Administrative capacity and EU Cohesion Policy: implementation performance and effectiveness

ABSTRACT

The past two decades have seen increasing interest in the quality of government as an explanatory factor for the performance of European Union (EU) Cohesion Policy. An under-researched strand of these studies is administrative capacity in Cohesion Policy. Against this background, this mini-special issue provides new perspectives on the theme of administrative capacity, providing new insights into the operation and effectiveness of administrative capacity-building measures implemented in the EU countries, particularly through the support provided by the Structural Funds.

KEYWORDS:

• regional policy
• European Union Cohesion Policy
• administrative capacity
• quality of government
• Structural Funds
• administrative capacity-building

JEL:

• O43
• O52
• R5

The past two decades have seen increasing interest in the quality of government as an explanatory factor for the performance of European Union (EU) Cohesion Policy. Studies have shown that regions with better quality institutions receive larger funding allocations of European Structural and Investment Funds (Bouvet & Dall’Erba, 2010; Charron, 2016), have higher levels of absorption (Terracciano & Graziano, 2016; Tosun, 2014), and achieve faster economic growth (Bachtrögler, 2016; Becker et al., 2013; Rodríguez-Pose & Garcilazo, 2015).

An under-researched strand of these studies is administrative capacity in Cohesion Policy. There is a long history of research in political science, public policy and development studies conceptualising the capacity of institutions. Functionalist theories interpreted state capacity as being necessary for political development and problem-solving – the ability to convert societal demands into outputs. State capacity has also historically been theorised in terms of the exercise of state power, as a source of autonomy and the exercise of state functions (Addison, 2009). More recent conceptualisations have focused on bureaucratic practices – the capacity required to enable processes of governance and the ability of institutions to implement public policies (Lodge & Wegrich, 2014; Peters, 2003; Surubaru, 2016). International organisations such as the United Nations Development Programme (UNDP), World Bank and Organisation for Economic Co-operation and Development (OECD) combine several of these concepts in defining administrative capacity – the ability of institutions ‘to perform functions, solve problems and set and achieve objectives’. Such definitions are not unproblematic given the difficulty of measurement. Addison argued that administrative capacity ‘cannot be directly observed, it is intuited to exist due to inadequately explained events, and its values are estimated indirectly via formative or reflective indicators’ (Addison, 2009, pp. 13–14).

Within EU Cohesion Policy, administrative capacity is interpreted as the capacity of national and regional government authorities: to design regional development programmes to meet EU objectives and in accordance with local needs; to allocate funding to eligible projects in line with EU rules; and to account for the funding spent in financial terms (audit) and physical outcomes (evaluation).

Much of the research undertaken to date on Cohesion Policy has focused specifically on the role of administrative capacity as a factor influencing the effectiveness of European Structural and Investment Funds (ESIF) programmes. Studies have frequently argued that the performance of the policy is conditional on the ability of national, regional and local administrations to design robust strategies, allocate resources effectively, administer EU funding efficiently. and ensure better financial compliance (e.g., Bachtler et al., 2014; Cunico et al., 2022; Di Cataldo & Rodríguez-Pose, 2017; Domorenok et al., 2021; Farole et al., 2011; Filippetti & Reggis, 2012; Lorvi, 2013; Mendez & Bachtler, 2017; Milio, 2007; Polverari et al., 2020; Surubaru, 2017; Terracciano & Graziano, 2016; Tosun, 2014; Walczyk & Dotti, 2023).

However, there is a lack of consensus on the definition of the administrative system for Cohesion Policy – whether it encompasses institutions or procedures under state control (government ministries or agencies responsible for policy coordination, management and implementation functions) or also the hierarchy of public and private actors that manage projects. The ‘internal’ components of administrative capacity are variously defined and analysed as:

• Human resources – qualified staff, training, turnover, incentive systems.

• Organisational structures – allocation of tasks, cooperation, coordination.

• Physical resources, information and communication technology (ICT).

• Systems and tools – management by objectives, performance audit.

• Leadership – goal-setting, vision, motivation, collective commitment.

