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Jussi S.Jauhiainen, Priidu Ristkok 1. Introduction Regional development in the Soviet Union was paternalistic policy by the central government authorities with strong interference into local production patterns, migration flows and financial redistribution. The main character of regional policy was large regional redistribution of budgetary funds, however, not based on regional discrepancies. Approximately 25% of funds went for social and economic development of the Moscow region and the share of the backward European part of Soviet Union was less than 2% (Dmitrieva, 1995, 231). Capital flows were moved to low productivity regions to support new production, e.g. in Siberia, Far-North and Far-East, and to decrease sharp regional differences, for example, in the Caucasus regions and Central Asian republics. Traditional problem regions, like old industrial areas, were not supported enough and they remained net payers. This practise created ‘artificial’ problem regions due to disruptions in investment cycles and permanent redistribution of budgetary funds. No other major aid schemes were implemented to balance existing regional differences (Artobolevski, 1997). It was impossible to achieve a stable and dispersed endogenous economic growth and diversification in economic structure in the Soviet Union due to unbalanced support for new production areas. The redistribution of funds to backward areas facilitated the maintenance of non-optimal economic structures and economic stagnation. The negative impacts were felt also in the growing regions. Despite the resources allocated the policy did not bring economic and social cohesion and towards the end of the Soviet period the overall regional differences grew. The starting point for the regional policy in the independent Estonia from 1991 was difficult though the country was among the most advanced in the Soviet Union. In the paper is presented the development of regional policy in Estonia during the 1990s. Emphasis is on the analysis of the regional policy principles and their changes from 1989 to 1998. The changes are measured within the framework of regulation and governance by the central authorities and compared with the European Union framework regulation regarding regional policy (Mäkinen, 1996; Jauhiainen, 1998). Recommendations for current regional policy regarding those problems that create hindrances for the accession of Estonia into the European Union are presented in the end of the paper. The adaptation of acquis communataire has started and several institutional and legal actions are taking place. This means also changes in the principles of national regional policy. The reference to the analysis comes from the European Union regional regulation policy and theory. Generally, the framework regulation aims to bring economic and social cohesion within the Member States. Subsidiarity is the comprehensive principle regarding the division and devolution of power between the European Union, national governments and sub-national entities and social partners, also regarding regional development policies. The current allocation of the Structural Funds is done through the principles of concentration, programming, partnership and additionality. Concentration means to assist the regions that have the greatest development and convergence problems. Programming means to collect and co-ordinate the individual development projects within multi-annual and goal-oriented programs. Partnership brings together for development different interests between supranational (EU), national (national government) and competent regional and local agents. Additonality means the co-financing of the development projects. The principles of monitoring and evaluation to assess the development projects in ex-ante, on-going and ex-post phases are also included from the year 2000 onwards (Mäkinen, 1996; Jauhiainen, 1998, 38-42; Molle, 1998, 6-8). Programming and partnership have enhanced the exchange of resources, information and managerial skills in the European Union. The executive part of the projects has developed and intertwined local, regional, national and the Community authorities and the other social partners. It is an example of multi-level governance in the European Union regional policy, however, the relationship between these partners is complex (Borras, 1998). The design and implementation of the Structural Funds has defined the autonomy and collaborative necessities of conceptual formal actors in regional development policies. Structural Funds have fostered the analytical function of local and regional authorities and made to rethink the contents of the national regional policies. However, the bureaucracy has increased and the in some cases projects have been launched only in the hope to attract Community and other public funds (Bianchi, 1998).
