Rural Innovation & Growth SEMINÁRIO SOBRE I NOVAÇÃO E M ODERNIZAÇÃO DA E CONOMIA R URAL 18 J UNHO 2015, V ILA N OVA DE G AIA Joaquim Oliveira Martins Regional Development Policy Division, OECD

Some good news Empirically, metropolitan regions across the OECD do not tend to grow faster than rural regions. Predominantly rural regions recorded the highest per capita growth rates before the crisis ( ). Regions and countries with strong primary sectors have fared better than most in recent years. The primary sector is NOT low-tech. The evidence points to the innovation potential of non- metropolitan regions. Innovation is not just for big cities. 2

There is no single path to regional growth Evidence shows that growth may materialise in every type of region 3

Convergence of rural regions 4 But more recent data point out a slowdown or even a stop in this convergence process

Well-being in urban vs. rural areas 5 Note: The average values spanning all nine components of the regional well-being indicators are displayed across the four quartiles ranked from urban (group 1) to rural (group 4). The results suggest that the urban dimension is not necessarily associated with higher levels of well-being, as rural dwellers can count on better environmental conditions and more affordable housing with performance measures such as access to jobs and income in line with those of cities.

Why is rural innovation so important? Why is rural innovation different? What can policies do to promote rural innovation? Why is still so difficult to convince national policy-makers about these policies? Four questions

Rural areas depend more heavily on tradable goods & services, thus innovation (both creation & absorption) is critical for development Compensatory policies often create dependency We are talking about an enlarged development model embodying social (inclusive growth) and environmental sustainability (green growth) that can be better constructed at the right scale Why is rural innovation so important?

Innovation has often a urban bias (needs a new metric & broader non-tech scope) and do not address the needs of the poor Rural innovation cannot be only addressed by top-down or sectoral policies (e.g. renewable energy) Innovation diffusion may be blocked in rural areas because of specific bottlenecks (higher cost of capital, lower skills, higher age) Is rural a creative class by necessity or by opportunity? Innovation is also about entrepreneurship (Swedish paradox). Social groups in rural areas can be entrepreneurial; Social capital can be a specific asset of rural communities Why is rural innovation different?

Change the narrative and focus on governance. Rural policy should be both differentiated (place-based) & integrated Bridge the urban-rural divide Use of community initiatives and innovation are often blocked by regulatory issues. How to address this tension without the risk of fragmenting of the regulatory framework? We also need a model developing innovation in governance (creating the environment) and in government (integrated package of public services) Focus on entrepreneurship, support to trial and error activities and provide business service to rural enterprises (interactions, self-confidence, knowledge of markets) What can policies do to stimulate rural innovation?

OECD Key principles for place-based policies I.Use of regional specific assets and smart specialisation (or to create absolute advantages to stimulate competition & experimentation across regions) II.Create complementarities among sectoral policies at the regional (or local) level III.Use of multi-level governance mechanisms for aligning objectives & implementation 10

An Evolving OECD Rural Policy Paradigm Old Paradigm New Rural Policy (2006) Revisited Rural Policy ( ) Objectives Equalization. Focus on farm income Competitiveness of rural areas Wellbeing of rural areas based on the economic, social and environmental pillar Key target sectors Sector based Holistic approach to include various sectors of rural economies Low density economies and differentiating types of rural areas. Convergence forces are key and fat tail effects Main toolsSubsidiesInvestments Complementarities. Need for governance structures to the design of policies. Key actors National governments, farmers Multi-level governance Rural-urban partnerships across levels of government and citizen participation 11

The need for an integrated Rural-Urban approach In OECD countries, on average, almost 80% of rural population live close to an urban area (2012) Definition of close to a city: driving time to a city of at least 50,000 of 50% of population in a rural area is less than 60m 12

Cities benefit growth of surrounding regions 13

Yes, rural regions can innovate, but we are still making the case... There is still a lot of self-justification Need to prove that these policies make the difference for aggregate outcomes (1/3; 2/3 rule) Understand incentives connected to policy economy- wide and place-based policies Evidence that growth can happen in all kind of regions, and rural areas can contribute to aggregate growth (OECD Promoting Growth in All regions) Evidence that Well-Being agenda can only be addressed in a place-based manner (OECD Regional Well-Being indicators) Why is still so difficult to convince national policy-makers about these policies? 14

But governments need to change Ministry Agency Deconcentrated regional body Ministry Agency Deconcentrated regional body Ministry Agency Deconcentrated regional body Ministry Agency Deconcentrated regional body Traditional governance structures 15

The reform of Governance systems Governments are increasingly aware that many of the challenges they are facing cannot be solved alone or by a single ministry. A more joined up approach can help build synergies and increase effectiveness. This is happening in several OECD governments (e.g., Australia, Canada, to some extent UK, NL, US), which are realizing that the traditional (static) approach is not sufficiently agile to meet complexity. They are building a framework by which many individual pieces can play their role in meeting policy objectives (need to know what role is and the policy objective) while also having the flexibility to take approaches appropriate to their sector realities. For example, the approach of a Ministry responsible for rural matters may be different than a Ministry for Housing and Urbanism, though they should both work collaboratively to meet environmental policy objectives. This is by no means easy, and there is a spectrum of practice... But moving from a static to a dynamic approach – where agility (the ability to adjust your strategy), a shared agenda, and resource flexibility ($, people, infrastructure) – makes also easy to move forward… The important piece is to be identifying and implementing mechanisms that begin to build a culture of trust, cooperation, collaboration and integrity 16

17 Obrigado! Thank you!