Shortly after Theresa May appointed Andrew Percy as Minister for the Northern Powerhouse in July 2016, Percy called the architect of the policy, Jim O’Neill, to ask his advice. “He was supposed to be going up North to talk in a number of cities,” O’Neill recalls, “and Number 10 had told him, the day before he was due to go, that he couldn’t use the phrase ‘Northern Powerhouse’. So he called me up to say, ‘what should I do?’ And I said, ‘maybe you should get a new job, mate’… jokingly.” However friendly the remark might have been, O’Neill found himself at odds with May’s chiefs of staff, Nick Timothy and Fiona Hill, who he said “tried to kill” the Northern Powerhouse project. He resigned from the Treasury two months later.
That O’Neill was the first of May’s ministers to leave should have been an omen for the new PM; the former Goldman Sachs chief economist has long been valued as an expert in recognising where things are headed. In 2001 he famously predicted that the “BRIC” (Brazil, Russia, India, China) countries would overtake the leading Western economies in 30 years. The insight was only strengthened by the global financial crisis – in 2010, the Financial Times reported that “during the great re-reckoning, the Brics concept has flourished”. In 2011, as the Greek debt crisis began to pull at the seams of the Eurozone, O’Neill pointed out that China’s growth produced “the equivalent of another Greece every 12.5 weeks”. More recently, his favourite fact is that “Germany’s number one trading partner is now China; Germany exports more to China than it does to Italy.”
In person O’Neill is amiable and frank, his manner still more Wythenshawe than Wall Street. “I should blinkin’ hope so,” he replies when told that councillors in the North credit him with doing more for the Northern Powerhouse than Jeremy Corbyn or Theresa May, “Seeing as it’s my baby. My idea.”
“The very first spark of it in my head,” he says, happened when O’Neill was chairing a meeting of the Cities Growth Commission in Manchester, early in 2014. A Mancunian and proud United fan, O’Neill noticed “a few Liverpudlian voices in the audience… I thought to myself, here are these great rival places, 38 miles apart, and slowly, over time, they’re creeping together. You have people in a Manchester audience with Liverpool accents. That didn’t happen when I was a kid, all we ever did was fight.” As a representative from Peel Ports, a business involved in both cities, began to speak, O’Neill thought about combined power. “And I said, ‘what do you think about the idea of ManPool?’”
What may have sounded like an off-the-cuff remark – “I could see [Manchester councillors] Richard Leese and Howard Bernstein thinking, what’s he on about?” – was an observation in line with O’Neill’s earlier economics. Just as he had identified in the BRIC countries large populations, economic potential and the political will for growth, O’Neill saw “that within a 40-mile radius of Manchester [an area he upgraded to ‘ManShefLeedsPool’], you’ve got eight million people. And if you can create essentially a single market, you’ve got a game-changer, because you’ve got something, along with London, that registers on the global stage.”
How does an economist like O’Neill predict where growth will occur in the north of England? One powerful indicator is PMI – the Purchasing Managers Index, a monthly survey of business activity. “In terms of cyclical momentum,” he explains, “I’ve believed for decades that the national PMI is the best monthly indicator of what’s actually going on in the UK. Ever since I’ve been in government, I’ve tried to focus on [regional PMIs] as a high-frequency indicator of what’s actually going on in the country.” These regional PMIs are important to the North because they indicate where business is picking up, and so far that’s happening in one area in particular. “For the past two years, the North West has been outperforming London” in terms of PMI growth. The most recent PMIs show a 40-month high for the North West, “easily the strongest in the country”.
O’Neill admits he’s “not sure” what is driving this growth. “But I suspect it’s something to do with Greater Manchester’s leadership, and Greater Manchester being at the geographic centre of this Northern Powerhouse thing. It’s supported by some other bits of data that are available,” he adds, pointing to house price trends and employment indicators in the North West.
With no seat to defend or party to appease, O’Neill is free to acknowledge bluntly the North West’s large population and closely situated cities as the factors that matter to an economist looking at the north of England. “The guys in the North East get very upset when I repeatedly say that. It implies that they’re not part of it. Socially and politically and human-wise,” he concedes, “it has to involve all the North, but I love to emphasise to people – don’t forget, from a policy perspective, that [the economic power of the North West] is the only thing that makes it of interest.”
All the same, O’Neill has an encouraging prediction. “I feel that the North East might be on the verge of an improving moment,” he says. “I smell an opportunity.” Alongside pockets of growth and burgeoning industries growing from technological development, O’Neill says the North East will “see devolution working in places like Manchester and Birmingham,” and get past “all this nonsense in Yorkshire and the North East about fighting with each other and not wanting a mayor”.
In 2001, opponents of O’Neill’s BRIC theory said it was unworkable because the distances between the countries would prevent them working as a bloc. O’Neill’s insight was that in a truly global economy, what counted was how close they were in economy and population size. The distance between Liverpool and Newcastle, then, is not nearly as important as how they act – especially if their businesses are, as he strongly recommends, seeking to trade with India and China.
“Germany is the classic example, contrary to standard international trade theory about how distance is so important. Certain German cities have been transformed – Hamburg, and to some degree Munich, function indirectly off China. Hamburg because of its port, and Munich because of Siemens and BMW.”
O’Neill says trade with the world’s two billion-plus nations is so important that it should be recognised in the structure of our government. “We should have a Minister for China, a Minister for India, so that we’re being serious about trying to get close to what Germany has done.” The current government’s approach to these huge markets he describes as “mucking about with the occasional visit, and Boris and his mates going off to New Zealand every other month.”
This, he says, is “particularly important from a Northern Powerhouse perspective. Because the Chinese, as a single-party state, like nothing better than trying to shift growth around the country. They’ve spent the last decade deliberately shifting growth from the coast inland. The Chinese really get it.”
For O’Neill, the fact that China is the largest totalitarian state the world has ever seen is not particularly relevant to whether the UK should try to establish firmer economic ties. “As a human being,” he acknowledges, “I am very happy that I’ve been raised in Britain, with the values that we have. But if you want to be successful in international trade, you can’t be dictatorial about how the world should be.” The UK can hardly wag its finger at China, he says, while it makes billions from arms deals with repressive regimes such as Saudi Arabia.
Encouraging international trade is more important to the economy than ever in the light of the decision, opposed by O’Neill and 80 per cent of the government he worked for in 2016, to leave the EU. Many Remainers, he says, “argue that trade policy is an end in itself. But what we need to focus on is trade policy as part of an overall economic policy. It is clear that in many parts of the country, the way that global economic development has gone in the last 30 years, a lot of people don’t feel like they’ve benefited, whether that’s true or not. And it’s clear, if you look at how trade has evolved, that certain communities have suffered.”
Had this been taken into account earlier, 2016 may have been a very different year. O’Neill describes meeting his then-boss, George Osborne, on the morning that David Cameron resigned. “I said to George, the day after the referendum – if somebody had started this [the Northern Powerhouse] five years earlier, we might have voted to stay in.”
O’Neill, who has described himself as a “dispassionate remainer”, calls the current Brexit debate “staggeringly emotional”, and it is his attitude to Brexit that gives the clearest picture of how he thinks about economics. For him, the decision is made, and time spent arguing about it is time that could be better spent figuring out where growth and profit are likely to occur as a result. “One of the few things I learnt in 30 years in finance,” he concludes, “is to never let a crisis go to waste.”
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