State regional policy: Decentralization of inequality?

Regional policy as the policy of states regarding their territories

Regional policy is the policy set by states to manage their territory. Governments use it to “territorialize” society and activities. Throughout the 20th century, different countries used various regional policy approaches or their combinations in different periods, depending on the problems that were determined, the levels at which they emerged, and the measures that were the most appropriate for overcoming them.

The research and conceptualization of regional policies goes hand in hand with the implementation of certain policies and instruments. According to Mykhnenko and Volf (2019), social researchers who worked on the state/space theory (which involves investigating changes in the geography of state power under capitalism) argue that unequal geographical development in Europe has exacerbated under contemporary capitalism.

For Keynesian welfare states, unequal geographical development was an obstacle to further economic development, and governments used various territorial development and redistribution policies, the so-called “spatial Keynesianism,” to overcome it.

According to Neil Brenner (2004), a prominent representative of the state/space theory, the role and capacities of states transformed with the decline of Keynesianism and the beginning of neoliberal reforms. Unequal development was now viewed not as an obstacle, but as a prerequisite for further economic growth in the conditions of competition for capital. The mechanism of the new policies was the rescaling of state power, when the regional or local levels became dominant, rather than the national level as before.

Bob Jessop (2008) emphasized that this was not just about highlighting the “local,” but about relativizing or fragmenting the spatial scales in economic and social policy: upwards (towards Europeanization), downwards (decentralization) and sideways (using public-private partnerships).

Mykhnenko and Volf (2019) demonstrate that “since the 1980s, cities and regions across Europe were getting closer economically” even as the EU expanded to the East, and question the idea of inequalities exacerbating as a result of rescaling. According to them, “The positive impact of the EU policy of cohesion cannot be ignored any longer.”

Cohesion as the foundation of the EU regional policy

The EU regional policy emphasizes social and territorial cohesion. The principle of territorial cohesion has been enshrined in the Treaty of Lisbon.

The European Spatial Development Perspective (ESDP), adopted in 1999, aimed to achieve economic and social cohesion, preserve and manage natural resources and cultural heritage, and ensure balanced competitiveness. One of its outcomes was the INTERREG European Territorial Cooperation programme.

Another document, the Territorial Agenda of the European Union until 2020, defined territorial cohesion as “a set of principles for harmonious, balanced, efficient,

sustainable territorial development” as a part of “inclusive growth.” After 2020, the policy package Recovery Assistance for Cohesion and the Territories of Europe (REACT-EU) has become key.

The success of EU regions and their convergence in terms of the level of socioeconomic development is a result of regional policies aimed at overcoming inequalities to achieve cohesion. In parallel to the regional policy, the EU continues the policy of changing importance and roles at various levels, and the countries themselves are decentralizing.

The risks of decentralization

The decentralization reform involves the transfer of powers and control over the budget from the central government to local government bodies. This has a positive effect, because communities get the opportunity to manage funds by themselves and determine the best way to provide services to their residents. However, this also carries certain risks associated with the communities’ differential capacity to ensure the same quality of government services regardless of one’s place of residence.

Poland is considered to be a successful example of implementation of the decentralization reform. The reform implementation coincided with privatization, which led to the commercialization of public services. For instance, in health care, public hospitals started to shut down from the late 1990s — early 2000s, and opening private facilities or reorganizing into private facilities was encouraged. It was believed that this way, local governments will be able to control funds better, and service provision will improve. However, local governments have proven incapable of controlling the financial situation, debt has increased, and the services have not improved in quality. In addition, the situation deepened the inequalities of access to the healthcare system depending on income, employment, and location of residence. For instance, the unemployed were more likely to refuse to purchase medicine or doctors’ services (Kaminska, 2013).

Decentralization in Germany was largely administrative: most responsibilities were handed over to the states. At the same time, decision making at the local level has remained rather limited. The imperfect nature of decentralization was revealed in the examples of case studies of facilities providing services to people with disabilities in Baden-Württemberg. On the one hand, decentralization improved the visibility of people with disabilities and allowed them to influence political processes. On the other hand, since the initial conditions for different districts varied, many of them lacked qualified professionals. Researchers Reiter, Grohs, Ebinger, and Kuhlmann write that since funding for facilities providing services to people with disabilities has been prioritized, this will help reduce costs and improve the quality of services in the future. However, local governments often faced pressure to reduce spending in this field  (Reiter, Grohs, Ebinger, Kuhlmann, 2010).

