The need for local economic development in a globalised world

1
The need for local economic development in a
globalised world

• Andrés Rodríguez-Pose
• Department of Geography and Environment
• London School of Economics
• The Programme for Local Economic Development in
  Jordan (PLEDJ)
• Sheraton Hotel, Amman, Jordan
• 24th March 2011

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• Thomas Friedman
• Journalist (NYT)
• Writer
• 3 times Pulitzer Prize winner
• Guru of Globalisation

3
The world is flat

• The impact of globalisation (Freedom)
• Freedom of movement
• Freedom to adopt best practices
• Freedom for innovation and creativity to flow
• Freedom to create your own global and individual
  supply chains

4
Net result

• A better world
• A world where people and places are better off
• Empowerment
• Access to higher quality and cheaper goods
• Better, easier and cheaper connection to friends
  and family abroad
• Greater capacity to innovate without having to
  migrate
• The world is changing for the better

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But is this true? Places

• Bangalore
• Hub for ITC, software, aerospace.. Clothing and
  footware
• Silicon Valley of India Infosys, Wipro
• Third largest concentration of millionaires in
  India

• Singapore
• Huge trade hub
• Dynamic and diversified manufacturing sector
• Business service centre
• 30,000 GDP per head
• No unemployment

• Triangolo del Salotto
• Dynamic producer of sofas, armchairs and coffee
  tables
• 500 very competitive exporting firms
• High quality at low prices
• It all started in 1983!

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But is this true? Places (II)

• Detroit
• Dependence on autoindustry made it vulnerable
• High unemployment rate
• More than one third of its residents below the
  poverty line

• Asturias
• Still reliant on large public owned firms
• In unprofitable sectors coal mining, steel,
  shipyards
• Rapid decline from one of the richest to one of
  the poorest in Spain

• Gansu
• Specialised in mining and heavy industries
• But struggling to adapt to changes and keep pace
  with the rest of China
• One of the poorest provinces
• Migration
• Environmental problems

7
But is this true? People

• Nitesh Shetty
• From middle-class, aspiring tennis player
• To owning 4,000 apartments in Bangalore

• David Beckham
• From talented aspiring football player at Man Utd
  academy
• To global icon

• Joao
• Rocinha, Brazil
• Absent father
• Mother abandoned North East for a better life in
  Rio
• Struggling with menial jobs and occasional
  scavenging

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But is this true? People (II)

• Andrés
• Alternative between a live in a cosy Spanish
  university
• Or London

• Wen
• From rural village in Guandong province
• To swetshop in Shenzhen

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Globalisation and its implications

• There are winners and losers from globalization
• Our perception about whether there are more
  winners or losers will depend on
• Our sources of information
• Our frame of reference
• Our ideology and economic interests
• The way we measure things
• Hence, globalisation offers opportunities and
  threats
• Need to make the most of the opportunities
• And to minimise the threats
• But need to act strategically and to plan in
  advance
• Rather than wait for a crisis and events to take
  over

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Three challenges

• Globalization
• Urbanization
• Decentralization
• Leading to greater territorial inequality

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Globalization rise in trade
Trade in both agricultural and manufacturing
goods has been increasing in the last decades
Source Own elaboration from World Trade
Organization
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Sectoral shift
Agricultural to industry export ratios in
selected countries show that The importance of
agricultural exports has been declining compared
to industrial goods
Source Own elaboration from Comtrade, United
Nations Statistics Division data
13
Urbanization
Urban population as a percentage of total
population has been increasing in all areas of
the world, though not at the same pace

Source from World Development Indicators (World
Bank 2005)
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Urbanization and wealth
There is a positive association between the
degree of urbanization and a countrys wealth
Source Own elaboration World Bank data
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Decentralization the world in 1970
Red High level of decentralization Orange
Moderate decentralization Yellow Low or
partial decentralization Blue Decentralization
on paper
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The world in 2011
Red High level of decentralization Orange
Moderate decentralization Yellow Low or
partial decentralization Blue Decentralization
on paper
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The evidence Rising disparities
Moderate rise in disparities, weighted by
population (1970-2005)
In Europe
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Rising disparities (II)
Moderate rise in disparities, weighted by
population (1970-2005)
But also in the rest of the world
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Rising disparities (III)
Rapid rise in disparities, weighted by population
(1970-2005)
In new member states of the European Union
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Rising disparities (IV)
Rapid rise in disparities, weighted by population
(1970-2005)
But also in western Europe
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Rising disparities (V)
Stability, weighted by population (1970-2005)
In Europe
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Rising disparities (VI)
Stability, weighted by population (1970-2005)
But also in the rest of the world
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Declining disparities
Declining disparities, weighted by population
(1970-2005)
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Emergence of a new territorial structure

• Greater competition among firms, cities, and
  territories
• Nation-states struggling to cope with the changes
• Globalisation affecting different subnational
  spaces in different ways
• Primate cities
• Intermediate city-regions
• Rural areas
• Ability of the nation-state to provide suitable
  development strategies top-down undermined

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Globalization and development strategies

• Traditional development strategies are struggling
  in this new, more heterogeneous, context
• Key characteristics of traditional development
  strategies are
• Sectoral rather than territorial approach
• Top-down rather than mixed or bottom-up
  approaches
• Tendency to focus on large infrastructure or
  industrial projects
• Often to the detriment of human capital and
  innovation
• Financial support, incentives, and subsidies as
  key elements of the strategy
• These elements are becoming too rigid for todays
  evolving context

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Searching for alternatives/complements

• Experimentation with alternative approaches
• Territorial
• Integrated
• Focusing on institutions and governance
• Emphasis on sustainability and on the generation
  of quality work
• Locally owned strategies in cooperation with
  local, regional, national, and international
  actors
• Local Economic Development

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What is LED?

