implementing regional-policies-effectively

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IMPLEMENTING REGIONAL POLICIES EFFECTIVELY MULTI-LEVEL GOVERNANCE ISSUES Joaquim Oliveira Martins, Head, Regional development Policy Division Meeting of the High-Level Group of Macro-regional Strategies 3 June 2015,

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Page 1: Implementing regional-policies-effectively

IMPLEMENTING REGIONAL

POLICIES EFFECTIVELY

MULTI-LEVEL GOVERNANCE ISSUES

Joaquim Oliveira Martins, Head, Regional development Policy Division Meeting of the High-Level Group of Macro-regional Strategies 3 June 2015,

Page 2: Implementing regional-policies-effectively

Central Government Ministerial Departments

Sub-national Governments

Inter Governmental Council (ex. COAG, Australia)

Regional Agencies (ex. Canada, Brazil)

Contracts (ex. France)

Special Commission (Delta, Netherlands)

Whatever the type of system – federal, regionalised, unitary – there is

a strong need of coordination across levels of government

Wide range of governance mechanisms for

multi-level coordination

Conditionalities ( ex. EU programming)

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The blockages of coordination/cooperation and

their governance solutions

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A Tool of Diagnosis: Governance gaps

Administrative gap

“Mismatch” between functional areas and administrative boundaries => Need for instruments for reaching “effective size”

Information gap

Asymmetries of information (quantity, quality, type) between different stakeholders, either voluntary or not => Need for instruments for revealing & sharing information

Policy gap

Sectoral fragmentation across ministries and agencies => Need for mechanisms to create multidimensional/systemic approaches, and to exercise political leadership and commitment.

Capacity gap Insufficient scientific, technical, infrastructural capacity of local actors => Need for instruments to build capacity

Funding gap

Unstable or insufficient revenues undermining effective implementation of responsibilities at subnational level or for crossing policies => Need for shared financing mechanisms

Objective gap Different rationalities creating obstacles for adopting convergent targets => Need for instruments to align objectives

Accountability gap

Difficulty to ensure the transparency and integrity of practices across the different constituencies => Need for institutional quality instruments

Page 5: Implementing regional-policies-effectively

Governance solutions to bridge the gaps Contracts

France, Italy, European Union, Canada

Performance Measurement & Transparent evaluation

Norway (KOSTRA) , United Kingdom, United States

Grants, co-funding agreements All countries: general purpose grants v. earmarked (ex.Norway), equalisation mechanisms

Strategic planning requirements, Multi-annual budget

Along with investment contracts

Inter-municipal coordination Mergers (Denmark, Japan) v. inter-municipal cooperation (Spain, France, Brazil etc.)

Inter-sectoral collaboration Finland, France … One ministry vs. inter ministerial mechanisms

Agencies (Ex-United Kingdom), Canada, Brazil, Portugal

Experimentation policies Sweden, United States, Finland

Legal mechanisms and standard settings All countries, but more or less implemented

Citizens’ participation A question of degree (specific challenges)

Private sector participation From strategy design… to vested interest

Institutional capacity indicators

Italy for sub-national level

Page 6: Implementing regional-policies-effectively

according to the degree of:

• Benefitting from other agents’ actions without paying any cost

• Examples: tragedy of the commons; each ministry prefers to pursue its own agenda rather than cooperating

Free-riding

• Risk of being the only one to contribute to the common good

• Examples: big push; cooperation to attract funds; cooperation to establish transports

Strategic risk

A typology of coordination failures

Page 7: Implementing regional-policies-effectively

Only Strategic

risk

Prevalence of strategic

risk

Prevalence of Free riding

The problem may arise from a different

degree of alignment of agents’ objectives

• Pure coordination problem: the objectives are perfectly aligned • Policy should favour contact and transmission of information among

the agents – policymakers can provide a platform for discussion, a focal point (standards)

• Free riding: objectives are not perfectly aligned. In this case, contacts and

transmission of information is not sufficient (it might be a waste of resources) • It needs an enforcement mechanisms that makes it not convenient for

the parties to free ride: binding contracts, institutional hierarchies, etc.

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Contracts and beyond

• Strategic risk: focus on informative prescriptions • Free-riding: focus on verifiable prescriptions

contracts

• Strategic risk: temporary financial incentives are enough to ensure towards the risk

• Free-riding: the incentive should last longer (but problems of moral hazard)

Financial incentives

• Reciprocal trust can reduce the strategic risk but is not a panacea for free-riding incentives

• Trust in the institutions may increase the credibility of the enforcement mechanism

Building trust

Page 9: Implementing regional-policies-effectively

Agree on targets

Provide incentives

Delegate responsibility

Share risks

Outcome Indicators in Contracts

Outcome indicators in contracts can be used to:

Page 10: Implementing regional-policies-effectively

• Most important aspect when using indicators in contracts!

