Regional Economic Development and Policy

Theory and Practice in the European Community

David Pinder

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781351594196
• Edition: 1
• Topic: Commerce
• Subtopic: Commerce Général

Originally published in 1983, when Europe's economies were facing the worst recession since the 1930s, this book reviews the outcome of a quarter of a century of research and practical experience in the field of regional economic management. In the spatial context of the European Community, the author explores central issues by integrating the results of his own research with those of economists, geographers, economic historians and psychologists. It provides a wide survey of the subject, demonstrates the complexity of the spatial-economic systems which the regional economic planner seeks to modify, analyses the strategies for regional development employed by national and international agencies and offers a substantial annotated bibliography. Contradictions arising from the contrasting spatial perspectives of national governments and the European Commission are emphasised. Among other things, it concludes that many regional problems strongly reflect perception and behavioural factors as well as purely economic constraints.

1 Origins

Between the end of the Second World War and the oil crisis of 1973 the economies of Western Europe enjoyed a period of unprecedented growth. There were, of course, spatial and temporal variations in the rate of expansion, but a sharp contrast with prewar conditions was unmistakable at an early stage, and realisation of this change gave rise to optimism that the return of severe depression could be avoided. Although the resurrection of prosperity was founded on a wave of industrialisation, the initial power of which paradoxically owed much to the war’s demands for rapid technological progress, the spirit of optimism was also based on a belief in the value of government intervention. Planning in many spheres now became the vogue, with management of the economy lying at the heart of the interventionist philosophy. The practice of economic management had several targets, the most important being the control of demand to iron out cyclical fluctuations, the promotion of industry in order to raise the aggregate level of national wealth and the application of regional policies in an attempt to distribute growth more evenly than the unfettered play of market forces would dictate. This book is concerned with the pursuit of the third of these goals in European Community countries and in the Community itself, but it is not intended to provide a detailed examination of development levels and planning measures throughout the Community’s regions. Instead the focus is on broad issues and, in particular, on questions of theory and practice in regional economic planning.

Reasons for the emphasis on practice are largely self-evident; the design, application and impact of regional policies are obvious issues, although this does not diminish their importance. The need for a theorectical perspective is perhaps less clear, and it is certainly true that much of the literature, including Scargill’s well-known series Problem Regions of Europe, does not emphasise this aspect of the subject. However, the argument for providing a theoretical foundation can be established with the aid of a medical analogy. Regional economic problems may be seen as symptoms of an illness, symptoms which we may attempt to treat by the application of regional policy. Yet a single symptom may arise from a variety of causes and, if diagnosis is to be successful, an understanding of the processes governing the functioning and malfunctioning of regional economic systems is essential. In later chapters, therefore, an examination of current theories and their relationships with Community regional problems precedes consideration of regional policies and their effects. Before we turn to theoretical issues, however, the remainder of this chapter will set theory and practice in context by outlining the historical background to regional economic planning in the Community and by describing the revolution in regional studies that has paralleled and contributed to the regional interventionist movement.

The Rise of Regional Policies

Thirlwall (1974) has pointed out that by the mid-1970s regional policies were normally justified by reference to three goals: the search for greater social justice, the strengthening or maintenance of political cohesion and the more efficient use of under-utilised national resources. Historically, the most catalytic of these was recognition of the need for social justice, a factor stemming from experience of the 1930s Depression. This cannot be considered at length, but there is ample literature and Aldcroft’s (1978) work on the European economy in the twentieth century provides a good starting point for those wishing to investigate the subject further.

The fundamental significance of the Depression was that, especially in traditional industrial areas, unemployment and consequent poverty achieved a magnitude so great that political opinion, often in the form of new parties with socialist backgrounds, moved to support the view that a repetition should not be countenanced in countries or in regions. Genuine hope that a repetition could be avoided came from observation of the United States, where the New Deal experiment demonstrated the potential role that public expenditure could play in re-establishing growth. Although many politicians of the day would probably have been reluctant to admit it, it was also obvious that in Nazi Germany public expenditure, focusing first on infrastructure and then on rearmament, confirmed the conclusions that could be drawn from the New Deal. Yet, while some attempts to counteract the Depression were made in other European countries, most notably in Sweden where a very active public expenditure policy was pursued between 1931 and 1935, most governments remained unwilling to accept increasing budget deficits in return for reduced unemployment. Indeed, the common inclination was to curtail expenditure as part of general deflationary policies, a strategy that did not always spare the rudimentary social security systems then in existence. Consequently, it was not until the postwar period that full-employment policies linked to the concept of control via public expenditure finally emerged.

