Local Economic Development in the urban context a missed opportunity

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Presented to the Milken-Koret fellows program 2011
Abstract: After more than 50 years of massive investment in Local Economic Development (LED) worldwide, what has been learned regarding what works and what does not? If in the past economic development was focused on employment generation, today the accepted definitions of LED are much more intricate – they define the purpose of LED as achieving “quality of life for all” and the process as a collective effort of “public, business and non-governmental sector partners“. This sober view has developed over decades of huge but mostly fruitless investments in LED worldwide, in three waves, that where kicked off by the success of the Marshal Plan.
Have the lessons of the past been learned or do we keep investing in approaches that have failed in the past? Unfortunately not, we still see; Top down efforts by central government to lead LED programs, instead of a participatory approach, including all stakeholders and sectors, led by local government. A focus on outside big business transplant, instead of support of innovation, entrepreneurship and policies focused on the success of local businesses. Attempts to jumpstart and support LED over entire regions, instead of focusing on cities as the true engines of economic growth.
Why have the leading LED practitioners worldwide focused on cities and urban economic development over the last decade? Urbanization matters - economic growth and urbanization are bi-directionally causally connected - “no country in the industrial age has ever achieved significant economic growth without urbanization.”. 1.2 billion people living in the 40 mega-metro regions worldwide produce around 70% of world output and 85% of all innovations. 5 billion people living in 191 countries produce the rest. A resident of a mega-metro is 8 times as productive in goods, and 24 times as productive in innovations. Cities are engines of economic growth, they manufacture wealth. Why is this so?
Cities have natural economic advantages that include internal scale economies and external agglomeration economies. But poor city design can undermine these advantages and create barriers to economic development, whereas good city design can enhance these advantages. How can we leverage the natural economic advantages of cities with good city design? Compact mixed-use development that focuses on pedestrian and public transport access is key.
How does the urban economy develop? How can we jumpstart economic development, when it is missing, in Israeli cities? Viewing economic development in the context of a network of interrelated towns and cities clarifies that different types of towns and cities, within the network, require different approaches to LED. Great cities that generate more wealth than they consume require one approach for continued development. Towns and cities within the region of a great city require a second approach. Towns that are outside the region of a great city require a third approach and lastly cities that are not great require a forth approach.

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Local Economic Development in the urban context a missed opportunity

  1. 1. Local Economic Development in the Urban Context April 2011 nachman@miu.org.il www.miu.org.il
  2. 2. What is LED? The Old Simple View• Local Economic Development is Employment Generation
  3. 3. What is LED? The Current View• The purpose of Local Economic Development is – to build up the economic capacity of a local area – to improve its economic future and – the quality of life for all.• It is a process by which – public, business and non-governmental sector partners work collectively – to create better conditions for economic growth and employment generation.
  4. 4. Economic Development before the 1800s… • …was boring! – Production followed Population Production
  5. 5. The Industrial Revolution English-speaking Japan northwest Europe the rest of Europe and Europe-dominated economies in Latin America. the rest of Asia and Africa.
