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Brett D. Maxfield
High Tech Local Community Economic Development in Los Angeles
Memo
June 10, 2015
Mayor Garcetti:
I have been asked to look at the tech ecosystem that has arisen in the Los Angles region
and the way it has been being approached over the last few years and to advise whether
the approach of this office has been successful or not. In the process I have also been
asked to consult the leading thought leaders in the field and to apply theory to practice
when making my recommendations as to how to proceed moving forward.
A Lingering Historical Problem With Economic Development in the LA Region
Prior to addressing the tech issue in Los Angeles, it is important to address the lingering
issue which has plagued Los Angeles economic development for decades. Goetz Wolff’s
“Policy and Community in Los Angeles Development” does as great job of outlining the
history of how fragmented and reactive economic development policy has been in the Los
Angeles region.1
There has been a lack of region leadership in administration after
administration due to the difficulty of coordinating the county, neighboring counties, and
the 88 cities located within Los Angeles County. This problem is due primarily to the
short time frame all the players have to work within to achieve results to get credit for
with their constituents2
which works against establishing a regional governmental body
with overarching authority to make long term strategic plans for the economic
development of the Los Angeles region. Thus, my first recommendation is to use your
office to spearhead an initiative in coordination with the Governor and the State
Legislature, the County of Los Angeles, etc. to establish a regional governmental body
which will survive your administration to carry on long term strategic objectives so that
economic development policy stops being a matter of a game of musical chairs with each
new administration aborting the plans of the prior administration and acting
independently of all the other governmental stakeholders in the region every four or eight
years. This memo will not outline the strategy to achieve this objective which is certainly
a goal much easier to articulate than to achieve and must contend against “factors such as
political constraints, limited funding, and the capriciousness of public support (Elisinger,
1995).”3
Nevertheless, the need for this body is ultimately essential for what follows to
1
Wolff, Goetz: “Policy and Community in Los Angeles Development”. Sloane, David C., Editor,
Planning Los Angeles. APA, Chicago, IL 2012, Chapter 7.
2
See Currid-Halkett, E., and K. Stolarick. 2011. “The Great Divide: Economic Development Theory
Versus Practice-A Survey of the Current Landscape.” Economic Development Quarterly 25 (2): 143. p. 3:
“Developers appointed by politicians and business leaders tend to see development as a process of short-
and medium-term initiatives designed to achieve results within a political term or business cycle and often
must work to preserve programs within political constraints (Dewar, 1998; Elisinger, 1995; Wolman &
Spitzley, 1996).”
3
Ibid.
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be implemented in an effective matter, for regardless what economic development strategy
one wishes to implement, only short term goals shall be able to be tackled by any one
administration and what is needed are long term strategic plans which can be implemented
over decades with consistency and with the autonomy and authority to self correct and
readjust as conditions dictate other than those of immediate political expediency.
The New Economy4
, the Digital Divide5
, and Economic Development Theory
The recent protests in San Francisco over the last year6
regarding the large amount of
Facebook and Google employees which have made that city their home and are viewed
by many in that city as the cause of exaggerated price inflation in that city, has caused
some to question if cities should be encouraging the growth of tech clusters7
in their
regions. There are those that might argue that the growth of successful tech clusters in a
region, such as in the Silicon Valley region, tend to increase the net wealth of the region
but often also correlate with greater income inequality, displacement, and gentrification.8
The phenomenon of the new economy has resulted in a digital divide between those who
are hip to tech and those who are being left behind. There are those that argue that the
true effect of having tech clusters in a region is a net negative to the quality of life of the
region and squeeze out the middle class which once thrived in the region prior to the rise
of the new class arising out of the tech clusters.9
There are those who may argue that
what is needed in the LA region are jobs in the service and manufacturing sectors which
will give upward mobility to currently lower wage earners10
, that tech jobs are only for
highly educated and skilled workers which come from elites and that even if they do
cause upward mobility they are bad because they result in forming new elites. Thus, the
4
For a detailed explanation of what the new economy is, see Blakely, Edward and Leigh-Green, Nancy
(2013). Planning Local Economic Development: Theory and Practice. 5
th
Edition, pp. 6-12.
5
In 2001, R.J. Stimson, R.R. Stough, and B.H. Roberts wrote a textbook entitled Regional Economic
Development: Analysis and Planning Strategy. This book explains that economic development rules are
changing due to what it calls the internet-driven “virtual economy.” The authors discuss a new “digital
divide” defined as “the concept that some are benefiting enormously from the computer and information
technology age while a disproportionate many are benefiting much less or are falling behind materially
because they do not or no longer have the skills to find employment and an organizational niche.” P. 358.
