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Bank branching and regionaldevelopment in MalaysiaEdison Dayal a & Bala Shanmugam ba Department of Geography , University of Wollongong , PO Box1144, Wollongong, NSW 2500, Australiab Department of Economics , University of Wollongong , PO Box1144, Wollongong, NSW 2500, AustraliaPublished online: 24 Feb 2007.

To cite this article: Edison Dayal & Bala Shanmugam (1987) Bank branching and regionaldevelopment in Malaysia, Australian Geographer, 18:1, 44-51, DOI: 10.1080/00049188708702925

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Massey, D. (1984) Spatial divisions of labour: social structures and the geography of production,Macmillan, London.

Masters, S. M. (1969) 'An interindustry analysis of wages and plant size', Review of Economics andStatistics, 51, 341-45.

Moore, B. and Rhodes, J. (1981) 'The convergence of earnings in the regions of the United Kingdom', inMartin, R. E. (ed.) Regional wage inflation and unemployment, Pion, London, pp. 46-49.

Moriarty, B. M. (1978) 'A note on unexplained residuals in North-South wage differential models', Journal ofRegional Science, 18, 105-8.

Norcliffe, G. B. (1977) 'A components model for disaggregating regional productivity variations', RegionalStudies, 11, 395-400.

Oosterhaven, J. and Van Loon, J. (1979) 'Sectoral structure and regional wage differentials: a shift andshare analysis on 40 Dutch regions for 1973', Tijdschrift voor Economische en Sociale Geografie, 70,3-16.

Scott, C. D. (1980) Regional development objectives and policies: an appraisal, New Zealand PlanningCouncil, Wellington.

Scully, G. W. (1971) 'The North-South manufacturing wage differential, 1869-1919', Journal of RegionalScience, 11, 235-52.

Webber, M. J. (1984) Industrial location, Sage, Beverly Hills.

BANK BRANCHING AND REGIONAL DEVELOPMENT IN MALAYSIAEDISON DAYAL* AND BALA SHANMUGAM**

SUMMARY: The regional imbalance in the Malaysian economy has long beenrecognised and continues to be a problem for development planning. The federalgovernment has attempted to promote banking in the less developed regions in orderto generate economic growth. Bank branches in Malaysia have increased in numberand have also become regionally more dispersed. However, the regional concentrationof bank branches is strongly associated with individual incomes. Hence, the growth ofbanking in Malaysia appears to be demand-following rather than supply-leading.Nevertheless, the intentional promotion of banking is continuing and beginning toproduce some encouraging results.

Capital formation has been widely accepted asa prerequisite for economic growth (Cairncross1955; Lewis 1955; Nurkse 1962; Kindleberg 1965;Rostow 1971). The role of financial institutions hasbeen well recognised in the development litera-ture. Patrick (1966) pointed out two possiblerelationships between banking and economicgrowth. First, as the economy grows, it generatesexpanded demand for financial services which hecalled a 'demand-following' phenomenon. Accord-ing to this view, the lack of financial institutions indeveloping countries is an indication of lack ofdemand for their services. Second, the estab-lishment and nurturing of financial institutions mayactively promote development, which Patrickcalled a 'supply-leading' phenomenon. This latterview has been pursued by governments in severalless developed countries to promote development,particularly in depressed regions.

Department of Geography, University of Wollongong, PO Box1144, Wollongong, NSW 2500, Australia.

' Department of Economics, University of Wollongong, PO Box1144, Wollongong, NSW 2500, Australia.

44

Whether f inancial insti tut ions aredemand-following or supply-leading has beenextensively debated (Gupta 1984: 35-57; Rozental1970: 5; Cameron et al. 1967: 2). Further, Patricksuggested that the relative strengths of the twopossible directions of the relationship betweenfinancial institutions and growth may vary duringthe process of growth. In the initial stages ofgrowth, financial institutions may play more of asupply-leading role by transferring financialresources to stimulate growth and entrepreneuralactivities (Patrick 1966). In the later stages ofgrowth, the supply-leading impetus may becomeless important and a demand-following responsemay become dominant. As capital is essential forgrowth, it follows that the institutions that providethe capital are equally important to growth.

