3. Disparities and cohesion

It is noteworthy for example that the conference on rural development organised by DGVI in November 1996 that issued the Cork Declaration, A Living Countryside, was followed five months later by the Cohesion Forum in May 1997 organised by DGXVI. Both meetings were held during the gestation of Agenda 2000, which the Commission published in July 1997, and there has been much speculation about the influence each exerted on it.

The discussion in Agenda 2000 begins with a section entitled 'Continuing to Strive for Cohesion'. When it comes to the subject of the Cohesion Fund it first "propose[s] that this fund be maintained in its present form" (p.24). Member States whose per capita GNP is less than 90% of the Community average will remain eligible to receive support. The Fund is to provide "support for the whole territory" of those "less prosperous Member States" but in limited ways: thus it is said to be "aimed exclusively at projects concerned with the environment and transport".

Having stated that "support from the Structural Funds and the Cohesion Fund should in theory apply to all the countries which join" the EU (p.25), it then qualifies this by saying that this theory needs to be modified in practice "to avoid major problems with regard to absorption". Aid will be limited to 4 % of national GDP and while "primarily" concerned with "infrastructure in the transport and environment fields", it would also help applicant states "become familiar with the procedures concerning structural operations", such as the workings of co-financing requirements, partnerships, regional programming, monitoring and evaluation. Not only are there significant weaknesses in regional structures in most of the CEEC's, but significant regional disparities exist within each of them. The development of viable regional structures in Slovenia is estimated to take at least ten to fifteen years. Although 'top-down' regional development programmes began thirty years ago under the rubric of 'polycentric development', not all of the initiatives undertaken have proven successful. In Romania levels of development vary greatly, from much activity in Transylvania to much less in the south and the east of the country where there are lagging regions.

While the first paragraph of the next section talks variously about the "reduction of economic and social disparities", a "vision of territorial development", and "a demanding and decentralized partnership to facilitate the preparation of integrated regional and social development strategies", the title of the section is "Enhancing cost-effectiveness". The rest of the section sets out how cost- effectiveness will be enhanced. It proposes that the 'system' applying to existing member States be 'simplified' by reducing the Objectives from six to three, and calls for "a clear division of responsibilities between the national, regional and local authorities and the Commission".

To provide a background to the discussion of these matters at the Seminar, it may be useful to set out some of the history behind these proposals. A general principle, endorsed in successive Treaties since the founding of the EEC in 1957, is that regional differences in levels of socio- economic development should be redressed. Thus Article 2 of the Treaty of Rome talks of "harmonious development of economic activities, a continuous and balanced expansion, an increase in stability, an accelerated raising of the standard of living"". The rationale for this is that the more harmonious, or to give some operational sense to that fine phrase, the less 'uneven' the level of development and the fewer 'lagging' regions there are in the Community (now the Union), the more unified would be the Union as a whole; and a more unified Union is in the interest of all regions of it.

Over time, policies to promote such harmonious development were devised and revised. The prevailing strategy was to increase cohesion among Member States by decreasing socio-economic disparities between regions. Thus the long-established European Social Fund (ESF) came to take on a regional character and in 1975 the European Regional Development Fund (ERDF) was established. As with all efforts of the EU to implement principle in practice, these revisions and institutions involved hard bargaining, in the case of the ERDF notably with the UK, formally admitted to membership two years earlier after a decade of negotiations.

The same general principle was subsequently applied at the level of states, rather than regions within states. The Single European Act of 1986 contained a new chapter on 'Economic and Social Cohesion', while the Treaty on European Union of 1992 established a new instrument, the Cohesion Fund, to help promote the principle. This time the bargaining involved what have come to be called the 'Cohesion states', Ireland, Greece, Spain and Portugal. All except Ireland were more or less new members, and net beneficiaries of the instrument used to redistribute resources and benefits from 'more' developed to 'less' developed states, by then referred to as the 'Structural Funds'.

The Structural Funds were devised as an instrument of cohesion policy during negotiations over the Single Market. It was argued that the benefits and costs resulting from access to a larger market would not be equally distributed among all states, let alone among all regions within states. Benefits would go largely to the richer states and regions, costs largely to the poorer ones. Without some form of redistribution, poorer states argued there would be no point in their joining, or consenting to, the Single Market. Richer states in turn argued that unless after redistribution there was a net economic gain, there was no point in their doing so either. Accordingly, the Structural Funds were devised, with the intention that they would operate so as to reduce the disparities stemming from the uneven distribution of benefits and costs, while preserving the net gain from the economies of the Single Market.

