One Car, Two Car, Red Car, Blue Car Speech given by Andrew G Haldane, Chief Economist, Bank of England  Materials Processing Institute, Redcar 2 December 2016  The views are not necessarily those of the Bank of England or the Monetary Policy Committee. I would like to thank Mauricio Armellini, Sandra Batten, David Bradnum, Ben Broadbent, Angelina Carvalho, Fergus Cumming, Jeremy Franklin, Alex Haberis, Andrew Hebden, Gabor Pinter, Alice Pugh, Tom Smith, Gertjan Vlieghe, Matt Waldron and Chris Yeates for comments and contributions. The title draws its inspiration from “One Fish, Two Fish, Red Fish, Blue Fish” by Dr Seuss, a children’s book first published in 1960, whose use of simple language contains an important lesson for economists like me. 1  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  As someone whose family hails from the North-East, and who themselves was born in the North-East, it is wonderful to be here in Redcar. Regional visits like this are crucial for the Bank of England. They enable us to take the temperature of the local economy by speaking to a broad cross-section of businesses, charities, social enterprises, schools, further and higher education institutions and trade unions. Here in the North-East, it is clear the temperature of the local economy is not as high as either you or I would wish. Despite having come down rapidly over recent years, the unemployment rate, at over 6%, is still higher than for any other region in the UK.
5  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  5  What is true across time is also true, by and large, across regions. Chart 5 looks at a regional map of firm-level productivity, where productivity is measured as output per hour worked. This map is built up from several sources of data on output and employment collected by the ONS using surveys covering tens of thousands of firms across all regions in the UK and all sectors of the economy. 10  It paints a pretty  comprehensive picture of the regional workings of the UK corporate sector. This productivity map suggests, perhaps unsurprisingly, a wide degree of regional dispersion. The most productive region (London) has firms with levels of productivity almost 60% higher than those in the lowest productivity part of the UK (Northern Ireland). This map matches closely the regional pattern of GDP per head and wages, consistent with Krugman’s conjecture. Much of the regional variation in economic activity and household income derives, it seems, from variations in productivity among firms. These regional maps suggest a simple but coherent story about regional variations in living standards. The more productive a firm, the higher the wage it pays. If levels of regional productivity differ greatly, so too will regional levels of economic activity and household income. So Red and Blue Car regions comprise low and high productivity firms, and thus low and high income households, respectively. This is not an imaginary world; it is the real world.