There is a huge amount of research showing that the effect exerted by EU regional policy is merely redistributive (1). Phrased differently, during the 30-years experience of aid, the cohesion policy has not modified the structural conditions which determine the long-term growth of lagging regions. The implication is that the massive amount of EU money to the Mezzogiorno of Italy has only slightly contributed to resolving the long-standing dualism of the Italian economy.
While it is certain that these arguments impede learning conclusive lessons about the effectiveness of EU aid (growth is not an exclusive outcome of regional policy), they are extremely useful for two reasons at least. Firstly, the institutional communication yielded by national and regional authorities often over-evaluates the role of EU projects in the South of Italy. On the contrary, much research proves that the impact is poor. Disseminating the latter is surely a good thing to do: indeed, there is another story to know which is much closer to reality than the miracles one can learn from the official documentation. This introduces to the second reason: why has EU policy been ineffective in Italy?
Money is enough Let’s start dedicating few lines to the quantity of resources mobilized by EU regional policy. As structural funds has absorbed a large proportion of the total private and public investments made in Italian lagging regions, the weak growth effect cannot be explained by arguing that EU funds have been below a threshold under which the benefits of aid do not accrue. There has been enough money to help southern Italian regions take the path way of development (Cannari, Magnani and Pellegrini, 2009; Iuzzolino, 2009). However, the availability of resources is simply a necessary condition for a development policy to be effective. The final impact depends on the full absorption of the entire program and the efficient use of funds. Along this line of reasoning, I try to identify a few factors which might have greatly limited the growth impact of EU funds. Part of the following is detailed in Aiello and Pupo (2012).
Managing structural funds The analysis of the committed resources, the total value of each program and the payments made year-by-year permits to argue that Southern Italian regions did not use all the resources in the scheduled time and that there was a concentration of spending in the last year of each programming cycle. This signals a weakness in regional institutional capacity to manage and deliver the cohesion policy effectively. In this respect, I do believe that there is a cumulative effect: the initial poor working of regional administrations in the South of Italy has also impeded the building of institutions that EU cohesion policy has accelerated in many other EU regions. In brief, if regional institutions worked better than they have done and if the levels of institutional capacity were higher, the EU funds might have been entirely used in due time and, as a consequence, they would have exerted, other things being fixed, a higher growth impact than that we have observed over time.
The quality of spending As for quality, three considerations can be made. The first concerns the procedure used to calculate the level of national co-financing. EU rules established that a part of the programmes is co-financed by the member state and that such spending is additional to that already planned by the ordinary regional policies of each member state. It can be seen, however, that the majority of this co-financed expenditure regards projects that have already been undertaken (the so-called “coherent projects”) and, therefore, is concerned with projects which, in many cases, are very different from the development strategies indicated in the general programmes funded by the EU. Furthermore, in order to increase the amount of spending, the use of coherent-projects occurred at the end instead of at the beginning of each programming period. The ex-post integration between national and EU funds actually contributed to restricting the additional effect that structural funds would have had if integration had been made ex-ante (Rainoldi, 2010). Thus, other things being equal, the practice of considering many “coherent-projects” as part of structural funds has altered the quality and the effectiveness of the interventions funded by EU. The second observation regards the operating rules in the assignation of resources. The implemented mechanisms exclude any form of competition between regions. As a consequence, regional authorities do not have any incentive to use structural funds in order to realise high productive projects and, thus, their action may create problems of both moral hazard and rent seeking. In other words, beneficiary regions are often in a race to spend a large amount of EU transfers and they pay little attention to the quality of the projects funded, in the sense that even micro initiatives with very little productive impact have been admitted. This is also why EU procedures often force regional institutions to report on payments made within a given period, whatever the project. The third consideration refers to the idea that the incentive to spend can guarantee results in terms of the effectiveness of the policies. In reality, the attainment of determined levels of expenditure, imposed by EU rules – such as the n+2 requirements for instance – has come to represent an objective in itself for regions rather than the means to achieve regional policy objectives. As each region has had to achieve a high level of expenditure, whatever the project, this mechanism has caused continuous reprogramming with the consequence that, at the end of the process, interventions are different from those initially programmed. Shortly, the measures adopted by the EU to improve the management of funds overrate the importance of the quantity as opposed to the quality of spending. This is also in Barca (2009). The implication is that the maximisation of the payments to finance low productive projects is not a good option: as we have learnt it translates into weak long run growth effects.
