1 EU Cohesion Policy and Europe’s Shifting Economic Landscape Philip McCann* Special Adviser to the EU Commissioner for Regional Policy, Corina Creţu with

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EU Cohesion Policy and Europe’s Shifting Economic

Landscape

Philip McCann*Special Adviser to the EU Commissioner for Regional Policy,

Corina Creţu

with Lewis Dijkstra ECand Enrique Garcilazo OECD

University of Groningen

* I am grateful to the European Commission Directorate-General for Regional and Urban Policy and to the OECD Department for Regional Development Policy for allowing me to use their figures and diagrams

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1. Structure of Talk

• 1. Structure of Talk• 2. EU Cohesion Policy Reforms• 3. Pre-Crisis: OECD Regional Context• 4. Pre-Crisis: The EU Regional Context• 5. Pre-Crisis: The EU Urban Context• 6. Post-Crisis: The EU Regional and Urban

Context• 7. The Demographic Challenges• 8. Conclusions

2. EU Cohesion Policy Reforms

• Key Influential reports: Barca (2009) Report; OECD 2009 How Regions Grow; OECD 2009 Regions Matter

• New ideas from many sources – economics, international development, science policy, economic geography, political science - Rodrik, Foray, Ostrom etc

• Data on shifting economic landscape – evidence OECD, 5th and 6th Cohesion Reports

• Shock effects of the 2008 global economic crisis

- EU convergence to divergence 3

2. EU Cohesion Policy Reforms

• Key EU Cohesion Policy reform elements• Conditionalities• Results-orientation and the use of results

indicators for monitoring, evaluation and learning• Smart specialisation• Strengthened partnership principle• More integrated approach CSF• ITIs and CLLD approaches• Enhanced urban agenda

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3. Pre-Crisis: OECD Regional Context

• OECD patterns of growth (urban intermediate rural etc) were very heterogeneous across countries

• Similar probabilities of above average growth – but higher dispersion higher for rural regions

• Benefits of urban concentration and agglomeration are neither linear nor infinite- limited in many OECD countries

• OECD (2009a,b, 2011, 2012) evidence that endogenous factors were critical for regional growth

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• Post-2000 Productivity levels were dominated by global cities

• ‘Major Hubs’ accounted for less than one-third of economic growth – and their share was falling

• Productivity growth was dominated by intermediate areas and many rural areas

• Growth role of non-core regions across OECD was increasing

• Distance-related effect in US (Partridge et al. 2011)

• Not particularly distance-related in Europe prior to 2004

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The most dynamic OECD regions over 1995-2007..

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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006140

150

160

170

180

190

200

210

220

pop and GDP growth pop density and GDP growth

pop and GDPpc growth

average rank (1== highest) population pop density

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• Two-thirds of growth was driven by non-core areas → convergence processes

• Regions with less than 75% GDP per capita account for approximately 40-50% of growth

• 45-60% of growth is accounted for by regions with below national average GDP per capita

• Smaller non-core areas were growing faster across the OECD than core and larger regions

• OECD average interregional migration – 0.4% per annum and falling for ten years prior to the 2008 Gobal Financial Crisis

• Long term falls in the rates of entrepreneurship

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4. Pre-Crisis: The EU Regional Context

• Role of major cities was significant in UK, France, Spain, Poland, Czech Republic

• Polycentric systems in The Netherlands, Northern Italy, Germany

• Urban-urban migration in rich EU countries• Rural-urban migration in Mediterranean and

CEECs• Regional convergence• Overall urban share of EU GDP accounted for

by metropolitan regions of >250,000 hardly changed 2000-2006

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4. Pre-Crisis: The EU Regional Context

• 1990-2002 primacy of urban areas across EU: urban > intermediate > rural

• Post 2002 shift in favour of non-core locations in many EU countries in terms of population growth and productivity growth

• EU-15: intermediate areas and rural areas growing faster than urban areas

• EU-17 urban growth still dominates• Different patterns in different countries – no

simple story• Dutch reversal Broersma and van Dijk (2008)

JEG

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5. Pre-Crisis: The EU Urban Context

• 2000-2008 UK, France, Netherlands, Spain – population of metro regions grows at a lower rate than national population

• GDP share of primarily urban areas in EU15 remained almost constant over the decade.

