REGIONAL ECONOMIC AND SOCIAL RESILIENCE: An Exploratory In-Depth Study in the Nordic Countries

By Alberto Giacometti and Jukka Teräs NORDREGIO REPORT 2019:2

nordregio report 2019:2 1

REGIONAL ECONOMIC AND SOCIAL RESILIENCE: An Exploratory In-Depth Study in the Nordic Countries

By Alberto Giacometti and Jukka Teräs NORDREGIO REPORT 2019:2

Prepared on behalf of the Nordic Thematic Group for Innovative and Resilient Regions 2017–2020, under the Nordic Council of Ministers Committee of Civil Servants for Regional Affairs. Regional Economic and Social Resilience: An Exploratory In-Depth Study in the Nordic Countries

Nordregio Report 2019:2

ISBN 978-91-87295-66-9 ISSN 1403-2503 DOI:

© Nordregio 2019

Nordregio P.O. Box 1658 SE-111 86 Stockholm, Sweden [email protected]

Analyses and text: Alberto Giacometti and Jukka Teräs Contributors: Eeva Turunen, Mari Wøien, Hjördís Rut Sigurjónsdóttir, Lise Smed Olsen (Oxford Research), Liisa Perjo, Giuseppe Innocente, Viktor Salenius, Laura Fagerlund

Nordregio is a leading Nordic and European research centre for regional development and planning, established by the Nordic Council of Ministers in 1997. We conduct solution-oriented and applied research, addressing current issues from both a research perspective and the viewpoint of policymakers and practitioners. Operating at the international, national, regional and local levels, Nordregio’s research covers a wide geographic scope, with an emphasis on the Nordic and Baltic Sea Regions, Europe and the Arctic.

The Nordic co-operation Nordic co-operation is one of the world’s most extensive forms of regional collaboration, involving , Finland, Iceland, Norway, Sweden, and the Faroe Islands, Greenland, and Åland. Nordic co-operation has firm traditions in politics, the economy, and culture. It plays an important role in European and international collaboration, and aims at creating a strong Nordic community in a strong Europe. Nordic co-operation seeks to safeguard Nordic and regional interests and principles in the global community. Common Nordic values help the region solidify its position as one of the world’s most innovative and competitive.

The Nordic Council of Ministers is a forum of co-operation between the Nordic governments. The Nordic Council of Ministers implements Nordic co-operation. The prime ministers have the overall responsibility. Its activities are co-ordinated by the Nordic ministers for co-operation, the Nordic Committee for co-operation and portfolio ministers. Founded in 1971.

The Nordic Council is a forum for co-operation between the Nordic parliaments and governments. The Council consists of 87 parliamentarians from the Nordic countries. The Nordic Council takes policy initiative s and monitors Nordic co-operation. Founded in 1952.

Stockholm, Sweden, 2019 Table of contents

Foreword...... 6

Executive summary...... 7

1. Introduction...... 9

2. Understanding resilience: theoretical considerations...... 11

3. Methodology...... 19

4. Case studies...... 25 4.1 NORTHERN OSTROBOTHNIA, FINLAND...... 26 4.2 VESTMANNAEYJAR (WESTMAN ISLANDS), ICELAND...... 36 4.3 , NORWAY...... 45 4.4 NORRBOTTEN, SWEDEN...... 56 4.5 , DENMARK...... 64

5. Findings...... 75

6. Recommendations...... 83

References...... 85

nordregio report 2019:2 5 Foreword

Nordregio, on behalf of the Nordic Council of Min- n What is the role of regions (and their different isters Committee of Civil Servants for Regional actors) in anticipating and reacting to shocks? Affairs, is the secretariat for the Nordic thematic n How can strong and weak signals of changing group for innovative and resilient regions 2017–2020. regional resilience be recognised? During this programme, the Nordic thematic group has focused on expanding knowledge and identi- To achieve these objectives this study was divid- fying policy-relevant solutions to the challenges ed into four parts or steps: First, an overview of that the Nordic regions face when it comes to resi- the conceptual and academic debate on regional lience, smart specialisation and digitalisation. This economic and social resilience. Second, a method- report summarises the work and results achieved ology design for empirical research in the Nordic within one of the studies conducted by the the- regions. Third, field research on the five distinct matic group between 2017 and 2018, namely ‘Re- regions. And finally, a cross-case comparison. This gional economic and social resilient regions’. report follows the four steps to present the work The study takes a holistic perspective to ex- in addition to the key findings and recommenda- plore the implications of uncertainty for the Nordic tions identified. regions and to deepen the understanding on how The key question relevant to the policy makers regional authorities, companies and the society is: can resilience be built in advance? In other words, at large are able to react and respond to shocks how do we plan ahead for possible risks and shocks and disturbances. The aim is also to identify what (and slow burn) in such a way, that our societies and measures are regional authorities taking to pre- regions are better prepared to carry on and find pare for shocks and unwanted developments, ways to survive. This work provides plenty of case- either to repel them as to facilitate structural based ideas for strengthening resilience planning. change. More specifically, this study provides answers to the following research questions: n What risks/shocks are the Nordic regions vulner- Mikko Huuskonen able to? Chair of the Nordic thematic group for Innovative n What are the drivers of regional resilience? and Resilient Regions 2017–2018

nordregio report 2019:2 6 Executive summary

How capable are local and regional economies the unique context and adaptive capacity of each of recovering from exogenous and endogenous region, and a detailed understanding of the dif- (global and local) shocks and threats and ensure ferent types of shocks that a region might suffer. resilient long-term development paths? Answering Additionally, research has been increasingly em- this question was the challenge of the Nordic The- phasised the role of actors, social norms, conflicts matic Group on Innovative and Resilient regions, and processes, which highlight the role of human set by the Nordic Council of Ministers. Thus, from agency in resilience. 2017 to 2018, an exploratory in-depth study was Far from providing a full autopsy of the regions’ conducted on economic and social resilience in the risk landscape, this research project represents a Nordic regions. The empirical research included a first attempt to map the various types of risks close examination of a variety of threats as well as and stress factors that threaten the wellbeing of so- factors driving resilience in regions in all five Nor- ciety and economic performance in different Nordic dic Countries. regions. For instance, the case-study regions re- The growing concern over natural disasters, the vealed risk types such as technology driven risks, 2008–2010 global financial crisis and the shifting financial, policy induced, environment related, and geopolitical order, are some of the recent events and those resulting from sudden changes in demand or developments that have provoked policy-makers to geopolitical shifts. After delineating the ‘risk land- consider the way in which local and regional popu- scape’ of the studied regions, a distinction was lations are able to recover from exogenous and en- made between risks and stress or stress-factors. dogenous shocks and emergencies. In other words, The difference is that risks indicate the probability policy-makers are grappling with ascertaining how of a shock, whereas stress factors are not neces- resilient local economies are. Despite of the global sarily unexpected nor abrupt, but instead are factors character of today’s developments, their asym- and trends that weaken the potential of a region in metric effect across territories calls for increased the long-term. attention on measures taken at local and regional This study has revealed many interesting levels. Such debates represent a shifting discourse findings. Whilst some risks and capacities can be from ‘planning optimism’ towards preparing for comparable across regions, this study suggests the unexpected and uncertain. This notion of re- that many capacities are context-specific and silience is relevant in the Nordic regions not only place-based. Moreover, the regions studied reveal because of their susceptibility to global crises, but that risks never exist in isolation but are part of a also in handling local events and day-to-day chal- broader context and interlinked with other risks. In lenges that have implications for the long-term every case, shocks are the result of a combination development of regional economies and societies. of different exogenous and endogenous develop- The concept of resilience offers a lens through ments and conditions. A relevant example is the which to examine and deepen our understand- economic downturn suffered in Rogaland, Norway ing on a region’s ability to cope with uncertainty. after the collapse of the oil price in 2013–2014. This study makes a case for the need to explore While the shock itself was triggered by exogenous a broader account of conditions and features (ca- conditions (i.e. a technological shock and geopoli- pacities) that can make regions more resilient. tics), the impact was aggravated by endogenous The logic is that looking at outcomes alone – GDP conditions (i.e. over-dependency on a single industry and employment – does not provide meaningful and unsustainable costs). information about why some regions were able to Furthermore, a broad range of stress factors resist and recover from a shock and others were were identified, such as the over-dependence on not, or indeed whether those regions would be able single industries, ageing population, demographic to withstand future shocks. This kind of analysis decline, skills shortages, centralisation of services, requires a more comprehensive examination of unreliable transportation and weather conditions. nordregio report 2019:2 7 In contrast to risks, stressors may not produce and stress. Therefore, on the long-run, resilience is abrupt consequences, but they often lead to ma- not as dependent on regions ability to repel shocks, jor challenges to the long-term development of but rather on their flexibility and adaptability to the regions. The case studies shown, for instance, changing conditions. Moreover, adaptability is that the unreliability of transportation, and defi- closely determined by the trust levels amongst ciencies in the labour market weaken the regions’ regional actors, social cohesion and the human competitiveness and its potential of industrial di- capital available. These elements were essential in versification. Moreover, the accumulation of stress all the cases studied in leading change by shaping can make shocks more likely and more damaging. the working and collaborative cultures, redirecting In terms of resilience drivers, this work iden- resources, and effectively coordinating collective tified several factors that appear important for and individual actions. Not least relevant, positive strengthening regions’ ability to prevent major shocks, or the improvements resulting from eco- shocks and to respond and shape along inevitable nomic turmoil, can be extremely beneficial for developments. Some of these drivers can be dis- long-term resilience. meaning that, economic dif- tinguished as preconditions for regions’ businesses ficulties often the reorganisation of institutional and society to thrive as well as to provide a solid structures and industrial composition, tackling un- basis to prevent shocks taking place. Such exam- sustainable practices and establishing new working ples include, solid and efficient institutions, build- cultures, strengthening social bonds and/or open ing a financial buffer, spreading the risk through business opportunities, paving the way for a more diversity of economic activities and markets. forward-looking societies and businesses. When it comes to responding to shocks, how- Finally, as a result of the two-year in-depth ever, this study has revealed a different account study, this report presents a list of recommenda- of drivers. Trust amongst regional actors, self- tions which are targeted towards policy-makers organisation and reorganisation, adaptability and and professionals working with regional planning flexibility, welcoming change and even stimulating and territorial development, risk management, disruption are essential for coping with threatening business development and innovation at local, re- developments. gional and national levels. Moreover, this report and This study highlights, that all regions, without recommendations is relevant to anyone interested exception, are under permanent presence of risks in regional economic and social resilience.

nordregio report 2019:2 8 1. Introduction

The notion of resilience has recently become an im- and regional levels might originate from either perative in policy-makers’ vocabulary at all levels major global happenings or local occurrences. The of governance and has featured in a great number 2008 financial crisis, for instance, emerged locally of studies and policy papers. The policy attention in the US as a result of a housing bubble and sub- given to resilience might be a response to the ge- prime mortgages, and spread internationally due neral sense of uncertainty and insecurity growing to truly interdependent global financial institutions. in many societies across the world. Additional shocks that affect local (sub-national) The recent succession of major natural and economies are related to internal decision-making environmental disasters has provoked questions processes, for instance in the closure or relocation regarding the ability of local and regional popula- of key employers (Sensier et al., 2016. However, eco- tions to recover quickly from shocks and emergen- nomic shocks at the local level can be symptomatic cies. Similarly, the deep financial and economic of long-term struggles in sustaining an economic crisis that affected most regions across the globe path that perhaps was doomed to decline even- in 2008–2010, along with the austerity policies tually. It is in this light that is worth distinguishing that followed, have directed attention towards between ‘slow burns’ and shocks. Regions or sys- the ability of local and regional economies to re- tems where conditions have long been deteriora- spond to these events (Martin, 2012). Additionally, ting, and where established institutions struggle the EU Commission has pointed out that profound to cope with transformation and restructuration, transformations in existing social and economic can be categorised as undergoing a slow burn (Pen- systems are emerging due to globalisation, decar- dall et al., 2010). In contrast, shocks are events that bonisation and the rise of digital technologies (EU are abrupt, disruptive and discrete, and may come Commission, 2017). These transforming trends can as singular occurrences or as a series of shocks be expected to have an enormous impact on em- to the system (ibid.). Moreover, slow burns tend to ployment structures, industrial sectors, business make regions more vulnerable to shocks as the long- models, the economy and society at large. There- term trends, or stress, weaken regions’ potential fore, the Commission has emphasised the need to and deepen the vulnerability of their actors (OECD, help citizens, organisations and regions to adapt to 2014). these transformations (EU Commission, 2017). The Nordic regions, outside of the bigger cities, Searching for new paths to strengthen social, appear to be notably affected by slow burns. These economic and environmental resilience becomes in- may have major consequences for the regions’ creasingly important in a world consistently facing long-term social and economic development, due, unanticipated risk, which is shaking the very core of for instance, to shrinking populations caused by low global contemporary societies. birth rates and urbanisation. However, regions that Anticipating potential crises has clear conse- are overly dependent on a single industry or deve- quences for policy and planning. Bonß (2016) notes lopment path may also suffer from shocks, due to that because modern societies are confronted by the emergence of new technologies and changes in risks, societal planning also needs to change in order consumer demand, for example. The Nordic regions to become better at rearranging and adapting, so are particularly susceptible to the closure of major as to absorb and prevent risks. Whereas planning in industries, which can lead to a rapid increase in un- the 1960s and 1970s was characterised by ‘planning employment and outmigration. optimism’ and expectations of scientific progress The Nordic welfare state and governance sys- eliminating future problems, resilience thinking tem, with its strong public institutions and broad sees the future as unexpected and uncertain (Bonß, participation model with different actors involved 2016). in decision-making processes, can be argued to be Regions are affected by global, national and the Nordic model towards achieving increased re- local developments. Economic turmoil at national silience. This model is often praised for its gains in nordregio report 2019:2 9 societal trust, which may have key implications for labour market. The strength of the Nordic states resilience. On the one hand, the Nordic perspec- and the trust they place in these public institutions tive on resilient regions can therefore bring about plays to their advantage. new insights into how to tackle risks and shocks, This study further investigates the sub-nation- by building on the strengths of the Nordic socie- al levels to gain in-depth understanding of what ties. On the other hand, the increasingly deepened, regions can do to become successful in meeting globalised Nordic economy has made the Nordic and anticipating shocks, caused by endogenous region particularly vulnerable to external develop- and exogenous events. Current research on re- ments (Gylfason et al., 2010). The 2008 financial gional resilience emphasises the need for place- crisis is the most recent example of Nordic vulne- based and context-sensitive approaches to meas- rability, with Iceland being the prime example of its uring resilience, which cannot be reached without devastating effects. However, at the same time, in-depth understanding of the studied region, its Iceland’s quick recovery from its deep economic preconditions, context and processes. To do this, it crisis is often highlighted as a Nordic success story is necessary to use both qualitative methods and (ibid.). Gylfason et al. (2010) note that the grow- quantitative indicators that, based on a qualitative ing housing bubbles are worrying developments, understanding, have been deemed relevant from as countries both outside and within the Nordic re- the region’s unique perspective. This paper repre- gion have been allowing them to grow for several sents a first step towards that aim by providing years. Yet, the authors note that the strong state a knowledge base and an overview of existing re- of financial institutions in the Nordic countries ‘al- gional resilience examples. Within the Nordic con- low automatic stabilisers to operate in a recession, text specifically, the aim during the next phases of thereby softening the blow for households and the project is to shed new light on regions’ inherent firms and the economy as a whole’ (ibid.). Arguably, adaptive capacities, which can then help them build this could also be said for similar issues in preparing up stronger resilience. for carbon-neutrality, and the automation of the

nordregio report 2019:2 10 2. Understanding resilience: theoretical considerations*

Conceptualising resilience Bouncing back or bouncing forward? Resilience thinking has been widely used in ecology, Resilience literature identifies two possible ways physics, medicine and psychology, and has only of recovering from a shock or disturbance: by recently been adopted within social sciences. The ‘bouncing back’ or by ‘bouncing forward’. Bouncing Latin root resilire, to leap back or to rebound, refers back implies returning to the pre-shock or normal to the ability of an entity or system to recover form position by reconstructing earlier parameters. and position elastically, following a disturbance or Bouncing forward requires finding a new normal disruption (Martin, 2012). Thus, be it an individual by replacing certain parameters with new ones person, a specific ecosystem (e.g. a forest), a city or ,Bonß 2016; Muštra et al., 2016). The former would an economy, resilience refers to the capacity to cope occur, for instance, when a region is able to absorb with change and continue to develop. Resilience a shock without changing its core industrial base thinking has offered a new lens through which to and organisation (and return to business as usual). consider some of the most pressing societal, eco- The latter would occur when the underlying condi- nomic and environmental issues of today, for in- tions have fundamentally changed, making it im- stance, the ability of a local or regional community possible to return to business as usual (Bonß, 2016; to recover from natural disasters, or to anticipate Muštra et al., 2016). In such a scenario, the removal global trends that may present risks to local indus- of unproductive activities can open up new sectors tries, jobs and communities. This may include the and a new phase of growth, thereby establishing automation and decarbonisation of the energy a new normal. To better explain this phenomenon, sector or, from a local perspective, trends such as Martin (2012) borrows the concept of ‘hysteresis’ an ageing population and demographic decline. from the natural sciences to compare the mag- There is no consensus on a single definition netic and elastic properties of materials with the of resilience. For instance, in engineering the resi- elasticity of economies. With this notion, the pos- lience concept emphasises the resistance of a sys- sibility of multiple equilibria is recognised and that tem to disturbances and the speed of return to economies can move from one state of ‘equilibrium its pre-shock state. In ecological resilience studies, or domain to another as a result of a shock or dis- the focus is on measuring the scale of disturbance turbance’ (Martin, 2012). that a system can absorb before getting destabi- lised (Martin, 2012). The social scientific regional The evolutionary approach resilience perspective involves both engineering Critics challenge the notion of bouncing back to and ecological meanings, and refers to a complex the full extent, however. Even when a region could set of economic, social and institutional traits that preserve its main function, structure, identity and characterise the ability of regions to respond to a feedbacks, the ‘ability to absorb’ a shock requires shock. This carries a clear purpose of maintaining a certain degree of reorganisation and change system stability and durability, as well as adapting (Muštra et al., 2016). Recent literature describes to structural changes and moving to new develop- regional economic resilience as highly complex and ment paths (Di Caro, 2014; Hu & Hassink, 2016). multi-dimensional (Sensier et al., 2016; Martin & Sunley, 2015. Contrary to the engineering-rooted notion that implies returning to a state of equilib- rium, economic geographers advocate for an evo- lutionary and dynamic understanding of resilience (Sensier et al., 2016). The evolutionary approach *Note: Chapters 2 and 3 are an adaptation of a discussion paper published in Giacometti et al. (2018). rejects the idea that regional economies can be in nordregio report 2019:2 11 a state of equilibrium, and instead envisions eco- et al. (2016), which comprises four key conditions: nomic trajectories as being complex, non-linear risk, resistance, reorientation and recoverability and dynamic. Market and economic conditions are (see the next section). in a state of continuous change, where unexpected events and even shocks are commonplace. Yet, it Deconstructing resilience: a multifaceted process is only when shocks reach a ‘certain magnitude, or Martin et al., (2016) provide a categorisation that occur in a particular context, that the effects be- recognises resilience as a multifaceted process come observable’ (ibid.). rather than a ‘singular, static state of affairs or Evolutionary economic geographers also em- fixed characteristic of a regional or local economy’ phasise the place-based and path-dependent (see Figure 1). This conceptualisation of regional aspects of regional economies. They argue that resilience comprises four sequential steps: 1) the specific contextual features of regions play a role risk of shocks to a region’s key economic players in their economic performance, while at the same (firms, industries, workers and institutions); 2) the time decisions made in the past will continue to in- resistance of those actors to the impact of eco- fluence regional development in the future (Sensier nomic shocks; 3) the ability of regional actors to et al., 2016). conduct the necessary adjustments (to re-orient and adapt) to resume their main activities; and 4) Adaptive resilience the degree of recoverability of the shock (Martin Assuming an evolutionary approach to resilience, et al., 2016). a new concept has been introduced: ‘adaptive re- These four conditions – risk, resistance, reori- silience’. This considers a system’s ability to with- entation and recoverability – are dependent on the stand market or environmental shocks without scale, nature and duration of the economic shock losing the capacity to allocate resources efficiently (Martin et al., 2016). Likewise, the path depend- (Muštra et al., 2016). From this viewpoint, adaptive ence or the existing economic path of a region, and changes to regional economic structures and so- many other variables, play a role in the process of cial and institutional arrangements are imperative enduring a shock. These include regional economic in order to maintain or restore a region’s ‘previous structures, resources, capabilities and competen- developmental path, or transit to a new sustain- ces, as well as business cultures and any supportive able path’ (Muštra et al., 2016). Adaptive resilience measures implemented by different institutions at is understood as a multifaceted process by Martin national and sub-national levels (e.g. welfare sup-


Scale, Nature and Duration of Schock

Pre-Schock Vulnerability Depth of Extent and Post-Shock Regional and Exposure Reaction to Nature of Regional Developmental to Shocks to Shock Adjustment Developmental Pathway to Shock Pathway

Regional Economic Structures, Resources, Capabilities Competences Business Cultures, Confidences and Expectations Local (and National) Institutions Nature and Extent of Supportive Policies and Measures

Figure 1: Regional resilience from recessions. Source: Martin et al. (2016) nordregio report 2019:2 12 portive policies and programmes). Similarly, the According to Sensier et al. (2016), the notion of OECD (2014) connects a comprehensive combi- regional economic resilience offers local economies nation of factors to a region’s abilities to endure the possibility of identifying their own capabilities shocks, in this case assets or capital, including: to cope with economic shocks and act upon this to financial, human, natural, physical, political and influence the development path. This suggests that social capital (see more in the methodology section). although regions have different capabilities and These wide sets of factors determine the degree capacities to react to shocks, they can also actively of resistance of a regional economy to recessions, redirect their development path towards stronger but also the adjustments made to economic struc- resilience. A deep understanding of a region’s adap- tures in response to shocks (Martin et al., 2016). tive capacities as well as its weaknesses and vulner- Thus, Martin et al. (2016) conclude that regional ability to external developments is necessary for economic resilience depends on the capacity of the building capacity to anticipate shocks, either by pre- region’s firms, industries, workers and institutions venting them or by minimising their negative impact. to firstly, resist shocks; and secondly, to undertake the necessary adjustments to boost economic per- Local communities and regional formances, including profitability, employment and resilience investment. Regional resilience demands local responses to global challenges; therefore, it is logical to envision Regional economic resilience a key role for the local community in making regions The concept of economic resilience has been used resilient. During the last decade, there has been to understand and monitor how economies react an increased focus on social resilience in research to different types of recessionary shock, as well as (Keck & Sakdapolrak, 2013), often with an explicit to determine how to build capacity to anticipate focus on communities (see e.g. Keck & Sakdapolrak, economic disturbances. Such a view of resilience 2013; Huggins & Thompson, 2015; Mulligan et al., is related to the Keynesian theory of business cy- 2016). For example, the OECD (2016) emphasises cles, which implies that periods of recession occur the role of inclusive and cohesive societies as an regularly as the economy goes through cycles of important driver of resilience, together with ac- economic growth (Martin, 2012). This notion char- tive citizens’ networks, safe neighbourhoods and acterises long-running regional economic growth healthy lives. as a sequence of phases with contractions and Criticism towards the depoliticising and ignor- expansions, ‘with turning points defined as “peaks” ing of the role of human agency in resilience research and “troughs” in activity’ (Martin et al., 2016). How- has led to an increased focus on actors, conflicts ever, there is no consensus on how to analyse the and processes (see e.g. Martin & Sunley, 2015; Bras- reaction of regions to economic cycles. sett et al., 2013; Bristow & Healy, 2014). Brassett et Martin et al. (2016) review the key perspec- al. (2013) suggest that future research questions on tives found in literature to analyse economic cycles. resilience focusing on actors and expert knowledge What all these perspectives have in common is the relevant to the performance of resilience policy and element of surprise or the unpredictability of the practice, should look at ‘who benefits, and what shock that shakes the regular performance of the and/or whom is excluded’ (Brassett, 2013, p.225). economy. The authors note that recessions are dif- Similarly, Martin and Sunley (2015, p.12) propose ferent in nature but generally involve the contraction that resilience studies should always specify the ‘re- of the economy, closure of firms and loss of employ- silience of what, to what by what means, and with ment. However, depending on the intensity of the what outcome?’. shock, there is a difference in the depth of the eco- Studying agency in local communities places nomic impact. For instance, a region that experi- further attention on how social agents are orga- ences a severe economic shock is likely neither to re- nised in complex and interconnected networks, cover nor return to the pre-shock growth path but which in turn composes the regional social struc- instead be redirected onto a different path, which tures and economies (Bristow & Healy, 2014, p.928). is likely to be an inferior one. It is in this context that In this light, Bristow and Healy (2014) recognise that the notion of resilience becomes relevant, to scruti- strengthening resilience can be possible by public, nise how a system – a region in this context – reacts social and commercial actors working together, and to recessionary downturns. by utilising all available resources. nordregio report 2019:2 13 Local generators of resilience are often nar- state and public-sector actors in general are likely to rowed down to local economy and entrepreneur- pay a key role (Bristow & Healy, 2014). In the Nordic ship. Simultaneously, local communities are con- context, where the role of the public sector is tra- sidered to contribute to resilience by promoting ditionally strong, it can be expected that different entrepreneurship. Huggins and Thompson (2015) public-sector actors, alongside policies, play a key identify the following local generators of resilience: role in promoting regional resilience. 1) social cohesion; 2) embracement of education; 3) social values and rules. In many cases these three Socio-economic impact of environ- aspects of community culture determine the bond- mental and ecological resilience ing processes within the community, which may Environmental resilience itself is beyond the scope be linked to local entrepreneurship through social of this study; however, social and economic systems trust. Similarly, societies that embrace education cannot exist in isolation from ecological systems. as a way of transmitting values between genera- Ecosystems are not only a physical recreational tions are more likely to develop institutions that space, but also an essential source of economic create prerequisites for regional resilience (Huggins wealth through primary economic sectors such & Thompson, 2015). as forestry, agriculture, fisheries and aquaculture, However, the ways in which communities con- and ultimately, ecosystems are the arena in which tribute to resilience are complex. For example, even all human activity takes place (Adger et al., 2005). if social cohesion can contribute to resilience, ho- Communities are an integral part of such systems, mogenous cohesive groups can also be exclusive and actively affecting each of its components and con- reject ideas coming from the outside, which may ditions, being simultaneously influenced by human have a negative effect on local resilience (Huggins and non-human driven eco-systemic factors. Cutter & Thompson, 2015). Similarly, it is not confirmed et al. (2008) argue that a community can be re- whether individualistic or collectivistic rules and silient without being environmentally resilient. This values are better for resilience, since individualistic may be partially true if such a community has a values may promote entrepreneurial spirit while sufficiently diversified source of income and is more collectivistic values may enable, for example, unaffected by major environmental phenomena. the pooling of resources, and thereby contribute However, this view may lack a holistic perspective towards stronger resilience to economic shocks on resilience, ignoring the global interdependence (Huggins & Thompson, 2015). of ecosystems and the indirect effects of natural disasters or ecosystem disturbance elsewhere. Governance as a driver for regional What can be distinguished is the degree of socio- resilience economic dependence of different communities on To study resilience, governance bodies and their ecosystems services and their degree of vulnera- roles can be of further interest, as they function bility to natural conditions. Depending on this, the as connectors between the different actors and socio-economic consequences of environmental as facilitators of communication between, for ex- stress may vary significantly between communities. ample, firms, labour force, consumers and interest Vulnerability to major storms and floods, as groups (Bristow & Healy, 2014; Brooks et al., 2015). well as volcanic activity in the case of Iceland, are In studying resilience, it is not sufficient to study some of the most obvious and large-scale threats traditional economic factors, and there is a need to different Nordic regions, potentially affecting for studies in governance and leadership to under- every aspect of society and economy. In general stand what makes certain regions resilient (Brooks terms, however, low eco-systemic resilience may et al., 2015). According to the OECD, which identi- amplify the impact on bioresources’ security, there- fies governance as one of the four areas that drive fore undermining food production, water avail- resilience, resilience is promoted by clear leadership ability, and biomaterials extraction and processing, and management, strategic and integrated ap- as well as the jobs dependent on their utilisation proaches, public sector skills, and open and trans- (Wiens, 2015). Chemical, thermal and physical pol- parent governments (OECD, 2016). lutants directly compromise human health and Although resilience is highly dependent on wellbeing, increasing the social costs of healthcare several actors, and no one actor has the capacity and leading to higher mortality levels (Kampa & to influence or control the overall development, the Castanas, 2008; Patz et al., 2005). Furthermore, nordregio report 2019:2 14 altering landscapes could affect their cultural, rec- disturbances can vary significantly, and so can reational and tourism value. Finally, the indirect ef- their impact. The OECD (2014) categorises three fects of environmental stress may have significant types of risks and shocks: 1) covariate shocks, infre- consequences for societies and economies, namely quent events with an impact on almost every­one; the scarcity of resources such as water and biore- 2) idiosyncratic­ shocks, events that specifically sources. Major natural disasters can also trigger affect individuals and families; and 3) seasonal further conflict and migratory waves from other shocks, recurring events such as annual floods, dis- parts of the world towards Europe and the Nordic placement of people or market fluctuations. Within countries (World Bank, 2016). these major categories, numerous types of shocks and risks may be identified, both from a macro- Types of risks/shocks and stressors economic perspective and at local level, as well as In addition to the context-specific capacities of from social, political (and geopolitical) and natural regions and the wide range of factors involved, (and environmental) perspectives. Table 1 provides regional recoverability and overall resilience also a non-exhaustive list of different types of shocks/ depends significantly on the types of shock, their risks and stressors that have been identified as nature and their intensity. relevant when studying regional resilience. Resilience thinking is about anticipating and re- acting to risks, shocks and stress. In this case, ‘risks’ Some of the risks and hazard types presented in and ‘shocks’ refer to the same negative events and Table 1 are expanded on here. their consequences. The difference is that risk im- plies probability, and shock implies the event itself n Financial risks/shocks (OECD, 2014). Stressors, rather, refer to long-term In a deeply globalised economy and society, the trends that have weakened the potential of a region consequences of financial bubbles are devastating. and deepened the vulnerability of its actors (ibid.). ‘A really large bank collapse could be way worse However, the type, nature and intensity of such than the global eruption that started with the US

Table 1: Types of risks/shocks and stressors Types of shocks/risks Hazard type Description

Covariate shocks Financial shock Sudden change in exchange rate or collapse of a credit institution Technological Introduction of new disruptive technologies shock Commodity Sudden change of price of a specific good/service price shock Demand- Variance in aggregate demand, e.g. due to collapse of consum- driven shock er confidence leading to drop in spending

Policy-induced Changing the ‘rules of the game’, e.g. interest rate, tax regimes, and regulatory increasing the money supply abruptly, trade deals, new prohibi- shock tions, regulations and laws

Geopolitical Resulting from relations between states, tensions, increasing shock protectionism or liberalisation of markets, or conflicts that disrupt production and consumption Environmental Human and non-human driven, e.g. storms, floods, droughts, shock volcanic activity, fires, collapsing ecosystems, pandemics

Idiosyncratic shocks Loss of income-generating activity, e.g. closure/relocation of a large industry

Seasonal shocks Recurring events, e.g. annual floods or recurrent displacement of people or market fluctuations Stressors Unemployment, market instability, weak institutions, ageing population, mistrust among regional actors, isolation, lack of infrastructure, changing climatic conditions, etc.

