Opinion: one of the key challenges of our time is how to manage lagging regions without constraining leading regions
At this years’ Kilkenomics festival, I was part of a panel entitled "Leveraging Limerick’s Success" hosted by Tech Thursday Kilkenny. The objective of the event was what can Kilkenny learn from Limerick. In 2009, Limerick suffered a terrible blow to its local economy when Dell announced it was shifting almost 2,000 jobs from its operation in Limerick to Poland. The event was to leave a large hole in the economic fabric of the city as the facility was also estimated to be supporting a further 8,000 jobs in other businesses.
Limerick has since turned this misfortune around with the current successful implementation of the Limerick 2030 plan which has helped create 12,000 jobs since 2013 and the county currently has the highest disposable income outside of Dublin. But it's not all positive news. A good indicator of private investment is often taken to be the number of cranes in operation over a city's skyline. At the time of the festival to the best of my knowledge, the last one had been taken down in Limerick a few weeks previous. In contrast, there are presently 102 cranes in Dublin and five in Cork. On this stat alone, the capital is clearly a magnet for private investment.
The dominance of the capital city is a trend that is taking place right across Europe where capital city regions are attracting increased numbers of firms and young educated workers. This is leading to greater disparities within countries where the opportunities for jobs, wealth and better individual economic outcomes are increasingly becoming more confined to capital cities. The spatial disparities are increasingly being argued as the underlying drivers of electoral wins for Donald Trump and Emmanuel Macron, Brexit and the recent extreme right-wing and left-wing populist voting patterns in Germany.
From RTÉ Archives, a RTÉ News report by Michael Lally from 1991 on Dell opening in Limerick
In essence, the spatial inequalities of economic opportunities are resulting in revenge voting patterns from the places that are being left behind. For instance, it is clear that London has largely decoupled from the rest of the UK. Average disposable income in the Greater London area is 60 percent higher than in most other regions of England. These other regions voted to leave Europe despite the fact they are more dependent on trade with the European Union than London is. The economic landscape is a story of leaders and laggards. For me, people in areas "falling behind" are screaming for help.
In Ireland, the disparities are not so wide: Dublin incomes are 15 percent higher than the state average. But, if the capital city dominance experienced elsewhere continues, we can expect this divergence to increase. A location like Kilkenny and many similarly sized Irish urban areas like it (such as Bray, Ennis, Tralee, Letterkenny, Wexford etc) are increasingly becoming a conundrum for policymakers. The differences between leaders and laggards is increasingly being explained by whether locations have a university, a high population and density, natural amenities, scenic beauty or, as my colleague Declan Jordan suggests, an apparition.
Areas with low endowments of such place advantages are struggling. For such areas, it can be easy to invest time in looking for quick silver bullets. Particularly, this can often be driven by having a narrow view of innovation, where regions adopt a "picking winners" syndrome by focusing their resources on trying to attract the exciting high-tech industries of the day.
From RTÉ Archives, Tommie Gorman reports for RTÉ News on a South Korean video manufacturing company creating 800 jobs in Sligo in 1986
This is not surprising as in recent decades this is how government industrial policy has largely worked in Ireland. It was a top down planning model. The Irish Industrial Agency (IDA) for instance, followed a cluster type policy of directing what technology-type industries went where. Chemicals and pharmaceuticals were directed to Cork, medical devices to Galway and electronics and software companies to Limerick and Dublin. It is not surprising then that the discourse from lagging regions is that the IDA needs to send a company in their direction.
For the most part, this strategy of redistribution and a focus on infrastructure has been generally successful in securing jobs for a share of the population in these city-regions. This is somewhat surprising as these regions originally did not have a significant knowledge base in these industries prior to their arrival. However, a key success enabler was the fact all these cities had universities that greatly enhanced the area's capacity to supply high quality graduates to these companies and a decent larger critical mass of people to draw upon.
The FDI strategy was also a strategy of high risk, as the experience of Dell in Limerick portrays. There is also no substantial evidence to suggest that there have been considerable productivity spill-overs from FDI firms to indigenous SME development or that FDI firms are co-evolving and interacting with other firms. Hence, at first it might look like an industrial cluster on a map but does not actually function in reality like the textbook cluster examples.
From RTÉ Radio 1's Morning Ireland, should Ireland reconsider its focus on attracting foreign companies?
Despite the overwhelming discourse that our nation’s FDI model has been very successful, Ireland still lies below the average EU [28 countries] disposable income level per capita. The welfare gains from our FDI model may be overplayed, particularly since it is not possible to gauge what the counterfactual in these regions would have been without them.
Even if a location-bias policy did emerge from the top that assisted lagging regions by directing FDI to certain regions, it is unlikely that places like Kilkenny would sustain a large FDI company at this time, unless the incoming firm’s activities are closely aligned to underlying knowledge assets already in the area. A key issue is that the firms of today, are increasingly more high-tech, more footloose (office-based rather than plant based), require access to large pools of educated people and proximity to an university to share tacit ideas.
All of these aspects are in much more plentiful supply in large cities, but even Dublin is a small fry on the global scale. What to do then? Should we turn our back on smaller urban areas? Wait for them to decline?
It’s not all about iPhones or Lipitor, but it’s also about Fulfil bars, innovative festivals like Kilkenomics and digital detoxes at Monart
Firstly, it is necessary to realise that innovation does also happen in smaller urban areas and in rural areas. There are obvious examples around Kilkenny with innovations in food, tourism and the creative industries and some budding animation-related industry stories such as the Oscar-nominated Cartoon Saloon.
But, it is also clear that there is no magic bullet. The primary policy answers can only be found by looking inwards and building on the existing embedded grassroot strengths of an area. In essence, it is necessary to take an evolutionary approach to regional development (smart specialisation).
Research has identified that firms are more likely to enter an area if they are technologically related to existing firms in the area. They are less likely to leave an area if they are technologically related to existing firms in the area. Any plan needs a reality check and must identify the existing knowledge roots as the starting point.
Strategies need to be aligned with the local context. From there, it’s about what makes the industries in the location different. How can related industrial assets be differentiated and diversified (through innovating) from other places to obtain a comparative advantage relative to others? How can related industries be encouraged to work together, to create a nexus across industries and to unlock untapped cross-fertilisation potential? What interventions and supports are needed? The idea of innovation also needs to remain broad. Low-tech industries also innovate. It’s not all about iPhones or Lipitor, but it’s also about Fulfil bars, innovative festivals like Kilkenomics and digital detoxes at Monart.
Mostly the process is bottom-up, but regions also need help from the top. National government needs to enable local actors to tackle unlocked potential by providing them with more autonomy and the resources to do so. Kilkenny is mentioned three times in the national planning framework. This is in comparison to Dublin (178), Cork (84), Limerick (65) and Galway (59).
We need to think about these "middle" places. How do we help them curtail the brain drain? How do we expand the reach of our universities to assist the wider regional and rural challenges? How do we enable all areas to achieve their full potential? One of the key political and economic challenges of our time, domestically and internationally, is how to manage the discontentment affecting lagging regions without constraining the prosperity of leading regions.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