\

Session Five and Six - Workbook

Module: Local Economic Development

We will be looking at theory but concentrating on practical applications of LED in this module.

 

Local economic development is about local communities working together to achieve sustainable economic growth that brings economic benefits and quality of life improvements for all in the community.

In essence, LED is about communities trying to continually upgrade their business environments so they may improve their competitiveness. Local communities respond to their LED needs in many ways, as we will discover in this module. There are a wide variety of LED initiatives including:

• supporting small and medium sized businesses (SMEs)
• encouraging new enterprise
• attracting investment from elsewhere (within the country and internationally)
• investing in physical (hard) infrastructure
• investing in soft infrastructure (including human resource development, institutional support systems and regulatory issues)
• supporting the growth of particular clusters of businesses
• targeting particular parts of the city for regeneration or growth (spatial targeting)
• targeting certain disadvantaged groups.

We will be looking at all these LED tools as well as how to develop an LED strategy. First, lets sort out some terminology issues! We have tried to avoid using too much jargon, but the following are essentials.[1]

2.1.1 Understanding the language of Local Economic Development.

LED has a language all of its own. Before we go any further please note the following definitions. All of these terms will be referred to in this module.

Brownfields: This is a general term used for sites that have been developed in the past that may or may not be contaminated. Sustainable economic development strategies encourage the beneficial reuse of these sites, even though this may be more expensive than building or developing (new, to date undeveloped) greenfield sites.

Business Incubators: is an economic development tool primarily designed to help create and grow new business in a community, within a specific building or location. Business incubators help emerging businesses by providing various support services such as assistance with: developing business and marketing plans, building management skills, obtaining capital and access to more specialized services. They also provide flexible space to rent, shared equipment and administrative services in managed workspace.

Business Retention Strategies: are systematic efforts designed to keep local companies content at their present locations within the city area. Strategies include helping companies cope with changing economic conditions, addressing new markets and even assisting with internal company problems.

Business start-up support: includes the full range of services available to people starting in business for the first time. Initiatives include: training, business advisory support, business networking and mentoring and financial assistance (grants, loans, interest rate subsidies are traditional methods and a more innovative approach to financial support is to try and attract as much private sector investment rather than public sector).

Clusters: An industry cluster is a grouping of related industries and institutions in an area or region. The industries are inter-linked and connected in many different ways. Some industries in the cluster will be suppliers to others; some will be buyers from others; some will share labor or resources. The important thing about a cluster is that the industries within the cluster are economically linked, they both collaborate and compete and are, to some degree, dependant upon each other; they take advantage of synergies.

Entrepreneurial Training: These are programs that provide guidance and instruction on business basics (such as accounting and marketing) so that businesses improve their chances of success.

Export Development Services: Export assistance programs can help businesses to diversify their customer base, expand operations and become more profitable. Export services include: assessing company capacity for exporting; market research; information services (on exporting, trade regulations, transportation, etc.); international lead generation and trade shows/exhibitions or promotional marketing trips.

Foreign direct investment (FDI): FDI is investment that is attracted from abroad. It can mean either greenfield investment (i.e. investment in building new facilities on hitherto undeveloped sites) or portfolio investment (i.e. buying into an established business). Inward investment means nearly the same. However it could include investment from within your country as well as from abroad.

Greenfields: Refers to factories and offices being built on land that has hitherto not been developed. Also greenfield investments also imply that facilities are designed and built for investors, rather than the investor buying a facility already built.

Growth node: A physical location where industry and/or commercial development is deliberately directed; done either to reduce growth pressures in elsewhere in the city or to redistribute growth within a city.

Forward Strategy: Arrangements to continue the life of projects after initial project funding stops. Sometimes described as an exit or succession strategy. This should be established at the outset of all projects that are likely to need ongoing capital or revenue resources after the initial period of establishing the project.

Hard infrastructure: Hard infrastructure includes all the tangible physical assets that contribute to the economy of a city. For example, transport infrastructure (roads, railways, ports, airports), industrial and commercial buildings, water, waste disposal, energy, telecommunications etc. See also soft infrastructure below.

