Discussion Papers 1999. No. 29.
Regional Development in Hungary
and Its Preparation for the Structural Funds
CENTRE FOR REGIONAL STUDIES
OF HUNGARIAN ACADEMY OF SCIENCES
DISCUSSION PAPERS
No. 29
Regional Development in Hungary
and Its Preparation for
the Structural Funds
by
Simone RAVE
Series editor
Zoltan GAL
Pecs
1999
Discussion Papers 1999. No. 29.
Regional Development in Hungary
and Its Preparation for the Structural Funds
Publishing of this paper is supported by the
Research Fund of the Centre for Regional Studies, Hungary
ISSN 0238-2008
© 1999 by Centre for Regional Studies of the Hungarian Academy of Sciences
Technical editor: Ilona Csap6, Zoltan Gal
Typeset by Centre for Regional Studies of HAS Printed in Hungary by Siimegi
Nyomdaipari, Kereskedelmi es Szolgaltato Ltd., Pecs
Discussion Papers 1999. No. 29.
Regional Development in Hungary
and Its Preparation for the Structural Funds
CONTENTS
1 Introduction / 9
2 The Structural Funds and the European Union / 10
2.1 Its main aim / 10
2.2 Reforms of 1989 / 12
2.3 Agenda 2000 / 15
2.4 Enlargement of the EU / 16
2.5 Summary / 16
3 The situation in Hungary / 18
3.1 The institutional structure with regard to regional policy / 18
3.2 The Macro-region / 20
3.3 Regional Policy in Hungary / 22
3.3.1 The theory applied to Hungary / 22
3.3.2 National Policy / 24
3.3.3 Tools / 25
3.4 Summary / 26
4 Baranya and Szabolcs-Szatmar-Bereg as case studies / 28
4.1 Baranya & Szabolcs-Szatmar-Bereg: Two opposites? / 28
4.2 The implementation of the act of 1996 / 29
4.2.1 The major implication with the institutional structure at
county level / 29
4.2.2 Decentralisation / 33
4.2.3 The Macro-region / 34
4.2.4 The implementation of the principles of the EU Structural Funds / 37
5 Lessons to be learned from the Irish case / 41
5.1 Hungary and Ireland compared / 41
5.2 Strengths and Weaknesses of the Irish system / 43
5.3 Conclusion; lessons that can be learned from the Irish case / 44
6 Conclusion / 46
Bibliography / 48
List of Interviewees in Baranya / 49
List of Interviewees in Szabolcs / 49
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Discussion Papers 1999. No. 29.
Regional Development in Hungary
and Its Preparation for the Structural Funds
FIGURES
Figure 1: The volume of the Structural Funds 1975-1999 (in billions
of ECU) / 11
Figure 2: Programming / 13
Figure 3: The institutional structure with regard to regional policy
after 1996 / 19
Figure 4: The Nuts II regions in Hungary / 22
Figure 5: A model for regional policy in Hungary / 23
Figure 6: Classification of Objective areas in Hungary / 24
Figure 7: Priorities for the Regional Development Source / 25
Figure 8: Division of resources for Regional Development / 26
Figure 9: Baranya and Szabolcs-Szatmar-Bereg / 28
Figure 10: The different bodies in regional policy at the county level / 30
TABLES
Table 1: Volume of the different Structural Funds in the programming period
1994-99 / 11
Table 2: The financial framework for the Structural and Cohesion Policy in the
budget period 2000-2006 (in billions of ECU, prices of 1997) / 16
Table 3: Tasks of the CDC and County Assembly compared / 31
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Discussion Papers, No. 29.
1 Introduction
The European Union recently faces two major challenges; the introduction of the
Euro and the extension of its own territory. The first one has already been
implemented on the capital market and will be implemented as a currency in 2002.
But what about the extension of the EU? There have already been a lot of
speculations about this topic. The countries which will enter during the first round
can't wait to join the EU. However the problems facing the EU when passing the
millennium and the introduction of the Euro are very unknown yet. Therefore no
promises have been made and there is still no fixed date.
Nevertheless Hungary will most probably be among the first to join the
European Union. Joining the European Union involves a lot of political and
economic advantages. One of these economic advantages are the Structural Funds
introduced by the EU to reduce the regional economic inequality among its
member states. However it also means that Hungary must be able to adopt the
Acquis Communautaire and related to this the requirements and principles of the
EU Structural Funds.
In this discussion paper attention will be paid to the problems for Hungary in
adopting these requirements with regard to regional policy. The paper will
concentrate mainly on the adoption problems at the regional level and not on the
macro level. The first chapter will give a short summary of the history behind the
Structural Funds. In the second chapter shortly attention will be paid to the current
situation in Hungary. In 1996 Hungary made the first step by introducing the Act
on Regional Policy and Physical Planning. Although the institutional structure has
been laid down it appears very difficult to implement the Act in a proper way.
Therefore the third chapter will deal with two case studies; Baranya and Szabolcs-
Szatmar-Bereg. During a research in Hungary about the implementation of the Act
of 1996 there have been several interviews in these two counties, to analyse the
present situation in regional policy.
Since Hungary will be entirely Objective 1, chapter 4 will deal with a case
study of the former Objective 1 region Ireland. This case study won't function as a
model for Hungary how to implement the Structural Funds, but it will function as
an example. Learning the strengths and weaknesses of another system can be
useful when developing and adopting an own system.
Finally, chapter 6 will highlight the main conclusions with regard to the present
situation in regional policy in Hungary and will put forward some solutions for the
current problems.
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Discussion Papers, No. 29.
2 The Structural Funds and the European Union
The Structural Funds are the most important instruments of European Union to
reduce inequality among its member states. A union can only resist disintegration
when the differences are not too large. Especially with the introduction of the
Euro, which means that there is one instrument less to adopt to changing
circumstances (namely the exchange rate), differences should be reduced to the
maximum.
In this chapter the aim and functioning of the EU Structural Funds will be
explained. Since the European Union became larger and larger, the aim and
procedures of the funds changed during the years. In general the procedures have
become more severe, since the money involved also grew considerably throughout
the years. The most important changes in the procedures will be highlighted in this
chapter.
2.1 Its main aim
The Structural Funds have been introduced in 1975 in the European Union for the
first time, by the introduction of the European Regional Development Fund
(ERDF). Later on, three additional tools were added, nevertheless all at a different
time. The four funds are respectively:
• European Regional Development Fund (ERDF) established in 1975. This is
the most important fund and its aim is to reduce regional imbalances between
and within the European member states.
• European Social Fund established in 1988 (ESF). Its aim is to reduce
structural unemployment and to improve the deployment of young people. In
1993 its additional aims became to reinforce Structural Adjustments in the
industry.
• European Agricultural Guidance and Guarantee Fund (EAGGF) established
in 1962 as a part of the Common Agricultural Policy (CAP). Its main aim is
to promote structural adjustment in agriculture, to modernise production and
to develop rural areas.
• Financial instrument for the Fishery and Guidance fund established in 1994.
It support the restructuring of the fisheries sector.
The ERDF is by far the most important instrument of the Structural Funds in
financial terms. Table 1 shows the division of funds during the programming
period 1994-1999.
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Discussion Papers, No. 29.
Table 1
Volume of the different Structural Funds in the programming period 1994-99
Structural Funds
Volume
European Regional Development Fund
76.478
European Social Fund
46.200
European Agricultural Guidance Fund
27.347
Financial Instrument of the Fisheries Guidance
4.481
Total
154.505
Source: Armstrong and Taylor, 1993, EC, 1996
In time, the funds have been subjected to several reforms caused by internal and
external developments. Every enlargement of the Union coincided with changes in
the general procedures of the EU, since it became more and more difficult to
overview the implementation of the funds. In addition, the area covered by the
Structural Funds grew considerably last years. Figure 1 shows the increasing
volume of the three Structural Funds in the period 1975-1999 (in billions of ECU)
Figure 1
The volume of the Structural Funds 1975-1999 (in billions of ECU)
25
20
15
10
5
0
1975-84
1985-88
1989-93
1994-99
Source: SER, 1997
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Simone Rave : Regional Development in Hungary and Its Preparation for the Structural Funds.
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Discussion Papers, No. 29.
2.2 Reforms of 1989
The most far reaching reforms have been introduced in 1989. In this period
economic and social policy became a major policy issue of the EU; the size of the
Structural Funds increased and therefore new regulations and principles were put
forward to improve the efficiency of the Structural Funds (Wishlade, 1996). In this
year the principles of the EU have been introduced. These principles are:
• Concentration
• Programming
• Partnership
• Additionality
These principles proved very successful and as a consequence have been
applied ever since.
