A GLOBAL PERSPECTIVE
2.4 Local Economic Development is a Global Phenomenon
As a result of globalisation, rules regulating world economies connect national, regional and local economies more so than in the past. The ensuing international opportunities and threats are not on a par for territories across the world with varied capacities and resources.
However, all economies are affected by policies and procedures shaped at the supranational level, such as liberalisation of markets, the expansion of global production systems and changes in terms of trade. Markets are universal, affecting countries in concert across the world. Globalisation is a crucial driver of changes in the planning of local and regional development and local economic development (LED) is now a common component of international development planning.
Nel (2001) has stated that LED literature expounds the decline of grand theory and the employment of more limited, post-modern approaches. This evolvement has been presented in sections 2.2 and 2.3. According to Nel (2001) LED appears to have become more prevalent in the northern countries during the last three decades as evidenced by local government action, the challenges faced by central government to promote growth at the local level and the endeavours of community organizations to improve economic and social conditions in particular areas. This trend is the product of many factors including:
the 1970s economic crises, the poor results of traditional, regional development interventions, locality specific industry crises, the opposition to pioneer grassroots movements and community programmes analogous to local government and private sector initiatives. ‗‘Cities are adapting to restructuring and globalization trends with a range of policy choices unanticipated by scholars and unheard just a few years ago‖ (Clarke and Gaile, 1998:1, cited by Nel, 2001:2). However, according to Todaro and Smith (2006) as globalization proceeds, cities tend to trade more with other cities often in distant parts of the world and less with nearby rural areas.
Common objectives of LED comprise: the quest for economic growth, the creation of employment, empowerment of local people, the development of the community, economic revitalization, the upgrading of depressed areas, and setting up the locality as an active sustainable economic unit, moreover in a global milieu (Nel and Rogerson, 2005).
Comparative international research demonstrates that the emphasis in LED varies between pro-business and pro-poor, with the former generally employed in the developed world and the latter in the developing world. Hindson and Vincente (2005) concur with this view and
26
are of the opinion that the approach adopted in the 2006 Guidelines for LED in South Africa, which identifies ―economic growth and poverty eradication‖ as the central goals of LED, is aligned to international thinking, that frequently perceives economic growth as the immediate objective and poverty reduction, equated to improvement in the quality of life, as the absolute goal.
A multiplicity of local economic development (LED) strategies is implemented around the world, and some general approaches are summarized in Table 2.5. No single locality will apply more than a limited number of these strategies with selection dependent on whether local authority LED or community based LED are followed. Applied LED can vary from a course of action directed at an entire city, to one put into practice in a particular community.
Table 2.5 delineates the traditional local economic development (LED) stimuli of supply side and demand side that are a product of the classic theories: financial support in many forms, the emphasis on locality, the cutting of red tape, public and private partnerships, and varied human resource policies. There is awareness that business support services should form an inclusive part of the economic development of a particular area (Ackron, 2004).
The increasing importance of knowledge competitiveness has contributed to a convergence of the distinct roles of business support and economic development. The enhancement of the financial viability of these programmes has being underscored, with basic business support and advice as its central features (Marais, 2009). Business support services cannot be driven from the supply side; they need to be flexible, keep abreast of trends and be in a position to link location with national and international markets. They can also be employed as a mechanism to reduce poverty by addressing inherent market failure, with subsidies likely to play a central role, as not all customers will be able to pay for services at the point of service delivery. Meyer–Stamer (2006) states that a model based in microeconomics and economic sociology, rather than marketing, is required in order to develop the intrinsic potential of the M4P (markets for the poor) approach. Overall there is evidence for an integrated policy focusing on business development services, employment creation, infrastructure, and rates and rents (Marais, 2009). Research and anecdotal reading confirm that Table 2.5 is an apt reflection of the implementation instruments in use in South Africa to promote LED.
27
Table 2.5 Global Local Economic Development (LED) Strategies
LED Strategies Implementation Instruments Financial Support
―supply-side‖ incentives - revenue bonds
- revolving loan funds and below market rate loans - tax incentives
- loan guarantees and/or equity participation - investment packages
- financial assistance to small firms - community banking/group loan schemes Land and Building Development
―demand-side‖ incentives - provision of infrastructure and land - land acquisition
- provision of workshops/small industrial premises - enterprise zones with tax/planning concessions - urban regeneration
- agricultural support Information and Marketing
Assistance - supply of information and advice
- general marketing, promotion/ image reconstruction - targeted marketing of products/areas
- export promotion New Planning and
Organization Structures - adoption of comprehensive planning techniques - streamlining administration
- community development corporations, community business and cooperatives
Training and Employment - employment and training strategies and grants - direct employment
- vocational education
- social support structures/community organizations Source: Adapted from Nel, 2001.