State regional policy in Ukraine

Today, Ukraine is a regionally unbalanced country. After gaining independence, it rescaled its economic and spatial organization within the new borders. As a result of these processes, regional differences inherited from the Soviet era exacerbated at various levels: between Kyiv and the rest of the regions, between different regions, between cities and towns, between urban and rural areas.

In Soviet times, urban planning and regional development were viewed as a way to achieve territorial equality and social justice in society. Building socialism required industrialization, which, in turn, required urbanization. To prevent population from concentrating in big cities, there was a policy of encouraging the development of smaller cities and towns, as well as of transforming villages into bigger “urban-type villages.” On the other hand, the placement of infrastructural facilities was affected not just by economic, but also by political and military reasons. This led to partial convergence of the regions, but also to ineffective economic structures, which had significant consequences during the transition to capitalism.

The Soviet model for managing regional development was embedded in the economic planning system. All land was state-owned, so planning came down to creating technical task specifications. The Soviet system barely had any legislative rules for the process of urban development planning, because there was simply no need to define the rights, property characteristics and different stakeholder groups, or to reconcile them.

The priority was to provide for collective needs: social infrastructure, housing and green areas were located according to standardized regulations. Other needs were met through a network of administrative institutions using economic planning and redistribution between territorial units. The Union republics provided the “lower” levels with the required goods and services through centers at various administrative levels. This created a division into “centers” and “peripheries”: depending on the locality’s level, one could access not only a wider range of goods and services, but also goods and services of higher quality. Nevertheless, ensuring that the consequences of unequal geographical development are mitigated remained a declared goal and trend.

In the period of independence, unequal geographical development in Ukraine exacerbated. After the collapse of the USSR, Ukraine’s spatial economy consisted of individual regional economies connected to the economies of other regions in other former republics. The breakdown of these links and production cycles led to the need to “rescale” within the new borders and re-territorialize the activities. The stabilization of the late 1990s was associated with a high demand for resources, such as metal, so the industry confined itself to raw material production with low value added. Ukrainian industrial regions saw their positions in the geographical division of labor get worse.

A favorable situation in global markets, macroeconomic stability and economic growth led to the development of other industries, such as finance and banking through consumer loans and mortgages. However, the development of the service and construction industries was uneven in different regions and cities, so economic growth was also distributed unevenly. The State Regional Development Strategy until 2020 notes that “macroeconomic growth in Ukraine after 2000 had no positive impact on the reduction of regional disproportions and was characterized by the concentration of economic potential in the few most powerful regions.”

State regional development strategies: from “supporting the weak” to “supporting the strong”

The State Regional Development Strategy until 2020 set the strategic goal of “creating the conditions for the dynamic, balanced development of Ukrainian regions for the purpose of ensuring the country’s social and economic cohesion.” The Strategy was supplemented with the Law of Ukraine “On the foundations of the state regional policy” of 5 February 2015 #156-VIII, according to which the state regional policy was supposed to ensure a high standard of living for people across the Ukrainian territory and to uphold the state-guaranteed social standards regardless of the place of residence.

The State Regional Development Strategy until 2027 notes that the reform of local self-government and the territorial organization of government in Ukraine on the principles of decentralization has created opportunities for community development, but this has not yet translated “into a better quality of life for people regardless of their place of residence,” and “there are no palpable changes … in the reduction of inter- and intraregional disproportions.” According to Olha Shevchenko, “there is a growing need to look for ways to regulate the disproportionate development of regions, since they pose a threat to the cohesion of the country’s socioeconomic space” (Shevchenko, 2020: 237).

While the previous edition of the strategy proposed “providing aid to underdeveloped regions through financial support,” the current approach is an attempt to encourage local economic growth, “to build a competitive region … by involving all actors [of development] and using the potential of the key assets … as the condition for providing financial support from the state budget.” The foundation is to “stimulate the use of the territories’ own potential” and to “support the potential centers of economic growth.” 

Ukraine is switching from the policy of overcoming unequal development through equalization measures (the subsidy-dotation system) to the policy of supporting the “growth points.” While the previous edition of the strategy viewed unequal development as an obstacle, the current one views it as a precondition to future economic growth by stimulating growth points.

These points are supposed to prevent the current monocentric economic growth and connect the country through interregional cooperation. They must focus resources to use them as effectively as possible (to avoid scattering) and increase community specialization, so they don’t repeat each other’s development strategies.

Since the State Strategy registers major disparities not only between regions but also within them, it defines specific types of territories which require special measures of support and development. The Strategy until 2027 included certain types of functional territories (10), which means that the state will help different regions and their parts in different ways.