Estonia with 45,100 square kilometers and 1.5 million inhabitants is divided into 15 counties and 252 municipalities. The central government decides the guidelines of the development and at regional level counties primarily administer central government functions and co-ordinate the activity of municipalities. Counties have also a legally binding development plan for their area that is approved by the central authorities. The first principles of regional policy in Estonia were formulated in 1989 in the concept of economic independence of the Soviet Republic of Estonia. In the concept regional policy was defined as “an activity carried out by public authorities and aimed at balanced and complex development of the regions with the use of all resources and possibilities” (IME, 1988). The objectives of regional policy were to compensate shortages in economic activities in regions and to avoid their undesirable social consequences. Main measures were to secure the opportunities for earning the living, environment worth of living and provision of basic social infrastructure in all regions. In practice the implementation was centrally directed policy. The independent regional policy, e.g. territorial planning, was bound to its legislative right to municipal property. The central government directed regional development through sectoral policies and directed co-ordination of public sector influencing on the investment locations and (state)businesses. This is based on the neo-Keynesian idea that the state can manage macroeconomy and bringing in employment and investment sites in the lagging regions and create economic and social cohesion (Jauhiainen, 1998). There were also special regionally differentiated instruments among the measures at indirect influencing of businesses, e.g. tax and price policies and budgetary allocations. Only few measures were to support individuals or local self-governments. Some instruments, like special development regions, were designed to be temporary aid schemes. Regional economic development was to be guided also indirectly through administrative measures, e.g. establishing various protected areas and reserve territories. A Regional Development Law was to be elaborated to fix the objectives and measures for a specific period. Estonia was divided into bigger regions and for each was formulated a detailed development strategy (regional division of labour). The strategies were elaborated to "spread structural adaptation and to improve natural conditions" (IME, 1988). Because of ideological reasons the regional policy concept was not implemented at large, but it became later a reference for sectional and regional policies of independent Estonian government (Table 1).
In 1990 a new concept of regional policy was formulated. Similarly to the former, regional policy was defined as activity of public authorities to balance development of every region. Regional policy had to be future-oriented, purposeful, coherent and comprehensive. The meaning of balanced development was defined as a condition in which a compromise among regions within social justice, economic efficiency and realistic development opportunities is achieved. It did not mean equalisation but rather a realistic spatial structure as an objective setting (EV Majandusministeerium, 1990b). The main reason for changes in regional policy definition were social needs arisen in the society. The objectives of regional policy were to achieve regionally balanced development of employment, incomes, environmental and living conditions, services, quality of life and living standard. Assuming the particular demographic, political and social situation of the moment, one objective was to maintain national territorial integrity. Actually, the primary focus was on living standard and balanced basic services: “Everywhere where people are living, be it the centres or periphery, should objectively be secured more or less similar elementary living standard (first of all in terms of social infrastructure and environmental conditions) The objective should be set as evening out the opportunities for satisfying people’s daily wants at the level, which in the situation of our wealth-poverty is economically possible for the society as a whole” (Sepp, 1990). This is a classic example of centrally directed and public sector based regional policy approach. The task of national regional policy was to balance the development of macro-regions and to secure stable development of smaller lagging regions. The important new feature was the notion that regional policy activities need a close co-operation and co-ordination between the state and self-governments. There was a necessity of a second tier governmental regional policy, but it was admitted that at least for a while the state should be responsible. Each region has preconditions, ability and capacity for development. The most important was to open up the resource potential and development possibilities. The goal was to diversify the economic structure (above all in rural areas), intensify the promotion of SME development, secure availability of basic services (primary education, basic medical care, but also retail trade services), promote local self-governmental initiatives, balance the settlement structure, and develop evenly spread communicative infrastructure throughout Estonia (EV Majandusministeerium, 1990b, 2). The short-term objectives were to diversify economic structure, promote self-governmental initiatives to maintain normal production in lagging regions and avoid abrupt changes. Measures were divided into compensatory and stimulatory trying to increase the importance of stimulation. The limited use of compensatory measures was to maintain infrastructure on the islands and in specific areas in Eastern and Southern Estonia. In addition, attention was put on launching several specific national development programmes primarily regarding technology to secure the