Social Responsibility of Global Governance
Institutions:
The
Policy Approach of the European Union and the World Bank to Development
Problems in Transitional Economies
By
Algirdas Petkevicius, International Policy Fellow of the Open Society Institute
This publication was sponsored by the
International Policy Fellowship Program of the Open Society Institute in
© Algirdas Petkevicius, all rights reserved
Disclaimer: This publication
is to be viewed as a strictly provisional draft. No part of the paper should be
viewed as final. No part should be cited, referred to, or otherwise used until
the final version is prepared.
Table of Content:
1.
Preface
1.1.
Objective and Key Issues
1.2.
The Perception of Social Responsibility
1.3.
Theoretical Framework
1.4. Empirical Coverage
1.5.
Sequence of the Paper
1.6.
Auditorium and Political Significance of the Paper
2.
Social Responsibility in Governmental Action: Theoretical Foundations
2.1.
Theories of Institutional Behavior and How They Will Be Applied to This
Research
2.2. Are International
Organizations Different? – Remarks on Social Responsibility in Global
Governance Institutions
2.3. Conclusions of part
2.
3.
Social Responsibility in Governmental Action: Practical Application of Theoretical
Presumptions
3.1.
Social Responsibility in Governmental Action – the Case of Regional Development
3.1.1.
What is the EU regional policy
3.1.2.
The Decision
3.1.3.
Why a Policy Failure – a Theoretical Justification from the Regional
Development Theories and EU structural funds’ rules
3.1.4.
The Actors and Outcomes
3.1.5.
The Analytical Conclusion
3.2.
Social Responsibility in Governmental Action – the Other Selected Cases
3.2.1.
What are the Policy Areas and How They Are Influenced
3.2.2.
The Decisions
3.2.3.
The Assessment of the EU Influence
3.2.4.
The Actors and Outcomes
3.2.5.
The Analytical Conclusion
3.3.
Social Responsibility in Governmental Action – the World Bank
3.3.1.
The Assessment of the World Bank’s Influence on the National Policy Agenda
3.3.2.
The Actors and Outcomes
3.3.3.
The Analytical Conclusion
3.4. Conclusions of
section 3.
4.
Policy Recommendations
References
1. Preface
1.1.
Objective and Key Issues
The objective of
this paper is to describe and assess the role of the European Union and the
World Bank in determining the outcomes of the national economic policy in
Several aspects of the issue are analysed in this paper, namely: i) whether the selected international organizations’ policies with respect to Lithuania and other East European countries always produce positive economic results, or they may also result in negative consequences; ii) if negative consequences are likely - why the selected international organizations are not able to formulate more sound policies and why the national governments are not able to resist the policy advice that is likely to cause such negative consequences. The presumption of the paper is that the role of the international organizations in shaping the national policies of the transitional countries is sometimes biased; it may be prejudiced by a lack of expertise within an international organization, a cumbersome bureaucratic procedure within an international organization, that makes an organization’s decision economically unsound, or the defense of some member states’ interests at the cost of the others. These and other reasons may be capable of distorting an international organization’s policy performance and, providing that a recipient of policy demands is not able to refute the unsound recommendation, cause an economic damage.
However, the paper is not specifically focused on an economic damage as a policy outcome (this would be an exceptional case of the negative influence of international institutions), but primarily on the decreased efficiency and rationale of the economic policy as an outcome of the international organization’s role in the national policy making. By invoking concrete empirical examples from Lithuania and other countries of Eastern Europe, the paper is intended to demonstrate that the outcome of some international organizations’ policy advice or aid packages could have been better if the national authorities did not follow these organizations’ recommendations or demands on which policies to implement or how to use the allocated funds.
While the paper includes empirical examples of the negative influence of the selected international organizations, it is not intended to assert that the existence of these organizations is by itself negative, or that all aid or actions taken by these organizations should be viewed as negative. It is very important to realize that in many cases the existence of the policy pressures from the international organizations enabled the national governments to overcome their own inefficient policy approaches, to speed up progressive reforms. This positive impact of the European Union and the World Bank is widely acknowledged and appreciated in the paper. At the same time, however, the paper is aimed at analyzing the selected cases of both positive and negative influence, finding the causes of such an influence, and recommending the policy solutions for the national governments on how to overcome the temptation to unconditionally submit to the international organizations’ demands in cases where there may be a lot of space for negotiation.
Thus the main issue of the paper is the social responsibility of the European Union and the World Bank, as reflected in their policy advice or in their aid or lending policy (official or unofficial), as well as the response of the national governments to the international organizations’ demands.
It should,
however, be mentioned that the primary objective of this paper is to present
the empirical data and make conclusions on the influence of the selected
international organizations on the domestic policy process in the transitional
economies, primarily in
1.2.
The Perception of Social Responsibility
Generally
“social responsibility” of global governance institutions is understood as the
social consequences of these institutions’ lending and aid policies for the
poor layers of the population. Indeed, there is a lot of literature on the
impact of the IMF, the World Bank, sometimes – the WTO, on widening the inequalities. Sometimes the impact of
the IMF’s or World Bank’s lending conditions is
recognized to be directly adverse to the interests of those most in need.
However, this paper is focused on the transitional countries of
1.3.
Theoretical Framework
The issue of the efficiency of policy making at both international and national level may be analyzed from several theoretical perspectives. However, the practical usage of this paper consists in its attempt to explain rather the behaviors of single civil servants on both sides rather than the behavior of the organization itself. The question why the European Union tries to negotiate for better conditions to be applied to the consultancy firms based in the EU or requires to close old nuclear power plants hardly require a specific explanation, neither does the World Bank’s tendency to support the interests of the United States – its largest donor. Quite a lot of literature already exists on these topics. The much more interesting question is why and how low and medium ranked officials within the international organizations are able to almost dictate policy solutions in the framework of the granted loans or aid packages and why the national civil servants tend to submit to these demands, as well as under which circumstances the influence of the international organizations’ employees may increase or decrease. These are the cases when a national administration could well be able to negotiate better policy options, contrary to the cases when the negotiation is hardly possible.[1]
Thus the main focus of this research tends to emphasize the behavior of a stakeholder in the policy making process as a factor predetermining a policy outcome. The sum of the influences of various stakeholders produces a certain result which may be either to submit to the international organization’s demand or to negotiate (sometimes to reject) these demands. Likewise, within an international organization’s structure, the sum of the influences of various stakeholders causes one or another position to be recommended to a member state. Thus a suitable framework of explanation of policy outcomes is modern institutional economics which asserts the importance of the individual actions in the policy making process and the imperfect rationality of the decision makers, hampered by high transaction costs. The identification of the decision maker’s or stakeholder’s position, and the analysis and reasons of such a position is the key metholdological objective of the paper. The paper is intended to show that the chosen theoretical framework is suitable for the purposes of this research, but it is not intended to check the validity of any alternative theoretical explanation.
For the purposes of the analysis, the stakeholders shall be divided into several categories: the civil servants directly in charge of the policy in question, the senior decision makers within the ministries, the politicians, the interest groups, the media, the society, and the representatives of the international organizations. The position of each of these actors in seeking one or another policy outcome shall be outlined and compared with the international organization’s recommendation or demand. The interaction of various influences and the inevitability of transaction costs limiting the availability of information for decision makers shall be considered the key factors determining the national policy outcome. Likewise, the policy recommendations shall be related to balancing the influences and the methodologies for more efficient communication strategies able to diminish the transaction costs in decision making.
1.4. Empirical Coverage
The empirical
cases illustrating the success or failure of the World Bank’s or EU’s policy in its transactions with the transitional
countries of Eastern Europe shall be confined to the policies of the allocation
of the European Union structural funds - in case of the EU,
and to the conditionalities imposed by the World Bank
on its loans – in case of the World Bank. Most of the empirical evidence shall
be based on the Lithuanian experience, but in order to show the existence of
the similar problems in other East European countries – a limited number of
cases shall be based on the experience of the countries other than
While the major empirical coverage shall be related to the above mentioned fields, the illustration of the influence of the selected international organizations on the member states policies shall require a wider coverage. In order to present a more comprehensive picture of how the employees of the international organizations may press for their solutions and how various domestic actors typically respond to these demands, the empirical cases shall also be taken from such fields as the financial control methodology, public administration, agricultural policy.
1.5.
Sequence of the Paper
The paper is divided into several sections.
Section 2 is focused on the theoretical foundations of the problems to be analyzed in this research. The writings on the policy efficiency within the governmental organization and on its social responsibility shall be quoted, the theoretical framework of the analysis – the Modern Institutional Economics – shall be justified.
Section 3 shall be focused on the presentation of the empirical cases of the international organizations’ influence on the national policy making and on the responses of various domestic policy making actors to this influence. The selected cases shall demonstrate that the unjustified demands of the international organizations may be frequently overcome, but the reasons of their acceptance rest with the lack of information by the decision makers, the undue influence of various interest groups, and the vulnerability of civil servants directly in charge of the influenced policy area.
Section 4 shall be dedicated to the conclusions and policy recommendations.
1.6. Auditorium
and Political Significance of the Paper
The paper is designed for the governmental decision makers in the Central and Eastern European region. It should also be interesting to the employees of the European Union and the World Bank, as well as to the people interested in issues of policy making, public administration, regional development, and the EU structural funds.
2.
Social Responsibility in Governmental Action: Theoretical Foundations
2.1.
Theories of Institutional Behavior and How They Will be Applied to this
Research
[this part shall probably need to be significantly expanded with the explanation of why other theories are less adequate; this is open for discussion]
There is a lot of literature on the
issue of the rationality of decision – making. To mention just a few findings, Kickert, Klijn and Koppenjan distinguish three steering models: conventional,
multi-actor, and network based. According to them, the conventional model focuses on the relation between the agent and
objects of steering and indicates that failure is a result of ineffective
steering instruments, resistance from implementing bodies, lack of information,
lack of control, incorrect assumptions on the causal relationships between
means and ends. Thus this model suggests that policy may be improved by
clarifying policy objectives, reducing the number of participants in decision making,
increased monitoring and control. The multi
actor model suggests that the failure may arise when the government does
not provide sufficient information for local actors, both private and public.
