Globalisation creates increased opportunities for producers and entrepreneurs as well as for consumers.97 It is also a motor for growth and creating jobs. However, globalisation also brings about rapid changes and an increasing speed of structural adjustment. In particular, low-skilled labour as well as low value-added economic activities have felt the force of global competition. Many regions throughout the EU will therefore have to restructure their economy and promote continuous innovation — in products, management and processes, as well as human and social capital — to turn globalisation challenges into opportunities. Globalisation creates pressure for rapid structural change in order to adjust regional development paths and preferably stay ahead of competitive pressures. This will become ever more important in the years to come, particularly as regions begin to exit the crisis.
4.1: THE INFLUENCE OF GLOBALISATION
The globalisation index, as set out below, measures regional opportunities and vulnerabilities by looking at long-term structural conditions. The Europe 2020 agenda identifies low employment rates as being as one of the main structural weaknesses of Europe. Consequently, the globalisation index contains employment as well as indicators measuring educational attainment and general growth perspectives.
Figure 3.2: Globalisation vulnerability index, 2020
A number of studies and economic forecasts suggest that the economic crisis has diminished overall growth perspectives over the medium term in all European regions. The crisis has had a differentiated impact and additional disparities for long-term growth perspectives. Particularly negatively impacted are regions in the UK, Spain, Italy and Greece, which have become more vulnerable compared with their situation before the crisis. On the other hand, a number of central and western regions appear less weak than before the crisis.98
Many regions located in the northern periphery of the EU, as well as some central and western regions, appear in a rather favourable position. Capital and metropolitan regions, including London, Paris, Hamburg, Madrid, Bucharest, Sofia, Prague and Warsaw, appear among those regions which are likely to turn the globalisation challenge into opportunities. All of these regions have a highly educated workforce and a high share of employment. In addition, these regions display good framework conditions for supporting innovation. In sum, these regions are on an economically sustainable path of development with reasonable long-term growth perspectives.
By contrast, most regions located in the southern and south-eastern parts of the EU, in addition to Latvia and Lithuania, appear to be highly vulnerable. A high share of low-skilled workers, combined with low value-added economic activities characterise southern and south-eastern regions. Some of these regions, particularly in the eastern parts of the EU experienced high growth in the past, despite these structural disadvantages. The basis of these gains has been structural adjustment from agriculture and heavy industry towards basic industrial activities and basic services. However, these activities are subject to largely cost-driven intense competition from other emerging economies. The stability of the future growth path of these regions will therefore depend on improving the value-added in regional economic activities. Improving the conditions of innovation will be key.
4.1.1: RESTRUCTURING IN OBJECTIVE 2 REGIONS
An ex post evaluation of cohesion policy programmes 2000-200699 examined restructuring in Objective 2 regions in the context of globalisation. This consisted, first, of an overall analysis of structural change over the period 1990-2005 across regions in the EU15 in order to try to detect differences in performance between regions with different sectoral specialisations, distinguishing between those specialising in traditional industries, those in capital-intensive — or heavy — industries and those in equipment, or engineering, industries. The second, and main, part of the analysis consisted of case studies of regions receiving Objective 2 funding. These included Tuscany (Italy), Brittany (France), North West England, North East England, North Netherlands, Basque Country (Spain), Rhône-Alpes (France), Southern Finland, North Rhine-Westphalia (Germany), Bavaria (Germany), and Styria (Austria). The aim in each case was to examine the efforts of the regions concerned to restructure in the face of increased competitive pressure from globalisation and the contribution of Objective 2 funding in this regard.
