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

ABSTRACT

Regions are often viewed like businesses that compete with each other for people, investments and jobs. Private-sector instruments are being adopted in this context without providing evidence for positive management outcomes and clarifying the conditions under which their application is meaningful. Against this background, the German Federal Ministry of Food and Agriculture (BMEL) tested three instruments as part of a pilot programme: the selection of regions eligible for financial assistance through a competitive process, management based on quantifiable targets and the comprehensive decentralization of decision-making, including the administration of those funds that BMEL allocated to the regions. Based on 124 interviews, 61 participant observations and documentary research, we contribute to the literature on rural governance and entrepreneurial regions in showing that these instruments are less effective, efficient and legitimate than New Public Management theory purports. We argue that these deficits do not result essentially from an inappropriate use of the instruments as often proposed but from general problems associated with actor constellations, institutions and the policy context. Therefore, we suggest not to use the instruments tested and recommend instruments focusing on regional needs, mutual learning and democratically legitimized institutions.

KEYWORDS:

• Rural governance
• New Public Management
• peripheral regions
• bottom-up approach
• community-led local development
• policy implementation

1. Introduction

Rural development has shifted from a sectoral to a territorial and local approach. This change has been taking place during a time period in which our understanding of the role of the state – the private sector now being seen as the model for government, has been transformed as well (Cox 1993; Duckworth, Simmons, and McNulty 1986; Harvey 1989). With the new rural paradigm, the OECD and the EU have contributed to expanding the use of private-sector management instruments. Of central importance is the orientation towards competition, management by objectives (MBO) and decentralization. Elements of this management approach are, for example, part of the LEADER initiative of the EU (Bosworth et al. 2016; Marquardt et al. 2012), and an intensified use is proposed by the OECD (2019) as well as expected for the coming period of European Structural and Investment Funds (Bachtler and Begg 2018).

Under the buzzword New Public Management (NPM), the management instruments that have been adopted from the private sector by public administration have been the focus of academic discussion during recent decades (Bevir 2011). Relevant instruments such as the allocation of financial assistance through competitions, contracts, MBO and evaluations are often part of current governance processes to regenerate urban and rural areas (Newman 2001; Powell and Exworthy 2002; Pugalis 2013). Despite the fact that NPM instruments are often criticized and their downsides is known, many elements of NPM do play a central role in rural development policies. For example, the Implementation Regulation 808/2014 for the European Agricultural Fund for Rural Development (EAFRD) demands detailed and quantifiable target indicators of performance measurement. The introduction of private-sector instruments is, however, a result of a discontent with traditionally hierarchical, bureaucratic and politically influenced procedures. This is partly because results of traditional structural policies are often unverifiable (Bachtler and Ferry 2013), for instance, due to deadweight effects or diffuse and conflicting goals, and political lock-ins were suspected (Grabher 1993; Rehfeld and Terstriep 2019). Partly, the new instruments have been adopted from the private sector – reflecting the spirit of the age – often without analysing the extent to which the necessary prerequisites for proper functioning exist within the new context beforehand.

Therefore, the research question arises how and why private-sector management instruments are effective, efficient and legitimate for developing rural regions. The discussion about NPM emphasizes the effectiveness and efficiency of new management instruments, which is reflected in such justifications for introducing them as ‘value for money’ and ‘doing more with less’ (Pugalis 2013, 619 f.). Besides effectiveness and efficiency, the question of legitimacy plays an increasing role in governance research as well (Levelt and Metze 2014; Voets and Van Dooren 2011). Based on empirical results from a pilot programme in Germany, we argue that management instruments such as competition, MBO and comprehensive decentralization do not lend themselves to regenerating rural areas. This is due to the fact that the application of management instruments faces obstacles such as interest coalitions and institutions, and, furthermore, that regions unlike companies are not organizations with coherent goals and hierarchies. In the next section, we review the literature to show rival propositions and need for research. Then, we present our empirical case and the methods applied, followed by the results. Subsequently, we discuss our findings and conclude with policy recommendations.

2. The entrepreneurial region

The discourse about entrepreneurial cities since the 1980s (Cox 1993; Duckworth, Simmons, and McNulty 1986; Harvey 1989; Jessop 1997) has led to the notion of viewing spaces as businesses that compete with each other for investments, jobs, highly skilled labour, tourists and shoppers. Cities and regions, so the argument goes, ought to be managed and governed like corporations. This also involved a shift of governance away from traditional public administration to the adoption of new types of management instruments. Under the name of NPM, these instruments were borrowed from the supposedly cutting-edge private sector and applied to managing the development of rural areas. For example, management instruments, such as SWOT analysis, vision statements, target setting, lists of measures and evaluations (Bryson and Roering 1987), have been borrowed for the LEADER approach, which has been used across Europe for decades now. The following sections outline the arguments in the literature for and against the management instruments competition, MBO and decentralization as well as the causal mechanisms generally in the public sector and specifically in spatial development policy. Finally, we sum up the rival propositions in clarifying the need for research.