nordregio report 2019:2 15 housing loan crash in 2009’ (Rosling et al., 2018). It ards). Thus, their prices are determined primarily is important to highlight that this event came as by the supply and demand in global exchange mar- a complete surprise. As Rosling et al. (2018) sums kets. Despite the efforts made to predict production up, ‘even the best economists in the world failed to and consumption rates, there are numerous global predict the last crash and fail year on year to predict factors and events that can significantly divert the the recovery from it’. The global financial crisis has price mechanism, such as wars and import tariffs. concretely reminded both researchers and prac- It is therefore impossible to predict or control com- titioners of the complexity of market forces and modity prices significantly at regional and local the difficulty of making accurate predictions. On levels. the one hand, global discourse today recognises much better than in the previous decade that fi- n Demand-driven risks/shocks nancial markets are inherently unstable due to Variation in the aggregate demand for any product their dependence on intersubjective communica- or service can relate with the collapse of consum- tion between individuals who make decision under ers’ confidence, a decrease in purchasing power, uncertain conditions and with imperfect informa- or technological advancements and other trends tion (the Keynesian view). On the other hand, co- that may make a product less desirable. Demand ordinated efforts to improve financial regulation can be obstructed at any point of the supply chain. have fallen short of the ambitious goals set out during the latest shock (Lall, 2012). There is reason n Policy-induced and regulatory risks/shocks to expect similar and even more wide-reaching fi- Political risk in the economy and society arises nancial crises in the future from decisions made at any political level, from local to national and supranational (e.g. the EU), n Technological risks/shocks which can have an impact on individuals, business Technological shocks result from a process known or the economy at large. Political decisions can as ‘creative destruction’, which implies a transfor- vary significantly in relation to, for example, inter- mation of the economic structure because of the est rates, tax regimes, spending (increasing the mutation or evolution of its industrial base through money supply abruptly), new prohibitions, trade the emergence of new technologies. The intensity deals and tariffs, labour laws and environmental and impact of technological innovations depends, regulations. Geopolitical considerations are an among other factors, on 1) where the technology is additional dimension of political risk (see below). pioneered, and 2) whether it is a radical or an incre- The potential impact on the economy can differ mental innovation. Regarding the first point, tech- in terms of size and nature, and includes phenom- nological innovation is geographically unbalanced ena such as decreases in the purchasing power of and generally leads to gains and losses to different households, lowered investment returns, capital industries and their host regions. As for the second flight and a standstill in the volume of new invest- point, whether the innovation is incremental or ments, loss of competitiveness, and loss of confi- radical can have different consequences on the dence both of financial markets and political deci- stake of industries and their supply chains in the sion-makers. Losing trust in public institutions at market, as well as on the labour market in terms the local level can disrupt networks, collaborative of amount of labour and skills needed. Incremental culture and business opportunities. innovations are the most dominant, and normally represent small leaps forward, whereas radical or n Geopolitical risks/shocks disruptive innovations imply major transformation, Geopolitical risks result from souring relations fundamentally shaking the market and rendering between states, political tensions, increasing pro- old technologies obsolete. tectionism or liberalisation of markets, tariffs and sanctions, and conflicts that disrupt production n Commodity price fluctuations and consumption (supply and demand). The im- Natural resources and basic products are traded pact of such events can spill over into other risks as commodities, which means that there is little or such as commodity price variations and financial no value differentiation attributed to their place crises. Geopolitics can also have a negative impact of origin (as long as they meet the general stand- on the outlook and competitiveness of specific in-

nordregio report 2019:2 16 dustries, on political interstate and interregional of labour or an inadequate labour force further cooperation and on other forms of cooperation, worsens the unfavourable business environment such as research partnerships. and the low incentives to invest in infrastructure. Moreover, stress factors not only threaten existing n Environmental risks/shocks economic activities – they also hinder the emer- Risks related to the environment are normally as- gence of new ones. sociated either with natural disasters or with the adverse effects of human activity on ecosystems. At the macroeconomic level various kinds of eco- When discussing environmental risks in the present nomic shocks, albeit mostly covariate shocks, can be context, the primary focus is not on the integrity identified, including: ‘financial shocks; fiscal shocks; and survival of ecosystems as an end in itself but exchange rate shocks; commodity price shocks; pro- rather on the existing and potential consequences ductivity/technology shocks; regulatory shocks [poli- of any human- and non-human-driven threat to cy induced], and, through disasters, shocks to capi- society and the economy that in some way in- tal stocks’ (Sensier et al., 2016; c.f. Table 1). Events volves the natural environment. Natural disasters, occurring at a macroeconomic level also have sig- such as floods, storms, wildfires and volcanic erup- nificant impact at the regional and local level. More tions can potentially affect every aspect of society. specifically, shocks that have critical impact locally Likewise, human-driven actions such as overfish- respond to decisions made at that level or else- ing, pollution and the alteration of landscapes may where, always depending on the prevailing econom- result in the collapse of an economic resource (e.g. ic and industrial context (ibid.). One example is the fish stocks, tourist attractions, arable land) or closure, downscaling or relocation of major employ- even damage public health. Major shocks may un- ers or industries (ibid.). The dominance of a single dermine food production and potable water avail- firm or industry in a region represents a major risk, ability and cause increased consumer prices and as its employment and economic base relies on the decreased supply, which may even lead to wide- success of one or few actors. Another example is spread displacement, migration or armed conflict. the implementation of a regulation that requires a profound transformation of industries, which could n Stress factors lead to the closure of firms in a region. This is par- Stress factors differ from risks/shocks in the sense ticularly evident in the normative nature of policy that they are not abrupt or unpredictable events efforts to decarbonise the energy sector. but rather long-term trends that weaken the po- Unless there is one dominant player, regional tential of a region and its actors to thrive. Accumu- resilience does not depend on all firms surviving lated stress often results in a vicious circle where shocks. It is normal for new firms to emerge and the effects of one stressor reinforces another, in a others to disappear, even in larger numbers. More series of negative feedback loops. As an example, important for regional resilience is the net ‘popula- unreliable transportation, the lack of accessibility tion’ of firms and industries, to maintain stability, to higher education, limited labour opportunities or a net increase, in economic activity. The same is and insufficient cultural amenities may lead to out- true for the resilience of a specific sector or industry. migration and brain-drain. The shortage of skilled Resilience is determined not by the survival of all labour, in turn, reduces competitiveness and hin- firms within an industry after a shock but rather by ders the development of new economic opportu- the capacity of the industry as a whole to adapt to nities. The lack of new job opportunities leads to new conditions. This may happen, for example, by more outmigration. And as more people leave, introducing innovative products, services, organisa- the population level drops below the critical mass tion and technology (Holm and Østergaard, 2015). needed to provide basic services such as special- Such an evolution can generate new spin-offs and ised healthcare, schooling, financial services and attract new jobs and opportunities. public transportation. If the vicious circle of dete- In most cases, such events exhibit a combination riorating living quality is not interrupted, for exam- of different types of shocks and stressors that are ple by improving transportation, the risk of major interrelated. The categorisation made here helps shocks increases. The decision of a key employer in an understanding of the causes of economic turmoil. the region to close or relocate due to the shortage However, in practice, risks that eventually materialise

nordregio report 2019:2 17 into shocks are interrelated with other risks and symmetric, affecting all regions or industries in stress factors, as well as global and local trends the same way, or asymmetric, affecting a specific that impact technologies, consumers demand, pro- region or industry more than others. For instance, duction, and so on. To understand a specific event, fluctuations in the value of the British pound may therefore, it requires a holistic view of all the factors have a different impact in different Nordic regions, that contribute to economic turmoil, even if it may as was evident in the wake of the unrest in currency appear that a single reason triggered the shock. markets that followed the Brexit vote in the summer Additionally, shocks can be considered to be either of 2016; and technological innovations could have temporary, for example when economic activity caused the fall of Nokia, with major economic impli- returns quickly back to normal (e.g. prices, employ- cations for regions where Nokia was an important ment levels) or permanent, when the shocks alter employer but causing no harm to other regions. the market/society so drastically that there is no This exemplifies the importance of understanding easy return to the status quo. A sudden collapse the context and distinguishing the global and local in the price of oil, for instance, may have perma- factors that may generate societal and economic nent consequences. Likewise, shocks can either be disturbance.

nordregio report 2019:2 18 3. Methodology*

There are various approaches to studying and capacities. Outcomes can be measured either in measuring resilience. Resilience research has mostly relation to a region’s own reference indicators or centred on ecological resilience; thus, indicators in comparison with other regions (Sensier et al., have been developed mainly around environmen- 2016). Measuring the adaptive capacity, in turn, tal issues (OECD, 2016). As interest in measuring is more challenging. The indicators used for adap- regional resilience from other perspectives has in- tive capacity do not reveal resilience directly but in- creased, so has the need to identify new indicators. stead provide an understanding of those capacities The aim of this chapter is to identify indicators to and adaptive mechanisms that give a region the measure economic resilience at the sub-national means to be resilient (ibid.). level and, to a certain extent, indicators that could Moreover, useful indicators will often differ specifically benefit the study of resilient local com- from region to region. Although indicative lists of munities. interesting indicators can be made, suitable indica- Resilience can be measured by focusing either tors for studying a specific city or region should be on mapping the region’s ability to address shocks chosen based on local knowledge about the local pre- (by means of the region’s own adaptive capaci- conditions. As the OECD emphasises, resilience is ties) or on the specific outcomes of these efforts context-specific and place-based, and thus regions (OECD, 2016). The confusion between outputs and need to identify their own indicators and analyse capacities is the main challenge for measuring the results in a context- and place-based manner. resilience; that a region demonstrates positive The OECD (2014) ‘Guidelines for Resilience System economic outcomes (e.g. increased employment) Analysis’ suggest an overview of the regional as- may not necessarily mean that the region is resilient sets as different kinds of capital, including financial, to further shocks (Sensier et al., 2016). A region human, natural, physical, political and social capital that coped well with a shock at a given time may (see also the Methodology section). According to lack capacity-building efforts and thereby have a the OECD (2014), these kinds of capital should be weakened ability to address future shocks (OECD, contrasted with the identified stressors and risks 2016). In other words, measuring outputs alone – when designing appropriate counter-measures such as GDP or employment levels and the speed and policy responses. of recovery of these – does not provide meaning- In a general overview of the different ap- ful insight about why one region is more resilient proaches to measuring regional economic resilience, than another or whether a region would be resil- Martin & Sunley (2015) show the benefit of con- ient to future disturbances (Sensier et al., 2016). ducting case-study research in addition to various This would require more detailed understanding indices and models (Table 2, next page). of the inherent adaptive capacities of the region, The common feature of the different ap- which can help it resist, respond and recover from proaches to studying regional resilience is the a shock (ibid.). emphasis on taking into consideration the time- Measuring regional resilience takes both of and place-specific nature of resilience. Resilience these dimensions into account; it considers both cannot be measured with the same indicators in the revealed resilience (outcomes) and the resilient every case, and there are no one-size-fits-all so- lutions where high results on certain indicators would always imply more resilient regions. The highly complex nature of shocks, responses and actors involved makes it relevant to approach re- *Note: Chapters 2 and 3 are an adaptation of a discussion paper published in Giacometti et al. (2018). gional resilience from a place-based case-study nordregio report 2019:2 19 Table 2: Alternative approaches to measuring regional economic resilience (Martin & Sunley, 2015)

Method Focus Examples

1. Case-study Mainly narrative based, may involve Munich (Evans and Karecha, 2014); based simple descriptive data and interviews with Cambridge and Swansea (Simmie and key actors, interrogation of policies. Martin, 2010); Buffalo and Cleveland (Cowell, 2013)

2. Resilience Singular or composite, comparative, mea- UK regions (Martin, 2012); US cities and indices sures of (relative) resistance and recovery, counties (Augustine et al., 2013; Han and using key system variables of interest. Goetz, 2013)

3. Resilience Impulse response models; error correction US regions (Blanchard and Katz, 1992); indices models. These estimate how long it takes UK regions (Fingleton et al., 2012) Statistical for impact of shock to dissipate (how much time series of the impact is subsequently eliminated models per unit time period).

4. Causal Embedding resilience in regional economic US regions (Blanchard and Katz, 1992); structural models to generate counterfactual UK regions (Fingleton et al., 2012) models positions of where system would have been US metropolitan areas (Doran and in the absence of shock. Fingleton, 2013); EU regions (Fingleton et al., 2014)

perspective. In order to identify the right indica- this study will gain insight into the different types tors to study a region’s resilience, it is important of risks that threaten Nordic regions, and into the to gain an in-depth understanding of the regional different types of assets and measures related to context. Subsequently, in order to study the pro- those risks that may be important for boosting re- cess whereby regional actors build resilience, a silience. However, a comprehensive mapping of the more qualitative, case-study-focused approach is risk landscape in the Nordic regions is beyond the needed (Bristow & Healy, 2014) as a complement scope of this study. to general economic and demographic indicators. To understand social resilience and how communi- Methodology: resilience systems analysis ties and governance bodies adapt to and respond The methodology designed for the empirical re- to change, there needs to be a focus on the specific search and case studies in this project (also ap- place and context, and this is best achieved by way plicable beyond the Nordic regions) is based on of case-study research (Bristow & Healy, 2014). the ‘Guidelines for Resilience Systems Analysis’ (RSA) developed by the OECD (2014). The RSA A methodology for studying regional methodology was originally designed to support resilience in the Nordic regions public administration in programming and providing The context-dependent nature of both resilience input into policies and strategies. It does so by: studies and regional resilience poses a challenge to 1) analysing the context; 2) exploring scenarios the transferability of good-practice cases between for future changes; and 3) assessing evidence for different regions. Studying resilient regions requires future change (OECD, 2014). In this case, the ap- cross-disciplinary expertise and a thorough under- proach has been adapted for research purposes, standing of current trends. This encompasses all and therefore the length and scope of the study kinds of industries, technologies, politics and the has been restricted. However, the general logic environment, as well as their respective impact prevails. on different levels of governance. The intention of The OECD’s resilience systems analysis builds this project is to maintain a wide scope and study on risk management approaches. This approach a rich sample of regions with different character- involves a much wider perspective than single- istics, industrial bases, social structures and eco- case analyses as it focuses on the system as a nomic paths, to determine the different risk typol- whole, instead of one risk alone or a single event. ogies that exist in the Nordic Region. By doing so, The added value of applying systems thinking is its nordregio report 2019:2 20 complex approach, which makes it possible to gain The empirical study a more comprehensive picture of the interlinkages In line with the RSA, the following steps have been between different risks; for instance, how disas- designed to provide information that is compara- ters can trigger economic shocks. It also makes a ble between case-study regions in order to permit connection between long-term trends (stressors) comparative analysis about ‘the system’ in a spe- spanning economic, social, environmental and cific region, its actors, its risks, the historical con- physical perspectives, as well as the nature and text and future trends (Figure 3). impact of future trends (OECD, 2014). Figure 2 (below) visualises the conceptual framework of the RSA. The RSA aims to: Of what system? n understand the risk landscape in a specific context n consider how risks will affect society n gather information about what elements makes those systems resilient, and what actions are Over what employed to cope with the highlighted risks Of who? timeframe? Resilience n identify possible measures for boosting resilience, the levels of shock absorption and adaption and/ or preventative measures through systems trans- formation

*In identifying measures, it is essential to deter- To what mine the level of administration or societal collab- risk? oration from which risks are best managed n gain a better understanding of how the over- all context and risk landscape of the system will Figure 3: Dimensions of the scoping question for a change after the measures implemented to boost resilience systems analysis. Source: OECD, 2014 resilience are put in place. Programme outcomes

PROGRAMMING CONTEXT Core programme actions System with Risk Targeted boosted Landscape system resilience Absorptive Adaptive Transformative capacity capacity capacity Covariate shocks National National National National National Idiosyncratic Provincial Provincial shocks Regional Regional Regional Community Community Seasonal shocks Community Community Community Individual Individual Frequent small Household Household Household impact events Individual Individual Individual Long term stresses

Preparedness Responsivness Connectivity Inclusion

Learning / Diversity and Self- Social innovation Redundancy organisation Cohesion


Complexity and Change Uncertainty Political Will Power Dynamics Timeframe connectivity Key factiors influencing the context and programming

Figure 2: Conceptual framework for the resilience systems analysis. Source: OECD, 2014

nordregio report 2019:2 21

Understanding the system 4): the region’s 1) absorptive capacity, which signifies (the region) its ability to resist the negative impact of shocks; The overall wellbeing of a community, in this case a 2) adaptive capacity, which signifies its ability to region’s economy and society, depends on a com- adapt to new conditions; and 3) transformative bination of different assets, comprising of six main capacity, which signifies its ability to change funda- kinds of capital: financial, human, natural, physical, mental structures and alter impacts (OECD, 2014). political and social. These may vary significantly in The mere existence of regional assets does not different regions and contexts. Having an over- guarantee their effective use in managing risks or view of the different kinds of capital is useful for enhancing wellbeing, yet their absence may tell us studying resilience. This will help develop a more something about the region’s vulnerability (ODI, detailed understanding of the specific strengths 2016). Therefore, these capacities may be related and weaknesses of the overall system in a given to what measures are in place, and how regional region. actors react to shocks and disturbances.

Informants will be asked to provide input on: n the assets that are essential for an economic INTENSITY OF CHANGE / TRANSACTION COSTS and social resilience analysis, and that are present or lacking in their region. stability flexibility change

Furthermore, regional resilience is not static; it Absorptive Adaptive Transformative coping Capasity Capasity strengthens or weakens over time depending on Capasity numerous variables, both internally and externally. (incremental (transformational Changing conditions may affect only parts of the (persistence) adjustment) responses) system (e.g. one firm and its employees) or funda- RESILIENCE mentally change it (e.g. remove an entire economic activity), depending on the nature and intensity of Figure 4: The relationship between absorptive, the disturbances and the characteristics of the re- adaptive and transformative capacities for gion. Resilience depends on three ‘capacities’ (Figure strengthening regional resilience. Source: OECD, 2014

Table 3: Questionnaire designed to collect existing and lacking assets/capital that are relevant for the regional resilience analysis Capital Existing capabilities/assets Lacking capabilities/assets

Financial e.g. functioning/stable markets, emergency funds, savings, credit, banking facilities

Human e.g. vocational skills, attainment of education, knowledge, practices Natural e.g. forest, agricultural land, livestock, minerals, water resources Physical e.g. commodities, electricity, transport infrastructure, telecommunication infrastructures, productive land/capital, social infrastructure

Political e.g. functioning institutions, trust in institutions, participatory processes, political participation in community gatherings, community organisations influencing local power structures

Social e.g. community organisations and their capacity to get organised, informal/formal conflict management mechanisms, engaged citizens, minorities participation and integration, trust among actors, security

nordregio report 2019:2 22 Informants will be asked to provide input on: In addition to risks, this research will attempt n what makes their region able to: 1) resist shocks; to identify what long-term trends or stressors are 2) adapt to new conditions; and/or 3) fundamen- present in the regions that may potentially have tally change to strengthen its resilience. damaging effects. For example, this could include trends that are weakening the potential of the re- Finally, to paint a holistic picture of a system’s (or gional actors to react to shocks, and subsequently region’s) key components, it is necessary to iden- their ability to employ counter-measures. The cumu- tify the regional key actors and their role in im- lative effects of stressors may also turn into shocks. pacting on regional resilience. Additionally, this  Informants will be asked to provide input on will help determine what their respective risks are. risks and stressors, both existing and expected. A The objective is to interview regional and national list of different types of risks and stressors will be actors (per case study region) from the following shared with informants to stimulate a more de- categories: tailed discussion in relation to each region’s respec- tive contexts. n Regional authorities n City/local authority Time-span and historical context n Industry/cluster/private sector informant Understanding the system requires a historical n National expert overview of the regional economy, its industries and n Research expert institutions, how these have behaved through- n Cross-border expert (if applicable) out different stages of the economic cycle, and n Other if appropriate. how they coped/responded to previous shocks or threats. This includes taking into account what All informants from all categories will be asked to measures were taken and how other actors reacted provide their view on the role of different actors and to these situations. their potential risks.  Informants will be asked to elaborate on the historical development of the region, or simply to re- Identifying the risks late their answers to their specific historical context. In line with OECD guidelines, this project takes a multi-hazard approach to uncovering the risk land- Analytical approach scape of the regions studied. This includes a combina- Following from OECD guidelines, the analysis will tion of geopolitical, economic, and natural and envi- draw on the collected information to create pro- ronmental risks. Depending on the case-study region, files for the identified risks, including: the analysis may focus on a narrower set of risks.

Table 4: Questionnaire designed for collecting information about regions’ ‘capacities’

What makes a region able What makes a region able to What makes a region able to to resist or prevent negative adjust or modify its character- change fundamental structures impact of shocks and stress? istics and actions without major so that a shock will no longer structural changes (adapt to have any impact? new conditions)?

e.g. diversity of industrial e.g. R&D, innovation profile, diverse e.g. R&D, innovation profile, diverse base, contingency plans, human resources, inclusive society, human resources, inclusive society, savings, safety, reliable active community, good leadership active community, good leadership infrastructures, long-term e.g. entrepreneurship, R&D, close vision, sustainable urban collaboration among regional development actors, citizen participation, financial resources available for structural change, smooth vertical coordination (national and regional level institutions)

nordregio report 2019:2 23 n type of risk (idiosyncratic or covariate) this study to determine with absolute certainty n hazard type (natural, geopolitical, economic, etc.) the causal relationship between risk and circum- n related stresses (long-term trends, aggravating stantial events as this would require an extensive, factors) comprehensive study of the risk landscape at large. n risk description (summary of what is known about However, this study aims to contribute to the field the characteristics of this risk) of research with a snapshot of the interlinkages and n past shocks and scenarios (examples of past dominant factors that may cause shocks, as well events and shocks, and their impact) as a sketch of appropriate counter-measures. The n possible impact (description of possible impact analysis will highlight some of these connections on different system components derived from past between specific risks and specific assets, regional impacts and scenario exercises). capacities and types of capital. By connecting spe- cific risks with the presence or absence of certain This study will not measure the probability that capacities, the analysis will provide insights into identified risks may actually occur. It is thus beyond how resilience can be proactively strengthened.

nordregio report 2019:2 24 4. Case studies

Figure 5 presents the five case-study regions se- 3) a variety of risks and types of shock. In addition, lected for this study. The selection process was cases were chosen where a qualitative approach made in collaboration with the Nordic thematic was seen as a complement to economic and demo- group for innovative and resilient regions 2017–2020. graphic indicators to understand how communities The selection criteria included: 1) regions from the adapt to and respond to change. five Nordic countries; 2) both urban and rural areas;

Figure 5: Case-study regions selected for field research nordregio report 2019:2 25 4.1 NORTHERN of renewed, more resilient regional development. OSTROBOTHNIA, FINLAND Today, Oulu’s ICT sector has spread the risk be- tween numerous SMEs and start-ups with a much by Eeva Turunen & Alberto Giacometti broader offer of products and services. The am- bition now is to establish better connections be- Introduction tween the ICT sector and traditional industries The area around the region’s capital city, Oulu, was so that the productivity of these industries (e.g. highly-dependent on a single company, Nokia, and metals, forestry, mining and, most importantly, a single product, the mobile phone. This proved e-health) is improved by digital technologies. The to be highly risky. A ‘technological shock’ at the collapse and subsequence re-bounce of the ICT beginning of the 2010s, resulting from a combi- sector in the region is an excellent example of re- nation of global competition and technological gional resilience. However, a holistic understanding innovation, effectively ‘snatched out’ the mobile of resilience in the region cannot be limited to one phone industry, one of Northern Ostrobothnia’s sector alone without considering the sum of all most profitable businesses, in a short space of other economic activities, which together account time. However, the rapid response of the regional for the largest share of employment and turnover actors, their deeply rooted triple-helix model and in the region. It is essential to take a close look at the exceptional work force, drove the region's key global and local developments in other sectors, such ICT industry to ‘bounce forward’ towards a path as mining, metals, forestry and agriculture, in order to gain a more complete pic- ture of how prepared North- ern Ostrobothnia is for abrupt changing conditions. No less importantly, global politics (such as souring trade rela- tions with Russia, Brexit, US tariffs on EU exports and so- cial unrest in the Middle East) has direct consequences for regional resilience.

Territorial factors Northern Ostrobothnia is the second largest region in Fin- land with 30 municipalities and 7 sub-regions located from the coast of Bothnian Bay to north-east Finland and to the border of Russia. It has 411,856 inhabitants, almost half of them living in Oulu, which is the sixth most populous city in Finland (Sta- tistics Finland, 2018). Figure 6 gives a rough il- lustration of Northern Ostro- bothnia’s key economic sec- tors and growth potentials. The most diversified industrial structure is focused on the Figure 6: Illustration of industries identified as central for the regional Oulu sub-region. Oulu, the resilience study in Northern Ostrobothnia capital of Northern Ostro-