The main findings of the analysis can be summarised as follows:
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a number of Objective 2 regions (defined at the NUTS 2 level) across the EU changed their specialisation over the period examined, shifting from traditional to capital-intensive industries or from capital-intensive to equipment industries. In both cases, this was associated with a positive economic performance and, in most cases, an improvement in their estimated international trade balance;
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of the case study regions, only Styria (Austria) had succeeded over recent years in changing its area of specialisation, emphasising the difficulties of achieving this and breaking free from an historical development path. The strategy adopted in the region succeeded in building an automotive sector almost from scratch based on inward investment, with the regional agency pursuing a selective policy of attracting suitable foreign companies;
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the experience of Styria as compared with that of the Ruhr area of North Rhine-Westphalia in Germany highlights two important aspects of restructuring. The first is that it takes many years, and even decades, to bring about an effective change in areas of specialisation, even with continuous support. The second is that this is easier to accomplish if the area concerned is smaller rather than larger;
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long-standing policy efforts to diversify the economies in many of the industrial Objective 2 regions have not led to the intended shifts in their sectoral pattern of economic activity. The pattern inherited from the past, and often in place for a century or more, has proved highly resistant to change. In North Rhine-Westphalia, the Ruhr remains adversely affected by the past dominance of heavy industry, despite numerous policy initiatives and substantial investment aimed at developing and expanding new activities. Even in Styria, the case study found no evidence so far for the further diversification of the economy away from relative reliance on the automotive industry into higher-tech and more knowledge-intensive sectors;
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the case studies demonstrated that enterprise support focused on increasing the innovation capacity of firms, especially SMEs, and their performance on international markets can strengthen competitiveness and assist restructuring, as in Styria, the Basque Country (Spain) and, to a lesser extent, Tuscany (Italy). Measures that proved to be the most effective were those aimed at encouraging new clusters of activity in specific sectors and in particular areas of technology;
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in some case study regions (Brittany and Rhône-Alpes in France, for example), the regional development strategy was not so much directed at structural change as at maintaining the internal territorial balance and safeguarding employment. Since the evaluation was concerned explicitly with restructuring and with the development of regional economies, it did not investigate the effectiveness of this strategy;
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the evidence is that three regions which showed the clearest signs of restructuring were also the ones where the regional authorities were aware the earliest of the need for structural change. They accordingly reacted to the threat of globalisation sooner than those in other regions by promptly developing strategies for encouraging the diversification of their economies. This demonstrates the importance of looking ahead and trying to anticipate the need for change in areas of specialisation;
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analysis of the relationship between Objective 2 programmes and the broader set of regional policy measures suggest that the most effective programmes were those which were in line with and, therefore, reinforced, the main thrust of development strategies being pursued in the regions. Support of the European Regional Development Fund (ERDF) for ‘mainstream’ measures contributed more than where additional ‘complementary’ objectives were pursued;
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at the same time, the possibility of using ERDF finance to support these strategies was hampered in some regions by ‘micro-zoning’, which concentrated funding on small areas with very specific territorial needs;
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the effectiveness of intervention was closely related to the competence and expertise of local institutions and their strategic vision. The evidence is that these attributes can change the path of development — and overcome historical ‘path dependency’ — by persistent, focused and concentrated policy effort; and
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the evidence from the evaluation is that, despite its small scale, the funding provided under Objective 2 was of major importance for the regions examined. A large majority of those interviewed in the course of the case studies confirmed that ERDF support was instrumental in encouraging the adoption of a long-term strategic view of development, which was vital for both designing and building effective support for restructuring. It, accordingly, played a key role in setting the agenda for change as well as providing valuable funding which could be used to lever larger-scale financial support. In short, it acted as a catalyst for change, encouraging regional authorities to prioritise and enabling them to innovate as well as to put in place long-term action programmes.
4.1.2: ANALYSIS OF RESTRUCTURING IN THE EU REGIONS
DG Regio has produced an analysis of the effect of restructuring on the increase in labour productivity in 2000-2007. Restructuring in this context means the shift of labour from less to more productive sectors, for example between agriculture and industry or services.100
Figure 3.3 presents the average annual change in labour productivity due to employment shifts between sectors. Restructuring occurs mostly in countries at an earlier stage of economic development. As a result, its effects are strongest in the Convergence regions101 where nearly half of the increase in labour productivity came from the shifts of employment between sectors. The more developed regions are usually much more productive and have a higher share of employment in high value-added sectors. Employment shifts occur mainly within sectors, eg from low to high-tech industry. Employment shifts in the Regional Competitiveness and Employment (RCE) regions contributed only 11 % to the increase in labour productivity. In the Transition regions, which occupy a middle stage of economic development, the contribution of restructuring to the increase in labour productivity was 28 %.
In the EU27, where labour productivity grew 1.4 % annually between 2000 and 2007, the growth of productivity due to restructuring was 0.4 % a year, thus employment shifts contributed around 30 % to the total growth in labour productivity. The remainder came from productivity increases within sectors which is a result of innovation in a broad sense. Table 3.4 shows the contribution of restructuring to the growth in labour productivity between 2000 and 2007.