Having noted that the operations of financialinstitutions are important for economic growth, itfollows that appropriately planned manipulations ofthe financial system should enhance the pace ofgrowth of the economy in relatively depressedregions (supply-leading). The literature linking

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finance to economic growth can broadly bedivided into two categories, namely the 'struc-turalist' group and the 'neo-liberal' group. Toimprove the efficacy of the financial system, thestructuralist school recommends an expansion inthe structure of the financial system, such as anincrease in the number of financial institutions.This school also encourages an increase in thearray of financial instruments made available tothe public (Goldsmith 1969; Prebisch 1970;Patrick 1966). Neo-liberals on the other hand,advocate the liberalisation of the financial system,by which they mean the relaxation of controlsimposed on the financial systems by the monetaryauthorities (McKinnon 1973; Shaw 1973). Neo-liberals believe that administratively determined(as opposed to market determined) low rates ofinterest may not encourage savings. Withoutsavings there cannot really be any investment.Thus, according to this school, the freeing ofinterest rates is the key to capital formation andgrowth. This paper is, however, concerned withthe structuralist school of thought.

The merits and demerits of bank branching havebeen discussed extensively. Lewis (1955: 229),for instance argued that the amount saveddepended partly on the availability of bankingfacilities. He stated that 'if they are pushed rightunder the individual's nose to the extent of havingstreet savings groups, or factory groups or evendeductions from earnings at source, people savemore than if the nearest savings institution is somedistance away'. Analysing the growth anddispersion of bank branching in tropical Africa,Engberg and Hance (1969) found 'highcorrelations between the rise in the number ofbank branches and the growth in the value ofexports and imports', and other economic growthvariables such as GDP, volume of aggregatespending and the number of motor vehicles in use.This implies that an increase in the number ofbank branches could be growth promoting. Miracleef al. (1980), in reference to tropical Africancountries, claimed that while more than 70 percent of the population were rural dwellers, bankswere largely located in urban areas and that thiswas the reason why those countries foundeconomic growth hardest to achieve (Hall 1983:87). A somewhat similar situation existed inMalaysia until recently. The implication here is thatthe failure of the banks to expand into rural areasmeant that they were not tapping the resources ofthose areas and thus not contributing towardseconomic growth.

In contrast, Porter (1966) argued againstplacing too much emphasis on the expansion ofthe number of bank branches, stating that branchexpansion programs were 'initiated on no sounderbasis than such shibboleths as promotion of thebanking habits and monetization of savings'. Hemaintained that historical correlations and the

Australian Geographer 18 (1), May 1987

belief that more banks were necessary for rapidgrowth were not sufficient justification for theenlargement of the banking system. In support ofhis argument, Porter cited an instance in Thailandwhere in 1959 the Ministry of Finance disallowedthe growth of bank branches because they weresimply mobilising funds from rural areas andtransferring them to head offices in urban centres.Myrdal (1957: 28) gave a similar example of bankbranches siphoning off the savings from thepoorer regions to richer regions, a phenomenon hetermed the 'backwash effect'. Marquez (1961)also argued that banks might not necessarilyinfuse growth, because the level of saving wasdependent upon income and not the number ofbanks. More recently, Thillainathan (1985) claimedthat banks in Malaysia had gone overboard inopening branches, maintaining that it would bemore profitable to close some of them.

Having noted that there are conflicting views onthe impact of rapid bank branching on economicgrowth, we now turn to examine the issues aswitnessed in Malaysia, using time series data foreach Malaysian state from 1959 to 1984. Thispaper examines the temporal and regionalaspects of the expansion in the structure offinancial institutions. The study investigates thespread of commercial banking and its influence oneconomic growth in Malaysia over a period of 26years. Throughout this paper, the term financialinstitutions refers only to commercial banks. Datafor the state of Selangor include the FederalTerritory.

The regional imbalance in the Malaysianeconomy has long been recognised (Ward 1968;Beyer 1969; Narayanan 1978; Lim 1979), andcontinues to be a problem for developmentplanning. Government efforts have not been verysuccessful in reducing the growing concentrationof economic activities in the western states ofpeninsular Malaysia, and these more developedstates continue to attract further public funds fordevelopment purposes. For example, Selangor,which is the most developed state in terms ofGDP, received the relatively large share of 14.4per cent of the total outlay of the Fourth MalaysiaPlan (Malaysia 1981: Appendix A).

The spatial imbalance in Malaysia'sdevelopment is partly attributable to colonialeconomic interests in the tin and rubber trade, asthe transport network was designed to facilitatethe most economic movement of these two com-modities to ports for export to European markets.Given the peninsular shape of the country and thefact that the western states are better endowedwith tin, port locations and fertile soils, initialinvestments were made in them (Din 1982: 45).This created an extreme economic polarity in theMalaysian economic landscape, a polarity whichcan only be offset by creating new investmentopportunities in the eastern states. It is believed

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that the expansion of banking services could bringabout more balanced economic growth, since thespiral of banks throughout the country would tendto have the effect of making funds more mobile.