development basis of backward areas. Urban and rural areas had different priorities in regional policy. Towns and cities should be integrated into a system of central places taking into account both present situation and long-term perspectives. The dominating fields of activities would be reoriented and territorial changes originating from structural changes in international and national society considered. This was to be achieved with differentiated settlements development strategies. Regional policy zoning that described socio-economic situation of local self-governments was elaborated in 1990 for the implementation of various regional policy measures. The methodology comprised of official statistics and expert opinions. All municipalities were classified into four zones: self-reliant and with large development potential, self-reliant but of need of some state support, municipalities with certain indicators of backwardness and municipalities with low development capacity. In the guidelines of 1991 there were foreseen donations, tax allowances, start-up subsidies, loans and interest subsidies. The objective of tax allowances was to increase the financial and economic potential of lagging municipalities by stimulating the establishment of new businesses. The long-term aim was to decrease the dependence on state compensatory aid. New businesses were to receive tax reductions for the first four years and it varied from 30% to 100% depending on the business location. Only regionally differentiated corporate tax reductions were used for new businesses according to the zoning. The donations were used for equalisation of local budgets lacking necessary revenues for social and technical infrastructure. A new state fund was planned to be established in order to finance start-up subsidies. The zoning was meant to be just an additional source for decision making. The target group was planned to be profit-oriented Estonian private SMEs. The decision-making power was given to the regional administrative level. Further, a possibility to give regional policy loans was given to Estonian Bank and it was supposed to base on regional policy zoning. However, not all of the measures were used during the following years. Regional loan project failed mainly because of rapidly increasing inflation, no official elaboration of regional policy framework law was started, tax reduction scheme was launched partially, etc. A step further was the adoption of the law on stabilisation fund of local budgets, also the establishment of official contacts with Swedish and Finnish central authorities responsible for regional policy. The analysis of the regional policy during the years 1989-91 must be very context sensitive due to the particular political situation of Estonia on the edge to independence. Certain general rules of command economy applied, but regional policy was also used as a tool to transform Estonia’s economic dependence of the Soviet Union (market) towards national integration. Though IME was mostly based on classical neo-Keynesian public led regional policy development, there are many advanced and innovative aspects in the concept. Due to the political situation they came into practice only in some details.
The new government from 1992 did give in the beginning few concerns to regional policy. It did acknowledge the necessity of regional policy activities, although no funds were assigned in the state budget. Also the elaboration of regional policy law stopped. The few regional policy measures were cut off as regional tax reductions were seen to be irrational in the situation of market economy. Another reason of quitting the scheme was its inefficiency. The benefits, like establishment of new businesses in depressive regions, were minor compared to the costs like, for example, the decrease in budgetary revenues. The approach selected was of ‘convergence school’ arguing that the laissez-faire practice of the public sector gives to the market the role to balance the development. There was a deregulation with the removal of public support, the government withdrew from regional policy interventions and increased the role of market in directing development with neo-liberal public policy. This was a common trend also in many Western European countries in the 1980s and reached an extreme case with the New Zealand public policy from the early 1980s onwards (McDermott, 1998). The results of the tax reductions did not meet the expectations. However, it should be noted that the expectations were very high: “The results can be seen as acceptable if at least one new business with 15-20 employees start in each lagging municipality in 1991” (EV Majandusministeerium, 1990a). One reason for the poor outcome was the deficit in state budget revenues to administer the scheme. The biggest obstacle in business formation was not the high profit-based tax but rather lack of starting capital and management experience. The outcome was a fictitious formation of businesses in depressive regions: existing enterprises rather changed their location than new one that emerged (EV Majandusministeerium, 1993). This has been the case in many so-called enterprise zones in Western Europe, too. No regionally oriented policies existed although municipalities were too weak to solve their development problems. The official opinion was that if there would be regional policy or development activities, these should be initiated by the central government. The state would be more efficient in deciding about the redistribution of scarce financial resources. This opinion reflected the absence of real self-government during the Soviet period (Godkin & Forrest, 1993). This centralised governance of regional development created a conflict between central authorities and county governments. The counties had defined the main development problems and certain development priorities that did not meet always the central policy principles. Regional