05 December 2013

OECD: Improved multi-level governance key to tackling widening regional inequalities and ensuring inclusive recovery

The economic crisis has hit certain regions and cities harder than others in the OECD area, calling for better regional policies across levels of governments to foster an inclusive and sustainable recovery, according to two new OECD reports.

Presenting the reports in Marseille, OECD Secretary-General Angel Gurría said: “One of the most damaging legacies of the global crisis has been widening inequality. Our reports show that where you live can have a major impact on your opportunities and standard of living. We need to zoom in on our nations’ regions and cities to tackle our most pressing challenges.”

He added: “Regional, city and local authorities are on the front line to build fairer and more sustainable economic growth. Improving coordination and effectiveness of public investment across levels of governments can go a long way to re-establish confidence in the future that our societies need today.”

The OECD's Regions at a Glance finds several countries  hit hard by the crisis – notably Ireland, Greece and Italy (but also Denmark, and the Slovak Republic) experienced a widening gap in GDP per capita between the wealthiest and poorest regions between 2008 and 2010. Unemployment remains a major challenge, with youth unemployment reaching 50 per cent or more in some regions of Spain, Italy and Greece. In 10 OECD countries, more than 40 per cent of the increase in unemployment in recent years was concentrated in just one region.

Overall, the 10 per cent most dynamic of regions in the OECD area were responsible for 39 per cent of employment growth (1999-2012) and 42 per cent of GDP growth (1995-2010). Differences in median household income between the richest and poorest regions are highest within the United States, Chile and the Slovak Republic, and lowest in Denmark, Austria and Belgium.

To tackle these economic, social and environmental challenges, well coordinated public and private investment is required. In light of this, the OECD report Investing Together looks at how to improve the efficiency, coordination and targeting of investment at all levels of government.

The roughly 141 000 regional and city-level governments across the OECD area undertake 40 per cent of total public expenditure and 72 per cent of the over $1 trillion in annual direct public investment that underpins growth and competitiveness. However, to preserve expenditure on welfare, healthcare and education during the crisis, sub-national government direct investment contracted by 7 per cent in per capita terms between 2007-2012, while their debt per capita increased by 14 per cent.

Investing Together says that coordination between national and sub-national governments needs to improve to make investment more effective. Better coordination across policy sectors avoids working at cross-purposes, and can generate savings. Coordination also needs to improve across municipalities and regions. Metropolitan areas are highly fragmented, with almost 1,400 local governments in Paris, 540 in Chicago and 435 in Prague.

The quality of government, which influences returns on investment, varies across and within countries. The report recommends 15 capacities for sub-national governments to cover the different phases of the public investment cycle. The report also provides practical guidance to assess the capacity bottlenecks.

Press release

See also: Composite leading indicators point to an improving economic outlook in most major economies, 9.12.13

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