ASTANA – Rapid economic growth might sound like a success story, but more often than not, it comes with rising inequalities and regional disparities. It is a challenge for both developed and developing countries to distribute this growth equally, said Andrés Rodríguez-Pose, the professor of economic geography at the London School of Economics (LSE), in an interview with The Astana Times.
Rodríguez-Pose chairs the High-Level Group on the future of Cohesion policy, which is tasked with proposing the new Cohesion Policy for the European Union post 2027. Photo credit: Andrés Rodríguez-Pose.
The professor was visiting the Kazakh capital to participate in the Astana International Forum on June 8-9. On the sidelines of the forum, he shared his insights on Kazakhstan’s potential for development and the findings of the study that he and his team at the LSE conducted in collaboration with the Asian Development Bank and the Economic Research Institute in Astana.
“What I mainly focus on is why some places are more developed and why others are less developed. Why are some places more dynamic, while others less so, and what does it take to make sure that we can develop places to improve the quality of life of people, wherever they live,” he said.
Study on regional inequality
Published in February 2022, the study outlines new indices to examine the various dimensions of spatial disparities within the country. It is aimed to highlight the unique territorial imbalances present in Kazakhstan and identified regional polarization in terms of economic growth, employment, productivity and competitiveness.
Since gaining independence, Kazakhstan has seen fundamental changes, particularly evident since the 2000s, said Rodríguez-Pose. Similar to other nations, Kazakhstan went through a period of economic turmoil, difficulties, and restructuring.
“Since 2000, it has been one of the countries in the world with the fastest growth. This growth has taken Kazakhstan from a low-income to an upper-middle-income country. But it has also transformed a country where disparities, inequalities among regions were very low to none of the places where there has been the highest growth of inequalities and inequalities are considerably higher. They are even relative to other parts of the world and other parts of the region,” he said.
One of the first tasks of the study was to map territorial disparities, including regional differences in income.
Rodríguez-Pose explained that growth in Kazakhstan is concentrated in a limited number of places. In terms of income, the lowest levels are observed along the southern part of the country, including Turkistan, Kyzylorda, and Zhambyl regions.
Regional development trap
Understanding the regional development trap is crucial to understanding regional dynamics. The term is derived from a theoretical notion of a middle-income trap. A region in a development trap experiences lower growth in income, productivity, and employment compared to its own historical performance and to other regions in the country. In Kazakhstan, these regions are Kyzylorda, Turkistan and Zhambyl.
“They lack significant dynamism. This is important because these are the parts of the country with the biggest demographic dynamics. So they are expanding in terms of population, but this population cannot find jobs,” Rodríguez-Pose explained.
Similar challenges are faced by wealthier regions, such as Atyrau, Mangystau and Shymkent.
“These regions are not fulfilling their potential for development because of their lack of dynamism, which can also lead to social, sometimes political turmoil,” he said.
The highest competitiveness is fundamentally concentrated in northern Kazakhstan, Almaty and Astana.
“This is a country that has grown significantly over the last two decades and has caught up with many parts of the developed world. That gap is much lower. Income Inequalities, economic dynamism, competitiveness, and well-being are not evenly spread and these issues need to be addressed,” he said.
Revenge of places concept
Research, however, shows the level of discontent is not directly related to whether a region is poor or rich.
“Very often, people living in poor regions are relatively dissatisfied. At the same time, people living in rich regions are dissatisfied with quite a lot of aspects. Dissatisfaction can be due to issues like access to housing, sometimes even in prosperous locations like Astana or Almaty,” he said.
When certain places are neglected or left behind while other parts of a country experience rapid progress, and when economic growth and opportunities are concentrated in specific areas rather than being widespread, it leads to significant challenges, according to the expert.
He brought up the example of the United Kingdom, the country where he has been working. All the growth has become concentrated in London, and its surrounding region, neglecting the northern part of the country.
“This has created a significant level of dissatisfaction that was catalyzing Brexit [U.K.’ exit from the European Union.] Brexit has been an economic disaster if I put it mildly. The U.K. used to be one of the most dynamic countries in the G7 and among the big economies of the world It is now the worst-performing country in that group,” he said.
Economic recovery from the pandemic is taking time, and the country, he noted, is losing out in terms of investment and its capacity to attract high-level human capital.
“It created problems where these differences in economic dynamism led to a political decision that, in the end, prevented the north from growing. But the south of the country, that was in theory driving development is not growing too. It’s actually growing less. Therefore, the whole country is growing less,” said Rodríguez-Pose.
