1 Reinventing Regional Policy in OECD countries Nick Malyshev Moscow, 31 March 2008

2 Introduction Nations and regions are struggling to remain competitive and adapt in the context of globalisation. The regional specialisations built up over decades are transforming rapidly. Many regions that were historically either industrial of agricultural are being forced to reorienting their economic activities. The public sector response has been an increased attention to linking firms, people and knowledge at a regional level as a way of making regions more innovative and competitive

3 Competitive Regional Clusters Evolutions in regional policy, science and technology policy and industrial/enterprise policy are converging on the objective of supporting these linkages at the regional level. One of the vehicles commonly used to achieve these goals is to support “clusters” (concentrations of firms and supporting actors) in a particular region. While national governments are seeking to support competitive regional clusters, they are faced with a series of important choices.

4 What are clusters and why do policies seek to support them? Specific places specialise in particular activities and firms engaged in the same or related activities tend to cluster together increasing productivity. A number of basic motivations lie behind public support for clusters. Clusters are a convenient and pragmatic organising principle by which to focus resources and build partnerships There are risks related to the use of a cluster approach.

5 What are cluster programs trying to achieve? National and EU level programs to support clusters and regional specialisation originate from one of three main policy families. Cluster policies linked to regional policy often focus on “lagging” regions. Science and technology policy has been the driver behind several of the more recent cluster programs. Industrial policies with cluster programs tend to focus either on the drivers of national and regional growth or focus on the needs of SMEs.

6 Policy Trends Supporting Clusters And Regional Innovation Systems Policy StreamOld approachNew approachCluster Program Focus Regional PolicyRedistribute from leading to lagging regions Building competitive regions - link by local actors and asset Target lagging regions Focus on SMEs Broad approach to sector Engagement of actors Science and technology policy Finacning of individual, single- sector projects in basic research Financing of collaborative research involving networks with industry and links with business Usually high-tech focus Impacts of R&D Collaborative instruments Spin-offs & start-ups Industrial and enterprise policy Subsidies to firms- national champions Supporting common needs of firm groups and technological absorption Drivers of national growth Competitive advantage Transition industries

7 Types of Policy Targets SectorsPlacesActors DynamicLeadingUniversities ExposedLaggingSpin-off firms Strategic ImportanceHubsAll small firms Social ImportanceForeign Investors Consortia of actors

8 How do programs pick participants? The economic rationale for government intervention serves to define the different choices regarding programme targets. Choices are not always evident. Identification of clusters can be top-down, bottom-up or a combination of the two. The selection mechanisms used include both competitive and non-competitive procedures. Among the top-down selection procedures, there is a trade-off between statistical versus negotiated approaches.

9 What instruments do they use? In general, the instruments used in these programs are of three distinct types: 1) engagement of actors, 2) collective services and 3) larger-scale collaborative R&D. In general, the funding patterns of these programmes can be broken down along the lines of three basic instruments.

10 Reinventing Rural Policy In OECD countries, rural areas account for ¾ of the land and are home to ¼ of the population. Rapid economic changes – both domestic and international – have had a different effect on rural regions than on cities.

11 How are rural regions coping with economic change? OECD rural regions are lagging behind in aggregate terms… GDP per capita only at 83% of the national average across OECD countries In more than half of OECD countries (13 out of 23 with data), GDP per capita in rural regions declined as a percent of the national average between 1995 and 2000.

12 How are rural regions coping with economic change?

13 How are rural regions coping with economic change? …but "rural" is not synonymous with decline The data on the average performance of rural areas across the OECD conceal great disparities among rural regions. In one out of three OECD countries, the region with the highest rate of employment creation was a rural region.

14 How important is agriculture to rural economies? Agriculture weight in rural economies is often low and declining Productivity increases in agriculture have driven the dramatic decline in agricultural employment across OECD countries in both absolute and relative terms. Less than 10% of the rural workforce is employed in agriculture.

15 Agriculture as an employer…...

16 How important is agriculture to rural economies? Against this background, there is concern about the effectiveness of agricultural policy and in particular agricultural subsidies as the predominant component of public policy for rural regions. Evidence from the US and EU suggests that current subsidies-based policies are not effective in addressing some of the most pressing socio- economic challenges facing rural communities.

17 Producer Support in % of Gross Farm Receipts (Source:OECD) EU USA OECD (1) Limits and risks of agric. policy: 1,3% of OECD GDP %PSE inefficient, ineffective, inequitable

18 What are the new factors influencing rural policy making? Developments in the international and domestic policy contexts are changing the rules for rural regions, necessitating new approaches. Three factors in particular are influencing rural policy making across OECD countries: –Pressures to reform agriculture policy –Increased focus on amenities –Decentralisation and trends in regional policy

19 How is the approach to rural policy evolving? Several OECD countries are increasingly seeking to develop a multi-sectoral, place-based approach that aims to identify and exploit the varied development potential of rural areas. Two principles characterise the “new rural paradigm”: 1) a focus on places instead of sectors and 2) a focus on investments instead of subsidies.

20 The New Rural Paradigm Old approachNew approach ObjectivesEqualisation, farm income, farm competitiveness Competitiveness of rural areas, valorisation of local assets, exploitation of unused resources Key target sectorAgricultureVarious sectors of rural economies (ex. rural tourism, manufacturing, ICT industry, etc.) Main toolsSubsidiesInvestments Key actorsNational governments, farmers All levels of government (supra-national, national, regional and local), various local stakeholders (public, private, NGOs)

21 Specific OECD Country Approaches Canada's "rural lens" aims to ensure that rural priorities are taken into consideration in the development of government policy. Finland’s multi-year Rural Policy Programme, the first plan began in 1990, also seeks to draw attention to the specific needs of rural areas Germany developed the “REGIONEN AKTIV” programme to address inadequacies in existing agricultural and other sectoral policy approaches.

22 Specific OECD Country Approaches In the United Kingdom, DEFRA (Department for Environment, Food, and Rural Affairs) was created in June 2001 to both broaden the focus of rural policy and to eliminate policy “silos.” The Netherlands “Agenda for a Vital Countryside” published in 2004, introduced important changes in the Dutch approach to rural development. Finally, the LEADER Community Initiative is one of the European Union’s rural development programmes and was conceived as an integrated and endogenous approach to rural development.

23 Who implements policy for rural regions? The “new rural paradigm” requires important changes in how policies are conceived and implemented to include a cross-cutting and multi- level governance approach. Traditional hierarchical administrative structures are likely to be inadequate to administer these policies. Adjustments are thus needed along three key governance dimensions: horizontally at both the central and the local levels and vertically across levels of government.

24 Who implements policy for rural regions? Central governments often struggle with overcoming their own sectoral approach in favour of an integrated policy approach to rural development. Co-ordination is also needed at the local level to integrate sectoral approaches, to involve private partners and to achieve the appropriate geographic scale. A third main axis for co ‑ ordination is vertical, i.e., between the central government and sub- national actors.

25 Regional policies: do they work? Limited research documenting cluster and rural policy results and the determinants of successes and failures. One common factor in these new policy strategies is that they contribute to important culture changes with respect to regional policy. Expanded research agenda in regional development should aim to see if results can be replicated more widely.