When they did so they were based not only on experience and observation of interwar developments, but also on the arguments advanced by Keynes (1936). His work, together with subsequent elaborations, strongly reinforced the view that governments had both the ability and the responsibility to counteract recessions. At the same time, however, it was feared that the achievement of sustained growth would in all probability work to the advantage of a small number of relatively favoured regions. After all, the prewar years were not devoid of new industrialisation, and much of the investment that had been made was biased away from traditional industrial areas. As a result, whereas Britain had ploughed a lonely furrow with its prewar Special Areas legislation (Pitfield, 1978), in the 1950s policies intended to take work to the workers became the norm. A detailed review of this development has been provided by Yuill, Allen and Hull (1980) and the general pattern is clear: Italy led the way in 1950 by establishing the Cassa per il Mezzogiorno and was rapidly followed by Germany (1951), the Netherlands (1951–2) and Ireland (1952). By the mid-1950s France had embarked on the same path, while the ranks were completed by Denmark (1958) and Belgium (1959).

Impressive though this movement may seem, in most cases the policies adopted were initially tentative with respect to designated areas and instruments, partly because the power of the forces to be overcome was not fully appreciated, and partly because the primary concern in the early postwar period remained the achievement of rapid national growth rates. But minor recessions in the early and late 1950s demonstrated that unemployment in poorly favoured regions could quickly rise as the strength of expansionary forces weakened. Given the prevailing commitment to full employment, this continuing imbalance in the labour markets of some regions had disconcerting political, as well as social, implications. The result was the introduction after the late 1950s of many policy modifications aimed at strengthening the impact of intervention in regional economies. Indeed, the contrast between the 1950s and the 1960s was such that, for the purposes of policy evaluation, the two decades have often been equated with ‘policy- off’ and ‘policy-on’ periods. What is also noticeable is that the introduction of stronger policies was often accompanied by greater publicity for the view that improved efficiency in the use of national resources demanded the application of more effective regional measures. This owed something to advances in regional theory in the 1950s, but it was by no means unconnected with the fact that stronger policies were more expensive for the taxpayer to support and posed a greater threat to the growth potential of prosperous regions. These, and other political ramifications, have been considered at length by McHale and Shaber (1976).

THE EUROPEAN COMMUNITY AND REGIONAL POLICY

The contrast between the 1950s and the 1960s is also marked at the international level, for co-operation between countries to stimulate weak regional economies largely postdates the foundation of the European Economic Community. Despite this relatively late start, the Community’s attack on regional problems has broadened rapidly, and financial assistance for area development is now channelled through three main agencies: the European Regional Development Fund (ERDF), the European Investment Bank (EIB) and the European Coal and Steel Community (ECSC). All are well established but, as the following survey indicates, it is important to appreciate that progress towards community intervention did not take place according to an overall plan (Wallace, 1977; Talbot, 1978; Armstrong, 1979).

It was not intended that the ECSC, which was established by the Treaty of Paris in 1951, should become an agency permanently involved in regional economic planning. Apart from the political goal of achieving greater harmony in Western Europe in the early postwar period, its principal long-term role was taken to be the guidance of two vital industries towards higher production, greater efficiency and consistent profits. Yet what was envisaged from the outset was that in the 1950s redundancy problems could not be avoided as unprofitable facilities were closed and as capital was substituted for labour. These redundancies would be strongly concentrated in a relatively small number of regions, of which industrial southern Belgium was acknowledged to be the most severe example. Consequently, to cope with sharp adjustments in regional labour demand, the concept of transitional ‘readaptation’ assistance for workers was introduced. During the 1950s retraining schemes, the maintenance of displaced workers’ earnings and subsidies for migration to areas of higher labour demand became major features of this readaptation policy, the financing of which was achieved by placing a levy on coal and steel industry turnover. Thus ‘in these ways the ECSC was a social system intended to buffer the worker against the responsibility of bearing the cost of changes and win his acceptance of them’ (Collins, 1975, p. 39).