Thus the major improvement, which can be made, is more local discretion. The
model is, however, criticized for inconsistency – while local actors are
expected to be more autonomous, they are supposed to get more attention from
the central government. Finally, the network
model is based on the networks of actors, none of which possesses the right
to determine policy outcome. Therefore, interaction is necessary, and a policy
failure is believed to originate from the lack of collective action.[2]
The complete autonomy of the state is
not seen as a good solution and pressures from the interest groups are
recognized to be of great significance in determining policy goals, if the
network approach is taken as the basis. However, while in case of complete
government’s autonomy the major reason of policy failure may be the lack of
qualifications, information, or too cumbersome procedures, in case of ‘embedded
autonomy’ (network based approach), one of the key issues (besides others)
becomes whether the civil servants are able to resist tendencies of
self-interest.[3] Evans, referring to Weber,
says that the state is only able to regulate economy effectively if the
bureaucrats see corporate (societal) goals as best matching their personal
self-interest.[4] This match can be achieved,
according to Evans, by introducing competitive examinations and the system of
promotion based on merit, creation of the feeling of work prestige. In some
cases, as Evans suggests, islands of efficiency with all these features may be
created to manage vitally important sectors of economy, if it appears to be
impossible to follow such principles in the entire civil service.
However, even if there are all the
mentioned features, does it mean that the civil servants shall be able to
depart from their self-interest? As Moe suggests, this will still not happen.
According to him, “…democratic governance gives rise to two major forces that
cause the structure of public bureaucracy to depart from technical rationality.
Firstly, those currently in a position to exercise public authority often face
uncertainty about their own grip on political power in the years ahead, and
this prompts them to form structures that insulate their achievement from
politics. Secondly, opponents also have a say in structural design and, to the
degree they do, impose structures that subvert effective performance and
enhance their own control”.[5] These and other factors
still create instability, and the private sector’s role in defining policy
objectives (or simply speaking – rent seeking behaviour
of both civil servants, private consultants, interest groups, etc., may
increase).
Moe thinks that all governmental actors
are primarily concerned with their own problems and pursue their own interests.
Politicians are interested in re-election and therefore try to get as much
funds as possible for their districts, civil servants are interested in
maintaining control over certain activities even if this is not an efficient
approach, in order to maintain their jobs. Finally, there being little
certainty about the future of public agencies, each civil servant and
politician may be willing to ingratiate himself with the private structures, in
order to get benefits after some problem occurs in his career. Issues of
corruption and bribery should also be taken into consideration, especially when
civil service work is badly paid.
Generally, however, if this approach is
followed, not only the politicians and civil servants, but also the interest
groups that have a stake in decision making are likely to promote
self-interested approaches to policies, especially when material allocations
are on the agenda. In this regard, policymaking may be regarded ‘a clash of
personal interests’.
The Modern Institutional Economics also takes the point of view that an individual within a public organization is to seek his own interests. According to Furubotn and Richter, the modern institutional economics asserts methodological individualism and individual rationality. The modern institutional economics, according to the authors, presumes an entirely new role of individual decision makers. People are different and have different goals, objectives, rationale, ideas. Thus the organization per se is no longer perceived as the main focus of the analysis. Rather the views and behaviours of the individual actors give the raise to the phenomena being studied.
While the
individual rationality is accepted as one of the determinants of the policy
outcome, two trends may be distinguished – one taken by the traditional
neoclassical view asserting perfect individual rationality and another taken by
the modern institutional economics – imperfect individual rationality,
presuming the incompleteness of the decision makers’ knowledge and information.
The latter trend suggests that a transaction cost in the policy making process may
be too high to make a decision maker “completely informed” and thus an
individual often makes his choice without a sufficient rationality.
What do we gain or lose by applying the framework of a personal interest of the decision makers and the transaction costs as a factor influencing a personal choice, rather than any alternative frameworks? Firstly, this paper is specifically intended to analyse the policy influence of international organizations that arises from the actions of single employees or their groups rather than the entire organizations. This does not mean that problems of social responsibility or policy dependency do not arise in inter-institutional or inter-governmental context. Indeed some of the cases, such as the EU demand to close nuclear power plants in the accession countries, or to accept certain specific provisions of the Europe Agreements influencing the trade policy make up an institutional and hardly a personal stance. These cases could not be analysed in terms of actors’ personal interests, because actors would be too many. These cases are also not suitable for the analysis because no valuable policy recommendations could emerge from their investigation – an accession country would be able to rebuff any attempts to demand unwanted policy solutions by building international alliances, consolidating the domestic policy agendas, but not by taking actions at the level of the domestic civil service. As a result, such cases represent a set of “ultimate truths”, i.e. that a stronger state can press on a weaker one, etc., without a lot of ways out. However, the phenomenon that is analysed in this paper is based on the international organization employee’s or unit’s and the national government’s, unit’s or civil servant’s dependency (interconnection). These cases illustrate how an international organization may exercise a due or undue influence on the domestic policy agenda on quite strategic economic issues by means of informal pressure, bu presenting personal rather than the institutional demands and views. As it is argued in this paper, such a sort of influence is great and the decisions that are at stake in such cases can well be negotiated – the failure to do so rests rather with the inefficiency in the domestic organization of the civil service, the lack of information by the decision makers, the misunderstanding of what is good or bad for the country, and ultimately – the interplay of interests of those who do or do not understand, do or do not want a certain policy solution. In this field, there is a lot of space for designing independent policy recommendations.
2.2. Are International Organizations Different? – Remarks on Social Responsibility in Global Governance Institutions
Whether the global governance institutions or the European Union are different from the lines of behavior characteristic of the national governments is a rather rhetoric question. An international organization is the same bureaucracy. Although we expect it to be more competent than the national authorities are (and this is often the case), it is driven by the same factors as applied to an ordinary governmental organization.
The theoretical writings on the work of international organizations, such as the World Bank and the International Monetary Fund, generally have two prospects – the one of international relations, and the one related to their economic policies. There are also some (fewer) writings on the efficiency of these organizations’ internal structures. For the purposes of this research, it shall be useful to summarize the opinions of the scholars on what the objectives of the selected international organizations are, whether the policies of the global governance institutions are efficient, which problems exist in these institutions’ internal structures.[6]
Objectives
Every global (or regional) governance institution has a set of objectives. The World Bank’s major objective is considered to be the promotion of investment in development, the International Monetary Fund’s – to deal with the problems of the balance of payments, to provide short-term loans and advice on the government’s macro economic policy[7], the European Union’s – to pursue a number of objectives stipulated in its founding treaties, including a significant range of the functions with an economic impact.
According to the World Bank, its major current objectives are:
To fight poverty with passion and
professionalism for lasting results.
To help people help themselves and their
environment by providing resources, sharing knowledge, building capacity, and
forging partnerships in the public and private sectors.
To be an excellent institution able to
attract, excite, and nurture diverse and committed staff with exceptional
skills who know how to listen and learn.[8]
According to the International Monetary Fund, its purposes are:
To promote
international monetary cooperation through a permanent institution which
provides the machinery for consultation and collaboration on international
monetary problems.
To facilitate the
expansion and balanced growth of international trade, and to contribute thereby
to the promotion and maintenance of high levels of employment and real income
and to the development of the productive resources of all members as primary
objectives of economic policy.
To promote exchange
stability, to maintain orderly exchange arrangements among members, and to
avoid competitive exchange depreciation.
To assist in the
establishment of a multilateral system of payments in respect of current
transactions between members and in the elimination of foreign exchange
restrictions which hamper the growth of world trade.
To give confidence
to members by making the general resources of the Fund temporarily available to
them under adequate safeguards, thus providing them with opportunity to correct
maladjustments in their balance of payments without resorting to measures
destructive of national or international prosperity.
In accordance with
the above, to shorten the duration and lessen the degree of disequilibrium in
the international balances of payments of members.[9]
According to the European Union, its principal objectives are:
To establish European citizenship (Fundamental rights; Freedom of movement; Civil and political rights);
To ensure freedom, security and justice (Cooperation
in the field of Justice and Home Affairs);
To promote economic and social progress (Single market; Euro, the common currency;
Job creation;
Regional development;
Environmental protection);
To assert
These objectives are pursued by a variety of means, such as the establishment and coordination of policies, provision of aid, loans, expertise.
Policy
Influence
Each of these policy instruments may and does become an instrument of these organizations’ influence on the domestic policy agendas of the member states. On the one side, the presence of such an influence does not contradict the logic of these organizations – they are supposed to help the weaker member states to introduce sound economic policies. On the other side, this influence may also cause undesired effects, such as the defense of the economic interests of some member states at the expense of the others, or the almost forcible pressure on a weaker member state to take one or another policy action that the organization thinks is necessary.
The danger of the international organization’s undue influence on the member states is elaborated in a number of writings. One of the cases concerns the World Bank’s policy based lending, i.e. the provision of loans on the condition that the borrowing country shall implement certain political objectives (reforms). According to Mosley, Harrigan and Toye, the policy based lending of the World Bank appeared in the 1980s and comprised three steps: i) the program (non-project) lending to provide support for the deficit in the balance of payments, as well as to facilitate imports; ii) a combination of the program lending with policy change; iii) broadening of loan conditions from sectoral / sub-sectoral to the national (macroeconomic) level.[11] Such a lending based on broad conditions encountered problems because of several reasons: i) the claims that the World Bank meddles into the loan recipients’ internal affairs; ii) the absence of mechanisms to control the implementation of the set conditions; iii) the frequent aspiration of the policy wing of the World Bank to impose as many conditions as possible, a lot of them being quite abstract, etc. Gilbert, Powell, and Vines argue that “The central problem with conditionality is that it results in time-inconsistency. Recipient governments may agree to ex-ante policy conditions if they see this as a means of attaching future loans or aid support. However, once the aid is disbursed these incentives are diminished”.[12] Besides that, the policy conditionalities also entail the problem of lending efficiency, i.e. the countries that have not been implementing policy reforms acquire better chances to receive funds while the countries that have progressed rapidly have a chance to be denied resources.
Both the World Bank and the International Monetary Fund widely apply
policy conditionalities; the World Bank’s conditions
may relate to the general reforms of public administration, including the
economic sector, and the IMF’s conditions relate to
the macro economic, financial, monetary policies. Both organizations face an
increased criticism for alleged adherence to the financial/economic interests
of the
In the context of the transitional economies of
In this context, there is much less literature on the policy influence of the European Union, probably because most of the member states have maintained active contacts between themselves, most of them were equally or almost equally wealthy. With the process of accession of 10 East European countries, some form of dictation by the EC employees came as well. However, there is, so far, quite little literature on the examples of such an influence. This paper is one of the attempts to shed more light on the role of the EC policies and single employees on the transitional countries’ policy agenda.
