Cahiers de l'Iaurif n°135 Economic Performance of the European Regions

In other words, companies continually have to reinvent their strategy and organisation. Such reinvention is influenced by three major factors, in particular.

- First, accessibility: this is the quality of regional and international transport infrastructure and the quality of telecommunications or accessibility to information, which in turn depends on factors such as local linguistic skills, culture and history.
- Second, the availability and total cost of skilled personnel: among the skills of the available economically active population, the key skill is entrepreneurial spirit.
- Third, the availability, quality and cost of commercial real estate: office space in central urban neighbourhoods, business parks, manufacturing plants and research and development facilities are valuable assets.

These factors make up "the regional economic environment". The key features of a regional economic environment determine the competitiveness of the companies located in the region and the regional economy's capacity for creating viable new activities, developing existing activities and inducing companies to locate in the region.
It goes without saying that public policies - at local, regional, national and supranational levels - help to shape the regional economic environment and, consequently, over the long term, to determine considerably the competitiveness of regional economies. The contributions of public policies to regional competitiveness are complex, because they are both direct and indirect, positive and sometimes negative. Potentially, public policies can make major contributions to regional economic competitiveness through the formulation of a coherent regional economic development strategy and the co-ordination of its implementation via, for example, the construction of major infrastructure facilities, the allocating of land to economic activities or housing (land-use planning), the provision of educational and vocational training facilities and the improvement in the natural environment.
However, the validity of a regional development strategy depends on the availability of a wealth of relevant information on the economic region concerned. In this connection, it is crucially important to bear in mind that companies organise their activities on the basis of regions defined as functional areas. The regional labour pool and access to infrastructure facilities and services of all kinds set the contours of these areas. In other words, they are not based on administrative or political boundaries.

The GEMACA II study

The exact title of the study, whose main results are presented in this issue of the Cahier, is The Competitiveness of Leading European Metropolitan Areas at the start of the 21st Century.
GEMACA II is the acronym for the working group of partners involved in the study, that is: the Group for European Metropolitan Areas Comparative Analysis, second project.

Organisation

The study was conducted in 2000 and 2001 by four partners:
- LSE - London School of Economics and Political Science;
- ILS - Institut für Landes und Stadtentwicklungsforschung des Landes Nordrhein-Westfalen;
- DIT - Dublin Institute of Technology;
- and IAURIF (Institut d'Aménagement et d'Urbanisme de la Région Ile-de-France), which steered and co-ordinated the project.

In addition to each partner's own resources, the scope and diversity of the study's themes required the input of several organisations on a sub-contracting basis:
- Jones Lang LaSalle, London;
- IESEG, Lille;
- IGEAT / ULB, Brussels;
- OTB / DU, Delft;
- LATTS / ENPC, Marne-la-Vallée;
- IRPUD, and S & W, Dortmund;
- INSEE, Paris;
- INS, Brussels.
The study also benefited from a major contribution by EUROSTAT, free of charge.
The project received the financial support of:
- ERDF, under the INTERREG II C European programme;
- the United Kingdom's Department of Environment, Transport and the Regions (DETR);
- and l'Observatoire Régional Habitat et Aménagement (ORHA) in Lille.

Objectives

The overall aim of the project was twofold: on the one hand, to better understand the structure and dynamics of the economic development of a small number of major city regions; and, on the other hand, to act as the precursor of a future "economic observatory", whose role would be to produce comparable information on all major metropolitan areas in Europe. Indeed, the players charged with formulating territorial economic policies in Europe (government authorities at European, national, regional and local levels; economic agents in the private and public sectors; and inter-regional urban and rural planning specialists) sorely lack such information.

Within the above overall remit, the study set itself three specific goals:
- to define the boundaries of the economic areas of all the city regions of North Western Europe with a population of over one million inhabitants, using comparable functional criteria;
- to produce comparable information and data on socio-economic trends in these metropolitan areas over the 1990s, in order to measure the relative competitiveness of these areas in relation to each other;
- to identify the high growth economic sectors in four urban regions (Dublin, London, Paris and the RhineRuhr) and the conditions that favour their development.

Scope of the project

- The geographical boundaries of all the functional urban regions (FURs) with a population of over one million inhabitants in North Western Europe were defined on the basis of common criteria:
Antwerp, Birmingham, Brussels, Dublin, Edinburgh, Frankfurt (RhineMain), Glasgow, Lille, Liverpool, London, Manchester, Paris, Amsterdam/Rotterdam (Randstad) and Düsseldorf/Cologne (RhineRuhr).

