Strengthening Bonds: Cohesion Policy and Rural Development

1. Connecting Cohesion Policy With Rural Development? EU Workshop On Cohesion Policy and Rural Development Brussels, Sep. 30, 2009 David Freshwater, OECD Rural Development Programme

2. OECD Position • OECD broadly endorses economic flexibility and economic growth through: • Strong competition • More open markets • Technological innovation • Rural Development policy follows the New Rural Paradigm • Investment based approach • All regions have growth potential • Bottom-up process • Variety of sectors

3. Cohesion Policy • Fundamentally cohesion policy is about strengthening the bonds among the people in a community. • But what do we mean by community?, and • What types of bonds are we interested in strengthening?

4. Two Meanings of Community • Community of Place • Whole world – global village • European Union • Nation • Region • Administrative • Functional • Locality • Community of Interest

5. Types of Bonding • Economic Linkages • Trade flows • Access to technology • Capital Markets • Shared Social Values • Willingness to help disadvantaged • Desire to protect environment • Belief in democratic political system • Trust in members of the community

6. EU Cohesion Policy • Historically defined in terms of the EU as the community and with a strong emphasis on improving the economic well-being of people in those sub-national administrative regions which are furthest from the EU average in terms of GDP per person. • Cohesion Policy can be seen as a response to the adverse distributional consequences of enlargement and the shift to a more globalized economy that is driven by finance and technological change

7. Two Interpretations of EU Cohesion Policy • Redistributive • Grew out of the European Social Model where government taxes the “winners” to compensate the “losers”. • Part of the bargain in each round of enlargement to “buy-off” opposition. • Encourages rent-seeking behavior. • Efficiency Enhancing • Response to market failures that provides lagging regions with resources to enhance growth, thereby adding to aggregate output.

8. What Distinguishes Rural Places • Low density, prevalence of distance, and lack of critical mass. • The most crucial problem in rural areas is low density networks. Markets work best in dense networks (high connectivity, multiple pathways, low connection costs). • As a result of low connectivity, community in rural areas is almost exclusively community of place. • Distance makes it more difficult to get to critical mass – as you add more people the average distance among people goes up.

9. What We Know About Successful Rural Localities • Bottom-up process is key – people have to build local trust and local social capital. • There are capital gaps, but more commonly there are idea gaps and entrepreneurship gaps. • Not all rural places will be successful, but some rural regions can grow faster than most urban regions. • Average income in rural areas is rarely as high as in urban areas because the occupational composition does not include as many high skill jobs.

10. Can Coherence Policy Make a Difference in Rural Regions? • Coherence policy is mainly about bonding to the EU, but for rural development we need bonding at the locality or functional region. • Coherence policy seems focused on per capita GDP and convergence, but many rural areas are specialized in lower value, but necessary, functions. • Social cohesion may be a prerequisite for stronger economic cooperation. • Coherence policy is an inherently top down process, but rural development is bottom-up.