development activities continued in 1993 being targeted to business promotion with business advisory centres and various funds. The centres were designed to become main SME servicing institutions in training, business consulting, partnership creation, etc. Various funds were established to provide grants mainly to SMEs. In 1994 the number of regional policy measures was remarkably enlarged. Approximately 20 MEEK (1.3 MECU) were allocated from the state budget and through grants given by county governments. The regional policy measures were to support newly established business advisory centres, various regional development projects of national importance, and settlement activities, like population development in remote areas. Support was given also to few state-owned business advisory centres through co-financed programme between Swedish agency NUTEK and Estonian Government and to single projects appraised by other business centres. However, the principle did not work well in practice, because also other centres got general state subsidies. Grants delivered by regional governments were divided into three groups: county government development activities, purpose-oriented grants to small islands, and support for Eastern Estonian regions. The decision-making power on the use of these funds was given to county governments who authorised it forward to municipalities. This decentralisation resulted as conversion of specific regional development funds to finance social welfare provision in municipalities. As a conclusion, the principle of regional policy to develop lagging areas was not put into practice. The main target was on business development, but the content and form of measures implemented did not suit to the existing situation. Moreover, other priorities like underdeveloped infrastructure, poor availability of services in rural areas, and deconcentration of industry were forgotten. The lack of state budgetary resources was one reason to the absence of regional development strategy, but actually the missing strategy became the main obstacle in forming purposeful and efficient national regional policy. One can speak about passive and fragmented regional policy because all development activities remained sectoral and not regionally specific. After the short period of neo-liberal approach, the central authorities took more regulatory approach. The decentralisation of the implementation meant, however, that the local authorities used the regional development fund for basic service provision. There was only little co-ordination and no principles of concentration, programming, partnership or additionality were applied. 2.3. Institutionalisation of central authority led public regional policy (1994-97) The institutionalisation of central authority led public regional policy occurred with the guidelines of regional policy approved by the government in 1994. Regional policy was defined as a deliberate policy, pursued by the public authorities, aimed at creating the conditions necessary for balanced socio-economic growth of all regions of the country considering both regional and national interests (Table 2).
The main goals of national regional policy were to ensure secure living conditions for everyone in every region, including employment, primary services and healthy well-being environment. Economic growth potential should be fostered and a vigorous economy created in the regions that are not reliant on constant subsidies. The state support was suppoused to create suitable environment. There should be balanced regional population and settlement dynamics and sustainable development should be taken into account. The national territorial integrity should be maintained, so regional policy was concerned with the whole territory of the country. Main activities to carry out were to create necessary preconditions for viable entrepreneurship in all regions, development of nation-wide communicational infrastructure, support regionally reasonable restructuring of rural economy, secure the availability of primary services (primary and secondary education, primary medical care, communications, etc.) in every region and create statistical regional database to monitor and direct regional development. Several instruments were applied from 1994, e.g. credits, development grants for county governments, business support centres, settlement activities, and support to local initiative movements (Table 3).
Regional policy was based on flexibility and local initiative. Flexibility is reflected in the principle that regional policy measures were not permanent and automatic. The range and character of measures improved continuously and state support measures were project-based enabling applications to be treated individually. The importance of local initiative signified that the development of regions depends above all on local initiative and that state intervention or directions should be complementary. The absence of local initiative can not be compensated by state activities. In 1994 a minister (without portfolio) co-ordinating regional policy activities became a member of the government. The guidelines did foresee also establishment of an advisory co-operation body to co-ordinate sectoral policies. Also a regional development Fund was meant to be established in order to manage regional policy credits. In 1995 44 MEEK (2.9 MECU) was funded for regional policy activities. A large proportion was given for new regional policy loan instrument. The control of settlement activities was given to institutions responsible for regional policy. The advisory co-operation body to co-ordinate sectoral policies was formed, too. A special development area status was given to the South-Eastern part of Estonia, however, in reality no additional funds were allocated to the region. Six regional development programmes were introduced in the end of 1995 as new regional policy instruments. The objective was to avoid further