3. Regional governance reforms: Trends and drivers

Abstract

This chapter provides an overview of the main trends in regional governance reforms, including the rise of regional authority, as defined by the Regional Authority Index, as well as the upscaling of subnational governance and asymmetric governance arrangements. The chapter then focuses on the role that regions play in the COVID-19 crisis management and recovery. The chapter also presents the main drivers of regional governance reforms and provides some key data illustrating the current role that elected and decentralised regional governments across OECD countries play today.

Introduction

In recent decades, federal and unitary countries have been increasingly adopting or deepening regional governance reforms, especially in the OECD and Europe, but also in Asia, America and to a lesser extent Africa (OECD/UCLG, 2019[1]). This trend has occurred in parallel with an increased awareness of the importance of adopting regional development policies, or at least embedding policy making with a regional or territorial approach. OECD countries now widely agree that it is important to move from a traditional sector-specific approach focused on subsidising lagging regions towards a place-based regional development policy based on regional ecosystems that promotes long-term, sustainable and inclusive growth while addressing regional inequalities.

This change in how regional policies are designed has meant adapting the multi-level governance system – in a vast majority of cases, reinforcing the regional level has been the answer to enable this multi-sector, whole-of-government and co-ordinated policy making. The regional government can be strengthened by decentralising responsibilities that were previously in the hands of the central level, or at the expense of lower levels of governments to increase the scale of public service provision while still securing the benefits from decentralised decision making. While decentralising responsibilities at the local or regional levels is often associated with a more efficient provision of local public goods and services and a better match between policies and citizens’ preferences, there are concerns about whether all regions will gain from more autonomy. However, recent empirical evidence based on the analysis of taxing powers, spending autonomy and the vertical fiscal imbalance suggests that a balanced fiscal structure, where local spending is mainly financed by local taxation, reduces regional disparities by providing an incentive to better use local resources and implement policies that favour economic development (OECD, 2021[2]).

Moving towards a place-based and integrated approach for regional policy is crucial for dealing with increasing regional inequalities within countries, especially in the aftermath of the COVID-19 crisis. For several European Union (EU) and OECD countries, continuous acute territorial disparities can have a destructive/detrimental impact on living standards and the socio-economic growth of the country. It is crucial now to achieve a significant shift in the attitude, views and perspectives towards regional development by further moving towards a place-based and integrated approach for regional policy for post-2020. This is all the more true in the face of the COVID-19 pandemic, which besides putting the spotlight on regional inequalities, has revealed once again the need of providing a place-based, co-ordinated response to the crisis and its recovery. Place-based policies are all the more important not only in light of the technological, demographic and environmental megatrends, but also to counterbalance growing public discontent with the economic, social and political status quo in many regions.

Trends in regional governance: A global perspective

Regional authority is increasing around the world

The Regional Authority Index (RAI), which measures the degree of power of regional governments in 96 countries in Asia, Europe and the Americas since 1970 (Box 3.1), shows that regional authority is increasing in various parts of the world. The RAI provides more complete and comprehensive information on the real degree of power of regional authorities than spending indicators, which are usually used to assess the degree of decentralisation The RAI shows that out of 96 countries, 64 experienced a net increase in the degree of regional authority over the period 1970-2018, whereas only 10 experienced a decline. In only 22 countries has regional authority remained unchanged. On average, this index increased the most for the Asia and Pacific region (from 5.2 in 1950 to 11.7 in 2018), driven by a significant increase in regional authority in Bangladesh, India, Nepal, New Zealand, Pakistan and Singapore.

Box 3.1. The Regional Authority Index

The Regional Authority Index (RAI) is a measure of the authority of regional governments in 96 democracies or quasi-democracies. The sample consists of all OECD countries, all European Union (EU) member states, 12 countries in Europe beyond the EU, all Latin American countries, and 25 countries in Southeast Asia and the Pacific. The index has been calculated on an annual basis for all countries over the period 1950-2018.

The RAI assesses regional authority according to two main concepts: 1) self-rule, i.e. the authority exercised by a regional government over those who live in the region; and 2) shared-rule, i.e. the authority exercised by a regional government in the country as a whole. The index is calculated based on ten dimensions: institutional depth, policy scope, fiscal autonomy, borrowing autonomy, representation, law-making, executive control, fiscal control, borrowing control and constitutional reform. Primary sources (constitutions, legislation) are triangulated with secondary literature and consultation with country experts to achieve reliable and valid estimates.

The RAI has proven to have solid convergent content validity and has been used as a measurement for regionalisation and multi-dimensional decentralisation.

Source: Hooghe et al. (2016[3]).

This increase is less significant in Latin America, where many countries do not have regional governments in place (e.g. the Bahamas, Barbados, Belize, Guyana, Jamaica, Suriname). In Europe, the average RAI went from 9.3 in 1950 to 12.5 in 2005 and down to 11.5 in 2018, due partly to the integration of new countries with a low degree of regional authority in the country sample (e.g. Estonia and Kosovo) (Schakel et al., 2018[4]) (Figure 2.1).

