Tools for regional policy with case study:

Table of Contents

I. Regions, Regional Policy and its Objectives

II. Regional Policy Instruments
1. Traditional approach to regional policy
a Regional economic policy within the nationwide economic policy
b Economic targets of regional policy
c Levels for regional policy
d Regional planning
e Public infrastructure
f Institutional regulation
g Fiscal system
2. Newer approach to regional policy
a Enterprise culture
b Industrial districts
c Innovative Milieu

III. Case study: Regional Policy in the Area of Burgenland
a General statement
b A chance for future development: Investing in knowledge base

IV. Conclusion

V. Bibliography

VI. Appendix: tables and pictures

I. Regions, Regional Policy and its Objectives

As first approach to the topic it seems helpful to me to define which factors make a region. In general the literature mentions three ways how regions could be differentiated:

- Definition through enumeration, i.e. with examples
- Definition in the negative through enumeration of “non-regions”
- Definition on basis if constructive criteria

Most common in literature is the last approach, meanwhile the European Union in particular also follows the first possibility for defining the regions within the E.U.^[1] As a workable definition of a region the following definition on basis of constructive criteria is suggested:

- Regions

A region is a geographical part of a whole economy that could be identified by means of political and administrative institutions. As constructive criteria a region is defined through free trade between certain regions, mobility of production factors, consistent currency, fiscal and macro-economic policy and shared (superior) institutions.^[2]

The wider a nations’ area is and the more regions a nation contains, the bigger the chance that the regions have different levels of economic development and economic power. The overall development of an economy is the sum of the development of the individual regions, more exactly the sum of individual economies. From this follows that the economic power of the certain regions must be bettered should the macroeconomic development be improved. This cognition lead to the development of a special field of public policy: regional (economic) policies.^[3] Regional policy should achieve two major goals:

- maximise economic growth and
- minimise social costs^[4]

As I would show in the next chapter, regional (economic) policy includes a number of instruments. From this the definition of regional policy is as follows:

- Regional policy

Regional policy is the sum of law, strategies and measures for setting and influencing a framework and processes in particular areas of a nation through the government.^[5] With special regional policy government seeks to reduce spatial disparities in economic.^[6]

II. Regional Policy Instruments

1. Traditional approach to regional policy

a Regional economic policy within the nationwide economic policy

Traditional regional policy follows the approach that one of the factors for production, capital, could flow free. Investors are willing to invest capital where it would “produce” the highest return (with ground and workforce available on a comparable level). In consequence this approach leads to the cognition that the general conditions for investors have to be enhanced to attract investments. In the context of the whole economic policy the regional economic policy has a position the following picture shows:

illustration not visible in this excerpt

Figure 1: Regional economic policy in the context of the nationwide economic policy, based on Peters (1975) from Balsinger (2005), www.fowi.ethz.ch/ppo/stud/fnpiiiws04_05/Regionalpolitik.pdf

b Economic targets of regional policy

As ground and workforce are basic offers a region could provide to potential investors and mostly are not such flexible (esp. ground could not be moved from one place to another) like capital, the targets of regional policy are traditional economical oriented:

- “reduction of economic and social disparities
- reduction of locational disadvantages
- support for the alignment of structural reforms
- fiscally and institutionally equivalence
- locational competition
- diversification
- strengthen of regional potential”^[7]

For achieving these targets policy has a number of different instruments I would like to introduce in the following passages.

c Levels for regional policy

Regional policy has several different levels to influence the conditions a region could offer to potential investors and its performance.

illustration not visible in this excerpt

Figure 2: Levels for action with tools of regional policy, own illustration based on: Bräuer, Bernhard (1997), page 33

On each level where policy could take action, special instruments where established in the past to achieve the certain objectives. Following the classification above I would like to introduce selected tools.

d Regional planning

Defining the regions and regional functions is the basis for regional planning and development. For regional planning the country is structured in different areas on the basis of certain criteria. For each region a special function for the country and economy could be defined. In example, in Switzerland the first separation of areas is to divide the nation in alpine regions, regions with strong cross-border relations and agglomerations.^[8] Next the function regions have in the nationwide context being defined. In consequence by setting a function for an area, the potential for development is strongly affected, what the objectives of the law for regional planning in the federal state of Tyrol, Austria, show:

“(1) The superior regional planning supports the overall development of the federal state.