Table 3.4: Contribution of restructuring to the growth in labour productivity, 2000-2007
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Total growth of labour productivity
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Growth of productivity due to restructuring
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Contribution of restructuring to productivity growth
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EU-27
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1.4
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0.4
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31 %
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CONV
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2.5
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1.2
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46 %
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TRANS
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1.0
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0.3
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28 %
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RCE
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1.1
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0.1
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11 %
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Source: DG REGIO calculations, Eurostat.
Figure 3.3: Productivity through employment shifts between sectors, 2000-2007
4.1.3: ‘SMART SPECIALISATION STRATEGIES’ AND THE SMART SPECIALISATION FORUM
‘Smart specialisation strategies’ and the smart specialisation forum, that REGIO is promoting as a policy priority, can be an important tool for regions to use in their restructuring process.
The establishment of a ‘Smart Specialisation Platform’ (S³P) was announced in the communication of the European Commission ‘Regional Policy contributing to smart growth in Europe 2020’ (COM(2010) 553 final) with the purpose of assisting regions and Member States to develop, implement and review regional smart specialisation strategies. The Commission staff working document (SEC(2010) 1183) accompanying the communication added more details on the form, structure and components of the S³P.
The process of establishing and implementing smart specialisation strategies is expected to lead to a and more strategic and efficient use of national, regional and EU funding the current programming period 2007-2013 and to provide a quick-start for the future Cohesion Policy ) along the lines of the Europe 2020 strategy and priorities.
Smart specialisation is an important policy rationale and concept for innovation policy. It promotes efficient, effective and synergetic use of public investments and supports Member States and regions in diversifying and upgrading existing sectors that are the basis of their economies and in strengthening their innovation capacity.
It aims to harness regional diversity by avoiding uniformity and duplication. It combines goal-setting (EU 2020, Innovation Union) with a dynamic and entrepreneurial discovery process involving key stakeholders from government, business, academia and other knowledge-creating institutions.
A smart specialisation strategy is a multi-annual strategy aimed at developing a well-performing national or regional research and innovation system, which can be assessed through the self assessment tool proposed by the Innovation Union flagship. It defines a policy mix and budgetary framework focusing on a limited number of priorities targeted at stimulating smart growth.
The strategy is preceded by sound analyses of the assets of the region and technology foresight studies focusing on the relevant sectors identified with a view to access emerging markets and niche markets. It includes the analysis of potential partners in other regions and avoids unnecessary duplication and fragmentation of efforts.
It is based on a strong partnership between business, public entities and knowledge institutions, that need to work together to produce the above mentioned analyses, and on the setting-up of adequate bodies responsible to implement them. The ‘quality’ of this partnership is essential for its success.
The EU Regional Policy and EU innovation policy have a long experience of working with a large number of regions on developing regional innovation strategies, through several Community initiatives as for example, the Innovative Actions. This initiative led to an appreciable impact in all regions assisted. In a number of cases this impact has led to sustained structural changes to the way regional policy is designed and delivered, specifically by establishing the bases of high quality partnerships that in the most developed regions became sustainable and developed the strategic intelligence bodies that achieve to reconvert the economy and lead regions to competitive growth, even during the present crises. Nevertheless those with shorter involvement in these processes struggled to sustain these partnerships and hence results waver or fade.
Aiming at developing the strategic intelligence needed in each region/Member State and keeping it in a sustainable way the S³P will act as a facilitator in bringing together the relevant EU funding programmes and policy support activities in research, SMEs, innovation, clusters, digital agenda, health, climate change, creative industries and cooperation universities business. It includes high level experts in these fields, including the OECD and networks of regions, of representatives of SMEs and other business bodies that focus on innovation and on targeted support measures to innovate.
It intends to develop the critical mass at EU level to provide direct feed-back and information to regions, Member States and their bodies, provide a learning platform that speed-up the learning process between regions and develop processes of peer review that assess the strategies, establish criteria of assessment and lead to the improvement of these strategic documents.
