Opinion – Martin Wolf: Lessons from the Basque Country for economic development

How can declining regions be revitalized? This question arises whenever former bastions of heavy industry collapse in high-income countries. It’s no use being nostalgic. Instead, it needs to regenerate and renew. The Basque Country, Spain, managed to do this. Its success suggests some big lessons: First, renewal must come from within; second, it never ends.

The Basque population is concentrated in three provinces in northwestern Spain and three provinces in southwestern France. They speak a unique and ancient language and have an original culture. The Basque Country, whose largest city is Bilbao, is home to around 2.2 million people. It became a center of heavy industry in the late 19th century, based on mining and steel. But it suffered terrible violence in the Spanish Civil War, including the famous bombing of Guernica in 1937, and then the repression of its language and culture.

In the 1970s, the Basque Country was still one of the richest regions in Spain. But it faced great difficulties. As in other parts of the world, its heavy industries were in sharp decline and unemployment was high. An administration also needed to be created from scratch for the new “autonomous community”. Despite the return of democracy in the 1970s, the region has long been convulsed by the terrorism of the separatist group ETA, which only ended in 2011.

That, yes, was a crisis. Four decades later we can see its developments. Unemployment is far below the Spanish average, although the unemployment rate is low by European standards. Nominal GDP (Gross Domestic Product) per capita increased from 70% of the average of the 15 countries of the European Union (with the United Kingdom) in 1985 to close to the average in 2019. In purchasing power parity, the average income per capita in the Basque Country in 2019 approached Germany. The OECD notes that social welfare is generally as high as, or greater than, that of wealthier regions in Spain such as Catalonia and Madrid.

This rebirth is also cultural and physical. Bilbao, in particular, has been transformed from a grubby industrial city, albeit with impressive 19th-century buildings, into a model of architectural and cultural renovation. Architect Frank Gehry’s world-famous Guggenheim Museum is at the heart of it. But it’s not the only one, as I discovered on a recent visit. Architectural regeneration is as surprising as gastronomic regeneration.

So how was this done, and how can we learn anything? It seems that there were two necessary conditions: the desire to succeed and the freedom to do so. Although both were necessary, they only became enough when there was a favorable context and the right decisions were made. Spain’s affiliation with the European Union was the context. But what were the decisions?

A striking feature of them was how they were taken, that is, in close cooperation between all levels of government and between the public and private sectors. The common objective that motivated all this was balanced social and economic development. According to the Basque Competitiveness Institute, the 1980s were “defined by the creation of the new regional administration, together with the need to promote substantial industrial restructuring”. This “evolved in the 1990s into a strategy built around cores and equipped to improve effectiveness, promote non-R&D-based diversification, and increase internationalization.” This then evolved in the 2000s “to a sustained focus on innovation and science-driven industrial diversification.”

After 2008, Spain as a whole fell into another huge crisis. Once again, the development strategy had to adjust. It did so on the basis of the Basque Country’s growing strengths in science and advanced manufacturing technologies, as well as in bioscience and even nanoscience. Now, in the 2020s, the Basque Country faces yet another series of challenges, notably those of the energy transition.

As in other cases of rapid economic development around the world, success laid the foundations for the next phase. But permeating the history of the Basque Country seems to be an ability to find the right answer to what is happening in the world. As successful development requires the creation of a series of vital public goods, it depends on a development-oriented government. But this in turn depends on the ability of private companies to seize the opportunities. A good way to think of this is as a marriage of cooperation and competition in an open-world economy.

What can other parts of the world learn from this story of the regeneration and further development of a former industrial region? The challenge is not unique after all. In the UK, for example, Housing and Communities Secretary Michael Gove is soon to deliver a plan to “raise the bar”.

The parallels with Wales, Scotland and parts of England are obvious. Probably the most important lesson is that those who live in the region and are responsible for it must have the resources and the freedom to make decisions. This is not just because they are likely to do it better. It’s also because it’s the way to promote the necessary audacity. Furthermore, a great deal of effort must be made to encourage cooperation between the various actors, with a vision to create and exploit synergies.

Finally, there must be an endless effort to develop the region’s resources. The change never ends.

It is very reasonable to ask how much can be learned from a region that is so different in its history and identity. But courageous efforts will never be made without much greater autonomy. In the UK, in particular, a lot has depended for a long time on decisions taken in London. This is not how the Basque Country prospered. Autonomy is important. We need to learn from this.

Translated by Luiz Roberto M. Gonçalves