nordregio report 2019:2 26 The downturn and rebirth of the ICT sector in Northern Ostrobothnia is an excellent example of regional resi- lience. The regions’ hands-on response and a diverse industrial basis were crucial to withstand the crisis. bothnia region, is known as a technology hub and the region. (Interview 6) Based on their annual turn- a favourable environment for start-ups, with a over, the ICT, metal and construction sectors are strong entrepreneurial culture and many SMEs. the region’s top clusters. Increased turn­over in the In the high-tech industry, in particular, conditions health and cleantech sectors, too, indicate posi- have radically changed since the collapse of mobile tive development. Construction, ICT and tourism phone industry led by Nokia and it has become a have the highest share of employment by sector much more dynamic and diversified sector. Oulu (Regional Economic Prospects, 2018). Attractive- University and Oulu University of Applied Sciences ness and digitalisation are cross-cutting themes attract many young people to the city, mostly in Northern Ostrobothnia’s regional strategic from other parts of the region. Oulu’s potential plan (Interview 6). The fast-growing ICT sector is can especially be seen in the ICT, construction and constantly in search of good employees, and the e-health sectors (Regional Economic Prospects, northern region, Oulu and Oulu University are put- 2018). New investment in a bioenergy plant and an ting a great deal of effort into responding to this increasing interest in bio-based products are also challenge by investing in education and attracting seen as potential growth areas for the region. international workers and students. However, this Outside Oulu the reality is quite different, in remains one of the key challenges. Other important terms of both demography and industrial compo- challenges include relatively high youth unemploy- sition. While Oulu has experienced constant pop- ment in the Nordic context and a mismatch be- ulation growth over the past few decades, other tween the skills needed and those available; yet, at parts of the region have experienced stagnation the same time, highly skilled labour is available in or decline. The dominant industries and areas of certain fields such as engineering. potential development are mostly based on natural Gross regional product (GRP) and employment resources, primary production and refining. The rates in Northern Ostrobothnia have matched the metal industry is particularly important in Raahe, rates in Finland as a whole. Specifically, it is worth while forestry and agriculture are the traditional noting the large drop in GRP in the early 1990s dur- sectors throughout Northern Ostrobothnia. A ing one of the worst economic crises in Finland. The planned nuclear power plant in Pyhäjoki will also national crisis also dragged down the economy of bring new jobs and economic growth, especially to the region. However, the exceptional development Oulu and neighbouring coastal areas. of Nokia at that time, and its continuing growth, The rather young demo­graphic structure, highly resulted in positive economic growth and employ- skilled labour in technological sectors and strong ment for the region. A distinct dip in employment research and product development capability are can be seen in the early 2000s, partly connected acknowledged as current and future strengths for to the first signs of trouble at Nokia. Finally, the nordregio report 2019:2 27 most recent downturn in the years 2008–2010 co- workers had a strong attachment to the region incided with the global financial crisis, heightened and did not abandon it during the shock. Instead by the exceptional collapse of the mobile phone they had a readiness to change, and many found industry (Interview 4 & 5). their way from the electronics industry into high technology services. (Interview 4-6) Risk landscape Even though the high-tech sector evidences This section provides a mapping of different past a much healthier situation today, the Council of events (shocks) as well as existing and potential Oulu Region still considers technological shock to risks to different economic sectors in the region be a major risk to the sector, the regional economy of Northern Ostrobothnia. The aim is to illustrate and employment (Council of Oulu Region, 2016). the different types of situation that can lead to In any potential new shock within the ICT sector, abrupt changes in the social and economic struc- an important difference is now the composition of ture of the region or parts of the region. the industry (Interview 2). The triple-helix model was an effective way to coordinate a response to Technological risk the structural change resulting from the crash of The ‘technological shock’ in Oulu results from a Nokia. However, it is harder to coordinate a response process known as ‘creative destruction’, which es- today, due to the fact that there is now greater sentially implies a transformation of the economic diversification in business sectors, with smaller structure because of the ‘mutation’ or evolution actors and a higher complexity of industries and of its industrial base through the emergence of their interconnectivity, in contrast to a major player new technologies. In this case, the mobile phone (i.e. Nokia) (Interview 4 & 5) An example of this industry, once largely dominated by Nokia, based inter­connectivity is how ICT technology is being in Oulu. The sudden collapse of Nokia’s mobile utilised within the health sector (i.e. e-health). phone industry did not come as an isolated event; Other important developments connected to technology is constantly advancing and compa- the high-tech sector that have an influence on the nies need to stay up to date, if they are not fore­ social structure of the region are, for instance, the runners in technological development, if they are gender imbalance and the difficulty of attract- to keep their position in the market (Interview 4 ing enough young professionals (Interview 6). The & 5). This was precisely one of Nokia’s mistakes, high-tech sector, like other key industries, is rather when it failed to foresee the potential of touch- male-dominated. Only one in five employees in screen technology – and later the smartphone – to software development companies is female, of become the new generation of mobile phones. which a large proportion work in other roles, such The risk materialised as a ‘shock’ when a new as administration (Kaleva, 2018). technology (the touchscreen) was introduced Finally, technological risks today are accen- to the market by a foreign company, effectively tuated by the fact that progress in technology ‘snatching away’ Nokia’s share of the global mar- is not geographically balanced, and the impact ket. This led to the loss of about 3750 jobs (Min- manifests inversely in different regions. While the istry of Economic Affairs and Employment of emergence of the smartphone represented a sig- Finland) in high tech companies in Oulu and nega- nificant loss for Oulu, it became a huge opportunity tive consequences throughout the supply chain for California. (Simonen et al., 2017). In the early 2000s, Nokia started to look outside the region for subcontrac- Commodity price risk and loss of income- tors and as a result several service companies had generating activity to relocate, close down altogether or adapt to the Commodities, such as mineral and forest resources, new situa­tion by broadening their client and inno- have little or no value differentiation in relation to vative capital portfolios (Interview 4 & 5) their place of origin. Their prices are determined, The excellent response of the regional actors, primarily, by supply and demand in global ex- their deeply-rooted triple-helix model and the ex- change markets. In spite of the efforts made to ceptional human capital, drove the ICT industry, predict production and consumption rates, there a key sector in the region, to ‘bounce forward’ to- are numerous factors and events that can signifi- wards a path of renewed, more resilient regional cantly divert such patterns, for instance, the war development. One important factor was that in Syria, Brexit or the unexpected tariffs imposed nordregio report 2019:2 28 by the US government on foreign exports. It is steel markets (Interview 8). Even though most therefore nearly impossible to control the prices of exports from the SSAB factory in Raahe are to commodities locally. For this reason, countries and Nordic countries and Europe, the US tariffs could regions, such as Northern Ostrobothnia, where a have indirect effects on profitability. significant share of GDP comes from commodity exports, are highly sensitive to global trends and Demand-driven risk geopolitics and need to be prepared for major Variance in demand for a product can relate to fluctuations. For global markets, it is common for a collapse in consumer confidence or purchasing a supplier’s network to be more spread out and in- power, or technological advancement and trends teractions with subcontractors to be less dependent that make a product less desirable. In the case of on local actors. Technological innovations, such as forest-based products, there are different rea- automation and robotics, can replace employees sons for fluctuations in demand. One of these is in sectors that are still labour-intensive. On the that the digital era has significantly reduced the other hand, new innovations can create more flex- need for paper for communications, paperwork ibility in terms of price and competitiveness. and so on. On the other hand, the recent price The loss of an income-generating activity gen- trend for pulp has been favourable because of in- erally involves one or few key actors deciding to creased demand in Asia, especially in China, where close or relocate an industry. There can be many the demand for tissue and cardboard has been in- reasons behind this but, most importantly, re­ creasing (Kauppalehti, 2018). In Oulu, for exam- location can make sense economically if, for ex- ple, this favourable trend is seen in Stora Enso’s ample, production is cheaper elsewhere or needs initiative to change its production line from paper to be closer to particular markets. The depletion of to pulp mill. It has announced its preparation for the resource is an inevitable reason to shut down this includes an investment of 700 million euros, production in the mining sector but when this hap- an ongoing feasibility study and an environmental pens it comes as no surprise. In Northern Ostro- impact assessment for its factory in Oulu (Kaleva, bothnia, low prices have been a recurrent reason 2018). The demand for wood is extremely depend- for the closure of mining activity, for example the ent on domestic construction volumes, however, bankruptcy of the Hitura nickel mine in 2015 and which in turn depend on the overall economic situ- the temporary closure of the gold mine in Raahe ation in the region and in Finland. (Interview 6). The zinc and copper resources in Furthermore, the increasing opportunities Pyhäjärvi will soon be depleted and the mine there arising from the refinement of forest resources will close in 2019, resulting in the loss of approxi- offer possibilities such as the compartmentalisa- mately 600 jobs and a reduced tax flow to the local tion of the industry and expansion of the product area. On the other hand, the innovative use of supply. Adding value by producing more refined mines has brought new possibilities to Northern bio-based products, such as chemicals and bio- Ostrobothnia, where new mining and tunnelling fuels, is also emphasised in the region’s smart machines have been tested in the old mines, and specialisation strategy. These opportunities can existing structures have been used as laboratories provide the sector with a more reliable source of in- for crop husbandry and research environments for come, making it less reliant on domestic consump- particle physics (Interview 6). Such endeavours tion and economic cycles. An example of this kind have shown favourable results. There are plans to of development is the investment of 200 million modernise SSAB steel factory’s operations and euros in a new bio-based power plant to produce another company, Ferrovan, intends to restart its district heating and electricity in Oulu (Interview production of vanadium in the region in 2021. 1 & 2). However, the development of this industry New investment in Raahe’s steel factory aside, is highly dependent on clear policies and support global market conditions for the metal industry mechanisms at national and EU level. might present some challenges for Northern Os- trobothnia. US tariffs on steel imposed in 2018 Policy-induced and geopolitical risk might affect global market prices and, with more Geopolitical risks result from souring relations regulated imports to the United States, the ex- between states, tensions, increasing protection- porting countries may need to find substitute buy- ism or liberalisation of markets, or conflicts that ers for their products, which might disturb global disrupt production and consumption (supply and nordregio report 2019:2 29 demand). The EU sanctions on Russia after its in- to intensify production while using the best avail- cursion in Ukraine and the retaliatory measures able technology (Kauppalehti, 2018). Finding sub- that followed from Russia, had a negative impact stitute sources of income may have been challeng- on Finnish exports, particularly dairy and beef ex- ing to some individual farmers. ports. In Nivala-Haapajärvi sub-region (the most These trends and structural changes are similar southern sub-region in Northern Ostrobothnia), throughout Finland and therefore the agricultural the sanctions resulted in a 30% drop in farmers’ challenges and the resulting structural changes are income levels (Council of Oulu Region, 2016). At a mostly seen as an issue that needs political instru- national level, this meant economic losses of about ments to be adapted at national governance level 400 million euros (Interview 9). Despite some na- (Interview 9). Other challenges connected to the tional efforts to promote domestic food exports agriculture sector include climate change, weather and additional EU subsidies on milk products, the extremes, unstable costs and the terms of the EU financial losses resulting from the sanctions were Common Agriculture Policy. These have resulted remarkable in Northern Ostrobothnia. The sanc- in changes within the sector such as growing unit tions also had a significant effect on negative size, more centralised production and diversification price development in EU markets. These events, of income sources. together with the EU Common Agricultural Policy, have caused a rather polarising trend in the agri- Policy-induced risk cultural sector. This means a decrease in the num- Changing the administrative structure brings un- ber of farms engaged in small-scale production certainty about the new system but can also bring and an increase in farms with bigger unit sizes. improvements such as more efficient manage- As the biggest milk producing region with the ment and less bureaucracy, and can provide fur- highest number of dairy farms in Finland (LUKE, ther support mechanisms for private investors. It 2018), Northern Ostrobothnia has also confronted can also result in a more complicated and less well this trend. However, in recent years, there has been functioning system. The regional authority appears a great deal of new investment in larger scale pro- to take a rather positive view of the potential of duction by farmers. Production volumes have also the reform, however, as it can improve dialogue remained the same despite the challenging price between national and regional levels. According conditions and the decrease in the total number of to the regional plan and the implementation plan, farms. Therefore, despite the challenging circum- substantial resources have been invested in the stances, there are positive expectations for pro- process leading to the reform and to provide a solid ductivity. (Interview 9). Together with new invest- groundwork as basis for the final decision. Thus, ment and, for example, unused potential in crop a better understanding may be built at national husbandry, Northern Ostrobothnia is orienting to level of the differences between regions and their adapt for the unstable market conditions (Council key economic activities, and support mechanisms of Oulu Region, 2016). The most recent stressor for provided that are tailored to the specific needs this sector was an announcement in summer 2018 of regions. Nevertheless, the reform includes sev- that Valio Ltd, a Finnish manufacturer of dairy eral political aspects and therefore the consensus products, was about to mark down its producer’s might not be the same among all the actors. There prices. This kind of unfavourable price trend brings is particular disagreement around the details of particular challenges to farmers with a smaller the reform. For instance, the six biggest cities in unit size (ibid.). Finland have criticised for its un­favourable policies Actions to counter the Russian sanctions have on the areas that are confronting the greatest de- included attempts by dairy producers to diver- mographic and economic growth in Finland, claim- sify their products by expanding from traditional ing that the planned reform would not give enough milk derivatives to more specialised, longer last- consideration to consistent urban policies or secure ing products such as ice-cream and milk powder cities as sufficient economical resources (Cities of (Kauppalehti, 2018). There has also been a trend Helsinki et al., 2017). However, the regional authority among farmers towards strengthening and diver- in Northern Ostrobothnia is willing and ready to sifying cooperation and the creation of new sub- take the driver’s seat in this challenge and work contracting relations based on machines like food/ towards the best possible scenario. forest harvesters and tractors. This enables farmers nordregio report 2019:2 30 Stress: Demographic changes and develop according to its needs and opportunities. attractiveness The strategy is always completed together with In addition to risks and shocks, there are a number national authorities and ELY-centres (state level of stress-factors in Northern Ostrobothnia that agencies responsible for economic development, even if they do not have abrupt consequences, they transport and the environment), in cooperation have a substantial influence on the long-term de- with local authorities, universities and other relevant velopment and resilience of the region. Despite a regional authorities. rather young demographic structure, the working As part of a key project1 implemented by the age of the labour force is decreasing, which causes Finnish government to boost employment and particular challenges for rural areas. Most of the competitiveness in the regions, the national in- population is concentrated in urban areas, particu- stitutions started to integrate resilience thinking larly in Oulu. The population is ageing and there is into mechanisms that aim to support structural difficulty in attracting young skilled workers and changes. Support for regions that confront abrupt students (Interview 4 & 5). At the same time there structural changes (äkillinen rakennemuutos, is a quite high youth unemployment rate (24.1% in ÄRM) is the first, well-established national mech- 2016) (Interview 1). According to interviews, there anism. Following many negative abrupt shocks in are insufficient links between employers and the Finland, the Ministry of Economic Affairs and Em- labour market (Interview 6), and therefore, there is ployment started to advise regions to take more a mismatch between the skills available and those action to anticipate these. Resilience thinking and needed, which is already evidenced in the shortage preparedness were also intended to be perma- of labour for certain disciplines. One reason men- nently integrated in the region’s development plan, tioned for the lack of attractiveness for people to including the more detailed regional implementa- move to Oulu for work and studies, is the lack of tion plan (Interview 7). However, there is so far no amenities in the city centre and quite dispersed ur- formal evaluation of this. ban settlement (Interview 2). Finally, the distance A funding programme, ‘Regional Innovation of Northern Ostrobothnia to Helsinki appears to and Experimenting’ (AIKO fund), was announced play in disfavour for the region in national policy by the Ministry of Economic Affairs and Employ- making (Interview 1). On the positive side, how­ever, ment in 2015, for regional councils to support inno- the diversified economic structure of the region vation in their regions. In order to receive this na- makes it less dependent on a single actor. Addi- tional funding, Finnish regions created action plans tionally, there support is given by the region to un- on how they would react to anticipated structural employed people through education programmes changes (ennakoidun rakennemuutoksen suun- to better meet the companies’ needs. nitelma, ERM). (Interview 7). To accomplish this, the regional Council of Oulu Region involved all Resilience drivers local authorities in evaluating regional resilience, The development of a status report on existing starting with a status report on local authorities’ economic activities, and effective coordination economic and employment structure. An extensive between regional and national institutions, appear analysis of the existing structures and figures was to be the core mechanisms bolstering long-term carried out, considering the national and global thinking and preparedness in Northern Ostrobothnia. trends surrounding each economic sector, in order The exceptional collaborative culture amongst to identify any potential risks. The regional council regional actors has demonstrated their excellent examined each risk-bearing sector and compiled capacity for organisation and reaction in the face a document in which each sector’s preparedness of serious problems that have a wide impact on all for potential forthcoming shocks was anticipated. regional structures, such as was the case during The document described each identified risk and the shocking collapse of Nokia. anticipatory actions (described in chapter 3). The document also indicated an elaborate action plan National mechanism and regional strategies Regional councils in Finland are responsible for the strategic planning of regional development. The 1 Key projects: Employment and competitiveness. Boosting regional plan, done every fourth year, is a long- competitiveness by improving conditions for business and entrepreneurship. term strategic view of the region’s objectives to tion-of-the-government-programme nordregio report 2019:2 31 for different authorities and institutions in case of well-functioning mechanisms or affecting public an abrupt structural change. The long- and short- trust in public authorities. term strategic elements ensuring regional resil- ience were also incorporated in the recently updated Improving resilience by ‘creative destruction’ regional implementation plan. This emphasised Northern Ostrobothnia’s action plan on antici- the importance of anticipating actions to respond pated structural change includes a detailed plan to the depletion of the Pyhäsalmi mine, dynamic for abrupt structural change (shocks), such as a conditions within the ICT sector in Oulu region and large number of employees being dismissed from potential economic growth linked to the nuclear a single company or other economic challenges af- power plant. fecting an entire sector or production chain. This The far-reaching work done in preparation action plan is largely based on the good practices for the action plan by involving local authorities, learned during the technological shock and sudden targeting efforts towards good background inves- structural change experienced by the region’s high- tigation and a true willingness to find a region’s tech sector when its over-dependence on a single strengths, evidenced the region’s high commit- company and a single product – Nokia Corpora- ment to resilience thinking. These efforts were tion and mobile technology – led to notable struc- acknowledged at national level and this was one tural changes between 2001 and 2011. of the main reasons Northern Ostrobothnia was Nokia’s inability to keep up with international one of the biggest recipients of AIKO funding in mobile phone markets resulted in approximately 2016–2018 (Interview 7). Well-integrated resil- 3000 job losses in the high-tech cluster, and it af- ience thinking is also visible in the region’s smart fected the whole supply chain, a highly specialised specialisation strategy, which aims to diversify the network of subcontractors (Simonen et al., 2016). economic structure within the domains that are Simonen et al. (2016) argued that an efficient the strategy’s main focus. It is also closely linked combination of creative destruction and correctly to the anticipatory actions. allocated policy measures were the key factors Recently, the criteria for applying for abrupt for a fast recovery. Creative destruction essen- structural change funding has been adapted to tially implies a transformation of the economic incorporate positive structural changes as well. structure because of the ‘mutation’ or evolution This change has the potential to proactively direct of the industrial base through the emergence of development in line with global trends, and profit new technologies. These success factors are also from the upcoming opportunities before they turn acknowledged in the regional strategy, which into threats. (Interview 7) identifies swift reactions and close cooperation In addition to this, a major change is expected and communication between key authorities and across the regional administration, as the Finnish organisations as prerequisites of the creation of government is preparing considerable regional re- new successful response mechanisms. forms that will unquestionably transform many Well-functioning policy measures resulted aspects of the existing mechanisms relevant for from the ideal triple helix cooperation between resilience. The reform aims at improving dialogue versatile public authorities, an established innova- between national and regional levels. To facilitate tion alliance and an encouraging business sector, this dialogue, each region is expected to make a ‘BusinessOulu’, owned by the city of Oulu. The ‘Tar ‘snapshot’ report on its main measures and objec- Group’ was a management group or task force tives. This report does not address the question of consisting of different public authorities, which resilience directly but it does include short analyses was established specifically to address the struc- of the region’s economic structure, its strengths tural change. It allocated 30 million euros of finan- and any anticipated development trends. The pro- cial support comprised of ‘ÄRM’ funding from the cess of elaborating the report also supports the national government, and ERDF and EGR funding regions to be aware of dynamic conditions and from the EU. (Interview 6) evaluate them. The reform has the potential to Funding was allocated to efforts to build up strengthen the public institutions and their capac- innovative start-up ecosystems, targeted educa- ity to react to threatening developments. How­ tional events and courses, and projects within the ever, if the new organisation does not effectively network of innovators – the ‘Innovation Alliance’ respond to needs, there is also a risk of it damaging – and the regional SME network. The responsi- nordregio report 2019:2 32 bilities were shared by the Council of Oulu Region, terprises, Northern Ostrobothnia is one of the re- which was responsible for identifying new poten- gions with the highest number of high-tech SMEs tial SMEs and developing novel operational envi- in Finland. Furthermore, companies in Northern ronments; TE-services (employment and econom- Ostrobothnia had the highest R&D investment in ic development offices in Finland) together with relation to turnover in Finland in 2015 (Ministry ELY-centres, which were responsible for providing of Economic Affairs and Employment of Finland, tailored human resources and targeted educating 2018). Well-grounded financial support from the services; and ELY-centres, which were responsible region is reinforcing its companies’ booming po- for allocating financial and functional investments tential, and a remarkably high number of new jobs to SMEs (Herala, et al., 2017). in Finland are created by domestic SMEs (Herala Targeted education projects were an effective et al., 2017). Northern Ostrobothnia’s biggest way of helping people to find new job opportuni- challenge now is to respond to their needs with ties within the high-tech sector. A high participa- targeted education, new investment in the uni- tion rate for the education projects was the first versity and ensuring Oulu’s attractiveness to an sign of people’s commitment (Herala, et al., 2017). international labour force (Council of Oulu Region, Besides the financial support, many new, techno­ 2018, interviews). logy-based business incubators were founded in A reallocation of responsibilities and active co- Oulu. Their aim was to create an innovative social ordination of regional potential are also planned in network, where unemployed people could also the region’s updated action plan for sudden struc- strengthen and develop their new business ideas tural changes. The action plan mentions a detailed based on their expertise. This reduction in the mis- plan for setting up a regional management group match of know-how between potential new em- to coordinate and support the operational work ployees and employers was and still is one of the of ensuring the region’s capabilities, education, main educational aims in Oulu region (Interview 4; entrepreneurship and communication (Council Interview 5). of Oulu Region, 2018). Besides the large share of It was not only people’s willingness to re- AIKO funding, Northern Ostrobothnia also re- educate themselves and stay in the region but also ceives sizeable resources from other national and Nokia’s loyalty to the region that was an interest- EU funds (i.e. the European regional development ing enabling factor for rebuilding a creative high- fund and European social funds) to improve em- tech cluster in Oulu. Nokia supported educational ployment and increase regional competitiveness programmes but also gave away unused patents (Government Notice, 2018). These resources have and provided start-ups with financial packages been essential not only for enabling the region’s that could further develop Nokia’s ideas (Interview resilience during the past technological shock but 5). ‘Creative destruction’ is a good description of also for strengthening its potentials and directing the ICT sector’s development process in Northern it onto a more resilient development path. Com- Ostrobothnia. Today there are approximately 650 pared to the EU and national structural funds, high-tech companies whose need for competent AIKO funding is a small-scale resource, targeted employees is even stronger than it was before the specifically at strengthening regional resilience and structural change. However, the shortage of com- supporting innovative micro-projects for economic petent labour is one of the biggest challenges for growth (Interviews or Interview 6 & 7). the high-tech sector if it is to grow further (Council of Oulu Region, 2018). Resilience as a cross-cutting idea The strong entrepreneurial drive of people in between the key sectors Oulu shows their commitment, loyalty and willing- The national and EU funds are allocated by the ness to change and adapt to transforming con- Council of Oulu Region and the ELY-centres. Under ditions. Today this entrepreneurial ecosystem is regional reform, however, new counties are to be extremely dynamic and there is a fast developing established, and ELY-centres are to be merged start-up culture and increasingly diversified SME with the regional councils under the same admin- network. During the past five years, more than istrative unit. Northern Ostrobothnia's ELY-centre 500 high-tech start-ups have been established funded regional development projects for compa- in Oulu (Oulu Finncham, 2018). According to the nies, with approximately 18 million euros in 2017. OECD and Eurostat’s definition of high growth en- The most targeted funding was directed at the ICT nordregio report 2019:2 33 sectors, manufacturing metal industry, timber and compensate for some of the negative effects of wood industry and tourism. The funding was intend- closing the Pyhäsalmi mine, particularly in terms ed, in particular, to support companies’ economic of employment. This is critical, especially because competitiveness in the region and to enhance their the mining sector is expected to experience the ability to open international markets (Regional highest structural risks in Northern Ostrobothnia Economic Prospects, 2018). The Ministry of Eco- due to the depletion of resources and uncompeti- nomic Affairs and Employment monitors and co- tive prices. This risk has been well acknowledged, ordinates the region’s work by anticipating regional however, which is why the inventive reuse of the development at national level by compiling regional mining infrastructure has been developed. So far, status reports elaborated by the ELY centres (Re- this has meant, for instance, testing the favour- gional Economic Prospects, 2018). However, it is able conditions of mines for research into particle likely that there will be changes to this mechanism physics, testing new mine machinery and using after the regional reform (Interview 6 & 7). deep tunnels as seed banks. Besides the region’s emphasis on the efficient combination of creative destruction and correctly Findings Northern Ostrobothnia allocated policy measures, our interviews high- case study lighted the region’s resilience potential in terms The efficient combination of creative destruc- of its smart specialisation strategy. The idea is to tion and correctly allocated policy measures were strengthen a region’s resilience and companies’ the key factors for fast recovery (Simonen et al., competitive ability by creating linkages between 2017). This was also a key message of our inter- the ICT sector and traditional industries. Instead views in Northern Ostrobothnia in February 2018. of creating a highly specialised high-tech clus- An interesting finding was the excellent coor- ter around one product, the strategy is to spread dination between all levels of government – na- highly skilled capital across all the smart speciali- tional, regional and local – in developing mecha- sation domains to find more valuable innovations. nisms to cope with threatening developments, E-health is a promising example of this kind of particularly the way all levels were involved in the development (Interview 4 & 5, University of Oulu, identification of potential risks, and how they led 2018). In addition to the strong ICT and software to concrete measures, incorporating them into the sector, the smart specialisation strategy focuses regional implementation plan and the structural on health and wellness technologies and enhanc- change support system at a national level. ing the basic industry’s value chain. In practice, More specifically, in the face of a real crisis, the this means support for Oulu University’s Health key reason for the successful ‘re-bounce’ of the and Technology Centre (CHT), for example. The high-tech sector and regional economy is largely refinement of by-products of the agriculture and attributed to the excellent organisation capacity wood industries into new bio-based products and of the public authorities through the Tar Group cleantech solutions is another area of growing pos- and the activation of a serious and far-reaching sibility and interest in Northern Ostrobothnia. The response. This also explains the importance of region has 1369 dairy producers (2014 figures) and strong social networks, loyalty to the region and a long forestry tradition, and there is a good pos- the hands-on attitude of the regional actors, in- sibility of developing these traditional industries. cluding the business sector (Nokia in particular) A single but significant factor for the region’s and society at large, especially the people who lost resilience is Fennovoima's nuclear power plant, their jobs but chose to stay in the region and set up which will be located in Pyhäjoki, approximately their own businesses or re-educate themselves to 100km south of Oulu. It is the largest investment fit the new demands of the labour market. in the region. It is anticipated that it will create In a ‘central planning’ tradition, one way of significant growth by engaging industry sectors dealing with job losses and resilience after the clo- including energy, metal, machinery and construc- sure of a major economic activity is to establish a tion, and service sectors like transport, accom- new state-funded economic activity. The planned modation and commercial services (Regional nuclear power plant in Northern Ostrobothnia Economic Prospects, 2018). The construction and and the creation of an innovative environment for further operation of the nuclear power plant will start-ups and SMEs are perhaps the factors with

nordregio report 2019:2 34 most potential in creating new job opportunities. Added value of resilience measures in Northern Also, by creating a buffer against potential risk re- Ostrobothnia lated to commodity prices, Northern Ostroboth- The added value of resilience measures is perhaps nia can be more prepared for commodity price most obviously seen in the re-bounce on economic variations within the mining, metal or forestry activity and saving jobs; however, the benefits sectors. By investing in education and maintaining are much wider. For instance, in the experience of an innovative environment, the region can increase Northern Ostrobothnia, resilience measures resulted its social capital for dynamic conditions. Through in a strengthened public administration and ties a more diversified economic structure and the between different institutions and private actors. compartmentalisation of the high-tech and forest Moreover, the changes resulting from the structural industries, the region can also counterbalance its organisation appear to have influenced the region’s over-dependence on certain demand groups and working culture, entrepreneurship and overall long- economic cycles. term vision of regional development. Last but not The region’s geographic location might be one least, an increased awareness of the risks, trends of its most challenging issues. While Oulu is the and developments within the different economic sixth most populated city in Finland and the region sectors helps all players in society and the economy offers attractive job opportunities, it is still largely better to react, prepare and contribute to make the perceived as remote and cold. Its distance from necessary changes for a more resilient future. Helsinki and other major cities also makes it less influential in terms of decision-making.

nordregio report 2019:2 35 4.2 VESTMANNAEYJAR economic sectors in Vestmannaeyjar, such as tour- ism, could potentially counterbalance the risks as- (WESTMAN ISLANDS), sociated with fisheries. To date, the fishing indus- ICELAND try still dominates the area’s economy and labour, yet diversification within the fishing industry is by Hjördís Rut Sigurjónsdóttir & occurring, maximising the use of every part of the Alberto Giacometti fish and diversifying the products. This provides an opportunity for a stronger, more resilient sector. Introduction The ‘island spirit’, collectivism and social cohe- The Westman Islands, or Vestmannaeyjar, offer an sion have significantly contributed to the recovery interesting study of economic and social resilience of the island’s community and economy during due to the combination of risks and challenges difficult times. Confronting the challenges in the that arise from the islands’ climatic and natural community is the key driver for keeping society afloat. conditions, related to their fishing industry and the broader political environment. Due to the dif- Territorial factors ficult climatic conditions, transport is rather un- Vestmannaeyjar is an archipelago located to the reliable and can obstruct daily life and economic south of mainland Iceland. Despite its difficult competitiveness. The volcanic character of the is- location, Heimaey, the largest and only inhabited land means there is a latent threat of major erup- island in Vestmannaeyjar, is the twelfth largest tions, such as the event in 1973 that resulted in the settlement in Iceland, with around 4300 inhabit- temporary evacuation of the entire population ants. Over a 70-year period (1906–1973) the popu- from the island of Heimaey. At the same time, the lation of Heimaey, increased from around 700 to location is an asset and an essential part of the 5300 inhabitants. Its proximity to fishing grounds identity of the community. Its unique landscapes meant it was an advantageous location for the and nature (for example, it is an ideal location for fisheries sector, leading to economic growth and watching puffins) make it an enchanting place to positive population development. The location, live and offer huge potential for tourism. Expand- however, has caused major difficulties for the is- ing the tourism industry, however, is hindered by landers. During the first half of the century, ship- unreliable transport to the island. ping accidents were particularly frequent due to Its solid fishing industry is the foundation of the small size of vessels and rough climatic con- the town’s economy. However, the single-industry ditions in the open North Atlantic Ocean. Not to economy represents a risky economic path. The mention the major volcanic eruption in 1973 that number of fisheries has continuously decreased, led to a complete evacuation of the island, which and fishing activity is now accumulated in a few never regained the pre-eruption population level. hands. While this has allowed the industry to re- The economy of Vestmannaeyjar is mainly main profitable and competitive, the livelihood of based on the fishing industry, which is the major the whole society depends on the decisions of a contributor to the island’s finances and accounts handful of people. Moreover, any political decisions for around 50% of the work force (Sævaldsson, made in Reykjavik related to the fishing quota sys- 2016). Yet, because of its insular condition, the la- tem could have a significant impact on the entire bour market is fairly diverse as, on a day-to-day sector and the communities, like Vestmannaeyjar, basis, residents rely on local commerce and service that depend on it. providers (Þorgrímsdóttir et al. 2012). Unemploy- Furthermore, macroeconomic (e.g. the 2008 ment is rather low in Vestmannaeyjar, as in the financial crisis) and geopolitical (e.g. sanctions country as whole, and was estimated to be 2.2% on Russia) circumstances have a direct impact on in 2016. Participation in the labour market is quite currency value fluctuations and the prices of com- high and has been rising, with an employment rate modities such as fish. The small Icelandic krona of 87.7% in 2016 (Sævaldsson, 2016). Major service is particularly sensitive to fluctuations, affecting activities tend to be based around the fishing revenue from export industries and consumer pric- industry (e.g. machinery garages). Tourism is a es. Value fluctuations in foreign currencies (e.g. the growing sector but is strictly seasonal. Public ser- British pound) have a clear impact on the earnings vices are robust, and account for a large share of of the fishing industry. Diversification into other employment, including public administration, the nordregio report 2019:2 36 District Commissioner’s Office, secondary school, Risk landscape hospital and the university centre, which provides This chapter intends to provide a mapping of the facilities for distance learning (Icelandic Regional existing and potential risks to and past events Development Institute, 2012). (shocks) for the social and economic development Centralisation policies from Reykjavik, how- of Vestmannaeyjar. The aim is to illustrate the dif- ever, have removed some services from the island. ferent types of risks and accumulated stress fac- Residents complain in particular about the decay tors that can lead to abrupt changes in the social of health services. For instance, maternity services and economic structure in the area studied. are now available only in the mainland, forcing fam- ilies to travel to Reykjavik in plenty of time before Natural and environmental risks Volcanic a birth is due, bearing the additional costs them- In January 1973, Vestmannaeyjar experienced a selves. The islands are in many senses considered major volcanic eruption that destroyed one third to be in a vulnerable position. Vestmannaeyjar was of all buildings on Heimaey, including 400 homes included in a 2012 Icelandic Regional Development and businesses. The entire population of Heimaey Institute report about vulnerable places in Iceland. (5300 inhabitants) was evacuated overnight, ex- The main reason was a decline in population of cept for 200 rescue workers who stayed to miti- 14% between 1994 and 2011. Another concern is gate the effects of the eruption. Rescuers success- the uneven ratio between men and women with fully pumped sea-water over the lava stream, an over-represented male share, which partly ex- stopping it from destroying the harbour and plains the low birth rate. The proportion of foreign blocking access. The eruption lasted five months residents has increased from 6% in 2010 to 7.2% and during that time it was unclear whether the in 2016, when the national average was 9% (Þorg- islanders would be able to resettle back. After the rímsdóttir et al., 2012; Sævaldsson, 2016). Over the eruption, Heimaey regained two thirds of its popu- last couple of years, the migration trends have re- lation but the rest never returned. Gradually the versed, and population levels have seen a modest community recovered, and the population continued increase (Icelandic Statistic Office, 2018). to increase to around 4900 inhabitants in 1991.

The volcanic character of the island means there is a latent threat of major eruptions, such as the event in 1973 that resulted in the temporary evacuation of the entire population from the island of Heimaey.