BANKING IN MALAYSIA

Banking services in Malaysia, as indicated bythe number of bank branches, have increased bymore than sixfold during the 26 years between1959 and 1984 (Table 1). This dramatic increasein the number of branches was due both to theentry of new banks (mainly domestic) and to theexpansion of branches of existing banks (mainlyforeign). In 1959, only 31 per cent of the bankswere domestic, but in 1984 the percentage rose to58. The reason for the rapid increase in domesticbanks was to provide the country with bankswhich had an extensive network of branchesspreading into rural and previously unbankedareas (Drake 1969: 116). By 1968, the totalnumber of banking enterprises had reached 38(the same number as in 1984). The slightreduction in the number of banking enterprisesbetween 1971 and 1977 (Table 1) was due toamalgamations. As demonstrated by the number ofbank branches, however, banking services have

continued to expand throughout the period underreview (Table 1).

Judging from the annual increase in the numberof bank branches, the growth of the bankingnetwork in Malaysia since independence has notbeen uniform over time (Table 1). During the firstfew years after independence, the greater needfor banks to finance rapidly expanding develop-ment resulted in the rapid growth of bank offices.This trend continued into the mid-1960s, thenslackened until the early 1970s. The secondphase of rapid expansion commenced in the latterhalf of the 1970s and has continued into the1980s (Figure 1). This reflects, perhaps, thegovernment's efforts to reduce poverty, generaleconomic growth in the first two Malaysia Planshaving failed to improve the wellbeing of the poor.There was growing dissatisfaction among the lowincome groups who felt, at the end of the SecondMalaysia Plan in 1975, that the government hadnot done enough to improve their position (Shari1977: 174). The Third Malaysia Plan was, for thisreason, particularly concerned with reducingpoverty and was therefore specifically focused onimproving the relative position of the lowestincome regions. Such an ambition, requiring furtherexpansion of bank branches into rural areas and

Table 1: NUMBERS OF BANKS AND BRANCH OFFICES, 1959 TO 1984

Year Bankingenterprises

Branchoffices

Annual increasein number

of branches

46

1959 26 111 —1960 28 131 201961 29 170 391962 29 215 451963 29 245 301964 32 260 151965 33 277 171966 37 302 251967 37 314 121968 38 324 101969 38 329 51970 38 336 71971 37 344 81972 37 356 121973 36 369 131974 35 386 171975 36 403 171976 36 429 261977 37 461 321978 38 509 481979 38 529 201980 38 546 171981 38 573 271982 38 608 351983 38 664 561984 38 716 52

Sources: Data for 1959 to 1982: Bank Negara Malaysia, Economics Department (1984) Money andbanking in Malaysia, Bank Negara Malaysia, Kuala Lumpur, Table 6.1.Data for 1983 and 1984: Bank Negara Malaysia Annual report 1984, Kuala Lumpur, Table3.11.

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2100-,

(A~ 1900

1500-

5. 1300-

- 1100QJ

CC

h800

700

600 :

-500

400

-300 =

100

Figure 1: Trends of GNP per capita and the number of-bank branches.

other low income regions, possibly accounts forthe renewed growth of banking from the late1970s onwards. Furthermore, the industrial sector,having achieved good progress during the earliertwo Plans, obtained a more than doubledallocation of funds in the Third Plan, and thisexpansion would certainly have warrantedadditional banking services (Tan 1981: 219).

REGIONAL CONCENTRATION OF BANKING

The number of bank branches in Malaysiaincreased by about 545 per cent between 1959and 1984. Traditionally, as financiers of largescale trade and commerce, banks were mainlylocated in the urban centres and largely ignored

the less populated rural areas (Lee 1981: 43).This led to the neglect of Bumiputras', the bulk ofwhom live in rural areas. Assuming that banksgenerate development, they must also penetrateinto rural areas if they are to help in improving thewellbeing of the rural poor. In this context,therefore, the overall percentage growth in bankbranches is not as important as the regionalgrowth rates. We shall first examine the regionalconcentration of banking and then look at theregional growth in order to seek whether banksare in fact spreading into less developed ruralareas.