- The data produced on these regions for the years 1992 - 1999 relate to the following:
Population and labour force
Standard of education of the labour force
Economic activities by sector
Full time and part time employment
Temporary employment
Employment by social status and occupation
Unemployment in terms of duration, standard of training or age group
Production (output)
Patents and scientific publications
Office real estate market
Transport infrastructure facilities and regional / international accessibility

- The relative macroeconomic positioning of the 14 regions in relation to each other in 1999 was assessed in static and dynamic terms.

- A comparative analysis was conducted of high growth sectors and enterprise clusters in the FURs of Dublin, London, Paris and RhineRuhr. This survey focused on:
information and communication technologies (ICT), biotechnologies, the creative industries and the financial services industry.

- An in-depth analysis was conducted of the following specific sectors and enterprise clusters:
tourism in Dublin
research and development in Paris
logistics, services for the elderly and environmental industries in the RhineRuhr

- Economic governance in the Dublin, London, Paris and RhineRuhr FURs.

Contents of the Cahier

This Cahier presents the results of the GEMACA study in 13 articles, which are summed up below.

Cities and regions : comparable measures require comparable territories
Competition between cities has been increasing across the world because of globalisation and, in the case of Europe, because of increasing economic integration. But what is a "city"? What geographical definition is there of such territories competing with each other? Does the definition of a territory influence the comparative study of cities?
In the first article, Paul Cheshire and Galina Gornostaeva (LSE) explain why the prerequisite to a reliable comparative analysis of metropolitan areas is to define the concept of "regional territory". The authors base their explanation on examples taken from various countries in terms of population trends and output per inhabitant.
They go on to present the method used in the study to define the limits of metropolitan territories in a consistent way, with a view to improving the comparability of regional socio-economic data, facilitating research into a whole range of issues and implementing urban development policies on the appropriate scale.

The competitiveness of cities: why it matters in the 21st Century and how we can measure it ?
"International successful firms derive key elements of competitive advantage - i.e. their ability to sell their products in contested markets - from particular characteristics of the regional environments in which they are based" (Michael Porter).
Ian Gordon's article is of particular interest to all those who have been seeking to formulate competitive economic development strategies on a regional scale. Before proposing indicators of regional competitiveness, the author reviews the changes in the relative importance attached by companies to the various distinctive features of their regional locations since the end of the Ford era. He underscores the growing importance to business competitiveness over the last 20 years of qualitative urban assets in an increasingly uncertain economic environment and in the context of stiffer competition based on distinctive products.
The author goes on to review the various markets in which cities are competing with each other, namely:
- products and services markets (the most important market, according to Gordon);
- inward investment by business;
- highly qualified and/or high net worth residents;
- major world events;
- and national or European public aid flows.

To outperform competitors, that is, to obtain advantages that exceed the costs involved, the golden rule is to strengthen a region's distinctive assets in order to obtain exclusive advantages (an element of monopoly).
Finally, after showing that no single indicator of a city's relative competitiveness exists, the author proposes three types of indicator relating to the product and services market (export performance, output and employment growth, productivity), which he examines critically.

The socio-economic profiles of Functional Urban Regions
Five articles briefly present the socio-economic trends in the Paris, Dublin, Randstad, London and RhineRuhr FURs.
Reflecting the diversity of the distinctive features of these FURs, the themes reviewed are also very varied: the history of urban development, regional urban organisation, migrations and internal population imbalances, problems of an ageing population, current structural changes, specialisation of activities, employment location trends, economic strengths and weaknesses, the main challenges of regional planning and institutional reforms. This qualitative analysis enhances the inter-regional macroeconomic comparisons presented in the following article.

The economic positioning of metropolitan areas in North Western Europe
The data collected on the 14 functional urban regions in North Western Europe with populations of over one million inhabitants made it possible to compare the macroeconomic features of these FURs in 1999 and to assess their relative dynamism in the 1990s.
The results of the comparisons presented in this article are groundbreaking. For the first time, the data on European metropolitan areas were comparable in both statistical and spatial terms. In addition, for the first time, the Paris area was compared with other major metropolitan areas, and not only with other French regions. This should satisfy those who rightly think that greater Paris, because of its sheer size and special functions, cannot be compared with other French metropolitan areas. With appropriate changes, this reasoning also applies to other metropolitan areas that account for over 30 or 40% of national wealth, such as Greater London, Brussels and Dublin.
This article reviews numerous macroeconomic features. Needless to say, these include scaling data on population, employment, output and unemployment. But they also include structural data on the age and educational attainment of the population, the share of the population of working age that is in employment, part-time or service jobs as percentages of total employment, output per job or inhabitant, and the rate of youth unemployment. For each of these structural data, regional differences were very significant.
Thanks to the data on population, employment and output growth and on the decline in unemployment, the overall relative economic dynamism of the FURs concerned in the 1990s was assessed. The best-performing, that is, the most competitive FURs over the period were Dublin, the Randstad and London.

