3. THEORETICAL AND DISCIPLINE UNDERPINNINGS TO GOVERNANCE, INSTITUTIONAL CHANGE AND REGIONAL DEVELOPMENT

3.1 Background

The study of governance and institutional change has come relatively recently to regional science. A range of methodologies is being applied to this study by researchers and commentators. Without recourse to a range of disciplines, it is not possible to gain an understanding of the matrix of forms and structures that have been implemented across the developed world. Theoretical bases for the critical assessment of case studies and the variety of institutional frameworks to be studied are essential for the researcher trying to compare and contrast the different frameworks. A corollary is that no one discipline or approach has been adopted universally to explain the development of governance and institutions within or between countries.

The above discussions on the origins of the concepts of the industrial district, networking and partnerships, and in particular the role of Marshall in identifying and developing these concepts, should serve to stress the need for caution in studying governance and institutional change. Much of the literature of the last twenty years has failed to acknowledge what earlier analysts have uncovered. Adopting a narrow discipline route to enlightenment can be damaging and wasteful, therefore, with critiques and self-critiques following the initial flush of enthusiasm. Below, the need to address a broad range of material is suggested, and the reader is encouraged to consider the arguments of a range of disciplines and paradigms.

In material on regional governance, institutions and economic development, a number of theoretical approaches have been applied which owe their origins to American studies. Although some of these translate well to the European environment, including the organizational theories of DiMaggio and Powell, others are less able to travel successfully. A good example of this problem has been demonstrated by Wong (1999, chapter 4) who shows that urban regime theory contains predictions that do not do particularly well once they have crossed the Atlantic.

Other researchers have used developments of institutionalism/network theory, combining aspects of organizational theory with traditional themes in political science to examine the evolution of partnerships of organizations and authorities. The increasing concern with the competitiveness of small and medium enterprises (SMEs) and the promotion of intelligent regions in the (re-)generation of the economies of particular areas has been particularly popular. The literature on SMEs often places institutional thickness and capacity at the heart of the analysis of the economic development process, reflecting a preoccupation with a paradigm popular in the 1980s (Macleod 1996).

In discussing multilevel governance, a growth industry in its own right within politics, the "actor-centered" approach that specifies the role of particular individuals and institutions in the decision-making process (Marks et al. 1996, 346) has frequently been adopted in explaining some of the developments within Europe. In contrast, at the national level, the "power-dependence" approach has been applied to aid understanding of the relationship between central government and sub-central public bodies (Rhodes 1988). To an extent, the "policy network" approach addressed by such economists as Halkier (1999) goes some way toward highlighting the associations between these two theories in its recognition of the importance of a multitude of actors exchanging information, expertise and other resources at both the national and supra-national (e.g. European levels).

With the apparently contradictory movements towards both greater powers for supra-national bodies such as the European Union on the one hand, and enhanced devolution to sub-national levels on the other, the theme of this set of learning materials will become ever more crucial. A better understanding of the underpinnings of successful regional governance structures and regional institutions will be an essential feature in determining the sustainable development of communities across the developed world, and of Europe especially.

3.2 Partnership and Regional Development

Over the last two decades, it has become increasingly apparent that to promote the development of a region requires not only intervention from the state at the supra-national (e.g. European, national, or sub-national/local level) but also reliance on more than one particular agency. Regional economic development is no longer considered the responsibility of just one organization, be it central government or a regionally-based development agency or organization. Instead, a range of institutions have become involved, some of them local, some regional, and others again acting on behalf of national or European institutions.¹ In the main, these agencies work collectively in partnerships or networks on a more or less regular and formalized basis, and many of them will be involved in partnership arrangements with private sector organizations and actors. This is in contrast to the 1970s and 80s, when regional development usually involved one agency deciding the appropriate strategies and undertaking the necessary steps to implement such initiatives. As the millennium approaches, regional development bodies appear to be essentially networked organizations, achieving their objectives by working in partnership with other public and private actors.

Given this background and the emphasis put on trust and cooperation in industrial and regional policies, one can see why it is consistent with the political economy of the current period that partnerships have become the preferred mode of regional development. Indeed, the partnership approach is perceived as being so favorable that any self-respecting development agency adopts it as an integral part of its mode of operation. It could be argued that this form of delivering regional economic development activities has come to be hegemonic simply as a consequence of its having become ubiquitous. The mantra-like status of partnerships may obscure the fact that operating through them could involve disadvantages (Halkier et al. 1999; Danson et al. 1997).