2.4. Conclusions of part 2.
In part 2, the theoretical framework of this publication was reviewed, and the role of the global governance institutions in the national policy making was briefly assessed. The key conclusions of this part are that: i) the chosen theoretical framework of analyzing personal interests of the decision making actors as a factor predetermining a policy outcome is an acceptable framework of the analysis; ii) there are a lot of examples of both positive and negative policy influence of the international organizations on the national policy agendas; iii) the policy impact of the European Union on the transitional countries of Eastern Europe exists, but it is under researched.
The conclusions of this chapter should not be understood as an attempt to assert that the international organizations should not exist or that they bring only negative or overwhelmingly negative consequences. It is rather an attempt to point out to the types of problems that may arise, so that a suitable analytical framework would be prepared for the following chapter.
3. Social Responsibility in Governmental Action:
Practical Application of Theoretical Presumptions
3.1. Social Responsibility in Governmental Action –
the Case of Regional Development[20]
In most cases, the discussion on
decentralization of the process of development does not go further than the
acknowledgement that regions should (or could) promote territorial
competitiveness, have a voice in national investment allocation or that they
should have increased fiscal powers or investment funds at their own
disposition.[21] However, in Eastern Europe,
there has recently[22]
been a wave of attempts to create legal frameworks, which could have led to the
allocation of very significant, if not all[23] amounts of central
government investment funds for regional policy - possibly, also with a strong
involvement of regional governments in investment management. Such a scheme was
advocated by the European Commission’s DG ‘Enlargement’ and attempted to
implement in late 1990s, in the framework of accession countries’ preparations
for the EU Structural Funds. While this toughest form
of the regionalized approach failed in late 2000 – early 2001 (in those
countries, in which it was adopted), the key issue for the analysts remains how
could such a concept appear at all and how could it be theoretically justified.
This question is intriguing, since such a degree of decentralization in
investment allocation and management finds little, if any support either in
general economic theory or in regional development theory. Neither does it find
any support in the policies of either EU institutions
or the EU member states, or even in the planning
traditions of the very accession countries.
The decision to carry out the Lithuania’s preparations for the EU structural funds on the regional (rather than national) basis, as well as the decision to allocate the 14,000,000 euro of the EU PHARE 2000 “Economic and Social Cohesion” funds to the four poorest regions of Lithuania can be considered a major policy failure of both the European Commission services that offered such an unsound approach and strictly enforced it[24], the specific civil servants within the European Commission services who advocated this approach, and the Lithuanian government that accepted this approach.[25]
In the
sub-sections below, the information shall be presented that shall illustrate
why these decisions should be considered a policy failure and what caused the
appearance of such policies.
3.1.1.
What is the EU regional policy
The European
Union’s regional policy represents a set of rule governing the allocation and
management of the EU structural funds – the major
financial instruments to help the lagging regions (or in some cases – the whole
member states) of the European Union to overcome their social and economic
problems. For the 2000-2006 period, regional policy is providing support for
the following objectives:
Objective 1 – the Development of the least favoured regions.
Objective 2 - Conversion of regions facing difficulties.
Objective 3 – Supporting the adaptation and modernization of policies and systems of education, training, and employment.[26]
The funds are
allocated on the basis of the relevant EU regulations
and the 7-year national development plans or single programming documents. For
the period of 2000-2006, the total allocations for “Objective I” were foreseen
to be 135,9 million euro, for “Objective II” – 22,5 billion euro, for
“Objective III” – 24,05 billion euro, for the total of 195 billion.[27]
The East European countries shall be eligible for the Structural Funds only upon accession. However, from late 2001 they have been eligible for the structural pre-accession aid – ISPA, SAPARD and PHARE Economic and Social Cohesion. These instruments combined give up to 2-5% of the total national budget already now[28] and are supposed to be a major source of the country’s investment allocations. They are also supposed to be the prototypes of the EU Structural Funds for the accession countries that will not only provide for them immediate material resources, but also help prepare necessary procedures and administrative capacities for managing the Structural Funds when the countries accede.[29]
The European Union’s regional policy,
the major instrument of which is the EU Structural
Funds and in case of the accession countries – the pre-accession instruments,
is emphasizing a region as a major territorial unit, in which the policy should
be implemented. Therefore, the whole sector of Structural Funds is usually
referred to as ‘Regional policy and coordination of structural instruments’.
However, the EU regulations tend to be vague on the
issue of what a region is, concentrating instead on the definitions of the NUTS
(the nomenclature of statistical territorial units), under which a territory
can be assigned NUTS I, II, III, IV or other levels, depending on certain
characteristics which are beyond the scope of this analysis.
Very importantly, it is the NUTS II
region which is eligible for support under ‘Objective I’ of the EU Structural Funds – the objective which presumes the
assistance to the lagging regions[30] and for which over a half of
all funds are earmarked. Although NUTS III regions are the major territorial
units to receive assistance under Objective III – assistance to areas in
industrial decline – the amounts earmarked for this objective are significantly
lower. On the other hand, in the form, in which this objective is interpreted
by the EU institutions, very few East European
countries may be recognized having these kinds of problems.
While in large countries the whole
country is usually a NUTS I unit, small countries, such as
The major question remains what should
be the role of local and regional authorities in both cases? Should it be
different in small and large countries? The EU rules
are perfectly clear – they promote the principle of partnership, requiring that
all tiers of authority and social partners be involved in all stages of
investment decision making (i.e. planning, implementation, etc).[32] However, they do not imply
that regions should be invested with any direct managerial or planning responsibilities
for the EU Structural Funds.
3.1.2.
The Decision
The decision that is to be analysed consists of the several parts: i)
In early 1999, the European Commission’s DG “Enlargement”, despite the
dissatisfaction of other sectoral Directorates
General of the European Commission, adopted the policy of accession countries’
preparations for the European Regional Development Fund and the European Social
Fund via the development and simulation of planning procedures in the PHARE 2000 ESC initiative, on the basis of regional
development plans for single regions. It was supposed that, by introducing the
planning and management arrangements for this initiative, the accession
countries shall simulate the procedures necessary for the EU
Structural Funds and when the accession countries ultimately accede the EU, they shall already have all the procedural framework in
place. The key problem was that in case of the EU
structural funds, the “Objective I” countries, such as
As a result, different East European
countries have taken a similar approach to the preparations for the EU structural funds[34].
In Hungary, 7 regions in charge of just planning and management of (presumably)
the PHARE ESC funds were set up[35], of which 3 shall be
eligible for PHARE aid; in Poland 5 existing
administrative regions (out of 16) were chosen for PHARE
ESC assistance, in the Slovak Republic the whole PHARE
ESC funds were focused on only one NUTS II region in East Slovakia, in Latvia –
2 lagging, non-administrative regions were chosen, and in Lithuania 4 existing
counties – NUTS III units - (out of 10) were selected for PHARE
ESC support.
The issue of regionalization of the
funds was understood differently, but some tendencies of their regionalization
can be seen in almost all accession countries. In the
In all accession countries, in which
such regionalization was attempted in 1998-early 2000, the created legal and
institutional structures began to be dismantled in late 2000-2002. In
Was there any economic harm done by this
regionalization? Fortunately, not a considerable one, but this is mainly because
the provisions regulating PHARE ESC aid were changed
before the actual allocations began. Had this not been the case, problems could
have been great. According to the unofficial forecasts of the Regional Policy
Coordination Unit of the Lithuanian Ministry of Public Administration Reforms
and Local Authorities (at that time – the institution in charge of regional
development), only 10-15% of aid would have been absorbed if initial rules were
applied[38], and it would have taken at
least 12-18 months (possibly up to 2-3 years) for the Structural Funds’
planning documents to be approved if procedures of the Regional Development Act
were applied. That would make it impossible to receive any EU
funds, since its deadlines do not afford such a lengthy period of coordination.[39] The actual damage was,
however, moral and institutional. In many accession countries, the civil
servants in charge of the EU funds were demoralised, since they had to do things that contradicted
the logic. Also structures were created[40] and laws passed in 1998-1999
(early 2000) that had to be changed immediately afterwards.
3.1.3. Why a Policy Failure – a Theoretical
Justification from the Regional Development Theories and EU
structural funds’ rules
Besides the direct conflict with the EU regional policy rules, the decisions recommended by the
DG “Enlargement” in 1999-2000 and submissively followed by the majority of the
accession countries’ governments also lack an economic justification. These
decisions urged the national governments to concentrate funds in the most
lagging regions. However, almost all modern regional development theories have
argued that the spatial concentration of economic activity is inevitable and
that the development gap between rich and poor areas, once formed, tends to
further increase. Thus investment in the lagging areas is more expensive and
can hardly be justifiable, especially in cases when the nation as a whole
experiences serious developmental problems.
According to the theoretical model of growth poles, formulated by Perroux in the 1950s, “…economic space as an abstract field of forces leads to the notion of a vector of economic forces, and hence to the concept of growth poles.”[41] According to Lasuen, for Perroux and his followers, development has been attributed to the disappearance of old industries and the appearance of new ones, via the process of innovations. Since the new industries offer a more innovative product and face less competition, they may increase their profits and create preconditions for further growth. [42]
This, in fact, means that investment should also be preferably concentrated in richer regions. For example, as Hirschman argues[43], building infrastructure in under developed regions is too expensive and it would therefore be better to promote ‘growth poles’, hoping that they will trickle down, thereby causing positive effects on development of lagging regions. As Armstrong and Taylor argue, while regional development policy and support to lagging regions may be beneficial for several reasons, such as avoidance of social tensions, inflationary pressures caused by industrial over concentration, urban congestion and others, it is also apparent that industries in ‘growth poles’ benefit from agglomeration and localization economies. The first one is caused by benefits arising from the concentration of infrastructure, business services, and skilled labour force around areas of concentration of economic activity, and the other one – by the possibility to exchange information, to adopt innovations, to get personnel with specific skills, and by other benefits arising from the concentration of businesses with similar profiles. [44]
Thus, as it seems, the growth of ‘growth poles’ is often cumulative, i.e. the gap between the core and the periphery demonstrates a tendency to increase, and this is exactly what is formulated in the theoretical writings on circular and cumulative causation. Contrary to the neoclassical thought, which presumes the existence of equilibrium caused by the free market forces, the theory of circular and cumulative causation asserts that “[free market] is more likely to generate a process of cumulative causation that will carry it (disequilibrium) further and further from equilibrium”.[45] Domar’s knife-edge theory formulated in 1946, Harrod’s book ‘Towards a Dynamic Economics’ published in 1948, and Myrdal’s ‘Economic Theory and Under Developed Regions’ published in 1957 are all dedicated to proving this assumption. While Domar’s theory presumes that growth requires investment (which is frequently flowing into richer regions rather than the lagging ones) and the failure to invest at the same percentage rate as the growth of national income results in unemployment, Harrod’s cumulative causation anticipates that investment decisions are often based on the expected rate of growth, and the expectations are likely to be better in richer areas.[46] This only strengthens the Perroux’s view that development is always polarized, which leads to dominance and dependence.[47]
A number of other theoretical presumptions
elaborate on single aspects of growth causes. For example, Everett Hagen’s
gradualism presumes that “…economic development takes place where the socio –
cultural conditions are appropriate for it and cannot take place otherwise”[48] which, in fact, means that
more traditional societies are unlikely to catch up with the pace of
development, and while this is true of developed vs. developing countries, why
couldn’t it be true of developed vs. developing regions of the same country?