The location quotient2, which is employed hereto measure regional concentration of bankbranches in Malaysia, clearly indicates that bankbranches are concentrated in the more developedand urbanised west central Malaysia (Table 2 andFigure 2). For example, Selangor, Negri Sembilan,and Pahang have more than the average share ofbank branches. Further north, Penang also has asignificant concentration of banking services. Thestates along the western coast, where urban-industrial development is, in general, relativelyhigh, have higher index values, compared with theeastern and northern states, where subsistencerice farming still dominates the economiclandscape (Table 2). The high index values forPahang, which is neither densely populated norurbanised, appears to be an exception. Therelative concentration of banking in Pahang maybe in response to the federal government landdevelopment schemes. Numerous land develop-ment schemes launched by the federal govern-ment for the resettlement of landless Malays, suchas the Jengka Triangle and Pahang-TenggaraProjects, and the construction of a nationalhighway (Route 2) to open up Pahang and connectthe east and west, have created during the last

Table 2: REGIONAL CONCENTRATION OF BANK BRANCHES AND GDP PER CAPITA, 1980a

State Regional concentration Regional concentrationof bank branches of GDP(location quotient) (location quotient)

Johore .78 .99Kedah .55 .61Kelantan .55 .49Malacca .98 .80Negeri Sembilan 1.05 1.02Pahang 1.28 1.06Perak .80 .85Perlis .50 .69Penang 1.45 1.18Selangor 1.58 1.69Trengganu .75 .85Sabah .95 .91Sarawak .78 .66Malaysia 1.00 1.00

Source: Malaysia (1984) Mid-term review of fourth Malaysia plan, 1981-1985, Kuala Lumpur, Table 5.1.Note: a The latest GDP data available related to 1980.

Australian Geographer 18(1), May 1987 47

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O L

0km. 100 200

Source: as in Table 3.

Figure 2: Distribution of bank branches in Malaysia, 1984.

two decades a belt of medium population densityrunning through Pahang. These developments canonly have encouraged bank branching in Pahang,indicating that it has assumed a demand-followingpattern. On the other hand, slightly higher indexvalues for Sabah and Sarawak may have resultedfrom attempts to provide credit assistance for thepromotion of rubber and petroleum production.These two states are predominantly inhabited bypeople of Malay stock, who, as part of the NewEconomic Policy, were perhaps given preferentialtreatment in the establishment of bank branches. Ithas been noted that the distribution pattern ofbank branches in 1984 favoured more developedwestern states, a pattern which exacerbated thespatial imbalance in Malaysia's economicdevelopment. Whether the growth in bankbranches is reinforcing or correcting the existingimbalance may be gauged by examining theaverage growth rates over the period underreview.

By far the greatest relative growth of bankbranches has occurred in Terengganu, Kelantanand Kedah, where the concentration of banking inthe initial year was the least. In these threestates, the growth of bank branches was wellabove the Malaysian average. Conversely, in thestates along the west coast of PeninsularMalaysia the growth was average to belowaverage (Table 3). The pattern of growth of bankbranches clearly indicates that banking servicesare growing more rapidly in the less developedstates. If the trend continues, it may reduce thespatial imbalance in economic development,assuming that the spread of banking facilitiesgenerates development by providing creditfacilities for investment. Since the greatest growthof banking is taking place in the statespredominantly inhabited by Malays, the process is

48

expected to improve the economic position of theBumiputras.

REGIONAL CORRELATES OF BANK BRANCHING

Correlation methods were employed to examinethe relationships between the concentration ofbank branches and four selected variables,namely real gross domestic product per capita,urbanisation, population density and averagegrowth rate of bank branch numbers in each of the

Table 3: ANNUAL AVERAGE PERCENTAGE GROWTHRATES OF THE NUMBERS OF BANK BRANCHES, 1959

TO 1984

GrowthState rate (%)

Perlis 6.2Kedah 10.0Penang 7.0Kelantan 11.2Trengganu 13.1Pahang : 8.2Perak 7.2Selangor 7.8Negeri Sembilan 8.8Malacca 5.6Johore 9.5Sabah 6.0Sarawak 5.6Malaysia 7.7

Source: Data for 1959: computed from Bank NegaraMalaysia, Economics Department (1984) Moneyand banking in Malaysia, Bank NegaraMalaysia, Kuala Lumpur, Table A-13.Data for 1984: computed from Bank NegaraMalaysia (1985) Quarterly Economic Bulletin,18 (3), Table 1-21.

