Regional Development Policies: Past Problems and Future Possibilities (1995)

Regional Policy and Regional Equity National economies may be regarded as bundles of more or less integrated regional economies. Government policies with respect to such sectors as transportation and communications, agriculture, energy, research and development, and education all have varying regional consequences, which in many instances may be more significant than those resulting from regional policies. Nevertheless, strictly speaking, government regional policies should be understood as those policies that have an intentional and formal geographic focus, though they will no doubt use sectoral means in attempting to realize their objectives. The objectives of regional policies have varied, but typically they have been motivated by such equity considerations as reducing unemployment, increasing incomes, promoting structural adjustments, or realizing development potentials. Neoclassical economists have tended to view such efforts as distortions of efficient resource allocation from a national perspective because resources are shifted from more efficient places to less efficient places. They have also typically argued that labour migration from lagging regions and capital flows to such areas will eventually reduce regional disparities. A relatively high degree of labour mobility has been viewed as an American strength with respect to adjustment to regional economic imbalances, though it did not reduce regional income inequality in the 1980s. Moreover, the process involves numerous social costs borne by workers who are compelled to move. In addition to moving costs there are also psychic costs of leaving family and friends and a familiar community. A house often represents the major part of a workers assets, and migration from a depressed to a relatively prosperous region may entail selling a house at a price that would not buy housing of similar quality in the area of destination. Sala-i-Martin and Sachs (1991) have estimated the extent to which the U.S. Federal Government in effect insures the states against regional income shocks. They found that a one dollar reduction in a regions per capita personal income triggers a decrease in federal taxes of 34 cents and an increase in federal transfers of 6 cents. Thus there is an automatic stabilization mechanism that primarily reflects the nature of the progressive federal income tax. While this mechanism is certainly a benefit to regions whose incomes have been adversely affected by external shocks, the fact remains that most of the costs of adjustment to regional fluctuations must be borne at the regional and local levels. It would not be surprising to find that residents of economically disadvantaged regions favour regional policies, but there also is evidence that, at least in some countries, they have received more general support. For example, in the 1960s the French Government undertook a number of measures to decentralize economic activity from the Paris region in favour of less-developed regions. There was virtually no dissent to this policy; and public opinion polls even indicated that it had more support from Parisian residents than from those in the provinces (Hansen 1968). In the late 1970s, when the European Community consisted of nine countries, a public opinion survey sponsored by the EC found that 79 percent of all respondents would agree to be taxed to support the development of the most disadvantaged regions in their own respective countries, and a third were similarly disposed to contribute to the development of lagging EC regions even if they were in other countries (Uhrich 1985). In the Canadian context, Savoie points out that, from the perspective of economic efficiency, critics of special regional development measures can point to a variety of reasons to justify their elimination. However, an unrelenting pursuit of national efficiency is simply not acceptable in Canada. The cost in adjustment and in personal hardship would be prohibitive. …