The theory of instant entrepreneurship presumes that development results may
depend on the entrepreneurs’ initiative, which, besides other factors, is
constrained by the lack of knowledge. Knowledge and information are, once
again, better available in ‘growth poles’ rather than periphery. Ohlin’s theory of interregional trade indicates that
“…different regions have varying endowments of natural and human resources, and
because of varying economic histories, they also have different stocks of plant
and equipment in existence and varying capacities to save and invest.”[49] In the absence of perfect
mobility of factors of production, as Ohlin suggests,
the differences in the pace of development may be conservated
for quite a long period of time.
Is there then any hope for the periphery?
Should it resist tendencies of cumulative growth in the core areas? According
to John Friedman, not necessarily so. As he argues, core regions tend to
organize the dependence of their peripheries through systems of supply, market
and administrative areas. They transmit impulses of innovation to the
peripheries, and, up to a certain extent, the core region’s growth may have
positive effects on the entire spatial area. Generally, however, the issue of
geographical polarization remains a problem (primarily a social one), despite
the fact that cumulative growth of the core brings maximum benefit to the
country as a whole. Issues of unequal income distribution, absence of mobility
of factors of production may not allow the periphery to benefit from the development
results.[50] As a result, regional policy
may become necessary, and Lasuen makes a point, which
represents typical fluctuations between the necessity to support the periphery
and to invest in the core, by saying that “…it could well pay to have a two
pronged strategy. On the one hand, there should be an effort to foster the
fastest possible transformation of the structure of the leading business
firms…”[51] but on the other hand, there
should be efforts to stimulate backward regions. The same point is reasserted
by Armstrong and Taylor, as already mentioned above. They argue that regional
policy is necessary, despite theoretical findings that it may cause a net lose
for the country as a whole.[52] While they probably
primarily meant richer countries, such as the
Importantly, even if the advantages of
regional policy may be too few, the political (rather than economic) logic will
still disallow to ignore it. According to Rodwin,
“…it is easier politically to advocate dispersal and then allocate resources
otherwise (or allow such allocations to occur)…”[53] because geographically
elected Members of Parliament are likely to argue for the regional
concentration of funds even if there is overwhelming evidence on the
detrimental consequences of such an approach. Moreover, irrespective of what
the particular Members of Parliament think, it is politically impossible, in a
democratic society, to assert that the pro-poor policies are unnecessary, due
to expected negative reaction from under developed regions (which, in some
cases, may have more residents and voters than the cherishing ones).
Armstrong and Taylor also tend to
associate regional development policy with social rather than economic
rationale. As it is possible to imply from the text of their book ‘Regional
Economics and Policy’ (though this is my strictly personal interpretation), the
promotion of industries’ competitiveness or other purely economic goals may
well be valid for regional policy, but they can always be juxtaposed with the
expected return from public investment alternatives and, as a result, regional
policy shall be confined in scope. However, social goals do not need such a
comparison; on the contrary, they need pervasive assistance based on the
criteria of poverty or social exclusion. As Armstrong and Taylor suggest, it
then becomes even necessary to justify why regional policy should not be based
on social objectives, in order to legitimately justify why social spending is
not so pervasive in regional development (indeed, since defiance of poverty
cannot be rejected by a democratic government, this is a major concern for the
administrations wishing to promote economic growth)! In this regard, they
assert that such a justification can be offered by indicating that social
problems (primarily social exclusion) are the concern of national, not regional
policy.[54]
All these considerations cause the
necessity to define appropriate policies for countries, which face a severe
scarcity of resources, a category that
Overall, there is the agreement among
the theorists that regional development is a social rather than the economic
phenomenon. Regional development policy of the central government becomes
necessary to diminish social tensions among the rich and poor regions, but the
overall social, economic, or financial returns for the nation as a whole are
usually smaller (and may be considerably smaller in case of investment in the
lagging regions). Moreover, there is no justification for “over-supplying”
governmental subsidies, business and training services in the lagging regions,
as in this case the projects become less efficient and the approach of business
service and training companies - formalistic. As a result, the conclusion may
be firmly established that there was no economic justification for the initial
decision to allocate such significant amounts of aid for such narrowly defined
areas in the most lagging regions of the country. This decision does not become
more rational even if social considerations are taken into account.
3.1.4.
The Actors and Outcomes
Let try to apply the analytical
framework of this paper to the case. The following aspects must be taken into
consideration:
1. Civil servants in charge of the funds
were usually much worse remunerated than the PHARE
local experts who are supposed to assist them. In
2. The EU
Structural Funds’ rules are very complicated. While there is comparatively
little knowledge of integration in all East European societies, the problem of
knowledge among politicians and senior executives is particularly acute in this
field. Even though a lot of seminars and explanations were launched, it usually
took up to 9 months for an employee directly working in a responsible
administrative unit to perceive the whole complexity of these issues[57] – what can then be said of
persons who only occasionally attended training sessions.
3. The selection to the civil service in
East European countries was still predominantly based on unobjective
factors, such as personal acquaintances etc.[58] The same is true of the
system of promotions. As a result, the level of competence in units in charge of
the EU funds suffered three times: as a result of
complicated rules, due to the lack or outflow of personnel, and due to the lack
of skills or willingness to acquire them.
4. The lack of knowledge in the whole society and between those influencing decision making, as well as – sometimes but not always – the lack of competence in the civil service units directly in charge of the EU funds, caused increased pressure from the politicians and interest groups to adopt decisions that are impossible to adopt under the EU rules[59], which was counter balanced (or sometimes exacerbated) by an increased pressure from the EU to follow its rules or their arbitrary interpretations without deviation. The gravity of the problem can be understood when realizing how much money is received and channelled! At the same time, civil servants often feared to report arising problems to the superior authorities and/or do surrender to unjustified demands of either the politicians or interest groups, or the very EC. Under the universal lack of knowledge and the huge stakes involved they had an increased chance to be themselves accused immediately, should the problem become known, of the lack of results or the inability to implement political decisions.[60] This problem was becoming particularly acute when civil servants directly in charge of the EU funds themselves had doubted competencies, since in this case the fear to be fired without a chance to find a new job added to the lack of ability to provide an adequate explanation or to justify a policy alternative.[61]
5. The very European Commission tended to fluctuate often, as the above-mentioned case of PHARE ESC demonstrates. While in many cases the EC introduced more discipline in East European public administrations and helped in taking effective solutions with less domestic resistance, the experience of dealing with DG ‘Enlargement’ in 1999-2000 demonstrates the contrary. The very Commission services offered an economically damaging approach.[62]
How were then various actors likely to
respond to each others’ actions in the field of EU
investment planning in the light of the role of an individual decision maker?
Interconnections between civil servants directly in charge of the EU funds, other civil servants, politicians, interest
groups, media, and the EC can be taken as the basis. The author’s own
experience in the Lithuanian government, interviews and literature review
suggest the presumptions made below.
Under the given circumstances, civil servants in charge of the funds were
likely to maximize their benefits either by ignoring the existing problems and
underreporting them in the hope that this will prolong their job security. This
category of civil servants, however, was well aware that soon the system is
going to collapse or problems become known and try to escape the governmental
administration as soon as possible.[63] Even if they succeeded to
overcome immediate problems, these were still very likely to arise after the
each next change of political administration, since the newcomers were likely
to blame the civil servants for the lack of results, without looking too much
at the causes.
In 1999-2000, the Lithuanian Ministry of Public Administration Reforms and Local Authorities – the institution then in charge of the Structural Funds, shown no resistance to the ‘regionalized’ approach to managing PHARE ESC funds, even though it well understood the consequences. The gravity of the problems, such as the lack of capacity in the regions, the lack of absorption capacities for measures that were initially designed for funding under PHARE ESC, etc., was never reported to the politicians or senior executives. At the same time, all employees directly in charge of the EU funds voluntarily or forcibly left the governmental service in late 2000 – early 2001, mostly for PHARE consultancy Another phenomenon which is worth mentioning is that, irrespective of the problem at stake, an explanation on why a particular approach was taken most frequently referred to an oral or e-mail opinion of a certain EC services’ official at the level of head of unit or below.[64]
Other civil
servants,
knowing little about the funds, but wishing to have a stake, tended to impose
barriers on effective decision-making. This took a form of delaying the
adoption of cabinet decrees, increased criticism. The same results followed
even when ‘other’ civil servants did not want to have any stake in
decision-making, but were simply unaware of the circumstances. These reactions
flowed from either these civil servants’ willingness to take over some part of
responsibilities, to preclude the reduction in their functions as a result of
increasing role of development planning for the EU
funds, or from their genuine but wrong belief that they are doing the ‘right
thing’ by associating the EU funds with the
procedures or documents which they think are best.
In 1999-2000, there was no single draft
legal act regulating EU structural aid in Lithuania,
which could be submitted for Cabinet’s approval without lengthy (at least 6
months) interministerial coordination – mainly
because all initiatives were immediately vetoed by the Ministry of Environment,
that supposed that the draft Master Plan should be the basis for the allocation
of EU structural funds’ investment. Other ministries,
which tended to resist initiatives, included the Ministry of Economy (then in
charge of the State Investment Program and some other sector development
programs). The Ministry of Foreign Affairs – then the National Aid Coordinator
– did not show any resistance, but played a major role in supporting ALL EC’s
initiatives, whether or not logically or economically grounded.
