7. REGIONAL DEVELOPMENT AND MULTILEVEL GOVERNANCE

7.1 Introduction

The addressing of regional problems throughout the developed world through regional industrial policy and regional planning has fluctuated according to relative economic performance, political support and ideology, and policy priorities. Regional intervention has undergone various metamorphoses, such as the growing use of RDAs. It has also reflected other influences, including European Union funding on that continent and the perceived benefits of relying on inward investment rather than indigenous growth.

As has been argued here, no singular approach or theory can lead to a full understanding of all the forces and pressures on decision-makers to adopt a particular approach to regional economic development. Some (e.g. Wannop 1995) have noted, therefore, that an analysis and an understanding of regional intervention and regional planning has to take account of wider political analyses. This signifies a new appreciation of the form, nature and potential of mechanisms and instruments of regional intervention. Thus, "since regional issues are recurrent, regional planning and governance are essential acts in continually managing an imperfect system of governance" (Wannop 1995, xxi).

The environments of such federal states as the United States and Germany suggest a different set of relationships between different levels of government than more centralized countries such as France and Italy. The political context of regional policy and regional planning in the United Kingdom, for instance, has been that of a unitary state. Within this context, the partial devolution of responsibility for administration or implementation was performed according to geographical area (Scotland, Wales and Northern Ireland) and function (including training and development agencies). In the last two years of this millennium, however, political changes are accelerating the slow devolution of administrative powers. Thus, alternative constitutional arrangements are being put into place that will transform the context within which regional governance and intervention takes place. Debates over such arrangements are not new: Kindle (1997) highlights the role federalism has played in constitutional debates in the United Kingdom at different times.

This section addresses the issues of regional constitutional change, regional autonomy, and regional planning and policy. It calls upon the revealed experiences of a number of states with a variety of constitutional forms in evidence. The discussions in this section are concerned specifically with the appropriateness of regional intervention under alternative regional forms of governance. In the United Kingdom, in particular, the introduction of a Scottish Parliament, a Welsh assembly and English regional assemblies poses challenges and opportunities for regional policy and planning. The United Kingdom's political agenda appears to favor a regionalization of governance and posits a recognition of a regional problem in terms of relative economic, social and environmental indicators. This is ironic because at the same time, the new constitutional arrangements require careful consideration of the appropriateness of existing regional instruments. Horsman and Marshall (1995, ix) address the need they see for economic changes on a larger scale; "The traditional nation state, the fruit of centuries of political, social and economic evolution, is under threat. Changes in the structure of the international economy, technological advance, and the end of the Cold War will force - indeed are already forcing - a realignment of the relations among states, citizens and the international economy."

A further irony can be seen in the apparent contradictory growth of regionalism or nationalism at the same time as the growth of the supra-national powers of the European Union. This is happening through closer scrutiny and regulation of the national policies of the member states of the European Union, and through increased intervention in the regional and national restructuring programs in these areas.

Undoubtedly some of the strongest forces acting on the communities, regions and nations throughout the developed world arise in the globalization of production and markets. The Group of Lisbon (1995) articulated some of the pressures brought about by these processes of global competition that are redefining the central role played by the nation state and national capitalism. The Group points to the increasing complexity of world events, the power of globalization, the fragility of the ecosystem, the threats to global political democracy, scientific and technological change and "the paucity of social justice and of cultural dialogue and tolerance" (Group of Lisbon 1995, 141).

This quote also serves to illustrate the international dimension to the research agenda of this piece, and the need for the academic, policymaker and practitioner communities wherever they are located to refer to experiences outside of their areas to enlighten debate. Similarly, what is clear from much of the literature is that, although many authors may draw on fiscal federalism and networking theories to explain or understand the likely consequences of changing patterns of regional governance, they demonstrate the paucity of many economic approaches to the analysis of the links between varying levels of regional autonomy and economic development. This confirms the need for a wider reading of the literature than a simple single discipline approach, and especially a better appreciation of the significance of shifts in behavior and attitudes arising from changes in regional governance forms.

There are three organizing themes to this section: the first concerns the forms of federalism and networking that are appropriate to regional economic and constitutional autonomy. The second sets out the evolving ideas associated with regional governance, institutions and development. The third theme concerns the fiscal and monetary regimes appropriate to regional autonomy and regional economic development.

7.2 Federalism and networking

Roberts (1997?)¹ provides a comprehensive overview of changing regional constitutional forms and the appropriateness of arrangements for regional planning and regional economic development in the United Kingdom. He refers to the extensive European research on such forms of governance, documenting new and emerging challenges to traditional regional planning practice and changes to the institutional context within which regional planning operates. In highlighting the dynamics of regional planning, Roberts makes reference to three crosscutting themes which he argues will dominate debates about appropriate regional problems, policies, instruments and institutions in the next few years. These themes are territoriality, sustainability and spatial competence. In particular, he suggests that regional planning in the future will have to address the delicate relationship between economic progress and environmental quality within a sustainable framework. These themes will need addressing, he argues, whatever the constitutional agenda of the United Kingdom. Furthermore, he points to the need to be able to devise and to implement strategy as the bedrock of regional planning.