Concentration
Concentration can be interpreted in two different ways; a geographical
concentration and a thematic concentration. Concentration results in a more
effective outcome since it avoids a splintered use of the funds and it guarantees a
focus on the regions in greatest need.
Both forms of concentration have been applied in the EU. In the year 1989 five
thematic objective areas have been introduced, of which three are regionally
focused. Depending on the objective the different funds are directed in an
integrated way to the specific region. The objectives are (EC, 1997):
• Objective 1; Nuts II' regions whose development is lagging behind. It only
covers regions with a GDP lower than 75% of the EU average. These are the
poorest regions of the EU.
• Objective 2; NUTS III regions seriously effected by industrial decline.
• Objective 3; this objective is not limited to a specific region and is meant to
combat long-term unemployment and to facilitate integration into the labour
market.
• Objective 4; this objective is not limited to a specific region and is meant to
facilitate the adoption to industrial change.
• Objective 5a; this objective is not limited to a specific region. Its main aim is
to speed up the adjustments of the agricultural structures in the framework of
NUTS means Nomenclature of territorial unit for statistics. This is a standard framework to
analyse economic and social development in the EU regions. All together there are three NUTS
regions. NUTS I is the biggest region and concerns the whole country. NUTS H in general is a
smaller unity. The average surface of a NUTS II region in the EU amounts 13,000 km, and a
population of 1.9 million. The average surface of the NUTS III region is 2,000 km, with a population
of 330,000 (Horvath, 1996).
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Discussion Papers, No. 29.
the reform of the Common Agricultural Policy and promoting the
modernisation of the reform of the Common Fisheries Policy.
• Objective 5b; this objective is based on the NUTS II regions and aims to
facilitate the development and structural adjustment of rural areas.
• The classification in Objective areas is based on objective criteria.
Programming
Programming is the second principle, applied since 1989. Before this period the
Structural Funds were mainly directed to projects. Programming makes an
integrated focused approach possible and guarantees a relation between the
projects carried out in the region. The interaction between the different elements
integrated in a programme are shown by figure 2.
Figure 2
Programming
Social Economic
situation
Overall Objectives
O
z
Priorities
VNIS
I
H
ADH
O
z
Measures
C/1
Projects
Source: NEI, 1998
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The EU works with a fixed procedure. This procedure exists of four stages
(Marks, 1996):
Stage!: The Member States develop and submit the National or Regional
Development Plan to the EC. This programme contains a description of the social
economic situation, the strategy and the proposed budget;
Stage 2: The plans form the basis for the negotiations between the Member
State and the EC;
Stage 3: Based on the outcome of the negotiations, the EC drafts the
Community Support Framework (CSF) in which the allocation of the Structural
Support is defined2 .
Stage 4: The implementation of the Operational Programmes as written down in
the plan.
To facilitate programming, the EC introduced in 1993, a new measure which
integrates the stages in 1 Single Programming Document. This document contains
the regional development strategy (overall objective, priorities, measures and
projects) based on the social economic analysis, the allocation of the EU support
and the national co-finance (EC, 1996).
In general Member States can submit a Single Programming Document for
Objective 2, 5b or objective 1 regions if the programme amounts less than 1 billion
Euro.
Partnership
Partnership is the third principle of the EU. As its name suggests, partnership
refers to the co-operation between all organisations involved in a programme. The
principle of partnership can be applied to vertical relations as well as to horizontal
relations. Vertical partnership means partnership between the involved regional
authorities, national authorities and the European Commission. Horizontal
partnership means partnership between the involved actors within the region.
Partnership guarantees transparency and a high involvement of all actors
concerned. Since all partners are involved the chances for a successful
implementation increase.
Additionality
Additionality means that the EU Structural Funds should have an additional
impact on the region concerned and aren't a substitute for the national regional
policy. Concrete it means that the member state has to keep its public structural
expenditures at least at the same level as in the previous programming period
(Higgins, 1998). The EU Structural Funds have to complement the national
2 A CSF is based on the programming region and contains a detailed description how the aims of
the regional plan will be achieved by integrating the four Structural Funds, the Cohesion Fund and
the loans of the EIB.
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regional expenditures. National funds can be used as a tool for the co-finance of
the programme. Every Euro aid of the Structural Funds has to be supplemented by
own finance. The height of the co-finance depends on the nature of the fund and
varies from 30% to 50%.
2.3 Agenda 2000
A new important change with regard to the implementation of the Structural Funds
is about to come with a new enlargement of the EU in prospective. In July 1997
the European Commission launched agenda 2000. This document discusses three
major issues:
1. The reform of the existing EU policies;
2. The process of enlargement;
3. The financial framework.
Since it goes too far to discuss all issues here, this paper will shortly highlight
the major consequences for the organisation of the Structural Funds. Besides
further decentralisation and greater efficiency of the implementation, the European
Commission proposes to reduce the five objectives to three. Objective 1 will
remain unchanged. Objective II will focus on the economic and social conversion
of regions in Structural Crisis and will be based on the NUTS II level. This
objective covers industrial areas, rural areas, urban areas and areas dependent on
fisheries. Unlike the other objectives, objective 3 won't be limited to a special
region and focuses on the development of human resources (EC, 1998).
The change of the Structural Funds' procedures coincide with changes in the
financial framework. This will have consequences for the old as well as the new
member states. Table 2 shows the financial framework as proposed by the
European Commission in Agenda 2000.
As can be seen from the table the applicant countries will receive 1.0 billion
pre-accession aid from the year 2000 on. If 2002 will be the first round of
accession, the countries concerned will be eligible for support. Because absorption
problems are expected, the annual financial support will increase gradually to the
general limit of 4% of the national GDP (EC, 1997). Unfortunately the year 2002
seems not feasible for the time being. Since the EU faces many challenges in the
years to come (the introduction of the Euro, the millennium problem) it is not very
rational to expect the year 2002 as a probable accession date.
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Table 2
The financial framework for the Structural and Cohesion Policy in the budget
period 2000-2006 (in billions of ECU, prices of 1997)
1999
2000
2001
2002
2003
2004
2005
2006
15 present member
states:
Structural Funds
31.4
31.3
32.1
31.3
30.3
29.2
28.2
27.3
Cohesion Fund
2.9
2.9
2.9
2.9
2.9
2.9
2.9
2.9
New Member States:
Structural Funds &
-
-
3.6
5.6
7.6
9.6
11.6
Co-hesion Fund
Pre-accesion Fund
1.0
1.0
1.0
1.0
1.0
1.0
1.0
Total
34.3
35.2
36.0
38.8
1.0
40.7
41.7
42.8
Source: EC, 1997
2.4 Enlargement of the EU
In most of the countries in Central and Eastern Europe EU accession has priority
number 1. Joining the European Union of course involves some important political
and economic advantages. The Structural Funds are one of these major advantages.
Although the pre-accession countries already received some support from PHARE,
the amount of support after accession will increase considerably. In order to be
able to absorb this huge amount of support, the countries have to be able to meet
several requirements put forward by the European Commission. These
requirements are:
• Decentralisation of regional policy;
• The NUTS II level has to be established as a basis for the implementation
and the monitoring of the Operational Programmes;
• The New Member States have to become familiar with the four basic
principles of the EU Structural Funds.
2.5 Summary
The Structural Funds are the main instruments to reduce inequality among the
member states of the European Union. During the years, the Structural Funds have
been subjected to several changes. The most important changes took place in 1989,
the year that the principles of concentration, programming, partnership and
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Discussion Papers, No. 29.
additionality have been introduced. These principles have to guarantee a coherent
policy characterised by a focused and effective approach. With a new enlargement
ahead, the new programming period, that starts from the year 2000, will be
characterised by new changes as laid down in Agenda 2000. Besides increasing
decentralisation and a greater effiency of the implementation of the Structural
Funds, the five objectives will be reduced to three.
In order to be able to absorb the Structural Funds, the countries in Central and
Eastern Europe have to fulfil three requirements. These requirements are:
•
Decentralisation of regional policy;
•
Establishment of the NUTS II level as a basis for the implementation of the
operational programmes;
•
Implementation of the principles of the Structural Funds.
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3 The situation in Hungary
In 1996, Hungary made an important step forward by adopting an Act on Regional
Policy and Physical Planning. It was the first country in Central and Eastern
Europe which adopted an Act, that lays down the main tasks and authorities of the
different institutions in regional policy. This chapter will summarise the main
consequences of the Act. Herewith this chapter will function as a framework, to
understand the case study of Baranya and Szabolcs-Szamar-Bereg to its full extent.
Three aspects will be highlighted; the institutional structure, the macro region and
regional policy.
