1.6 System changes

Privatisation

Private sector participation, through privatised existing enter prises or creation of new ones, has progressed fast. Private sector share in GDP by the end of 90s reached 75% in Estonia (higher shares were only achieved in a few non-BSR countries: Hungary, Czech and Slovak Republics), followed by Russia, Lithuania, Poland and Latvia (all above 60%). Belarus remained a state-controlled economy with only about 20% of GDP contributed by the private sector⁴ .

Some heavy state-owned industrial enterprises need yet to be privatised particularly in Poland and Lithuania. Privatisation of infrastructure companies is on the way, but in most countries long way to completion.

Goods transport intensity of BSR countries

Source: European Commission (2000); National Statistics/ Nordregio

Planning organisation and legislation

Strengthening of local and regional self-government plays a decisive role in the implementation of environment legislation, land-use planning and economic development promotion. Though the situation in each country is different, and local governments are sometimes successfully promoting dynamic development, their weakness seems to be frequently a bottleneck.

Taking Latvia as an example, a recent World Bank report⁶ highlights the problem of "... institutionally weak, resource-poor, and highly fragmented structure of local governments." The Latvian Government has launched a reform to consolidate the fragmented municipal structure.

In Lithuania, fragmentation is not such a problem due to a stronger role of counties instead of municipalities. But there, too, the World Bank states that "... resources and assigned functions of local governments remain mismatched. Local governments also require significant improvements in capacity, especially for policy and budget formulation; basic financial management and control; and effective service delivery." ⁷

EU Accession

EU accession will tend to further accelerate the change processes indicated above. The obvious economic impacts will include:

• Further shift in foreign trade of acceding countries towards other EU countries, reduced trade intensity with other BSR countries (not becoming EU members soon),

• Inducement of foreign direct investment in new member states, originating from EU countries (to benefit from enhanced trade potentials), and from non-EU countries (to get a footing within the EU).

Consequences of EU accession for agriculture depend on the further development of the Common Agriculture Policy - CAP: Under present conditions, with price support to producers, farmers' incomes would increase heavily (and, hence, production). This gain would be fully offset by additional burden to consumers (3% loss in household real income in WB simulations)⁸. If reforms are adopted as proposed for CAP under the "Agenda 2000", producer gains and consumer losses would be significantly smaller.

Competition by food producers from present EU countries will enforce higher efficiency or loss of markets ⁹, in both cases leading to a reduction of job opportunities in agriculture.

After the collapse of large industrial complexes some of them developed during the socialist period also in rural areas, these regions are threatened to further fall back in their development.

Following accession, competition pressure to small and medium-sized enterprises (SMEs) will grow, particularly in areas which so far were under less competition. This puts an additional threat to job supply, particularly in distant, structurally weak, mostly agricultural areas.

Therefore, there is a growing need to make rural regions less dependent on agriculture, and to support the development of other gainful employment opportunities. This is also a major trend in EU countries, attempting to convert rural (previously: merely agricultural) areas into more diversified economic regions¹⁰.

The trend to use EU Structure Funds for such multi-sectoral approach to rural development will offer a potential for accession countries to strengthen their regional policies towards rural areas.

Hence, there will be a growing need for decentralised approaches when designing development programmes in less-developed rural areas - even in small countries¹¹. Such bottom-up approaches give high responsibility to municipalities and counties who in many cases need to seek collaboration with NGOs and with private enterprises.

Swedish and Finnish accession experience: As Sweden and Finland have gone through the accession process, their experience as regards local and regional development can serve as a basis for new entrants. Local and regional authority organisations did not note specific impacts on spatial structures, but stressed the need for adapting roles and participation of different state levels:

• Accession to the EU helped to introduce a distinct Northern Dimension, recognising special features of northern conditions ¹². This would not have been reached without a very strong intervention of regional institutions.

• Regional and local bodies must take it upon themselves to participate in the Government's drafting of national positions.

• Local and regional authorities highlighted the benefit of increased participation in international exchange of experience and financing of projects, raising more awareness of the importance of joint projects. Conclusion: This experience exchange and co-operative projects shall be further promoted.

• The importance of EU structural funds was widely underestimated by regional/ local organisations. Conclusion: In order to benefit from Structural Funds, regions need support to make use of European Regional Development Fund (ERDF) regulations.

• It was a useful exercise for counties to analyse the expected impacts of EU accession, and to draw up action plans. In Finland, such work took about 6 years. Conclusion: It is time for regional bodies of new accession countries to start with preparations now.

EU accession increases the need to strengthen local and regional governments:

EU accession creates high demands to local and regional bodies, to develop strategies which minimise negative effects of enhanced competition and maximise benefits from new opportunities. They need to promote diversified rural development in a sustainable way.

For local and regional administrations which don't meet these requirements, accession impacts may be negative, which would contribute to growing spatial disparities. Conclusion: Strengthening of local and regional bodies needs to be supported to promote spatial cohesion.