Regional Governance in OECD Countries

2. Understanding regional governance in OECD countries

Abstract

This chapter provides some key definitions for analysing regional governance systems and reforms across OECD countries and beyond. Based on characteristics common across countries, the chapter gives an understanding of what a region is and the different regional governance models that exist across and within countries. The chapter also describes the three main types of regional governance reforms – institutional, territorial and public management reforms – adopted by countries in the last 50 years.

Introduction

Regional governments in OECD and European Union (EU) countries are key economic actors: regional public expenditure accounted for 7.6% of gross domestic product and nearly 19% of public expenditure in 2016.1 Regional public expenditure is most relevant in transport and social protection, but also in sectors such as education and economic development. The role of regions today in providing services and investment is the result of regional governance reform processes that countries have been increasingly adopting. 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, for example, shows that 67% of countries experienced a net increase in the degree of regional authority over the period 1970-2018.2 This process, however, does not follow a linear path, and the rationale behind these reforms differs from country to country and over time. Some countries have pursued regionalisation reforms – across the entire country or for certain specific territories – to strengthen democracy and regional cultures; others have pursued regionalisation to reinforce regional economies and competitiveness, to facilitate place-based investments, or simply to achieve economies of scale in the provision of public services. In other cases, countries have opted for decreasing the responsibilities of regions by centralising them or decentralising them to local levels.

The COVID-19 pandemic has further revealed the important but uneven role of regions in policy making. In some countries, regional governments have been at the forefront of responding to the health and economic crisis. At the same time, the impact of the crisis has been uneven across regions. The reasons for this include the fiscal health of regional governments, regional demographic features and regional economies.

With the key role that regions are adopting, it is crucial to take a step back, better understand regional governance arrangements and how to ensure that these arrangements effectively serve their purposes: reducing regional inequalities, improving service delivery, better serving citizens’ needs. What are the key facts of regional governance? What are the main drivers of regional governance reforms? Is there a way of systematising and comparing regional governance structures across countries? What are the enabling factors that make regional governance function well?

This report, which builds on recent work produced by the OECD Multi-level Governance and Regional Development Division,3 attempts to bring some responses to these questions. To do so, this chapter provides some key definitions and describes what this report considers to be a region and what regional governance is as well as. After setting this common ground, the second part of the chapter describes the three main types of regional governance reforms.

Setting a common ground to understand regional governance

What is a region? Common characteristics to assess regional governance

To analyse regional governance systems and reforms, it is crucial to set the ground and have a common understanding of what a region is. This is a challenging task, as the definition will depend, to some extent, on each country’s context. There are, however, certain common characteristics and delineations that allow setting the scene to properly assess regional governance.

There are many ways to identify a region within a country: a region may correspond to an area defined by geographical features or economic functions, a statistical area, a planning level, an electoral district, or an administrative entity. It can be self-governing or represent the central level, among other factors. In this report, the term “region” encompasses all the entities immediately below the national level in federal countries (i.e. federated states) and in unitary countries (with two or three tiers of subnational governments), including elected regional governments, co-operation structures at the regional level, but also pure statistical and planning regions, which, in general, are under the administration of a representative of the central state (deconcentrated entities). Accordingly, regionalisation is the process of creating new regions or strengthening existing ones, regardless of their form. This generally occurs through the transfer of responsibilities from the local or central level towards the regional level. This transfer is also usually combined with attributing some fiscal powers to the regional level (OECD, 2020[1]).

In federal countries, where regions generally have more powers than in unitary countries, the regional level takes the form of the federated state or provincial governments. Sovereignty is shared between the federal (central) government and the federated states which, in most cases, have their own constitution (Canada is an exception), parliament and government. The self-governing status of the states or provinces may not be altered by unilateral decision of the federal government. In addition, state governments, not the federal government, have authority over the local authorities of which they are composed. Spain and the United Kingdom are particular cases in the typology of countries. Although Spain is constitutionally a unitary state, it can be considered to be a “quasi-federal” country, with powerful autonomous communities. Autonomous communities have, however, less room for manoeuvre than states and provinces in federations, in particular when it comes to governing provinces and municipalities4 (OECD, 2021[2]). In the United Kingdom, while the country is unitary, the devolved nations have various degrees of autonomy and power, and some have authority over the local councils under their jurisdictions.

