Ministers responsible for regional and territorial development from around the world gathered at the OECD on 30-31 March to discuss the issues. In our seventh OECD Observer ministers' roundtable, we ask seven representatives, from Finland (as Chair), Australia, Brazil, the EU, Japan, Poland and the United States to answer one question:
What regional-level action are you taking in response to the economic crisis?
Their answers confirm that global progress will also depend on regional actions.
For more information on the 2009 Meeting of the Territorial Development Policy Committee at ministerial level, see www.oecd.org/regional/min2009
Economic crisis and regional development
Why co-operation counts
Mari Kiviniemi, Minister of Public Administration & Local Government and Chair of the 2009 Ministerial Meeting of the OECD Territorial Development Policy Committee
Finland's experience from the 1990s shows that economic recession inevitably has an influence on regional development. Although recession hits urban areas harder than others, these also have a greater capacity and potential to bounce back when economic recovery starts. This is one reason why economic development tends to concentrate in and around urban areas.
Finland recovered from the 1990s recession within just a few years to become one of the most competitive economies in the world. How was this done? The secret can be found in three words: determination, perseverance and luck. Time has shown that the tough choices made then were the right ones. However, the role of Nokia in Finland's success cannot be denied.
Co-operation was crucial for our actions to succeed. When the crisis was at its worst, politicians and representatives of the Finnish economy worked together to decide on the necessary measures and how to target them. The government and parliament enacted reforms, and support was provided for structural changes in industry. Additional and carefully targeted investments were made, especially in education and R&D. These investments in particular, together with a regionally decentralised and comprehensive education and university network, and strong co-operation and networking among institutes of higher education, research institutes and businesses, helped Finland rise in the ranks of the world's most competitive countries.
Our successful response to the 1990s recession clearly shows how a determined and welltargeted recovery policy can positively affect regions and the national economy. However, ensuring that public investments and other measures achieve their goals cannot simply be done by implementing macro-level measures. Instead this requires extensive co-operation among central, regional and local government actors in creating tailored solutions.
Today in Finland, solutions for curbing the current economic crisis are being largely sought along the same lines as during the previous recession. Public investments are being targeted at projects of crucial importance to regional development; increasing investments are being made in R&D activity, education and competence; regional and local innovation and expertise are being developed; and the networking of regional actors involved is being extended, even internationally. To enhance these measures, public sector structures and operating models are being reformed and new methods and forms of co-operation are being devised among the various parties involved.
In addition to improving the preconditions for regional development in the long term, the recovery package in Finland also includes rapid and flexible response measures to provide assistance to regions and municipalities that face sudden problems, such as those caused by factory closures. Structural change measures can now be launched in close co-operation at the ministerial, regional and local levels as soon as such problems emerge. The aim is to alleviate the effects of the crisis, renew the production structure of the regions and, in the long run, create new development potential and opportunities.
Nearly two-thirds of Australians live in our capital cities but it is Australia's regions that generate twothirds of our export earnings.
Our natural wealth-resources and agriculture-underpins our economy. The quality of life in our cities, country towns and outback communities is linked to the success of these regionally based industries.
The Australian government is taking decisive action and implementing comprehensive plans not only to address the short-term regional consequences of the global recession, but also to ensure that Australia is well-positioned for the recovery.
In February 2009, the government announced a $42 billion Nation Building and Jobs Plan to invest in infrastructure and support jobs. This builds on significant funding already announced for infrastructure in last year's national budget.
As a result, rural and regional communities will see substantial investment in their roads, railways and social and community facilities.
We are investing $8.4 billion on regional highways and country roads over six years. This record funding has also enabled work to be accelerated by up to 12 months on 46 key road projects around the country.
We are also investing $3.2 billion in Australia's rail networks, most of which is directed into regional areas.
The government has also launched an $800 million Community Infrastructure Programme-the largest of its kind in Australia's history. It will fund local governments to build infrastructure such as town halls, local libraries and sporting facilities, in order to support jobs at a local level.
We will provide funding for the construction or refurbishment of a building in each and every rural and regional primary school, with further funding for maintenance and minor building works for all schools.
We have established the Australian Council of Local Government-a consultative forum on the delivery of local infrastructure and services.
