Converging Cities: Why the Gap Between the Haves and Have-nots Is Getting Smaller

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One thing we all know is that while the rich get richer, the poor get poorer, and the gap is becoming wider all the time. But this turns out to be wrong – at least in Europe.

In-depth research carried out by Dr Vlad Mykhnenko, Associate Professor in Sustainable Urban Development at the Department for Continuing Education, shows that over the past 35 years, the gap between Europe's haves and have-nots has been narrowing.

Dr Mykhnenko showcased his findings in October, at an annual conference in Brussels entitled the European Week of Regions and Cities. Each year, policymakers and academics from across Europe meet to share research about policies to create growth and jobs.  

Regional inequalities are declining

The research was comprehensive, covering all 28 EU countries and the candidate countries (that is, those interested in joining the EU). It looked at all 7,000 cities with a population greater than 5,000 people, as well as all the municipalities in those countries.

Because it’s hard to obtain income data going back to the 1980s, Dr Mykhnenko measured the change in wealth by using gross domestic product per capita as a proxy for income and development.

The findings are striking – and perhaps unexpected. Since 1980, cities and regions across the European Union (EU) have been converging economically, becoming increasingly similar both in terms of income per head and real growth. The aggregate decline in regional income inequalities across the 28 member states is at least 7.2%.

So what’s the explanation?

Poorer regions attract capital investment

There are two main drivers of convergence. The first is to do with the flow of capital and labour.

‘We know that poorer regions and cities attract more capital investment from the capital rich-regions, which have effectively run out of opportunities to invest,’ says Dr Mykhnenko. ‘So the capital flows from a rich city or region to a poorer one, but at the same time the workers in the poorer region, who by definition are receiving lower wages, are attracted to those capital-rich regions which are labour-poor. So they’re looking for higher wages, and they move, in our case, from east to west, whereas capital moves from west to east.’

That, says Dr Mykhnenko, is a ‘classical model of convergence’, with poorer workers moving to richer regions, while capital invests in poorer ones.

The second driver is to do with the EU itself.

Dr Mykhnenko explains, ‘In addition to private capital flowing into the poorer regions and cities, they (the EU) are giving public investment to those regions to speed up, particularly transport infrastructure. So private investment builds factories, while public investment builds roads between those factories. You have free market movement of capital and labour driving convergence, but at the same time you have state intervention into the poorest regions that also helps them to catch up.  So you have a double driver, which is not common anywhere else.’

The effect has been greater, he says, since the Eastern European countries joined the EU in 2004.

Normally capital flows more quickly than labour: you can make a bank transfer in 24 hours, whereas the decision to move from one country to another can take a long time to execute.

‘But we know that in our particular case in Europe, on the day of ‘enlargement’ – or European integration – a lot of workers were already ready to go,’ says Dr Mykhnenko. ‘I was in Lithuania at that time, and on that day all the buses, all the coaches, all the trains, all the planes were full. Effectively people moved within a day.’  

Don’t consider cities in isolation

The trend to convergence has led to a number of  European capitals, such as Prague, Bratislava or Bucharest, becoming wealthy and even unaffordable.

‘Those cities caught up and actually overcame their competitor cities in Western Europe, which you wouldn’t have believed in 2004’, says Dr Mykhnenko.

There have also been positive developments, he says, in second or third-tier Eastern European cities, ‘because of their potentially favourable geographical position or because their transport links have been growing quite fast even if they didn't recover population’.

One of the important lessons for policymakers, he says, is that they shouldn’t consider individual cities in isolation.

‘We need to look at those different cities connected with flows of labour and capital. If the London economy tanks, people might go to Łódź, whatever happens to Łódź in the meantime. Whatever you do to regenerate a particular city, people might return to it despite it being in better or worse shape, because they respond to the conditions where they are abroad.’

International policy-makers should take note, he adds: ‘They now need to consider external factors, as well as the internal things they can do.’

 

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Published 5 February 2019