4. The future(s) of OECD regions: Scenarios 2045

OECD countries and their regions are in the midst of rapid changes that are influencing how people live, work, communicate, create, produce, consume, exchange, think and decide. These social, technological, economic, environmental, political and geopolitical forces are occurring arguably faster than ever before and are profoundly reshaping human relations within societies, between places and with the natural environment. Awareness of such forces and their impacts on societies and economies is critical.

Whilst there are inevitably many uncertainties on what these widespread and long-term changes will mean for regions and regional inequalities, and how policy makers can begin to contemplate potential challenges and opportunities that may result, it is already clear that they are not on a distant horizon but already underway and reshaping the geography of opportunities today. The impact of these megatrends will differ from region to region, exacerbating risks of increasing the already large and persistent regional disparities evidenced in Chapters 2 and 3. Faced with this reality, societies and their governments cannot afford to remain passive or complacent. Adequate policy responses need to factor in this geographic diversity and act on these risks now.

COVID-19 and Russia’s war of aggression against Ukraine have demonstrated that our societies can be disrupted virtually from one day to the next (as discussed in Chapter 1). The uptake of remote working and the development of e-commerce and a wide array of digital tools, though already underway, was drastically accelerated during the first few weeks of COVID-19. Disruptions to global supply chains from COVID-19 and then exacerbated by the war in Ukraine have re-opened the question of reshoring/nearshoring as a means of making economies more resilient through shorter supply chains. Yet, even before the pandemic, broader transitions – e.g. urbanisation, technological change, population ageing – were happening at a rapid pace.

As major uncertainty becomes the “new normal”, regions in OECD countries are facing a renewed need to learn to better anticipate, prepare for and rebound from different crises. Addressing the challenges stemming from recent shocks, in conjunction with challenges that preceded them, such as persistent inequalities and environmental degradation, will be central to building more resilient regional economies. A key lesson from the past is that any short-term savings from not acting in anticipation can be significantly outweighed by the costs of remedial actions.

While the importance of including future thinking into policy is increasingly acknowledged, more can be done to support policy makers, especially at the regional and local levels, to think more long-term and be proactive. Actively thinking about different futures is a means to identify and learn from new threats and opportunities coming from even unthought-of impacts in order to agree upon actions today. This is particularly relevant at the regional level where actions require interaction and co-ordination across different levels of government to be successful. To support policy makers in this endeavour, this chapter recalls the global and territorial changes shaping the future. It discusses why territorial foresight is essential to future-proof decision making on regional development. It also explores three scenarios for 2045 and their implications for regional development policy, including the steps to take today to be more resilient and adaptative to whatever the future may entail.

Around the world, several trends have emerged that have the potential to transform society in unpredictable yet profound, ways in the coming decades. Evidence of this can be found in the most significant, so-called “megatrends”, a term used to refer to transformations that are unfolding across the globe in a number of countries and that can drive the global economy and society in specific directions over the coming years. Megatrends are likely to result in meaningful, long-term changes impacting social, economic, political, environmental and technological issues. Despite their potential for high impact, they often unfold slowly and follow relatively stable trajectories over several decades.

Megatrends that are likely to impact countries around the world include demographic change (including migration), economic interconnectedness, climate change, digitalisation and urbanisation, among others. In addition to megatrends, “weak” signals of other changes and developments are emerging and could grow over time, including the role of states vs. markets or the influence of non-state actors (OECD, 2021[1]). These, on top of potentially unpredictable events and shocks, could similarly have a significant impact on the future of societies and the world order.

Megatrends create different public investment needs, challenges and opportunities across regions within countries. Reaching the objectives of the Paris Agreement on climate change will require scaling up and tailoring actions and investments to the needs and realities of different localities and regions as mitigation and adaptation challenges and opportunities differ widely across places (OECD, 2017[2]). Demographic change, particularly population ageing and shrinking, will especially affect remote and rural regions across the OECD. Digital divides are emerging across regions, limiting access to the advantages of the digital transition, establishing and intensifying divides as the pace of digitalisation accelerates. Finally, regions differ in the degree they are embedded in global value chains and migration patterns, leaving some territories more prone to the impact of global shocks (e.g. COVID supply chain bottlenecks) than others, which may demand a rethink of their regional strategies. Table 4.1 recalls some key projections related to these megatrends and their impact on regions.