  6. 6. A Brief History of LEDThe success of the Marshall Plan kicked off 1960s to 1980s to mid Late1990s early1980s 1990s onwards three waves of LED Regions / Cities and Nations Sectors Towns Skills/Education, Hard Attract Foreign Attractive Policies Infrastructure and Investment and and Manufacturing Support Local Public/Private Transplants Businesses Partnerships
  7. 7. Summary of Outdated Thinking on LED Goal is Employment Generation Top-Down Attract outside Focus on approach businesses regions • Central Government • Promotion and • Attempts to conceived, controlled, support of big jumpstart and and directed business support LED over strategies transplants entire regions • Total dependence on • Attract outside • Connect under- central government investments and developed regions outside talent to successful ones
  8. 8. Summary of Current Thinking on LED Goal is quality of life for all Employment Environment Livibility Social inclusion Participatory Growth of local Focus on cities approach businesses• Including all • Promotion and • As engines of stakeholders and support of economic sectors innovation and development• Led by local entrepreneurship • As a great place to government (both business and live and work social) • Urban regeneration • Business friendly as a tool policies
  9. 9. Why is LED Important?• Big differences in productivity possible since the Industrial Revolution 144x Tel-Aviv Metro Area 43% of Population on 7% of Area produces 59% of GDP 64x 10x Pre - Industrial Revolution Agriculture
  10. 10. Urbanization Matters for Economic Growth• Economic Growth and Urbanization are bi- directionally causally connected Economic Growth Urbanization• ―… no country in the industrial age has ever achieved significant economic growth without urbanization.‖ Lecture 27 Urbanization Atanu Dey 10
  11. 11. Opportunities are Focused in Cities• The World is getting more urbanized – Opportunities are focused in Cities where people concentrateHalf the world’s populationoccupies only 1.5% of theworld’s land area Lecture 27 Urbanization Atanu 11 Dey
  12. 12. The World is Getting More Urbanized 100 Israel 92% 87 85 80 80 80 77 74 73 75 73 72 66 64 61 61 61 60 Percent 54 54 51 48 42 39 39 40 37 29 25 24 20 15 17 0 World Africa Asia Europe Latin Northern Oceania America America and the Caribbean 12Lecture 27 Urbanization Atanu Dey 1950 1975 2003 2030
  13. 13. Cities Have Natural Economic Advantages• Doubling city size will increase productivity by 3%-10%• Successful cities grow to metros• Metros grow to mega-metros (>5M pop) – 1955 – 11 Mega-Metros – Today - 50 Mega-Metros – 2015 – 60 Mega-Metros• Mega-Mertos are at the core of Mega-Regions 13 1955 - 11 mega-metros 2015 - 60 mega-metros
  14. 14. Cities Have Natural Economic Advantages• 40 Mega-Metro Regions Today – A resident of a mega-metro region is 8 times as productive in goods, and 24 times as productive in innovations Population Economic Output Innovations 14 Economic Output is Focused in City-Metros
  15. 15. Cities are Engines of Economic Development and Growth• Why is this so? – Economies of scale and of agglomeration Lecture 27 Urbanization Atanu Dey 15
  16. 16. Urban Economies• Sharing of fixed costs by a large quantity of outputs• Input-sharing and competition within the industry• innovation and exchange of ideas and technology 16 Lecture 27 Urbanization Atanu Dey
  17. 17. The 12 Urban EconomiesType of economy of scale Example 1. Pecuniary Being able to purchase intermediate inputs at volume discounts 2. StaticInternal Falling average costs because of fixed costs of operating a plant technological Technological 3. Dynamic Learning to operate a plant more efficiently over time technological 4. ―Shopping‖ Shoppers are attracted to places where there are many sellers Outsourcing allows both the upstream input suppliers and downstream firms to 5. ―Adam Smith‖ Static profit from productivity gains because of specialization Localization 6. ―Marshall‖ Workers with industry-specific skills are attracted to a location where there is a labor pooling greater concentration 7. ―Marshall- Reductions in costs that arise from repeated and continuous production activity Dynamic Arrow-Romer‖ over time and which spill over between firms in the same place learning by doing 8. ―Jane Jacobs‖ The more that different things are done locally, the more opportunity there is for innovation observing and adapting ideas from othersExternal oragglomeration 9. ―Marshall‖ Workers in an industry bring innovations to firms in other industries; similar to Static labor pooling no. 6 above, but the benefit arises from the diversity of industries in one location. Urbanization Similar to no. 5 above, the main difference being that the division of labor is 10. ―Adam Smith‖ made possible by the existence of many different buying industries in the same division of labor place 11. ―Romer‖ The larger the market, the higher the profit; the more attractive the location to Dynamic endogenous firms, the more jobs there are; the more labor pools there, the larger the growth market—and so on Spreading fixed costs of infrastructure over more taxpayers; diseconomies arise 12. ―Pure‖ agglomeration from congestion and pollution
  18. 18. Cities have natural economic advantages Poor city design Good city design• can undermine • can enhance these these advantages advantages and and create barriers catalyze economic to economic development development Improving City Design is a neglected opportunity for Economic Development in Israel
