Mr McDonnell, who was speaking ahead of a Labour Party fundraising event at Featherstone Rovers Rugby League Club, said the north is trailing behind the south in terms of Government spending on infrastructure projects and that lack of investment is preventing economic growth in the north.
Mr McDonnell, the Labour MP for Hayes and Harlington, also spoke about the rail industry’s problems and Yorkshire devolution.
On the economy, Mr McDonnell, said: “I’ll just give one example. If you compare what’s been invested in London and the south-east in terms of transport, the North East gets a quarter of that, in fact sometimes less than a fifth in some years.
“That just cannot be right. It isn’t just the unfairness of it, it’s also the wasting of the economic resources of this region as well.
“You have got a long history of the industriousness of this area, people’s skills when they are given the opportunity and the ability to create a prosperous economy.
“But of course, if you don’t invest in an area it’s going to stagnate and that’s exactly what has happened as a result of this government’s policies.”
When asked how he would improve rail transport following the timetabling chaos in Yorkshire and the North West, Mr McDonnell said: “There are two things that are needed. One is democratic control of our railway system overall and that means nationalising the existing rail companies, bringing them into democratic control, but also a consistent level of investment in the infrastructure.
“Although Network Rail is now in public ownership and democratic control, what it needs is a long stable funding of its infrastructure and more resources.
“But we need an integrated service that’s why we need to nationalise the railway companies so we can plan not just the infrastructure but we can plan the delivery of rail.
“We have asked people what they think And in every opinion poll rail renationalisation achieves anything between 70 and 80 per cent support so it’s popular.
“And also we have demonstrated even under this government When franchises have collapsed and it’s been brought back in to public control actually it’s been very effective.”
On Yorkshire devolution, Mr McDonnell said: “Our view is devolution is up to local people.
“It has to be determined at the local level otherwise it won’t be effective that’s why we are saying government needs to keep listening to local people And local people will be the ones who make the decision under Labour as well.”
A Department for Transport spokeswoman, said: “Our railway franchising system has brought in more than £3.5bn of private sector investment over the past four years. This has delivered more trains, more seats and quicker journeys right across the country.
“We are investing £38 billion in our national network and bringing in more than 3,600 new carriages across the country, including new trains and hundreds of new carriages in the North - all delivered by the franchising system.
“The Secretary of State has been clear that we are reforming our railway, and has set out plans to end the operational divide between track and train, with new approaches being introduced through the East and West Coast Partnerships and East West Rail.”