As Table 4.1 exemplifies, megatrends are not impacting regions within countries equally, while at the same time, they overlap with specific trends that are playing out at the regional level (illustrated in Figure 4.1). These latter trends are characterised by strong place-based effects that will result in widely different trajectories and responses at the regional level, i.e. not all regions and places are and will be impacted in the same way, and their capacities to engineer collective solutions will be asymmetric as well:

  • New forms of mobility: With fossil fuels becoming scarcer and green subsidies scaling up, daily mobility costs will continue to increase. While regions have been deeply shaped by easy access to inexpensive modes of individual transport, new forms of mobility will decisively impact regions in the short term as people adapt their daily life and, in the long term, with the emergence of new functional approaches based on shorter distances.

  • The transformation of productive systems: Three major trends are expected to transform productive sectors, i.e. i) the emergence of Industry 5.0 and large-scale digital and technical transformations in production processes (automation, robotisation, etc.); ii) the development of more circular and low-carbon production and consumption cycles; and iii) a declining and ageing labour force, whose relation to work will evolve (e.g. remote working, search for meaning, etc.).

  • The advent of place-based carbon-free energy and food networks: This transition, which is already on the way in many regions, is likely to accelerate as energy and food strategies become increasingly localised. The development of local energy and food networks will translate into very different dynamics across places, depending on their strategic choices and their capacity for action.

  • The shift in land use balance and people’s relationship to nature: Land use will change significantly in the coming decades and trade-offs will be required between different needs, such as preserving farmland for food production while developing renewable energy, raising the value of wood resources while strengthening the carbon storage capacity of forests, supporting re-industrialisation strategies and preventing further land loss (e.g. related to urban sprawl or commercial uses). At the same time, people’s relationship with nature and space will continue to change as they search for a better quality of life, access to nature and more proximity in their everyday lives.

  • Poverty and new solidarity models: Repeated crises will have a significant impact on disposable income, leading to more and more people living in precarious conditions. At the same time, in a context of increasingly constrained public budgets, it is likely that new models, mechanisms and networks of solidarity will emerge at the regional and local levels.

Making sense of these trends at the regional level will be critical to prepare and adapt regions. Such transitions are likely to require structural transformations in how regions grow, supply energy, provide essential services, do business and use land. To continue to thrive, regions will also need to develop technical know-how and human and social skills. It is equally important to raise awareness and buy-in from those who will be most impacted by these policy choices. The following section discusses how strategic territorial foresight can be leveraged to help prioritise challenges, mobilise governmental and non-governmental actors, and identify a collective path forward to take an active rather than passive role in shaping the future of regions.

Strategic foresight is a structured approach to exploring possible future changes and their implications for decision making today. Foresight is based on the premise that one cannot predict the future but one can prepare for it. It entails scanning the horizon for new developments and emerging trends, constructing alternative scenarios about what future changes could occur and designing forward-looking strategies for advancing values and objectives under a wide range of possible circumstances (OECD, 2021[1]). Foresight helps to prevent poor decisions based on unquestioned assumptions about the future. Practising foresight allows for spotting new challenges sooner, so as not to be caught by surprise, and perceiving a broader universe of opportunities. Box 4.1 presents some of the main concepts and benefits of strategic foresight.

Over the last decade, foresight has become a highly visible and widespread way of informing decision-making and policy-planning processes. It is used to more systematically debate future prospects and desires, with a view to influencing present-day decisions and actions. It is particularly useful to leverage the knowledge of a wide range of stakeholders on new developments as well as on societal and business needs. The tacit and tangible “results” of foresight are recognised as valuable inputs to the setting of priorities for public and/or private initiatives, vision building, network formation, education and knowledge dissemination among relevant actors, especially among policy decision makers.

Across the OECD, more and more governments use forecasting and strategic foresight instruments to future-proof regional policy. Responses to an OECD survey conducted in 2018 showed that more than two-thirds of countries in the sample had a national long-term planning or strategic foresight unit at the centre of government, and nearly two-thirds of the countries used both forecasting and strategic foresight in regional planning processes (OECD, 2019[9]). Examples from Canada, France and Switzerland of using strategic foresight in policy making and strategic planning are provided in Box 4.2.