  19. 19. Typical Faults in City Design that Undermine Economic Advantages• Highway that cuts the city in half• Universities and Colleges in fenced off campuses on the outskirts of cities• Employment parks on the outskirts of cities• Train stations on the outskirts of cities• Retail malls on the outskirts of cities• Lack of a city center that encourages interaction of people• Tree-like street network undermines accessibility vs. simple grid• Car based sprawl and zoning vs. people based compact mixed-use development• Low densities that require huge investments in infrastructure and operation costs• Fences, fences and more fences
  20. 20. Highway that cuts the city in half Chicago vs. Tel-Aviv
  21. 21. Highlights of Smart Growth Economic Benefits Source: Growing Wealthier, Center for Clean Air Policy January 2011
  22. 22. Infrastructure Savings (construction and operation)• Compact development reduces infrastructure costs and saves money. – Average annual cost to service a new family of four (police, fire, highway, schools and sewer): • Compact suburban Shelby County, KY = $88 • Sprawling Pendleton County, KY = $1,222 – Sources: Brookings Institution Annual Cost to Service a New Family $1,400 $1,200 $1,000 $800 $600 $400 $200 $- Sprawling Compact
  23. 23. The Neglected Opportunity The Basic Structure of the Economy People and • Education and Training • Business and Social Talent Entrepreneurship • Financial and Business Policies and • Stability and Security • Social Justice and Inclusion • Health and Wellbeing Institutions • Land Use and Planning (Real- Estate and Infrastructure) • Urban Form and Real-Estate Place and • Transportation and Communication • Energy, Water and Waste Infrastructure • Natural Resources
  24. 24. What is the difference betweenEconomic Development and Economic Growth?
  25. 25. How Does Economic Development Happen? D + nTE + A nD• Existing work generates new work! – D is a Division of work • The work required to provide a product or service is made up of Divisions of work – A is Additional work • An existing division of work inspires a new Additional product or service – TE is Trial and Error • Generating new work requires much Trial and Error
  26. 26. LED in the Context of Cities from the easiest to the most difficult LED in a Great City LED in the Region of a Great City LED in a Town Outside a Great City Region LED in a City that is not Great A Great City generates much more wealth than it consumes for mere existence.A Great City generates enough wealth to support growth in the city as well in its surrounding region.
  27. 27. LED in theContext of Cities LED in a Great City LED in the Region of a Great City LED in a Town Outside a Great City Region LED in a City that is not Great Beer-Sheba
  28. 28. LED in a Great City LED in the Region of a Great CityLED in a Town Outside a Great City Region LED in a City that is not Great LED in a Great City • What is the role of Urban Planning and Transportation in creating a great place to live and to develop economically? If the City provides Mixed age Small Density Mixed use buildings Blocks It can become a LED generator
  29. 29. LED in a Great City LED in the Region of a Great City LED in the Region of a Great CityLED in a Town Outside a Great City Region LED in a City that is not Great The Five Economic Forces Exerted by Cities on Their Own Regions City City TransplantedCity markets City jobs developed generated city work technology capital • Create a great place to live and to develop economically • Provide attractive and efficient access to The City • The City will do the rest
  30. 30. LED in a Great City LED in the Region of a Great City Leveraging the five forces toLED in a Town Outside a Great City Region accelerate LED in the region of a Great City LED in a City that is not Great ToD in the Center of Regional Towns of a Great City Is Beer-Sheva a Great City? Stockholm The Gr Stockholm Transit Oriented Metropolis The Gr Copenhagen Transit Oriented Metropolis What about rail stations in the center of the towns? The 1961 National Capital Plan Source – Prof. Danny Gatt for Gr Washington BC
  31. 31. LED in a Great City LED in the Region of a Great City LED in a Town Outside a GreatLED in a Town Outside a Great City Region LED in a City that is not Great City Region• Need to become a Great City (or wait for a Great City to develop nearby) • Produce and sell something of value to a solvent market by turning Jumpstart the any advantage into an opportunity economy • Earn Imports • Replace imports for yourself and for economically similar townsLeverage initial through innovation and improvisation sales to • Repeat last two steps forever • Leverage current thinking on LED • Create a great place to live and to develop economically How? • In the existing center of town
  32. 32. LED in a Great City LED in the Region of a Great City LED in a City that is not GreatLED in a Town Outside a Great City Region LED in a City that is not Great• Need to become a Great City (or wait for a Great City to develop nearby) • Produce and sell something of value to a solvent market by turning Jumpstart the any advantage into an opportunity economy • Earn Imports • Replace imports for yourself and for economically similar citiesLeverage initial through innovation and improvisation sales to • Repeat last two steps forever • Leverage current thinking on LED • Create a great place to live and to develop economically How? • In a small focused area of the city (urban acupuncture)
  33. 33. LED in a Great City How to unlock the cycle of city development LED in the Region of a Great City LED in a Town Outside a Great City Region LED in a City that is not Great Density Quality Variety Of & The Life Access ―handle‖ InnovationOpportunities People & Culture How do you advance ever closer to your vision of a successful town, based on daily decisions and based Intensity Development on existing budgets?
