Keynote speech “A new equilibrium for regions & cities?” at the Conference ‘Rethinking local development strategies in light of COVID-19’

(Source: European Commission)

“Check against delivery”

Dear President Fugatti,

Dear Deputy Secretary Takeuchi,

Dear colleagues,

The recent crises have served as a wake-up call for Europe, and indeed for the world. From Covid, to the Russian aggression in Ukraine, to the ongoing climate emergency, these crises challenge our ways of thinking, and our ways of living and doing business.

How does all this impact the local level? And how can we ensure that regional and local actors have the capacity and the means to address them? These are questions that will determine our quality of life for years to come.

And today, we examine precisely these questions. The local level is sometimes overlooked in discussions of geopolitics  and economic growth.

But let me assure you, for all Europeans, and for ordinary people across the globe the local level is the most relevant!

Because we all want a good job close to home. Affordable housing, in a nice neighbourhood, with a clean environment, and good hospitals and schools. Local development is about daily life!

And even the bigger picture issues, from innovation to the green transition, have strong local roots. Innovation systems, and the networks that sustain them, are local!

And the green economy, from energy production, cycling to work, to recycling systems, must start at the local level.

Local development is a crucial element, of all the big picture issues we face today.

And often an overlooked element. But not today! My thanks to the organisers of this excellent event. You are correct in saying that Covid reminded us of the importance of place. Lockdown made us even more local.

And you are also correct in saying that as we build back better, as we look for that new normal, it gives us a chance to do better, on a wide range of issues, including local development.

You asked me to reflect in particular on the theme “Is there a new equilibrium for regions and cities?” and how to make “local development fit for the future?”.

I will structure my reflection around 3 key questions.

First, the long term trends for regions and cities: what remains of the “old equilibrium”?

Second, what role for place in the “new equilibrium” of upcoming structural transformations?

Third, what must we do to make local development, fit for the future?

So I will start with the long term trends for regions and cities: what do we learn from the “old equilibrium”?

First, I think we learn that it was not an equilibrium at all! At the very least, it was a “dynamic equilibrium”. The World Bank, in their 2012 “Golden growth” report, called the EU a “convergence machine”. Through the 2 key motors of economic integration and redistribution the EU has generated growth for all its citizens. And cohesion policy is a key element of both motors.

And the machine has worked! Over the last 2 decades, poorer regions have been catching up and development gaps have reduced across a broad range of indicators: from productivity and employment, to health, to poverty and social inclusion. Annual growth rates in the less developed regions were, on average, 0.5 percentage points higher than the EU average. Over a period of 20 years that adds up to significant convergence.

However, progress was not continuous and not evenly spread. Convergence accelerated in the fair winds of economic boom. Convergence stopped, or even reversed, in the storms and headwinds of crisis.

For example, the 2008 financial crisis caused a decline in EU GDP/head between 2009 and 2013. The worst hit regions were often the poorest, as the crisis fell heaviest on Southern countries as well as Romania, Ireland and Finland. Convergence on average, and the reduction of disparities, only started again in 2013. But some regions, especially in the South, have experienced stagnation and decline since then.

And even in 2019, public investment had not reached pre-crisis levels. Cohesion policy played a crucial role as an automatic stabiliser. In the 15 cohesion countries, cohesion investments rose from 34% of total public investment in the 2007-13 period, to 51% of total public investment in the 2014-20 period.

Covid was also asymmetric in impact. All of us were affected, in one way or another. But, as with the financial crisis, some places suffered particularly badly. For example, for regions dependent on tourism and cross-border activities. And the crises continue: with the Russian aggression in Ukraine we are experiencing refugees, rising fuel costs and food costs. These will again fall particularly heavily on some regions and cities.

Moreover, there is evidence that convergence for some regions and cities may have a glass ceiling. The 8th cohesion report on the situation and trends of Europe’s regions and cities noted a middle-income trap. That is to say, convergence for the poorest regions, but stagnation for poor to middle-income regions, especially in Southern Europe.

There can be many reasons for this but one in particular stands out: these regions are often less innovative, and less productive than the better performers. Their costs tend to be too high to compete with less developed regions, while their innovation and education systems are not strong enough to compete at the global level with more developed regions.

So this was the “old equilibrium”. Long term convergence, driven by European policies, including cohesion policy. But interrupted by crises, and for many regions, the development gaps became development traps, convergence with a glass ceiling.

What then are the characteristics of our “new equilibrium”? Again, I see this more as a direction than an equilibrium. And this direction is profound structural transformation for every region and city. Transformation that can be described in 4 key words: digitalisation, innovation, greening and demography.

But these 4 different transformations have 1 thing in common: to succeed for all Europeans, they must have solid local roots.

First, transformation in terms of digitalisation. We saw this in Covid, which acted as “a great accelerator” of existing trends. New remote working and learning practices will in the long term trigger new patterns of settlement and new patterns of daily mobility.

