Structural policy supporting the imminent coal exit in Germany
On 14th August 2020, the law for structural support for coal regions entered into effect (1). At the structural policy level, it accompanies the Act for the Reduction and Termination of Coal-Fired Power Generation and the Amendment of Other Laws (Coal Exit Law), which entered into force at the same time and is intended to provide a set schedule for gradually ending the generation of electricity using lignite and hard coal in Germany by no later than 2038. Besides the shutdown of all lignite and hard coal power plants still operating in this country, this will also inevitably mean the end of domestic lignite mining. As of the end of 2018, the domestic hard coal mining industry had already come to a socially acceptable end with the closure of the last German hard coal mine pursuant to the coal policy resolutions of 2007 and the closure plan required by the EU as of 2011, having already completed an adjustment process cushioned by coal policy for several decades. The result is that all coal mining in Germany will have been wound up pursuant to political demands in the foreseeable future and all the country’s regions will have been reclassified as post-mining regions.
Since historical development means that the German coal mining industry was, and in some cases still is, a formative economic and employment factor in its regions, one question that arises is how the jobs that will be lost, directly and indirectly, can be compensated or how employment in the post-coal mining regions can be newly stimulated. Although the socio-economic structural transformation in the German coal regions to date has been associated with profound structural changes on labour markets as well, it has only in rare cases achieved complete compensation for the jobs lost in the coal mining industry for the impacted regions. In fact, in all German coal regions, even before full realisation of the coal exit (and where coal mining has been completely closed down, continuing afterwards as well), unemployment is higher on average than in the nation as a whole. The only exceptions are Germany’s smallest post-coal mining regions, i. e. the Ibbenbüren hard coal field (closed in 2018) and the Helmstedt lignite field (closed in 2016), where relatively favourable regional circumstances have made the difference. The stark contrast to this image is Germany’s largest coal (now post-coal) mining region, the Ruhr field (here equated with the Ruhr Valley within the boundaries of the Ruhr Regional Association), where unemployment has been well above the national average for a long time – by a good four percentage points even now – and currently (autumn 2020) has even reached double figures again. At the same time, the Ruhr Valley raises unemployment figures for the entire state of North Rhine-Westphalia and recently caused them to exceed those of all other coal mining states, as a comparison “NRW excluding Ruhr” makes very clear. The city of Gelsenkirchen in the heart of the Ruhr Valley, which was strongly characterised by coal mining in the past, is currently the municipality with the highest unemployment in Germany. Saarland is also noticeably above the national average, albeit by a smaller margin. Unemployment in the eastern German lignite mining areas is also even today above the national average as well as the figures in their own states, although the Lusatian mining region numbers are somewhat lower than in the Central German mining region.
Below is an overview of unemployment in all German coal regions (with some overall and individual comparisons) in June 2018 and July 2020 (Table 1). June 2018 was the month in which the commission “Growth, Structural Change and Employment”, commonly referred to as the “Coal Commission” and established by the German government to draw up recommendations for the exit from coal-fired power generation, began its work. July 2020 is the month in which the legal regulations for the coal exit based on the recommendations of the Coal Commission, including the law for structural support for coal regions mentioned at the beginning, were adopted, making it the starting point, so to speak, for employment development in the future post-lignite mining sector. When mid-2018 and mid-2020 are compared, the first thing that stands out is that unemployment has increased in almost all western German coal regions, although region-specific developments have of course been overshadowed by macroeconomic trends, especially the industrial recession since 2018 and the severe coronavirus crisis in spring 2020. Seen against this background, however, it seems quite astonishing that unemployment in the two eastern German lignite mining areas of all places was stable or even on a slight decline. This might be explained in part because the importance of lignite mining for employment is relatively greater there and that there has not yet been a significant decline in employment in this phase – yet the challenge in the future will be all the more daunting.
According to Chapter 1 of the law for structural support for coal regions, the federal government will provide “financial assistance to compensate for differences in economic strength and to promote economic growth in the lignite mining regions” amounting to 14 bn € between 2020 and 2038. The Act clearly states in § 1 (2) that the objectives of this financial aid “serve in particular to cope with structural change and to secure employment in light of the exit from lignite mining and from the generation of electricity using lignite”. Chapter 2 provides for an additional 1.09 bn € in structural aid until 2038 “for structurally weak locations of hard coal-fired power plants and the former Helmstedt lignite coal field”. The funds are set to be distributed “on the basis of the number of jobs and added value likely to be lost or already lost at the affected locations” (§ 11 (2)). Of the nine structurally weak sites of hard coal-fired power plants selected as eligible for support in § 12, seven are in municipalities in the classic hard coal regions of the Ruhr (five) and Saar (two); only two are coastal locations (Wilhelmshaven and Rostock).
Chapters 3 and 4 of the law for structural support for coal regions encompass “other federal measures” as well as additional investments in federal trunk roads and federal railways to promote the lignite regions; a total of around 26 bn € has been earmarked for disbursement for these measures between now and 2038. The “other measures” are explicitly aimed at promoting science, research, teaching and education as well as the locating of federal institutions in the lignite regions, at federal funding programmes for the transformation of coal regions into model regions for greenhouse gas-neutral, resource-efficient and sustainable development, at additional measures to support the energy transition and climate protection (including special regional allocations for “real laboratories of the energy transition”) and at the expansion and establishment of various special programmes and initiatives of the federal government to promote lignite regions in the areas of infrastructure, culture, consulting, research and development. § 17 of the Act underlines that these measures are “intended primarily to strengthen economic growth and create jobs”.