3.1 The institutional structure with regard to regional policy
Two major stages can be envisaged with regard to regional policy in the post
communist period. The first period starts directly after 1989. As a reaction to the
communist period the institutional structure in Hungary changed severely. The
most important changes in the institutional structure were:
• The hierarchical structure was replaced by a structure in which there was no
hierarchy between local governments of different size and the county self-
government. With the introduction of the Act on Local Government in 1990,
the function of the county self-government was reduced to carry out those
tasks, which the local authorities weren't able to do or weren't willing to do.
• In 1990, for the first time a Ministry of Environment and Regional Policy
was established. However until 1996 its tasks weren't defined.
The second stage was characterised by the introduction of the Act on Regional
Policy and Physical Planning of 1996. The major strength of this Act, is that it
formally lays down the tasks and authorities of the different actors in regional
policy. In addition, the act caused the establishment of a new institutional structure
responsible for regional policy. Figure 3 shows the different institutions
responsible for regional policy after 1996.
The following additional institutional bodies have been set up in the field of
regional policy besides the traditional institutional structure:
• The National Regional Development Council (NRDC);
• The Hungarian Regional Development Centre (HRDC);
• The Regional Development Council (RDC)
• The Regional Development Agency (RDA) 3 ;
• County Development Council (CDC);
• The County Development Agency (CDA);
3 This body has not been established yet in most regions.
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• The Regional Development Association of Local Governments (RDALG).
The new institutional structural differs from the traditional one in that is not a
politically elected body but a multiform body in which various local actors are
involved. All the councils at the different levels contain representatives of the
political sector (ministries, local governments), the economic sector (national or
regional chamber of commerce), the employers and employees side.
Figure 3
The institutional structure with regard to regional policy after 1996
Parliament
National Government
Ministries
NRDC
11\
\i/
RDC
Capital, town with
Deconcentrated
county rank, County
offices of the
self-government
ministries
Local self-
4-
governments
Constitutional
Co-ordination &
relation
Co-operation
Administrative
Advising role
Control
Bron: Rave, de Jong, 1998
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Unfortunately there is no system without shortcomings. Most shortcomings
arrive from a lack of tradition and experience. The shortcomings at the county
level will be analysed in more detail in chapter 4. At this stage only a few remarks
will be made about the problems at the national level. The main problems are:
• The ministry of Environment and Regional Policy has no tradition, and as a
result it appears to be very difficult to function as a co-ordinating ministry
between the other ministries. The minister of regional policy is formally the
chairman of the NRDC. This is at the same time the weakness of the NRDC.
It would be stronger if it was chaired by a older ministry such as the ministry
of finance or the Prime minister (Horvath, 1997). Since the election in May
1998 the national government has changed however. This had several
important consequences for the institutional structure. The Ministry of
Environment and Regional Policy has been replaced by the Ministry of
Environment. Regional policy has become part of the Ministry of Agriculture
and Regional Policy. This ministry belongs to the Small Holders Party
(representing the small farmers). The consequences of this change can not be
overseen yet.
• The co-operation between the ministries is not very well (Sza16,1997). The
ministries have their own budget and their own funds which aren't co-
ordinated with each other. As a result it is possible for applicants to receive
subsidy for the same project at different ministries. Recently the national
government approved the situation by introducing degree 263 which aims to
coordinate the different funds.
The remarks made above have to be taken with a pinch of salt however. It gives
an indication about the main weaknesses of the system at the national level.
Although these weaknesses should have attention, one has to be aware that the
situation isn't much better in a lot of West European countries. Therefore the
situation should not be exaggerated. Nevertheless, a strong and co-operative
structure at the national level can considerably improve the efficiency and
effectiveness of any policy. Since regional policy integrates several sectors its
effectiveness considerably increases when it is in line with the sectoral policies.
Otherwise the effect of the regional policy can be weakened by the sectoral policy
or the other way around.
3.2 The Macro-region
The establishment of a the NUTS II level is one of the requirements of the EU
regional policy. Unfortunately the county appears too small as a NUTS II region
and therefore the EU required the establishment of a new territorial unit in
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Hungary. Besides the fact that it is an EU requirement, the macro region has
several advantages above the county (Horvath, June 1997 & Horvath, September):
• The macro region as a unit is more suitable for spatial spreading of
innovative and market conform activities and the creation of the
infrastructure and organisational condition necessary for that. In addition, the
possibilities for a division of labour and the attraction of capital are limited
at the county level or in the small region. Finally regional decentralisation, if
it is accompanied by the appearance of regional economic clusters, can
strengthen the inner cohesion of the economic spaces as well;
• A macro region can offer more possibilities to international trade and
investments. A region with a population of 1-1,5 million, with differentiated
infrastructure and production endowments is a more attractive investment
target than the present county. In addition, it is able to compete with other
regions in Western Europe which are of the same size.
• The modernisation of the system of state administration can be better carried
out at a bigger unit than the county. Several public administration tasks (from
statistical administration to treasury organisation) can be organised and
function more efficiently at a regional level. However only on the condition
that the regional information systems have been established.
• The macro region is a better unit for regional programming and strategy
planning since the sphere of influence of some activities cross the county
border. Examples are regional planning which concern territorial economic
clusters and networks, business services, R&D and innovation,
environmental development, regional communication and transport
networks, territorial cohesion, etc. In addition the principles of the EU as
written down in the regional development concept (programming,
concentration, subsidiarity) can only be asserted to a rather limited extent
within the present framework of the county.
The Act of 1996 created two kinds of regions; the programming region and the
Statistical Region (NUTS II). Although the tasks and authorities of the Regional
Development Councils have already been laid down, in practice these bodies have
been established yet. The same is true for the Regional Development Agency.
According to the act the institutional structure, at the level of the macro region,
will be based on the programming region instead of the NUTS II level. This is
strange since the Structural Funds will be directed to the NUTS II regions. In
addition, the NUTS II level will be the statistical unit, which is necessary for the
monitoring and evaluation of the programmes. Monitoring will be much more
difficult if the programme is based on a different region. Nevertheless, the
programming region and the NUTS II region do not differ very much presently.
The only difference is, that NUTS II region 4 and 5 in figure 4 are amalgamated
into one programming region.
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Figure 4
The Nuts II regions in Hungary
Key: 1 — Western-Transdanubia, 2 — Central-Transdanubia, 3 — Central-Hungary,
4 — Northern-Hungary, 5 — Northern-Plain, 6 — Southern-Plain, 7 — Southern-Transdanubia
Source: National Regional Development Concept, 1997
3.3 Regional Policy in Hungary
3.3.1 The theory applied to Hungary
As remarked in § 2.4 the European Commission stimulates a decentralised regional
policy. However this does not imply that the role of the national government is
diminished to zero. The major role of the National Government is to determine the
general guidelines. All the programmes and policies at the different levels should
fit within this framework and should be tested accordingly.
When applying this model to the Hungarian situation, the CDC should develop
the regional development strategy based on the proposals submitted by the local
authorities, while keeping in mind the national guidelines. The county strategies
should form the basis for the regional development strategy and programme. This
programme will be submitted to the responsible ministry. This ministry will co-
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ordinate the regional programmes with the sectoral programmes of the other
ministries. Furthermore, it has to guarantee that the regional programmes are
compatible with the overall macro-economic objectives. It will be clear that this
ministry therefore has an important co-ordinating role. The ministry should submit
the proposal to the NRDC. The NRDC will evaluate the proposal and will submit
it to the parliament. After approval by the parliament, the funds can be divided in
an integrated way to the various regional and sectoral programmes (Planet S.A.,
1994).
This system is visualised by figure 5.
Figure 5
A model for regional policy in Hungary
General Guideline and Macro economic
objectives
Sectoral ministries
Co-ordinating ministry
National Regional Development Council
Regional Development programmes
County Development programmes
Regional Development Plan RDALG
Source: National Regional Development Concept,1997
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Of course this is a very ideal situation and it will be hard if not impossible to
find a country which perfectly fits within this model. Nevertheless the model
shows the importance of partnership and co-ordination.
3.3.2 National Policy
The National Regional Development Concept has already been elaborated. This
document lays down the priorities and the strategy for sectoral and regional policy.
Nevertheless no concrete actions have been defined yet in this document.
In this paper I won't go into details about the concept. Nevertheless some
remarks are unavoidable. The concept has been elaborated in compliance with the
EU recommendations. This means that all the principles of the EU Structural
Funds are integrated into the concept. In addition, the backward statistical small
regions in Hungary have been classified in objective areas. This classification
shows strong similarities with the current EU five Objective areas. Figure 6 shows
the classification.