The book concludes by stating “there is an implicit recognition in this book that we are in the process of
constructing or transiting to a new kind of economy” and that the book does not have the tools to address
it, “considerable work needs to be done to develop new analytical tools and to improve strategies to
manage regional economic development.” p. 366.
6
See http://www.theguardian.com/world/2014/jan/25/google-bus-protest-swells-to-revolt-san-francisco.
7
For a detailed explanation of clusters, see Porter Michael, "Clusters and the New Economics of
Competition," Harvard Business Review, November-December 1998, pp. 77-90.
8
Florida wrote a follow up to The Rise of the Creative Class in 2005 entitled The Flight of the Creative
Class in which he warns that the Silicon Valley model comes at the high cost of “an unequal and
increasingly dysfunctional and broken-down society.” p. 261.
9
See Joel Kotkin, Urban Legend, Democracy Journal, available online at
http://www.democracyjournal.com/pdf/2/DAJOI2_20-33_Kotkin.pdf
10
This is the apparent goal of the EWDD, see http://ewdd.lacity.org/about.html : “The Economic &
Workforce Development Department offers services to business owners and developers either directly or
through our network of service provider agencies. The Department strives to improve the economic climate
of Los Angeles through the provision of financing, technical assistance, training, business tax incentives,
and workforce programs. These services help local businesses grow, provide living wage jobs for L.A.
workers, as well as high quality goods and services to under-served communities.”
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question arises whether Los Angeles should encourage the attraction and growth of tech
clusters in the region?
Although there may be some truth in these critics, there is a consensus among thought
leaders such as Edward Glaeser, Richard Florida, and Michael Porter that due to
globalization and other mega trends, the new economy is a reality which must be faced
by economic development planners and that, as Glaeser states: “the spread of knowledge
makes the difference between promise and poverty” and that moving forward “ideas are
the ultimate creator of wealth.”11
Reason dictates that LA should look at the “factors that
make some cities and regions grow and prosper, while others lag behind”12
and adopt
policies of economic development which will cause economic growth and prosperity. The
field of urban planning has taken note of its potential role in the planting, growth, and
sustainability of the new “knowledge” economy for localities, and a term has been coined
for this know as knowledge based urban development (KBUD). The phenomena known
as Silicon Valley has been studied and taken to heart by urban planners around the world
as a model for stimulating economic success. Silicon Valley has bas been cited as a
successful KBUD policy implementation, and a number of urban planners around the
world take seriously that “creative urban regions can be engineered by promoting
knowledge based and high tech precinct developments.”13
Thus, we have the tools needed
to encourage the growth of tech clusters using strategies such as those articulated by
Porter and others, but we do not want to create economic prosperity only for a few tech
tycoons at the expense of the many and hope that “voodoo economics” will save the day
via a trickle down effect.
Florida concludes the preface to The Rise of the Creative Class by addressing his version
of the issue of the digital divide: “To build true social cohesion, the members of the
Creative Class will need to offer those in other classes a tangible vision of the ways to
improve their own lives” otherwise “the growing social and economic divides in our
society will only worsen”, and “we will find ourselves living perpetually uneasy lives at
the top of an unhappy heap.”14
Florida wrote a follow up to The Rise of the Creative
Class in 2005 entitled The Flight of the Creative Class in which he warns that the US is
quickly falling behind in the world as to encouraging the rise of the new economy and that
there is a large brain drain occurring. He claims that the tend of the new economy is
spiking up while the service sector is flat at best and tending down ward, both trends he
predicts will continue long term.15
Florida ranks the US at 11th place as far as the new
economy with a prediction that it would fall below this soon, his book is a battle cry for
investment and nurturing of the new knowledge based economy. However, he warns: “In
my travels around the country and the world, people often ask me which regions serve as
11
Glaeser, Edward, The Triumph of the City. 2011, Ch.1.
12
Florida, Richard, The Rise of the Creative Class, 2002, p.ix.
13
Kostas Metaxiotis, Francisco Javier Carrillo, and Tan Yigitcanlar, Knowledge-Based Development for
Cities and Societies, 2010, p.103.
14
Florida, Richard, The Rise of the Creative Class, 2002, p.xii.
15
Florida, Richard, The Flight of the Creative Class, 2005, p.28.
