the need for local economic development in a globalised world

The need for local economic The need for local economic development in a globalised worlddevelopment in a globalised world

Andrés Rodríguez-Pose

Department of Geography and EnvironmentLondon School of Economics

The Programme for Local Economic Development in Jordan (PLEDJ)Sheraton Hotel, Amman, Jordan

24th March 2011

LED in a globalised world Andrés Rodríguez-Pose

Thomas Friedman1. Journalist (NYT)2. Writer3. 3 times Pulitzer Prize

winner4. Guru of Globalisation


The world is flatThe world is flat

The impact of globalisation (Freedom)1. Freedom of movement2. Freedom to adopt ‘best practices’3. Freedom for innovation and creativity to flow4. Freedom to create your own global and individual

supply chains


Net resultNet result

A better world A world where people and places are better off

1. Empowerment2. Access to higher quality and cheaper goods3. Better, easier and cheaper connection to friends and

family abroad4. Greater capacity to innovate without having to migrate

The world is changing for the better


But is this true? PlacesBut 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!


But is this true? Places (II)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


But is this true? PeopleBut 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


But is this true? People (II)But is this true? People (II)

Wen From rural village in

Guandong province… To swetshop in Shenzhen

Andrés Alternative between a live

in a cosy Spanish university…

Or London


Globalisation and its implicationsGlobalisation and its implications

There are winners and losers from globalization Our perception about whether there are more winners or

losers will depend on:1. Our sources of information2. Our frame of reference3. Our ideology and economic interests4. 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

LED in a globalised world Andrés Rodríguez-Pose 10

Three challengesThree challenges

Globalization Urbanization Decentralization Leading to greater territorial inequality


Globalization: rise in tradeGlobalization: rise in trade

0

50

100

150

200

250

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

year

Ind

ex 1

990

= 1

00Agriculture

Manufacturing

Trade in both agricultural and manufacturing

goods has been increasing in the

last decades

Source: Own elaboration from World Trade Organization


Sectoral shiftSectoral shift

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1.8

2

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

Year

Ra

tio Brazil

China

IndiaMexico

USA

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


UrbanizationUrbanization

Source: from World Development Indicators (World Bank 2005)

Urban population as a percentage

of total population has been

increasing in all areas of the world, though

not at the same pace

0

10

20

30

40

50

60

70

80

90

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

World

East Asia and Pacific

Middle East & North Africa

South Asia

Sub-Saharan Africa

Europe & Central Asia

Latin America & Caribbean


Urbanization and wealthUrbanization and wealth

Source: Own elaboration World Bank data

6

8

10

12

0 20 40 60 80 100

% of urban population 2003

Lo

g o

f G

DP

per

cap

ita

2003

There is a positive association between the degree of urbanization and a country’s wealth


Red: High level of decentralizationOrange: Moderate decentralizationYellow: Low or partial decentralizationBlue: Decentralization on paper

Decentralization: the world in 1970Decentralization: the world in 1970


Red: High level of decentralizationOrange: Moderate decentralizationYellow: Low or partial decentralizationBlue: Decentralization on paper

The world in 2011The world in 2011


Moderate rise in disparities, weighted by population (1970-2005)

Spain

0.05

0.10

0.15

0.20

0.25

1980 1983 1986 1989 1992 1995 1998 2001 2004

France

0.05

0.10

0.15

0.20

0.25

0.30

1980 1983 1986 1989 1992 1995 1998 2001 2004

Finland

0.00

0.05

0.10

0.15

0.20

0.25

1980 1983 1986 1989 1992 1995 1998 2001 2004

UK

0.05

0.10

0.15

0.20

0.25

1980 1983 1986 1989 1992 1995 1998 2001 2004

Germany (W)

0,00

0,05

0,10

0,15

0,20

0,25

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

In EuropeIn Europe

The evidence: Rising disparitiesThe evidence: Rising disparities


Rising disparities (II)Rising disparities (II)

