Europe's Had Economic Successes, Too
American media reports concerning Europe have recently focused almost exclusively on the debt crisis and economic contraction. However, despite Europe's economic problems, there are pockets of innovation and positive examples that should be considered when one evaluates the future of the European and world economy, as I witnessed firsthand during the Fall 2012 Marshall Memorial Fellowship trip to Europe.
One example is the transformation of Bilbao, Spain from a dying industrial town into a relatively thriving, service based economy, cultural center, and tourist destination. In 1991, against significant opposition from public opinion and advisors, the city government took a strategic risk and made a significant investment in both the culture and layout of the city. It partnered with the Guggenheim Foundation and invested in the design and construction of an international museum of modern art. During this process, the city required that companies in Bilbao be used to assist in the engineering and construction of the building. This not only boosted the demand for and international platform of those companies, but also boosted the local economy. The Guggenheim Museum itself has become a symbol of the city's transformation.
The city also invested in the port to attract additional traffic, commerce, and tourism. Possibly the most significant factor in transforming the city was local government investment in a complete urban overhaul: creating pedestrian access and pathways to and from the river, tearing down most of the industrial buildings or adapting their use, and investing in underground parking and public transportation.
As a result, Bilbao completely transformed itself and has become a key tourist destination for both the museum and the attractive urban area. The incredible food, language, and unique cultural identity in this Basque region all add another key point of interest for tourists. The return on the investment of this strategic risk, which according to some sources cost the city just under one billion euro (primarily costs related to the city infrastructure, beautification, and the museum), has lead to lower levels of local debt and an unemployment rate of 13%, compared to an average Spanish unemployment rate of 26%.
This model is not easily replicable. Indeed, some cities have tried and failed to replicate Bilbao's success. But Bilbao is still a fascinating example of how effective public investment can be.
A contrasting situation can be observed in Belgrade, Serbia, where the government agreed to take a loan from China to build a new bridge across the Danube as part of a larger public infrastructure plan. While Belgrade was unable to fund the project, due to limited funds as a result of the economic crisis and lack of available capital from other European sources, the city did not require that some of the jobs and construction work be supplied from the local economy. A Chinese firm is building the bridge and brought workers over from China to construct the bridge. As a result, the bridge is almost entirely an import from China.
Compared to the example of locally-driven revitalization in Bilbao, it is striking that Belgrade did not demand that some of the construction work attached to the bridge be reserved for local employees. Chinese labor is inexpensive, but the average Belgrade citizen earns a mere €300-500 per month. In fact, the city is attracting some foreign investment due to relatively low labor cost and well educated workforce. Those jobs may have provided a helpful economic boost, and the loan from China to build the bridge increases the city's long term debt liability.
Yet Belgrade does offer a shining example of locally-led entrepreneurialism in the form of an organization called NALED, which works to bring together business owners, NGOs, and municipalities to make Serbia a more business friendly environment and encourage the type of integration and interaction that we in the United States take for granted. Among multiple notable projects the organization has designed and executed since its founding in 2006, the organization has defined 12 criteria and over 100 indicators that a municipality must meet to be awarded a Business Friendly certification. The Serbian Ministry of Economy signs these certificates, which are awarded at a ceremony each year. During the past five years, over one third of the local municipalities have applied for this certification and 24 have been certified.
One attribute of the certification is that the municipality has a local economic development office that produces and maintains an economic profile of the area including types of industry, number of businesses, and average salary. These profiles have already facilitated interest, and in some cases investment from entrepreneurs and investors. The organization continues to help Belgrade become a place where business can thrive as it slowly continues to adjust from a closed-market mindset to a more free-market economy. Learning about this organization and the impact it has already made in a short period of time was truly inspiring.
As global citizens we should do a better job to highlight pockets of innovation. We need to continue to learn from each other and share ideas, while understanding the political, economic, and social context that made those ideas successful. We will have a stronger economy if we focus on problem solving and the positive stories hidden behind doomsday headlines of crisis and contraction.