nordregio report 2019:2 37 The fast recovery and increasing population imposed by law. Fundraising was made possible by development should be attributed, to a large ex- increased taxes in Iceland and also through dona- tent, to the islanders who were committed to work tions from the Nordic countries, the USA and beyond. on the town’s recovery, the bold decisions made Most importantly, social cohesion has been within the local authority and the companies that the core condition for recovery from this and other supported and invested in this process. Natural past events. People in Iceland stick together and conditions were also favourable when volcanic activ- help each other out during natural disasters. Fund­ ity was declared over, on 3 July 1973, the brightest raisers are particularly common whenever people time of the year in a particularly good summer. are going through difficult times. The nation’s The fisheries, which had moved their operations to search and rescue squads also work on a voluntary other places in Iceland during the eruption, all de- basis and are extremely important for the state’s cided to return (with their jobs) to Vestmannaey- security system. The rescue teams work closely jar. The local authority received financial support with the police and fire departments and can be from the government and from collections in the ready at a moment’s notice, but what separates Nordic countries and beyond, to make up for lost the rescue teams from them is that are based on assets. It had ambitious plans; some of the funds voluntary work. were earmarked for specific developments and in Volcanic eruptions are likely to occur again on a short time a gymnasium, swimming pool and the island of Heimaey, which is considered one of retirement home were built. The ash and scoria the most threatened settlements in Iceland. How- from the eruptions was used as foundations for ever, whether that will take place over the next 10, streets and houses in a new neighbourhood that 50 or 100 years, is impossible to know. Never­theless, had been planned in the early days of the recon- the islanders do not live in fear of possible eruptions. struction. The ambition and determination, in ad- dition to favourable weather conditions that sum- Mainland mer, all promoted a good atmosphere and fighting Volcanic eruptions, earthquakes and mudflows spirit within the people. At this time, it was also resulting from deglaciation can disrupt the acces- fashionable to move to the countryside and, in ad- sibility of Vestmannaeyjar and interrupt the supply dition to returning residents, newcomers moved of fresh water and electricity that comes from the to the islands where there was plenty of work in mainland. the fisheries and the reconstruction. When a hard winter hit two years later and living conditions be- Weather (transportation) came difficult, ash and scoria blowing in the winds, Transportation is perhaps the island’s most impor- the local authority made an important decision. It tant problem and recurrent stress factor for both decided to start a large land reclamation project citizens and business. As an island in the middle of by transporting soil to sow on top of the slag to the North Atlantic Ocean, it occupies a difficult improve living conditions (Interview 1). location with harsh weather conditions that often A contingency plan in case of volcanic eruption disrupt transportation. Two harbours on the main- in Vestmannaeyjar has been developed by the civil land connect Vestmannaeyjar with the rest of Ice- protection and emergency management in Ice- land and the world: a port in Þorlákshöfn, three land, the civil protection committee in Vestman- hours away, and one in Landeyjahöfn, 35 minutes naeyjar and the local police department. The plan away. Even though the trip to Landeyjarhöfn is includes risk analyses, migration and coordination; much shorter, its location has proved to be imprac- the civil protection agency is responsible for imple- tical due to sand accumulation and shallow waters. menting the plan together with the police depart- Therefore, the port can only be reached with some ment in Vestmannaeyjar. Advances in technology certainty for four months in the year during sum- have lengthened the notice of natural disasters, mer. During the rest of the year, the risk of trips although such disasters are unpredictable and the to Landeyjahöfn being cancelled is high. When notice is still short. Earth vibrations are closely Landeyjahöfn is unreachable, the ferry sails to the monitored by the Icelandic Meteorological Office. port in Þorlákshöfn and because of the travel time, Following the eruption in 1973, a crisis fund was the frequency is cut to two trips per day, limiting created for the reconstruction of the town and in the number of people, vehicles and goods that can 1975, a compulsory natural disaster insurance was be transported. This also restricts tourism, which nordregio report 2019:2 38 has boomed in the rest of Iceland in recent years. A North’ exhibition that has been created to cap- new ferry, designed to cope better with the sandy ture the story of the 1973 eruption provide an and shallow waters, is expected to start operat- additional attraction. Another exhibition shows ing in the spring of 2019. While the new ferry is ex- the submarine volcanic eruption that resulted in pected to improve accessibility to Vestmannaeyjar the emergence of Surtsey, the youngest island in significantly, sailing to Landeyjarhöfn will still not Vestmannaeyjar. Surtsey was declared a nature be possible all year round; however, it will be pos- reserve in 1965 and included on UNESCO’s World sible for eight to ten months of the year. Heritage List in 2008 (, n.d.). In ad- dition to this, Vestmannaeyjar local authority is Fish planning to open of a beluga whale sanctuary, in The availability of fish stocks is naturally volatile, collaboration with Merlin Entertainments Parks and climate change and overfishing disrupt and in China. These attractions provide solid ground can even lead to the collapse of fish stocks. Other from which to expand the tourism sector; however, parts of Iceland, for instance, experienced the sud- this is largely hindered by the unreliable transpor- den collapse of herring stocks in 1969, which led to tation to and from the islands. severe economic consequences for a few fishing towns such as Siglufjörður (, n.d.). Changing Financial risk ocean temperatures can also bring different fish The Icelandic krona is a small currency in a small species such as mackerel, which appeared in Ice- economy, making it quick to experience significant landic waters shortly after the economic crisis. value fluctuations. At the same time, a large pro- The fisheries in Vestmannaeyjar, with good ves- portion of the products and services sold in Iceland sels and fishing gear, were quick to gain experience and Vestmannaeyjar are imported, as well as the and catch the mackerel. At that time, the mack- fuel used for transport. This makes Iceland’s econ- erel that appeared within the Icelandic jurisdiction omy quite sensitive to changes in the exchange was not the best quality. However, by getting Matís rates of foreign currencies, as well as oil and other on board, a non-profit research company specialis- commodity prices. Moreover, any fluctuation in ing in food production, an innovative solution was the Icelandic krona has a direct effect on export found to maximize the utilisation of the mackerel gains and consumer prices. The business environ- and its value at the same time. Yet mackerel can ment, therefore, is quite volatile. A drop in the disappear from the Icelandic waters as quickly as Icelandic krona is not a negative scenario overall, it came, which could have a huge impact on Vest- however, and it is particularly beneficial for export mannaeyjar’s fisheries since no agreements have industries such as fisheries and tourism. Conversely, been signed for fishing mackerel outside the Ice- the local economy is greatly affected as it relies landic jurisdiction. A similar situation exists re- almost solely on income from these two sectors garding other fish species, such as the capelin, (Interview 3). which is a very important source of income but The first signs of the global financial crisis ap- supplies of which are highly volatile. These cases peared in July 2007 when the strong krona started exemplify the vulnerability of fisheries to environ- to shake. There was a deep fall in February 2008, and mental changes, which in turn represent a risk for by the end of the year the currency had devaluated the entire economy of Vestmannaeyjar (Interview 3). by 56% (The Central Bank of Iceland, September 2011). While the crisis was largely damaging for Opportunities Iceland as a whole, the weak krona significant- Despite setbacks related to nature and climatic ly increased the gains for the fishing industry, in conditions, Vestmanneyjar’s unique scenery, na- turn benefiting the economy of Vestmannaeyjar. ture and history provide enormous potential for At first the high inflation impacted people’s pur- tourism. The islands are home to one-fifth of the chasing power and increased household, company world’s puffin population (Hansen et al., 2011) and and government debt. However, the fisheries on the chances of seeing these are high during sum- the island were able to withstand the shock and mer. However, negative changes have occurred in shortly after this the economic situa­tion in Vest- the puffin population in recent years associated mannaeyjar began to improve. The additional re- with changes in the marine environment. The is- sources allowed the industry to make long-term land’s volcanic history and the ‘Pompeii of the investments in infrastructure, such as storage and nordregio report 2019:2 39 processing facilities in Vestmannaeyjar. These in- mand (Icelandic Central Bank, 2017). The Central vestments have in turn strengthened the indus- Bank also purchases and sells foreign exchange try’s competitiveness by reducing the need to use reserves to reduce the fluctuation of the Icelandic facilities abroad and being better prepared for krona, and restricts and mitigates the effects of other eventualities, such as climatic conditions im- external risks related to the small currency (Icelan- peding ships from landing fish in other regions and dic Central Bank, n.d.). periods of low profitability. Handling the fish them- selves also minimises the risks involved in storing it Policy-induced risk/risk of losing income- elsewhere as they have better control of the fish. generating activities/single-sector economy Furthermore, the extreme fluctuations in The individual transferable quota (ITQ) system currency value have also occurred reversely. For that regulates the fishing activity is a highly sen- instance, the value of the krona after the crises sitive topic in Iceland and one of the most politi- increased by almost 70% between August 2009 cised. It is a recurrent subject of discussion by soci- and June 2017 (The Central Bank of Iceland, Sep- ety at large. The Icelandic ITQ system puts a limit tember 2017). This resulted in lower export values on the total allowable catch (TAC) per fish species and thus considerably lower revenues for the fish over a predetermined timeframe and defines spe- industry, affecting expenditure and salaries in the cific fees for the activity. Ship owners were origi- Icelandic currency. However, fishermen’s salaries nally entitled to their ITQ shares on a permanent are tied to fish prices (i.e. paid according to the basis; however, amendments were made to the li- value of the catch), while fisheries’ accounting and censing scheme over the years until the ITQ shares financial obligations (e.g. loans and credit) are of- ‘became fully divisible and independently transfer- ten tied to foreign currencies (Arion Bank, 2015). In able, making ITQs more akin to permanent prop- recent years, the Icelandic fish industry has gener- erty rights’ (Pálsson and Helgason, 2000). The ally managed to increase product value with more transferability of the fishing rights allowed for a processing and better transport systems (Arion gradual but rapid accumulation of ITQ shares into Bank, 2015). fewer hands. The concentration of ITQ shares, Fluctuations in foreign exchange rates also however, responded to a more complex structural have an impact on the fish industry. For instance, transformation in the sector and society. The limi- the drop in value of the British pound following the tations on the amount of catches imposed by the Brexit vote had a negative impact on the demand quota system, a change towards a more service for Icelandic fish in Britain, which is an important economy, rural-urban migration and technological market for the industry. Another external factor advancement made it pivotal for the industry to that has a significant influence on the local econo- become more optimised. In practice, this led to a my, and specifically the revenues of the fish indus- reduced number of fisheries, fewer and larger ves- try, is a change in oil price; the costs of the industry sels, and a more automated sector. are closely connected to transport (shipping) costs. Evidence shows that the ITQ system has led to To a certain extent, financial risk is regulated a more efficient and integrated sector, from har- and monitored by the Icelandic Central Bank. The vesting to processing and marketing, which in turn key role of the Central Bank is to create stability has significantly increased profitability (Gunn- in the Icelandic economy through monetary policy, laugsson et al., 2018). While many argue that these especially by keeping prices as stable as possible. changes were necessary for ensuring the competi- The policy is not meant to achieve other goals, tiveness of the sector in international markets and such as affecting the trade balance or sustaining securing the sustainable state of the fish stocks, high levels of employment, except if these are in there are voices advocating for a more equal geo- line with the inflation goal (of around 2.5%). The graphical distribution of the quota shares. Accord- Central Bank enforces monetary policy by steering ing to Pálsson and Helgason (2000), ‘fishing rights interest rates on the financial market, primarily by are still very much intertwined with the symbolic determining the nominal interest rates. The nomi- notions of national sovereignty, personal auton- nal interest rates on mortgages to credit institu- omy and equity’. These values therefore conflict tions then affect other interest rates on the finan- with the privatisation of fishing rights. To appease cial market and have a strong impact on currency this conflict, in 2004 the Government introduced flows, exchange rates and long-term domestic de- a fishing fee with a two-fold purpose: ‘to finance nordregio report 2019:2 40 the direct cost which the government incurs from quota shares, to Sildarvinnslan, a company based managing the resource, and provide the public in east Iceland. While its operations have stayed with a fair share of the resource rent generated by in the islands so far, this move makes relocation the Icelandic fishing industry’ (Gunnlaugsson et al., more likely in the future. Furthermore, if one of the 2018). However, the ITQ system, and especially the key fisheries relocates, the impact would trickle fishing fees, remains at the centre of the political down the supply chain to the fish processing com- debate in Iceland today. Thus, it remains possible panies that rely on their catch as well as compa- that there will be changes in the ITQ system in the nies that provide services. Therefore, such a sce- future. However, changes are more likely to con- nario would represent a significant economic loss cern the fees charged for the fish resource rather for the region and a large proportion of the jobs, than radical amendments to the ITQ system. One both directly and indirectly, would vanish. In turn, worry is that the fees may not respond to how the this would most likely lead to steep outmigration. market is performing in real-time, which might af- Nevertheless, there is no current sign that fish- fect the finances of fisheries at particular times, eries intend to move away from Vestmannaeyjar. making it especially difficult for small fisheries On the contrary, recent investments make it more (The Icelandic Regional Development Institute, likely that operations will continue on the island. 2018). It is also argued that fishing fees may in- For instance, refrigerated storage facilities were crease the optimisation of fisheries and reduce recently built, reducing the risk of companies re- employment. Therefore, it is being proposed that locating, giving the companies more control of the part of the fishing fees should go directly to lo- fish, securing better quality and increasing flexibility. cal authorities dependent on the fishing sector to The storage facilities on the island also give fish soften the foreseen effects of increased fees (Ey- companies an important resistance to disruption jafréttir, November 2018). in transportation and support fish being trans- In Vestmannaeyjar, the introduction of the ferred in containers where the correct tempera- ITQ system and further structural changes in the ture can be guaranteed all the way to the buyers. sector led to the concentration of the largest five fisheries into two – Vinnslustöðin and Ísfélagið – Geopolitical risk/demand-driven risk which, along with technology advantages, resulted The international sanctions imposed on Russia fol- in fewer vessels and the loss of jobs. Together, the lowing its incursion into Ukraine, had a significant fisheries in Vestmannaeyjar own 10–12% of the impact on Icelandic fisheries in the long-term. Yet, total Icelandic quota shares and 20–33% of the before the international sanctions were enforced, pelagic fish quota shares. The two largest compa- Russia was already going through a difficult fi- nies own the bulk of the shares, which makes them nancial situation that led to a sharp decline in the important, strong companies not only at local level import of foreign goods, including Icelandic fish. but also at national level. The economy of the town Notably, the Ísfélag Vestmannaeyja fisheries lost is mostly dependent on the fishing industry; close around 7–8% of their annual revenues (approxi- to 65% of local authority revenues come from the mately one billion ISK) in 2014, after a Russian industry’s taxes and it accounts for up to 50% of buyer failed to pay for fish that had already been the town’s labour force (Sævaldsson, 2012). This shipped. Furthermore, the retaliatory measures makes the islands extremely vulnerable to any po- imposed by Russia on countries that participated tential changes in the quota system, especially if in the international sanctions, including Iceland, it threatens the presence of the fishing industry in led to the total loss of that market. Even though the archipelago. the global demand for fish is high and continuously Aside from threats related to potential chang- growing, entering new markets is both costly and es in the quota system, a unilateral decision by a time consuming. Fisheries in Vestmannaeyjar fishing company to relocate all or part of its fishing eventually managed to penetrate other markets; activity outside of Vestmannaeyjar represents however, revenues are still lower today than before a major risk. Companies and quota shares being the geopolitical shock. sold to fisheries outside the islands increases this The Brexit vote also had an impact on the Ice- risk. Even though the key fisheries are considered landic fish industry. It resulted in a drop in exports to be loyal to Vestmannaeyjar, one large company, of fish to Britain due to the abrupt fall of the Brit- Bergur Huginn, was sold in 2012, along with its ish pound. The weak pound affected the consum- nordregio report 2019:2 41 ers’ purchasing power and consequently fish con- puts additional pressure on local residents who sumption went down. also need to access the already limited transport. The construction of an on-shore freezing stor- This situation is expected to improve significantly age infrastructure has given the fishing industry in when the new ferry starts operating. The capacity Vestmannaeyjar more flexibility when markets go and number of trips to Landeyjarhöfn will be in- down unexpectedly. The freezing storage gives the creased, providing quicker and more reliable trans- industry more time to find a solution (e.g. alterna- portation for residents and extending the tourist tive markets) when there is a problem in interna- season. However, rough weather conditions will still tional trade. prevent the new ferry from reaching Landeyjarhöfn for an estimated four months per year. Risk of losing income-generating activity Outmigration is another trend putting pres- Stress factors may represent the biggest threat sure on Vestmannaeyjar, which to an extent is also to small territories such as Vestmannaeyjar in the connected with the difficult transportation. Another long run. Stress factors differ from risks in the reason for outmigration is the loss of basic services sense that they are not abrupt or unpredictable due to Reykjavik’s policy of centralisation. Spe- events, but rather long-term trends. However, cialised medical services, for instance, have been accumulated stress can build up to the point of risk- limi­ted/reduced and centralised in Reykjavik, in- ing major shocks, such as the closure or re­location cluding childbirth. People in Vestmannaeyjar have of a major industry. Even though the islands have a to travel to the capital to access specialist medical solid fishing industry that shows no signs of mov- care, and because of the unreliable transport they ing away, the effects of accumulated stress could often need to plan additional time to do so. This is threaten competitiveness on the islands. If condi- both time-consuming and costly, not to mention tions were to deteriorate further in the future – for risky. Elliði Vignisson, mayor of Vestmannaeyjar example, if there was a shortage of skilled labour – at the time of the study, emphasised that keep- the industries may start looking outwards. Most ing the population level stable or even positive is a importantly, stressors have a major impact in continuous struggle, even though there has been a terms of hindering the development of new eco- modest increase in recent years. In his words, the nomic opportunities. period from 2009 onwards ‘has probably been the The troublesome nature and unreliability of most prosperous period in 70 years, still we only transport in and out of Vestmannaeyjar appears grew about 1% a year, so what will happen when to be the islands’ most extreme problem. As men- things just go back to normal? There is a strong tioned under the ‘Natural and Environmental magnetic force in Reykjavik’ (Interview 2). Outmi- Risks’ section, rough climatic conditions obstruct gration from small urban centres to larger ones is sea and air transport, both for passengers and for a wider, global phenomenon. However, Vignisson’s industry. For more than eight months a year, con- statement suggests that centralisation policies ditions simply make it impossible to reach Landey- are reinforcing this trend. jarhöfn, the nearest port in mainland Iceland. During Despite the difficulties, Vestmannaeyjar has that time, the port in Þorlákshöfn is used, but the managed to withstand periods of sharp down- number of trips is reduced, as is the capacity to turn and population decline, particularly due to its transport people and goods. Unreliable and limited strong ‘island spirit’ but also because of its highly transportation restricts the development of new profitable fishing industry and closeness to fishing economic activities and particularly hinders tourism grounds. The community’s sense of belonging is opportunities, where the islands have enormous said to be the most important driving force for its potential; because of the inconvenient transport, ability to respond to major natural and economic tourism is strictly seasonal. The inauguration of challenges. Cultural activities and a strong sports Landeyjarhöfn port in 2010 has allowed for in- culture is said to unite people. The annual cultural creased frequency of passenger and cargo trans- festivals on the islands are well known and popular port during the summer season. This has more on a national level, attracting many people from than doubled the number of passengers from all parts of Iceland. Vestmannaeyjar’s football and 127,000 in 2010 to 340,000 in 2017 (Alþingi, 2017– handball teams play in the top national leagues, 2018; Alþingi, 2015–2016). The increasing numbers believed to contribute significantly to a boost in of visitors during the summer months, however, collective pride and cohesion. Furthermore, sala- nordregio report 2019:2 42 ries are rather high in Vestmannaeyjar, 108% of the potential of the fish industry, for example by the national average and the highest in the south maximising previously unused parts of the fish. region, where it was just 91% of the national av- Another initiative is the FabLab, which aims to erage (The Icelandic Regional Development Insti- re-engage young people by enhancing their educa- tute, 2016). While younger generations are not so tion and providing social benefits. The FabLab was keen on working with fish, the labour gap and high established in 2008, training young people in both salaries have attracted numerous Polish workers. hard and soft skills, and promoting innovation and Although the location might prove problematic in a wider mindset. Additionally, since 2003 the Viska many ways, its closeness to fishing grounds re- life-long learning centre has been promoting and mains a strong magnet for the fishing industry to providing education that is not offered in regular remain in the islands. Moreover, Vestmannaeyjar educational institutions. Viska is located in the is located within the main sailing route connecting Knowledge Centre and also provides facilities for Reykjavik with Europe, which results in more cargo distance learning. While educational options are ships docking in the islands in contrast to other considerable in relation to the size of the area, it fishing towns in Iceland. Finally, the establishment remains challenging to acquire higher and voca- of a Knowledge Centre and other educational tional education on the islands. initiatives, as well as regional and national initia- At the regional level, a Regional Plan of Action tives, provides additional opportunities for the has been put in place by the Association of Local archipelago. Authorities in South Iceland (SASS), which in- cludes future visions, aims and concrete actions. Resilience drivers Formally, Iceland does not count with an inter­ To create new opportunities in such a narrow labour mediate jurisdictional level (a region), yet SASS, of market, the local authority has established a which Vestmannaeyjar is a member, provides the Knowledge Centre. Its role is multifaceted but it platform for addressing issues of a wider scope. is designed to create knowledge about the com- In alignment with the National Plan for Regional munity, provide opportunities for people to expand Development, the regional plan defines the prior- their skillset and promote innovative ideas. The ity areas for the allocation of funds, particularly operation is sponsored by the local authority and in projects related to employment, rural develop- local companies, and is also supported by the pro- ment and cultural affairs. The goal is to promote vision of services and through cooperation contract positive social development and strengthen the and funds. The Knowledge Centre functions as a cultural affairs and competitiveness of each region platform where its premises are rented out to or- and the country as whole. It is also meant to simplify ganisations and companies in an endeavour to bring interaction between the state and local authorities together multidimensional operations, for example and to ensure transparency in the allocation and in business, tourism, cultural activities and educa- management of national funds, as well as shift- tion. This creates a space for sharing and receiving ing decision-making to local level. In this sense, the ideas, and promoting discussion and innovation. regional plans are a mechanism to strengthen the The ‘Ocean-Related Innovation’ programme influence of the local authorities in Iceland (Asso- offered at the Knowledge Centre is an effort to ciation of Local Authorities in South Iceland, 2015). increase diversity and raise educational levels on At the national level several activities have the island. The programme is a rural project and been put in place, mainly by the Icelandic Regional government-funded but developed and operated Development Institute, to monitor regional devel- by the University of Reykjavík, offered on site in opment in different parts of Iceland. The National Vestmanneyjar, in Reykjavik, and through distance Plan for Regional Development (2018–2024) ap- learning. The aim is to strengthen ties between proved by parliament in summer 2018 defines the academia and the fishing industry where students national policy on regional affairs. The aim of the get the opportunity to work on real projects in- plan is to ensure equal opportunities for all citizens volving processing and the economic challenges in terms of employment, services and living stand- faced by the companies. The fish industry is quite ards, and to promote sustainable development traditional, and new and innovative opportunities throughout the country. Emphasis is placed on areas are often overlooked. New market niches, high- suffering prolonged population decline, unemploy- tech solutions, marketing and sales can enhance ment and lacklustre labour markets. nordregio report 2019:2 43 The Icelandic Regional Development Institute create the ‘island spirit’, which is how the commu- audits and reports on the state of rural areas in nity deals with the many challenges it faces. Never­ Iceland. Status analyses were published in 2012 theless, there are several conditions, defined in and 2014, and in 2016 an analysis was conducted this study as ‘stress factors’, that drive away many for the country as whole. This is intended to be a families despite the strong community attachment foundation for the regional plans of action pre- to the islands. Difficult transport conditions and senting future visions and priorities, a reference the centralisation of services in Reykjavik, coupled document providing an overview of different seg- with a trend towards urban lifestyles and creative ments within the region, regarding infrastructure jobs, results in many people moving away. and different business sectors. The focus is on However, some key measures are in place that education, economic development, transporta- to an extent counterbalance the effects of some of tion, official services, primary processing, industry, these key risks and stressors, particularly measures support systems/mechanisms, international co- related to improving transportation and education, operation, and strategic planning for the Regional tackling the issue of a lacklustre labour market, Development Plan. In addition, service surveys are identifying innovative, more creative job oppor- conducted to evaluate inhabitants’ access to ser- tunities, and generally presenting alternatives to vices, population development forecasts for local the otherwise narrow employment opportunities. authorities and analysis of income development in Initiatives that approach education in a broader different business sectors. sense, as a platform for creating innovation in society at large, have great potential to increase Findings Vestmannaeyjar case study the attractiveness of Vestmannaeyjar both for ex- The risk landscape in Vestmannaeyjar includes isting employees and for those who are entering factors that are inherent to the islands, such as the labour market. Moreover, such initiatives also location, transport, environmental and natural reinforce the presence of the fisheries operating in conditions, as well as the single-industry depend- the islands, which are essential for the livelihood of ency. Moreover, other risks relate to wider social the whole society, as they provide innovative and and economic trends, such as fluctuations in cur- alternative uses for their traditional product. rency value, urbanisation and geopolitics. Some Another important finding is that – although of these risks can potentially have shocking and it is a positive factor that the citizens of Vestman- even devastating consequences, such as volcanic naeyjar do not live in panic about potential envi- activity, collapse of fish stocks, new tariffs and ronmental hazards – constant monitoring and large fluctuations in currency values or commodity effective response systems are vital for ensuring prices. Others are not abrupt but instead induce the long-term survival of the community. When it stress on the population, businesses and public in- comes to the fishing industry, it is essential to have stitutions, which may also have long-term effects. sufficient cash flow to buffer the effects of fluc- Accumulated stress, including lack of reliable trans- tuations in commodity prices and currency values, port, lack of accessible higher education, limited or markets being disrupted. Cooling storage infra- labour opportunities, shortage of skilled work and structures have also proved to be ideal for the bet- outmigration, are perhaps the biggest threats for ter management of resources and the provision of small regions such as Vestmannaeyjar. Stressors additional flexibility in the timing of shipments. reinforce other stressors in a vicious cycle, reduc- Finally, challenges may also represent oppor- ing competitiveness, pushing more people away tunities, as in the case of the archipelago’s loca- and hindering the development of new economic tion, which provides enormous opportunities for oppor­tunities. attracting tourism and new settlers. Moreover, Past experience has shown that the local com- shocks and stress are geographically unbalanced munity has an incredible capacity to recover from and what is a misfortune for some may well be difficult and even life-threatening situations. The beneficial for others, or in other places. This was strong identity associated with the islands, and evident during the financial crisis, which resulted in their highly praised cultural events and sports peak profits for the fishing industry. clubs, are some of the elements that combine to

nordregio report 2019:2 44 4.3 ROGALAND, NORWAY (bbl.) in 2014, and when there was a further plunge in the Europe Brent spot price for oil, which hit its by Mari Wøien & Alberto Giacometti lowest levels of US$27 bbl. at the start of 2016, leading to a rapid decrease in employment and a Introduction flailing economy (EIA, 2018). According to one of the This case study takes a closer look at the risk land- interviewees, the problem is that although the oil scape emerging from the oil and gas crisis that industry is highly attractive, it entails significant hit Rogaland, a region in the south-western part risks (Interview 8). of Norway in 2014, whilst taking the temperature However, the abrupt shock and the longev- of the relative resilience of the region in order to ity of the crisis also provided an opportunity to build the knowledge-base for responses to crises change practices and focus – a so-called ‘positive in the future. Oil and gas have played an impor- shock’. Moreover, some of the important opportu- tant part in building national prosperity in Norway nities enhanced by the crisis included: the agility since 1969, not only because of their tremendous the governance structure showed when handling revenues but also because of the extent of the the crisis in trying new methods and new collabo- employment opportunities the sector has cre- rative constellations; the increasingly dynamic re- ated, both directly and indirectly. The effects of gional governance model flowing from the crisis; this sector have generally been highly positive but the diversification of the oil companies towards a closer look at the mechanisms below the sur- green energy; new ventures for the service and face and, for example, its absorption of employ- supplier sectors in new unexplored market seg- ment and venture capital, paints a more nuanced ments; and the positive effects the crisis had on picture. This was exemplified when the oil prices other business sectors. The crisis also highlighted fell from US$115 in June 2014 to US$55 per barrel the wider social implications and fragility of the

Oil and gas have played an important part in building national prosperity in Norway since 1969, not only because of their tremendous revenues but also because of the extent of the employment opportunities the sector has created. Photo: Charlie Hang

nordregio report 2019:2 45 regional economic composition tied to the over- is partly attributed to the outmigration of labour dependence on a one-sided natural resource. This since the oil crisis, and reduced immigration. In the is particularly evident in the volatility presented 2017 Regional Development Report, the county by such an over-dependence when it is exposed to stated that when employment is the primary rea- the troughs and highs of global commodity prices, son for settling, ‘(…) it is easier to leave’ (Rogaland and more so what happens when the bar is raised Fylkeskommune, 2017). beyond what is sustainable. The crises also dem- The industrial make-up of the region has al- onstrated the overarching national dimension due ways been tied to the natural resources found in to the high values connected to the sector and the the area, overwhelmingly the sea. The latter part region at large, which may have impacted on the of the nineteenth century was marked by good national government’s response and approach to yields in herring fishing but due to a long-lasting aiding the region back on its feet. crisis in the 1870s and 1880s, industry, shipyards Following the crisis and the additional funding and trade gradually surpassed herring fishing granted to the larger west coast region (Rogaland as the main source of income. The focus was re- and Hordaland in particular), there was a rapid in- structured towards the canning industry, and crease in alternative technologies emerging within there were about 300 canned foodstuff factories different sectors, such as the health sector, infra- in the 1920s. This industry had ties back to 1873 structure, construction and general environmental when Preserving Co. was established to technologies. However, with an increase in oil price, produce provisions for the shipping fleet. Produc- these newfound sectors may struggle to remain tion was particularly high during the First World competitive against the highly profitable petro- War when the region exported approximately 350 leum sector. million cans to both the Entente and the Central This case study will consider the relative eco- Powers. Approximately 400 patents directly con- nomic and social resilience of Rogaland as a region, nected to the industry were filed between 1880 by focusing on the ways in which the oil crisis in 2014 and 1915 (Forbundet Kysten, n.d.). During the shed light on important functions for ‘bouncing 1920s, nearly 70% of the Norwegian production of forward’ and building resilience for future shocks. canned foods came from Stavanger. In the 1960s Furthermore, the case study will explore the gov- and 1970s there was another significant drop in ernance structures emerging from the crisis, and the herring and sprat stock, creating a crisis in the the potential the region holds for future diversifi- fishing industry that gravely affected the industry. cation of the industrial and economic bases. The This was partly due to a generally weakened stock aim is to illustrate the weaknesses and strengths because of lower sea temperatures and low levels of the economic and institutional structure of of available nutrients, but also because of unsus- Rogaland and possible ways to contribute to in- tainable herring fishing by the Norwegian fleet, creased resilience thinking in the region. which could not be matched by the natural pro- creation of the herring stock (, 2005). Territorial factors The seas were fished ‘empty’. In 1976, after a few Rogaland is a region located in the south-western mergers and acquisitions and attempts to save part of Norway and is currently comprised of 26 the canning industry, the industry went bankrupt local authority areas. This number will decrease in (Forbundet Kysten, n.d.). 2020, when two local authorities will be incorpo- Jæren is home to some of the most fertile rated into Stavanger local authority, and soil in the country and has a strong agricultural and local authorities merge (Kartverket, sector, spanning both farming and farming equip- 2018). Rogaland is home to 473,525 people, of ment (Interview 9). The county is also known for its which approximately 322,000 people live in the quarries, mining industry, maritime industry and IT, Greater Stavanger region (SSB, 2018; Greater and tourism has significantly picked up in recent Stavanger, 2015). Stavanger is the third largest years (NHO Rogaland, n.d.). Rogaland is the home city in Norway after Oslo and Bergen. However, to popular tourist destinations such as the Pulpit the 2017 Regional Development Report for Ro- Rock () in , Kjeragbolten, and galand shows the lowest population growth in various high cliffs that draw BASE-jumpers from the county since 1951 at 0.32% between 2017 and all over the world. After discovering oil in 1969, 2018 (Rogaland Statistikk, 2018). This slow growth Rogaland has become the oil and gas capital of nordregio report 2019:2 46 Norway and hosts the headquarters of Equinor the wellbeing of, for example, the hospitality sector (former Statoil), the Norwegian Petroleum Di- and the construction sector, are both directly and rectorate and the Petroleum Safety Authority of indirectly tied to the strength and competitiveness Norway. It is also the home of Offshore Northern of the oil and gas sector. Aside from the oil and gas Seas (ONS), a biennial meeting conference and sector, the region has a strong mining sector and exhibition for the petroleum sector, gathering ap- some of the most productive quarries in the coun- proximately 69,000 people from across the world try, but a larger energy sector (e.g. wind power) (ONS, 2018; Interview 1). and aquaculture are also present. The balance of Considering its industrial and economic history, employment in the technical industries may thus it appears that Rogaland has been largely depend- arguably be highly dependent on the ability and ent on the strength of one industry alone, from scope of technology transfer between sectors, herring fishing, to shipyards, to canning and finally and the availability of retraining and skills devel- oil and gas. As one industry engulfs or surpasses opment. the others, little manoeuvring space remains for Although risks are often co-dependent, it is the other sectors to compete for human resources still possible to discern the different types of risks on the same level. Although the oil and gas sector that the region might be vulnerable to. The list is in Norway is highly diversified through a highly made with the oil and gas sector in mind, as this diverse supplier sector, commodity price shocks has the most wide-reaching effects on the region’s have ripple effects far beyond the core industry resilience in relative terms. itself. The industry touches a far greater range of sectors and actors than is immediately evident. A single-industry economy: natural resource dependency ‘When the crisis came, it was a true crisis; there Oil and gas extraction have been the source of eco- were multiple crises. And you really come to realise nomic prosperity in Norway since 1969. Rogaland, how senselessly exposed you are to one-sidedness.’ particularly Stavanger, has been the epi­centre of (Interview 7) this economic development, and as a result has built up a highly interdependent regional economic With the oil price crash of 2014, it is interesting to structure. With an increasingly high-cost local consider the potential for economic and industrial economy, attractive workplaces and competitive diversification in Rogaland and the strength of salaries, the sector has absorbed many of the the structures imposed during the relatively long highly educated and highly skilled workers com- period of a feeble oil and gas sector. Regaining its ing to the region. Investment in the region has also competitiveness and the upsurge in prices in 2018, been geared towards the oil and gas sector, due this is an opportunity to eliminate the path de- to the familiarity of the sector and the safe and pendency of the recent past. secure outputs of financial investments. These fac- tors have proved a challenge to overcome for en- Risk landscape suring the economic and industrial diversification of This case study offers an overview of the risks the area, as potential employees and venture capital present in the Rogaland region, amplified by the have been directed towards the all-encompassing challenges that emerged both during and in the oil and gas sector. The risks tied to oil and gas – aftermath of the oil price drop in 2014. The risks natural resource dependency – have wide-reaching identified are not exhaustive and are based on in- effects, and will be illustrated in the section below. terviews and desk study research with a specific focus on the oil and gas industry. As stated in the The effects of the petroleum sector introduction, the aim of this case is to illustrate on the local economy the weaknesses and strengths of the economic The oil and gas industry is highly interlinked with the and institutional structure of Rogaland and trace general business and service sector and, as such, out the possible ways to contribute to increased the gross regional product (GRP) of Rogaland is resilience thinking in the region. dominated by a strong oil and gas industry (RFK, The risk landscape in Rogaland is highly inter- 2017; Blomgren et al., 2015). Although the employ- linked, as the effects of employment and the supply ment rates are not exclusively tied to the oil sec- of employees, the availability of venture capital and tor, it is important to note that the oil sector is the nordregio report 2019:2 47 main reason for immigration to the region, both reaching effects it has on the business and service domestically and internationally (Interview 4; RFK, sector in the region at large, as a guarantor for at- 2017). Oil price fluctuations affect not only the tracting venture capitalists funding new technolo- people working in the industry but also the suppli- gies and developments in businesses connected to er services, technology development, the hospital- the petroleum industry. ity industry and the construction sector, to men- tion just a few. Regarding the supplier services and Unemployment rates in Rogaland: technology development connected to petroleum the oil price drop research and development, it is interesting to con- The unemployment rates in Rogaland have been sider these as part of the reallocation of human stable at 1.1% and 2.2% in the period 2008–2013 capital in the months and years after the price drop. (NAV, 2017). In the months following the oil price Coming second to the public sector in terms drop, the unemployment rate saw an upsurge of employment, the prosperity of the oil and gas from 1.9% at the end of quarter 4 in 2013, grow- sector plays an overarching sectoral role by influ- ing to 4.5% in 2016 (NAV, 2017). This was unusual, encing a wide range of actors, from taxi drivers, as Rogaland has enjoyed low levels of unemploy- restaurants and hotels to construction firms, tech- ment below or in line with the national average. nology businesses, academia and the oil and gas However, Rogaland’s unemployment rates hit and companies themselves. Although he had worked surpassed the national level in 2015 (NAV, 2017). with the diversification of the economy, one of There have been several studies on the links the interviewees recognise the difficulties such a between oil production, oil price shocks, job de- strong industry presents in attempting to create a struction and job reallocation (e.g. Bjørnland & more resilient region: Thorsrud, 2013; Blomgren et al., 2015; Cappelen et al., 2014; Davis & Haltiwagner, 2001; Herrera & ‘One challenge for a lot of regions in terms of be- Karaki, 2015). Bjørnland and Thorsrud (2015) point ing resilient is having one very strong industry. And to the underestimated effects of international oil then, if you’d like to diversify, and you have econom- and gas price fluctuation on the Norwegian do- ic troubles, it is difficult to get the human and fi- mestic economy, as these may be responsible for nancial resources due to the changes. And when you up to 30% of the general fluctuations in national have an upturn, you have an industry that is being GDP. Moreover, these exogenous price fluctua- smart, efficient and solid, so they are taking all the tions also explain the employment and salary levels people. We have seen that many times. The fishing in the petroleum sector to a large extent (ibid., industry, Boeing in Seattle, Sweden with its military, 2015: 25). Bjørnland and Thorsrud also point to Gothenburg with the shipyards and car factories… the tight relationship between increasing oil prices you have seen it several places.’ (Interview 1) and the national budget, demonstrating that the budgetary rule (‘Handlingsregelen’2) mirrored this Rogaland has seemingly been dependent on a few development. It is worth noting, however, that the dominant sectors as the main financial carriers, percentage was adjusted from 4% to 3% in 2017, and since the early 1970s the petroleum sector has based on the expected future returns from the been the major player in the industrial make-up Government Pension Fund (Regjeringen, 2018). that draws on the available expertise connected This adjustment was a result of less stable oil to the sea in the area. For example, the wharfs and prices in the years after the oil price drop. shipyards in Haugesund and Eigersund play an im- In Norway, oil and gas extraction alongside the portant role (Interview 5). export of oil pipes made up approximately 21% of The petroleum sector has attracted a highly GDP in 2013 (Cappelen et al., 2014). The number skilled labour force from across the country and of people employed by the industry, directly or in- abroad, often alongside additional human capital directly, was estimated at around 13% nationally in the form of spouses and partners – an impor- tant aspect for bolstering the regional economic 2 ‘Handlingsregelen’ is a budgetary rule, which was adopted and social composition of the region. The impor- by the Norwegian parliament in 2001. It sets out guidelines tance of the petroleum sector is arguably thus regarding the management of the capital gains from the pe- important not only because of the high returns troleum sector, where a maximum of 3% of the returns from the Government Pension Fund – Global may be allocated to this sector yields per se, but also due to the wide- the national budget each year (Regjeringen, 2018). nordregio report 2019:2 48 in 2014 (Blomgren et al., 2015). It is important to county. According to the interviews, this could be keep in mind that although the sector employs due to: 1) the fact that the oil and gas sector has people across the country, it is most heavily con- until now struggled to regain its financial strength centrated in the counties of Rogaland, Hordaland, and competitiveness; and/or 2) the green agenda Møre og Romsdal, Akershus and Agder (ibid.). The and the reputation of oil and gas as a ‘dirty’ indus- International Research Institute of Stavanger (IRIS) try (Interview 4). According to the interviewee from estimates that approximately 40% of the local the county administration, young people are chang- labour force in Rogaland (about 99,000 workers) ing their career plans due to the negative framing of is directly or indirectly connected to the oil and the oil and gas industry in the media. This, together gas industry, considering the extent of the value with a risk-averse attitude towards finding employ- chain from the operating oil company to equip- ment, has led young people to move away from the ment suppliers, finance, IT, hospitality and so on oil and gas sector and other related areas, and often (cf Blomgren et al., 2015: 9–13). In the Greater towards sectors that are already saturated. Stavanger region alone, 86,100 people work di- The challenging period in the oil and gas in- rectly or indirectly in this sector (ibid. 2015: 15), of dustry also affected the number of apprentice- which 57,000 works in direct relation to the sector ships in the region, especially in technology and (Blomgren et al., 2015: 126) – one third of all em- construction work. Guaranteeing apprenticeships ployees in business-related activities in the county is especially important for ensuring an active la- (ibid.). The definition of the direct and indirect con- bour force in the future and to avoid further school nection to the petroleum sector differs. For exam- drop-outs. Lower prices meant less capacity in ple, in Ekekland’s article on employment rates in firms and businesses that would provide practi- areas related to petroleum, the figure is lower as cal learning opportunities. Unemployment levels the scope is limited to operating companies and amongst young men is still relatively high and this companies delivering services and equipment to is particularly concerning because their inactivity the petroleum sector (Ekeland, 2012). However, is increasingly lasting for longer periods of time, when considering risks and the potential impact of according to one interviewee (Interview 2). How- shocks, it is important to understanding the rela- ever, since July 2018, the labour market has seen tive interdependency of one sector, especially in a positive trend and is increasingly normalising; economies heavily dependent on natural resources partly due to an increased number of temporary or a single industry. The extent of this single sector contracts (Stavanger Aftenblad, 2018). Arguably, makes for a difficult process for industrial and eco- the increase in such contracts may imply the need nomic diversification. However, the recent impact to continue the diversification of the economic on the labour market due to the oil price shock was structure of the region. a wake-up call: As such, the crisis elevated the need for the re- gion not only to diversify but also to rebrand itself ‘With the formidable margins come high costs and as an ‘energy’ region. This rebranding for diversifi- high wages, which makes it difficult to think about cation and attractiveness is also stated in Greater restructuring towards other opportunities. How­ Stavanger’s Industrial Strategy 2018–2025: ‘[…] ever, the last few years has shown that the alterna- we must develop the oil position to become an energy tive to restructuring is unemployment… it has been region. This is dependent on a willingness to develop’ a reality check. People have taken different jobs (Greater Stavanger, 2018: 9). with other wages.’ (Interview 8) Creating a sound institutional structure that supports the development of skills for existing op- Securing the future labour force portunities is paramount for the viability of the One of the main concerns at present is ensuring future labour force. The crisis in Rogaland and the skills and competencies needed for the future Greater Stavanger exemplifies how far these rip- are available. Attracting young people to the re- ples reach in jeopardising not only the present gion is an increasingly difficult problem. The oil but also the future. Arguably, this is one of the and gas sector was previously unprecedented in strongest arguments for diversifying the eco- attracting eager young minds to Rogaland, but nomic structures and creating an attractive region these young engineers are no longer moving to the for the future.