On 27th August 2020, a federal-state agreement was signed that in addition contractually secures the provisions of the law for structural support for coal regions and establishes a federal-state coordination body for the funded projects. “The overarching goal here”, as is literally stated, “is to support the structural change in the coal regions so that the coal exit becomes an opportunity for the affected states and new jobs are created” (2). Almost at the same time, the Federal Ministry of Economics launched a new federal programme called STARK that provides the coal regions with the means to finance non-investment measures such as grids, technology transfer projects or the operation of structural development companies. The funding directive for STARK pursues as its funding objectives the support of a “successful and economically, ecologically and socially sustainable transformation of coal regions” and a “direct contribution to climate protection”, whereby it is notes as a starting point that “the local economy apart from the coal industry (must) grow in order to compensate for lost added value and jobs in the coal industry” (3).
The imminent coal exit in Germany is being proactively and comprehensively flanked by structural policy, in particular to compensate for the resulting job losses and to give new employment stimuli to the coal mining regions (Figure 1).
It is noteworthy, however, that the German government has not taken up the Coal Commission’s recommendation (4) to include employment and regional development criteria alongside energy policy criteria when monitoring the coal exit process through periodic progress reports and an evaluation of the measures by an independent panel of experts. Specifically, the Coal Commission had proposed as one of the test criteria that should as necessary result in adaptation and readjustment of the exit path: “Recognisable and adequate creation of new employment and new added value in the regions in terms of the equivalent replacement for the jobs lost and the declining added value resulting from the reduction and termination of coal-fired power generation (in 2023 and further review in 2026 and 2029)” (5). The evaluation of these aspects is apparently reserved for the federal and state politicians themselves.
From an economic point of view, however, the question whether and to what extent the chosen measures are actually necessary, useful, reasonable and sufficient with regard to the objectives of employment and regional development or whether other measures should not be considered as complements or alternatives cannot be avoided. This could lead to important conclusions – not only for the future development of the labour market in the lignite regions that are on the verge of shutting down what was once at the heart of their industrial development, but also concerning how employment stimuli can be strengthened in particular in the hard coal regions that are already in the post-mining phase, but still struggling with above-average unemployment, specifically in the Ruhr Valley and in Saarland.
The academic debate among economists regarding “place-based policies” that has been going on in the USA for some time has some new insights to offer. Before considering this issue, however, similar ideas currently proposed by the Institute of the German Economy (IW), Cologne/Germany, for the establishment of so-called special economic zones in the lignite regions will be examined; the proposals simultaneously criticise sharpy the law for structural support for coal regions because in its implementation the federal government is employing dubious measures “as well as sensible stimuli” and is “ignoring other opportunities”(6).
IW study on special economic zones in the lignite regions
At the end of May 2020, the IW published a report commissioned by the FDP parliamentary group in the German Bundestag entitled “Special Economic Zones to Support Structural Change in Coal Fields – Right of Way for Education and Investment”. In this report, the IW uses the term “coal fields” to refer exclusively to the three German lignite regions, which will lose around 70 % of the added value added of their coal industry by 2030 and 100 % by 2038 at the latest when the coal exit is completed, and it focuses its proposals on the Lusatian coal field as an example. First, the IW notes that there are a good 4,300 areas worldwide that are treated as special economic zones or regions. Internationally, they play a significant role in development and transition economics, although experience varies widely from one to the next. Besides failed experiments – which the IW attributes to poor economic policy in the countries or otherwise unfavourable general conditions or instabilities – there are success stories such as the coastal Chinese special economic zones, e. g. Shenzhen, that have grown into new economically strong metropolises. A special economic zone or region is defined as “a geographically clearly defined area in which legally secured conditions for the economy or certain economic activities apply that differ from the rest of the territory of the country where it is located. The special circumstances can relate to both trade – as is found in the areas better known as free trade zones – and production. The aim is to create conditions that deviate positively from those otherwise existing in the country and that enable above-average growth” (7). The IW equates the adjective “positive” with favourable framework conditions for companies operating in the area that may take the form of tax concessions, investment subsidies, exemption from customs duties, business-friendly regulations or deregulation, limited bureaucracy or debureaucratisation. The latter might include such actions as the simplification of procedures to obtain authorisations, approvals and permits or in contract, competition and planning law and extend as well to encompass labour and social law.
No such special economic zones of this type have been created in Germany. The EU has had experience with these models since the 1990s in Poland – i. e. even before the country joined the EU – and more recently in Italy and Spain. The setup of these zones in the EU always gives rise to the question of compatibility with the single market and state aid regulations, which is ultimately answered through negotiation processes with the EU Commission and, in the IW’s view, could also be an option for the German coal regions. The IW has not generally examined the extent to which such approaches are consistent with Germany’s Constitution (GG), concentrating instead on concrete proposals for the German lignite regions, all of which appear to be constitutional. Nevertheless, implementing measures that establish longer-term or even permanent legal exceptions and special positions for certain regions would likely prove difficult in this country for political reasons, and these steps are also viewed more than critically from a macroeconomic perspective. These considerations have kept German lawmakers from taking this approach.
