European Politics and the Economy - Coursework Example

Running Head: EUROPEAN POLITICS European politics and Economy of the of the European politics and Economy Introduction This paper examines the instruments of Cohesion Policy: Distributive Politics, Side Payments, and Cohesion Policy as a developmental tool. This paper will examine the European Union's intentions to support economic development, employment, and solidarity using the Cohesion Policy. Lastly, this paper supports the conclusion that Side-Payments are more of an instrument of Cohesion Policy than distributive politics or as a developmental tool. European Regulated Capitalism and Cohesion Policy The death of national Keynesianism and the liberalization of the common European market in the 1980s led to a reorganization of European political economy. This has forced political actors in Europe to stake out positions on two fundamental issues: the structure of political authority in Europe, and the role of the state -- at whatever territorial level -- in the economy. To what extent should market activity be regulated at the European level, and to what extent -- if at all -- should the European Union redistribute from rich to poor In short, what form of capitalism do Europeans want The institutional design of current cohesion policy has broad-ranging implications for EU governance. At the meso-level, it promotes a change in governance from public steering of social processes to self-governing networks of public and private actors. Public authorities provide the institutional framework that reduces transaction costs and encourages highly organized social subsystems to mobilize indigenous resources (Kohler-Koch 1996, 1998). The result is that authoritative actors at European, national or subnational level are compelled to collaborate with private actors. At the macro-level, current EU cohesion policy is designed to give shape to a multi-level polity. It opens up intergovernmental bargaining among national governments to other governmental actors, and it upgrades limited collaboration among all these actors to more intensive, and more binding, commitments. This challenges state-centric governance in three ways: European institutions set general rules and co-ordinate; subnational authorities participate in making decisions; and the three parties are in a relationship of mutual dependency rather than hierarchy (Marks, 1996). From the vantage point of traditional social policy, the objectives of the 1988 reform are modest. For one thing, the reformed EU cohesion policy gives priority to one type of cohesion problem: spatial economic disparities among regions (and to a lesser extent, local areas). Almost no emphasis is put on disparities between social groups and individuals within states, regions or local areas (McAleavey and De Rynck, 1997). Furthermore, the 1988 cohesion policy may actually impede efforts to create EU citizenship, because it supports programmes only to the extent that it helps economic functionality or alleviates particular financial needs, and it does not justify cohesion efforts as a social entitlement (Anderson, 1995; McAleavey and De Rynck, 1997). One might therefore argue that current cohesion policy is merely the least bad solution in an opportunity structure inhospitable to European social policy.[2] However, the purpose of European regulated capitalism has not been to emulate traditional social policies at European level, but to formulate a viable alternative to European neoliberalism as well as to ineffective national welfare politics (Hooghe and Marks, 1998). From that perspective, current cohesion policy appears far more effective. The most influential advocate of European regulated capitalism has been former Commission president Jacques Delors (Delors, 1992; Ross, 1995). Most centre-left and, selectively, Christian Democratic parties in Europe have come to support the project, but the coalition also includes trade unionists, environmentalists, local and regional governmental actors, and even certain business representatives at national and European level. The project has strong backing from majorities in the European Parliament and the European Commission (Hooghe and Marks 1998). Jacques Delors forged the link between this project and current cohesion policy in the years 1986-88. When the Spanish and Portuguese governments extracted a doubling of the structural funds as a side-payment for their consent to the internal market programme, Delors and his collaborators exploited this opportunity to reform the funds to the model described above (Hooghe, 1996b). In subsequent years, Delors and his allies lost no opportunity to emphasize how cohesion policy fed into their ambitious agenda. By the early 1990s, European regulated capitalism had gained significant support among strategic stakeholders of EU cohesion policy: Commission services, the European Parliament (particularly the regional committee), regional development experts, regional and local authorities and the various associations for regional and local interests. For one thing, the reformed EU cohesion policy gives priority to one type of cohesion problem: spatial economic disparities among regions (and to a lesser extent, local areas). Almost no emphasis is put on disparities between social groups and individuals within states, regions or local areas. The European Union's (EU) Cohesion Policy is designed to provide economic, social, cultural, and political cohesion within the EU. Europe is in the process of recreating itself by adopting the ideals of the EU. Cohesion Policy is an instrument used by the EU to help create a "one currency, one market" economy to meet the Maastricht Criteria. Cohesion Policy is designed to reduce the regional and social disparities within the EU. The EU's cohesion policy serves to infuse money into poorer sectors of the "one market" economy. For neoliberals, markets should be insulated from political interference by combining European-wide market