The economies of the UK and US, among other nations, are increasingly based on unjust forms of democracy that do not align with regional attitudes or support regional equality. This can be seen in the many deprived cities, towns and other “left-behind” areas – those experiencing deprivation on multiple fronts.
Many countries have such places that are in precarious economic and social positions. But in the UK, deprivation in parts of towns and cities such as Blackpool, Hull and Manchester are leading to mortality rates that are higher than some similarly sized towns and cities in Poland, Romania and Turkey.
These places need policies that stimulate inclusive growth to addresses this inequality across the UK. Unfortunately, these lagging localities will struggle to achieve any economic growth at all in coming years, regardless of whether or not government policies promote more equality.
A concept called “bounded rationality” is one of the main reasons why these cities, towns and localities remain locked in a vicious downward spiral, according to my research with Piers Thompson.
What is ‘bounded rationality’?
The term bounded rationality was coined by the Nobel prize winning political scientist Herbert Simon. It explains how people are limited when trying to make rational decisions because of restrictions on their access to relevant knowledge or the capability to understand that information.
In many ways, the notion of bounded rationality is one of the bedrock concepts underpinning what is known today as behavioural economics. While often associated with people, recent work indicates that places – cities, regions, towns and localities – have their own spatially bounded rationality.
This is due to what cultural theorists refer to as the “collective programming of the mind”.
We have found that people living in the same location tend to adopt common cultural and psychological mindsets. Such examples of bounded rationality include when people make similar career choices at university.
It can also influence local government leaders’ decisions about reducing spending on services, for example. These decisions have an impact on economic and social wellbeing.
People’s voting decisions provide another common example. In the case of the Brexit referendum in the UK it has been argued that the results of local-level voting were unexpected because the areas that voted to leave the EU were the most likely to suffer the negative economic outcomes of Brexit.
Other researchers have suggested that even slight changes in local mindsets may have led to a different outcome from the Brexit vote.
The levelling up regime
Either way, this research suggests that rationality is spatially bounded – that is, people’s beliefs and decisions tend to align around local values, which can significantly affect an area.
Our research shows that people living in many places in the north of England and in Wales have very different cultural and psychological personality traits compared with those found, for example, in some London boroughs. These differences affect the economic fortunes of these places.
Of course, one set of traits or mindset is not “better” than another, but some are more in tune with the UK’s national economic model. For example, in these parts of London people are perhaps more likely to prioritise profits (free market capitalism).
This belief system ties in with the UK’s economic system. Also, when more people have an entrepreneurial mindset geared to creating high growth and highly productive businesses, this tends to attract more of these types of businesses, further bolstering the local economy.
On the other hand, we found that mindsets based on values relating to local community action, rather than a spirit of entrepreneurship, are far more common in parts of the north of England and Wales. While such a mindset can generate significant benefits for social development, it does not easily allow these places to improve their economic fortunes under the current system using national-level policies and priorities.
The UK government says it is tackling these challenges with its “levelling up” agenda. Its vision of creating a more economically level playing field across the nation is laudable. Funding a range of economic development initiatives and projects across all regions of the UK will generate positive outcomes.
But this is unlikely to achieve the step change most left-behind places really need. Levelling up represents a largely top-down, one-off, project-driven approach to local economic development.
Read more: The 'levelling up' bidding process wastes time and money – here's how to improve it
Future policy intervention
Instead, and in order to overcome the deep-rooted challenges these places face, they need to regenerate over the long term via effective local decision-making.
A key weakness of contemporary democratic capitalism is that there is a lack of knowledge in many places of the real challenges they are facing, or of potential routes to addressing those challenges. Any future policy intervention should ensure people have better access to knowledge on the state of the place where they live or work.
Local authorities should be mandated to provide accessible, objective and timely information on the local economy. They should provide transparent information through a standard platform on the initiatives that are seeking to tackle challenges, the funding available for these initiatives and the restrictions authorities are facing due to a lack of finance.
This would go some way to addressing issues of bounded rationality. It would help create informed and inclusive development strategies that are established and accountable at the local level.
A number of US cities already provide more transparent economic information on issues like local workforce quality, commuting or access to high-speed internet. This positive step forward should be adopted in the UK too.
Addressing the bigger picture of the crisis of democratic capitalism will only happen with this kind of decentralisation of power to local places. Improved and inclusive governance must also be fostered in these areas.
Without this, democratic capitalism will not just creak on the global stage. Its local foundations will also start to shake.