Make sure the right incentives are provided by the contract!

• Outcomes are not perfectly predictable and can be influenced by factors beyond the control of policy makers.

Take uncertainty of outcomes into account when designing the contract

• I.e. asymmetric information, moral hazard, incomplete contracts,…

Consider potential principal-agent problems

Key issues for the use of outcome

Indicators in Contracts

Page 11: Implementing regional-policies-effectively

Building effective and sustainable urban-rural partnerships: a strategy

Matching ..the appropriate scale

Including ..the relevant stakeholder

Learning ..to be more effective

1. Better understanding of R-U conditions and interactions

2. Addressing territorial challenges through a functional approach

3. Working towards a common agenda for urban and rural policy

4. Building a enabling environment for R-U partnership

5. Clarifying the partnership objectives and related measures

Page 12: Implementing regional-policies-effectively

Governance solutions for rural-urban

partnerships

Explicit rurban partnerships

Rennes (France)

Geelong (Australia)

Nuremberg (Germany)

Central Zone of West Pomeranian Voivodeship (Poland

BrabantStad (Netherlands)

Implicit rurban partnerships

Forlì-Cesena (Italy)

Extremadura (Spain)

Castelo Branco (Portugal)

Central Finland (Jyväskylä and Saarijärvi-Viitasaari) (Finland)

Lexington (United States)

Prague/Central Bohemia (Czech Republic)

Model 1 Model 2 Model 3 Model 4

Delegated functions No delegated functions Delegated functions No delegated functions

Rennes (France) Geelong (Australia)

Nuremberg (Germany)

Central Zone of West Pomerania Voivodeship (Poland)

BrabantStad (Netherlands)

Extremadura (Spain)

Forlì-Cesena (Italy)

Lexington (United States)

Prague (Czech Republic)

Central Finland (Jyväskylä and Saarijärvi-Viitasaari) (Finland)

Castelo Branco (Portugal)

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Cross-border cooperation: the case of innovation

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Different rationales for cross-border

collaboration

Economic

concept

Driver Explanation

Economies

of scale

Critical mass Larger labour markets; wider business and

knowledge networks

Political power Better compete for higher level government

resources

Specialised

services

Innovation support services of higher quality

Economies

of scope

Complementarities Diversity of assets (research, technology and

economic base); “related variety”; price levels

Public and

club goods

Regional identity Increase internal recognition; social capital

Regional branding International attractiveness (firms, workers,

etc.)

Specialised

infrastructure

Reduce costs and share risks

Externalities Border challenges/

opportunities

Day-to-day issues associated with flows of

people, goods, and services 14

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Innovating beyond borders

Defining the functional area

• Devote more efforts to strategy development and policy intelligence

• Mainstream the cross-

border element, and if not, align or allow for programme flexibility

• Make greater use of opportunities created by the border

• Publicize success stories

of cross-border instruments

Governing cross-border collaboration

Aligning incentives and working together

Making cross-border instruments work

Learning from international lessons

• Look at what the data says, but don’t wait to start

• Only pursue the cross-border element when it makes sense

• Allow flexibility in the area definition so as to not create unhelpful new borders

• Don’t under-estimate the importance of other “hard” and “soft” factors beyond innovation

• Give politicians a reason to care about the issue

• Identify for supra/national governments where they can help local/regional efforts

• Understand different costs and benefits, and their alignment, for a long-term, trust-based collaboration

• Engage non-public actors in governance, with some form of secretariat

Insights from the OECD study on Cross-

Border innovation

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Gains from improved Governance: the case of metro

areas

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• Fragmentation of a metropolitan area into many municipalities reduces per capita GDP and productivity – A doubling of the number of municipalities per 100,000 inhabitants

reduces productivity by 6%

There is a link between governance and performance of functional metro areas

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• Negative impact of fragmentation can be reduced through organisations that coordinate policies in functional metro areas

– Approximately half of the productivity penalty from municipal fragmentation disappears when governance bodies exist

• Metropolitan governance bodies are common throughout the OECD, but only 18% have regulatory powers

Improving the governance of functional metro areas

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• Governance bodies also lead to better outcomes in several other dimensions

Other gains from governing functional metro areas at the relevant scale

Sprawl Satisfaction with Public Transport

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Improving the governance of Public Investment

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Governance challenges of Public Investment

are typically under-estimated

No straightforward link between interest rates and investment – many parameters come into play: fiscal rules, trust, currently “wait & see” mode, regulatory challenges that hinder investment

Public investment is intrinsically a very fragmented activity done essentially by SNGs (mostly municipalities)

