Rural development as provision of local public goods: Theory and evidence from Poland
Creators: name: Gramzow, Andreas
name: Gramzow, Andreas
Publisher: name: Unknown
Year: 2009
Subjects: Agribusiness
Community/Rural/Urban Development
Food Security and Poverty
Institutional and Behavioral Economics

description: Since the beginning of the 1990s a new rural development policy, which has later been called the "new rural paradigm" by the OECD, has received increasing attention in the European Union (EU) and elsewhere. It is expected that these policy measures attenuate social and economic problems in rural areas on a broader basis than the agricultural sector alone. They support local stakeholders like non-governmental organizations, local governments and local businesses in implementing local development strategies that are based on endogenous potentials and spatial interaction. Polish rural inhabitants, suffering among many other issues, from a lack of nonagricultural jobs, an unfavorable business environment and an insufficient public infrastructure, pinned high hopes on those new measures. However, it is not proven whether those measures of the new rural paradigm will stimulate the economic and social development of Polish rural areas. So far, their impact on the local development processes was mostly analyzed empirically, and those studies were strongly dictated by guidelines of legislative bodies. Studies with theoretical reflections can rarely be found. This study aims at elaborating an analytical framework for rural development policy analysis that provides a basic understanding of governmental action in rural development processes as well as allowings a normative evaluation of rural development policy measures. This analytical framework could further be used to empirically analyze the impact of those policy measures on the development of Polish rural areas. Central to this analysis is the perception of rural development problems as a consequence of a lacking provision of local public goods. Local conditions, like a well constructed public infrastructure, a favorable local business environment, a high level of human capital, or a local landscape in sound conditions, can be defined as local public goods as they are characterized by a low rivalry in consumption and non-excludability. Local public goods, however, although they benefit all inhabitants of a region, are often poorly provided or even remain absent. This study hypothesizes that precisely the latter deficiency is tackled by policy measures of the new rural paradigm. It is argued that those policy measures aim at facilitating the implementation of local institutional arrangements that provide inhabitants of a region with certain local public goods. In order to understand the effects of measures of the new rural paradigm, the lacking provision of local public goods was analyzed theoretically and empirically. Theoretically, the lacking provision of public goods was discussed by means of three different theories. Welfare economics, the first theory presented, understands market prices as the only mechanism coordinating individual interaction. Hence, once market prices fail to reveal the scarcity of a good, like in the case of public goods, market failure comes to the fore and can only be cured by governmental intervention. But institutions like trust, reciprocity and property rights, which coordinate individual interaction, find no place in the welfare economics scheme. However, rural development measures of the new paradigm strongly focus on the implementation of formal and informal institutions, which coordinate individual efforts in rural development processes. The property rights theory, the second theory discussed, approves the coordination capacity of institutions as it refers to the interaction problems inherent in problems of public goods provision. Institutions channel individual behavior and enable therefore the provision of local public goods. For the evaluation of institutions the property rights theory proposes the offset of costs and benefits that are borne/gained by individuals within different institutions which, however, is inconsistent with normative individualism. Constitutional economics theory, the third theory presented, by distinguishing between rules and moves, avoids the flaws of the latter theories and proposes to evaluate institutions with respect to their approval by all individuals involved in a public good problem since only consensus guarantees that no individual will be worse off after implementing the institution. But factual consensus on institutions, which should coordinate the provision of local public goods in rural areas, seems to be unfeasible and to be combined with high decision making costs. Because of the latter fact the normative institutional economics theory was presented, which introduces the social dilemma as a heuristic to apply the consensus criterion to all kinds of institutions in everyday life. A social dilemma describes a situation in which, because of unresolved coordination problems, actors of a group do not make full use of their opportunities. That is, they do not exploit all gains from cooperation. The social dilemma enables to analyze public good problems in a positive and normative manner. Positively, individuals’ behavior channeled by certain institutions can be analyzed. The normative analysis asks whether institutions can be modified by way of institutional reform so that individuals, involved in a public good problem, will jointly contribute to the public good provision, and gains from cooperation will be exploited. In consequence, institutions which channel inhabitants’ behavior in order to jointly provide a certain public good, find general agreement. And policy measures, which facilitate the implementation of those institutions, will therefore also find general agreement. This leads to the questions of how institutional arrangements have to be composed to facilitate the provision of public goods in rural areas. Three governance structures, the market approach, government regulation, and community management were presented, which all cover unique elements that facilitate individuals’ cooperation, so that a joint provision of local public goods can be realized. Whether the implementation of institutional arrangements, capable of providing local public goods in Polish rural areas, is facilitated by policy measures of the new rural paradigm was analyzed within three case studies conducted in southeastern and north-western Poland. The case study regions were all endowed with local partnerships that reflect the idea of the new rural paradigm as they consist of cooperation among local government members, local businesses and local NGOs. The case studies comprise 104 guideline interviews with local government members, members of local NGOs, local entrepreneurs, farmers and local inhabitants in general. Guideline interviews were also completed by participant observation and a small standardized questionnaire. In the early 1990s, in all three case study regions particular local public goods were not provided due to interaction problems that hampered individuals from a joint contribution. By means of the social dilemma heuristic, the public good problems in the case study regions were analyzed positively and normatively. The positive analysis focused on the institutions that formerly hampered inhabitants from a joint contribution. Then, for regions where certain local public goods were successfully provided, the institutional arrangements, facilitating the successful provision, were investigated and the impact of market-based relations, government regulation and community relations on public good problems was analyzed. In the normative analysis, institutional arrangements were assessed as preferable only if exchange in terms of a successful joint provision of local public goods was realized and mutual gains from cooperation were exploited. Finally, if policy measures of the new rural paradigm facilitate institutional arrangements capable of coordinating individual interaction so that inhabitants contribute jointly to the provision of certain public goods, they were assessed as preferable. It turned out that the foundation of local partnerships facilitated the implementation of institutional arrangements, which induced inhabitants to jointly contribute to the provision of certain local public goods. And those institutional arrangements comprise elements of all three governance structures. But there were governance structures which seem to be more suitable to overcome certain barriers, hampering a joint provision of local public goods, than others. For instance, in cases where a lack of trust among inhabitants hampered individuals’ cooperation, community governance has shown advantages over the two other governance structures. With respect to local partnerships’ access to public funds the implementation of market competition among partnerships for funds, enabled a more efficient use, while the access to public funds in general often enabled inhabitants to overcome free-riding problems that were related to a joint funding of projects. Furthermore, in all three case studies the success resulted among other things from the following factors: a) local provenance of main initiators; b) the existence of local leader personalities; c) the elaboration of a common local development strategy; d) a close cooperation between the local development partnership and the local government; and e) the availability of a permanent staff taking care of operational tasks. Finally, the empirical analysis has shown that within policy measures of the new rural paradigm, governmental action rather acts as a facilitator of public goods provision than as a subsidizer of rural economic sectors. The latter measures stimulate the socio-economic development as they facilitate the implementation of institutional arrangements, consisting of elements of three governance structures that are capable of providing local public goods successfully. In this case, the institutional arrangements induce all inhabitants involved in a local public good problem to contribute to the provision of the good as they enable inhabitants only to improve their individual benefits through contribution. However, a joint contribution constitutes the exploitation of gains from cooperation and visualizes the agreement of all involved inhabitants in a public good problem on the institutional arrangement that enables the joint contribution. Thus, consensus among inhabitants involved is a normative criterion that should be taken into consideration when evaluating development measures of the new rural paradigm.