There is a proliferate literature on LED with annual reports and sector reports being generated continuously. The multiplicity of case studies attests to the fact that local economic development is being engaged in all corners of the world and case studies are used both as a tool for dissemination of information and the sharing of best practice. The increased activity in the field of LED can be attributed to the many organizations playing a role in economic development through government programmes, donor programmes both public and private, and various aid agencies. These include among others:
World Bank (WB), World Trade Organization (WTO), Organisation for Economic Cooperation and Development (OECD), U.S. Agency for International Development (USAID), Department for International Development (DFID), International Fund for Agricultural Development (IFAD), Oxfam International, United Nations Conference on Trade and Development (UNCTAD), United Nations Development Programme (UNDP), United Nations Research Institute for Social Development (UNRISD), United
28
Nations Industrial Development Organization (UNIDO), Overseas Development Institute (ODI), International Institute for Environment and Development (IIED), United Nations Economic Commission For Africa (ECA), International Monetary Fund (IMF), World Health Organization (WHO), European Bank for Reconstruction and Development (EBRD), Habitat for Humanity, International World Wildlife Fund (WWW), Save The Children, U.S., United Nations Children‘s Fund (UNICEF), United Nations Environmental Programme (UNEP), Australian Council for International Development (ACFID), GTZ (The German Agency for Technical Co- operation), Netherlands Ministry of Foreign Affairs (DGIS), Irish Aid, Office of The United Nations High Commissioner For Human Rights (OHCHR), European Investment Bank (EIB), African Development Bank Group, Asian Development Bank (ADB), and Bill and Melinda Gates Foundation.
It is interesting to note that this global approach adopted by academics and practitioners alike in the fields of LED literature and LED practice, is not only fostering ―glocalization‖, the global connected with the local (Ehlers and Lazenby, 2007), but placing a greater emphasis on localization through cross-fertilization, innovation and adaptation of ideas.
Many of the organizations previously referred to have been present (e.g. ACFID, Italian Cooperation, the EU) or are still present in South Africa (e.g. USAID, GTZ, DIFD). From 2015, the UK‘s DFID will bring to a close several development projects and end its bilateral, grant-based aid programme to South Africa (Sangonet Pulse, 2013). Over the last few years uncertainty has been created by downward pressure on donor country aid budgets brought about by the fragile global economic environment. Donor aid from all sources often comes with strings attached. Prahalad (2004) confirms that the above listed entities have all waged the good fight, but the vestiges of poverty remain and that the adoption of the Millennium Development Goals (MDGs) by the United Nations only accentuates that reality.
The cooperation of many organizations with African smallholder farmers has helped to increase efficiency throughout the agricultural value chain, from production (seeds, fertilizer and weather information) to storage, trading, processing and retailing.
Partnerships have increased access to finance, backed basic and sophisticated research, and cultivated an integrated approach to rural development by advancing agricultural growth
29
corridors and agro-industries (OECD, 2009). This theme will be further expanded in Section 2.5.
South Africa is among African countries in receipt of Overseas Development Aid to Africa as attested to by Table 2.6, having obtained the sum of USD 1255 million during 2011.
South Africa‘s contribution to development assistance, mainly to African countries and primarily to the South African Development Community (SADC) member states, (as a percentage of Gross National Income (GNI)) ―is equal to that of several leading developing nations‖ (Braude, Thandrayan and Sidiropoulos, 2008:4).
Table 2.6 Overseas Development Aid to Africa by Sector and Recipient in 2011: USD Million Commitments to South Africa by Sector
SA Sectors USD Million
Social 889
Economic 78 Production 31 Multi Sector 125 Gen. Prog. Aid 105
Debt -
Humanitarian 20 Others 7
TOTAL 1 255
Source: Adapted from OECD, 2013.
Varied illustrations of LED in universal practice abound. Meyer-Stamer (2003c) provides evidence that regional policy (LED) in Germany makes little difference as regional inequalities became more pronounced; similarly with European regional policy, where outcomes were mixed. He concludes that, whilst acknowledging problems of transferability, institutional differences and other factors, it cannot be presumed that experiences from OECD countries present a model for LED in developing countries, especially if it cannot be proven that LED efforts in OECD countries have made a noticeable difference.
Illustrations of LED showcased globally include the Silicon Plateau in Bangalore, India, the surgical instruments cluster in Pakistan, and the automobile clusters in Durban and Mexico. In Brazil the growth of economic clusters include the Campinas high technology cluster, renowned for the robust association between research institutes and local firms, and the Sinos Valley footwear cluster (Rogerson, 2008), although an alternate focus on community organizations, community business, community support programmes and appropriate training is also present. Italy is well known for its successful small and
30
medium enterprises realized through the grants allocation, equity participation, tax incentives and the provision of premises (Brusco and Righi, 1989, cited in Rogerson, 2008). In Spain there is greater emphasis on place-marketing and infrastructural development which appeals to potential entrepreneurs and investors (Garcia, 1993, cited by Rogerson, 2008). In North America, in deference to traditional methods of LED, new marketing strategies have been applied, among which feature: special promotion, cultural events, business incubators, leaseback arrangements, improvement of the local environment and building rehabilitation (Reese and Fasenfest, 1996, cited in Rogerson, 2008). In East Asia the focus has, until recently, been on national economic development, but current processes of decentralization are introducing interesting possibilities which embrace the promotion of local currency and bond markets and the knowledge-intensive local production networks in places like South Korea, Malaysia and Hong Kong (DPLG, 2006).
According to Rogerson (2008), international LED research focuses on themes of local governance, institutional arrangements and the value of partnerships, promotional strategies, the impact of charismatic individuals and academic consultants in shaping LED policy and projects, the development of social capital and the noteworthy role of local industrial clusters. Nel (2001:1023), states that:
―LED both reflects and manifests the contemporary forces of globalism and localism. As local areas look inward at their own resources and skills to promote local level development, they often seek a unique place for themselves in an increasingly globalized economy and society ... of rapid change which is encouraging important, major shifts in society and economic activity‖.
The trends described are wide-reaching and notwithstanding that they occur at diverse rates, the effects of globalisation and global economic crises have helped to ensure that local economic initiatives and self-reliance are patently manifest around the globe.