nordregio report 2019:2 49 Geopolitical and commodity Consortium, a political organisation working to price shocks collaborate on economic development and the As a small, open economy highly dependent on diversification of the industrial basis, recognising natural resources, Norway is exposed to exog- that there was a need to create ‘critical mass’ to enous factors, whether these are changes on the overcome challenges in the future (Interview 3). geo­political platform or global market exchange However, it is a ‘truth universally acknowledged’ rates. Norway’s oil economy is thus highly vulner- amongst the key actors in the local authority are- able to changes in commodity prices, caught be- as forming Greater Stavanger that even if a strat- tween the oil- and gas-producing giants of Saudi egy had been in place for diversifying the economic Arabia and Russia within the Organisation of structure in the years leading up to the crisis in Petroleum Exporting Countries (OPEC), and the 2014, the challenges following the oil crisis would USA. Prices dropped by 70% in the period 2014– still have unfolded in a similar way. This is because 2016, a shock that was primarily supply-driven, rid- the clear majority of funding and finance available ing on the technological breakthrough of US shale was channelled towards the oil and gas industry gas production and a slowdown in oil importing due to its formidable, exorbitant returns (Greater countries due to the overall drag in global economic Stavanger, 2018; Interview 8). This amplifies the activity (World Bank, 2018). Despite attempts to absorption capacity of the oil and gas sector, and diversify export commodities, oil-exporting coun- its effects on the region’s power to restructure tries continue to have some of the least diverse and influence the development of new business economic structures in the world (ibid.). opportunities in different sectors. This optimism The oil price drop in 2014 was not the first for the future is legitimate, though it is highly de- commodity price shock felt in this industry since pendent on the continued innovative prowess of the dawn of Norwegian petroleum exploration. the oil and gas industry in Rogaland, and also its According to one interviewee, the rapid escalation ability to diversify further. Despite the diversifica- of oil prices in the 1970s, just as Norway entered tion of product portfolios, such as Equinor’s (Stat­ the scene, helped push the country to become a oil) move towards wind power, the market is still competent oil-exporting economy, due to the high not quick enough to adapt to new energy sources oil prices set by OPEC. As oil-producing countries (Interview 8; Interview 6). According to one of the outside OPEC became increasingly profitable, the interviewees, the problem is that the government result was stagnation in market demand, causing is not investing enough in alternative energy markets: OPEC to lower its price to US$10 per barrel to en- sure its market share (The Economist, 1999). How- ‘There is little demand for this locally. The regula- ever, OPEC significantly underestimated the abil- tions are too fuzzy [for alternative energy markets], ity of other oil-producing nations to capitalise on and the business case is thus too risky. The whole the favourable situation of the low dollar per barrel rhetoric of maximising output per [Norwegian] price. With a long history in shipping and the pro- krone doesn’t work […] We invested in hydropower. cessing industry, Norway focused heavily on tech- That was a long-term strategy. But it is not the nological development to cap costs, and took on same for wind power.’ OPEC by being able to match the lower price levels set by the organisation, one interviewee recounts. The oil price shock in 2014 was a real crisis for those The oil crisis in 1998 was the result of keen, new involved. The disruptions that were felt most strongly oil-producing nations and the discovery of new oil were related to the extensive impact oil and gas have fields in the Gulf of Mexico and the United States, on the labour market and employment in the region. alongside the Asian financial crisis (Forbes, 2015; Fortune, 2015). With a significant increase in glob- Technological shock al production levels alongside a rapidly shrinking The oil price drop was the result of both techno- demand for oil from Asia, demand was not high logical advancements and significant changes in enough to meet the high levels of production (ibid.; supply and demand in net oil-importing countries. The Economist, 1999). In Norway, this led to the Oil production in Norway saw a formidable upturn restructuring of the oil industry. The crisis last- in the early 2000s, with a soaring oil price per barrel ed only months but during this time, the greater combined with increasing gas production. How- Stavanger region created the Greater Stavanger ever, moving towards 2013–2014, oil production nordregio report 2019:2 50 slowed, and costs continued to climb without suf- actors in the public and private sectors. Although ficient attention being paid to price development funds were allocated to help the region get back generally. There was also an increased focus on the on its feet, the regional actors were given the au- green transition and renewables and changing at- tonomy to restructure and rebuild the region, with titudes towards oil and gas extraction politically minimal interference from the government: (Interview 8; Interview 7; Interview 1). These do- ‘Both NAV 3 and the county council and the munici- mestic issues were also affected by general devel- pality went above and beyond the boundaries of our opments on the global stage with the US shale gas typical role descriptions. [The government] let us fix technological ‘revolution’ and hydraulic refracturing it ourselves. And this is a very important lesson. The (‘fracking’). The United States caught oil producers government must stay put. One needs to trust that off guard by doubling its production levels after an the local actors know where it hurts and how to fix intensive period of innovation (Interview 5; Forbes, it.’ (Interview 2) 2018a; Forbes, 2018b). The technological shock generated by the seri- The next section illustrates the way the region ous acceleration of technology development in the responded to the disruption and challenges that US shale gas industry can largely be attributed to followed the oil price drop. geopolitical changes, according to Forbes (2018a). With OPEC allowing prices to drop to ‘ruinously’ Policies and role of institutions low levels in an attempt to disrupt shale technology A society’s ability to organise the central actors development and the US path to energy independ- in the region demonstrates the adaptive capacity ence, US shale gas companies responded by in- that society may display when disaster strikes. vesting in innovation, cutting costs and increasing Although financial mechanisms were in place to their efficiency (Forbes, 2018a). Moreover, the pro- ensure tax rebates and extra funds towards busi- duction of shale gas is demonstrably competitive ness development, the signal coming from the at US$50–55 per barrel (TU, 2017). States such as government was to work through the crisis at the Pennsylvania and New York are reportedly becom- local level. Looking back at the structures predat- ing energy exporters, and the northern states are ing the crisis, the flexibility and capacity for change overtaking the Gulf region as the largest gas pro- within the region has become significantly better, ducers in the United States (Forbes, 2018b). One a change noted by all the interviewees for this case of the interviewees recalls: study. This was also helped by the existence of per- sonal networks in the region: ‘I have worked with and in the oil industry for nearly ‘ 50 years. That the USA was to become self-sufficient This region is known for its ability to collaborate. It in terms of oil, even though they were net exporters is large enough for variation, but small enough to in 1977–78, no one, no one could have imagined this.’ know each other. And that means trust. It helps cre- (Interview 7) ate a foundation […] It has been a competitive ad- vantage in this region.’ (Interview 8) Events in the oil and gas sector in Norway in 2013–2014 were later exacerbated by the sudden amplified Key actors in the region created a consortium strength of the United States as a gas-producing called ‘Active Efforts’ (Aktive Grep), comprised of nation in 2016, and the saturated market affected the county governor, the education authorities (i.e. the costs and price development. Although the the county administration), the Norwegian Labour technological development of shale gas was revolu- and Welfare Administration (NAV), the Norwe- tionising and had been simmering underneath the gian Labour Organisation, the Norwegian Trade surface, it was nevertheless its effect on competing Association and the Chamber of Commerce in the energy markets and dramatic price drop to US$34 Stavanger region, to synchronise their efforts and that was the real shock (Interview 5). ensure that the crisis was adequately addressed in all sectors. The government also provided signifi- Resilience drivers cant funds to ameliorate the situation in the state The agility of the regional system in Rogaland be- came evident after the crisis in 2014, as new, ad hoc constellations were formed between various 3 The Norwegian Labour and Welfare Administration nordregio report 2019:2 51 budget in 2016 and the revised national budget in 2015). NAV contacted regional businesses and May 2016 (Regjeringen, 2015; 2016). Additionally, companies to set up a scheme to get people back the symbolic effect of ministers visiting the area into work, consciously avoiding the oil and gas sec- during the crisis was of particular importance, tor (Interview 5; Interview 2). Supporting these according to NAV (Interview 2). businesses, NAV communicated that they had the The flexibility given to the local branches of resources to train new employees if the compa- national agencies is also remarkable. For example, nies were willing to develop new products. In this the local NAV office reorganised its capacities in way, productivity and innovation could continue to order to adequately address the dire unemploy- thrive, and there could be new entrepreneurial dis- ment situation, and to balance the situation until a coveries through the new competencies that came new path had been forged. In dealing with the cri- with the companies. sis, the local NAV contacted the directorate to ask The governor’s office of Stavanger and NAV for more resources to handle the large workloads also jointly created a meeting space in the old ex- (Interview 2). The regional NAV office was unpre- port terminal in Stavanger city centre, rebranding pared for the momentous task that lay before it, it the ‘Terminal of Opportunities’. The symbolism as it normally worked with a much lower unem- in creating this terminal was important; it demon- ployment rate of 1.7–2.3%. Because of the grav- strated that the public authorities were actively ity of the situation, the directorate in Oslo allowed working to improve people’s situations. The termi- the local office to go beyond its budget. Adopting nal provided a space for the recently unemployed a proactive approach, the NAV office created a to work on their CVs, network, participate in semi- team to call everyone who registered with the em- nars and motivational talks, and prepare for in- ployment services, to ameliorate the situation by terviews. It became an informal meeting place for demonstrating that there was a network to help people facilitated by NAV, a role it had never pre- them back on their feet. It also took the initiative viously had. Nevertheless, it was the most impor- to request new classes and training programmes tant role NAV could play at the time: from the education department at the county ad- ministration, and subsequently contacted all reg- ‘We had to break away from the old way of work- istered unemployed youth to encourage further ing within this organisation. The normal way did not education and training to avoid a larger increase work with this situation.’ (Interview 2) of unemployment than was necessary (Interview 4; Interview 2). As one of the interviewees stated: The media also played an important role in spreading the message about the severity of the ‘What constitutes resilience… it has many factors. crisis, encouraging people to leave if they had the But for this region one of the single most important chance to do so, as the situation looked as though factors for building resilience is culture-based, and it would become even more dire. NAV Stavanger what role you have for resolving the issue. It’s about actively used the media to relay the message of cooperation, trust and about mutual respect.’ (In- tough times ahead and encourage people to find terview 5) jobs elsewhere. By so doing, NAV bought itself time and capacity as people moved elsewhere to The new clientele was also different from those find opportunities. This use of the media is also who normally made use of NAV’s services. This interesting in terms of the difficulties of ensuring group was highly educated and not accustomed to skills and competencies for the future, in that the losing their jobs or working in volatile sectors. They media painted a dire picture of the situation in Ro- differed from industry workers, who tend to be galand, whilst not highlighting the possibilities in more risk-aware due to factors such as low edu- other sectors, according to the interviewees. cational attainment, however that might be com- The main reasons people moved to Rogaland pensated by many years of experience. The high- had by and large been for employment, thus a lot est numbers of unemployed men in Rogaland were of people, especially foreigners, now moved away. in construction, industry and IT, with percentage However, there was still a level of loyalty con- changes of 111%, 158% and 221% respectively from nected to the region as some people chose to stay the year before; consultancy also saw a dramatic and instead changed their career path. The most increase in unemployment at 149% change (NAV, dramatic example is the petroleum engineer who nordregio report 2019:2 52 became a preschool teacher, but there are also in- powerful new green discourse (Interview 8; Inter- teresting examples of oil flow engineers working view 7; Equinor, 2018). The next section takes a look with medical technologies (Interview 5; Interview at the renewed focus and measures taken to broad- 8). Some people may have stayed behind because en the scope for economic and social resilience. of their experience of previous price shocks and the expectation that the situation would get bet- Entrepreneurship and new opportunities ter. However, the price shocks in 2008 and 1998 Innovation Norway, the national innovation agen- were far shorter than the one that hit in mid-2014. cy, experienced a record number of applications for start-ups in Stavanger in the first half of 2015. The Government’s Pension Fund Innovation Norway Rogaland provided an ‘estab- Although the Government’s Pension Fund abroad lishment fund’ for new enterprises that demon- is not a new measure, it is nevertheless an impor- strate innovative aspects and can prove that they tant resilience measure for the country at large. fill a market niche (Stavanger Aftenblad, 2015b). The Government Pension Fund, which was men- The regional newspaper Stavanger Aftenblad tioned earlier in this chapter, is a ‘savings account’ notes that for 2014, Innovation Norway provided to safeguard for the future rising public pension 32 MNOK for 103 different cases. By June 2015, expenditures and it ‘supports long term consid- Innovation Norway had already funded 107 cases erations in the spending of the government’s pe- at a total cost of 34 MNOK. It appears that most troleum revenues’ (Government, n.d.) The fund of these ideas come from young entrepreneurs in is divided in two: the Government’s Pension Fund the technology sector or established ‘oil workers’ Global and the Pension Fund Norway. The main who finally have the chance to realise their ideas. responsibility is vested in the Ministry of Finance, Moreover, Innovation Norway Rogaland (2016) and the operation of the two funds is carried out provided a total of 59 MNOK, spread across 220 by Norges Bank and Folketrygdfondet (Govern- start-ups in 2015 – more than in any other region ment, n.d. 1). The investment strategy is based on in Norway. These were mainly invested in start- a principle of ‘maximis[ing] the return on fund as- ups dealing with environmental technologies (41 sets within a moderate level of risk’, and the Govern- MNOK) (ibid.). ment’s Pension Fund Global is dispersed across 9000 The establishment of new SMEs is also in line companies in 72 countries (per 2017. NBIM n.d.). with the government’s intentions (Innovation Nor- way, 2016), and there was a general trend towards Creative and attractive region: start-ups and entrepreneurship in the country at a positive shock large. Ensuring a favourable milieu that buttressed It was evident from the interviews for this case entrepreneurs was high on the agenda, and In- study that the oil price drop, although a shock, was novation Norway Rogaland contributed by creat- a positive wake-up call for the region at large. It ing hot desk office spaces for entrepreneurs and drew attention to the weaknesses of the regional start-ups, both in Stavanger and Rogaland (Inter- industrial and economic bases and led to a signifi- view 9). Despite the intentions to catalyse change, cant reframing of the region’s strengths at large. there is nevertheless more activity tied to existing According to the Greater Stavanger Consortium, companies than to new ones (Interview 9). Most of the rebranding of the region as an energy region is this activity happens in already established sectors gaining some foothold as the region is increasingly due to the opportunities presented through tech- promoting Rogaland as ‘being more than oil and nology and knowledge transfers, which is perhaps gas’ (Interview 3). This is not only important for most evident in medical technology, infrastructure attracting future investment both nationally and and the marine sector for fish farming (Interview internationally, but also for attracting labour and 9;, 2016a). Roxcel, an engineering and young people interested in green technology and management firm traditionally supplying drilling green growth (Interview 4; Interview 3). The oil and and rig products, is one company that has expand- gas sector seemingly are also bowing to the green ed its portfolio to include fish farming (currently wave sweeping across the country. Most notable patent pending) and infrastructure and system is Statoil, whose name changed to Equinor in May solutions for smart city initiatives (e.g. interactive 2018 to reflect an increasingly broad product port- signs) (Roxcel, 2018; Dagens Næringsliv, 2017). The folio, which may be seen as a sign of the power of a interviewee from Innovation Norway also men- nordregio report 2019:2 53 tioned the new focus on developing aspects of the viewee from Innovation Norway Rogaland, the smart city concept, connecting ICT and welfare competition for the funding available for the technologies (Interview 9). agricultural sector was very tough in 2017. Whether this upsurge in applications for investment sup- Investment in other sectors port is connected to the cap in jobs in the oil sec- The central government provided the west coast tor is speculative, but it is known that it has been of Norway with funding through the national common practice for farmers to work offshore as budget for 2016, to help the counties put in place well as in agriculture. The restructuring of the oil the necessary measures for recovery, though this and gas sector might therefore have been a cata- had little or no earmarking (Regjeringen, 2016). In- lyst for investment in agriculture, as the farmers novation Norway was given some extra funding returned to work on their farms full time (Interview towards their establishment fund and Innovation 9). At the same time, the effects on aquaculture Contracts, their innovation venture capital fund. and other nature-based sectors, for example, are There were also central ameliorations made to less prone to geopolitical shocks – and although the regulations regarding daily allowances and the natural shocks due to changing weather conditions ability to create start-ups, as well as daily allow- is problematic, it is a known and considered risk ances paid during retraining. These were impor- (Interview 8). tant central governmental changes to help the The region’s economic diversity is often over- region get on its feet again. As such, the oil price looked. Since the oil price drop, it has been able to drop could be reframed in a positive sense. As one attract new engineers and workers that they oth- of the interviewees stated: erwise could not have attracted, in the marine sec- tor, the IT sector and the public sector (Interview ‘It was just as much a catalyst as it was a shock. 9). Nordic Edge is an interesting initiative rebrand- And that sounds more positive, doesn’t it? Shock is ing the region as being able to provide more than a very negative. It is more fruitful to think of it as a focus on oil and gas, by conveying a positive image catalyst.’ (Interview 5) focusing on the future smart cities and modern welfare technologies. Nordic Edge is ‘a non-profit It is also interesting to note that 2017 had the corporation owned by private companies working highest levels of investment in agriculture in dec- in close cooperation with local authorities and city ades (Interview 9). The crisis in 2014 was highly administrations to promote solutions for smarter negative for the oil industry but was neverthe- cities and communities’, such as Stavanger local less positive for the export sector in Rogaland authority, Greater Stavanger, the power company and Norway at large (Innovation Norway, 2015). A Lyse and local banks, and big players on the inter- lower Norwegian krone compared to the euro and national scene such as Microsoft (Nordic Edge, the US dollar created greater market access, and 2018), and is a form of strategic policy develop- the export sector prospered (Interview 5; Innova- ment in practice. Nordic Edge gives the region an tion Norway, 2015). As an already outward-looking opportunity to rebrand and add to a wider portfolio: regional economy, the supplier industry was able to capitalise on the situation by exploiting its exist- ‘It is important to communicate and illustrate that ing networks and markets with a more favourable we are more than oil and gas. We’re an energy region currency: with other opportunities as well. That is why the smart city initiative is so important.’ (Interview 3). ‘Both the seafood industry and the petroleum service industry are flourishing. We are still very Venture capital optimistic for many reasons […] For example, sub- It is important to realise the importance of the sea technologies developed by Aker; they generate role of venture capital in creating new, profitable massive income for Norway, and it’ll continue for sectors. This is also tied to the reason why few en- the next 40–60 years.’ (Interview 5) tirely new sectors or developments have resulted from the decline in oil prices. The restructuring of Rogaland is a large agricultural county but is sel- an industrial base takes time, as companies and dom given the attention and funding to the extent sectors learn to navigate a new market segment that the sector requires. According to an inter- and build rapport with customers and investors. nordregio report 2019:2 54 Venture capital is risk-averse and will rarely place The oil price shock could be also considered as its bets in market segments that it does not know. a positive shock despite its dire impact on the la- According to one of the interviewees, it is not bour market, not only in Rogaland but also across an issue of funds but an issue of competence and Norway. It played the role of a catalyst for change knowledge about new technologies (e.g. AI and and a wake-up call regarding costs and sustainable algorithms), and the capability of existing large salaries. It also helped restructuring and reframing business actors to organise, attract venture capi- the branding of Rogaland county as a region with tal and redirect venture capital away from real more to offer beyond oil and gas – as an ‘energy re- estate. A good example of this is the initiative by gion’, a region of advanced technology and a hub Smedvik, SR bank and Lyse, which created a ven- for smart city-initiatives. The crisis also tested the ture fund and promised to invest 50% if the state regional actors’ ability to cooperate and demon- invested 50% (Interview 8). There are other similar strated the importance of close networks and the seeding funds established across Norway, most of power of trust and symbolism. Moreover, it dem- which were established after 2014. For example, the onstrated the region’s ability to take control of a Renewable Fund ‘Nysnø Klimainvesteringer AS’ situation and accurately prescribe the ‘medicine’ is a government-owned investment firm looking needed to alleviate the pain, albeit with financial to invest in climate-friendly technologies (Nysnø, support through state budgets and the flexibility 2018). This is an example of how to ensure the gov- of the national agencies to allow for regional au- ernment takes a proactive role in smoothening out tonomy over the organisation of work. The gov- the ‘bumpy risk landscape’ that follows entrepre- ernments quick response and concern were also neurial development processes in new technology important factors for hindering an increasingly fields (cf. e.g. Mazzucato, 2013). Long-term invest- wide-spread crisis. This also indicated the impor- ment strategies are needed in order to move to a tance of the region and the sector for the overall more diversified energy mix. Interesting movements Norwegian economy. are also happening within the oil sector itself, as oil As such, the plunge in the oil price was a neces- and gas companies diversify their energy mix. sary caveat for pointing out the vulnerabilities of the region, and it also lifted a veil on the impact Findings Rogaland case study and power of the changing discourse in the national The risk landscape in Rogaland is heavily domi- and global arena regarding attracting new labour nated by the oil and gas industry, and as a small for the future, and the prowess and flexibility of and open economy both the sector as well as the the regional machinery. As former oil engineers region are vulnerable to an array of risks and po- changed career paths, it opened up the way to re- tential shocks, such as commodity price shocks, alise the possibilities within technology transfers technology shocks, geopolitical shocks and natural and other sectors were able to capitalise on skills disasters. The absorption capacity of the oil and and knowledge not previously accessible to them. gas sector is perhaps the most challenging as- However, with oil prices on the rise and an in- pect for buffering against risks, exemplified in the dustry that is more internationally competitive rapid increase in unemployment in the months and than ever, diversification of the economic base is years after the oil price shock. This highlights the a difficult balancing act. Companies are winning need for effective coordination between regional tenders again and Aibel in Haugesund will take on actors, and the necessity of quick responses from one of the largest constructions in the oil industry the national level in bolstering the capacity of the in a decade, the Johan Sverdrup platform, bring- regional authorities to act locally. The experienced ing 3000 additional jobs, a significant number diversification of the industrial sector is predomi- of which will be based in the region (NRK, 2018; nantly tied to the oil industry in the area, as inves- Regjeringen, 2016). tors were drawn to ‘guaranteed’ profitable return, The success of diversification depends greatly which was detrimental to some of the smaller on the sector’s ability to move beyond oil and gas companies in other sectors. However, it should be in the low periods, and the ability to attract invest- noted that the economic structure in Rogaland is ment and employees to alternative sectors. As the oil more diverse, but less attention is given to other and gas sector is rising slowly to its feet, the regional sectors and the relative returns are often com- actors should not lose sight of their goal to create a pared to those of the oil and gas sector. more dynamic and resilient Rogaland county. nordregio report 2019:2 55 4.4 NORRBOTTEN, SWEDEN start-up incubators. The university also plays an important role through the key expertise it has by Alberto Giacometti developed around the mining and space indus- tries, with a branch in Kiruna where the European Introduction Space Agency is located. The innovation profile of Norrbotten, the northernmost region in Sweden is the region has allowed it to overcome difficulties in an interesting case through which to study resil- the technological sector in the past, and to auto- ience because of its incredible dependence on the mate its key industries, partly to compensate for extraction of natural resources and the associated the shortage of labour. It also provides promising risk of commodity price shocks. Paired with that opportunities for developing e-services to improve threat is the issue of low population and pressing the attractiveness of and service delivery in the re- demographic trends that threaten the competi- gion. Finally, the innovative, hands-on culture has tiveness and availability of labour and sufficient enabled the region to turn some of its weaknesses, services for the local populations. At the same such as low temperatures and a cold, dark climate, time, the region’s outstanding capacity to inno- into a competitive advantage and develop new vate and collaborate keeps its society afloat and economic activities. extremely successful in attracting new economic On a separate note, climate change is particu- opportunities in technology sectors and, modestly, larly affecting reindeer herding patterns, which in in tourism. turn threatens the region’s intangible cultural her- A solid mining industry, together with steel, itage, specifically that of the Sami community. paper, pulp and other processing industries, make the economy of Norrbotten one of the richest in Territorial factors Sweden. Moreover, its enormous hydropower pro- Norrbotten has a population of less than 250,000 duction not only enables the secure functioning of inhabitants, and is in the northernmost part of such industries but also makes new industries at- Sweden, sharing borders with both Finland and tractive. Such as been the case with the relatively Norway. The region has a multicultural heritage new emerging sector of digital data storage, starting and is home to Sami, Finnish and Swedish commu- with the establishment of a Facebook data centre. nities. Mineral resources and forestry have defined Luleå Technical University has brought much the economy of Norrbotten since the nineteenth innovation to the region and refreshed its de- century. Today, 90% of Europe’s iron-ore extrac- mographic profile with a large number of local tion comes from Norrbotten alone. Thanks to its and foreign students, researchers and firms as- natural resources, Norrbotten produces a signifi- sociated with the university’s R&D initiatives and cant surplus of hydropower, which accounts for

A solid mining industry, together with steel, paper, pulp and other processing industries, make the economy of Norrbotten one of the richest in Sweden.

