BDF Chairman on Leadership for a Sustainable Baltic Sea Region

in Debate, News
Uffe Ellemann Jensen

BDF Chairman Uffe Ellemann-Jensen today held a speech titled “Leadership for a Sustainable Baltic Sea Region”at the 7th Annual Baltic Management Development Association (BMDA) Conference at Copenhagen Business School.

The theme of the Conference was “Leadership responsibility – global outlook and regional sustainability“.

Read the speech: Leadership for a Sustainable Baltic Sea Region

The global crisis has hit our Baltic Sea Region in a way that poses new and serious challenges to leadership on all levels in our society – in politics and the public sector as well as in business and the academia.

We have seen countries in our region move from extremely high economic growth to the edge of an economic abyss over a very short time.

Since we are dealing with relatively new democracies this poses dangers for the democratic system that no one could have foreseen only half a year ago.

At the same time this endangers the process towards a more open region where we try to do away with barriers that prevents the free flow of people, goods and capital. This is a global problem – with protectionism as a threatening black cloud over a World that has become confused and worried about the benefits of globalisation and even democracy – but since our region would benefit more than most other regions from removing barriers, we also stand to lose more if this process is reversed as a result of the crisis.

In this situation, leadership is important – on all levels: The global, the European, the regional and the national as well as in the daily life where people secures their existence and form their opinions.

A few words on how our Region has fared: Among the Nordic countries Iceland has been hit most severely. The banking sector has collapsed, and the small economy is facing an enormous foreign debt. Among the other Nordic countries Sweden has also taken deep blows to the banking sector because of its exposure in the Baltic countries. The other Nordic countries seem to have been doing better – at least so far – but we do not know if we have seen the worst yet. Poland has been doing surprisingly well so far, while Germany has huge problems created by its dependency on exports. Russia has experienced huge difficulties when the oil prices imploded and the stock markets went in chock. But the three Baltic Countries – Estonia, Latvia and Lithuania – have been hit harder than all the others: Latvia has been brought to the brink bankruptcy with huge political problems as a result. Growth rates have dropped from more than 10 percent to minus 20. And Estonia and to a slightly smaller degree Lithuania has also seen a dramatic drop in growth rates. So – the overall picture of our region is one of gloom, in some cases even depression and desperation – a far cry from the growth and optimism only a year ago.

I will not go deeper into the discussion related to global governance of the international economy. It is a very important subject to the small and open economies of the Baltic Sea Region that are severely exposed to global trade flows and to the current economic crisis.

The need for stronger international institutions seems obvious. The IMF is today playing an important role in Iceland in handling the collapse of the banking sector and in Latvia in helping to recover from the severe economic recession. The IMF and the World Bank will also in the future be key institutions in global governance. But – I cannot resist a critical remark on what I regard as a deplorable lack of solidarity within the EU with its newest members – the new democracies in Central and Eastern Europe: The enlargement has been a huge success – both politically and economically – and for some years the new members has acted as “locomotives” for growth in the EU. I would have liked to see a much stronger and generous reaction to the problems these countries has run into – and if you consider the fact that their combined economies is smaller than that of the Benelux, it would not be an overwhelming task…

I shall also refrain from commenting in too many details on the question of economic and political governance in the individual countries of the Baltic Sea Region, although this is also a highly relevant subject. The present economic crisis has revealed serious home grown problems in several of the countries that have been hardest hit by the crisis. In Iceland and Latvia there is a need for a thorough evaluation of some of the root causes of their economic downturn. If you look at Latvia, the political influence of oligarchs is among the questions that should be taken up. And feel free to take this as a euphemism for dealing with corruption. The wider question of a healthy political culture – that is clearly part of any sustainable governance structure – is indeed necessary to address in several countries in our region. Both in countries that have joined the EU – and in one big country that has not…

These questions are essential – if we shall come out of this crisis with our free democracies and open market economies intact. This is not an easy task. Both in the new democracies and in the old ones the politicians are under fire and forces on the fringes of democracy are gaining ground. The last time we had an international crisis of the dimensions we are facing right now, nationalism and protectionism were among the nastier legacies. We should have learned from that, shouldn’t we?

