The success of subsidiarity

Whilst the issue of devolution and decentralisation continues to cause controversy and conjecture throughout the Western Balkans, a new report concludes that regions with more powers and competencies are economically more successful.

By Ian Bancroft

An independent study, entitled ‘From Subsidiarity to Success: The Impact of Decentralisation on Economic Growth’ – commissioned by the Assembly of European Regions (AER), the largest independent network of regional authorities in Europe, and conducted by BAK Basel Economics, an independent economic research institute based in Switzerland – has concluded that subsidiarity is a key to economic success, with the economies of decentralised countries performing significantly better than those of highly centralised states.

The study showed that economic performance can be improved through ‘more influence of the regions at the national level, more independence of the regions from the national level, financial competencies and resources for the regions, as well as more competencies in recreation and culture, infrastructure, education and research, and health care’. According to Michèle Sabban, the president of AER, ‘national and regional governments must agree on an optimal balance in their distribution of powers, one that maximises their territories’ economic growth potential. This study enables them to do that with the aid of extensive data and empirical analysis’.

The study is composed of two main parts. This first, the “Creation of a Decentralisation Index”, which aims to measure decentralisation through a series of indicators that focus upon administrative, functional, political, vertical and financial decentralisation, found that Switzerland was the most decentralised country in Europe, with Bulgaria the most centralised. The second, “Decentralisation and Economic Performance”, meanwhile, which explores the impact of decentralisation on economic performance, particularly with respect to the innovation capacity of regions, found that decentralisation does indeed have a clear and positive impact on the economic performance of regions, especially on GDP per capita and economic growth. Future research studies are likely to consider the question of whether or not there is an optimal degree of decentralisation conducive to economic growth.

The findings of this study will have important implications for the Western Balkans, where Bosnia and Herzegovina, Serbia, Kosovo and the Former Yugoslav Republic of Macedonia (FYRoM) each continue to grapple with the challenges of decentralisation, with profound consequences for inter-ethnic relations and economic performance. Solving these respective decentralisation conundrums remains key for each country’s European prospects and for the long-term peace and stability of the entire region. By providing a quantitative insight into the economic benefits of subsidiarity, this study will help strengthen the case for the further devolution of powers and competencies to the regional level.

To read the AER study in full, go to www.aer.eu/publications/aer-study.html