• Openness to external knowledge – advice, networks.

A range of other factors has also been identified, often presented as ‘external’ to the administrative system for Cohesion Policy but influencing the ability of the system to achieve its objectives, especially:

• The quality of public administration (including administrative culture).

• Legal stability/regulatory quality.

• Centralisation /decentralisation of governance.

• Political influence – stability, leadership and commitment, ideology/interests.

The challenge for research is that the importance of these factors varies across the programme management cycle. This cycle starts with the analysis of regional needs and opportunities and design of strategies, and the preparation, submission and negotiation of programmes, then the development of a project pipeline and the appraisal and selection of projects, oversight of their implementation to ensure fully commitment and drawdown of funding, ensuring financial compliance, and finally the monitoring and evaluation of outputs and results. As discussed below, and in several of the articles in the special issue, the ‘internal’ and ‘external’ administrative factors contribute differently to measures of performance – absorption, regularity and effectiveness. Particularly important is the influence of domestic factors on administrative performance, especially path dependency: previous administrative capacity and framework conditions account for the process and outcomes of many projects (Nakrošis et al., 2023).

Research on quality of governance over the past 20 years, especially following EU enlargement in the mid-2000s, has prompted policymakers at EU and national levels to pay more attention to the development of institutional and administrative capacity in order to improve policy performance. Within Cohesion Policy, in particular, administrative capacity-building in the 2014–20 period was supported through a variety of means, including Technical Assistance, Thematic Objective 11 (institutional capacity), Thematic Objective 2 (e-government, open data), and peer-learning through exchanges and networks (e.g., European Week of Regions and Cities, ‘Taiex Peer-to-Peer’). The salience of administrative capacity for policymakers responsible for EU Cohesion Policy was reflected in the €6.4 billion allocated for ‘efficient public administration’ in the 2014–20 period and in the creation, within the European Commission, of new administrative units dedicated to supporting national and regional government authorities with administrative capacity-building through advice, training and peer-to-peer learning. In 2018, 2020 and 2023, the European Commission organised its first conferences on ‘good governance in Cohesion Policy’ and upgraded further its investment in administrative capacity-building in 2021–27, partly through current organisational arrangements and importantly through a new Directorate-General for Reform Support. Yet, as research on the use of Technical Assistance as shown, the effective use of external support for administrative capacity-building depends on political commitment to good governance, an ‘ecosystem’ approach to addressing administrative problems, and learning strategies to ensure that lessons from experience and knowledge-sharing are internalised (Polverari et al., 2020).

Against this background, this mini-special issue provides new perspectives on the theme of administrative capacity, providing insights into the operation and effectiveness of administrative capacity-building measures implemented in the EU countries, particularly through the support provided by Cohesion Policy.

The five papers in this issue combine EU-level comparative analysis and specific case studies from Czechia, Hungary, Italy, Portugal, Slovakia and the UK. They focus on different methodological approaches (from qualitative research to regression analysis), assess a range of measures of capacity-absorption, which has been the focus of much previous research but also regularity (Mendez/Bachtler and Nyikos/Vyrostova) and outputs (Mendez/Bachtler), and involve longitudinal analysis across successive programming periods (Nyikos/Vyrostova).

The papers make contributions to both academic and policy research in several different areas.

First, they provide new insights on the importance of administrative capacity for the performance of Cohesion Policy. Previous quantitative analyses have shown that the quality of governance influences the absorption of EU funding at the member state level. Carlos Mendez and John Bachtler show that absorption performance was also related to quality of governance at regional level across the EU in the 2007–13 period (Mendez & Bachtler, 2022, in this issue). This is significant given the substantial Cohesion Policy funding implemented through regional programmes managed by regional self-governments of regional offices of the State.