Transport, accessibility and economic competitiveness
One of the most important of the many factors of competitiveness of metropolitan areas is the mobility of people and goods within them or between them.
This theme was approached in two complementary ways: first, through a qualitative analysis of each metropolitan area, based on expert reports; second, through a scaled indicator of the relative internal and pan-European accessibility of the 14 FURs, based on a European accessibility model.
The comparative accessibility of each FUR on a European scale by road, rail and air is very clearly summarised in a table.

Office real estate market and the competitiveness of metropolitan areas
Over the last 15 years, vast office development programmes have been completed in the major metropolitan areas of Europe. New business districts have emerged, physically reflecting the transformation of Europe's urban economies into service-focused economies. Because of the growing contributions to wealth creation of service sector areas, it was decided to include in the GEMACA project a special survey of the office real estate market in metropolitan areas and to focus strongly on office real estate challenges as a factor of business competitiveness, and therefore as a factor of the effectiveness of regional productive systems.
The article reviews the main office market trends in Europe, namely: the opening up of national markets to foreign investors; the diversity of the legal and tax systems; the gradual yielding of control over business locations; the development of partnerships between the public and private sectors in urban regeneration projects; the reduction in the traditional gap between economic and real estate cycles; and the recent stabilisation of surface areas used for employment.
This overview is complemented by a special study by Jones Lang LaSalle of the office real estate markets in 2001 in Brussels, Düsseldorf, Frankfurt, Dublin, Paris, Amsterdam and London.

The scientific and technological capabilities of European regions
In an economy based increasingly on knowledge, the competitiveness of businesses and regions depends more and more on their scientific and technological capabilities. Part of the GEMACA study was therefore dedicated to an analysis of the collective and individual capabilities of North Western Europe's metropolitan areas in the fields of science and technology.
This article presents the main conclusions of the GEMACA study's analysis, showing how these areas have specialised. The two indicators of regional specialisation used were the number of scientific publications and the number of patent registrations within the geographical boundaries of the functional urban regions concerned.
The study produced scaled indicators of the concentration of scientific and technological activities in the main regions and a few specialised metropolitan areas.
The performance levels of the regions covered by the study were remarkable, as they accounted for 26% of Europe's scientific output and 23% of Europe's technological output. However, between 1990 and 1998, their scientific output diminished quite significantly as did their technological output, albeit less so. This decline was mainly due to the multiplication of the number of centres of scientific and technological excellence across the whole of Europe, particularly in the Nordic countries and southern Germany.

Governance in functional urban regions
The competitiveness of a region can be boosted by effective decision-making and management structures. The attractiveness of a region can be enhanced by the following: a development strategy and action programme drawn up at regional level; good co-ordination of the players responsible for implementing this strategy and action programme; the ability of public and private operators to co-operate at the infra-regional (local) level; and, last but not least, the joint representation of each region in its dealings with the outside world.
The current restructuring of European urban systems has shown how important it is to have an institutional and decision-making framework that delivers a regional government capable of effectively fostering regional unity, by reflecting the interests of all the various metropolitan area players involved. Because of the enlargement of the scope of physical and economic planning, the functional urban region (FUR) has now become the most suitable basic level for implementing metropolitan area policy.
However, a FUR is characterised by its dynamic system of socio-economic inter-relationships, along with a specific set of economic, social and cultural practices and an environment featuring a certain degree of physical (spatial) and institutional proximity. The boundaries of such functional regions rarely coincide with the existing territorial structures of regional/local government. As a result, any attempts to make policy decisions and to implement them at the level of a functional urban region come up against major obstacles and meet with considerable resistance. This then means that the main problem is to design political and administrative structures as if they were to be territorial authorities and to set up effective strategic management and marketing units at the level of an actual functional urban region. This article analyses the current attempts to reorganise regional government and governance in the RhineRuhr region, as well as in London, Dublin and Paris.