Figure 6
Classification of Objective areas in Hungary
• • •Is
•• .1••••
1-11—IV
• • • -
.••
1-111—IV
I-11
11111111 I-111
I-1V
r:::::::1 Regions which
are not eligible
Key: I — Regions backward from social economic point of view; II — Regions under industrial
restructuring; HI — Rural backward areas; IV — Regions with lasting unemployment
Source: National Regional Development Concept, 1997
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On the contrary to the EU practice a small region can belong to more
categories. Furthermore, only regions with a GDP lower than 75 % of the
Hungarian average are taken into consideration, since these small regions are
eligible for the Source for Regional Compensation. In the concept the priorities for
the different objective areas are defined.
3.3.3 Tools
Since 1996 the Source for Regional Development has been decentralised for 50%
to the County Development Councils (CDC). The other 50% of the resource will
be divided by the Ministry responsible for Regional Polk?. In 1996 the regional
development support consisted of 9,6 milliard HUF (compared to 300 milliard
HUF for the total state investment).
The regional development support can only be directed to the priorities set at
the national level. Figure 7 shows the different priorities.
Figure 7
Priorities for the Regional Development Source
Source for Reg'onal Development
Job creation
Development of
Tourism and rational
land use
Elaboration of Regional
Development productive
Securing existing jobs;
Development Concept
infrastructure
•Changing the product
•Changing the market
•Changing technology
Source: MERP, 1997
Besides the Source for Regional Development, there is a special source
available for Backward small regions (GDP 75% below the National average).
This source has been decentralised to the county level and can only be used for
infrastructural purposes such as gas, electricity, sewage system, water pipelines
etc. Its total amount is 5 milliard HUF.
4 The Ministry of Environment and Regional Policy has been replaced in May 1996 by the
Ministry of Agriculture and Regional Policy.
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Figure 8
Division of resources for Regional Development
Ministry of Environment and
Regional Policy
Source for Regional
Source for Regional
Development
Compensation
50%
N 50%
Local Governments
and entrepreneurs
CDCs
in crisis regions
Entrepreneurs
Local Governments
Source: Ministry of Environment and Regional Policy, 1997
3.4 Summary
In this- chapter three themes have been discussed; the institutional structure with
regard to regional policy, the macro region and the national regional policy.
Hungary made a large step forward by the introducting of the Act on Regional
Policy and Physical Planning of 1996. This act defined the tasks and authorities at
the different institutional levels with regard to regional policy and physical
planning. Furthermore, the act caused the establishment of a new institutional
structure responsible for regional policy at all different administrative levels.
These bodies are not politically elected and different regional actors are
represented in it.
The Act also introduced the Macro region as a basis for regional development
programmes. However it made the situation confusing by introducing not only the
NUTS II level, but also programming regions. Since the NUTS II region is the
statistical unit necessary for the monitoring and evaluation of the programmes, this
seems to be the level for the regional programmes under the Structural Funds.
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Nevertheless in practice the programming region and the NUTS II region do not
differ much.
The third theme concerns regional policy. The national regional development
concept has already been elaborated. Although this concept lays down the general
objective and the priorities for regional policy, no concrete actions have been
defined yet.
There are two resources decentralised to the County Development Councils; the
Source for Regional Development and the Source for Regional Compensation. The
source for Regional Compensation should be directed to backward small regions.
Both funds can only be allocated to the priorities fixed at the national level.
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4 Baranya and Szabolcs-Szatmar-Bereg as case studies
The following case study is based on interviews with different actors in regional
policy in the two Hungarian counties Baranya and Szabolcs-Szatmar-Bereg. These
interviews took place in the period from 22nd of April until the 21st of May in
1998. The aim of the interviews was to assess the problems with the
implementation of the Act on Regional Policy and Physical Planning as a
preparation for the EU Structural Funds. Therefore the requirements of the EU
formed the basis for the interviews. In this chapter main the results of the
interviews will be presented.
4.1 Baranya & Szabolcs-Szatmar-Bereg: Two opposites?
Both counties Baranya and Szabolcs-Szatmar-Bereg are located in the extreme
ends of the country. Baranya in the South neighbouring Croatia and Szabolcs-
Szatmar-Bereg in the East neighbouring Slovakia, Ukraine and Romania. Figure 9
shows both geographical locations.
Figure 9
Baranya and Szabolcs-Szatmar-Bereg
Szabolcs-
zatmar-Bereg
Baranya
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There are several reasons why these two counties were selected for interviews.
These are:
• Both counties have experience with PHARE. The institutional structure
established under the Phare programme of 1992 in Szabolcs-Szatmar-Bereg
served as an example for the Act of 1996. Furthermore the Phare programme
of 1996 in South-Transdanubia (where Baranya is located) was the first
programme that focused on the macro region.
• On the contrary to Borsod-Abanj-Zemplen county (which was also involved
in the first PHARE programme) Szabolcs-Szatmas-Bereg uses a bottom
approach. In addition, Borsod-Abatij-Zemplen is strongly dominated by the
heavy industry which makes a comparison with Baranya less feasible.
• Through the years Szabolcs-Szatmar-Bereg has received much state support
because it belonged to the poorest regions of the country. Baranya, on the
opposite only received minor state support since it was characterised by
average economic growth.
• Baranya is characterised by a lot of dwarf villages. This overrepresentation
of local self-governments can influence regional policy.
4.2 The implementation of the act of 1996
During this paragraph the results of the interviews will be presented. The list of
interviewees has been included in the bibliography. The major implications and
also the successes will be discussed along the lines of the requirements of the EU.
However, first attention will be paid to the present institutional structure and its
major implications. This is important since the institutional structure forms the
basis for the implementation of any policy.
4.2.1 The major implication with the institutional structure at county level
The Hungarian institutional structure is complicated since a lot of institutions are
directly or indirectly involved in regional policy at county level. These institutions
are:
1. County Development Council;
2. County Development Agency;
3. County Assembly;
4. County Hall;
5. Offices of the Ministries.
The relation between the different bodies is visualised by figure 10
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Figure 10
The different bodies in regional policy at the county level
l
l leve
na
Ministry
responsible for
t
io
regional policy
Na
County Development
Council
County Development
Atgency
The County Development Agency (CDA) and the County Hall are the
executive bodies of respectively the CDC and the County Assembly. The County
Assembly is a very old political body, while the CDC has been established in 1996.
The CDC is a multiform body existing of representatives of the ministry
responsible for regional policy, the statistical small regions (mayors) 5,
representatives of the chambers of commerce (Industry, Handicraft and
Agriculture 6), the labour council and the mayor of the city with county status.
5 The small regions are a statistical entity and in most case not similar to the RDALG. The
RDALG cover a smaller area and are the basis for programming on the local level. As a result not
every RDALG is represented in the CDC. Nevertheless the present situation is more desirable,
because a representation of the RDALG in the CDC would cause an overrepresentation of local
governments.
6The absence of a direct representative of the business sector in the CDC or in the
Regional Development Association of Local Governments caused some criticism. The
Chambers of Commerce are administrative bodies and are not fully aware of the needs of
the business sector according to some interviewees. Therefore the business sector should be
directly represented in the CDC or indirectly via the RDALG.
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During the interviews the division of tasks between the CDC and the County
Assembly with regard to regional policy appeared to be unclear. d shows the
divisions of tasks between the CDC and the County Assembly according to the Act
of 1996.
Table 3
Tasks of the CDC and County Assembly compared
CDC
County Assembly
Elaborates and approves the county
Elaborates the physical plan for the county;
development concept and programmes;
Co-ordinates the physical plans of the local
Can elaborate specific duties outside the county
governments;
border in compliance with the other county;
Co-ordinates the regional development
Decides about the budget allocation of the
activities of the settlements;
decentralised sources for regional development
Co-ordinates own compulsory tasks related to
according to the programme.
public institutions at the county level;
Co-operates with City with county Status.
Source: Act on Regional Policy and Physical Planning
Although the Act laid down the tasks of the two bodies, the practice differs
somewhat. Two points are worth mentioning here. First, according to the Act, the
County Assembly is responsible for the co-ordination between local development
activities. In practice, however this is very difficult since the County Assembly has
legally no power over the local authorities. Therefore it is very hard for the County
Assembly to stimulate the local governments to work together. On the contrary,
this will be easier for the CDC since all local governments are represented in this
body and are directly involved in the decision-making process about the
programme. It isn't surprising therefore that the co-ordination in practice takes
place in the CDC.
A second point of the discussion during the interviews formed the budget
allocation. Some interviewees mentioned that this decision should be made by a
political body as the County Assembly. Others however argued that a professional
approach was of more importance and therefore the CDC, with the aid of the CDA,
should decide.
