England since the urban regeneration policies of the 1990s. That is, why mixing communities based on income levels is considered to be desirable. This will begin with a look at the key data trends of community mixing. We shall consider the social welfare and equity implications of segregation of the economic classes, and question whether policies aimed at mixing communities are in themselves effective in promoting social equality and improving welfare of the poor. We shall then suggest why the opposing force of segregation occurs, the challenges of improving mixing and propose policies for the government to achieve the aim of economically diverse yet cohesive communities. The concept of mixed communities is not new. Historically in England, mixed communities served an expired purpose. While ‘the rich man was at his castle, the poor man was at his gate’ but available to serve him. This servant-master relationship is no longer a custom now. So the purpose of mixing communities has changed. Now, we seek to enhance opportunities for the poor by allowing them to live in areas where the rich reside and where there are likely to be better services, amenities and facilities to take advantage of. The government’s Five-Year Plan for housing and neighbourhood revitalization document ‘Sustainable communities: People, Places and Prosperity’ states the “aim to create neighbouhoods with a more sustainable mix of tenures and incomes and address the problems of worklessness, skill, crime, poor environments and poor health.” (ODPM, 2005) This shows the attention the government is giving to mixing communities. The objective of the UK government is clear: it is determined to reduce poverty and improve social equality. And, it sees mixing of communities based on tenures and incomes as the way to achieve this. This thinking is part of the wider ‘new identity politics’ in which shared identities are believe to contribute to progressive goals such as “fostering communities in which people from different backgrounds get along well together” (Rogers, 2007), 3. Key data trends 3.1 The extent of community segregation in England since 1991 A common measure of segregation is the Index of Dissimilarity. The Meen report on Economic segregation in England - causes, consequences and policy (2005) noted that segregation based on unemployment is “heavily concentrated on the older industrial northern and Midlands areas. This does not necessarily suggest a North-South divide but shows that “patterns of segregation depend on which indicator is employed. The finding should be assessed bearing in mind that community missing has been an integral part of government policy since 1991. Despite these policies, no decline in segregation has been observed although the report points out that “there are difficulties in making comparisons over time”. For example, the report showed that Hackney is one of London’s most deprived boroughs based on the deprivation index yet it had a low dissimilarity index. But as this was measuring unemployment it only showed that the rate of unemployment is uniform throughout the borough. It did not indicate whether the actual rate is relatively high or low. Interestingly, Krupka (2007) notes that the degree of measured segregation tends to be greater in larger cities because of the greater number of households in specific income groups able to form segregated communities. 3.2 Patterns of migration Patterns of migration showed that migration is “influenced by levels of deprivation, the age structure of the population, the tenure distribution, labour market conditions and the availability of housing.” (Meene, 2005) However, most moves are short distance and the propensity to move declines sharply with age. Meene made an important observation linking migration and deprivation in that migration “reinforces segregation patterns”. (i) Correlation between living in a deprived neighbourhood and being poor 4. Economic theory 4.1 The idea of mixed communities The idea of economically ‘mixed local communities’ in terms of income, ethnicity and tenure is perceived as an ideal because it is believed to be a mechanism for attaining social equality. But under normal conditions, the direction tends to be towards homogeneity of the backgrounds of people, that is, clusters based on social, cultural and economic similarities. Put simply, the like naturally gravitate towards one another. And, attempting to combine unlike or disparate elements, though it may have benefits for the nation as a whole, requires concerted local government and state intervention. After considering the dynamics of segregation and looking at why it arises in terms of its advantages, we shall focus on trying to understand instead why segregation leads to concentrations of affluence and poverty, and ways to maintain a balance. 4.2 Segregation as a natural tendency “Residential segregation on the basis of both income and ethnicity is a universal feature of all cities in which people have a measure of control over where they live.” (Cheshire, 2007) Despite measures taken to improve mixing, social segregation tends to occur due to income and housing factors besides racial and cultural reasons. Racially and culturally similar groups may also have similar economic traits and tend to concentrate in particular areas due to their natural affinity. For example, areas of London such as Hackney and Brixton are cases in point. The black communities are concentrated in these areas but these places are also amongst the most economically deprived boroughs. The problem of addressing economic inequalities is therefore very much linked with socio-cultural affinities. 