Chapter 4 Regional economic development
4.2 Conceptualisation of regional economic development
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62 promoted the rise of multinational enterprises (MNE) and contributed to the further weakening of national boundaries and ‘flattening’ of the world. Through the MNE model, firms are adapting their industrial governance and competitiveness to the new economic environment.
Set against the trajectory of globalisation, literature on the ‘regional world’ increasingly stresses the importance of regional processes and the role of local actors in shaping development trajectories. Local specificities are being reaffirmed rather than marginalised in a context of increasing globalisation, embracing the reality of development processes that unfold at the local level, with recognition that globalisation can in fact reinforce such a pattern. To unravel the complex ironies of this situation it is necessary to understand the “‘regional world’… [as] essentially underpinned by the spatially-bounded localised forces that trigger economic development and push welfare to agglomerate in specific locations within countries”
(Ascani et al., 2012: 4). What agglomerates could be both institutions and MNEs that have been enabled to function in whatever space they deem suited for their business.
Within this frame of thinking about development, national economic growth tends to be seen as an attribute of performance. A number of local economies within nation countries strive to perform at their peak, and it is urban areas that are the likely settings for concentration of economic growth. This is because “most industrial production, skilled labour and higher wages tend to agglomerate in cities where geographical proximity between economic agents facilitates communication and creates an environment which favours frequent interactions and flows of ideas” (Ascani et al., 2012: 5).
The context outlined above indicates the basis upon which the concept of RED is founded.
Before considering definitions or theoretical implications of RED, it is important to note the link between land economics and RED. Partridge and Rickman (2014) argue that it is important to include land in RED analysis, and that RED is about land because it is activity in a place or a specific land area. Land use and economic development are inherently linked through zoning, transportation, infrastructure, sprawl and environmental attributes that jointly affect firm productivity and household utility. Furthermore, land studies and economics need to focus on joint firm location decisions and RED on land, as land defines the space within which the economic activity occurs. In addition, Partridge and Rickman argue that
models and empirical approaches are needed that recognise regions as complex systems, fully understanding and modelling the interplay between land use and economic development, including the linkages
63 between the inter-regional distribution of economic activity and
regional economic performance. (2014: 24)
Because of lagging economic performance, cities, regions and states strategically plan endeavours to improve their economies (McGahey, 2008). Regional economic development is therefore regional efforts in economic development. According to Wood and Valler (2009), delineating the field of regional economic development is problematic as it is very difficult to define any obvious boundaries around the related literature. Discussion and study of this field across and within disciplines such as politics, geography, sociology, economics and urban studies is said to be selective and impressionistic, but this is deemed inevitable given the diversity and potential scale of the field (Wood & Valler, 2009). Wood and Valler note in addition that in trying to understand such economic development processes; the problem is not the lack of theory but the multiplicity of theoretical understandings. These will be discussed below.
RED has been defined as the outcome of generative economic activity through collaborative multi-stakeholder relationships, productive networks and mutually reinforcing relationships drawing on key economic assets and infrastructure that contributes to an increase in the general prosperity of a region. Bodhanya (2015) defines RED as sustained and concerted actions of policy makers, businesses and communities that promote the economic health of a specific geographic region generally below the level of the nation state.
According to Karlsson and Rouchy (2015:2), “RED encompasses the economics and other resources that a region can mobilize for its own sustainable development and competitiveness”.
This mobilisation can only be facilitated by the “self-organised steering of multiple agencies, institutions and systems which are operationally autonomous from one another yet structurally coupled due to their mutual interdependence” (Chapple & Montero, 2016: 144). Chapple and Montero (2016) note four factors that strengthen the effectiveness of governance in RED:
Simplifying governance models and practices.
Developing capacity for interactive learning.
Establishing a common worldview (vision).
Developing a system of metagovernance to coordinate actions across space, time and domains.
In this kind of governance, social capital is crucial. Social capital is based on networks of trust and collaboration that can create synergy between public and private sector actors (Chapple &
64 Montero, 2016). According to Karlson and Rouchy (2015), intangible factors such as trust, networks and institutions become significant if economic and local governance actors are to successfully work together; collective action and coordination among local actors provides the appropriate environment to spur regional economic development.