Moreover, the IW’s own assessment that “with the establishment of a special economic zone for the three active lignite mining areas … conditions will be created to manage successfully the required structural change by the time coal mining and coal-fired power generation are phased out in 2038” and that these three regions “will then be in a position not only to compensate for the loss of coal-related value creation, but indeed to rise to the level of leading innovation regions in 20 years’ time” seems rather overly optimistic. The study continues that “the high added-value jobs in the coal industry could be replaced by equally productive new jobs. This development could become a model for structural change in other regions”(8). These ambitious ideas are certainly aimed in the desired direction. Still, their realisation cannot be guaranteed where a structural change of such profundity is necessary, especially one that is subject to a plethora of influencing factors, and most certainly not when the fixed, relatively short time frame is considered. Nevertheless, the IW’s criticism of the law for structural support for coal regions must be taken seriously, claiming that the law focuses too much on “authorities instead of industry”, too much “on very small-scale, individual projects reminiscent of a planned economy and the creation of positions in government authorities … What the plans lack so far is a clear focus on business investment through financial incentives as well as through reduced bureaucracy and accelerated planning and approval procedures” (9) .There is no doubt that the IW’s ten concrete proposals for establishing the special economic zones specifically for these coal fields should be regarded as economically substantial and innovative in terms of regional policy, and there is much to be said for examining each of them on its own merits. These are the ten proposals:
- Reduction of the trade tax rate.
Specifically, the IW proposes a reduction to the minimum trade tax levy rate of 200 %; this would roughly halve the current average levy rate in the lignite regions that, as of now, is above the average national rate of 363 %. The loss of tax revenue for the affected municipalities and the mirrored relief for the companies in these regions of around 880 M € could be compensated fiscally from the restructuring funds already earmarked for the lignite regions in addition to a self-financing effect, which the IW estimates at a considerable level of almost 40 %; these measures could be implemented without requiring EU approval for government aid.
- Stimulation of additional investments within the framework of the GRW.
The Joint Task for Improvement of Regional Economic Structures (GRW) is a primary instrument of German regional policy that grants government investment subsidies in assisted areas. The eastern German lignite mining areas are already assisted under the GRW programme while part of the Rhenish mining area is covered by it. The IW proposes to increase specifically the subsidies for these regions by a total of 50 M € for industrial investments and to maintain them at a consistently high level until 2038.
- Strengthening research and development.
Companies in the lignite mining areas should be granted more favourable R&D subsidisation conditions in the federal programmes of the Federal Ministry for Economic Affairs and Energy (BMWi) and the Federal Ministry of Education and Research (BMBF), a step aimed at strengthening regional innovation performance. The IW specifically recommends using the innovation-oriented criteria of the GRW from 2021 and/or granting special conditions in BMBF programmes such as WIR! and REGION.innovativ.
- Expansion of university-level education institutions.
Universities, technical colleges and scientific institutes should be expanded for the specific purposes of training skilled specialists, offering starting points for regional innovations and keeping qualified young people in the region or attracting them to the regions from other areas.
- Technology parks and technology and startup centres.
These facilities could join universities and technical colleges to become “crystallisation points” for new growth industries. The IW suggests building on the existing specific energy competencies of the regions.
- Rapid expansion of digital telecommunications networks.
Modern digital information and telecommunication networks from broadband to the 5G standard are now an indispensable part of a future-oriented regional infrastructure, and parts of the lignite coal fields are among the regions with an inadequate standard of development. Rapid buildup to make up the disparity, including the expansion of 5G test fields already in planning, should take place here.
- Test field digital energy grid control.
The German energy industry will be facing dramatic upheavals as lignite-fired power generation and its baseload capability is phased out, the exit from nuclear power generation is completed and the exit from hard coal-fired power generation is accelerated as well. The struggle could be ameliorated and the lignite regions could even retain their special position as German suppliers of energy and electricity to a certain extent if they succeed in becoming successful test fields for intelligent grid control integrating regionally and supraregionally available renewable energies as well as new and established storage technologies.
- Accelerate planning for transport infrastructure.
In view of the long duration of planning and approval procedures for the construction of new roads and railway lines usual in this country and the relatively short time remaining until the exit from coal-fired power generation, the IW calls for significant acceleration of infrastructure planning for coal regions. Specific demands are for more tightly integrated planning and approval processes, simplified procedures for replacement facilities and extensions and laws providing measures adequate for the achievement of targets.
- Simplification of bureaucratic procedures and “smart regulation”.
The rapid approval of new industrial parks is essential for successful structural change. The IW believes the testing of simplified bureaucratic-regulatory procedures and instruments is required for this objective as for energy transition or digitalisation projects and recommends taking as a model the “unleashing packages” as practised by the state government of North Rhine-Westphalia with precisely these aims in mind since 2017.
- Evidence-based policy-making and participation.
As envisioned by the IW, the lignite regions could be developed into model examples of evidence-oriented policy-making and new forms of participation by citizens and experts alike. Elements include legislative impact assessments with detailed cost-benefit analyses, “real labs” such as those provided for the energy transition, the involvement of the people in the region in certain decision-making processes or the greater inclusion of citizens, companies and expertise by taking advantage of digital platforms and crowdsourcing.
