Regional policy is the government’s policy to boost economic activity in a specific region of the country, or in the case of the European Union, a geographical area of the trading bloc. In most cases, the target of the regional policy is economically poorer or experiencing more problems that its neighbors.
The term may also refer to a policy of ensuring a fairly even spread of industry across different regions of a country or trading zone, in order to prevent or rectify economic decline, high levels of unemployment, and lower-than-average per capita incomes.
Regional policy may also focus on preventing congestion problems in the more prosperous regions.
Regional policy measures
Regional policy may include offering employers incentives to provide jobs in the area, such as cheaper land and buildings, grants, tax deductions, soft loans, subsidized worker training, or even subsidized labor.
According to the Economist’s glossary of terms, regional policy is: “A policy intended to boost economic activity in a specific geographical area that is not an entire country and, typically, is in worse economic shape than nearby areas. It can include offering FIRMS incentives to provide jobs in the region.”
In the European Union, for example, Regional Policy has €351.8 billion – nearly one third of the EU’s total budget – set aside for Cohesion Policy for the 2014-2020 period.
The EU money is delivered through three main funds: 1. ESF (European Social Fund). 2. CF (Cohesion Fund). 3. ERDF (European Regional Development Fund). Together with EMFF (European Maritime & Fisheries Fund) and EAFRD (European Agricultural Fund for Rural Development), they make up ESI (European & Investment Funds).
On its website, the European Commission writes:
“Regional Policy targets all regions and cities in the European Union in order to support job creation, business competitiveness, economic growth, sustainable development, and improve citizens’ quality of life.”
Why is regional policy important?
Over the past couple of decades, the focus of regional policy has been the regeneration of economically-impoverished areas by encouraging new companies and industries to invest and locate there – this is known as the inward investment approach.
“The Ohio-Kentucky-Indiana Regional Council of Governments (OKI) is a council of local governments, business organizations and community groups committed to developing collaborative strategies to improve the quality of life and the economic vitality of the region.” (Image: oki.org)
Most economically-impoverished regions in the advanced economies have become depressed because of industrial overspecialization.
For example, in South Wales and North East England, coalmining and shipbuilding respectively used to employ a sizable proportion of the working population. When coal gave way to other fuels and shipbuilding moved to South Korea and other parts of the world, the two regions suffered serious economic decline.
In the United States, the coal-producing states – Wyoming, West Virginia, Kentucky, Pennsylvania and Illinois – have also become regions with vast pockets of high unemployment. As vehicle manufacturing jobs moved to other parts of the world, Detroit has become a high-unemployment area.
These regions are not fundamentally disadvantaged. In the past, they used to be the powerhouses of the nation.
Regarding these regions, which are not fundamentally disadvantaged, FinancialDictionary.com writes:
“Accordingly, what is required is a diversification of the industrial base of such areas so as to provide new employment opportunities which, in turn, by increasing spending in the region, will help to create further jobs in, for example, local component suppliers, retailing and financial services.”
The Tennessee Valley Authority provides flood control, electricity generation, fertilizer manufacturing, navigation, and economic development to the Tennessee Valley. Its service covers most of Tennessee, and parts of Kentucky, Mississippi, Alabama, Virginia, North Carolina and Georgia. (Images 1. Map adapted from tva.gov. 2. Emblem – mediad.publicbroadcasting.net)
Regional policy – inward investment approach
In regional policy, the inward investment approach has three main components:
– Financial Incentives: companies are offered rent relief, tax relief, investment grants, retraining expenses, subsidized labor, and other financial assistance if they locate in specific areas.
– Physical Controls: these are aimed at preventing factories and office buildings from expanding into non-deprived areas. If the new industries do expand, these controls make sure they occur within the designated areas.
– Government Investment: this is usually targeted at improving road and rail connections, telecommunications, local amenities, and other infrastructure items. A major government investment may involve the expansion of an airport, or the construction of a brand new one.
Tennessee Valley Authority
The Tennessee Valley Authority (TVA) is probably one of the best examples of a successful regional policy that has helped an enormous region of the United States for the best part of a century.
The TVA is a corporate agency in the US that provides electricity for corporate customers and local power distributors. It serves over nine million people in parts of seven states in the south-eastern region of the country.
The Authority derives virtually all of its revenues from selling electricity – it receives no money from the taxpayer.
As well as operating and investing revenues in its electric system, TVA provides navigation, land management and flood control for the Tennessee River System, and helps local power generating and distributing companies and local and state governments with job creation and economic development.
– The 1930s: the TVA was founded on May 18, 1933. With the US reeling from the Great Depression, President Franklin Delano Roosevelt (FDR) created his New Deal to help the country recover. The TVA was founded to help the Tennessee Valley, which had been hit especially hard. The TVA was tasked with improving the quality of life in the region.
– The 1940s: the TVA launched one of the biggest hydropower construction programs in American history.
– The 1950s: the TVA was by then the largest electricity supplier in the country. New legislation in 1959 allowed the Authority’s power system to be self-financing.
– The 1960s: in order to supply energy for the region that was undergoing a period of ‘unprecedented economic growth’, the TVA started building nuclear power stations to expand its capacity and spur innovation.
– The 1970s & 1980s: this was a difficult period for energy generators across the world, because of rapidly-rising fuel costs. In its website, the TVA writes:
“A difficult decade affected by rising fuel costs led to innovative thinking about energy conservation. Working successfully to stop a steady rise in energy costs, we paved the way for a long period of stable rates.”
– The 1990s: this was a period of restructuring, which led to the unveiling of a new clean-air strategy.
– The 2000s: demand rose rapidly. The TVA turned its attention back to nuclear energy and got an idled reactor back into service. It also introduced the first green power program in the Southeast.
– The 2010s: “We continue to carry out our mission of serving the people of the Tennessee Valley region, to make life better through our work in energy, the environment and economic development,” the TVA writes.
Video – EU Regional Policy
This Talk To EU video explains what its Cohesion Policy is, and gives examples of individuals across the European Union who have benefited.