The prevailing attitude towards regional policy was one of non-intervention until the economic crisis of the 1930s. As the allocation of resources is perfect in a situation of free trade,
intervention in the form of regional policy is not necessary. Such a ‘classic’ premise has not, however, passed the test of time. The reasons for the alteration of the classic idea included not only transport costs, but also other market imperfections such as economies of scale or externalities. In those circumstances, an industrial policy is generally directed towards an increase in national or regional production potential and capabilities through a (supposedly) efficient allocation of resources from the national standpoint.
The objective of a regional policy is, however, to influence the distribution of the created wealth and to contribute to the easing and eventual solution of the ‘regional problem’. In spite of intervention in regional affairs, there has appeared a recent move towards abandoning or, at least, easing and changing intervention in regional matters.There is still controversy regarding the question of what constitutes the ‘regional problem’. If taken together, there are several elements that may provide an insight into this issue. First, there is the situation when different regions grow at uneven rates for a long period of time, so the policy action endeavours to reduce that problem. Second, intervention may also aim at an equalization of consumption or GDP per capita among different regions. Third, the government may be interested in a relatively equal access of the population throughout the country/union to an adequate level of public goods and services. Another concern of the public authorities may be to include a spatially stable distribution of economic activities and population in order to avoid negative externalities.Governments intervene in regional matters at least because of the following three reasons:
|•equity (this social motive is based on public pressure on the government to try to achieve a ‘proper’ balance and an ‘orderly’ distribution of national wealth among different regions);|
|•efficiency (the desire to employ, sustain and increase national economic potential and capabilities); and|
|•strategic behaviour (public authorities want to control the comparative advantages of the country).|