Lessons in ‘levelling up’ from the Basque country

How are declining regions to be revitalised? This question arises wherever erstwhile bastions of heavy industry have collapsed in high-income countries. Nostalgia for the past is futile. One must regenerate and renew instead. The Basque country in Spain has succeeded in doing so. Its success suggests some big lessons: first, renewal must come from within; second, it is never finished.

The Basque people are concentrated in three provinces in the north-west of Spain and three provinces in south-west France. They speak a unique and ancient language and possess a distinct culture. The Basque country, whose largest city is Bilbao, contains close to 2.2m people. It became a centre of heavy industry in the late 19th century, based on mining and steel. But it suffered terrible violence in the Spanish Civil War, including the notorious bombing of Guernica in 1937, and thereafter repression of its language and culture.

Chart showing that the Basque Country’s incomes per head have caught up with the EU average

In the 1970s, the Basque country was still one of the richest regions in Spain. But it faced great difficulties. As in other parts of the world, its heavy industries were in severe decline and unemployment was high. An administration also needed to be created from scratch for the new “autonomous community”. Despite democracy’s return in the 1970s, the region was long convulsed by Eta’s terrorism, which ended only in 2011.

This, then, was a crisis. Four decades later we can see what unfolded. Unemployment is far below the Spanish average, though employment ratios are low by European standards. Nominal gross domestic product per head rose from 70 per cent of the average of the EU15 (with the UK) in 1985 to close to the average in 2019. At purchasing power parity, average incomes per head in the Basque country in 2019 were close to Germany’s. The OECD notes that social welfare is generally as high as, or higher than, in rich Spanish regions, such as Catalonia and Madrid. (See charts.)

This rebirth is also cultural and physical. Bilbao in particular has been turned from a dirty industrial city, albeit one with impressive late 19th-century buildings, into a model of architectural and cultural renewal. Frank Gehry’s world renowned Guggenheim Museum is at the heart of this. But it is not unique, as I discovered during a recent visit. The architectural regeneration is as astounding as the food.

So, how was this done and what if anything can be learnt from it? There would seem to have been two necessary conditions: the desire to succeed; and the freedom to do so. While both of these were necessary, they became sufficient only by having a favourable context and by taking the right decisions. Spain’s EU membership was the context. But what were the decisions?

Chart showing that joblessness in the Basque Country has been far below the Spanish average

A striking feature of these was how they were made, namely, by close co-operation among all levels of government and between public and private sectors. The shared aim motivating it all has been one of balanced social and economic development. According to the Basque Institute of Competitiveness, the 1980s were “defined by the creation of the new regional administration alongside the need to promote substantial industrial restructuring”. This “evolved in the 1990s into a strategy built around clusters and geared to improving efficiency, fostering non-R&D-based diversification, and promoting internationalisation”. That then evolved in the 2000s “into a sustained focus on innovation and science-driven industrial diversification”.

After 2008, Spain as a whole fell into another huge crisis. Again, the development strategy had to adjust. It did so by building on the Basque country’s growing strengths in science and advanced manufacturing technologies, as well as in bioscience and even nano-science. Now in the 2020s, the Basque country confronts another set of challenges, notably those of the energy transition.

Chart showing that by EU standards, the Basque Country’s overall employment ratios — and especially youth employment ratios — are low

As in other cases of rapid economic development across the world, success created the foundations for the next stage. But running through the story of the Basque country seems to be an ability to work out the right response to what was happening in the world. Since successful development demands the creation of a range of vital public goods, it depends on a development-oriented government. But the latter in turn relies on the ability of private business to seize opportunities. A good way to think about this is as a marriage of co-operation with competition within an open world economy.

What can other parts of the world learn from this story of regenerating and then developing an old industrial region? The challenge is not unique, after all. In the UK, for example, housing and communities secretary Michael Gove is expected to deliver a plan for “levelling up” quite soon.

The parallels with Wales, Scotland and parts of England are evident. Probably the most important lesson is that those who live in and are responsible for the region should have both the resources and the freedom to make decisions. This is not just because they are likely to do it better. It is also because that is a way to foster the needed boldness. Furthermore, a big effort should be made to encourage co-operation among the various players, with a view to creating and exploiting the synergies. Finally, there should be a never-ending effort to develop the region’s resources. Change never ends.

It is quite reasonable to ask how much can be learnt from a region that is so different in its history and identity. But bold efforts will never be forthcoming, without far greater autonomy. In the UK, above all, too much has depended for too long on decisions coming out of London. That is not how the Basque country prospered. Autonomy matters. We must learn from that.

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