Indigenous businesses: This refers to local businesses, usually those that have developed in the community. Increasingly, the term refers to all businesses in an area whether they are 'locally grown' or not.

High road techniques: High road techniques to LED stress the need to make more efficient use of resources and invest in processes, technological innovation and employee skills. It views labor as an important commodity and skill enhancement as a crucial targeted investment. It entails the mobilization and upgrading of local resources and the maximization of local strengths and advantages to balance relatively higher wage rates.

Low road techniques: Low road techniques promote area competitiveness through lowering production costs, especially wage rates; this is not a sustainable approach.

Mobile manufacturing (or service sector) investment: This is where manufacturing (or service) companies have a wide choice of location choices. Consequently they are in very strong negotiating positions when it comes to choosing where to locate their businesses.

One-Stop Business Service Centers: One stop business service centers are facilities where business persons can go to obtain advice and support to help them establish and expand their business. Sometimes these centers also issue licenses and permits needed by businesses to start-up, operate or expand. These centers improve the local business environment by reducing the number of separate agencies and offices a business may need to approach for advice or to apply for various licenses and permits. They save public and private time and improve efficiency as a result.

Soft infrastructure: Soft infrastructure relates to the less tangible aspects of LED such as education and training provision, quality of life infrastructure such as park, leisure and library services, housing, business support, business networking and financing services etc.

SMEs: This is the acronym for 'small and medium sized enterprises'. There is no definitive delineation between a small and medium sized business. As a general reference, small is often from 5 to 20 employees, medium from 20 up to 200. Businesses with fewer than 5 employees are usually called micro-enterprises. This is a guide only.

Stakeholders: The people who have an interest in the issues in hand. They normally represent their own interests as stakeholders.

Supply Chains: These are the products and processes that are essential to the production of a good or service. For example, to produce frozen fish, the supply chain inputs will extend from fish catching, handling, processing, freezing to packaging, storing and distribution. These are all elements of a supply chain. Holistic LED strategies will try and capture as much of the higher value end of the value chain in their area. In this case fish processing, packaging, storing and distribution will be adding value and therefore be seen at the higher end of the value chain.

2.1.2 A short history of LED…

It is not easy to understand LED today without having a quick look at its brief history. LED has passed through three broad stages of development since the 1960s. They are referred to in the literature as the three 'waves' of LED. In each of these waves we have developed a better understanding of what works and what doesn't. At the beginning of the 21st century LED is in its 'third wave' and we will be concentrating on understanding these techniques in this module.

We should emphasize that although LED has moved through each of these waves, elements of each wave are still practiced today. For example, during the first 'wave' cities invested in expensive industrial recruitment campaigns to attract foreign direct investment. We now know that this is one of the most expensive and most risky LED strategies to pursue. Notwithstanding this, it is still practiced heavily today, particularly in the developed world. The following tables summarizes the three waves of LED:

Three Waves of Local Economic Development
Wave	Focus	Tools
First: 1960s to early 1980s	During the first wave the focus was on the attraction of: mobile manufacturing investment from outside the area especially the attraction of foreign direct investment. Making hard infrastructure investments.	To achieve this they used: massive grants subsidized loans usually aimed at inward investing manufacturers tax breaks subsidized hard infrastructure investment expensive "low road" industrial recruitment techniques.
Second: 1980s to mid 1990s	During the second wave the focus moved towards the retention and growing of existing local businesses, still an emphasis on inward investment recruitment, but this was becoming more targeted to specific sectors or from certain areas.	To achieve this they provided: direct payments to individual businesses business incubators/workspace advice and training for small and medium sized firms technical support business start-up support. Some hard and soft infrastructure investment
Third : late 1990s onwards	The focus then shifted from individual direct firm financial transfers to making the entire business environment more conducive to business. During this third (and current) wave of LED more focus is placed on soft infrastructure investments public/private partnerships> networking and the leveraging of private sector investments for the public good Highly targeted inward investment attraction to add to the competitive advantages of local areas.	To achieve this they are: developing a holistic strategy aimed at growing local firms providing a competitive local business environment supporting and encouraging networking and collaboration encouraging the development of business clusters encouraging workforce development and education closely targeting inward investment to support cluster growth developing an attractive business environment. Supporting quality of life improvements

Third-wave' techniques concentrate on developing a strategic approach to LED - an approach we will explore in this module.