The function and the existence of the County Development Agency (CDA)
resulted in less discussions than the CDC. In Szabolcs-Szatmar-Bereg, the CDA
has already been established at the end of 1993. In Baranya the CDA didn't exist at
that time and most of the administrative tasks were carried out by the county hall'.
The elaboration of the Regional Development Concept in Baranya has therefore
7 Presently the CDA has been established in Baranya as well.
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been sourced out completely. Besides the elaboration of the Regional
Development Concept and the administrative tasks, the agency in Szabolcs-
Szatmar-Bereg is responsible for networking, promotion of the county and
attracting inward investment (NEI, 1996). The interviewees in Szabolcs-Szatmar-
Bereg are convinced of the need of the agency. To their opinion the agency is a
neutral body where professionalism dominates. Furthermore the agency forms a
direct contact point for the project promoters, who should be supported during the
realisation of the programme. On the contrary, the county hall is an administrative
unit and not specialised in regional development. As a result the strategic tasks are
sourced out to consultants. The implementation of the programme can be
obstructed in this case by a lack of knowledge and time necessary for the most
optimal and effective results.
The last point of discussion with regard to the institutional structure at the
county level form the offices of the ministries. The offices of the ministries were
created as a reaction on the Act of Local governments of 1990, which hugely
diminished the hierarchical power of the County Self Government. Part of the
former tasks of the county were transferred to the local governments, but even
more important, some of the tasks went to the newly created offices of the
ministries. The ministries were free to set up these offices, since they could always
argue that they wanted to avoid a hierarchical situation in which the county self-
governments had power over the local self-governments (Paine Kovacs, 1997).
Paradoxically the new situation therefore led to deconcentration instead of
decentralisation. Especially in Szabolcs-Szatmar-Bereg the presence of these
offices caused problems. The offices are always sectoral oriented and there is no
co-ordination between the policy of the office and the CDC. For example the
ministry of Agriculture has its own office in Szabolcs-Szatmar-Bereg and has its
own agricultural programme. The largest part of the budget of the Ministry of
Agriculture goes to its own office and only a small part is decentralised to the
CDC. This makes an integrated approach very difficult.
Conclusion
At the county level a lot of institutions are involved in regional policy. There is
a political body, the assembly; a deconcentrated body, the offices of the ministry;
and a professional body, the county development council. The Act of 1996 is not
clear about the division of tasks and the coordination between the tasks.
Furthermore some tasks legally are the responsibility of the Assembly, but
logically should be carried out by the CDC. For example the Assembly is not able
to coordinate the regional development programmes of local governments since the
lack of hierarchy among them.
The need of an independent professional body for the implementation of the
regional development programmes has been recognized by all actors. Besides the
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implementation of the programme this body can promote the county as an
investment target, lobby at the national level and function as a contact point for
questions about the regional programme.
4.2.2 Decentralisation
The first requirement of the EU is decentralisation. However in the case of
Hungary it is better not to speak of decentralisation but of subsidiarity.
Subsidiarity means that decisions should be taken at the same level as where
problems occur. The Act on Local Governments of 1990 created a contradiction in
Hungary; On the one hand, it decentralised some tasks to the local governments,
on the other hand, it concentrated other tasks of the former county councils to the
central level.
Most interviewees consider the Hungarian system still very centralised, and
more deconcentrated than decentralised in practice. One interview stated that when
the central government started to speak about decentralisation, the ministries
opened offices out of fear to lose power. Since Hungary is a diversified country,
most interviewees feared the Irish system where the decisions about the budget
allocation takes place at the national level.
The strong centralisation of most funds at the different ministries can lead to
hilarity as well. A good example in this respect formed the sewage system between
Szaszvar and Magyareghegy in Baranya. Both villages applied at the national level
for the building of a sewage system and both applications were awarded. When
they got the money they realised that both applications were for the same pipeline
since it were neighbouring villages. Furthermore, since there are so many local
governments in Hungary, the ministries do not have a good overview of all
applications. As a result it is possible that one project in a village is awarded by
two ministries without knowing it from each other. Although the coordination
between the ministries improves by the new Decree (263/1997), it is still difficult
to oversee the situation from the national level.
Most interviewees concluded that the priorities for regional development
should be determined at the county level. Presently the CDC decides about the
priorities of the county development programme. However they cannot realise
these priorities since the decentralised funds can only be directed to the priorities
determined at the national level. This severely obstructs the realisation of the
programme. Therefore there should be more clarity about the general guidelines
put forward at the national level, which serves as a framework for the programmes
at the county level. Furthermore programmes developed at the county level should
serve as input for the national regional development strategy. Presently this mutual
co-ordination is missing.
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However the results of the Act on Local Governments also shows the other side
of the coin, what happens when decentralisation has been pushed too far. Since the
introduction of this act, local governments took over a lot of tasks formerly carried
out by the County Council. Since that period the number of local governments
doubled from 1,600 Soviet councils to 3,200 local self-governments (Paine
Kovacs, 1997). A hierarchical system between villages, towns or cities is absent.
Especially in Baranya the results of the Act are very visible. In this county exist a
lot of dwarf villages (some have no more than 300 residents). These villages all
have their own public institutions (such as schools). Logically, some of these
institutions could serve a much greater area. In addition, some of these small local
governments are hardly able to finance their public services, which can have an
effect on the quality as well.
From the interviews appeared that there is no clarity yet about the subsidiarity
principle. In most cases it is interpreted as decentralisation. A typical example
forms road no. 6. There are recent plans to widen this road and to extend it from
Budapest to the Croatian border. The discussion about this road caused a lot of
problems. All the mayors interviewed had the opinion that the road should go
along his/her village, since that direction should have the best results for the
county. This example shows that such a decision about a national road should not
be taken at the local level but at national level and regional level.
Conclusion
Instead of decentralization it is better to speak of subsidiarity. In Hungary exist
the strange situation that since the Act on Local governments the position of the
National Government and the Local Governments became stronger at the cost of
the County. As a result Hungary lacks an intermediate level.
The result of this situation is that some decisions are presently taken at the local
level or at the national level, which should be taken at the county level or the
regional level according to the subsidiarity principle.
In addition, the implementation of the programme is hindered by the strong
position of the local governments, which can result in settlement development
instead of regional development. Furthermore it is also hindered by the strong
position of the national government, which doesn't always coordinate its policy
with the county level and is not used to take a regional point view.
4.2.3 The Macro-region
The creation of the macro region is an interesting subject. Of course the macro
region has certain advantages compared to the county level. A macro region has
more lobbying power at the national level and at the European level. Furthermore,
a region can identify itself better and as a result can attract more inward
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investments. Finally certain services can easily serve a greater area than the county
and therefore can achieve economies of scale.
However in practice it is very difficult to integrate three counties, with their
own very old cultural identity, into one region. The counties in Hungary have an
old tradition and as a result the whole institutional structure is based on the county
level. Furthermore the residents identify themselves with the county and not with a
bigger region. During the interviews the strong identity of the counties became
very obvious. Typically almost no one agreed about the composition of the regions
and different interviewees used different criteria for the formation of the region.
Nevertheless it appeared that the interviewees in Baranya better understood the
use of programming at the regional level than in Szabolcs-Szatmar-Bereg. In this
last county almost the only reason mentioned for the creation of the macro region
was because the Structural Funds were based on this level. One of the reasons for
this difference in mentality is that the people in Baranya are better informed. The
Phare programme of 1996 was based in South Trandanubia (among others Baranya
is located in this region). Furthermore, the publications of the Centre for Regional
Studies and the influence of the faculty of Spatial Science of the University of
Pecs make residents in Baranya more conscious.
Finally, another reason for the difference is that the Northern programming
region is much too big. It contains six counties with very different regional
structures. As a result it is hard to find consensus within the region.
Because of the absence of the regional identity, the cooperation between the
counties appears very difficult. In Baranya it was mentioned that cooperation is
only possible at the highest level. However there is still no consensus about the
location of the Regional Development Agency (RDA). According to the
interviewees the following conditions should be fulfilled in order to have a well
functioning regional level:
• The mentality of the people should change. They have to get used to think in
a regional context;
• All counties should benefit from the cooperation;
• The region should be created voluntary;
• A professional body should be established responsible for the
implementation of the programme.
The present system, in which the NUTS II level has been formed at the national
level and the programming region has been created voluntary, is not desirable. The
Structural Funds will be directed to the NUTS II regions and therefore the
programmes should be based on this region as well. It is not advisable to create
two kinds of regions, since it makes the system intransparant and confusing.
Furthermore the monitoring system should be based on the programming region as
well.