Politicians and
interest groups
tended to require immediate material results. In the absence or under the lack
of knowledge, they tended to adopt decisions contrary to the EU rules, or tended to commission assignments that make no
or little sense. Even those politicians who understood the whole complexity of
issues tended to keep silence, there being little expectation that the
colleagues will understand, or simply because it was against their rational
interest. For example, if a Member of Parliament is well educated and
understands the complexity of the EU funds, he/she
may still be willing to argue for the concentration of funds in the lagging
regions, just because his/her own constituency is in one of them. The same with
the interest groups – there is no reason why they should seek economic
efficiency for the country as a whole instead of maximising
their own benefit by pressing for economically inefficient decisions. A
particular part of the interest groups – development consultancies – tended to
misuse, especially in 1999-2000, their influence on weak governmental services
by suggesting and implementing, on behalf of the state, economically unfeasible
solutions.
Examples of politicians’ interests
include their promises in the electoral constituencies to bring the Structural
Funds to particular territories, expressions of dissatisfaction with slow pace
of progress (a valid reason for which civil servants concerned may face charges
even if they worked hard – simply because problems would rather be a result of
too cumbersome procedures, the lack and outflow of personnel, etc). Interest groups tend to lobby for their
solutions and a typical response of the government to such a lobbying is the
involvement of civil servants in charge of the funds into lengthy discussions.
The media, while tending to be
objective, expresses its self-interest in the failure to study in-depth the
surrounding circumstances. Therefore, it tended to criticize harshly any
intermediate failures of the national government, as well as frequently supported
any, even insufficiently justified, criticism of the European Commission
services on the results achieved.
The media in
Finally, the European Commission services, while trying not to meddle into
internal affairs of East European countries, sometimes made (and could avoid
making) suggestions and recommendations which were frequently (though not
necessarily and not always) taken by the National authorities as a must –
simply because then any resulting failures might be attached to the EC services
rather than the national civil servants, which ensures a higher career
security. In some cases,
“recommendations” were, however, absolutely mandatory and any national
civil servant trying to argue against was disfavored by the EU
official and consequently by the national high level decision makers as well.
While the European Commission’s role is
generally very positive in the accession countries’ development efforts, the
above-presented case of PHARE ESC illustrates the
contrary result. In no case does this mean that the paper’s author is criticising the present approach of the EC services, which
is, I think, rational.
In 1999-2000, it was the European
Commission services which ordered a ‘regional approach’ to PHARE
ESC planning, mandated the pre-selection of target regions for investment
support, but then severely constrained the possible range of measures under the
investment schemes, making it practically impossible to absorb PHARE ESC funds. Even more, it was DG ‘Enlargement’ whose
representatives orally ruled, in early 2000, to empower regional authorities
with managerial functions for PHARE ESC management,
requiring to make county governments in Lithuania – institutions in charge
primarily of agriculture – key players in funds’ allocation, reporting,
establishing priorities, etc. Once again, it was the EC services, which
cardinally changed the approach in late 2000 – requiring (or rather
recommending) to re-design the system for future PHARE
ESC initiatives, making it more centralized.
How is self-interest reflected in all
these actions? How did it determine the policy failure?
In case of civil servants, the personal
interest was to preserve their career, to minimize their work load. This goal
is easier to achieve when the superior authorities are not aware of problems,
especially in cases when they are not expected to know the circumstances and
are expected to apply punitive actions. The civil servants that are not
directly in charge of the EU aid have a self-interest
in increasing their institutional powers, participating in the process of
planning and management, even though their participation may decrease
efficiency of the policy making process. The politicians and interest groups
can maximise their benefits by distributing promises
of easy cash that later appear to be impossible to implement (something that
civil servants can be blamed of). The media representatives can maximise their benefits by simply referring to opinions of EU officials, instead of analysing
issues in detail (something they cannot do due to the lack of knowledge; their
honoraria may, however, be received even without in-depth analysis). The
European Commission’s officials can also maximise
their benefits by telling popular points of view in the public and restrictive
ones – to the government officials in charge of the funds. This sort of
diplomacy was, indeed, used in 1999-2000 and resulted in increased difficulties
for the governmental employees to prove to their own bosses and to the public
that a different position should be adopted than that publicly admitted by one
or another EU official.
How are high transaction costs in policy making reflected in these actions? How did they determine a policy failure?
The lack of information on the rules of the EU structural funds and sometimes – the lack of knowledge in regional economics, made the decision makers unaware of the possible consequences of the decision. As a result, the EU official’s suggestion was taken almost for granted due to higher reputation and knowledge that was usually attached to him. On the contrary, a national civil servant who tried to argue differently (if he tried, as cases in 1998-2000 were very rare) was almost without exception treated with suspicion. Thus the lack of information and unusually high costs of obtaining it distorted the perception of the policy makers and sometimes – also of the interest groups. Had the policy makers been aware of the EU structural funds’ rules and the circumstances of the DG “Enlargement” – Lithuanian civil servants relationship[65], they would definitely not have adopted the Regional Development Act in the format which de facto precluded the absorption of the EU structural funds and was never applied in practice. Had the senior civil servants be aware of these rules and of the basic principles of the regional economic development, they would have probably tried to negotiate with the DG “Enlargement” rather than accept its PHARE support package unconditionally. Had the other ministries, those not in charge of the EU structural funds, known the EU structural funds’ rules, they would not have argued for the solutions that were apparently impossible to implement, or at least they could have softened their position. Had the media been better informed, it could contribute to criticizing the EU position. Had the interest groups been better informed, they would probably better formulate their points of view, make them more professional, thereby avoiding a lot of unjustified policy demands. Indeed, this sector of policy has been characterized by the unusually high transaction costs (in terms of information), since Lithuania was at the very beginning of its preparations for the EU funds, no experience of knowledge existed, the rules have been very complicated and cumbersome, different rules applied to pre-accession aid and the future Structural Funds, and all these were incorrectly associated with the implementation of the national regional development policy. As a result, only a few civil servants directly in charge of the sector could have well realized what is happening and why.
3.1.5.
The Analytical Conclusion
Since no economic development theory
supports the policy attempts in question and there are no legal constraints
that could have required its existence, the only logical conclusion can be made
that the failure was caused by policy making constraints. The explanation is
needed how these constraints affected the acceptance of the EU
policy demands that were apparently irrational[66] and whether the
preconditions that caused this acceptance have the potential of causing other
policy problems.
The potential problem can be searched
for either in individual actions, in which case the lack of knowledge and
competence in specific (single) cases shall be the determinants of the policy
failure, or in institutional constraints, in which case it shall be necessary
to recognise that the knowledge and competence do
exist, at least in some layers of the governmental administration, but they are
constrained by institutional culture or the biased logic of decision making. In
this paper a presumption is made that the scale of the problems and the
possible consequences of regionalization of such great investment resources
were known to the civil servants in charge of the funds’ planning and
management.[67] Thus it is more likely that
the causes of the policy failure should be associated with the peculiarities of
the policy making process and the behaviour of policy
making institutions, as well as high transaction costs.
As it should be clear enough, the
decisions on creating structures for the EU funds,
incorrectly associating them exclusively with regional policy, as well as much
confusion on what should be done and how to prepare for the EU
funds, have not been based on economic considerations. Such economic
considerations can hardly be found, especially in a view of regional
development theories outlined above.
As it is seen from the analysis, it is
not even legally possible for such a small country as
It can then be concluded that these
policy decisions have been a policy failure of quite a large scale.
In a view of this theoretical and
empirical background, a conclusion comes into mind that the system of European
integration decision-making in the accession countries is insufficiently
favorable to adopting effective decisions in this key sector of economic
activity. Issues of the EU Structural Funds are
‘foreign’ to the policy-making systems in the region, and the systems are not
adapted to the process of fair consideration, although substantial improvements
happened in 2001-2003. The necessity for a governmental servant to rush about
between so many different interest groups (or centres
of power), most of which do not understand the essence of the problems, makes
it more difficult to design adequate policies. Some of the problems were
overcome in early 2000s, at least in
The two key questions remain – whether
it was the European Commission which is ‘guilty’ of the initial over
regionalization in the late 1990s, or it were the national governmental
services and their problems; and whether it was a self-interest of actors
involved that predetermined a policy failure, or there were other factors as
well.
An answer seems to be that the reality
of national decision-making provided a good basis for unconditional acceptance
of the EC’s opinions. However, it should be noted that the central governments,
in the absence of knowledge of the field by decision making actors, also
possess a sort of exclusive right to present the EU
policies in the light of their own interpretations, unless some more
authoritative source – very likely the very EC – interprets differently.
Therefore, the catalyser of the appearance of over
regionalization in investment planning was the DG ‘Enlargement’s initial
approach that could not have been overruled even by very rational arguments on
the governments’ side. While some East European countries might have
demonstrated better abilities to bargain,
As regards theoretical explanation, it seems that there is a sufficient evidence to assume that it was ‘a collision of personal interests’ and ‘high transaction costs’ that caused a policy failure. The given setting of interests settled due to various surrounding circumstances, such as the lack of knowledge or information and, possibly, the lack of strong and active national leadership able to support ‘the right side’; the lack of such leadership was also a factor that allowed the interest groups and decision makers to lobby for economically irrational solutions, created disincentives for technocrats to report and solve problems.[68]
3.2.
Social Responsibility in Governmental Action – the Other Selected Cases
3.2.1.
What are the Policy Areas and How They Are Influenced
Besides issues of regional development & the EU structural funds, other areas, in which the European Commission plays a very significant role are the issues of financial control & public sector internal auditing, governance reform, agriculture, and a wide range of other issues. The influence of the European Commission on these sectors is exercised via the adoption of acquis communautuire by all the accession countries, and via various EU-sponsored aid programmes.
In case of acquis communautuire, an accession country frequently not only needs to adapt its national legislation to the EU standards, but frequently should also adhere to the interpretation that the European Commission’s officials are attaching to one or another legal act. It is noteworthy that, besides the mandatory part of acquis communautuire, there are a number of “soft law” instruments, such as recommendations, opinions, European Commission papers and publications that an accession country may be required to apply as well. Even if there is no “black letter law” or “soft law”, the European Commission’s officials may still require an accession country to take one or another policy action in order to increase the efficiency of public administration structures, to strengthen financial control or investment planning arrangements, to improve administrative capacities, etc. The failure of an accession country to adhere to these recommendations may result in the negative assessment of its progress towards the adoption of the EU rules and standards, as well as of its readiness to join the EU – something that the political circles of an accession country striving for the EU membership will hardly agree to accept. As a result, the relations between the EU officials directly in charge of the accession and the officials of accession countries may sometimes become the master-agent relations.
