Decentralization and the “new normal”

of the Ukrainian regions

A new normal component in Ukraine is a year-from-year escalation of “a discrepancy between the regions’ economic might and their social welfare and life quality indices” (Support to Ukraine's regional development policy, 2013) under large economic and social disproportions. The regions associate this situation with the sizable fluctuations of production output of the recent years, scarce internal resources and lack of opportunities to cope with the long-standing trends with little effort. For example, the polled experts have emphasized the difficulties of searching for resources to achieve the set goals of regional strategies (36.4%) and passivism of local administration and self-government staff (38.6%) (Figure 4).

At the same time, some of researchers highlight a link between a weak regions’

crisis and “a substantial intellectual challenge requiring a profound rethinking of its causes, mechanisms of its evolving, and ways to curb it” (Support to Ukraine's regional development policy, 2013). This means that, apart from financial resources, there should also be the relevant staff, development technologies and strategies, soldered together within a strong value and ideological frame.

Figure 4. Distribution of expert responses to the question: ‘What problems affect most considerably the regional power bodies’ adaptation to their enhanced role and responsibility

in the course of decentralization?’, in %

Decentralization reveals the hidden conflicts of interests between local elites, and between the branches and levels of local power i.e. state administrations and councils of different levels. This fact is supported by the results of the conducted expert polling, in which these types of conflicts are mentioned by majority of respondents (70.5% and 47.7% respectively; Figure 5).

Figure 5. Distribution of respondents’ answers to the question “What contradictions and conflicts are most evident at the regional level during decentralization?”, in %

The conflicts are underlain by a variety of reasons, but their orientation is the same: perpetual fighting for influence and power. This problem complicates essentially the reaching of primary internal consensus at the regional level, which is why at the initial stages clear-cut processes and step-by-step guides are neces-sary to be built in the mechanisms for unblocking of modernization processes in the context of enhanced openness in public governance.

To meet the above-mentioned challenges effectively, the government and regional authorities must renovate the mechanisms and tools for regulation of regional development with an emphasis on strengthening institutions, improving their readiness to attract resources and use their own potential (Figure 6).

Particularly, among other tasks, a special attention should be paid to preparation of specific projects, work on development of large-scale initiatives able to attract middle- and large-size investors or loan supplier; international involvement and

cooperation, openness and consistency in decision-making. If wasted, the reform time will by no means be made up through progress in isolated spheres – it is vital to deliver full-scale general changes.

Figure 6. Distribution of respondents’ answers to the question: ‘What parameters of the regions’ economic policy and strategy, currently established by their councils and

administrations, should be improved most significantly?’, in %

4. Propositions

As an academic proposal, we can take a holistic approach to the development and coordination of several management mechanisms (Figure 7). On the one hand, these are

1) organizational ones, and on the other hand, and

2) these are unblocking mechanisms that are more social in nature.

Besides others, now I would like to highlight just the economic mechanism.

So, indeed, the internal driver of the economic growth of the Eastern European and Ukrainian regions is their laying emphasis on continued decentralization processes and extension of the ‘coordinated self-development’ of regional and sub-regional socio-economic systems by introducing a proper system of incentives. This will be facilitated by certain supporting mechanisms and tools for choosing the most effective and persistent priorities of spatial and regional development. One of the key mechanisms is an economic mechanism.

Figure 7. Reconciliation of strategic directions of regional modernization through organizational support

This mechanism is associated with formation of a sustainable regional infrastructure of attracting investments, establishment of an investment incentives system, internal regional system of economic risk mitigation.

The presented logic of priority methodological requirements to public authorities allows us to supply an example of an economic mechanism for REP modernization, based on the model investment program of public-private partnership “Municipal energy efficiency and energy saving” that was proposed by the author to Kharkiv regional state administration in 2017 (Figure 8) (Dunayev, 2018). It is the spheres of energy efficiency and energy saving that are the most challenging for the economic development, although they possess a colossal investment and modernization potential that could be used in Ukraine.