 

Activity 2 Consider the three LED projects you identified in Activity 1. Are they first, second or third wave strategies? a.   b.   c.

2.2 What is the international, national and regional competitive context for LED?

A new dynamic global competitive landscape is taking shape and it is affecting all communities. The success of our communities in the future will depend on our abilities to adapt to the changing and increasingly competitive environment. Let's look at some of these drivers of change:

 

Key Drivers of Change Economic: The declining importance of commodities in the costs of production The impact of global strategic alliances between multinational corporations on their investment and buying behaviors The oversupply of manufacturing production in key global sectors Increasingly mobile capital, making finance easier to access nearly everywhere The changing employment dynamics from primary and manufacturing to the service sectors Technological: Technological advances and increased efficiency in production processes etc. Major advances in logistics giving rise to reduced need for, and costs, of shipping No national boundaries to internet communication e.g. e-commerce and e-government Importance of information services and IT in all sectors Political, governmental and regulatory: Falling trade barriers and the impact of the World Trade Organization The impact of global environmental and labor standards The impact of regional trade groupings and regional integration Widespread privatization of whole industries and decentralization of government services. Increasing democratization that brings increasing pressures and expectations from individuals and groups.

These global drivers are having an impact on every local economy.

 

Activity 3: 1. Which key industries in your local economy have been most affected by globalization?       2. Select one example and describe which globalization drivers were most important in affecting its future (you may identify other globalization drivers not listed).

Just as international economic and political environments increasingly impact upon local communities, national and regional developments are also significant.

At the national level issues that are crucial are:

• macro-economic and political stability
• decentralization of government control (a worldwide trend)
• privatization of industries
• national industrial and economic policies
• industrial incentive schemes
• taxation and regulatory reform.

Regional issues include those at national level (except macro-economic matters), but also it is important to recognize that the sub-national or regional dimension as well as cross-jurisdiction for local economies are all very important.

Few businesses look to locate or expand in a community based only upon the advantages of a particular town or city. They look wider than that, to what the region has to offer. Whilst other communities in the region will compete with you to attract investment, there are also many opportunities to collaborate with these communities and regional institutions. By undertaking third-wave LED activity you develop the competitiveness of your entire regional economy, whilst also benefiting your own community.

The net effect of all these 'external drivers' is that businesses are increasingly able to locate, or relocate to business environments that are attractive to them, physically, economically and environmentally. This creates a far more competitive and challenging environment than there has been in the past. It also creates a perfect setting for forward thinking local communities to develop LED strategies to make sure that they are well positioned for this increased competition

 

Activity 4: If you were trying to persuade a new 500 employee television assembly company to build a plant in your area: 1. List 5 reasons why they should choose your city (i.e. list five of your city's relevant strengths).     2. List 5 more reasons why they shouldn't (i.e. list five of your city's weaknesses)     3. If you were making the investment decision, which city in your region would you go to and why?

2.3 What are the relationships with other local strategies and plans?

LED is a holistic discipline and will usually have close connections with almost all local authority strategies. Since it is a local economic developer's responsibility to enable a competitive business environment the interactions with other local authority plans should be significant. There should be systems and procedures in place for LED input into all these plans and vice-à-versa. Importantly, investors should not have to deal with conflicting interests within the local authority.

Conflict between staff and elected members is most likely when economic development issues are addressed alongside planning, zoning, transportation and environmental issues. An example could be where an investor wished to build a new manufacturing plant on a site not allocated for industrial use.

Successful sustainable cities are able to balance the competing needs of all local strategies. It is important that professionals in local government to balance the economic development needs of an area with its environmental and social needs.

In addition to looking at the relationships that LED has with other local plans, there is a need to look beyond the local area to other plans, rules and regulations that will impact upon the local economic agenda. These will include for example, infrastructure regulations such as telecommunications deregulation, financial regulations, environmental standards, taxation, land and property laws and so on.

Back to top      

Copyright © 2001 The International Bank of Reconstruction and Development
All rights reserved