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Conclusion
From the points made above it seems wise to distribute the funds based on
programmes at the regional level and not based on statistical indicators. The
advantages are manifold:
• It prevents the funds to be divided proportionally between the counties
regardless of the programme;
• Since the absence of a regional identity it is the best way to stimulate the
counties to direct the funds to the priorities mentioned in the programme;
• It stimulates the creation of a regional identity, since the counties have to co-
operate in the region;
• National funds are directed based on the quality of the programme. This
stimulates regions to elaborate good quality programmes;
• It strengthens the role of the RDA in the implementation of the programme
as an independent professional organisation.
Since it takes some time to strengthen the commitment between the counties, it
is wise to
slowly reduce the role of the national government in the programme. During the
first programmes it can have a supervising role during the whole process (from the
definition of the objectives and the strategy to the approval of the projects) to
ensure the quality and to make sure that the programmes are in accordance with
the national guidelines. Later on its role can be reduced to monitor whether the
priorities are in accordance with the national guidelines. The same is true for the
requirements with regard to the programmes. At first the national government can
decide to approve all the programmes in order to ensure the commitment between
the counties. Later on it can slowly strengthen its requirements with regard to the
quality of the programmes.
However in every stage there must be a bottom-up approach, which means that
regional actors decide about the objectives and the strategy. The role of the
national governments is only to ensure that the objectives and the strategy are in
line with the national guidelines and the required quality standards.
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4.2.4 The implementation of the principles of the EU Structural Funds
The principals of the EU Structural Funds are very much interwoven with each
other. The main problems with the implementation of the principles are explained
by different tables.
Concentration
Concentration
National
Geographical concentration: 50% of the national source for regional development is
level
concentrated on the poorest regions. The other 50% is decentralised since 1996.
Thematic concentration: The former Ministry of Environment and Regional Policy
defined five objectives for which the decentralised regional development support
may be used.
County level
Geographical concentration: In Baranya and Szabolcs-Szatmar-Bereg geographical
concentration appeared difficult. The source for regional compensation is divided
evenly between the eligible small areas. The small regions not eligible for the source
for Regional Compensation mostly received support from the Source for Regional
Development. Within the statistical small regions the money is divided between the
associations of local governments. One mayor in Szabolcs-Szatmar-Bereg
mentioned that he had to share the money within the small region with five other
associations, with all different priorities. As a result the money was splintered in
very small parts without any focus.
In Szabolcs-Szatmar-Bereg it was also mentioned that concentration on the poorest
small regions appeared very difficult since, especially in these regions, people didn't
know how to elaborate good project proposals. For the realisation of the programme
it is very important that associations of local governments leain how to elaborate
and implement good project proposals. Training in the field of project management
and the use of logframe method is desirable.
Thematic concentration: It appeared difficult to concentrate the source for regional
development on the priorities and measures mentioned in the regional development
concept. The main reason for this was that some of the priorities and the associated
measures weren't in line with the objectives of the Source for Regional
Development of the former Ministry of Environment and Regional Policy. As a
result they could not use this money for the realisation of all priorities. Furthermore
there was too little money at the county level to realise all the priorities mentioned in
the programme. This makes it even more necessary to focus on not to many
priorities in order to avoid splintering.
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Programming
Programming
National level At the national level the National Regional Development Concept has been
elaborated. In this concept the priorities for regional development have been
defined. However there are no concrete actions mentioned in the concept. There is
no clear link yet between the national concept and the regional (here interpreted as
the county) programmes.
Region
There are almost no regional programmes yet. The main problem is that there are no
sources available for the regional level.
South Transdanubia has elaborated a regional development concept under the Phare
programme of 1996.
County
Every county has elaborated a regional development concept. This concept sets out
the county development strategy (objectives, priorities and measures) based on a
SWOT analysis. The implementation of the programme was hindered by the
following factors:
The CDC can only guarantee money until two years. When a project is spread over
more than two years, there is no guarantee for the other years;
The CDC was late informed about the money available for the next year;
The money wasn't focused on the priorities mentioned in the programme for the
reasons mentioned under concentration principle.
Partnership
Partnership
National
Horizontal: The co-operation between the ministries is not very good. Since the
level
former Ministry of Environment and Regional Policy had no tradition, it appeared
difficult to co-ordinate the sectoral policies.
Vertical: The co-operation between the ministries and the County Development
Council depends strongly on personal contacts. In general the CDC felt a distance
between the county and the ministries. According to interviewees from Szabolcs-
Szatmar-Bereg, the County Development Agency can have an important role in
filling this gap as lobbying body at the national level and for the promotion of the
county in general.
Region
The co-operation between counties within the region is still very difficult, mainly
because there is no tradition in partnership. This principal will therefore need some
time to develop.
Since the sectoral ministries are represented in the Regional Development Council,
some interviewees mentioned that the co-operation between the ministries may be
possible at the regional level. Something which is not possible at the national level.
County
Partnership at the county level appears very bad. There is a lot of mistrust between
the different organisation at the county level and between local governments. The
bad co-operation appeared from the following:
The CDC and the County Assembly didn't co-ordinate their activities. As a result
the physical plan and the approved projects could be controversial;
There was no co-ordination between the city with county status and the County
Assembly (the city with county status is not represented in this body);
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There was no good co-ordination between the activities of the offices of the ministry
and the programme of the CDC;
The bad co-operation between local governments resulted in settlement development
instead of regional development.
Partnership is something that has to grow. It can only be stimulated when local
governments have to join forces in a project. The government already stimulates the
creation of associations of local governments. Some money is only available for
associations. This is very positive. However it is a pity that companies aren't able to
join these associations.
Finance
(Co-)financings
National
There is no co-ordination between funds at the national level. The system however
improved by degree 263/1997 which harmonises the application systems.
It is still not clear how the ministries will co-finance the Structural Funds when
Hungary enters the EU. The budgets of the different ministries are determined every
year. Since the Structural Funds concerns a lot of money it will he difficult for a
ministry to guarantee the co-finance for the whole programming period (7 years).
The inability to co-finance the Structural Funds can reduce the absorption capacity
of the country.
Regional
There is no financial support at the regional level for the moment. Therefore the
CDC can only realise regional programmes by joining forces.
It is not clear yet how the programmes at the regional level will be co-financed
when eligible for the Structural Funds.
County
The local governments and the companies which make use of the regional
development support have to co-finance part of the project costs themselves. Only
the Small regions with a GDP less than 75% of the national average are excluded
from co-finance.
The main problem with the finance was that the resources decentralised to the
county could be only used for the priorties set at the national level.
Conclusion
Although the CDC already started to apply the four principles, there still
appears to be a lot of difficulties with the implementation in practice. The
following actions can help to improve the implementation of the principles:
• The sources for regional development and the source for regional
compensation should be decentralised based on the programme instead of
statistical indicators. As a result the decentralised fund is more conditional
8 Instead of additionality we discussed the difficulties with the financial system in general, since
additionality only counts when the programmes for the Structural Funds are elaborated.
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Discussion Papers, No. 29.
and it can be be monitored whether the funds are used for the realisation of
the priorities;
• The funds should be directed only to qualified project proposal which fit
within the framework of the programme. All the requirements can be
integrated in an application form. The County Development Agency can be
responsible for the pre-selection of the projects;
• The priorities should be more focused and there should be a better co-
ordination between the national objectives of the decentralised sources and
the priorities of the county programme;
• Local governments should be learned to elaborate sophisticated project
proposals in partnership. This improves the quality of the project and the
success of the implementation and prevents a fragmentation of funds.
These measures seem very strict. However since there is only little experience
at the county level in regional development the measures will improve the quality
of the outcome.
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Discussion Papers, No. 29.
5 Lessons to be learned from the Irish case
Ireland is often used as a successful example. The country envisaged a very high
growth rate over the last decades. The reasons for this successful years are
manifold, such as a high inflow of Foreign Direct Investments, favourable
economic situation, etc. It is difficult to assess the influence of the Structural
Funds in the high conjuncture of Ireland. Nevertheless since Ireland as a whole
was objective 1, it got a lot of European support. Because Ireland is a very
centralised state the national government decided to define the whole country as a
NUTS II region. Partly this was also possible since Ireland is a very homogeneous
country. However since the country didn't have a regional policy the effects of this
choice implies that the support strongly focused on the wealthiest areas around
Dublin. The favourable economic situation however also influenced the poorer
regions positively and a result the whole country envisaged economic growth.
