ON THE PROMOTION OF REGIONAL DEVELOPMENT

ON THE PROMOTION OF REGIONAL DEVELOPMENT Roberto Villarreal, Ph.D. Presentation for Reflection and Discussion Institute of Electrical and Electronic Engineers (IEEE), New York Section New York City, 27 July 2010

CAVEAT • All responsibility for the contents of this presentation is solely the author’s, as these may not necessarily reflect the official position of institutions where the author has collaborated or is presently associated with. • Head of the Units for Public Sector Investment, and Privatization (Ministry of Finance, Federal Government of Mexico, 1995-1997) • Member of the Board in several parastatal enterprises and regulatory commissions of Mexico (oil and gas, electricity, railroads, airlines, water, rural development, technological research, etc., from 1995 to 2007) • Head of the Unit for Social and Regional Development (Office for Public Policies, in the Office of the President of Mexico, from 2002 to 2005) • Undersecretary for Urban Development(Secretariat for Social Development, Federal Government of Mexico, 2006) • Liaison of the Federal Executive with the Senate and the National Governors Association in Mexico, in a task force to reform the National Planning Law to address regional development strategies (2006) • Head of the Division for Territorial Development at the Organization for Economic Cooperation and Development (OECD, Directorate for Government and Territorial Development, 2008) • Chief of the Branch for Development Management (United Nations, Department for Economic and Social Affairs, Division for Public Administration and Development Management, 2009-2010).

INTRODUCTORY REMARKS • Thanks for the kind invitation to make this presentation • Institute of Electric and Electronic Engineers (IEEE), New York Section • In particular, to Amitava Dutta-Roy, Ph.D., who contacted me and was in charge of all communications and preparations • The objectives are to foster: • An interdisciplinary analysis on regional development • Some knowledge sharing and learning • Perhaps, networking to strengthen an active community of practice on regional development management

OUTLINE INTRODUCTION WHY IS REGIONAL DEVELOPMENT IMPORTANT? BASIC CONCEPTS ON REGIONAL DEVELOPMENT A CLOSER LOOK AT INFRASTRUCTURE ATTENTION TO PUBLIC GOVERNANCE WHAT TO DO TO PROMOTE REGIONAL DEVELOPMENT? FINAL REMARKS • INTRODUCTION • WHY IS REGIONAL DEVELOPMENT IMPORTANT? • BASIC CONCEPTS ON REGIONAL DEVELOPMENT • A CLOSER LOOK AT INFRASTRUCTURE • ATTENTION TO PUBLIC GOVERNANCE • WHAT TO DO TO PROMOTE REGIONAL DEVELOPMENT? • FINAL REMARKS

1. INTRODUCTION1 • Development is a very complex process aimed at rising the living conditions of people • Improving standards of life • Private goods and services: Food, housing, clothing, energy, transportation… • Public services: Education, healthcare, water, sanitation… • Public goods: Security, clean and safe environment… • Enhancing freedoms and rights • Human rights: rights to life, physical integrity, self-determination, equality before the Law, non-discrimination, transit, private property, justice… • Social rights: Education, health, decent work, social insurance and protection… • Political rights: Freedoms of expression, association, petition before public authorities, vote and be voted in elections for public office, access to public information…

1. INTRODUCTION2 • Development is gradual and can assume many different styles • Some basic attributes to be considered comprise: • Dynamism • Inclusiveness • Equity • Sustainability

1. INTRODUCTION3 • Development is fostered by the people • Acting as individuals, or organized in many different forms to pursue specific tasks • Community organizations, firms, corporations, labor organizations, producers associations, consumers associations, school associations, professional associations, sports clubs, other types of civil society organizations, political parties, etc. • Success* depends on a variety of fundamental factors: • Skills and knowledge • Attitudes and values • Organization and coordination • Rules, informal and formal institutions • Vision, creativity and leadership * Specifically, in their efforts to pursue development, both in exclusive (private) and non-exclusive (public) matters.