Such was the original intention. Realising that intention in practice was never going to be easy. The diversity of regions within the EU gave rise to a number of difficulties. What kind of regional differences count as disparities? When does a disparity merit being redressed at the expense of other regions? How to decide priorities of claims on the Structural Funds: is there a hierarchy of comparative disadvantage? How also to evolve compatibility with competition policies and state aid rules aiming to prevent 'unfair' competition?

Then there were the difficult questions of what methods of redressing disparities are appropriate; what criteria, to be applied uniformly over all regions, should be used in deciding whether the disparities have been redressed; and how to arrive at a consensus among beneficiaries and contributors that could survive the pressures of national politics and the deliverances of 'events' long enough for plans to be devised and implemented before the next round of reforms changed the eligibility rules.

In the event, the 1988 reform of the Structural Funds resulted in the old criteria of 'lagging development' or 'not developed enough' were supplemented by others to do with low population density, and the decline of agriculture. Concern about similar long-term decline in urban and industrial areas, together with questioning of the continuing relevance in many areas of the distinction between 'the rural' and 'the urban' strengthened the feeling that regional policy as pursued via the Structural Funds no longer corresponded to any coherent theory of socio-economic development.

But if the criteria of eligibility no longer cohere in a credible policy to redress regional disparities in all their diversity - mountains, plains, rural, urban, agricultural, industrial, lagging, stagnating, declining - and so promote EU-wide cohesion, then the only reason for agreeing to use them becomes instrumental: how much must a Member state give, how much can it get. Considerations other than money - such as what is the best way to pursue regional development - come later.

Given past practice, it is no surprise that the prospect of Eastern enlargement at the end of the century should prompt a further round of debate on regional policy. All Member States thus have an interest in Agenda 2000's proposals, for under the old rules, acceding CEECs would get most of the funds, current beneficiaries would lose much of their benefits, and current contributors would be called upon to contribute more. This time though, the debate is proceeding in anticipation of the enlargement rather than subsequent to it, in recognition that the past response of the EU, to add via negotiated compromises new 'disadvantages' and corresponding Objectives to the existing list, will work in the case of Eastern enlargement. And the economic and consequently political circumstances under which the debate has proceeded are also novel.

For much of the 1990s, most Member States experienced low rates of economic growth with sustained high levels of structural unemployment. Net contributors felt themselves stretched to provide the current levels of funding, and came under national political pressure to find ways of benefiting from the Funds themselves. Germany, traditionally the largest net contributor to the Structural Funds, encountered difficulty financing re-unification with the former DDR, and for the first time made claims on the Funds based on regional unemployment in the five eastern Länder. Net beneficiaries such as Spain, Ireland and Greece came to the conclusion that benefits based on disparities in the existing fashion were coming to an end and have sought ways of making best use of funds while they last. Greece for one planned to complete large infrastructure projects financed with support from the Structural Funds, such as railways, as soon as possible.

Against this historical and economic background, the attitudes Member States have come to adopt show up as increasingly instrumentalist. German representatives are reported to have remarked at one meeting that in practice regional policy was getting to be like a menu. Every state or indeed region should be able to find some disparity that fits some Objective and so would sustain a claim to funds. You choose the disparity that best meets your needs, then negotiate on the strength of that. The claim, also attributed to German negotiators, that all states that qualify for EMU, such as under the Phase III criteria, should be regarded as 'developed' and so no longer in need of redistributional transfers from the Cohesion and Structural Funds, may be seen as a response to such practices.

One reading of the provisions for regional policy in Agenda 2000 is that these various pressures and influences have in the event issued in small and complicated funds to be allocated via principles of horizontality. On this reading, the question arises whether there is a case for saying that the game is not worth the candle, and that Member States, present and future, should revert to national funding.

One consequence of administering the Structural Funds horizontally is that if the only or principal way to get at them is via agriculture, then scope for devising rural development programmes to reduce regional disparities will be reduced. Moreover, as competition for scarce funds increases, European-level funding will tend to become ever more like a zero-sum game. Co-financing requirements, for example, may operate so that states unable to meet the criteria will lose out to those that can, to which re-nationalisation would be the rational response.

In practice, re-nationalising in some form is already underway. The Commission accepts it is unable to make the fine discriminations needed in selecting the best regional development projects to support, and so leaves this to member States (whether they are able to do it, and if so are inclined to do it properly, is another matter). There is now a delicate balancing act between EU and nation states over money, measures and monitoring, one that is far from stable as the allocation of competencies continues to evolve.