• LED is a locally-owned, participatory development
  process in a given territory
• It encourages partnership arrangements between
  local private and public stakeholders
• It enables the joint design and implementation of
  a common development strategy
• It aims to stimulate economic activity and create
  quality employment

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Core values

• The LED approach seeks to promote
• An inclusive policy process
• Equality and representation for all local
  stakeholders
• Formal and informal opportunities for voice and
  social dialogue
• A balanced development strategy with a strong
  focus on sustainable development and employment

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LED versus traditional strategies

• LED
• Territorial approach to development
• Bottom-up promotion of development from below in
  all territories
• Decentralized, cooperation between local public
  and private bodies
• Focus on maximizing local economic potential

• Traditional
• Sectoral approach to development
• Top-down approach centre decides where and how
  to intervene
• Managed by the central administration
• Focus on large industrial projects and financial
  incentives to attract activity

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Local economic vs community development

• LED
• Focus primarily on economic development and
  decent work
• Initiated by broad coalitions, including
  governments, local stakeholders, and
  international organizations
• All encompassing approach, involving local firms,
  residents and social, and political groups

• Community development
• Focus on social issues, such as poverty and
  social exclusion
• Initiated by a variety of actors, often NGOs or
  international organizations
• Seeks to involve primarily previously excluded
  groups and the poor

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How is this achieved?

• Through a balance between strategies and
  institutions

Institutions
Strategy
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Key elements in the strategy
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Types of LED programmes

• Property-based strategies
• Business support programmes
• Skill and human resource approaches
• Combination of different approaches

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Property-based strategies

• Assumes constraint to growth is provision of
  affordable space
• Manifestations include
• Incubators
• Science parks
• Managed work spaces
• Export processing zones, etc.
• Disadvantages
• What is convenient can win out over what is
  needed for growth
• There is limited evidence of impact of this type
  of approaches in many emerging countries on their
  own
• Some of them may create excessive dependency

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Business support programmes

• Assumes businesses have insufficient managerial
  or other expertise to grow on their own, that
  they need expert advice
• Promote business coalitions, clusters and similar
• Help tailor innovation, innovation reception,
  commercialisation, skills, training and similar
  programs
• Set up a one-stop-shop for business assistance,
  such as Business Link
• Dangers
• The perils of generalism - loss of focus on
  providing specific services well
• Parachuting in experts

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Skills and human resources

• Assumes businesses dont have skills to compete/
  prosper/survive
• Industry-education alliances
• Danish Ministry of Educations Action plan for
  promoting a culture of entrepreneurship in
  Denmark (European Commission 2000).
• Goals is to promote enterprise in school
  curriculum, improve perceptions of entrepreneurs.
• Disadvantages
• Difficulty to measure
• May compromise broader learning

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Combination approaches

• LED outcomes (outputs)
• New businesses/jobs
• Better survival rate/retained jobs
• New products/ services/patents
• Tax revenue
• Prosperity, poverty reduction, GDP

• Policies
• (inputs)
• Property provision
• Skill building
• Business support
• Financing
• Assistance
• Others (indirect)

Interaction b/t LED policies regional
economy
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Partnerships and funding

• Partnerships are needed for both leadership and
  funding
• Leadership
• Generally requires strong involvement from local
  authorities
• In some cases, LED can be done with the implicit
  acquiescence of local authorities, but never
  against the authorities
• Other forms of leadership are rare, but possible
• Wide horizontal coalitions are a must
• Leaving stakeholders without voice generally
  creates problems down the line

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Partnerships and funding (II)

• Funding
• Development grants
• Easy to manage
• But do not involve real partnerships
• Can create dependency
• To be used sparingly and to kick-start a process
• Debt and equity
• Ideal ways to get funding for projects and firms
• But debt traps and banking failures limit their
  viability
• Important role of public sector in stimulating
  the process colateral, back up

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Partnerships and funding (III)

• Institutional investment
• Development banking and social investment
• Difficult to set up
• Requires broad coalitions and consensus
• But interesting results
• Community lending systems
• Credit unions, microfinance, LETS
• Ideal in areas with weak and/or poor state
  presence, but with a good sense of identity
• Social capital and stable partnerships are a must
• Take up rates especially in the case of LETS
  may be low

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What is happening across the world?

• LED slowly taking hold
• Very diverse strategies
• But there seems to be dynamism in areas that
  until recently were stagnant, declining, and/or
  suffered from serious social problems
• LED may not be a panacea, but it seems to be
  giving new options to parts of the world where
  traditional policies had become exhausted

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The need for local economic development in a
globalised world

• Andrés Rodríguez-Pose
• Department of Geography and Environment
• London School of Economics
• More information in
• http//personal.lse.ac.uk/rodrigu1/
• Recent working papers
• http//repec.imdea.org/