20140718 mesopartner lred giz#2 short
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This presentation summarizes the experience of German development cooperation in Local and Regional Economic Development (LRED) and gives some hints for the future.
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20140718 mesopartner lred giz#2 short
- 1. Global Retreat 2014 of the GIZ-Division Economic Development and Employment Local and Regional Economic Development Lessons learnt and new opportunities of the LRED approach 2014, July 18th Ulrich-Harmes Liedtke uhl@mesopartner.com www.mesopartner.com 1 / 24
- 2. The LRED approach IS TTHHEERREE SSUUCCHH AA TTHHIINNGG AASS OONNEE LLRREEDD AAPPPPRROOAACCHH?? www.mesopartner.com 2 / 24
- 3. In many places local economies grow and evolve naturally. So why is an LRED approach necessary, what are we trying to achieve? www.mesopartner.com 3 / 24
- 4. The LRED approach emerged in a specific context Development context Builds on economic success and promotion activities in industrial countries Became popular in the 90s as an antidote to this very strong top down approach Highlights the endogenous potential for growth LRED Hexagon 1st Triangle Existing firms Investors Entrepreneurs www.mesopartner.com 4 / 24
- 5. Systemic Competitiveness highlights targeted interventions to overcome market failure Meta level The sphere of societal framework conditions that guide decisions about fundamental economic alternatives Macro level The sphere of economic framework conditions, defining incentives through laws, institutions and generic policies Meso level The sphere of targeted interventions to address temporary and persistent market failure Micro level The sphere of allo-cation through markets, hierarchies & networks www.mesopartner.com 5 / 24
- 6. Different entry points to LRED Source: IDB-MIF (2014) Thematic study on RED www.mesopartner.com 6 / 24
- 7. First conclusions Approach LRED is an overarching umbrella or meta-approach to intervene in economies at the territorial level Motivations Economic problems (poverty, unemployment, etc.) concern local and regional government Decentralization affects economic policies Success stories of thriving cities and regions encourage decision makers www.mesopartner.com 8 / 24
- 8. Lessons learnt WHAT HAVE WE LEARNED OVER THE LAST TWO DECADES? www.mesopartner.com 9 / 24
- 9. Different types of territories There is Strong no social one-or human size-institutions fits and all physical approach infrastructure Territory Declining region and context matters Thriving region Principles of LRED stays the same, but the priorities differ Marginalized region Emerging region Weak social or human institutions and physical infrastructure with sustained Main sectors growth Main sectors in in stagnation/ or decline www.mesopartner.com 10 / 24
- 10. Local knowledge, participation and ownership are critical www.mesopartner.com 11 / 24
- 11. Combine bottom up and top down: Need to manage polarities •Leverage of endogenous potential •Local ownership •Greater diversity of territorial experiments •Scale is possible •Integration in general policy •Disseminate best practices •Broad visibility • Political priority • More funds Bottom up Top down •Lack of scale for broader development •Local power structures persist •Interventions are generic •Interventions do not meet local needs •Prioritization of large scale interventions • Ignorance of local self-help www.mesopartner.com 12 / 24
- 12. www.mesopartner.com 13 / 24 Territorial development connects fragmented policy approaches at the territorial level SME Promotion Entrepreneurship promotion Investment promotion Export promotion Skills development Employment promotion Agricultural development Research and development Technology extension Territorial Development
- 13. Political environment has changed An active role of state is no taboo anymore, but new industrial policy is not necessary bottom up www.mesopartner.com 14 / 24
- 14. Beyond competiveness Porters diamond Sustainability www.mesopartner.com 15 / 24
- 15. LRED (often) eludes linear planning Local economies are complex adaptive systems and require a more explorative approach to support resilience www.mesopartner.com 16 / 24
- 16. Challenges and opportunities for the future WHAT’S NEXT? www.mesopartner.com 18 / 24
- 17. The environment of LRED has changed dramatically As knowledge becomes more readily available globally, specific tacit knowledge in locations becomes more valuable Industrial policy is back (active role of the state in economic development broadly recognized) Climate change and planetary boundaries require more environmental sensitive approaches Need for more inclusive business models New players entering in the field of economic development (private donors, emerging countries, etc.) Information Technologies and Communication provide new opportunities for interaction www.mesopartner.com 19 / 24
- 18. The Future of LRED builds on past experience Source: IDB-MIF (2014) Thematic study on RED www.mesopartner.com 20 / 24
- 19. Key questions for a New LRED Wave How to make territorial approach more relevant? – How to make impact visible? – How to scale up? – How to become more complexity sensitive? What could be the future role of GIZ in LRED? – How to become a thought leader in a new LRED wave? – Which levels to intervene? – Which concepts to disseminate? www.mesopartner.com 23 / 24
Editor's Notes
- Thank you for the invitation! Mesopartner appreciates to be part of the GIZ internal exchange about the future of LRED. I will focus in my presentation on the experience in the area of LRED and will highlight future challenges and opportunities for GIZ.
