Fortnightly insight into the current state of the economy and how it relates to Dorset by Nigel F Jump, Chief Economist of Strategic Economics Ltd (a Dorset Company) and Visiting Professor in Economics at the Universities of Bath and Plymouth.
See: www.strategiceconomics.co.uk
Economic growth is measured by the rate of change in real output in a given time period, usually a year or a quarter. We call this real gross domestic product (GDP). It is calculated as the percentage change in the sum of economic activity (total output, expenditure or incomes). It is driven by two components: changes in productivity and changes in employment.
In the short run, increased use of labour can increase growth. But, in the long run, high employment is only sustainable if workers increase their productivity through skills acquisition (training and experience) and innovation (in technology, product and process). Improvements in productivity, then, are the holy grail of long-term economic performance and higher living standards.
The ONS has released its latest productivity statistics for Dorset County and Bournemouth and Poole (combined) in terms of Gross Value Added (GVA – a similar measure to GDP) per hour in 2011. Compared with the UK average, set as an index of 100.0, Bournemouth and Poole was 98.2 and Dorset County was 85.0: 1.8% and 15% below average respectively.
It is normal for more rural areas to perform less well than urban areas on these productivity measures, for the obvious reason that (high value) economic activity and jobs tend to be concentrated in towns and cities. It is also normal for most areas to be below average because the UK average is pulled upwards by the economic domination of London and parts of the South East. In short, respective ratios of 98.2 and 85.0 respectively are not bad.
It is more useful, though, to compare urban and rural Dorset with similar areas and to look at their progress over time.
First, looking by place, the table below shows productivity indices in Dorset’s two main areas in comparison with those of its neighbours. It reveals that rural Dorset is not that dissimilar to its SW neighbours (Devon and Somerset) but that there is room for improvement compared with the Wiltshire and Hampshire (which benefit more from SE agglomeration effects). Bournemouth and Poole is similar to Southampton but well below Swindon and Bristol: again indicating some potential for future growth.
GVA per hour 2011
| Urban | UK =100 | Rural | UK = 100 |
| Bournemouth & Poole | 98.2 | Dorset | 85.0 |
| Swindon | 113.9 | Wiltshire | 96.5 |
| Plymouth | 91.8 | Devon | 86.2 |
| Bristol | 105.2 | Somerset | 85.6 |
| Southampton | 98.4 | Hampshire | 109.7 |
Second, over recent time, Bournemouth and Poole has seen its relative productivity increase from 5.5% below the UK average in 2006 to 1.8% below in 2011. Dorset’s equivalent trend is negative, falling from 11.3% below to 15% below. In other words, during the downturn, urban Dorset has performed better than its more rural areas and the gap between them has widened.
This is a common trend and probably reflects a range of factors, including that the main areas of recent prolonged weakness in our economy have been in domestic consumption by households and the public sector. In share terms, these elements of spending are more important to rural areas. It will also reflect the comparative weakness of business investment and net exports outside the towns. In essence, Dorset’s productivity gap between town and country has widened from 6% in the mid-2000s to over 13% in 2011, undoing the previous closure of the gap.
There are several implications of this. To consider just three:
§ economic activity is still getting more concentrated over time;
§ Dorset’s future growth will probably be lead by the conurbation; and
§ the urban-rural split will encourage further local commuting.
Importantly, rural areas may be relatively unproductive (workplace) but that does not mean they are relatively poor (residence). The income ranges do tend to be wider and rural deprivation can be more hidden. Nevertheless, there is wealth in rural Dorset.
These productivity numbers are important and interesting figures. The question is whether anything can, or should, be done about them in terms of future development intervention.
At one level, such urban-rural differences in economic performance are ‘natural’ and support the non-economic characteristics of Dorset that many would wish to protect. Would we want Dorset to advance to the economic performance of Surrey, if it meant similar levels of population density and congestion?
At another level, development agents, such as the Dorset Local Enterprise Partnership, need to consider whether it is their aim to close productivity differentials over time, within or without the county, by supporting “the worst”, even at the cost of some overall growth, or whether they are happy to widen the productivity gap further by supporting “the best” in a search for maximum growth and jobs.
My personal view is that a gap of over 13% in relative productivity within Dorset is too large but some of this is due to the prolonged downturn. A recovery would narrow it somewhat, though not back to 6%. As to intervention, those with the decision-making authority to spend our money on local development need to be careful about how they do it, taking full assessment of the differential impact on environmental and economic effects across the piece. Rather than a rush for growth at any cost and of any sort, perhaps a race for ‘clever’ growth and jobs.
Professor Nigel Jump, 15th April 2013