1. INTRODUCTION4 • One very important and particularly complex organization among these is government • Constituted to deal, on behalf of the people, with public affairs • Delivering determined public goods • Security, maintenance of the Rule of Law, justice, public health, monetary system, macroeconomic and financial stability, international relations, etc. • Securing, through public policies, an adequate provision, by both non-government and government stakeholders, of goods and services of fundamental importance for development • Water, sanitation, healthcare, transportation, telecommunications, energy, science and technology research and development, etc. • Providing public administration on determined matters • Taxes, public budget, public finance, registrations, licenses, permits, concessions, public information, etc. • To these aims, people need to secure that effective conditions are permanently in place to maintain an effective and satisfactory people-government relationship • Responsiveness, people-centered approaches to public administration and development, transparency, accountability, efficiency, engagement of non-government actors in specific activities, etc.

2. WHY IS REGIONAL DEVELOPMENT IMPORTANT?1 LEVELS AND TRENDS OF PER CAPITA INCOME IN OECD REGIONS*, 1995-2005 LOW INCOME FAST GROWTH I HIGH INCOME FAST GROWTH III Economic growth rates, annual average 1995-2005 HIGH INCOME SLOW GROWTH IV II LOW INCOME SLOW GROWTH Level of per capita income, log-values in 2005 SOURCE: Villarreal and Sanchez-Reaza, OECD (2008) * Territorial Level 2 (TL2, equivalent to Federal States in Mexico). The reference axes to distinguish the quadrants correspond to the average income level and the average growth rate among all TL2 OECD regions. Federal States, Mexico. Other TL2 OCDE regions.

2. WHY IS REGIONAL DEVELOPMENT IMPORTANT?2 • There are several reasons: • Equity: to offer people in different regions opportunities to attain comparable living conditions • Efficiency: • to facilitate the use of untapped resources in some regions • to benefit from positive inter-regional externalities and reduce negative ones • Environmental, social, local public finance, market access, etc. • Cohesion: to preserve unity and solidarity within regions in a supra-regional coalition • country level • large inter-national regions • globalization

3. BASIC CONCEPTS ON REGIONAL DEVELOPMENT1 • A region is essentially constituted (and is to be determined) by 3 fundamental elements • Territory • Resources • Governance • Regions and administrative-political demarcations need not geographically coincide • Sub-national • Metropolitan regions • Supra-national or international • Approximating a region by the largest administrative-political demarcation in its territory may seem to make practical sense in some cases, yet this approach risks overlooking crucial aspects of resources and governance that fundamentally affect its development

3. BASIC CONCEPTS ON REGIONAL DEVELOPMENT2 • Territory • Topology • Location • Bordering and farther away regions • Size • Integration • Continuity • Geography • Surface and beneath features • Climate • Natural risks STATIC FEATURES DYNAMIC FEATURES (opportunities for public policy interventions)

3. BASIC CONCEPTS ON REGIONAL DEVELOPMENT3 ……………… Each in many different types: • Resources • Natural • Land • Water • Mineral • Energy • Ecosystems • Human/social • Population • Skills and knowledge • Technologies • Culture and values • Governance • Economic • Physical capital • Infrastructure • National or international savings and finance • Resources • Natural • Land • Water • Mineral • Energy • Ecosystems • Human/social • Population • Skills and knowledge • Technologies • Culture and values • Governance • Economic • Physical capital • Infrastructure • National or international savings and finance ……………………………… Wooden, agricultural, arid, etc. ……………………………… Salt, soft; underground, rivers, lakes, seas; rain, etc. …………………………… Coal, hydrocarbons, gas, hydraulic, eolic, solar, etc. ……………………… Different supports for biodiversity MOST HAVE NO MOBILITY, OR ONLY IN RATHER COSTLY WAYS (opportunities for public policy interventions) ……………………… Size, age, sex, growth, migration, settlements, etc. ……… Education, training, learning attitudes, etc. ………………… Orientation to science, R&D, innovation, etc. ………… Beliefs, traditions, aspirations, historical experiences, social psychology, relationships, do’s and don´t’s, etc. ………………… Constructions, machinery and equipment for exclusive use. ………………… Constructions, machinery and equipment for non- exclusive use (in water and sanitation, transportation, telecommunications, energy, public health, public education, public administration, security and defense, etc. Produced goods and services kept for future use by producer or made available to others MORE INFO