integration with sovereign political regulation vested in national governments. This should generate competition among these governments in providing a national regulatory climate that mobile factors of production find attractive. Proponents of regulated capitalism want to create a European liberal democracy capable of regulating markets, redistributing resources, and shaping partnership among public and private actors. They contend that the single market works more efficiently if political actors provide collective goods such as European-wide transport and communications infrastructure, information networks, workforce skills, and research and development. So there is a role for positive as well as negative regulation at the European level. For similar pragmatic reasons, redistributive policies empower weaker actors so that they can compete in a liberalized market. And ongoing collaboration among public and private actors is likely to reduce costly social conflict and enhance mutual learning. Cohesion policy supports the EU's strategic objectives of prosperity, solidarity and security, inside the Union and Worldwide. However, the lowest common denominator argument rests on the assumption that potential outcomes in cohesion policy can be arranged on a continuum from low to high integration. Yet contention concerning current cohesion policy may not be a matter of more or less integration, but may concern competition between qualitatively different policy models. When the choice is one of type rather than degree, decisions have a zero-sum character. This makes it much more difficult to predict ex ante the direction of the outcome under unanimity rule. The main instruments for the Cohesion Policy are several structural funds: The European Social Fund (ESF), European Regional Development Fund (ERDF) and others. These instruments are needed because poorer member states do not have the funds available to support economic growth within their regions. By joining the European Union, and abiding by the policies of the EU, they make themselves eligible for financial assistance from the other member states (Armstrong, 1995, 118). According to Floriana Cerniglia "a distributive policy is one which benefits the citizens of one district or jurisdiction, but whose costs are borne by citizens of all districts". All European Union member states benefit from distributive politics because it moves money to poorer states that need the funds to continue to build their infrastructures. The poorer states benefit from the economic influx of monies while the richer member states benefit from having an improved transportation network to get their goods to market as well as to new markets created by the integration of poorer states into the EU. This creates a win-win situation where all members of the EU benefit in one way or another. Distributive Politics can create economic and political stability within the region because all member states benefit from its implementation. There are distributive economic consequences. The compliant member states end up expending funds to bring into compliance the newer member states and not seeing a return on the investment for some time (Tarschys, 2005, 111). Side payments consist of monies moved from richer EU member states to poorer member states. This redistribution of funds is not done arbitrarily. Member states must meet specific criteria to qualify. The recipient states can use these funds to upgrade their transportation networks, and meet environmental objectives. The main objectives of side-payments are to spur economic growth, employment, social equity, and to build solidarity within the EU. The Maastricht treaty of 1992 put into effect policies that encourages the side-payments. Side-payments infuse money into poorer sectors of the "one market" economy. The European Union is not a free trade zone and Cohesion Policy is more than just the redistribution of funds. Cohesion policy is used as a developmental tool to help the EU reach political, social and economic goals. Cohesion Policy encourages solidarity and cooperation between member states and is a developmental tool that moves monies from richer regions to poorer ones. As a developmental tool the policy brings with it more than just funds. It brings new rules that require reporting to ensure that a regions priorities and strategies are working. Inequalities and social exclusion are problems that the cohesion Policy is supposes to address as well. Side-payments used as an instrument of cohesion policy serve as a tool to move monies from richer regions to poorer regions. As stated earlier, the side-payments spur economic development in the poorer regions by infusing funds. These funds are used primarily to improve transportation networks and help the member states become compliant with environmental regulations. The side-payments encourage the "one currency, one market" economy within the EU. Cohesion policy also encourages the private sector to examine the markets and possibly infuse money into those markets to promote economic development. A key goal for the EU has "been to overcome opposition to various strategic decisions through the use of side-payments to hesitant member states." There has to be some benefit to richer member states in order to have them support and participate in Cohesion Policy side-payments. The common interest argument states that depressed regions benefit no one and that major disparities in income and unemployment are unacceptable on social equity grounds. The dynamic argument states that regional disparities may be a barrier to further integration (Putnam, 1998, 229). There are negative aspects associated with side-payments. According to the Official Journal of the European Union "a cohesion fund is established for the purpose of strengthening the economic and social cohesion of the Community in the interests of promoting sustainable development." This means that in order for the cohesion to take place the richer member