Taking into account the specificity of investment and power-coordination relations allowed to put methodological emphasis on the following:

a) the vital need, first, for localization of modern manufacturing with import substitution of a part of the equipment and, second, updating of the local system of training of the personnel with the set competences;

b) a certain sequence of support for the investment process through a step-by-step deepening of investment projects from the framework to the servicing and disposal of surpluses and waste. 11 specific groups of investment projects have been proposed and interconnected with a certain priority for

two parallel public-private partnership investment programs for their formation and implementation at regional level and below;

c) through coordination and power support with a cross-sectoral approach;

d) further desirability of allocating appropriate clusters.

Figure 8. A fragment of representation of the action of the economic mechanism of REP modernization by way of the “Municipal energy efficiency and energy saving” public-private

partn ership program

5. Conclusion

1. Thus, a modernization transit to the decentralized model of regional develop-ment is accompanied, as before, by many unsolved problems. This postpones fulfillment of the goals of the state regional policy reform to a much later stage.

In the opinion of the polled experts, a change of the economic agenda of the Ukrainian regions and their acquisition of a sufficient capacity for a full reali-zation of their own potential and independent development will take longer than five years, but even that term may be not long enough for all of the regions to acquire the desired qualities.

2. The economic policy of the Ukrainian regions obviously lacks a sober assessment of the “corridor of opportunity”. Depopulation, accumulation of people in the regional centers, the Аnti-terroristic operation on the Ukrainian Donbas, scarce financial resources for technological modernization of public facilities in local communities and other circumstances compel to rigidly focus on priorities. In view of an objective resource deficit, it would be premature to discuss the scale of realization of both state regional policy priorities and regional strategy priorities. The life of many regions calls for orientation to a pinpoint development of associated territorial communities and formation of a new network of local centers (regional polycentrism). The state infrastructural support to the most effective local projects, co-financed with business, should also be pinpointed, since it strictly complies with the project approach, under-standable to foreign investors, and saves time.

3. Within the narrow “opportunity corridor”, it is desirable to rely on something that grows by itself. The Ukrainian regions have already formed their zones of growth on the basis of available competitive advantages. The increasing competition among the regions for human and investment resources is evidently underestimated, in spite of the fact that it is this competition, and not the plans of ministries or departments, which is going to determine the country’s spatial development, and the one who is more attractive to people and businesses will win.

4. A reasonable balance between the dirigist and the institutional and liberal approaches to regional economic policy has not been achieved in Ukraine yet.

Awareness of the fact that the regional economic policy should be aimed at making the maximal use of competitive advantages of specific regions, coordination of regional strategies with the strategies of business, alleviation of the market failures by means of efficient redistribution is merely forming.

But all that is only possible thorough a growth of human capital and a radical modernization of institutions, including public administration bodies.

5. Modern Ukraine does not repeat the fresh European stage and experience of regional policy-making: we have other institutions, we have other problems,

although the directions of change, goals and terms are synchronized with the current ones from the EU.

6. Target vector – for coordinated self-development of regions, with the proposal to formulate updated regional policies with a focus on coordination

7. The transition to a new model of public-management relations should be multilevel in character with the gradation of stages of mechanisms of formation of a new generation of regional economic policies and its subsequent implementation, and to assume constant monitoring and replacement of inefficient elements of mechanisms.

Acknowledgements

This paper is benefited from useful suggestions made by anonymous referees as well as my close colleagues Mr. Igor Lysenko and Dr. Iya Degtyareva (both Ukraine). The author also thanks a number of conference participants and European discussants at the “Sapere Aude” (Stockholm, 2018) and Kharkiv regional institute of public administration (Kharkiv, Ukraine, 2017), as well as Kyiv- and Kharkiv-based experts and discussants while drafting strategic documents for the Kharkiv state regional administration in early 2017 yet.

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