CESIS Electronic Working Paper Series
Paper No. 277
Urban Regions in Europe – Preconditions and Strategies for Growth and Development in the Global Economy
Urban Gråsjö Charlie Karlsson
June 1
The Royal Institute of technology Centre of Excellence for Science and Innovation Studies (CESIS) http://www.cesis.se
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Urban Regions in Europe – Preconditions and Strategies for Growth and Development in the Global Economy
Urban Gråsjö University West Trollhättan, Sweden
urban.grasjo@hv.se Charlie Karlsson
Jönköping International Business School Jönköping, Sweden
charlie.karlsson@jibs.hj.se
Abstract
Nowadays it is well-established fact that urban regions and large ones in particular are crucial for promoting creativity, innovation and subsequent economic growth in the economy. There- fore, it is important to focus policies in Europe on how to improve the existing conditions of urban regions so they can function as engines of economic growth. The purpose of this paper is to discuss policies needed to meet the current urban challenges and to make urban regions in Europe more competitive. A problem with current spatial policies at the EU-level as well as at the national level in most countries is that the policies mainly ignore functional urban re- gions and instead focus on administrative regions. A reason for this is that there is often no political body with authority over the whole functional urban region. In this paper, we present ideas for a new type of spatial policies in Europe focusing on innovation and growth. For in- stance, there is a need to take measures to increase the density of population and companies in functional urban regions and to improve transport infrastructure to increase the geographical extension of functional regions. There is also a need to develop more urban regions into real innovation nodes by developing more elite universities with a proper R&D funding and a ca- pacity to compete with the best universities in the US. Another focus must be on increased investments in higher education as well as policies aiming at increasing the attractiveness of urban regions in terms of housing infrastructure and supply of amenities.
“The city is not only the place where growth occurs …, but also is the engine of growth it- self.” (Duranton, 2000; 291-292)
Keywords: Urban regions, Urban policy, Growth, Innovation, Europe JEL-codes: O18, R11, R58
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1. INTRODUCTION
It is today well established that urban regions and in particular large urban regions are the key players in the modern knowledge economy as centres of creativity (Karlsson, 2011), innova- tion, entrepreneurship and productivity growth (Karlsson & Johansson, 2006). Many urban regions in Europe, such as Munich, Vienna, Milan, Stockholm, Copenhagen, Barcelona, Stuttgart, “Randstadt”, the London-Oxford-Cambridge triangle, Paris, etc., are leading global centres in this respect. However, the general picture in Europe is much less encouraging.
Generally, we can see that the urban regions in Southern and Eastern Europe are underper- forming but problematic urban regions are to be found also in Central, Western and Northern Europe. There are many reasons for such underperformance including too small size, declin- ing populations, too little higher education, too little investments in R&D, a history as a man- ufacturing region, lacking infrastructure, failing institutions, lack of suitable urban policies, corruption, poverty, etc.
However, there are many reasons to have an optimistic view of urban regions. We have been able in recent decades in many urban regions to observe a shift from manufacturing to ser- vices and in particular to knowledge-intensive services with a high demand for face-to-face interaction. It is well known that the share of services is generally greater in big urban regions than in small urban and non-urban regions (Illeris, 2005). There are also important demo- graphic trends to consider including ageing populations in Europe but also an increase of sin- gle adult households and working couples without children with a strong preference for city living. Increased incomes and education levels have increased the demand for variation and for city amenities, such as shops, restaurants, and theatres.
The idea that urban regions, and in particular large urban regions are the main source of eco- nomic growth, i.e., the long-term sustained growth in real per capita incomes or product (Kuznets, 1968), is not new. It has been stressed in the books by Jane Jacobs (1969, 1984) as well as in the publications of many economists (Bairoch, 1988; Quigley, 1998; Hall, 1999;
Duranton, 2000; Fujita & Thisse, 2002) but can be traced back at least to Pirenne (1925). Em- pirical studies have also verified the positive relationship between per capita incomes and urbanization levels (see, e.g., Jones & Koné, 1996), the disproportionate contribution of urban regions to national income and product (see, e.g., Prud’homme, 1997), and the positive link between productivity and the agglomeration of economic activities in urban regions (see, e.g., Henderson, 2003).
The economics literature emphasizes innovation as a major driver of productivity and em- ployment growth (Audretsch, 2003; Karlsson, Johansson & Stough, 2012). Innovation can be defined as the successful introduction of new products, i.e. goods and services, in the market place. New entrepreneurial firms often introduce radical innovations, while incumbent firms introduce non-radical innovations often. Innovations and entrepreneurship in urban regions are a function of their size, diversity and integration with other urban regions by means of communications and transportation and the imports and exports of goods, services, ideas, knowledge and skilled people. Other important factors are supply of higher education, private and public R&D, knowledge-intensive business services, intra- and inter-regional transport and communications infrastructure, etc. Institutions, business climate and social capital also play an important role. Most of the factors mentioned here are agglomeration factors, which prevalence generally increases with the size and density of urban regions. Thus, agglomera- tion factors explain most of the differences between urban regions in terms of economic per-
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formance in general and economic growth in particular (Cyclone & Hall, 1996; Rosenthal &
Strange, 2003; Duran ton & Pug, 2005).
