CHAPTER THREE: INTERNATIONAL PERSPECTIVES ON LOCAL ECONOMIC DEVELOPMENT AND POVERTY
3.1 WHY LOCAL ECONOMIC DEVELOPMENT
Local economic development has been actively pursued due to its virtues. These virtues include promotion of sustainability, participation, poverty alleviation, competitiveness and decentralization (Canzanelli 2001). Nevertheless LED has not always produced the desired outcomes thus results have been mixed. Local economic development arises from the decline in faith of formal hierarchical institutions which respond less to the poor. This has given rise to the third sector in development, which places emphasis on to human development (Friedman 1992). Furthermore the fact that desired improvements do not often appear spontaneously is behind the emergence of Local economic development (Perry 2001). Hamdi and Goethert (1997:19) argue that ‗orthodox‘
planning approaches are unrelated to the realities and pace of city life and transfer little or no immediate benefit to the majority of urban populations. Their rational management models sought
‗predictable 'end states' which impose restrictions (rather than cultivate conditions), whose processes are normative, inflexible, and based on 'sacred prototypes' and preordained rules (ibid).
This rational management displaces the flexible, spontaneous and incremental processes which are vital to the health of low-income communities. Orthodox planning aims for a functional and legible city when urban settlements are often organic and legible only to inhabitants (Scott 1998).
The organic local action is often extra-legal in that it does not comply with official planning rules
recycling garbage, purchasing and exchanging commodities, and pirating services. In time, people build a substantial body of experience and knowledge which is rarely tapped when formulating plans, about how best to build, to profit, or dodge the authorities (Hamdi and Goethert 1997:12).
The key issue for all planning approaches and development strategies is therefore how to capture the dynamism of informal processes without destroying them in the process.
LED has also emerged due to the failure of traditional development approaches that were top down (Pose 2001; ILO 2001). Traditional development approaches were usually supply side policies that emphasized infrastructure investment and attracting of foreign direct investment through offering location incentives. This was based on the premise that this would improve the economic status of the lagging areas. Nevertheless this did not always bring desired results. Empirical evidence also shows that failure rates are more than success rates (Pose 2001). For example in Italy, Mezzogorio in the 1960‘s and 1970‘s there was heavy investment in shipyards, refineries and car plants.
Nevertheless this did not bring about the required industrial and economic output. Even after such investment the income gap between Northern Italy and Mezzogorio remained the same (Trigilia 1992 cited by Pose 2001). Such investments also failed because of weak endogenous industrial rubric, inadequate local socio economic and institutional settings which hampered the formation of linkages and conditions necessary for sustainable economic growth (Pose 2001). The large investments were also detached from the local milieu as ―cathedrals‖ in a desert whose suppliers and customers are located elsewhere (Pose 2001). Other reasons for the failure of traditional development approaches include deficient human resources, unbalanced policies which targeted one bottleneck based on the premise that all other bottlenecks will be solved, and the transplanting or replication of so called best practices without considering local context (ibid). For example Perroux‘s (1957) development pole theory was transplanted to centers in Spain, France and Latin America where it failed to yield dynamic and innovative effects (Roura 1994 cited by Pose 2001).
It is because of the failure of traditional approaches which has led to a rethinking and emergence of bottom up development polices termed LED (Stőhr 1990; Amin 2000 cited by Pose 2001). These development policies are the opposite of traditional development approaches (White and Gasser 2001). The characteristics which define LED are:
o Participation and social dialogue o territorially based
o they entail mobilisation of local resources and competitive advantages o and are locally managed and owned.