nordregio report 2019:2 56 13% of national power consumption. This in turn attract newcomers to the region. Attractiveness is has enabled the establishment of large processing a key challenge, however, in a region that is located industries, such as steel and paper-pulp, and more around the polar circle. recently data centres or facilities for the storage of digital information. Developments in other sec- Risk landscape tors provide interesting growth potential includ- This chapter provides a mapping of different types ing ICT, tourism and higher education. However, of risks identified in the region of Norrbotten, in- while these sectors are showing positive signs of cluding past events, and present and potential development, they far from outbalance the prof- challenges. The aim is to illustrate the different its deriving from natural resources (Interview 2). types of situation that can lead to abrupt changes In terms of employment, however, basic industry in the social and economic structure of the region is no longer absorbing the majority of the labour or parts of the region. force. In Luleå, for instance, the university has be- come a major employer (Interview 5). Yet there Commodity price fluctuation are geographical and demographic differences in The extraction of mineral resources and forestry, terms of employment. Luleå is moving from being and the processing industries that transform mainly industrial to a more service-oriented econ- these resources (i.e. the steel and paper-pulp in- omy, while the mining sector dominates employ- dustries) represent a major share of Norrbotten’s ment in Kiruna. Moreover, the employment rate is economy. Mineral resources alone (i.e. iron, copper) higher for men than women, while the level of edu- account for 60% of gross regional product (GRP) cation is higher for women than men (Norrbotten (Interview 1), and 90% of Europe’s iron-ore pro- Strategy, 2020). This is seemingly related to the duction. While these resources provide high profits, male-dominated industrial base of the region. they are vulnerable to price fluctuations that are Due especially to the increasing price of iron to a large extent unpredictable, since they are in- ore and other mineral commodities, the region fluenced by the state of the global economy and experienced steady economic growth between geopolitics (including measures targeting natural 1995 and 2012, except for the 2008–2010 period resources specifically, e.g. US tariffs on European when commodity prices dropped as a result of the steel). In 2009, for instance, there was a drastic global financial crisis. In this period, GDP per cap- drop in commodity prices as a consequence of the ita made an impressive leap from 4.9% below the global financial crisis. During this time, Norrbotten national average to 9.7% above it (OECD, 2017). experienced a significant drop in GRP due to its Employment rose steadily over the same period high dependence on natural resources. The over- and showed an even stronger acceleration after all impact, however, was not so strong due to the 2011 (ibid.). Even though automation has reduced short duration of the crisis and because the mining the need for labour within the mining industry, companies had a buffer (cash accumulated during employment has increased within the university periods of high prices) that enabled them to cope and ICT sector, while public services and indus- with the low prices for a period of time. The most tries based on natural resources remain important affected companies, however, were those down employers through their supply chains. Despite the supply chain, which were less prepared and de- the exceptional economic performance, popula- pended heavily on local industries to provide their tion declined 0.26% annually on average between services. It appears that companies that provide 1995 and 2012 (ibid.). The population has tended to services to the mining industry are ‘fat enough’, concentrate in the urban centres, mostly close to earning high profits, and do not invest enough in the coastal areas, leaving a vast sparsely populat- exploring other markets (Interview 1). ed landmass. According to one informant, ‘some In terms of jobs, a large proportion of employ- municipalities have a population density as low ment is still dependent on industries based on nat- as 0.2 inhabitants per km2’ (Interview 2). In spite ural resources, directly and indirectly, through the of the rural-urban migration pattern, growth in numerous small and large companies that provide the cities of Luleå and Piteå is considerably below services and products (e.g. IT companies). This is the national average. Therefore, the low popula- the case despite the fact that the mining and pro- tion growth, paired with an ageing population and cessing industries have become highly automated. promising job opportunities, calls for measures to On the positive side, when basic industries are nordregio report 2019:2 57 highly automated and technologically advanced it skills needed for the industries based in the region makes them more competitive in the global market, – this is now seriously considered as a potential especially considering the high cost of labour in growth disturbance’ (Interview 2). The share of Sweden compared to other parts of the globe. Au- unskilled young people has increased in the region tomation also compensates to a certain extent for since the crisis (OECD, 2017). Low-skilled jobs are the shortage of labour in the region. Additionally, in high demand and offer high salaries, which re- the growing employment opportunities in educa- sults in a large number of drop-outs from high tion, IT, health, tourism and the public sector lower school and higher education. Educational attain- the risk of jobs being lost when basic industries ment is gender imbalanced, with a larger share of are in trouble. However, such diversification of the educated women than men. One explanation for employment base is geographically uneven. While this is the structure of the labour market, which is manufacturing is no longer the largest employer characterised by male-dominated industries that in Luleå, the situation remains quite different in are less attractive to women, who tend towards Peteå and mining towns such as Kiruna and Gälli- gaining higher education and often seeking highly vare. Therefore, vulnerability to commodity price skilled jobs outside the region. fluctuations is also geographically uneven in Norr- A different kind of challenge related to the botten. Diversification within the sectors, or ‘re- loss of economic activities is the limited availability lated variety’ may also be a way around this, such of natural resources. Indeed, iron-ore deposits in as the interesting innovations emerging from the Kiruna are expected to be depleted within a few mining industry that have uses outside the sector, decades (Chen et al., 2003). This may seem like a such as sensors and ventilation systems. Likewise, long time but new economic activities normally innovations emerging, or improving, from cooper- take time to develop, and even longer to reach a ation between sectors build value chains and ex- good position in the market and generate ties pand beyond what is possible within one industry with supply chains and local institutions, especially alone, such as 5G technologies and the testing of considering the time and resources needed to de- drones within the mines. velop the skills within the local population to serve new economic sectors. Diversification is not easily Loss of income-generating activity achievable in small communities, however, espe- A certain critical mass (population density) is nec- cially on the same scale. Some scattered possibili- essary to justify the presence of industries and ties include tourism, car testing, the public sector the delivery of services, not to mention the devel- and the EU Space Station in Kiruna. Another form opment of new economic activities. This is chal- of diversification is ‘related variety’, which implies lenged, however, by Norrbotten’s low population extending and building up value chains beyond density and aggravated by demographic trends what is possible in one industry alone but requires such as an ageing population, the depopulation collaboration between industries to develop new of rural areas, the brain drain and low population business solutions. Examples of this include the growth in urban areas. Moreover, the long distances ventilation systems and sensors that are devel- to other cities and the climate make it difficult to oped for mining activity whose use has been ex- attract new people. According to one informant tended to other purposes; and the collaboration at the regional administration: ‘People want to be between the IT and public sectors to develop digi- in urban centres, where things are happening, so talised services such as e-health and solutions for we need to make the region more attractive, we distance education. need good communication and transport, which is Despite the negative trends, Norrbotten is not so good now’ (Interview 1). A low level of at- among the highest ranked regions on innovation tractiveness puts pressure on public services, and across the EU, built around a close collaboration leads to a shortage of labour in many economic network between Luleå Technical University, the activities and within the public sector. industry and the public institutions. The region has There is currently considerable discussion in also been able to take advantage of its strengths Norrbotten about employability, due to the mis- (e.g. hydropower, infrastructure) and even what match between available skills and employers’ de- are normally thought as weaknesses, such as cold- mands. As one informant puts it: ‘There are few ness and darkness, to attract industries that ben- people and few people with the right skills, the efit from these conditions, such as data centres, nordregio report 2019:2 58 car-testing and tourism. These opportunities are people from abroad. Luleå’s population develop- dealt with in more depth in later sections. ment, however, is much slower than in other urban centres in Sweden, primarily due to its location Technological risk and cold temperatures. The city also lacks some Emerging technologies, particularly the smart- key amenities that are needed for international phone, hit the mobile phone and high-tech indus- families to move in, such as an English school (In- try hard in Norrbotten. Both Telia and Ericsson’s terview 3). Furthermore, the IT companies are also research branch moved away from the region, re- affected when there is trouble in other sectors: ‘If sulting in significant job losses. Many of the pro- there is a drop in the price of iron, LKAB [mining fessionals working in the field, however, stayed in company] stops buying their services. But if the the region and created their own companies. The price goes up, they also buy more IT services, re- structure of the IT sector was completely trans- place old systems, buy better technology’ (Inter- formed from a few large companies into a system view 3). of numerous small firms and start-ups. It has also Another development that offers some op- changed focus, from being product-based to being portunities to the high-tech sector is the establish- mostly service-based. According to many, these ment of rapidly expanding data centres (facilities transformations have made the sector much more for the storage of digital information), which began dynamic and healthier as it is more flexible and with the establishment of Facebook in 2011. Several adaptable to changing markets and technologies. other companies have now built data centres in Today there is high demand for skilled jobs, but a Luleå and the neighbouring municipality of Boden shortage of competences within the sector (Inter- (e.g. Hydro66). However, it is not clear whether the view 2; Interview 3). The IT sector is also part of a data centres could provide meaningful opportuni- larger innovation system that is among the highest ties to other technological companies or to the in- ranked across the EU. It is argued that innovation novation system in the long run. is driven by the industries working in close collabo- ration with Luleå Technical University (LTU). Policy-induced/geopolitical risk The small size and existing networks around Brexit is a key geopolitical issue identified in Norr- Luleå appear to be an advantage for establishing botten, including the impact it will have on the EU a new company, particularly due to the city’s close- budgets, particularly the ERDF funds, which are of ness to people and accessibility to the university, importance in aiding regional structural changes research, fund-raisers and banks: ‘If you have an and boosting cooperation between regions (Inter- idea and you want to start a business you can easily view 1). Britain’s rupture with the EU will most cer- meet a high ranking person in the bank and get tainly result in budgetary cuts and a restructuring credit, whereas in Stockholm it would be very hard’ of the resources directed to the regions (Interview (Interview 3). There are good support systems for 2). There is a fear that resources will be cut espe- starting a company, such as grants for companies cially to the richest regions of Europe, Norrbotten from the region, and incubators, which are needed being one of them. for start-ups. Within the incubators, there are Active collaboration with neighbouring regions professionals who provide assistance with loans, and other areas in Europe is of high importance for advice on planning the growth of the company the Norrbotten region, not least because of its pe- and other kinds of support. The university and ripheral location. Moreover, the melting ice in the the research carried out close to the companies are Arctic Sea is opening many opportunities that are also important in creating an entrepreneurial envi- of strategic importance, not only to the immediate ronment. vicinities but also globally. The opening of new Nevertheless, creative destruction, through transport routes in the Arctic Sea and the explora- the emergence of new technologies around the tion for oil and other mineral resources that is now world, remains one of the key challenges for the possible, is a major geopolitical game-changer. For high-tech industry. While the sector is much more this reason, cooperation with other Arctic regions adaptable today, its competitiveness strongly de- is of great importance for Norrbotten, as well as pends on staying at the forefront of technology the EU and countries as far as India and China, globally. Moreover, to remain competitive and keep which may have an enormous influence on future growing, the sector needs to attract new talented development in the region. nordregio report 2019:2 59 A more recent geopolitical risk derives from food could become very scarce, and we are not the US-led ‘trade war’ and suddenly increasing prepared for that’ (ibid.). protectionism, including tariffs on strategic re- Furthermore, the increasing social awareness sources such as steel. Norrbotten’s steel company, of environmental issues has the potential to gener- SSAB, also produces steel in the US and therefore ate much opposition and even block large economic has been able to avoid the tariffs so far. Yet the activities in the region such as mining and the steel long-term impact of the measure is still unclear. industry (Interview 1). While this seems not to be a big issue today, some people think they should Natural/environmental risk stay alert about this possible scenario. Changing climatic conditions are having a meaningful impact on reindeer herding, a key source of the live- Resilience drivers lihood and cultural identity of the Sami people. The Perhaps the biggest strengths in Norrbotten are the reindeer are struggling to find enough food during hands-on and collaborative working culture, which the winter season, which has led to a change in the is evident both within the formal institutions and herding patterns moving from inland to coastal informally through the existing networks; and the areas (Interview 1). As most of Norrbotten’s popu- open, problem-solving attitudes. As neatly put by lation is concentrated along the coastline, the sud- an informant, ‘we are a very proactive culture, we den increase in reindeer herding in the area has don’t just talk, we are used to solving things, tak- generated reaction from residents and land-owners. ing action’ (Interview 4). Another informant adds: While reindeer herding may not appear as a sig- ‘we are very much about triple-helix set-ups; we nificant sector for the region in terms of profits, work in close collaboration with the public sector, it is of vital importance for many Sami people, not the companies and the universities; it is something only economically but also as a way of life and a we are very good at, it works very well’ (Interview cultural heritage. Moreover, the Sami culture, in- 3). The closeness between people, partly due to the cluding reindeer herding, provides great potential relatively small population, is a key facilitator for col- for the tourism industry, which is considered as laboration. As an interviewee puts it, ‘key people are one alternative to the otherwise exploitative and only one phone call away’ (Interview 4). ‘Top level industrial character of the key economic sectors in people in the public sector meet with the compa- the region. Reindeer herding also safeguards the nies at the different events, so there is a personal human presence around vast rural areas with an connection with a lot of people, which is very impor- extremely low population density. According to tant for the region to grow’ (Interview 3). An inform- one interview at the regional administration, this ant from the private sector adds, ‘we have direct issue has not received sufficient attention so far; contact with the mayors, we can make things hap- however, ‘the national agenda 2030, demands a pen quicker than other places’ (Interview 6). More­ stronger emphasis on social aspects within the over, trust is an essential condition driving collabora- new regional strategy’ (Interview 1). An increased tion among regional actors (Interview 4). focus is therefore expected on the socio-economic Collaboration is also well established. Around impacts of climate change. 70 years ago, Norrbotten was the first region in From a global perspective, climate change Sweden to create an association of local authori- also threatens food security and peace through- ties, ‘Norrbotten Kommuner’ (NK), in an effort to out Europe. According to an interview in Luleå strengthen ties with each other and coordinate municipality, the global trend for mass-food-pro- actions. The first chairman of the organisation fa- duction has resulted in a significant drop in prices mously said in 1946: ‘It is stormy, and it will continue and increased availability of food products. Con- to be hard for the local authorities, and therefore sequently, the consumption of local produce has we need to work together and be strong’ (Inter- decreased, knowledge of local food production has view 4). The same infomrant adds: ‘This is still very been lost and dependence on food imports has in- relevant today’. Norrbotten pioneered this form creased (Interview 5). Unpredictable weather con- of local authority organisation, ‘perhaps because ditions, extreme droughts and floods worldwide, of the geographical location [distant from central therefore, may result in abrupt scarcity of certain government and the rest of Europe]’ (ibid.). The food products. In one informant’s words: ‘if more organisation, therefore, has also brought Norrbot- serious climatic issues were to happen abroad, ten’s local authorities closer to national decision- nordregio report 2019:2 60 making through the six members of the board to the closeness to people and networks, are excel- sitting in parliament in Stockholm, and at EU lent conditions under which companies can thrive. level through the North Sweden office in Brussels ‘There are grants given to companies from the (ibid.). NK works in close collaboration with the region and incubators, where start-ups can find regional administration (Interview 1) on matters people to discuss about loans and how to plan the of regional development. Despite the two bodies growth of the company’ (Interview 3). LTU plays operating on the same jurisdictional level, the ad- a particularly important role as one of the most vantage of NK is that it represents the interests collaborative universities in Sweden (ibid.) and in of the local authorities, which have a larger man- attracting talent. According to an informant, ‘the date than the regional administration. Moreover, university came in 1971 and drove an enormous NK brings additional perspectives from those of change to the city – it’s a big employer, does a lot the local authorities themselves, which are more of research, brings a lot of students – it has actu- strategic and apolitical. Through different com- ally changed the demographic profile of the city’ mittees, the organisation addresses issues related (Interview 5). ‘Additionally, LTU is known as ‘the’ to R&D and innovation, capacity-building in the la- mining and ore university, this is really where the bour market, and education, such as the opportu- mining competence is concentrated – all the engi- nities offered by digitalisation in skills development neers, the geoscientists and companies are here’ and e-health (Interview 4). From a resilience point (Interview 3). The university also has a role in the of view, an interesting angle is the flexibility that the space sector, with a branch in Kiruna that provides organisation provides. ‘We have built up a political education and support to the European Space framework that we can quickly refer to and establish Agency (ibid.). All in all, the university plays a central a plan of action in case something happens’ (ibid.). role in the development of the region. According to Another key resilience driver is the strong, dy- an interview: ‘The university in not only in the region namic innovation system present in Norrbotten, but very much for the region’ (Interview 2). which is ranked among the highest in the EU. Some Research and innovation is also a priority argue that this is driven to a large extent by the in- within the regional strategy in connection with the dustries, which are highly advanced technologically public administration and delivery of basic services and invest significantly in research (Interview 3). ‘A (Interview 1). An informant asserts that: ‘research large percentage of the research conducted in LTU and innovation within the public sector is becom- is externally funded [by companies], and much of ing more important, so we are working closely with it is applied sciences, so it has a very strong im- the universities addressing digitalisation, capacity pact on development, to industry’ (Interview 2). building in the labour market, education, e-health’ Innovative industries are not limited to the high- (Interview 4). Healthcare, for instance, is critical as tech sector, which is highly dynamic today, but also people in the region are getting older, which means traditional industries such as mining, steel, paper more people falling ill and fewer tax payers. Thus and pulp, which are highly automated and globally e-health may provide some solutions to these competitive. For instance, LKAB, the state-owned challenges (Interview 1). At the same time, these iron-ore mine in Kiruna has announced that the changes need to secure ‘good services and health- next level in the mine will be completely human- care for young people without raising taxes, as free (Interview 1). The mining industry is also a otherwise it won’t be attractive, it won’t be pos- forerunner in technological innovation in a broader sible to live in certain areas’ (Interview 4). Despite sense, developing solutions that have a use beyond digitalisation threatening to generate job losses, the sector, such as sensors used for monitoring land Norrbotten generally has the opposite problem, vibrations, and ventilation systems. The close col- with a significant labour shortage (Interview 1). laboration among industries is also showing inter- Therefore, if Norrbotten is able to make a quick esting results in terms of innovation, such as digi- transition, it ‘could gain a competitive advantage tal solutions developed by the tech industry and and sell services to other regions’ (Interview 1). tested inside the mines more than 1000 metres Youth capacity-building in relation to their long- underground, such as the 4G and 5G wireless com- term employability is another critical issue: ‘Young munication technologies and drones (Interview 2). people have it very easy in terms of employment, Moreover, good support systems from the which leads to a problem in education attainment; public sector, finance and the university, in addition they are not getting enough, or the “right educa- nordregio report 2019:2 61 tion”’ (Interview 1). Therefore, Norrbotten’s 2020 stations nearby, so there is a high level of security strategy emphasises the need for a labour force (Interview 3). Additionally, not all areas in Sweden, with the appropriate skills as central to assuring or Europe, ‘have sufficient power-capacity, and the ‘region's competitiveness, growth and attrac- setting up the wires is very expensive; that’s why tiveness’, for which it puts the emphasis on more it makes sense to be close to the power source’ flexible education and life-long learning. (ibid.). What’s more, the renewable origin of the On a different note, conditions that are nor- electric power gives a positive image to companies mally considered as weaknesses, such as the cold choosing to store their servers in Norrbotten. Hy- weather, darkness and low population density, dro66, a company that rents out space for other have also flipped into a competitive advantage companies’ servers, has used this as a branding for Norrbotten. ‘Several car manufacturers have strategy, which is even reflected in its company brought their winter testing facilities to sparsely name (Interview 6). Today, several other data cen- populated areas, where you cannot have worse tres have been established in Norrbotten, including winter conditions, to test car parts [e.g. batteries, a research centre on data centres. breaks] and performance’, without encountering Finally, an interesting development for the any ‘paparazzi’ threatening to reveal their new future is that the region has started a process models to the media (Interview 2). ‘This brings in of scenario analyses, forecasting and examining money during the winter, mostly services, hotels, trends, in preparation for the new regional strategy restaurants and know-how on running tests’ (In- (Interview 1). In this case the higher risks already terview 3). Likewise, Facebook installed its first identified are the commodity price fluctuations of data centre outside the United States in Norr- natural resources, including the forestry, mineral botten, partly because energy consumption for and steel industries (Ibid.). They are also looking cooling servers is much lower in extremely low into new opportunities and other industries that temperatures (Interview 2). Lastly, winter tourism have the potential to expand, such as the data is becoming more attractive. Winter sports, com- centres in which Norrbotten has an excellent com- plete darkness, silence, astonishing landscapes, petitive advantage in terms of infrastructure energy the aurora borealis and the Sami culture are some security and low temperatures (ibid.). Moreover, of the attractions gaining significant attention. ‘the national government, through agenda 2030, Emerging efforts in the sector are being coordi- demands a stronger emphasis on the social as- nated and promoted by Swedish Lapland, an or- pects of the new regional strategy so there will be ganisation that is partly financed by the regional a change’, for instance by taking the issues related administration of Norrbotten. These efforts are to Sami reindeer herders more seriously (ibid). showing positive results, although ‘it is hard to know if travels are business- or tourism-related – Findings Norrbotten case there is a lot of activity in the hotel industry, but Commodity price fluctuation is clearly the biggest many come because of the mining industry or the threat to Norrbotten’s economic and social resil- car testing facilities’ (Interview 4). The future of ience. A large proportion of employment in the tourism looks promising nevertheless. region is dependent on the natural resources in- Energy security is another, most important dustries: ‘If the world economy goes up and down, reason why Facebook chose to build its data centre everything in the region goes up and down – we outside Luleå. The huge facilities used for the stor- are very sensitive to commodity prices variations’ age of digital information require vast amounts of (Interview 3). In this respect, a significant finding electricity for cooling the servers. In addition, the is the importance of buffering. Profits from natu- servers must never stop, so energy security is cru- ral resource extraction are highly fluctuating and cial. Its ‘positive path-dependence’ played in Norr- dependent on global trends and geopolitics, and botten’s favour, since ‘the whole grid is built for thus national or even regional actors are thus far the processing industry’ (Interview 3). ‘Process- from being in control. The situation could have be- ing industries and mining require large amounts come critical if the prices remained low for longer of electricity, and a safety net – that’s why there periods of time. Yet, the industry’s high surplus has never been a power outage since the 1980s’ allows it to save a large share of the profits as a (Interview 2). There is ‘triple redundancy’ in the buffer for times of significant price drop. However, infrastructure, as there are several hydropower apart from the large companies, the suppliers may nordregio report 2019:2 62 not always be prepared for such times. Often the dancy’. Redundancy of energy sources is of enor- most affected during commodity price shocks are mous importance in terms of processing indus- the companies down the supply chain, whose ser- tries’ ability to keep functioning ‘24/7’, every day vices are cut and that are not flexible enough to of the year. They can’t afford to stop, and thus service other businesses or other markets. Look- energy security is not enough; they need triple en- ing closely to value chains, the impact of dropping ergy security. This has proved to be a competitive commodity prices hits industries that are com- advantage and holds potential for other heavy in- pletely distinct from natural resource extraction. dustries and data centres to establish themselves ‘If there is a drop in the price of iron and LKAB was in the region, as was the case with Facebook. to slow down, then it affects ICT, they stop buying Another important threat is the accumulated their services, they have to cut down. And if the stress deriving from the negative demographic price goes up, they also buy more ICT services, they trends, ageing population, urbanisation, gender replace old systems but better technology, so then imbalances in education and labour opportuni- there is a boom for ICT’ (Interview 3). ties, and unattractiveness. While none of these An interesting finding is that even though are shocking events, there is latent potential loss there is a single activity that hugely dominates the in competitiveness and economic opportunities, income generated in the region, diversification in due to the struggle to find the right human capi- employment is very important for job security, es- tal. At the same time, loss of economic activities pecially if it is not in any way connected to that and insufficient diverse labour opportunities and activity supply chain. While some industries might other amenities in sparsely populated areas lead not be significantly profitable, they provide some to further population decline due to outmigration. degree of security in cases when commodity price In this way, these negative trends become cyclical, fluctuations affect the natural resources-based representing a major threat in the long run. Norr- industries. Today, the mining industry in Norrbot- botten’s extremely successful innovation system ten relies significantly less on human labour, and counterbalances to a certain degree some of these in fact LKAB, the state-owned iron-ore mine in trends, particularly in its largest urban centres. Kiruna, has announced that the next level in the Nevertheless, Norrbotten would require a mine will be completely human-free. Luleå’s em- significant demographic shift and much broader ployment depends more on services than basic in- diversification of its industrial base to be consid- dustry. This means that, even if there is a big fall in ered resilient to commodity price shocks. However, commodity prices and overall GRP suffers a strong this is not necessarily realistic within a short time- dip, the livelihoods of the region’s citizens are less frame, particularly in specific parts of the region. at risk because employment is less dependent on In the long run, one thing that Norrbotten may natural resources. consider is the possibility of planning for economic Diversification, however, is geographically un- decline, which is a realistic scenario, at least for even. While creating room for the diversification some parts of the region that receive most of their of the industrial base is essential for job security, profits from finite resources. it remains a major challenge in places like Kiruna On a different note, climate change is particu- and other towns in Norrbotten that remain heavily larly affecting reindeer herding patterns, impact- dependent on natural resources in terms of both ing on the Sami people. Their presence in coastal profits and employment. In this case, employ- areas, which is now more usual than it was, means ing concepts such as entrepreneurial discovery it is possible that conflict with other residents may processes (EDP) and allowing for related variety escalate. The Sami herders represent an impor- within the mining sector may provide some alter- tant presence in Norrbotten’s vast and sparsely native job opportunities (e.g. ventilation systems, populated areas and are an intangible cultural sensors, 5G technologies). As seen in Norrbotten, heritage of the region. These issues do not seem to a good innovation system can provide significant gain sufficient attention. opportunities in the long run and generate jobs Despite these difficulties, a key lesson from that are not dependent on the extraction of natural Norrbotten is its incredible capacity to innovate resources, thus building a different future for a and to transform weaknesses into opportunities region that is highly at risk of abrupt events. and use path dependency to attract industries One key finding is the importance of ‘redun- that can use existing infrastructures and capital. nordregio report 2019:2 63 4.5 VEJLE, DENMARK demographic trends. Vejle’s public officials aim to build stronger social capital (social resilience) in times by Alberto Giacometti, Lise Smed Olsen of ‘growing apathy and lack of social cohesion’. The (Oxford Research) & Laura Fagerlund strategy also emphasises the importance of work- ing together with different stakeholders in various Introduction constellations, including businesses. The strategy Vejle, in South Denmark, is an interesting case does not address in detail the risks associated with with which to study resilience in the Nordic con- Vejle’s key economic sectors and businesses. Never­ text. Vejle is the only Nordic city that has joined theless, the holistic and cross-departmental ap- the ‘100 Resilience Cities’ (100RC) network, a proach to resilience in Vejle incorporates in various global network created by the Rockefeller Foun- ways the role of businesses and start-ups develop- dation in 2013. 100RC aims to help cities around ing in new sectors, in driving positive change and in the world to become more resilient to the physi- helping the city’s society and economy to be more cal, social and economic challenges they are fac- adaptable to changing conditions. Technological ing. Vejle Local Authority submitted its application developments and the increasingly turbulent la- to the 100RC in 2015, in which it emphasised the bour market are some of the trends challenging city’s experience in community building in vulner- the region’s competitiveness, and these are tack- able residential areas. Vejle is also interesting from led through the strategy’s pillars, actions and pro- the perspective of its risk landscape, as the city is jects. For example, when it comes to green tech, highly diversified and to a large extent able to cope the city of Vejle partnered with a private investor with risks affecting its economic structure. How- to expand this new sector and support start-ups. ever, the city is also coping with transformations in its labour market and technological, demographic, Territorial factors natural and political challenges. Vejle has a population of around 114,000 inhab- As part of the 100RC network, Vejle has de- itants, of which approximately 56,500 live in the veloped its own Resilience Strategy targeting city- city. The municipality has experienced a positive specific challenges. This case provides an inter- population trend: from 2012 to 2017 the number of esting approach from which to address resilience inhabitants grew by 5.5%. This increase is mostly from the public administration, as it introduces thanks to positive net migration. Historically, Vejle system thinking to the local authority strategies, and its surroundings have been an important in- into the way work is organised and into individual dustrial centre; today, however, it is a hub for en- projects. This includes a holistic, long-term ap- trepreneurs, tourism, energy companies and IT. proach, a strong emphasis on trends and technol- Just over 78% of the inhabitants of the Vejle area ogies and a cross-organisational working practice are employed, and this has grown by 3.1% from combining the expertise of different departments 2015 to 2016, with 70% of citizens employed in the and in new partnerships. Moreover, it introduces a private sector. Here, the food and construction proactive approach to challenges and the preven- sectors absorb the largest share of employment tion of potential risks that otherwise would arise (both around 20%). However, productivity devel- if not continuously monitored and addressed by opment within the private sector is negative, de- working ‘in new ways’. To make this possible, Vejle clining by 0.4% during the period 2013–2015. Only has appointed a Chief Resilience Officer, as have 3% of the work force are employed in the public the other cities in the 100RC network, who is re- sector (Kontur, 2017). Vejle is expected to increase sponsible for introducing the resilience perspective the work force, the number of people employed, into the day-to-day work in the local authority. education levels and tourism in the city. This is Vejle’s Resilience Strategy’s four pillars focus mostly thanks to promising sectors such as private on co-creation, social cohesion, climate mitigation trading and service, construction, industry, trans- and adaption, and smart city solutions. Vejle’s point port and healthcare. of departure is closer to ecological and social resil- Vejle Municipality is part of the Triangle Region, ience perspectives. These priorities respond to the a formal partnership between seven neighbouring key challenges identified in the region, such as cli- municipalities (Billund, Fredericia, Haderslev, Kold- mate change and flooding, as well as to social as- ing, Middelfart, Vejen and Vejle). The collaboration pects surrounding, for example, immigration and is managed by the region’s secretariat and the nordregio report 2019:2 64 Vejle is an interesting case, as the city is highly diversified and to a large extent able to cope with risks affecting its economic structure. Photo: Oliver Foerstner bureau, which consists of the municipalities’ may- and has a total population of 1,2 million. The re- ors. The aim of the partnership is to strengthen gion’s SMEs have a positive outlook on the future, the region’s growth and production by combin- expecting growth and increasing employment. ing the municipalities’ respective strengths. With Wholesale and advanced production are expected around 37.000 industrial jobs, the Triangle Region to show most growth. According to State of the is Denmark’s most important industrial region. Region 2017, while businesses are thriving, 28% of The Triangle Region expects manufacturing com- them have had a hard time recruiting. As this can panies to move their business to, or keep them in, have serious consequences on the competitiveness Denmark, and have therefore developed several of the regional economy, the report emphasises actions with the aim of renewing and strengthen- the importance of working closer with educational ing industry. For instance, companies can get sup- institutions and attracting a qualified work force. port from the region’s consultants specialising in manufacturing businesses. The Triangle Region is Risk landscape also an important logistics centre, being strategi- As an initial step in developing the Resilience Strat- cally located between Germany and Scandinavia. egy, Vejle Local Authority has identified some of Companies working within the sectors of technol- its core challenges, which include: climate change ogy, tourism, energy and service provision show and flooding; urbanisation; infrastructure demand; a promising growth pattern as well (The Triangle changing industries, global economies and new Region). The regional strategy for growth and de- technology; and demographic changes in society. velopment, Det Gode Liv, also mentions welfare These challenges consist of a mix of risks that po- and healthcare innovation, and experience indus- tentially lead to abrupt events or shocks (e.g. a tries as promising sectors. flood) and stress factors that have long-term con- Vejle is the administrative centre of South sequences for the social and economic structure Denmark Region, which covers 22 municipalities of Vejle (e.g. changing industries and the future nordregio report 2019:2 65 labour market and welfare system). In addition of Denmark this is more of a concern because our to the challenges identified within the work of the industrial structure is more based on production Resilience Strategy, this section also reveals some [manufacture], than the eastern part, where the of the risks or challenges connected to Vejle’s busi- capital region is’ (ibid.). In addition to manufactur- ness community. ing industry, digitalisation is also a major issue for logistics, which is a key sector in Vejle. ‘Logistics is Natural, environmental and seasonal risks one of the sectors undergoing a great transforma- Climate change is perhaps the biggest risk for tion, with driverless vehicles, drones and automa- Vejle. Vejle is predicted to be underwater by 2100 tion in general, which is fundamentally changing and is one of ten areas in Denmark where there the industry’ (ibid.). Yet the transport and logistics is a significant flood risk due to rising sea levels, sectors have already been shrinking for some time increasing rainfall and flooding. Over the past few due to competition with other countries. hundred years, Vejle has experienced floods every While digitalisation threatens to render many four or five years (i.e. as seasonal shocks). Over the jobs redundant, this seems not to generate much past decade, floods have become more frequent. concern in Vejle. The unemployment rate is rather Flooding causes major damage to coastal areas, low, at 3.3%, and workers have an easy time find- resulting in material losses and increased pressure ing new jobs in other industries (Interview 2). On on the basic infrastructures and provision of ser- the contrary, the biggest issue for industries in Vejle vices. The increasing water level and frequency of today is getting hold of skilled labour. ‘There is a these events may potentially lead to a major shock shortage of labour with certain qualifications; our with greater material loss, and the possible spread industry needs many engineers and it has trouble of disease due to the sewage system overflowing. recruiting them’ (Interview 2). Yet there is also dif- The social and economic costs can be high, includ- ficulty in finding manual labour, such as carpen- ing the displacement of citizens. An additional ters, and metal and machine workers. Limitations complication is that flood prevention cannot be related to the shortage of labour are: first, the restricted to the areas vulnerable to floods but relatively small size of the labour market; second, requires interventions upstream/uphill within the the absence of a university in Vejle; and third, a na- city to retain the water. However, citizens living tional shortage of engineers, many of whom are uphill are normally not aware of this or don’t feel more easily attracted to companies based in the responsible for floods in other parts of the city. As capital region (Interview 2). The local authority has the Chief Resilience Officer (CRO) puts it, ‘one of been working to promote vocational education at the biggest challenges is to try to change people’s school level, which is receiving a positive response. behaviour, especially with a problem that is not This is a long-term investment, however, and thus theirs’. She adds, ‘the challenge is to make people the impact on the labour market is not visible so far. connect to the city and think of it as a whole’. Emerging digital technologies also raise con- cerns related to cybersecurity, social exclusion and Technological trends and changing competitiveness (Resilience Strategy, 2016–2020). labour markets Keeping up with technology is crucial for retaining Being part of a globalised society and economy, competitiveness and particularly important for a Vejle is closely influenced by changing conditions local economy that significantly depends on pro- and trends. Changing economies and new technol- cessing and manufacturing industries but that has ogies create a turbulent job market and introduce been betting on emerging industries such as green vulnerable employment conditions. According to tech. the Business Policy Consultant at Vejle Local Au- thority, one of the biggest concerns for industry is Risks related to demographic trends and loss ‘Industry 4.0, the future of business in the digital of competitiveness era, and how to reinvent the business model ac- A changing demographic structure with an ageing cordingly’ (Interview 2). The digital revolution is a society and increased immigrant population puts global trend affecting all industries globally; how- pressure on the provision of services and overall ever, some are undergoing a more rapid transfor- competitiveness of Vejle’s economy. Public social mation than others, and it therefore affects dis- services are being challenged by a growing num- tinct geographies differently. ‘For the western part ber of elderly people, as well as chronic illnesses nordregio report 2019:2 66 and other health problems related to unhealthy the responsibility of Denmark’s Business Promo- lifestyles across different age groups. Newcomers tion Board in 2019. This could generate a decline in may have trouble finding employment without up- understanding between local and regional admin- grading their skills. However, there is also a trend istrative levels and potentially less effective mech- for young, highly educated professionals to move anisms of support for businesses. Some argue that to Vejle. Moreover, failed integration could cause the national Business Promotion Board is too far polarisation in the society. According to the Resil- away from the regions, and without the regions ience Chief, ‘the city is not well prepared for the the local authorities will lack a strategic facilitator immigrants and refugees coming from unstable to bring them together to solve societal challenges. countries’. Yet the loss of social cohesion is not The impact this will have on business development related to immigration alone but is a recurrent is uncertain, but administrative changes always condition across economic status, culture and lo- have the potential to disrupt functioning mecha- cal identities. Improving the city's flexibility and nisms of support. adaptability, and strengthening social cohesion, Besides being responsible for the EU struc- are raised in the Resilience Strategy as important tural funds, the six RGFs (one per region and one actions to better cope with the long-term effects for ) are responsible for deciding the of immigration. regional development and growth strategies and Furthermore, increasing urbanisation is put- the regional development funds assigned by the ting pressure on Vejle’s existing infrastructure state. The RGFs are also responsible for monitor- and the quality of life of its citizens. For instance, ing and ensuring development in the peripheral apartments are getting smaller, there are fewer areas. The regions will maintain responsibility for green areas in certain neighbourhoods and traffic developing regional development strategies in the congestion is increasing. Vejle has experienced a areas of public transport, culture, education, en- shortage of student housing, making it difficult to vironment, infrastructure, development of the pe- attract students. However, a significant increase ripheral areas, nature and recreational purposes, in the number of student apartments being built green transition, climate adaptation and cross- recently has reduced this problem (Growth Baro­ border collaboration. With the changed govern- meter, Vejle Municipality). ance structure, the regions will have the possibility of applying for regional development funds man- Political and geopolitical risks aged by Denmark’s Business Promotion Board Political decisions such as increasing interest rates, for initiatives in the areas for which they are still changing tax regimes, increasing the money supply responsible. This opens new opportunities for the abruptly, and adding new prohibitions, regulation regions to more clearly establish their role as facili- or tariffs on foreign goods, have a direct impact on tators for regional development. The reform is not businesses. Likewise, measures imposed in foreign likely to pose a real risk for business development countries have an impact on local businesses. In in the municipality of Vejle. Organisations and in- Vejle, ‘for companies that rely on the British mar- stitutions that are today beneficiaries of EU struc- ket, Brexit could be an issue, and companies trad- tural funds will still be able to apply to the national ing with the US are concerned about current world Board for funds. However, some uncertainty can be politics’ (Interview 2). Broader changes resulting observed from beneficiaries, including in Vejle, about from EU budget reforms after Brexit do not seem future access to funds through the national Board. to be of much concern but businesses worry ‘pri- marily about market access; for instance the food Financial risk sector has an important stake in those markets In a deeply globalised economy and society, the [Britain and USA]’ (ibid.). consequences of financial crises can be severe for The role of the regions in Denmark is changing local economies. Financial institutions are tightly with the reform that comes into force in January interlinked globally, which means that local crises 2019, which entails them no longer undertaking re- spread quickly to other countries and local econ- sponsibilities for business development. The ad- omies. The global financial crisis that started in ministration of the EU structural funds (ERDF and 2007 had severe consequences for Denmark, re- ESF), which until now has been the responsibility sulting in failed banks, falling housing prices and of the regional growth forums (RGF), will become increased unemployment. In Vejle, unemployment nordregio report 2019:2 67 increased four-fold after the financial crisis. The partners and so on’ (ibid.). Despite the lack of a construction sector cut its number of employees university in the city, the local authority and the to a fifth of its previous number ( Never­ Business and Innovation Park in Vejle, have close theless, the experience of Vejle and the whole of partnerships with universities across Denmark to the Southern Denmark region was less severe attract labour to the city, through education pro- than Denmark’s capital region. Unemployment in jects, internships and job fairs (ibid.). At the same Vejle is generally low, and today employment levels time, the local authority is promoting vocational have completely recovered from 5.6% in 2011 to career paths at school level, by showing teenagers 3.8% in 2017 ( In comparison with the career opportunities that exist within those other regions, Southern Denmark has experienced fields. To cope with the shortage of labour, one remarkable progress since the financial crisis. strategy is ‘to integrate immigrants into the la- The GDP growth rate was around 1.3% between bour market, by showing them the opportunities 2009 and 2015, comparable only with the capital offered in vocational fields’ (ibid.). Re-education region, while in the rest of the country it grew by programmes are also important in assisting work- an average of 1% or lower. Vejle’s ability to resist ers to move to different industries. the crisis has been attributed to a large extent to Over time, Vejle’s businesses and institutions the high diversification of its industrial base and have shown themselves to be quite adaptable to the presence of strong manufacturing industries changing conditions. During the financial crisis, (Interview 2). Moreover, the support given by the many became unemployed in Vejle; however, to- local authority to entrepreneurship and to boost day the city has ‘even exceeded the number of jobs emerging industries appears to have contributed compared to the pre-crisis numbers’ (Interview 2). to the adaptability of businesses (ibid.). However, The Business Policy Consultant at Vejle Local Au- housing prices in Vejle remain at 4.9% below pre- thority believes that ‘businesses are quite resilient crisis levels ( and adaptable; many businesses have been able to In general terms, the financial system in Den- come back from the crisis within a few years of the mark is very solid and most companies have good crisis’. Moreover, the local authority has also shown access to finance. However, there are a few excep- its ability to adapt and be receptive to new ways tions, as the Business Policy Consultant at Vejle of doing things. For instance, during the peak of Local Authority notes: ‘It can still be difficult to the crisis, the local authority partnered with a pri- find investors for finance for entrepreneurship and vate investor ‘to build a Green Tech House, and In- more risky investments,’ (Interview 2). She adds, ‘it novation Centre, to make Vejle an attractive place is also small businesses in rural areas that do not for new sectors, like green tech, that are grow- easily get access to finance, or at least the loans ing’. Vejle is also increasingly supporting start-ups have higher interest rates’ (ibid.). and emerging sectors by establishing new types of partnerships and working across departments Resilience drivers within the public administration. This holistic ap- Vejle has a highly diversified economy, which proach by the public administration has been fur- makes it rather resilient to risks associated with ther reinforced by Vejle’s involvement in the 100 individual sectors. Vejle’s location is very strategic Resilience Cities (100RC) network and programme within Denmark and in relation to the rest of Eu- organised by the Rockefeller Foundation. rope, making it an important logistics node: ‘This is an advantage for our companies, you can get Developing the Resilience Strategy anywhere in Denmark within two hours and to Vejle city started developing its Resilience Strategy Hamburg within three’ (Interview 2). Moreover, the in 2014 and it was completed in 2016. The strategy labour force is highly qualified and said to be loyal is shaped by the 100RC’s framework, and by identi- in the sense that ‘employees tend to move jobs less fying gaps in Vejle’s existing approach to the city’s frequently compared to other places’ (ibid.). This is resilience. The 100RC network provides support on interesting for companies, as they invest in training how to strengthen Vejle’s absorptive capacity or people. The city also has a strong business com- ability to resist and respond to shocks and stress. munity and cooperative business culture. ‘Compa- Departing from the assumption that the future nies are good at cooperating with each other, with is uncertain, the strategy recognises resilience as external partners, the local authority, knowledge the interplay of a city’s strengths, weaknesses, nordregio report 2019:2 68 shocks and stresses, and how it responds to un- city’s educational institution aim to develop strong foreseen events. Member cities in the 100RC are educational, inclusive offers that benefit the most given the resources and support to develop a road- vulnerable groups as well as the most talented. map along four fronts: the Chief Resilience Officer This is in line with resilient thinking that embraces (CRO); the Resilience Strategy; an innovative plat- education. Also, more practical solutions, such as form; and a global network (Vejle Resilience Strat- retrofitting communal halls into flexible meeting egy). Cities receive funding and logistical guidance to places fall under this pillar. appoint a CRO position in the city government. The Climate resilience pillar: focuses especially on CRO leads the city's resilience efforts by bringing turning water into an asset and using it as an ad- in stakeholders from across silos of government vantage for the city’s ‘urban and social capital’. and sectors of society. In this way, the CRO can be This pillar also aims to make sustainable use of re- regarded as a tool in working towards resilience. sources and further adopt renewable energy and Furthermore, cities receive technical support to green transport. ‘A climate-resilient city’ includes develop a Resilience Strategy. The Rockefeller several actions targeting the risk of flooding, in- Foundation partnered with the design firm Arup cluding a feasibility study to better understand to create the City Resilience Framework (CRF). the economic component of flood protection. Con- The framework is based on extensive research and crete actions to manage water are also designed evaluation of cities’ experiences around the world to develop spaces for bringing the community to- and reveals a set of factors that strengthen urban gether and to provide environments where people resilience. The CRF is an important tool in develop- feel safe and in which they are proud to live. The ing cities’ resilience strategies. Cities also get ac- Resilience Strategy also presents concrete actions cess to the 100RC platform of private sector and to encourage more biking, better waste collection NGO services to support strategy development and community gardening, to name a few. and implementation, and inclusion in the 100RC Social resilience pillar: focuses on increasing network where cities share knowledge and best socio-economic cohesion, working closely with the practices (100RC website). citizenship, particularly the youth, to reduce the Once a CRO was appointed, Vejle developed its risk of polarisation, as well as with businesses to Resilience Strategy in partnership with the 100RC. deliver ‘better and smarter’ services. ‘A socially As a first step, Vejle identified its key challenges resilient city’ includes actions such as West City, through an extensive participative process involv- where social housing, the Spinning Mill (one of ing not only the different departments within Denmark’s largest development and innovation the public administration but also the citizenship environments), FabLab (a digital fabrication, de- at large including NGOs, businesses and housing sign and innovation training school for students) associations. As the current CRO expressed: ‘You and several urban gardens are situated. A coordi- need to know your challenges first, and know them nation group is to be set up to create ties between well’. After distilling their core challenges, Vejle all the initiatives in place. One initiative is to develop built a strategy based on the City Council's vision, platforms where citizens can actively engage and ‘Vejle – We Make It Happen’, and its values of co- interact with each other to promote innovation, creation, innovation and sustainable growth. The art and businesses. Four-year master plans are ex- Resilience Strategy was structured around four pected to improve the social housing environments themes, or pillars: co-creation, climate resilience, in Løget (989 households) and Nørremarken (1061 social resilience and smart city solutions. These households). These plans are aimed at strengthen- are explained in detail as follows. ing social cohesion, stimulating economic growth Co-creation pillar: emphasises the need to and reducing the gap between neighbourhoods in work cross-sectorally in close partnership with dif- Vejle. For instance, through the initiative ‘Stair- ferent private and public actors to build capacity ways Ambassadors’, citizens help new residents and develop innovative solutions. ‘A co-creating to settle in with the aim of building inclusive socie- city’ includes actions to establish a Resilient Vejle ties. This pillar puts particular attention on youth, Committee, which is responsible for monitoring improving their quality of life and providing them the implementation of the strategy, coordinat- with opportunities, for example by targeting vul- ing the actions across the different stakeholders nerable groups (drug addicts, homeless youth, and raising any new challenges. Also, Vejle and the and young people with mental health issues). The nordregio report 2019:2 69 ‘SPOR 18’ initiative aims to help young people to the city produced a book titled ‘Change the world address problems such as loneliness, sadness, for 50 kr’ that contains a compilation of citizens’ anxiety, sexuality and stress, while the initiative ideas of how to make Vejle a more attractive place ‘Through Fire and Water’ builds self-esteem and to live. This illustrates the strong citizen participa- confidence and instils a sense of community spirit tion in Vejle’s work on resilience. Citizens are part by training vulnerable young people in firefighting of the implementation process as well, as they are skills. Furthermore, Vejle Local Authority has de- important facilitators in many of the actions. veloped a set of actions to prevent radicalisation Vejle Local Authority also involved stakehold- among youth. Depending on how a young person is ers in the strategy development process, but im- acting, those concerned can respond according to mediate connections to stakeholders (other than a yellow, orange or red level (SSP Team Vejle). Im- municipal departments) in the implementation migrants and refugees are other important target process is vaguer. Vejle Local Authority is inviting groups. Discussion groups are to be organised where partners to join the work on resilience. This has refugees and migrants can talk about current topics proved difficult, as there is limited funding for and practice their Danish. Several initiatives aim Vejle’s work on resilience. For instance, there has to improve opportunities to engage in sports, in- been limited involvement by NGOs since they de- cluding setting up a Disability Sports Council. An- pend on members’ funding. However, the resilience other initiative is the annual award for the most in- initiative has received a lot of attention from stu- clusive businesses, which will encourage companies dents and universities, which is especially impor- to integrate citizens in the labour market. tant given there are no universities in Vejle. Smart city pillar: builds on the need to em- Businesses are involved in Vejle’s resilience work brace new technologies and digital solutions to in many ways, even though economic resilience isn’t improve the city’s efficiency, create opportunities, a core pillar in the strategy. Vejle is collaborating support education and facilitate public access to with businesses, especially start-ups, through the services. ‘A smart city’ involves actions for the im- Green Tech Centre and the city’s Resilience House. provement of digital infrastructure, or smart tech- There is also a ‘Business Resilience Cup’, an annual nology, such as wireless communications and sen- competition that challenges companies to find so- sors. Vejle aims to conduct a feasibility study into lutions to real problems. The event brings together an intelligent traffic system and its contribution start-ups, corporations and the 100RC with the to a greener and better managed urban environ- aim of generating global impact, while focusing on ment. Making data freely available is another way climate change ( Vejle expects to support economic growth and These initiatives have not led to specific ac- ensure transparency. The city is committed to de- tions in the strategy to strengthen resilience in the veloping plans to include those who find it hard to business sector, in the sense that the focus of the navigate through the digital world. For instance, strategy has not been to identify the specific ele­ the initiative ‘Vejle Digital School’ prepares the ments and mechanisms that help the economic younger generation for future, digital jobs. Even sectors to cope with risks and global trends. Yet though the turbulent job market is one of Vejle’s it is clear that economic growth is a desirable out- core challenges, there are no specific actions for come that has been taken into account during the current work force to respond to the challenge. the strategy development process. However, the Job generation is, however, a potential outcome of strategy and the initiatives around resilience show many of the actions. a growing understanding of Vejle’s own strengths A fundamental principle for the strategy’s four and weaknesses, which are key to anticipating pillars was to ‘integrate across the public sector shocks. Vejle Local Authority also acknowledges the and include citizens and businesses’ (Vejle’s Resil- need to work with businesses, and improve technol- ience Strategy). As many people are not familiar ogy and education, which are important aspects in with the concept of resilience, Vejle evaluated the boosting competitiveness, providing better tools possibility of using a Danish term instead. This for businesses and preparing the work force to proved challenging, as an accurate translation of meet future needs. the word doesn’t exist. Vejle instead chose to in- In the implementation phase between 2016 vite its citizens to define the world ‘resilience’ and and 2020, the strategy sets out to: create a resilient what it means in the context of Vejle. As a result, city and strong local communities; enable Vejle’s busi- nordregio report 2019:2 70 nesses to create value from the Resilience Strategy; pened without the network. This shows how being become an innovation laboratory for resilience; part of the 100RC has brought Vejle useful and pioneer a progressive, co-creating and invigorat- valuable networks. The partners also collaborate ing city management; and demonstrate how small in different ways, such as in hosting events such as ‘provincial cities’ can become the new pioneers in the Business Resilience Cup. The cup provides an city innovation. The implementation process in- opportunity for foreign companies not only to dis- cludes realising the 100 actions listed in the strat- cover Vejle’s vibrant business community but also egy; establishing partnerships for resilience within to see how a city can work with resilience in prac- Vejle; facilitating dialogue and engagement on the tice: ‘Many industries have an interest in seeing resilience agenda; engaging with 100RC and the how they can improve their business model to be- platform partners; and institutionalising the Resil- come more environmentally friendly, both as a way ience Strategy. The Strategy, as stated in its co- to save costs by saving resources and as a com- creating pillar, is intended to be mobilising, bringing petitive advantage by adding value to their prod- together stakeholders to address challenges and uct, showing they are “green”’ (Interview 2). The implement actions. Business Resilience Cup also provides local indus- Of the 100 planned actions, 41 are planned to tries with inspiration and contacts. Vejle receives be implemented before 2020, while the rest have a many international visitors due to its involvement longer timeframe. The actions have ‘owners’ who in the 100RC, many of whom visit the Green Tech are responsible for their implementation. The im- Centre and the Resilience House. plementation takes place according to the action’s Strengthened cross-sectoral collaboration: time frame: short-term (within 2 years); medium- Vejle has not necessarily identified unknown term (within 2-5 years); and long-term (beyond 5 challenges but it has learned to approach them years). Indicators to measure the implementation through co-creation, involving several municipal are not included. This is also linked to the strate- departments and new partners. Developing a Re- gy’s purpose of mobilising stakeholders to develop silience Strategy has supported resilience thinking initiatives that will implement the strategy. in the public sector, while the private sector has also been involved. Furthermore, the co-creating Resilience in practice way of working has strengthened collaboration There are three main ways in which Vejle Local between the municipal departments. Interviewees Authority has benefited from working with resil- highlight that the high priority given to the Re- ience. First, the international network provides silience Strategy by the City Manager is a key knowledge and a global perspective. Second, to successful implementation. From the begin- cross-sectoral collaboration has enabled more col- ning, there were objections to the strategy from laboration between municipal departments. Third, some local politicians and different administra- resilience thinking has resulted in holistic solutions. tions. Strong leadership has been important in the The benefits of being part of an international process, leading to the situation today where the network: The immediate benefit for Vejle Local Strategy is being implemented. The City Manager Authority from its membership of the 100RC is the in particular has been concerned with breaking knowledge and tools it has gained to adopt a stra- down ‘silos’ and strengthening cross-sector col- tegic and integrated approach for resilience. The laboration within the local administration. This network provides easy access to other cities, most mindset was also important when projects such of them much bigger cities than Vejle, from which as the Green Tech Centre and the Resilience House to ask for advice or inspiration. The close and easy were realised as public-private partnerships. The communication between Chief Resilience Officers process of developing the strategy has particularly within the network provides the ideal platform to strengthened collaboration between the Environ- access hands-on and concrete solutions already in ment and Planning Department and the Social practice elsewhere and ready to be copied by other Department, which has led to more sustainable cities. For instance, after the terror attack in Paris, urban development projects being implemented France, the CRO in Paris asked cities in 100RC to today. Notably, these development projects also share their tools for preventing radicalisation. Ve- include citizens in new ways. While cross-sectoral jle has a strategy for this purpose and shared its collaboration and citizen involvement is not en- knowledge with Paris. This would not have hap- tirely new, the resilience project has enhanced un- nordregio report 2019:2 71 derstanding of the importance of strategically al- comes to the capacity of the city to absorb and locating resources to generate dialogue between adapt to major shocks and long-term stress. Like- the local authority and the private community. ‘For wise, when it comes to the economic perspective, instance, when we want to attract young people the CRO explains that, so far, they ‘haven’t seen an to choose a vocational path, we need to work to- obvious opportunity to work with business in a way gether with business and the school departments that can help and strengthen them’. Nevertheless, – none of us can tackle that issue alone so we need Vejle Local Authority works in close collaboration to work together’ (Interview 2). with the business sector and business consultants Holistic thinking: Thinking cross-sectorally, and to identify ways in which the resilience project can long-term, has also led to more systemic and ho- be useful for them. Moreover, businesses seem listic thinking. One concrete example is the ‘Fjord- to find it important that the local authority has byen’ project, which involves a new development adopted resilience thinking in its business policy to area by the harbour. Vejle would have intervened improve environmental sustainability, social well- in the harbour area to prevent floods even without being and successful businesses. One concrete ex- the resilience initiative. However, resilience think- ample is the initiative around the Resilience House, ing has profoundly shaped the project by includ- as part of the Green Tech Centre. ing a social approach. In the CRO’s words: ‘If there was no resilience project we would of course have The Green Tech Centre and dealt with the water problem, but now we try to the Resilience House – test and deal with challenges in a different way’. The Fjord- demonstration byen is used as a laboratory for climate change The Green Tech Centre was established before the adaption and flood control to improve flood man- development of the Resilience Strategy as a ‘light agement. This takes place through exploring in- house for green technology in Vejle North’ in 2014. novative and integrated solutions, for example by It was established as a combined business park, retrofitting new public spaces. Looking beyond the testing and demonstration facility. The facilities immediate purpose of water management, the were established partly with local authority funds project considers how to strengthen the city and and partly with private funds (the Kirk family/ social cohesion. The Resilience Strategy facilitates owner of LEGO). It is a public-private organisation a discussion around not only constructing a sluice that includes triple-helix partners. or a dam to keep water out but also establishing a The Green Tech Centre attracts approximately recreational area around it that will create more life 6000 visitors per year from Denmark and abroad. in the city. There has also been a mobilising aspect Around 30 green profile companies rent office to this in terms of engaging citizens in the project space at the Green Tech Centre. Together, the – how they will help each other in case of a flood, companies have more than 200 employees. The getting sand bags, helping the elderly, and so on. Green Tech Lab is a business incubator for start- Furthermore, the extensive process of in- ups, where businesses have access to testing, volvement has stimulated the city to reflect more demonstration and prototype production facili- broadly on acknowledging the risks and long- ties. The lab also attracts start-ups from outside term effects, and to understand how important Vejle and, for example, in some cases a business it is to think from a long-term perspective and is based in Copenhagen but one of its employees across disciplines to design solutions that can help or projects is based at the Green Tech Centre. It strengthen the public institutions, socio-economic has become a hub for the development of environ- structure and infrastructures to be better pre- mental technology businesses. Private investors pared for global trends and future developments. are connected to the centre, such as the owners This process has also been crucial in raising aware- of the Green Tech Centre, who invest some of their ness by society at large about the existing risks, capital in young start-ups. The testing and dem- and the factors that help both the city and indi- onstration facilities help the businesses to at- viduals to cope with potential eventualities. Giving tract investments and grow. When they leave the the owner­ship of this process to the citizens was lab, some of the companies choose to stay at the thought to be essential in generating an impact. Green Tech Centre and rent office space there. The So far there is no clear picture of the long-term Green Tech Centre maintains an open innovation implications of the identified challenges when it principle, which encourages networking and learn- nordregio report 2019:2 72 ing between triple-helix actors in the network. under which the Rosborg development has be- As part of the Resilience Strategy, another ad- come one of the strategy’s lighthouse projects. dition was made to the Green Tech Centre. The The residential area will be developed on the cur- Resilience House, which opened in 2017, has close rent re­cycling site, which will be relocated. This site links to the climate resilience and smart city pillars. is based near the Ådalen stream, an area at special It is intended as an innovation and educational risk of flooding. In the preparation process, the lo- centre for the demonstration and commercialisa- cal authority has involved investors, neighbours tion of resilient solutions within energy, climate, and citizens in how to create an attractive green water and data. The Resilience House is home to residential area, through means such as work- 30 businesses and organisations (State of Green). shops. The Resilience Strategy facilitates discussion It is also the office of Resilience Lab Denmark, a with investors about the need to construct some- Quattro Helix cooperation between research and thing that will last longer and create life in the area. educational institutions, companies, authorities The local authority has invested in a 3D cave. and users. Based on simulations of Vejle in 2050 This has made it possible for politicians to visualise and in close cooperation with stakeholders, Resil- planned residential areas such as Rosborg. As part ience Lab Denmark has modelled future incidents of this project the 3D model was used to visualise (i.e. risks and stressors). Risks are, for example, the exact areas suitable for construction. The 3D power outages, flooding, torrential rain and inter- cave has also been used as a communication tool be- net outages. Stressors include increases in water tween businesses that wish to expand and the local levels, quantities of renewable energy in the grid authority’s Environment and Planning Department. and quantities of data. For the public, the local authority has estab- As far as possible, the house was constructed lished the Ecolarium, a knowledge centre and using recycled materials. When the Green Tech experimentarium focusing on the environment Centre was constructed, there was a focus on op- and climate. Every year, more than 80,000 chil- timising energy efficiency. This was taken a step dren, young people and adults from Denmark and further with the Resilience House, which also inte- abroad visit the Ecolarium to see the exhibitions grates renewable energy sources with heat pumps and to join teaching and guided tours. This project and solar panels. The sustainable construction was launched before the Resilience Strategy, after process involved local SMEs in the process. which it became more focused on sustainability as an integrated part of the city. Smart city – resilience facilitates more ambitious urban development Findings Veije case Smart city initiatives fall within the remit of Vejle’s The 100RC network has shaped the understand- Department for Environment and Planning. The ing of resilience and ways of working in Vejle. Vejle department has a long list of ideas for projects has interpreted the resilience concept, recognis- and has implemented several of these, some of ing that Vejle must change or develop to a cer- them funded by a local authority fund for smart tain degree to adapt to new conditions, such as city development and some by the public admin- more frequent floods, emerging technologies and istrations involved. According to the Head of De- transforming labour markets. The strategy and partment, the process of developing the Resilience its individual actions are, therefore, an attempt Strategy has made it possible to be more ambi- to address the challenges proactively and thus tious with urban development projects. With the anticipate and prevent shocks rather than merely development of the strategy, the different public responding to them. In a way, this proactive ap- administrations gained a better understanding of proach attempts to turn Vejle’s challenges into each other through discussions about resilience. assets, for example taking advantage of water to This has made it easier to find common ground improve the urban landscape and create cohesion, today in connection with urban planning and de- and using technologies to improve its competitive- velopment projects. ness, service provision and social inclusion. For example, the development of a new resi- Vejle represents an interesting example with dential area, called Rosborg, has been in the pipe- which to study resilience as it provides a concrete line for several years, but ambitions have changed interpretation of how to work with resilience at a with the introduction of the Resilience Strategy, local level. nordregio report 2019:2 73 Vejle’s involvement in 100RC has had an over- It is particularly challenging to introduce holis- arching influence on its policies and working prac- tic thinking when public institutions specialise in a tices, and has led to concrete projects, and initia- particular field. Likewise, the citizenship at large tives. This has improved the results of projects and has trouble connecting with the problems of the raised the awareness of the local population of city as a whole when these problems may be far some of the city’s vulnerabilities. This last element from where they live or people cannot see how is particularly important, given that citizens can- they can make a difference. not fully rely on the public administration’s ability Although Vejle did not pay specific attention to react to major shocks and that the individual to the risks associated to its industries or the actions of the citizenship are important too. In this overall resilience of its economic structure, the sense, a society that is aware of the risks is better far-reaching exercise of identifying their core chal- equipped to react to major events. Giving owner- lenges has revealed some key threats to the city’s ship of the process to the citizens by inviting them economic and social wellbeing. This process of to provide input on what the issues are and what working with resilience appears to have being an makes the city a better place, has been thought to important learning process and shows the poten- be a key way of creating awareness. Other factors tial to generate further reflection on how better that can strengthen their ability to cope with such to integrate the economic perspective into Vejle’s events are social inclusion, digital technologies and resilience work. education.