2.1 Competitions

A central conclusion in multi-level governance research is that network negotiations across different levels rather block innovations (Scharpf 2010). In contrast, the economic theory of federalism maintains that competition between jurisdictions creates opportunities to experiment with new policies and policy diffusion to win over or retain mobile tax payers (Qian and Weingast 1997; Tiebout 1956). While competition has been widely used in the United Kingdom since the 1970s (Woods, Edwards, and Anderson 2007), for example, it is less established in Germany (Fürst 2006). Here, the intended goal is not so much to reward achieved results but to select and support promising strategies and proposals (Benz 2012; Rehfeld and Terstriep 2019).

In institutional economics, the rationale for competitions is the exploration of solutions for principal-agent issues (Powell and Exworthy 2002). In this view, the principal should establish a (quasi-)market to have agents compete for a contract with the principal. Competition between local partnerships is supposed to stimulate innovations, increase effectiveness and improve the efficient use of resources (Lowndes and Skelcher 1998). For the government to function, it must rely on the voluntary cooperation of local actors (Fürst 2006). Competition is, therefore, important to mobilize local actors at the time when proposals are submitted and funding is applied for. Benz (2012) adds that competition limits the role important politicians and upper-level administrators play in the decision-making process. By contrast, actors on the network periphery profit because success in the competition demands participation of experts and lower-level civil servants, small businesses, civil society organizations and groups that represent social interests often insufficiently organized.

Other authors treat competition in a more critical manner. Jones and Little (2000), for example, argue that only public actors, particularly in rural areas, possess the necessary resources to successfully participate in competitions. Small companies and civil society organizations typically lack the necessary familiarity with local and national politics; the economic, technical and legal knowledge; as well as the option of allocating staff hours to projects of this kind. As the result, these actors are not regarded as equal partners and are just being checked off on the competition participants list. Competition proposals are often also prepared under extreme time pressure. Because of an uncertain chance of success, the available resources for preparing proposals are limited, with the result that applications are either novel or viable (Küpper et al. 2018). Competition entries are not based on local demand but on the likelihood of being selected, why thematically open competitions are perceived as more suitable in initiating innovations (Kiese and Kahl 2017). Once selected, incomplete proposals lead to conflicts about what actually needs to be done and how funds will be allocated. As the result, there is a contradiction between the allocation of funds through competitions and the creation of enduring local partnerships (Jones and Little 2000; Newman 2001).

Lowndes and Skelcher (1998) associate inefficiency and unfairness with competitions – all participants have to pay the application costs, but only a few are selected. The allocation of funds does not follow actual demand, but is based on the entrepreneurial ability of local actors to shape their application in such a way so as to reflect the preferences of the competition organizers. This leads to path dependencies because the winners acquire organizational capabilities and absorptive capacities (Kiese and Kahl 2017) that put them in a more advantageous position during the next round of the competition (Woods, Edwards, and Anderson 2007). Fürst (2006) questions also the innovative nature of competitions. In addition to routines that are difficult to alter, those who will potentially lose because of changes will fight the new ideas. One strategy is paying lip service to supporting innovative strategies without allocating any resources for implementation. This could lead to regions receiving funding after successfully participating in a competition and using the funding for already planned but less innovative projects.

2.2 Management by objectives

MBO was adopted from business administration with the intention to improve coordination within an organization. Drucker (1954) concluded this approach from the insight that managers do not automatically follow company objectives. Following this approach, managers should set their own objectives. Upper-level management, however, needs to either approve or reject these objectives. Every manager should also be part of the goal-setting process of the higher-level unit because mutual understanding across various levels can only be created from the ground up, not from the top down. Goal setting is supposed to lead to self-regulation and not to a command and control situation which would defeat the intended purpose (Drucker 1954). Every manager needs to gauge their level of goal achievement to be able to adjust their course of action. The results, however, are not to be submitted to the next higher level because this would lead to progress being measured by indicators only. MBO ought to minimize the level of control by having managers monitor themselves. Evidence shows that MBO also results in productivity gains in public organizations, whereas the effect depends on the top-management commitment to the reform (Rodgers and Hunter 1992).

Starting out as a bottom-up instrument, MBO has been used, however, mostly in a top-down manner to push through upper-management objectives which was also observed with NPM in the public sector (Osborne 2006; Powell and Exworthy 2002). This can be explained by keeping in mind that NPM derives not only from management theories but also from the new institutional economics (Hood 1991). Institutional economics emphasizes the need to create incentive and sanctioning mechanisms to align the interests of the agents with the goals of the principal. Informational asymmetry needs to be dissolved by including in contract management clear operational objectives, a regular reporting system and controlling mechanisms (OECD 2007). Work becomes more predictable once a contractual agreement specifies previously vague goals, sanctions and compensation, and provides protection in case a partner does not deliver agreed-upon results or trust is destroyed.

