Central and Eastern Europe has been swept by a wave of reforms since 1989 and is still in a state of profound transformation. While the region is today one of the fastest growing in the world, it is facing some tremendous challenges. The extensive restructuring of the economy has created large scale unemployment in some regions while in others, the emerging private sector lacks the labour and skills it needs to grow. Many of those who have lost their jobs have been unable to qualify for the new employment being created and are affected by financial hardship and the erosion of public support.
Local Innovations for Growth in Central and Eastern Europe
Designing and implementing local development strategies is of critical importance if prosperity and living standards are to be raised. They are the means by which localities can respond to the challenges presented by globalisation and seize new opportunities as they occur. Yet this is a much more difficult exercise than is sometimes thought. The challenges are even more acute in Central and Eastern Europe, with its ongoing ambitious reforms, profound economic restructuring and extensive learning phase. The success of local development strategies in the region depends on the ability of governments and their partners to accelerate change in both the policy and governance aspects of economic and social development. These include wide-ranging issues such as enhancing flexibility in the management of policies and programmes, establishing a consistent overarching strategic framework for local development, reviewing local government finance and setting up mechanisms to raise capacities. There is much government can do to influence the development of local innovations for growth in Central and Eastern Europe and enhance their impact on the economy and society.
Local Governance for Economic Development
Poland faces many exciting and challenging times today and tomorrow in its quest for an expanded and diversified national economy and the sustainable development of its regions, and their constituent communities. The comparative review of some Canadian and Irish experience suggests a number of issues that might productively be part of the ongoing refinement of Poland’s local development policies and strategies. Notably, the existence of regional economic development structures should not obfuscate a lack of an overarching development strategy, which can detract from the local development agendas and leave a vacuum between regional and local development initiatives. Moreover, the emergence of governance systems does not replace strong, well resourced local government. The question of capacity in local economic development is a central consideration.
Governance and Local Economic Development: In Search of an Appropriate Governance Structure for Croatia
Fostering local economic development in Croatia is primarily an administrative task of the 21 counties, the current units of regional self-government. However, the big cities alone succeed in attracting population and economic activity, and have therefore more strength and capacity to support economic development than other counties. Also, counties are small regions by European standards. The analysis shows that the existing administrative-territorial setup and functions that derive from the relevant legislation in Croatia do not match the needs of economic growth and development at the local level. The situation could be improved by a clarification in the responsibilities of the counties, the establishment of sound governance mechanisms, a local statistics base and the recognition of the development role of the urban centres.
Building a Governance Framework that Enables the Establishment of Partnerships in Slovenia
The process of building new forms of governance is of critical importance in Slovenia, where reforms have established regional development partnership structures to foster economic and employment development throughout the country. The comparison of Slovenian achievements with Irish and Finnish ones indicates that governance structures should link urban centres and the rural regions surrounding them to help to determine the specialisation of regions and stimulate their capacity for innovation. It also suggests that there is a lack of capacity in both technical and more strategic, bargaining and consensus building skills. The Slovenian analysis also points to the roles and responsibilities of national governments in providing a suitable strategic framework for local and regional initiatives and for setting up institutional structures that favour an implementation of policies that is consistent with shared goals locally.
Strengthening Non-governmental Organisations for More Effective Local Governance and Partnerships in Serbia
The potential benefit for Serbia offered by multi-sector partnerships is enormous: they could provide solutions to burning issues in local communities in terms of local development while they could bring about welcome transformations within and across sectors due to their impact on increased access to resources, service-focused leadership, participatory and inclusive decision making practices, and results that build on synergies. Partnership development, however, faces a number of outstanding problems, linked to the legal, administrative and historical framework, that constrain the emergence of NGOs and their participation in civic life. A number of obstacles with regard to trust, communication and capacities in the local communities aggravate this situation. The government has to learn to communicate effectively with citizens and their initiatives, whilst NGOs have to be more aware of their social responsibility. Well-established NGOs and local government should play a more pro-active role and combine their resources and skills towards collective ends.
Enforcing the Participation of Civil Society in Local Decision Making
Local civil society and the private sector should work in synergy with local authorities for education, economic development, social cohesion, and local good governance. Only the local community’s participation can make local development sustainable, enforce transparency and accountability and make information accessible to everybody, minimising the dangers of corruption. Corruption is a real possibility when decentralisation is under way and the powers of the local authorities are undergoing transformation; to guard against it calls for the prior establishment of transparent structures, civil education and training. Enforcing the active participation of civil society in decision making is a central element of a strategy to improve governance in a region and foster policy effectiveness. This strategy should aim to strengthen transparency and accountability, define better the responsibilities of each stakeholder, increase the capacity and the professionalism of local authority officials, and promote the core values of citizens’ participation in local community affairs. Training programmes for local authorities should be mechanisms that encourage participation of the local community and specific social groups.
