Recent unrest in Latvia and Bulgaria has emphasised the economic difficulties faced by the formerly communist countries in central and eastern Europe. Indeed a new IEA study, New Europe’s Old Regions, reveals that some regions of the European Union are now poorer than parts of sub-Saharan Africa. For example, GDP per head in Botswana is higher than in large parts of Poland, Romania and Bulgaria.

“New Europe’s Old Regions” are those areas of the EU that are very poor, have high levels of unemployment, low productivity and are dominated by agriculture and/or manufacturing industries.

Yet conventional regional policies, such as those that have failed in the former East Germany, cannot bring prosperity. Attempts to “pick winners” or subsidise industries in which a region does not have a comparative advantage have only exacerbated existing problems by misallocating economic resources.

Instead, governments should focus on liberalisation, particularly within labour markets. Politically, this could be achieved through the devolution of power, which would enable regional governments to reduce impediments to employment by, for example, adjusting minimum wages, benefit rates and regulations to suit local conditions. The EU should therefore decentralise and allow countries to opt out of new legislation and regulations. The policy needs of different parts of the EU vary so greatly that a “one size fits all” approach is not realistic.

Introduction
Old Europe welcomes New Europe

Enlargement of the EU in 2004 marked a turning point in the modern history of Europe. The accession of eight former communist states – the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia (plus Malta and Cyprus) – can be regarded as a definite end to the Yaltaimposed division of Europe.

When the Iron Curtain fell in 1945 and central and eastern Europe de facto became part of the Soviet empire, it seemed as if the communist regime and the cleavage of the old continent would last for ever (Davies, 1996). All the eight countries had experienced – to varying degrees – political dictatorship, economic mismanagement, technological retardation and degrading poverty. The Baltic republics, having been directly annexed to the USSR, disproportionately bore the brunt of ruthless repression and economic folly.

In contrast, Slovenia, as the richest part of a Russia-defying Yugoslavia, came out relatively unscathed from the period of communist rule. That said, all the countries of central and eastern Europe were affected by communist ideology, with its negation of market forces and utter disregard for human rights (Mises, 1949; Hayek, 1960; Balcerowicz, 2003). ...

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Piotr Zientara
The Institute of Economic Affairs
www.iea.org.uk 

CONTENTS
The author 8
Foreword 9
Summary 12
List of figures, tables and boxes 15
Author’s preface 17
1 Introduction 21
Old Europe welcomes New Europe 21
Old Europe and New Europe – economic and political
differences 24
A Europe of regions? 27
How EU regional policy can work against the
Lisbon Agenda 28
New Europe’s old industrial regions 30
Summary 32
2 Regional disparities at EU and member state
level 34
GDP per capita 36
Income 40
Employment and unemployment rates 43
Labour productivity and productivity growth 45
3 Economic and political structure of Europe 50
Economic and political ramifications 50
The condition of European business 54
Structural weaknesses of continental Europe 56
4 T wo aspects of EU regional policy 62
Socio-political implications of EU regionalism 62
The principles and instruments of EU cohesion policy 66
The rationale of national regional state aid 69
5 T he challenges of globalisation 74
European regions and the challenges of globalisation 74
The critics of globalisation 75
The complex reality of the impact of globalisation 77
6 T he learning region and social capital 87
Innovation, learning and regional development 87
The concept of the learning region 92
Implications of social capital 94
Critique of the new regionalism and its relevance to
central and eastern Europe 97
7 Poland’s systemic transformation and its
impact on regionalism 103
Poland’s stalled reform 103
Poland and the challenges of a knowledge-based
economy 110
Poland’s regional agenda 115
8 Proposed policy recommendations 125
‘Non-solutions’: general policies to be avoided 125
‘Non-solutions’: regional policies to be avoided 132
9 EU regional aid and evidence from other
member states 136
General assessment of the effectiveness of European
cohesion policy 136
Success stories: evidence from Ireland and Spain 139
East Germany and the pitfalls of reunification 143
Romania’s economic agenda and lessons for Poland 148
10 Strategies for reinvigorating the regions 151
Liberalisation 151
The merits of further decentralisation 155
The process of change 160
Silesia: towards the learning region 163
11 Conclusion 168
References 177
About the IEA 198

THE AUTHOR
Piotr Zientara holds a PhD in Economics (University of Gdansk) and an MA in Human Resource Development (College of Europe in Bruges).

He also has a DEUF from University Jean Moulin III in Lyon and an economics diploma from the Paris Chamber of Commerce. He is currently a lecturer in Human Resource Management at Gdansk Higher School of Administration (Department of Social Science and Economics) and a consultant for small and medium-sized enterprises (SMEs).

His research interests focus on regional development, industrial relations, labour economics, HR management, sustainable tourism and European integration.

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