The geography of discontent

Info: What is ‘geography of discontent’ and why should we pay attention? 

A R-P: The geography of discontent refers to the unhappiness and dissatisfaction of individuals who live – and often feel stuck – in territories that are experiencing a ‘development trap’. This includes territories that have stagnated for long periods and been unable to develop. It also includes cities and regions that were once vital motors of economic activity, but which, as a result of the most recent wave of globalisation, have experienced prolonged economic and industrial decline. 

The inhabitants of these areas are increasingly dissatisfied with a ‘system’ that they believe no longer serves them and are using the ballot box to vote for parties at both extremes of the political spectrum to express their discontent. 

Why should we pay attention? It is not just a question of fairness. The rapid rise of populism fuelled by this wave of discontent is becoming one of the most serious challenges to a system that, despite its many flaws, has brought about the longest periods of prosperity and political stability, and the greatest equality that Europe has ever experienced. 

Economic stagnation and decline are causing social, political and economic pressures, which, if not addressed, will exacerbate existing interpersonal and territorial inequalities and limit economic activity and wellbeing. 

Crucially this will not only take place in the discontented regions, but in those that have provided the greatest economic dynamism. 

Info: You have spoken extensively about the ‘revenge of places that do not matter’. How can we address this phenomenon? 

A R-P: Until now, most economic policies and investments have targeted two types of place: those deemed to have the greatest potential for economic growth and development (the largest agglomerations concentrating firms, skills, economic and political power), and the poorest places, with significant shortages in all types of endowment. 

Many other territories have fallen between the cracks, including cities and regions in long-term decline. These were neither large nor dynamic enough to attract investment, nor were they poor enough to warrant attention. In a way, they had become places that didn’t matter: they were forgotten, neglected or considered incapable to redress decline. It is these places that are saying ‘enough is enough’ and are rebelling at the ballot box. 

This reaction has gone beyond a cry for attention to become a movement that is seriously threatening political, economic and social stability, yet without providing viable solutions.

What can be done? Almost all places have potential, even if this has remained untapped for a long time. Europe must fix the socalled places that don’t matter. Investment is needed in regions with long-term trajectories of low-, no-, or negative-growth, and intervention must go beyond compensatory and/or appeasement measures to tap into a region’s potential and opportunities to reverse decades of decline. Place-sensitive policies, that target the challenges and potential of different types of region, must be created. 

Info: CEB’s recently published Technical Brief, to which you contributed, looks at the interplay of small business and access to finance across European regions. What are the main conclusions? 

A R-P: The Technical Brief, written with Roberto Ganau, Kristina Maslauskaite and Monica Brezzi, shows that restrictions in the credit market primarily affect smaller firms and those in regions with weaker institutions and government quality – precisely those places that ‘don’t matter’ and where discontent has been brewing for longer. Credit constraints in these areas can affect their economic dynamism, harming innovation and competitiveness. 

Info: In your opinion, what role can international financial institutions (IFIs) play in providing opportunities everywhere, including places left behind?

A R-P: IFIs can, and should, play a fundamental role in addressing this market and institutional failure. They should facilitate the capacity of commercial banks to lend to MSMEs as the best way to mobilise local talent and potential, and increase productivity and innovation. IFIs can also help local governments and financial institutions to improve their operational capacities, as any measure to facilitate firms’ access to credit will need to be complemented with interventions to improve institutional quality. Both factors in combination are necessary to deal with credit constraints and to improve the productivity and competitiveness of firms in places that have been long neglected.