nordregio report 2019:2 74 5. Findings

The five case studies presented in this report have Response to Research Question 1: brought forward many interesting results. On What risks/shocks are the Nordic the one hand, the risk landscape in all cases ap- regions vulnerable to? pears highly connected to exogenous factors. On A categorisation of the different types of shocks/ the other hand, the ways in which such threats risks and stressors presented in the theory chapter become explicit depend on the industrial base of (chapter 2), is useful in identifying and comparing the region, its organisational structures, flexibility the shocks/risks and stressors the Nordic regions and timing, among many other endogenous con- are vulnerable to (Table 5). Note that this is not ditions. Therefore, the ability of regions and their an exhaustive list and is based on those risks and multiple actors to respond to unwanted develop- stressors mentioned during the empirical study. ments depends greatly on a complex combination Moreover, risks are attributed to the regions where of factors: the type or nature of the disturbance, they were mentioned and does not mean others its intensity, its interrelation with other threats are not vulnerable to them. and stress factors, and the inherent capacities Such a categorisation helps an understanding of the region to resist, respond and reorganise its of the causes of economic turmoil and potential fundamental structures to cope with change. This imbalances to the social structure. However, risks chapter provides a detailed account of the findings and shocks never exist in isolation. They are inter- by addressing each research question separately related with other risks and conditions that may in a cross-case comparison. amplify or play down the impact of shocks. Thus,

Table 5: Mapping of the risk, shocks and stressors identified in the five studied regions. Abbreviations: Northern Ostrobothnia (NO), Vestmannaeyjar (VME), Rogaland (RL), Norrbotten (NB), Vejle (V)

Types of Hazard type Findings shocks/risks

Covariate Financial Small and unstable currency (VME) Financial crises – past and future (NO, VME, RL, NB, V)

Technological Smartphones introduced in the market, collapse of Nokia (NO), impact on Telia and Ericsson (NB); Shale gas technological ‘revolution’, leading to price shock (RL); automation and digitalisation: impact on jobs and skills (NO, VME, RL, NB, V) Cybersecurity, social exclusion and competitiveness (V)

Commodity price Iron-ore and other minerals (NO, NB) Forest-based products (NO, NB) Fish (VME) Oil and gas (RL)

Demand-driven Decline in paper consumption (NO, NB) Loss of Russian market in fish and dairy products, due to economic crisis and sanctions (VME, NO)

Policy-induced Regional reforms (NO, V) and regulatory Fishing quota system and fees (VME) Centralisation of services (VME) The green transition (RL)

nordregio report 2019:2 75 Geopolitical Repercussions of international sanctions on Russia (NO, VME) Brexit vote (NO, NB, VME, V) OPEC’s internal challenges and upsurge of alternative energy mixes (RL) USA’s increasing protectionism (NB, V)

Environmental Volcanic activity, Extreme weather conditions, potential collapse of fish stocks (VME) Flooding and climate change (V) Impact of the green transition on oil and gas industry (RL) Impact of climate change on reindeer herding (NB) Food security and peace (NB)

Idiosyncratic Over-dependence on a single or few industries (NO, VME, RL, NB) Risk of loss of income-generating activity

Seasonal Reindeer herding – changing patterns in winter (NB)

Stressors Ageing population, urbanisation, demographic pressure (NO, NB, V) Unreliable transportation (VME) Insufficient infrastructure (NB) Shortage of labour, shortage of specific skills (NO, RL, NB, V) Challenges with education attainment and retraining (VME, RL, NB, V) Male-dominated industries (NB, RL) High youth unemployment (NO) Attractiveness (NO, VME, NB, V, RL) Unhealthy lifestyles (NB, V) Monopoly of financial resources in dominant industry (RL)