Moderate rise in disparities, weighted by population (1970-2005)

Australia

0.00

0.05

0.10

0.15

0.20

1990 1992 1994 1996 1998 2000 2002 2004

Thailand

0.90

0.95

1.00

1.05

1.10

1.15

1.20

1994 1996 1998 2000 2002 2004

India

0,25

0,30

0,35

0,40

0,45

0,50

0,55

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

But also in the rest of the worldBut also in the rest of the world


Rising disparities (III)Rising disparities (III)

Rapid rise in disparities, weighted by population (1970-2005)

Czech Republic

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

0.55

1990 1992 1994 1996 1998 2000 2002 2004

Poland

0.05

0.10

0.15

0.20

0.25

1990 1992 1994 1996 1998 2000 2002 2004

Romania

0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

0.45

0.50

0.55

1990 1992 1994 1996 1998 2000 2002 2004

Hungary

0,15

0,20

0,25

0,30

0,35

0,40

0,45

0,50

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Slovakia

0,15

0,20

0,25

0,30

0,35

0,40

0,45

0,50

0,55

1990 1992 1994 1996 1998 2000 2002 2004

Bulgaria

0,00

0,05

0,10

0,15

0,20

0,25

0,30

1990 1992 1994 1996 1998 2000 2002 2004

In new member states of the European Union In new member states of the European Union


Rising disparities (IV)Rising disparities (IV)

Rapid rise in disparities, weighted by population (1970-2005)

Ireland

0.00

0.05

0.10

0.15

0.20

0.25

1980 1983 1986 1989 1992 1995 1998 2001 2004

Norway

0.00

0.05

0.10

0.15

0.20

0.25

0.30

1980 1983 1986 1989 1992 1995 1998 2001 2004

Sweden

0.00

0.05

0.10

0.15

0.20

0.25

1980 1983 1986 1989 1992 1995 1998 2001 2004

But also in western EuropeBut also in western Europe


Stability, weighted by population (1970-2005)

Italy

0.15

0.20

0.25

0.30

1980 1983 1986 1989 1992 1995 1998 2001 2004

The Netherlands

0.00

0.05

0.10

0.15

0.20

0.25

0.30

1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Switzerland

0.00

0.05

0.10

0.15

0.20

0.25

1980 1983 1986 1989 1992 1995 1998 2001 2004

Rising disparities (V)Rising disparities (V)

In EuropeIn Europe


Stability, weighted by population (1970-2005)

USA

0.00

0.05

0.10

0.15

0.20

0.25

1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004

Canada

0.00

0.05

0.10

0.15

0.20

0.25

1981 1984 1987 1990 1993 1996 1999 2002 2005

South Africa

0.30

0.35

0.40

0.45

0.50

0.55

0.60

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Rising disparities (VI)Rising disparities (VI)

China

0,20

0,25

0,30

0,35

0,40

0,45

0,50

0,55

0,60

0,65

0,70

0,75

0,80

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

But But also in also in the rest the rest of the of the worldworld


Declining disparities, weighted by population (1970-2005)

Belgium

0.25

0.30

0.35

0.40

0.45

0.50

1980 1983 1986 1989 1992 1995 1998 2001 2004

Declining disparitiesDeclining disparities

Brazil

0.30

0.35

0.40

0.45

0.50

0.55

1989 1991 1993 1995 1997 1999 2001 2003


Emergence of a new territorial structureEmergence 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 ways1. Primate cities2. Intermediate city-regions3. Rural areas

Ability of the nation-state to provide suitable development strategies top-down undermined


Globalization and development strategiesGlobalization and development strategies

Traditional development strategies are struggling in this new, more heterogeneous, context

Key characteristics of traditional development strategies are:1. Sectoral rather than territorial approach

