Rescaling Europe: Effects of Single European Market Regulations on ...

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Volume 36.6 November 2012 1268–87

International Journal of Urban and Regional Research DOI:10.1111/j.1468-2427.2012.001141.x

Rescaling Europe: Effects of Single European Market Regulations on Localized Networks of Governance in Land Development TUNA TAS ¸ AN-KOK and WILLEM K. KORTHALS ALTES

Abstract

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Rescaling state responsibilities and capacities not only triggers an uneven distribution of regulatory and fiscal powers across scales but also creates complex governance relationships that result in distortions in local processes of urban development. Within this framework, this article analyses how Single European Market regulations affect urban governance capacity through their impact on localized networks of governance. This analysis is based on case studies of public and private cooperation in land development in the Netherlands. The article focuses on two regulations (state aid and public procurement) that are part of European competition policy. It also analyzes the manner in which these regulations, aimed at creating a single market at the supranational scale, had local consequences. The article concludes that local interactions are contested and distorted by the interference of the Single European Market regulations at the supranational level, which impacts local governance relations and processes.

Introduction Geographic scale is not an unproblematic, pre-given and fixed hierarchy of spaces within which developments occur, but is constructed through social, economic and political processes (Leitner, 1997). Actors manipulate relations of power and authority between nested political hierarchies by positioning their actions in different scales and, in this way, reshape and reconstruct scalar realities. Various scholars have addressed these acts of rescaling using a variety of perspectives, including critical social theory (Brenner, 1998; 1999; 2004), the regulationist approach (Swyngedouw, 1997; 2000; Jessop, 2002; 2003; 2004a; 2004b; 2009; Uitermark, 2002) and new regionalism (Jones and MacLeod, 1999; MacLeod, 2002). Gaps in the literature on the influence of rescaling at both the local and global scales of political decision making (and on the interaction between various scales) have been filled with local empirical evidence (see Gualini, 2004; Mansfield, 2005; Batterbury and Fernando, 2006; Emmanuel, 2006; Ercan and Oguz, 2006; Norman and Bakker, 2009). As the discussion continues and new terminology is added to the literature — for example, jumping scales, scale fragmentation, scale bending, the politics of scale, scalar fix, mismatched rescaling (Smith, 1993; Uitermark, 2002; Brenner, 2004; Miller, 2007; Moore, 2008) — rescaling remains a complicated metaphor, especially when applied to spatial outcomes. The literature has generated fragmented and contradictory conclusions regarding how rescaling actually occurs, whether it occurs at all, and how it affects processes of urban development. © 2012 Urban Research Publications Limited. Published by Blackwell Publishing, 9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main St, Malden, MA 02148, USA

The Single European Market and local development in the Netherlands

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A specific theme in the literature is the ‘scalar restructuring of state responsibilities and capacities’ (Leitner and Miller, 2007: 120), which has been emphasized extensively in studies of rescaling in relation to neoliberal globalization. Rescaling state responsibilities and capacities by downloading service provision from national to local and regional scales can trigger a ‘mismatched rescaling’ (Miller, 2007: 235) of responsibilities and resource allocation. Moreover, the decentralization of service provision to local authorities without giving them sufficient fiscal capacities may result in hollow local states (Miller, 2007: 236). Mismatched rescaling can be defined more generally as ‘the uneven distribution of regulatory and fiscal powers across scales’ (Mahon and Macdonald, 2010: 216). This may be considered a general feature of rescaling — there is disequilibrium of regulatory and financial powers over different scales, resulting in struggle and complex governance relationships to get around the problem (see also Smith, 1993). Mismatched rescaling may, in fact, extend beyond fiscal and financial capabilities, as it may relate to the territorial fragmentation of many urban regions over various local authorities with different social structures and financial capabilities. Moreover, decentralization of powers is often only partial, which involves complex coordination of policy domains between local and national authorities (Korthals Altes, 2002). This article adds to this debate by analyzing the ways in which the ‘uploading’ of powers to supranational institutions such as the European Union, may, like the downloading of responsibilities without sufficient capacities, result in a rescaling mismatch. European integration provides ‘a paradigmatic example of the political construction of scale. It demonstrates well that scale, in this case supranational scale, is purposefully constructed by political actors in response to place- and time-specific contextual realities’ (Leitner, 1997: 124). We argue, on the one hand, that interventions at the global or supranational scale cause mismatches in the rescaling of local decisionmaking, policymaking and implementation mechanisms and distort localized networks of governance concerned with place-making, which has direct policy consequences for brownfield, greenfield, housing, industrial and commercial developments. On the other hand, however, we also argue that local actors may call in the European scale as an extra device in their struggles over urban development. This study focuses on Single European Market regulations at the supranational scale and land policy practice at the local scale to demonstrate the gradual institutionalization of contestations at the level of local governance. These localized networks of governance should be distinguished from interurban networks (as analyzed by Leitner and Sheppard, 2002), which have been promoted by the European Commission as part of its structural funds to facilitate collaboration and mutual learning between cities. We analyze different networks around specific development activities in which public and private actors cooperate. Land development is deliberately selected as the focus of this study as it constitutes the capital accumulation and regulation context in a multi-institutional framework (Healey, 1992). Multiple actors and institutions are at once autonomous and structurally coupled through various forms of localized networks of governance on the basis of land and property transactions that are regularized by means of a set of governance instruments including planning and zoning regulations (Alexander, 2001). As land development involves networks that link actors at different scales, it requires multi-scalar regulations in a variety of fields including law, finance and taxation, planning and zoning, and local administration (Turk and Korthals Altes, 2010). This multi-institutional and multi-actor setting provides a perfect nucleus for analysing rescaling mismatches. The Netherlands is a significant case because of its strong cooperative tradition in urban development, known as the polder model (Terhorst and van der Ven, 1998; Glasbergen, 2002). In this model, interest groups (i.e. the stakeholders in political decision-making such as governments, trade unions and private companies) acquire a distinct position in policy processes on the basis of a covenant between business and government. This way of organizing is not limited to formal interest groups; development companies engage in this process as well. The multi-actor urban International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited

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Tuna Tas¸an-Kok and Willem K. Korthals Altes

development approach is reflected directly in the provision of housing, as housing has been one of the strongest focus points of the Dutch welfare state, which in recent decades has shifted in a more market-friendly direction. Thus, the Dutch case clearly displays a multi-level governance process in reality. Both the distortions that affect localized networks of governance in the land market and rescaling mismatches can be perfectly observed in the case of the Dutch land market as European regulations (more specifically, state aid and public procurement rules) interfere in the relationship between public and private parties who have always hitherto organized their own specific ways of developing land. The land development policy forms a foundation for establishing cooperation between public and private actors. In several instances, Single European Market regulations interfere with land development practice. In this context, a new land development law in the Netherlands links the organization of both space and relationships between actors in the public and private sectors. Within this framework, Dutch land policy has been analyzed in this article to determine the extent to which interactions between local policy and European policy can be addressed in order to answer two questions. First: to what extent does treating land development procedures merely as trade agreements or business transactions within the framework of the Single European Market regulations affect urban development approaches that are based on regulated cooperation between public and private sector actors? And second: to what extent do these interventions affect the capacity of local authorities to continue building local networks of governance? Data were collected from various general sources on state aid and public procurement, and from press releases, official letters between the EC and individual countries, newspapers, and other secondary data sources in order to find cases to answer these questions. The article consists of five sections. Following this introduction, the second section introduces a discussion on rescaling, territorial restructuring, and the impact of scalar mismatches on governance issues. The third section briefly introduces the Single European Market regulation and its relevance to our topic. The fourth section establishes Dutch land policy within the framework of local responses to Single Market rules to show how European regulations affect urban policy networks (directly or indirectly). In this section, we also focus on the specific effect of these regulations on land development law. The fifth section shows how EU regulations distort localized governance networks in the Netherlands, and how the implementation of Single European Market regulations caused conflicts in land transactions, particularly in public–private partnership (PPP) projects. The final section contains our concluding discussion.

On rescaling and governance capacity in relation to the European Union As indicated in the introduction, rescaling may result in a mismatch of powers over scales. This affects ‘the capacity of state institutions to effectively carry out crucial governance functions’ (Miller, 2007: 235). The concept of capacity for governance is of eminent importance for the purposes of this article, as it is this capacity that is affected by the organization of a Single European Market. Following Stoker (1998), the concept of governance refers to a complex set of institutions that are drawn from governments but also transcend government. Governance is a process of coordinating political decision-making (DiGaetano and Strom, 2003), involving the harmonization of inputs from various stakeholders, actors, social groups and institutions within a particular institutional context (Melo and Baiocchi, 2006) in order to achieve appropriate goals that have been discussed and collectively defined within a fragmented, uncertain environment (Le Galès, 1998; 2001). This process results in higher complexity with regard to the legitimation of responsibilities needed to address the issues at stake (Stoker, 1998). International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited


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Governance is ultimately ‘the capacity to get things done’ (ibid.: 24), not solely through the power of government or other authority, but also through the use of new tools and techniques for steering and guiding the necessary processes. This capacity has different dimensions (Korthals Altes, 2002). The financial or fiscal dimension is addressed by Miller (2007) in relation to the downloading of responsibilities without the provision of adequate financial means to carry them out. For local authorities the territorial dimension may also play a prime role as cross-border issues may hamper policies to address urban issues. Excessive municipal fragmentation may be a hindrance to compact urban development policies (Razin and Rosentraub, 2000) and to the regeneration of older suburbs (Vicino, 2008). Another dimension is the tension between locally derived territorial policies and centralized sectoral approaches by vertically integrated policy communities (Vigar and Healey, 1999; Mawson and Hall, 2000). In a way, European state-aid and public-contract policies can be considered to exist in the midst of vertically integrated policy communities of this kind that use specific expert knowledge and frame local territorial policies. As a result, a particular local government measure is not considered to be a local measure in a concerted local territorial planning policy, but is instead conceptualized as a potential infringement of the Single European Market. The level playing field for competition between enterprises in Europe is in question when development companies get gap funding for brownfield regeneration (Adair et al., 2003; Korthals Altes, 2006). In this way, local authorities are limited in their capacity to act. In addition to raising expectations that cities will position themselves in the market and compete with other territories, the Single European Market policy has also turned cities into battlefields of competition. As argued in the scholarly literature (Brenner, 1999; 2004; Jessop, 2005), major transformations in state territorial power have occurred within this competitive environment. Since the early 1990s, the scale issue has been a focal point in the literature, and various diverging opinions have emerged concerning the term rescaling and the position of the state versus supranational powers (Swyngedouw, 1997; Brenner, 1998; 1999; 2004; Jessop, 2002; Mansfield, 2005). Some scholars (Bryson et al., 1999) have emphasized the dynamic and constantly changing bargaining process between transnational organizations and nation-states shaped by the changing global strategies of transnational companies, the global economy, and national and international regulatory environments, while others (Weiss, 1999; 2003; see also Swank, 2002) have highlighted the importance of the national scale for mediating the role of globalization in national situations. Bringing the social dimension into the discussion, Mansfield (2005) argued that the nation-state is not a level or a scale, but a dimension of social practice and the production of space (Smith, 1993; Swyngedouw, 1997; Herod and Wright, 2002). Underlining the importance of social practices as a defining factor in governance capacity, in this article we agree with Leitner and Miller (2007) that scales themselves are constructed through social interactions. Scalar research is rooted in actual social practice, and scale is not a structure apart from, let alone preceding, this practice. Thus, social practices and power relations among local networks that constitute local forms of governance are fundamental elements to be tackled while investigating the consequences of rescaling. One should, however, be aware of the conceptual confusion surrounding the scale issue as a number of scholars have already pointed out. For example, Moore (2008) attributes this confusion partly to a failure to make a clear distinction between scale as a category of practice and as a category of analysis. This critique argues further that ‘the notion that the scales are actually existing sociospatial levels, platforms or arenas is often taken for granted in social sciences’ (Moore, 2008: 208). Jessop (2009) also warns about the dangers of scalar interpretations, systematically arranging the forms of scalar turn into three categories: thematic, that is, scale as an important analytical topic; methodological, scale as an entry point for social analysis; and ontological, which assumes that scale is an unavoidable dimension that must be integrated into any analysis. International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited

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Arguing that scalar turn is justified on ontological as well as thematic and methodological grounds, since current state reorganization largely involves scale and networks rather than place and territory, Jessop (2009) regards the emerging and complex governance system of the EU as multi-scalar, and points out weakening hierarchical forms of coordination and complementary changes to the strategic selectivities of national states, new forms of strategic coordination and new forms of meta-governance. These new forms of governance involve participation and power sharing, multi-level integration, diversity and decentralization, deliberation, flexibility and revisability, and experimentation and knowledge creation (Scott and Trubek, 2002). These features depict a rather complex system of European governance, in which political decision-making is becoming more fragmented (Scott and Trubek, 2002). We agree with Jessop (2009) that the EU itself is becoming a complex point of intersection in the emerging, hyper-complex and chaotic system of global governance. The dispersal and fragmentation of authority that rests upon fluid systems of power sharing, resulting in scalar mismatches of power and further challenges to the capacity of governance to act, will continue to characterize the future of multi-scalar Europe, as we illustrate in this article in the case of Single European Market regulations.

Single European Market regulation This article is about how the development of the Single European Market affects the governance of local urban development. The development of a Single European Market, may, on the one hand, be considered as a movement towards globalization — instruments developed to promote a Single European Market are presented as lessons for the World Trade Organization (Gordon et al., 1998), and may be used to break through local relational networks (Korthals Altes and Tas¸an-Kok, 2010). On the other hand, the key institutions of markets are commonly organized on a national scale. Fligstein (1996: 657) considers ‘the formation of markets as part of state-building’ in which property rights (which determine who owns the surplus produced by assets), governance structures (i.e. rules governing competition and cooperation between firms), and rules of exchange (such as the law on contracts, health, environmental and safety issues) are defined (see also Fligstein and Stone Sweet, 2002). [In] most advanced industrial societies, states have played a pivotal role in producing stable institutional settings for markets to emerge. As firms have grown and become more sophisticated, they have made demands on states for rules to promote market growth. States provide rules and courts so that market actors can engage in exchange and be able to try and construct stable markets (Fligstein and Merand, 2002: 10).

National states, and elites within national states, are very reluctant to transfer powers over property rights, governance structures and rules of exchange to Europe. More generally, these powers remain largely unaffected by the ‘hollowing out’ (Jessop, 1994) of the state. In the development of a Single European Market, the baseline was that member states agreed that such a market involved creating certain rules of exchange between markets (Fligstein and Mara-Drita, 1996). The principle of ‘mutual recognition’ of goods, for example, that entails that a lawful good in one member state is admissible in all other member states, has produced a great deal of pressure for the development of supranational regulations governing which goods are admissible on the market (Fligstein and Stone Sweet, 2002). The principle that a government may not favour its own domestic enterprises above enterprises from other member states may have a considerable impact on the organization of local scales, as actors — both local authorities and the market parties that contract with them — have to rescale their activities to take account of Europe-wide competition. The establishment of the Single European International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited


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Market is still taking effect in practice. It is affecting the legislation of local and regional governments; examples include changes in planning regimes, vocational and professional training, local transport, the environment and trading standards (John, 2000; Bishop et al., 2000). European regulations, as we show in this article, also encroach on national land development practices (due to the state aid rule) and planning obligations (due to the public procurement rule) (Korthals Altes, 2006). State aid and public procurement rules are dealt with especially in this article for that reason. Rules on state aid are established in European treaties (EEC, 1957; EU, 2010). The general competitiveness policy of the EU perceives the market-based economy as the best guarantee for raising living conditions for its citizens. The EU’s market principles and regulations are transposed into a wide variety of local contexts with large differences in land and property development practices and institutional contingencies. The transparency and fairness of general competition are guaranteed by the Treaty, while specific regulations concerning urban development are brought about by such regulations as state aid and public procurement. The general principle is that state aid is not allowed and that unjustified state aid must be repaid. The public procurement rules are established in a specific directive (based on earlier directives) of the European Parliament and of the Council of the European Union (EP and CEU, 2004) regarding the awarding of contracts for public works, public supply, and public services. The European Court of Justice (ECJ) has ruled (ECJ, 2001) that public works achieved through planning obligations (i.e. where the developer lays the infrastructure in the land under development and transfers this to the local government without charge) must follow the tender process specified by European public procurement rules. Moreover, the Commission expects open tender processes in public– private partnership projects to ensure fair and transparent competition (CEC, 2008). Such processes are obviously not always preferred by local governments, as they deliberately break through local governance networks (each of which has its own distinct culture, rules, and relationships of trust), as it opens them up to wider competition (Korthals Altes, 2006; Korthals Altes and Tas¸an-Kok, 2010). Possible consequences include increased transaction costs, extended development processes and disagreements between the local government and private developers involved in the process. The direct and indirect influence of legislation on the regulation and implementation of urban development projects (brownfield, greenfield, housing, industrial or commercial) is evident in many European cases, although policymakers and scholars might underestimate the consequences of such influence. The limited literature and fragmented information are important indicators of this situation. Just as in the case of the downloading of responsibilities for public service provision to local authorities without providing them with the fiscal means to facilitate this provision, a rescaling mismatch can occur at local level due to the centralization of market organization towards a European level.