The difference between LED and Traditional approaches is summarised in the table below. LED differs with traditional development approaches. Unlike traditional development LED is decentralised and bottom up
Table 7: Differences Between Traditional Development and LED
Traditional Development policies Local Economic Development i. Top down with decisions taken at the centre i. Bottom up with initiatives from below
ii. Managed by central administration ii. Decentralised, vertical cooperation between different tiers of government and horizontal cooperation between public and private bodies iii. Sectoral approach iii. Territorial approach(Locality milieu)
iv. Development of large industrial projects to stimulate economic activity
iv. Maximise development potential of each are to stimulate a progressive adjustment of the local economic system to the changing economic environment
v. Financial support, incentives and subsidies as the main factor for attracting economic activity
v. Provision of key conditions for the development of economic activity
Source: Pose (2001)
LED strategies are structured on three development axes of economic hardware, software and
―orgware‖ (Barquero 1999 cited by Pose 2001). Hardware development entails investment in infrastructure, software entails design and implementation of comprehensive LED strategies whilst orgware entails improving the organisational and institutional setup. Therefore one can say that LED is a balanced development policy since it improves hardware, software and orgware of a territory so that it can compete globally. Nevertheless LED has its own risks and disadvantages which include that it is time consuming and organising effort may be cumbersome. It may also lead
to unbalanced policies and the mere involvement of local authors does not guarantee success (Pose 2001).
However LED has got increased attention owing to the rapid urbanization in third world cities. The United Nations estimates that by the year 2025 close to half the people around the world will live in urban areas. Unprecedented urbanization in the third world requires a sustainable development strategy to improve the quality of urban management and foster an economically competitive environment (SACN 2006). Without a city development strategy there will be a decrease in welfare and quality of life for urban inhabitants (ibid). However, the high concentration of persons in cities suggests that with the proper approach to growth the benefits of development can be more widely dispersed of which LED is a key tool. LED is already in the current context through promoting work with the public, private, and non-profit sector to build strong, competitive and dynamic cities (World Bank 2005). According to the World Bank the LED strategic approach can assist local governments in pursuing good practices in building environments that are livable, competitive, well-governed ,managed, and bankable cities, hence the increased interest in LED.
LED is gaining importance due to decentralisation of national governments where resources are delegated to local authorities (Meyer -Stamer 2003). This is based on the premise that governance is easier at local level and that the issue of poverty alleviation through LED is best achieved at the local level (ibid). LED has been actively promoted since greater decentralization in recent years has increased the responsibility of municipal or local government in Africa. It is the aim of the Local Economic Development (LED) specialists in the urban development sector to assist local governments in determining the most effective strategy to increase jobs and revitalize their city‘s economy (ibid). Whereas urban development in the past included non-holistic approaches, such as infrastructure improvement and development control through master plans, the new urban agenda is now deepening to encompass a sustainable and self-regenerating approach that corrects market failure (ibid). Master plans failed in part because they ignored the importance of addressing economic growth and development, and/or have identified economic development as a sector, a department, or an activity, and not as an objective that should drive the policies and directions of the city as a whole (USAID undated). A city that addresses its economic base and identifies the role it can play to strengthen it, also changes the way it governs--who is involved in planning and
decision making, who leads what actions, and how success is judged(ibid). LED has therefore been pursued since it does not hamper development.
LED overcomes market failures, mainly because it generates trust, leads to match collective and individual interests, and reduces, after an initial period, production costs (Canzanelli 2001). It also galvanizes the population, mainly because it provides objectives and sense of purpose and it stimulates citizens to participation and entrepreneurial ventures (ibid). LED is effective in promoting rural urban linkages, thus it is applicable not only in urban areas but also in peri-urban and rural areas (World Bank 2005). LED has been actively pursued since it helps in enhancing the competitiveness of an area.
LED is crucial in improving competitiveness upon which the success of communities will depend on their ability to adapt to the changing and increasingly competitive environment (Castells 1998). At the international level the drivers of this change include economic, technological and political pressures. At the national level these pressure include widespread privatization of whole industries and decentralization of government services. Through LED which planning policy can enhance the competitiveness or the comparative advantage of an area by embedding economic activity based on local resources in that territory so that it can compete globally (Pose 2001).