polarisation of national economy and the outcomes regarding it, like inflation, irrational use of resources, and emigration from peripheries (EV Valitsus, 1995b). The peripheral areas programme improved physical and social infrastructure building up local industries and improving the local economic base in agricultural regions. The island programme, target area comprising of 11 inhabited islands, promoted better living conditions to prevent islanders to abandon the locality. Focus was on developing communications and physical infrastructure, provision of power supply and local educational facilities. The rural development programme focused on the improvement of local initiatives mainly in form of village movements and minor joint projects. It covered the entire country and the majority of funding decisions were made on regional level. The border region programme promoted cross-border co-operation and international trade contacts. Most support was for Estonian co-financing to regional trans-frontier co-operation projects. The monofunctional settlement programme focused on settlements where majority of employees worked in large manufacturing enterprises under restructuring. It promoted business development and widened the local economic base, improved infrastructure connections, and supported human resource development in these areas. The North-Eastern Estonia programme promoted new trade linkages and the integration of its immigrant population into Estonian society. This region was dominated by large manufacturing enterprises in oil-shale mining, production of electricity and manufacturing goods mainly for the Russian markets. The work force in these enterprises consisted mainly of immigrants of Russian origin. Most support was allocated to the implementation of the regional development plan. In 1996 were introduced regionally differentiated subsidy scheme to SMEs to purchase business services from regional business promotion. The total funding for business support system was the same than before, but several additional instruments was funded from the sum, like SME subsidies and development of nation-wide network of regional business centres. There was a decrease in funds for regional policy loans and from 1995 additional co-financing came from commercial banks. Development grants for county governments were only for the elaboration of development strategies and planning. Previous activities continued for backward areas, islands, and border areas regional development programmes. The content of monofunctional settlements and North-Eastern Estonia programmes was new. The state budget for regional policy activities was reduced by 10% to 40.6 MEEK (2.7 MECU). In 1997 the administration of regional policy instruments were centralised under Ministry of Internal Affairs. The institutional framework of regional policy started with minister without portfolio responsible for regional affairs. The minister has responsibilities for co-ordination of the central government activities affecting regional development. The Ministry of Internal Affairs is also generally responsible for regional policy. The Ministry of Economic Affairs is actively involved in national regional policy with SME policy. The Ministry of Agriculture is responsible for rural policy and the Ministry of Environment is for spatial and physical planning. The Council of Regional Policy was reorganised into a advisory body to the government representing all ministries, county governments and local self-governments. The main tasks are to increase co-ordination of sectoral policies and give advice on regional development issues to the central government and to different ministries. An important decision to bring coherence in regional policy was done through the establishment of the Estonian Regional Development Agency (ERDA). It administered financially and technically the funds for business support network and regional development programmes. ERDA board members represent the four key ministries mentioned above, county governments, local self-governments, and business associations. ERDA is the fund manager for most of the national regional policy instruments. The main tasks are the development and co-ordination of business support system activities and technical support to other regional policy instruments. The majority of funding is allocated on a yearly basis from the state budget. Interministerial decision-making bodies manage the regional development programmes and loans. They have also representatives from regional and local authorities and various social partners. The county governments are responsible for co-ordination of sectoral policy activities on the regional level, e.g. by strategic planning, tourism and business development, and public services. The amount of regional policy funding was risen by 50% to 60 MEEK (4.3 MECU). A new and particular regional development programme was meant to peripheral Setumaa to promote border region. Also, a support was given to Estonians who lived on Russian part of the divided Setumaa to help their immigration to the Estonian side. The period of institutionalisation of regional policy has more concern on partnership between central and local authorities. It is seen that the initiative for regional development must derive bottom-up, but the support and the policy is still directed top-down. Though regional policy is still much linked to general sectoral policy, some concentration of subsidies is applied through regionally specific programs. The implementation of these programs, however, has not been always to tackle the causes of the development problems, but the outcomes. This is typical for passive regional policy. The multi-annual programming has grown with the regional development programs though their local implementation is still in many cases to back the welfare provision. The establishment of ERDA has created more coherent and multi-annual orientation in regional policy.