Regional governance reforms: A focus on OECD and EU countries 1

Regional governance has evolved significantly in OECD and EU countries over the past 50 years. The average RAI score for OECD countries has increased considerably over the past 50 years: between 1970 and 2018, the average index value increased from 21.1 to 29.7 for OECD federal countries and from 4.2 to 10.2 for OECD unitary countries (Schakel et al., 2018[4]). Regional governance reforms have been carried out to varying degrees, and, when observing the trends, it is possible to distinguish different waves of reforms: a first wave occurred in the 1980s and 1990s and a second wave took place following the 2008 economic crisis. Currently, several countries are implementing or debating regional governance reforms – debates that have been either stopped or reinforced by the COVID-19 crisis.

Waves of regional governance reforms

In the 1980s and 1990s, OECD countries undertook important regional governance reforms, characterised by the creation or strengthening of an autonomous regional level. This was the case, for example, in France, Italy, Spain and the United Kingdom. In parallel, in Central and Eastern European countries, the regional level was reinstated or created when subnational autonomy was re-established. The creation of regional governance structures, in particular in Central and Eastern European countries, resulted, among others, from the need to design and implement regional development policies and access EU funds (Box 3.2). To implement EU Cohesion Policy, countries such as Bulgaria and Latvia created planning regions; others such as the Czech Republic, Hungary, Poland and the Slovak Republic opted for the creation (or reinstalment) of elected regional authorities. In some cases, planning regions coexist with elected regions within the same country (sometimes at different geographic scales).

Figure 3.1. Evolution of the Regional Authority Index in various world regions, 1950-2018

A second wave of regional governance reforms took place after the 2008 crisis. This wave was characterised by the creation of a new self-governing regional level (e.g. in Greece in 2011 with the Kallikratis reform). This second wave also includes the upscaling of existing regions; examples of this are France,2 where 22 regions were merged into 13 in mainland France in 2015, and Norway, where the number of regions was reduced from 18 to 11 in 2020, to strengthen the regions as functional units. In parallel, a number of institutional reforms also took place, including the transfer of new responsibilities and fiscal powers to the regional level (Belgium, the Netherlands) and the strengthening of regional governance bodies (Iceland and Ireland).

Box 3.2. The impact of European Union accession on regional governance reforms in Central and Eastern European countries

The prospect of joinging the European Union (EU) has had an impact on the transformation of subnational governance systems in Central and Eastern European Countries (CEECs). This transformation was led by the need to both modernise public sector management and adopt EU regional policy. Although the EU did not promote a particular model of subnational governance, accession to the EU has had an impact on local and regional governance, resulting in some convergence in multi-level governance systems and the implementation of common principles.

In all CEECs, the decentralisation reforms that have been conducted have been strongly influenced by EU standards: restoring democratic institutions at the municipal level; the development of local governance and financing systems; improving public services to comply with EU requirements; setting up regional governance; and building EU statistical standards for administrative units (Nomenclature of Territorial Units for Statistics, NUTS). The strong link between decentralisation, regional development, and EU Structural and Cohesion Policy explains why the regionalisation process was so strong in several CEECs that were planning to join the EU. It led several countries to enact regional governance reforms, leading to the creation of planning regions, regional development bodies or self-governing regions to access and/or manage European Regional Development Fund investments.

Source: OECD (2021[2]).

In most cases, and throughout the period under review, regional governance reform processes have been conducted in a “top-down” manner, often under the impulse of the European Union for Southern European countries, or driven by the decision of the national government to shift part of its responsibilities downwards (OECD, 2019[5]). However, there are also a few examples of bottom-up regional governance reforms. These reforms are usually implemented incrementally, starting with pilots with one or several jurisdictions. This has been the case in Sweden, where the regional reform was promoted by the “top” but left the “bottom” to decide. Unlike many countries, the Swedish government did not impose a single regional governance model to all counties; it experimented with “pilot regions” and permitted heterogeneity, for a temporary period, across regions in terms of governance bodies and regional responsibilities. This approach towards regional governance has created scope for learning, fine-tuning the reform and fostering consensus throughout successive governments (Box 3.3).

Today, there are important ongoing regional governance reforms and debates across the OECD and the EU. Some countries have recently created an elected regional level (e.g. Chile in 2021, Finland forthcoming in 2022) or are improving regional governance mechanisms (Greece – Kleisthenis reform of 2018, Lithuania – Law on Regional Development in 2020). Discussions on developing a regional level are still ongoing in Bulgaria, Portugal and Romania. In Portugal, debates concerning decentralisation reforms come and go on the policy agenda with two main objectives: 1) fostering decentralisation by assigning more tasks to municipalities and inter-municipal associations; and 2) strengthening regional-level governance. In Romania, a General Strategy for Decentralisation 2015-16 was drafted to transfer new responsibilities and assets to subnational governments and create new autonomous regions. It was rejected as such by the Constitutional Court, but a new decentralisation and regionalisation project is being implemented based on a new General Strategy for Decentralisation. In Bulgaria, one of the four objectives of the new 2016-2025 Decentralisation Strategy is to increase the role and capacity of regional institutions for the implementation of co-ordinated policy for regional development through adequate powers, responsibilities and resources. This could lead to the creation of deconcentrated institutions at the regional level, and possibly pave the way for the second level of self-governance to emerge in the longer term (OECD, 2021[6]). Finally, several countries are reflecting on how to improve regional governance bodies, in particular for EU Cohesion Policy (e.g. Bulgaria, Latvia, Lithuania).