Networks of governance in land development policy in the Netherlands The diminishing of welfare functions since the early 1990s suggests the emergence of an enabling state that stimulates rather than regulates development (Healey, 1997; Korthals Altes, 2007). This has been addressed extensively in the rescaling literature (Brenner, 2004), This changing urban policy context calls for a more entrepreneurial model of urban politics that simultaneously promotes capital accumulation and speculative mobilization of resources while calling for more cooperation between public and private stakeholders in urban development (Tas¸an-Kok, 2008). One result of the policy shifts is that municipalities have acquired an active role in interacting with non-state actors (Mayer, 1994), and they are servicing and selling land in competition and cooperation International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited

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with private development companies (Korthals Altes, 2007). This policy shift is reflected directly in the provision of housing. When the financial ties between the social housing sector and the national government were dissolved, responsibilities for adequate housing devolved from national to local-level authorities (Priemus, 1995; Louw, 2008). These changes form the background for the changing policy context in the Netherlands. In the Netherlands, local governments have traditionally practised direct land development. In other words, they have bought land, serviced it, and disposed of the serviced plots to development companies, housing associations and end-users (Needham, 1997). As Needham (1992) explains, because there was no major difference in value between agricultural land and building land, the price of the plots was based on the cost of the works (including the costs of agricultural land) instead of on the residual value according to discounted cash-flow analysis. Central government subsidies were often necessary, as the cost of infrastructure provision exceeded the sum of the sales price of the serviced plots, as the housing programme was dominated by social housing. The housing policy of that time provided heavily subsidized ‘objects’ (i.e. dwellings) to subsidized ‘subjects’ (i.e. low-income households). The restructuring of the housing policy in 1991 abolished grants for social housing (Priemus, 1995; 2003) and changed the context dramatically (Korthals Altes, 2007). The idea was that local authorities and housing associations should replace central government funds with market revenue. This development may set the stage for the development of a mismatched rescaling as introduced by Miller (2007) and analyzed by Mahon and Macdonald (2010). At first, this mismatch did not occur as national authorities reorganized the housing and urban development market in a way that supported market revenue for both local authorities and housing associations (Priemus, 1995). For the national authorities it was clear that municipalities must have enough steering powers, that central government must give municipalities sufficient scope in matters of political and financial administration and integration. However, decentralizing urban regeneration policies involves more than decentralizing the budget, as local government must have enough capacity to endorse policies decentralized by national government (Korthals Altes, 2002). These local-scale capacities also involve the capacity to develop a relational network for the governance of urban services. At the same time as it decentralized housing policies, the central government renewed its spatial policies, announcing that it would henceforth be far more restrictive on development outside urban containment areas, although it was willing to make covenants with urban regions on development activity for a period of 10 years (Needham and Faludi, 1999). This inspired development companies to buy land on sites close to cities as a means of acquiring a position on the development market. In most cases, the developers sold this land to the local authorities for a reasonable price in exchange for serviced plots and further land development rights (Groetelaers and Korthals Altes, 2004). The ability to reclaim costs and the achievement of certain qualitative standards are the main arguments supporting the preference of Dutch local authorities for the direct land development strategy (Groetelaers, 2004). This allows them to maintain a central role and exert far more influence on the process of land development, despite the major shift from a single-actor to a multi-actor context. Because of the change in context, however, local authorities currently have far more connections with development companies and other private sector agencies. For both local authorities and local developers, the quality of the relationship is important. Many development companies consider local authorities as their clients and adopt a ‘two-client strategy’ (Korthals Altes, 2009), with the real estate market first and the local authorities second. Development companies sometimes ‘sell’ plans to local authorities in order to acquire the opportunity to develop them. The strategy followed by Bredero for the Utrecht station area in the 1960s is one early example (Bellush, 1968; Hommels, 2000). Other examples include the Wilma Company’s plans for inner-city International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited


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development in Tilburg (Gemeente Tilburg, 1991) and the practice of land assembly by the city of Den Bosch, which sells land to a development company that has a good relationship with the local authorities (Louw, 2008: 76). Development companies that do not succeed in winning the trust of local authorities may not be treated as well, particularly if they are suspected of ‘acting as a free rider’ (Louw, 2008: 78). Good relations with local government are an important asset for development companies in the Netherlands as local authorities have discretion in changing the development plans necessary for developments and may prefer amicable partners from whom they expect that they can get a good deal. Hostile development companies must use landownership to negotiate a share of development activity, while amicable developers have far more means at their disposal. Local authorities may even use pre-emption, compulsory purchase or other legal instruments to acquire a share of the land and development potential, if necessary, in order to develop the area according to plan. Not all PPPs are formed through competitive bidding processes in which a government procures a well-defined work. Instead, many are formed because the developers have a stake through land ownership and the authorities discover a mutual interest in developing the area. In this process, it is important to build trust between agents in order to prevent negative images such as ‘profiteers who take the money and run’, and ‘market-insensitive planners who expect us to finance their Utopia that nobody else wants’ gaining undue influence. In current practice, the scope of relationships is broader than it was in the past, when tight networks of local authorities and building companies existed, particularly in the south of the country. Local authorities followed strategies that helped them to organize activities on this scale in which they had the central position of power and were able to allocate land to amicable development companies. For example, the ‘entrepreneur’s involvement in the development of Tilburg’ was a selection criterion used by local government in Tilburg to decide which development companies could buy plots serviced by the local authority (Gemeente Tilburg, 2002). Their policy was to refuse negotiations with development companies that bought land without municipal consent (De Greef et al., 2001; Gemeente Tilburg, 2002). The compulsory purchase law, however, did not lend itself to this selective approach. In due course, the local network was forced open by an outsider, a large building company located only 30 kilometres from Tilburg that bought land on a strategic site. After several years, the local authority finally conceded. The land bought by this company was too important to ignore. The development companies’ practice of buying land is generally accepted by local authorities in the Netherlands. To protect land from being snapped up by ‘hostile invaders’, city councils will sometimes casually invite their trusted connections to buy land before a policy has been established that would prevent them from doing so without a formal budget or official consent. Although local networks have been scaled up as many development companies are now consolidated in nationally or even internationally operating parties, this has not negated the relational nature of contracting between public and private agencies (Van der Veen, 2009). In relationships such as the one described above, the rules are set by the parties themselves, and compensation for behaviour contrary to the rules may not always be based on legal claims. Violating the rules may cost a development company its goodwill, however, thereby making it harder for them to enter contractual relationships with any other local authority (Van der Veen and Korthals Altes, 2009). There are also local remedies for behaviour contrary to the bargain agreed, which cannot be called upon by going to the courts within the national legal system. Although the system of agreements for developing and servicing land is not watertight (De Wolff, 2007), it does not stop companies from paying development contributions. Large companies tend not to sue local authorities, particularly in cases in which they have given their word (and sometimes their signature) to pay for a fair share of the land development costs, even if they would get their money back if they went to court. The fact that smaller companies can slip through this legal maze in the relational network between local authorities and development companies inspired the Association International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited

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of Local Authorities and the Association of Dutch Property Developers, which organizes the larger development companies, to plead for improvements to the system to recover the costs of development obligations (Priemus and Louw, 2002; Groetelaers, 2004; De Wolff, 2007). This resulted in a new legal system, which has been criticized by the Association of Developers and Building Contractors (NVB, 2006), which organizes the small and medium-sized development companies. One central feature of this system is that parties may negotiate freely and make development agreements before a municipal council decides on the land-use plan. If any potential free-riders are in sight when the council makes its decision (i.e. if there is no guarantee of full cost recovery), the council must also decide on a development-contribution plan that ensures the full recovery of legitimate costs relating to the provision of infrastructure, including the costs of the land. This plan is based on the principle that the parties with the highest revenues should pay the most and that councils may not issue building permits until landowners have paid their fair share. The idea of building networks between local authorities and development companies, which scholars elsewhere (Guy et al., 2003: 1194) have seen as a plea for ‘locally based forms of property investment and development’, may conflict with the concept of a single European market that aims to create a level playing field for all enterprises (Korthals Altes, 2006; Korthals Altes and Tas¸an-Kok, 2010). While addressing the effect of Single European Market rules (state aid and public procurement) on local practices we analyze several cases in which the EC has researched potential infringements. These cases provide a platform for highlighting the interventions of supranational European regulation on local policy networks consisting of municipal governments, development companies, and other stakeholders of various modes of governance. The reorganization of the welfare state due to decentralization policies and the use of market finance for urban developments, which is based on the idea of local scale relationships between market parties, hybrid organizations such as housing associations and local authorities, does not marry well with the upscaling of the organization of the market towards a European level. But other parties who struggle with the policies of the local authorities may welcome the possibility of rescaling local urban development policies towards a European scale.

Distorted localized governance networks: the effect of Single European Market rules on Dutch land development processes Due to their particular structure, which is based on regulated cooperation between public and private sector actors, it was to be expected that Dutch urban development practices would be affected by European regulations that aim to standardize the relationship between the public and private parties. And this is, in fact, what happened. Moreover, distorting the way in which localized governance networks were built also affected the capacity of local authorities to continue building them. The cases we have selected explore these dynamics and highlight two types of distortion that cause mismatched rescaling: first, public procurement regulation to bring in open tendering processes can distort the traditional relations between public and private parties in urban development projects as these may include relations between parties based on trust and functionality; second, state aid regulation distorts the support mechanisms and agreements between public and private sector actors since incentives provided by the public sector to motivate development may be seen as compensation. Distortion of regulated cooperation between public and private sector actors due to public procurement rules

In 2001 a Dutch court of appeal (Gerechtshof’s-Gravenhage, 2001) ruled that a land contract was in conflict with the EU directive on public procurement. The contract established that the local authority would sell land to a consortium of development International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited


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companies who had the opportunity to develop housing, retail and other commercial functions and the obligation to provide infrastructure. After completion, the infrastructure was to be transferred to the local authority without direct monetary payment or for a symbolic amount. This experience transformed the potential impact of European public procurement law on localized practices of land development. From a subject that lawyers feared could affect practice, it turned into direct legal intervention. Shortly thereafter, the European Court of Justice (ECJ, 2001) issued the Scala judgment, suggesting that development opportunities may be considered as pecuniary interests that the owner has in public works, even if no money is transferred from government to landowner (Korthals Altes, 2006). From then on, it was clear that local actors had the option of calling upon the institutions of the Single European Market to change their position in local networks, and these rules were considered highly problematic for the practice of land development (Bregman and De Win, 2005). In theory, the EC can also intervene without local actors, although it does not have the resources to track all the projects in every municipality in Europe. If a local council uses its own tendering methods to collaborate with a preferred company and nobody complains, the EC is unlikely to notice the situation. As shown by the following case, however, local actors may choose to rescale this as a European issue, which may cause considerable trouble for the municipality and partners involved. The City of Amersfoort established two corporations with market parties to develop a new residential area, Vathorst, which would have about 11,000 dwellings. In 2005, when the project was already well under way, the chair of a local political party (the Citizens’ Party of Amersfoort) complained to the EC. The party chair argued that the corporation’s partnership with a private decontamination company (Smink Beheer BV) was incompatible with EU rules, as there had been no open tendering for this work. The municipality decided to plan the new residential development area, in which various market parties had acquired land at the specific request of the local authority, which was aiming to share the risk of this development with market parties (Groetelaers, 2006). The municipality established a joint development company (Vathorst Beheer BV) with the developers and a housing association that owned the land. A development agreement was signed in June 2008. Nearly a decade earlier, on 25 January 1999, the municipality had entered into a separate contract with Smink Beheer BV to decontaminate the land. In addition to being a landowner, Smink was involved in many other facilities in the area, including the infrastructure for rubbish collection and storage and sorting construction waste as well as earthwork, water construction works and ground sanitation. Smink’s task in the project was to decontaminate the polluted soil. This agreement triggered the issues that led to the complaint. The EC issued a ‘notice of default’, criticizing the following aspects of the project: development rights; land, construction and housing development issues; the contamination agreement; the creation of social housing; and the framework agreement between the parties (Boot and Ubink, 2005). The EC questioned whether the appropriate procedures had been followed in establishing the consortium, commissioning the public works for infrastructure provision, and developing the soil-decontamination contract between the municipality and Smink Beheer BV. The EC also questioned whether the municipality was correct in implementing a social housing project without open tender. The EC argued that even market-sector development could be considered as public works. In the contract, retail and housing development had to be carried out on the allocated plots of land. The EC argued that compensation from third parties (e.g. buyers of new homes) did not change the fact that the contract stated that agents must accomplish these works in compliance with the public procurement directive. The development agreement did indeed indicate that both construction and residential development would be conducted by the development companies. The EC determined that these works should have been allocated through a tendering process. In a letter dated 16 March 2005, the Commission asked the Dutch government to clarify matters concerning the Vathorst site. After the International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited

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Dutch government had issued a report providing guidelines for conduct in procurement issues in the future, the EC closed the case in June 2009 (Gemeente Amersfoort, 2009). Meanwhile, Phase I of the project had opened in 2008. Based on this and other cases (e.g. ECJ, 2007; EC, 2011; ECJ, 2011), the European rules on contracting public works are high on the agenda, and court cases are being discussed in law journals, as well as in the broader professional debate (BZK, 2011). Many arguments are based on the principle of ‘contained compliance’ (Conant, 2007). A number of authors (e.g. Bregman, 2008) interpret the law in such a way that present practice is affected as little as possible. This approach is appreciated by local authorities, who may hire experts to help them with such matters in order to avoid the interference of European law in their networks. In this way they are trying to avoid a rescaling of their policies towards the European scale, which results in a pattern of discontinuous adjustment of local practices to comply with European policies (Korthals Altes, 2010). Distortion of the capacity of local authorities to build local networks of governance due to the state aid rule

The Single European Market has also affected the capacity of local authorities to build networks with market parties in land development. Here we can see a battle between the local scale (as in the cases of Alkmaar, Heerenveen and Haaksbergen explored in this section) and the European scale (in the case of state aid rule) resulting in a mismatch. The City of Alkmaar was involved in a case with the EC from 2001 to 2004. The case involved the municipality’s agreement with AZ Vastgoed BV and AZ Alkmaar, the local football club, to construct a new stadium. On 7 December 2001, the municipality reached an agreement with these parties concerning a location for the new stadium. This agreement involved four transactions connected to the sale of various plots of land (CEC, 2006a). Following a complaint by the business community, who called in the European scale as they feared unjust competition from enterprises on the new site in Alkmaar, the EC initiated a formal investigation procedure in July 2003 to determine whether the agreement constituted state aid within the meaning of Article 87(1) of the EC Treaty. Due to an order from the Court of Appeal in Amsterdam (April 2004), the land transaction was frozen, and the municipality decided to start new negotiations. An independent expert evaluation of the plots was conducted in accordance with the EC’s communication on state aid elements in sales of land and building by public authorities (CEC, 1997). A new agreement, which complied with the EC regulations, was concluded, and the EC investigation became irrelevant. After a prolonged delay caused by the procedure, the new stadium finally opened in 2006. Another example comes from the town of Heerenveen in the northern province of Friesland. In this case land was sold for a low price in November 1997 as part of a package deal to attract SCI-Systems Netherlands BV to develop a factory for the assembly of PCs for Hewlett-Packard. The regional authority promised additional aid to attract investment into this region against competition from other potential sites in the Netherlands. In March 1998 a private third party complained to the EC that state aid was going beyond the regional-aid scheme. By a letter dated 9 December 1998, the Dutch Ministry of Economic Affairs granted investment aid of 20% of eligible investment costs of the project (about €5.67 million) to SCI under the IPR scheme (Regional Aid Scheme). SCI was already the main beneficiary of the 2000 Jobs Programme, drawn up by the regional employment office (Regionaal Bureau voor de Arbeidsvoorziening Friesland) to provide jobs for long-term unemployed and disadvantaged groups. On the basis of these complaints, the Commission demanded additional information from the Dutch authorities in March 1998 and got a response by January 1999. The EC declared that some of the aid that had already been granted was unlawful and incompatible with the Common Market (CEC, 2001). This state aid involved the sale of industrial land at a price below market value, aid for the rental and renovation of the temporary building used for production, and aid for the financing of security services relating to that International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited


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building. The letter traffic and exchange of information and opinions expanded over time and since the new SCI factory was expected to produce PCs by the end of 1999, the company established temporary facilities in Leek (about 30 kilometres from Heerenveen) to carry on the production facilities. The EC ordered the repayment of the state aid, plus interest from the date on which it had been granted. A more complex case concerning the state aid rule involves the Marktpassage plan for commercial regeneration in Haaksbergen, a municipality with 24,000 inhabitants in the east of the Netherlands. In the early 1990s the municipality intended to regenerate the deprived town centre and provide quality housing and commercial space. Due to the value of private properties in the area, however, the project was too expensive for the municipality alone. By the end of the 1990s, six construction companies formed a company called Centrum Haaksbergen BV, which bought plots of land in the area (CEC, 2006b). The project was a private initiative to provide apartments and commercial space for private users; the public infrastructure would be handed over to the municipality. When the private parties realized that the project would not be as profitable as expected, they asked for financial support from the Haaksbergen municipality. Counting on a financial contribution from the province, the municipality agreed to reciprocate largely by covering the expected losses of the private companies (CEC, 2006b). A new land-use plan was made in 2002 by the municipal council and approved by the provincial council in 2003. Meanwhile, in 2002, a local political faction (Leefbaar Haaksbergen) switched towards the European scale and complained to the Ministry of Internal Affairs (BZK), questioning whether a municipal grant counts as state aid (van Rooi and Stol, 2006). The ministry (BZK) decided that state aid was indeed involved in the project, and it blocked the Marktpassage plan in October 2002. A formal complaint was sent to the EC on January 23, 2004 about the possible involvement of state aid in the Haaksbergen Marktpassage project. In April 2006, the EC announced their conclusions regarding the situation, noting several forms of state aid (CEC, 2006b). This decision further postponed the development of the project. After several situations such as those illustrated by the cases in this article, European public procurement rules played an important role in framing the structure of the new Dutch law on spatial planning. Because of this impact on Dutch land development law, the national government has been actively publishing reports and other communications regarding how to cope with the European rules on land development. This debate has been fostered by new judgments, including Auroux vs Commune de Roanne (ECJ, 2007; see also Elvin and Banner, 2008). State-aid rules have figured less prominently in the debate. The Dutch ministries of Housing, Spatial Development and the Environment (VROM) and of Internal Affairs (BZK) published an explanatory document (VROM, 2005) to prevent possible confusion arising with regard to the state aid rule when municipalities calculate land sale prices too low for urban development. This may also be at stake in providing cheap land for social housing to housing associations (Tas¸an-Kok et al., forthcoming). Procurement and state aid issues may interact in such a way that failure to meet the procurement rules adds to a presumption of state aid being provided (Voorzieningenrechter Rechtbank Groningen, 2011; see also Bovis, 2005). In addition to these specific themes, the more general theme of good governance also plays a role, as does the related notion of government transparency in decision-making. Transparency is a general criterion that the ECJ sets for all government procurement, and it may also play an important role in establishing whether state aid has been given.

Discussion and conclusion To what extent does treating land development procedures merely as trade agreements or business transactions within the framework of the Single European Market regulations affect urban development approaches that are based on regulated cooperation between public and private sector actors? And to what extent do these interventions affect the capacity of local authorities to continue building local networks of governance? While International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited

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answering these questions, we have argued and shown in this article that local interactions are contested and distorted by the interference of the Single European Market regulations at the supranational level, which impacts the ‘capacity to get things done’ (Stoker, 1998: 24) of governance at local scale in the case of the Netherlands. The selected cases emphasize that, while property-led urban development practices have become more and more popular among European cities within the context of privatization and marketization, more local governments will have to deal with European-scale governance instruments like state aid or public procurement while implementing local urban development policies. Cases of land development practices with multi-institutional and multi-actor characteristics were analyzed to display the rescaling mismatches that occurred because of these Single European Market regulations. At the same time, a decentralization of powers towards these local networks has occurred, resulting in a ‘mismatched rescaling’ (Miller, 2007). The distortions of localized networks of governance in the land market were analyzed in Dutch land development as state aid and public procurement rules interfered in the relationship between public and private actors who have their traditional ways of developing land in partnership. As another side to the problem, for other actors, such as minority parties in the City Council, the development of a European scale may be a stronghold against unwanted policies of local authorities. This is not unique to urban policies. Alter and Vargas (2000) have reflected on the way European law has been used as an instrument for changing British gender equality policy in the workplace, and have formulated a step-by-step approach for how to use European legal precedent for changing domestic practice. This research shows (Alter and Vargas, 2000; Conant, 2007) that active domestic groups are a necessary prerequisite for interference by the European scale in domestic practice. Based on our case studies, we can see that this is also the case for the effect of the Single European Market on land development practices and urban policy implementation. The specific way in which the Single European Market is constructed (see also Fligstein and Mara-Drita, 1996) involves a certain detachment of practices within member states. Although there is a legal principle that European directives have a direct effect, in practice there is a struggle in which local groups must actively chase the European scale to cause it to intervene and become active. Based on our analysis, we can identify a number of issues that need to be further researched and clarified to achieve a more pragmatic understanding of the scale issue. The first is the struggle between actors. This dimension should be analyzed further through additional empirical research. Although we have documented the fact that Dutch land development networks are constrained by Single European Market regulations, the Dutch nation-state remains quite active in top-down urban policymaking. The impact of Single European Market rules is confined to the instrumental level of policymaking. It has not affected the goals or visions of policy programmes, but it has had an impact on arguments concerning how to intervene in urban land markets. This issue has been prominent on the Dutch agenda with regard to the debate on intervention in land markets, especially the theme of public procurement and the concept of state aid (to a lesser extent). This is in sharp contrast to the situation in the United Kingdom, where considerable attention has been paid to state aid in response to the EC’s decision to consider gap funding as not conforming to Single European Market regulations. In the Netherlands, the national government transfers its urban regeneration funds to the local authorities and provinces (Korthals Altes, 2002). It is left up to the local authorities to determine how to use these funds without state aid. The debate also plays a role in the introduction of instrumental law, as in the land development act. Our analysis shows that local policies cede to Single European Market regulations only when there is conflict or a problem. In such cases, individual local authorities perceive the regulations as burdensome (especially in public–private partnerships). Although the EU regulations on state aid and public procurement have legally binding powers in theory, they may be considerably less binding in local practice. Implementation is largely determined by complaints against the parties involved. International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited


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A second issue relates to governance networks, which Sørensen and Torfing (2005: 198) describe as ‘closed off policy communities of public and private actors [that] have been written off as an illegitimate form of unaccountable and corrupt elite politics that takes place behind closed doors’. From this perspective, the European Treaty’s notion of regulating trade so as to make it transparent and fair may be a way of preventing such closed governance networks. Outsiders may, as we have explained above, call in European institutions to bring the scale of the Single European Market to break local networks open. This is, however, done on the basis of neoliberal conceptions. The increasing influence of neoliberal political-economic dynamics on urban development and the increasing involvement of private sector actors in urban development at various scales suggest the relevance of the interference of the state aid and procurement regulations. This article shows that complex local networks of public and private stakeholders are not the only parties subject to such infringements. As experienced in many other EU countries, urban planning legacy is also influenced by the supranational interference of the EU. The implementation of these rules demanded changes to local regulations, perhaps even more radical than those undertaken in the Netherlands. The EC regularly announces steps it has taken against member states concerning the infringement of state aid or procurement rules. This is because the EC’s approach to rule enforcement relies largely on local stakeholders to send information or initiate legal action (Pachnou, 2000; Gelderman et al., 2006). Local awareness of single European market rules on urban projects may thus increase their impact. For stakeholders, single market regimes may form an additional opportunity for legal objection to urban development projects, without incurring the high costs of solicitors, formal court cases, or similar measures. Urban policymakers might not always understand European policy. As was shown in the case of Heerenveen, local stakeholders might consider EU policy aimed at fair competition as an impediment to the realization of important regional employment opportunities. In deprived neighbourhoods, EU intervention is not often acknowledged as an attempt to secure the cohesion of the union. Unlike aid destined for such aspects as disadvantaged regions or research and development, the EC is not permitted to make exceptions for aid to disadvantaged urban neighbourhoods or dilapidated commercial areas. There are signs that the EC is aware of the problems of urban regions in PPP implementations. It is currently working on documents related to the urban dimension of such community policies as the ‘Interpretative communication on institutionalized PPPs and community law on public procurement’, which was to be ready by the end of 2007. The report on the ‘Urban dimension in the community policies’ claims that the EC’s services will make an in-depth analysis of the impact of possible legislative initiative on concessions (CEC, 2007). Nonetheless, the EC depends on the willingness of member states to change their definitions of cohesion. The question remains whether European policymakers are indeed willing to make changes and adjust the rules for the specific needs of urban neighbourhoods within the union. The third issue, returning to the questions posed at the beginning of this article, is that the EU appears to remain a focal point for research in rescaling issues. The development of this scale, without replacement of a national scale, based on the use of national institutions for the development of the Single European Market, involves complex scalar issues and creates mismatched rescaling as local realities and practices actually define the significance of the European scale. Our analysis of the interference of EU regulations in land development practice in the Netherlands actually demonstrates the need to develop a conceptual categorization of the rescaling issue by examining the practices and realities of interlinked governance network relations on the international, national and local scales. Tuna Tas¸an-Kok ([email protected]) and Willem K. Korthals Altes ([email protected]), OTB Research Institute for Housing, Urban and Mobility Studies, Delft University of Technology, Jaffalaan 9, 2628 BX Delft, The Netherlands. International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited

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Résumé Repositionner les échelons de responsabilités et de capacités déclenche entre ceux-ci une répartition inégale des compétences réglementaires et fiscales, tout en créant des rapports de gouvernance complexes qui finissent par altérer les processus locaux d’aménagement urbain. Dans ce contexte, l’article analyse comment les réglementations du marché unique européen affectent la capacité de gouvernance urbaine par leur impact sur les réseaux de gouvernance implantés localement. Cette analyse exploite des études de cas sur la coopération public-privé dans l’aménagement du territoire aux Pays-Bas. L’article s’attache à deux réglementations (aide de l’État et marchés publics) intégrées dans la politique européenne relative à la concurrence. Il examine aussi de quelle façon ces règles ont eu des conséquences locales alors qu’elles participaient à la création d’un marché unique à l’échelon supranational. Les interactions locales sont contestées et dénaturées du fait que les réglementations supranationales du marché unique européen interfèrent dans les rapports et processus locaux de gouvernance. International Journal of Urban and Regional Research 36.6 © 2012 Urban Research Publications Limited