Structural Change
A New Start Full of Uncertainty

All over the world, regions affected by structural change are struggling to make a fresh start. Some have succeeded, others are finding it harder. There is no magic formula, but experience has revealed some promising approaches.
 

By Wolfgang Mulke

Standing on the edge of the Jänschwalde open pit mine in Brandenburg really gives you sense of the importance of lignite for this region on Germany’s eastern edge. Raw materials for generating energy have been extracted here for decade, creating a pit that stretches almost to the horizon. In the background, the smokestacks of the power plant of the same name rise, spewing clouds of white smoke high into the sky. For now. Because the fate of brown coal has been sealed: The German government’s plans dictate that the last power plant be shut down by 2038 at the latest. Germany might be able to do without the climate killer lignite as early as 2030, but in view of the energy crisis, no one is willing to count on that at the moment.

No Magic Formula for Structural Change

This means the loss of the most important sector of the economy in the Lausitz coal region. Prospects for the people who live there are a bit bleak. The energy industry still provides around 20,000 well-paid jobs with wages averaging roughly 68,000 euros a year, above the national average of 59,000 euros. But many wonder what will happen when coal goes.

700 kilometres to the west, the coal phase-out is causing similar concerns for people in the Rhenish lignite mining region in North Rhine-Westphalia. The number of jobs threatened there is much smaller than in Lausitz. But people here remember the impact of structural change in the neighbouring Ruhr region, where the coal industry began to decline as early as the 1960s. And experience has shown that ultimately unemployment in the former coal regions has remained high despite decades of structural change. At over nine percent, the unemployment rate in the Ruhr region is well above the national average of just over five percent.

The German government plans to spend a lot of money to cushion the impact of the upcoming lignite phase-out. Roughly 40 billion euros in subsidies are to be earmarked primarily for infrastructure development, creating a scientific research infrastructure, and relocating public-sector agencies. The idea is to create new clusters that new companies can dock onto. It is still unclear, though, whether this approach will bear fruit. “There is no magic formula for successful structural change,” says researcher Kai van de Loo of the Bochum Research Center of Post-Mining, who adds that conditions vary from one place to another.

From the “Rust Belt” to the “Brain Belt”

The disappearance of traditional industries with lots of jobs inflicts deep wounds on the affected regions, and not just in Germany. The decline of the mining industry, for example, has also hit the coalfields in Great Britain hard. And the city of Charleroi, the heart of the Belgian coal and steel industry, deteriorated into the “ugliest city in the world,” as many reports put it. After its decline in the 1970s, the once rich centre of heavy industry developed into a juggernaut of decay, flight, and poverty. Art and tourist attractions have now breathed new life into the city. This combination is also helping the Ruhr recoup its losses. The best example is the Zollverein coal mine in Essen, where the heavy industrial past has become a museum-like artistic present. The largest problem, though, is still attracting new companies to create compatible jobs for the laid-off workers.

While there is no magic formula, some of the experiences in the affected regions suggest promising approaches for coping with the losses. A well-developed infrastructure is a key prerequisite. The location of universities or research institutes, for example, can serve as the foundation for new networks or clusters that attract small and medium-sized enterprises. Great Britain, for example, has created university enterprise zones, where small business centres have developed around 20 universities.

Of course, a university alone cannot solve all the problems. The state also has to work to actively attract companies. This is underway in the USA’s notorious Rust Belt, once the country’s largest industrial swathe from Detroit to Pittsburgh. Here, too, the end of the steel industry in the 1970s heralded a sad decline for many cities and communities. There are some bright spots on the horizon again though, which Van de Loo notes are connected to targeted promotion. “The Americans rely more on promoting private initiative,” he explains, “this is done with money, technology consulting, or the tailored qualification of specialists.” He points out that US universities focus much more on the needs of business. In Pittsburgh, for example, a good university has helped turn the city into one of the major technology centres outside the Silicon Valley. Here the “Rust Belt” has become the “Brain Belt”.

For the German coalfields, researcher Klaus-Heiner Röhl from the business-oriented Institut der Deutschen Wirtschaft (IW, Institute of the German Economy) advocates in a report for the establishment of special economic zones. Tax breaks, targeted subsidies, and new technology centres can be used to raise a location’s attractiveness again. Economic policy in places like Poland, Spain and southern Italy relies on such special economic zones.

The Future is Brighter Than it May Seem

Experts take different views of the prospects for the two German coalfields. Röhl is critical of the government’s planned policy, in part because of the experience from other countries. He says that “the German government is not focused enough on creating good conditions that encourage small and medium-sized companies to set up in business.” Per Kropp of the Institute for Employment Research (IAB), on the other hand, does not predict a shortage of jobs despite the pending losses in coal production and power generation. He notes that between 40,000 and 60,000 new jobs have been created around renewable energies alone in recent years. “The energy turnaround is creating a huge number of jobs,” the IAB expert believes. Not far from Lausitz on the outskirts of Berlin, a new industrial centre has formed around electromobility with Tesla’s mega-factory as the flagship. But medium-sized manufacturers of things like rechargeable batteries have also settled in the area. They need skilled workers and could recruit them from Lausitz.

Rhineland Economics Minister, Andreas Pinkwart, foresees a prosperous future for the area, despite the projected loss of over 14,000 jobs. The nearly 15 billion euros envisaged in government aid is expected to attract billions more in private investment. “We even anticipate a value-creation potential of more than 50 billion euros in total,” Pinkwart says, “creating new jobs for 27,000 men and women.” Researcher Van de Loo is doubtful. “First we need supporting evidence for these claims,” he says, tamping down expectations. After all, experience from the Ruhr region has demonstrated just how difficult revitalisation is in practice.