Decentralisation of the European Union - Case Study Example

Development Administration - Decentralisation is Justified on a Variety of Grounds but the Performance of Decentralisation Policies often Falls Shortof Expectations and Declared Objectives - Student’s Name Student Number Course Name and Number Name of Professor Date of Submission Number of Words: 2,444 Introduction Back in 1973, the European Union regional-level agencies and its national level organization participated in the regional policy of Britain (Armstrong and Taylor 2000, p.221). Two years later, the European Regional Development Fund (ERDF) was created to complement the British government’s regional policy. As part of modernizing and boosting EU’s economy by creating new employment opportunities and ensuring continuous economic growth, the ERDF was created in order to provide financial assistance to local industries and small-scale companies in weaker regions in the form of grants and interest rebates (East of England Development Agency 2010). By creating new employment opportunities and improving the infrastructure related to telecommunications, environment, energy, and transportation (Regional Policy - Inforegio 2010), it is possible for the European Union to improve EU’s economic performance as a whole. In relation to the economic integration of European Union, the implementation of EU’s regional policy is necessary in terms of making the development of European Union’s goal of becoming a single European market successful. In line with this, the strengthening of EU’s economic and monetary policy is possible by making the political and economic interaction between the central and eastern European Enlargement more efficient (Armstrong and Taylor 2000, pp.305 - 312). Aside from improving the coordination of regional policy among the European Union members, this strategy will also increase the possibility for richer state members to voluntarily be involved in solving the regional problems of other less capable member states. Specifically in the case of the European Union, decentralization of fiscal and monetary policy could create substantial adverse effects in the development of European Union’s regional policy. Given that the use of decentralisation policies could fall short of expectations and declared government objectives, this study will discuss the advantages and disadvantages of centralizing and decentralizing the European Regional Development Fund (ERDF). As part of going through the main discussion, critical assessment of ERDF’s role in terms of promoting common practice and good governance within the local level will be tackled in details. Based on the main discussion, lessons learned from decentralizing and centralizing the regional policies in European Union will be explained thoroughly. Advantages and Disadvantages of Centralizing and Decentralizing the European Regional Development Fund (ERDF) Between 1982 to 1983, the regionalization or decentralization of ERDF was implemented by allowing each region to select the members of ERDF assembly through election (La Documentation française 2008). In line with this, the process of decentralizing the ERDF resulted to the distribution of responsibilities and funding between the central government and the local government in each region such that the central government is made responsible for prioritizing and allocation of available funds whereas the local government is made responsible for the distribution of allocated funds within each respective region (ibid). Advantages of Decentralizing ERDF There are advantages and disadvantages with regards to decentralizing ERDF in European Union. Each of the EU members has different financial capacity in terms of solving regional problems (Armstrong and Taylor 2000, p.320). Some countries like Greece and Portugal has severe regional economic problems as compared with the United Kingdom and other richer EU members. This makes Greece and Portugal less attractive towards investors. Unlike the central government, it is the local government in each of the weak regions who knows the details regarding the local business sector and public facilities or projects that needs to be properly funded in order to boost the regional economy (Fonchingong and Gemandze 2009, p. 66). For this reason, it is more advantageous on the part of the entire EU nation to decentralize the distribution of funds within the regional level. Another advantage of decentralizing the power of distributing the budget within the regional level is that the use of this strategy can encourage regular communication between the central government and the local government in each region (Fonchingong and Gemandze 2009, p. 66). Because of the need for each regional government to report the allocated funding in each region with the central government, decentralization of the fund allocation could promote a more efficient “accountability, checks and balance” between the fund allocation and improvements in the well-being of the local business sector and public facilities or government projects that were awarded with grants or interest rebates (East of England Development Agency 2010; Fonchingong and Gemandze 2009, p. 67). Disadvantages of Decentralizing ERDF In the absence of the central government in EU who is made responsible for the allocation of funds and the close monitoring on how these funds were being utilized in each region, the application of pure decentralization or devolution of power in terms of allocating the budget could result to a list of serious long-term economic problems among the weaker regions. In most cases, giving the regional government the ultimate power to