Despite the critical role of urban regions for economic growth in the modern knowledge economy, spatial policies at the supra-national level (EU, OECD, etc.) as well as at the na- tional level in most countries have tended to mainly ignore urban regions and instead focus on much larger administrative regions normally containing many urban regions of varying sizes.
We think that this is a fundamental mistake and that spatial policies, which in particular must focus on how better conditions for innovation and entrepreneurship can be created, mainly should be designed and implemented at the level of urban regions defined based upon func- tional and not administrative criteria. A functional urban region is an economically integrated geographical area characterized by frequent intra-regional face-to-face contacts, which forms
a regional labour market defined by commuting patterns,
a regional housing market,
a regional market for household services,
a regional market for business services, and
a “home market” for the companies in the region.
The purpose of this paper is to discuss some of the policies needed to meet the current urban challenges in Europe and to make urban regions in Europe more competitive. The outline of our paper is as follows: In Section 2, we high-light some important characteristics of urban re- gions, which is followed-up in Section 3 with a discussion of the functions of urban regions and how these functions have changed over time. Section 4 deals with the advantages urban regions can offer compared to non-urban regions. Section 5 is devoted to a presentation of critical urban trends in Europe, which provides a background to the discussion of urban chal- lenges in Europe presented in Section 6. Urban policy problems is the subject in Section 7 and this leads to a presentation of what we think should be a future direction for urban policies in Europe in Section 8. Section 9 concludes.
2. THE CHARACTERISTICS OF URBAN REGIONS
The main difference between urban and non-urban regions is concentration. An urban region can be characterized as a concentration of a variety of artefacts and economic agents. An ur- ban region is a concentration of nodes in various inter-regional and international infrastructure and communication and traffic networks, including road, rail, air, and telecommunication and in many cases, sea networks. However, they are also a concentration of nodes in various non- material networks including knowledge networks, intra-company networks, etc. Since the different networks are connected in various ways, today’s urban regions can also be charac- terized as concentrations of complex interconnected networks. Overall, visitors to urban re- gions first experience them as concentrations of infrastructures, such as streets, rail, tram and underground tracks, and water, sewer, electricity and telecommunication systems and of built environment, such as terminals, stations, office building, houses, schools, hospitals, ware- houses, factories, hotels, theatres, restaurants, museums, trade fairs, conference centres, shop- ping centres, and amusement parks.
Urban regions are not least concentrations of people, in particular, people with higher educa- tion, members of “the creative class”, knowledge handlers and people in service occupations.
This is probably their most important characteristic. They are also concentrations of economic
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agents, i.e. companies, in the private sector engaged in manufacturing, distribution, producer services, commerce, decision-making and product development. Larger urban regions are in particular characterized by being concentrations of head-office functions in companies, in- cluding R&D and product development. Urban regions are also concentrations of public sec- tor activities such as decision-making, public administration, health care, education, social services and culture. In terms of public sector activities, larger urban regions are in particular characterized as concentrations of decision-making, higher education and R&D. The substan- tial economic activities in urban regions imply that they also are concentrations of production, productivity, incomes and purchasing power.
Urban regions also host other kinds of concentrations. They are often concentrations of cues and congestion as well as of high land and house prices. Social problems, criminality, etc. are other phenomena with a strong tendency to concentrate in urban regions.
However, we must acknowledge that there is a great variation between urban regions within as well as between countries, i.e. urban regions are heterogeneous. Urban regions also experi- ence life cycles, which implies that their fortunes can vary substantially over time.
3. THE FUNCTIONS OF URBAN REGIONS
Urban regions fulfil many different functions. Historically, urban regions with their walls and fortifications have offered safety and security. Urban regions, and in particular large urban regions offer risk reduction in terms of, for example, lower risks for unemployment in case of idiosyncratic employment shocks and reduced risks for business failure for firms in case of idiosyncratic demand shocks. They also offer more efficient public consumption, since tech- nical infrastructures, which normally involve indivisibilities can be provided taking advantage of scale economies.
Urban regions are of course centres for production and consumption of manufacturing goods, private and public services, information, culture, etc. (Karlsson & Picard, 2011). Thus, they function as market places, which actually is one of the original functions of urban regions.
They are also meeting places offering arenas for both planned and unplanned interactions and not least for education and the exchange of ideas. The role of the agora is well known since the days of ancient Athens. Probably the most important function for urban regions today is their role as centres for the generation of knowledge, innovation and entrepreneurship.
Not all urban regions perform the same functions (Noyelle & Stanback, 1984). There are sub- stantial differences in their functional specialization. Table 3.1 illustrates different functional specialisations of urban regions. What is important to observe here is that urban regions have different functional specialisations and that a successful urban development can be based upon different functional specializations. Furthermore, the functional specialization of urban regions changes over time. For example, several urban regions that in the 1960s would have been characterised as manufacturing nodes are today more correctly characterised as diversi- fied service centres.