Positive Disturbances leading to shape development path, reorganisation of institutional struc- shocks tures and industrial composition, tackling unsustainable practices and establishing new working cultures, strengthening social bonds and/or open business opportunities (NO, VME, RL, NB, V)

an understanding of a specific event requires a modity prices have the tendency to get too com- holistic view of all the factors contributing to eco- fortable when prices are high. When the prices nomic turmoil, even if there was one reason trig- drop, the first ones to suffer are companies down the gering the shock. A clear example is a commodity supply chain. These firms are of all sizes, but many prices shock. Commodity prices are directly con- are often of small and medium size, and depend nected with the state of the global economy, geo- solely on a single or few clients such as the LKAB politics and any eventuality affecting supply and mining company in Norrbotten, Vinnslustöðin and demand, such as natural disasters, wars, techno- Ísfélagið fisheries in Vestmannaeyjar, or Equinor logical shifts, the discovery of new resource depos- in Rogaland. These key companies control the re- its, and so on. sources and thus have an immense influence on As a result, commodity prices are highly fluc- the measures taken, such as cuts in received ser- tuating. A high dependence on commodities in vices during times of low profitability. The impact many Nordic regions is therefore a major risk. of such cuts can reach other industries such as IT This was evident in Rogaland, Vestmannaeyjar, services provided to the mining industry. Norrbotten and Northern Ostrobothnia, which Technological risk is revealed as one of the big- are heavily dependent on oil, fish, mineral extrac- gest challenges in all the cases studied in terms of tion and forestry, respectively. In these cases, the the competitiveness of industries, employment, causes triggering a drop and shocks in commodity provision of public services and all aspects of citi- prices have varied significantly. For instance, the zens’ lives. Global competition and technological collapse of the oil price in 2014 resulted from a mix innovations played a key role in outcompeting of a technological shock, a lagging global economy Nokia, Telia and Ericsson in Northern Ostrobothnia and the geopolitical context. The drop in the price and Norrbotten. The collapse of the price of oil of mineral resources instead was the result of the leading to financial trouble and unemployment in global financial crisis. Regions depending on com- Rogaland, was partly the result of the US shale nordregio report 2019:2 76 gas technology ‘revolution’. Moreover, as new tech- completely underwater within the next 100 years, nologies render certain jobs obsolete, the regions and for Vestmannaeyjar, which is at permanent studied are challenged in upgrading the skillset of risk of volcanic activity and extreme weather con- those who become unemployable. Technology ap- ditions. In these two cases, all aspects of citizens’ pears to lead to certain health-related problems lives and the economy are at play in case of an related to a sedentary life (e.g. Norrbotten) and is- environmental eventuality. Yet aside from cata- sues regarding cybersecurity (e.g. Vejle). strophic events, climatic conditions represent a Financial risk was mostly mentioned in rela- day-to-day challenge for the transportation of tion to the crisis in 2008–2010 and the different passengers and goods in Vestmannaeyjar, in turn consequences it had on the regions studied. What affecting the development of economic opportu- is clear is the awareness-raising that the crisis had nities. In Norrbotten, the accessibility of reindeer on the unpredictability of global events and the food and in turn the Sami herder’s traditions are severe consequences it may have on local econo- being threatened by climate change. Furthermore, mies. In Iceland, however, the issue of holding a events such as droughts, floods and other natu- small currency is of specific concern, given its high ral disasters taking place around the world may value volatility as a consequence of exogenous threaten food security and increase immigration and endogenous developments. Currency value towards the Nordic regions. volatility represents an unstable environment for Demand-driven risks have been identified investments and has direct effects on consumers’ mostly in connection with other risks, such as in- purchasing power. The availability of financial re- ternal economic crisis in Russia and the Brexit vote sources did not appear to be a challenge in the leading to Icelandic fisheries losing markets. Like- cases studied, yet these may not all be equally wise, technological developments in the telephone accessible. For instance, small businesses in Vejle’s industry and digital devices led to a collapse in de- countryside may not easily access credit, and fi- mand for Nokia phones and paper. nancial resources in Rogaland tend to be largely Over-dependence on a single or few industries monopolised around the energy sector. is seen not only as the inverse of diversification but Political risk does not appear to be a signifi- to an extent as the cause of it. The dominance of cant threat to the regions studied; on the contrary, the petroleum industry in Rogaland, for instance, there appears to be a high degree of trust and ef- absorbs most of the competences in the region, fective coordination between business and public leaving little space for workers to be employed in institutions. However, regional reforms in all Nordic other industries, or to set up their own entrepre- regions have raised a certain degree of uncertainty. neurships. Additionally, the distance to national policy-making Furthermore, this study has identified a large appears to be challenging, for instance, in stopping variety of forms of stress and stressors, which the centralisation of health services to Reykjavik may not be perceived as shocking but that rep- and the insufficient investment in infrastructure resent major challenges to the long-term devel- in Norrbotten and Northern Ostrobothnia. Geo­ opment of the regions. The unreliability of trans- political risk instead, appears as a major challenge portation, the centralisation of basic services to for all regions, for instance, the loss, or potential Reykjavik, a lacklustre labour market and the lack loss, of markets in Russia, the United States and of creative jobs, are some of the stressors identi- Britain as a result of sanctions, new tariffs and fied in Vestmannaeyjar. These in turn weaken the the intention to exit from the EU respectively. The region’s competitiveness and its potential to diver- Brexit vote also represents a threat to the EU’s sify and attract new people, making potential new budgets for regional structural change (ERDF shocks more likely and more damaging. Similarly, funds), which seems to be important for cross- in Norrbotten and Northern Ostrobothnia, the border collaboration in Norrbotten and Northern urbanisation patterns, ageing population and ex- Ostrobothnia. For Rogaland, the internal discord- tremely low population density in the rural areas ance in the Organisation of Petroleum Exporting make it difficult to exploit the potential of the region Countries (OPEC) and shifting global power re- and to provide services and amenities. Insufficient gimes in the energy sector represents a challenge. labour, mismatch of skills and brain-drain are also Socio-economic impact of environment-related common in these regions, as well as in Vejle and risks is critical for Vejle, which is expected to be Rogaland. Often, the effects of stressors reinforce nordregio report 2019:2 77 other stressors in a series of negative feedback Perhaps the most obvious way to spread risks is loops. The accumulation of stress may then pro- through the diversification of the industrial base voke a major shock if, for instance, a major em- by the generation of new economic activities. This ployer decides to relocate outside of the region. makes it possible for the overall economy to with- Lastly, the abrupt transformation in the re- stand disturbances associated with individual in- gional economic structure has often led to positive dustries. An interesting example of business pro- outcomes, so called ‘positive shocks’, by shaping motion is the close collaboration between Luleå the development path, reorganising institutional Technical University and industry, and the sur- structures and industrial composition, tackling un- rounding innovation system that effectively as- sustainable practices and establishing new work- sists business promotion and scaling up start-ups. ing cultures and opening opportunities. Such was Another example is the Business Cup organised in the case in Rogaland with the oil price shock, which Vejle each year to promote business development served as a catalyst for restructuring and shaping by showing foreign industries the potential of the the development path by rebranding as an ‘energy region and by generating a platform for knowl- region’ to capitalise on its potentials beyond oil and edge exchange and learning. However, generating gas. Even more radically, the technological shock in economic activities is a lengthy and resource-con- Northern Ostrobothnia and Norrbotten led to the suming process and particularly challenging for reconstruction of a healthier and more dynamic rural areas and small cities. high-tech sector. The introduction of the fishing Diversification of employment appears to be quota system in Iceland, although not a shock but highly important. While certain industries might a long-term process in which many were cut out of not represent a large share of the economic gains the business, allowed for a more sustainable and made in a region, their role in absorbing part of the competitive business. Moreover, the detrimental labour market may be crucial for job security. For effects of disturbances for some often results instance, tourism, car-testing and data centres in gains for others. Such was the case in Iceland, are some of the emerging activities in Norrbotten. where the decline in currency value brought higher These far from balance the region’s over-depend- profits to the fish industries. ence on the profits made from the mining industry but they are completely disconnected industries, Response to Research Question 2: which would secure a certain number of jobs when What are the drivers of regional commodity prices fluctuations affect the indus- resilience? tries based on natural resources. The case studies and literature raised a number Diversification is geographically uneven. Norr- of features that contribute to the adaptive capac- botten and Northern Ostrobothnia have made ity of regional economies and societies. These in- positive gains in creating room for the diversifica- clude: 1) spreading the risk through diversification; tion of their industrial base; however, it remains a 2) evoking disturbance and welcoming change; 3) major challenge in places like Kiruna, Raahe and a capacity to respond and change shape through other smaller towns that remain heavily depend- self-organisation and reorganisation; 4) generating ent on natural resources in terms of both profits understanding; and 5) coordinating the interplay and employment. In this case, employing con- between diversity, disturbance and reorganisation cepts such as entrepreneurial discovery processes through proactive management and inclusive gov- (EDP), allowing for related variety within existing ernance practices (this last point coincides with Re- industries, may provide some alternative job op- search Question 3 and is elaborated in that section). portunities. Spreading the risk through diversification has Diversification within industries, or related multiple nuances, such as: variety, is achieved by maximizing the different possible uses of resources available. This often in- n Diversification of the industrial base volves the spillover of knowledge between indus- n Diversification of employment tries, which in collaboration lead to an expansion n Diversification of industries’ portfolios (related of the value chain beyond what is possible by one variety) industry alone. Examples of this were identified in n Diversification of markets the mining sector in Norrbotten with the develop- n Multi-use public spaces and infrastructures ment of ventilation systems, sensors, digital tech- nordregio report 2019:2 78 nologies (i.e. 4G and 5G) and drone testing. Simi- botten’s steel company, SSAB, which, by owning a larly, the existing structures and caves in Northern subsidiary in the United States, has so far avoided Ostrobothnia’s mines are being used as laborato- the negative effects of the US protectionism led ries for crop husbandry and as a research environ- by President Trump, which specifically targets ment for particle physics. In the case of Rogaland, European steel. the petroleum industry has seen the potential of extending its expertise in offshore installations to Evoking disturbance and profit from serve other purposes, such as wind energy and weaknesses: aquaculture. In Vestmannaeyjar, the ‘Ocean Related Shocking events and disturbances are not only Innovation’ education programme is promoting negative; on the contrary, much can be gained from the development of innovative uses of the marine crisis. ‘Creative destruction’, an old but still influ- resources. ential concept, highlights the process of destruc- Moreover, market diversification is crucial tion of one industry or firm due to the emergence for companies to resist demand-driven shocks, of new technologies. In this case, new technologies which in turn can be provoked by technologi- bring opportunities of renewal and adaptation to cal, geopolitical and financial risk, among other new realities, market demands and social changes. things. Examples of market loss were identified They offer opportunities to become more efficient in Vestmannaeyjar and Northern Ostrobothnia by adopting new tools that simplify old industrial as a consequence of the international sanctions processes, improving working conditions and imposed on Russia, and the Brexit vote. The latter minimizing hazards such as environmental deg- had an impact on the value of the British pound, radation and natural disasters. The same is true which in turn reduced consumers’ demand for im- of other forms of disturbance; in Rogaland, for in- ported goods in the UK. Another example is the stance, the commodity price shock was argued to insufficient market diversification of Norrbotten’s be a necessary shock to shape the unsustainable mining industry supply chain. Suppliers relying on development path that concentrated the risk in one or few clients within the region may need to the petroleum industry. expand their client portfolio to withstand a poten- Creative destruction and disturbances in gen- tial commodity price shock. eral are not geographically balanced. Emerging In addition to diversification, in some cases, technologies may benefit one region but bring duplication or redundancy serves as a way to about the collapse of industries in another region, spread the risk. This is especially important when with devastating effects for the local popula- it comes to infrastructure. In Norrbotten for in- tion. A good understanding of the nature of dis- stance, processing industries require stable elec- turbances and a close awareness of the region’s tricity at all times, since they never stop operat- own weaknesses is strategically important to ac- ing. For this reason, Norrbotten has built several tively turn them into opportunities. Coming back hydropower plants and electrical infrastructures to Rogaland, the collapse in oil prices represented that guarantee the stable provision of electricity. an opportunity to recruit workers in other indus- In addition to minimising the risk, this has proved tries that previously could not afford them, as well to be a competitive advantage in attracting Face- as in the public sector, and to seek diversification book and other data centres to the region. A dif- and related variety by provoking knowledge spillo- ferent case is transportation in Vestmannaeyjar, vers to other energy industries and aqua­culture. which is largely unreliable and thus different alter- A different example is the case of the high-tech natives are needed for securing the island’s con- industry in Northern Ostrobothnia and Norrbot- nection with mainland Iceland. ten. After a period of downturn and profound Vejle’s work provides a different example of transformation, the sector re-emerged and is spreading risks and diversification by incorporating today much healthier and more dynamic, offer- holistic thinking within their administration. Infra- ing positive growth potential. In Vestmannaeyjar, structure projects for flood control, for instance, the volatile currency is particularly risky. The fish are now designed to served additional purposes, industry, however, has taken advantage of times such as social inclusion and attractiveness. of low value to make long-term investments in in- Finally, a rather different and interesting - ex frastructure and expand the value chain. In Norr- ample of spreading risk was evidenced by Norr- botten, automation in the mining and processing nordregio report 2019:2 79 industries has been an effective way to compen- way of working. This has improved the local au- sate for the shortage of labour, reduce the risk of thority’s capacity to respond by developing more job losses and stay competitive. Moreover, weak- holistic solutions. nesses such as low population density, high de- Moreover, in several cases the exceptional re- pendence on natural resources, cold temperatures sponse of the society at large has been highlighted and darkness have been turned into an advantage, as indispensable for coping with past events and diversifying the economic structure and bringing current challenges. The ‘island spirit’ in Vestman- data centres, car testing, tourism and the space naeyjar, the ‘Jæreske spirit’ in Rogaland, the close- industry to the area. ness of the people in Norrbotten and the loyalty Being alert and undertaking continuous ad- to the region in Northern Ostrobothnia describe aptation allows a region to stay competitive. En- how a hands-on attitude, and a strong sense of trepreneurial discovery, experimentation, R&D, community and belonging have been of outmost flexible education programmes and life-long edu- importance in coping with difficult situations. The cational opportunities are some ways to induce 1973 eruption in Vestmannaeyjar was an extreme change. To minimise the negative effects of inevi- situation that reminded people that the mecha- table disturbances, however, it is necessary to pair nisms of response designed by the public institu- entrepreneurial and technological discovery with tions are never enough. Even in less dramatic situ- diversity (spread the risk). ations, regions are always at risk of unpredictable events, and thus need a proactive and engaged Capacity to respond and change shape citizenship. through self-organisation and reorganisation The capacity to respond does not imply strength Generating understanding necessarily, but rather the ability to absorb change Monitoring is the first step to being prepared. It by shaping existing institutions, reorganising work may seem obvious that it is crucial to monitor the and partnerships, revaluating strategies and ad- state of things closely, yet this it is too often not justing education programmes, making sure that done. Taking any action to strengthen a region’s all the parts of the system are able to transition resilience first requires a clear understanding of into the new conditions. The cases of Northern questions such as: Resilience of what systems (e.g. Ostrobothnia and Rogaland are particularly inter- industries, institutions, infrastructures)? Resilience esting in this regard. Northern Ostrobothnia cre- to what threats, whether endogenous (e.g. local ated a task force called the ‘Tar Group’ consisting stressors, weaknesses) or exogenous (e.g. techno- of different public authorities established specifi- logical trends, green transition, geopolitical shifts, cally to address the structural change. Similarly, in debt crises)? Rogaland, the ‘Active Efforts’ consortium was es- An excellent example is the thorough exercise tablished together with the county governor, the conducted in Northern Ostrobothnia to monitor education authorities, the employment office and the challenges in the region. The regional council, trade organisations to synchronise their response. in collaboration with the local authorities, elabo- In both cases, significant resources were devoted rated a status study about local industries and the to facilitating a structural transformation of the challenges, global trends and technologies they economy and working structures. In doing so, were facing. This preparatory work was particu- new working cultures and forms of collaboration larly useful for building up a good, comprehen- emerged. An additional element in Rogaland was sive strategy for structural change (äkillisen rak- the strategy of rebranding itself as an energy re- ennemuutoksen suunnitelma), as required by the gion to show its forward thinking nature and com- Ministry of Economic Affairs and Employment. mitment to the green agenda, despite the petro- The strategy, in turn, was successful in attracting leum sector remaining largely unchanged. funding for ‘Regional Innovation and Experimenting’ Another example is the resilience work done (AIKO fund). in Vejle, which, rather than being reactive, takes Aside from the trends directly related to the a proactive and preventive approach to address regional industries, it is essential to monitor other the city’s challenges. Vejle has been able to break trends such as trust levels amongst citizens, ur- down the municipal administration from the the- banisation, education, migration and climate matic ‘silos’ to a cross-sectoral and participative change, to name but a few, which may lead to sub- nordregio report 2019:2 80 stantial changes in the social structure and in turn development and generating new opportunities affect economic performance. for the region. Moreover, this study has shown the Another example is the Resilience House in particularly important role of society at large. Vejle and the overall efforts made to establish The capacity of a region to respond to chang- resilience thinking in the society and the business ing conditions and all sorts of challenges appears to sector, and in that way encourage reflection about be tightly connected to human agency and human practices and structures that may be unsustain- relations. This includes social values and norms, able. In turn, this is an indirect way to monitor loyalty, trust levels amongst people, sense of com- and reveal any emerging issues. When it comes to munity and attitudes towards collaboration and natural hazards, advance monitoring systems and driving change. There is a certain limit to what pub- risk management plans with effective response lic institutions can do, particularly when it comes systems are vital for safeguarding citizens’ lives to uncertain developments. Therefore, there is a and wellbeing, particularly in places like Vestman- need to rely on people and the society’s ability to naeyjar where the risk of natural disaster is high. self-organise. Previous sections have referred to Furthermore, in addition to monitoring, a so- the community spirit in the regions studied as be- ciety that is aware of the risks is better equipped ing crucial for coping with difficult times, such as to react to major events. Knowing the unpredict- the volcanic eruption in 1973 in Vestmannaeyjar, ability of shocks, especially in terms of timing, the technological shock in Northern Ostrobothnia intensity and context (in combination with other and Norrbotten and the oil price shock in Roga- risks, stressors and opportunities, or lack of them) land. In all these cases, the strong links between is important in order to acknowledge that regions regional actors were not only important for cop- can never be prepared enough, and thus public ing with shocks but were also reinforced as a result institutions cannot to be expected to cope with of the collective efforts. This in turn strengthened disturbances alone. Therefore, awareness of both their collaborative and entrepreneurial cultures the risks and the limitations of the public institu- for the years and challenges to come. In Vejle, tions in predicting and responding to disturbances strengthening the sense of community and social is crucial for society and the business sector. It is responsibility has been raised as essential for deal- important that they do not get too comfortable ing with water management and future floods. and that they are aware that effective recovery Such acknowledgement of the role of social depends on the sum of individual actions. capital puts emphasis on the importance of regional and local authorities in enhancing community- Response to Research Question 3: building, trust, collaboration, citizen participation What is the role of regions (and their and empowerment. However, for the community different actors) in anticipating and to act, authorities need to generate awareness reacting to shocks? of the risks as well as the opportunities and tools Previous sections have shown the wide complexity available. It is also important for citizens to know of exogenous and endogenous factors that put re- when nothing can be done to prevent major shocks gions at risk and the equally complex combination and, in that way, generate solidarity between peo- of factors that build regional resilience. Likewise, ple. In Vestmannaeyjar, and in Iceland as a whole, anticipating and reacting to shocks also depends solidarity amongst people, both practically and on the collective and individual actions of all actors financially, has proved to be of enormous impor- in the region, as well as many from outside the re- tance for recovering from environmental shocks. gion (e.g. national authorities, the EU, foreign in- Furthermore, regional and local authorities vestors). Public authorities at different levels have have the main role in coordinating actions, devel- a key role in coordinating and building functioning oping and implementing strategic plans that take systems through the provision of services and by into account societal, economic and technological creating institutions and mechanisms of support trends. The case studies have revealed some key for society and businesses to thrive. Businesses actions that the public authorities can take: play their role not only by sustaining an economic basis and providing employment but also by de- n Monitor and generate awareness veloping new solutions for societal challenges. Fi- n Spread risk through diversification (see more in nancial institutions are also key in funding business previous sections) nordregio report 2019:2 81 n Evoke disturbance: welcome change, invest in terms of timing, intensity and context. As men- entrepreneurial discovery, R&D, networking tioned in the theory (chapter 2) the difference be- n Generate a good entrepreneurial milieu: pro- tween a risk and a shock is that risk implies proba- mote collaboration and reorganisation bility, and shock implies the event itself. Therefore, n Leadership: strategic and integrated approaches, the event itself is normally unforeseeable, yet it is support businesses and citizens initiatives possible to gain a certain level of awareness of the n Enhance community spirit risk landscape and stress factors that may amplify n Build open, transparent and flexible public insti- the probability of shocks. This study has raised a tutions wide variety of risk types and stressors, which can n Develop a system for learning: less rigid sys- be understood as signals for changing or potential tems, allowing variability; build capacity (e.g. skills, changing resilience levels. education, trust) A deep understanding of the regions’ indus- n Regulate unsustainable developments tries, institutions, social structures and values is essential in identifying signals that may disrupt Some of the listed actions may be more easily ad- their regular performance. A useful example is dressed at a national level, for instance the design the thorough work conducted by Northern Ostro- of education programmes, which is normally the bothnia County Council to monitor the status of responsibility of national level authorities. The its industries. Another example is Vejle’s holistic same may be true for funding structural change work on resilience. These kinds of exercise provide and infrastructure, as well as compensatory an opportunity to reflect on vulnerabilities and measures taken to relieve the negative effects of unsustainable developments. An interesting ap- political decisions. In some cases, action is need- proach in Vejle is the peer-learning system estab- ed from the EU level, such as the cash reserves lished through the 100 Resilience Cities network, used to compensate farmers who were affected which allows the city to exchange practices with by the export ban to Russia in 2014. However, in other cities around the world and learn from their such cases the local and regional authorities still experiences. Additionally, Vejle’s Business Resilience hold an important role in facilitating and guiding Cup is an excellent opportunity to bring in outsiders the implementation of measures decided at higher and experts in different fields who can provide a levels. fair and objective opinion of how things are organ- ised in the city. Response to Research Question 4: Furthermore, stress is particularly worth high- How can strong and weak signals lighting as a signal. Because of the gradual and of changing regional resilience be long-term character of stressors, there is a ten- recognised? dency to neglect them until they lead to severe This study has been based on an evolutionary ap- consequences. Outmigration from rural areas and proach to economic resilience, which, contrary to small towns is a common condition in most of the the notion of equilibrium, assumes continuous cases studied; gender imbalances and places that change in the economy. As such, an evolutionary are unattractive prospects to settle in are some of approach implies that regional resilience is never the examples that lead to loss in competitiveness stable but is continuously changing along exoge- and economic opportunities. nous and endogenous trends and developments in Finally, R&D, entrepreneurial discovery and the economy, politics, technological development, cross-sectoral coordination are some of the ways markets, competition, education levels, social val- to welcome signals, hunt for them, evoke distur- ues, trust levels and so on. bance and thus take advantage of them by turning The common feature of all kinds of shock is the them into opportunities. element of surprise or unpredictability, at least in

nordregio report 2019:2 82 6. Recommendations

The list of selected recommendations in Table development, risk management, business devel- 6 has been prepared based on the results of the opment and innovation at local, regional and na- two-year comparative study on regional resil- tional levels. Moreover, this report and recommen- ience in Nordic regions. The recommendations are dations is relevant to anyone interested in regional targeted towards policy-makers and profession- economic and social resilience. als working with regional planning and territorial

Table 6: List of recommendations for building resilient regions

1. Generate awareness: Conduct scenario analyses and identify risks and potential shocks. Once risks are identified learn how shape the regional organisational structures to better fit changing conditions. One key way of identifying risks is by monitoring and generating understanding on: n Exogenous / global trends (e.g. new technologies, changing consumer demand, competition, liberalising or increasing protectionism of strategic markets, climate change effects) n Endogenous / local conditions (e.g. available and needed skills, access to research results and financial resources, infrastructure, trust levels among actors, political decisions).

2. Spread the risks: n Diversification of the industrial base: Invest in entrepreneurship, R&D, scaling up start-ups n Related variety: Encourage industries to expand their value chain n Market diversification: Encourage industries to explore different markets n Diversification of jobs: Create jobs in various industries and the public sector n Multi-use infrastructures and public spaces: Broaden the impact of single investments (e.g. Vejle’s flood control infrastructures used for social gatherings and recreation).

3. Build a buffer: A financial buffer is crucial to withstand times of trouble. This is especially important for regions that overly depend on a single industry and/or commodity exports. In such cases it is strategically sensible to take advantage of high revenues to conduct long- term investments (e.g. improve infrastructure, renovate machinery, invest in R&D): n Focus should be placed on the supply chain. Suppliers may suffer the most from commodity price and technological shocks.

4. Evoke disturbance: Inducing disturbance is necessary for keeping up with changes in society, technology, the economy and (geo)politics. Being alert and undertaking continuous adaptation allows for staying competitive. Entrepreneurial discovery, experimentation, R&D, flexible education programmes and life-long educational opportunities are some ways to induce change. To minimise the negative effects of disturbance, however, it is necessary to pair entrepreneurial and technological discovery with diversity (spread the risks, see Recommendation 2).

5. Develop flexible institutions: Flexible and proactive institutions can better adapt to changing conditions by actively shaping with change: n Develop a system for learning: allow variability, be transparent about the challenges, welcome feedback, and establish mechanisms of active participation. n Take advantage of digital technologies (e.g. e-state).

6. Turn weaknesses into opportunities: Know your weaknesses well and take advantage of their positive sides (e.g. cold weather and darkness in Norrbotten has been turned into an advantage for car testing, building data centres and promoting winter tourism).

nordregio report 2019:2 83 7. Secure alternative solutions: Energy-security demands duplication of power sources and infrastructure. Likewise, regions with difficult and harsh weather conditions require alternative transportation means and routes. Business development may benefit from multiple strategies distinguishing different types of industries and geographies (e.g. urban and rural).

8. Rely on citizens and build trust: : Regional institutions and businesses can never be fully prepared for coping with unwanted developments, such as the sudden collapse of an industry due to technological development or a major natural disaster. However, the solidarity and ability of local actors to self-organise depend on the trust levels and overall awareness of the risks. Therefore, regional authorities need to boost the community spirit, openly discuss the challenges with the citizenship and encourage participation. In this way, authorities could better rely on citizens’ ability to self-organise and their solidarity with each other.

9. Stay competitive to prevent and respond to disturbances. Focus on: n Human capital: Capacity building, re-education, vocational and adaptive education systems n Social capital: Build trust and bonds between citizens n Organisational capital: trust among regional institutions and actors n Attractiveness: Invest in culture, diversity, healthy lifestyles, and international environments n Technology: Use digital technologies to improve public services to better reach sparsely populated areas n Think long-term: Evaluate long-term economic cycles, and global trends.

10. Use regulation when needed: Impede unsustainable developments such as the concentration of labour and investment in a single industry or building and construction practices in risk areas (e.g. the use of concrete in backyards impeding water filtration in areas at risk of flooding).

11. Build realistic scenarios: Consider the option of taking alternative development paths, even if it involves economic decline. For instance, regions that depend on highly profitable commodity exports may not be able to replace them with similarly profitable economic activities within the foreseeable future.

nordregio report 2019:2 84 References

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Monetary Economics 48: pp. 465–512 n Eyþór Harðarson, fishery manager at Ísfélagið Ekeland, A. (2012) Sysselsatte i Vestmannaeyjum. Petroleumsnæringene og relaterte næringer n Hrafn Sævaldsson, innovation and develop- 2012, available in Norwegian: https://www.ssb. ment manager at the Knowledge Centre in Vest- no/arbeid-og-lonn/artikler-og publikasjoner/_ mannayjar. attachment/169678?_ts=144fdb2f258 n Páll Marvin Jónsson, director of the Knowledge (accessed: June 2018) Centre in Vestmannaeyjar. Equinor (2018) About our name, available: n Páll Scheving, factory manager at Ísfélagið Vestmannaeyjum. our-name-change.html (accessed: Aug 2018) Forbundet Kysten (n.d.) Hermetikkens vekst References Rogaland case: og fall, available in Norwegian: https:// Bjørnland, H. and Thorsrud, L.A. (2015) Hva skjer når oljeprisene faller? 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Available: Interviews Norrbotten: [EIA] U.S. Energy Information Administration *Note: The order of the interview list does not (2018) Europe Brent Spot price FOB, available: correspond to the numbering used in the text htm (accessed: Nov 2018) n Daniel Örtqvist, Professor at Luleå Technical World Bank (2018) What triggered the oil price University plunge of 2014-2016 and why it failed to n Fredrik Kallioniemi, Director at Hydro66 Data deliver an economic impetus in eight charts Centre and Senior Advisor, Cloud Consulting by Marc Stocker et al., available: http:// Sweden AB n Kajsa Myrberg, CEO of the Association of Local triggered-oil-price-plunge-2014-2016-and- Authorities why-it-failed-deliver-economic-impetus-eight- n Kenneth Sjaunja, EU-Coordinator at Norrbotten charts (accessed: Nov 2018) Region n Hans Sundvall, Advisor Interviews Rogaland: n Lena Bengten, Planning/Environmental Strate- *Note: The order of the interview list does not gist at Luleå Municipality correspond to the numbering used in the text n Michael Nilsson, General Business Manager at Centre for Distant-spanning Technology, Luleå n Bjørn Vidar Lerøen, Author Technical University n Elisabeth Faret, Rogaland County Administrative Board References Vejle case: n Frode Berge, Chamber of Commerce in Stavanger Green Tech Centre. Invitation till åbning: n Kari V Holmefjord. Innovation Norway Rogaland Resilience House. (2017) Retrieved from: http:// n Kristin R. Husebø, Greater Stavanger nordregio report 2019:2 91 resiliencehouse_25aug17.pdf Vejle Amts Folkeblad. (2018). Vejles huse vakler Jydske Vestkysten. (2017). Væksten i Region stadig efter den hårdtslående finanskrise. Syddanmark matches kun af København. Retrieved from: Retrieved from: huse-vakler-stadig-efter-den-haardtslaaende- Vaeksten-i-Region-Syddanmark-matches-kun- finanskrise/artikel/552319 af-Koebenhavn/artikel/2452535 Vejle Amts Folkeblad. (2018). Ti år senere: (2018). Arbejdsløsheden er Da krisen skyllede ind over Vejle. Retrieved faldet meget i Danmark. Retrieved from: from: senere-Da-krisen-skyllede-ind-over-Vejle/ ny-undersoegelse-her-er-der-kommet-flest- artikel/565017 arbejdsloese-i-job-siden-finanskrisen Vejle Amts Folkeblad. (2018). Lav ledighed giver Rangvid, J., Grosen, A., Østrup, F., Møgelvang- problemer for lokale virksomheder. Retrieved Hansen, P., Jensen, H. F., Thomsen, J., ... from: Buchhave Poulsen, B. (2013). Den finansielle giver-problemer-for-lokale-virksomheder/ krise i Danmark: Årsager, konsekvenser artikel/522765 og læring. København : Erhvervs- og Vejle's Resilience Strategy (2016). Retrieved from: Vækstministeriet. Retrieved from: http:// resilience_strategy_webquality_160316.pdf rapporten.pdf Vejle Municipality. Vækstbarometer August Resilience Business Cup. Retrieved from: https:// 2018. Retrieved from: om-kommunen/fakta-om-os/rapporter-og- South Denmark Region. Kontur 2017 Vejle. analyser/erhverv-og-vaekst/ Retrieved from: https://detgodeliv. Vejle Municipality. Vejle Kommuneplan 2017-2029. Retrieved from: http://kommuneplan2017.vejle. 2017-vejle/ dk/dk/kommuneplan-2017-2029/ South Denmark Region. Det Gode Liv 2016- Vejle Municipality. (2017). City Council Vision: 2019. Retrieved from: https://detgodeliv. Byrådets vision: Vejle med Vilje. Retrieved from: udviklingsstrategi/ udvikling-med-vilje/byraadets-vision-vejle- South Denmark Region. Konjunkturer for 3. med-vilje/ Kvartal. Retrieved from: https://detgodeliv. 100 Resilient Cities. (2018). Retrieved from: 3-kvartal-2018/ South Denmark Region. State of the Region Interviews Vejle: 2017. Retrieved from: https://detgodeliv. *Note: The order of the interview list does not correspond to the numbering used in the text region-2017/ SSP Team Vejle. SPOR 18 and Through Fire and n Björn Snorri Gudmundsson Bøg, Consultant, Water. Retrieved from: Region Syddanmark. State of Green. (2017). Resilient solutions to n Jeanette Kristensen, Innovation Consultant, energy, climate and water supply problems to Green Tech Centre. be commercialised in the Danish city of Vejle. n Marina Vestergaard Christensen, Business Policy Retrieved from: Consultant (Erhvervspolitisk konsulent / Direktions- sekretariatet), Vejle Municipality of-green/news/resilient-solutions-to-energy- n Michael Sloth, Technology and Environment climate-and-water-supply-problems-to-be- Director, Vejle Municipality. commercialised-in-the-danish-city-of-vejle/ n Michael Koch-Larsen, Adviser/Teamleader, The Triangle Region (Trekantområdet). Retrieved Center for Regional Development, Danske Regioner. from: n Ulla Varnerskov, Chief Resilience Officer, Vejle Municipality.

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ISBN: 978-91-87295-66-9 ISSN: 1403-2503 DOI: nordregio report 2019:2 94