In unitary countries, the regional level may take the form of provinces, counties or regions. As in other subnational governments, regions in unitary countries are governed by the central government, which exercises an ultimately supreme power. This central power, however, does not preclude the existence of regional and local governments, which may be elected directly by the population, and may have some political and administrative autonomy. Some unitary countries even recognise autonomous regions that have more powers than the other regions because of geographical, historical, cultural or linguistic reasons (e.g. Finland, France and Portugal). Whereas in federal countries state governments have authority over local governments, in most unitary states, there is no hierarchical link between regions and other local governments. There are some exceptions, however. In Romania, for example, while counties and local councils have no hierarchical link in principle, in practice counties co-ordinate the activities of communal, town and municipality councils. In the Netherlands, provinces are in charge of the administrative and financial supervision of municipalities and water boards, and they play a key role in vertical co-ordination (OECD, 2020[3]).

In addition to these elected entities, the regional level may also encompass non-elected decision‑making bodies, with or without their own budget, endowed with responsibilities in regional development and other regional competences. This is the case, for example, of planning regions, deconcentrated regional authorities, but also of thematic decision-making bodies, such as regional economic councils, local economic partnerships, etc. Chapter 4 provides a detailed typology of regional governance systems.

Regional governance encompasses a broad range of realities in federal and unitary countries

Based on the OECD definition of public governance (OECD, 2020[4]), regional governance refers to the formal and informal arrangements that determine how public decisions are taken and how public actions are carried out at the regional level. Similarly, the EU defines regional governance as the rules, procedures and practices used by institutions at the regional level (Widuto, 2018[5]).

Regional governance models are diverse and dynamic across and within countries. Regional governance can take different forms in both federal and unitary countries; there is no single model and federalism itself is not a form of regional governance (OECD, 2020[1]). At the same time, several forms of regional governance can co-exist within a country; an asymmetric regional governance system within a country may respond to historical, geographic and cultural issues, but also to capacity issues. Regional governance systems can also continuously evolve to better adapt to dynamic contexts. A country can successively feature different types of regional governance to respond to dynamic challenges and contexts. France, for example, implemented a purely administrative regionalisation from the 1960s before the current decentralised regional governance system was introduced at the beginning of the 1980s. 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 (see Chapter 5).

The three main types of regional governance reforms

Countries across the OECD and the EU are increasingly adopting regional governance reforms. Most of them increase regional power. These reforms have taken three main forms:

1. Institutional reforms: i.e. the reorganisation of powers and responsibilities across levels of government through decentralisation or recentralisation processes. Institutional reforms consist of creating a new regional level (elected or not) or modifying the responsibilities and resources of existing regional entities. The rationale behind the creation of new regional bodies or the redefinition of their responsibilities and resources may be political, socio-cultural or economic and, in many cases, a combination of these. Institutional reforms are often decentralisation reforms. There were institutional regional governance reforms in several federal or unitary countries in the 1990s – Belgium, the Czech Republic, France, Greece, Italy, Poland, the Slovak Republic, Spain and the United Kingdom – that created or reinstated an elected regional level. A more recent example is Malta. Once this level of government was established, further reforms have tended to increasingly delegate more powers to the regional level or strengthen their institutional capacity. These changes have been associated with reforms of subnational finance systems, to provide adequate fiscal capacities to bear these additional powers and responsibilities. However, in some instances, institutional reforms result in a recentralisation process, for example in Hungary in 2012 and Ireland in 2014 (OECD, 2019[6]).

2. Territorial reforms: i.e. the reorganisation of territorial structures, by “rescaling” administrative boundaries to find an appropriate scale to design and implement policies. Most of the time, the rescaling is done through mergers. In many countries, the administrative boundaries of regional entities were based on historical settlement patterns established many decades or centuries ago, when the fastest means of transport was by horse, and have not been significantly revised since then. This is the case in countries like Austria, Japan, the Netherlands, Norway, Sweden and Switzerland. These boundaries are now often outdated and do not reflect demographic changes, socio-economic relations or functional areas. This disconnect from the realities of today has motivated several regional remodellings to reach greater critical mass, such as in Norway where, since 1 January 2020, 11 larger regions have replaced the former 18 counties with the intent to strengthen the regions as functional units and to provide more coherent housing and labour market policies.

3. Public management reforms: i.e. the reorganisation of administrative and executive processes at the regional level, as well as between the regional level and other levels of government. Inspired in particular by the “New Public Management” (NPM) and post-NPM currents, public management reforms focus on enhancing effectiveness, efficiency, quality, openness and transparency, accountability, citizen participation, and co-ordination. They encompass a large diversity of initiatives and programmes in the fields of human resources management, financial management, organisational management, optimisation of administrative processes and e-government, quality management and performance assessment, open government and citizen participation at the subnational level, etc. Several significant reforms of this type have recently taken place, for example in Ireland (2014), the Netherlands and New Zealand (OECD, 2017[7]).