And I think this is very exciting news for local development: we have the opportunity to create a new regional paradigm, moving jobs from congested cities, to the high quality lifestyle of small towns. This could be a win for all concerned.

However, the digital transition will require major investments to expand very-high-speed broadband, in particular beyond capital regions, to boost IT skills across generations and to develop IT equipment. One of the key priorities of our new cohesion programmes is to close the digital gap, including between rural and urban areas and in particular in depopulated areas.

Second, transformation in terms of innovation. To be resilient in future crises, regions must have a more diversified, more modern, innovative economy.

And this is a challenge. While innovation is the key determinant of long-term regional economic growth, the innovation divide has widened in recent years, with agglomeration of high-value activities in advanced areas. To reverse growing polarisation between regions we need better territorial roots. Because innovation is complex and requires a critical mass of actors, brought together at the right territorial level. And this is one of our key goals in the new cohesion programmes.

Third, the green transition. Getting rid of fossil fuels has always been urgent, as a climate problem.But now, even more than before, it is also a geopolitical problem. This gives a renewed sense of urgency to the climate agenda.

The shift to a climate-neutral, circular economy will generate many benefits, including new industries and new jobs, from batteries and solar panels, to recycling and renovation. And these must all have local roots.

But some regions will face heavy adjustments. Through the Just Transition Fund, Europe is supporting areas dependent on fossil fuels, to diversify and move to new activities. And throughout the new cohesion programmes we are encouraging regions to find the green opportunities, from renewable energy, to renovation.

The fourth transition is demographic. In future, more and more regions will need to adjust to a shrinking population. Currently, 1 in 3 Europeans live in a region with shrinking population. By 2040, this will be 1 in 2 Europeans.

A particular challenge is the “brain drain” of young people, which has crucial implications for the long term health of the region, especially in small towns and rural areas.

So we must do all we can to make regions attractive, providing attractive modern jobs and the full range of modern public goods, so that when young people leave a region it is by choice, not by necessity.

So these are the challenges. On the one hand, the challenges of the “old equilibrium”. Longstanding challenges such as development gaps, development traps and asymmetric shocks. These challenges have not gone away.

On the other hand, the “new equilibrium” brings new challenges and new opportunities. The modern economy – green, digital and innovative – could bring new jobs to new places. But this will require investment, to make sure that the new activities have strong local roots.

And many regions will need specific help, to ensure that in the new economy, and the new demography, they are not left behind.

This starts at the local level. The new cohesion programmes have to be built on solid regional, and territorial, development strategies. Because the regional and city levels, are where the different needs and systems interact. From the innovation and business networks, to the energy grids, from transport and mobility to schools and hospitals, all the systems must be in place, and all the bottlenecks unblocked.

Such a development strategy will only work if it is designed, implemented and co-owned with regional and local stakeholders.

But at the same time many of the new challenges require institutional changes across many different areas. Changes which can only be achieved by multi-level governance, cooperation, between the different administrative levels.

For far too long many horizontal policy instruments have turned a blind eye to their spatial impacts. This cannot continue.

Other structural policies, designed at European and national level, must open their eyes to their regional and local impacts.

Key policies, at all levels, must be “regional proofed”. Key policies must “do no harm to cohesion”, that is they should not hamper convergence, nor increase inequalities.

And we must all work with, learn from, and increase synergies with other policies, from economic governance to innovation and climate.

Let us all think territorially and encourage others to do the same. Developing a sensitivity to the different needs of different areas. Growing local roots.

Something which has encouraged me is a new spirit of solidarity and energy, at the European level.

For the financial crisis, it arguably took 4 years for Europe to formulate a coherent response. In Covid, it took just 4 months, and emergency support under cohesion policy was on the ground in less than 4 weeks.

And territorial needs were written into the DNA, not just of enlarged cohesion policy, but the whole European recovery package. The series of recent crisis imposed rapid reactions and wider scope of action. However, it is important to maintain and continue developing a framework for planning, evaluation, coordination and capacity building. Cohesion Policy is the backbone of this EU strategy.

Dear colleagues, I will finish with a reminder of the stakes here.

We cannot allow a future economy set up for continued regional divergence: concentrating growth, and attracting innovation and talent in just a few places, while other regions fall behind.

The costs are not only economic. The geography of discontent, is the feeling that your region is left behind, and that your place is forgotten. And the geography of discontent is a challenge to our democracies. And it is a challenge, to our European values of solidarity and human dignity. All Europeans should feel that they matter and that their region matters.

This is why local development is such a big picture issue. Because people should have hope.

So let us discuss the practical issues of creating and implementing a sound local development policy.

Let us discuss the tough questions, of how to solve development gaps, before they turn into development traps.

And let us discuss how to give horizontal policies, at the European and national level, deeper territorial roots.

But most of all let us give people hope. The firm promise that their region and city has a future, and that it will not be left aside!

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