5.1 Hungary and Ireland compared
The situation in Hungary is quite different from Ireland. The country has a
heterogeneous nature, which makes regional policy and a division in more
programming regions necessary. Every region has its own specific problems which
need a different approach. Furthermore the situation world wide is different from
that a couple of years ago. Therefore this case study isn't meant to serve as an
implementation model for Hungary. It will be analysed which factors in Ireland
contributed to the success of the Structural Funds Programme. Furthermore it will
also be analysed which factors were counterproductive. Hungary can learn from
these factors and use this knowledge to improve its own system. Table 5.1 shows
the situation in Ireland and Hungary with regard to regional policy and the
associated institutional structure.
Table 3
Regional policy and its associated institutional structure.
Ireland
Hungary
National policy
Strongly concentrated with
Still concentrated but with the
deconcentrated implementation
approvement of the Act the
of sectoral policies
government chose for a
decentralised structure
Regional policy
Absent; only sectoral policy
Since 1990 the government
chose to develop a regional
policy. However since 1998 the
Ministry of Environment and
regional Policy has been
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Simone Rave : Regional Development in Hungary and Its Preparation for the Structural Funds.
Pécs: Centre for Regional Studies, 1999. 50. p.
Discussion Papers, No. 29.
Ireland
Hungary
abolished which can have
negative influence on regional
policy in general.
Cooperation at national level
Very good co-operation
Almost absent
between the sectoral
departments (= ministries)
Coordinating body at national
The ministry of finance is
The National Regional
level
responsible for the co-
Development Council has no
ordination. Since this
tradition. It appears very
department has a very strong
difficult to co-ordinate the
but neutral position it is well
sectoral policies with the
able to co-ordinate the sectoral
regional policy.
policies.
NUTS II level
In the present programming
Hungary is obliged to create
period only one NUTS II region several NUTS II regions.
(the whole country). This will
Recently 7 NUTS II regions
change in the new programming have been created.
period however.
Implementation Operational
The responsibility of the
Will be the responsibility of the
Programmes
deconcentrated bodies of the
RDA
sectoral departments and the
State sponsored bodies.
Regional authorities and EU
operational committees have no
executive tasks. There is no
commitment at the regional
level.
Role of regional authorities and Nil. There is no body
Strong local governments and a
local actors
responsible for regional policy,
weak position of the county
Shannon is an exception. The
assembly. CDC is responsible
RDA of Shannon is famous
for regional policy. There are
example in Europe because of
no RDA's yet at the NUTS II
its success. Important factors
level. Nevertheless the county
for its success are:
development agencies are
Its integrated regional
established in more and more
ounties.
counties.
The good co-operation
The independence of the RDA
The size of the region
Coordination and Monitoring
Very difficult since every
There is a difference between
sectoral programmes
deconcentrated state body has
the programming region and the
its own territory which differ
NUTS II. This is not wise since
among each other.
it makes the monitoring of the
programmes more difficult.
Partnership
Very well applied principle.
Horizontal and Vertical
Several partners are involved
cooperation not very good.
during the implementation and
There is a lot of mistrust.
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Simone Rave : Regional Development in Hungary and Its Preparation for the Structural Funds.
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Discussion Papers, No. 29.
Ireland
Hungary
the monitoring of the
programme. Shannon forms a
success story in this respect.
Here is a very good cooperation
horizontally as well as
vertically.
Approach
Efficiency approach; large part
Regional policy in Hungary is
of the Structural Funds were
oriented at the equity approach.
concentrated on the well
However since part of the
developed area of Dublin.
regional development source is
The Structural Funds were well
decentralised there is less focus
coordinated with the national
on the poorest region in the
policy.
Northeast. Furthermore the
sectoral support is mostly
concentrate on the Budapest
area.
From the schema above appears the strong difference between the two
countries. With the introduction of the Act for Regional Policy and Physical
Planning Hungary has clearly chosen to follow another course than Ireland did in
the last years. The Act introduces a decentralised institutional system responsible
for the implementation of the regional policy. This involves a strong bottom-up
approach. Since the regional structure in Hungary also differs from that in Ireland
this new approach is a very wise.
5.2 Strengths and Weaknesses of the Irish system
From the table 5.1 appears the strengths of the Irish system which partly explain
the success of the Structural Funds programme in this country. These are as
follows:
• The principle of partnership, horizontally as well as vertically, is
successfully implemented (Honohan, 1997);
• Priorities were based on a SWOT analyses and fit well within the national
policy framework (Higgins, 1998);
• The national policy was complementary to the objectives and strategy of
Structural Funds intervention (Honohan, 1997);
• The efficiency approach in Ireland was successful. The less developed
regions benefited from the favourable economic situation as well. Partly this
can be explained by the overall economic situation and the homogeneity of
the country;
• The Department of Finance was responsible for the co-ordination. This is a
neutral department with a long tradition and a good reputation. Therefore
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Discussion Papers, No. 29.
this department has a strong position within the national government. It is
responsible to balance the government's budget which is complementary to
the overall co-operation of the financial management of the Structural Funds
(NEI, 1998);
Besides the strengths of the Irish system the following weaknesses can be
defined:
• The regional structure is very weak. The region has no tradition and as a
result the regional institutions have no executive tasks. The Regional
Authorities and EU Operational Committees function badly. The national
Departments consider their tasks as useless and time wasting (Flitzpatrick,
1997);
• The regional monitoring process is unsatisfactory for the following reasons:
— The tasks and authorities of the monitoring bodies are not clearly
defined;
— Especially the EU Operational Committees are very heterogeneous;
— The composition of the EU operational Committees are defined
nationally and as a result do not have a regional identity;
— Because of the sectoral approach a lot of regional and local agencies are
involved with their own regional boundaries with little adherence to the
regions of the Regional authorities.
— The large number of agencies in the EU Operational Committees
obstructs their functioning;
— The monitoring is dependent on the information from the Department of
Finance. This department only provides in macro-economic statistical
information and no regional information.
• There is a weak co-ordination of the implementation of the Operational
Programmes.
The present system in Ireland will however not be approved in the next
programming period by the European Commission.
5.3 Conclusion; lessons that can be learned from the Irish case
Several strengths from the Irish system are interesting for the Hungarian situation.
Summarised the following lessons can be learned:
• The importance of good partnership especially at the national level is very
important for the success of a programme;
• The co-ordination between the several sectoral ministries should be the
responsibility of a strong neutral ministry with a long tradition;
• The Regional Programme should be complementary to the overall national
policy and therefore should have a strengthening effect;
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Simone Rave : Regional Development in Hungary and Its Preparation for the Structural Funds.
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Discussion Papers, No. 29.
• The Regional Programme should be based on the strength and weaknesses of
the region.
Furthermore the Shannon example shows (see table 5.1):
• The importance of an independent regional development agency;
• The importance of the macro-region;
• The importance of integrated regional policy instead of a sectoral policy.
Besides the positive examples, Hungary can also learn from the main
weaknesses of the fish system. The following weaknesses contain an important
lesson for Hungary:
• The importance to define the tasks and authorities of the regional institutions
clearly;
• The importance of a good regional monitoring system and an associated
regional statistical information system;
• The importance of a bottom up approach when defining the regions and the
associated institution;
The necessity to avoid a difference between programming regions and EU
regions.
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Discussion Papers, No. 29.
6 Conclusion
This discussion paper has shown that Hungary is well on its way in its preparation
for the EU Structural Funds. The major step forward formed the launching of the
Act on Physical Planning and Regional Policy in 1996. This act introduced a new
institutional structure at all administrative levels and defined the tasks and
authorities of the actors in regional policy. Although the Act forms a framework
for a sound policy, the content should be formed in reality. Of course this content
is subjected to a constant evolution, which outcome is still surrounded by mist.
Hungary is however in the favourable position that it can built an institutional
structure in a vacuum, since it didn't have an institutional structure responsible for
regional policy before. Of course this makes the situation also complicated.
Nevertheless it gives the opportunity to set up a well functioning logical structure.
The implementation of the Act appears difficult at all institutional levels. The
major problem at the national level is the lack of coordination and cooperation
between the different ministries. Since regional policy integrates all sectoral
policies, cooperation and coordination are two very important elements. The act
stated that the Ministry of Environment and Regional Policy is responsible for the
coordination as a chairman of the National Regional Development Council.
However since this ministries lacks tradition and respect from the other ministries
it is difficult to fulfil this tasks. The Irish case study showed the importance of
partnership at the national level. The success of the co-operation between the
different ministries in Ireland was largely the result of the strength and respect of
the neutral co-ordinator, the ministry of Finance. Especially in a country were
partnership has no long tradition a strong coordinator is of utmost importance.
Besides the Ministry of Finance, this role can be fulfilled by the Prime minister.