Sceptics may argue that adequate strategy and policy-planning methods and processes are already well-established at all levels of policy making. But the rules of the game are changing rapidly and radically, eroding the value of more rational planning and linear methods of policy development, and accentuating the need for more real-time interactive approaches that characterise foresight. The value of traditional planning approaches depends largely on long periods of relative stability and these approaches are currently challenged by the acceleration of environmental and technological changes, among others. The prevalence of interactive and participative methods of exploratory analysis and study is what could be termed a new paradigm. The methods are not “new” in the strictest sense, as they have been practised and developed over several decades. Nor do they replace more traditional forms of planning or rigorous academic research. However, their value is becoming more and more extensive, and they increasingly constitute a decisive element within a planning exercise. What foresight methods impart is a much more “emergent”, real-time planning approach.

The rationale for foresight applies in equal measure at any territorial level. However, issues and priorities for a region can be very different from that of an entire country given the immediacy of their various socio-economic constituencies and highly variable (from region to region) situations, including the different responsibilities of subnational governments across and within countries. This means that territorial foresight is different in many ways from national foresight, though there are important similarities and synergies. The following section delves into the specificities of territorial foresight and how it can contribute to futureproofing regional development policy in particular.

Territorial foresight has specific characteristics. First, territorial foresight approaches are inherently multi-faceted and consider the economic, social, environmental and political dimensions that make up regional economies and ecosystems. Second, the scope of territorial foresight exercises looks beyond administrative boundaries to consider the multiple connections a region shares with neighbouring regions and other parts of the world. Third, territorial foresight serves as a tool to reconcile different perspectives and priorities among actors of the same region by providing a platform for dialogue (e.g. workshops, reflection groups, fora, etc.) where these actors can confront different views of what is possible and desirable in the future, and the risks and opportunities they need to anticipate, which in turn fosters collective learning and strategic planning.

In a territorial foresight exercise, regional actors ponder key questions that imply different assumptions, biases and trade-offs, e.g. should a region prioritise technological or behavioural changes to address climate change? Should a region specialise or diversify its economy? Should a region focus on developing its endogenous resources and skills or building linkages and partnerships with neighbouring regions? Answers to these questions can set a region on different paths. Box 4.3 presents some experiences across OECD countries of using territorial foresight.

Territorial foresight can take many forms and seek different goals, from one-off workshops to a multi-year process, and involve a few or many stakeholders (see Box 4.4). In addition, different methods can be used to explore the future, notably:

  • Prospective backdrop: This method consists in summarising the major changes and uncertainties at global, national and regional levels. Actors of a region are invited to select and prioritise the changes that seem to have the greatest impact and then reflect on their possible implications for the region. This method enriches strategic reflection, in particular on the vulnerability of the region and the resilience measures to be taken as a result.

  • Normative foresight: This approach is based on a common objective for the future of the region. This objective can be represented by a story or images, in order to represent as concretely as possible what would constitute a desirable and unifying horizon. Generally, this common objective is defined by one or more key players in the region (elected representatives, entrepreneurs, citizens) and finds consensus. The goal of the foresight exercise is then to determine the most appropriate trajectory to achieve it.

  • Exploratory scenarios: In this method, the aim is to construct a simplified representation of the possible futures of a region. To this end, a rigorous method makes it possible to identify the main components (or variables) of the region, study their dynamics and formulate hypotheses on their possible future evolution. Finally, these hypotheses are combined to build scenarios. This method is an opportunity to get stakeholders to work together and to build a common understanding of the region and of priorities for the future.

To better understand the challenges regions in OECD countries may face in the coming decades, this section explores several plausible alternative futures using scenario planning. This approach challenges current assumptions about where regions may be headed. These scenarios are intended as an initial contribution to further reflection and decision making on regional development in the years ahead.

The scenarios are not prescriptive or predictive, nor are they exhaustive or mutually exclusive. They are imagined future contexts, crafted to stretch plausibility about what the future may hold. The scenarios represent possible future disruptions that could create significant strategic considerations for territorial disparities and regional development policy. They do not aim to fully reflect the diverse realities across all OECD regions but instead seek a common denominator by describing possible developments in a generalised way, with a focus on issues of mutual interest with an OECD-wide perspective.

The scenarios are informed by emergent OECD findings on the impact of megatrends and transitions on regions and were developed in collaboration with the delegates of the OECD Regional Development Policy Committee (RDPC) during a series of participatory workshops organised in 2022-23 to scan the horizon for important drivers of change in regions, think of different possible futures and explore what these futures mean for regional development policy (Box 4.5).

