Priority-setting is a fundamental component of economic development policy. Which parts of the economy should receive the most support? And in what way? In policy practice, the answer has very often been to emphasise the importance of traded – and in particular technology-intensive – industries. Associated with this emphasis has been a focus on supporting investments in research and development, and attracting high-skilled labour and foreign firms within these industries.

However, from a regional development perspective, this model of development has failed to address a number of persistent (and important) problems:

• Social polarisation within regions remains a serious problem and the development of high-tech industries may actually increase intra-regional inequality.
• Inter-regional Inequality is also increasing, indicating a need for a thorough rethinking of policies for developing lagging regions.
• Environmental sustainability continues to be a pressing challenge, and it is not clear if innovative regions are also more sustainable.

One recent approach to rethinking economic development policy is that of the foundational economy. Developed by a collective of researchers across Europe, the foundational approach to economic development turns the policy priorities upside down: the central concern of economic development policy should be to ensure affordability and quality in the parts of the economy that deliver services essential for fulfilling basic human needs. That implies giving priority to foundational industries delivering material and providential services. Material services connect households to daily essentials such as energy and water, and include utilities (electricity, gas, water, etc.), transportation systems, food production and distribution, and banking services. Providential services include the parts of the economy providing welfare services to all citizens, including education, healthcare and law enforcement.

Now, a key question is if a foundational economy approach to regional development can help address the challenges outlined above? Briefly summarised, the foundational economy approach is promising in addressing challenges relating to social polarisation, while more questions remain concerning inter-regional Inequality and environmental sustainability.

There are several reasons why foundational economy thinking can help address social polarisation. First, rather than focusing regional development policy on a narrow selection of R&D-intensive industries that only employ a small part of the population, emphasis changes to sectors that employ the majority, thus, increasing the likelihood that benefits from the use of public resources will influence a larger share of the population. Second, a central suggestion in the foundational economy approach is to introduce social licenses regulating the actions of providers of foundational services in return for the right to operate in markets partly sheltered from competition. Such licenses may directly improve the working conditions for people employed in foundational sectors, which include many occupations traditionally characterised by low wages. Third, improved quality and affordability of foundational services will improve the quality of life for all citizens, also those outside of the labour market.

In theory, foundational economy also offers advantages in targeting inter-regional inequality. Whereas an economic development approach focused on technology-intensive industries has little to offer in lagging regions, foundational industries constitute an important part of the economy in all regions. Consequently, the foundational economy is a promising starting point for thinking about embedded regional development policies in lagging regions. However, this suggestion is challenged, firstly, by the rapidly increasing digitization of many foundational services, which allows for distance provision. While this provides possibilities for offering a broader range of services to peripherally located regions, it may also lead to a spatial concentration of the production (and employment) of foundational services in urban centres. Secondly, governing according to foundational economy principles requires considerable coordination across scales and spheres of society to ensure e.g. consistency in the use of social licenses. This puts large requirements on the institutional and administrative capacity at the regional level, which is often lower in lagging regions.

Finally, despite recent attention by foundational economy scholars, environmental sustainability remains underdeveloped in the foundational economy approach. Issues of trade-offs between social and environmental aspects are not considered, and answers to the question “What is considered foundational?” are to be decided by citizens, which may however have preferences that go against environmental sustainability – for instance prioritising car ownership over public transport.

In conclusion, the foundational economy approach is perhaps not a silver bullet for addressing all central regional development challenges, however, it may still hold advantages compared to the current approach with a dominant focus on traded, technology-intensive industries. From this perspective, the foundational economy is a stimulating input to current debates on regional development policy, which broadens our view on the parts of the economy that matter. One important topic for future research will also be to understand better the interconnections between the foundational and traded parts of the economy, and how they influence regional development.

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