A more balanced view of regional development is needed. Just looking at the possible reasons for engaging in partnership arrangements would seem to suggest the need for caution. Building consensus and pooling resources to ensure coordinated efforts and efficient implementation will in many cases entail very real advantages, and may well be an important part of the real reasoning behind the growth of the networked development agency (Halkier and Damborg, 1999). But it is also clear that the current popularity of partnership arrangements is rooted in the specific historical circumstances of the last decade. The decline of central government regional subsidies that fueled the growth of bottom-up initiatives into an uneven web of regional and local development organizations, and the 1988 reforms of the Structural Funds, made partnership a general requirement in European regional programs. In addition to this decline, public-sector bodies with limited resources have been constantly searching for ways of enhancing their capacity to promote development. Meanwhile, the experience of the Third Italy, where consensual networking appeared to be the secret behind a thriving regional economy, has been well publicized. It is easy to see why partnership is construed as the new panacea. The motives of a development agency for linking up with other public and private bodies may be a combination of push and pull factors: on the one hand the search for functional advantages, on the other hand a constant quest for additional resources from other public and private actors.

There are two aspects of partnership which can be highlighted. First is the question of the motives and interests of the partners involved. These can be expected to differ between public and private actors and various tiers of government, and between divergent economic interests, different time perspectives, incompatible strategies, and territorial politics. These differences could all make it difficult for partners to gain the potential benefits of collaboration. Second, once partnership arrangements have been established, the question of their consequences for the participating organizations arises. The short-term effect for most participants is, they would hope, access to additional resources, and perhaps synergies in delivery and monitoring. However, as the links and associations between the partners become institutionalized, there are questions over the influence the participating organizations will have on each partner in the medium to long term.

Cameron and Danson (1999) have argued that by looking at partnerships and networks among agencies and institutions within a region from the perspective of organizational theory, using Scotland as a case study, insights can be gained into how these bodies are affected by new forms of cooperative governance. Exploring especially the effects these new forms have on development bodies and the ways that partnerships may challenge traditional perceptions of the advantages of both regional development agencies (RDAs) and networking leads one to see that there is a possibility of significant problems for these institutions and their political sponsors.

Others, in their analysis of the process of consensus building and strategy development, highlight the importance of communicative aspects of regional development activities. Jud and Steiner (1999) do so in considering recent experiences in the Austrian region of Styria.

By exploring the workings of partnerships in the English context, Wong (1999) has questioned some of the central assumptions of urban regime theory about the role of private and public actors in partnerships. She has undertaken extensive analysis of the views of development practitioners in the organizations involved in regional and urban economic development, and raised doubts about urban regime theory itself. In doing so, she has also confirmed the need to consider the particular economic, political and social environments within which governance structures and institutions operate.

3.3 Networking and Regional Governance

Across the European Union, if not the developed world, over the past two decades there has been an expansion in the reliance on joint actions between institutions and between different levels of government to address many of the issues facing contemporary society. Looser than many formal partnerships, and often based on perceived mutuality of problems and policies, local and regional organizations increasingly have been coming together to address issues that face them individually and collectively. The association of traditional industrial regions (RETI) was an early example of this in the European Union, with joint intelligence and lobbying efforts funded through its member councils and authorities. Sector-specific bodies have been created with similar remits, one of the best examples being MILAN - the network of European regions involved in the vehicle industry.

In a national context, such associations have been long established. One example is the Convention of Scottish Local Authorities (COSLA), which has provided a platform for debate and the defining of common agenda and best practices. In Germany, the Federal Ministry for Spatial Planning, Building and Urban Development has prompted the construction of eleven city networks under the ExWoSt program over the period 1994-97 (Eser 1997). However, although these organizations and initiatives are fairly formal structures, the reality for many networks is that they are often ad hoc ways of addressing the problems of policy coordination, destructive competition among agencies, or a lack of institutional capacity at the local or the regional level. Improving accountability, albeit often indirectly, and adopting an integrated approach to policy administration and delivery are two of the main areas where networks have been embraced. Rhodes (1986) and Leonardi and Nanettit (1990) have explored some of the possible forms of relationships among the supra-national state (the European Union), the nation state, and lower levels of governance. (see Figure 3.2).