Further, Mendez and Bachtler demonstrate that there is a relationship between quality of government and two other measures of implementation performance: regularity (implementing EU funding in line with the rules and avoiding errors); and effectiveness (achieving targets for the outcome of funding). Both these measures matter to academic and policy debates on EU Cohesion Policy. Since the early 2000s, criticism of the policy – especially under the EU budget discharge procedure – focused on the high level of errors and drove an intensification of financial management and control procedures, termed an ‘audit explosion’ to get the error rate down from over 15% to under 5% currently. Similarly, the question of whether Cohesion Policy is ‘effective’ has been fundamental to efforts to improve the results of the policy (and the evidence for results) and the need to justify the share of the EU budget allocated to the policy in the Multiannual Financial Framework.

The need for government authorities to have the capacity to address all three measures – absorption, regularity and outcomes – is clearly challenging. The analysis by Mendez and Bachtler suggests that there may be a trade-off between the administrative demands in achieving rapid spending and ensuring compliance.

These findings are reinforced by the analysis undertaken by Györgyi Nyikos and Eva Vyrostova, focusing specifically on Hungary and Slovakia for two programming periods: 2004–06 and 2007–13 (Nyikos & Vryostova, 2023, in this issue). They show that, for both countries, the focus on spending the allocated sources came with the cost of high financial corrections. Nyikos and Vyrostova argue that the complexity of the Cohesion Policy implementation regime and balancing the triple objectives of absorption–regularity–effectiveness demands stable administrative capacity. The loss of experienced staff due, for example, to political changes and institutional reorganisation can be damaging for implementation performance. The development of capacity, and associated effective implementation, in one programme period can easily be destabilised, highlighting the importance of continuity of organisational structures and retention of experienced staff.

Cohesion Policy has been characterised by changes in the regulatory framework in every programme period, with a ‘layering’ of rules that have presented challenges in continuity of administration (Bachtler & Mendez, 2021). The basic multilevel governance model has, though, remained stable at EU level in terms of the commitment to shared management and obligations for partnership. This has been less the case at national level where the architecture of implementation has changed, sometimes in each programming period. Nyikos and Vyrostova show how damaging this can be for sustaining administrative capacity and effective delivery of the Funds.

Complementing the above studies, Julia Bachtrögler-Unger, Ugo Fratesi and Giovanni Perucca investigate whether Cohesion Policy support for manufacturing firms varies by region and whether administrative capacity, among other territorial characteristics of places, plays a role (Bachtrögler-Unger et al., 2022, in this issue). They find that regional administrative capacity, proxied by different indicators, is related to the ability to implement policies effectively. Thus, administrative capacity matters for the success of grants to firms, as regions with good institutions are likely to be better able to design calls for proposals, identify projects and select firms which are likely to boost employment growth.

Bachtrögler-Unger et al. conclude that the quality of governance is significant as a mediator between regional growth and the effect of Cohesion Policy on growth and is particularly important when regions implement measures to support local manufacturing firms, as these measures are more effective in a better institutional environment. While capacity-building is clearly important in lagging regions to ensure that EU support is effective, their findings indicate that the returns on investment are higher in regions with greater territorial capital; capital city regions and other agglomerations are able to make better use of the Funds given their more developed institutional capacity.

A second research question addressed in this special issue concerns the relationship between the regionalisation of responsibility for EU Cohesion Policy and administrative capacity: is decentralised management of EU funds associated with stronger administrative capacity? Previous research has shown that the territorialisation of governance influences implementation (Rodríguez-Pose & Ezcurra, 2010; Rodríguez-Pose & Tselios, 2019) and, at the same time, that the quality of devolved governments affects the economic returns of decentralisation (Rodríguez-Pose & Muštra, 2022).

At an EU level, Mendez and Bachtler do not find that regional autonomy for governance, or specifically for the regionalisation of Cohesion Policy, influences administrative performance under any of the three measures analysed. They suggest that this may be due to the intensified use of conditionalities limiting the scope for variability of implementation across regional programmes as well as the increasing centralisation and national influence over Cohesion Policy spending.