The larger urban regions and in particular the metropolitan regions are today nodes in global networks of urban regions (Taylor, 2004; Burger, et al., 2009) with the implication that the importance of national borders are reduced for these urban regions.
6 Table 3.1 Functional specializations of urban regions
Main specializations Examples
Diversified service centres International centre nodes
National centre nodes
Regional centre nodes Specialised service centres Head office nodes
Specialised knowledge nodes (“university towns”)
Manufacturing and extraction centres Manufacturing nodes
Logistical nodes
Extraction nodes
Consumption centres Tourism and recreation nodes
Commuter nodes
Urban regions also have a functional specialization in other dimensions. They are both export and import nodes to a varying degree. Their role as import nodes has been stressed not least by Braudel (1979) and Jane Jacobs (1969 & 1984). Import nodes are characterized by dense import networks that transfer new ideas, products, technologies, information and knowledge from other urban regions, since it is in (large) urban regions that the majority of all new ideas and artefacts are created. Being an import node seems to be an important precondition for being an innovation node. However, to be an innovation node, an urban region also needs to offer a contact-intensive local economic milieu, a rich supply of international and interre- gional air and communication links and a large and varied supply of highly educated labour.
4. THE ADVANTAGES OF URBAN REGIONS
Urban regions offer, compared to non-urban regions, a number of advantages that seems to increase with the size and the density of urban regions. They offer a large market potential that makes it possible for companies to enjoy the advantages of internal economies of scale.
Such advantages also characterize urban technical infrastructures. Urban regions also offer external economies of scale advantages, i.e. agglomeration economies, to companies in the form of localization and urbanization economies (Ohlin, 1933). These agglomerative forces emerge from pecuniary externalities due to saved transportation, communication and transac- tion costs, a pooled labour market, and shared public goods and non-traded inputs, and from knowledge externalities as “intellectual breakthroughs must cut hallways and streets more easily than oceans and continents” (Glaeser, et al., 1992, 1127).
Empirical studies have generated evidences concerning the positive effects of localization economies (see, e.g., Henderson, 2003) and urbanisation economies in terms of diversity and size (see, e.g., Duranton & Puga, 2002). Evidences have also been presented that indicate that the importance of in particular urbanization economies is increasing with the shift to a
knowledge economy (see, e.g., Polèse & Shearmur, 2004). The micro-economic foundations of agglomeration economies have been disentangled in the “new economic geography” liter- ature (see, e.g., Fujita & Thisse, 2002).
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Urban regions and especially large urban regions offer more options and lower costs for face- to-face communication that speeds up the spread of information, ideas and knowledge as well as large and diverse labour markets, where diversity generally increases with the size of urban regions (Karlsson, Stough & Johansson, 2009). In particular, urban regions offer spatial ad- vantages due to their potential for knowledge spillovers (Glaeser, 2000). Tacit knowledge for various functions, such as evaluation, coordination, confirmation, checking and monitoring, more easily spills over in urban regions (Storper & Venables, 2004). Due to the diversity of ideas, knowledge, technologies, industries, occupations and well-educated people in urban regions and the opportunities to interact, copy, modify, merge and recombine ideas, practices, knowledge and technologies in urban regions, there will be a cross-fertilization of ideas in urban regions generating new ideas, knowledge and innovations, which gives rise to dynamic agglomeration economies, so-called “Jacobs economies” (Jacobs, 1969; Henderson, 2003).
Thus, innovation and, in particular, innovation in knowledge-intensive and high-tech indus- tries is stimulated in agglomerations (see, e.g., Glaeser, 1994; Audretsch & Feldman, 1996;
Andersson, Gråsjö & Karlsson, 2009), where the presence of well-educated and skilled work- ers is a key channel by which new knowledge is transmitted across firms (Malecki, 1997;
Schmidt, 2005).
Urban regions also offer an abundant and accessible supply of knowledge handlers (Acs, de Groot & Nijkamp, 2002, Eds.). Knowledge handlers prefer to interact with each other in ur- ban regions to reduce interaction costs, and they are more productive in such milieus (Florida, 2002). Empirical studies have provided clear evidences of a positive relationship between the initial stock of human capital and the subsequent growth of urban regions (see, e.g., Simon, 1998). In particular, it seems as if skill- and knowledge-intensive industries show strong tendencies to concentrate spatially in (large) urban regions (Audretsch & Feldman, 1996 &
2004). Henderson (1986) explains that this phenomenon is due to that i) high-skill intensive industries tend to locate in large cities, and ii) labour demand is biased towards skilled work- ers when city size increases. A factor causing the skill bias in the labour demand in cities is that cities specialize in high skill-intensive production by out-sourcing less skill-intensive production to non-urban regions and to less developed urban regions in other countries. On the theoretical side, endogenous growth theory highlights how the dynamic effects of human capital investments and the associated knowledge spillovers spur economic growth (see, e.g., Easterly, 2002; Johansson & Karlsson, 2009). It explains how well educated and talented in- dividuals become more productive when they in an urban region can interact with other well- educated and talented individuals, i.e. urban regions generate increasing returns in the pro- duction of knowledge and innovations, which grow with the size of urban regions. Thus, knowledge spillovers can be considered as a key source of the skill bias of labour demand in (large) urban regions (Saito & Gopinath, 2011). The literature contains a number of empirical studies with evidences of the role of knowledge spillovers for economic growth in urban re- gions (see, e.g., Rauch, 1993; Moretti, 2004).