We are also establishing Regional Development Australia, a network of local advisory committees, with the aim of engaging communities and improving the delivery of government programmes.
The Australian Government's plans are about helping regional communities to weather the global economic storm, as well as making them better able to take advantage of economic opportunities into the future.
As the European Union's largest source of investment in the real economy, the €347 billion Cohesion Policy provides vital and secure funding at regional level. The importance of this investment is clearer than ever in the current economic climate.
This funding, which represents 35.7% of the European Union budget and 0.38% of total GDP, co-finances hundreds of thousands of projects across the EU. The focus is on creating sustainable jobs, growth and competitiveness through investment in priority areas such as modern infrastructure, innovation, small businesses, the environment, broadband and training.
The Cohesion's Policy's contribution to the Commission's European Economic Recovery Plan is significant, with measures aimed at accelerating project implementation and injecting confidence in regional economies. The package includes:
- An increase in advance payments for regional development, with an additional €6.25 billion released in 2009 (this brings the total of "front-loaded" regional aid to nearly €30 billion since 2007);
- A six-month extension of the deadline (to 30 June 2009) for payment reimbursement claims for regional programmes launched in 2000-2006. This will enable regions to ensure that every last euro is invested;
- More flexibility which allows member states to re-allocate funds between budget headings to target funding where its impact will be greatest;
- Immediate funding for major projects without the need for prior approval by the Commission (900 major projects will be implemented in 2007-2013, representing a total investment of €120 billion);
- Simplification of eligibility rules to reduce red-tape;
- Green light for member states to allocate up to €8 billion from their European Regional Development Fund grants for energy efficiency and renewable energy improvements in housing (this means the EU can co-finance local or regional authority initiatives to promote installation of energysaving double glazing, insulation, new boilers etc.)
More generally, the Cohesion Policy is geared to the "green economy" of the future. Of the €347 billion allocated for regional development in 2007-2013, more than 30% (€105 billion) is focused on green objectives and jobs. Almost half of the envelope (€48 billion) is targeted at measures aimed at achieving EU climate objectives and creating a low carbon economy, with €23 billion for railways, €6 billion for clean urban transport, €4.8 billion for renewable energies and €4.2 billion for energy efficiency.
Japan experienced an economic crisis when an asset bubble burst in the 1990s. In response to that crisis, Japan implemented countermeasures not only in the form of monetary and fiscal policies, including the disposal of non-performing loans, but also in regional policies.
One of these countermeasures was an urban renaissance policy. The aim was to revitalise urban areas and their economies by promoting private investment in urban development projects. Incentives were introduced for encouraging private investment: first, with deregulation to maximise private initiative, and then with financial supports and tax relief measures for businesses, taking into account the credit crunch in the financial market at that time.
This urban renaissance policy remains an important pillar in Japan's urban policy framework, and is expected to create large domestic demand in the economy. We believe the policy will act as an effective countermeasure against the current economic crisis.
Another countermeasure taken at the time was the establishment of J-REIT (Japan- Real Estate Investment Trust), a market for real estate securitisation. In those days, major banks were nationalised due to the growing volume of non-performing loans. With financial institutions paralysed, the listed trading of J-REIT was kicked off in September 2001 in a bid to revitalise the real estate market.
OECD began addressing urban decline as a national policy issue in the 1980s. The discussions held at that time proved to be extremely valuable in advancing Japan's urban renaissance.
In the current economic crisis, the kind of crisis that occurs " once in a hundred years", I have high expectations of the role OECD can play again.
Although Poland was not hit the hardest by the ongoing recession, its effects have differed across regions. As a result, any anti-crisis response should both take into account particular regional characteristics and provide a package of wellcoordinated actions across different sectors. These conditions are met by EU structural funds, for instance, which are the main source of public investment in regional development in Poland.
For the period of 2007-2013 Poland's regional authorities hold direct responsibility for 25% of the total allocation of those funds, which comes to nearly €17 billion. This money is of crucial importance for smoothing the negative effects of the credit crunch on central and regional finances, and has become one of the pillars of Poland's national recovery effort.