4.3 Benefits of segregation Mixed communities may seem ideal, but we could briefly mention some advantages even of segregated communities. Placing people from different income groups together suggests that the community is less inclined to be deprived, and becomes more stable instead. However, the issue of desirability of this egalitarian scenario is worth considering. Living in segregated communities gives a greater chance of living in the same neighbourhood as those in the same social class, so greater ‘mixing’ is perhaps more likely in ‘unmixed’ communities. If they also happen to be of the same religion, race, culture, language, education, skills, tastes etc. this naturally strengthens the bond. In this way, due to their greater affinities with others in the local community, the poor are better able to intermingle with others and thus benefit mutually. This could mean for instance, ease of establishing contacts to find jobs. So, if the primary drive for cohesion is socio-culture rather than income, is it economically desirable to separate members of a particular cultural, linguistic, racial or religious group? It would be more advantageous for certain people to live close to those with whom there can be greater mutual understanding and opportunities for interrelating. Poor immigrants especially, being new to the UK would much prefer living close to people with whom they are familiar, who share a similar background, and can rely on for support rather than more affluent areas where they would struggle to fit in and may even be the target of racial prejudice. Clearly then, there are other priorities too than promoting mixing alone. Specialised markets too are established only where there is sufficient demand. Segregated communities, whether concentrations of the poor (based on income) or sharing one or more of the other characteristics listed above, are more likely to find their specific requirements catered for. So, there can be consumption benefits to be had too simply by living in or moving to pockets of ‘agglomeration economies’. The social and economic costs of mixing communities must therefore not outweigh those of living in segregated ones. The effects on existing households of poorer families moving into their community has also not been adequately studied. Moreover, decentralization of production and increasing globalization has the potential for enhancing community economic stability too. Segregation may very well be an indicator of income inequalities rather than being caused by it. So, it is questionable whether mixed communities are really an effective means of reducing social and economic deprivation, and eliminating social exclusion. 4.4 Causes of segregation Segregation due to economic reasons has two main influencing factors viz. income and housing. The most economically deprived boroughs typically have dilapidated infrastructures, poor services and amenities, and high crime rates along with low incomes. And, the main reason is the value of living in such an area. It is perhaps obvious that poor people simply live where they can afford to and the well-off who can afford more prefer to live in better places. It is not out of choice that the poor live where there are likely to be other poor people, poor services, high crime etc. They too would prefer to live in nicer places but just cannot afford to do so. The fact that this does not help in alleviating the problems of deprivation faced by the community, as it invites an influx of even more poor families and so the poor just get poorer, is due to the vicious nature of the poverty cycle. Thus, poverty is the key problem that must be addressed from all angles and not merely relocating families. 4.5 The web of poverty “Mixed neighbourhoods treat a symptom of inequality, not its cause, and the problem is poverty and not where people live… there is scant clear-cut evidence that making communities more mixed makes the life chances of the poor any better.” (Cheshire, 2007) That lack of opportunities leads to low incomes and affects the life chances of individuals is known as the ‘neighbourhood effect’. The real issue then, are the problems that stem from concentrated poverty in specific areas. Figure 1 The poverty cycle (poverty gets concentrated when large numbers of low income families live in the same community) When poverty becomes concentrated in specific areas, the problems in those areas are exasperated and require a ‘helping hand’. For example, the ODPM (2005) observed: “People living in deprived neighbourhoods are less likely to work, more likely to be poor and have lower life expectancy, more likely to live in poorer housing in unattractive local environments with high levels of antisocial behaviour and lawlessness and more likely to receive poorer education and health services. Living in a deprived area adversely affects individuals’ life chances over and above what would be predicted by their personal circumstances and characteristics.” (ODPM, 2005, p. 6) This shows that the problem is more complex than a simple relocation issue. An effective policy must have a comprehensive approach that deals with all parts of the web of poverty. 5. Empirical analysis 5.1 Previous foreign experiments Joseph Rowntree’s village established in New Earwick in the USA at the beginning of the 20th century sought to provide a range of housing for both the rich and the poor (Joseph Rowntree Foundation). The foundation named after him have an understanding of the causes of the disadvantages based on their experience in tackling poverty in this way. They have demonstrated that mixed communities do not have the same problems common in low-income areas but also recognize that “the development of mixed communities alone cannot create stronger, more sustainable and more resilient communities.” (Cheshire, 2007) Their key findings also noted that there was no evidence of increased social capital and that mixed communities did not tend to lower the prices of houses for sale or put off potential buyers. Design, location and quality instead determine the sales and price levels. More recent than the JR experiment was the ‘Moving to Opportunity’ (MTO) scheme carried out in five US cities. But, the MTO scheme proved to be expensive, and only initially was it “demonstrated that beneficial, statistically significant changes have occurred in families’ lives within two to four years of their participation in MTO.” (Goering et al., 2002) To examine more long-term effects, a later study of the same scheme that also looked specifically at the 15-25 age group, failed to find any significant differences. (King et al. 2005) Other European countries too have experimented with mixing communities but not on a wider scale as in the UK and US. The current Bahria Town projects in Pakistan are examples of similar large-scale attempts in a developing country but they are still in their early stages. 