But whole-hearted re-nationalisation would have unappetising consequences of its own. For one, it would put necessarily long-term rural development plans at the mercy of the inevitably short-term politics of national elections and re-election strategies. Besides, efforts to change the basis of the system from European to national would take time and trouble, probably more than is available or worth spending. This would apply even if they were (in some sense or other) 'successful' - which seems none too likely, though lessons might be learnt for the next round of negotiations on the successor to Agenda 2000.

Rather than wholesale re-nationalistion, a possible alternative response to Agenda 2000 could be the traditional one of trying to make the most of what is on offer. One way of doing this would be to explore what scope there is for alliances between poorer regions of Member States and Acceding States to ensure that the diversity of conditions and needs are actually met, and that priorities are properly targeted. This could mitigate the effects of horizontality favoured by richer states. As power continues to shift downwards from the national level and outwards from the centre, there should be more scope for poorer regions to lobby Brussels directly, circumventing some of the power to control and the influence of those richer regions and interests for whom central control is beneficial.

A longer-term consideration looks beyond Agenda 2000 to the next round of negotiations. Member States are aware that the way the rules are set in Agenda 2000, and how they are applied under its provisions, will influence what rules will be set in the future, and so determine who will get what when the CAP and the Structural Funds come up for reform once more. In their turn, acceding CEECs need to become aware of this. They should, for example, consider which rules and applications in Agenda 2000 are likely to be retained and which might be superseded, to avoid making long-term structural changes and investments based on short-term circumstances, including rules which as outsiders they did not have a say in setting but later as insiders they may have a say in revising. In considering the merits of such alternative responses, it is useful to look at the experience of some member States in dealing with disparities and cohesion in the period leading up to that of Agenda 2000, and how they propose to deal with them in future. Greece, Italy and Scotland provide representative cases:

(i) Greece
The first Community Support Framework in Greece, from 1989 to 1993, did not succeed in reducing regional disparities. The second, from 1994 to 2000, had some success in reducing disparities among the thirteen regions, but not within these regions. The GDP of a region as a whole may have risen, but because of internal movement of people, such as from the mountains to the cities, the growth in the latter was associated, causally or not, with the stagnation or decline of the former. Plans being drawn up under Agenda 2000 for the period from the year 2000 sought to learn from this experience.

One proposal was for institutional change. Previously, the 6000 local communes had proved unmanageable, so they are to be combined to form 900 municipalities. Each of these will assess their needs and potential, then submit strategic proposals to the regional level (NUTS levels 2 and 3). Differences within regions are considered there, such as mountainous areas and islands, where the problems of fragmented space may require special interventions at national rather than regional level. Otherwise, development projects are selected at regional level and managed at local level. The criteria for selection include contribution to the maintenance of population, the strengthening of economic activity and social life, and environmental protection.

(ii) Italy
In post-war Italy measures to reduce regional disparities could not be called a 'plan' because of the associations of that term with the Communist party that was politically powerful until the 1980s. The 1947 Constitution gave formal competence to the regions, but these regions did not effectively come into being until the 1970s.

The central and northern regions took most advantage of this decentralisation, and over time came to bypass the national level of administration, looking directly to the European level instead. The particular problems of the Mezzogiorno had long been recognised in specific national funding for the region, but satisfactory administrative structures were never developed. This is reflected in the fate of the LEADER Initiative in Sicily, where structures and responsibilities came to be divided among more and more groups; one group that should have begun operations at the beginning of the programme is starting only now, at its end.

Overall Italy has made less use of the Structural Funds than other Member States, largely because the national funds have been generous while the rules governing European funds are complex and comparatively troublesome. In northern regions, until the 1988 reform of the Structural Funds, the national level allocated sectoral funds to the regions, and the regions devised sectoral programmes. What was actually done tended to be rather different from what the plans had said, with experts exerting much influence. Since 1988, some northern regions have developed new structures specifically to deal with the European level. Under the co-financing requirements, regional funds have to be used if European funds are to become available. The Emilia Romagna now operates solely via the European structure, the administrative structure to deal with the national level having withered away. Other regions have retained the double structure, but in time seem likely to follow the Emilia Romagna rather than continue duplication that though historically understandable seems ultimately irrational.

The largest disparities remain between mountainous regions and those on the plains. Every regional plan has been required to make specific provisions for mountain areas, but in practice these have not been followed by actual spending. The capacity to implement the provisions has not been developed. In general, the old sectoral rather than integrated approaches remain the norm, and the oldest disparity of all, between the North and the South, has increased over the fifty years of regional policy. There have been improvements in the South, but not enough to keep pace with the North.