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examples or models of what to do... I tell them to look beyond the one-sided stories of
regions like Silicon Valley” which “suffers from enormous problems of inequality,
housing affordability, congestion, and mounting human stress.”16
Rather Florida suggests
models like Toronto, Stockholm, and Helsinki which he says “combine strong technology
and creative sectors with relatively low levels of inequality, good schools, low crime, safe
streets, and high levels of social cohesion and stability.”17
Thus, my recommendation is that this office should have making the Los Angeles region a
tech leader as a top priority for both its short and long term prosperity, but that this goal
must be pursued simultaneously with closing the digital divide as a critical part of the
equation in becoming a sustainable leading city or region in the new economy.
Furthermore, these two goals are not to ignore the core historic economic sectors which
still need nurturing and may need more money to stimulate than does the tech sector
which is driven by organic free market forces but still needs nurturing in the form of
vision, coordination, and leadership, but not money from government for stimulus. For
example, the Mayor can invite VCs to events in LA to learn about the companies which
are arising out of this region, etc. to help stimulate the tech sector rather than use the
limited financial resources of the city or provided by other governmental sources to
encourage the growth of the tech sector in the region.
Regional economic development theory is often summarized as an equation c x r, where r
represents a region’s resources and c represents a region’s resources.18
The LA region has
both high, greater than 1, resources and capacities when it comes its tech sector. However
both its capacity and resources need to be coordinated, mentored, and strengthened by
visionary leadership. This administration has the vision and political pull to strengthen
both of these in the region to make LA the preferred location for startups to originate and
surpass Silicon Valley as the tech center of the world. However, this can not be a short
term goal, it can only be accomplished as a long term goal. The LA region has more of the
elements which Richard Florida’s creative class desire. LA currently lacks as many big
tech super power head quarters and VC firms as Silicon Valley, but there has been some
movement from Silicon Valley to the LA region due to its “creative class” elements such
as better weather, Hollywood, beaches, and other soft factors some of which are
intangible. Also, it is not necessary for there to be mega success tech companies for LA
to be the premier tech center of the world. It is arguably more desirable to be the region
known for having the most small and midsize tech companies. The clustering of the small
and medium tech companies can arguably bring more “real” prosperity to the region, than
having a few huge companies such as Google and Facebook. Florida has much to say
about almost every conceivable aspect of this goal. One simple formula does stand out
which he calls the three Ts: Technology, Talent, and Tolerance, and these three almost
16
Ibid. p. 261.
17
Ibid.
18
For a detailed explanation of what the c x r equation is, see Blakely, Edward and Leigh-Green, Nancy
(2013). Planning Local Economic Development: Theory and Practice. 5
th
Edition, pp. 74-78.
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always go with large research universities at the heart of a rising creative region.
How Los Angeles Can Continue to Make Itself a Tech Leader
It is my recommendation that Los Angeles continues to encourage the growth of its tech
sector but does so with a constant counterbalance of taking steps to close its digital divide
and nurture other aspects of this economic development. This section looks at what is the
best thought leadership in how to encourage the growth of tech clusters. What Los
Angeles can do to counter balance its efforts to grow the tech sector by closing the digital
divide will not be the focus of this memo but will be talked about as it relates to creating
and sustaining an environment which will continue to strengthen and reinforce the tech
cluster in the region.
The LA region has been blessed by the organic rise of a tech startup ecosystem,
commonly referred to as Silicon Beach, which is primarily centered in Santa Monica but is
also in Venice, Hollywood, down town LA, Pasadena, Culver City, and the South Bay
cities.19
Chapter two of the book is an essay by Emmanouil Ergazakis, Kostas Ergazakis, and
Kostas Metaxiotis titled Building Successful Knowledge Cities in the Context of the
Knowledge Based Economy. This essay is based on research done on KCs around the
world such as Barcelona, Stockholm, Montreal, Munich, Dublin, Melbourne, and
Manchester. There are certain factors needed for a city to be a KC: 1) vision and intention
of political leaders, 2) strategy and development plan, 3) strong financial support, 4)
setting up special agencies tailored to this purpose, 5) an international spirit, multi-ethnic
character, and open, inclusive society, 6) universities teaching technology and public
libraries giving access to the internet, 7) low cost access to advanced communication
networks. Chapter five of the book is an essay by Tooran Alizadeh entitled The
Interaction between Local and Regional Knowledge-Based Development. This essay
argues that there are four essential elements in the creation of knowledge-based regional
development. The four are: 1) Universities, 2) KBD visionary governments, 3) KB
industry, and 4) KB Communities. Chapter six of the book is an essay by Tan Yigitcanlar
and Cristina Martinez-Fernandez entitled Making Space and Place for Knowledge
Production. Specifically, Silicon Valley is believed to have succeeded due to “its regional
network-based industrial system that promotes collective learning and flexible adjustment
among specialist producers of a complex of related technologies and the region’s dense
social networks and open labor markets which encourage experimentation and
entrepreneurship.” P. 103. However, the authors admit that there is not a clear
understanding of what elements are needed to generate “those highly innovative
19
This is not an exhaustive list of the cities in the region but only where the majority of clusters are to be
found in the form of not just startup companies but also incubators and accelerators and shared work spaces
devoted to the tech scene.