Territorial, institutional and public management reforms often go hand-in-hand. Institutional reform can be partly driven by a territorial reform (and vice versa), as an increasing number of tasks transferred to subnational governments may put pressure on increasing their size and capacity so that they can cope with these additional responsibilities. “Pure” territorial reforms are very rare. Most often, they are carried out jointly with institutional and public management reforms, such as in Norway, where new responsibilities have been decentralised to the new larger regions. By contrast, institutional reforms may be conducted without modifying regional boundaries, except when they consist of creating an entirely new regional level. It is also important to note that regionalisation reforms tend to have an impact on the functioning of other levels of government, both on decentralised and deconcentrated entities (OECD, 2020[3]).

References

[10] Allain-Dupré, D., I. Chatry and A. Moisio (2020), “Asymmetric decentralisation: Trends, challenges and policy Implications”, OECD Regional Development Papers, No. 10, OECD Publishing, Paris, https://doi.org/10.1787/0898887a-en.

[11] OECD (2021), Decentralisation and Regionalisation in Bulgaria: Towards Balanced Regional Development, OECD Multi-level Governance Studies, OECD Publishing, Paris, https://doi.org/10.1787/b5ab8109-en.

[2] OECD (2021), Decentralisation and Regionalisation in Bulgaria: Towards Balanced Regional Development, OECD Multi-level Governance Studies, OECD Publishing, Paris, https://doi.org/10.1787/b5ab8109-en.

[8] OECD (2021), Making Multi-level Governance and Decentralisation Work for Regional Development in Bulgaria, OECD Publishing, Paris.

[9] OECD (2021), “The territorial impact of COVID-19: Managing the crisis across levels of government”, Tackling Coronavirus (COVID-19): Contributing to a Global Effort, OECD, Paris, https://www.oecd.org/coronavirus/policy-responses/the-territorial-impact-of-covid-19-managing-the-crisis-and-recovery-across-levels-of-government-a2c6abaf.

[1] OECD (2020), Decentralisation and Regionalisation in Portugal: What Reform Scenarios?, OECD Multi-level Governance Studies, OECD Publishing, Paris, https://doi.org/10.1787/fea62108-en.

[3] OECD (2020), Pilot Database on Regional Government Finance and Investment: Key Findings, OECD, Paris, https://www.oecd.org/cfe/regionaldevelopment/REGOFI_Report.pdf.

[4] OECD (2020), Policy Framework on Sound Public Governance: Baseline Features of Governments that Work Well, OECD Publishing, Paris, https://doi.org/10.1787/c03e01b3-en.

[13] OECD (2020), The Future of Regional Development and Public Investment in Wales, United Kingdom, OECD Multi-level Governance Studies, OECD Publishing, Paris, https://doi.org/10.1787/e6f5201d-en.

[6] OECD (2019), Making Decentralisation Work: A Handbook for Policy-Makers, OECD Multi-level Governance Studies, OECD Publishing, Paris, https://doi.org/10.1787/g2g9faa7-en.

[12] OECD (2019), Making Decentralisation Work: A Handbook for Policy-Makers, OECD Multi-level Governance Studies, OECD Publishing, Paris, https://doi.org/10.1787/g2g9faa7-en.

[7] OECD (2017), Multi-level Governance Reforms: Overview of OECD Country Experiences, OECD Multi-level Governance Studies, OECD Publishing, Paris, https://doi.org/10.1787/9789264272866-en.

[5] Widuto, A. (2018), Regional Governance in the EU, European Parliamentary Research Service, https://www.europarl.europa.eu/RegData/etudes/BRIE/2018/628244/EPRS_BRI(2018)628244_EN.pdf.

Notes

← 1.  Based on the Regional Government Finance and Investment Database, which includes a sample of 24 countries (OECD, 2020[3]).

← 2.  OECD calculations based on the latest Regional Authority Index data set available at: https://cadmus.eui.eu/handle/1814/70298.

← 3.  The information included in this report mainly draws from recent OECD multi-level governance reviews: Multi-level Governance Reforms: An Overview of OECD Country Experiences (OECD, 2017[7]), Making Decentralisation Work: A Handbook for Policy Makers (OECD, 2019[6]); the OECD Regional Development Policy Paper, “Asymmetric decentralisation: Trends, challenges and policy implications” (Allain-Dupré, Chatry and Moisio, 2020[10]); the multi-level governance studies of Portugal, Bulgaria and Wales (OECD, 2021[11]; 2020[13]; 2020[1]); and the Pilot Database on Regional Government Finance and Investment: Key Findings report (OECD, 2020[3]). It also draws information from the OECD COVID-19 note “The territorial impact of COVID-19: Managing the crisis across levels of government” in May 2021 (OECD, 2021[9]), as well as from the Regional Recovery Platform, released in October of the same year.

← 4.  With the exception of the Basque Country and Navarra.