(iii) Scotland
In comparison with most regions in CEECs, Scotland is already 'developed', but that does not mean it is without regional disparities. Young people in rural areas cannot find jobs, either at all or of a kind that will stop or slow the drift to the cities. Shops are closing not just in the Highlands and on remote islands but one hour from Aberdeen. The persistence of such problems has raised concern about the methods used to address them. Many years of central government schemes such as building roads, connecting electricity and supplying water entrenched the attitude in regions and local areas that rural development was something others did for or to you, so the best strategy to adopt was to complain to the relevant government department. To the extent this strategy worked, it had the effect of rewarding passive dependence and narrow-mindedness that refused to recognise the constraints under which governments must operate. On the part of government, it fostered the complementary attitude that gave rise to single-sector programmes designed at the centre to a standard pattern that considered diversity as an afterthought, if at all.

The recent Government policy statement on rural development in Scotland Towards a Development Strategy for Rural Scotland³ [August 1998] sought to change such attitudes. It argued that the task of central government is to establish a framework that promotes integrated programmes designed and delivered locally (or regionally, as appropriate) according to local (or regional) needs and resources. Central government should concern itself with setting goals and objectives and monitoring outcomes, not with prescribing the details of programmes and measures; these should be the concerns of localities and regions, who know (or should be able to find out ) more about them. It should also see that different government departments, concerned with housing, education, health, transport, agriculture, industry and so on, acted in concert rather than separately, and with a view to the particular needs of diverse rural areas, rather than of Scotland as a whole, urban and rural alike.

For their part, local areas were to assess their own needs and devise their own plans to deal with them - rather than present an unsorted list of wants and wishes and expect 'others', such as central government or 'Brussels', to meet them. This would require that they find out what indeed the local needs are and determine priorities. They should be active in consulting diverse local interests, not just 'official' elected or administrative bodies, before drawing up plans rather than after; they should inform themselves about how national and European policies and instruments work, rather than assume that the CAP and the Structural Funds were not local concerns.

All parties - not just both 'sides' - should see themselves engaged in a common task, rather than in adversarial combat or competitive turf wars. Each would contribute according to their various abilities: to co-ordinate departmental effort, to determine how EU funding could best be used to implement local plans; to apply knowledge and mobilise resources that are accessible only at local level. It was appreciated that the disciplines of planning - assessing needs and resources, recognising constraints, deciding priorities, setting objectives, and in general thinking strategically over the long term rather concentrating on short-term tactics for getting the most money this year - take time to learn. So too do the habits of mind and practical skills required in reaching and maintaining consensus on what all, collectively, are trying to do - rather than just 'working together' or 'telling one another what you are doing'. Accordingly there was no expectation that things would go right first time, but over time effort and experience should refine procedures and build capacity at all levels. Then a better balance between the various levels could be arrived at, and in place of the old top-down sectoral centrism, with complementary local complaining dependency, there could be bottom- up integrated plans tailored to diverse local circumstances and co-ordinated at regional level to facilitate exchange of ideas, smooth information flows and reduce over-laps, lacunae and anomalies.

Conclusion
The ideal set out in Towards a Development Strategy for Rural Scotland meets some but not all the difficulties in dealing with regional disparities. In Scotland, as elsewhere, there remains the problem (among others) of sub-regional diversity, whether called 'differences' or 'disparities'. Diversity at sub-regional level may call for intra-regional transfers, which may be difficult to negotiate at regional rather than national level. The more fragile a sub-region, the greater its need but the less its capacity to address them, and the weaker its negotiating power compared to more robust sub-regions. The common requirement that European or national funds be matched by local funds, though intended as a way of ensuring local participation, may work against poorer areas that are unable to raise them because they are poor. Both cases are instances of an abiding difficulty of regional policy: how to devise schemes that the richer areas are not in practice able to use to their advantage more than poor regions, so that disparities actually decrease rather than remain or even increase as a result of the scheme.

The three examples of attempts to redress disparities in the European Union as it has come to be in the late 1990s have all, in their different ways, drawn attention to the next two issues discussed by the Seminar: first, the problem of the proper competencies to allocate to the European, national, regional and local levels of operation; second, the role of partnerships, which have been advocated as a solution to some aspects of that problem. The next section of this report looks at the first of these.

3. Towards a Development Strategy for Rural Scotland: The Framework. The Scottish Office, August 1998.