Does spreading government employment constitute an effective tool against shrinking regions?

Current issues related to economy, (responsible) investment, pension and income: every week an APG expert gives a clear answer to the question of the week. This time: macroeconomist and expert strategist Charles Kalshoven on whether spreading government employment is an effective remedy for shrinking regions. “At least the government brings a type of employment outside the Randstad that is currently often missing there.”

The interests of the region will weigh more heavily in the decision of where the government will establish its own offices. As to why this is, Minister De Jonge states on the central government website, “The differences between the regions in the Netherlands are too great. For years we looked at housing mainly from a The Hague perspective, which resulted in more government services ending up in the Randstad and too little government employment in the provinces outside the Randstad. Efficiency often prevailed, although that is not the only thing that matters. There are also other interests, such as a government presence in the region, proximity and visibility of the government for the residents of the region.” Does this plan indeed constitute the desired solution for the shrinking regions on the edges of the country?

Goals
Spreading employment can serve multiple purposes, Kalshoven said. “One example is the regional economic shock that occurred after the mines closed in Limburg. This resulted in the loss of many jobs, some of which were restored with the relocation of ABP and CBS, among others, to Heerlen. The goal being pursued may also change. In the 1970s, for example, the dispersal policy was primarily intended to combat congestion in the Randstad. And now it is more about ensuring that every Dutch citizen should recognize himself in the central government, and that the distance between city (Randstad) and countryside is too great. And these are legitimate political goals.”

Working from home
You can look at the effectiveness of this plan in several ways, the economist continues. “All government ministries and planning agencies are currently located in The Hague. That makes it easy for officials to stop by a neighboring agency for consultations. This is very effective for developing policy: you understand each other sooner. On the other hand, civil servants now also work from home more often, just like most office workers. And location costs outside the Randstad will be correspondingly lower - that is efficient from a cost perspective. Location has become less relevant since the Covid crisis, making it easier to move government services to the region. Yet another form of efficiency is related to your information position due to government presence in the region.  As a government, you may notice things sooner than if you are all in The Hague. It can also increase the power of the government if the residents of a region feel represented due to the presence of government services.”

Continuous brain-drain
So there are multiple reasons for the government to spread its presence across the country. But what are its economic effects? For this, Kalshoven cites a European study that looked at the effects of investment subsidies on a region. “This showed that employment increased significantly in regions that received such a subsidy, with small businesses showing the greatest growth. Conversely, an old Dutch study concluded in 1980 that investment subsidies were of little economic benefit to Dutch regions, in contrast to the spreading of government services.”

Upward spiral

In any case, the government is bringing a type of employment that is now often lacking there, outside the Randstad. So it may be that this policy creates more employment opportunities for highly educated people in the region, making it easier for them to stay there and thus stopping the continuous brain-drain. The brain-drain to the city and subsequent shrinkage in surrounding regions is a matter of cause and effect, Kalshoven explains. “Cities are often characterized by activity, which makes them attractive for people and companies to move there as well. However, when everyone commutes to the city to work, congestion ensues. Think traffic jams and overcrowded trains. That partially negates the positive effects of business development.”

There are a few things that can be done to combat that, the economist concludes. “One is to move employment to the region, as the government now wants to do. But, of course, it is not the same as the establishment of a car manufacturer, for example, where an influx of all kinds of suppliers can create a cluster of economic activity. These positive knock-on effects will not be as strong when a government department is established. On the other hand, employment will also be less sensitive to economic cycles, which is also worth something. In addition, the government can invest in the region to make it more attractive to residents. It is possible that the gap with a region is caused by poor connections. Investments in infrastructure can then address the root of the problem. All this can lead to an upward spiral for shrinkage regions, but success is not guaranteed.”