Trailing places: #3 Can the green transition save declining regions?

Transport can help people get to work, but unless we also create local jobs, the traffic will only ever be one way — and may even contribute to the brain drain that makes declining areas progressively less attractive to inward investment.

An older population is another defining characteristic of lagging regions, as younger workers with in-demand skills move out to urban clusters. For the last five years, WSP’s advisory team in Sweden has studied the competition between its regions, compiling a “robustness” index based on 12 factors linked to long-term development, including demographics. They have been struck by how closely age maps to economic success.

“People are much older in the north of Sweden, and much younger in the metropolitan areas around Stockholm and Gothenburg in the south-west,” says Fredrik Bergström, managing director of the strategic advisory practice. “Typically the population is growing in the urban areas and shrinking in the countryside, especially in the north.”

Age is a useful indicator because it is linked to so many other variables: population growth, income, the location of knowledge industries, even the quality of local schools. Cities are also younger because they attract foreign immigration: “It’s not that you have huge amounts of people moving from the countryside into the cities, cities kind of grow on their own.”

Bergström doesn’t believe public subsidies alone can reverse outward migration, and he doesn’t think that paying companies to stay or locate in depressed areas works. This was the subject of his PhD thesis 25 years ago: “I found these types of subsidy weren’t very efficient, as they tended to go to the old companies, the insiders, not to the start-ups. Back then, there was a strong process of convergence, but there were also a lot of regions across Europe that were lagging behind. Those regions are still lagging today, even though the European Union has invested hundreds of billions in regional subsidies.”

He contrasts this with the sudden, dramatic uplift that results from private-sector investment decisions. “When an industry decides that the time is right to develop fossil-free steel or set up a battery manufacturing plant, there’s an absolute boom. The state can never match that kind of development potential.”

This is exactly what has happened in northern Sweden, which has become a hub for green transition industries and data centres, lured by a cold climate and a stable, cheap supply of renewable electricity from hydro and wind.

“What we see now is that immovable, geographic qualities are becoming a much more important part of location decisions,” says Mattias Frithiof, director of advisory services at WSP in Stockholm. “We’re kind of coming back to the last cycle of industrial development, where you had to locate your plant close to the iron ore or whatever, and this is what gave areas comparative advantages. These advantages used to be the wind or rivers, then it became clusters of knowledge in the cities. Now it has switched back.”

It looks like a perfect 21^st-century success story. The only problem is that it hasn’t actually created that many jobs. “These industries are not very labour-intensive,” says Frithiof. “They could act as an anchor to attract other kinds of supporting businesses, and create dynamic effects. But there is a risk that it becomes like an oil platform, where the most qualified people just fly in and out. It’s not clear whether there will be a long-term effect.”

Persuading people to stick around

How could we make places more “sticky”? Investing in education is a good place to start, suggests Bergström. “If you have a well-educated family of, say, two engineers, why would they move somewhere where the kids will get a lousy education? To become successful in the long term, these areas must work on other parts of their offer, and schools are one of those things.”

Placemaking can’t create clusters from scratch, but it can play an important supporting role, not least because urban planning takes a more holistic view of what life would be like for potential residents. “Things like household income and jobs and overall GDP are well understood, but there are also things that planners look at that economists maybe don’t,” says Chris Tyrrell, vice president of planning, transportation and infrastructure with WSP in Canada. “We’re interested in topics like civic engagement, engagement in public policy, voter turnout, safety and crime. And the environment — not only in the context of air quality, but the settings within which people live and work.”

Where 21^st-century jobs will be created is in high-wage knowledge work, as many in manual or clerical occupations find their skills have become obsolete. In 2017 McKinsey Global Institute found that 50% of current work activities could be replaced by adapting existing technologies. In the wake of Covid — and the resulting acceleration in virtual interaction, e-commerce and automation — it revisited its predictions, focusing on eight countries that account for half the world’s population and 62% of global GDP. It estimated that by 2030, more than 100 million workers may need to switch occupations, an increase of 12% compared to before the pandemic, and 20% in advanced economies. “The disruptions to work sparked by COVID‑19 will be larger than we had estimated … especially for the lowest-paid, least educated, and most vulnerable workers.”

That presents a challenge for regions that aren’t currently home to knowledge clusters, but the green transition also offers a glimmer of hope, even for areas without northern Sweden’s natural advantages. “You don’t have to be a victim of geography,” says Jim Coleman, head of economics at WSP in the UK. “It’s all about where the brain power is and where the research and development is happening.”

WSP is leading a “clean growth” strategy for the northern city of Bradford, once a world-leading centre of textile manufacture, now one of England’s most deprived local authority areas. Coleman says that one of its ambitions is to replicate the success of academic centres such as Oxford or Cambridge, capitalizing on its university’s engineering specialism. “Why shouldn’t Bradford be developing clean energy technologies, if the university can spin-out and commercialize research? We’ve got an urgent, pressing need to get to net-zero carbon and that yields all sorts of opportunities for parts of the country that haven’t been a focus. Obviously offshore wind has to be by the sea, but all of the technologies and services in the innovation and the financing could happen in lots of different places, if you can build up the depth and the specialism.”

If you can’t beat them, join them

This kind of self-reinforcing effect has become the holy grail of regional development. The global forces driving agglomeration are too strong for policymakers to fight — and nor would they want to, at the risk of disrupting or cannibalizing existing clusters. So the ultimate goal is to seed new ones, to create ecosystems with a momentum that transcends any single funding stream or individual firm, and competes not against national neighbours but as a complementary force alongside them in a global marketplace. As such, it’s a far more complicated endeavour, with many more moving parts — but the benefits are potentially much greater.

“Where you have very big social challenges — health, social care, wellbeing — it might be incredibly difficult to make those things better just by investing in social infrastructure,” says Ashley Dunseath, head of WSP’s development advisory practice in the UK. “The thing that delivers the greatest social impact might be creating economic growth through development, even if unlocking that opportunity will take an awful lot more investment.”

Dunseath questions how the fashionable idea of the “20-minute city” supports growth in an economy based on specialist clusters, or fits with ideals of social equity. “The assumption is that you start with the city first, and everything else radiates out, but we know that isn’t always the case. There are some areas that would probably benefit much more by having a lot more movement across a wider network, rather than trying to give people everything they need within 20 minutes of their home. That movement, that exploration, is part of what drives the economy. All of these things have an interplay, and the minute you take something out, there is a risk of unintended consequences. So it needs to be considered in a huge amount of detail.”

To reconcile all of this, Coleman thinks we need a new way of conceiving of the relationship between the public and private sectors, to become more symbiotic and less either/or: “We’ve had this dichotomy between markets doing everything and government intervention, and nothing in between.” The majority of the investment will need to come from the private sector, but the public sector also needs to have sufficient capacity to support companies to seize new opportunities, he says — for example, by granting planning permission or driving good-quality development. “Successful economies have a good diversified base, balanced with specialization,” says Coleman. “Getting those right requires a lot of different things to come together to build up a cluster and a value chain, and good leadership is very important. You need to invest, but you need to know what to invest in.”

Read the final part of the series: Can we stimulate growth without major investment?

#1

Solving regional disparities

Within countries, the gulf between rich and poor regions has never been so wide. How can we arrest the decline of post-industrial areas, and stop major cities from sucking them dry?
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#2
Why invest in transport where there’s no traffic?

It’s hard to justify new infrastructure in shrinking regions when there’s congestion elsewhere. So maybe we need to rethink how we calculate value
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#4

Can we stimulate growth without major investment?

Decarbonization will mean doing everything differently. Policymakers and planners can use this momentum to unblock the potential of lagging regions
Read the story