The S³P is run by a steering team that gathers representatives of DG REGIO, RTD, ENTR, EAC, INFSO, EMPL, SANCO, CLIMA and the JRC. A mirror group for advise and follow-up composed by high-representatives of networks and bodies took their functions in June 2011 (for example, EURADA, ERRIN, EBN, OECD).
4.2: MANAGEMENT OF RESTRUCTURING UNDER THE EUROPEAN REGIONAL DEVELOPMENT FUND
Since its inception, the European Regional Development Fund (ERDF) has played a vital role in facilitating structural adjustments initially induced by internal factors such as the establishment of the Single Market and industrial restructuring. In recent years, external challenges have shifted the focus of the ERDF to supporting adaptations triggered by rapid globalisation and the integration of new Member States in the Single Market. Subsequently, the ERDF has increasingly focused on investments facilitating a move up the value chain, such as research and development innovation and ICT.
In the future, the ERDF will most likely continue to play a particular role in supporting adjustments to smart, sustainable and inclusive growth in Europe.
The boxes below contain examples of restructuring and reaction to change.
Box 3.9: UNIC — URBACT Fast track network on restructuring of European ceramics cities
Economic change has left visible footprints in cities with a strong industrial history. The process of transition from heavy resource-intensive production to innovation-driven and high-technology systems is ongoing, and will remain a challenge in years to come.
The development of cities, the home of most industrial sites in Europe, is strongly bound to the economic success of their industries. Modern industry, on the other hand, relies on competitive business locations and innovating environments. Ceramics cities from all over Europe are showcases of this dependency. The consequences of industrial reorganisation (concentration, relocation) are felt largely in cities with a strong ceramics industry, and a lively history in ceramics manufacturing. This not only requires cities to reshape and adapt, but also industries to collaborate with cities. It is also vital to keep and develop specific urban identities, building upon prestigious manufacturing tradition.
This example of ceramics cities illustrates the fact that strong dependencies on one sector of the urban economy constitute a significant risk to the economic well-being of cities as a whole. Negative developments have a strong and widespread impact, not only on the employees in the industry itself, but also on those in the supply companies, and this has wide-ranging effects on social and economic cohesion within cities and regions.
The UNIC102 (Urban Network for Innovation in Ceramics) network links nine leading ceramics cities in Europe (Limoges, Aveiro, Delft, Pécs, Castellòn, Stoke-on-Trent, Faenza, Cluj Napoca and Seville) — cities with long and vivid histories in the ceramics industry and manufacturing. UNIC is designed to focus on re-inventing the image of ceramics cities and on reinforcing their attractiveness by offering good living conditions, interesting business locations and professional development perspectives for more social and economic cohesion at local level. In this context, close cooperation with local stakeholders and interest groups is just as vital as strong links with relevant regional, national and European authorities.
The network is financed under the URBACT II programme (2007-2013) and has been selected by the European Commission as a fast track network. Under active participation of Commission Services these nine cities have designed their future strategies in the form of local action plans, which identify possible paths from traditional industry towards a sustainable innovation-driven economy, while preserving and using the cities’ asset of a common, strong industrial heritage. Implementation projects evolving from this network will focus on effective links between research and education, and between innovation and local traditions. The nine local action plans were launched in Brussels on 20 May 2010, and will — with support of structural funds — help to drive forward innovation and economic competitiveness.
In times of economic crisis in particular, a dependence on traditional industries is usually seen as a major risk. However, the UNIC network demonstrates that this does not need to be the case: cities can build on their technological and cultural know-how in order to branch into long-term, sustainable paths of innovation.
Box 3.10: REGIO STARS 2011103 — anticipating economic change category
The Europe 2020 strategy proposed that the exit from the current crisis should be the point of entry into a new sustainable social market economy. Future prosperity will come from innovation, where the key input will be knowledge, and the more efficient use of resources. Crises have always shown that regional economies must permanently transform and renew in order to tackle future challenges.
The objective of the RegioStars Awards is to identify good practices in regional development and to highlight original and innovative projects which could be attractive and inspiring to other regions.
Projects proposed for an award under the Region Stars scheme should describe the policy tools that have underpinned the economic transformation agenda and regional adaptability to change in the recent past.