* * *

A question of particular relevance is the new relationship between regional and European governance in the Baltic Sea Region. I will try to distinguish between economic governance and political governance. But first of all, I will try to explain why these questions have become highly topical:

After the EU enlargement with Estonia, Latvia, Lithuania and Poland in 2004, the Baltic Sea Region has become an internal part – or inner Sea – of the EU. At least almost… There are still a few kilometres of coastline that is not part of the EU, but that should not distract us – I hope. And both Iceland and Norway are moving closer to the EU. This new situation have changed the dynamics of the regional co-operation in many ways, since there will now be a much closer link between regional and European integration. The accession of the four new Baltic Sea countries to the EU has also opened the debate of the distinct nature of the Baltic Sea Region and indeed the question of the Baltic Sea Region Identity.
In June this year, the European Commission will present its first regional mega-strategy covering a limited geographical area of the EU – and this strategy is for the Baltic Sea Region. This implies the acknowledgement that new initiatives are needed in order to match the development and deepened cooperation in the Baltic Sea Region after 2004. The timing is perfect: 5 years after the Eastern enlargement and 20 years after the fall of the Iron Curtain.

According to the plan for the forthcoming Swedish EU-Presidency in the second halv of this year, the Strategy will be endorsed by the European Council in October. And this is a very positive development indeed – one we in the Baltic Development Forum have called for in quite a few years.

* * *

Let’s take a closer look at the need for new regional instruments to improve the economic governance and leadership.

The objective of the Strategy for the Baltic Sea Region is to remove barriers to the flow of goods, services, capital, ideas and people – and thereby raise the potential for increased prosperity in the Region.

The basic economic reasoning is fairly simple: We know that when neighbouring countries are partners in terms of trade and investment, then the competitiveness and prosperity of neighbouring countries have a clear positive impact on a country’s own competitiveness and prosperity.

These neighbourhood effects can be of different types. For example, a competitive neighbour can create opportunities to supply this country with products and inputs that are complementary to the same integrated value chain. And the neighbourhood effects are strongest, if the countries specialize in similar clusters.

International studies also emphasise that innovation and economic growth are positively influenced by certain dynamics of clustering and business specialisation. Innovation and clusters are of course important elements to the Baltic Sea Region – characterized as it is by knowledge-intensive economies with very high innovation capacities.

In other words: Neighbourhood policies or regional policies matter. But the strongest effects do not come automatically. They will have to be earned. The best example in this regards is the Oresund Region that has developed into one of the most dynamic regions in Europe thanks to the Oresund Bridge and the easier movement of labour. The effects of the larger Danish-Swedish Oresund have clearly been earned through many joint initiatives. Let me mention some: The Medicon Valley, Oresunds Science Region and the Oresund University Alliance.

I feel confident that the EU Strategy will be very helpful in “earning” the economic neighbourhood effects and in exploiting the potential of the wider Baltic Sea Region.

The EU’s Internal Market has already removed the most important barriers – but not all – and with regional initiatives it will be possible to remove additional ones that have particular importance to this part of Europe.

In the Commission’s review of the EU’s Internal Market it is recognised that in some cases it is not possible to design legal frameworks or programmes that fit all the EU27 Member States equally well. Sometimes EU27 is too big an area to address certain problems. Therefore more targeted and well-connected policies will be needed.

Closely designed policies can better exploit the economic potential. The draft EU Strategy includes for example transport and infrastructure projects and maritime policies that can help overcome market fragmentation and specific obstacles. It can also give a boost to SME’s – small and medium sized enterprises – that dares to expand their markets beyond national borders.

A macroeconomic strategy for the Region can hopefully also help bringing the EU closer to its citizens and businesses and their concerns. One concern of fundamental importance for a more sustainable Baltic Sea Region is to find urgent measures to reduce the pollution of the Sea. The Baltic Sea is among the most polluted seas in the world – and this is very bad branding of a region that otherwise is known for its high environmental standards and clean tech industries.