In the United Kingdom, for example, New Labour introduced many local partnerships and, at the same time, pushed through a change towards evidence-based policy-making (Pugalis 2013; Rummery 2002). This meant that only those policies that were quantifiable and verifiable were considered successful. Partnerships try to minimize the risk of failure by setting less ambitious goals and aiming for quantifiable outputs which are important for lobbying and public relations work (Pugalis 2013). An externally commissioned evaluation undermines the necessary steps of reflecting and adjusting that are the basis for success (Bosworth et al. 2016).

This type of target control indicates the national government’s lack of trust in local partnerships. Because the goals of the partnerships are typically determined by the national government, member organizations on the ground do not enjoy much strategic scope (Rummery 2002). This would be necessary, however, to ensure that the partnership operates successfully and sustain its work.

2.3 Decentralization

In the wake of an intensifying global competition with cycles of innovation getting shorter since at the least the 1990s, companies have reintegrated planning and implementation to be able to react flexibly to volatile markets. At the same time, the organizational structure of companies underwent a transformation by shifting responsibilities downward to those with experience in the day-to-day production process and to include them in the planning process – they are most familiar with the issues, potential solutions and are in the position to evaluate potential outcomes. In this context, there was also a call for public administration to adopt decentralized organizational forms from the private sector (OECD 2007; Sabel 1995). Decentralization is certainly not only proposed to copy private-sector models (Rehfeld and Terstriep 2019; Gherhes, Brooks, and Vorley 2020). However, decentralization forms an important part of NPM (Hood 1991; Sager and Sørensen 2011).

The expected benefits of a decentralized public sector include better democratic control, improved horizontal coordination and a broader focus on local issues and the needs of constituents. Hence, Eiser (2020) shows for decentralized fiscal policy positive effects for tailored policies and innovation. Additionally, he detects higher accountability although increasing complexity hampers this effect. The drawbacks, however, include reduced vertical coordination, lower advantages through specialization, smaller economies of scale and intensified heterogeneity between regions leading to a greater territorial inequality. Ebinger, Grohs, and Reiter (2011) detect only few positive effects of administrative decentralization and observe, instead, serious problems.

Decentralization plays also a central role in policies of regenerating cities and regions. By using local partnerships, national governments anticipate a more comprehensive policy, reduce transaction costs and achieve better policy outcomes due to the contribution of many actors from various sectors. Other anticipated outcomes include innovative approaches because of the bringing together of knowledge from different partners, and an increase in financial resources due to the involvement of private and non-profit organizations (Clarke and Glendinning 2002; Newman 2001).

Bureaucracy and financing terms, however, limit local decision-making scope. This raises the question to what extent government assistance for partnerships really leads to a decentralization of the power of the state or, instead is just a new technique for manipulating and controlling local actors (Bailey and Pill 2015; Gherhes, Brooks, and Vorley 2020). This indicates a transformation of governmentality with the intention to engage social actors away from political institutions, but also to tap those actors’ autonomy to achieve government objectives (Edwards et al. 2001, 306; Swyngedouw 2005). For Davies (2002), supra-local requirements undermine local autonomy, discourage local actors and overburden them with a multitude of partnership initiatives. This leads to symbolic partnerships not supported by local resources, and the use of similar strategies and organizational structures no matter the location.

Local actors typically use their scope of action to achieve their own goals (Bosworth et al. 2016; Edwards et al. 2001). By using its mechanisms of power, the state can, however, reign in partnerships in case its key interests are at risk. Current decentralization approaches reflect the fact that the state determines the conditions, functioning and financing of partnerships as well as the spatial scale on which local actors have to cooperate.

2.4 Summary of rival propositions

Although private-sector management instruments are widely used for decades, the literature shows plausible rival propositions and thus need for research. Table 1 summarizes the arguments supporting increased effectiveness, efficiency and legitimacy compared to traditional hierarchical instruments. Conflicting arguments challenge these assumptions and propose negative effects. This is firstly due to unintended consequences, which cancel out the positive results, like intensified disparities among regions through competition, the focus on quantifiable results in MBO or lacking economies of scale in decentralization. Negative effects may result secondly from an inadequate application such as unfair competitions, top-down MBO or conditioned regional autonomy.

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

3. Case study of a pilot programme to develop peripheral rural regions

3.1 Case description

Rural development policies in Germany are, in spatial terms, relatively indiscriminate policies in that they propose the same measures in all rural areas, while providing only a certain degree of scope for setting priorities on the local level. Since rural areas in Germany develop in very different ways, the BMEL implemented a pilot programme that focused on the development of peripheral rural areas. Its goal was to identify and test new ways for supporting these areas. The BMEL adopted its management approach to a large extent from private-sector models following recommendations from a consulting firm. The intention was to use the pilot programme to test the management instruments competition, MBO and decentralization.