Box 3.3. Swedish plans for reforming the regions and assigning regional development responsibilities

In Sweden, there are currently 21 regions with elected regional councils, which have traditionally been responsible for health and social services. Since 2019, the 21 regions have all been devolved additional responsibilities for regional development. This is the result of numerous attempts to reform the regional structure and its tasks, based on an experimental, asymmetric, gradual and bottom-up process.

The process started in 1997-98, when Sweden launched a reform to transfer regional development responsibility from the county administrative boards (central government agencies) to self-governing counties. However, it was decided not to impose a single model on the counties but to instead allow different regionalisation options. As a result of the voluntary process, an asymmetric model for regional development was adopted between 1996 and 2015. In four counties, the county administrative board continued to be responsible for regional development issues. In ten counties, the responsibility was assigned to the directly elected county council. In seven counties, it was decided that an inter-municipal co-operation agency be created specifically for regional development.

In 2002, a second wave of reforms started with the Parliamentary Act that made it possible for counties, if all local municipalities agreed, to form regional co-ordination bodies (indirectly elected bodies) to co-ordinate regional development. In 2007, the “pilot region” model was extended, to provide pilot regions with more responsibilities, and in particular for regional development. In 2019, the central government decided to put an end to asymmetric regionalisation and provide all 21 counties with the same governing bodies (directly elected councils). They are now called regions.

Sources: OECD (2020[7]); Nordregio (2020[8]).

Countries beyond the OECD and the EU are also currently discussing or implementing regional governance reforms. Morocco, for example, is currently implementing a regionalisation process (under the appellation “advanced regionalisation”, or “regionalisation avancée”), which puts regions at the centre of the implementation of territorial development policies. Before that, the 2011 Constitution introduced direct elections for regional councils, which used to be appointed by central authorities. Regions have also recently been introduced in Mauritania (2018), along with institutional consultation mechanisms such as regional health committees and regional development committees. In Ghana, six new regions were created in 2017, after a vote by popular referendum, in addition to the ten pre-existing ones. The creation of regional co-ordinating councils, which act as deconcentrated entities, aims to better respond to citizens’ needs and to accelerate the country’s socio-economic development (Ghanaian Ministry of Regional Reorganisation and Development, 2020[9]). Similar regionalisation debates are ongoing in Georgia, where the debates are closely linked to the future of regional development in the country (OECD/UCLG, 2019[1]).

In parallel with the increasing importance of the regional level of government, some reforms have gone in the other direction, by limiting regional powers. In some countries, regionalisation projects have been abandoned, postponed or rejected by the population via referendum (Portugal in 1998, England in 2004, Slovenia in 2008), or more recently because of political blockages during the discussion of reforms in parliament (in the Netherlands in 2014 and Sweden in 2017). In some countries, there was also a decrease in regional authority (e.g. Denmark and Hungary). This decrease can be a direct consequence of a recentralisation of powers and responsibilities at the central level. A decrease in the role of regions can also be the result of an increase in the responsibilities of local governments. While several countries are going through a crisis of confidence in institutions, there is a call for stronger municipalities, which is the tier of government the closest to citizens, compared to regions and intermediary tiers of subnational government. Central governments may choose to revise the allocation of responsibilities to increase accountability and trust of their citizens, by diminishing the competences of the regional level and strengthening the municipal level, as it was the case, for example, in Estonia in 2019 (Estonian Ministry of Finance, 2019[10]; OECD, 2019[5]).

Establishing new modes of regional governance is a complex process that needs to be built over time. Plans to reform the regional level are being discussed in many countries, but they have not yet been translated into significant concrete achievements due to a lack of consensus on the best option for the future. This is the case for instance in Bulgaria, Portugal and the United Kingdom. For such developments to succeed, an implementation strategy is necessary to identify the steps for the successful execution of a regionalisation reform.

COVID-19 aftermath: A new wave of regional governance reforms?

The COVID-19 crisis has clearly shown the need for clarity, efficiency and accountability in the way countries are governed. In some countries, the pandemic triggered adjustments to regional governance systems and the way in which responsibilities are assigned across levels of government. Some countries have opted for a temporary centralisation by adopting state-of-emergency laws that give central or federal governments the right to take over some subnational responsibilities. This is the case of Slovenia and Switzerland, for example, where the crisis led to recentralisation measures, temporarily recentralising health management in early 2020 due to the emergency and magnitude of the COVID-19 crisis. Spain also recentralised competences of the autonomous regions following the announcement of a state of emergency in March 2020. In contrast, other countries have decided to decentralise some additional powers to subnational governments in health and social protection areas, at least temporarily. The United Kingdom is one example, having devolved power to the nations.