4. A CLOSER LOOK AT INFRASTRUCTURE1 • Infrastructure consists of diverse facilities to perform support activities, which bundled, permit the production and delivery of determined services • extraction, collection, storage, processing, transportation and distribution of water, for agricultural, industrial, urban or human uses • loading and unloading, fueling, dispatching, transit, monitoring and parking vehicles for land, rail, water or air transportation • extraction, transportation and processing of carbon, oil or gas as primary sources for the production of energy, in the forms of heat or electricity • processing of primary energy from nuclear, wind or solar sources for generation of electricity • transportation and distribution of electricity • transmission and processing of signals to provide fixed or mobile telephony or internet telecommunications • collection, transportation, processing and treatment of solid or liquid residual materials of different grades of toxicity, as part of the maintenance of conditions of sanitation and public health • first, second and third level medical and para-medical interventions for healthcare • research, codification and dissemination of new knowledge, and education and training of professionals, for scientific and technological innovation • Etc.

4. A CLOSER LOOK AT INFRASTRUCTURE2 • Infrastructure investments exhibit important special characteristics • Planning • Long gestation lags • Technical complexity • Long useful life • Finance • High capital intensity • Capital costs constitute a large proportion of total unit service cost (continues…)

4. A CLOSER LOOK AT INFRASTRUCTURE3 • Strong linkages of infrastructure to regional development • Non-moveable, their services circumscribed to determined technical and economic efficiency geographical ratios • Rates of utilization and return largely dependent on (uncertain) local/regional demand • High income-elasticity (demand for these services growths proportionately faster than local/regional income) • Unless installed capacity evolves closely with regional growth, low utilization and return rates would be attained, or supply bottlenecks would be observed • As a result, as long as demand or market risk is considerable, capital costs are relatively high and services prices tend to be also high • Given that infrastructure services are usually inputs to production or distribution activities for all industries, as well as for final consumption, the situation in which service prices are relatively high is very worrisome • It impacts negatively on regional competitiveness and wellbeing (continues…)

4. A CLOSER LOOK AT INFRASTRUCTURE4 • Infrastructure industries require regulation to address situations of potential abuse of market power* • SUPPLY SIDE: Production of services from infrastructure in many cases exhibit considerable economies of scale • Efficient production tends to be concentrated in few large producers • Competition within determined geographical ratios is low • DEMAND SIDE: Services from infrastructure often have few and inefficient substitutes • Low price elasticity: service demand lowers relatively slightly when prices increase • Thus, production and demand features make it likely that monopolistic pricing occurs • Consequently, public regulation is needed to attain fair and efficient service prices • This adds regulatory risk, and in turn rises capital costs and service costs, depending on the quality of regulation and predictability of its enforcement * Of course, there are needs for other types of regulation stemming from matters like public safety, service quality and consumer protection. These are not discussed here to keep focused on the most important matters for regional development.

4. A CLOSER LOOK AT INFRASTRUCTURE5 • Infrastructure services are crucial for wellbeing and competitiveness • For consumers: • These services are essential for them to exert many of their human capabilities • Supply shortages or quality defects have deep real negative impacts • Also, expenditure on these services represents a significant share in their total consumption budget • Economic effects on purchasing power, consumption levels and wellbeing are very large • For producers: • Many of these services constitute intermediate inputs of production for practically all productive activities (primary, secondary and tertiary sectors) • Supply bottlenecks constrain aggregate output and limit employment • In addition, outlays on purchases of these services add to a considerable proportion in total and unit costs of production • Relative high unit costs decrease competitiveness, limit access to markets outside the region or internationally, reduce growth and diminish job creation • Therefore, unless adequate and timely actions are taken to efficiently promote investment in infrastructure sectors and adequately regulate them, regional development is severely hampered

5. ATTENTION TO PUBLIC GOVERNANCE1 • Public governance for development • consists in the set of informal or formal rules, mechanisms, regulations, laws and institutions by which decisions are made by all stakeholders on matters related with development affairs • Thus, it is not circumscribed to decision making by government or within the government sector • Rather, it encompasses overall decision making by all relevant stakeholders

5. ATTENTION TO PUBLIC GOVERNANCE2 • Public governance may exhibit different features over time and across regions • So, some forms of public governance may be in some cases more or less conducive to development and affect it attributes • Dynamism • Inclussiveness • Equity • Sustainability • Among key elements of good or effective governance are the following: • Laws and regulations which are adequate*, clear and effectively applied • Well functioning legal and juridical system for the delivery of justice and the enforcement of contracts and property rights (continues) *In the sense that they relate to existing culture and values, are realistic in terms of compliance costs and enforcement, etc.

