Among OECD member countries, per capita income gaps have declined over the past 20 years, however, gaps between the wealthiest and poorest regions (TL3) within many countries have grown. In 2022, 70% of the OECD population lived in countries where regional income inequality was growing. This is of particular relevance for residents of regions in industrial transition, which tend to have lower GDP per capita than national averages, experience low GDP growth and have lower productivity levels.
Industrial transition has directly affected regional labour market opportunities and productivity for decades. For example, in North East England the number of manufacturing sector jobs fell by 51% between 1996 and 2022. In the United States, 75% of the workers in the Rust Belt were employed in the steel, automotive and rubber industries in 1950 but only 55% in 2000, and in Germany’s Ruhr area, the substantial decline in the manufacturing industry from 1964 to 2014 was only partially offset by an increase in service sector jobs. Indeed, in 2020 the Ruhr area still suffered from significantly above-average unemployment levels – 10.1% versus 6.0% in the country – and a weak knowledge-intensive economy. While inequalities in regional GDP per capita in part reflect differences in industrial structures, as noted in the OECD Regional Outlook 2023, in 2019, around 25% of productivity differences across regions within OECD countries were due to differences in productivity within the same sectors, highlighting untapped potential to boost productivity, and in turn, income.
It is well-established that industrial transition processes can be supported through innovation. Labour-augmenting innovation can boost productivity levels in industrial regions, creating new job opportunities and wages, and preventing such opportunities from being concentrated in certain, often metropolitan, regions. This may explain why innovation-based activities have been the focal point of most industrial transition initiatives in recent years. Yet, such initiatives have tended to place a heavy emphasis on research and development (R&D) and technology-based innovation, which may provide an imperfect solution for regions in industrial transition, which typically have specific development characteristics. For instance, such regions frequently have an industrial heritage and a solid economic base that can be built upon, but must also contend with a business environment that is dominated by micro, small and medium enterprises. They also grapple with socio-economic and well-being outcomes that tend to be below national averages. Poor economic performance over time can also be a contributing factor to declining trust in government, which can affect democratic outcomes.
The persistence of challenges faced by regions in industrial transition suggests that policy makers may need to reconsider the pre-conditions required to support effective industrial transformations, and to what extent new governance arrangements could help ensure their successful execution. This report highlights the value of applying an experimental approach to governance arrangements and policy design when addressing industrial transition. It shows that experimentation in policy and programme design can help policy makers help generate new ideas, and test innovative approaches to the industrial transition, as well as learn from and build on successes and failures. Furthermore, it underscores the importance of foundational governance arrangements – including framework conditions, strategic programming, and stakeholder engagement – being in place in order to accomplish transition objectives.