As was the case in the aftermath of the 2009 economic crisis, the COVID-19 pandemic may also trigger longer term reforms to strengthen the regional level. The crisis as well as the recovery efforts have shown that relying on an efficient regional level may help countries to cope with the varied impacts of the crisis and provide adequate policy responses for the economic recovery of territories. This is why several countries are reassessing the regional level or adequating how responsibilities and revenues are assigned across levels of government to make all levels more resilient and effective to act in times of crisis. Costa Rica, for example, enacted the Regional Development Law in 2021 to strengthen inter-regional co-operation and address interregional and intra-regional gaps that were striking after the crisis. The crisis could also result in future regional governance reforms (for example in Bulgaria and France), including regional fiscal reforms (e.g. Spain) and equalisation mechanisms. At the same time, the postponement of reforms is also directly attributable to the COVID-19 crisis. In France, negotiations over the next generation of state-regions contracts (2021-27) was also delayed due to the COVID-19 crisis, which were finally launched in early 2022.

The crisis has made it evident that, in the years to come, governments at all levels need to be more resilient to better cope with uncertainty and unexpected crises. This is crucial for the COVID-19 recovery, but also for overcoming other global challenges such as the green transition. The current period is thus an opportunity for countries to rethink decentralisation models in the medium and long term and, in particular, the role that regions play in public policy making and investment.

Upscaling subnational governance: Asymmetric regional governance and metropolitan governance structures

Countries are increasingly adopting asymmetric regional governance arrangements

The RAI shows that between 1950 and 2010, two-thirds of countries included in this study adopted asymmetric arrangements, i.e. provided different political, administrative or fiscal powers to governments at the same subnational level (regional, intermediate or municipal) (Schakel et al., 2018[4]). These asymmetric arrangements can be used for different purposes. In some cases, countries adopt asymmetric arrangements to give more responsibilities to regions with greater capacities, such as in Germany; in others, it aims at recognising a different status for territories with a strong history/identity (e.g. Italy, Spain, the United Kingdom) or to peripheral territories such as outermost regions, islands and outlying regions (e.g. Finland, France, Portugal). Asymmetric regional governance can also be used to promote the special right of indigenous peoples to manage their own territory, as is the case in Colombia.

Asymmetric regional governance appears more “natural” in federations, although we can distinguish between highly asymmetric federal systems (Belgium, Canada, India, the Russian Federation, Spain), and more symmetric federations (Australia, Austria, Germany, Switzerland, the United States). Belgium, for instance, has a highly asymmetric system, with a regional level composed of six federated entities, divided between three regions and three language communities that cut across regions. Regions and communities have distinct responsibilities and fiscal powers, the latter enjoying less tax revenue compared to the regions. Still, even the most “symmetric federations” have elements of asymmetry (e.g. the United States) or are developing some new ones. In Germany, for example, all Länder initially enjoyed the same degree of legislative power and the same responsibilities, but in 2006, the Federalism Reform I introduced opt-outs for the Länder in six policy areas (including higher education and environmental protection). This right to stray from federal legislation is an innovative instrument for the Länder, introducing a degree of asymmetry into German federalism (OECD/UCLG, 2019[1]).

While symmetry is often one of the leading principles of unitary states, some unitary countries are also introducing elements of asymmetry. Often asymmetry in unitary countries responds to a need to empower regions with greater capacities. This is the case of Sweden, for example, which experimented with asymmetric regionalisation arrangements between 1997 and 2019 as a means of testing new allocations of powers to the regions in an incremental way (OECD, 2019[5]; 2020[11]). In unitary countries, it also happens to introduce asymmetry to recognise a different status for territories with a strong history or identity. This is the case, for instance, in the United Kingdom and Italy. In the United Kingdom, three different types of regional governance currently exist. In Italy, 5 out of 20 regions have been attributed special constitutional status with broad legislative powers and considerable financial autonomy. In other cases, countries give specific status to peripheral territories, such as outermost regions, islands and outlying regions (Finland, France, Portugal); or promote the special right of indigenous people to manage their own territory (Colombia).

Beyond the OECD and the EU, in many countries in Africa, Asia and Latin America, regional governance reforms are also implemented asymmetrically. In the Philippines, in 2019, a single region was assigned an elected regional government, the Bangsamoro Autonomous Region of Muslim Mindanao. The regionalisation process was part of a peace agreement that ended with providing the region with a specific legislative framework and political autonomy from the central government. In Jordan, asymmetric regional governance led to the creation of the Aqaba Special Economic Zone, a regional hub established in 2001 by the central government to enhance economic activity. The zone is governed under the authority of the Aqaba Special Economic Zone Authority (OECD/UCLG, 2019[1]).

Asymmetric arrangements are increasingly being used for metropolitan governance

In recent years, asymmetric arrangements are increasingly being used to recognise the specificities of metropolitan areas and city-regions, in particular in large cities and capital districts (OECD, 2019[12]). The growth of metropolitan governance structures coincides with a wide acknowledgement of the benefits of urbanisation and agglomeration economies for economic and social development. The RAI shows that the number of metropolitan governance authorities increased fourfold between 1970 and 2018, from 38 metropolitan governance authorities (concentrated in 15 countries worldwide) in 1970 to 99 authorities in 2000 (in 39 countries) and 165 in 2018 (in 42 countries). The latest RAI data show that metropolitan and urban governments are a recent phenomenon that many countries introduced in the 2000s. Metropolitan and urban governments that were introduced before the 2000s were often “pilots” in specific areas of a country and did not last longer than 20-30 years (European Commission et al., 2018[13]).