In case of the
aid programmes, the situation may become similar to
the one described in the field of regional policy and the EU
structural funds. Although the impact of the EU aid
is always positive and the EU rules relating to the
management of its programmes enable an accession
country to achieve an increased efficiency in the management, as well as to
decrease possibilities of fraud, irregularities, or corruption, sometimes these
decisions may also decrease the efficiency of the aid packages themselves. In
no case should this presumption be understood as the negation of the usefulness
of the EU aid.
One of the areas very heavily influenced by the European Commission is the public funds’ financial control methodology and the public sector internal auditing. The attention of the European Commission to internal auditing, fraud prevention in using public funds, and auditing the performance of the governmental institutions increased tremendously after the resignation of the European Commission in the late 1990s, due to the scandals related to the misuse of the Community funds. As a result, all the accession countries have been required to adapt themselves to the newly emerging EC rules, while they were developing in the very EU institutions. The particularly high influence of the single employees of the European Commission on the introduction of financial control and public sector internal auditing rules was exercised because the field was included into the body of acquis communautuire, but “black letter law” instruments in the Community law were very few. The majority of thoughts on how the system was to be organized came from the informal discussions within the European Commission, working papers, written or oral opinions of single reputed sources. Moreover, the instruments were developing in the European institutions at the same time as they were being introduced by the member states. This meant that the rulings and opinions were frequently changing and the accession countries were required to swiftly adapt themselves to the changed circumstances. This, in turn, often meant that the legal basis already introduced and the structures already created must be quickly dismantled – something that is difficult to do under the national legal systems of some accession countries. According to the informal sources in the Lithuanian Ministry of Finance, the position of the European Commission has been changing dramatically from the late 1990s, when the introduction of the sound financial management & control, as well as public sector internal auditing systems and methodologies began as a part of acquis communautuire. While at the beginning the EU officials were considering single decrees of the Minister a sufficient legal basis for the system’s functioning, did not pay a lot of attention to the internationally recognized INTOSAI / EUROSAI standards, rather trying to develop their own, as well as had a restricted approach to the development of the administrative capacities, in 2000-2003 the position has already included the necessity to have “black letter law” instruments, such as national laws or Cabinet decrees stipulating the system and the procedure, a much more rigorous approach was taken to the issue of administrative capacities – strong internal auditing units were required in almost each governmental or semi-public organization with the established minimum number of employees. According to the same sources, the influence of single employees of the European Commission on designing the national policies in these fields is indeed huge in the accession countries. As indicated during interview with an official of the Lithuanian Ministry of Finance, “The European Commission predetermines almost everything. The national authorities just follow the approach taken by the EU. The leading officials of the Lithuanian Ministry of Finance are usually happy with the results of the work of the Ministry’s Financial Control Methodology Department when the European Commission officials are happy and vice versa. At the same time, the replacement of single officials within the EC or changes in the current policies of the EC may lead to the pressure to immediately adopt new policies in the accession countries, even though the national legal systems may require several months of preparations and coordination. This is rarely an argument, since the fear to be subjected to the criticism by the EU for the lack of progress compels the governmental employees to take every effort to please the EU officers concerned”.
Another sector,
in which the influence of the European Commission may be high, but is much
softer is public administration and
civil service. In this field the democracy criteria have been implemented
by
One more sector
that is worth mention is the nuclear
energy sector, as the European Union’s position has always been to close
the out-dated reactors built during the Soviet times. In this case, however,
the influence was exercised rather by the entire EU
as a political structure rather than by single European Commission’s officials.
The national response to these demands was also the politicians’ own well
realized response, i.e. that the nuclear energy sector must be sacrificed in
order to get a positive assessment for the EU
membership. These issues were well discussed and realized – thus the typical
logic of the master-agent relationship among single civil servants does not
apply to this case. The very stance of the EU to
necessarily close these objects is, however, quite controversial. On the one
side, there are arguments that the reactors build by the
In other sectors, such as agriculture, transport, internal market, environment the role of the European Commission officials is also related to the interpretation of acquis communautuire and the assessment of the overall country’s progress towards the EU membership. The importance of the last factor has significantly decreased after the decision to accept certain accession countries was already taken.
3.2.2.
The Decisions
The decisions to
be analyzed in this section are related to the changing recommendations of the
EC officials on the scope of, structures and the legal basis for the public
sector internal auditing, resulting in the necessity to quickly draft new legal
acts, and the recommendations to enhance the administrative capacities.
3.2.3.
The Assessment of the EU Influence
In the field of
the public sector internal auditing, the EU influence
was generally positive, as
In the field of the administrative capacities, the EU influence can also be considered generally positive, although in many cases the EU officials were failing to provide clear and justified standards on why they think the administrative capacities in a certain area are not sufficient and how much personnel is needed in order to satisfy the EU. Such a lack of clarity has frequently confused the national authorities.
3.2.4.
The Actors and Outcomes
While in the case
of EU structural funds and regional development there
was a wide range of actors involved in decision making (due to the high
material importance of the sector), in the field of financial control and
administrative capacities the general public, the media, and the interest
groups generally had a very limited interest in the policy outcomes. The
outcomes concerned primarily, if not exclusively, the governmental sector.
The civil servants directly in charge of
the issues basically followed the same lines of behavior as in the case of
regional policy. However, while in the case of the regional policy and the
financial control methodology they were implementing the instructions of the EU officials (turning them into policy), in the case of
administrative capacities the process was considerably more lengthy. While in
the case of critical remarks to regional policy and financial control
methodology draft laws or legal acts were drafted and presented comparatively
quickly, in the case of administrative capacities the new working places were
usually appearing only after a considerable period of time – i.e. the
Lithuanian decision makers were much more keen to uphold the EU officials’ views on issues that did not require the
material allocations from the country’s own resources than those which required
such allocations. Of course, the issues of the lack of administrative
capacities were also brought forward by the civil servants to the senior
decision makers, but were usually postponed at that level.
The civil servants working in other ministries (not directly concerned with the policy area) were participating in the processes with a considerable passivity, as the issues of administrative capacities in other ministries were none of their business, and the issues of financial control methodology was of their concern, but had considerably less material and political implications than the EU Structural Funds.
The same can be said about politicians. However, the Budget Committee of the Lithuanian Parliament was directly concerned with the issues of the public sector internal auditing and the controversy between the instructions from the EU and the opinions of the national politicians was sometimes occurring. The role of the politicians was also frequently restrictive when the introduction of new administrative duties to deal with acquis communautuire was at stake. In this field, the politicians were sometimes keen to uphold the populist views – not to increase the number of civil servants, especially before the elections.
The interest groups and the media have shown a limited interest in the sector, as already noted above.
Finally, the European Commission services were regularly monitoring the progress. In the field of the public sector internal auditing, they were frequently changing their own standards and requiring the accession countries to do the same. In the field of administrative capacities, they were making statements on the sufficiency or insufficiency of the administrative capacities.
3.2.5.
The Analytical Conclusion
The cases of the
public sector internal auditing and the administrative capacities can be
considered proving the same lines of behavior as the case of regional policy
did, but on a lower scale. This lower scale can well be explained by the fact
that various decision making stakeholders were considerably less personally
concerned with the policy outcomes than in the first case. Due to this reason,
the “penalties” for national civil servants for the criticism on the EU’s side have been lower. In general, the cases presented
in this sub-section demonstrate that the master – agent relationship between
the EU and national civil servants of the accession
countries exists not only in the field of regional policy and the EU structural funds (a vital area of the EU’s influence on the national economy), but also in other
fields.
3.3.
Social Responsibility in Governmental Action – the World Bank
3.3.1.
The Assessment of the World Bank’s Influence on the National Policy Agenda
According to the
World Bank, the organization’s strategy in
... the Bank's
assistance to Lithuania has strongly supported the country's transition to a
market economy. Bank-assisted projects have concentrated on key reforms to
maintain macroeconomic stabilisation to build investor confidence, reduce
government involvement in business activities, and enforce the basic legal
tenets necessary for private activity. Another important area of Bank
involvement has been support for the international effort to clean up the
Baltic Sea.
The Country
Assistance Strategy notes the impact of the Russian crisis on the Lithuanian
economy and the need to adjust macroeconomic and structural policies to address
this impact. Maintaining sustainable growth and managing the resulting increase
in macroeconomic risks will require a near-term policy response combing a
fiscal adjustment with systematic structural reforms to limit quasi-fiscal
deficits in key sectors. These measures would also help Lithuania meet its
overarching medium-term goal of EU membership, as well as laying the
foundations for a more rapid convergence of living standards toward EU levels
and for sustained reductions in poverty.
The World Bank
Group and the Government of Lithuania have agreed on a programme covering the
three main areas linked to the Government’s priorities – human development,
macro-financial stability, and EU accession. The Bank will support Lithuania
through policy advice and dialogue, economic and sector work, and selected
lending operations.
Pursuing the
assistance strategy, the World Bank will help Lithuania to:
The assistance
program ... is expected to comprise the preparation of a number of lending
operations, up to USD 220 million over the period, and a package of non-lending
services, conditional on effective implementation of the World Bank’s existing
portfolio and satisfactory policy performance.