More detailed insights are provided by Laura Polverari, Ekaterina Domorenok and Paolo Graziano who examine delegation of EU funding for managing urban development in Veneto (Italy) and Scotland (Polverari et al., 2022, in this issue). They argue that delegation models can contribute to more effective policy implementation and developing lasting administrative capacities for future EU (and domestic) funding. This is significant given the mandatory requirement for Cohesion Policy programmes to support sustainable urban development in the 2014–20 period and the options for using territorial development instruments, often devolved to subnational (regional or urban) authorities.

However, Polverari et al. warn of delegation being too prescriptive. Where administrative capacities are limited, the models of delegation may be narrowly defined to fit with the capacity already available, the result being urban development strategies that are artificially constrained and compliance-oriented, and thus unable to fully address local needs and to drive improvements of administrative capacity at the local level. Instead, the authors favour models that give more leeway to tailor policy responses to local ambitions and potentials and are combined with administrative capacity-building measures designed in a bottom-up fashion to enable these policy responses to be realised effectively.

Lastly, this special issue addresses the under-researched issue of administrative capacity in civil society organisations (CSOs) for implementing EU-funded projects. Much of the debate on administrative capacity has focused on the level of the managing authorities but there is a wider ecosystem of intermediate bodies and beneficiaries that are directly responsible for project design and delivery.

Oto Potluka and Eduardo Mederios focus on CSOs in Czechia and Hungary in the context of integrated urban development initiatives which were promoted in the regulatory framework for the 2014–20 period (Potluka & Medeiros, 2021, in this issue). Their research shows that the participation of CSOs in programme delivery helps to increase the absorption capacity, particularly by increasing awareness among beneficiaries. Representation of the needs of target groups to managing authorities improves the relevance of programmes. While CSO capacities are not a barrier to effective participation, Potluka and Medeiros show the limitations of the administrative capacity of CSOs in relation to the requirements of EU funding procedures. Only a few CSOs are capable of taking on significant responsibilities for involvement in programme design or delivery of initiatives, but involvement contributes to long-term learning and capacity-building. Unsurprisingly, national CSOs have better-developed capacity than local ones, although local CSOs have better understanding of local needs. Potluka and Medeiros, therefore, recommend closer cooperation between national and local CSOs to combine their relative strengths.

While this special issue sheds new light on up-to-now neglected aspects of administrative capacity and capacity-building in Cohesion Policy, it also opens the path to new research on these topics, which extends beyond Cohesion Policy. As the need to foster an effective ecosystem for the implementation of EU policies becomes even more central in the 2021–27 programming period – with the EU’s financial effort almost doubling thanks to the Next Generation EU plan – new questions arise. Each article in this collection presents new research questions and theoretical puzzles for future research. among them the following four issues.

First, there is a need for indicators and comparative data that would allow more direct measurement of the elements of administrative capacity and enable better analysis of how they influence performance and change over time. More investigation of less tangible factors like leadership and intra-/inter-organisational trust is also essential.

Second, research needs to look at the ‘ecosystem’ of Cohesion Policy administration – not just managing authorities, but also intermediate bodies, beneficiaries and other stakeholders, which have different roles, functions and also interests. Administrative capacity-building is a long-term process and involves changes to processes, organisational relationships and culture.

Third, the interaction of EU and domestic factors is important. EU support for administrative capacity-building through incentives and conditionalities can only go so far given the influence of domestic political commitment and administrative legacies,

Finally, during the first half of the 2021–27 period, a second cohesion-based policy EU instrument – the Recovery and Resilience Facility (RRF) – is being implemented through National Recovery and Resilience Plans with a different model of governance and implementation. Research on the implementation of the RRF could provide important lessons for administrative performance and capacity in the implementation of Cohesion Policy after 2027.

ACKNOWLEDGEMENTS

This special issue stems from a conference on ‘Building Administrative Capacities’, organised under the aegis of the RSA Cohesion Policy Research Network, which was held in Delft, the Netherlands, 21–22 November 2019. The editors are grateful to the RSA for financial support, to the local host (Dr Marcin Dąbrowski, TU Delft) and to all participants. The editors would also like to thank two anonymous reviewers for their helpful comments on an earlier version of this paper.