Angel Gurría: The crisis has squeezed the resources available to regional and local authorities

Europe is still searching for a way to get back on its feet. We met with Angel Gurría, OECD Secretary-General since 2006, to discuss the challenges facing Europe’s regions and cities. Secretary-General Gurría stressed that “policies that take account of regional differences will be crucial to mitigating the long-term consequences of the crisis and tackling challenges such as population aging, environmental sustainability and inclusive growth. Our countries need new and original ideas for creating growth and jobs and enhancing public investment, education and transparency. This will require engaging and empowering regions and cities.”

How are regions recovering from the crisis?

It depends on which country and which regions we are talking about. It is hard to generalize. In terms of growth and jobs, there is even more variation across regions than across countries. In some countries, differences between regions are enormous. Our OECD Regional Outlook 2014 suggests that, overall, cities have bounced back more quickly than the regions they are in, although there are exceptions. Rural regions have suffered more in terms of job losses but less in per capita output; this may be due in part to labour migration to cities.

When we look at inter-regional disparities, we see a clearer picture, and it is a bleak one. In almost two-thirds of OECD countries, these disparities have grown over the last two decades and the crisis did not alter this trend. Inter-regional disparities have increased sharply, both in countries which have been severely affected by the downturn, like the Slovak Republic, and in others that largely escaped it, like Australia and Poland. In a few countries, we have seen some inter-regional convergence since the downturn – Canada is a striking example – but in most cases this was due to downturns in richer regions rather than growth in poorer ones. This is clearly not the kind of convergence we want to see.

The OECD is increasingly active in debates over broader measures of social progress. Can you tell us something about this?

Undoubtedly the crisis and its aftermath have made us look harder at how we measure social progress. The crisis served to highlight the limits of purely economic assessments of well-being. This is why we have expanded our OECD Better Life Initiative to bring it down to the regional level, closer to what people experience on a daily basis. We recently launched a web-based tool, “How’s Life in Your Region?”; it allows users to compare 362 regions in 34 OECD countries on nine topics central to social progress and individual well-being – income, jobs, housing, health, education, safety, access to services, environment and civic engagement. I will launch an in-depth report analyzing these data – How’s life in your region? Measuring Regional Well-Being for Policy Making.

Examining regional well-being in this way reveals that disparities in non-pecuniary measures of well-being are often greater among regions within a country than across different countries. For example, the gap in the labour force’s educational attainments between the Basque Country and Andalusia is similar to the difference between Spain and Sweden. Such regional disparities can increase welfare costs and jeopardise social cohesion. Even more worrying is that intra-country gaps between the best- and worst-performing regions in areas like health care have widened in many OECD countries.

Unevenness in well-being affects national performance. Countries with larger regional disparities in access to education, jobs and key services also register lower well-being outcomes overall at country level. We see a disturbing degree of stability among the poorest-performing regions on key well-being indicators: for example, more than 90% of OECD regions ranking in the bottom quintile for education in 2000 were still there in 2013; for safety, the corresponding figure was over 80%.

Regional well-being indicators can empower citizens to demand actions that respond to their own specific expectations and, in turn, can restore their trust in the capacity of public institutions to address the most pressing challenges.

What can regional and local authorities do to accelerate the progress?

Regional and local authorities have a key role to play as they hold important responsibilities for many of the policies that bear most directly on people’s lives, for example in public investment and the delivery of essential services. Our new report, How’s Life in Your Region?, finds that using regional well-being metrics can help policymakers prioritise policy interventions where improvements are needed and exploit synergies among sectoral policies.

There is also a role for regional and local authorities in adapting national policies to the needs of specific places. Some policies are best left with national governments, for example, labour migration, which may be good for aggregate performance and beneficial for those involved, yet detrimental to regions that lose skilled labour. But policies to improve information on jobs, labour-market matching, training and subsidies to employers may be better designed at regional or local level. At the very least, there needs to be scope for local adaptation.

Where do regions and regional policy fit in the policy mix the OECD would recommend to countries seeking to boost growth and jobs?

A growing body of OECD work has underscored the limits of one-size-fits-all policies. Traditional approaches are reaching their limits: there is less scope today for using macroeconomic instruments to stimulate growth or for fiscal easing and even unconventional monetary instruments like “quantitative easing” can only go so far.

Our work suggests two things. First, even within countries, the barriers to growth differ considerably from one region to another: the obstacles facing major cities often differ systematically from those facing smaller cities, while rural places face their own challenges. Secondly, we should pay increasing attention to the trade-offs that can be made between different policy goals and the potential complementarities from taking an integrated approach. The benefits are often most visible – and manageable – at the regional or local level. For example, cities and regions are well-placed to identify the advantages of pursuing environmental and economic goals in tandem, rather than seeing them as at odds with each other.

What will be the main new challenges facing local and regional authorities in Europe, and their citizens, in coming years?

The major challenges we face are not so new: environmental degradation, demographic change and rising inequalities, to name but three. What has changed is the context in which we confront them. The crisis has exacerbated problems like joblessness and poor social cohesion. It has also considerably damaged people’s trust in government and other institutions and eroded their faith that they can fix these problems. Most immediately, the crisis has squeezed the resources available to regional and local authorities. Public investment across the OECD fell by 21% during 2009-12. This means that a great deal of needed and potentially growth-enhancing investment is being postponed or abandoned, hurting future growth and service delivery. Since almost three-quarters of public investment in the OECD is undertaken by sub-national authorities, this represents a particularly important challenge.

The major challenges we face are not so new: environmental degradation, demographic change and rising inequalities, to name but three.

Unfortunately, a slow economic recovery will impose tight fiscal constraints for the foreseeable future. Many regions are finding it hard to keep up with a rising demand for public services, let alone invest for the future. Local and regional authorities thus need to do more – and better – with less. The OECD has worked hard with countries and regions on the management of public investment across different levels of government. Last March, the OECD Council endorsed a Recommendation on Effective Public Investment across Levels of Government which should help governments assess the strengths and weaknesses of their public investment capacity and set priorities for improvement.

How do you see the future of European regional policy after 2015 and its role in supporting economic recovery?

The squeeze on public investment makes structural funds all the more important. Cohesion policy will make available up to EUR 351.8 billion to invest in European regions and cities between now and 2020. In many places, such funds are crucial to sustaining even minimal levels of investment and with so much European policy oriented towards fiscal consolidation, the role of regional policy as an economic pillar can only grow.

As you know, the new programming period has involved changes to make regional policy better targeted, more results-oriented and more efficient. We welcome the attempt to balance stronger top-down control mechanisms, such as greater use of conditionality requirements, with a degree of managerial decentralisation. In the end, though, it will be up to national governments and the regions to make the best use of these funds: where they approach the new rules in a formalistic fashion, looking for the easiest ways to access funds, the results will probably be disappointing. By contrast, where cohesion investments are based on serious analysis of regional needs and potential, the new arrangements should help to ensure – and, later on, to reward – better designed investments.

Interview by Branislav Stanicek