• Many small and medium sized cities displayed high productivity levels and growth

• Complex polycentric EU-wide network structure connectivity appears to be more important than urban scale, national scale, specialisation or diversity (Bel and Fageda 2008; Ni and Kresl 2010: Taylor 2012)

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Labour productivity in PPS in metro regions compared to the rest of their country, 2008

ES DEUK

IT

NL FR

BEATSE

FI

BG

RO

LT

LV

PL

HU

EE

SK

CZ

MT DK

GRSI

PT

0

40

80

120

160

200

240

280

Lab

ou

r p

rod

uct

ivit

y in

PP

S, n

on

-met

ro r

egio

ns

com

bin

ed =

100

Capital metro region

Second tier metro region

Smaller metro region

Non-metro regions combined

IE

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Change in labour productivity in pps, 2000-2008

MT

DKDE

IE

BEFRAT

SEIT

FI

UK

NL

ES

BG

RO

LV

LT

PL EEHU

CZ

PT

SK

SI

-40

-30

-20

-10

0

10

20

30

Cha

nge

in P

rodu

ctiv

ity r

elat

ive

to th

e na

tiona

l lev

el in

inde

x po

ints




Non metro regions combined

60

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Population change in metro regions, 2000-2008

IE

UKNLFRSK

DK

PLIT

RO

BE

PT

CZ

EE

HU

ES

SILT

DE

BG

SE

AT

MT

LVGR

FI

-12

-8

-4

0

4

8

12

16

Cha

nge

in s

hare

of n

atio

nal p

opul

atio

n in

%




Non-metro regions combined

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6. Post-Crisis: The EU Regional and Urban Context

• Primarily urban areas and remote rural areas are the weakest regions in Europe in the aftermath of the crisis

• Rural areas close to the cities and intermediate areas are the most robust types of European regions

• Large cities are vulnerable• Different story to North America and much of the

international literature

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OECD Regional Typology of European Regions: Two Year Moving Average Growth

Rates in GDP among TL3 regions, 1995-2011

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OECD Extended Regional Typology of European Regions: Two Year Moving Average

Growth Rates in GDP among TL3 regions, 1995-2011

-3%

-2%

-1%

0%

1%

2%

3%

4%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

PU IN PRC PRR

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Rates in GDP per Capita Among OECD TL3 regions, 1995-2011

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Growth Rates in GDP per Capita among OECD TL3 regions, 1995-2011

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Rates in GVA per Worker Among OECD TL3 regions, 2000-2010

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Growth Rates in GVA per Worker Among OECD TL3 regions, 1995-2010

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OECD Regional Typology of European Regions: Two Year Moving Average Percentage

Point Change in Unemployment Rate Among OECD TL3 regions, 2000-2010

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Percentage Point Change in Unemployment Rate Among OECD TL3 regions, 2000-2010

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OECD Regional Typology of European Regions: Two Year Moving Average Yearly

Growth Rates in Unemployment Among OECD TL3 regions, 2000-2010

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Growth Rates in Unemployment Among OECD TL3 regions, 2000-2010

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OECD Regional Typology of European Regions: Two Year Moving Average Percentage

Point Change in Employment Rate among OECD TL3 regions, 2000-2010

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OECD Extended Regional Typology of European Regions: Two Year Moving Average Percentage Point Change in Employment Rate among OECD TL3 regions, 2000-2010

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Effects of the crisis in OECD TL3 European Regions (Extended OECD Regional Typology) by Period

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GDP per head growth in EU metro regions 2000-2008 and 2008-2011

2000-2008 2008-2011

Average annual real change in %

GDP per head growth

=

Productivity growth +

Employment per head growth

GDP per

head growth =

Productivity growth +

Employment per head growth

EU-15

Capital metro 1.44 0.88 0.56 -0.79 0.34 -1.13 Second-tier metro 1.29 0.70 0.59 -0.76 0.15 -0.91

Smaller metro 1.20 0.67 0.53 -0.59 0.24 -0.83

Non-metro 1.15 0.75 0.40 -0.77 0.20 -0.98

Total 1.27 0.76 0.51 -0.70 0.24 -0.94

EU-13

Capital metro 5.49 3.64 1.85 -0.26 1.04 -1.30 Second-tier metro 4.85 4.08 0.78 1.43 1.30 0.14

Smaller metro 3.66 3.56 0.09 1.38 1.17 0.21

Non-metro 4.47 4.45 0.02 0.57 1.70 -1.13

Total 4.88 4.31 0.56 0.66 1.44 -0.78

Source: Eurostat and authors’ calculations

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• Cities exacerbate national post-crisis trends → growing countries are driven by growing cities and declining countries are weighed down by declining cities

• Urban advantages relating to employment and productivity post-crisis are oriented towards EU13 economies while EU15 face severe urban disadvantages

• Convergence → divergence. Greater emphasis on the challenges facing lagging regions


• Effects of the real estate-related debt on the real economy are more pronounced in cities

• Real estate shock effects are dominated by cities → induced effects in the real economy

• Population ageing and population decline• More than one third of Europe’s cities are

declining in population prior to the crisis and this has been exacerbated by the crisis

• Fiscal positions of sub-national government?• Long term financial basis of public investments

in urban development? 32

7. The Demographic Challenge to Cities and Regions

• Working age population v non-working age• By 2050 Western Europe labour supply < 1990s

levels and in Japan < 1970s levels • By 2030 EU working age population will fall by

6%• By 2030 the working age population will fall by

12% in Germany, Spain and Portugal, by 7% in Ireland, by 4% in Netherlands, and will increase by 2.3% in UK and by 8% in Sweden.