Among the drivers of change identified as part of the foresight workshops, which included societal, economic, technological or environmental factors, the state of multi-level governance was selected as the most impactful and uncertain in shaping regional realities across the OECD in the future. Multi-level governance generally refers to the interactions among and across levels of government, which are mutually dependent, and with a broad range of non-governmental stakeholders, including private actors and citizens, when designing and implementing public policies with subnational impact (OECD, 2023[26]). Discussions in the foresight workshops highlighted how multi-level governance systems will be instrumental to shape the responses to many challenges and transitions different regions will face and how their evolution in the years ahead can be decisive for regions’ future development.

Using multi-level governance as the main driver of change, three scenarios emerge, set in 2045. They are summarised in Table 4.2 and elaborated in the following sections. The scenarios consider the different degrees of either co-operation or autonomy at the national and regional levels across OECD countries, from highly centralised policy making to effective and balanced co-operation among levels of government to high levels of autonomy at the regional level. Each of the three scenarios also considers developments of other drivers of change identified during the workshops (climate change, natural resources availability, technology, infrastructure, etc.). To illustrate different possible futures, contrasts between scenarios may appear exaggerated.

The “foregone region” scenario explores the emergence of fully centralised power and top-down decision making in OECD countries, combined with less citizen engagement and growing distrust. The “interconnected region” sees regional and national authorities collaborating actively together and with citizens to elaborate effective solutions to pressing challenges. The “region-state” explores a power shift whereby regions form into separate, almost independent entities, each operating within its own ecosystem and competing for wealth and resources.

After the COVID-19 pandemic, crises and disasters continued. Dramatic sea level rises in the 2020s and 2030s have caused people to abandon coastal communities across OECD countries. Climate change also resulted in the re-emergence of ancient pathogens. To avoid a full-blown climate catastrophe, national governments in OECD countries take charge of the sustainability agenda. Multi-level governance, decentralisation and stakeholder engagement are seen as hindrances, time-consuming and distracting from coherent and decisive top-down action to combat the climate crisis. Progressively, national governments (re)centralise policy-making powers and take over key competencies in major infrastructure (energy, water, transport) to be “more effective”, while dismissing the role of regions and subnational authorities. At the same time, national governments favoured technology development over changing consumption patterns to address environmental challenges and have implemented strong policies to promote the decarbonisation of economies, in a context of international competition and globalisation of trade. The place-blind, top-down policy model has led to the promotion of agglomeration and density in big dynamic cities in the 2020s and 2030s.

Regions and regional governments have all but disappeared. National governments have fully embraced a top-down and uniform approach to policy making and sustainability. The dominating policy strand is advocated on the belief that central decision making is more efficient while regional and place-based considerations are secondary and ineffective. These national strategies consider that good macroeconomic management and nationwide policies are what matter most to fighting climate change and maintaining growth levels.

Nature is seen as a set of resources to be exploited for the benefit of humans, in a relationship of mutual growth between natural ecosystems and intense human activity in all economic areas. Technologies are means of understanding, monitoring and regulating the impacts of climate change. Technological solutions also provide new flexibilities and capacities for adapting (e.g. precision agriculture, development of seawater desalination, home automation, etc.). Hence, lifestyles, travel and work are very similar to those of the 2020s and 2030s, but with some differences. For instance, food diets contain less meat and individual mobility is still prevalent but with lighter, electrified vehicles. By focusing on green or decarbonised technologies, energy and material consumption risks are insufficiently controlled. Green energy is big business, including for SMEs.

The best technologies are widely deployed and widely available to those who can afford them, notably big cities and rural areas that have specialised, e.g. in green technologies or resource extraction that contribute to strategic autonomy. Centralised transport systems focus on connecting cities and facilities. Meanwhile, poor regions are getting poorer and risk not having access to basic needs (hospitals, public transport, etc.) and losing their young and skilled. Inequalities within countries are at an all-time high.

Apart from isolated initiatives, citizens are less involved in political decisions. As people feel disconnected from government and elected officials, life is inwardly focused and more individualistic. Concentrations of power are weakening the foundations of democracy. Trust in government and social cohesion are dramatically eroded, leaving behind a vacuum that is increasingly filled by major technology companies. The line between government and business is blurry. Lower social trust also coincides with a withdrawal into virtual forms of engagement and misinformation is rampant.