[70]
From the year 1992, when Lithuania joined the World Bank, a number of projects were implemented with the World Bank‘s participation, most importantly:
Table 1. The List of the World Bank‘s
Projects Implemented in Lithuania. The official information of the World Bank, http://www.worldbank.lt
Project Portfolio Commitments
|
||||
|
Project Name |
Total Amount |
Sector |
Project |
Board Approval |
|
60.0 |
Multisector |
Closed |
|
|
|
80.0 |
Economic
Policy |
Closed |
|
|
|
19.0 |
Transportation |
Closed |
|
|
|
7.0 |
Environment |
Active |
|
|
|
26.4 |
Electric
Pwr & Engy. |
Active |
|
|
|
25.0 |
Finance |
Closed |
|
|
|
30.0 |
Agriculture |
Closed |
|
|
|
5.9 |
Electric
Pwr & Engy. |
Active |
|
|
|
10.0 |
Urban
Development |
Closed |
|
|
|
6.2 |
Environment |
Closed |
|
|
|
Social Policy & Community
Social Services Development Project |
3.7 |
Social
Protection |
Active |
|
|
20.1 |
Urban
Development |
Active |
|
|
|
21.2 |
Hlth, Nutn & Popultn |
Active |
|
|
|
35.3 |
Transportation |
Active |
|
|
|
98.5 |
Multisector |
Closed |
|
|
|
17.1 |
Electric
Pwr & Engy. |
Active |
|
|
|
25.4 |
Education |
Active |
|
|
|
Housing
Project |
to be decided |
Urban
Development |
Pipeline |
N/A |
The World Bank
can hardly exercise the same level of political influence on the political
agendas of the EU accession countries as it did in
early 1990s, when
Of course, this does not mean that there is no niche for political influence for the World Bank. The World Bank, together with the International Monetary Fund is providing expertise on such issues as fiscal and monetary policy; the World Bank funds a number of programmes in the field of health, education. Thus, allthough Lithuania recently rejected the World Bank’s structural adjustment loan due to “too many unnecessary conditionalities” supplemented by the availability of domestic resources and lower interest rates in the international financial markets, the advice of the World Bank, if and when it is justified, may be accepted. It is, however, not the same case as in the European Union. Firstly, the contacts between the World Bank officials and the Lithuanian officials are much less frequent; secondly – the advice of the World Bank may be upheld or rejected by both the politicians and the civil servants without the same consequences as it would have been in the case of the EU. The narrow exception is the sector of regulating the financial markets, as well as the monetary and fiscal policy, in which the World Bank’s opinion, if expressed, generally should be upheld of rejected with a sufficient argument. However, even in this sector the World Bank’s position is far from being “mandatory”. In other sectors, such as governance reform, civil service, health, the World Bank official’s advice may be rejected quite easily, partly because the World Bank itself rarely monitors the feedback, does not press (and has no arguments to press) for the implementation of its advice. Moreover, in most fields of the World Bank’s advice, there is no single solution. Thus the national government and the civil servants concerned have the possibility to argue (contrary acquis communautuire, in which there can be little argument).
3.3.2.
The Actors and Outcomes
[to be significantly expanded]
The civil servants directly in charge of
the issues influenced by the World Bank usually face little necessity to accept
or reject the World Bank’s demands, as the World Bank either focuses on very
fragmented (single) projects or provides a fragmented policy advice. Of course,
this does not mean that the World Bank’s suggestions may be fully ignored.
However, the case of health is a good illustration of how the far-reaching
recommendations worked out with the assistance of the World Bank may be fully
rejected. Not only did the national authorities refuse to accept the
recommendation of optimizing the distribution of hospital beds in the country;
they did not provide any valid reasons for the rejection. The World Bank’s
policy response was very limited, if any.
The civil servants in other state institutions are even less interested in the policy outcomes, due to a very fragmented character of the World Bank’s influence. The interviews carried out in the framework of this project have revealed that issues related to the World Bank do not entail a clash of major policy interests at this time.
The politicians are mostly concerned with
the impact of the World Bank’s recommendations of the electorate. However, the World Bank has a limited
influence on such policy fields, as it did in the early 1990s, when its advice
on privatization, public administration reforms, construction of the market
economy had to be followed.
The interest groups, the media, and the public have accordingly shown a limited interest in the World Bank’s policy advice or demands.
3.3.3.
The Analytical Conclusion
[to be significantly expanded]
It may be
concluded that the World Bank’s influence on the Lithuanian policy agenda is
much more limited than the EU’s. This is not strange,
as the World Bank’s influence is much more fragmented, its aid is much less
significant, and generally this organization cannot compete with the EU.
3.4. Conclusions of section 3.
[to be significantly expanded]
Section 3 briefly reviewed the selected cases of the political influence of the EU and the World Bank on the national policy agenda. The conclusion was made that the EU’s influence on the national economic policy is very high, while the impact of the World Bank’s policy is now quite weak.
4.
Policy Recommendations
[to be significantly expanded]
What could be the policy
recommendations?
Of course, such a general staff as a
call for increase of material incentives in the civil service, increase in its
professionalism, better explanatory campaigns… Why not? Although somebody may
be sceptical about that, one should also note that
the West European governments demonstrate a better ability to negotiate, to
present arguments in a professional way.
On the other hand, what should not be
recommended, is an attempt to get rid of personal self-interest among the
actors of decision making – this, according to theory, is not possible. Even a
general theoretical presumption – that decision making shall be insulated from
outside influences if the government becomes more autonomous (i.e. disallows
‘outside influences’ to occur) should be juxtaposed with the theoretical
advantages of ‘policy networks’ approach. The ‘closure’ of the government may
insulate it from corruption, but it is not the corruption that caused the
problem in question, but rather the lack of knowledge, capacities and,
possibly, strong national leadership. These circumstances surrounded the
appearance of a particular setting of personal and institutional interests
(also self-interest) that caused a policy failure. These factors can not be optimised by introducing more government autonomy.
There may therefore be two alternative
approaches: 1. ‘To wait and see’ – i.e. to hope that the private experts’
market will soon be saturated, the difference in remuneration between civil
servants and experts will fall providing more prestige for work in the
government, more knowledge will be acquired by various decision makers. 2. To
intervene either by further toughening control arrangements from the EU’s side, or by offering better material incentives to the
civil servants, alongside with toughening control arrangements, professional
requirements.
Importantly, at least in
A good step, at least in
References:
[not all sources are listed at this stage]
Academic Literature:
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2.
Armstrong, H.,
3.
Bachtler, J., New Structural Fund
Programming: Laying the Foundations in the
4.
Blazhek, J., Prikryl,
J., Nejdl, T. (2002), Capital Investment Funding in the Czech Republic, unpublished
manuscript, Local Government and Public Service Reform Initiative, Open Society
Institute, Budapest.
5.
Boardman, A.E., Greenberg D.H.,
Vining A.R., Weimer D.L. (2000) Cost-Benefit
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Brozaitis, H., Linartas, R., Nakrosis,
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of the Impact of the EU Regional Policy on the
Administrative Structures in
7.
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8.
Comfort, A., Chavaki, V. (2000), Problems
at National Level in the Management of the Structural Funds, Budgetary
Affairs Series, BUDG 109 EN, Directorate General for
Research, European Parliament, Bruxelles.
9.
Cypher, J.M., Dietz,
J.L. (1997) The
Process of Economic Development, Routledge.
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R., New Structural Funds Programming:
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R., New Structural Fund Programming:
Laying the Foundations in
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Evans, P., The State as Problem
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H., New Structural Fund Programming:
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16.
Higgins, B., Savoir, D.J. (1995) Regional Development Theories and Their
Application, Transaction Publishers.
17.
Kalman, J. (2002) Possible Structural Funds Absorption Problems: The Political Economy
View with Application to the Hungarian Regional Development Institutions and
Financial System, unpublished manuscript, Local Government and Public
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18.
Kickert, J.M., Klijn, E.H., Koppenjan,
J.F.M. (Eds) (1997) Managing Complex Networks: Strategies for
the Public Sector,
19.
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20.
Moe, T., The Politics of
Structural Choice: Toward a Theory of Public Bureaucracy, in Williamson, O.E. (1995) Organizational
Theory,
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22.
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Service Reform Initiative, Open Society Institute, Budapest.
23.
Popa, A., Giosan,
V., Goldenberg-Vaida, V. (2002) Capital Investment Financing in Romania, unpublished manuscript,
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Budapest.
24.
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25.
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A. (2002) Capital Investment Funding in
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27.
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Development, the Free Press, p. 1-19.
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35.
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Foundations in
40.
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Developing an Analytical Framework for Effective
*
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catalogue. However, it was a part of course readings in Development Management.
Legal Acts:
National (
1.
Regional Development Act, 21.07.2000.
2.
Cabinet decree No.
543 of
3.
Cabinet decree No.
478 of April 26, 2001 “On the Approval of the Order of Planning, Concretizing,
Using, Accounting and Controlling State Investment Earmarked for Capital
Investment”.
4.
Cabinet decree No. 476 of April 26, 2001 “On the Concept of County
Governance Reform, Directions of County Territorial Reform, and Action Plan for
Submission of Directions of County Territorial Reform to the Society”.
5.
Cabinet decree No.
379 of April 5, 2001 “On The Approval of the Order of Evaluation of
Implementation of Programs managed by Managers of State Budget Allocations of
the Republic of Lithuania”.
6.
Cabinet decree No.
127 of
EU
1.
Commission Regulation
No. 448/2001 of 2.03.2001 “laying down detailed rules for the implementation of
Council Regulation No. 1260/1999 as regards the procedure for making financial
corrections to assistance granted under the Structural Funds”.
2.
Commission Regulation
No. 438/2001 of 2.03.2001 “laying down detailed rules for the implementation of
Council Regulation No. 1260/1999 as regards management and control systems for
assistance granted under the Structural Funds”.
3.
Commission Regulation
No. 1685/2000 of 28.07.2000 “laying down detailed rules for the implementation
of Council Regulation No. 1260/1999 as regards eligibility of expenditure of
operations co-financed by the Structural Funds.
4.
Commission Regulation
No. 1159/2000 of 30.05.2000 “on information and publicity measures to be
carried out by the Member States concerning assistance from the Structural
Funds”.
5.
Council Regulation
No. 1268/1999 of 21.06.1999 “on Community support for pre-accession measures
for agriculture and rural development in the applicant countries of central and
eastern
6.
Council Regulation
No. 1267/1999 of 21.06.1999 “establishing an Instrument for Structural Policies
for Pre Accession”.
7.
Council Regulation
No. 1264/1999 of 21.06.1999 “amending Regulation No. 1164/94 establishing a
Cohesion Fund”.
8.
Council Regulation
No. 1260/1999 of 21.06.1999 “laying down general provisions on the Structural
Funds”.
9.
Commission Regulation
No. 2064/97 of 15.10.1997 “establishing detailed arrangements for the
implementation of Council Regulation No. 4253/88 as regards the financial
control by Member States of operations co-financed by the Structural Funds”.
Draft Legal Acts:
1.
Draft Operational
Guide for PHARE 2000 ESC Funds, drafted in 2001 by
the twinning partners of the PHARE Special
Preparatory Program, in cooperation with the Lithuanian Ministry of Interior
and the Lithuanian Ministry of Finance.
2.
Management and
Control Systems Audit Manual for the Structural Funds / Financial Controls in
the
3.
National Development
Plan for 2001-2003, draft, the Lithuanian Ministry of Public Administration
Reforms and Local Authorities, 2000.
4.
National Development
Plan for 2000-2002, draft, the Lithuanian Ministry of Public Administration
Reforms and Local Authorities, 2000.
5.
Work Procedures
Manual for the SAPARD Programme, draft, the National
Fund Department, the Lithuanian Ministry of Finance, 2001.
