Impacts of the economic crisis on local economies

Jean-Pierre Pellegrin

Several debates and studies have been devoted to this topic.

1. The OECD-LEED survey conducted in 2009 in 41 local economies (mostly large cites) gave a snapshot of the key negative and positive impacts of the global crisis on local economies and reviewed local economic actions that have been taken to respond to the recession since September 2007. Information collected provided by “helpful correspondents” or local leaders in places where “there appeared to be a story to tell about local development response to the crisis” (1).

Five main negative impacts (and 15 subcategories) and 12 positive impacts compared to the 15 negative impacts, have been identified. Cities have identifies these impacts.

Ten so-called Barcelona principles for local recovery and reinvestment were elaborated offering guidance to local leaders and stakeholders.

2. More recently data on economic output and employment in 150 of Europeans largest urban economies, classified according a typology of cities, from 1995 to 2012, have been analysed, by LSE knowledge Exchange Euro metromonitor network on “cities and the economic recession since 2000”

3. In France a seminal book by Laurent Davezies (2) has recently opened a debate on this topic. It identifies three different crises (environmental, raw material and financial) and analyses the impacts of the last one referring to its two different stages or dimensions:

– the “subprime crisis” (2008-2009), defined as cyclical whose impacts have been analysed;

– the ongoing and more structural “debt crisis”, since 2011 which has not yet run its course and whose impacts are not yet fully visible and analysed and are mostly expected or foreseen.

Measured and foreseen impacts of these two crises are based on a in-depth previous analysis of the economic basis of regional and local economies (3): the 21 economic regions (NUTS 2), the 101 départements (NUTS3) and the 322 employment zone (local labour markets or travel-to-work areas).

The study makes a strong distinction between economic growth measured by the GDP per capita and economic development measured by gross disposable income per capita. It is mostly based on measurement of flows of income according to their sources, defined as “basis of local economies”.

At the “employment zone level”, 4 different “economic basis” or sources of income have been identified and measured:

– productive base (share of income generated by export based activities or by locally produced goods and services sold outside the area)

– so called “residential base” (share of income generated by pensions, tourism, etc, i. e. attracted or imported from elsewhere)

– public base (share of income generated by public employment and by public subsidies including EU funding)

– social base (share of income generated by social transfers, except pensions).

A typology of local economies profile has been defined, for example, an average of 20% of all employment areas (mostly urban) have a strong productive base, 13% a strong public base, 55% (rural and southern areas attracting many retired people and tourists) an important residential base, and 12 % a strong social base. As an example, in my native territory (zone d’emploi du Gapençais) a typical rural area with many amenities and tourism activities located in southern France, the distribution of income sources is the following: local production base, 10%; residential base, 78%; public base, 8%; and social base, 14%.

The analysis shows that most affected area during the “subprime crisis” were around 60 non metropolitan employment areas with a large productive base of manufacturing industries – such as car, printing, chemistry, furniture, plastic, machine tools – with a majority of male jobs, facing strong global competition or declining demand. Unemployment grew not much as a consequence of job destruction but of a stop in employment creation including from the service sector and from temporary jobs enterprises. These 60 areas are located in the North East of France, in regions such as Picardie, Burgundy, Auvergne, etc. But in these areas, income per head did not decline, thanks to the social transfers and other ‘”buffers”. Most of the other 260 employment areas – especially in the south and west of the country – have not been impacted and a majority of these areas enjoyed an increase in income and jobs.

Such impacts might be very different during the current “debt crisis”: decline of these manufacturing industries continue; but the stagnation or the foreseen decline of income generated by public expenses, possible cuts in social transfer and tax increases might have an impact on employment areas with different “base profiles” such as public and social bases. Of course, possible cuts (not yet expected) on retirement payment or possible contraction of tourism demand might increase these effects on these areas in which local income is generated “elsewhere”.

The study does not make much policy recommendations, but it is obvious that local decision makers are invited:

– to analyse the 4 components of the economic base of their local area, and changes under the current crisis and adjust their strategy according to these profiles

– to design a strategy of diversification of their local economy according to its bases ;

– to help the consolidation, restructuring and extension of their productive base – those bases less dependent on public debt – in order to reduce dependency to sources of income affected from the public debt.

Questions for a debate:

• Do debates on impacts of the economic crisis on local economies have been invited in your country?
• Do analyses of these impacts have been produced and if so, what are their main outcomes or conclusions?
• Do good practices in new strategic local development to address the current debt crisis have been identified?

(1) Greg Clark. Recession, recovery and reinvestment: the role of local economic leadership in a global crisis ; OECD Leed, 2009

(2) L Davezies. La crise qui vient. La nouvelle fracture territoriale; Editons du Seuil, 2012.

(3) L Davezies. La république et ses territoires. La circulation invisible des richesses; Editions du Seuil, 2008

June 2013

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