Participatory democracy must bridge a gap between ideals and realities and is a sophisticated process. The analysis of case studies in Croatia shows that different types of participation are required, for each group of stakeholders and, at different stages of a participatory process (e.g., preparation, adoption, and implementation of a given programme) to minimise the risk of undue influence. Participation is more than the mere opening of a workshop to the public. It means rigorous, triangulated, multifaceted, methodology including interviews, surveys, focus groups, and continuous dialogue and reflection at each stage. Overall, effective participation requires the understanding of power as a set of complex social, political and economic relations. Without this, participatory development programmes can reinforce the status quo and reward the most articulate groups and the already developed and highly skilled municipalities.
Mobilising the Population for Maximum Impact: UNDP's Experience in Albania
An initiative launched by UNDP in Albania seeks to mobilise people to promote their development through their own resources and to participate in the decision-making process actively. The project is based on the fact that a participatory approach to community development requires responsible, well-informed and pro-active people. The results show that mobilisation works best if it is institutionalised within local government, and if the latter has developed a role of catalyst, providing guidance to the community, creating an enabling environment, facilitating fund raising and institutional support. Local government officials can usually play this role effectively provided that their capacities are enhanced to the required level. Training should be targeted towards the staff involved in planning and decision making on local development initiatives, and should include advice on accounting procedures.
Institutions, Governance and the Development of Entrepreneurship in Central and Eastern Europe
Although the specific policy priorities for entrepreneurship development vary between individual economies, key underlying themes are the importance of institutional development and capacity building and the development of a market-oriented system of governance, over which governments exert a key influence. In some countries an appropriate and effective institutionalisation of small business policy is still one of the main preconditions that need to be fulfilled before productive and sustained private sector development can become embedded. In others, more should be done to unleash the potential role of regional and local authorities, both in promoting entrepreneurship and in facilitating its development, in view of the fact that it is at the local level that policy and institutions touch entrepreneurs most directly.
The Experience of Public-private Partnerships in Financing Entrepreneurship in Eastern Germany and Poland
Public-private partnerships (PPPs) bringing together local authorities, the financial sector and non-profit organisations to optimise financing schemes are efficient ways to foster entrepreneurship locally. PPPs provide support mechanisms that are simple, easily accessible by small businesses and tailored to their needs. For the public sector, the partnership with the private sector thus achieves high leverage. It also allows limited public funds to be used more efficiently, essentially matching microlending for entrepreneurs, mainstream SMEs and entrepreneurial growth companies with guarantees. The public sector further contributes through improving the legal framework to facilitate fundraising and lending by micro credit institutions. However, PPP is a governance tool that requires strong local leadership from the public sector, which should be seen as a facilitator and catalyst.
Community Development Banking to Foster Entrepreneurship
Non-government assistance programmes to finance entrepreneurship are particularly suited to the situation of transition economies, as they support the development of efficient markets and the building of social capital. A publicly sponsored network of development banking institutions would promote small business development, assist in the development of entrepreneurial skills, and provide special assistance to disadvantaged areas. It would help by making small business finance more accessible and connected with the provision of necessary advice and assistance. The institutions would be publicly capitalised, but run locally by non-profit organisations in collaboration with local governments and the private sector. Direct involvement of banks is required to supervise performance. While community development banking cannot solve all the problems of initial entrepreneurial finance, it can help to narrow the gap and tackle market failures.
Tackling the Problem of Inadequate Financing for Local Development: The Case of Croatia
Local and regional governments everywhere share the problem of inadequate financing. The main revenue source for financing local and regional development projects is the local and regional budget. The revenue sources for capital projects are limited. The solution for local and regional government is to find additional revenue sources for development projects. Most sub-national authorities are unprepared or unable to take on increased responsibilities for fund raising directed to economic development. In order to tackle this challenge, municipalities and cities must gain the skills and information needed to budget for the current and future years; the ability to understand the impact of borrowing on infrastructure – both annual debt service and annual operational and maintenance expenditures – and the ability to identify, prioritise and plan capital investment. Municipalities and cities facing a shortage of investment capital must be able to identify and analyse technical and financial options and show investors that they have adequate and reliable revenues to meet their debt service obligations.
Fostering Local Development in Bulgaria: The Need of Fiscal Decentralisation
Although local authorities in Bulgaria have been assigned various responsibilities over the past 15 years, state transfer flows toward municipal budgets have not increased in the same proportion. Only a degree of local financial independence and fiscal decentralisation can contribute to the development of a favourable investment climate and foster sustainable development. A gradual delegation of taxation power to local authorities as well as the development and adoption of a stable legal framework for the principles and mechanisms of the intergovernmental transfer system would contribute to greater financial independence of municipalities.
Fiscal Autonomy and the Incentives to Stimulate Business Growth and Efficient Public Goods Provision: The Case of Belarus
The structure of revenue sharing between the various layers of governments affects the public sector’s incentives for providing infrastructure for private business development. The recent experience of Belarus has been that any change in local government’s own revenues is almost entirely offset by changes in shared revenues. Local governments are unable to benefit from an increase in the local tax base and, therefore do not see any interest in expanding it. This situation leads to stricter business regulation and lower growth compared with a system with greater fiscal incentives, and has a negative effect on the efficiency of local provision of public goods. A reform of the existing financial system for local governments is required to provide some degree of autonomy for local self-government, with the aim of enhancing local governments’ capacity to finance local development.
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