The discussions pursued by Roberts are useful in highlighting the differences in the relative competence of regional and local authorities across the European Union and beyond. Following Wiehler and Stumm (1995)² four groups of subnational government can be classified:

• Regions with wide-ranging powers (e.g. the German Länder)

• Regions with advanced powers (e.g. the Spanish autonomous communities)

• Regions with limited powers (e.g. Dutch provinces)

• Regions with no powers (e.g. the Greek nomoi, Portuguese planning regions, Irish counties, English counties, and Northern Ireland)

Recent developments are obviously changing this list, with Northern Ireland in particular moving up the ladder of autonomy. Nevertheless, the variety within the European Union is clear, and it stands in contrast with the position and indeed the stability of the central-local government relationships in such nations as the United States.

The lack of spatial competence, the imposition of top-down policies and other reasons blamed for the failure of regional planning by Roberts (1997?)³ have gradually been addressed within the European context by a move back toward enhanced regional autonomy and responsibility. The significance of the European dimension cannot be neglected here. The European regional structural funds, and their preferred delivery mechanism of the partnership model, have been critical not only in establishing regional networks of agencies and authorities, but also in creating the conditions and environment for quasi-regional governance structures. These have undoubtedly been instrumental in convincing the administrations of some national governments that greater devolution has benefits.

These points are echoed by Armstrong (1997?)⁴ who, in the context of the proposed English regional assemblies, draws out the characteristics of multijurisdictional planning frameworks in which the principal issue is the optimal assignment of functions. While confirming the theoretical case for regional level institutional intervention for the purposes of regional planning and development, Armstrong stresses the need for flexibility to allow for the different interests involved at the subregional level. The subregional level has remained a relatively isolated area for debate, although attention is now being paid to the role of local government within new forms of regional constitutional governance (Sinclair 1997).

Cappellin (1997?) has examined the nature of federalism and the network approach to national regional policy in the volume that contains Roberts's and Armstrong's works⁵. He views these as a means of facilitating the cooperation and/or competition between different national and regional institutions. He stresses a new approach to regional development policy and planning within a federal arrangement based on public-private partnership (rather than on public authority). The aim of the partnership approach is to create flexible mechanisms of governance of those public-private relationships in order to establish a strategic agenda for change. This can be achieved through the establishing of networks that stress the transactions between institutions and partners rather than the older prescriptive or centralized "top down" system.

These studies show that there are connections between the different areas of governance and methods of analysis. The micro-, meso- and macro-levels obviously interact in ways that make it difficult to separate the varying forces and forms of influence.

Haynes, Maas, Stough and Riggle (1997?)⁶, in contrast to the pictures painted of these fairly centralized countries, have analyzed the experience of regionalism within the federal systems of government in Germany, Canada and the United States. In particular, they consider the obstacles to establishing and maintaining regional coherence in policy and planning. These include sectoral bias and the emphasis of the role of institutions and policies in regional representation and empowerment. Their discussion of regional development within a federal system offers some important insights into planning intervention at a regional level in a unitary state. The principal lesson it offers is that it is important to acknowledge that policymakers are dealing with regional jurisdictions in a constant process of dynamic realignment. The authors reach the conclusion that a federal system does not automatically imply that the regional dimension is recognized or that appropriate arrangements flow out of federal institutions.

Returning to the theme of networks, Eser (1997?) examines the lessons that city networks have provided Germany. In Germany, city networks represent a form of strategic planning within a federal system. Eser views these as a form of regional planning mechanism that can secure a strategic perspective on meeting the needs of economic development in localities where economic spillovers exist. He stresses, however, the extent to which normative issues can be integrated into the networking approach to regional planning and development.

7.3 Governance, Institutions and Development

As described elsewhere in these learning materials, the arrangements for regional governance are changing within the United Kingdom especially radically. The changes have provided a rich source of material for political scientists in recent times, and a proving ground for a limited number of economists to try to understand the implications of such changes for the economic development of particular areas. Nowhere are these proposed evolutions going to have an impact more strongly than in Scotland. Scotland now has its own democratically elected Parliament for the first time in its history, which is remarkable given the span of its history.