  34. 34. E.g. - The Main Street Programs Success Economic Statistics:• 1980-2007 Reinvestment Statistics• Dollars Reinvested:- Total amount of reinvestment in physical improvements from public and private sources.$44.9 Billion Average• reinvestment per community: $11,083,273• Net gain in businesses: 82,909• Net gain in jobs: 370,514• Number of building rehabilitations: 199,519
  35. 35. City Center Renewal as a LED Tool or How to increase Density, Variety and Access•Provide loans to accelerateprivate storefront and Use the ―charrette‖ collaborative planningresidence renewal tool as the basis of a LED program •Create a great place to live for local residents •Create a great place to succeed for local First stage: businesses • Surgical urban •Leverage the true identity of the city / town intervention plan in as seen by the local residents the public space •Local residents strengthen their sense of belonging by planning their town •Leverage existing budgets for public building projects to implement the planThird stage: •Local residents are• Private Development Second stage: empowered by seeing their Construction and • Renewal of the plans adopted and Renovation near the public space implemented public space
  36. 36. Thank You and see you in November 2011‫כנס אשקלון־מרחב לפיתוח כלכלי עירוני‬ "‫"העיר כמנוע לצמיחה כלכלית‬ nachman@miu.org.il April 2011 www.miu.org.il
  37. 37. The critical role of Merhav in LED in Israel Goal is quality of life for allIn order to improve the quality of living in Israel, while contributing to the global sustainability effort, the MIU promotes qualityLivibility Employment Environment Social inclusion urban living based on compact, quality and sustainable urban environments. Participatory Growth of local Focus on cities approach businesses• Charrette all Including – • Making theand Promotion local • Weengines of as As view the city collaborative and stakeholders environment great support of the key mechanism economic planning with all sectors for the locals innovation and that provides development• stakeholders Led by local • entrepreneurship Compact, quality • peopleregeneration Urban the• government Quality in Density (both business and and sustainable opportunities to fulfill as a tool Toolbox for all social) cities provide their inherent sectors • opportunities and Business friendly potential• Mayors Institute breed innovation policies
  38. 38. Which Programs Do Not Work (But We Still Keep Using Them!) • Unfortunately there are countless examples of failed LED strategies and projects. These include: – Expensive untargeted foreign direct investment marketing campaigns – Supply-led training programs – Excessive reliance on grant-led investments – Over-generous financial inducements for inward investors (not only can this be an inefficient use of taxpayers money, it can breed considerable resentment amongst local businesses that may not be entitled to the same benefit). – Business retention subsidies (where firms are paid to stay in the area despite the fact that financial viability of the plant is at risk) – Reliance on "low-road" techniques, e.g., cheap labor and subsidized capital – Government-conceived, -controlled, and -directed strategieshttp://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTURBANDEVELOPMENT/EXTLED/0,,print:Y~isCURL:Y~contentMDK:20185187~menuPK:402643~pagePK:148956~piPK:216618~theSitePK:341139,00.html
  39. 39. Infrastructure Savings (construction and operation)• Compact development reduces infrastructure costs and saves money. – Average annual cost to service a new family of four (police, fire, highway, schools and sewer): • Compact suburban Shelby County, KY = $88 • Sprawling Pendleton County, KY = $1,222 – Sources: Brookings Institution• Nationally, the U.S. can save over $100 billion in infrastructure costs over 25 years by growing compactly.• Chicago can save $3.7 billion over 20 years by growing compactly.• Charlottesville, VA can save $500 million in transportation costs with compact development. – Sources: Urban Land Institute, Chicago Metropolis 2020; Thomas Jefferson Planning District Commission

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