5.2 The experience of mixing in the UK It is a learning experience to consider what happens when mixed communities are deliberately formed. In the UK, the development of Bedford Park in Chiswick and Hamstead Garden Suburb in London, and Harlesdon City Challenge programme also in London, were aimed at establishing mixed income communities. We shall examine the latter. The Harlesden City Challenge programme lasting five years and involving an injection of £37.5 million into a small neighbourhood amongst other strategies provided successful training and reduced the fear of crime. But strangely, unemployment had deteriorated. An explanation is that those who had improved their labour market position chose to move out to more prosperous areas and were replaced by disadvantaged new families. This ‘churning’ effect shows that “if a person living in a deprived neighbourhood improves their employability and gets a job, they have a much increased probability of moving out to a better neighbourhood.” (Cheshire, 2008) The real success of this programme was that it induced the mobility of individuals to move from deprived to less deprived areas. This also shows the importance of a city and nationwide programme rather than isolated ones in specific areas so that this phenomenon is minimized for the benefit of all. 5.3 The choice of location The key factors that affect (or attract) choice of location are business opportunities, amenities esp. schools, markets, infrastructure (built environment), local services e.g. utilities, leisure facilities. socio-cultural factors, and crime rates. In addition, the natural landscape, security, pollution levels, proximity, neighbours etc. are other factors. The key factors that determine (or limit) choice of location are income, house/land prices, business ties, family, friends and relations, other socio-cultural affiliations, personal tastes, requirements and demands, and mobility. This is illustrated in figure 2. Figure 2: Choice of location (Key factors that affect and determine choice of location) No doubt, people in affluent areas have access to better services, amenities and facilities. This is what usually attracts people to when choosing to reside somewhere except that they are limited by economic constraints. The fact is that nicer places cost more, and ‘location specific’ goods and services can only be enjoyed by living in their vicinity. The two major economic limiting factors are income and house prices. The two go together though. If income is sufficiently high such that houses in better off areas can easily be afforded, then house prices are not a major constraint either. On the other hand, if income is low then house prices are also a great restriction to choice. Incomes and house prices are affected by conditions in the labour and housing markets respectively. If we consider house prices, we can safely assume that whereas demand may be high during non-recessionary periods and is proportional to income levels, supply is highly inelastic in the UK unless new developments are made. Any pressures that cause a shift in demand would normally result in a sharper increase in price as illustrated in figure 3 on the right. Different localities will have different conditions and pressures but house prices are still determined by similar factors identified above. In a market economy, access to desirable places is purely competitive; those who can afford it will be able to buy their way into affluent localities, and those who cannot, will be priced out. It should also be clear that the variable of income is not absolute but relative to the income of other households who compete for the same places. 6. Policy recommendations The consequences of forcefully mixing communities must be considered before advocating doing this on a wider scale. It may be that this policy cannot be justified if there are more feasible alternatives to tackling poverty and achieving social equality. Resources must be directed at workable and effective solutions. In implementing direct measures to mix communities, it is important to tailor them to local market conditions. “In the most severely deprived places, radical physical and social interventions should aim to transform concentrations of poverty into mixed income communities.” (Berube, 2005) Policies aimed at social equality are essential otherwise the natural tendency of segregation eventually leads to a sharp demarcation of society in which the poor get poorer and the rich get richer. Segregation can lead to deprivation of poorer areas with the resultant characteristics of poor services, high crime, failing health and so on. It should be a priority to minimize the ‘neighbourhood effect’ where living in a deprived neighbourhood reduces a person’s chances in life. The government should aim to focus on providing opportunities especially for the poor, and this it can only do by implementing social and economic welfare policies. The targets for the main thrust of the policies should be the labour and housing markets because after all these two determine spatially where people live and what they