By considering the practices and experiences across a range of very different environments it is possible to examine the role of looser governance structures. For instance, using an institutionalist framework Halkier and Damborg (1999) explore the attempts in North Jutland to enhance the patterns of business development support by the matrix of agencies in the region. Considering the developments there, they suggest how this networking approach could be applied to the study of regional governance in other parts of Europe.

In an area trying to come to terms with a poorly developed governance structure, Kafkalas and Thoidou, basing their work on the case of Central Macedonia, assess the importance of European structural funds for the emergence of specific RDAs. They have analyzed the significance of the competitiveness of SMEs and of the gradual establishment of RDAs in the promotion of regional intelligence, and so place institutional thickness and capacity at the heart of the economic development process.

The United Kingdom, the most centralized state in western Europe, presents a live experiment in significant changes in governance within a country. Britain has been undergoing the devolution of power to a Parliament in Scotland [see link] - 300 years after Scotland agreed to a union of parliaments with England - and to regional assemblies in Wales and Northern Ireland. The possibility also exists for devolution of power to regional assemblies in the English regions. Garside, among others, has critically examined the present plans for new forms of regional governance in the constituent parts of Britain, contrasting the proposals for Scotland and Wales with those for the English regions. Basing much of his discussion on the importance of democracy and inclusion, he points out the key role played by networks in the success of the Celtic nations, in comparison with the limited devolution existing and promised for the sub-national parts of England. The recent edited volume by Newlands and McCarthy (1999) is one of the few but growing attempts by regional scientists to address the economic implications of such developments; till now they have tended to be the domain of political scientists and commentators.

Bennett and McCoshan (1993) have suggested a typology of networks (Figure 3.3) which describes a range of relations between agents at the local or regional level. As they note, the networks A-D are derived from management science, and each has advantages and disadvantages in delivering economic development activities efficiently and sustainably. The introduction of the fifth form, E, is meant to be flexible and responsive to the needs of different agents.

Two Swedish researchers, Jensen and Leijon, have adopted a very different approach to the study of developments in regional governance structures. Drawing from experiences in West Sweden, they apply rhetorical analytical forms to describe the social construction of this particular region, explaining how some of the actors used imagery and "persuasive storytelling" to create a region. Their examination of regional networks and institutional landscapes, the creation of artificial regions and the inevitable consequent inconsistencies with perceived realities provides a stimulating way of considering the importance of regional structures in the development process. They stress the significance of political dialogue in persuading and forming the debate over not only the nature of governance institutions but also the very existence of regions themselves. This raises the age-old but critical question "what is a region?", a problem for regional scientists that has presented itself at various times and with varying strengths over the decades.

3.4 Regional Development and Multilevel Governance

As demonstrated widely in individual country and continent-wide studies over the last few decades (see Yuill et al., 1998 for instance), the role of traditional central government regional subsidy programs has been gradually replaced by bottom-up development bodies and initiatives. The changing structure of regional policy throughout Europe has been assisted and encouraged by the increasing importance of the European Union system of governance, with the structural funding programs critical in this process. There is a need to identify and delineate the development of the governance structures in each country and in the European Union to understand and to explain the emerging pattern of change towards a multilevel system of governance. Such research is best conducted using a variety of applicable theories.

Since the inception of the European Regional Development Fund (ERDF), the role of the European Commission has become increasingly important in the development of the regions within objective areas. The impact of the European Commission’s method of stimulating regional development through bottom-up initiatives and programs has not only affected the assigned areas but also has had direct implications for national regional policy developments throughout the European Union. A similar process of change can be identified outside the European system. It may be important, then, to consider where the process of change originated. Has the change towards bottom-up regional policy been brought about by the desire of national governments to empower the regional agents and reduce their own direct role in regional development, and/or has the European model been accepted elsewhere as the most effective and efficient method of regional development?

The relationships between different tiers of government may be studied from a number of different perspectives. On the European Level the so called "multilevel governance" approach proposes that "decision-making competencies are shared by actors at different levels rather than monopolised by state executives," and that it is therefore necessary to adopt an "actor-centered" approach that specifies the role of particular individuals and institutions in the decision making process (Marks et al. 1996, 346).