In work joining a growing library of publications on the devolved Scottish Parliament, Newlands (1997) has considered its economic powers and potential⁷. The Parliament will represent a new form of regional government in the United Kingdom, and Newlands draws on economic theory to explore the potential impacts of such a body and its related powers. Drawing from the American literature in particular, Newlands focuses on the fundamental macroeconomic objectives of government: stabilization, distribution, allocation and growth functions. Newlands argues that the focus of debate and appraisal is most appropriately directed at the processes of sustaining growth and development. This allows him to demonstrate that such a body as the Scottish Parliament may benefit those beyond its own boundaries and the national economy. Significantly, and appropriately, he stresses the uncertainties associated with establishing this new form of regional government and the care that will have to be exercised in its execution and implementation. Newlands argues that in many areas and communities, the development or devolution of specific new regional powers can lead to "backlash" effects and other reactions that may undermine any universally favorable developments. Such analyses as Newlands's, based on successful and stable models elsewhere, can be applied to prevent unfavorable effects of devolution. Newlands's line of argument links explicitly the key issues of taxation, expenditure and economic growth to a subnational layer of governance, and to the Scottish Parliament in particular.

A particular area of debate in any country concerns the direct financial costs of operating a local or regional government. Bryan and Hill (1997) have discussed⁸ the costs and benefits of a Welsh Assembly, again by referring to the United States's federal literature⁹ as enlightening for the regional scientist. They concentrate on an investigation of the synergies made possible between government agencies and departments and other organizations within an area once devolution of power is introduced. However, although they see the potential for specific improvements, enhancements and innovations in linkages between economic agents and players within Wales after the establishment of a Welsh Assembly, they view the importance of subjective views as being as powerful as economic logic in the final public analysis.

Hill and Morgan (1997?) also consider the interactions between inward investment, supplier networks and regional growth within a regional governance framework. They examine the trends in foreign direct investment and its impact on regional economic development in Wales. In analyzing the characteristics of growth potential through inward investment and the importance of networking and facilitating vertical and horizontal links between firms, they highlight the anticipated advantages of embedding existing foreign direct investments into the regional economy over the attraction of new projects.

Continuing on this theme of the key lubrication qualities perceived to flow from regional governance incentives, Raines and Wishlade (1997)¹⁰ discuss cross European perspectives on the use and control of financial incentives in foreign investment promotion. They consider the propriety of using incentives for foreign direct investment in regional economic development and the extent to which European Union and national regulations can modify such arrangements. Their discussion provides an important insight into how external environmental changes around regional institutions impose potential limitations on regional planning and policy strategies. The key role played by the "civil service" of the European Union - the European Commission - is stressed by Raines and Wishlade as well as other commentators; however, they recognize the limited competencies and effective powers of the Commission. Its reliance on member states to police many of the regulations and its requirement to pay heed to political considerations restrict its autonomy in reality. Raines and Wishlade's work helps confirm to the regional scientist the need to apply a range of expertise and disciplines to evaluations of the relationships between multilevels of governance.

7.4 Fiscal and Monetary Regimes

Finally, this section considers the nature and appropriateness of different monetary and fiscal regimes for regional autonomy. The financial settlement between different layers of a multigovernance system can create tensions and conflicts that may negate many of the advantages of devolution and regional autonomy. One of the principal needs of late, therefore, in those states which have been decentralizing, as well as within the European Union as whole, has been to try and introduce a more objective and less emotive approach to analyzing the funding and expenditure plans for regional and other subnational governments. Laramie and Mair (1997)¹¹ have applied experiences and theories developed in North America, but especially the arguments developed by Keynes’s contemporary, the Polish economist Kalecki¹², to examine the macroeconomic effects of regional tax differentials. Laramie and Mair's work was undertaken with special reference to the so-called "tartan tax," which will be associated with the proposed Scottish Parliament. The tartan tax is a local income tax to be applied in Scotland, and its application will mark the first time such a regional tax has been imposed in the United Kingdom. Laramie and Mair consider this in the context of economic growth and make a case which is well founded in theory for a property based source of finance for the Parliament.

As it is providing such an interesting experiment in the United Kingdom, and as it may have far reaching consequences for the continuation of this particular union, there has been a rash of papers and studies on the effects of the "tartan tax." McGregor, Stevens, Swales and Yin (1997)¹³ have provided a more detailed analysis of the financial aspects of a Scottish Parliament and an evaluation of a tartan tax. To undertake this analysis, they utilize their computable general equilibrium model of the Scottish economy, a "flex-price" model, to estimate the likely impacts of devolution in a very open regional economy. Scotland operates within the customs union of the European Union with all its restrictions on anti-competitive behavior, and has a very high propensity to export - in reality it serves as production base for non-European multinational enterprises to enter the European market. Therefore, many of the traditional levers open to an independent state are not available to it. As with other authors discussed above, MacGregor et al. argue that the link between macro policy and regional development is an important theme in composing the arrangements for regional governance and autonomy. They also stress, however, that there is a need for positive intervention in the economy to realize the benefits of devolution, opening up discussion on how potential advantages can be gained through the involvement of the social partners in wage bargaining, investment and public expenditure and budgeting strategies. Within the framework of a balanced budget strategy, they demonstrate how an expansion of the Scottish economy could be achieved, but apparently only with a social contract between labor and the Parliament.