2. Top-down rather than mixed or bottom-up approaches

3. Tendency to focus on large infrastructure or industrial projects…

4. Often to the detriment of human capital and innovation

5. Financial support, incentives, and subsidies as key elements of the strategy

These elements are becoming too rigid for today’s evolving context


Searching for alternatives/complementsSearching for alternatives/complements

Experimentation with alternative approaches:1. Territorial

2. Integrated

3. Focusing on institutions and governance

4. 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


What is LED?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


Core valuesCore values

The LED approach seeks to promote: 1. An inclusive policy process

2. Equality and representation for all local stakeholders

3. Formal and informal opportunities for voice and social dialogue

4. A balanced development strategy with a strong focus on sustainable development and employment


LED versus traditional strategiesLED 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


Local economic vs community developmentLocal 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


How is this achieved?How is this achieved?

Through a balance between strategies and institutions

InstitutionsStrategy


Key elements in the strategyKey elements in the strategy

ROOTINGECONOMICACTIVITY

INWARD INVESTMENT

HUMAN RESOURCES

LOCALFIRMS

INFRASTRUCTURE

DEPENDENCE

ACCESS BY COMPETITORS

SUBSIDIES TO NON

COMPETITIVE FIRMS

MIGRATIONBRAIN DRAIN


Types of LED programmesTypes of LED programmes

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


Property-based strategies Property-based strategies

Assumes constraint to growth is provision of affordable space

Manifestations include:1. Incubators2. Science parks3. Managed work spaces4. Export processing zones, etc.

Disadvantages: 1. What is convenient can win out over what is needed for

growth2. There is limited evidence of impact of this type of

approaches in many emerging countries on their own3. Some of them may create excessive dependency


Business support programmesBusiness 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:

1. The perils of generalism - loss of focus on providing specific services well

2. ‘Parachuting in experts’


Skills and human resourcesSkills and human resources

Assumes businesses don’t have skills to compete/ prosper/survive

Industry-education alliances 1. Danish Ministry of Education’s ‘Action plan for promoting a

culture of entrepreneurship in Denmark’ (European Commission 2000).

2. Goals is to promote enterprise in school curriculum, improve perceptions of entrepreneurs.

Disadvantages: 1. Difficulty to measure

2. May compromise broader learning


Combination approachesCombination approaches

Interaction Interaction

b/t LED b/t LED

policies + policies +

regional regional

economyeconomy

LED outcomes LED outcomes (outputs)(outputs)

• New New businesses/jobsbusinesses/jobs

• Better survival Better survival rate/retained jobsrate/retained jobs

• New products/ New products/ services/patentsservices/patents

• Tax revenueTax revenue

• Prosperity, poverty Prosperity, poverty reduction, GDPreduction, GDP

Policies Policies

(inputs)(inputs)

• Property provisionProperty provision

• Skill buildingSkill building

• Business supportBusiness support

• Financing Financing

AssistanceAssistance

• Others (indirect)Others (indirect)


Partnerships and fundingPartnerships and funding

Partnerships are needed for both leadership and funding Leadership:

1. 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

2. Other forms of leadership are rare, but possible

3. Wide horizontal coalitions are a must- Leaving stakeholders without voice generally creates problems down

the line


Partnerships and funding (II)Partnerships and funding (II)

Funding:1. Development grants

- Easy to manage

- But do not involve real partnerships

- Can create dependency

- To be used sparingly and to kick-start a process

2. 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


Partnerships and funding (III)Partnerships and funding (III)

1. Institutional investment- Development banking and social investment

- Difficult to set up

- Requires broad coalitions and consensus

- But interesting results

2. 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


What is happening across the world?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

The need for local economic The need for local economic development in a globalised worlddevelopment in a globalised world

Andrés Rodríguez-Pose

Department of Geography and EnvironmentLondon School of Economics

More information in

http://personal.lse.ac.uk/rodrigu1/

Recent working papers

http://repec.imdea.org/

the need for local economic development in a globalised world

Documents

migratethe world

local economic development

better offempowermentaccess

better life

economic intereststhe

cheaper connection

cheaper goodsbetter

coal mining