It is a very great pleasure to be here in Hungary after the accession to the EU, although it would have been more fun to be here a month ago when you were having your celebration.
Governance is a horrible word. It is a difficult word to define in English, and to translate into other languages, but essentially what I understand by governance is the mixture of processes of formal and informal rules and routines, or ways of behaviour, through which a system organizes itself and operates. The term ‘governance’ in the context of the European Union (EU) has come to be associated with the debate over how the European Union works in practice, as distinct from the discussion of the big quasi-constitutional issues that are currently before the Intergovernmental Conference. Governance is a parallel subject, also a different subject from what was addressed in the Convention which preceded the Intergovernmental Conference and the debate over the Constitutional Treaty.
Why is it interesting, and why should we pay attention to it? Probably not because it is a good subject to take out into election campaigns for a discussion with the voters, even though addressing the challenges of governance seems to be very important in terms of getting the EU to produce outcomes that are relevant to the voters. Part of the reason why I have always been interested in what we now call ‘governance’, and what I used to call ‘policy-making,’ is the following: if we look at the different ways in which the EU handles its policies and the differences between different areas of policy, we get a pretty good way of understanding the capacity of the EU to adapt to new circumstances and to new challenges - and indeed to new members. Because the Union has to deal now with the new members, happily so from my point of view, examining the governance of the EU is a way of looking at the capacity of the Union to adapt to enlargement.
Looking at the governance of the EU is important for another reason. I am one of those who thinks that we need to do a lot of work in the EU to improve the way that it is governed. One of the things I regret about the Constitutional Treaty, in terms of its content, is that not enough attention has been paid to the practicalities of where changes to the institutional rules might have made EU governance work better. Let me make another remark about this as well. Istvan Hegedus and Andras Bozoki have talked about the elections. The Constitutional Treaty may well be agreed between EU governments, maybe in June, that is maybe this month, or maybe later this year. If the text is agreed, than it will be put into a ratification process in all of the member states. That is going to mean referenda in at least 7 member states, including in some countries, like the Netherlands, which have not have the joyful experience of referendum campaigns over the EU integration in the past. Now that the British have decided that there will also be a referendum in the UK, it is clear that a successful ratification process cannot be taken for granted. So why do I stress that here? Not because I wish the Constitutional Treaty to fail, but those of us who are concerned analyzing the progress of the EU need to be aware that it might fail. Those who are friends of European integration need, in my view, not to get trapped into discourse, which says that if the Constitutional Treaty fails, we shall have gridlock. I do not believe that gridlock is the alternative. I do believe strongly that the EU can accommodate enlargement, and can progress in terms of being able to deal with its challenges and its responsibilities. However, in order for this to be so, we need to think about how the governance of the Union operates.
I will try to put this in a different way. There are two different routes through which you can try to promote reform of the operating system of the EU. One is by reforming the treaties as via the Intergovernmental Conference and the Convention and so forth. This is a highly self-conscious, a highly political process, for which I tend to use the term of ‘designer reform’, that is by establishing a blue print. But there is a second route to reform which is much more evolutionary, more experimental, more open-ended and that is what I call ‘organic reform’. Both are important. The organic reforms are the ones that are relevant to changes in the governance of the EU. One of the reasons why organic reform can be an attractive alternative to designer reform is that it allows you to make experiments in some policy areas, without necessarily at the beginning committing yourself to applying that reform everywhere. You can give the reform a chance to work in one sector, and maybe apply it in another, or by applying reform in one sector and finding that the different way will work better, you can play with alternative ways of dealing with policy challenges and indeed adapt to change over time. So when I emphasise organic reform, try not to think of me as overly British; it is not that I am against designer reform or Constitutional Treaties, but it is that I believe that it is important to think about the practicalities.
To think about this in another way -- one of the central preoccupations of those involved in the Convention drafting the Constitutional Treaty has been how to deal with the ‘input’ side of the EU as a political process. This emphasises how different actors and countries are represented in the system. The Draft Treaty pays much less attention to the output side, whereas the organic reform process tends to pay more attention to the output side, that is to the results. Why do I stress that in particular? At the level of the elector and the citizen it is often the outputs that are the most visible, and the outputs that are the most relevant, because generally voters give the priority, when making their decisions at the ballot box, in terms of how they think the outcomes of the process is going to be relevant to them. So results matter and having a governance system that delivers high quality results matters to citizens, and matters to voters. Let me add something else here. The EU is a political process as well as an economic process, and for the European integration process to flourish requires that its evolution be dynamic, both in terms of politics and in terms of economics. Those of us who are not economists need to pay more attention, therefore, to the relevance of economic reform in the EU to its political success. In the early years of the European Community, possibly by luck, possibly by policies (the debate continues on that), the West European economy had the good fortune to go through a rather benign period of economic growth and developing prosperity during what in French are called ‘les trentes glorieuses’. It seems pretty obvious that the favourable economic context was one which made it easier to persuade publics that this was a good political project as well. We are now living - in western Europe at least - in a very different climate and therefore those involved in actual politics need to pay more attention to how the performance of the economy plays on to the political process.
