Tuesday, September 9, 2014

New elements in the European Union cohesion policy in 2014-2020

New elements in the European Union cohesion policy in 2014-2020

by Gábor Kiss

Important changes take place in EU Cohesion Policy these days, but some fundamental questions about the potential for success of such policies remain unanswered. 

The new programming period of European cohesion policy is about to be launched in 2014. The legislative package contains numerous novel elements. Some of these seek to enhance the orientation of interventions towards results, while others include policy instruments that are considered more effective in reaching goals related to territorial cohesion.

The key tools devised to create linkages between country and EU level objectives and funding are the Partnership Contracts with the European Commission. These documents have to be prepared by every recipient country, and they will set out the commitments of national and regional level partners. The contracts will contain important new elements called “ex ante and ex post conditionalities”. The former are necessary conditions to be met by member states in order to start their programmes, and they contain mainly regulations and other institutional criteria that can ensure the effective use of Union support. The aim of the ex post conditionalities is to strengthen the performance of the programmes by setting out milestones related to outputs and results of the interventions. 5% of the budget of the relevant funds will be set aside to be allocated only to those member states which reached the milestones. Furthermore, the failure to achieve the milestones may result in the suspension or even the cancellation of funding. The stakes are high: altogether more than EUR 320 billion is allocated for the entire 7 year period. The member state level allocations can be seen in the following graph:

Two new policy instruments explicitly focus on the territorial aspects of development policy. One of these is the “Integrated Territorial Investments” (ITI), while the other is called “Community-led Local Development “(CLLD). Both aim at supporting integrated local and sub-regional development strategies that are tailor-made to the needs of the respective territories. The CLLD instrument builds on bottom-up initiatives by local groups of actors, an approach similar to the one used in rural development policy in the previous periods. It is the local action group that determines the content of the local development strategy. The ITI is a more comprehensive instrument, which aims at the coordinated use of various types of support (e.g. financial instruments, grants, consulting) to meet the specific local needs. This tool can combine top-down and CLLD-type decision making and empower sub-regional actors (e.g. local authorities, non-governmental organisations) by partly delegating the management tasks to them. In addition, earmarking sums to such programmes can ensure the funding of integrated actions.

The result oriented regulations and new policy instruments are built on the experience of the past, but both broad categories of novelties raise important theoretical questions. The conditioning of payments on reaching milestones (i.e. the achievements of indicator targets) is certainly reasonable when applied to the outputs of a policy intervention, such as new roads, renovated schools, or environmentally friendly energy production facilities. On the other hand, results, such as the decrease in pollution or increase in the test outcomes of high school students are affected by many other factors which are really hard to control for. In order to avoid the risk of payment withdrawal, national and regional policy makers have the incentive to set the targets for results (and also outputs, to some extent) as low as possible. Thus, such incentives can undermine the whole point of conditionality, namely the achievement of development goals.

The second question is related to the possibility of strengthening growth through external support. If the policies are well implemented, increasing the level of physical and human capital can elevate the level of per capita income up to the so-called steady state level which is determined by exogenously given parameters according to the neoclassical growth model. These models, however, do not consider processes taking place on the regional level. The theoretical implications of the territorial nature of economic activities are grasped by the models of New Economic Geography. These models have different predictions depending on what assumptions they make, but one of their ultimate implications is that when certain kinds of economic activities are geographically concentrated, it requires a very large shock to change the distribution of activities related to mobile production factors. 

In the context of regional development policy, this can imply that even if the local strategic initiatives give rise to higher levels of human and physical capital due to the publicly funded investments, after the compulsory maintenance periods the bulk of these activities will migrate to the “economic core”. This implies that such interventions can be successful only if they support the periphery to an extent which is possibly beyond the scope of any policy consistent with capitalist systems. On the other hand, based on the approach of the spatial equilibrium model, a more favourable outcome can also arise. If policy measures are able to create appealing environment to business in the periphery, which is also supported by local amenities and benefits specific to the people living there, there is a chance that investments in these two forms of capital can contribute to the long-term development of these areas as well.


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