By the late 1950s, however, it was apparent that early predictions concerning the future of the coal industry were extremely over-optimistic (Gordon, 1970). Petroleum products, the cost of which had decreased in real terms, had eaten into coal’s markets; cheap coal imports were causing the indigenous industry to lose further ground; and by the end of 1959 it was known that a natural gas deposit important at the world scale lay under the northern Netherlands. Because the 1960s would undoubtedly be a decade of continuing far-reaching change, new regulations were introduced establishing worker readaptation as a permanent policy. But it was realised that this policy, as originally conceived, had its inadequacies. New industries were migrating to coalfield labour supplies at a disconcertingly slow rate; experience in France had shown that redundant workers were reluctant to migrate, even when some of the practical problems were smoothed by the ECSC; and the desirability of relocating labour was questioned because of the social dislocation and migration’s effects on demand in the affected regions.

The response to these problems was that positive steps should be taken by the ECSC in the 1960s to accelerate the restructuring of coal- and steel-based economies by introducing new activities to them. Early in the decade, therefore, the ECSC’s activities were extended to include the ‘conversion’ of problem areas, with financial restrictions dictating that aid should be offered in the form of loans rather than grants. Subsequently worker readaptation and area conversion have remained interrelated goals, but in the early 1960s conversion rapidly became the principal investment target. Between 1961 and 1967 the allocation of finance to conversion projects was more than twice that to the readaptation programme, and by 1980 the allocation ratio had risen to almost 4 : 1.

In contrast to the ECSC, the EIB was specifically created to deal with spatial development problems at the Community level. To some extent the motivation for this step was social, in as much as prosperity gaps within the Six were considered unjust, but the primary factor leading to the Bank’s creation was the fear that regional problems would become a destabilising force undermining the Community’s long-term political goals. It was predicted, for example, that an immediate effect of removing intra-Community tariff barriers would be increased competition for traditional industries in many relatively weak regions, competition they would be unable to resist. Similarly it was argued that steps towards monetary union might increase the disadvantages of many lagging regions because it would become impossible for national governments to increase their competitive edge in international markets by means of currency devaluations. When faced with these prospects, future governments might well be reluctant to implement Community policies, and in the light of this analysis. the need was identified for an intervention agency able to counteract the danger that integration measures would accentuate spatial economic imbalance, cause political friction and block further progress towards the integration goal. This agency was to have wide-ranging power to assist all economic sectors and support public investment in infrastructure; although backed by the Community it was to have decision-making independence; and, while provision was made for its involvement in sectoral projects of benefit to more than one member country, the primary aim was to channel finance into the most needy regions. As with ECSC intervention, however, the climate of opinion was not in favour of large-scale subsidies in the form of grants, the cost of which would have fallen on governments already financially committed to their own regional strategies and to the Common Agricultural Policy. Instead the way forward was seen to be the creation of a Community banking system which would borrow in the world’s money markets and would then disburse its borrowings in the form of interest-bearing loans to selected projects in priority regions. In this way capital flows were to be harnessed to promote interregional balance and political unity.

Articles 129 and 130 of the Treaty of Rome followed this philosophy closely in establishing the EIB, which has subsequently been the subject of several reviews (Licari, 1970; EIB, 1978; Pinder, 1978). It is unnecessary to dwell on operational details at this point, but three general observations are appropriate. The first is that, because the repayment of finance raised in the money markets is guaranteed by member countries, the growth of the Bank’s operations has proceeded with remarkably little difficulty. After an initial period of slow expansion between 1959 and 1965 the growth rate increased sharply, and even in the high-inflation years of the 1970s the real value of loans disbursed increased by 12 per cent a year. Secondly, although the Bank’s activities have been diversified through, for example, the administration of loans to developing countries under the Lomé Convention, the focus on intra-Community development has remained the backbone of its activities: in 1981 internal allocations accounted for almost 90 per cent of all loans. And, thirdly, there has been close adherence to the principle of according priority to regional development projects. These absorbed approximately 70 per cent of all lending in the Community in the early 1980s, and in the period 1958–78 the average was 75 per cent. Very rapidly, therefore, the EIB established itself as a major regional development agency and, to date, its experience in this field exceeds that of any other Community organisation.