Some recent examples of metropolitan governance reforms include the 2013 French Law on Metropolitan Areas, which contemplates differentiated governance for Paris, Lyon and Aix-Marseille. In Italy, a 2014 reform ended two decades of gridlock over metropolitan governance reform and created the legal structure for the introduction of differentiated governance in ten major metropolitan areas – Rome, Turin, Milan, Venice, Genoa, Bologna, Florence, Bari, Naples and Reggio Calabria – and four additional cities in special regions – Palermo, Messina and Catania in Sicily, as well as Cagliari in Sardinia (Allain-Dupré, 2018[14]). These metropolitan cities took over the competencies of provinces, and were given additional responsibilities for local police services, roads, transport, and spatial and urban planning. In the Republic of Türkiye, in 2012, the boundaries of metropolitan municipalities were expanded to their corresponding provincial boundaries and the number of metropolitan municipalities was expanded from 16 to 30 (OECD/UCLG, 2019[1]).

The key role of regions in the COVID-19 crisis and recovery 3

Regions have taken crucial measures to manage the COVID-19 crisis

The impact of the COVID-19 crisis has been different across OECD regions. The impact of the crisis varies according to a region’s degree of urbanisation and development, the regional density, and the degree to which it depends on tourism, among others. Social and economic impacts also vary across regions depending on the prevalence of elderly and disabled people, children, homeless people, migrants and other vulnerable populations. Regions have also been strongly affected by the economic downturn following the closure of businesses and quarantine measures. Some impacts can also be attributable to the unforeseen nature of this crisis. There is evidence that in most countries, regions were not prepared for the COVID-19 crisis, either because they did not all have crisis management plans for pandemics or because they lacked basic equipment such as masks, due to several years of reduced public expenditure and investment in healthcare/hospitals (OECD, 2020[15]).

Regions have developed policy responses in key sectors strongly impacted by the crisis, including health emergency measures, social welfare, and support to small and medium-sized enterprises. In the health sector, their interventions range from mask mandates, school and restaurant closures, lockdowns, testing and tracing to vaccination roll-outs. Regions are also ideally located to communicate to regional actors and citizens rapidly and transparently. In Switzerland, for example, some cantons developed their own communication hotlines, at minimal costs, in order to be more reactive and inform in real-time the canton’s population of rapidly changing measures (Congress of Local and Regional Authorities, 2020[16]). To manage the crisis’ impact in the short and medium term, state and regional governments also took actions focusing mainly on small and medium-sized enterprises, the self-employed, and informal workers in sectors highly affected by the pandemic (e.g. tourism, trade, restaurants, etc.). Connexions have also occurred between regions of different countries, pooling resources and knowledge from various environments, enabling more ambitious approaches to the recovery. This is the case of the EU Interregional Recovery Plan, which aims to transform the tourism ecosystem in Europe while building recovery.

In federated countries, states have also played a key role in providing financial support to local governments. States have also pledged assistance to municipalities within their jurisdictions to help them cope with reduced revenues and increased pressure on their expenditure. These initiatives aim to enable municipalities to maintain (and sometimes scale-up) the delivery of services and infrastructures during and after the pandemic, and to allow them to use their cash reserves and to borrow thanks to more flexible fiscal rules.

Moving forward: Adopting place-based recovery strategies

Regions are in a privileged position to develop place-based policy responses for the economic recovery of their territory. The post-COVID economic recovery requires an ambitious territorial approach that involves both central and subnational governments. Because they have a wider range of responsibilities and autonomy, federated states and provinces, elected regional governments, and to some extent regional associations of municipalities have been at the initiative of most crisis management and recovery measures, with variations depending on the country. Compared with other levels of government, regions have a strong capacity to build on local assets and knowledge, and to include a diverse stakeholder base in the process. They can also mobilise business and civil society stakeholders, with whom they are in close contact regularly, and involve them in the design of recovery strategies. This allows regional governments to devise comprehensive recovery strategies, which integrate, for instance, environmental aspects as well as economic and health considerations. Developing place-based recovery plans brings a number of benefits:

First, such recovery plans enable assessing the social and economic shocks on local and regional economies. This allows allocating adequate financial support and public investment to mitigate the recessionary effects of health measures on economic activity and subnational finance in each area (European Committee of the Regions, 2020[17]).
Second, such strategies allow identifying investment opportunities from the bottom, from the people who need them the most in the territories.
Third, it enables engaging subnational governments quickly, and in a co-ordinated manner, to undertake and supervise such investment projects.
Finally, involving regional governments in national recovery packages is also a way to give them incentives and to orient their own recovery policies and packages towards the same goals. Regions can be encouraged to align their priority sectors with the top priorities of national/regional infrastructure recovery plans, which often have a green growth component.

