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Levelling up: Six key takeaways from the Basque experience of regional competitiveness and inclusive growth

Article by Dr Caroline Gray

December 15, 2021

Levelling up: Six key takeaways from the Basque experience of regional competitiveness and inclusive growth

Citing the Basque Country as an example of inclusive economic growth may, at first, seem to many rather a paradox. In the context of Spain’s model of devolution, the Basque Country, one of Spain’s 17 regions known as ‘autonomous communities’, is more often accused of lacking in solidarity with the rest of the country, given the way the region’s financing model works. For historical reasons, the Basque Country, along with the neighbouring region of Navarre, raises almost all its own taxes under a model of near fiscal autonomy. This system has ended up allowing it to keep more of its wealth within its own region when compared to some of Spain’s other regions with broadly similar levels of GDP per capita like the Madrid Community or Catalonia, which come under a different, revenue-sharing model of devolved funding known as the common financing system.[1]


While acknowledging this, however, it is also possible to recognise that the eternal, often heavily politicised debate about regional financing levels in Spain has obscured awareness of other significant factors about the Basque experience of economic development.


Firstly, within the Basque region itself, economic growth has in fact proved highly inclusive. The region features among the top in Europe not only in terms of GDP per capita, but also in having a low percentage of population at risk of poverty or social exclusion.[2] The Basque Nationalist Party (PNV), which has almost consistently governed the region since the first regional elections of the democratic period in 1980, combines a broadly centre-right stance on economic policy with a broadly centre-left one on social policy. It has long treated economic competitiveness and social inclusion as mutually re-enforcing objectives, as have other key actors and institutions involved in shaping the region’s economic strategy. The latest Basque Competitiveness Report published by the Basque Institute of Competitiveness, a research centre linked to the University of Deusto, exemplifies this dual approach with its focus on ‘Constructing Competitiveness for Wellbeing’.[3]


Secondly, fiscal autonomy is not a panacea. While the relatively generous settlement that the region receives under its different financing model inevitably goes some way towards explaining its ability to finance its social spending, that is not the only contributing factor. Effective governance has also played a role. The Basque region was a pioneer in areas such as the creation of a very successful cluster policy in the 1990s, and it has developed a strong system of multi-level governance and network of public-private collaboration over the decades that helps to explain its success. Throughout this process, it has devoted considerable time (and resources) to learning from other models and experiences – for example, the region was one of the first to work with American academic Michael E. Porter in the late twentieth century.[4] While no place-based territorial strategy can ever simply be copied elsewhere, examining the Basque experience can still offer interesting insights for other contexts.


What, then, might we draw from the Basque experience that’s relevant to the UK ‘levelling up’ agenda? This was the subject of a recent Aston Centre for Europe and Foreign Policy Centre event that I chaired, with the participation of four speakers: Dr Edurne Magro, Senior Researcher at Orkestra-Basque Institute of Competitiveness; Bill Murray OBE, adviser on the Spanish economy at Global Counsel; Dr Igor Calzada, Senior Researcher at the Wales Institute of Social and Economic Research and Data (WISERD), Cardiff University; and Henriette Lyttle-Breukelaar, Director of Economic Strategy at Greater Birmingham and Solihull Local Enterprise Partnership. Six key takeaways that emerged from the discussion are as follows:


  • Stable, predictable financing for local and regional authorities is critical. This is what has enabled the Basque region to engage in a forward-looking type of economic thinking over years and to take forward a whole series of initiatives on social policy and on inclusion. It is also what has allowed it to develop a longstanding network of partnerships between different actors and institutions within the region working towards the goal of inclusive regional competitiveness. This contrasts with the UK experience of short, competitive funding cycles for local government that don’t tend to facilitate longer-term planning and the formation of robust partnerships.


  • Local input and distributed leadership are fundamental to strategy design and implementation. The heavily centralised nature of the UK is often cited as one of the main contributing factors to the level of regional inequality.[5] In this regard, the Basque region is an example of how a multi-stakeholder approach to strategy design and implementation at local and regional level can underpin inclusive growth and territorial competitiveness. While the Basque government steers the region’s overall economic and social strategy, input also comes from other tiers of government within the region (local and provincial) and from a network of other relevant public and private institutions, such as the cluster associations and the Basque technology centres. The result is a web of multi-level and multi-layer processes that shape the design and implementation of Basque regional strategy.[6] This is not without considerable coordination challenges that require innovative governance solutions.


  • Local and regional empowerment must go hand in hand with accountability. In the Basque Country, accountability stems first and foremost from the region’s fiscal autonomy model, which puts the onus on the Basque authorities to collect taxes. While that level of substate revenue-raising power is specific to the Basque Country (and neighbouring Navarre) for historical reasons and not easily translatable to other contexts, accountability and good governance can be fostered via other mechanisms to promote the effective use of public funds.


  • Focus on area-specific strengths and deepen and diversify from that basis. The Basque Country’s economic success stems in no small measure from its decision, back in the 1980s, to build on its existing strengths in industry by pursuing an industry-focused economic transformation at a time when the wider political and academic climate did not look favourably on such a focus. That decision, and the commitment to a positive industrial strategy ever since, has consistently paid dividends.[7]


  • A degree of cross-party collaboration is crucial to avoid short-termism. Competition between the Conservatives and Labour has consistently prevented a longer-term, cross-party vision to address the UK’s place-based inequalities. Even within and between some governments of the same colour, studies have shown a lack of institutional and policy stability in this area.[8] Meanwhile, within the Basque region, a degree of cross-party buy-in on the region’s economic and social strategy has been possible, which has contributed to facilitating longer-term planning. In part, this stemmed from a need for parties of different colour to stick together on economic and social policy during the difficult first decades of the democratic period when Basque terrorist group ETA was active. However, coalition politics have also played a role both then and since, favouring more consensual politics in certain areas. Although the Basque Nationalist Party has governed almost consistently in the region since the first elections of 1980 and has therefore dominated policy making, it has never won an outright majority and has almost always had to govern in coalition, usually with the Basque Socialists. While it would be naïve to expect any change in the degree of competition between Conservatives and Labour over inclusive growth strategies, the levelling-up white paper, which is now expected in early 2022, [9] needs to provide the basis for a longer-term framework that goes well beyond the current government term to have a meaningful impact in tackling inequalities.


  • A wide diversity of potential stakeholders should be included in the design and implementation of inclusive growth strategies. Civil society has long played a role in shaping the Basque ethos of combined economic and social policy and the region is renowned for its longstanding cooperative tradition. The small size of the region and its level of social cohesion have undoubtedly helped to give an overall coherence to Basque strategy design and implementation. Even the Basque Country, however, cannot rest on its laurels. Transformative alliances between the public sector, the private sector, academia and civil society could evolve to incorporate additional stakeholders and afford a greater role to social innovation.[10]


Caroline Gray is a Lecturer in Politics and International Relations at Aston University. She specialises in the politics of Spain and wider Europe, focusing on territorial politics and party systems. She is the author of Territorial Politics and the Party System in Spain: Continuity and Change since the Financial Crisis (Routledge, 2020).


[1] For more information about how the different regional financing systems work, see Caroline Gray, Nationalist Politics and Regional Financing Systems in the Basque Country and Catalonia, Bilbao: Diputación Foral de Bizkaia (Doctoral Thesis Collection), 2016,

[2] Mari Jose Aranguren Querejeta, Patricia Canto Farachala, Edurne Magro Montero, Mikel Navarro Arancegul, James R. Wilson and Jesus Mari Valdaliso, Long-term Regional Strategy for Inclusive Competitiveness: The Basque Country Case, 2008-2020, Orkestra-Basque Institute of Competitiveness, Cuadernos Orkestra 05/2021, Bilbao: Deusto University Publications, p. 1,

[3] Susana Franco and James Wilson (eds.), 2021 Basque Country Competitiveness Report. Constructing Competitiveness for Wellbeing, Orkestra-Basque Institute of Competitiveness, Bilbao: Deusto University Publications, 2021,

[4] Jon Azua, The Competitive Advantage of Nations. A Successful Experience, Realigning the Strategy to Transform the Economic and Social Development of the Basque Country, Orkestra-Basque Institute of Competitiveness, Cuadernos Orkestra 2015/12, Bilbao: Deusto University Publications,

[5] Luke Raikes, Arianna Giovannini and Bianca Getzel, Divided and connected: Regional inequalities in the North, the UK and the developed world – State of the North 2019, Institute for Public Policy Research (IPPR), November 2019,

[6] Jesús M. Valdaliso, The Basque Country: past trajectory and path dependency in policy and strategy-making, in Jesús M. Valdaliso and James R. Wilson (eds.), Strategies for Shaping Territorial Competitiveness (pbk), London and New York: Routledge, 2020 [2015], pp. 113-130

[7] Mari Jose Aranguren Querejeta, Patricia Canto Farachala, Edurne Magro Montero, Mikel Navarro Arancegul, James R. Wilson and Jesus Mari Valdaliso, Long-term Regional Strategy for Inclusive Competitiveness: The Basque Country Case, 2008-2020, Orkestra-Basque Institute of Competitiveness, Cuadernos Orkestra 05/2021, Bilbao: Deusto University Publications,

[8] Andrew Westwood, Marianne Sensier and Nicola Pike, Levelling Up, Local Growth and Productivity in England, Productivity Insights Paper No.005, The Productivity Institute, December 2021,

[9] Alex Forsyth, Levelling up: Government white paper likely to be delayed to 2022, BBC News, December 2021,

[10] Igor Calzada, Democratising Smart Cities? Penta-Helix Multistakeholder Social Innovation Framework, Smart Cities, 3(4), 1145-1172, October 2020,

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