Urban regions allow for division of labour and offer specialization advantages for both em- ployees and companies that have a positive effect on productivity. These specialization ad- vantages are in urban regions translated into diversity advantages, which increase with the size of urban regions. Companies that locate in large urban regions can there expect to find a great variety of all kinds of non-traded inputs (Marshall, 1920). Companies in (large) urban regions have a higher potential for outsourcing services to achieve: i) cost savings due to sup- pliers’ scale economies, ii) better quality of services, iii) access to technically complex and very specialised service functions, iv) increased flexibility in terms of quantity or types of
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services used, and/or v) a smoother work load for the regular work force (Howells & Green, 1986; Abraham & Taylor, 1996; Bryson, Daniels & Warf, 2003).
Urban regions and in particular large urban regions also offer better seedbed conditions for in particular young and innovative entrepreneurs. Start-ups and companies, which in the early stages of company and product life cycles have to deal with manifold uncertainties, prefer locations where new and specialized knowledge is abundantly available at low costs (Camagni, 1991, Ed.; Cohen & Paul 2005), since they cannot generate this knowledge by themselves (Lockett & Thompson, 2001). At later stages in the product cycle many compa- nies prefer smaller urban regions and even non-urban regions for their production (Duranton
& Puga, 2001), since the trade-off between the benefits and costs of agglomeration changes over the life cycle of a product.
Similarly, households that locate in large urban regions can expect to find a great variety of all kinds of amenities and household services. One particular advantage of urban regions in gen- eral and large urban regions in particular for both companies supplying the local market and labour is risk reduction. If there is a dip in the current market, there are often opportunities to move the supply to another market within the urban region.
In other words, one can say that urban regions offer spatially bounded positive externalities mediated by market and non-market forces including
division of labour,
lower search costs,
scale economies due to market size,
non-traded intermediate inputs,
economies of diversity in local intermediate inputs,
knowledge spillovers, and
communication advantages.
Duranton and Puga (2004) study the theoretical micro-foundations of urban agglomeration economies. They distinguish three types of micro-foundations, based on sharing, matching, and learning mechanisms. Sharing advantages emerge due to spatial proximity between pro- ducers and consumers, which allows both categories to reduce their spatial transaction costs, which induces lower prices, increased demand, higher output, and higher wages. Matching advantages increase productivity, since the larger the number of employers and workers in urban labour markets, the higher the chances for good matching. Learning advantages can be expressed as follows: the larger the number of people brought together in an urban region, the higher the potential for learning, i.e. the more efficient the knowledge production and the knowledge diffusion.
5. URBAN TRENDS IN EUROPE
The European urban systems can trace its roots back to Roman times. However, many of the Roman towns declined and even disappeared during the “Dark Ages”. It was first during me- dieval times after 1000 AD that many of the European cities that we know today started to emerge, many times at the spots of former Roman towns (Lees & Hohenberg, 1995). Several of these medieval towns, including Venice, Florence, Milan, Genoa, Bruges and Lübeck de- veloped into important trading centres as well as cultural centres. A second boost to the Euro-
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pean urban systems followed the geographical discoveries. Lisbon, Antwerp, Amsterdam and London were some of the European cities that profited from the intercontinental trade in the 16th to 18th centuries. The industrial revolution in the 19th century brought new developments to many existing European cities and gave birth to many new ones. Many cities, such as Man- chester, Liverpool, Birmingham, Newcastle, and Essen did grow rapidly during the industrial revolution. However, from the early 1970s when deindustrialization started in Europe many of the cities that had built their wealth on heavy industry, textile industry and shipping suf- fered severe blows (Camagni & Capello, 2005).
Historically, urban agglomerations seem to follow a specific growth pattern. Within a country, at each decade, a few cities grow much faster than the rest. Early on in the process of urbani- zation, the largest cities grow fastest. As time passes, population growth in the larger cities declines and the fastest growth can be found in smaller cities farther down in the urban hierar- chy. In other words, cities grow in sequential order, with the initially largest ones being the first to develop (Cuberes, 2011).