On the National Level, parallel arguments can be found in the "power-dependence" approach, which was developed to aid understanding of the relationship between central government and sub-central public bodies (Rhodes 1988). The multilevel governance and power-dependence approaches both identify the mutual dependence between different tiers of government based on their respective control of resources important for the development and implementation of public policy. Adding weight to the debates on "multilevel governance" and "power dependence" is the "policy network" approach. This approach also recognizes the importance of a multitude of actors exchanging information, expertise and other resources at both the national and European levels.

Discussion of the approaches that are implemented or can be implemented is continued at the Regional Level. Analyses of the recent suggestions for change in the electoral system have evoked debate over whether democratic principles and regional government are necessarily a more beneficial system for the effectiveness and efficiency of regional policy, or whether current agents may in fact be superior.

Consideration of the work of several academics allows an understanding of how the debate has developed and gives a thorough explanation of policy implementation at a number of levels. For example, in his evaluation of Norwegian regional policy Bukve notes the change from a system in which there was a high degree of autonomy for the political bodies at the county level to one in which governance, rather than government, has become increasingly evident. By doing so, he demonstrates the need to look at the particulars of a region’s environment. Because Norway is not a member of the European Union, Bukve's work lends insight into governance across the European continent. Likewise, Halkier (1999) has considered the consequences of recent radical change in Danish regional policy toward regional governance and empowerment and shown how experiences can differ even between near neighbours - such as Denmark and its Nordic associates Sweden and Norway. And Downes (1999) has assessed the Austrian system and the way in which joining the European Community has affected the regional policies and actors of the strongly consensus-oriented political environment.

3.5 The links between networking and partnerships

As is apparent from above, within the regional economic development structure of the late twentieth century, there appears to be a dominant partnership model approach that stresses the possibility of realizing synergies and capturing positive externalities through formal networking. In many regions, the form of institution favored to address regional market failure, the RDA, is being encouraged to relate more closely to the other economic actors in regeneration and restructuring. Some have argued that this points them toward a role as a facilitator, enabler or catalyst in the regional economy (Morgan 1998), rather than the multifunctional all-embracing organization of the 1970s. In the following section, the role of RDAs in differing regional governance structures is analyzed in more detail. As an introduction to that discourse, we consider below the links between networking and partnerships.

There is an essential transmogrification implied in the incorporation of the RDA into such partnerships. Whether there are conflicts and disadvantages to these developments does not appear to have been addressed in the literature. For instance, it has been suggested that the advantages of partnership include:

• Increasingly innovative policies and better operational decisions arising from dialogue and interaction among organizations with different responsibilities and perspectives on problems

• Increased continuity and consistency in policy within individual organizations as a result of the building of trust and understanding with others

• Resolution of conflict and disagreement through widespread consultation and involvement in decision making

• Coordination and integration of disparate actions and aggregation of separate budgets, to enhance policy impacts

• High level of strategic planning and decision making through shared agreement reached on essential needs and priorities (Danson et al. 1997)

To assess these claims, and especially the second advantage, suggests applying a theoretical framework appropriate to the analysis of organizations working in partnership and through networks.

3.5.1 Networks and Partnerships

Traditional research in organizational theory has tended to concentrate on intra-firm rather than inter-firm relationships; however, with the increased interest in networking (Nohria and Eccles 1992) and indeed partnership, it has become necessary to consider the relationships between organizations in a more structured way. In addition, the impact that the external (networking) environment may have on the structure, culture and functioning of the individual organization should have increasing importance as decentralized decision making, indigenous development and collaborative working in regional economic development become more common (Cooke and Morgan 1993; Garmise and Rees 1992; Mackintosh 1997).

The Importance of Local Networks

A basic assumption of the relationships formed to provide a network is that the organizations in a network are mutually dependent upon resources controlled by each other, and that there are benefits to be gained by pooling their resources. Thus in network forms of resource allocation, organizations do not operate on an individual basis but relative to all the organizations in their network (Nohria and Eccles 1992; Cooke and Morgan 1993). In many ways the analysis of cartels and oligopolistic behavior is analogous to this.