From 2011 to 2014, the BMEL implemented the pilot programme ‘RuralFuture’ (BMELV 2011). Based on socio-economic and spatial indicators, 17 counties were selected (Margarian and Küpper 2011) and invited to prepare their applications for the coming funding period as part of a competition. This application period lasted from September 2011 to February 2012. The counties received up to 30,000 euros each to pay for external expenditures such as consulting and analysis. In March 2012, a selection committee consisting of representatives from various federal ministries, the scientific community and interest groups selected four pilot regions that subsequently received 1.8 million euros each to implement their plans during the funding period from April 2012 to the end of 2014 (Figure 1).

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

The BMEL designed the call for proposals in an intentionally open-ended way (BMELV 2011, 8). Local representatives were asked instead to outline their own strategic goals and quantified operational targets, local organizational structure and efforts to invite entrepreneurial individuals to the programme. The BMEL intended to delegate a large portion of the decision-making to the local level. The decision to have a regional partnership of public and private-sector actors selecting the projects to be funded was just one of them. Other decisions included the independent local administration and control of the available budget and the evaluation of achieved objectives. The BMEL requested evaluation reports to be submitted every year as the basis for adjusting the goals of the regions. This decentralization approach, particularly the autonomous administration of regional budgets, goes beyond regular programmes for regional development in Germany and other countries (Davies 2002, 2004; Rummery 2002; Shucksmith 2010; exceptionally in other pilot programmes similar budgets were tested: e.g. Elbe 2011). Consequently, the BMEL was hoping that its management approach would focus on the actual needs on the ground, test innovative strategies, ensure a high level of motivation on the part of the actors involved and support the creation of self-help competencies and capacities throughout the peripheral regions.

This pilot programme perfectly lends itself to analysing the employed management instruments because those in charge of the programme attempted to avoid those mistakes that often lead to criticisms of the instruments. Therefore, because the organizers of the competition tried to avoid amplifying regional differences, only peripheral rural regions were invited and each of them received the same amount of 30,000 euros to develop their proposals. The funding agency did not impose goals that needed to be achieved, instead, regional actors were given discretion to determine the strategic goals they wanted to pursue and to set the operational objectives to implement them. Finally, the decision-making process was largely decentralized to the fullest extent permitted by law, which included financial management of the pilot programme and budgetary discretion on the part of the regional actors. This approach prevented the federal government from rejecting projects because of content or financing.

We present empirical results from research accompanying the pilot programme. For the competition, we researched the 17 bidding regions, while we focus on the four selected pilot regions for our analysis of MBO and decentralization (Figure 1). The four regions pursued very different strategies in different spatial contexts (Table 2).

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).

3.2 Methods

The empirical data were collected from 2012 to 2016. The study used qualitative methods because of the complexity of the processes, the comprehensive perspective and the difficulties in quantifying the various impacts and drivers. In the light of this, various sources were brought together to capture mechanisms in a comprehensive manner.

Before the four pilot regions were selected, we conducted two semi-structured interviews in each of the 17 regions with the consultant commissioned and the officer of county administration in charge. These interviews focused the perception of the competition and the effects on strategy development. At the beginning of the funding phase, 44 semi-structured interviews with regional representatives (members of the decision-making board, regional management and financial administration) were completed in the four pilot regions focusing on the implementation of MBO. Another 11 interviews were conducted with representatives from the federal (BMEL and consultant) and state levels (public officers accompanying the regional process) to analyse MBO and decentralization from the perspective of higher-level governments. At the end of the funding period, an additional 35 interviews were conducted with the key actors (the most important actors from the first round) and external observers (not directly involved LEADER-managers, local journalists and members of the county council) in the four pilot regions to collect the experiences with the management instruments and examine capacity building. An analysis of application documents, reports, project applications and reports, meeting minutes, etc. complemented the 124 interviews which lasted 1–2.5 h. The third research method consists of 61 participant observations, including observations of decision-making board meetings and working groups throughout the regions, interregional network events and telephone conferences during the entire duration of the pilot programme. Thereby, we were able to directly observe discussions and decisions in important arenas. Power constellations, arguments and interests witnessed were extremely instructive to complement the interviews which were influenced by social desirability, selective retention and ex-post rationalization.

To organize and interpret the huge material, we used the analytical strategy of examining plausible rival propositions (Yin 2014). Therefore, we compare the rival patterns about outcome and process in Table 1 with our data from the case so that we can corroborate or falsify propositions or develop new hypotheses. We compose our results using cross-case syntheses for the three instruments. For each analytical category, we report the main findings in tables and illustrate the interpretation. We focus on what is supported from different regions, groups of actors and methods to ensure validity. Additionally, we also present fundamental discrepancies.