Adopting a place-based approach to the COVID-19 recovery requires fine-tuning the multi-level governance system, including regional governance structures. This means acknowledging the active role that regions can play in the recovery and giving them the flexibility and the resources to achieve these goals. This requires tailored regional strategies and high levels of co-ordination across levels of government and stakeholders (OECD, 2020[11]). This approach has been promoted by the EU through its amendments to the system of EU Structural Funds in the framework of the EU Recovery Package. As part of its Recovery Plan, the EU adopted measures to ensure additional flexibility in the use of Structural Funds. Through the Coronavirus Response Investment Initiative Plus, member states can transfer money between different funds to meet their needs. Resources can be redirected to the most affected regions, thanks to a suspension of the conditions on which regions are entitled to funding (OECD, 2021[18]).

Main drivers of regional governance reforms

The drivers of regional governance reforms are multiple and countries often pursue several objectives when undertaking these reforms. First, countries may pursue regional governance reforms for political or socio-cultural reasons; in this case, regions are set to affirm the identity and the particular status of a territory. Regional governance reforms may also be driven by economic motivations, and the aim of enhancing competitiveness and regional growth.

Preserve cultural, historical or ethnic specificities

In certain cases, countries carry out regional governance reforms to preserve historical, cultural, ethnic or linguistic specificities. It is often argued that institutional systems with strong regions are more likely than any other form of organisation to sustain cultural diversity and the expression of regional identities, to which individuals appear more attached as a backlash to the standardised lifestyles resulting from globalised markets and economies (OECD, 2020[7]). Such cultural or historical reasons are also often strongly associated with political reasons. Indeed, in some cases the rationale behind regional governance reforms is that granting autonomy to regional entities may also ensure more political stability and prevent the disintegration of the “nation-state” in countries where regional claims undermine national unity (OECD, 2020[7]). Depending on the severity of cultural conflicts, specific regional and linguistic features can, however, be protected without necessarily establishing regions and preserve the integrity of the state (OECD, 2020[7]). In countries with indigenous populations, regional governance reforms can be driven by the will to improve the autonomy of regions with indigenous populations, as recognition of multiculturalism, and devolution of responsibilities to indigenous groups or settlements to improve their ability for self-determination (OECD, 2019[12]).

Cultural, historical, ethnic or linguistic reasons are behind several regional governance reforms. In Belgium, for example, Flemish nationalism was the main driver of the constitutional evolution that took place in the country from the 1970s. Identity features also contributed to shaping Spain’s three autonomous communities. In the United Kingdom, specific regional features led to the devolution of power to Scotland and Wales. In Wales, for example, a significant share of the population speaks a regional language. In Portugal, the regionalisation of the Azores and Madeira Islands was motivated by their strong history and identity. In Italy, cultural and political motivations have not led to the creation of regions per se, but the regional system partially preserves some of the pre-unification identities. While no regional languages exist apart from Francophone and Germanophone minorities in the north, regionalism has, however, emerged as a political movement, and political forces with regional roots have arisen and been consolidated in the past decades (OECD, 2020[7]; Martial, 2015[19]).

To reap all the benefits of regional governance reforms driven solely by political and cultural motives, reforms need to be conducted comprehensively. When undertaking such a regional governance reform process, it is important to examine, beyond the peculiarities of regional identities, the regional needs and capacities related to economic development, spatial planning, and, at the same time, design adequate administrative and fiscal arrangements (see Chapter 5).

Increase the efficiency of the multi-level governance system and enhance democracy

Regional governance reforms can also result from a readjustment of the overall multi-level governance system. Municipal reorganisations (e.g. mergers or inter-municipal co-operation), or decentralisation or centralisation reforms that redefine the responsibilities of local governments, may have an impact on the role of regions and the way they interact and co-ordinate with the different levels of government. In this sense, the objective of a regional governance reform may be clarifying regional responsibilities to reduce overlaps and policy fragmentation in contexts where regional responsibilities and functions (regulating, operating, financing and reporting) are shared with another institutional government level.

Strengthening democracy can also be an important driver of regional governance reforms. The creation of a regional level with directly elected bodies can enhance local democracy, transparency and accountability at the regional level, especially if the creation of a regional level with elected regional bodies is accompanied by decentralisation at the local level. Indeed, political decentralisation involves the distribution of decision making and enforcement powers according to the subsidiarity principle, between different tiers of government, with different objectives and often to strengthen democracy. Thus, how regional (and local) administrators are selected (elected or not) is critical. This is why, for example, ensuring a properly functioning democracy is at the core of the Council of Europe’s work. The European Committee on Local and Regional Democracy and the Congress of Local and Regional Authorities of the Council of Europe provide member states (regardless of their internal structure) with a “reference framework for regional democracy” to help them with their institutional development.

Increase competitiveness and well-being

Regional governance reforms can also be driven by economic reasons, to leverage the growth potential of all places. When enhancing regional competitiveness and attractiveness, countries can boost aggregate productivity, and, thereby, well-being and inclusion (Box 3.4). Regions tend to take better advantage of and target regional comparative advantages than the national level or fragmented local governments. By putting forward regional assets, regions can be more competitive to attract resources for development, both private and public investments, at the international or European level. This is true in large regions benefiting from agglomeration economies, but also in smaller areas. The argument for greater regional competitiveness is all the more important in a globalised world, where regions have emerged as competitors in a global race for economic growth. They must compete to access international sources of funding for development, for instance through EU competitive funding programmes, or to attract multinational firms. This is why improving the competitiveness of all regions has become a key priority in OECD countries. In a survey for the 2016 OECD Regional Outlook, ensuring the contribution of all regions for national performance was ranked as being of “high/very high importance” by the vast majority of reporting countries (28 out of 33).