subsequently have access to. Instead of focusing entirely on strengthening the mixing of communities, there should be a range of policies that overall help to uplift deprived communities and contain the poverty cycle. Some salient recommendations of such a comprehensive policy are given below: Planning permissions for housing schemes must ensure that sufficient land allocation is made for constructing ‘affordable housing’ for lower income households. Income redistribution policies to raise the Gini coefficient, for example through subsidies, taxation, and grants would ease the major restriction of low income in relocating Investment in education and training in order to improve labour force skills. As high unemployment is characteristic of areas with concentrated poverty, unemployment reducing measures should be given priority. Much of Britain’s unemployment is structural. So Keynesian policies of greater investment in these areas is a necessity to prevent further deterioration. Again, area deprivation requires investment to make the infrastructure, services, amenities, facilities etc. more attractive as well as by improving security and reducing crime for example. Fiscal measures could include income based tax levels so that the poor would not have to pay higher for living in affluent areas. Policies aimed at improving individual and business mobility and the labour market in general. This would provide the opportunities for people of low-income backgrounds to work in places where higher incomes can be earned. Likewise, encouraging businesses to locate in existing low-income areas may be easier than relocating lots of people around. These points are summarized in the table below along with brief mention of some further possible measures. Part of the poverty cycle Alleviating measure Low incomes Redistribution of income policies Weaker purchasing power Establishing affordable housing in better off areas Gravitation towards poor areas Encourage mixed communities Economically segregated communities Mixed community policies to relocate families Area deprivation Investment in deprived areas Infrastructural development Improvement in services and amenities Better security and crime reduction Lack of opportunities Enhance mobility of individual and families Entice businesses to relocate through incentives Invest in education and training Policies to reduce unemployment Table 1: Alleviating measures 7. Conclusions A better understanding of mixing in communities requires a thorough study of the dynamics of social change and an investigation into why the opposing tendency of segregation occurs. A comprehensive economic policy would also need to discourage this phenomenon besides just promoting mixing. In addition, there must be direct measures targeted at the individuals and families of those communities. This is to be achieved by increasing mobility and redistributing wealth, influencing the location of businesses and industries and so on. There is also a need to stress the importance of ensuring overall economic stability more than reducing localized economic inequalities. Though we have seen some potential advantages of mixing the economic classes in a single community, the experience suggests that as far as tackling poverty and inequality is concerned, we must not be complacent that this strategy alone will be successful. Greater opportunities for the poor also need to be provided by more direct means of wealth redistribution. However, we should strive to establish and encourage mixed communities for the benefits and opportunities that they do bring and use this as a base for further economic policies. Even if poverty were too big a problem to be tackled entirely, dispersed poverty would definitely be more acceptable to concentrated poverty as the latter would become breeding grounds for only exasperating social inequalities and deprivation. Segregation appears to be a natural tendency if the situation is left to itself. But, for the sake of promoting greater social equality, the government can implement a range of measures that target each part of the poverty cycle identified in this study. These were summarized in the table above. Also, projects should not be conducted in isolation because that only transfers the problem of poverty around. Instead, it should be part of a national strategy. 8. References Berube, Alan. (2005) Mixed communities in England: A US perspective on evidence and policy prospects. Brooklings Institution. Joseph Rowntree Foundation. Available from: www.jrf.org.uk. Blake, Geraldine et al. (2008) Community engagement and community cohesion. Joseph Rowntree Foundation. Available from: www.jrf.org.uk. Cheshire, Paul. (2007) Segregated neighbourhoods and mixed communities: A critical analysis. London School of Economics. London. Department for Communities and Local Government. (2008) Cohesion Delivery Framework: Overview. London. ISBN: 978-1-4098-0219-8. Goering, J et al. (2002) ‘A cross-site analysis of initial moving to opportunity demonstration results’, Journal of Housing Research, Vol. 13, No. 1, pp. 1–29. Kling, J et al. (2005) ‘Neighbourhood effects on crime for female and male youth: evidence from a randomised housing voucher experiment’, Quarterly Journal of Economics, Vol. 120, No. 1, pp. 87–130. Krupa (2007) qtd in Cheshire (2007) Segregated neighbourhoods and mixed communities. Meen, Geoffrey et al. (2005) Economic segregation in England: causes, consequences and policy. Joseph Rowntree Foundation. 7 Dec. 2005. ODPM (Office of the Deputy Prime Minister) (2005) Sustainable Communities: People, Places and Prosperity, Cm 6425. London: HMSO Rogers, Ben and Muir, Rick. (2007) The Power of Belonging: Identity, citizenship and community cohesion. Institute for public policy research. Available from: ippr.org.uk. Shaffer, R et al. (2004) Community Economics. 2nd edition. Blackwell publishing. Read More