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knowledge flows and innovation outputs produced by the famous Silicon Valley.” P.107.
“Building physical infrastructure with state of the art offices surrounded by research
centers or industry incubators is not sufficient to foster knowledge and commercial
innovations unless a functional understanding of the dynamics” is in place. P. 108. “For
example, universities are magnets of specialized knowledge... this alone is a strategic tool
for policy aimed at bringing knowledge into a city... There is an increasing competition
from other regions to attract scientists and industry talent... There is also a danger of
focusing on a particular type of technology or picking a winning knowledge base...
governments regulations in favoring certain knowledge fields can hamper other forms of
new knowledge, resulting in a decline in new knowledge attraction” or even causing
knowledge workers in that area to leave. P. 109. There have been many failed efforts to
mimic Silicon Valley, but this does not mean that Silicon Valley was purely a market
creation, “planned communities of knowledge production” backed by venture capital are
succeeding worldwide. P. 111.
The LA region already has in place all the elements outlined above in place to be a thriving
tech region with the exception of not having one mega superstar employer such as a
Google or Facebook as its base from which its progeny spring. The stories of San Jose
and Bangalore as told by Glaeser attribute the tech success of these cities to a formula of
the elements of great universities, a large employer attracted to that university, the spawn
of startups due to employees leaving the large anchor tech company, and the availability
of VC money to fuel the births of startups. However, Porter’s cluster thesis, shows that
what is needed is the rise of many high quality tech firms which will spur each other on in
hopes of becoming the next mega tech company much more than the existence of a mega
company for the clusters to originate out of. How to bring to birth in a region a cluster of
any sector is beyond the ability of any social engineering. However, in the LA region, the
phenomenon of Silicon Beach has arisen organically.20
Porter gives instructions for how to
leverage economic development tools to strengthen and prosper the growth of clusters,
not how to create them from out of a vacuum.
The Current LA Tech Story As Told by Its Officials
On June 20, 2014, at the Silicon Beach a panel of government leaders talked about the
issues of how government is trying to encourage the growth of the new economy in the
Los Angeles region and also close the digital divide.21
20
The advent of the iPhone in 2007 resulted in an explosion of new economic activity with smartphones at
its hub. Smartphone software development startups have boomed in cities all across the world. Startup eco-
systems have formed in all the major cities in the United States, and cities have taken steps to encourage
this growth. Critics of this special attention paid to the software startup trend warn of the dangers of putting
to much weight in any given industry in hopes of a large scale economic benefit to a community or region
based on the history of the auto industry in the rust belt and the fall of the internet startups in 2000. There
is reason to believe that the current boom of smartphone centric software startups may be a bubble rising.
21
The panel was made up of Kurt Daradics, Esri, Business Development Manager and CitySourced, Co-
Founder; Code for America, Mentor (Moderator); Mike Bonin, Los Angeles Councilmember, 11th District
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Peter Marx talked about the open data portal the City of LA just launched with 206 data
sets as an important step for the benefit of both the public sector and government. He
referenced the company Waze which was bought by Google and which technology has
now been incorporated into Google Maps and how an app like this leverages so much
data which only the government can provide. Also, he announced that the format of the
panel was changing last minute from the traditional panel format to a town hall format, so
that the panel could benefit from some public input about ways government can improve
the startup eco-system in the LA region.
Michelle Garakian spoke next referencing the LA Tech Conference which was just held at
City Hall, the formation of a tech advisory board for the Mayor, how the Mayor and the
City of LA are engaged with social media and how her department has four primary
focuses of which the tech sector is but one, the other three being real estate development,
fashion, entertainment, and sports (all one unit), and bio tech. She talked about how
technology was effecting all the traditional industries for the better, breathing new life into
them. She pointed out that unlike some other parts of the country such as Silicon Alley in
NYC, LA has its tech community spread out all over the region and the city is interested
in helping the region and not taking a narrow view of the sector and the city is working on
crafting new policy to encourage and nurture the growth of this sector using tax incentives
and real estate for hubs to draw more tech companies into the region. Finally, she referred
to Mayor Garcetti as the CMO (chief marketing officer) of technology due to his using
his office to speak about the success of companies in the region on a national and
international platform, not just companies in LA City proper but the LA region, and how
by doing so, he was drawing new ventures to LA region by creating the buzz of its new
found identity as a tech city.