Newspapers:
1.
“Lietuvos Rytas” (Engl. –
“The Morning of
2.
“Respublika” (Engl. – “The Republic”), a daily
independent newspaper, 2001, 2002, 2003, various issues.
Interviews:
No special interviews were conducted for this paper. However,
previously collected interview material was used. Interviewees included:
1.
Mr. Grybauskas, A., Deputy Director, Regional
Development Department, Lithuanian Ministry of Interior.
2.
Mr. Gudynas, M., Regional Development Attache, Lithuanian Mision to the
European Community.
3.
Mr. Krispinovicius, S., Head of Regional
Policy Division, Regional Development Department, Lithuanian Ministry of
Interior.
4.
Mr. Linartas, R., Head of EU
Structural Aid Division, Lithuanian Ministry of Finance.
5.
Mr. Jensen, P., Deputy Head of Unit G3, DG ‘Regional Policy’, European
Commission (as well as other employees of the unit).
6.
Mr. Matusevicius, D., Director of the
Financial Control Methodology Division of the Lithuanian Ministry of Finance.
7.
The personal experience of the paper’s author, who worked as Head of
the Regional Policy Coordination Division of the Lithuanian Ministry of Public
Administration Reforms and Local Authorities in 1999-2000, Head of the National
Development Planning Division of the Lithuanian Ministry of the Interior in
January-February 2001, and Administrative trainee of the European Commission’s
DG ‘Regional Policy’ in March-July 2001, was used to ground the conclusions of
the paper.
[1] This sentence is meant to indicate that there should be
distinguishing between international relations and behavioural aspects at the
civil servant level. This paper is concerned only with the second type of
transactions.
[2] This passage is based on Kickert, Klijn, Koppenjan, 1997.
[3] While it is not necessarily and not always true, it is often considered that autonomous government is better insulated from the private groups’ influence, and the insulation disallows the government to become the agent, and the private sector – the principal. However, it must also be recognised that in this case the government may misuse public funds for other reasons.
[4] Evans, 1992.
[5] Moe, 1995, page 138.
[6] Although the International Monetary Fund is not within the scope of
this research, it is included into this sub-section, as its problems are
considered to be similar to the ones faced by the World Bank and the
presentation of the IMF framework may be useful to
objectives of the paper.
[7] Brett, E.A. (1985) The World Economy
since the War,
[8] The official information of the World Bank, http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/0,,contentMDK%3A20040565~menuPK%3A34563~pagePK%3A34542~piPK%3A36600~theSitePK%3A29708,00.html
[9] Quotation of the Articles of Agreement of the International
Monetary Fund, http://www.imf.org/external/pubs/ft/aa/aa01.htm
[10] Official information of the European Union, http://www.europa.eu.int/abc-en.htm
[11] Mosley, P., Harrigan, J., Toye, J., Aid and Power: the World Bank and Policy Based
Lending.
[12] Gilbert, S., Powell, A., Vines, D., Positioning the World Bank, in
Gilbert, C., Vines, D. (2000) The World Bank: Structure and Policies,
[13] Wade, R.H., Veneroso,
F. The Asian Crisis: The High Debt Model vs. the Wall Street Treasury – IMF Complex.
[14] Wade, R., Out of the Box: Rethinking the Governance of
International Financial Markets, Journal of Human Development, vol. 1, No. 1,
2000.
[15] Collier, P., Gunning, J.W., The IMF’s Role in Structural Adjustment, The Economic Journal,
No. 109, p. F634-651.
[16] Chandrasekhar, C.P., An Alternative to Structural
Adjustment, in Griesgrater, J.M.,
Guenter, B.G. (Eds) (1996) The World Bank: Lending on a Global Scale.
[17] Stiglitz, J.F.,
the World Bank at the Millenium, 1999, page F583.
[18] Avery, N., Stealing from the State, in Danaher, K., Yunus, M. (1994) 50 Years is Enough: The Case against the
World Bank and the International Monetary Fund, South End Press, p 98.
[19] Avery, N., Stealing from the State, in Danaher, K., Yunus, M. (1994) 50 Years is Enough: The Case against the
World Bank and the International Monetary Fund, South End Press, p 98.
[20] This sub-section is based on the results of both previous
unpublished research (the Masters dissertation in the London School of
Economics), supplemented with the current research of the author of this paper.
A lot of materials were used from the author’s work in the Lithuanian Ministry
of Interior, the European Commission, as well as studies in the London School
of Economics.
[21] This position is advocated, among others, by Armstrong and Taylor, in chapter 12 of ‘Regional Economics and Policy’, 2000. The authors assert that full devolution of economic powers is not a realistic option.
[22] The period refers to 1998-2000.
[23] In 1999-2000,
[24] The approach was unsound because of several reasons. Firstly, it
was against the EU structural funds’ rules to launch
the country’s preparations for the EU structural
funds on the regional basis. Secondly, it was against the economic logic to
offer such huge amounts of aid of limited designation to the regions having
very limited absorption capacities.
[25] The civil servants directly in charge of the
[26] Article 1 of the Council Regulation No. 1260/1999 of
[27] Article 7 of the Council Regulation No. 1260/1999 of
[28] In
[29] According to the EU, ISPA is a prototype of the Cohesion Fund, SAPARD – of the European Agricultural Guidance and Guarantee Fund (Guidance Section), PHARE Economic and Social Cohesion Initiative – of the European Regional Development Fund and the European Social Fund.
[30] All regions in which GDP per capita is less than 75% of EU average are considered eligible for ‘Objective I’ support.
[31] For example, in Roar Amdam’s article ‘Sectoral Versus Regional Planning and Development in Norway’, European Planning Studies, Vol. 10, No. 1, 2000, it is argued that in Norway a distinguishment is made between ‘narrow’ and ‘broad’ regional policy, the ‘broad’ one meaning the intended or unintended impact of sector development plans on regional economies.
[32] Regulation No. 1260/1999 laying down general provisions on the structural funds.
[33] In this regard, it should be noted that not only were actions
limited to vocational training and business advice, but they had to exclude any
measures of agricultural designation while most of the selected Lithuanian
regions’ value added was related to agriculture. Moreover, these measures,
having no or little demand, had to be significantly part-financed by both the
national government and by the private business entity. The scale of the
problem might be perceived when comparing all national allocations for such
purposes in these selected regions with those that were to be made available
from PHARE. The difference was up to 100-200
times!
[34] Those parts related to the European Regional Development Fund and
the European Social Fund only; the other EU
structural funds and the Cohesion Fund were dealt with by other EU directorates and followed the national approach from the
very beginning.
[35] Unfortunately, the manuscript if Kalman, J, 2001 is silent on how many regions are actually receiving PHARE support.
[36] Popa, A. et al, page 11.
[37] Besides oral recognition expressed during various meetings in late 2000, the failure was also acknowledged during the twinning seminar on 15-16 March 2002.
[38] Under the initial provisions of the Lithuanian PHARE ESC, 14 million Euros were allocated just for business consultancy and vocational training of NON AGRICULTURAL DESIGNATION for three most agriculturalized Lithuanian counties. Not only did these amounts 50-150 times exceeded similar governmental aid in previous years, but business entities were expected to contribute 20-50% to the total expenses – something that they were not going to do according to unofficial surveys.
[39] Similar forecasts and complaints were also coming from other East European ministries.
[40] For instance, in
[41] Lasuen, 1972, page 20.
[42] Lasuen, 1972.
[43] According to Lasuen, 1972.
[44] Armstrong,
[45] Higgins, Savoir, 1995, page 76.
[46] Higgins, Savoir, 1995.
[47] Higgins, Savoir, 1995.
[48] Higgins, Savoir, 1995, page 44.
[49] Higgins, Savoir, 1995, page 58.
[50] Friedman, 1972.
[51] Lasuen, 1995, page 36-37.
[52] Armstrong,
[53] Rodwin, 1972, page 13.
[54] Armstrong,
[55] Armstrong,
[56] These approaches were presented by Armstrong and Taylor as options for combating unemployment. Although other indicators (not necessarily unemployment) can show region’s backwardness too, the proposed measures are focused on the view that unemployment is the major indicator of regional development.
[57] This presumption is based on the author’s own experience as Head of Regional Policy Coordination Division in the Lithuanian Ministry of Public Administration Reforms and Local Authorities.
[58] The author of this paper is not aware of more than 3 or 4 cases when somebody was accepted to the Lithuanian Ministry of Public Administration Reforms and Local Authorities on the basis other than protectionism, in 1998-2000.
[59] In
[60] Such cases are very numerous
in
[61] This was the case in
[62] This sentence has nothing to do with the presently working employees of the DG ‘Enlargement’ and should not be associated with them.
[63] In
[64] While examples are many, the best example in Lithuania was in late 1999, when the Governmental European Integration Commission approved the draft National Development Plan for the EU pre-accession funds without reading it (it was distributed only 2 days in advance and was not even translated to the Lithuanian language), despite a lot of critical remarks. The reason of approval was a referral to an e-mail opinion of Mr. J.Trestour, then Head of Unit in the European Commission’s DG ‘Enlargement’ saying that ‘the plan is good’.
[65] The circumstances were that the DG “Enlargement” officials were
rarely willing to negotiate and the attempts to refute the suggestions could
well have resulted in serious consequences, such as the rejection or delays in
the approval of the aid, or the threats to do so. Being unaware of this (or disbelieving
in this), decision makers and interest groups frequently required things that
the EC would never accept, but tended to blame the national civil servants in
cases when the EC was unhappy with some position or provisional result.
[66] As Head of Regional Policy
Coordination Division of the Lithuanian Ministry in charge of regional
development, I can assert that the scale of problems that will be caused by the
acceptance of these policy demands was well understood by myself and other
colleagues in the unit. During my discussions with civil servants from
[67] This presumption is made on the basis of the personal experience of the author of this paper who was himself in charge of the Lithuanian preparations for the EU structural funds.
[68] See Raagmaa, 2001, for the justification of the role of a leader in the process of economic transformation.
[69] However,
the specific EU aid was provided also for adopting
the civil service legislation and, according to the sources in the European
Commission, it was the EU that tried to convince the
Lithuanian authorities to adopt the Civil Service Act, even though this was not
a part of the EU acquis and
generally not of EU’s concern. This influence may,
however, not be regarded as negative; it may be considered a soft policy advice
– probably a useful step in the development of the stable and reliable civil
service in the country.
[70] The
official information of the World Bank, http://www.worldbank.lt