states will give more to the EU than the poorer states. Is this fair The argument is that the richer states will benefit in the long run by access to new markets via an improved transportation structure. This is a long term process and the member states will have to wait to see the gains. Cohesion Policy and side-payments have been seen as burden sharing. This is especially true when it comes to climate policy. Portugal has been incapable of complying with its commitments when it comes to emissions. Rapid growth encouraged by side-payments has left this country unable to meet its emission goals. Cohesion Policy has taken Portugal's problem and made it a European Union problem. The EU must either help Portugal meet emissions requirements or purchase more emissions permits from abroad. As stated earlier, Cohesion Funds are distributed to poorer member states. Their eligibility is determined by calculating their Gross National Product (GNP) per capita. If the GNP is below 90% of the EU average then the member state is eligible. Currently the poorer member states include Greece, Spain, Portugal, Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia (Afexentiou, 2000, 111). In some ways the European Union member states may feel bullied to participate in contributing to the funds that go to the poorer member states. In 2002 the European Union reportedly was putting pressure on Norway to contribute more to the fund. According to the Norwegian newspaper Aftenposten Norway was paying NOK170m (20.41 million euros) a year to be part of the trade agreement but the European Commission wanted the country to pay more to the fund for the poorer regions of Europe. In order for Norway to pay more they needed to sell the idea to their constituency. When this issue occurred Norway was reconsidering it participation in the European Economic Area. By Norway agreeing to contribute more to the EU for side-payments to poorer member states it will push to EU closer to the one currency, one market system that Cohesion Policy is designed to create. Every time the EU increases or decreases requests for funds it opens itself up to the possibility that the member state will choose not to comply (Dessai, 2001, 331). Analysis. Cohesion policy was enacted as a regional plan with discussions on the specific needs within the regions. During a speech to the Committee of the Regions in Brussels, March 2006 Danuta Hbner (Member of the European Commission responsible for Regional Policy) discussed how decision making process and strategy development was conducted at the regional level. Hbner expressed concern that the regional plan was not working as well as had been expected. Hbner recommended that the E.U. "go local" with their policy decision making by including local and regional leadership. Hbner encouraged member states to take an active part in deciding how much their investment in Cohesion Policy would be rather than have the E.U. decide and request funds from member states. The Commission had to change their strategies toward growth and development within the E.U. and agreed upon new strategic guidelines to guide the E.U. Cohesion Policy. These were: to make the EU a more attractive place to invest and work in; to transform the Union into an area of high growth, competitiveness and innovation; and to return Europe to full employment, with more and better jobs. The Commission has shown that it can and will discuss and adjust strategies and policies to make sure that Cohesion Policy is effective in meeting the goals set by the Commission. Cohesion Policy Under Pressure Current EU cohesion policy has a sizeable budget and elaborate rules about where and how to spend it. Each element is under pressure. Budget: consolidation or cuts. By 1999, the two instruments of cohesion policy, structural funds and cohesion fund, will distribute 30bn ECU per annum (at 1992 prices), amounting to 35.7 per cent of the European Community budget. This is 0.46 per cent of the Union's GDP in 1999 and around 0.8 per cent of total public expenditure. At issue is whether the budget should be cut or consolidated at current levels. Further growth is not on the agenda. Rules for allocating funds: widespread distribution or concentration. More than 50 per cent of the EU population is covered by structural funds programmes having a regional focus, which distribute 85 per cent of the cohesion budget. The degree of concentration of spending has declined over the ten-year period of structural programming, and as a result the redistributive effect has weakened (CEC, 1996, pp. 97-8). The basic issue here is, who should be entitled to scarce funds. Should funds be concentrated on the neediest, or should they be distributed more evenly Rules for governing spending: territorial partnership or divided responsibilities. 'Partnership' among Commission, national and subnational authorities is the chief institutional innovation of the structural funds. Since the 1993 review, partnership encompasses social partners in the relevant regions. The rules prescribe close collaboration among multiple territorial authorities and private actors in designing and implementing investment programmes in a particular region. The relevant actors form policy networks in which each places resources at the disposal of the network and shares responsibility for most decisions (Ansell et al., 1997). Critics of partnership argue that responsibilities should be divided so that each territorial actor is accountable for what it can do best. A clearer division of labour would imply some renationalization of cohesion policy for it would make it more difficult for the Commission to interfere in national-subnational relations. Pressures for Retrenchment EU decision rules on cohesion policy stack the deck against predictable outcomes. The review of structural funds regulations requires unanimity in the Council of Ministers and the assent of the European Parliament. Prevailing wisdom is that the most likely outcome under