- LRED is a mature approach with a track record of more than two decades of learning and experience. GIZ was a pioneer of the LRED approach in development cooperation. The experience includes success and failure. Today we will discuss in this session about the future of LRED Mesopartner – and especially our late partner Dr. Jörg Meyer-Stamer companied GTZ, other development agencies from the beginning in their LRED activities. In this presentation I will remind some aspects of the initial situation when we started to work on the conceptual grounding and practical tools to work in the field of LRED.
- This photo represents a typical landscape where development cooperation usually support LRED initiatives. What do we see? People – represent local stakeholders; in our photo only few and not too much connected and aligned Chimneys – present industrial production and also air pollution In general, the photo shows a place with potential and need for improvement of the living conditions. The photos makes clear that does exist before any intervention. When we talk about LRED we usually refer to policy interventions to change the economic structure and behavior of local stakeholders to improve growth, employment and living conditions in general. Photo Source: Charles W. Schmidt, MS, an award-winning science writer from Portland, ME, has written for Discover Magazine, Science, and Nature Medicine. http://ehp.niehs.nih.gov/wp-content/uploads/2013/08/ehp.121-a242.g008.png Brick kilns dot the landscape in Rawalpindi, Pakistan. A study published in 2012 showed that hydrogen fluoride emissions from kilns in nearby Peshawar.
- When we are talking today about LRED it is helpful to remind the specific condition of the introduction of this approach in development cooperation. LERD became popular during the 90s as an antidote to this very strong top down approach that proclaimed that creating an enabling environment is enough. Important references where success stories in industrialized countries, i.e. industrial districts in Italy. The Hexagon was one of the first tools to summarize the whole LRED approach. What I like to highlight in this moment is the target group of different kinds of firms. The so-called first triangle represents also different approaches to LRED: investment attraction, support of existing firms (“stock development”) and of entrepreneurship and business start up.
- Another guiding framework is the concept of systemic competitiveness. This concept originally developed by the GDI recognized firstly the importance of individual entrepreneurship and inter-firm collaboration, i.e. in networks, clusters or value chains. In agreement with the than leading paradigm the authors recognized also the importance of macroeconomic stability and a generally business friendly environment for competitiveness. Nevertheless, the authors emphasised that both aspects are not sufficient for competitiveness of especially SME. Business Development Services were needed to help especially SMEs to overcome market failure. This in-between layer was called the Mesolevel. It is the field of targeted interventions and the main area where GIZ intervene when promoting LRED. Additionally, the authors introduced the Metalevel which refers to the mindset of the stakeholders i.e. their capacity to agree on strategies or their preference to private entrepreneurship.
- The slide shows different points of entry to the field of LRED. You see that the perspective of the firm and private sector development is only one possible access. Other promoter of LRED entered in the context of state modernization and decentralization or from academic area. Others came from rural development to LRED. Therefore we find in the field of LRED multiple conceptual approaches, which represent different perspectives, aims and questions. All concepts recognize more or less explicitly the importance of territory and space for development.
- Place blind approach: 3Ds (Distance, Density and Division) and 3Is (Infrastructure, Institution and Integration Economic growth will be unbalanced, but development still can be inclusive. That is the main message of this year's World Development Report. The report proposes that spatial transformations along the following three dimensions will be necessary: Higher density as seen in the growth of cities. Tokyo, the world's largest city is home to 35 million--a quarter of Japan's population--but stands on just four percent of its land. Shorter distances as firms and workers migrate closer to economic opportunities. Eight million Americans change states every year, migrating to reduce distance to economic opportunity. Fewer divisions as countries thin their economic borders to enter world markets to take advantage of specialization and scale. Border restrictions to flows of goods, capital, ideas, and people continue to prevent progress in Africa, in contrast with Western Europe. The experience of successful developers shows that production becomes more concentrated spatially. The most successful nations also institute policies that make basic living standards more uniform across space. Economic production concentrates, while living standards converge.
