BASIC STRUCTURES IN EUROPE AND GERMANY LONG TERM REGIONAL DISPARITIES. Professor Lothar EICHHORN Statistical Office of Lower Saxony, Germany

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1 BASIC STRUCTURES IN EUROPE AND GERMANY LONG TERM REGIONAL DISPARITIES Professor Lothar EICHHORN Statistical Office of Lower Saxony, Germany Summary A. The Statistical Office of Lower Saxony has, since 1998, been calculating, on an annual basis, poverty and wealth rates in the Bundesland of Lower Saxony on the basis of the microcensus, whereby net equivalent incomes are calculated using graded income data for various types of household. The threshold values for poverty and wealth have, since 1998, been 50% and 200% respectively of the net equivalent income. However, there has always been a need for more detailed regional data, as Lower Saxony (a NUTS I region) covers a very varied territory, ranging from dynamically growing areas in the west to areas with shrinking economies in the south and east. There are very wealthy areas, mainly around the big cities, and at least by German standards rather poor ones. For this reason, the last calculation, for 2004, was also carried out for the 11 regional conversion strata in the Land microcensus these are larger regions or combinations of several smaller NUTS III regions. The question arose as to which average to use for calculating the poverty threshold. The average income in Germany, in Lower Saxony or in the region in question? This is important, since there are considerable regional income disparities, as the following table shows. In the table, the poverty rate is calculated on the basis of the relevant regional ("regional concept") or national ("national concept") average income. Net equivalent income 2004 Poverty rate "regional concept" Poverty rate "national concept" Ostfriesland Lower Saxony Germany % 14.5 % 14.5 % 19.0 % 14.7 % 14.5 %

2 If the poverty rate in Ostfriesland is calculated using the regional average, it is the lowest in Lower Saxony, but if it is calculated on the basis of the German average income, it is the highest in Lower Saxony. So is Ostfriesland a peripheral coastal region in the north western corner of Lower Saxony the region with the lowest or the highest poverty rate? Calculating poverty and wealth rates using percentage based thresholds measures poverty in terms of income inequality. Most central regions around big cities have a high degree of social disparity, with both high poverty and high wealth rates. The opposite applies in peripheral, mainly rural regions such as Ostfriesland. Here, earnings are generally lower and there is less social inequality. The gap between rich and poor is not as wide as in the urban centres. Lower incomes are offset by lower living costs and the fact that most people own their own homes. The regional concept thus makes a better calculation basis than the national concept. B. Regional disparities in Europe are the result of the very fine geographical breakdown of the continent, e.g. into islands and peninsulas, and a very longstanding centre periphery structure. Europe's centre of gravity stretches from London to Milan along the Rhine axis; to the west and the east of this line are semi peripheral and peripheral regions with their own centres. Some of the most important regional "fault lines" in Europe which determine these structures date back to Late Antiquity and the early Middle Ages, for example the boundaries of the Roman Empire along the Rhine and the Danube which, from around 100 AD onwards, divided Europe into a civilised Roman south west and a barbarian north east, or the border between the Eastern and Western Roman Empires (395 A.D.) or the line of the Great Schism of 1054 between Rome and Constantinople, which divided Europe into a Latin west and an Orthodox and later partly Islamic/Ottoman east. These lines still have economic, social and political significance today. The centre periphery structure in particular still exists, and the regional distribution of economic power and, as a result, income is very unequal. This is the result not only of the division of Europe from 1945 to 1990 but also of much older structures. "Changing Europe" also means a return to regional structures that existed before the Second World War. The peripheral and semi peripheral regions of Europe cannot compete with the centre in terms of income, but that does not automatically mean that they have to be less prosperous. Lower incomes can be offset by lower living costs, more stable social networks and an income based not only on the market and state subsidies but also on households' production. 2