To improve regional productivity, Wales (United Kingdom) has decided to delegate more decision-making responsibilities to the regional level regarding investment decisions. This is part of the country’s Economic Action Plan “Prosperity for All”, which promotes inclusive growth based on “supercharged industries of the future and productive regions” (Welsh Government, 2019[20]). In parallel to the delegation of responsibilities, the Welsh government has also appointed chief regional officers, whose role is to supervise investment prioritisation and align investment planning between the central and regional levels (OECD, 2020[11]). Regional competitiveness is also at the centre of Switzerland’s New Regional Policy. The New Regional Policy, introduced in 2008 and renewed in 2016 for a second eight-year period, encourages an endogenous “growth-oriented” approach emphasising open markets, export capacity and competitiveness at the regional level, with a focus on innovation and tourism. The three pillars of the New Regional Policy address: 1) increasing the economic strengths and competitiveness of regions (85% of total funding); 2) co-operation and synergies between the New Regional Policy and sectoral policies (5-10% of total funding); and 3) capacity building in the knowledge system of regional policy (5-10% of total funding) (OECD, 2016[21]).

Box 3.4. Regional competitiveness and inclusion: The EU Regional Competitiveness Index

The EU Regional Competitiveness Index (RCI) provides a comparable measure of competitiveness of all NUTS 2 regions in the European Union. It is composed of 11 pillars that describe the different aspects of competitiveness and are classified into 3 groups: basic, efficiency and innovation. The basic group includes five pillars: 1) institutions; 2) macroeconomic stability; 3) infrastructures; 4) health; and 5) basic education. These represent the key basic drivers of all types of economies and constitute the set of factors enabling regional competitiveness.

Beyond the measure of gross domestic product (GDP), the index encompasses a set of broader factors enabling “regional competitiveness”, including societal well-being and long-term regional potential. The RCI was designed to enable a region to compare itself to others, to find regions with a similar level of competitiveness, and to identify regions it could learn from to increase its regional economic performance and well-being.

The latest RCI data also show that regions with higher levels of competitiveness tend to have lower levels of income inequality, and on the contrary, regions with lower competitiveness tend to have a more uneven distribution of income.

Source: Annoni and Dijkstra (2019[22]).

Adopting place-based policies and reducing regional inequalities

While enhancing competitiveness in all types of regions, regional governance reforms may be particularly relevant to adopt place-based policies and thereby, reduce regional inequalities. It has been widely documented that while differences in economic growth between countries have decreased in recent years, those within countries have not. Thus, as discussed in the previous section, two tendencies go hand in hand: increasing the adoption of place-based policies to promote long-term, sustainable and inclusive growth and resilient societies, and increasing the adoption of regional governance reforms to enable and facilitate these place-based policies. Indeed, place-based development policies require two main sets of competences that are best found at the regional level:

First, co-ordinate various sectoral policies: the wide range of functions that are typically devolved to regions give them the ability to favour synergies across sectoral policies that are relevant to economic growth and well-being (e.g. infrastructure, transport, innovation, education, housing, energy, labour market, etc.). This cross-sectoral approach enables them to develop more effective growth strategies. This is why regional entities in some countries play a significant role in strategic planning and regional development. Regional governments can, for example, prevent the over-fragmentation of projects (for instance those related to EU funds), align infrastructure across local boundaries and prevent local jurisdictions from pursuing mutually detrimental policies. Regions may also have more resources to implement effective regional development strategies and more integrated territorial planning, and to develop tools to monitor regional policies (Box 3.5) (OECD, 2019[23]).

Second, facilitate dialogue and co-ordination between the central/federal, regional/state and local governments, as well as with the private sector and citizens: independent of their form, regional governance models can act as “natural” brokers between the central and subnational governments and channel central and local demands. They can have a privileged position to foster co-operation among various economic stakeholders, from within and outside the region, from the public and private spheres, and at all levels of government. They are also better placed to overcome purely local interests and permeate policy decision making with a broader regional perspective. Regions can also take a proactive role in supporting cross-jurisdictional co-operation, acting as regional integrators, in particular regarding weaker and rural local governments (see below).

Box 3.5. The rise of regional development policies

Regional development policies emerged in the 1950s and 1960s as a response to growing social and economic inequalities across and within countries, following the rapid industrialisation and urbanisation that took place in OECD countries and across the globe. These inequalities were exacerbated by the successive economic shocks in the 1970s and 1980s, which had differentiated impacts on territories and regions. This generated rising discontent among the population in most disadvantaged areas.

In addition, the emergence of regions as global competitors in a globalised world, as described above, accentuated the disparities between highly productive and lagging regions. Ensuring that the benefits of growth are spread widely requires a strong focus on greater convergence of regions in terms of income and well-being. Regional development policies, and place-based approaches to policy making, can help achieve these objectives over the medium and long terms, through regional investment aid and infrastructure support, and policy interventions heavily targeting designated geographical areas.

