Entrepreneurial regions at a dead end: competition, management by objectives and decentralization less effective, efficient and legitimate

Figures & data

Table 1. Pros and cons of competition, MBO and decentralization for effectivity, efficiency and legitimacy from the literature.

	Competition		MBO		Decentralization
	Pros	Cons	Pros	Cons	Pros	Cons
Effectivity	- Tying the agent to the goals of the principal - Stimulating innovations through mobilizing expertise	- Bidding to meet expected preferences of the competition organizers - Conflicts about actual strategies and reduced resources for proposed innovations after selection	- Motivation through participation and measurable success - selecting activities according to their contribution to goal achievement - coordination through mutual understanding and agreed contributions - controlling through immediate feedback about results of activities	- Minimizing risk of failure by unambitious goals - Focus on quantifiable goals only - External evaluation hampers self-evaluation and learning	- Focus on local issues - More comprehensive and innovative policy due to involvement of many actors from different sectors	- Conditions of decentralization limit local discretion resulting in uniform strategies and organizations, discouraged local actors, and missing support by local resources - Reduced vertical coordination
Efficiency	- Selecting only promising concepts and functioning organizations	- High application costs particularly for those not selected	- Reduced surveillance costs due to self-control	- High transactions cost because of top-down management without trust needs intensive controlling mechanisms - Costs of implementing MBO while positive effects are restricted because of low commitment of higher hierarchical levels	- Reduced transaction costs because of facilitated horizontal coordination	- Higher costs due to lower economies of scale
Legitimacy	- Transparent allocation of funding	- Perception of unfair competition because of varying capacities among competitors	- Transparent decision-making - Demonstration of results	- Rejection of goals determined by higher hierarchical levels - Misuse of results for public relations only	- Participation of those familiar with local problems, solutions and their consequences - Improved considering the needs of local constituents	- Restricted regional autonomy impedes the consideration of local interests - Reduced transparency and accountability due to complex multi-level institutions

Figure 1. Bidding and pilot regions of ‘RuralFuture’.

Table 2. Basic information of the four pilot regions.

	Birkenfeld	Dithmarschen	Holzminden	Uckermark	Germany
Number of inhabitants 2015	80,603	132,801	71,549	120,922	81,686,613
Population density (in inhabitants/km²)2015	104	93	103	39	230
Share of inhabitants 75 years and older 2015	13.2	12.2	13.8	13.6	11
Population development (in %) 2005–2015	−8.5	−3.0	−9.3	−11.8	0.4
Unemployment rate 2015	6.6	7.3	7.4	14.7	6.4
Labour productivity (in 1000 Euro) 2015	60.1	67.6	67.3	68	70.8
Strategic focus	Support for entrepreneurial initiatives, the local university of applied sciences and capacity building for regional development	Education projects and town centre development	Fostering tourism and voluntary engagement	Securing and creating jobs, and supporting private-sector services	—

Data: BBSR (2020) and AK VGRdL (2020).

Table 3. Synopsis of the results concerning competition.

