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12.1.  The need for a European regional policy

  1. The classification of EU regions
  2. Economic and social cohesion of the European Union

Throughout history, the economic map of Europe was shaped by localisation factors such as the nature and topography of land, climate, waterways and natural protection from invaders. Having remained basically unchanged for centuries, these factors attracted people living primarily off the land to certain regions rather than others. The industrial revolution profoundly changed the economic geography of Europe; industry was attracted to certain regions by the existence of energy sources (coal), raw materials (metals), waterways, harbour sites and cities. The other factors still played a role of course, but it was progressively reduced.

People followed businessmen to the industrialised areas; so too did the State. It brought with it the infrastructure, public utilities and administrative fabric absolutely necessary for industrial growth. Infrastructure, in the broad sense of the word, includes means of transport, communication and telecommunication, housing, and any facilities allowing for the creation or extension of towns. Public utilities that are related to them range from such classical services as the distribution of water and electricity, to universities, research and training centres, as well as various elements related to the quality of life such as park maintenance, cultural and leisure facilities, etc.

All these economic, administrative, cultural and social factors create "external economies", i.e. advantages resulting from a combination of factors without imposing specific costs on undertakings (businesses, firms, companies). Other conditions being equal, it is not surprising to see businessmen going wherever they can find external economies and large markets, made up of large population concentrations. In fact, modern firms tend to seek a combination of favourable features, including infrastructure and human resource endowments, when taking their decisions about where to locate. The problem is that uneven patterns of development have historically resulted in widely different endowments in infrastructures (transport, energy, telecommunications, etc.) and in human capital (the knowledge and skills accumulated in the workforce).

More recently, innovation has evolved into a continuous process requiring the rapid introduction of new technological advances and therefore a constant interaction between research laboratories and businesses either developing or using new technology. Hence, the economic success of a region depends to a large extent on the possibilities available for securing access to research and technological development (R & D) on an ongoing basis. The problem for weaker regions is that their productive base consists largely of small and medium-sized enterprises (SMEs), usually working in traditional sectors and lacking an outward-looking perspective [see section 17.1.4]. In many regions, highly qualified people are in short supply and ancillary services, such as banking, are inadequate, thus inhibiting innovation. In fact, most factors which favour R & D and innovation (organisation, management, commercial, financial and technical skills required introducing a new or improved product or process onto the market) are almost always found in developed regions.

These factors and trends of the concentration of economic activities are so compelling that opposing them would be in vain were it not for the fact that they have certain limits. At a certain point, external economies can thus become diseconomies when pollution and communications congestion lead to costs and discomfort for businesses and people employed by them. Moreover, factors affecting location of economic activities are not immutable. The establishment requirements of the post-industrial "information society" are not those of the industrial society. Indeed, the information technologies (CITs) have brought together industries traditionally not so closely linked (telecommunications, information technology and the media), reducing the effects of distance and encouraging the decentralisation of business activities [see section 17.3.5]. Through its powerful networking effects, the information society can contribute to the geographical and economic opening up of the poor regions of the Union.

In addition, the phenomenon of globalisation of economies and markets, which involves the intensification of international competition through the emergence of a potentially unique world-wide market for an expanding range of goods and services, brings out the importance of regional policy. In this context, international competitiveness is based much less on static comparative advantages of the regions, such as territorial concentration and natural resources endowment, and increasingly more in qualitative dynamic parameters, such as factor mobility, social consensus, pertinent information and the capacity to combine production factors effectively. These qualitative parameters offer the possibility of decentralised economic growth, if they are systematically put together by an adequate policy. The Member States and the European Union can profit from these trends and changes to balance the development of their regions better. This time, they must precede businessmen and people in order to make sure that necessary movements are not carried out in a disorderly fashion, as were the preceding ones.

By assisting the problem regions build up their infrastructure networks, the Member States and the Union can help them to both develop their markets for the benefit of all and better balance the European economy in the light of future changes. Of course, each Member State carries out its own regional policy, which generally aims at favouring the development of the national territory's less prosperous regions by means of transferring resources from wealthier regions. The means normally used by Member States to remedy regional problems are of two types: firstly, improving the infrastructure and the social and cultural development of backward regions, and secondly, various premiums, subsidies and tax incentives for attracting private investment in these regions. The general objective of these measures is to create or re-establish a better distribution of economic activities and population over the national territory. To do this, certain governments also try to discourage investments in highly developed regions. The advantages of such measures are twofold: favouring the transfer of resources towards poor regions while halting the disproportionate expansion of congested regions.

Certainly, it is primarily up to the national authorities to solve the problems of their regions, namely by promoting infrastructures or giving incentives to businesses to attract their investments in disadvantaged regions. The scale of the effort required to stimulate economic activity in the least advanced regions means that public funds must be used in conjunction with private investment. Regional aid, when judiciously applied, is a vital instrument to regional development and to continued and balanced expansion within the European Union. But given the possibility of competition inside a single market between the various regions in order to attract European and foreign investments (including those from partner countries), the advantages granted can go beyond compensation for material difficulties faced by investors in the areas to be promoted. Thus, part of the aid granted would merely serve a reciprocal neutralisation. The national regional actions would simply be more expensive and grant unwarranted profits to benefiting undertakings [see also section 15.5]. Therefore, the prime objective of EU regional policy is to coordinate national regional policies by formulating guidelines and setting priorities at European level, which effectively help close the gap between regions.

In addition, the EU has a common interest in regional development through structural change. The very essence of economic integration is the optimisation of the market mechanism at a European scale. But a market policy based on some sort of spontaneous balance between the various economic parameters essentially benefits rich regions. Indeed, prior to the creation of the common market, economic activities had developed in a national context; certain activities usually grouped in certain regions were protected from international competition by customs barriers. With the opening of borders, European and foreign (American, Japanese...) companies wanting to set up business in the EU market are normally attracted in European regions where infrastructure is most developed, where labour is most qualified, and where the economic environment is most adapted to their activities. Economic concentration invites more concentration. The common regional policy strives to make up for this tendency in order to achieve a better-balanced growth within the common market. Its goals and mechanisms are coordinated and interact with those of other common policies, notably social, enterprise, environment, agricultural and fisheries policies.

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Your roadmap in the maze of the European Union.

Based on the book of Nicholas Moussis:
Access to European Union law, economics, policies

Translated into 14 languages

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