Rural development as provision of local public goods: Theory and evidence from Poland

• Main Author: Gramzow, Andreas
• Format: Journal Article
• Language: English
• Published: 2009
• Subjects: Agribusiness; Community/Rural/Urban Development; Food Security and Poverty; Institutional and Behavioral Economics
• ISSN: 1436-221X

Since the beginning of the 1990s a new rural development policy, which has laterbeen called the "new rural paradigm" by the OECD, has received increasing attentionin the European Union (EU) and elsewhere. It is expected that these policymeasures attenuate social and economic problems in rural areas on a broader basisthan the agricultural sector alone. They support local stakeholders like non-governmentalorganizations, local governments and local businesses in implementing localdevelopment strategies that are based on endogenous potentials and spatial interaction.Polish rural inhabitants, suffering among many other issues, from a lack of nonagriculturaljobs, an unfavorable business environment and an insufficient publicinfrastructure, pinned high hopes on those new measures. However, it is not provenwhether those measures of the new rural paradigm will stimulate the economic andsocial development of Polish rural areas. So far, their impact on the local developmentprocesses was mostly analyzed empirically, and those studies were stronglydictated by guidelines of legislative bodies. Studies with theoretical reflectionscan rarely be found. This study aims at elaborating an analytical framework forrural development policy analysis that provides a basic understanding of governmentalaction in rural development processes as well as allowings a normativeevaluation of rural development policy measures. This analytical framework couldfurther be used to empirically analyze the impact of those policy measures on thedevelopment of Polish rural areas.Central to this analysis is the perception of rural development problems as a consequenceof a lacking provision of local public goods. Local conditions, like a wellconstructed public infrastructure, a favorable local business environment, a highlevel of human capital, or a local landscape in sound conditions, can be definedas local public goods as they are characterized by a low rivalry in consumption andnon-excludability. Local public goods, however, although they benefit all inhabitantsof a region, are often poorly provided or even remain absent. This studyhypothesizes that precisely the latter deficiency is tackled by policy measures ofthe new rural paradigm. It is argued that those policy measures aim at facilitatingthe implementation of local institutional arrangements that provide inhabitantsof a region with certain local public goods.In order to understand the effects of measures of the new rural paradigm, the lackingprovision of local public goods was analyzed theoretically and empirically. Theoretically,the lacking provision of public goods was discussed by means of three different theories. Welfare economics, the first theory presented, understandsmarket prices as the only mechanism coordinating individual interaction. Hence,once market prices fail to reveal the scarcity of a good, like in the case of publicgoods, market failure comes to the fore and can only be cured by governmental intervention.But institutions like trust, reciprocity and property rights, which coordinateindividual interaction, find no place in the welfare economics scheme. However,rural development measures of the new paradigm strongly focus on the implementationof formal and informal institutions, which coordinate individual efforts in ruraldevelopment processes. The property rights theory, the second theory discussed,approves the coordination capacity of institutions as it refers to the interaction problemsinherent in problems of public goods provision. Institutions channel individualbehavior and enable therefore the provision of local public goods. For the evaluationof institutions the property rights theory proposes the offset of costs and benefitsthat are borne/gained by individuals within different institutions which, however, isinconsistent with normative individualism. Constitutional economics theory, thethird theory presented, by distinguishing between rules and moves, avoids the flawsof the latter theories and proposes to evaluate institutions with respect to their approvalby all individuals involved in a public good problem since only consensusguarantees that no individual will be worse off after implementing the institution.But factual consensus on institutions, which should coordinate the provision oflocal public goods in rural areas, seems to be unfeasible and to be combined withhigh decision making costs.Because of the latter fact the normative institutional economics theory was presented,which introduces the social dilemma as a heuristic to apply the consensuscriterion to all kinds of institutions in everyday life. A social dilemma describes asituation in which, because of unresolved coordination problems, actors of a groupdo not make full use of their opportunities. That is, they do not exploit all gainsfrom cooperation. The social dilemma enables to analyze public good problems in apositive and normative manner. Positively, individuals’ behavior channeled bycertain institutions can be analyzed. The normative analysis asks whether institutionscan be modified by way of institutional reform so that individuals, involved ina public good problem, will jointly contribute to the public good provision, andgains from cooperation will be exploited. In consequence, institutions which channelinhabitants’ behavior in order to jointly provide a certain public good, find generalagreement. And policy measures, which facilitate the implementation of those institutions,will therefore also find general agreement.This leads to the questions of how institutional arrangements have to be composedto facilitate the provision of public goods in rural areas. Three governance structures,the market approach, government regulation, and community managementwere presented, which all cover unique elements that facilitate individuals’ cooperation,so that a joint provision of local public goods can be realized. Whether the implementation of institutional arrangements, capable of providinglocal public goods in Polish rural areas, is facilitated by policy measures of thenew rural paradigm was analyzed within three case studies conducted in southeasternand north-western Poland. The case study regions were all endowed withlocal partnerships that reflect the idea of the new rural paradigm as they consistof cooperation among local government members, local businesses and localNGOs. The case studies comprise 104 guideline interviews with local governmentmembers, members of local NGOs, local entrepreneurs, farmers and localinhabitants in general. Guideline interviews were also completed by participantobservation and a small standardized questionnaire.In the early 1990s, in all three case study regions particular local public goodswere not provided due to interaction problems that hampered individuals from ajoint contribution. By means of the social dilemma heuristic, the public goodproblems in the case study regions were analyzed positively and normatively.The positive analysis focused on the institutions that formerly hampered inhabitantsfrom a joint contribution. Then, for regions where certain local public goodswere successfully provided, the institutional arrangements, facilitating the successfulprovision, were investigated and the impact of market-based relations, governmentregulation and community relations on public good problems was analyzed.In the normative analysis, institutional arrangements were assessed as preferableonly if exchange in terms of a successful joint provision of local public goodswas realized and mutual gains from cooperation were exploited. Finally, if policymeasures of the new rural paradigm facilitate institutional arrangements capableof coordinating individual interaction so that inhabitants contribute jointly to theprovision of certain public goods, they were assessed as preferable.It turned out that the foundation of local partnerships facilitated the implementationof institutional arrangements, which induced inhabitants to jointly contribute tothe provision of certain local public goods. And those institutional arrangementscomprise elements of all three governance structures. But there were governancestructures which seem to be more suitable to overcome certain barriers, hamperinga joint provision of local public goods, than others. For instance, in cases wherea lack of trust among inhabitants hampered individuals’ cooperation, communitygovernance has shown advantages over the two other governance structures.With respect to local partnerships’ access to public funds the implementation ofmarket competition among partnerships for funds, enabled a more efficient use,while the access to public funds in general often enabled inhabitants to overcomefree-riding problems that were related to a joint funding of projects.Furthermore, in all three case studies the success resulted among other things fromthe following factors: a) local provenance of main initiators; b) the existence oflocal leader personalities; c) the elaboration of a common local developmentstrategy; d) a close cooperation between the local development partnership and the local government; and e) the availability of a permanent staff taking care ofoperational tasks.Finally, the empirical analysis has shown that within policy measures of the newrural paradigm, governmental action rather acts as a facilitator of public goods provisionthan as a subsidizer of rural economic sectors. The latter measures stimulatethe socio-economic development as they facilitate the implementation of institutionalarrangements, consisting of elements of three governance structures thatare capable of providing local public goods successfully. In this case, the institutionalarrangements induce all inhabitants involved in a local public good problemto contribute to the provision of the good as they enable inhabitants only to improvetheir individual benefits through contribution. However, a joint contribution constitutesthe exploitation of gains from cooperati