What Are The Implications Of Membership Of The European Union On Regional Development In The UK Essay, Research Paper

Large-scale disparities in prosperity between British regions first became a subject of concern for policy makers in the late 1920s (McCallum 1979). Since that time regional development strategies have been an integral part of government policy, though the weighting they have been afforded has varied considerably. Britain’s integration into a wider Europe, beginning with membership of the EC in 1973 and continuing with the Single European Act of 1986 and the 1991 Treaty of European Union (the Maastricht Treaty), has had and will continue to have significant effects on British regional development problems and policies. Before the nature of these effects can be discussed, it is important to look at the reasons that variations in levels of regional development are seen as a problem. While the issue of equity for its own sake is the most immediately obvious ground for wishing to spread development evenly throughout the country, there are also potential political, strategic and environmental advantages (Armstrong 1985). By far the most compelling argument in favour of promoting even development, however, is economic. This argument is based around the fact that, in times of growth in demand and productivity, reasonably full employment is created in the most prosperous regions, leading to anti-competitive practices such as excessive wage increases. These practices spread throughout the country creating so called ‘cost-push’ inflation. When deflationary policies are introduced, usually increased taxes, reduced public spending and raised interest rates where Keynesian demand management is applied, demand is curtailed and the economy goes into recession due to unacceptable deflationary burdens, high unemployment being the most notable of these. The poorer regions tend to feel the first effects of recession due to their relatively weak economies and, in the case of the United Kingdom, due to the predominance of heavy industry rather than consumer goods and services in the less prosperous North and West. Also, the inability of less developed, net importing regions to live with a permanent balance of payments deficit will reduce the ability of more developed regions to export (Jensen-Butler 1987). Uneven distribution of economic development, therefore, tends to adversely affect the economy as a whole as well as widening the regional gap which was largely responsible for its initial creation. While these arguments are commonly accepted, regional policies within Britain have often proved ineffective in narrowing the regional divergence. London and the South East remains by far the most prosperous area of the country, while Northern Ireland, Merseyside and the Highlands of Scotland are among the poorest regions in Europe. The likely implications of EU membership for this existing pattern of development must now be discussed. Jensen-Butler (1987) identifies five levels of international economic integration. These are: “(1) Free-trade area where there are no trade barriers between member states and no common external trade policy. (2) Customs union, which is a free-trade area with a common external tariff. (3) Common market with free movement of factors of production. (4) Monetary union where a common currency is established. (5) Economic union where macro-economic policy is made by a central authority.” (p.214) As integration proceeds from stage (1) through to stage (5) (the EU is currently between stages (3) and (4)), barriers to free trade are progressively eroded. As such factors as tariffs and exchange rates generally facilitate protection of poorer regions (Cheshire et al. 1991), the removal of such barriers allows free factor mobility and puts “different production systems, characterised by highly dissimilar productivity levels in direct competition” (ibid, 296). While there is very broad agreement that the immediate effect of this will be a widening of the productivity gap between regions, there are those who argue that in the long term integration will facilitate regional economic convergence. This essentially neo-classical contention is based on the premise that, with increasing integration, inefficient production is rooted out, providing aggregate benefits for the union as a whole, while factor mobility facilitates equalisation of regional factor payments (Jensen-Butler 1987). In this theory the more efficient resource allocation thus engendered will then induce both aggregate growth of the union economy and a reduction in regional inequality (ibid). The experience of Britain and other nation states, however, refutes the assumption that a lack of trade barriers and therefore infinite theoretical factor mobility within a given area leads inevitably to the removal of regional factor payment differentials. A more likely scenario gaining much acceptance within the literature is based on a Myrdal-Hirschman model of cumulative regional development (ibid). Generally speaking, those regions in an advantageous position within the system due to such factors as well developed infrastructure (roads, airports, communications etc.) and skilled workforce will attract the most investment, leading to high productivity increases, in turn leading to significant in migration (EC 1990). The effect is to increase the size of the regional market and tax base, allowing further improved infrastructure and inter-industry linkages which in turn facilitate new rounds of investment (Jensen-Butler 1987). In short, “the gap between regional multipliers in fast and slow growth regions widens” (ibid, 216). Polarisation will therefore tend to increase progressively from stage (1) through to stage (5) and thus the regional economic effects for Britain will be highly dependant on the extent to which the Union progresses to steps (4) and (5) (Jensen Butler 1987, Nevin 1990). It is likely, then, that uncontrolled integration would lead to the divergence of regional development in both Britain and the EU as a whole. It is also important to note that integration has the effect of decreasing the power of national governments over such development due to two reasons. Firstly, increased competition from the expanded market will make national governments hesitant to prevent additional development in the most prosperous regions for fear of losing productive potential to other countries of the Union. Secondly, in the new wider market, an increased proportion of income generated by development in a given region will be spent on imports, reducing the local multiplier effect and making regional policies less effective (Nevin 1990). In a monetary union rather than a common market, therefore, “each national government would be forced to give priority to securing the equilibrium rate of inflation for the country as a whole; the regional dimension would necessarily be relegated to second place” (ibid, 288). The likelihood of European integration widening disparities between regions, then, is compounded by the reduced power of national governments to effectively combat such disparities. The effect of EC regional policy, therefore, is central to this discussion and must be evaluated before any conclusions can be made as to the overall effect of EU membership on British regional problems and policy. While the arguments for problems associated with the underdevelopment of depressed regions within the EC run much the same as those discussed previously for the nation