The levelling-up lessons Wales can learn from East Germany
‘Levelling up’ is Boris Johnson’s much-vaunted signature policy. But a comparison with the levelling-up project that’s been taking place in former East Germany for more than 30 years raises serious doubts about its being achieved in Wales and the UK as a
THE reunification of Germany – perhaps the biggest levellingup project in history – has cost a staggering amount of money.
In total, it’s estimated that up to €2 trillion was spent on it between 1990 and 2014.
That’s the equivalent of around £71bn every year.
By comparison, the UK’s levellingup fund is £4.8bn in total.
Germany’s investment in the former communist east has had a tangible impact, although there is still some way to go before levelling up reaches the desired plateau.
Directly after reunification, productivity in former East Germany, including Berlin, was at around 60% of former West Germany.
It is now at around 85%.
In a blog post, Kathrin Enenkel, a senior analyst with the Centre for Cities think-tank, has explained how Germany pursued its goal of equality between the two former countries – and the implications for Britain.
She states: “Although former East Germany has still not fully closed the gap between itself and former West Germany, it now has a GDP per capita higher than many parts of northern England and Wales and has made great progress on employment and wage growth.”
Taking 2003 as an example, Enenkel shows that 45% of the money spent on reunification came in the form of financial transfers through the welfare system, such as pensions or unemployment benefits, to support living standards in former East Germany.
Other larger areas of expenditure were infrastructure investments and growth-enhancing policies such as business support.
She states: “While not all areas of spending are relevant in the UK context, the sheer amount of money that the German Federal Government spent and the time-scale shows a commitment that lasted longer than a single parliamentary term, or a single party’s political agenda.”
The key programme Aufbau Ost (Rebuilding East Germany) was launched with the intention of ending only when it had successfully created equal living conditions, meaning that it was designed to outlast changes in the political composition of the Federal Government.
Enenkel states: “Individual policies often had a very long time-span and fitted into overarching strategies that had specific economic goals.”
Money was spent with the aim of making former East German cities and towns more attractive places to live, and to prevent demographic decline through younger east Germans leaving for better opportunities in western Germany.
The main programmes had a duration of roughly 20 years, while smaller programmes addressed specific challenges. The Zentrenprogramm between 2008 and 2010, for instance, specifically focused on city and town centres.
Enenkel argues: “If the UK intends to learn lessons from the German experience, then it should first agree on a clear objective – for instance closing the UK’s regional productivity gap. Second, it should establish programmes that have cross-party support and so are independent of changes in government. Third, it should provide those programmes with sufficient funding.
“Former East Germany did not just shift its political economy from communism to the liberal market economy. It also completely transformed its centralised governance structure to a federal system with strong municipal self-government.
“The challenges are massive from an institutional perspective and required finding the right personnel and establishing new ways of working. Despite these barriers, former East Germany underwent comprehensive reform.
“It reintroduced state governments and gave them expansive powers over taxation and policy areas such as education and health.
“Crucially, stronger local government and greater devolution was accomplished by reducing the number of local councils. In 2001, the number of municipalities in former East Germany had dropped by 44% and by 65% by 2017.
“By replacing numerous, weak local authorities with fewer stronger ones, local government in former East Germany was able to play an important role in catching up with western Germany’s prosperity. This reform was backed by un-ringfenced money from the German Unity Fund.”
Shortly after reunification in 1992, all parts of former East Germany lagged behind their western German counterparts on productivity. However, large cities such as Leipzig or Dresden outperformed smaller eastern German cities, towns and villages. This is what economists expect to see in well-performing urban and regional economies.
Despite this, however, large cities in eastern Germany still performed worse than smaller places in western Germany.
Since 2019, this picture has partly changed. The gap between other areas in the former East and West has almost closed. But the large cities in the former East still largely trail their western counterparts, and this explains why the former East still trails the West.
It’s because the former have struggled to attract higher-skilled jobs.
Enenkel states: “Dresden and Leipzig have lower shares of employment in high-value-added industries than, for instance, Frankfurt or Dusseldorf, which makes them less productive. This has implications not only for the cities themselves but also for the jobs they can offer to people living in nearby towns and villages.
“Yet, despite being less successful than their western neighbours, Leipzig, Dresden and Berlin still perform better than the majority of large UK cities in terms of the shares of highvalue-added-jobs. This underperformance illustrates why large cities must be at the core of the levellingup debate in the UK.
“Around €2 trillion later, former East Germany has still not been fully levelled up but the gap between East and West has certainly narrowed.
“UK policy-makers should learn lessons from the German experience – the Federal Government’s longterm commitment to the project, the size of funding committed and its support for cities as the necessary creators of economic prosperity for all of former East Germany.”
All the indications are, however, that Boris Johnson’s Government has no intention of spending anything like the amount of money that would be required to deliver a properly levelled-up UK.
In Wales, left-wing politicians are currently complaining about the breaking of promises that in terms of regional aid the country wouldn’t be a penny worse off after Brexit.
But comparing even the more generous EU funding we had grown used to over the past 20 years to the kind of money spent on Germany’s reunification project, Wales’ chances of a genuine levelling up seem minuscule.