flows, fluids, folds, mobilities, nonhumans, practices and complexity.’ This new urbanism ‘bypasses vertical thinking by refusing to ossify or freeze the flow of the world into unities.’25The rise and fall, establishment and restruc- turing of patterns of interaction during the past 25 years confirm the validity of this argument for even a short period of time. Nonetheless, it must be admit- ted that many structures do have lasting value to the participants and agglom- eration, industrial district, cluster and network are of both practical and analytical value. However, we must always investigate their actual importance in any given, individual situation.
CONVERGENCE AND DIVERGENCE, AND WHAT IT
The general consensus in the literature is that while there has indeed been convergence of per capita income among member nations, at the level of the regions there has actually been divergence. While low income peripheral countries such as Portugal and Ireland have gained relative to France and Germany, low income regions in almost all countries have slipped relative to high income regions. This is a concern not only because of the frustration and discontent it may generate in low income regions, but also because of the resulting pressure for greater fiscal transfers from high income regions and for increases in the levels of taxation throughout the EU. Hence, the reasons for this divergence at the regional level are very relevant to this study.
The standard theory of economics is divided on the question of regional convergence. The neo-classical model stresses diminishing returns on invest- ment of capital. As capital is invested, with no increase in labor, the capital- labor ratio rises and the economic return to additional investment, its marginal product, falls. Thus, the initial advantage for investors of the high income center location is gradually reduced until it becomes relatively profitable to invest in the lagging region. This suggests that, over the long run, investment will work to equalize the capital-labor ratios in both the center and the periph- ery and since each worker then will have the same amount of capital with which to work, labor productivity will become equalized, and with it incomes.
This works in hand with international/interregional trade theory (the Stolper- Samuelson Theorem) which tells us that as labor intensive goods are produced in and exported from the low wage region, the demand for labor will increase there and wages will rise until they are equalized throughout the trading space.
While more a part of the real world than of the theoretical, labor mobility, to the extent it exists, will also work toward income equalization. Countering this view is that of Joseph Schumpeter and the endogenous growth theory. Here the focus is not so much on the capital stock as on technology. With technology being a function of the resources devoted to research and development, tech- nological advance becomes something that is generated within the region, that is, it is endogenous. This allows for increasing returns on capital invested, rather than diminishing as in the neo-classical approach, and for those regions that have no capacity to devote resources to research and development to grow more rapidly than do those with a lower capacity. The high growth, high tech- nology region is attractive to firms and they tend to cluster there rather than move to low wage regions. This results in divergence among regions, between center and periphery or between those that have access to capital and those that do not.
Since divergence among regions has been the recent experience it would seem that the endogenous growth approach would be supported. However, in actuality the situation is somewhat more complex. The factor that causes this complexity is one we discussed earlier, technology transfers or spill-over.
When we introduce technology transfers, it becomes clear that the access to technology is no longer a simple function of the resources devoted to research and development. So the question then becomes one of determining in which situations technology transfers take place and at what speed. Angel de la Fuente reminds us that ‘regions (and probably countries) may be far more different from each other than we suspected up to now’27; not all regions can be put in two categories – high technology and low technology. Within these two categories there are important sub-categories. Some low technology, and presumably most peripheral, regions are overwhelmingly dominated by tradi- tional activities such as agriculture and artisanal production of goods, while others have small sectors of their economy that use rather modern industrial technology. Giannetti states that if knowledge and technology spillover affects only high tech sectors of the economy then convergence will occur among these regions but will result in greater disparities among regions within indi- vidual countries.28Furthermore, he concludes that in regions with small tech- nology sectors, knowledge spillover may make expansion of that sector welfare-reducing (the benefit gained being less then the expense of gaining it), whereas starting a technology-related sector in a traditional regional economy may be beneficial as, he notes, was the case with Wales.
In his study of Spanish regions, Fuente finds that where technology diffu- sion occurs it causes income levels to converge at a rate of 12 per cent per year.
Convergence among Spanish regions occurred during the period of his study, 1991–1995, but because of differences in regional productivity rather than absolute convergence (to the same income level) regions converge to their
‘steady state’ relative incomes and persistent regional income differences remained, and will continue in the long run. Regions in the advanced or high income/high technology ‘club’ may converge to the same income level, but less advanced regions will continue to be less advanced and ‘there would be no reason to expect a significant decrease in regional inequality in the future.’29Of the convergence that does take place, Fuente finds that education accounts for 20–25 per cent of it, technological diffusion for roughly one third, and changes in the capital/labor ratio the remaining 40 per cent, with the latter being accomplished by movements of labor from low- to high-income regions rather than from capital flows from the latter to the former.30 Andrés Rodríques-Pose would add that the reason why technological transfer is not able to bring about absolute convergence is the ‘relatively weak economic structure of these regions’ and he identifies these weaknesses as being: the absence of networks, the predominance of small firms, lack of competition, and a lack of entrepreneurship.31
So what has actually been happening in the EU – convergence or diver- gence? Both Cappelin, Castellaci, Fagerberg and Verspagen, and Michele Boldrin and Favio Canova agree that convergence occurred up to the end of
the 1980s but that there has been little change in national per capita relations since then.32The exception to this is the convergence between the EU nine and the three low income entrants, Greece, Portugal and Spain. However, they differ on the impact of EU regional policies, the Structural Funds, on income inequality. Boldrin and Canova conclude that ‘there is no evidence that Structural Funds have had a positive impact upon the growth rates of either labor or total factor productivity in the poorer regions,’ and that convergence is unlikely to occur during the next two or three decades. Their conclusion is that the convergence of the first decades following the Treaty of Rome occurred the way it did between the US North and South – through labor migration rather than because of regional policy.33 Since, in their opinion,
‘(n)o model can predict convergence in levels without migration of labor and capital,’ the most important policy initiative that could be adopted by the EU would be measures to facilitate increased labor mobility.
Cappelen et al. criticize the Boldrin and Canova study because it does not take into account either the impacts of growth-affecting factors other than EU Structural Funds or the reform of the regional support program of 1988. When they take these factors into account Cappelen et al. find ‘that EU regional supporting through the structural funds has a significant and positive impact on the growth performance on European regions and, hence, contributes to greater equality in productivity and income in Europe.’34However, at the level of the region rather than the nation they find that EU regional policy has a greater impact on the more developed regions, that poorer regions are charac- terized by weak infrastructure and R&D capabilities, and that the support ‘is least efficient where it is most needed.’ Thus, they argue that Structural Fund expenditures must be packaged with policies that will transform the economic structures and research capacities of poorer regions.
The conclusion one must draw with regard to the convergence or diver- gence debate is that convergence at the level of the regions will be long in coming and that transfers of funds from rich to poor regions must be accom- panied by a variety of measures that will address a broad array of disadvan- tages that hinder the transformation of the poorer regions.