The need for local economic development in a globalised world

1. Theneedfor local economicdevelopment in a globalisedworld 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

2. 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

5. But is this true? Places • Bangalore • Hubfor ITC, software, aerospace.. Clothing and footware • ‘Silicon Valley’ of India: Infosys, Wipro • Thirdlargestconcentration of millionaires in India • Singapore • Hugetradehub • Dynamic and diversifiedmanufacturing sector • Business service centre • $30,000 GDP per head • No unemployment • Triangolo del Salotto • Dynamicproducer of sofas, armchairs and coffeetables • 500 verycompetitiveexportingfirms • Highquality at lowprices • Itallstarted in 1983!

6. But is this true? Places (II) • Detroit • Dependenceonautoindustrymadeit vulnerable • Highunemploymentrate • More thanonethird of itsresidentsbelowthepoverty line • Asturias • Stillreliantonlargepublicownedfirms… • In unprofitablesectors: coalmining, steel, shipyards • Rapid decline fromone of therichesttoone of thepoorest in Spain • Gansu • Specialised in mining and heavy industries • Butstrugglingtoadapttochanges and keep pace withtherest of China • One of thepoorestprovinces • Migration • Environmentalproblems

7. But is this true? People • NiteshShetty • Frommiddle-class, aspiringtennisplayer… • Toowning 4,000 apartments in Bangalore • David Beckham • Fromtalentedaspiringfootballplayer at ManUtdacademy… • To global icon • Joao • Rocinha, Brazil • Absentfather • Motherabandoned North East for a betterlife in Rio • Strugglingwithmenialjobs and occasionalscavenging

8. But is this true? People (II) • Andrés • Alternativebetween a live in a cosySpanishuniversity… • Or London • Wen • From rural village in Guandongprovince… • Toswetshop in Shenzhen

9. 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

10. Three challenges • Globalization • Urbanization • Decentralization • Leading to greater territorial inequality

11. Globalization: rise in trade 250 200 150 Agriculture Index 1990 = 100 Manufacturing 100 50 0 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 year Trade in both agricultural and manufacturing goods has been increasing in the last decades Source: Own elaboration from World Trade Organization

12. Sectoral shift 2 1 . 8 1 . 6 1 . 4 1 . 2 Brazil 1 Ratio China 0 . 8 India Mexico 0 . 6 USA 0 . 4 0 . 2 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Year 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 90 80 70 60 50 40 30 World East Asia and Pacific 20 Middle East & North Africa South Asia 10 Sub - Saharan Africa Europe & Central Asia Latin America & Caribbean 0 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 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)

14. Urbanization and wealth There is a positive association between the degree of urbanization and a country’s wealth Source: Own elaboration World Bank data

15. Decentralization: the world in 1970 Red: High level of decentralization Orange: Moderate decentralization Yellow: Low or partial decentralization Blue: Decentralization on paper

16. The world in 2011 Red: High level of decentralization Orange: Moderate decentralization Yellow: Low or partial decentralization Blue: Decentralization on paper

17. The evidence: Rising disparities Moderate rise in disparities, weighted by population (1970-2005) In Europe

18. Rising disparities (II) Moderate rise in disparities, weighted by population (1970-2005) But also in the rest of the world

19. Rising disparities (III) Rapid rise in disparities, weighted by population (1970-2005) In new memberstates of theEuropeanUnion

20. Rising disparities (IV) Rapid rise in disparities, weighted by population (1970-2005) But also in western Europe

21. Rising disparities (V) Stability, weighted by population (1970-2005) In Europe

22. Rising disparities (VI) Stability, weighted by population (1970-2005) But also in the rest of the world

23. Declining disparities Declining disparities, weighted by population (1970-2005)

24. 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

25. 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 today’s evolving context

26. 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

27. 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

28. 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

29. 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 LED versus traditional strategies

30. 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 Local economic vs community development

31. How is this achieved? • Through a balance between strategies and institutions Strategy Institutions

32. Key elements in the strategy DEPENDENCE INWARD INVESTMENT RISK RISK SUBSIDIES TO NON COMPETITIVE FIRMS ROOTING ECONOMIC ACTIVITY LOCAL FIRMS HUMAN RESOURCES MIGRATIONBRAIN DRAIN INFRASTRUCTURE RISK RISK ACCESS BY COMPETITORS

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

34. 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

35. 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’

36. Skills and human resources • Assumes businesses don’t have skills to compete/ prosper/survive • Industry-education alliances • Danish Ministry of Education’s ‘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

37. 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

38. 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

39. 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

40. 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

41. 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

42. Theneedfor local economicdevelopment in a globalisedworld 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/