Some of you will know that I spent a good deal of time last year sitting as the only non-economist within the group chaired by André Sapir. We produced a report on an agenda for growth in Europe, addressing the issue of growth in the context of the enlarging EU. As I sat through those discussions, listening to what my economist colleges were saying very closely, I came to be more and more distressed by what I heard them saying about the extent which the European economy was currently under-performing. The outlook has been poor and the growth prospects have been weak, and there are many rigidities and areas of stagnation, areas where reforms are needed. The European economy to be healthy and the European economy needs to perform well in pretty difficult global economy. The outlook is different in central and eastern Europe fortunately because there the growth prospects are much better, although they vary country by country. In practice it is not the whole of the west European economy that has a big problem. I happen to come from a country where apparently the economy is doing quite well and next to us we have the island of Ireland which is doing even better. However, the outlook for the economies of Germany, France and Italy have been less good. And that is bad news for all the rest of us, because the German economy is so much an anchor of the European economy. So I became quite nervous, as I listened to my economist colleagues talking about the reasons for these problems.
What I was struck by was how far we came to a collective conclusion, that the poor outlook of European economy is not simply due to policy choices or bad luck or disadvantageous terms of trade; we all agreed that part of the problem was that governance system of the European Union was a handicap to finding better policies rather than a route to better policies. Contrary to what I expected at the beginning at the Sapir Group exercise, we found ourselves putting much longer sections into the report about the importance of improving the governance of the system in order to encourage more buoyant performance, especially in the west European economy and especially in the core German, French and Italian economies. So methods of governance can have big impacts on economic outcomes. If the economic outcomes are disappointing, then we must expect this to have political consequences.
How might we think about governance as such? What do we know about our past experience? We know about the past that the inherited EU modes of governance in the EU grew out of west European experience and west European templates which were embedded at country level as well. These carry with them still the traces of the policy style of the founding fathers of the European Community, which played an enormously important part in those early years and which leaves its traces in the current system. What else do we know about the past? We know that the old modes of the governance of the EU in practice work very differently in different member states. There is not a monochrome picture in the old member states of one European policy having the same characteristics wherever it implemented. What actually happens in any given country or locality depends on the way the interfaces work between European governance and national governance. The third thing we know about the past is that actually we have lots of different ways through which governance is operated in the EU, and with different outcomes and different ways of adopting the new challenges and so forth. Our history is thus far of an EU policy process which is highly differentiated between the different member states, and not the stylised and monochrome version of policy that has perhaps been exaggerated by the way that the acquis communautaire has been negotiated through the accession process.
What does this mean in practice? In much of political science literature, on the EU and European integration, you find a dichotomy throughout between supranationalism and intergovermenalism. In many of our political debates -- you certainly hear this in the UK -- you hear an argument about the choice to be made between a highly centralised and a rather loose European system. My own view is that this is totally misleading, because our experience is that there are many different ways within the EU of striking a balance between, on the one hand, individual countries with their different preferences and visions, and, on the other hand, collective regimes and collective processes. I can identify at least five different modes of governance and will say a little about each and about how they might adapt, or not adapt, to the arrival of new member states, and the new challenges that we face.
The first is the so-called traditional Community method; the second is the regulatory method of the Union; the third is the distributive mode, mostly about money; the fourth concerns policy coordination; and the fifth is ‘transgovermentalism’, an ugly word for which I apologise.