The dilemma of “quantity versus quality” This dilemma is used to explain why EU funds may replace some convergence mechanisms across regions. The replacement is an unexpected outcome when implementing EU cohesion policy, because the productivity convergence requires, for instance, that labour moves from unproductive to productive sectors and that more efficient processes are adopted where labour market flexibility favours them. It has operated well in backward Italian regions, where EU funds are often seen as an additional window from which assistance may be claimed, whatever the economic relevance of a funded project. An interesting case supporting this view is provided by the myriad of projects orientated towards training labour in sectors which are either marginal with respect to the structural constraints that hinder economic growth in southern regions or are of a limited impact in that they only produce goods for local markets. Similar arguments may be made for the mass of small-sized and production-orientated projects, even in dynamic sectors, which, after obtaining finance, do not set up a viable business and, therefore, do not fulfil their initial promises to be productive. From an individual point of view, benefiting from EU resources, whatever the scope, is a good reason to limit mobility, with evident restrictions in terms of aggregate convergence. Again, a crowding-out effect exists when EU resources are used to finance projects that are close substitutes for private capital. These arguments lead to some remarks regarding the importance of expenditure quality, rather than the quantity of disbursed financing. If EU funds are not properly spent, instead of accelerating regional convergence, they may reduce the action of free market forces which may be considered the source of economic growth. It is likely to occur when non-productive EU expenditure limits, for example, labour mobility or crowds-out private investments.
Does one size fit all? A final issue regarding the quality of spending comes from a joint reading of each Regional Operative Program (ROPs). It yields a systematic uniformity in identifying the areas of intervention areas and in the distribution of spending by axes or thematic objectives. For instance, in Calabria the resources to be spent over the 2014-2020 period are 2.4 millions of euro. Their distribution by thematic objective is broadly similar to the distribution made by other lagging regions (Bank of Italy, 2017, table a6.8). While this overlapping is a process driven by EU strategies, it assumes homogeneity between regions in terms of development constraints when the actual structural regional differences require a differentiated strategy. The doubt is that one size does not fit all. One possible implication of this undifferentiated policy is that EU funds reduce the effect of automatic mechanisms of economic growth.
The synthesis It is clear that before doing anything else, the main issues to be addressed refer to institution building in lagging Italian regions, to the setting up of domestic policies which would accomplish EU policy and to the implementation of rules needed to increase efficiency and accountability in handling funds. Additionally, no effect is admitted without severe selection of the funded projects and when aid is dissipated in a myriad of small and low-productive interventions. To sum up, this experience of EU regional policy in the Mezzogiorno of Italy allows to drawing two main conclusions. The first is that the challenge of local development based on regional sectors with a pre-existing mass and a certain degree of specialisation has never been launched. The second is the that institutional architecture of EU policy is complex, rendering evident that cohesion policy has many internal shortcomings limiting its growth effect in the South of Italy. To be clear, I am not sure that they will be overcame in the current programming cycle. The 2014-2020 regional development books (i.e., the ROPs) dedicated hundreds of pages on these issues, but who assures that the in the southern Italian regions the implementation will be timely and coherent with the declared objectives of each regional planning?
- Aiello F., Pupo V. (2012), “Structural funds and the economic divide in Italy,” Journal of Policy Modeling, 34(3), 403-418
- Barca F. (2009),
- Cannari L., Magnani M., Pellegrini G. (2009), Quali politiche per il Sud? Il ruolo delle politiche nazionali e regionali nell’ultimo decennio, Questioni di Economia e Finanza, 50, Bank of Italy, Rome
- Bank of Italy (2017),L’economia della Calabria, Bank of Italy (Branch of Catanzaro), Catanzaro (Italy
- Barca, F. (2009), An agenda for a reformed cohesion policy. A place-based approach to meeting European Union challenges and expectations, Independent Report prepared at the request of Danuta Hübner, Commissioner for Regional Policy, Brussels
- Iuzzolino, G. (2009), I divari territoriali di sviluppo in Italia nel confronto internazionale. In Mezzogiorno e Politiche regionali. Vol. II, pp. 427–444, Bank of Italy, Rome
- Rainoldi, A. (2010), Dal 1989 al 2009, Vent’anni di intervento del Fondo Europeo di Sviluppo Regionale nel Mezzogiorno d’Italia: scelte allocative, utilizzo delle risorse e ruolo del fattore tempo. Rivista Giuridica del Mezzogiorno, XXIV(1), 7–41.