  • How could regional development policy manage the tensions between achieving sustainability objectives and leveraging technological innovation across places?

  • How could regional development policy further contribute to establishing frameworks and standards for regional well-being and quality of life in a far more centralised environment?

As environmental degradation reached dangerous levels in the late 2020s, global initiatives like the OECD-led IPAC and IFCMA enabled dramatic reductions in greenhouse gas emissions in the early 2030s and convinced countries that co-operative and co-ordinated efforts are fundamental to safeguard humanity and should be mainstreamed across all policy issues and levels of government. The steady growth of deliberative democracy, citizen engagement and co-creation, reinforced by trends towards more transparency and accountability, have transformed society. With a framework of shared governance and regional co-operation, public institutions, the private sector, non-governmental organisations and civil society have found pragmatic ways to co-operate and maintain the social fabric while protecting the planet.

To achieve carbon neutrality, society relies on a progressive but steady change of the economic system towards a sustainable path combining sufficiency and efficiency. Consumption of goods becomes measured and responsible, and sharing becomes widespread. Transformation in housing (e.g. shared/community living, a ban on vacant housing), work habits, diet and travel change. Nature and biodiversity are appreciated for their intrinsic values. Changes in society’s values provide for massive investment in efficiency and renewable energy, and in renewing and retrofitting infrastructure. Reindustrialisation policies are implemented in targeted industrial sectors. These investments are encouraged by financial incentives, defined by policies and regulations based on social and environmental criteria. The impacts are felt across all OECD countries as a global certification system on green infrastructure and products, and strict rules on imports of carbon-intensive goods are established, and international trade slows down to reduce carbon emissions.

Regions and regional governments are essential actors in the green transition alongside national governments and civil society. The co-ordination of the green transition across levels of government is essential for governance systems, and all policy decisions are made based on compromise among all stakeholders, enabled by higher degrees of trust. Integrated, multi-level policy making means that environmental sustainability strategies are foregrounded across all areas of government.

However, as national and subnational governments strive to make progress on many policy fronts at the same time, seeking consensus from all stakeholders is time-consuming and slows down the transformation of production systems and lifestyles. Other by-products of the significant increase in co-ordination are now becoming more challenging, including the difficulty to agree on major policy reforms, decision paralysis, an expansion of the public sector including new co-ordination bodies, more bureaucracy around decisions and less agility and responsiveness in times of crisis.

Massive breakthroughs in digital technologies, such as blockchain, telepresence and augmented reality, allow immediate and constant access to relevant information and facilitate participation in decision making at all levels and tailored local implementation. The Internet of Things and AI systems provide evidence for policy making. Algorithms also drive day-to-day political life. They are used to customise messages addressed to different groups, assess the chances of success of proposed legislation and both contain and spread fake news. Much of people’s everyday and civic life now takes place in the metaverse. Digital space is prioritised over the physical, including limiting carbon emissions, most public services are digitally based and economic life takes new forms on line. These technologies also contribute to more demographic spread and less stark urban-rural differences, as they open more places to live a quality life.

As states and regions increasingly co-operate, decisions are locally scaled and sensitive to spatial issues, and regional disparities have subsided. However, whilst inequalities within countries have declined, inequalities between countries are widening. The metaverse is where most economic and social activity is taking place and a small group of technology giants provide the hardware needed to access it. Digital infrastructure, therefore, dictates inequality between countries as they differ in their ability to leverage access for their population. Some countries with a large share of youth are experiencing massive growth, while others are ageing rapidly, and their older populations struggle to adjust to cutting-edge technologies and the new socio-economic realities. The convergence process in the OECD during the 2000-20s is being reversed by an ever-growing digital divide, accompanied by rising social tensions. Cybersecurity is a major concern for governments at all levels. Interconnectedness means vulnerabilities can affect many actors. The elevated costs of cybersecurity are a barrier to many countries trying to bridge the digital divide.

  • What new relationships/connections may regional development policy makers need to broker in a more inter-connected world (e.g. global technology companies, local community movements)?

  • How can regional development policy develop the necessary incentives to ensure hyper-connected regions continue to work together rather than consolidate their power and influence?