Speaking in more general terms, European sub-regions can offer useful solutions to the challenges of globalisation as a level in between the national and European level. Some policy areas – such as research, innovation, education, flexicurity and university policies – belong to the weaker part of the EU’s policies, since the competences are shared between the EU and the nation states. But these policy areas are part of the EU’s Lisbon-Strategy and the open method of co-ordination. So the point is, that regions can be more successful in sharing best practices than initiatives on a EU27 level.

One good example is the Nordic Co-operation that has gained new strength and importance through the new globalisation agenda that has been set by the Nordic Prime Ministers. The Top-Level Research Initiative and climate policies have become centrepieces in the rebranding – or even revitalization – of the Nordic Co-operation. Similarly, by pooling resources and shared political will, it is possible for the Baltic Sea Region to be Top of Europe in terms of growth, innovation, prosperity and social security.

Generally speaking: Mega-regional strategies have the potential to become a new and important instrument in the EU’s toolbox. Therefore, the first strategy – the EU Strategy for the Baltic Sea Region – is followed closely by other regions in Europe. The Danube region might be the next one to develop a Strategy. In a longer perspective, regions will undoubtedly serve the role as strong building blocks inside the EU.

It is important to stress that sub-regional integration must not weaken the unity of the EU. The level playing field of the Internal Market is the “Jewel of the Crown” in the EU – says one who has spent a large part of my professional life in pushing that case – so I say with deep conviction: That must not be harmed! Neither is the objective to leave other EU countries or Russia out of the Baltic Sea Region co-operation. The objective it is to improve and strengthen the EU as a whole though stronger regional EU presence in parallel with the enlargement of the EU. A stronger co-operation between the EU countries in the Region will also make it a more interesting partner to Russia.

* * *

But what about the political governance and leadership of the Baltic Sea Region?

Will it be possible to improve the regional leadership by combining the EU’s vertical decision-making procedure with the horizontal modes of co-operation in the Baltic Sea Region? This has become a key question – and it is indeed a very interesting challenge to make the two systems work well together.

They both need to work together and to be well balanced. No one is interested in transferring the ownership and responsibility of the Baltic Sea Region’s integration to Brussels. The political ownership has to be firmly rooted in the Region and supported by many different stakeholders – otherwise the new Strategy will be undermined, and it will not be sustainable. But: At the same time the EU’s involvement in regional activities will have to be more direct.

The problem is, that the two systems of governance system are from their outset quite different:

On the one side, we have the EU’s strong and formal institutions that are dominated by legal instruments, clear divisions of responsibility and mainly vertical decision-making procedures. The EU’s governance structure is also multi-level and includes both governments and EU institutions. The actors are very professional and possess often special expertise. Plus – I might add – the apparent arrogance that inevitable follows these strengths… (And this is a very important thing in this country where arrogance is abhorred, and competence is often confused with arrogance…)

On the other side, we have the Baltic Sea networks. As a co-founder of both the Council of the Baltic Sea States (CBSS) and the networking organisation Baltic Development Forum, I will characterise at least part of the Region as having fairly weak government institutions but many – some will say too many – organisations, including strong and informal networks. This type of co-operation is to a large extent bottom-up driven.

The actors include private business organisations, governments, parliamentarians, regions, cities, islands and other civil society organisation. The actors of the horizontal governance possess important resources and insights that can shape the regional agenda. Furthermore, the civil society often has information and accurate analyses of the most pressing priorities, problems and preferences.

It was newer the intention to build up very strong government institutions in the Baltic Sea Region. The intention with the CBSS was to have a new forum for political dialogue and for defining confidence building measures, not least by integrating civil societies. The civil societies should be key players and in particular build new links to Russian partners in the Region. After all, the civil society and the private actors have to be the driving force in the successful re-establishment of the Baltic Sea areas as a clearly identifiable Region. The second objective – or at least the objective of some of us who pushed forward for the creation of the CBSS – was also to help bring the Baltic countries and Poland into European and transatlantic structures as quickly as possible.

