Regional Governance in OECD Countries

1. Assessment and recommendations

Abstract

This chapter presents a brief overview of the main findings of the report, including the most recent trends on regional governance reforms and their drivers. It includes a typology of regional governance models across OECD countries to help illustrate and shed light on the different types of regional governance models used around the world, their main objectives, and the main challenges they represent. The chapter also provides a brief overview of key recommendations needed for effective regional governance, including instruments that facilitate vertical co-operation across levels of government and interregional co-operation, monitoring and evaluation processes and tools for stakeholder engagement.

Countries are increasingly adopting regional governance reforms

The role of regional governments in OECD and European Union (EU) countries has increased over the last five decades. . Since 1970, regionalisation – or the process of transferring power from the central government to the regions either by creating new regions or by strengthening or merging existing ones – has risen in many countries. The 2021 Regional Authority Index (RAI), for example, shows that 67% of countries experienced a net increase in the degree of regional authority over the period 1970-2018, whereas regional authority was unchanged in 23% and declined in only 10%. On average, the index increased the most in the Asia and Pacific region and the least in Latin America, where many countries have no regional governments. Over the same period, the average RAI score for OECD countries increased considerably: 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.

In the last fifty years, there have been different waves of regional governance reforms. A first wave of reforms took place between the 1970s and 1990s, when 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. A second wave of regional governance reforms took place after the 2008 crisis characterised by the creation of a new self-governing regional level (e.g. Greece) or the upscaling of existing regions (e.g. France, Norway). In parallel, a number of institutional reforms also took place, including the transfer of new responsibilities and fiscal powers to the regional level (e.g. Belgium) and the strengthening of regional governance bodies (e.g. Iceland, Ireland). Today, there are important ongoing regional governance reforms and debates across OECD countries. Some countries have recently created an elected regional level (e.g. Chile in 2021, Finland forthcoming in 2022) or are improving regional governance mechanisms (e.g. Greece, Lithuania). Discussions on developing a regional level are still ongoing in some countries (e.g. Bulgaria, Portugal mainland, Romania). Several countries are also reflecting on how to improve regional governance bodies, in particular for EU Cohesion Policy (e.g. Bulgaria, Latvia, Lithuania).

As was the case in the aftermath of the 2008 financial crisis, the COVID-19 pandemic may also trigger longer term reforms to strengthen the regional level. In several countries, the need to consolidate public finances after the 2008 financial crisis, became a driver and a major objective of multi-level governance reforms to streamline territorial organisation and optimise public spending. The same signals have been seen in the aftermath of the pandemic. 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 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 (e.g. Slovenia, Spain, Switzerland). In other cases, countries decided to decentralise some additional powers to subnational governments in health and social protection areas, at least temporarily (e.g. United Kingdom). 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 addressing other global challenges such as the green transition. The current period is thus an opportunity for countries to rethink and re-adjust multi-level governance models. . The question here is not whether countries need to further decentralise or centralise, but what re-adjustments are needed to make policy-making more efficient.

Federal and unitary countries are increasingly adopting asymmetric regional governance arrangements. The RAI shows that between 1970 and 2010, two-thirds of countries adopted asymmetric arrangements, i.e. provided different political, administrative or fiscal powers to governments at the same subnational level (regional, intermediate or municipal). 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; 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 (e.g. Colombia). 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.

The drivers of regional governance reforms are multiple and countries often pursue several objectives when undertaking these reforms:

• 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. Cultural or historical motives for regional governance reforms are also often strongly associated with political reasons as granting autonomy to regional entities may ensure more political stability. However, these need to be carefully managed as there may also be a risk of weakening the integrity of states. In countries with indigenous populations, regional governance reforms can be driven by the will to improve the autonomy of regions with indigenous populations.

• Regional governance reforms can also result from a readjustment of the overall multi-level governance system. 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 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 are shared with another government level.

• Strengthening democracy can also be an important driver of regional governance reforms. The creation of a regional level directly elected body can enhance local democracy, transparency and accountability.

• Regional governance reforms can also respond to the increasing adoption of place-based policies to enhance competitiveness in all types of regions, tailor policies to each regional context and reduce regional inequalities. Indeed, much of the knowledge needed to design and implement a policy for a region is embedded in the region itself. Place-based development policies require a set of competences, many of which are best found at the regional level. 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 regional development policies. They are also well-placed to support urban-rural linkages and cooperation. This allows regional governments to devise comprehensive regional development strategies, which integrate, for instance, environmental aspects as well as economic and health considerations. At the same time, regions may take better advantage of and target regional comparative advantages than the national level; this is also true in countries with high levels of administrative fragmentation at the local level.

• 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.