2.4.1. Current administrative structure of regional policy In 1998 occurred several rearrangements in regional policy instruments and administration and the budget for regional policy was more than doubled to 136.4 MEEK (9.1 MECU). The resources for carrying out regional policy have been continuously increased and the set of instruments has been gradually diversified (Table 4).
Presently the regional policy measures consist of grants, subsidies, credits and tax reductions through various instruments. There are eight regional development programmes that provide development grants to public authorities and NGOs, but not for commercial projects. There is obligatory co-financing of the project by the applicant. Municipalities and county governments should verify that all projects funded are in line with local and regional development priorities described in the development plans. The monitoring and evaluation responsibilities are shared by the ERDA and the head of relevant interministerial decision-making body of the programme. In 1998 was launched the South-Eastern Estonia programme to support development and projects focusing mainly on innovative measures to promote self-reliance of the region. The priority areas were human resource development (training, research, support to innovativeness and activities of NGOs), promotion of regional image (marketing of the region, strengthening of identity and cultural variety), and promotion of development potential (business climate, networking and co-operation of development organisations, cross-border co-operation). The business promotion centres in each county of Estonia are the most important components of the business support system. The centres mediate between entrepreneurs and consultants and are main actors in three aid schemes. The first is regionally differentiated business advice subsidy scheme in which the state gives subsidies for SMEs to buy business services, such as advice and preliminary consultations for start-ups, training courses for beginners, financial analysis, business strategy, marketing and information on various state aid schemes. The state finances the centres on the contractual basis that use 70 licensed business consultants in providing services. The second aid scheme consists of subsidies promoting participation of SMEs on national or regional business fairs. The third is the regional policy loan scheme that takes higher risks in peripheral areas compared to commercial banks and provides credit for businesses in rural areas. The target group consists of small and medium-sized manufacturing or service sector businesses. The proposals for funding the applications are made by interministerial decision-making body with the use of additional expertise of business promotion centres. Another programme was launched for regional investments into social infrastructure. It is similar to other regional development programmes with an exception that county governments are main decision-making institutions. A special instrument was introduced for local economic crisis solving. The use of fund is decided by special commissions formed by the central government for every case. The use of development fund for regional development activities is decided by county governments, and mainly public or third sector activities are supported. The support to ferry and air traffic between the islands and the mainland is the most important among the transport subsidies. Regionally differentiated corporate tax reductions apply since the beginning of 1998 in all municipalities outside the Greater Tallinn area. The scheme aims to promote investments in rural and peripheral areas. The resources for the implementation of the national regional policy come from the state budget. Additional funding has been available from various EU/Phare projects.
Estonian regional policy was assessed in 1997 by the European Commission for the opinion on Estonia’s membership application for the European Union. According to the report, the financial resources at the disposal of regional policy initiatives are very restricted and need to be strengthened. The procedures to ensure proper interministerial co-ordination should be improved and the administrative and budgetary procedures should be established to channel the European Union actions (European Commission, 1997). In early 1998 was started the design of the Estonian regional development strategy. The purpose was redevelop regional policy due to increasing regional differences and to prepare accession of Estonia into the European Union. Regional policy in Estonia should cover the entire territory, but the state aid will be primarily focused on target areas. They are divided into less developed rural areas, areas with restructuring problems and peripherally located areas. Monitoring and evaluation principles and procedures are formulated. The operational financial monitoring is done by the Estonian Regional Development Agency and the first evaluation report of regional policy activities has been finished. Monitoring and evaluation of regional policy aid is going to be guaranteed through the ERDA and a reliable regional database is under construction. A further connection to the European Union has been through INTERREG, Phare CBC and Credo programmes and the participation in the SME programme is under preparation. Estonian regional policy has been published in a bulletin to improve the access to relevant information and several Euroinfo-centres are going to provide information concerning the regional policy of the European Union. Operational information for subsidy applicants and other interested parties is provided by the ERDA in printed and electronic form. There has been also training programmes regarding the European Union and its regional policy. A further detailed phase is the Special Preparatory Programme (for Structural Funds in Estonia) to develop the necessary structures with the Estonian administration for the