With these objectives, we have been rather successful and now the two new governance models in the region meet: the multilevel model of the EU system and the horizontal dimension of the region. The two-dimensional governance is a challenge to both the region and to the EU.

The Strategy will include not only a wide range of stakeholders but also different funding sources and legal bases.

It is a new adventure that EU policy instruments and the new Action Plan of the EU strategy has to be implemented and organised through ad-hoc platforms, multi-facetted lines of responsibility and variable mix of organisations that include different both government institutions, regional organisations, cities and regions. The civil society has to be closely involved – as was the case in the preparations of the Strategy.

The Commission, I think, has initiated its work in the right way by organising round table consultations and stakeholder conferences, respecting fully the local knowledge and insight. The Commission needs to be applauded for its approach. It has brought new engagement, inspiration and optimism among the many regional organisations similarly to the time of the enlargement process.

From the outset it has been decided that the EU strategy should make use of existing organisation, networks and institutions. To some it was, however, tempting to suggest that we needed completely new regional structures and governance that reflected the new realities after enlargement. We should not build on the civil society organisation that characterised the time before EU-enlargement. The organisational plurality is basically regarded as an inefficient mess. Some used the Kissinger analogy on the Baltic Sea Region to underscore their argument: you need to have one phone number to call in the Baltic Sea Region.

This line of argument has some attraction – after all “Ordnung muss sein“! Behind this argument lies also a political ambition to create a single political voice that represents all the EU countries of the Region inside the EU and vis-à-vis third countries. This might be a long term objective, although it presently seems very difficult given the heterogeneous character of the Baltic Sea Region.

Instead of restructuring the Baltic Sea Region, I believe that it is much more interesting to make use of the existing clusters of organisations and networks because they can prove to be very efficient and almost post-modern in their role. One should neither discourage the civil societies that are naturally attached to their self-established structures.

More importantly, we also have to realise that in today’s globalized world we are increasingly living in and through networks that cross national borders, traditional sectors and different levels. Networks are flexible and often organise itself around specific interests and problems. They are easy to mobilise and their energy is driven by personal, professional or local involvement. Mixed networks make it possible to interaction between states and civil societies within a single framework. In my view, this is a vital element of the vision of the new governance in Baltic Sea Region.

At the same time the different networks will have to assume their responsibility and accept accountability. The European Commission will have to ensure that community funds are spent correctly and according to their political objectives.

Furthermore there is a need for a greater coordination between the policy fields, networks and actors involved. This again calls for better network management which – to my mind – is a fairly new and exciting discipline in international co-operation. (A challenge for you, isn’t it!) The preparations of the EU strategy have shown that network management is possible. The many different organisations have been able to gather around the same policy process.

In terms of funding, existing EU funds will be used. The structural funds will be having a key role in financing cross border projects and initiatives together with resources of the region: national, private or from regional organisations such as Nordic Council of Ministers.

No new EU funds are foreseen. The reason behind this approach is not to create opposition from EU countries outside the region that could think that funds would be taken away from their region. I believe that some new funds should be allocated in order to finance the new governance structure in the region. Otherwise it will be difficult to introduce a new ways of combining the vertical and horizontal governance models.

If the new relationship between regional and European governance in the Baltic Sea Region is successfully going to be established, it is crucial that the process is guided by strong political will and receive full backing by all the governments in the Region. In particular, we will need the full backing by Germany and Poland that have many other regions to take into consideration. A new leadership in the Baltic Sea Region depends on the Nordic and Baltic countries ability to persuade the big two countries to be interested in the region.

The CBSS was established through a joint initiative between myself and the German Minster for Foreign Affairs at the time, Hans-Dietricht Genscher. A similar German ownership is necessary. (Why are there no Germans here? Make sure they are with you next year!)

Let me end by stressing once more: In times like these there is a need for professional, dedicated and responsible leadership – on all levels in our societies. With a global outlook – and a keen eye for the regional sustainability. So the theme for your conference is right on the spot. Our region has a glorious past – if you go back many centuries. It has also a less glorious past. Let us do whatever we can to learn from that history – and repeat the successes, not the failures.

I thank you for your attention.
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