Public perception that regional governments were on the frontlines of the COVID-19 pandemic and handled the recovery better than national governments strengthened calls for greater autonomy and prompted the rise of independence movements and radical decentralisation across OECD countries. At the same time, the 2020s and 2030s were marked by increasing dissatisfaction with the redistributive model of most OECD countries. Leading regions grew tired of supporting lagging regions and precipitated a general collapse of public trust in national institutions. In the wake of this collapse, regions started to break away and pursue widely different economic models and arrangements within the same country.

OECD countries are fragmented as many regions have become independent or increased self-determination. Regions use their autonomy to move in different directions reflecting their self-interest. Different levels of government compete for legitimacy and social cohesion is low. Accountability is diluted and makes it easy to shift the blame on others. Meanwhile, national governments use the little power they have left to mediate internal conflicts between regions.

Some regions sustain themselves through rewarding relationships with international “patrons” and base their economies on strong external affiliations with global economic actors, while less successful regions struggle with public debt and have to be more frugal. As stronger regions share fewer budget resources with poorer performing regions, fiscal equalisation breaks down. As a result, successful regions become more appealing but less open to migration from poorer regions, which causes territorial disputes. Extreme regional inequalities and structural unemployment are growing in many countries.

Some regions lead the green transition and try to control their local environment to ensure their citizens’ well-being, while others have limited connections to nature and disregard such concerns. The fragmentation of climate efforts and funding creates incoherencies, tensions and divisions. Some regional renewal superpowers emerge but it is based on economic not environmental benefits and there is no consistent policy or facility to redistribute renewal energy. Regional energy systems have proliferated piecemeal and are hard to integrate. The failure to co-ordinate climate action has compromised critical ecosystem services, such as the provision of drinking water.

Some autonomous regions choose to bet everything on their comparative strengths and have over-specialised: many rural regions hold on to their natural resources and intensify the automation of farming (e.g. farm factories), forestry (bioengineered trees) and renewable energy production. Most automated farms are owned and managed by corporations with integrated processing of food and bio-based products. People living in these rural regions are forced to sell their land and move to cities. Large metropolitan regions are getting bigger and have become high-technology hubs but suffer from worsening air quality, congestion and insecurity. Higher-income groups have moved to the suburbs for better living conditions while low-income groups stay in city centres, creating new urban ghettos.

  • What new system of collaboration may regional development policy require to achieve effective co-ordination among regions-states and address global challenges?

  • How can regional development policy support regional diversity while ensuring a minimum level of social cohesion?

The scenarios illustrate some of the ways in which the world could be substantially different in 2045. In this respect, they serve to broaden the perspectives about what the future may require in terms of regional development and what it could mean for regional development policy. How can regional development policy and policy makers begin to prepare for challenges and opportunities posed by these plausible – although by definition uncertain – futures and by global challenges that will continue to unfold over the next decades?

The scenarios serve to highlight how political, social and technological developments can challenge institutional and fiscal systems that operate on the basis of inflexible assumptions. But the coming decades could be highly unpredictable, marked by complex and non-linear systemic change and bringing an acceleration of significant challenges. Two priorities, in particular, emerge to prepare and adapt regional development policy and build up resilience in the next 20 years: building systemic and strategic approaches to fiscal systems, public investment strategies and governance structures to withstand unknown shocks and respond to emerging circumstances and developing strategic foresight capacity at the national and subnational levels.

Strengthening subnational fiscal robustness, notably ensuring debt sustainability and bolstering subnational revenues, is the first important avenue to build more resilience in regional development policy. Many trends discussed in this chapter will affect subnational fiscal systems. The tax base of some regions and cities might fundamentally change due to demographic shifts, changes in the labour market and business income, as well as changes in land values and housing prices. This could lead to increasing disparities in fiscal capacity among regions.

A particular challenge for governments is to reconcile on the one hand the objective of ensuring that public debt remains at levels that are sustainable under scenarios that account for the longer-term fiscal impact of megatrends, such as population ageing and shorter-term effects on the public finances of global risks, and, on the other hand, the objective of accommodating public investment in priority areas, such as mitigation and adaptation to climate change, needed improvements in digital and other essential infrastructure, reducing the risk of future shocks like pandemics and dealing more effectively with their consequences when they materialise (de Mello and Ter-Minassian, 2022[27]).