As a whole, the ten proposals of the IW report appear to be both constructive and specific. It is not entirely clear why these ten measures and these ten measures only were selected, whether the test character of some of these measures is compatible with the unequivocal promise of success and whether it was necessary to attach the label “special economic zone” to the measures as a package. On the other hand, it is clear that the coal exit and the necessity to create new prospects for prosperity and employment in the post-mining areas will leave the coal regions no viable choice but to improve framework conditions and, above all, to provide special incentives to stimulate private investment by companies from outside and within these regions. The catalogue of measures in the law for structural support for coal regions is aimed solely at infrastructural and other governmental framework conditions that primarily create indirect incentives and heavily emphasise compensation for previous infrastructural disadvantages. They do little, however, to create direct incentives for private investments that will create jobs, especially in the coal mining and later in the post-coal mining regions. A regulation on special depreciation allowances for private investments in specific regions contained in the initial bill was later discarded during the legislative process because of issues with state aid law. The IW proposals could undoubtedly have certain incentive effects in this respect and to this extent would be considered suitable suggestions for such measures. What they lack, however, is a differentiation and classification of the selection and customisation of measures.
But this is where the most recent economic discussion, especially in the USA, on “place-based policies” or “place-based job policies” can cast some revealing light. Clearly, post-mining is just as location-bound as mining so employment stimuli for post-mining regions must generate jobs in these regions, not somewhere else. Yet both American and German regional economic policies long relied more on the mobility of the labour force when considering the question of employment for structurally weak or weakened or even economically declining regions and emphasised first and foremost the greatest possible growth of the economy as a whole and the maintenance of free markets that were generally considered to be functional – taking as their motto “people to the jobs” instead of “jobs to the people”(10). In the last several years, however, policymakers have been moving away from this motto because the socio-economic consequences of neglecting regions or sometimes even forgetting them completely – at least as perceived by the people living there – and the political fallout have become increasingly significant, not least in terms of electoral behaviour in favour of extreme populist positions, and have led to a completely different, partly protectionist economic policy. Prominent examples are professional essays bearing titles such as “Saving the Heartland” – referring to the enormous regional economic divisions in the USA that include former coal regions such as Appalachia (11) – or referring more precisely to Europe including, among others, the eastern German lignite regions, discussing the political “revenge” of the places and regions “that don’t matter”, i. e. areas whose inhabitants feel, so to speak, left behind and no longer heard or respected (12).
In the US debate, place-based policies has become an established term referring to economic support for especially hard-hit communities for which there is no precise equivalent in German. The German term “regional policy” is usually used in a broader and more general sense, whereas the term “location policy” is used either in more of a business management sense applying very narrowly to specific operational locations or in very general reference to the national economy in its entirety as an economic location. In contrast, the term place-based policies seems to be very suitable for the concerns of post-mining because closed mines or coal fields and their economic, social and ecological subsequent problems usually refer primarily to specific communities or groups of communities and their local labour markets, and these are not evenly distributed over entire regions (Figure 2).
Place-based job policies – recent findings of the debate in the USA
Despite the long-standing reluctance in the USA to adopt a more comprehensive regional policy, there is a wealth of experience with regional policy experiments in the direction of place-based policies – some of them analogous to the approach of establishing special economic zones – ranging from special New Deal projects such as the Tennessee Valley Authority for the modernisation of obsolete infrastructures in selected regions to the “Empowerment Zones” made possible in the 1990s as a federal programme with specific financial aid for relatively poor areas suffering from above-average unemployment to the “Enterprise Zones” – in recent years the object of strong support from the Trump Administration – that are intended to encourage companies to settle in often vaguely defined problem regions, including coal regions, in particular by offering specific tax breaks and deregulation at the state or local level. According to David Neumark of the University of California at Irvine, who has been conducting research on this topic for some time, the results of these various experiments are mixed (13). As far as Enterprise Zones are concerned, there is little evidence of sustained higher employment and lower poverty, and where there has been success in this sense, it is usually at the expense of neighbouring regions that do not enjoy such special status or it is linked to very specific, non-transferable special conditions. On the whole, subsidising simple location decisions by individual companies have proven to be particularly ineffective in creating sustainable employment, both at the municipal and national level, whereas government investments in support of infrastructure investments and institutions of higher learning are most likely to be effective in the long term (14).
When we speak of the German coal regions, these results would initially seem to favour the approach pursued with the law for structural support for coal regions and less so the proposals made by the IW. However, the Neumark findings could only be summarised quite roughly here. And comparisons with the experience in the USA break down quickly insofar as there are no examples in that country of regions being economically gutted by the state-ordered termination of an entire industry as is found in the German coal regions. The experience of the Ruhr Valley, now the region with the highest density of universities in the country that has, so to speak, turned itself into a knowledge district and consequently has received further extensive state support for investments in the health sector and other areas, is also proof of the contrary. Still, it has not been possible, despite profound structural changes, to compensate the tremendous loss of private investment and jobs resulting from the decline of the once-dominant coal and steel industries, even after decades. There are plenty of explanations for this, but apparently no simple patent remedy. In any case, huge regional investments, especially in higher education, and their employment effects alone have so far been far from sufficient (15).
