In a recent paper, Dr Paula Nagler and Prof Frank van Oort, together with alumnus Borys Cieślak, looked into the impact of Poland's 1998 regional reform on local socioeconomic development of middle-sized cities. This reform, which substantially reduced the number of regions, divided cities into those retaining regional capital status and those losing it. It also provided a unique opportunity to analyse its effects on socioeconomic disparities.
Losing the regional capital status
After the 1998 reform in Poland which reduced the number of regions, some cities maintained the regional capital status, and some lost it. While the two groups of cities already differed before the reform, they followed parallel trends in most socioeconomic dimensions that we studied. "In our research, we show that the post-1998 divergence in economic activity and demographics increased significantly." Cities that maintained the regional capital status have moved ahead in their development trajectory and are doing much better in their economic development, in their demographic composition, and in some cultural dimensions, compared to cities that lost it.
Why Poland
"Our inspiration was twofold." The team shared that, on the one hand, the growing literature on so-called ‘left-behind’ places lacks analysis on how changes to territorial government structures can contribute to or mitigate uneven development. Devolution is often proposed as a promising option for improving territorial cohesion, but empirical research of other types of reforms, such as amalgamation, remains lacking. On the other hand, the Polish regional reform of 1998 has often been accused of exacerbating the disparity between the largest and medium-sized cities, but existing research has been inconclusive.
The quasi-experimental setting of this reform, in which a group of cities was divided into two – one administratively degraded and the other maintaining its regional capital function – presented an opportunity to clarify and quantify its impact. Additionally, it allowed for the demonstration of how regional or municipal amalgamations, a widespread policy in countries like the Netherlands, Norway, Sweden, or Canada, can disadvantage certain places.
"Understanding the potential implications of such reforms can help in designing compensation measures in advance and mitigating their negative consequences."
Increasing the socioeconomic disparities
The regional capital status matters in several ways. First, the local economy can be stimulated by the jobs created by the regional level public sector and its demand. Degraded cities, along with losing their status as regional capitals, also lost numerous public institutions such as regional police headquarters, the regional board of education, and regional subsidiaries of the Supreme Audit Office and the National Bank of Poland. Second, if laws and regulations frequently change, which was the case in the 1990s in Poland, firms prefer to locate in capital cities to have access to government officials and information. Third, the presence of a regional government may facilitate the flow of funds and investments from regional budgets, as regional governments tend to support the cities in which they reside. Finally, status can also affect the attractiveness of a city through prestige and cultural institutions, which are usually located in capital cities.
"The most important finding is the diminished economic activity in affected cities, reflected in a reduced number of public institutions and private firms, and a decline in the share of the working population."
Negative impact on economic activities
While the loss of regional capital status does not explain all the divergence, the reform has contributed significantly to the increasing divide. "To give one example: almost half of the discrepancy in terms of number of private firms per 1’000 dwellers can be attributed to the reform."
Zooming into sectors, the negative impact is dispersed across various sectors rather than causing a collapse of one or two specific branches of the local economies. All sectors, except wholesale & retail and transport & tourism, were negatively affected by the reform. Moreover, the negative impact has increased over time. For some sectors, namely, construction, financial, and high-skilled services, divergent trends were already apparent before the reform, making it difficult to attribute these changes directly to the reform. For other sectors, however, the team is confident in linking their compromised growth to the reform.
Lessons learned from Poland's experience
Amalgamation, whether municipal or regional, is a common type of reform. Consolidations of smaller territorial units into larger ones have been taking place in Western Europe, Australia, New Zealand, Israel, Canada, Japan, and as recently as 2020. While these reforms are usually justified on the grounds of potential efficiency gains and better public services, they are often contested and resisted. Previous research indicates that while amalgamations may deliver the hoped-for savings in terms of public spending on administration, they rarely improve local services provision.
Furthermore, they typically come at the cost of diminished quality of local democracy, as the affected residents feel deprived of their territorial identities. "We suggest that such evaluations, especially the ex-ante ones, should also consider the cities most directly affected – those that are administratively degraded." This implies the need to seriously engage with the design of a compensation policy.
Limitations and further research
While the team assessed economic, demographic, and cultural indicators, a lack of pre-treatment data prevented them from investigating how the reform affected other important dimensions such as healthcare and education, which are crucial areas for further socioeconomic study. Additionally, although they showed the overall impact of the reform on the former regional capitals, they did not explore city-specific variations.
"Our analysis is limited to the Polish case but has suggestive implications for other countries."
A comparative study of how various places responded to the ‘slow burn’ of administrative degradation could provide insights into their fragility or resilience and inform the design of mitigation policies. Another promising research avenue would be to examine the interplay between place-based policies and territorial amalgamation, exploring how they might support each other.