Despite the swift expansion of the EIB’s activities, the European Commission made it clear in the 1960s and early 1970s that its lack of influence on spatial development problems and programmes was unsatisfactory. Support for this view came from the European Parliament -for example, in the form of the Birchelbach and Bersani reports (European Parliament, 1963, 1966). But individual governments showed little enthusiasm for increasing the Commission’s direct power, and the fact that the Commission failed to produce a detailed proposal for the pursuit of regional policy at the Community level did not further its cause.

In 1971 and 1972 the situation changed rapidly for political reasons. Discussion of monetary union widened the realisation of the regional implications of this particular Community policy (Williamson, 1975). It was increasingly argued that the Common Agricultural Policy benefited rich Community regions rather than poor ones (an accusation recently substantiated by the Commission’s report The Regions of Europe; Commission of the European Communities, 1980a). And during negotiations for the first expansion of the Community the question of establishing a regional fund to be administered through the Commission became a major issue, chiefly as a result of pressure from Britain. At the Paris Summit of October 1972 a milestone was reached when member governments agreed to establish this fund by the end of 1973, a decision reinforced by the publication of the Commission’s (1973) Report on the Regional Problems of the Enlarged Community (the Thomson Report). Yet the fund still faced turbulent political waters, most particularly in the form of the resurrection of German antipathy and a British Labour government’s commitment to renegotiate entry to the Community. Between July 1973 and November 1974 no less than fourteen different funding arrangements were proposed by individual governments and the Commission, and deadlock was only avoided when Italy and Ireland threatened to withdraw from the December 1974 Summit if agreement was not immediately forthcoming. This precipitated the creation of the European Regional Development Fund on an experimental three-year basis in March 1975 (Wallace, 1977). This was followed by its conversion into a permanent Community instrument from 1978 onwards on the basis of the Commission’s (1977a) document ‘Community regional policy: new guidelines’.

Since then the ERDF has been subject to regular annual funding under the main Community budget, and it has been restructured to accommodate Greece’s accession in 1981. Until the early 1980s much of the pressure for further improvement continued to come from the European Parliament and the Commission, rather than from the Council of Ministers, while recurrent disagreements took place between the two sides over matters relating to the Fund’s size and its control. In 1980, however, the Council of Ministers set in motion a new chain of events in an attempt to improve the effectiveness of this source of development aid. The outcome is likely to be a significant revision of the ERDF by the mid-1980s, and a detailed discussion of the Commission’s proposals for the future of this aid agency has therefore been included in Chapter 5.

While the Community’s intervention agencies remain separate, they share common ground in that they have all engaged in research into regional economic problems and their solution. Similarly, the desire to measure and improve policy effectiveness has motivated many investigations by planning agencies in member countries. Unfortunately the results of much of this research have been employed internally, without widespread circulation, but in recent years the flow of publications from the European Commission has been especially valuable in rectifying this shortcoming. Between 1973 and 1980, for example, the Commission issued no less than nineteen regional policy studies, a series drawing heavily on expertise both in Brussels and in Community members. None the less, the vast majority of the relevant literature has been published independently of official channels, although there is an important area of overlap in which researchers have been supported by official contracts and grants. More than any other groups, academic geographers and economists have been responsible for this independent and semi-independent work, and it is to the origins of their interest in the subject that we now turn.

The Rise of Regional Studies

In view of many geographers’ current interest in regional problems, it is remarkable that in the early postwar period regional studies were extremely unfashionable. In many ways this attitude was a reaction to the prewar work of regional geographers, work which contributed to the growth of doubts about the utility of focusing primarily on the regional theme. The reasons for these doubts, which for many amounted to disenchantment, will become apparent if prewar approaches to regional geography, and especially the approaches...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Editor’s Preface
• Author’s Preface
• 1 Origins
• 2 Regional Imbalance and Community Expansion
• 3 Internal Processes and External Relationships
• 4 Strategies for Regional Industrialisation
• 5 Retrospect and Prospect
• Bibliography
• Index