A typology of regional governance models

While many regions have been given increased powers in recent decades, levels of devolution are diverse in terms of geography, demographic size, institutional settings and responsibilities. In federal countries, for example, state governments stand out for their high level of spending, representing 35.2% of total public spending, compared to 8.7% in unitary countries. The differences in terms of responsibilities are also reflected in diverse institutional settings. Regional governance can take different forms in both federal and unitary countries and several forms of regional governance can co-exist within a country. A country can also successively feature different types of regional governance to respond to dynamic challenges and contexts. There is no “optimum” model of regional governance for any country; how each regional governance system works depends on the country context, but also on the instruments put in place to enable the system to function effectively.

To reflect this diversity and, at the same time, identify common characteristics in terms of governance, institutions, responsibilities and funding, this report identifies a typology of regional governance models (core regional governance models) that groups the different models used across OECD countries into four categories as follows:

1. Regions with legislative power in unitary, quasi-federal or federal countries, are characterised by several distinguishing aspects, including the attribution of legislative power to a regional assembly and therefore a high level of political autonomy. Regions with legislative powers have large responsibilities, whose content is defined and guaranteed by the Constitution, or at least by a constitutional-type text. In federal and quasi-federal countries, the federated states (or regions) have, in most cases, their own constitution (Canada is an exception), parliament and government. Regions with legislative powers also exist in unitary countries, in particular those that have asymmetric regional governance arrangements (e.g. Finland, Portugal). The executive and deliberative bodies of these regions are elected by direct universal suffrage. Unlike decentralised regional governments, these regions have their own regional parliaments that exercise primary or secondary legislative powers.

2. Decentralised regional governance is a model in unitary countries or quasi-federal countries where the region has elected bodies, at a higher level than local authorities. Decentralised regions, or elected regional governments, are the most widespread form of regional governance in the OECD and the EU. Decentralised regional governments are legal entities with their own autonomous budget, assets, administration and decision-making power. They have some autonomy over their spending decisions and have access to various sources of funding, including grants and subsidies, tax revenues, user charges and fees. They may also have access to borrowing. There is no one dominant model of funding. The governance structure of decentralised regions is based on a directly elected deliberative body (regional assembly or council) and an executive body, which can be elected by the regional council by and from among its members or by direct universal suffrage. Contrary to regions with legislative powers, decentralised regions have no normative power.

3. Co-operative regions or regional associations of municipalities are another form of regional governance that arises from the co-operation of existing local authorities. This is particularly the case of countries where local authorities have competences and functions that can be more effectively managed at a larger regional scale. Creating co-operative regions involves either extending the attributions and scope of action of local governments within this co-operative structure, or institutionalising their co‑operation within a wider framework. Co-operative regions have legal status, and their creation requires the agreement from member municipalities. In general, they have regional councils made up of members elected by municipalities and a cabinet/office to run their activities. The responsibilities of co-operative regions are usually limited. Their tasks often include regional development and spatial planning, EU funds management and some other tasks with clear region-wide benefits. Usually, co-operative regions have their own budget, generally funded by contributions from municipalities and through central government transfers.

4. Planning or statistical regions that are territorial units established by the central government to plan at the regional scale and/or provide statistics at the regional level that may enlighten the planning process. They are created through the administrative reorganisation of central government authorities and are included in the central administration as deconcentrated entities. In general, these bodies have few powers; regional policies remain closely controlled by the central level. In some cases, these types of regions do not have a legal personality, and consequently, they do not have their own administration or budget. However, they may have representative bodies, such as an executive or a deliberative body, often called regional development councils. In some rare cases these types of regions can have the legal status of regional deconcentrated state administration. Accordingly, they benefit from their own administration and their own budget, composed primarily of transfers from the central government.

In parallel with the core regional governance model, several countries have established regional bodies or governance tools that may co-exist with the main administration exercising the executive and deliberative powers at the regional level. In some countries, for example, there are representatives of the central level at the regional level, even in decentralised regional governance models. Several countries have also put in place Regional Development Agencies (RDAs) to promote and strengthen regional development policy. In general, these agencies work in parallel and in co-ordination with regional governments. Metropolitan governance bodies are also a governance tool that co-exists with the core regional governance model within countries; these bodies usually either replace regional governments in certain areas – having broader competences than regional governance structures – or work in parallel with regional governments as they cover a different territorial area.

Multi-level governance instruments that enable sound regional governance

Regional governance reforms and increasing regional authority mean a more complex multi-level governance system that require effective instruments to manage relationships in a shared responsibility environment. For a successful implementation of regional governance reforms, countries need to adopt specific instruments to make the multi-level governance structure work well. And this is true in all contexts, independently of which type of regional governance model a country has chosen. Multi-level governance instruments – which can be more or less binding, flexible and formal – generally serve two purposes: 1) to co-ordinate public policies and investment among levels of governments and stakeholders; and 2) to reinforce capacity for designing and implementing policy and investment at all levels.

