Yvonne Reinhardt reflects on the successes and shortcomings of post-reunification investment in East Germany and how these learning could help shape the future of the UK’s regeneration agenda.
Earlier this year, Andy Burnham argued that if we want to understand what a genuine plan for levelling up the north of England could look like, we should ask a German.
This followed a speech from Carsten Schneider, the German Minister for East Germany and Equivalent Living Conditions, about the German regeneration experience post-reunification. In an article in the Guardian, Andy Burnham reflected on Germany's policies of the right to equal living standards across the 16 states and hardwiring redistribution of funding into law. Burham believes similar measures could have benefits for the UK.
Having been born and raised in the reunified Berlin of the 1990s and 2000s, I found myself looking afresh at Germany’s post-reunification investment, whether it has really worked and what the UK might be able to learn from it.
The UK’s Levelling Up agenda hinges on increasing devolution to further decentralise political power. The task was much more complex in East Germany, requiring the establishment of new democratic institutions, a social market economy and the introduction of a new currency. Similarly, in contrast to Levelling Up, the regeneration of East Germany was designed to be a long-term endeavour, with investments having taken place over the course of more than 30 years already, whilst UK government promises results by 2030. It is not surprising then that we are looking at very different scales of investment.
Moreover, the way funding is allocated also differs substantially: Levelling up and community investments (including the UK Shared Prosperity Fund, the UK Community Renewal Fund and the Community Ownership Fund) come up to a total of £7.8 billion. The £4.8 billion Levelling Up Fund requires councils to put together substantial bids to evidence the benefits of their specific investment plan. In Round 2, only 21% of bids were successful (down from 36% in Round 1) and, according to the BBC, only 57% of England’s Round 2 funding went to the most deprived areas in the country (based on the Index of Multiple Deprivation and down from 69% in Round 1).
By definition, a programme that bases infrastructure investment on a competition between local authorities, will see some areas miss out, making them fall even further behind the rest of the pack. The £2.6 billion UK Shared Prosperity Fund on the other hand, which aims at boosting living standards and spreading opportunity has been allocated to all areas in the UK, even the most affluent places.
The British investment in levelling up is dwarfed by the scale of transfer payments to East Germany. Given the breadth of interventions over the last three decades, estimates vary, but recent publications put these at around €1.72 trillion (£1.5 trillion) from 1990 to 2016, including transfer payments related to pensions or unemployment insurance.
In terms of more strictly regeneration-related investments, those included ring-fenced transfer payments to all regional and local governments in East Germany for infrastructure investments which were accompanied by major infrastructure renewal projects undertaken by the federal government, as well as low-cost loan programmes for SMEs, homeowners, and municipal environmental investments.
The most crucial question, however, is: has it worked?
According to the 2022 official report on German reunification, East Germany experienced sustained economic growth between 1991 and 2019. Solid infrastructure renewal, a strong SME base and in recent years, increasing foreign investment, including Tesla and Intel all speak to successful interventions that have helped turn the economy around. Mass unemployment resulting from the collapse of the political system and state-owned companies has been steadily reduced and life expectancy is increasing.
However, in terms of equal living standards, Germany still has quite a way to go. In 2021, the proportion of low-income earners in East Germany was around 30%, which is almost twice as high as in West Germany. Paired with lower productivity and persistent rural flight, the share of the population that considers reunification to have benefited people in Germany has dropped to 61% in Germany overall in 2022, down from 66% in 2020. In East Germany, this value is even lower, at 59%, with a striking 11% of people feeling that reunification has been more of a loss for people.
So, with all this in mind, what can the UK learn from the German experience? For me, there are two key takeaways:
Tackling geographical inequalities is not a ‘nice to have’, or a friendly gesture towards people living in ‘left-behind’ areas, but an essential pre-condition for social cohesion. This is already on shaky grounds in a post-Brexit Britain struggling through a cost-of-living crisis. As we can see in East Germany, overall economic growth and infrastructure upgrades alone are not enough to achieve this if income inequalities persist.
A sustainable approach to reducing persistent inequalities needs to be a long-term endeavour that benefits people in all affected areas. For this to work such an investment programme requires cross-party commitment beyond election cycles.
If this and future UK governments can structure future interventions around these learnings, there is a good chance that Britain’s regeneration agenda will one day become a success story of its own.
Read more about Mutual Venture’s work on developing place-based strategies here.
To learn how we can support councils on their plans from the upcoming Levelling Up Fund Round 3 here.