Several comparative studies of urban trends in Europe have been conducted in the last dec- ades. A common indicator of urban change in these studies is population. The reason for this is that basic demographic data is the least problematic of all existing measures when it comes to handle problems associated with cross-European comparisons. Population change also ex- erts an important effect of urban economic conditions, such as, the supply of jobs, local de- mand for public and private services, housing, etc. Many of the studies confirm the typical growth pattern of urban regions: urbanisation – suburbanisation – desurbanisation (or urban sprawl). Historically urban growth was concentrated to the city centre. When modern transport infrastructure started to develop growth started to spill over to the hinterland. With continued growth, the city centre expanded geographically and the hinterland was extended further. Van den Berg et al. (1982) analyse population change in 189 cities in 14 Western and Eastern European countries over the period 1950–1975. Using the sequential model of urban growth and decline, they found considerable evidence to support the evolution of the three phases. However, different countries and cities varied in the timing, with Eastern and parts of Southern Europe lagging behind Western Europe.
Cheshire and Hay (1989) perform a similar study on urban trends. Data on demographics and employment are analysed for 229 cities in Western Europe over the period 1971–1984. Their analysis confirms the main conclusion that the urban system is maturing in a similar way in different places. Centralization is generally followed by decentralization and ultimate decline of the city as activities migrate to places that have not yet been industrialized. However, the authors also stress the possibility of an urban revival because of the general shift in the indus- trial structure from manufacturing to services. In addition, they argue that certain demo- graphic trends favour city locations. Single adult households, couples with no children and families with two or more people in work are all increasing and their demand for proximity to city core employment and facilities is likely to be strong.
Cheshire (1995) updated the earlier analysis using population data also from 1990–91. The main conclusion from the analysis is that the urban trends of Europe show a disparate pattern across cities and countries. In some cases, there is clear evidence that the rate of decentraliza- tion slowed down in comparison with the 1970s. This is particularly the case in selected Northern European cities, namely those that are medium-sized, with historic cores, old uni- versities and a highly educated population. In other places, particularly in old industrial cities, decentralization is continuing.
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The question whether it is possible to identify urban resurgence in recent years is in focus in some studies. Turok and Mykhnenko (2007), for instance, analyse population change for 310 cities across Europe to determine how their prosperities have changed over the period 1960- 2005. Their analysis reveals that one in seven cities has a trajectory of decline followed by growth. The majority of cities have instead experienced continuous growth or have had a re- cent decline in population. The general picture is that growth of European cities has slowed down over the last decades, with something of a recovery within the last five years of the studied period. Growth and revival are more common in Western Europe and decline is more widespread in the East. The position of larger cities also appears to have improved slightly relative to smaller cities. In Turok & Mykhnenko (2008), the analysis is developed to include also data on other economic variables besides population. 151 European cities over the period 1980-2005 are examined. The authors find that cities in aggregate have experienced continued prosperity rather than turnaround or accelerated growth. However, national variations seemed important and cities in some countries show clear signs of revival and growth. Cities in Fin- land, Sweden, Ireland, Britain and Spain show substantial economic improvement over the decade 1995-2005, with evidence of both turnaround and accelerated growth. In contrast, cities in Germany have experienced a marked slowdown, although from a rather high initial level. The authors also find some evidence that the cities with a large share of manufacturing employment in 1980 experienced slower overall jobs growth subsequently.
The paper of van Winden, et al. (2007) suggests that the transition towards a knowledge economy is causing shifts in Europe’s urban system. The authors conduct a case study analy- sis of 11 cities in North-Western Europe. The included cities differ with respect to their func- tion in the national and European urban system, their positions in their urban networks and their industrial structure. The conclusion is that the places with the most promising opportu- nities are internationally connected metropolitan areas that have a diversified economy, a strong knowledge base and a high quality of life. The authors argue that in the coming years, these cities’ relative position is likely to improve further.
6. URBAN CHALLENGES IN EUROPE
The overall challenge in Europe today is to get back to a situation of a high enough economic growth to increase the well-being of the population and to reduce unemployment to levels equal with frictional unemployment only. Since the urban regions are the main growth en- gines, the challenge boils down to the general question: how can the European urban regions become more dynamic and more competitive, i.e. become more creative, more innovative and more entrepreneurial to promote productivity and employment growth? Thus, European urban regions must attract, retain and even nurture highly mobile creative and innovative companies and talented individuals, since their aggregate efforts will be the primary driver of socio-eco- nomic development and competiveness of Europe. This is the main challenge. However, given the overall situation globally and in Europe there are also other challenges that must be met simultaneously on top of the current financial problems in Europe.
The urban regions in Europe must be able to accommodate an increasing population. The ur- banization ratio in Europe today exceeds 70 per cent but it is expected to continue to increase and to exceed 80 per cent in 2050. Larger urban regions are from an economic point of view a positive thing since larger urban regions generally are more productive than smaller urban regions. It is important that policy makers at the supra-national, national and regional level
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have an open and positive attitude to the growth of urban regions, since such a growth will imply that the metropolitan regions will continue to grow and that medium-sized urban re- gions might grow even faster into big urban regions. From an economic point of view there seems to be no valid limit to the size of urban regions. The behaviour of households and firms indicate that the benefits of agglomeration supersede the costs of agglomeration, as has been the case throughout urban history (Tellier, 2009). For urban regions to continue to grow, which is critical for economic growth, policy makers has a mission to secure that the ad- vantages of agglomeration always are larger than the disadvantages (Glaeser, 1998).