(2) Objectives of regional planning are especially:
a) economical and appropriate use of ground,
b) protection and fosterage of the environment, especially care or regeneration and sustainable protection of clean air, water and ground also the prevention of noise, (…)
f) preservation and development of settlement areas for satisfying population’s need of housing space (…)
g) prevention and modern development of an efficient (…) economy (…)
1. prevention of adequate areas for agricultural and forestry operations, prevention of agricultural infrastructure (…),
2. prevention of adequate areas and establishment of infrastructural precondition for trade, craft and industry,
3. saving of preconditions and development of infrastructural preconditions for tourism business (…).”^[9]

As the list of objectives for regional planning and development shows, different areas have different functions, i.e. for agricultural and tourism business. In consequence, the branches of trade that help to satisfy the function of the area have to be special protected or supported. On the other hand, the possibility for development of an area is limited through the assigned function it has to fulfil: for instance, a region with a main focus on the tourism branch could not also develop a large heavy industry. The most important tool for regional planning is the assignment of certain functions for the region and dedication of ground.

e Public infrastructure

On the level of public infrastructure direct investments are the most common tool, as in general infrastructure is provided by government or public companies. Public investments are certainly a major instrument for regional policy. This is particularly true for most European countries (i.e. France, Germany), “where the provision of many services, such as education, health, and, to a certain extent, culture, is considered a public responsibility. The location of public investments in a given area will improve the welfare of the people living in this area; it will also directly influence the location of economic activities. What really matters is the location of public services, not public investments.”^[10]

Beside public service is providing infrastructure in the regions another important part of public investments. The infrastructure includes everything that is important for doing business, beginning with the accessibility of a location, continuing with transportation opportunities, supply and disposal up to communication opportunities.

In practice is suggested to minimise the locational infrastructure disadvantages by a coordinated business settlement strategy. This means to support settlements with priority in areas with a centrally function to create “economic growth centres” with a high standard of infrastructure provided. As the selected example of Burgenland shows, infrastructure construction mostly is an important part of regional policy (see figure 6 in the appendix). Special attention should be spend to firms that could have a function as a multiplier and attract additional companies to settle down at the same location (as far as possible should be firms with a strong regional integration belonging to input and operations attracted). Another instrument that belongs to regional infrastructure is the establishment of special consultancy agencies. They provide information and consultant benefits particularly for SME’s (small and medium enterprises). Mostly the agenda includes assistance in the field of new product idea, operations management, electronic data processing, development of new markets^[11], application for public support and subsidy.^[12]

[...]

^[1] Compare Bräuer, Bernhard (1997), page 4

^[2] Compare Bräuer, Bernhard (1997), page 6ff.

^[3] Compare Tetsch/Benterbusch/Letixerant (1996), page 1

^[4] Compare Hansen, Niles M. (1974), page 42

^[5] Compare Balsinger (2005), www.fowi.ethz.ch/ppo/stud/fnpiiiws04_05/Regionalpolitik.pdf

^[6] Compare en.wikipedia.org/wiki/Regional_policy

^[7] Balsinger (2005), www.fowi.ethz.ch/ppo/stud/fnpiiiws04_05/Regionalpolitik.pdf

^[8] Compare www.sab.ch/fileadmin/user_upload/Politik/Positionspapiere/O-200202dRegionalpol.pdf

^[9] Tiroler Raumordnungsgesetz 2006 – TROG 2006, www.tirol.gv.at/fileadmin/www.tirol.gv.at/raumordnung/downloads/trog2006.pdf

^[10] Hansen, Niles M. (1974), page 47

^[11] Compare Beirat für Wirtschafts- und Sozialfragen (1984), page 249f.

^[12] Compare www.austria.gv.at/site/3497/default.aspx