Examples of projects that could be submitted include:
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use of dedicated innovation strategies, economic intelligence or foresight exercises to anticipate and adapt to economic change, thus promoting improvements of productivity within a sector;
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use of innovative policy tools in order to promote productivity growth within sectors and/or shifts between sectors (ie restructuring, diversification) through innovation in a broad sense, including better use of existing technology and resources, and new management and organisation techniques; and
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successful development of entrepreneurship and innovation-based incubation policies to promote economic transformation and renewal by developing new, future-oriented economic activities in the region.
The winners of the ‘RegioStars’ 2010 were announced on 20 May in Brussels during the annual ‘Regions for Economic Change’ conference. Awards were given to the most innovative regional projects which had received funding from the EU’s cohesion policy. A jury made up of professionals in regional development chose the six winners from the record 87 applications, as follows:
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the C-Mine Centre, Genk, Belgium (€ 3.2 million in EU funding from the ERDF), for innovative use of brownfield sites in an urban context. Building upon the legacy of Genk’s mining foundations, the multi-purpose C-Mine centre has transformed a former industrial site into a hub for entrepreneurs and visitors alike. It includes two concert halls, exhibition space and a design centre;
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the Micro-Finance Institute, East-Mid-Sweden (€ 340 000 in EU funding from the ERDF), for the integration of migrants or marginalised groups in urban areas. Set up in 2008, this project focuses on improving access to finance for migrant women who often face difficulties in trying to secure capital to start-up or develop their own business. The main aim of the project was to establish a permanent micro-finance institute to help overcome these barriers. At the time of the award, the project had supported 80 new female entrepreneurs and contributed to the start-up of 15 micro enterprises, creating 20 jobs;
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computer literacy basics for a Lithuanian e-citizen, Lithuania (€ 2 million in EU funding from the ESF). In 2002, a group of companies, banks, and telecommunications and IT businesses formed the Langas j Ateitj alliance. The aim was to provide training, establish public internet access points and stimulate growth in e-services, to enhance computer literacy skills. The main target groups were the elderly, disabled and people living in remote areas with little access to digital services. In total, 50 400 adults completed courses over the two years;
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new business model for ambulatory monitoring of patients, Brandenburg, Germany (€ 86 000 in EU funding from the ERDF), for ICT applications by or for SMEs. The first of its kind in Brandenburg, this project combined the expertise of various regional partners in using tele-medicine to monitor and treat people, outside a traditional medical environment, who have suffered from a heart attack. Its overall aim was to reduce the number of hospital admissions per patient. At the time of the award, over 100 patients had benefited;
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high-speed broadband in Auvergne, France (€ 10 million in EU funding from the ERDF). High-speed broadband is an essential ingredient in ensuring competitiveness in today’s world. But in sparsely populated areas, private telecommunication operators are frequently reluctant to take on all the risks of investing in these so-called ‘white areas’. Faced with this challenge, Auvergne established a public/private partnership (PPP) in 2005 to extend high-speed broadband coverage to 100 % of households, which was achieved by early 2009; and
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www.esparama.lt, Lithuania (€ 110 000 in EU funding). ‘Esparama’ in Lithuanian means EU assistance — this official website provides information on all EU structural funding in the country from data supplied by content administrators in 15 government institutions. The site’s easily navigable homepage clearly presents separate sections for funding applicants, beneficiaries, media and general public, institutions and news.
Four other projects received special mentions from the 2010 jury:
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Pieper Site, Wallonia, Belgium. Part of a wider urban business renovation process, this project took an innovative approach in re-developing a former industrial brownfield site into a business park. The main aim of the site has been to attract companies compatible with the surrounding urban residential area;
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successful integration of Roma children, Ljubljana, Slovenia. The Roma constitute the largest ethnic minority in central and eastern European countries, and often struggle with discrimination and social exclusion. This project seeks to address some of these problems with the help of Roma teaching assistants, aiming to strengthen the links between Roma children, their schools and their parents;
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eREGIO, North Karelia, Finland. This project aimed at extending high-speed broadband coverage in rural and very remote areas of Finland. Despite the challenge, eRegio achieved excellent results, with almost 99 % of the region having broadband access by 2008; and
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entdecke-efre website, Brandenburg, Germany. The website ‘entdecke-efre’ — ‘discover ERDF’ — sets out, in an easily navigable format, a range of information on EU-funded projects and processes involved to benefit from the funds.
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