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13 Malaysian states, using cross-sectional datafor 1984. The growth rates, however, were theannual average rates of growth of bank branchescomputed from the 26-year time series data ineach state. The two variables representingsocioeconomic development, ie gross domesticproduct per capita and urbanisation, wereselected to determine if there existed greaterconcentration of bank branches in the moredeveloped states. Likewise, the population densityvariable was chosen to examine if the morepopulated areas had a greater concentration ofbank branches. The reason for using a variablemeasuring the average growth rate of bank branchnumbers was to investigate if the rates of growthof bank branches were higher in the areas alreadyhaving a high concentration of bank branches, or ifthe contrary were true. The data for thesevariables were obtained from governmentpublications, named below the relevant tables.Each of these variables is defined in Table 4.

Simple correlation coefficients reveal strongregional associations between the number of bankbranches and gross domestic product per capitaand urbanisation (Table 4). These associationsreinforce existing knowledge about locationalorientation of banking, but have specialconnotations for Malaysia, where the governmentis committed to improving the wellbeing of theindigenous Bumiputra population, concentrated innon-urbanised states. The associations suggestthat banking services (as indicated by the numberof bank branches) are still very much concen-trated in the more developed and urbanisedstates, where individual incomes are high, owingto greater concentration of manufacturingindustries, wholesale and retail trades, mining,plantation agriculture and various other services.The high positive correlation between urbanisationand GDP per capita gives further evidence of thefact that individual incomes are high in theurbanised states (Table 4). It demonstrates thatthe aggregate level of non-subsistence economic

Table 4: CORRELATION MATRIXY X1 X2 X3 X4

YX1X2X3X4

1.89.78.48

-.25

1.77.30

-.15

1

.65-.01

1

-.31 1

Critical value of r for n = 13 is .514, which is significantat .05 level.Y = Index of regional concentration of bank branches.X1 = Gross domestic product per capita for each state.X2 = Urbanisation (urban population in each state as a

percentage of total population).X3 = Population density.X4 = Average growth rate of bank branch numbers

between 1959 and 1984.Australian Geographer 18 (1), May 1987

activities generates demand for banking servicesand therefore increases the propensities of banksto operate branches. Hence, the distribution ofbank branches in Malaysia appears indirectly tobe reinforcing the demand-following interpretation.

The weak positive correlation between theconcentration of bank branches and populationdensity suggests that population size alone is notsufficient to attract banking services. Highindividual incomes are more important. Individualswith relatively high incomes provide a market forbanking and so encourage expansion of bankbranches.

The correlation between the regionalconcentration of banking and growth of bankbranches is negative and not statisticallysignificant. Nevertheless, the negative direction ofthe association between the two indicates that thetraditional pattern of distribution of banking isperhaps beginning to change. This implies that thegovernment policy of intervention in theorganisation of banking is showing signs ofsuccess in moving bank branches to the lessurbanised regions as well.

CONCLUSION

Since independence in 1959, bank branches inMalaysia have increased in number and becomeregionally more dispersed. From 1978 to 1984 thenumber of bank enterprises remained constant, butbank branch numbers increased by about 47 percent. The regional concentration of bank branchesis strongly associated with individual incomes, asrepresented by the real gross domestic productper capita, which is high in the more developedwestern states. Hence, the growth of banking inMalaysia appears to be demand-following.

An important finding of this study is that thegeographical concentration of bank branches isnot really related to the size of the population butrather to the wealth of the population. Forexample, a densely populated but low income areawould fail to attract bank branches, whereas if thepopulation in the same area were affluent, thenbank branches would be attracted there. Thus, thelack of association between the concentration ofbank branches and population does not seem toprovide evidence that the Malaysian bankingsystem has been expanding in a supply-leadingmanner. Nevertheless, the Malaysian governmenthas attempted to promote the provision of bankingservices (Bank Negara Tanah Melayu 1959 and1960).

Despite the rapid spread of bank branches, thegeographical distribution is still very uneven andthere is heavy concentration in the more urbanisedand developed western states. The regionaldifferences in development, and thus theconcentration of bank branches, in Malaysia are

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not only rooted in its history but are also due todifferences in resource endowments. As thewestern states of peninsular Malaysia enjoyseveral locational and economic advantages, thepresent regional pattern of economic growth islikely to persist for some time. However, the factthat the rates of growth of bank branches havebeen higher in the states where banking servicesare less developed is an indication that somebalancing out of regional differences has alreadybegun.