Networks are the intricate links based on trust and reciprocal patterns of communication and exchange between producers and clients that are necessary to ensure economic capability and responsiveness (Grabher 1993). Ideal networks enhance market and location decisions; in economic terms, they facilitate the externalities of decisions becoming internalized to the members. Networks mean that key agents have to work more closely together to fulfill the needs of those included in, and affected by, the network.

Networks established to deliver economic services are fundamentally local affairs (Bennett and McCoshan 1993). They depend upon the way in which businesses are served by local community and business leaders and elites, the way in which local networks perform, and the way in which participation in networks takes place at a local level. However, the character of local networks, their leadership and elites, are also fundamentally determined by the economic structure and layout of their economies, which in turn depends on the relationship of the local economy to the national and global economic system. As a result, different types of areas possess very different types of networks of relationships. For example, there are strong contrasts between older and newer industrial areas, between areas concentrated on urban settlements and those in more dispersed urban or rural areas, and so on.

The contrasts of networks between areas create very different possibilities for development. In some areas networks allow a strong positive lead to be taken which allows the rapid economic change and adjustment on which service quality is founded (Ricard 1997). In other areas, the absence of an effective network, or a network tuned to former circumstances, can be a strong inhibition to economic growth. Local networks thus can be strong supply-side factors that raise or lower the economic growth potential for different parts of the country (Bennett and McCoshan 1993; Doeringer, Terkla and Topakian 1987).

From Networks to Partnerships

Networks are the essential means for linking one group of agents to others whom they affect and are the mechanism for the exchange of information and services in support of business development. Beyond simple networks, partnerships require the commitment of the agents to work fully together. This means:

• Accepting long-term structures that work towards sustained commitment to change and achievement of quality

• Accepting an active commitment to changing the internal operations of each agent, and helping other agents also to change to achieve an improved system overall (WMEB Consultants 1995)

Hence networking alone is largely passive, whereas partnerships require active participation (Mackintosh 1992). Partnerships are based on firm agreements by agents to work together. They extend far beyond network flows of information to offer a system that ensures that the problem, or the client, is fully addressed. Partnerships can range from agreements between actors to work together toward a common end, to agreements which form a legal contract through which specific targets for performance are defined by the contracting parties. Over this range of possibilities the parties may act as relatively equal partners, but frequently the partnership is not equal. In some partnerships, the arrangement is more important to one party than to others, or performance is mandated or coerced by one party on another (frequently through financial powers). The description of the need to build up working relationships based on trust and cooperation is represented in the accompanying Figure 3.4.

Networking and Partnerships in the European Context

The European Commission is considered to be one of the main driving forces in the development of partnership, and therefore in networking behavior, with the aim of achieving the goal of European integration and cohesion (Bennett and Krebs 1994). As a means of encouraging this behavior many of the Commission's initiatives and programs have a pre-requisite that participating organizations must be involved in a partnership or network (Cooke and Morgan 1993). As highlighted earlier, this is evident in the Commission's arrangements for regional policy funding and for accessing structural funds. The aim of these arrangements is to harness the energy, skills and resources of the key actors in the regional development environment and to develop and implement solutions to increase cohesion across the European Union. Given the pre-eminent position of the Strathclyde model in the evolution of this partnership form of delivering structural funds in the European Union (Danson et al. 1997), sections 5 and 6 introduce some consideration of the model in the analysis of the micro- and meso-levels of regional governance.

3.6 Summary and introduction to the following sections

This section has given a brief introduction to the major themes of "partnership and regional development," "networking and regional governance," and "regional development and multilevel governance" and the links between the different levels of analysis. In the following chapters, this analysis is extended, first through an exploration of the RDA under different models of governance and then an examination in greater detail of some aspects of these themes. In each case the material will be illustrated by application of the theories presented to the experiences in particular regions, especially the Third Italy and Scotland.

ENDNOTE

1. The emphasis on the European experience follows from the particular institutional and political environment on this continent. Because the member states of the European Union operate neither as a single entity - as a political body or nation state, federal or otherwise - nor as a set of totally independent countries, the paths of evolution of their institutional structures of governance can demonstrate a range of experiences. They each are restricted by the overall regulatory framework of the European Union, but they have acted as a laboratory for alternative forms of institutional intervention in the regional economy.

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