The tunnel vision behind measuring regional economic success in Europe

The EU Regional Competitiveness Index provides a tool for comparing development across different European regions, but overlooks how such regional competitiveness is achieved, and the long-term implications. Pieter Vanhuysse and Maarten Wensink argue that we need more sustainable and holistic models of economic success.

The latest edition of the influential EU Regional Competitiveness Index (RCI 2.0) is out. Across a long list of dimensions, it measures what all of Europe’s 242 so-called ‘NUTS-2 level regions’ offer firms and residents in terms of living and working conditions. Most eastern and southern EU non-capital regions score below the EU average. The best performing regions are in northern and north-western Europe, with the Benelux countries, Denmark and Sweden leading the way. The top ten consists of five capital city regions: Stockholm, Copenhagen, Île-de-France, Brussels, and Helsinki. And it contains no fewer than five Dutch regions: Utrecht, Zuid-Holland, Noord-Brabant, Amsterdam, and Gelderland.  

Before celebrating these capital regions or the Netherlands as enviable models of regional economic success, let us pause to reflect on what the RCI 2.0 does and does not measure. Elsewhere, we have argued that the index fails to consider how regional competitiveness is achieved, let alone whether it is sustainable. Here, we go further to contend that such a competitiveness ranking, however multidimensional, is a form of silo thinking, rigid and simplistic, that seems misguided. Let’s delve into why. 

The pitfalls of silo thinking

The RCI serves the European Commission’s direct aim to allocate funding to less competitive regions. Yet, it may simultaneously hinder the overarching objectives of making the EU more competitive, more green, and more cohesive. This, we contend, is because the RCI is dominated by its silo thinking, both between regions and between other important policy goals. As a result, neither Europe as a whole nor even the populations of more competitive regions may really gain, in the long run, from policies boosting the RCI. 

For example, the RCI only includes one environmental variable: it considers the daily number of passenger flights in a region as a good thing. This is not only contrary to European Green Deal ambitions, but is also a simplistic measure of how airports affect their surroundings – more on that later. In fact, the top RCI countries, Benelux, Denmark, and Sweden, all tend to leave a massive per capita ecological footprint by international comparison.  

As we have noted, the RCI also weighs the share of the population aged 15-64, but not whether that active population grew up locally or was acquired partly through immigration of highly educated young people from, say, lagging eastern or southern European regions. The latter kind of poor-periphery-to-rich-core brain drain is a form of ‘cream skimming’ of talents nurtured and paid for in poorer places. It in turn creates a host of new population predicaments in the donor regions. It also seems counter-productive to yet another top EU goal: promoting regional cohesion.  

Such counterproductive processes also happen within countries, when marketable working-age talent moves to capital regions, while less marketable workers and pensioners move away from expensive capitals to more disadvantaged regions and municipalities that may then be burdened with extra healthcare, elderly care, and infrastructure costs. This is why the high RCI 2.0 scores for many capital regions may conceal low cohesion for the countries that host these capital regions.  

Dutch glory or Dutch disease?

A leader in competitiveness can be a laggard in sustainability. Hence, we need to adopt more sustainable and holistic models of economic success. More lateral thinking will be less counterproductive and less myopic. For the Netherlands, this warning certainly seems to apply. Is any region really that competitive if it has a large airport with lots of flight traffic – in this case Schiphol – where the government and airport deliberately fail to adequately measure harmful fumes and protect airport staff from them? Or if baggage staff ruin their backs in difficult working conditions for very low pay? The term ‘schiphollen,’ which freely translates as “runaway Schiphol” has an entry in van Dale’s authoritative Dutch dictionary. It has been coined to describe the noxious and misleading governance processes that led to systematic neglect of everything but the number of flights. 

We need to adopt more sustainable and holistic models of economic success

To invest in young human capital is to strengthen the future foundations of aging societies with already highly elderly-oriented welfare states, but government spending in the Netherlands on early childhood education is barely above the EU average. PISA reading scores for Dutch high school students have been declining for nearly a quarter century now. The Netherlands also scores poorly by international comparison on the intergenerational justice index, which combines ecological footprints, child poverty, government debt per child, and the pro-elderly bias of social spending models. 

We compare sustainable competitiveness with by considering how a country becomes a strong exporter. One model is that of low wages in cheap currency. An alternative approach is to combine high wages in expensive currency with a strong export position – by creating high value added. Similarly, truly competitive countries will invest in their own youth, refuse to sacrifice their green spaces, protect the health of all citizens, and minimise the damaging legacies they leave behind for the next generations.  

From this perspective, the Netherlands looks less like a champion model for competitiveness. By contrast, Denmark is one of just four EU member states (alongside Sweden, Latvia, and Ireland) that manage to create the fiscal space necessary to reach the EU’s climate targets while also fully respecting the terms of the Paris Agreement. Denmark also measures and restricts noxious fumes at airports, has low-end wages that are much higher across the board, and, like Sweden, sustains public policies toward the young and the old that are more fairly balanced. This looks a lot more sustainable and competitive in the long run. 

Dr. Maarten Wensink is a medical doctor and statistician who earned his PhD at the Max Planck Institute for Demographic Research. He was Global Fellow at the EURAC Centre for Advanced Studies in Bolzano, where he continues to be involved. Currently working in the private sector, he takes an active interest in global affairs in his spare time.  

Dr. Pieter Vanhuysse, PhD (LSE), MAE, is Full Professor of Politics and Public Policy at the Department of Political Science and Public Management and the Danish Institute for Advanced Study, University of Southern Denmark. His research focuses on comparative political economy, political demography, aging welfare states, intergenerational resource transfers, and intergenerational justice. 

Note: The views expressed in this post are those of the author and not of the UCL European Institute, nor of UCL.

Image credit: European Council. Margrethe Vestager, Vice-President of the European Commission, speaks at the Competitiveness Council (Internal market and industry) in March, 2023.

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