As far as place-based policies and place-based job policies are concerned, the American economist Timothy Bartik from the Upjohn Institute for Employment Research in Kalamazoo,Michigan/USA, recently published an entire series of papers on this topic, also the fruits of many years of research, that provide some new insights and may also be helpful for employment prospects in the post-mining sector. The work of Bartik and the Upjohn Institute on successful community (“place-based”) economic development and local employment growth is also acknowledged by other recognised regional economists as a necessary shift in thinking. Richard Florida speaks here of a “big and much–needed rethink” (16). While, according to Florida, cluster-based and talent-oriented strategies for urban and regional development are currently still the primary focus and have had some success in rebuilding economies and revitalising some cities plagued by structural failures, these approaches have done little to stem the growing regional inequalities and the resulting political backlash of neglected municipalities. The strategy developed by Bartik and the Upjohn Institute provides more effective orientation and an approach to “inclusive prosperity”. Florida highlights these four pillars of this strategy:
- locally tailored private investment incentives;
- place-based workforce development measures;
- talent attraction through place-based investments; and
- stakeholder engagement for inclusive investments
Bartik has explained in detail the economic considerations behind his strategy in several professional papers. The previously favoured people-to-jobs strategy has proved to be ineffective and has two fundamental flaws. First, convincing people to make major changes in their physical locations is very difficult and, on closer inspection, very costly. Second, migration does not help those who stay behind; indeed, it exacerbates their situation (17). Aside from the monetary costs of the change, moving away from home regions has been demonstrated to cause psychosocial problems for the affected workers and their families, which is why even the permanent loss of jobs in a region increases people’s willingness to migrate only slightly. Bartik quotes Adam Smith, who in his day recognised this issue and described “man as the kind of baggage most difficult to carry.” Even today, half the population in the USA, which has long been so focused on occupational mobility, live within 30 kilometres of their place of birth. In economic terms, this can be explained solely by the obviously high costs of migration (18). Moreover, emigration does not without further ado restore the balance of local labour markets because local consumption and housing demand also depart with the emigrants and local business and startup activities decline as well. The material alternative is therefore “bringing jobs to the people”, according to Bartik. He counters the frequently raised objection that a policy aimed at local employment growth would produce no more than a flash in the pan effect and could at best return employment rates and wages to their previous equilibrium; in the long run, it would primarily benefit local property owners. While the empirical evidence also shows benefits for local real estate capital, it clearly demonstrates in the long run higher local employment rates and incomes and overall higher gains for local human capital than for real estate capital. Drawing on several US studies, the long-term wage elasticity of employment is empirically estimated at around 0.2 – a conservative estimate. It is higher if unemployment was initially above average, i. e. every additional job created locally improves local income by an average of 20 % (19).
At one point, Bartik briefly discusses a possible distributional rationale for place-based job policies, i. e. their interpretation as an instrument of income redistribution in favour of poorer sections of the population. He rejects this orientation as a primary goal, however, even if certain redistributive effects of this kind may result. In strictly distributional terms, a more progressive tax system and direct social policy instruments would be much more effective than such a primarily regional policy-oriented approach.(20) The economic justification of place-based job policies, on the other hand, is found rather in grounds of allocation policy related to efficiency or concretely in three manifestations of market failure; the correction in regional policy leads inversely to positive external effects of targeted local job growth.(21) First, Bartik points to the enormous involuntary unemployment in economically weakened communities (“distressed communities”). If new jobs are successfully created for the local unemployed, economic gains – more income and taxes, lower social expenditures and social costs, less crime etc. – are not limited to the locality. They also represent a gain in economic prosperity because private benefits of employment growth are greater there than elsewhere, re-employed workers value their jobs more than the opportunity costs of migration and labour demand meets a more elastic labour supply that exerts less excessive wage and price pressure. Second, place-based job policies are more likely to realise so-called agglomeration savings, i. e. productivity gains and spill-overs, because urban agglomerations and regional industry clusters can provide a better balance of skilled labour and a faster diffusion of new knowledge so that employment growth at one company generates economic benefits for other local enterprises. Such agglomeration effects are particularly striking in the so-called high-tech industries, which also display the largest employment multipliers. However, research has not yet reached a consensus on whether it necessarily follows that the high-tech industry – in the USA, but not only there – that has so far been strongly concentrated regionally should be encouraged to diversify geographically and try to help structurally weak communities. Such communities often lack precisely the factor of adequate agglomeration benefits that can be effectively used for this purpose. But where existing conditions for this agglomeration are better – think of the Ruhr metropolitan region in this country, for example – it makes sense to stimulate specifically and exploit such agglomeration effects. Third, Bartik refers to government services and regulations in relation to the economic factors of production (“business inputs”) that have the character of public goods. They include above all the public infrastructure (transport routes, ICT networks, energy and water supply etc.) that not only represent essential prerequisites for existing and new private sector activities, but also create direct employment effects through permanent maintenance and appropriate expansion. Infrastructure programmes of this type can provide enormous employment stimuli especially for structurally weak regions. Bartik also emphasises local business development oriented to the real needs of customers and companies (“customised business services”), including technology consulting for small and medium-sized producers, technology and business centres, startup consulting and incubators and the provision of company-related forms of training and job training by municipal education institutions. Finally – and this is related directly to certain post-mining concerns – local land development is highlighted as an important lever for promoting private investment and employment opportunities. Bartik sees this as a particularly effective approach positively impacting employment for local development strategies – and a genuine task for the municipal public sector (Figure 3).
Bartik had previously spent years intensively studying the different possibilities of regional and local economic development in comparative studies for the USA, analysing “incentives” in particular, by which he means financial incentives through direct grants and tax breaks. He presented his summary findings from his studies in 2019 (22). Some of the results are sobering as it turns out that although financial incentives are by far the most common and costly support measures, they are by no means the most cost-efficient ones, involve mainly deadweight effects, are often not employed adequately to achieve their intended purpose and often lack basic requirements for transparency and evaluation. Based on these findings, he has drawn the following conclusions (23):
- These types of incentives should not be broadly scattered, but instead tailored to specific problem areas as far as possible and not be deployed until the financing and realisation of basic infrastructure services have been secured. Otherwise, their impact quickly fizzles out.