allocate the budget could result to corruption or “the abuse of power by a public official for private gain” especially on the part of the public employees (Nye 1967). As a common knowledge, corruption is not only limited to the public offices who are searching for some private gain. There are also some cases wherein individuals who work for a private firm who are abusing their authoritative power in exchange of something that can be beneficial to them personally. Therefore, corruption can be defined as “all forms of corruption, the institutional kind involves the improper use of public office for private purposes” (Thompson 1995, p. 7 and 195). For example: Recently, the European Commissioner for Regional Policy allocated the sum of £100 million1 of funds for the purpose of improving the development of sustainable energy project in the unfortunate areas in East London (European Investment Bank 2009). In the absence of the European Investment Bank that was appointed in managing the utilization of the budget, there is a strong possibility that part of the funds will be corrupted because of under-the-table and Red Tape practices among some of the most influential government officials who will be fully or partly in-charge of the project funding. As a result, there will be lesser job opportunities available to the people in East London. The purpose of promoting a more sustainable and friendly environment as the East London increases its economic growth will also be impossible to achieve (European Investment Bank 2009). Another disadvantage of decentralizing the allocation of ERDF is that the practice of power devolution could result to the development of territorial policies particularly with regards to the practice of ERDF inspection and accountability (Jeffrey 2006, p. 176). Because of the practice of territorial policy, EU’s main purpose of establishing a single economic approach will be more difficult to implement since each region will be prone to use different policies in the practice of ERDF inspection and accountability. Advantages of Centralizing ERDF In most cases, newly formed regional authorities are less advantage as compared to other regions whose national ministries are more experienced in terms of dealing with EU’s central government (European Policies Research Centre 2008). Depending on their current economic status of each region, the practice of centralizing the control over ERDF is advantageous for all of the EU members in the sense that the allocation of the budget will be equally divided among the poorest EU regions. Since there is a centralized government control over the budget allocation, possible misunderstanding and internal chaos as a result of power hunger and desire of each EU regions to have the opportunity for better economic development can be prevented. In line with this context, this strategy is necessary in terms of maintaining effective and more efficient EU economic performance. Over the past few years, there has been a significant change in the basic nature of EU’s regional policy. As part of these changes, there is more active participation on the regional and local tiers due in response to the development of European Union. Since the European Union involves a total of 27 different countries2, it is necessary for the regional governments of each member countries to coordinate with other local governments with regards to newly proposed changes in the ERDF regional policy. For this reason, centralization among the active regional and local participation is important (Armstrong and Taylor 2000, pp.341 - 344). Disadvantages of Centralizing ERDF One of the major problems associated with purely centralizing the ERDF lies behind the fact that the central government is less knowledgeable with regards to the individual concerns of each region. By purely centralizing ERDF, it would be more difficult on the part of the central government to allocate funds on time. In the absence of a third party that will be assigned in monitoring the budget allocation decisions of the central government, the use of pure centralized government control over EU’s ERDF programme could also result to the practice of corruption. ERDF’s Role in Terms of Promoting Common Practice and Good Governance within the Local Level As a response to the introduction of the Single European Market, the EU regional policy was officially introduced and implemented back in 1989. Under the EU regional policy, the European Social Fund (ESF) was designed to finance training, retraining, migration, anti-discrimination and other labour market policies. Since the implementation of the European Regional Development Fund (ERDF) resulted to regional disparities in funding, the allocation of ERDF was converted into ‘Structural Funds’ in order to reduce possible regional disparities especially when it comes to economic development funding (Armstrong and Taylor 2000, p.221). Specifically the EU’s regional policy is very important in terms of sustaining further integration among the EU members and other countries. In terms of promoting a common practice and good governance within the local and regional level, a mixture of financial transfers and control was implemented in order to combat possible corruption among the government officials in each of EU’s regions (Armstrong and Taylor 2000, p.320). This particular development administration strategy is necessary to enhance the efficiency and effectiveness of EU’s regional policy with regards to the distribution of ERDF. The implementation of a mixed financial transfers and control is possibly by combining the use of centralization and decentralization government intervention