Thus, greater focus on governance is needed (not just financing) Investment challenges go well beyond the financing dimension of

investment Not a problem of supply of capital, but a problem on the demand

side Under-estimation of governance challenges and capacity, notably

at the sub-national level

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The collapse of public investment by sub-

national governments in the OECD

In volume, base year 2000 = 100

Change in 2013 (%)

+0,1%

-2,3%

-0,8%

+1,0%

-1,4%

+0,2%

100

105

110

115

120

125

130

135

140

145

150

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

GDP Total expenditureDirect investment Social benefitsStaff expenditure Intermediate consumption

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• Invest using an integrated strategy tailored to different places

• Adopt effective co-ordination instruments across levels of govt

• Co-ordinate across SNGs to invest at the relevant scale

Pillar 1

Co-ordinate across governments and policy

areas

• Assess upfront long term impacts and risks

• Encourage stakeholder involvement throughout investment cycle

• Mobilise private actors and financing institutions

• Reinforce the expertise of public officials & institutions

• Focus on results and promote learning

Pillar 2

Strengthen capacities and promote policy

learning across levels of government

• Develop a fiscal framework adapted to the objectives pursued

• Require sound, transparent financial management

• Promote transparency and strategic use of procurement

• Strive for quality and consistency in regulatory systems across levels of government

Pillar 3

Ensure sound framework conditions at all levels of

government

The OECD Recommendation on the

Governance of Public Investment

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Sub-national

governments are

often fragmented

and don’t match

functional areas

Example of Principle 3: Coordinate across sub-

national governments to invest at the relevant scale.

• Rationale: The small scale of sub-national governments and the potential mismatch with functional areas raises concerns for investment (e.g. insufficient scale, lower returns, competing investments, investments not adapted to the functional area)

According to an OECD survey, 2/3 of countries find that municipal views prevailing over regional/functional scale is a challenge in managing public investment

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Example of Principle 12: Strive for quality and

consistency in regulatory systems across levels of

government.

POSSIBLE INDICATORS:

• The presence of formal co-ordination mechanisms between levels of government that impose specific obligations in relation to regulatory practice

• The use of regulatory harmonisation mechanisms, such as mutual recognition, regulatory harmonisation agreements, and/or strict regulatory uniformity agreements

• Share of draft regulations for which RIA was undertaken

• A methodology for assessing quality of RIA exists and indications of quality are available

RATIONALE:

• Regulatory quality and coherence are important for sub-national public investment. In many OECD countries, SNGs face inflationary regulation, overlapping/contradictory regulation across levels of gov’t

• Example: more than 55% of regulation applying to SNGs in France modified in <10 years

GOOD PRACTICES IN OECD COUNTRIES AND REGIONS

• Australia, Council of Australian Governments: common framework for benchmarking, measuring, and reporting regulatory burden across levels of government, and to set quantifiable targets for reducing red tape; Canada)

• Canada: A Federal, Provincial and Territorial Working Group on Regulatory Reform has been created as a forum to help build a shared approach to regulatory reform. Its work includes developing common regulatory principles, developing a consistent approach to regulatory impact analysis and sharing best practices.

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The OECD is now developing tools to implement the

Recommendation and support peer-learning

• Recent development s and good practices in countries

• Country profiles with data & indicators

• Practical guidance

• Checklist and self assessment tools

• In-depth case studies or chapters in reviews

• Peer learning: Disseminate examples of good practices

• Capacity building: help all levels of government diagnose capacity challenges for investment

• Monitoring: Provide comprehensive picture of multi-

level governance of public investment in countries and follow reforms in this area

A web platform with:

What are the objectives?

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Examples of good practices and recent

developments disseminated through the web Toolkit

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Evaluation tools to measure the implementation of

the Recommendation on Public Investment

Initial indicators developed as a follow-up of the Recommendation

Over 70 indicators 20 for Pillar I, 24 for Pillar II and 27

for Pillar III Comprehensive multi-disciplinary

approach (multi-level governance, public finances, regional policy, public management)

Mix between factual indicators and qualitative indicators based on judgement

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A pilot study for Eastern Slovakia

Indicators on MLG of public investment, Eastern Slovakia

OECD (2015)

Easy to identify key challenges: Principles 1, 2, 3 and 6 (place-based approaches, coordination across sectors, levels of government, jurisdictions; engagement of private actors)

1-Investment strategy tailored to places

2-Vertical coordination

3-Horizontal coordination

4-Ex-ante appraisals

5-Stackeholders' engagement

6-Private sectors' involvement

7-Management capacities of SNGs

8-Performance monitoring and evaluation

9-Clear intergovernmental fiscal framework

10-Transparent financial management at all levels

11-Strategic use of procurement

12-Regulatory coordination across levels

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Thank you!

[email protected]

www.oecd.org/gov/regionaldevelopment

http://www.oecd.org/gov/regional-policy/oecd-principles-on-effective-public-investment.htm