First, the traditional Community method. This includes those examples of policy-making in the EU where there is clear delegation of the primary policy responsibility of the EU system, where it is clear that the EU is the preferred collective actor, in the sense that it has been in the field of common agricultural policy for managing product markets, and in the sense that it has been for the common fisheries policy. Rather little by way of new policy powers has been added over the years in this policy mode, in the sense of giving full responsibility for EU management, as in the case of the common agricultural policy (pending its reform), let alone with the main funding mechanism coming from the European Union’s budget. There is one big exception. There has been clear delegation to a strong collective regime in the case of the single currency. The monetary union is an example of an extremely strong collective regime. Let us note here, however, that, when the decision was made to delegate monetary policy to the collective EU system, the choice was made to create a new agency to which policy management was delegated, namely the European Central Bank. Delegation was not made to the orthodox Community system based on the Commission-Council dialogue, and it was deliberately a narrow form of monetary policy which was delegated. I do not see signs of other policy areas moving in the same direction in the sense of areas where the proposition is viable that there should be so strong a pattern of delegation to EU institutions.
The second mode of governance is regulation. In the inherited EU system, there are essentially two versions of regulatory governance. One is that found in the competition policy regime, and the other is the single market regime. I find it interesting to observe how far both of these are currently changing. It used to be the case that the competition policy regime of the Union was centrally managed by the Directorate-General for competition of the European Commission under the direction of the Commissioner responsible for competition. This is changing into a kind of partnership arrangement between the same Directorate-General of the Commission and the national competition authorities, and is thus becoming more decentralised and less hierarchical. Indeed I have heard Mario Monti, the relevant Commissioner, argue that one of the main reasons why he thinks that this change is a good choice is that it would make the competition regime much easier to manage in the enlarged EU. Not everybody is so sanguine, because some of the economic operators are worried that the decentralisation will cause confusion rather than produce good policy.
Then there is a single market’s operating method of regulation, which operates via framework legislation at the EU level, mutual recognition by member states, and national implementation. How well does this work in practice? It has worked pretty well for opening the single market for manufactured products. Most people agree about that. It works much less well for regulating manufacturing processes and it has worked with varied results for utilities and for services. We can see ways in which the policy processes are themselves changing as a consequence. In the example of manufacturing processes, the increasing preoccupation with food safety has led us to develop new food safety agencies both at the country level and at the European level. There is a kind of competition now between those who want ease sales of new products, and those who want to be restrictive. In the case of utilities there are not single European regulators, but there are networks of national regulators. This is a different pattern, and those networks of national regulators are trying to work with the Commission to establish the framework for developing the system. In the case of services, and especially financial services, we have examples of both networks and forms of self-regulation. It is important for those who come from the new member states to be aware that the processes of regulation are actually in flux, and experiments in governance have been made. Some of these experiments come out of the market itself, and some of them come from the regulators. Therefore those who participate in these processes encounter both pluses and minuses, in facing systems that are much less stable than they might expect, with changes that are not so easy to plot. On the other hand, the fact that many of the regulatory processes are undergoing important changes gives those who come from new member states a new opportunity to put their mark on the processes, and to bring their concerns into these processes; thus to the extent that they find themselves operating a network they can try to shape the way in which those networks work.
The third policy mode concerns distribution and money. It is clear that the ways in which budgets are allocated and spent are always the subject of arguments. There is a considerable literature among those who write on European Union and integration about distributive politics, and most of that concentrates on the examination of structural funds, -- there is much less literature on the other spending programmes of the EU. My colleagues in the profession have been especially fascinated by the way those spending programmes work, especially the structural funds. It is argued that this may have revolutionised in certain ways relations among different kinds of public authorities and have provided a kind of empowerment to local entrepreneurs and local authorities which enable them to bypass national capitals. This has created, it is said, new kind politics. Not all of my colleagues have always been persuaded by that argument. There has always been some scepticism about it. The proliferation of contacts between the Commission and the local authorities may be more cosmetic than substantive.
This kind of politics in any case may becoming a thing of the past. Why do I say that? My own guess is that there will be a declining mount of money available for these kinds of collective spending programmes over time for different reasons. One is that those who pay for the Community budget are becoming less and less willing to pay. There is a serious coalition of net payers, not just the British. But, secondly, it is also the case that the external policy responsibilities of the EU are increasing and they prompt the fastest rising share of Community expenditure in the current situation. There is a third reason why the patterns of distributive politics are changing. If you take a very hard look at the outcomes, then it is not so easy to see that those policies have achieved their policy objectives.