The benefits of growth are never distributed equally. This is also true for economic growth in urban regions. Thus, it becomes a challenge for urban policy-makers to manage investments, public consumption and direct income redistribution in such a manner that the fruits of the economic growth are reasonably shared by all citizens in the urban region. This demands among other things the provision of appropriate urban amenities, effective institutions, safety measures and citizens’ participation to ensure that the benefits of urban growth are higher than its costs.
Growing urban regions imply an increased land use for infrastructure, activity areas and housing that sometimes might threaten culture heritage and valuable architecture and/or fertile agricultural land and natural amenities. The challenge here is for each urban region to design a spatially integrated and balanced urban land use strategy that is compatible with ecological, cultural, social and economic sustainability and a diverse and varied urban landscape that at- tracts migrants as well as tourists. To restraint, uncontrolled urban sprawl when urban regions grow is a special challenge, which demands specific institutional mechanisms and structures to control land use.
Another challenge for urban policies in growing urban regions is to in a balanced process in- crease the supply of attractive housing and public services, such as nursery schools, schools, higher education, health care, social services, cultural amenities and public transport. To meet this challenge it is important to involve existing citizens, since it is usual that new investments of these kinds give rise to conflicts concerning the land use, in particular in already built up areas. Not all new investments can or should be channelled to the non-built up areas in the outskirts of the urban region, instead it is important in most urban regions to increase succes- sively the density in already built up areas. Public transport can be seen as a special challenge.
A productive and innovative urban region needs a high degree of mobility of individuals within the region. Thus, intra-urban accessibility should optimally increase at the same speed as the urban region grows. The car will always play an important role for the mobility of indi- viduals and transport of goods in urban regions and car technology will gradually improve making car travel affecting the environment less and less. However, as the urban region grows and becomes denser an increasing share of the travel of individuals must be made by different forms of public transport. Overall the urban transport system must develop in parallel as urban regions grow by means of new logistical and infrastructural concepts and solutions with a potential to make mobility sustainable (Banister, 2008). This is a major challenge since acces- sibility and connectivity is of critical importance for the vitality of urban regions in the open knowledge economies (Bertolini, 2006).
An urban challenge that has come more in focus in recent years is the climate change chal- lenge. This challenge will according to the forecast models used not only affect coastal areas by raising see levels. For some parts of Europe, the forecast is that heat levels in summers will increase, for other parts the forecast is that it will rain more, which will affect not least urban
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regions located along rivers or at the shore of big lakes. For policy makers in urban regions the challenge is to provide efficient energy systems and environmental technologies that will make the urban regions eco-friendly and climate neutral at the same time as they protect the growth potentials of urban regions.
Urban governance is a critical challenge. As urban regions grow, the socio-economic dispari- ties tend to grow, often giving rise to socio-economic exclusion, social problems, ethnic ten- sions and increased criminality in specific areas in the urban region. Thus, there is a need for conflict management, income redistribution and pro-active inclusion strategies for less privi- leged groups in urban regions.
It is important to stress here that there exist a huge urban challenge in Eastern Europe includ- ing the former GDR, where many urban regions have been declining since the fall of the Ber- lin wall. Here the challenge is multi-faceted involving declining population, a housing infra- structure in bad shape, an inferior transport infrastructure, lack of employment opportunities, etc. A fundamental challenge here is how to finance the renovation and rejuvenation so criti- cally needed.
7. URBAN POLICY PROBLEMS IN EUROPE
We stressed in the introduction the lack of spatial policies at the supra-national level and the national level in most countries in Europe focusing urban regions. Urban policies are in most cases performed at the city level. There are a number of recent trends in urban policies worth mentioning. Many attempts are made to integrate policy fields involving also a shift from government to governance. Efforts are made to promote the empowerment of the inhabitants in cities and specific neighbourhoods. There seems to be a rather general shift from univer- salistic to area-based urban policies and there is certainly a growing attention for the efficacy of different urban policies.
However, urban policies in Europe have to deal with intricate problems and are all too often based upon fallacies. Urban regions are highly complex systems and urban policies have all too often been conceived as if urban regions were isolated spatial entities. The internal change processes in urban regions include complex dynamics of entry, growth and exit of companies, goods and services, and intra-urban relocation of companies and households. These change processes are continuously influenced by flows of information, ideas, knowledge, technolo- gies, goods, services, companies and households from and to other regions at home and abroad, urban as well as non-urban. They are also influenced and often restricted by the pre- vailing incongruences between the supply and demand for land, dwellings, offices and facili- ties and public and private services in different locations in the urban region as well as for transport capacity. Much urban design has been done and is done without proper analyses of the consequences of different designs for economic and social interaction and development.