3 C. What does this mean for statisticians and statistical methods? 1. Studying income disparities is not enough to properly record the extent of regional poverty. Regional price levels, the existing wealth of the population (in particular, ownership of houses and gardens), the denseness of social networks and households' production are just as important). 2. Regional income disparities are considerable within Lower Saxony and within Germany. The "inner periphery" of a very rich and central country such as Germany has much lower incomes than the central regions of this country. The disparity is even greater between the central regions of Europe and the European periphery: per capita disposable income in the richest region in Europe (Inner London) is almost nine times higher than in the poorest regions of Romania (north east), but this does not mean that poverty in north eastern Romania is nine times higher than in London. It is important to look much further beyond income disparities. At detailed regional level (NUTS III), data on home ownership, household and subsistence production and the solidity of social networks are also required. 3. We must consider how permanent certain structures are, because we need Europe wide historical regional statistics. * * * * * 1. Reporting on poverty and wealth in Lower Saxony Since 1998, the Niedersächsisches Landesamt für Statistik (NLS Statistical Office of Lower Saxony) has been reporting annually on poverty and wealth in Lower Saxony 1. The main source of data for these calculations is the microcensus. This comprehensive annual population sample the German version of the EU labour force sample is very large (sampling rate 1%) and has long provided annual results relatively early. Although this survey tends to underestimate the income of households, it is, due to its size and its wide range of parameters, well suited to depicting social disparities and differences in circumstances, also in regional terms. 1 Most recently for the year 2005 in: Lothar Eichhorn, Jessica Huter, Lara Kandziora und Dirk Soyka, Niedersächsischer Armuts und Reichtumsbericht 2006, in: Statistische Monatshefte Niedersachsen 12/2006, pages 621ff. 3

4 When reporting started, the threshold values for poverty and wealth of members of private households were already set at 50% and 200% respectively of the needs weighted net equivalent income, based on the arithmetic mean for income 1. These threshold values have been adhered to in order not to jeopardise the long term comparability of data on the development of poverty. Data are now available for the years from 1986 to All the calculations were carried out for Lower Saxony, Germany, and recently also for the Land Bremen, which adjoins Lower Saxony. The main results of this reporting exercise are as follows: a) There is a long term trend towards an increase in poverty and wealth rates, i.e. a slow contraction of the social centre. In 1986, the poverty rate in Lower Saxony was 10.4% but in 2005 it was already 14.9%. The wealth rate rose from 4.0% to 5.9% over the same period. b) There is a clear connection between poverty and the number of children to be cared for. There have always been low poverty rates (2005: 7.7%) for two person households comprising married and generally dual earner couples and very high poverty rates for large households with five persons and more (2005: 33.7%). At present, people with many children still run the risk of poverty in Germany, largely because at least one parent's opportunities for gainful employment deteriorate. Problems with regionalising reporting on poverty, taking East Friesland as an example The possibility of reporting on poverty in greater regional detail was considered right from the start. This was done for the years 1998 and 2004 and produced similar results. The data available make it simple to divide the Land into the 11 conversion strata in the microcensus. As a Land of the Federal Republic of Germany, Lower Saxony is a European NUTS I region. It is divided up into four statistical regions (NUTS II), which were previously the administrative districts of the Land 2. These in turn are broken down into 46 rural districts and urban districts (NUTS III). The 11 conversion strata in the microcensus combine a maximum of seven rural districts and urban districts to form continuous areas with at least inhabitants. These 11 areas can be assigned to the four statistical regions of the Land without any problem. 1 Due to the data available from the microcensus and the income and consumption sample survey every five years extremely high incomes which could distort the arithmetic mean are not even recorded. For this reason the arithmetic mean was preferred to median earnings. 2 Government districts were discontinued as administrative units on

5 The need for regional information mainly arose because Lower Saxony is a very heterogeneous Land. Cloppenburg, Vechta and Emsland are the youngest rural districts in Germany with the most children and Goslar and Osterode are the oldest. Poor, hitherto sparsely populated, peripheral regions in the west of the Land have been growing dynamically for decades whilst densely populated traditional industrial regions in the southern uplands have been steadily losing inhabitants and jobs for some years. Furthermore, there are regions whose traditions and collective memory do not go back any further than around 60 years, such as the area around Wolfsburg, which only came into existence as a result of State industrialisation policy in the 1930s. These contrast with traditional regions which have grown over the ages and can look back on centuries of history and live common traditions. These include East Friesland in the north west of Germany and Lower Saxony, which borders the Netherlands and the sea. A methodological question needs to be addressed for the purposes of calculating regional poverty rates: are the calculations of threshold values for poverty and wealth to be based on a regional or a national average income? As the example of East Friesland shows 1, this is a by no means an inconsequential issue. The following table shows incomes in East Friesland, Lower Saxony and Germany in 2004 and the poverty rates calculated from the regional net equivalent income (regional concept) and the national net equivalent income (national concept) 2. Net equivalent income 2004 Poverty rate "regional concept" Poverty rate "national concept" East Friesland Lower Saxony Germany % 14.5% 14.5% 19.0% 14.7% 14.5% The figures for Lower Saxony are close to the national average and there is no great difference in the results produced by the different concepts for the Land as a whole. However, there are major differences for East Friesland where incomes are relatively low. The poverty rate of 12.7% based on 1 East Friesland comprises the cities of Emden and Wilhelmshaven and the rural districts of Aurich, Leer, Wittmund and Friesland for the purposes of calculating poverty reports. This is not entirely identical with the historical East Friesland, to which Wilhelmshaven and the rural district of Friesland do not belong. 2 Source: Lothar Eichhorn, Jessica Huter und Dirk Soyka, Niedersächsischer Armuts und Reichtumsbericht 2005, in: Statistische Monatshefte Lower Saxony 8/2005, pages 425ff. 5