sound and effective management of the Structural Funds and the Cohesion Fund to be fully operational when the accession to the European Union takes place. The principles of interministerial division of labour have been prepared for the approval by the central government. The planning of budgetary funds necessary for the participation in the European Union regional policy has been started. In the future the funds for regional policy will increase as national government has announced regional policy to be a political priority. As a conclusion of the last eight months one can see that the harmonisation of national regional policy principles towards the European Union structural policy principles has started. Also, the principles of the South Eastern Estonian development program follow many initiatives of today’s concepts of regional innovation policy and endogenous development. However, again a problem is the implementation, whether it overcome the problems of a top-down designed policy and can be converted to foster endogenous potential of the region. Subsidiarity and partnership have gained terrain in the decision-making and implementation of national regional policy. Regional and local administrations are involved in preparatory process and decision-making of national regional policy. However, the counties. i.e. the regional level, have still to submit their the development plans to the central authorities and currently all county development plans are under approval. Also, the additionality is applied in some business support programmes. The recommendations mentioned by the European Commission in 1997 have been taken as a guideline to direct the policy. The harmonisation of regional policy principles has increased the understanding that there is a need for multi-level governance of regional policy. There is a working group on the European Union regional policy and structural funds to support the delegation for negotiations with the European Council, however, it do not fulfil comprehensively the multi-governance approach.
There are similarities in the evolution of regional policy paradigms between the Western Europe and Estonia, but the difference is in their rapid development in Estonia. In the beginning of the 1990s regional policy in Estonia was much influenced of the market-led approach with few public interventions. This was soon replaced by so-called ‘passive regional policy paradigm’ with centralised institutional set-up and measure implementation. Regional policy principles were designed top-down and regional development was seen as important public authority policy, however, much as regionalised sectoral policy. From the mid-1990s there has been a gradual move towards the enhancement of endogenous development potential of regions. Decision-making and implementation of regional policy decision-making decentralise slowly. The recent development of principles and measures of regional policy can be summarised as a tendency from state-run policy towards a policy considering the needs of regions. There is an increase in the co-ordination of activities by sectoral policies to shape regional development patterns. Promotion and use of local initiatives has enlarged. The use of regional policy measures has diversified and flexibility has grown. There is a tendency to move from compensatory measures towards stimulative measures of regional policy, too. Recently the central government has paid a specific attention to regional policy linking it to new possibilities offered by the European Union structural policy. However, there are several challenges in the near future development of regional policy in Estonia. The lack of strategic approach means that regional policy has been casual and without clear goal. The solution to tackle this problem is to implement the principle of programming and concentration to elaborate national strategic action lines and concrete action plans, to improve project appraisal by regional and local authorities, and to define clear target regions for the regional policy actions. The undefined role of regional authorities has created problems for efficient policy development. A solution is to target to regional institutions responsible for implementation of regional policy, either existing county governments or associations of local self-governments. The principle of subsidiarity and partnership should be fostered to decentralise regional policy activities and decision-making power. The co-ordination between regional and sectoral policies and on vertical scale with the European Union authorities is weak. Clear responsibilities between ministries should be elaborated and functioning co-ordination mechanisms developed. A possibility is to widen the role of either minister for regional affairs or the council for regional policy. Necessary budgetary procedures are needed for multi-annual financial planning and programme development with relevant political and legislative solutions. Regional policy measures and instruments should be developed continuously. Many potential measures have not been used causing ineffective regional policy with poor problem-oriented solutions. Several crucial activities are not targeted at all, for example, human resource development and infrastructure development. There is a lack of efficiency in regional policy. A partial solution is to strengthen the monitoring and evaluation system from a project-based financial monitoring to, for example, ex-ante and ex-post evaluation based partially on regional database. The low general administrative capacity may be the main obstacle in effective participating in the European Union structural policy. Training is needed both at regional and local level. The adaptation of the European Union regional policy principles might be interpreted as a pragmatic political solution, however, the application of these general principles should be context sensitive.
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