Enter: Regional Economic Differences in Germany

Jean-Achille Benouville - A View of the Roman Countryside || Wikimedia Commons via public domain

Germany was politically reunited on October 3, 1990, 28 years ago, and a mere two months later, the first parliamentary elections took place in the newly unified country. The election campaign created the enduring image of “flourishing landscapes” (blühende Landschaften) in people’s minds. According to a statement by then Federal Chancellor Helmut Kohl (CDU), it represented the promise that the economic backwardness of the east German federal states would be overcome in just a few years.

Despite massive investments in infrastructure as well as plant and equipment, however, disparities persist in living conditions between the former West Germany and East Germany. Value creation per capita in the east remains almost 30% below the level in the west, and the unemployment rate in the east of Germany is still about a third higher than in the west, despite an equalizing tendency over the past few years1.

Germany Differs

Regional economic differences are not the exclusive preserve of Germany. They exist in almost all economies. Prominent examples include the north-south divide in Italy, or the economic disparities between the interior of the USA and the more prosperous coastal regions.

However, the inequality between east and west Germany, sometimes referred to as the east-west divide, can also be explained by means of a different divide: the economic gap between urban and rural areas.

Generally, rural areas are significantly weaker economically than urban areas2.

Large parts of the east of Germany are rural in nature, which automatically leads to significant economic disadvantages, which have to be taken into consideration when analyzing the east-west discrepancies. Urban and rural areas in east and west Germany should therefore be analysed separately.

Data from the Federal Institute for Research on Building, Urban Affairs and Spatial Development (Bundesinstitut für Bau-, Stadt- und Raumforschung, BBSR) indicates that rural regions in west Germany show more favorable economic indicators than rural regions in east Germany, but also that rural areas in the east and west both clearly lag behind the economic output of urban areas.

The numbers show how important rural areas are for Germany: 90 percent of Germany’s surface area is identified as rural. Its population is 47m, significantly more than half of the country’s total population3. The development of rural areas therefore exerts a massive influence on the future development of both east and west Germany.

Heterogeneity of Rural Germany

The development of Germany’s rural spaces is highly heterogenous. While some rural areas, particularly those in the proximity of economically active towns, are experiencing a boom, others are affected by emigration and negative growth.

Once such an exodus has started, it can easily lead to a vicious cycle causing people to leave in increasing numbers.

First, the departure of a large number of people means a drop in spending power as their demand for products and services moves to a different area. Companies supplying those goods and services follow suit, jobs are lost and the municipality experiences a drop in revenue.

This means that the municipality has less funds available for providing and maintaining things such as infrastructure, utilities, and cultural and other attractions. As a result, quality of life declines, more people leave and the process is reinforced.

Breaking the cycle requires intelligent liberal policies at all levels, and there is a lot at stake. Failing to address the problems of rural areas makes it easier for populist parties to win the favor of voters, based on simplistic slogans and superficial solution proposals.

How to Shape the Discussion

On July 4, 2018, a public debate on the development of rural areas took place in Hedersleben, a town in the east German state of Saxony-Anhalt.

Organized by the Friedrich Naumann Foundation for Freedom, the event included experts from politics, business, and municipal administration4, as well as people living in the region.

The discussion can be summed up in the following twelve core theses, which are meant to contribute to a more positive development of rural regions, both from a social and an economic perspective.

  1. There is no such thing as “the rural areas”. Rural areas are composed of a great variety of areas with a rural character, each of which has specific requirements and issues.

    There is no one-size-fits-all solution for the problems these areas face. All solutions have to be customized to address the specific demands of the situation.

  2. Rural areas can benefit from urban growth. The best example is the economic growth of the rural areas in the south of Germany, which has benefitted massively from the growth of Munich.

    Rural areas offer something lacking in “overcrowded” cities: cheap living space, peace and quiet, and closeness to nature.

  3. The links between towns and the surrounding areas have to strengthened. In many prosperous towns, the thinking of political decision makers only extends to the city limits. But many problems can only be solved jointly, together with the surrounding countryside.