NOTES

1. Literally meaning 'son of the soil', consisting ofMalays and other indigenous people.

X./X2. The location quotient, Q = Xi/X, shows theextent to which areas depart from some norm,such as national average. In the expression aboveX| and X are bank branches and population in astate respectively, and Y, and Y are bankbranches and population in Malaysia. If Q = 1, itmeans that the number of bank branches in astate is represented in exactly the sameproportion of total population as in Malaysia.When Q > 1, it means that a state has more thanits average share of bank branches (it has morebank branches than would be warranted by thesize of its population, compared with the bankbranch population ratio for Malaysia).

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Development and Cultural Change, 34, 333-46.Kindleberger, C. P. (1965) Economic development, Mc Graw-Hill, New York.Lee, H. L. (1981) Public policies, commercial banks and other deposit institutions in Malaysia: a study in

resource mobilisation and utilisation, UMCB Publications, Kuala Lumpur.Lewis, W. A. (1955) Theory of economic growth, Unwin University Books, London.Lim, K. C. (1979), 'Aspects of regional economic problems and policy in Malaysia', Southeast Asian Affairs,

200-10.Malaysia (1981) Fourth Malaysia plan, 1981-1985, Government Printers, Kuala Lumpur.Marquez, J. (1961) 'Financial institutions and economic development', in Ellis, H. S. (ed.) Economic

development for Latin America, Macmillan, New York, pp. 168-88.McKinnon, R. I. (1973) Money and capital in economic development, Brookings Institution, Washington DC.Miracle, M. P., ef al. (1980) 'Informal savings mobilisation in Africa', Economic Development and Cultural

Change, 28, 701-24.Myrdal, G. (1957) Economic theory and underdeveloped regions, Duckworth, London.Narayanan, S. (1978) 'A Note on internal migration and regional growth trends in peninsular Malaysia,

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LOCAL EMPLOYMENT INITIATIVES:LONG-TERM STRATEGY FOR LOCALITIES OR 'FLAVOUR OF THE

MONTH?BOB FAGAN*

The title of this review was suggested byadvertising for Work Matters, a new magazine onlocal employment initiatives (LEIs) published bythe National Clearing House on Local EmploymentInitiatives in Canberra. This body, which inOctober 1986 also published the first issue ofScan, a quarterly bibliography and informationsummary, was established following a NationalConference on Local Employment Initiatives held inCanberra in July 1986. The conference wasaddressed by speakers from the OECD, Canada,Britain, Ireland and Spain, and by Australian LEIactivists from the private sector, communitygroups, trade unions, state and local government(and by a few academics). The conference will bethe basis for a report by the National AdvisoryGroup on Local Employment Initiatives (NAGLEI)which will be presented to the federal Minister forEmployment and Industrial Relations in 1987.

This paper reviews both the conference and theconcept of LEIs against the background of widerissues which should be of increasing concern tohuman geographers. First, what are the possi-bilities and pitfalls associated with developingalternative employment strategies at the locality-level — that is from the 'bottom up'? Second,what should geographers in Australia becontributing towards locality analysis and theformulation of strategy, given their disciplinarytradition of research into regional and localdifferentiation and the spatial impacts of 'topdown' forces?

• School of Earth Sciences, Macquarie University, NSW 2109,Australia.

Australian Geographer 18 (1), May 1987

LOCAL EMPLOYMENT INITIATIVES

Throughout OECD countries, industrialrestructuring since the mid 1970s has involvedtechnological change, rapid job-shedding inmanufacturing and widespread reorganisation ofwork. One consequence has been the emergenceof high unemployment rates. Conventional(Keynesian) policy instruments to tackle unem-ployment and regional disparity have beenabandoned widely as national governments havebecome preoccupied with macroeconomic issues,anti-inflation strategies and policies aimedostensibly at reduction of mounting budgetdeficits.

Yet the reasons are not simply political andideological. The geographically and sociallyuneven impacts of industrial restructuring — a'mosaic of unevenness' (Walker and Storper 1981)— have rendered obsolete much of the conven-tional wisdom about regional policy based oncore-periphery models (Fagan and Rich 1986).Because of the intricate relationships betweenglobal restructuring and the local impacts,significant new growth of financial and otherbusiness services in one set of places, canaccompany deepening crisis for people else-where. In Australia, inner city areas, WesternSydney and West Melbourne, Adelaide, Geelongand the steel regions all provide examples (Fagan1987). In this environment, LEIs have emergedspontaneously as a bottom-up response to crisis,especially in those localities affected mostseverely by restructuring. Yet in addition, theencouragement of 'local initiative' has often

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