Analytical categories	Description	Hypotheses about the causes
Effectivity
Developing innovative concepts	Regional representatives admitted that the proposed strategies were built on already existing projects in the region or sometimes adopted from other regions	Using existing strategies and projects facilitated to meet the extensive requirements of the Ministry for the application material
		Proposals developed by consulting firms also commissioned to manage rural development processes in other regions transferring promising ideas from
	Members of the jury deemed the submitted proposals not to be very original	BMEL emphasized in its requirements for the proposal preparation the fact that projects need to start shortly after being selected so that funds can be spent immediately
		The quantification of operational goals as a requirement of MBO entails strategies regional actors were experienced with
Selection of the best concepts	Difficult for the jury to evaluate the degree of innovation of each region’s proposal	Restricted access to information on ongoing projects in the participating regions as well as in all other regions due to time restrictions
		Many regions had already participated in previous competitions and actors knew that, to be successful, they had to portray proposals as particularly innovative; because of information asymmetry their claims could not be verified
	Consulting firm charged by the BMEL with pre-evaluating proposals focused on proposals’ feasibility and less on their novelty, potential problem-solving contribution or transferability	BMEL considers a programme not using all the available funds a political failure; hence, the focus of the pre-evaluation, which was the main source of the jury decision, was on feasibility
	Jury applied hidden criteria (regions should be located in different parts of Germany, should not have participated in similar programmes previously and should propose strategies covering topics that the members of the jury would find relevant based on the member’s day-to-day activities and organizational backgrounds)	Jury was not obliged to use the official programme criteria
	Several of the proposed projects, which contributed considerably to being selected as a pilot region in the first place, were not implemented in the four pilot regions	Experienced actors anticipated that what was planned and what will be actually implemented can be very different things because the Ministry was not keen on stopping the programme in one of the regions after having selected proposals for funding for fear of exposing a mistake of its own making
Efficiency
Costs for the regions	According to the regional actors, their expenses were relatively high	30,000 euros provided by the BMEL only covered the cost for the consulting firms but not the expenses for the other participants
		Regions hoped to increase their chances of winning by initiating broad participatory processes and courting new actors
	Tendency to delay the completion of other projects	Administrations in economically depressed regions are often heavily understaffed, the limited resources available are barely sufficient to conduct day-to-day business
	Potential impediment of future rural development	Key actors may suffer a loss in reputation because they would be held responsible for a failed proposal
		Rejection may lead to disappointing and, subsequently, losing certain actors in the region
	Reduced losses	Regions not selected wanted to implement their proposals at least partially
		Regions experienced with competitions did not recruit important actors to avoid disappointments, and cut short the open-ended discussion process by imposing guidelines regarding the topics to be discussed, selecting specific participants only and focusing on BMEL parameters and the presumed preferences of the jury
Costs for the Ministry	Relatively high costs: 30,000 Euro for 17 regions, costs for the commissioning of a consulting firm to organize the competition and travelling expenses for the jury members	The competition avoids political costs that would have occurred if the Ministry had determined the model regions autonomously
Legitimacy
Input	On regional level, county administrations determined the preparation of the application material	County administrations were invited by the Ministry to submit a proposal; they defined the topics, selected and invited particular actors (only few county legislators involved), picked consulting firms, determined the work flow and tried to stop unpopular proposals by arguing that they were not in line with BMEL requirements
	On national level, the Ministry determined the competition	Even though the parliament decided to allocate the budget for the pilot programme, BMEL chose the members of the jury, stipulated criteria for the pre-evaluation and selected the consulting firm responsible for pre-evaluating the submitted applications
Throughput	Intransparent selection criteria	Ministry offered only a small set of rough guidelines to the regional actors in order to prevent regions from fine-tuning their proposals according to the evaluation criteria
		Jury members were not obliged to apply the evaluation criteria and used personal preferences instead
		Proposals hardly comparable due to the regions’ different starting points and the Ministry’s openness to subjects
Output	In case of rejection, regional actors criticized the decision assuming restricted knowledge of the jury about the region and the innovative nature of the application and regional actors suspected that others than qualitative criteria were considered	Regional actors try to avoid their loss of reputation and the costs of learning

Table 4. Synopsis of the results concerning MBO.