- Tax concessions in particular should be significantly reduced in scope and their financing should be limited to superior levels, i. e. to the federal or state budgets.
- At the municipal level, business-related material services should be brought to the fore and prioritised. The empirical findings are unambiguous: “Customised business services have more job creation effects per dollar than business tax incentives.”
- Where tax incentives are used, they must under no circumstances be financed by cuts in public spending on economic development.
- Financial incentives in general should be limited so that the economically unjustifiable temptation to provide excessive long-term financial aid to large companies can be resisted.
- Moreover, incentives should target companies in industries with tradable goods that can be exported from the perspective of their municipalities (“tradable industries”) and, if possible, concentrate on “high-tech cluster” areas because these have been proven to have the greatest multipliers for additional employment in contrast, e. g., to the expansion of local services (such as McDonalds), which usually only cause job displacements.
In another recent study examining specifically the employment effectiveness of place-based policies, Bartik analyses the aforementioned results and draws conclusions from them on how local and regional economic development can be improved from the perspective of employment stimuli (24). At the same time, he describes a number of examples, such as Pittsburgh’s turnaround after the decline of the steel industry, the successful reindustrialisation of Grand Rapids in Michigan after the demise of the automobile cluster through diversification into metal processing, chemicals, life sciences and food industries or, on a smaller scale, the transformation of the community of Crosby/Ironton in Minnesota, long economically supported by iron ore mining (until 1984), into a mecca of mountain biking and other leisure and recreational activities developed on the old mining site and a thriving tourism industry. In describing these examples, Bartik once again emphasises how important it is to focus the support measures specifically on the municipalities that have been hit particularly hard by structural change (the “distressed communities”) and their local labour markets. He also points to the institutional difficulties in effectively realising adequate economic promotion because the political temptation to provide substantial financial incentives for the settlement of large companies is tremendous due to its short-term appeal to voters, but at the same time there is a lack of financial resources for other measures, especially in problem regions. Moreover, many government institutions are not geared to local labour markets, and the affected municipalities often fail to develop a common local strategy. Nevertheless, all involved parties must strive to overcome these hurdles. Since the preconditions and requirements of the municipalities (in terms of their infrastructure needs or funding priorities, i. e.) often vary greatly and there are no patent remedies that are equally effective for all (“one size does not fit all”), it would also make economic sense and be helpful in practise if they received fixed federal subsidies (block grants) that could be used flexibly and at their discretion, i. e. according to their specific needs.
Conclusions specific to the post-mining situation
The future of employment in Germany’s post-mining coal regions, which are already suffering from above-average unemployment, depends on whether or not the direct and indirect employment losses of the impending coal exit as well as the labour market consequences of the completed termination of domestic coal mining (which have still not been adequately resolved) are more than compensated by the creation of sufficient new jobs locally.
The law for structural support for coal regions will undoubtedly spark considerable employment stimuli. This is assured by the extensive financial resources, but the mission statements for the development of the lignite mining areas and the project lists attached to the law for structural support for coal regions will also have a role to play. It remains to be seen whether they can be realised in good time. Yet another decisive point, however, is that one is not content with imposing federal and state projects right “off the drawing board”; as recent findings on place-based job policies show, the affected municipalities must be given adequate opportunities and the leeway to establish programmes promoting employment that are appropriate to their specific local issues and conditions.
As the IW has emphatically pointed out, incentives for private investments in particular that generate jobs must also be created; this step is of the greatest importance, yet is simultaneously controversial. As the discrepancies in content between the proposals of the IW and the ideas on place-based policies developed by Bartik and other economists reveal, the exact incentives that are especially suitable in this respect are disputed, but there is also a substantial overlap of agreement. This is not restricted to the fundamental importance of modern infrastructures. For instance, Bartik’s relatively sweeping references to high-tech industries and regionally exportable goods are partly underpinned by concrete proposals in the energy sector from the IW. Companies from outside the region or startups are not the only private investors who must be attracted; the local economy and the coal mining companies and coal-fired power utilities of the former coal fields themselves must join in as well. They must be given the chance to contribute their innovative potential to regional and local structural transformation and, as far as possible, to maintain their added-value chains through reorientation (repurposing). The coal industry itself has developed a number of ideas in this direction such as the conversion to other energy sources, geothermal energy, electricity and energy storage, hydrogen production, e-fuels, life cycle management (including carbon recycling, waste utilisation, environmental technologies and of course water management), land development and mining heritage (25). Besides national framework conditions suitable for the promotion of this transformation including, at the EU level, the new Just Transition Fund from 2021 (26) that is designed to support the EU’s coal regions in particular, the municipalities in the coal regions must be empowered to implement their own place-based policies, e. g., for the improvement of local infrastructure as well as business-oriented advisory and qualification services with a focus on new jobs.
Viewing specifically the post-mining Ruhr Valley from this perspective underlines the need to restore the financial capacity of the region’s municipalities to act, especially by resolving the issue of outstanding liabilities. There are further implications in terms of measures to maintain an infrastructure that is prepared for the future (including inter alia the post-mining water management tasks in perpetuity), land development and provision (including the contribution of former mining areas), increased cooperation among universities and companies in the dissemination of knowledge and the qualification of specialists and managers (which the TH Georg Agricola University (THGA), Bochum/Germany, e. g., a child of mining history, has always upheld in exemplary fashion as a guiding principle) or the enhanced orientation of economic development towards regionally exportable goods (which could also increasingly include concepts, processes and products of post-mining in the future). All of these actions, however, must create focused incentives for private investments that have the greatest possible impact on employment. The Ruhr Conference initiated by the state government of North Rhine-Westphalia in 2018 has since given rise to no fewer than 73 projects intended to make the Ruhr Valley an economically strong “opportunity region” again from 2020 onwards, but their scale has generally been small, heavily government-centric and dispersed over various fields of action (27) and so, viewed from the above perspective, it is hardly surprising that these efforts have so far provided virtually no recognisable impetus for more employment in the region despite isolated attempts in the sense of place-based policies; according to the explicit assessment of the Chambers of Industry and Commerce of the Ruhr Valley, the programme “(remains) anaemic” for the time being (28).