5. ATTENTION TO PUBLIC GOVERNANCE3 • Among key elements of good or effective governance are the following (continued…) • Responsive, efficient, transparent, accountable and coordinated* government • Sound public finance, with tax and public income proportionate to the efficient cost of public goods and services that are required • Adequate and effective regulations on land use, and sound rules for transparent and efficient planning of infrastructure • People-public-private partnerships (PPPP) • Adequate and effective means for consultation, information sharing and engaging of civil society and the private sector in public decision making • Stable economic and financial envirinment • Good financial markets (credit, capital, leasing, etc.) • Fair and effective ways for resolution of conflicts and controversies

5. ATTENTION TO PUBLIC GOVERNANCE4 • Multi-level governance1 • Government is usually organized in different levels (for instance, national, state, local) and over different demarcations • Historically these tend to be constituted following notions of sovereignty, acquired rights, power, bounded autonomy, culture, etc. • This reflects in diverse constitutional arrangements which define the roles for each government levels, their responsibilities and faculties

5. ATTENTION TO PUBLIC GOVERNANCE5 • Multi-level governance3 • Re-organizations of government at several levels take place on exceptional extraordinary cases, and sometimes political-administrative demarcations are simultaneously re-structured • Leading considerations come from regional development needs • Horizontal re-structuring (across entitities at every level of government) • Aimed at enhancing uniform and effective implementation and delivery of public policies • Public expenditure and finance, public services, etc. • Examples • Metropolitan regions: Toronto, Ottawa, Milano, Paris, Mexico City, etc. • Inter-state regions: Canada, Mexico, etc.

5. ATTENTION TO PUBLIC GOVERNANCE6 • Multi-level governance4 • Vertical re-structuring (across levels of government) • Intended to distribute and combine responsibilities among the supra-national, national and sub-national levels in ways that best use of their comparative advantages • leverage on law making and regulation • capacity to generate tax and public income • knowledge of specific development priorities and investment needs • capacity to make multi-stakeholder partnerships, etc. NATIONAL LOCAL • Effective coordination implies collaboration and communication within and across levels of government • to jointly support a shared vision of development, both horizontally and vertically • Political factors (redistribution of power) may work in different directions and facilitate or hinder these changes

5. ATTENTION TO PUBLIC GOVERNANCE7 • Multi-level governance5 • Engagement of non-government actors (private sector, civil society, international organizations, etc.) is important to enhance regional development strategies • To improve public information for decision making • Needs and priorities • Proposals, initiatives, new ideas • To bring in additional resources for investment • Public private partnerships • Strategic projects (infrastructure, science and technology research and development, social integration, etc.) • To constitute checks and balances on public sector decisions and actions • Monitoring, evaluation, social auditing • Reduce inefficiencies • To strengthen accountability • To extend and diversify ownership over strategies, thus reducing opposition and favoring their continuity over time

5. ATTENTION TO PUBLIC GOVERNANCE8 • Multi-level governance6 • Engagement of non-government actors to be fully successful requires: • Presenting to everyone a positive net gain investment from their time • By design, regional development strategies should provide gains for a diverse community of stakeholders and not only to narrowly defined groups • Fair and inclusive methods to attract participation • To avoid corruption and capture of public strategies by interest groups • Preserving commitment, trust and continuing support • Accountability is fundamental, to effectively observe expected results • Transparency, including timely reporting and disclosure of impartial performance, output and outcome evaluations • Efficient organization of the participation and engagement of these non-government stakeholders, as well as effective coordination with corresponding government actors • Multi-lateral contracts (alliances, covenants, partnerships), councils or observatories, online forms of e-participation, etc.