In RED, one of the goals of local administrators or governments is to spur economic growth by creating a conducive environment to attract outside business activity (Yunus, Bustaman &
Rashdi, 2014). The strategies used by local governments to influence companies’ location behaviour need to combine instruments that will meet the objectives of that local economy.
Kero (2002) identifies two broad development strategies in this regard: exogenous strategies and endogenous strategies. The exogenous determinants rely on economic impulses from outside the region and prioritise mobility of capital and labour. In the exogenous strategies, incentives and infrastructure development are paramount in increasing business activity. The endogenous strategies concentrate on the local capacity and competitiveness and they assess local resources and the efficiency of their allocation.
Given all the above viewpoints on RED, an overall theorisation of RED is provided by Fisher (2007) and McGahey (2008) who explain that RED comprises various programs that focus on specific industries (e.g. high technology or manufacturing), specific locations (economically distressed regions, ‘urban blight’ areas, rural communities), differing uses of funds (for infrastructure, for research and development, for plant and equipment, for training), in-state vs out-of-state firms (retention vs attraction of these firms), different sections of the tax code (property, payroll, corporate income), and different public agencies (special purpose tax districts, public development corporations).
Furthermore, RED is merely about finding ways to encourage business, companies or firms to relocate to specific places. This can be done through a provision of finance to set up facilities for companies to move or relocate to. The practice of attracting firms through the use of financial inducements is called “smokestack chasing”. Fisher (2007) and McGahey (2008) identify three broad classes of incentives: discretionary, entitlement and tax cuts. Incentives have been criticised on the basis that public good (in this case, public finances) should not be spent to compete for individual business because what should happen is that governments should compete for business on the basis of their general economic and policy climate, such as overall tax rates, regulation, and education quality.
65 Because incentives are seen as a wasteful expenditure, there have been suggestions of a cost- reduction approach which emphasises investment in infrastructure, education and training, attention to the needs of business, and support of new business formation and innovation in the region through access to capital, improved technology transfer and education and training programmes for entrepreneurs and small business owners (McGahey, 2008).
Another approach which is also critical of cost-driven strategies is that of Michael Porter’s
‘clusters’ of economic activity. These are region-specific concentrations of firms, industries, workforce skills and potential growth opportunities. Clusters untangle the paradox of location and offer insights into how companies create competitive advantage (Porter, 1998). Porter argues that for economic success, different groups of firms should raise their productivity levels as this will have a positive impact on citizens’ standard of living (McGahey, 2008).
One criticism of Porter’s clusters approach has been that the focus is on nations and not on the regions within them. It has also been questioned whether these clusters benefit low-income people and communities. Regional application of Porter’s framework has nonetheless been adopted and there are basic economic arguments in favour of the regional focus. The first is that regions essentially have specific concentrations of industries, occupations/jobs, workers, and businesses that do not necessarily respond uniformly in the same way to overall national economic conditions and labour markets for many non-professional and low wage workers (McGahey, 2008). The second is that regions can gain economic advantage from spillovers of technology, industry concentration and labour force development.
One last very pertinent point made by McGahey (2008:9) is that “approaches to regional economic development, and cluster approaches in particular, concentrate on economic growth, [with] little attention to inclusive growth or social equity in a region as part of economic development”. McGahey indicates also that clusters are demand driven, with companies acting in their own best interests. However, cluster approaches hold promise for increasing economic opportunity and could lead to higher incomes and stronger economies. Scott and Stoper (2007) note that the “role of cities and regions (also referred to as city-regions) as drivers of economic growth and prosperity – in both developed and developing countries – has been increasingly emphasised within the economic development literature (2007: 191)”. Similarly, Stimson, Stough and Salazar (2005: 23) define RED as a “process that ensures a competitive and entrepreneurial city or region and one that achieves sustainable development”.
66 To summarise: RED theory is complex; RED involves a coming together of stakeholders through collaborative multi-stakeholder relationships; RED is about creating an enabling environment to attract and encourage business activity for economic growth within regions and is in itself responsible for creating regions whose sole priority is to build on the competitiveness of businesses. Furthermore, agglomeration or clustering of this economic activity signals that RED is about economic growth. The next section further unpacks the concept of agglomeration as a core feature of RED.