6 the regional concept is the lowest of all the 11 conversion strata in Lower Saxony, whereas the figure of 19.0% based on the national concept is the highest of all the 11 regions studied. Does East Friesland therefore have the lowest or highest poverty rate? A definite answer is needed here, if statistics are not to appear to be whatever one wants them to be. No poverty and wealth rates, whatever type of percentage threshold values they are calculated from, really measure poverty and wealth directly; they only measure the unequal distribution of income. This means that, for example, poverty rates in Germany often increase particularly sharply when incomes rise since it is precisely the increases in income that are usually distributed extremely unevenly. In regional terms this means that, inter alia, average incomes are relatively high in big cities, which exhibit high poverty and wealth rates at the same time, since they constitute socially disparate areas with a wide range of incomes. By contrast, there are certain, frequently peripheral, regions where incomes are, on the whole, low for Germany, but distributed more evenly and where there is a relatively pronounced social balance. The gap between rich and poor is smaller than in the big cities. In the case of East Friesland, this is intensified by the fact that the cost of living is relatively low as land is cheap and very many people live in their own house or pay low rents. There are also indications that the social cohesion in this region is relatively strong, the vehicles for which are inter alia village, family and church networks. The inevitable overall conclusion is therefore that, although incomes are low in East Friesland, it is a region with a low poverty rate: here the regional concept is to be preferred to the national concept. 2. Long term structures and disparities in Europe The issue of the correct methodological concept for determining regional poverty rates prompts us to consider the basic regional disparities between central and peripheral areas in Germany and Europe and, moreover, to ask ourselves what social structures predominate in the peripheral regions where incomes tend to be lower. Some methodological approaches and results are presented below which are based on work by Wallerstein and above all Braudel 1. Europe is a geographically highly fragmented continent. A glance at the map shows that it is made up of large peninsulas (such as Italy, the Iberian peninsula, Denmark, Scandinavia and the Balkans) and large islands (such as England, Ireland and Sicily). Europe therefore has extremely long 1 Fernand Braudel, Das Mittelmeer und die mediterrane Welt in der Epoche Philipps II.., 3 Bände, Frankfurt am Main 1990 and Immanuel Wallerstein, Das moderne Weltsystem: Kapitalistische Landwirtschaft und die Entstehung der europäischen Weltwirtschaft im 16. Jahrhundert, Frankfurt am Main

7 coastlines where it adjoins its inland seas (the Mediterranean and Black Sea, the North Sea and the Baltic) and the Atlantic on its western periphery. The continental land masses are divided up by large ranges of mountains (such as the Alps and the Pyrenees). Large rivers (such as the Rhine, Elbe and Danube) connect the regions, from deep in their hinterland, with the sea and hence with trade and the global system. Europe is therefore a continent of very small regions, which, whilst they are geographically separate from other regions and have therefore developed a certain life of their own, communicate with the other regions and are involved in exchanges with them. At the same time they are separate from and part of the global system, i.e. the international exchanges of goods, peoples and ideas. Within the continent, structures and structural borders developed as early as in late antiquity, i.e. approximately years ago, which are not, it is true, immutable, but still make their presence felt. Two examples are given below: Emperor Theodosius schism between the eastern and western Roman empires in the year 395 is largely identical to the line of the church schism between Rome and Constantinople in the year From then on, it separated the Latin and Catholic West of the continent with its cultural focus in Rome, under the twin rule of the church and the state, from the Byzantine and Orthodox East of Europe with its centre in Constantinople which was not ruled in this way. After it was conquered by the Turks in 1452, the focus of the Orthodox world moved to Moscow. This line still separates Catholic Croatia from Orthodox Serbia and hence the western from the Russian sphere of influence. The Roman Limes from the Rhine to the Danube divided the Roman empire and hence separated the sphere of influence of the Mediterranean culture in the civilised South West of Germany from the barbarian North East of Tacitus' Germania libera from approximately the year 100 onwards. The achievements of the Mediterranean civilisation in technology, crafts, building of roads and towns, bureaucracy, law and science, and not least the introduction of Christianity, spread west of the Rhine and south west of the Limes some 600 years earlier than north east of this line. Various historical phenomena have perpetuated this South West/North East disparity in Germany until today. Since late antiquity, a central European area has formed along the axis of the Rhine. Both population and industry gravitate toward this area and the economic, political and administrative decision making centres are concentrated here, along with the scientific and research institutions. 7

