Economic

Closing regional economic divides can support democracies on both sides of the Atlantic

This February, the European Commission released its Eighth Report on Economic, Social and Territorial Cohesion, detailing the impact and future challenges of the European Union’s decades-old program to invest in economically ailing regions within member countries. Overshadowed by Vladimir Putin’s war on Ukraine, the report was barely noticed in Europe, and certainly unnoticed in the U.S.

A commitment to place-focused economic policies that close economic opportunity divides between various geographies and help hold societies together has a long history in Europe. For years, such “cohesion” policies have invested in economically struggling or transitioning regions in the United Kingdom and EU member nations. And while the track record of these investments is mixed, they have somewhat buffered the winds of globalization, automation, and increased skill demands that have hurt workers in traditional industries around the globe.

While structural changes in the economy—and, in particular, the devastating impact of the 2008 Great Recession—have resulted in persistent and sometimes widening regional economic inequities, the EU’s latest report says that in sum, “Over the past two decades, cohesion policy has reduced economic, social, and territorial disparities.” The noble goal of these policies, despite the economic headwinds, is to try to realize a more equitable spread of economic opportunity—a glue to bind societies together.

We’ve written much about the urgent need in the U.S. to diminish geographic economic disparities and opportunity gaps, particularly those between thriving global city regions and struggling communities in the industrial Midwest. Such yawning divides and still-growing gaps in geographic economic opportunity pose one of the most imminent challenges to the stability of the political order on both sides of the Atlantic.

This instability and polarized politics are driven by populist leaders who prey on economic anxieties and the fears of social change and loss of identity among residents of economically struggling communities. Right-wing populists appeal to anti-immigrant sentiments, ethno-nationalism, nostalgia for an economy and society of yesteryear, and a retreat from the international order into isolationism. They also are anti-democratic and encourage distrust in government institutions, the free press, and even the rule of law.

Vulnerable regions around the world are in a difficult phase of economic restructuring, and they are the crucible of today’s polarizing right-wing populist movements. Former heartland industrial powerhouses—from the once-mighty U.S. Midwest to the Donbas in warring Ukraine’s east—represent the most fertile ground for authoritarian strongmen to nurture nativism, nationalism, and nostalgia.

On the other hand, when the economic fortunes of once-mighty industrial heartland regions take a turn for the better, we see salutary effects on the health of democracy. This includes a measurable decline in the electoral appeal of populism and nationalism—disabling the resentment-driven, nostalgic politics that anti-democratic demagogues peddle. We have seen this phenomenon clearly in the U.S. Midwest, as well as industrial heartland regions in Europe. Economically rebounding cities and subregions within otherwise struggling industrial areas have been able to resist the populist tide and, in many instances, even reverse gains populist parties have made in previous elections.

In contrast to Europe, the U.S. has little history of region-focused federal investment efforts, with the exception of big plays for the most economically backward regions, such as through the Tennessee Valley Authority and Appalachian Regional Commission. But rarely have these efforts been viewed as having the goal of national political or social cohesion.

Now may be the time for the U.S. to more fully articulate its own “cohesion” policy and agenda. Just as in Europe, the Great Recession hit the U.S. industrial heartland hard and exacerbated regional disparities. Automation, agglomeration in global city regions, and tech-driven occupational changes pushed these disparities further, right up to the COVID-19 pandemic.

Arguably, the Biden administration has been trying to advance a place-focused agenda, albeit without the accompanying clear narrative about the social goals of cohesion. While numerous proposals for place-focused investments have been left on the cutting room floor of the unpassed Build Back Better Act, some significant pieces remain in the works.

Versions of the “innovation hubs” that colleagues at Brookings Metro first proposed to spread tech innovation and seed good job growth in the heartland remain in national innovation and competitiveness legislation being reconciled in Congress. Some form of a new federal block grant program to bring good, new jobs to the country’s distressed communities may yet clear the Congress, which, as we noted previously, would be another potential balm on our polarized politics. And as colleagues at the Upjohn Institute detail in a recent report, there are promising uses of funds for place-focused investments in the previously passed—but not yet fully spent—American Rescue Plan Act and Infrastructure Investment and Jobs Act.

We may be finally seeing a glimmer of growth in the heartland tech economy, and we can’t afford to ignore it—if for no other reason than the differential impact these regions have on the future of our politics.

Today we are seeing a great convergence of effort—here in the U.S., in the U.K. with the “leveling up” agenda of the Johnson administration, and in Europe with its cohesion policy—to shape effective place-based economic development and a support strategy for “left behind” regions. These agendas have as much to do with politics as economics, as a mechanism to take down the temperature of overheated partisan politics.

Cohesion policies can follow important lines to drive regional growth in any country, from seeding innovation and support for entrepreneurs to providing universal broadband access, investments in skills, environmental protection, and clean energy. But it’s about more than policy—it’s about leaders “seeing” and respecting the residents of struggling industrial heartland regions. Not talking down to them, but recognizing their legitimate needs, frustrations, and priorities—then, delivering the support they need to chart their own future.

In Europe, they call this “managing economic structural change.” In the U.S., we call it “place-based economic development.” While the EU talks about “smart specialization” and “just transitions,” we talk about innovation in emerging sectors and inclusive growth. No matter what you call it, the success of our collective trans-Atlantic work to accelerate economic change in industrial heartland regions has huge implications for the future of our society, our democracies, and the health of our alliances.

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