Source: OECD (2020[24]).

Regional governance reforms driven by regional development objectives can take several forms, depending on each country’s stage of decentralisation and level of development of regional institutions. For example, in Central and Eastern European countries, the need to design and implement regional development policies and access EU funds has led to the creation of specific regional governance structures (see Box 3.2). In Bulgaria and Latvia, regional development councils have been instituted as the executive branch of planning regions. The planning regions essentially play a role in the conduit of regional planning and programming linked to EU funds, with no administrative structures (see Chapter 3). Their secretariat is generally carried out at the central level, through its deconcentrated regional units. In other countries, the implementation of place-based regional development has led to the creation of specific agencies to help administer regional development policy and EU funds (e.g. Italy and Portugal). In Greece, the 2011 Kallikratis reform led to the creation of a decentralised regional level of 13 full self-governing regions. These new regions were devolved new responsibilities in the area of regional planning and development, transferred from the state regional administrations (OECD/UCLG, 2019[1]).

Regional governance reforms may be also conducted to counteract the excessive concentration of activities in the capital city. In France, the first signs of regionalisation emerged to offset the very high concentration of political and economic powers in the Paris region, which was at the expense of the growth of other regions. In Australia, the federal government together with the Regional Australia Institute has launched a campaign to promote the regions as an attractive alternative to capital city living, with opportunities for a more affordable lifestyle and a better work-life balance (Regional Australia Institute, 2020[25]). In Japan, the regional development strategy focuses on depopulation and regional revitalisation, and reorganising the system of cities, building on connections and complementarities, in particular between large metropolises and lower tier cities as a potential for the economy. In Korea, addressing the regional imbalance between Seoul and surrounding regions is at the core of the forthcoming regional development strategy, which aims to develop mega regional corporations to improve the attractiveness of regions outside of Seoul.

Achieving economies of scale for public service delivery and infrastructure

Related to the design and implementation of place-based policies, achieving economies of scale in public service provision and infrastructure may be a strong incentive to conduct regional governance reforms. Regional governments with adequate funding and human capacities can facilitate the provision of services and infrastructure of regional interest because they operate on a larger scale than municipalities. For public goods with strong local/regional externalities, the regional level has better local knowledge than the national government and can better match service and infrastructure delivery with functional areas. At the same time, an effective regional level can foster co-operation among municipalities and ensure better co-ordination between the municipal and central levels in service delivery and investment. For example, regional governments can provide incentives to municipalities to mutualise the provision of public services through fiscal equalisation mechanisms. The need to achieve economies of scale – considering, if possible, the functional area – can also be obtained through metropolitan governance reforms encompassing a specific territory of several municipalities and local governments, and competencies in very specific sectors.

The relevance and diversity of regional governments: Key data

While the regional level has gained importance in decentralised countries over the past decades, this level remains very diverse. As shown in Figure 3.2, decentralised regions and federated states are very diverse in terms of geography and demographic size, even across federal countries. Large countries tend to have more layers of autonomous intermediate government, e.g. federal countries. But many countries with a relatively modest size have also introduced or strengthened a regional level in recent decades (e.g. Eastern European countries, Greece). There is no linear relationship between the size and the degree of authority of regions: Switzerland, for example, has very small regions – 26 cantons – but they are very powerful.

Decentralised regions in the OECD and the EU are significant economic actors, in charge of extensive spending responsibilities.4 According to the Regional Government Finance and Investment Database Database, regional governments play a significant role in public expenditure, accounting for 7.6% of GDP and nearly 19% of public expenditure in 2016 (based on a sample of 24 countries, including 9 federal countries) (OECD, 2020[26]). They represented 41% of subnational government expenditure (the remainder was composed of municipal and intermediate governments’ expenditure). These averages must, however, be viewed from the perspective of the great differences between federal and unitary countries, as well as across countries. State governments in federal countries stand out by their high level of spending (with the exception of Austria and Mexico). These ratios are the highest in Canada, where provincial spending represented 22.8% of GDP and 55.1% of total public expenditure in 2016. On the other hand, regional government spending in unitary countries stood at 3.7% of GDP and 8.7% of public spending in 2016 on average. New Zealand, Poland, Croatia, France and the Netherlands ranked the lowest on both ratios.

Figure 3.2. The demographic and geographic size of elected regional governments, 2020

Figure 3.3. Regional government expenditure as a percentage of GDP and of total public expenditure in OECD and European Union countries, 2016

Regional governments also play an important role in public investment, a key component of regional development and economic growth. They accounted for 22.4% of total public investment and 0.7% of GDP on average in 2016. In federal countries only, state governments carry out a large share of investment projects, accounting for around 35.6% of total public investment in 2016, which is three times higher than the unweighted average of unitary countries (10.6%) (OECD, 2020[28]).

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Notes

← 1. See Annex C for a complete overview of regional governance reforms in OECD and EU countries since 1980.

← 2. Law NOTRe in 2015.

← 3. See Annex D for a complete overview of measures taken by regions to manage the COVID-19 pandemic and recovery.

← 4. Regional finance data only reflect the regional finance of decentralised regional governments in unitary countries and states of federal countries.

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