8 The vast majority of the largest and most powerful corporations in Europe are domiciled here too 1. There are, of course, internal centres in the semi peripheral and peripheral areas in Europe but these are no match for this core area of Europe in terms of significance. The second axis of European economic development which runs from Hamburg via Prague to Vienna with a branch via Berlin and Breslau to Krakow is much less influential 2. This axis, which goes back to the High Middle Ages, was closed down by the division of Europe from 1945 and has been recovering since 1990 with impressive growth rates. Changing Europe often also means a return to old structures which were disrupted violently by the Second World War and the subsequent Cold War. This area lies between London in the North, Paris in the West and North, Italy in the South and comprises other parts of the Benelux countries and the metropolitan regions in south west and south Germany. The importance of this area was established in late antiquity and is apparent in the cities which sprang up in the High Middle Ages. On statistical maps this area is marked by high population density and productivity. Here, average incomes are, of course, significantly higher than in the peripheral zones of the continent. In Inner London the primary incomes in 2003 were 11 times as high as those in north east Romania 3. Although there has been some convergence of the new EU Member States in eastern Europe, also as a result of the EU s efforts, and State redistribution also ensures that disposable incomes differ by a factor of "only" 8.5, there is no reason for assuming that regional disparities in income would even out in the long term. The cost of living, especially for rent and transport, is, of course, much higher in the large centres than in the peripheral regions of Europe. Incomes which are 11 times as high do not, by any stretch of the imagination, signify a commensurately higher standard of living, not only because the higher cost of living in the centres largely absorbs the higher incomes but also because of the social structure. Dichotomous social structures with both a heavy concentration of income and wealth and clustering of social problems, particularly in certain areas, and the resulting high rates of poverty and wealth are typical for these centres, especially in big cities. As the example of the peripheral region of East Friesland in Germany shows, it is possible for regional poverty to remain low despite relatively low earnings, because the gap between rich and 1 Source: The 100 largest companies (49th issue), supplement to the Frankfurter Allgemeinen Zeitung issue 151, Cf. Martin Kutz, Die Ökonomie Mittelosteuropas in der Transformation, in: Aus Politik und Zeitgeschichte, B15/2001, page Eurostat, Statistics in brief 25/

9 poor has not become so wide. Questions which are, unfortunately, seldom analysed statistically are important factors, especially in peripheral regions with low incomes. How strong is the social cohesion in a region and how is propagated? The vehicles for social cohesion, particularly in peripheral regions, may be neighbourhood, village or family based connections (and constraints); churches, possibly clubs, trade unions and similar non profit organisations may also play an important part. To what extent is a region "self taxing"? Are decisions which are important for the people in a region taken exclusively by group management boards and political decision making bodies in distant places or are many of them at least taken locally and are therefore easier to monitor? The decision to, for example, close a production site is certainly easier if the persons responsible are many miles away in Frankfurt or Rotterdam 1 10). How able are people to produce their own goods without going through the market? Here, we are talking about handicraft skills, which make it unnecessary to purchase certain goods and services in the market, and neighbourly help (which borders flexibly on illegal clandestine work) and also subsistence production, especially garden produce. Own produce is not included in the gross national product but is important for people's standard of living and satisfaction with life. 3. Consequences and tasks for statistics 1. Studying income disparities is not enough to record the extent of regional poverty. Regional price levels, the population's existing wealth (in particular ownership of houses and gardens), the density of social networks and household production are just as important. 2. Regional income disparities are already very high within Lower Saxony and Germany. The inner periphery of a very rich and central country such as Germany has much lower incomes than the central regions of this country. The disparity is even greater between the central regions of Europe and the European periphery. Disposable incomes in the centres are nine times as high as in the most peripheral regions but in no way does this mean that the standard of living is nine times as high. It is important to look much further than just income 1 Cf. with empirical supporting documents: Lothar Eichhorn, Regionale Selbststeuerungsfähigkeit und demographischer Wandel, in: Niedersachsen Monitor 2005, Hannover 2005, pages 54ff. 9

10 disparities. At detailed regional level (NUTS III), data on home ownership, household and subsistence production and the stability of social networks are also required. 3. We must consider how permanent such structures are and where a return to old structures is masked by current developments. We need Europe wide historical regional statistics. 10