Based on the case description and the literature review, we can differentiate the analytical categories from Table 1 further. Concerning the effectivity, we address the effects of the management instruments on the programme’s objectives. The competition should initiate innovative strategies in the participating regions and allow BMEL to select the best proposals. BMEL used MBO to improve the governance within the regions and among the different policy levels. Therefore, MBO should motivate relevant actors, make decision-making more goal-orientated, improves the coordination of different activities and enable controlling processes. Finally, BMEL pursued the goal of capacity building and regionally specific policies by using decentralization.

The efficiency of applying instruments is rarely evaluated because synergy effects are simply assumed, and costs and benefits are difficult to measure. With our methods, we are not able to quantify efficiency. We, however, contrast the governance outcomes with efforts needed to apply the management instruments. This includes not only tangible costs but also the time invested by those involved or side effects of the instruments. Resulting costs for the Ministry as well as for the participating regions are analysed because both perspectives are important and may differ significantly.

In contrast to the private sector, raising the question about the extent to which the employed instruments are legitimate is important because public funds are used. The literature review shows different ways of legitimation which can be systematized using a typology from policy research (Risse and Kleine 2007; Scharpf 2010). Input legitimacy signifies that people accept the mechanisms for their participation in the decision-making process. Based on the central components transparency and accountability, throughput legitimacy is concerned with the extent to which the mechanisms and processes of decision-making itself are accepted. Finally, output legitimacy is about accepting the outcomes of the decision-making process.

4. Applying private-sector instruments in practice

The results show empirical evidence describing occurrences relevant for assessing effectivity, efficiency and legitimacy as well as hypotheses about the causes for these observations. After presenting the findings for each instrument, we ask for the fundamental causes for overall outcomes.

4.1 Competition to develop and select innovative proposals

The experiences gained from implementing the pilot programme ‘RuralFuture’ (Table 3) indicate that the competition was not very effective in developing innovative proposals in the participating regions and selecting the most promising ones for further funding. For example, the evidence shows that most strategies proposed were built on already existing projects in the regions. The reason was the comprehensive requirements of the BMEL for the documents submitted for competition. Seeing that BMEL considers a programme not using all the available funds a political failure, the 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. This in turn promotes strategies relying on existing projects and networks as the following quotation demonstrates:

And here it was really important for us that we propose projects that were worthy of its name, that could start with the implementation immediately or with a short warm-up time added. (…) What is directly connected is certainly the point that it is based on existing approaches. Sure! Since you only thereby achieve feasible projects in this short period of time. The actors – also related to that – have to be there, for the implementation too. (representative of a bidding region)

We need to contrast the results with the expenses to be able to evaluate the degree of efficiency of the management instrument competition. The synopsis shows that the expenses are relatively high for both the regional and the national level even though experienced regions are able to mitigate their losses and the Ministry avoids political costs by the competition. The main reason is that only 4 of the 17 regions participating in the competition were selected – meaning that 13 regions were not rewarded for investing resources into the application process. Concerning legitimacy, almost no actor questions the competition as an acceptable instrument although democratically legitimated legislators were hardly involved, administrations dominated the process on both levels and the criteria for decision remain rather intransparent. Only the result was challenged when the region was not selected. In fact, an objective selection of very different regional strategies with diverse starting points in the regions seems hardly possible.

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

4.2 MBO for governing rural development

The effectiveness of the MBO instrument can be demonstrated by the fact that objectives motivate actors to act focused on regional priorities, serve as selection criteria, help coordinate various activities and allow for controlling. The results in Table 4 indicate that MBO at the pilot programme hardly fulfilled any of the four functions. The reasons involve the restricted possibility and motivation to reach a consensus on a strategic focus and on SMART goals. Due to the meagre benefits, efficiency was rather low despite the fact that MBO did not cost much for both the national and the regional level.

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

With only a few democratically elected actors being involved in designing and applying the target system, the input legitimacy of the management instrument was limited. As for throughput legitimacy, it was obvious that particularly the consulting firms used their discretion to conduct the pre-evaluation of project proposals and the goal achievement monitoring. Furthermore, additional criteria to selecting projects for funding were applied which made decisions less transparent. Thereby, the outflow of funds was the main underlying cause, as this citation suggests:

You could have said, we (…) also reject certain projects, because we say, they don‘t focus on strategic goal achievement exclusively. This is a process we couldn‘t stick to politically. If we for example had said, we wouldn’t have used 300.000 or 400.000 euro of the funds. But if you really look closely (…) what do I want to reach with this pilot programme here in the region, you would have implemented it in a different way. (representative of a pilot region)

Results also indicate that goal achievement contributed little to output legitimacy. The expectation about a more strategic course of action was disappointed. When the monitoring results were not as positive as expected, regional representatives and the BMEL agreed to adjust the goals according to the real project outputs because both intended to sell the pilot programme as a success story.