Specialization, connecting communities into networks and understanding them specifically as a system of communities are important and necessary policies. At the same time, the experience of the EU regional policy demonstrates that these measures alone, without balancing the levels of development, are not sufficient for maintaining cohesion.

Decentralization as a part of regional policy in Ukraine

The decentralization reform in Ukraine was launched due to the low capacity of local self-government bodies to perform their functions properly. Decentralization, which included the reform of local self-government and the territorial organization of power, specifically aimed to ensure the capacity to provide public services.

At the first stage of the reform, the state regional policy was to be supported by financial resources through tax decentralization. 2019 saw the beginning of the second stage of the reform, at which the amalgamation of communities had to be completed in order to carry out elections on the same territorial basis in 2020.

This process is only one of the stages of regional policy, since it involves reforming the administrative-territorial order and expanding the powers of local governments. The fact that the decentralization reform is imposed on the existing differences between regions leads to a number of inconsistencies and contradictions:

1. Shifting responsibility to local government bodies. A frequent complaint in Ukraine in the context of the decentralization reform is the weakness of local political elites and institutions on the ground which prevents them from implementing policies. This is perfectly reasonable, because different communities had different preconditions for forming the elites. At the same time, central government bodies tend to shift responsibility to local government bodies without controlling their activities. One example is the government’s response to the COVID-19 pandemic. The Ministry of Education placed the obligation to use up the remaining education subventions from 2019 and provide schools with personal protective equipment onto local governments. However, the remaining funding had initially been unequally distributed between regions, and some communities had already used it up. As a result, this led to a situation where not all communities were able to provide their schools with personal protective equipment (Nazarenko et al., 2020).
2. Lack of coordination between decentralization and the sectoral reforms taking place in Ukraine. Simultaneously with the decentralization reform, Ukraine is implementing a number of reforms which affect local development: education reform, health care reform, welfare reform, etc. The Constitution of Ukraine guarantees fair and unbiased distribution of public goods between citizens and territorial communities (p. 95). This means that the state undertakes to provide high-quality public services to all residents regardless of their place of residence. The Law of Ukraine “On social services” guarantees the “provision of social services aimed to prevent difficult life circumstances, overcome or minimize their negative consequences, to individuals/families in difficult life circumstances.” Before communities were amalgamated, social and administrative services were provided by the relevant bodies located at district state administrations and in regional centers. After the reorganization of districts, each community had to establish its own territorial body for providing social services or purchase these services from the neighboring communities. However, due to their incapacity, only half of the communities successfully created these centers. Moreover, the newly established districts continue to run welfare departments which now have fewer employees but a higher workload (Demyanenko, 2021).
3. Contradiction between seeking to bring in capital and meeting the needs of all residents. One of the key goals of decentralization is financial autonomy for the newly established communities. However, all communities have different levels of economic development. In discussions and research of decentralization in Ukraine, local economic development and capital involvement are prioritized. There is no definitive answer among the research community regarding the positive impact of decentralization on economic development: it all depends on the country’s general economic development (Fedoriv, 2018). In particular, high-income countries benefit from decentralization, while in low-income countries it may only deepen regional inequalities (Lessman, 2012). At the moment, the state policies do not offer a solution to how bringing in investors and accumulating capital will provide public services to all citizens. Public policies must prioritize building a social infrastructure to provide for the residents of communities.

Movement towards metropolitan areas and decentralization in cities

Territorial policies are not limited to creating communities, but also involve attempts to build interaction between them and coordinate their plans and strategies. One mechanism which can stimulate intermunicipal cooperation is a metropolitan area. The bill #2637 is currently on the floor of the Verkhovna Rada.

According to the bill, a metropolitan area is a form of cooperation between a big city and the neighboring localities which have shared economic and investment interests. The process of voluntary community amalgamation has led to a situation where some cities have found themselves “squeezed” between newly established communities. It is important to understand that the question of a metropolitan area is not about whether to create it, but rather about how exactly to regulate its existence and what administration system to introduce in order to balance the interests of its participants.

Another process is the attempt to decentralize management in big Ukrainian cities, which has been given a new impetus with the development of the new edition of the law on the capital. Today, the territorial organization of local self-government within a city is determined by the city council, which makes the decision whether there should be representative bodies in districts and which powers they have. There are no district councils in many big cities at the moment, which leaves people without representation at the level that is the closest to them.