One of the things we argued in the Sapir Report (and got into terrible trouble for it) was that some of the structural funds had too many policy objectives attached to them, and were in danger not meeting those objectives properly. It is a very controversial subject, but I think those of us who are concerned with evaluating the outcomes of the process need to be prepared to ask these difficult questions. I draw in my own case the conclusion that we are at a critical juncture in terms of the distributional politics of the EU and have therefore to address important questions about the governance of the Union on this point. It is not clear to me how the new member states are going to feed into the idea that they also have demands. We took the view in the Sapir Report that there should be a pretty root-and-branch-examination of spending programmes, and that in the future they should be dealt with in new and different ways. We argued in the case of research and development expenditure that its management should be taken from the Commission, allocated to an autonomous agency, and therefore handled in a very different way. We argued in the case of the structural funds as they had historically existed that they should be replaced by other policies. This would be good news for the new member states - we argued that spending should be concentrated on convergence funds for new member countries, not necessarily regional, and very clearly tied to objectives related to improving governance. This is very controversial territory. My view is that there are going to be debates ahead not just about the overall allocations from the budget, but also debates about what would be sensible ways of developing governance for whatever spending programmes are agreed, and that would improve the chances that the programmes would meet well defined policy targets. There is an open game to come here.
The fourth mode of governance is the whole area of policy co-ordination, benchmarking, and the Lisbon Strategy. What has happened over the last 5, 6, 7, years is an increasing use within the EU of techniques of policy-making and governance that most of us had historically associated much more with the OECD, than with the EU. In the fields where the objective is to improve European competitiveness and innovation, we are looking at those policy areas where it seems unlikely that the EU will develop the primary policy responsibility, because member states are not willing to delegate to the EU as the primary policy-maker enough of microeconomic policy. Consequently to the extent that European policy is developed, it has to depend on kind of iteration between the national and the European levels. In this field we can see a whole variety of experiments being made with techniques like benchmarking, and methodologies and procedures such as the open method of co-ordination. All the emphasis is on finding different kind of tools to try to promote policy dialogue and to promote policy emulation.
People are reaching very different judgements about the value and the impact of this approach. The orthodox supernationalists are extremely uncomfortable with this, because what they see is this new form of policy co-ordination appearing to undermine the traditional Community method. There are people around who get quite angry about the emergence of co-ordination techniques as a way of subverting the integration process. On the other hand, there are some people who are real fans of the process. They include people in the academic community, who are writing articles every month talking about the open method of co-ordination, impressed by its novelty and arguing about how wonderful it is and so on. There is a kind of pure academic point of view and a professional point of view. There is a real difficulty, however, about identifying the outputs of the process. Again to take the case of the Sapir Group, we found it very hard to decide what kind of judgement to reach on the value of the Lisbon Strategy. We could not get the data under our fingers in a such way that we could easily make judgements about the results of the strategy. My own view is that we need to be patient before we judge the policy results. We are asking the wrong question if we expect Lisbon Strategy to have outputs in a form that we can pile them up and put on the weighing machine. The Lisbon Strategy is aimed at making changes over the medium to longer term, changes in national policies, but also changes in behaviour by public and private actors over time.
I happen also to think that the nature of the Lisbon process -- because it is open ended, and it is more experimental -- should indeed give more opportunities to the new member states to be active participants. The opportunities are there for the new members to be involved in a process with voices and not only with ears. The process is also a matter of sharing experience, and indeed in a number of substantive areas, actually the new member states do not have to make some of the difficult reforms which countries such as Germany have to make, because the new members have made many of the needed reforms already. The Lisbon process indeed encourages a form of policy competition that ought to be welcomed by the new member states.
The fifth and last mode of governance in the EU is transgovermentalism. There are number of policy fields where there is a kind of partnership being developed among the member states with only rather light involvement so far by EU institutions. The approach is much more a transgovernmental one, in that it does not have a strong Union institutional process associated with it yet, in the sense of allowing for full involvement by all the institutions or collective policy powers. The obvious fields here are foreign policy and defence, as well as some parts of justice and home affairs. These are very tricky and sensitive areas for governments and these are areas were there is considerable reluctance to delegate competences in a full sense to the EU system. None the less some interesting experimentation is happening here. We can see, for example, a great deal of activity which is bringing actors into a European process who were not there before, such as ministries of defence and the military of our member countries. These are now actively involved in discussions in the EU context, producing some shared decisions and operations, and making number of new experiments with new agencies such as Europol or the new European Defence Agency. There is a lot going on here.
To conclude. A great deal is going on in the EU in the terms of organic reform. Some policy areas are more frozen, but many are opening up, and we can see a whole variety of different modes of governance across the different policy areas. Thus there is a sense of buoyancy, which is a part of the reason why I am optimistic, even if the Constitutional Treaty may have problems. Secondly, however, that fluidity, that movement means that the policy templates, both content and process, are less clear than they were. But on balance for the new member states this opens up more opportunities than there are problems to be faced.