state, the greater size and economic differentiation of the Community means that disparities between regional multipliers in poor and wealthy regions are likely to be even more pronounced than those for individual countries (Jensen-Butler 1987). The nature of the EC as a supra-national entity whose members have distinct and often opposing national interests, however, has made the formulation of effective Community wide regional policies highly problematic (Martins and Mawson 1982, Cheshire et al. 1991). The first steps towards a common EC regional policy were taken in the 1960s (Cheshire et al. 1991), although this period was characterised by an emphasis on the “avoidance of abuses rather than the creation of policies” (Nevin 1990, 291). The early 1970s saw a major growth in interest in a Community, rather than national, regional policy, due largely to the emergence of monetary union as an EC objective and the large increase in unemployment after 1973 (ibid), although paradoxically the balance of responsibility for regional policy shifted back towards the individual nation state between 1973 and 1975 (Cheshire et al. 1991). The European Regional Development Fund (ERDF) was established at the end of 1973, with the principle of ‘additionality’ being incorporated into Community legislation for the first time. Although often sidestepped in the early years of its application (see for instance Walker 1991, the Times 1993 for evidence of tighter control in more recent years), this rule, which has provided a consistent backbone to EC regional policy (ibid), was intended to ensure that, while regions in need of assistance were still to be designated by national governments, EC aid would only be forthcoming when the country involved demonstrated a financial commitment to a particular project. Major reforms to the ERDF occurred in 1979, 1984 and most recently in 1988. According to Cheshire et al. (1991), the overall effect of these reforms has been that “regional policy has been strengthened, funding has been increased, co-ordination (both different regional policy actions and regional policy with other Community policies) has been improved and, perhaps most significantly, a measure of responsibility for the initiation of action and for the formulation of policy has moved from a national to a Community level” (ibid, 282). The 1988 reform has been the most comprehensive so far. The scope of EC regional policy, however, remains severely limited. While funds available for regional spending via the ERDF have become more closely co-ordinated with other structural funding, administered by the Social Fund and the structural guidance section of the Common Agricultural Policy (CAP), and while total structural spending was doubled in the period 1989-93, such assistance in 1993 was still to account for just 25% of the total Community budget (EC 1991). While the ECU 14,200 million (plus some additional agricultural aid) that this represents is a significant quantity, compared to the other resource allocations, particularly those to the CAP, a policy which, incidentally, actually widens regional disparities, structural spending is still relatively slight (Cheshire et al. 1991). This must also be seen in light of the fact that the EC’s budget as a proportion of total GDP is very low indeed in comparison to the central budgets even of federal states; 1% for the EC compared to 10-15% for Germany or Switzerland (ibid). Factors such as the restrained ability of the Community to award grants at its discretion due to the pre-allocation of 85% of Structural Funding to member states, and some inevitable degree of inefficiency in distribution procedures, as evidenced by the over-allocation of funds to high priority Objective 1 regions in the 1988 reforms (ibid), are further constraints on EC regional policy effectiveness. What, then, are the implications of EC regional policy for Britain? The most that can be realistically hoped for at present levels of Community funding, given its severely limited nature, would be for regional aid to go some way to restricting the growth of disparities between the most and least developed parts of the country. While Merseyside, Northern Ireland and the Highlands of Scotland in particular were awarded significant redevelopment grants in 1993 (approximately £1,000 million each for Merseyside and Northern Ireland and £300 million for the Highlands (Bowditch and Faux 1993, Sherman 1993)), and while the rejuvenation of urban Liverpool would seem to be testimony to the effective concentration of both EC and British government efforts on urban regeneration, EC regional funding to Britain is not without its issues. While the government’s failure to secure EC grants to areas such as Devon and Cornwall, rural mid-Wales and South Yorkshire (Sherman 1993) is clearly indicative of constraints on Community Structural resources, much controversy has arisen concerning the principle of additionality as regards Britain. In July 1991 the EC refused to grant over £100 million to depressed mining areas due to the Commission’s belief that the British government did not accept this principle (Walker 1991), while in October 1993 it was confirmed that £330 million of aid would be lost to Britain if the government did not allow an equivalent amount to be spent by local authorities (The Times 1993). The already limited power of EC Structural aid to redress the balance of British regional disparities likely to be worsened by progressive integration, then, may be constrained if the government fails to accept the rules of the Commission. To conclude, Britain’s membership of the European Union is a further step along the road to European integration, a road which, while beneficial for the Union as a whole, is likely to lead to increasing deficits in relative development for the poorest regions. While the regional policies of the EC have gone beyond a mere token or even regulatory role and now have the potential to have a significant effect on regional disparities, in order to negate the regional side effects of integration and to start actually narrowing the development gap, greater funding and central discretion is necessary. Achieving this, however, is not necessarily straightforward. As Martins and Mawson (1982) put it, “the nature of the relations between national governments and the Community institutions is such that the successful implementation of … innovations depends on the consent and commitment of the very member states whose behaviour the innovations are supposed to regulate in the first place” (p.80). In order that regional divergence within Britain may be halted and reversed, net contributors to the EC Structural Fund such as Germany must continue to increase contributions, while the British government must ensure it receives its full entitlement of funds. In a diverse and divided Community, such matters are far from assured and the exacerbation of regional inequalities within Britain therefore looks likely to occur, giving rise to consequent detrimental effects for both Britain and the Union. BIBLIOGRAPHY Armstrong,H.W. (1985), The reform of the European Community Regional Policy, Journal of Common Market Studies v.23 (4) p.319-344 Bowditch,G., Faux,R. (1993), EC offers hope of escape from poverty, The Times (3/7/93) p.10 Cheshire,P., Camagni,R., de Guaddemar,J-P., Cuadrado-Roura,J.R. (1991), 1957-1992: Moving towards a Europe of regions and regional policy, in Rodwin,L., Sazanami,H. (Eds.) 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