In the capital, for instance, this is the reason for the excessive workload of the city council and its members who work without pay. On the other hand, this creates a situation where the closest representative government body operates at the level of a territorial unit with a population of 3 million, which limits their right to represent their interests. In addition, the issue of the city’s division into districts is also important, since it is not always optimal, as well as the issue of looking for the optimal size and powers of territorial government bodies within big cities.

Centralized management of district development and district resources may foster a situation of inequality, where some districts get more because they are “more central,” or there are “elite” housing units built in them, or they are needed for conducting certain events of national or city significance, while the development of “unpopular” or “peripheral” districts is an afterthought and often remains underfunded.

We can see that the regional policy in Ukraine is currently changing the hierarchy of scales and levels of management. It declares that this should result in high living standards and access to public goods for everyone regardless of their place of residence. The success of this policy can only be revealed over time, but it is important to remember that to guarantee a high living standard regardless of the place of residence, it is necessary to invest effort in equalization and cohesion.

Conclusion and recommendations

In the second half of the 20th century, regional policies in Western countries shifted from overcoming unequal geographical development through equalization policies to using the unequal development to stimulate certain regions. Despite researchers’ warnings that these rescaling policies could exacerbate inequalities, the EU regional policy uses the principle of cohesion, according to which resources are redistributed between regions, and their levels of socioeconomic development converge.

Ukraine is transforming its regional policies from equalization to stimulation of growth points. Decentralization can become the basis for this policy because it creates the communities which will become new actors and compete for investment capital. It is important, however, to work on preventing it from becoming a “race to the bottom” in which communities competing for an investor will offer terms that are more and more disadvantageous for them.

Today Ukraine is a regionally unbalanced country. Significant inequalities in the standards of living and the capacity to guarantee them exist not only between regions but also within regions. The regional policy should not be limited to measures aimed at stimulating growth points; rather, it should balance the inequalities between regions using equalization policies in order to maintain cohesion.

Decentralization cannot replace a holistic state regional policy which must include an understanding of the place of communities in the general development pattern and the way communities will interact to achieve harmonious balanced state development and to guarantee a high standard of living regardless of the place of residence. 

In order to prevent unequal geographical development, policy makers must make an effort to reconcile sectoral reforms and ensure that regions and local communities implement these policies.

References

Brenner, N. (2004) New State Spaces: Urban Governance and the Rescaling of Statehood

Jessop, B. (2008) State Power: A strategic-Relational Approach

Kaminska M. E. (2013) Poland: Decentralization, Privatization and Managerialization of the Health Care System? Health Care Systems in Europe under Austerity: 169-189

Lessmann, C. (2012) Regional inequality and decentralization: an empirical analysis. Environment and Planning A, 44(6): 1363-1388

Reitera, R., Grohsb S., Ebinger F., Kuhlmannd S., Bogumile J (2010) Impacts of decentralization: The French experience in a comparative perspective. French Politics 8.2: 166-189

Demyanenko, O. (2021). How decentralization has impacted people (Як децентралізація вдарила по людях). Dzerkalo Tyzhnia. https://zn.ua/ukr/economics_of_regions/jak-detsentralizatsija-vdarila-po-ljudjakh.html

Mykhnenko, V., and Volf, M. (2019) Unequal spatial development in Europe in 1980–2015

(Нерівномірний просторовий розвиток у Європі в 1980-2015 роках). Commons: A Journal of Social Criticism, 12.

Nazarenko, Y., Syrbu, O., & Kohut, I. (2020). Coronavirus and Education: Analyzing the problems and consequences of the pandemic (Коронавірус та освіта: аналіз проблем і наслідків пандемії). Cedos. https://cedos.org.ua/researches/koronavirus-ta-osvita-analiz-problem-i-naslidkiv-pandemii 

Fedoriv, P. (2018). Not just decentralization: Why Ukraine needs a territorial equalization policy (Не лише децентралізація: навіщо Україні політика територіального вирівнювання). Mistosite. https://mistosite.org.ua/articles/ne-lyshe-detsentralizatsiia-navishcho-ukraini-potribna-polityka-terytorialnoho-vyrivniuvannia

Shevchenko, O. (2020) Disproportions in the socioeconomic development of Ukrainian regions: Essence, assessment, strategic regulation (Диспропорції соціально-економічного розвитку регіонів України: сутність, оцінка, стратегічне регулювання)

This note is a part of the project “Ukraine Calling. Cross-Sectoral Capacity Building” funded by the German Foreign Office within the programme of Civil Society Cooperation.