4.3 Decentralization for addressing local needs and capacity building

There are mixed results for the effectiveness of decentralization (Table 5). The option of addressing regional needs directly was only partly used in practice. The strategy that was actually implemented 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 the Birkenfeld region, for example, an initial analysis had emphasized a lack of entrepreneurial spirit as the main regional problem. However, the largest part of the funding went to projects of the local university of applied sciences due to its extensive experience in obtaining third-party funding. Capacity building throughout the regions meant to a large extent acquiring and managing government funding. Only in the Holzminden region, the county administration used the pilot programme to specifically support a recently created tourism agency and to further the regional tourism strategy. Concerning the efficiency, the regions had to spend considerable resources because those in charge were inexperienced and very insecure about how to manage the financial aspects of the programme. An interviewee puts it as follows:

In order to become really good here [in the sourcing and application of funds], you need much experience and respective off-the-job training in these fields too. (…) Otherwise it actually doesn’t work out. Here, everything was learning by doing, because all of us didn’t have a clue about it. (representative of a pilot region)

In contrast, decentralization seems highly efficient for the federal level at first glance, because the BMEL transferred the financial management of the programme to the regions and saved administrative costs. However, indirect costs were caused by the inefficient use of the Ministry’s funds because, for example, regional actors were unable to control themselves due to favouritism. Regarding legitimacy, regional actors appreciated the broad scope of decision-making. Nobody questioned legitimacy although regional establishment dominated decisions, conflicts of interest existed and decision-making structures paralleling democratically elected councils were created on the county level. Obviously, regional actors accept such programmes as long as presentable projects were realized; all subsidies were spent and distributed considering regional power constellations.

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

4.4 Summary and main underlying causes

Overall, competition, MBO and decentralization was ineffective in ‘RuralFuture’ to achieve BMEL’s goals. Only Holzminden used somewhat of the potential of MBO and decentralization for steering and capacity building. Concerning efficiency, the instruments result in high costs for regions and BMEL compared to the instruments’ benefit, although costs for MBO are rather low and decentralization goes particularly at the expense of the regionally responsible actors. The analysis of legitimacy shows the strong influence of the administration and the consultants on participation and decision-making, whereas democratically elected politicians, newly involved experts or social interest groups remain weak. However, the legitimacy is only challenged if the output affects core interests of regional elites. To explain these results of the management instruments, we can identify three main underlying causes.

Firstly, the interest coalitions consist of the BMEL, regional actors and project sponsors and limit the proper functioning of private-sector instruments. The identified coalitions focus on applying for and making full use of the available funding, thereby agreeing to something to the detriment of an uninvolved third party – the tax payer. Therefore, BMEL focused on practicability in the organization of the competition. Regional actors chose strategies already planned or projects transferred from other regions, so that implementation was ensured. Nevertheless, these strategies were presented as innovative to meet selection committee’s expectations and make it difficult to select the best concepts, what in turn challenges the output legitimacy if regions were not selected for funding. Furthermore, the interest coalition lead to the missing commitment of BMEL and regional representatives to apply MBO. Subsequently, target values were easily adjusted, and regional representatives and BMEL both had no interest in investigating target control to detect measurement problems. MBO was thus used for public relations although the effect for output legitimacy was scarce since funds flow was the main indicator of success. Concerning decentralization, spending the funds was the lowest common denominator for cooperation throughout the regions. County administrations and consulting firms could refer to financial requirements to block critical discussions about project applications with low target contribution or exclude sceptical actors who did not belong to the established coalition from decision-making. In addition, financial administrations had no interest in an efficient assignment of funding or to test the compliance of their application because clawback actions would have reduced the money spent.

Secondly, the institutional framework interferes with private-sector instruments. By German constitution, the states are in charge of the implementation of rural development policy and federal government can only conduct pilot projects. Therefore, BMEL lacks administrative capacities, political assertiveness and financial resources to fund more than a few regions. Consequently, BMEL needed the competition to transfer accountability for selecting the pilot regions to an independent jury. However, BMEL could not provide resources needed to gather relevant information for jury members even though an objective selection of the best concepts seems hardly possible given differences between regions, concepts and unspecific assessment criteria. The lacking resources of BMEL also led to comprehensive decentralization leaving most of the costs to the regions. Existing funding rules, missing experience and low economies of scale required high efforts of regional financial administration. Moreover, discretion for innovative approaches was not used because regional actors feared penalties of the audit court which would have been problematic particularly for economically weak regions. The general rules of government funding also impede that control efforts did not slow down with MBO and the trust put in those implementing the programme – intended to increase motivation – was undermined.