- As a first conclusion, we can describe LRED as an umbrella or meta-approach. It is important that when we are using this approach to be clear on our own perspective and be transparent. I want to highlight three factors which justify interventions in LRED: The primer driver are the economic problems like unemployment and poverty which are most visible and pressing at the local level. Also the transfer of competencies to municipalities and other sub-national authorities required the design of the type of decentralized economic policy. Finally, the success of certain regions motivated policy makers and local stakeholders to follow the LRED approach.
- Today the donor community looks back to around two decades of LRED experience. In the following I like to mention some of the lessons learnt:
- First of all – Not all localities and regions are similar. The diagram suggests a typology of different regional configurations. In the horizontal dimension we distinguish the economic situation of main economic sectors in a regions: Are they growing or declining? The other dimension refers to the institutional framework. Is it strong or weak. The resulting matrix shows of types of regions – in certain accordance – to a life cycle: We start with the marginalized region with low economic performance and week institutional capital. The next type is the emerging region where some key sectors are taking off, but institutions and infrastructure remain weak. This is illustrated be the setting of the American Gold Rush. When regions are able to consolidate their economic growth with an adequate institutions we call them thriving. But sometimes the institutional framework can also evolve to be to rigid and inhibit structural change, what is the situation i.e. of old-industrial regions The typology help us to understand, that there is no one-size fits all approach. Regional context really matters when designing LRED interventions. In other words, principles stays, but priorities matter
- A special feature of LRED is the emphasis on local people. Interventions are based on the recognition that local actors know best about their economic situation and potentials. LRED initiatives are only sustainable when local stakeholders take ownership over their development process.
- At the same time LRED cannot work bottom up alone. The connection with the national economic policies in crucial.
- Most successful LERD initiatives are able to integrate the territory as runway for diverse national and international promotion programs. Here we use the term territorial development as a synonymous for LRED. When LRED works as an integrator the relevance of the approach increases considerably.
- An important difference to the initial conditions of LRED is the role of the state. During the 90s state interventions were quasi a taboo and LRED was somehow a reaction of the sub-national government levels to respond to pressing social and economic problems in absence of national public policy support. Today the global economic mindset recognizes that the state has to play an active role in the economy. The developmental state and industrial policy are en vogue again - albeit in a conceptually renewed form. The current challenge for LRED practitioner is to sensitize and convince national decision makers of the utility of place based interventions. There we also face resistance, because this affects also power relations within the state.
- Today LRED cannot focus only territorial competitiveness alone. The pressing social and environment threats of our planet require what Peter Senge called “The Necessary Revolution”. The business thinker Gary Hart describes the road to sustainability in three phases. First the firms reacted to environmental regulations enforced by government, than they discovered clean production as a factor of cost reductions and finally they discover to built their competitive advantage on sustainability. LRED needs to include all three dimensions.
- A more recent learning in the LRED community is cause and effect relationships are not always clear. When we find in a locality several plausible hypothesis about its development we this a complex situation. The problem is that is kind of situation are difficult or impossible to analyze with conventional tools. Here we need to experiment with a much more explorative approach, which postpone alignment and follows more the idea of a portfolio of strategies and interventions.
- Once again – the slide summarizes seven key lessons learnt. You may add additional learning based on your personal experience.
- Finally, I would like to take a look into the future of LRED.
- First we can identify several factors which change the conditions for LRED in the future. Of the list on the slide I like to highlight two: 1. The first point about the importance of the tacit knowledge in localities supports the idea that LRED will gain in the future importance. 5. New players from outside of LRED – especially at the national level are potential partners to renew the LRED approach an make it more relevant for development in general.
- In a recent study for the Mulitlateral Investment Funds of the Interamerican Investment Bank Mesopartner described their interventions in – was the call - RED using the metaphor of three waves. In the first wave MIF started – like other development agency – to support BDS to overcome market failure of SME. During this type of interventions the Bank discovered the territorial approach as most successful when promoting this kind of support services. In the second wave MIF followed the cluster approach understanding the positive effects of business agglomeration in space. After that, in the third wave, MIF realized that working only with the private sector was not enough the enhance territorial competitiveness. They discovered the local public sector as an important player and called this approach LED. Based on the systematization of previous experiences we consultants asked what are the elements of a possible Forth wave of LRED. Important is that each new wave is integrating the others and make the RED approach more and more complex.
- To stimulate the following discussion, I like to ask the following questions: