Berlin’s Confounding Productivity Gap

Asked which region in Europe has been the absolute worst at realizing its economic potential, most people probably wouldn’t name Berlin. The German capital isn’t just nice to live in, it’s throbbing with excitement; a startup is reportedly created here every 20 minutes, and if you leave for a night out, you risk not coming back for a week. But according to a study of the economic performance of European regions, Berlin is indeed the worst.

The study was conducted by the London-based think tank Center for European Reform. In a borderless European Union, with the national economies highly integrated, the regional lens is increasingly useful for understanding what’s happening in politics. Younger, more educated people flock to capital cities and build up their increasingly service-based economies. Older, less educated and less affluent people stick around in small towns and rural areas. The average productivity of a capital city worker is about 55 percent higher than that of a small-town one. Accordingly, one sees the capitals voting for progressive parties and the towns and villages often going for nationalist populists. This creates a dilemma for policy makers: Do they try to develop the depressed regions or stimulate the higher-potential people to keep moving to big cities where they can be more productive?