    This does not require extensive regional reorganization of the incorporation of municipal units, but fair and equal cooperation across party lines.

  4. Municipal self-government has to be strengthened. Municipalities are being made responsible for an increasing number of tasks, but this creeping mandate growth is incompatible with their limited and shrinking funding.

    Local government politicians have the feeling that their decision-making powers are becoming increasingly limited. Municipalities in rural areas need room to breath to allow political decision makers to take active steps to improve living conditions and restore trust amongst the populace.

  5. The identity of nunicipalities must be preserved. In the past, regional reorganization meant that many municipalities lost their mayors, communal facilities and social meeting points. Reorganization of this kind was often based purely on considerations of efficiency.

    However, experience has shown that expected positive economic effects often do not materialize and that municipalities run the risk of losing their identity. This loss of a sense of identity provides fodder for populist parties and attitudes.

  6. The countryside forms part of Germany’s cultural landscape. Culture is not confined to the theatres, museums, and opera houses of large cities.

    Germany’s local government structure is characterized by the existence of many small units, and this in itself forms an important part of the German cultural landscape.

  7. Rural areas can and should be self-assured and confident of themselves. Living in the countryside offers many benefits compared with living in the urban environment: affordable living space, peace and quiet, closeness to nature, good recreational value, and much more. Rural areas should promote these benefits actively.

    It should not be forgotten that even highly qualified professionals have diverse preferences. However, for rural regions to be considered as a place to live, they have to offer the required infrastructure for basic services to be maintained.

  8. Schooling has to be made available close to where people live. For many families, having a school close to home plays a key role in their choice of location.

    Education is not the only reason why schools exist; they also help create a sense of identity and serve as social meeting points. Steps must be taken to prevent further school closures.

    Alternative solutions and innovative thinking are required to ensure school services remain available even in shrinking municipalities.

  9. Digitalization can represent an advantage for rural areas. There is no law that says that purchasing power has to be further centralized in the large cities.

    Digitalization is helping create a new world of work where many jobs enable people to have greater flexibility in terms of time and location, providing an opportunity to live in the countryside. However, this means that digital infrastructure is needed to enable home offices in the countryside.

  10. Rural areas must not be allowed to drown in bureaucracy. Overwhelming bureaucratic obstacles are incompatible with the freer attitude towards life found in the countryside.

    Furthermore, many environmental and agricultural regulations do not take into account the realities of living in the countryside.

  11. Vocational training has to be made a priority. Small companies, particularly those offering artisanal and craft services, form the backbone of the local economy in many rural areas. Preserving these businesses requires highly trained young talent.

    Ensuring a smooth transition to the younger generation means that greater emphasis needs to be placed on giving pupils early vocational advice while still at school, as well as providing vocational training of an exceptionally high standard afterwards.

  12. Rural areas need a modern and visible administration. Municipal administrations have to go back to being accessible and competent places of contact for citizens living in the countryside.

    As such, they contribute to strengthening the community spirit and identity, and help restore trust in the state. The opportunities offered by digitalization should also be exploited for this purpose.

    The more simple processes citizens can complete online, the more time the administration can dedicate to more complex issues and to the people unable or unwilling to complete processes and procedures online.

1BMWI (2017): Jahresbericht der Bundesregierung zum Stand der Deutschen Einheit 2017. Berlin

2 BBSR data show that value creation per capita was about 25 percent lower in rural areas than in the town and cities in 2015.

3BMEL (2016): Ländliche Räume verstehen – Fakten und Hintergründe zum Leben und Arbeiten in Ländlichen Regionen

4 Karl-Heinz Paqué (vice-chairman of the board of the Friedrich Naumann Foundation for Freedom), Karl-Albrecht Bartmer (farmer from Löbnitz, CDU, president (ret.) of the German Agricultural Society), Dr Anita Maas (full-time mayor of Lommatzsch, Saxony, FDP), Thomas Nitzsche (mayor of Jena, Thuringia, FDP), Michael vom Baur (graduate shipbuilding engineer, self-employed management consultant in Mecklenburg-Western Pomerania, FDP)

Dirk Assmann