Enterprise clustering: a factor of the locating of high value-added activities in European regions
In numerous economic sectors, companies tend to group together in order to achieve economies of scale and to benefit from complementary synergies and existing infrastructure facilities. Moreover, this clustering process tends to be self-sustaining: when other companies see the economic benefits enjoyed by the firms already part of a cluster, they join them by relocating close to them. Enterprise clustering is also a strategy for minimising risk: the companies concerned seem to learn from each others ; they use the same service providers and suppliers; and they develop and innovate by using the latest knowledge available from their immediate professional environment.

Such clustering seems even more important to fast-growing new fields of activity than in the past. However, our knowledge of the benefits of clustering and our understanding of its importance to company competitiveness are still inadequate. Thus, one of the main goals of the GEMACA study was to consider enterprise clustering in major metropolitan areas.
This article summarises research conducted under the GEMACA project into the determinants of the clustering and development of high value-added activities in the Dublin, London, Paris and RhineRuhr regions. Twenty-one studies were conducted, notably on information and communication technologies (ICT), the creative industries, biotechnologies, the financial services sector and environmental industries. The comparative analyses presented focus on ICT and financial services.
Enterprise clustering does not always occur spontaneously. Local public-sector, private-sector and voluntary players sometimes play a strategic role in their birth and development. The article makes many general methodological recommendations for formulating and implementing policies that support enterprise clustering, as well as specific recommendations for each of the regions studied.

Following this article, four enterprise clustering case studies are presented.

Information and communication technologies (ICT) in Ile-de-France
As France's leading economic area, in which a very large number of companies and high technology laboratories are headquartered, Ile-de-France is home to the largest number of information technology and multimedia companies in France. It is also one of Europe's leading regions, ranked second only after London.
What makes this high-growth enterprise cluster stand out? What has been the logic behind the locating of ICT companies in Ile-de-France? What explains the development of this cluster in Ile-de-France? What part did the public authorities play in this? The article suggests answers to these questions, shedding light on the conditions that have favoured the development of the ICT sector, which has dominated the headlines of economic news in recent years.

The environment protection industry in the RhineRuhr region
The environment protection industry (EPI) provides one of the most promising examples of an emerging economic sector with a high potential for job creation. In the RhineRuhr region, mining and steel production companies have managed to conduct their business in compliance with the new regulations protecting the environment. In fact, this was the starting-point of the development of EPI in the region, because the new regulations turned the search for solutions to environmental problems into as many new markets. The EPI enterprise cluster took off in the 1980s. It grew very fast in the early 1990s. Today, it has reached maturity and stabilised at a high level of activity. The introduction of even tougher regulations has led to the expectation that it is about to experience another period of high growth. As a result, the development of EPI has been a major component of the region's strategy of business diversification.

The media cluster in London
The media provide an example of an enterprise cluster that has developed mainly in one of the largest metropolitan areas and tends to be highly concentrated geographically in the central districts of the area. The presence of the media is seen as indicative of the ability to stand out as different, in terms of urban advantages and benefits, not only from other urban regions, but also from other districts within the same urban region.
In the 20th century, the media industry was transformed first by vertical integration in the 1920s, and then by the flexible specialisation of the 1980s and technical innovations, which both revolutionised existing activities and generated new ones. These last two drivers of change were the main causes of the restructuring of the media industry and the emergence of the media enterprise cluster that exists in London today.
The concentration of the media industry in the largest city in the United Kingdom has been due to conurbation-related economies of scale and ease of access to institutions, suppliers and customers. London's Soho district is a good example of the sustainable comparative advantage provided by a capital city whose cultural influence is world-wide.

The financial services industry cluster in Dublin
The establishment of the International Financial Services Centre (IFSC) in Dublin has been particularly interesting. It is a good example of a cluster development project implemented with the active support of central and local government authorities. This cluster has now reached maturity; that is, it has achieved the critical mass required to ensure its future development. In 2001, over 8,500 people were employed by nearly 500 international financial institutions located in the cluster, while finance-related service companies also employed over 8,500 people.
The IFSC began in 1986 when the decision was made to turn the former Dublin docklands into a business district. The IFSC is now considered as the flagship project for the urban regeneration of the Dublin area. It is of crucial importance to the city in terms of the number of jobs created and the amount of tax revenue generated. The planned expansion of the IFSC is a key component of the Dublin docks redevelopment plan, which is currently being implemented.
The main instrument that has favoured the development of the IFSC was a reduced rate of corporation tax payable by financial institutions that conduct their business in foreign currencies.