Most architects and many urban planners have no or little analytical training in understanding how urban regions function. The buildings and the infrastructure in an urban region only make up a small fraction of the region. What really matters are the economic agents in urban regions and their behaviour.
Urban regions generate benefits as well as costs, such as high land prices, the loss of lower- paid jobs, congestion and crime. The critical question is: what is a cause, an effect, a symptom or even a characteristic of urban regions in general and of successful and growing urban re-
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gions in particular? In a prosperous urban region, land prices rise, lower-paid jobs are re- placed by better-paid jobs, congestion increases and crime might become more profitable, since it might become easier to make black money white. The important conclusions to draw here is that the focus of urban policies should not be too narrow.
It is well known that social and ethnic segregation tends to be persistent in urban regions, but this does not imply that segregation is a separate problem. Poor neighbourhoods in an urban region might simply be the spatial manifestation of income inequality. Income inequalities tend to make societies more polarized. Reducing income inequalities might be a much more efficient policy than trying to develop mixed neighbourhoods. There are substantial risks that improving neighbourhoods might just induce poor households to move to other less attractive neighbourhoods that they can afford.
Another problem in urban policy making is that planning for sustainability in the form of land use planning for ‘smart growth’ of ‘new urbanism’ only influences new development. Effi- cient sustainability policies need to influence the actions of all economic agents in the urban region and all buildings, vehicles and infrastructure. The interesting thing is that fuel and car- bon taxes achieve this. So-called growth control planning policies tend to favour the richest households and incumbents disproportionally and to increase long-distance commuting. It is often claimed that higher urban densities protect the environment. However, this claim rests on two assumptions without clear and definite evidences: i) higher-density urban regions in- volve lower per capita energy consumption and environmental effects, and ii) agricultural land is synonymous with a higher-quality environment. People seem to forget that modern agriculture is one of the least environmentally friendly activities in which human beings en- gage.
Another popular assumption without firm theoretical and empirical evidences is that a poly- centric urban system would make the urban regions in Europe more competitive. Investments on European, national, and regional level in many cases have been concentrated on the for- mation of polycentric urban regions, or city clusters. Polycentricity is meant to be a strategy to create a more balanced development and increase the competitiveness for more peripheral cities and regions. However, there is very little evidence i) that it is possible for urban policies to promote polycentricity, or ii) that polycentricity would make the urban regions in Europe more competitive. Furthermore, there is still no agreement on how to define the concept poly- centricism. Empirical studies have shown that the efforts to create polycentric urban regions yield poorer results in development terms than the dynamic trend towards growth of metro- politan areas (Gomez and Medina, 2010). Polycentric development is mainly based on manu- facturing activity but it does not remove the core-periphery pattern or the emerging gaps be- tween innovation poles and manufacturing areas. Hence, there is not enough evidence to sup- port the hypothesis that a more polycentric development brings more social cohesion and long-term economic competitiveness to European urban regions (Bertoloni et al, 2011).
8. FUTURE DIRECTIONS FOR URBAN POLICIES IN EUROPE
We argue here that future spatial policies in Europe should focus on urban regions, since the urban regions are the major growth poles in the modern knowledge economy. There is an ur- gent need today for urban regions in Europe to develop innovative and effective public policy approaches, instruments and techniques with a substantial potential to enhance urban quality, creativity, innovativeness, sustainability, vitality, liveability and accessibility to promote eco-
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nomic growth and increased welfare (Healey, 2007). The competitiveness of the urban re- gions in Europe in a globalized world depends largely on how fast new knowledge can be created, deployed and implemented in the form of innovations and entrepreneurship. It is im- portant to stress that this is no easy task. It is not sufficient to create a climate of tolerance, diversity and openness and to support the development of technological innovations to stim- ulate urban growth (Musterd & Gritsai, 2009), even if it is necessary.
For urban development policies to be effective there is in many countries a great need for ad- ministrative reforms. In most countries, there is often no political body with authority over the whole functional urban region that can take the lead in urban planning and in the implementa- tion of region-wide urban policies regarding infrastructure investments, public transport, housing, culture, etc. There is also in many countries a need for policy decentralization, since many policy areas including infrastructure investments, higher education and public R&D spending are controlled at higher governmental levels. The decentralization must of course also include a control at the level of the functional urban region over generation of the neces- sary financial resources including urban income and land value taxes.
The EU, the OECD and the national governments in Europe must also start to realize that ur- banization, internal urban processes and the interaction between urban regions in Europe is poorly understood today. Urban regions are extremely complex systems that interact with other urban and non-urban regions in a large number of ways. To understand the evolution and development of urban regions and systems of urban and non-urban regions there is a need to base the research on evolutionary economic theory, which is able to integrate the following four basic ideas (Simmie & Carpenter, 2008):
Spatial economic development is path-dependent, i.e. history matters.