Ensuring vertical co-operation and co-ordination across levels of government

The regional level has a strategic position, at the intersection of the national and local levels of government to enable co-ordination across levels of government. Regional governance reforms may pursue the objective of improving the interaction and co-ordination with local levels to achieve outcomes that are aligned and sufficiently clear for all actors. In the current context, co-ordination among levels of governments – regardless of whether they operate in centralised or decentralised contexts – is also key for regions to become levers for the social and economic recovery, in particular when tackling issues of regional importance (e.g. employment, economic development, transport and health). Indeed, a co-ordinated regional approach to recovery can enable maximising the resources available to support regional economies, optimise the impact of aid packages and increase accountability. However, this co-ordination does not happen spontaneously and is even more challenging for type 3 and type 4 regions. The existence of central representatives at the regional level may facilitate this coordination – however it is not always the case. If co-ordination is not encouraged from the central level, a siloed approach to policy-making might be mirrored at the regional level. To facilitate this coordination, countries need to adopt specific instruments to enable vertical coordination and with this, develop strong, trusting and co-operative relationship among sectors and levels.

The use of formal contractual arrangements for vertical coordination may bring a series of benefits for policy making, including fostering long-term regional development policy making and building trust. Contracting or deal-making approaches – in particular for countries that have type 3 and type 4 regions- can favour information sharing and mutual understanding in how to address a common policy priority, while at the same time reduce transaction costs for implementing a policy. In particular, contractual agreements can clarify “grey areas” where responsibility for action or outcomes is not clearly established. By defining the mutual obligations of parties and agreeing on authority, respective duties and enforcement mechanisms, contracts can help manage joint, unclear, or overlapping responsibilities in a multi-level context. Contracting approaches can also generate trust between public actors for their future endeavours. Both central and subnational governments may also seek to innovate in particular areas, building new capacities and new approaches to policy making. Contracts may facilitate the establishment of a long-term perspective on regional development policy making. To ensure their effectiveness, there some key elements to consider in the contract design. For example, despite the importance of providing stable arrangements over the long term, contracts must remain relatively flexible to enable the financing of new regional projects over time and facilitate the reallocation of funds if necessary. Introducing citizen engagement mechanisms, for example such as public consultation and participatory financing mechanisms, throughout the duration of the contract can increase transparency regarding the use of investment funds.

Inter-governmental bodies can also be important instruments for designing and implementing regional governance reforms and aligning interests and priorities. Inter-governmental bodies provide regional and other subnational actors with the opportunity to share perspectives and experiences; understand the needs and problems of other levels of government; negotiate with each other; and obtain help in the design, implementation and monitoring of policies or reforms. From the central government’s perspective, inter-governmental and dialogue bodies can also serve to establish a clear and transparent priority-setting process, and provide high-level guidance, co-ordination and discussion of matters related to regional development. Inter‑governmental bodies can be particularly useful to design and implement regional governance reforms. Inter-governmental bodies can take different forms, such as a dedicated permanent policy exchange, conferences or councils. They can be ad hoc or permanent, consultative or assume co-ordinating functions. These bodies can be more or less formal, regular, and with or without decision-making authority. To reach their potential, inter-governmental bodies need to be built on solid and reliable territorial data. In countries where there are not any public databases on regional statistics, these bodies can contribute to enhancing the quality and reliability of such data. To this end, inter-governmental committees may include sub-committees on fiscal issues, and governments at all levels can promote the creation of regional statistics databases.

An increasing need for national and international co-operation across regions

Regions need to collaborate to manage joint policy competences, to invest at the relevant scale and avoid cross-purpose investments, to build capacities, among others. As administrative boundaries do not necessarily match functional areas, joint planning and joint actions are often required to reach a relevant scale, both for planning, investing and delivering services. At the regional level, this is typically the case for physical infrastructure investments where the most efficient scale often exceeds the administrative boundaries of individual regions – and in some cases goes beyond frontiers. Cooperation between regions, in particular for type 3 and type 4 regions, is often more challenging for “strategic” investments where they might find themselves competing to secure public facilities, to attract intergovernmental grants, or to attract private investment and qualified persons. Overcoming some of the challenges relating to regions’ administrative boundaries requires the capacity to see and seize the opportunities, while garnering the necessary political support.