Finally, it should be pointed out that the revival of the labour market and private investment activity always depends, on a regional as well as larger scale, on the overarching macro-economic development or on a generally expansive economic and employment policy that perpetuates self-sustaining growth (29). Any form of regional policy runs into a wall if it does not have a favourable macro-economic environment. The converse, in terms of the employment situation in the coal regions, is that the obstacles that prevent macroeconomically induced employment stimuli from having a regional and local impact at the microeconomic level must be eliminated as far as possible without at the same time giving the affected inhabitants the feeling that they are being treated unfairly or exposing municipalities to ever greater uncertainty. The importance of such a task even when official statistics show rising incomes and higher employment in the economy as a whole was demonstrated in 2020 by Blyth and Lonergan in their impressive analysis “Angrynomics” (30), which in many respects is particularly applicable to coal regions.
(1) Federal Law Gazette, Volume 2020, Part I, No. 37, pp. 1795 et seqq.
Bundesgesetzblatt Jg. 2020 Teil I Nr. 37, S. 1795ff.
(2) See the related BMWi press release, accessible at https://www.bmwi.de/Redaktion/DE/Pressemitteilungen/2020/20200827-projekte-fuer-die-kohleregionen-koennen-starten.html
Siehe die Pressemitteilung des BMWi dazu, abrufbar unter: https://www.bmwi.de/Redaktion/DE/Pressemitteilungen/2020/20200827-projekte-fuer-die-kohleregionen-koennen-starten.html
(3) The Funding Guideline for Strengthening Transformation Dynamics and Awakening in the Coal Fields and Coal-fired Power Plant Sites (“STARK”) was published in the Federal Gazette on 26/08/2020.
Die Förderrichtlinie zur Stärkung der Transformationsdynamik und Aufbruch in den Revieren und an den Kohlekraftwerksstandorten („STARK“) wurde am 26.8.2020 im Bundesanzeiger veröffentlicht.
(4) The Coal Commission’s final report is available at https://www.bmwi.de/Redaktion/DE/Downloads/A/abschlussbericht-kommission-wachstum-strukturwandel-und-beschaeftigung.pdf?__blob=publicationFile&v=4
Der Abschlussbericht der Kohlekommission ist abrufbar unter: https://www.bmwi.de/Redaktion/DE/Downloads/A/abschlussbericht-kommission-wachstum-strukturwandel-und-beschaeftigung.pdf?__blob=publicationFile&v=4
(5) Ibid p. 106; cf. also van de Loo, K.: The Coal Exit – a High-Risk Adventure for the Energy Sector and Regional Economy. In: Mining Report Glückauf 155 (2019) Issue 2, pp. 178 – 193, here esp. p. 181.
Ebenda S. 106; vgl. dazu auch van de Loo, K.: Der Kohleausstieg – ein energie- und regionalwirtschaftliches Abenteuer. In: Mining Report Glückauf 155 (2019) Heft 2, S. 178 – 193, hier insb. S. 181.
(6) Cf. the assessment and study by the IW Cologne https://www.iwkoeln.de/presse/iw-nachrichten/beitrag/klaus-heiner-roehl-die-zeit-draengt.html, https://www.iwkoeln.de/studien/gutachten/beitrag/klaus-heiner-roehl-roman-bertenrath-tobias-hentze-vorfahrt-fuer-bildung-und-investitionen.html
Vgl. die Einschätzung und Studie des IW Köln: https://www.iwkoeln.de/presse/iw-nachrichten/beitrag/klaus-heiner-roehl-die-zeit-draengt.html, https://www.iwkoeln.de/studien/gutachten/beitrag/klaus-heiner-roehl-roman-bertenrath-tobias-hentze-vorfahrt-fuer-bildung-und-investitionen.html
(7) Ibid, p. 7. // Ebenda S.7.
(8) Ibid, p. 4. // Ebenda S. 4.
(9) Statement by Hubertus Bardt at the press conference on the presentation of the IW report, available at https://www.iwkoeln.de/fileadmin/user_upload/Presse/Presseveranstaltungen/2020/PK-Statement__SWR__Braunkohle_Mai_2020.pdf
Statement Hubertus Bardt auf der Pressekonferenz zur Vorstellung des IW-Gutachtens, abrufbar unter: https://www.iwkoeln.de/fileadmin/user_upload/Presse/Presseveranstaltungen/2020/PK-Statement__SWR__Braunkohle_Mai_2020.pdf
(10) An example of this is the discussion in E. M. Hoover/R. Giarratani: An Introduction to Regional Economics. 4th Edition, Pittsburgh 2000, updated Web Book of -Regional Science 2020, p. 258.
Exemplarisch hierfür ist die Diskussion in E.M. Hoover/R. Giarratani: An Introduction to Regional Economics. 4. Edition, Pittsburgh 2000, updated Web Book of Regional Science 2020, pp.258.