Analytical categories	Description	Hypotheses about the causes
Effectivity
Motivation function	Strategic objectives provided some motivation	These vague and not quantifiable objectives represent the least common denominator including all relevant interests or referring to hot topics
	Operational goals motivated at best in few cases	These measurable goals were less ambitious because of the BMEL's requirement that funds needed to be repaid in case failure to achieve goals was not convincingly explained
		Operational goals were perceived as a requirement to obtain the funding but was not taken very seriously
Selection function	Objectives only relevant for the selection decision in one of the four regions	Key goal was to take full advantage of the available resources which leads to projects that not necessarily fitted the objectives
		Because operational goals were based on the planned projects in two regions and strategic objectives were very vague in all regions, objectives were inapplicable as criteria to select projects
	Other selection criteria: e.g. dependability of the applicant or spatial distribution of project sponsors	Regional actors did not restrict their discretion for instance to select projects suiting their personal goals, to support well-known actors or to mitigate disadvantages among municipalities
Coordination function	Only one region negotiated with the project sponsors about the extent to which they could contribute to the regional objectives in addition to the specific project goals	Here, regional management agency was also the regional tourism agency whose long-term existence depended on the achievement of some of the regional goals
Controlling function	Monitoring used to demonstrate success to regional actors and the BMEL	Most of data provided by project sponsors and forwarded to the BMEL without evaluating the data quality (utilizing information asymmetry)
	Regional actors hardly reflected on the reasons for failing to meet objectives or adjust their activities, respectively	Data just consisted of target figures for the approved project proposals until midterm so that adjustments almost impossible once the target figures turned out to be too high
		Target values were adjusted according to the achieved outputs and the discretion in evaluating unclear defined indicators were used to maximize outputs
		Ministry’s emphasis on the outflow of funds suggested regional actors that testing MBO would not be that important
		Objectives were often not linked to the actual goals
Efficiency
Costs for the regions	In two regions extensive consultations needed about how to interpret the objectives	Objectives did not sufficiently reflect the actual goals and required an extensive explanation (e.g. what high-quality tourism services are)
	In two regions negligible efforts for collecting data and requesting goal adjustments needed	The objectives were hardly used for regional management in these regions
	In one region, project sponsors were forced to take part in activities contributing to goal attainment even though they did not make much sense to them	The regional management agency partly benefited from these activities because it provided, e.g. classes for service personnel when their number of participants was part of the regional objectives
	Output-driven MBO came on top of traditional input-driven management	Mandatory requirements for funding based on the law regulating subsidies and grants (e.g. sending approval letters, drafting final reports on expenditures of funds and conducting compliance tests on expenditures of funds)
Costs for the ministry	No expenditures at the start of the programme because the BMEL and the regional representatives did not meet, discuss and agree on the goals	Competition resulted in formalizing the objectives proposed by the regional representatives without negotiating the objectives between Ministry and regions because adjustments of the proposals would have been perceived as unfair by not selected regions
	costs for commissioning of a consulting firm to analyse the annual goal achievement reports, and transaction cost for adopting the goal agreement	MBO is the main ‘innovative element’ needed to justify the pilot programme and public pressure requires the semblance of success
Legitimacy
Input	County administration and consulting firm developed and applied the target system in the first place, while only a few democratically elected actors were involved in the decision-making boards which were marginally participated	In two regions, the county administration excluded delegates in the county council from the decision because they were seen as less qualified and innovative and thus as part of the problem; when involved, the influence of the delegates remained restricted due to overwhelming workload in their other voluntary tasks
		Members of the decision-making boards viewed the target system in particular as a mere means to win the competition and to get the funding
Throughput	Selection criteria remained intransparent for the project applicants	Goals were not always clearly defined and the decision-making boards applied criteria additional to the goals
	County administration and consulting firm used the scope for interpretation when conducting the pre-evaluation of project applications or monitoring the goal achievement	Because most of the board members were not interested in MBO and financial budgets were not scarce, county administration and consulting firm decided themself whether and how goal assessments were presented and discussed in the decision-making boards and what suggestions were seized (some board members harshly criticized positive evaluation of certain project proposals or implementations without significant effect on selection decisions or controlling)
Output	Acceptance of the results hardly increased even if goal achievement communicated	Measured outputs did not represent actual goals
		Targets adjusted to outputs achieved

Table 5. Synopsis of the results concerning decentralization.