when it comes to the practice of budget allocation and distribution of funds among the poorer regions. Specifically the use of tighter controls is more beneficial in times of financial stringency. On the other hand, the practice of effective and more efficient financial transfer could increase the overall government spending which is necessary to mobilize the economic development of each poorer region. Based on economic theories, the movement in government spending could either create or decrease the job opportunities available for the people in poorer regions. Given that a poor EU region is experiencing an economic slowdown, it is expected that the amount of tax collected by the government also decreases. Because of lesser tax collection, the actual government spending will also be less. This allows the GDP demand curve to move to the left causing a lesser government spending and lower prices of gross domestic product (GDP). (See Figure I – Decrease in Government Spending Decreases GDP on page 10) Figure I – Decrease in Government Spending Decreases GDP In case the economist in poorer EU region strictly suggest not to increase the government deficit, the local government at this point cannot totally rely on option of increasing the government spending as a way of creating more jobs and reducing the high unemployment rate. The best option is to allow the decrease in demand to settle at its equilibrium point until the economy starts to rise again. In this case, the economist takes a neutral position by allowing the unemployment rate to respond to the real economic situation. Given that professional economist in poorer EU region decided to increase the government spending as a way of preventing a high unemployment rate, the demand curve of goods and services will shift to the right until it reaches a point of equilibrium. This particular economic strategy will create a more employment demand and greater output in poorer country’s Gross Domestic Product (GDP). (See Figure II – Increased in GDP Increases Employment Opportunity on page 11) Figure II – Increased in GDP Increases Employment Opportunity In other words, strengthening EU’s central and regional policy on ERDF could effectively improve the progress of EU’s overall economic performance. This is possible by resolving and preventing issues related to ERDF’s budget allocation disparities. By ensuring that each of the poorer regions will be given the opportunity to increase their economic performance by extending financial assistance coming from well-established EU members, the entire EU nation can prosper from the main objectives of the ERDF programme. Lessons Learned from Decentralizing and Centralizing ERDF in European Union In the absence of a third party that will be assigned to closely monitor the allocation and utilization of development funds, implementing a pure decentralized or centralized government control on ERDF programme is highly associated with the increased risk of political corruption. With regards to the use of pure centralized government intervention, it would be difficult for the central government to determine the individual concerns of each poorer region. The fact that it will take time for the central government to carefully study the current economic situation in poorer regions, delays in the economic development of the entire EU nation is more likely to happen. Given that decentralized governments approach in terms of checking the regional policy instruments is less effective as compared to the use of centralized government control, there is a strong need for the European Union to make use of combined centralized and decentralized government policy in order to maintain and ensure effective coordination of the regional policies including the close monitoring in each region to ensure that each of the EU state members are adequately funded according to seriousness of regional disparities (Armstrong and Taylor 2000, pp.342 - 343). Combining the use of central and regional government intervention will make it possible for the distribution of the available development budget to be closely monitored and be well accounted by specific regions involved. As part of practicing decentralized allocation of budget within the regional level, Keating (2006) explained that effectiveness of this program should be monitored and measured based on the pattern of convergence and divergence related to past records rather than measuring the progress in terms of uniformity of the regional policy (p. 3). Conclusion The use of pure decentralization in EU’s allocation of development budget is not effective in terms of improving the overall economic performance of the European Union. In order to maximize the economic benefits of ERDF programme, it is advisable for the European Union to combine the use of centralized and decentralized approach in terms of closely monitoring the budget for each of the poor EU region. *** End *** References Armstrong, J., and Taylor, J., 2000. Regional Economics and Policy. 3rd Edition. Blackwell, Oxford. Central Intelligence Agency, 2010. European Union. [online] Available at: [Accessed 23 November 2010]. East of England Development Agency, 2010. European Regional Development Fund (ERDF). [online] Available at: [Accessed 23 November 2010]. European Investment Bank, 2009, October 21. £100m regeneration boost for London through new sustainable investment funding. [online] Available at: [Accessed 23 November 2010]. European Policies Research Centre, 2008, October. EX POST EVALUATION OF COHESION POLICY PROGRAMMES 2000-2006 CO-FINANCED BY THE ERDF (OBJECTIVE 1 AND 2). 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