(11) Austin, B.; Glaeser, E.; Summers, L. H.: Saving the heartland. Place-based policies in 21st century America. In: BPEA Conference Drafts, March 8 – 9, 2018.
(12) Rodriguez-Pose, A.: The revenge of places that don’t matter (and what to do about it). In: Cambridge Journal of Regions, Economy and Society, 11 (1) 2017, pp. 189 – 209.
(13) See the summary prepared and explained by D. Neumark in 2017 in https://econofact.org/do-place-based-policies-work
Siehe das von D. Neumark 2017 gezogene und begründete Resümee in: https://econofact.org/do-place-based-policies-work
(14) Ibid. // Ebenda.
(15) At least from the point of view of regional unemployment, the sober assessment by J. Bogumil/R. G. Heinze/F. Lehner/K. P. Strohmeier: Viel erreicht – wenig gewonnen. Ein realistischer Blick auf das Ruhrgebiet. Bochum 2012, remains valid.
Mindestens unter dem Gesichtspunkt der regionalen Arbeitslosigkeit gilt für das Ruhrgebiet noch immer die nüchterne Bestandsaufnahme von J. Bogumil/R. G. Heinze/F. Lehner/K. P. Strohmeier: Viel erreicht – wenig gewonnen. Ein realistischer Blick auf das Ruhrgebiet. Bochum 2012.
(16) See Florida, R.: A Guide to successful place-based economic policies, online article for Bloomberg.com, 26 March 2019, available at https://www.bloomberg.com/news/articles/2019-03-26/place-based-policies-spread-inclusive-prosperity; Florida refers to the Upjohn publication “Building Shared Prosperity”, download at: https://research.upjohn.org/cgi/viewcontent.cgi?article=1238&context=reports
Siehe Florida, R.: A Guide to successful place-based economic policies, online-Beitrag für Bloomberg.com vom 26.3.2019, abrufbar unter: https://www.bloomberg.com/news/articles/2019-03-26/place-based-policies-spread-inclusive-prosperity; Florida bezieht sich dabei auf die Upjohn-Publikation „Building Shared Prosperity“, download: https://research.upjohn.org/cgi/viewcontent.cgi?-article=1238&context=reports
(17) Bartik, T. J.: Using Place-Based Job Policies to help Distressed Communities. In: Journal of Economic Perspectives, Vol. 34, No. 3, Summer 2020, p. 112.
(18) Ibid, p. 104. // Ebenda S. 104.
(19) Ibid, pp. 113 et seqq. // Ebenda S. 113ff.
(20) Ibid, pp. 106 et seq. // Ebenda S. 106f.
(21) Ibid, pp. 107 et seqq. // Ebenda S. 107ff.
(22) Bartik, T. J.: Making Sense of Incentives. Taming Business Incentives to Promote Prosperity. Upjohn Press Collection, Kalamazoo 2019.
(23) Ibid, pp. 89 et seqq. // Ebenda S. 89ff.
(24) Bartik, T. J.: Bringing Jobs to People: Improving Local Economic Development Policies. Upjohn Institute Policy Paper 023/ August 2020 download: https://research.upjohn.org/up_policypapers/23/
(25) Cf., e. g., the position paper on the reorientation of the EU Coal and Steel Research Fund presented by the European coal umbrella organisation EURACOAL at the end of August 2020, accessible at https://euracoal.eu/library/position-papers/
Siehe beispielhaft das vom europäischen Kohledachverband EURACOAL Ende August 2020 vorgelegte Positionspapier zur Neuausrichtung des Kohle- und Stahl-Forschungsfonds der EU, abrufbar unter: https://euracoal.eu/library/position-papers/
(26) As of mid-2020, the EU Commission had developed a comprehensive concept for the Just Transition Fund, cf. https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal/actions-being-taken-eu/just-transition-mechanism/just-transition-funding-sources_en. However, its final form will depend on the outcome of the negotiations between the Council and the European Parliament on the EU budget for the new period 2021 to 2027.
Zur Jahresmitte 2020 hatte die EU-Kommission für den Just Transition Fund ein umfassendes Konzept entwickelt, siehe -https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal/actions-being-taken-eu/just-transition-mechanism/just-transition-funding-sources_en. Dessen endgültige Ausgestaltung hängt jedoch vom Ergebnis der Verhandlungen von Rat und Europäischen Parlament über den EU-Haushalt für die neue Periode 2021 bis 2027 ab.
(27) Cf. https://www.ruhr-konferenz.nrw // Siehe https://www.ruhr-konferenz.nrw
(28) WAZ of 07/09/2020: IHK-Kritik: Die Ruhrkonferenz bleibt blass. // WAZ vom 7.9.2020: IHK-Kritik: Die Ruhrkonferenz bleibt blass.
(29) Cf. H. Bartling/F. Luzius/F. Fichert: Grundzüge der Volkswirtschaftslehre. 18th edition, Munich 2019, here esp. pp. 215 et seqq. for an exemplary explanation of macroeconomic stability and growth in a market economy.
Exemplarisch zur Erläuterung von gesamtwirtschaftlicher Stabilität und Wachstum in der Marktwirtschaft sei angeführt H. Bartling/F. Luzius/F. Fichert: Grundzüge der Volkswirtschaftslehre. 18. Auflage, München 2019, hier insb. S. 215ff.
(30) Lonergan, E.; Blyth, M.: Angrynomics. Newcastle 2020.