As a part of this package, in January 2009 I presented the Programme for faster implementation of programmes financed by EU Funds to the Council of Ministries. I believe that a fast disbursement of funds will allow us to provide our economy in 2009 with investment in infrastructure, human capital and business environment worth around 1.3 % of GDP. The instruments being implemented within the programme include an extended use of pre-payments for all beneficiaries, faster transfers of money for major infrastructure projects and an additional €1.3 billion to be used in 2011 to strengthen the most speedily and efficiently realised operational programmes, including 16 regional programmes.
That provides a substantial incentive for the regions to promptly improve their performance, since in two years' time the allocation of these additional resources will depend on the assessment of their effectiveness in implementing regional programmes according to their development strategies' priorities. Since fast transmission of funds is of crucial importance in times of financial crisis, more efficient and faster mechanisms for providing regional governments with financial means are also envisaged.
I hope that this active response of the Polish government will not only help to reduce regional suffering from the economic downturn and financial crunch but, via the different competition and effectiveness-based measures, also ensure a better starting point when the recovery begins.
If there is a consensus among all observers of the global crisis, OECD included, it is the fact that Brazil, while also suffering from some of its impacts, will be less affected than many other countries.
Our economy had shown strong rates of growth, with good job creation and improved income distribution. The Brazilian government has adopted a vigilant and pro-active stance, and is permanently ready to launch comprehensive actions to mitigate any undesirable impacts from the crisis on our economy.
These actions cover a wide spectrum, from targeted government interventions in areas such as fiscal, interest and exchange rate policies and trade, to structural support for infrastructure and the strengthening of the country's internal market.
Indeed, Brazil is committing major investments into infrastructure. Under the responsibility of my Ministry alone, €1.6 billion is being invested in public works to guarantee access to water in semi-arid areas of the country. Another €1.2 billion is going into developing the railways for the northeastern region, which will enable more cost-effective cargo transportation than has hitherto been possible in that part of the country. Brazil's stronger, more integrated internal market has been achieved thanks to better access for newly restructured production sectors and a boost in spending power among large segments of the society, brought about by social programmes that have helped the Brazilian middle class to expand.
In sum, I would say that the Brazilian national regional development policy, which has been formally implemented over the past two years by the Ministry I am proud to head, has played a key role in bolstering Brazilian resistance to the effects of the global crisis.
Our policies of improving social capital and providing support to economic sectors that are more competitive and market oriented, as well as environmentally sound and locally committed, is helping to equip Brazil with a new sustainable development model that will allow more effective production and consumption flows than were possible under the economic and financial rules that prevailed before the crisis.
The Obama administration is taking aggressive action to respond to an economic crisis unlike any since the Great Depression by investing more heavily and more wisely in regional activities to spur job growth and economic development.
The American Recovery and Reinvestment Act of 2009 is an unprecedented effort to jumpstart our economy, create or save millions of jobs, and put a down payment on addressing long-neglected challenges so our country can thrive in the 21st century. The Recovery Act includes $150 million for the US Department of Commerce's Economic Development Administration (EDA) to provide grants to economically distressed areas, with priority consideration being given to those areas that have experienced sudden and severe economic dislocation and job loss due to corporate restructuring. EDA grants support regional efforts to create higherskill, higher-wage jobs by promoting innovation and entrepreneurship and connecting regional economies with the worldwide marketplace.
In addition to EDA funding under the Recovery Act, President Obama's 2010 federal budget proposal provides EDA with:
- $50 million for regional planning and matching grants to support the creation of regional innovation clusters that leverage regions' existing competitive strengths to boost job creation and economic growth; and
- $50 million to launch an initiative to create a nationwide network of publicprivate business incubators to encourage entrepreneurial activity in economically distressed areas. EDA recently funded a study focused on assessing the economic impacts and federal costs of the agency's construction investments. The study showed, among other things, that EDA investments in business incubators were more correlated with job growth than other project types.
Of course, funding for EDA activities is only a part of a much larger response from the Obama administration that includes agencies across the federal government. Meanwhile, American citizens are empowered to be a part of the recovery process through a new federal website, recovery.gov, which features information on how the Act is working, tools to help hold the government accountable, and up-to-date data on the expenditure of funds.
©OECD Observer No. 272, April 2009