unanimity rule is a lowest common denominator, because the actor with the least integrationist preferences occupies the pivot. There are several reasons why pivotal actors may favour linear retrenchment of cohesion policy: neoliberal preferences, national assertiveness, demands for greater policy effectiveness. However, the lowest common denominator argument rests on the assumption that potential outcomes in cohesion policy can be arranged on a continuum from low to high integration. Yet contention concerning current cohesion policy may not be a matter of more or less integration, but may concern competition between qualitatively different policy models. When the choice is one of type rather than degree, decisions have a zero-sum character. This makes it much more difficult to predict ex ante the direction of the outcome under unanimity rule. In the next section I present an argument of how contention concerning cohesion policy may be conceived as part of a wider struggle about European governance. Neoliberalism Some authors argue that market liberalization, the institutional asymmetry in European institutions in favour of market-liberal policies, and the spread of neoliberal ideology have increased regime competition among Member States to provide favourable circumstances for mobile capital (Scharpf, 1996; Streeck, 1996). The space for mobile capital has widened considerably. Social policy objectives are increasingly considered infeasible (Streeck and Schmitter, 1991; Streeck, 1996). Neoliberals have been on the offensive since the mid-1980s, though they were unable to block EU cohesion expansion in 1988 and 1993. By the late 1990s, they had successfully put in practice elements of their project in most Member States as well as at the European level, including privatization, business-friendly taxation and labour market flexibility (Hooghe and Marks, 1998). To the extent that unfettered market competition has become embedded in EU institutional rules and guides the agendas of key political actors --shifting the median preference among decision-makers on EU cohesion policy significantly to the right- one would expect downward pressure on the cohesion budget. For neoliberals, cohesion policy distorts market competition. The impact of neoliberalism on partnership is subtler. It induces cohesion policy-makers to frame policy in terms of competitiveness rather than social goals such as equality or solidarity and to restrict access to partnerships to economically productive actors. Intergovernmental backlash Some scholars argue that the future of EU cohesion policy is ultimately decided by the Member States (Moravcsik, 1991; Pollack, 1995). That is particularly so for decisions concerning financial redistribution, which are taken at the highest level in the European Union according to an intergovernmental logic of package deals and side-payments. Cohesion policy is exceptionally conflict-ridden, because it produces clear winners and losers (Marks, 1992). There are several grounds for national governments to undo the 1988 bargain. First of all, power relations among contributors and beneficiaries have shifted. Southern members seem in a weaker position to demand side-payments than in 1988 or 1993. Now that the internal market and EMU have been decided, it is difficult to see what other market-liberalizing projects may necessitate future financial side-payments. Furthermore, national governments in the 1990s are under intense pressure to cut public expenditure. This pressure is particularly constraining for those preparing for EMU as participants are required to limit annual budget deficits to 3 per cent of GDP by 1998 and thereafter. For net contributors, the 0.46 per cent of EU GDP devoted to cohesion policy makes it that much more difficult to meet this EMU criterion. National and regional governments that receive payments are required to part-finance EU-funded programmes, which put an additional burden on government spending. In addition, some national governments have become increasingly reluctant to delegate control to the European Commission. With increasing public doubt about the European Union since the Maastricht Accord, national government leaders are inclined to defend 'national interests' more assertively (Hooghe and Marks, 1998). National governments have had ample opportunities to realize that partnership rules undermine their gatekeeper role (Heinelt and Smith, 1996; Hooghe, 1996a). Several national governments pressed hard for simpler partnership rules in the run-up to the 1993 review, but with limited success (Wishlade, 1996; Marks 1996). However, they successfully resisted partnership for the cohesion fund (Pollack, 1995). To some extent, territorial assertiveness is part and parcel of politics in multilevel polities. The difference in the European Union is that national governments are unusually central to decision-making (Sbragia, 1993). To the extent that EU cohesion policy is a vector outcome of national governments' preferences and their respective power to impose their wishes, one would expect significant budget cuts and rule changes that claw back national control. Policy dysfunctionality In the absence of a common identity, the basis of EU legitimacy appears utilitarian rather than affective, which places EU legitimacy on an insecure footing. Policy-makers have traditionally justified European policies in terms of their capacity to solve problems more effectively than national approaches. After nearly ten years of operation, the effectiveness and efficiency of EU cohesion policy have come under severe scrutiny. One set of criticisms focuses on the fact that regional disparities have not appreciably narrowed since 1988; EU cohesion policy may even have exacerbated inequality within some regions (McAleavey and De Rynck, 1997; Tondl, 1997). Critics disagree on why that is so. Some argue that EU cohesion policy uses inappropriate criteria to measure disparity (GDP per capita). Others complain that the