Thirdly, performance benchmarks, common goals and hierarchies are prerequisites of the instruments and all missing here. In the private sector, profit and survival in the competition are clear yardsticks and common goals of corporations. In the competition, the applicants could use the information asymmetry concerning the degree of innovation in their favour. Regional actors experienced with competitions also trusted that the funding institution would agree to changes to the submitted proposals because it depended on the engagement of regional actors and planned on showing off the programme as a success. MBO was also not able to provide an objective yardstick. Regional representatives and project sponsors used the flexibility in measuring indicators and their information asymmetries to claim that target values have been reached. Furthermore, the partnerships often set only vague goals to integrate heterogeneous interests in the regions. This led to conflicts and consequently to high efforts to integrate all partners compromising the focus on the regional goals and needs. Finally, the actors involved were not embedded in a hierarchy but in reciprocal relationships. BMEL and regional representatives did not use opportunities for sanctioning because demands for the repayment of funds would have hurt those actors whose (future) engagement and cooperation was considered vital by their partners. The multi-year development process, however, depend on the cooperation and imagination of a variety of regional actors. Hence, financial control was not independent on the one hand and transparency as well as accountability of decisions and outputs are blurred on the other.

5. Discussion: the wrong management instruments or just improperly applied?

Private-sector instruments like competition, MBO and decentralization are widely used in rural and regional development policy. As the literature review has shown, there are, however, rival propositions whether these instruments are effective, efficient and legitimate. Our case study supports the arguments against the instruments demonstrating that the effectiveness, efficiency and legitimacy of the instruments are considerably limited for developing peripheral rural areas. The results confirm the often negative assessment of NPM instruments (Hood 1991; Osborne 2006) and partnerships (Edwards et al. 2001; Scott 2012). These issues persist although the BMEL tried to apply the instruments in such ways as suggested in the scholarly discussion. So, the competition was restricted to peripheral rural regions and every bidding region received money to even differences in capacities and experiences as the most important success factors (Kiese and Kahl 2017; Woods, Edwards, and Anderson 2007). BMEL also organized a thematically open competition to avoid regionals actors aligning to national expectation (Lowndes and Skelcher 1998; Rehfeld and Terstriep 2019). In fact, these measures did not suffice to solve the problems so that all contra propositions in Table 1 were identified in our case.

Concerning MBO, BMEL applied a bottom-up approach as the literature suggests (Drucker 1954; Rodgers and Hunter 1992). Therefore, the regional level did not reject the objectives being able to propose them. However, project sponsors could reject operational goals because they were often not participated in goal setting. Beyond that, the results support all propositions against MBO except that actors only focused on measurable goals (Pugalis 2013) was at best the case in one region. BMEL and regional representatives hardly committed to MBO as a prerequisite of its functioning (Rodgers and Hunter 1992). Besides the focus on spending the budget, this was also because decision-makers did not see quantified targets as useful since their goals were not prioritizable, often conflicting or permanently changing as Sager and Sørensen (2011) also show.

Decentralization was as comprehensive as possible in German funding regulations. Therefore, BMEL could mitigate negative effects of conditions and limits of regional competences (Davies 2002, 2004; Rummery 2002; Shucksmith 2010). The results, however, support the other arguments against decentralizations from Table 1.

The case study results point to three underlying causes. The identified interest coalitions focus on applying for and making full use of the available funding, what Bernt (2009) called grant coalitions. Grant coalitions do not only exist on the local level, as he shows, but our results suggest they include actors on all levels of multi-level governance. Our results confirm what was found for EU structural policy that financial absorption was the only publicly visible and politically important performance indicator (Bachtler and Ferry 2015). Accordingly, measures to accelerate the spending of the budget result in lower effectivity of resource allocation. The institutional framework determines the resources of the actors and therefore the functionality of the instruments. Selection committees lack the resources to assess the degree of innovation of each submitted application (cf. Küpper et al. 2018). The applicants could use this information asymmetry in their favour – in a similar way as the regional actors did in MBO. The costs for reducing these asymmetries would be high (Groeneveld and Van De Walle 2011). There are also not many incentives for this because it has potentially negative effects on how success stories may be propagated. Irrespective of MBO and decentralization, general funding rules by the government had to be applied, what led to a mixing of self-regulation and control undermining the motivating function of MBO (Drucker 1954). As the result, regional actors were not always forthcoming in sharing valid information with authorities impeding mutual learning opportunities. Moreover, the regularities produce bureaucracy discouraging particularly civil society actors from participating, as Davis (2004) argues. Governance research often ignores the enormous implementation costs particularly of financial decentralization which requires specific resources often missing on the regional level as our results highlight.

Finally, there are certain preconditions that ensure functionality of the instruments in private sector, but these are missing in rural development. In the policy arena, objective quality or performance measures are missing. Pugalis (2013, 620) points in the context of MBO to the important role of consultants who sometimes deliberately keep quiet about methodological inconsistencies to portray actions as ‘objectively’ correct and efficient. Competitions potentially may increase project quality and widen the circle of recipients of funds, but this requires an independent jury familiar with the problems on the ground (Rehfeld and Terstriep 2019). Both conditions can be satisfied for competitions within a region but are improbable for selecting funding regions. In addition, we have argued, that there are, unlike corporations, heterogeneous interests, goals and needs within a region (cf. Gherhes, Brooks, and Vorley 2020; Jones and Little 2000). Accordingly, there is a trade-off between effective and efficient regional partnerships and inclusive democratic processes (Davies 2004; Rehfeld and Terstriep 2019).

Participation in a partnership depends on the willingness and capacity of the actors involved leading to a selective participation and various opportunities to influence the process (Davies 2007; Edwards et al. 2001; Swyngedouw 2005). As our results show as well, the elite nature of partnerships reproduces power relations, excludes unwanted actors from power, and blurs responsibilities (Clarke and Glendinning 2002; Scott 2012). Sørensen and Torfing (2009) even argue that these types of partnerships and the parallel political structures they generate actually weaken representative democracy.

Our case covers a careful conception of the private-sector instruments tested to avoid common application mistakes. However, we could only marginally observe the results the NPM literature purports. We conclude that the three instruments are not suitable for rural development. In principle, interest coalitions and institutions can be altered or their negative consequences mitigated. The funding authority could, for instance, reduce the regional budgets or introduce an n + x rule, as in EAFRD possible but not in German regulation, to diminish the pressure to spend the money. Or the state could have been in charge of financial administration as in LEADER. However, missing preconditions for the proper functioning of the instruments in rural development remain an insurmountable obstacle. Private-sector instruments were introduced to make rural policy more rational and independent from political and bureaucratic wangling. Our results rather suggest lower effectivity, efficiency and legitimacy and even an increase in these issues.

An important limitation of our study is the focus on the pilot programme. Therefore, we cannot compare the results with alternative instruments, particularly more traditional hierarchical top-down instruments or investigate interactions in different instrument mixes (Howlett, Kim, and Weaver 2006). Therefore, we compared our results with theoretical propositions and were able to analyse effectivity, efficiency and legitimacy what has never been done as comprehensively before. Consequently, there is considerable demand for further research about comprehensive effects of instruments for the development of rural areas and about the transferability of our results to regional policy in general.

6. Conclusions

The analysed private-sector instruments for developing rural areas appear not to be very effective, efficient and legitimate. This is because the goals of interest coalitions and existing institutions thwart such an outcome, and because regions are not structured like corporations. Which alternative approach can we now recommend? The most efficient and democratically legitimate way would be to increase local government receipts. However, such an approach would not necessarily foster policy innovations und could reinforce policy lock-ins. Concluding from our results, we cannot recommend competitions for initiating innovations. Therefore, peripheral rural regions, where organizational capabilities and absorptive capacities are scarce (Kiese and Kahl 2017), need long-term support and essentially sustaining cooperation with external experts for specific development problems as a ‘regeneration outreach’ (Küpper et al. 2018). Rehfeld and Terstriep (2019) implied that comprehensive strategies are often too complex for a fluid context, like structural development, and therefore thematically focused processes with selective participations are required.

Because nobody really knows how regional development can optimally be supported, a collective learning process is needed that connects both local knowledge and expertise (High and Nemes 2007). The various levels depend on each other. Although higher-level governments can provide funding and know-how, they still rely on local actors’ engagement and willingness to participate in the process. Our results indicate that MBO cannot organize such mutual learning and cooperation, since there are no incentives for sharing information about failures. Furthermore, MBO requires stability and the ability to control the environment (Hood 1991). Necessary target adjustments, accordingly, block the positive outcomes of target agreements by reducing their binding effects. The theory of contracts (OECD 2007) suggests that relational contracts are better suited to developing peripheral rural regions than the studied instruments. Relational contracts stipulate the requirements for mutual decision-making and exchange of information across the levels of governance. The contract neither regulates the means nor the ends but the processes for negotiation and arbitration in case of conflicts. By rules of transparency, political accountability replaces juridical enforcement. The contract can contain targets with the purpose of structuring the dialogue about expected outcomes. As planning practice shows, targets facilitate intensive dialogue between experts and politicians which enhances mutual trust and democratic quality of decisions (Sager and Sørensen 2011).

Finally, other instruments for supporting rural development may have shortcomings as well. We have not found, however, any evidence to conclude that those private-sector instruments we analysed perform especially well. We would like to warn against succumbing to the zeitgeist by trusting consulting firms’ talk about panaceas. The utility of new instruments needs to be tested and demonstrated first before being applied on a large scale – as happened with the EAFRD programme.

Acknowledgements

This research was supported by the German Federal Ministry of Food and Agriculture (BMEL) [grant number 1005-68601-01063225]. We thank Will Poppe for assistance with the English language, and Jessica Brensing for comments that greatly improved the manuscript.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This work was supported by the German Federal Ministry of Food and Agriculture (BMEL): [Grant Number 1005-68601-01063225].