Analytical categories	Description	Hypotheses about the causes
Effectivity
Regionally customized strategy	In spite of regulations concerning budgets and government funding, the option of addressing regional needs directly has not been used very often in practice	Strategies selected that would do particularly well in the competition (e.g. support for voluntary engagement, entrepreneurialism and cross-border cooperation) or were lowest common denominator (e.g. education and tourism)
		Regional budget partly used for follow-up funding of existing or phased-out projects independent from any comprehensive analysis of regional needs
		Regions largely depended on actors who were able to provide their own resources and who came with their own experience in applying for and implementing projects in order to spend the entire budget
Capacity building	After the programme, only few actors indicated that they require less public funding now, but many actors were actually encouraged to increasingly seek more government funding	The programme improved the local capabilities and capacities for acquiring and managing government funding; however, staff was trained in applying federal regulations, but rural development programmes typically use EU and state-level funding
	In one region, the pilot programme was used to specifically support a recently created tourism agency and to further the regional tourism strategy	The region invested heavily in communicative efforts and the county administration transferred the responsibilities for the pilot programme to the tourism agency; the agency also carried out large funded projects and cooperated with other project sponsors who were required by the region to work with the agency
	The two introduced boards stopped working at the end of the programme and funded projects were phased-out, but few projects that were considered particularly successful were to be made permanent instead	Other structures, particularly LEADER, were important to make regional development permanent in the four regions
		Challenging to manage self-supporting structures and projects on a long-term basis, especially in economically depressed regions
		Regional actors were willing to support projects and provide resources when they were visible to the public through regional media coverage and could be easily promoted
Efficiency
Costs for the regions	Financial administration of regional budgets needed considerable resources for reallocating staff hours, lengthy discussions, staff training sessions and legal work	Those in charge on the regional level were inexperienced and very insecure about how to manage the financial aspects of the programme
	About 20% of the budget was used to commission a consulting firm for supporting regional decision-making and implementation; in addition, board members and project applicants, respectively, sponsors had extensive expenditure of time	Bottom-up approaches require much time for discussion, decision-making and consulting (probably as costly as similar programmes like LEADER)
Costs for the ministry	Very few direct costs mainly for promotion of networks among the pilot regions by a commissioned consulting firm	Ministry economized on administration for the funding, because it transferred the financial management of the programme to the regions
	Inefficient use of the budget because of lacking neutrality of financial control by the regions and missing economies of scale	Because regions sought to use subsidies to their fullest extend and project sponsors were supposed to also implement future programmes, there were incentives for the regions to set funding levels very high, exaggerate own resources and avoid repayments by describing in detail to the project sponsors how they can account for a correct application of funds
		Every region had to learn how to apply federal regulations for subsidies and the lack of experience lead to very narrow interpretation of regulations due to fear of making mistakes and being required to repay funds; as a result, regions did not use the existing broad scope of action and only implemented projects eligible with regular programmes which contradicts Ministry's intention of learning for improving the allowance
Legitimacy
Input	Regional actors appreciated the decentralized approach	Ministry provided the regional representatives with a broad scope of decision-making to choose their organizational structure as well as funding subjects and guidelines
	Legitimacy of the decision-making boards was not questioned in the regions, although neither democratically elected representatives nor social interest groups played a significant role	Regional actors are used to similar structures and in two of the regions, the decision-making structures were based on those of LEADER
		Companies and business interests were strongly represented in the boards, because the call for proposals for the competition emphasized the importance of business sector participation and the involvement of prominent successful entrepreneurs enhanced the reputation of the boards
Throughput	Intransparent decision-making dominated by county administration, consulting firm and further regionally established actors	County administrations interpreted, in conjunction with the consulting firms, the funding rules and, if needed, pointed to Ministry requirements to push its version through and to portray alternative interpretations as not acceptable; they also determined to what extent suggestions coming from the board needed to be coordinated with applicants and what to include in the approval letters
		Established actors knew the administrative processes, were in contact with applicants and project sponsors, trusted each other and often had worked for years with the other members of the decision-making board on other projects
		The two LEADER-based boards were dominated by employees of municipal and county administrations who often also had to put up municipal resources for co-financing EAFRD funds
	Decision-making was overshadowed by conflicts of interest	Board members and regional managements could be at the same time applicants, or have close ties to the applicant; because all established actors involved wanted to work together on future projects, it was unlikely that an application from one member or supported by a central actor would have been rejected by the others
	Although the respective county committees were regularly informed about the pilot programme, they did not have much influence and the programme remained less transparent for them	Legislators were very busy with other business and regarded the regional budget as too insignificant to pay more attention to the pilot programme
		Legislators trusted the expertise of the county administrators, who decided on its own what information to share with the committees
Output	Regional media and actors saw results of the programme all in all very positive	Legitimacy secured by spending subsidies in their entirety, by finishing highly visible projects in the region and by distributing funds among all politically important actors
	Few declined applicants and their supporters criticized the negative decisions without crucial impact on overall high degree of acceptance of the programme's results	Critics were countered with formal requirements and with respectable persons (e.g. the district chief executive) backing the decisions

BBSR. 2020. Indikatoren und Karten zur Raum- und Stadtentwicklung. www.inkar.de (26 January 2021).

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