Also at the regional level the implementation of the Act was hindered by a lack
of tradition and partnership. The case study in Baranya and Szabolcs-Szatmar-
Bereg showed that there is a lot of discord about the size of the region and its
function in practice. Therefore it seems wise to distribute support based on
programmes and not on statistical indicators. The advantage is that the counties
have to cooperate in the region in order to receive support. Support can be only
directed to programmes that fit within the national guidelines and meet certain
quality standards. In this way the effect of the support seems better guaranteed and
a division of money apart from the programme will be avoided. Finally, the
regional identity can develop in time.
Since the region has no tradition in programming, it will be advisable that the
role of the national government in supervising the smooth implementation will be
slowly reduced. At first the national government can have a role in approving the
strategy and the project. In a later stage the role of the national government can be
reduced to approving the priorities and measures.
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Pécs: Centre for Regional Studies, 1999. 50. p.
Discussion Papers, No. 29.
The county level is the traditional level for planning purposes. Most of the
institutional structures are based on this level and the people feel emotionally tight
to this area. The Act on Local Governments of 1990 however hugely diminished
the authority of the county assembly. As a consequence the position of the local
governments but also of the national government became stronger. The Act of
1996 again directed some decision making power to the county, however not to the
Assembly, but to the newly created County Development Council. During the case
study in Baranya and Szabolcs-Szatmar-Bereg, it appeared that the Act caused
some confusion about of the role of both institutions in regional policy. The Act is
not quite clear on this point and sometimes the theory and practice differ from
each other. The deconcentrated offices of the ministries caused even more
confusion, since these offices also had their own programmes which often were
not co-ordinated with the regional programme.
In general, the coordination and partnership between the different institutions at
the county level and between the local governments appeared difficult. As a result
the decentralised support wasn't used for the realisation of the programme but
divided between the small regions (which divided the money between the
associations of local governments) and the businesses. Therefore, like the regional
level, the national government should direct support based on the programme and
not on statistical indicators. The role of the national government is to define the
guidelines, to approve the regional defined programmes and to monitor the
implementation of the programme.
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Discussion Papers, No. 29.
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List of Interviewees in Baranya
Borsos, Istvan: Secretary of Chamber of Craftsman
Huszti, Zoltan: Vice-President of the Chamber of Agriculture
Kakas, Sandor: Mayor of Pecsvarad, member of an association of local governments, Member of the
Baranya county assembly, member of the County Development Council
Keri, Istvcin dr.: Vice-president of the Chamber of industry and Trade, director of the MKB bank in
Pecs
Kovcics, Katalin: Head of the secretary for the County Development Council
Kovacs, Sandorne Mrs.: Mayor of Sasd, Member of the County Assembly Member of the County
Development Council
Medvetzkv, Antal: Representative of the Employees in the County Development of Council
Mcitis Istvan: Mayor of Szentlorinc, member of the County Development Council
Norcint Klcira Hajos: President of the Ormansag Development Association, Member of the County
Development Council
Paine Kovcics, Ilona: Member of the County Assembly
Peterfia, lamas: Manager of the Enterprise Promotion Center
Toth, Sanclor: President of the County assembly, President of the County Development Council,
President of the Regional Development Council, President of the Enterprise Promotion Center
Varga, Istvan: Local Self government of Baranya County, regional planning office
List of Interviewees in Szabolcs-Szatmar-Bereg
Apati, Gyorg: Mayor of Csenger, former member of the County Development Council
Babogli, Gabriella: County Development Agency
Csabai, Laszlone: Mayor of Nyfregyhaza
Filep, Gyulane dr. Nagy Eva: Director of the County Development Agency
Hcida, Imre: Mayor of Zahony, Member of the County Development Council
Karoly, Vida: Mayor of Baktaloranthaza, member of association of local Governments, Member of
the County Development Council
Kelemen, Istvan: Adviser of the President of the County Development Council
Kezy, Bela: Phare consultant, former employee of the County Development Agency
Kovacs, Istvan: Director of Primom (Enterprise Promotion Center)
Lakatos, Andrcis: Director of the Chamber of Agriculture
Mrenko, Laszlo: Representative of the Employees in the County Development Council, Member of
the Labour Council
Labbancz, Marianna: Primom
49
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Pécs: Centre for Regional Studies, 1999. 50. p.
Discussion Papers, No. 29.
Roka, Laszlo.: Phare Consultants, former director of the County Development Agency
Szabo, Peter: Mayor of Tiszadob, Member of Association of Local Governments, Member of the
County Development Council, Member of the Regional Development Council
Vincze, Istvan: Head of Department of Regional Development of the Assembly, County chief
Architect
Veres, Janos dr.: Vice President of the County Development Council, President of the Chamber of
Industry and Trade, Member of the Parliament
50
Discussion Papers 1999. No. 29.
Regional Development in Hungary
and Its Preparation for the Structural Funds
The Discussion Papers series of the Centre for Regional Studies of the Hungarian
Academy of Sciences was launched in 1986 to publish summaries of research
findings on regional and urban development.
The series has 4 or 5 issues a year. It will be of interest to geographers,
economists, sociologists, experts of law and political sciences, historians and
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The series is published by the Centre for Regional Studies.
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Forthcoming in the Discussion Papers series
Changes in the Politico-geographical Position
of Hungary in the 20th Century by Zoltan HAJDO
Discussion Papers 1999. No. 29.
Regional Development in Hungary
and Its Preparation for the Structural Funds
Papers published in the Discussion Papers series
No. 1 OROSZ, Eva (1986): Critical Issues in the Development of Hungarian Public
Health with Special Regard to Spatial Differences
No. 2 ENYEDI, Gyorgy — ZENTAI, Viola (1986): Environmental Policy in
Hungary
No. 3 HAJDU, Zoltan (1987): Administrative Division and Administrative
Geography in Hungary
No. 4 SIKOS TI, Minas (1987): Investigations of Social Infrastructure in Rural
Settlements of Borsod County
No. 5 HORVATH, Gyula (1987): Development of the Regional Management of the
Economy in East-Central Europe
No. 6 PALNE KOVACS, Ilona (1988): Chance of Local Independence in Hungary
No. 7 FARAGO, Laszlo — HRUBI, Laszlo (1988): Development Possibilities of
Backward Areas in Hungary
No. 8 SZORENYINE KUKORELLI, ken (1990): Role of the Accessibility in
Development and Functioning of Settlements
No. 9 ENYEDI, Gyorgy (1990): New Basis for Regional and Urban Policies in East-
Central Europe
No. 10 RECHNITZER, Janos (1990): Regional Spread of Computer Technology in
Hungary
No. 11 SIKOS T., Tamis (1992): Types of Social Infrastructure in Hungary (to be not
published)
No. 12 HORVATH, Gyula — HRUBI, Laszlo (1992): Restructuring and Regional
Policy in Hungary
No. 13 ERDOSI, Ferenc (1992): Transportation Effects on Spatial Structure of
Hungary
No. 14 PALNE KOVACS, Ilona (1992): The Basic Political and Structural Problems
in the Workings of Local Governments in Hungary
No. 15 PFEIL, Edit (1992): Local Governments and System Change. The Case of a
Regional Centre
No. 16 HORVATH, Gyula (1992): Culture and Urban Development (The Case of
Pecs)
No. 17 HAJDU, Zoltan (1993): Settlement Network Development Policy in Hungary
in the Period of State Socialism (1949-1985)
No. 18 KOVACS, Ter& (1993): Borderland Situation as It Is Seen by a Sociologist
No. 19 HRUBI, L. — KRAFTNE, SOMOGYI, Gabriella (eds.) (1994): Small and
medium-sized firms and the role of private industry in Hungary
Discussion Papers 1999. No. 29.
Regional Development in Hungary
and Its Preparation for the Structural Funds
No. 20 BENKONE Lodner, Dorottya (1995): The Legal-Administrative
Questions of Environmental Protection in the Republic of Hungary
No. 21 ENYEDI, Gyorgy (1998): Transformation in Central European
Postsocialist Cities
No. 22 HAJDU, Zoltan (1998): Changes in the Politico-Geographical
Position
of Hungary in the 20th Century
No. 23 HORVATH, Gyula (1998): Regional and Cohesion Policy in Hungary
No. 24 BUDAY-SANTHA, Attila (1998): Sustainable Agricultural Development
in the Region of the Lake Balaton
No. 25 LADOS, Mihaly (1998): Future Perspective for Local Government
Finance in Hungary
No. 26 NAGY, Erika (1999): Fall and Revival of City Centre Retailing: Planning
an Urban Function in Leicester, Britain
No. 27 BELUSZKY, Pal (1999): The Hungarian Urban Network at the End of the
Second Millennium
No. 28 RACZ, Lajos (1999): Climate History of Hungary Since the 16th Century:
Past, Present and Future