The need for interregional co‑operation -national and international- was evident when the COVID-19 pandemic hit. Externalities linked to the coronavirus were so high that no single jurisdiction was able to manage these on its own. Coordination across regions was essential to avoid disjointed or contradictory responses, which posed a collective risk to a country’s population. In federal systems, there may be limited incentive for cross-jurisdiction cooperation (e.g. sharing equipment, skilled personnel, etc.) if supporting a neighbour jeopardises one’s own ability to adequately respond to a crisis situation. In this sense, the role of national governments is essential in minimising coordination failures and ensuring a coherent approach. The crisis also revealed the importance of cross-border co‑operation, as in general – and at least in the first phase of the crisis management – countries conducted uncoordinated border closures and unilateral measures. In a survey conducted by the OECD and the European Committee of the Regions, the lack of cross-border co-ordination was identified as the strongest co‑ordination issue. Many regions put in place specific measures to support horizontal and cross-border cooperation. In Belgium, for example, federal authorities and federated entities agreed on more intensive coordination in the overall distribution of personal protective equipment to the care sector. In the EU, associations and institutions of regional and local governments involved in cross-borders cooperation joined forces to propose a “European Cross-border Citizen’s Alliance”.

Co-operation across regions, in the form of city networks or megaregions, may also help tap the benefits of agglomeration economies while minimising its costs. Greater connectivity between cities that are economically complementary but spatially too remote from each other to “cluster” physically can allow them to “borrow” agglomeration economies while minimising the costs of large cities. If, for example, two similar sized cities become highly connected through a well-developed transport network, this can mimic a doubling in population size by reducing transport and communication costs, ensuring faster and cheaper access to product markets, and enlarging and diversifying labour pools. These city networks can take the form of megaregions – two or more regions that collaborate to form a new larger economic scale that encompasses a polycentric grouping of cities and their hinterlands. This grouping of regions provides an opportunity to achieve much greater efficiency and economies of scale through greater coordination and joint infrastructure planning.

Countries may opt for different forms of inter-regional cooperation:

• The most common form of interregional co-operation at the national level are associations of regions that aim to advance a regional agenda or join forces to make the “voice of regions” stronger.

• At the cross-border level, regions are also increasingly collaborating, sharing experiences and advocating in the form of thematic networks or multi-purposes bodies. Regions can collaborate internationally to share expertise and join forces in the framework of international thematic co‑operation frameworks, for example focused on research and policy implementation on climate issues, food and agriculture.

Strengthening capacities at the regional level

Regional governance reforms are also an opportunity for developing strategic capacity, in particular on regional development planning and implementation. The lack of sufficient technical or strategic capacities at the regional level is one of the most important challenges – and in some cases one of the most important barriers – to undertaking regional governance reforms. However, a key component of these reforms is the capacity building process that should emerge: depending on the objectives of the reform, focusing on building strategic capacities (i.e. the ability to set strategic goals for social, political and economic outcomes) and ensuring the administrative and institutional capacity to realise those goals is a fundamental part of the reform itself. At the same time, regional governance reforms are by themselves a capacity-building process in which all stakeholders can gradually learn how to take on more responsibilities.

To ensure successful regional governance reforms, strengthening policy monitoring and evaluation processes is fundamental, especially when reforms aim at enhancing regional competitiveness or implementing place-based policies. While regional governments are gaining importance within general government policies and budgets, and are being allocated new responsibilities, they need to be able to monitor their performance to be accountable for the responsibilities that are assigned to them in all cases, independently of their degree of decentralisation. Well-developed, outcome-oriented performance measurement systems also contribute to the success of regional development policies and investment by measuring and monitoring the effectiveness of policy and spending, be it by national or subnational level authorities. Monitoring and evaluation mechanisms should be based on clear, robust and measurable indicators. These indicators should ideally be designed ahead of the policy-making process and in a participatory manner, involving all regional stakeholders, including civil society and the private sector. They should be harmonised based on formal/standardised guidance documents produced by the central government. For appropriate monitoring and evaluation processes, it is also crucial to develop adequate regional data and information at the right territorial scale.

Digital tools can also support monitoring and evaluation in a number of ways. Information and communication technology (ICT) and most recent technological changes have multiplied the opportunities for regions to improve the ways they communicate and involve citizens (e.g. e-democracy and ICT-based participation). The use of these tools is particularly relevant for type 3 or type 4 regions which have been democratically elected. Digital tools may also help regions provide public services (e-government), manage public resources in a more efficient manner (e.g. for tax collection), improve staff capacity and management and adopt new public management models. It can be particularly useful to realise territorial forecasting, allowing the different actors of a territory to identify the challenges and the different possible futures.

Tools for engaging private stakeholders and civil society also need to be developed at the regional level to ensure the success of regional governance reforms and place-based policies. Multi-level dialogue fora are a mechanism frequently used for co-ordinating regional development and investment priorities across stakeholders. These fora are platforms that bring together a combination of national and subnational public, private and third-sector actors in a regular, formalised manner. Their objective is to facilitate the participation and consultation of the different stakeholders concerned by a given policy sector so as to reap the benefits from their ground knowledge and expertise and to overcome potential opposition to reform. Citizens and business engagement is important for improving the quality of policies, increasing accountability and strengthening trust in governments.