Proximity economy in Europe: Building local resilience for a sustainable future

November 2024

The proximity economy is driven by the collective intention of local actors to increase the sustainability, resilience and liveability of their communities. It has received increased attention in recent years, particularly in the wake of the COVID-19 pandemic and the growing need for sustainable, localised economic systems.

In many ways, the proximity economy debate is closely intertwined with the social economy, which was discussed in a previous blog post (Öffnet in neuem Fenster). Both ideas focus on community-based, sustainable and inclusive economic models. They share values such as encouraging local collaboration and place-based solutions. However, the proximity economy is an industrial ecosystem that focuses on the local production, distribution and consumption of goods and services, without necessarily having a specific societal objective beyond supporting local communities and economies.

What is the proximity economy?

The proximity economy can be defined as a human-centred ecosystem where the production, distribution and consumption of goods and services take place within short value chains, enabled by locally rooted social interactions within a geographical area of perceived proximity. It is an economic model in which businesses, local authorities and communities work together to promote local production, distribution and consumption that enhances sustainability and social cohesion.

Proximity is understood in several dimensions:

• Geographical proximity refers to the short distances between economic activities, which allows for the integration of economic activities.

• Relational proximity highlights the importance of social ties and cooperation between economic actors within a region.

• Cognitive proximity is based on shared knowledge and innovation in a local context.

These dimensions form the backbone of proximity economies, enabling them to contribute to local development, sustainability and resilience.

Proximity economies exist in both urban and rural areas, but the dynamics differ between them. For example, urban areas often focus on mixed-use developments and smart city concepts, while rural areas may promote short food supply chains or local energy communities.

The concept of proximity economy is understood and implemented differently across the EU, influenced by regional contexts, economic priorities and governance structures.

• Southern European countries. Countries such as Spain, Italy and Portugal have been at the forefront of proximity economy development. In general, southern European countries, which have historically had strong regional economic systems, have embraced short value chains, particularly in the agri-food sector. For example, the sports industry cluster in Montebelluna, Italy, with its emphasis on localised production, is a prime example of geographical proximity driving economic success. With about 600 enterprises and 8 000 employees, it demonstrates how synergies among diverse stakeholders can be fostered.

• Central and Eastern European countries. In contrast, Central and Eastern European countries are beginning to develop proximity economies, but face unique challenges. Proximity economies in these regions often revolve around rural development, with a focus on short food supply chains. Short food supply chains in Slovakia provide, for example,  locally grown produce directly from farmers to consumers, often facilitated through community-supported agriculture and farmers’ markets. These initiatives not only support local agriculture but also foster community engagement and reduce transport emission.

• Nordic and Western European countries. The Nordic countries tend to integrate proximity economies into their well-established social welfare systems, focusing on creating inclusive local economies through initiatives such as the '15-minute city' concept. This model promotes mixed-use development to ensure that city dwellers have access to essential services within a short distance. For example, Stockholm, where urban centres are being redesigned to ensure that essential services – such as healthcare, education, and retail – are within a 15-minute walking or biking distance. This model promotes local living, reduces car dependency, and strengthens community ties while contributing to sustainability goals.

Why is the proximity economy important?

The importance of the proximity economy lies in its potential to address local growth potential with a strong focus on sustainability and cohesion:

• Promoting resilience and sustainability. The proximity economy reduces dependence on global supply chains and promotes local resilience, which was particularly important during the COVID-19 pandemic. When global supply chains were disrupted, local economies able to operate within short value chains proved more resilient. The proximity economy encourages the use of local resources, reduces transport emissions and promotes the circular economy, which is in line with the EU's Green Deal and sustainability goals.

• Improving social cohesion. The relational aspect of the proximity economy promotes community involvement and cooperation. By focusing on locally produced goods and services, the proximity economy strengthens social ties and builds trust between producers and consumers. This social cohesion helps to promote more inclusive economic growth, bringing direct benefits to local people and improving quality of life.

• Fostering innovation. Proximity promotes innovation that is tailored to local needs and contexts. Localised production and knowledge sharing foster creativity and innovative solutions, particularly in sectors such as agri-food, construction and manufacturing. For example, local energy communities can explore innovative approaches to renewable energy production.

How can the proximity economy be promoted in Europe?

Several steps are needed to promote the proximity economy across the EU:

• Improving recognition and support. Although the proximity economy is gaining recognition, it remains underexplored in many regions. Developing a common definition might help stakeholders better understand its potential and implement supportive policies. The EU should encourage member states to include proximity economy initiatives in their regional development plans.

• Improve access to finance. Local businesses, especially SMEs, are often constrained by limited access to finance. Tailored funding mechanisms, such as grants and loans for proximity enterprises, should be created to help these businesses scale up. The creation of local currencies and community-based financial instruments can strengthen local economic cycles.

• Promote innovation and digitalisation. While proximity economies are rooted in local production, they need to adapt to digital innovation to thrive in a globalised world. Digital platforms can help local businesses reach more customers and collaborate with partners. However, care must be taken to ensure that digital transformation does not widen the digital divide.

Conclusion

The proximity economy represents an exciting opportunity for Europe to build more resilient, sustainable and inclusive local economies with a focus on functional areas. By focusing on local production, relationships and innovation, the proximity economy can help regions respond to economic, environmental and social challenges. However, realising its full potential requires targeted policy support and coordinated efforts from businesses, governments and citizens.

The report Scoping the Socio-economic Performance of the EU Proximity Economy (Öffnet in neuem Fenster)- which provides the background to the above findings - provides a detailed analysis for understanding the proximity economy and its potential.

The report is available at here (Öffnet in neuem Fenster).

by Kai Böhme