funds are too limited or too dispersed. Yet others contest the policy rationale. One group questions the 'trickle-down' logic according to which benefits allocated to productive forces in a poor region will in the end increase the standard of living for all in the region (McAleavey and De Rynck, 1997). Others are sceptical about the capacity to micro-manage growth potential through regional policy (Grahl, 1996; Davezies, 1997). A second target for criticism is partnership. It has proved laborious to administer and vulnerable to clientelism and corruption. The merits of partnership for economic development are contested. The theory of institutional endowments, which underpins the partnership philosophy, argues that regions with flexible co-ordination among public and private actors develop a 'thinking capacity' enabling actors to pursue common interests more efficiently (Benko and Dunford, 1991; Soskice, 1992). Some scholars have begun to question this view. First of all, most celebrated cases of indigenous growth (Emilia-Romagna, Baden-Wurttemberg, Rhone-Alpes) have been in areas which have received little cohesion funding, and it has proved difficult to replicate these successes in less well-endowed regions. Furthermore, the relationship between indigenous growth and partnership may be spurious; of far greater importance is the presence of a dominant employer, usually a multinational (like Daimler-Benz in Baden-Wurttemberg), which stimulates, steers and exploits co-ordination networks among public and small private actors. Rather than constituting a reservoir for flexible indigenous growth, networks depend on one giant firm. Finally, to address problems of economic divergence, the macroeconomic context may well be more important than regional institution-building (Grahl, 1996; Tondl, 1997). Current cohesion policy appears a small instrument for reducing disparities. To the extent that wider EU legitimacy depends on effective policy-making, policy actors may be expected to press for radical changes in EU cohesion policy, particularly partnership, to avoid a legitimacy crisis. Table 1 summarizes how neoliberalism, budget pressures, national assertiveness and policy dysfunctionality impinge on different components of current cohesion policy. If EU cohesion policy survives the 1999 review, it will be faced with pressures deriving from enlargement to the east and the full economic and social impact of EMU, but these will not affect the European Union until after the lifespan of the multi-annual framework under review. Key actors in the current cohesion debate have therefore kept enlargement and EMU off the agenda (interview with senior official, DG XVI, July 1996; interview with official in charge of preparation of review, DG XVI, July 1996). Council ministers and European Parliamentarians -- as most elected politicians -- appear eager to leave potential future problems to their political successors. Contention over EU Governance The above perspectives anticipate a linear erosion of EU cohesion policy. However, when one considers decision-making about EU cohesion as part of a wider struggle concerning EU governance, the future is open-ended. Neoliberalism and European regulated capitalism provide political actors with yardsticks against which to assess specific policy options. To the extent that policies are evaluated in terms of how they advance neoliberalism or European regulated capitalism, their staying power depends on their capacity to mobilize proponents of a political design and to facilitate strategic spillovers across policy areas. Clearly, the 1988 structural funds reform seemed to meet this double test for proponents of regulated capitalism (Hooghe, 1996b; Ross, 1995). EU cohesion policy has propelled regional and local mobilization in previously poorly self-organized areas -- from Greek, Irish and Portuguese regions and municipalities to the North of England (Jeffrey, 1996; Hooghe, 1996a). It has also provided a focal point for transnational regional collaboration. Furthermore, proponents of regulated capitalism have exploited cohesion policy for strategic spillovers. The structural funds administrations have sheltered new policies in environment, vocational training, employment-creating infrastructure investment, co-operation in new technologies, R&D, and social partnership. Over time, however, policy inefficiencies and divergent interests among coalition partners have begun to dissolve the glue holding the coalition together. At the same time, nationalists and neoliberals have become more vocal in their criticism. Current cohesion policy seems much less able to mobilize proponents of regulated capitalism. We would expect therefore downward pressure on the budget and on governance arrangements. However, even though the support base for this specific policy may unravel, there is broad support for a non-neoliberal Europe. I will argue that the various initiatives on employment can be seen as attempts to design a politically more viable successor to the 1988 cohesion reform, be it with more modest governance ambitions. If proponents of regulated capitalism succeed in determining the employment agenda, current cohesion policy may find shelter under a new flagship of European regulated capitalism. The following section seeks to substantiate these claims. Conclusion The European Union goals include cohesion of member states to create a "one currency, one market" economy. Cohesion Policy was enacted to provide funds to reduce regional and social disparity. Cohesion Policy has been seen as an instrument of distributive politics, as a developmental tool, and as side-payments. The polity implications of a shift from current cohesion policy to employment are significant. The distribution of authority is more state-centred than in the radically multi-level design underpinning the 1988 cohesion policy. 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Opening speech at the Cohesion Forum, Brussels, 28 April. Read More