In other contexts, especially federal countries, there are usually better developed methods of dealing with inter-regional financial settlements. Established traditions, practices and systems of constitutional law address the problems of multigovernance structures. Kellerman and Schmidt (1997) have looked at the German case to investigate how such settlements relate to growth and development across the country¹⁴. They offer an insight into the different arrangements for taxation policy and regional development in a federal system. They demonstrate different mechanisms and philosophies for transferring finance and resources from region to region within such a country. Such flows are considered to be the costs or the lubricants necessary to maintain the viability of the federal nation state, and they may promise advantages to all parts of the country. Their analysis suggests that a tax sharing system can lead to a more efficient inter-regional allocation of capital with a possibility of higher national aggregate growth. It also serves as a reminder of the differences between a true federation and that definition of the European Union used by Eurosceptics (or more correctly Europhobes) in Britain to describe the present constitutional governance of the European Union.

Finally, there have been a host of studies on the how idiosyncrasies of particular regions, conurbations and communities can explain the relative good or poor performance of different areas. Doeringer, Terkla and Topakian (1987), for instance, have captured the essence of this genre in their volume entitled Invisible Factors in Local Economic Development (1987)¹⁵ . Porter’s study, The Competitive Advantage of Nations (1990)¹⁶, has been applied at several levels of multigovernance systems. Porter notes the increasing openness of national and regional markets. He demonstrates, though, that in an progressively globalizing world with restrictions imposed by such organizations as customs unions and the World Trade Organization, there are still areas for fruitful discretion in policy terms for local, regional and subnational governments and their partners. Dow (1997)¹⁷ discusses an example of the use of such discretion when she considers the role of financial sector and monetary policy under a regional government, in this case Scotland. Dow draws parallels with other systems. But adopting a traditional Scottish Political Economy approach, she also draws upon the distinctiveness and historical significance of the country’s banking sector to argue that major innovations can be introduced in credit policy to the benefit of both industrial and economic objectives. Perhaps most important in her analysis is the identification of the ability of regional governments to intervene in their economies in imaginative ways that fit their constituencies’ needs more neatly than the top-down approaches of the unitary state. Whether the key players in the financial sectors of these communities wish to realize this is, of course, another matter.

ENDNOTES

1. Sustainability and spatial competence: an examination of the evolution, ephemeral nature, and possible future development of regional planning in Britain' in Regional Governance and Economic Development, M Danson (ed.) , European Research in Regional Science 7, Pion: London.
2. 'The powers of regional and local authorities and their role in the European Union.' European Planning Studies 3, 227-250.
3. Roberts op cit
4. 'Regional-level jurisdictions and economic regeneration initiatives' in Regional Governance and Economic Development, M Danson (ed.) , European Research in Regional Science 7, Pion: London.
5. 'Federalism and the network paradigm: guidelines for a new approach in national regional policy' Regional Governance and Economic Development, M Danson (ed.) , European Research in Regional Science 7, Pion: London.
6. 'Regional governance and economic development: lessons from federal states' in Regional Governance and Economic Development, M Danson (ed.) , European Research in Regional Science 7, Pion: London.
7. See both his chapter 'The economic powers and potential of a devolved Scottish parliament: lessons from economic theory and European experience' in Regional Governance and Economic Development, M Danson (ed.) , European Research in Regional Science 7, Pion: London, and his jointly edited book with John McCarthy .
8. 'The costs and benefits of an Assembly for Wales' in Regional Governance and Economic Development, M Danson (ed.) , European Research in Regional Science 7, Pion: London
9. They cite the work of P Peterson in particular The Price of Federalism, The Brookings Institute, Washington DC, 1995.
10. In Regional Governance and Economic Development, M Danson (ed.) , European Research in Regional Science 7, Pion: London
11. 'Macroeconomic effects of regional tax differentials: a post-Keynesian analysis' in Regional Governance and Economic Development, M Danson (ed.) , European Research in Regional Science 7, Pion: London
12. 'A theory of commodity, income and capital taxation' Economic Journal 47, 444-450.
13. 'Some simple macroeconomics of Scottish devolution' in Regional Governance and Economic Development, M Danson (ed.) , European Research in Regional Science 7, Pion: London
14. 'Regional growth and convergence in a tax-sharing system' in Regional Governance and Economic Development, M Danson (ed.) , European Research in Regional Science 7, Pion: London
15. P.B. Doeringer, D.G. Terkla and G.C. Topakian, 1987, New York: OUP.
16. 1990, London: Macmillan.
17. 'Scottish devolution and the financial sector' in Regional Governance and Economic Development, M Danson (ed.) , European Research in Regional Science 7, Pion: London.

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