Across the OECD, national governments in federal countries can foster subnational fiscal sustainability for instance through agreements with regional governments or by creating incentives for those governments to adopt and implement appropriate fiscal responsibility frameworks/fiscal rules. Meanwhile, in most unitary countries, national governments are able to regulate the access of regional or local governments to borrowing and may choose to do so in different ways, ranging from administrative controls to standing fiscal rules or periodic agreements. Furthermore, in view of the increased incidence of unforeseen exogenous shocks, such as natural disasters, national and regional governments may need to take preventive actions, such as purchases of insurance and the maintenance (or increase) of their contingency reserves, including rainy-day funds.

To expand the fiscal space to attend to new spending needs in the future while respecting the requirements of sound fiscal responsibility frameworks, most subnational governments in OECD countries will need to both increase their revenues in an efficiency and equity-friendly way and rationalise their existing spending (de Mello and Ter-Minassian, 2022[27]):

  • National governments can support subnational own-revenue mobilisation efforts in a number of ways, including by helping subnational tax administrations through systematic exchanges of information, joint audits, technical assistance and financial support to their modernisation and digitalisation efforts or by providing appropriate incentives for subnational government to more fully exploit their revenue-raising potential.

  • Subnational governments have a number of options to increase their own revenues, such as: broadening the base of existing own taxes, by reducing or eliminating existing exemptions and other preferential treatments and mitigating the impact of the changes on lower-income groups through targeted transfers, if needed; strengthening and modernising the administration of own taxes, e.g. property tax; or adopting or progressively raising “green” taxes and levies, among other possible reforms.

Futureproofing public investment strategies is a second important avenue to build more resilience in regional development. Infrastructure investments will need to be made that anticipate shocks all while avoiding the “green gentrification” of cities and regions, which can make life less affordable for vulnerable populations in the name of sustainable development (OECD, 2022[6]). Optimising existing infrastructure assets and making them more resilient also needs to be part of long-term infrastructure investment strategies. Upgrading existing infrastructure assets provides a solution for existing asset stock making it more effective, long-lasting and better value for money (OECD, 2021[28]).

The investment mix should also be balanced and differentiated across places to properly address megatrends and reduce regional inequalities. The investment mix inevitably varies strongly from urban to rural regions, reflecting the specificities and assets of different territories. In addition, megatrends will impact regions differently and thus shape their investment needs. Challenges linked to megatrends, such as localised flooding or urban heating, are also profoundly local and place-specific. This means not only a need to target the investment mix to each place but also a need to balance investment in hard infrastructure with investment in human capital to maximise the potential for long-term growth and sustain a continuing improvement in living standards, environmental quality and well-being (OECD, 2022[6]).

Making a multi-level governance structure more adaptable is a third important avenue for resilient regional development policy. To manage differences in terms of subnational autonomy, responsibilities or capacities, experimental governance that embeds learning-by-doing and trial-and-error processes into policy design can help governments to develop better approaches to address different local needs. A willingness and capacity to experiment with policy approaches – testing, adjusting and retesting – is particularly relevant when confronted with uncertainty, as megatrends can dramatically shift and shocks can occur, catching policy makers off guard and requiring a rapid policy response.

Such approaches can be combined with asymmetric decentralisation, which many OECD countries have moved towards in recent years. Asymmetric decentralisation arrangements can help regions, cities and rural areas that are particularly affected by global changes to better respond to opportunities and challenges. These types of arrangements allow subnational governments to adopt institutional and fiscal frameworks that are better targeted to local capacities and may allow them to better respond to local needs. This trend is likely to continue and can help to adapt governance to differences in regional, metropolitan and local conditions and capacities (OECD, 2019[9]).

Developing the foresight capacity of policy makers is critical to constantly perceive, make sense and act upon ideas about future change emerging in the present. Building such capacity can help policy makers to envisage new solutions, stress test plans to make them more robust, develop early warning systems for threats and opportunities, and advance regional development policy objectives under conditions of continuous change.

Governments face barriers to the effective development and use of strategic foresight in the context of a still-dominant culture of forecast-based policy planning. As a result, high-quality policy-driven foresight is underused. Investing in foresight capacity for regional development policy making also requires overcoming day-to-day challenges (e.g. under-funded mandates) and taking a long-term view.

