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
 Thomas Friedman
1. Journalist (NYT)
2. Writer
3. 3 times Pulitzer Prize
winner
4. Guru of Globalisation
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The world is flat
 The impact of globalisation (Freedom)
1.
2.
3.
4.
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
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Net result
 A better world
 A world where people and places are better off
1. Empowerment
2. Access to higher quality and cheaper goods
3. Better, easier and cheaper connection to friends and
family abroad
4. 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
 Singapore
 Hub for ITC, software,
aerospace.. Clothing and
footware
 ‘Silicon Valley’ of India:
Infosys, Wipro
 Third
largest
concentration
of
millionaires in India
 Huge trade hub
 Dynamic producer of
 Dynamic and diversified
sofas, armchairs and
manufacturing sector
coffee tables
 Business service centre
 500
very
competitive
exporting firms
 $30,000 GDP per head
 High quality at low prices
 No unemployment
 It all started in 1983!
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 Triangolo del Salotto
Page 4
But is this true? Places (II)
 Detroit
 Asturias
 Dependence
on
autoindustry made it
vulnerable
 High unemployment rate
 More than one third of its
residents
below
the
poverty line
 Still reliant on large  Specialised in mining and
public owned firms…
heavy industries
 In unprofitable sectors:  But struggling to adapt to
coal
mining,
steel,
changes and keep pace
shipyards
with the rest of China
 Rapid decline from one of  One of the poorest
the richest to one of the
provinces
poorest in Spain
 Migration
 Environmental problems
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 Gansu
Page 5
But is this true? People
 Nitesh Shetty
 David Beckham
 Joao
 From
middle-class,
aspiring tennis player…
 To
owning
4,000
apartments in Bangalore
 From talented aspiring
football player at Man
Utd academy…
 To global icon
 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)
 Wen
 From rural village in
Guandong province…
 To swetshop in Shenzhen
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 Andrés
 Alternative between a live
in
a
cosy
Spanish
university…
 Or London
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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:
1.
2.
3.
4.





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
250
200
Index 1990 = 100
Trade in both
agricultural and
manufacturing
goods has been
increasing in the
last decades
150
Agriculture
Manufacturing
100
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
0
1970
50
year
Source: Own elaboration from World Trade Organization
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Sectoral shift
2
Agricultural to industry
export ratios in selected
countries show that:
1.6
1.4
1.2
Ratio
The importance of
agricultural exports has
been declining compared to
industrial goods
1.8
Brazil
China
India
Mexico
USA
1
0.8
0.6
0.4
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
0.2
Year
Source: Own elaboration from Comtrade, United Nations Statistics Division data
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Urbanization
90
Urban
population as
a percentage
of total
population
has been
increasing in
all areas of the
world, though
not at the
same pace
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
Source: from World Development Indicators (World Bank 2005)
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Urbanization and wealth
Log of GDP per capita 2003
12
There is a positive
association between the
degree of urbanization
and a country’s wealth
10
8
6
0
20
40
60
80
100
% of urban population 2003
Source: Own elaboration World Bank data
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Decentralization: the world in 1970
Red:
Orange:
Yellow:
Blue:
High level of decentralization
Moderate decentralization
Low or partial decentralization
Decentralization on paper
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The world in 2011
Red:
Orange:
Yellow:
Blue:
High level of decentralization
Moderate decentralization
Low or partial decentralization
Decentralization on paper
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The evidence: Rising disparities
Moderate rise in disparities, weighted by population (1970-2005)
In Europe
Germany (W)
France
0,25
0.30
0,20
0.25
0,15
0.20
0,10
0.15
0,05
0.10
UK
0.25
0.20
0.15
0.10
0.05
0,00
0.05
1980
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
1983
1986
1989
Spain
1992
1995
1998
2001
2004
1980
1983
1986
1989
1992
1995
1998
2001
Finland
0.25
0.25
0.20
0.20
0.15
0.15
0.10
0.10
0.05
0.05
0.00
1980
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1983
1986
1989
1992
1995
1998
2001
2004
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1980
1983
1986
1989
1992
1995
1998
2001
2004
16
2004
Rising disparities (II)
Moderate rise in disparities, weighted by population (1970-2005)
But also in the rest of the world
Australia
0.20
Thailand
1.20
1.15
0.15
1.10
1.05
0.10
1.00
0.05
0.95
0.90
0.00
1990
1992
1994
1996
1998
2000
2002
1994
2004
1996
1998
2000
2002
2004
India
0,55
0,50
0,45
0,40
0,35
0,30
0,25
1993 1994 1995 1996 1997
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Rising disparities (III)
Rapid rise in disparities, weighted by population (1970-2005)
In new member states of the European Union
Czech Republic
0.55
Poland
0.25
Romania
0.55
0.50
0.50
0.45
0.45
0.20
0.40
0.40
0.35
0.30
0.35
0.15
0.25
0.30
0.20
0.25
0.15
0.10
0.10
0.20
0.05
0.15
0.05
1990
1992
1994
1996
1998
2000
2002
2004
0.00
1990
1992
1994
1996
1998