Economic and institutional novelties emerge at specific moments in time in specific urban regions and diffuse at varying speeds to other urban regions.
The capacity to adapt to a changing economic, technological and institutional environ- ment varies between urban regions.
Self-organization, i.e. a spontaneous order emerge in urban regions and systems of ur- ban regions as an unintended consequence of individual (market driven) economic and social actions (Witt, 2003).
What we need in Europe is much more high-quality research to understand how urban regions and systems of urban regions function and develop over time. For such research to become effective there is a great need for better data. Thus, it is urgent to develop a coherent longitu- dinal database for functional urban regions in Europe with data both for the central city, for the hinterland and for the interaction between the central city and its hinterland. There is also a strong need to generate ideas and better decision-material for long-term urban policies by means of the development of projections and scenarios for national urban systems and for individual urban regions. By making such projections and scenarios it will be possible to get a better understanding of the effects for urban regions of low general national population
growth or even declining national population, ageing populations, new drastic environmental policies, and so on. Thus, the urban development strategies in Europe must be developed from both a short-term and a long-term perspective and they need to be based on evidence-based scientific underpinnings (Rathcliffe & Krawczyk, 2011).
Given the substantial variation between the different urban regions in Europe in terms of per- formance and general conditions, it is impossible to design a general urban policy that fits all
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urban regions in Europe. There is instead a need to develop a number of general urban poli- cies that can be applied to different groups of urban regions in Europe with similar character- istics. It is beyond the scope of this short paper to develop these different general urban poli- cies. Instead, we focus on presenting a number of more general conclusions concerning the future directions of urban policies in Europe to stimulate productivity, competitiveness and economic growth and well-being.
We think that there is a strong need to develop more urban regions in Europe into real innova- tion nodes. To achieve this there is a need to develop more elite universities with an R&D funding that can match leading research universities in the US. Better incentive and support systems to induce researchers and universities to commercialize research results must be de- veloped together with a more advanced venture capital industry. Anchor firms must be en- couraged and mediating organizations developed. Another focus must be on developing an appropriate base of knowledge and skills, which demands increased investments in higher education as well as policies aiming at increasing the attractiveness of urban regions in terms of housing infrastructure and supply of amenities. It is well established that the accumulation of knowledge – a non-rival and partially non-excludable good – in urban regions by means of R&D and higher education is key determinant of economic growth (Lucas, 1988; Romer, 1990). A knowledge focus is critical for urban policies due to that not least, the emergence of multi-purpose technologies and the increased globalisation have raised the knowledge and skill intensity of products and production processes in the Western economies (Berman, Bound & Griliches, 1994; Feenstra & Hanson, 1997). Since the available resources are lim- ited the public policies must be targeted and focus not least on the quality of the service sup- ply and the infrastructure in the urban region. Arenas and meeting places for formal as well as informal face-to-face interaction must be developed including diversity and quality of place.
We have demonstrated above that there are strong evidences that economic growth of func- tional urban regions increase with their size in terms of population and total incomes. Thus, it is an important urban policy objective to take measures to i) increase the density of population and companies in functional urban regions, and ii) improve transport infrastructure to increase the geographical extension of functional urban regions.
To preserve their vitality and competitiveness urban regions generally over time must adjust their internal structures and not least their interaction infrastructure in response to technologi- cal, economic and demographic changes. This calls for general functional renewal including an increased provision of knowledge-intensive business services but also the securing of an adequate supply of cultural facilities. Derelict land must be recycled to provide new commer- cial and recreational opportunities. The cultural heritage must be preserved including archi- tecturally interesting buildings and old industrial buildings converted to new uses. Generally, all types of redevelopment should be supported.
The functional renewal concerns not least the central city in the urban region. The central business district must successively be redeveloped giving space for new shops and offices.
Nearby waterfronts or historic areas must go through a sympathetic conservation, renovation and rehabilitation for leisure activities and high-density urban living. Inner city housing must be given a comprehensive upgrading block by block associated with architecturally sympa- thetic new private housing nearby. However, parts of the inner city might be preserved with limited investments giving cultural workers, artists, students, etc., opportunities to live in the city centre and there build up a genuine creative milieu. Accessibility by car, public transport
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as well as by bike and by foot needs to be upgraded successively as well as the telecommuni- cations infrastructure.
9. CONCLUDING REMARKS
The purpose of this paper was to discuss some of the policies needed to meet current urban challenges in Europe and to make urban regions in Europe more competitive. The theoretical background for the paper is the idea that urban regions and in particular large urban regions are the main sources of economic growth in the modern knowledge economy. Despite the critical role of urban regions in economic growth, spatial policies in Europe at the EU-level as well as at the national level in most countries mainly ignore urban regions and instead focus on much larger administrative regions normally containing many urban regions. Based upon an analysis of current urban problems in Europe we have presented ideas for a new type of spatial policies in Europe based upon urban policies focusing urban innovation and growth.
We think that it is critical that spatial policies in Europe get a new focus.
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