At the national level, avenues to develop and strengthen strategic foresight capacity for regional development policy include:

  • Leveraging territorial data to inform foresight: Moving towards more proactive policy making requires mainstreaming strategic foresight and planning across sectors and jurisdictions. At a time when territorial data and indicators are increasingly driving regional development policy decisions, the ability to harness and make sense of that data as part of territorial foresight approaches becomes even more important. Policy makers must ensure that they either have the capacity to make data-driven decisions in the future or that other departments with that capacity are fully briefed on key trends and issues impacting regions to play a supportive role.

  • Promoting a culture of innovation and change management: Governments can be challenged by the pace at which change and shifts occur. Promoting a culture of innovation within government will be critical to ensuring that megatrends are given due consideration withing the decision-making process. The use of futures labs and scenario planning exercises, which tackle forward-looking issues through creative multi-stakeholder engagement, is one potential mechanism to promote a culture of adaptation, continuous improvement and future thinking. The focus on participatory forward thinking involving people with a common issue can strengthen the ownership of the foresight topic, possible territorial consequences and pointers for policy making.

  • Scanning the horizon over the long term: Maintaining a system to identify weak signals of change is a useful approach to anticipating possibilities for the future and designing forward-looking scenarios. Such long-term planning approaches should bring together experts from different fields related to regional development. Strategies and decision-making processes should also be informed by actors on the ground, i.e. subnational authorities, private actors and citizens.

At the subnational level, avenues to develop and strengthen strategic foresight capacity include:

  • Optimising existing foresight work: More and more regions and cities are using foresight to inform their policy making but these initiatives are often scattered. The sharing of existing foresight work, whether applied to specific sectors (e.g. climate change, future mobility) or to specific places, would provide regional actors with a considerable bank of knowledge and experiences. Similarly, the pooling of foresight methods and tools would equip these actors and ensure the foresight approaches they use have been stress tested.

  • Relying on networks of foresight practitioners: Developing a community of practice on foresight at the subnational level would facilitate the dissemination of good practices and help policy makers to strengthen capacities and skills at the subnational level. These networks could support peer learning (e.g. between elected officials, between foresight officers, etc.), which is critical to ensure know-how and skills transfer. Bringing together the insights and knowledge of a wide range of different practitioners allows for approaching complexities and uncertainties where no quantitative information about the future is available.

  • Training subnational public officials to become more future-literate: Raising awareness and building knowledge on cross-cutting disciplines can enable regional and local civil servants to better understand major systemic transformations at work, notably the green, digital and energy transitions. The ability to work as a team and in project mode should be part of such training. Stepping up regional and local engineering capacities is a necessity to enable subnational actors to prepare for, rather than react to, future challenges. This includes strengthening technical teams within regional and local administrations, notably their capacity to design and implement collective strategies. Finally, foresight training should also target elected officials so they can better articulate their political vision with effective action on the ground.

Taken together, the three scenarios presented in the chapter reveal several strategic considerations for the future of regional development policy. These considerations are the result of brainstorming exercises during the foresight process. These are not exhaustive but aim to stimulate reflections and may serve as a stepping stone for future foresight reflections on regional development.

The scenarios shed light on how the world could evolve in any number of directions over the coming two decades, each raising new implications for regional development policy. For instance, the digital transition could divide regions between those that stand to win or lose from it and could force regional development policy to focus investments only on a subset of regions at risk of staying digitally behind. As the territorial impacts of megatrends continue to evolve, what new purposes should regional development policy be ready to achieve in the future? These might include:

  • Building foresight capacity at the subnational level (e.g. establishing regional/local foresight competency centres).

  • Setting sustainable and digital requirements at the subnational level (e.g. regional sustainability and cybersecurity standards).

  • Expanding inter-regional, inter-municipal and cross-border co-operation and optimising peer-to-peer learning opportunities to better understand and address global changes.

  • Supporting more localised and clean production systems and manufacturing.

The scenarios illustrate how the values and priorities of central and subnational governments could evolve. Different economic and social models and standards could proliferate within countries and polarisation may grow. Long-held values of regional development policy (e.g. spatial differentiation, multi-level governance, place-based approach) could be increasingly contested. In this context, what should remain the central mission of regional development policy?

This might include:

  • Safeguarding regional well-being in an increasingly virtual world.

  • Providing targeted, place-based support to address increasing territorial green and digital divides.

  • Placing local knowledge at the centre of adaptation strategies to global changes.

  • Ensuring continued connections and communication channels across levels of government and among regions.


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