2000
2002
2004
1990
1992
1994
0,55
0,50
1998
2000
2002
2004
Bulgaria
Slovakia
Hungary
1996
0,30
0,50
0,45
0,25
0,45
0,40
0,35
0,30
0,40
0,20
0,35
0,15
0,30
0,10
0,25
0,25
0,20
0,05
0,20
0,15
0,00
0,15
1
2
3
4
5
6
7
8
9
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10
11
12
13
14
15
1990
1992
1994
1996
1998
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2000
2002
2004
1990
1992
1994
1996
1998
2000
2002
18
2004
Rising disparities (IV)
Rapid rise in disparities, weighted by population (1970-2005)
But also in western Europe
Ireland
0.25
0.20
0.20
0.15
0.15
0.10
0.10
Norway
Sweden
0.25
0.30
0.25
0.20
0.15
0.10
0.05
0.05
0.00
0.05
0.00
1980
1983
1986
1989
1992
1995
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1998
2001
2004
0.00
1980
1983
1986
1989
1992
1995
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1998
2001
2004
1980
1983
1986
1989
1992
1995
1998
2001
19
2004
Rising disparities (V)
Stability, weighted by population (1970-2005)
In Europe
Italy
0.30
The Netherlands
0.30
Switzerland
0.25
0.25
0.20
0.20
0.25
0.15
0.15
0.10
0.20
0.10
0.05
0.05
0.15
0.00
1980
1983
1986
1989
1992
1995
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1998
2001
2004
0.00
1986 1988
1990
1992 1994
1996 1998
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2000
2002 2004
1980
1983
1986
1989
1992
1995
1998
2001
20
2004
Rising disparities (VI)
Stability, weighted by population (1970-2005)
But
also in
the rest
of the
world
USA
0.25
Canada
0.25
0.20
0.20
0.15
0.15
0.10
0.10
0.05
0.05
0.00
0.00
1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004
China
1981
0.60
1984
1987
1990
1993
1996
1999
2002
2005
South Africa
0,80
0,75
0.55
0,70
0,65
0.50
0,60
0,55
0.45
0,50
0,45
0.40
0,40
0,35
0.35
0,30
0,25
0.30
0,20
1978
1981
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1984
1987
1990
1993
1996
1999
2002
2005
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1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
21
Declining disparities
Declining disparities, weighted by population (1970-2005)
Belgium
0.50
0.45
0.50
0.40
0.45
0.35
0.40
0.30
0.35
0.25
0.30
1980
1983
1986
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1989
1992
Brazil
0.55
1995
1998
2001
2004
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1989
1991
1993
1995
1997
1999
2001
2003
22
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
1. Primate cities
2. Intermediate city-regions
3. 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:
1.
2.
3.
4.
5.
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
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Searching for alternatives/complements
 Experimentation with alternative approaches:
1.
2.
3.
4.
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:
1.
2.
3.
4.
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
Traditional
 Territorial approach to
development
 Sectoral approach to development
 Bottom-up promotion of
development from below in all
territories
 Top-down approach; centre
decides where and how to
intervene
 Decentralized, cooperation
between local public and private
bodies
 Managed by the central
administration
 Focus on maximizing local
economic potential
 Focus on large industrial projects
and financial incentives to attract
activity
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Local economic vs community development
LED
Community development
 Focus primarily on economic
development and decent work
 Focus on social issues, such as
poverty and social exclusion
 Initiated by broad coalitions,
including governments, local
stakeholders, and international
organizations
 Initiated by a variety of actors,
often NGOs or international
organizations
 All encompassing approach,
involving local firms, residents and
social, and political groups
 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
Strategy
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Institutions
30
Key elements in the strategy
DEPENDENCE
INWARD
INVESTMENT
SUBSIDIES TO
NON
COMPETITIVE
FIRMS
LOCAL
FIRMS
ROOTING
ECONOMIC
ACTIVITY
HUMAN
RESOURCES
MIGRATION
BRAIN DRAIN
INFRASTRUCTURE
ACCESS BY COMPETITORS
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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:
1. Incubators
2. Science parks
3. Managed work spaces
4. Export processing zones, etc.
 Disadvantages:
1. What is convenient can win out over what is needed for
growth
2. There is limited evidence of impact of this type of
approaches in many emerging countries on their own
3. 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:
1. The perils of generalism - loss of focus on providing specific
services well
2. ‘Parachuting in experts’
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Skills 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
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Combination approaches
LED outcomes
(outputs)
Policies
(inputs)
Interaction
b/t LED
• Property provision
policies +
• Skill building
regional
• Business support
economy
• New
businesses/jobs
• Better survival
rate/retained jobs
• New products/
services/patents
• Financing
• Tax revenue
Assistance
• Prosperity, poverty
reduction, GDP
• Others (indirect)
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Partnerships 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
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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
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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
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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/