The development trap can occur both in developing and developed countries.
“If you look at the developing countries, we have the case of Thailand, which was the most dynamic country in Southeast Asia in the 1990s. At that time, it also developed one of the biggest levels of territorial polarization that we see in the world, so with the growth concentrated in Bangkok, the touristy areas of the South, the lower plains, and the mountainous areas of the north and the northeast and northwest are going to be much less dynamic. Then the rise of populism led to a political stalemate that lasted for more than 25 years, which has transformed Thailand from the fastest-growing country in Southeast Asia to the slowest,” he explained.
Elaborating on it further, Rodríguez-Pose said poor places are less likely to be discontent at the lack of opportunities than rich places, which had opportunities but are losing them.
“This is like a Greek tragedy or a Shakespearean tragedy; the one that never had anything is not the one that is going to commit the crime. Those that commit the crime, or take revenge are those that once had everything, and they lost it,” he said.
The term describing this is “the revenge of places,” published in his research article in 2018.
“For three decades, there has been a revolution in growth theory, which argues that in order for a country to grow economically, what you need to do is not focus on the least developed regions or in the regions that are in decline, but concentrate your limited resources on the development of areas with the greatest potential,” he said.
Task for Kazakhstan
Areas with the greatest potential are usually the largest economic agglomerations, with the highest concentration of economic activity, skilled labor, innovative capacity, large and dynamic firms, and the best institutions.
The key is not the size of the cities but what is invested in the city – the right skills and the right human capital.
Big cities, in general, tend to concentrate on economic development and resources rather than spreading them to surrounding areas. This limited diffusion of growth can negatively impact neighboring regions. Even if cities like Almaty or Astana are dynamic, they may not have the necessary size to achieve comparable levels of growth. Additionally, distant regions such as Kostanai or the western part are unlikely to benefit from the growth experienced by cities like Almaty.
“When people living in either less developed or especially in declining regions see that economic activity, prosperity, dynamism, job opportunities and increased productivity are concentrated in remote areas, then they ask what is it that we get from this,” he said.
Kazakhstan needs to undertake bolder measures to reduce its dependence on commodities.
“That creates a problem because, on the one hand, you are dependent on sectors that are highly vulnerable to changes in the market; on the other hand, it is a situation that has led to varying levels of development,” he said.
Rodríguez-Pose suggested improvements in four areas. The first is where Kazakhstan has been making significant investments for years – human capital development.
“There’s a lot of talent in Kazakhstan. But that talent has to be mobilized and has to be trained to be matched to opportunities in the economy. So that implies investing in skills across the board, and improving primary education, as well as secondary education and universities. On top of that, it needs to invest in lifelong training. You cannot survive, both individually and collectively, on the skills you learn when you’re 18 or 25. You need to be capable of redeploying your skills and learning,” he said.
Entrepreneurship and innovation should be the second priority for Kazakhstan by promoting the establishment of new businesses and fostering innovation both through internal development and by adopting external innovations from abroad.
Physical infrastructure, from transport to access to electricity and telecommunication, should be spread nationwide, Rodríguez-Pose suggested.
“It is then also necessary to improve the quality of institutions at all levels. Make sure that you have efficient civil service, well-trained civil servants, not just in the capital or in Almaty, but across the oblasts [regions] and municipalities. You have to have the rules and regulations that facilitate the development of economic activity. You need to tackle informal and institutional problems that occur,” he said.
On top of that, the expert emphasized the need for more targeted interventions according to sectors.
“Of course, as we have seen in many other parts of the world, the attraction is to build something new, become the new Silicon Valley. But making the jump from having specialization in one sector to becoming Silicon Valley doesn’t happen overnight,” said the professor.
He noted that the right thing to do is to capitalize on what a country has but not stay with the same sectors.
“Start with the sectors that you have, but try to make sure that the sectors you have increase the complexity, the level of technology and the level of skills, allowing them. As a result, to move to related sectors that are close, but which would allow them to transform the economy of the region within a reasonable amount of time. Now we can start seeing significant changes in five or ten years, rather than wait for the changes to happen in 30 years,” he said.
He brought up the example of his home country. The Canary Islands, while not as developed as other tourist hotspots in Spain, have leveraged their expertise in ship repair to expand into the realm of deep-sea oil rig preparation. As a result, oil rigs from nations like Nigeria, Gabon, and Equatorial Guinea now choose the Canary Islands for repairs instead of the previously time-consuming and expensive option of Norway.