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• Increases in age-related expenditure and services by 4.1% of GDP across Europe and 4.5% across Eurozone

• UK older age cohort increases from 9.7m in 2013 to 15.8m in 2030.

• UK falling national tax revenues due to higher age-related tax exemptions – extremely difficult to adjust - institutional problem

• Working age versus non-working age

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• OECD urban areas account for 56% of OECD population and metropolitan urban areas > 500,000 account for 47.9% of OECD population

• 1950-2010 – share of > 65 increased fourfold and > 80 increased by 14-fold and these rates are both inceasing

• 100 large OECD cities of over 300,000 are shrinking, up from 10 in 1950, and 30 are in Europe

• One third of EU’s metro regions of over 250,000 were shrinking pre-crisis 35


• By 2025 a quarter of the global population > 65. In 1950 it was 7% and only 1% > 80

• Old age distinction now 65-75 and > 75• Metropolitan urban areas – 0.8% lower share of

older people than non-metro areas• Across OECD core metro areas are 1.1%

younger than metro hinterland areas• North and western Europe core metro are

younger than hinterlands but southern Europe is the reverse

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• Metro areas ageing rate of 23.8% compared to metro areas population growth rate of 18.2%

• OECD city categories – ageing and slow growth - 118/275 (43%) metropolitan urban areas

• OECD city categories – young but ageing rapidly - 80/275 (29%) metropolitan urban areas

• OECD city categories – young and ageing slowly - 78/275 (28%) metropolitan urban areas

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• Type I cities will reach peak population and will then decline

• Type II will face shifting demands • Type III face the least challenges or disruption• Migration of human capital is a crucial element

here as this determines the underlying economic base

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• Relatively ageing and increasing incomes and wealth – regions with high amenity and leisure migration

• Relatively youthful and increasing in incomes and wealth – buoyant regions and cities with in-migration

• Ageing and declining – facing out-migration of youth

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• Age-related built environment• Age related housing wealth and affordability• Across OECD 76% of older age cohort are home

owners, 15% are tenants and 9% are with subsidised rents

• Wealthier countries in Europe have lower shares of home ownership

• 20%-35% of older age cohorts live alone

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• Sub-national government health and social care expenditure have increased by 1.5% since 2000 and doubled since 1970

• 2007-2030 Age related expenditure by local authorities forecast to increase by 250% in real terms

• ‘Pragmatic downsizing’ • ‘Managing’ urban decline is extremely difficult

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• City and regional growth models assume contant (ish) positive growth in population, GDP, real or nominal prices

• Constant real or nominal prices with population growth

• Nominal price growth with constant population – macro-stability targets

• Urban boundaries with small population increases makes city planning straightforward

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• For constant nominal GDP the growth of per capita productivity growth must counteract the effect of population decline

• Nominal GDP growth is essential for public finance

• Limited evidence for such neo-classical effects - role of negative externalities tends to dominate

• Over supply of under-utilised infrastructure

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• Maintenance and depreciation costs• Bankruptcies, failures and vacancies happen

sporadically – scattergun holes in land markets• Urban planning becomes very difficult in

population decline context• Land values falling in real and nominal terms• Land assembly and contiguity challenges• Danger of assets being shorted, but also hold-

out positions

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• Possibilities for urban policy financial investment vehicles mixing financial and non-financial returns

• Devolved governance is highly problematic in some cases

• Relatively higher transaction costs lead to relatively (absolutely) higher transition costs

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8. Conclusions

• The seeds for many aspects of the EU regional and urban economies post the 2008 crisis were evident in the pre-2008 era

• Urban areas offer major development and policy possibilities – growth, innovation and experimentation – and also imply major challenges

• Demographic change – population ageing and population decline - imply significant long-term impacts for governance, policy and development trajectories 46

Documents

1 EU Cohesion Policy and Europe’s Shifting Economic Landscape Philip McCann* Special Adviser to the EU Commissioner for Regional Policy, Corina Creţu with