6. WHAT TO DO TO PROMOTE REGIONAL DEVELOPMENT?1 • Macroeconomic policies are not enough to achieve dynamic, inclusive, equitable and sustainable development • Monetary policy, trade liberalization, social protection, etc. • Evidence from all countries shows that development and growth remain regionally uneven (and there is no convergence) • Need to complement coherently with other policies • International experience shows that mechanical income transfers or subsidies to lagging regions have major disadvantages* • If operated on scales to significantly narrow inter-regional gaps, these policies are not sustainable over long periods of time • Constitute inefficient use of scarce fiscal and financial resources • Provide inadequate incentives to both lagging and progressing regions * Although politically, and election wise, may be attractive in some circumstances for politicians.

6. WHAT TO DO TO PROMOTE REGIONAL DEVELOPMENT2 • Rather, international attention is increasingly directed to other kinds of public interventions at the regional level • Seeking to enhance in permanent manners competitiveness, income growth, private investment, job creation and fiscal revenues • Most common public policies in this regard include: • policies to enhance local public goods (safety, law enforcement, public health, social cohesion, clean and safe natural environment, culture of innovation, public information dissemination, etc.) • policies to enhance governance • Effective government organization and coordination • Local government quality (responsiveness, efficiency, transparency, accountability, etc.) • Institutions, procedures, actions to facilitate cordination among non-government stakeholders and between these and government • Adequate local laws and regulations • policies to increase human capital • Besides its local importance, it s portable and thus efficient under uncertain local conditions, and fair to people (continues)

6. WHAT TO DO TO PROMOTE REGIONAL DEVELOPMENT3 • policies to provide sufficient, efficient annd quality services from infrastructure* • Based on the analysis offered in Section 4 of this presentation, policies to this aim would look at: • Disseminating trustworthy information about likely perspectives of development in the region, as to diminish demand risk or uncertainty • This may be achieved on the basis of: • laws and regulations that result in credible planning in specific sectors • public strategy making and delivering, supported by wide consensus among relevant stakeholders • Regional multi-stakehioilders councils, observatories, conferences, etc. • * This is is evidently a different focus than expanding local infrastructure or increasing investment

6. WHAT TO DO TO PROMOTE REGIONAL DEVELOPMENT3 • Having clear and sound criteria and policies regarding the roles of public and private investments in infrastructure sectors and projects • Considering constitutional, legal and strategic frameworks • Looking at the overall public investment budget and public debt trends • Prioritizing public resources to regions with weaker regional development perspectives, and within these prioritizing projects with highest rates of socioeconomic return • Looking at the feasibility of promoting private infrastructure or efficient public-private partnerships • Assessing public regulatory capacity • Directing private resources to regions with stronger development outlooks • Enforcing adequate public regulations, in ways that minimize regulatory risk and corruption • Promoting adequate finance in terms of sound contracts and funding • Overall investment risks must be efficiently shared among investors, owners and public authorities

6. WHAT TO DO TO PROMOTE REGIONAL DEVELOPMENT4 • policies to maintain an open, inclusive and competitive economic and social environment • Economic competition • Transparent government • Anti-corruption mechanisms • Social inclusion programs • Political competition • Organized engagement of diverse non-government actors (private sector, civil society, international organizations) • Transparency and accountability • Enhanced information for decision making • Innovation • Ownership of strategies, support and continuity • Better governance

7. FINAL REMARKS • Promoting regional development is important globally and for countries to enhance the living conditions of the people • Creativity and leadership are called for • There are no scientifically researched proposals on how to promote it • But there is significant activity and innovation going on at sub-national, national and supra-national levels in different parts of the world • It would be extremely valuable to create a world repository of knowledge to be publicly available online, to facilitate information sharing on existing practices • Professionals in infrastructure sectors, regional development management and public administration, as well as academic researchers in these areas, can make numerous contributions, stemming from respective communities of practice

ANNEX

OBSERVABLE TRENDS IN THE INTERNATIONAL MOVILITY OF RESOURCES BACK TO PRESENTATION

ON THE PROMOTION OF REGIONAL DEVELOPMENT