Council Member Bonin then talked about the need for the addressing the digital divide,
which Marx, also latter gave much attention to and identified as a priority to the city. Part
of this “closing of the gap” of the digital divide Bonin addressed as the need to get the city
up to par on technology internally. He referenced how the technology which is taken for
granted by the public for things like tracking packages and even pizza delivery are light
years away from internal city technology resources today. He described the fire
department still using paper maps and pen and paper to coordinate many of its efforts
and outlined a vision for the department having modern technology at its command to
respond to fires. For example, he envisions the public being able to send pictures or video
with gps coordinates rather than just calling in to 911 to tell the fire department that there
is a fire and relying on the person to verbally tell the emergency operator where the fire is,
what kind of building is burning, etc. when this could be communicated much faster and
(West LA, Venice, Playa Vista, Brentwood, Pacific Palisades); Peter Marx, City of Los Angeles, Chief
Innovation Technology Officer; Michelle Garakian, Office of L.A. Mayor Eric Garcetti, Business Team –
Tech Sector; and Jennifer Taylor, City of Santa Monica, Economic Development Administrator.
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more efficiently by video or pictures with gps coordinates. Next he gave the example of
the future ability for the public to monitor the energy and water use of the city and the
region. Bonin also concluded his limited time by taking about the need to use technology
to enable the different departments of the city to coordinate their efforts with other
agencies for public works projects to reduce traffic congestion, etc. and encourage
efficiency. Although Bonin did not frame his talk about improving the city’s technology
infrastructure as closing the digital divide exclusively, he made the point that it is an
important step toward closing the divide since everyone needs essential city services like
fire, etc. to work as fast and as efficiently as possible.
After the individual panelist had given their opening remarks, the panel engaged in
extemporaneous dialog and the town hall format, taking questions. Out of this came the
subject of regulation of new disruptive technology and the fact that companies like Air B
and B and Uber are often operating illegally in many cities. Much of the discussion was
focused on closing the gap on the digital divide and how having internet access available to
all is key, as well as programs such as giving iPads to public school elementary children,
and the expansion of high capacity fiber under the city. Also, the need to open up the
tech world to women was given as a priority by Marx.
What Was Missing In the LA Tech Story Told by Its Officials
All the panelist failed to mention universities as central in any of their talks as being
essential to solving any of the issues. They did talk about LAUSD and the need to bring
technology to those students via iPads but not about how important the local universities
are to the future of the new economy in the region nor in closing the divide. The next
panel which was immediately following the above referenced panel was made up of
panelist from the local universities talking about that very theme. I am not going to go into
that discussion in depth, but I do think it is worth noting that Jay Tucker representing
USC made the point that I have not thought of prior nor seen in the theory books
referenced above, that almost all of the large research universities nationwide have tech
centers which work with entrepreneurs to license technology patents for very little
money. He gave the example of one entrepreneur who was able to get an exclusive option
on a patent of technology for one hundred dollars prior to pitching the company to
investors and the difference the fact that he could claim an exclusive right to a relevant
patent made which would have otherwise cost thousands, if not over a hundred thousand
dollars, to obtain. This highlights the way the universities are embracing their part in
encouraging this new economy and their role in it.
The LA Cleantech Incubator is a model for this office to emulate with regard the tech
sector which is software, digital media, internet centric. However, there is substantial
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government money available for the Cleantech Incubator22
which is not available for the
startups coming out of Silicon Beach. What is needed is leadership in coordinating the
top local research universities’ computer science and business schools, namely Caltech,
USC, and UCLA with the leading tech employers such as Micro Soft, Oracle, Apple, etc.
to create a similar or many smaller but similar incubators which will keep the talent
coming out of these schools in the region after they graduate and also attract the top
international talent of Israel, India, and China to the LA region to start their tech ventures.
The help of VCs and the facilitating service sector firms such as law and accounting which
benefit the most from the success of these ventures need to be coordinated in a combined
efforts with organizations such as the LA Chamber of Commerce and the Los Angeles
Economic Development Corporation to mastermind the continued growth of the tech
clusters in the region with the universities as the heart of the eco-system, which currently
are not. This would be best done under the creation of a regional economic development
authority with representatives on its board from all the significant local government
entities. The LA City Mayor’s office is the organization best suited to provide the vision
and leadership to bring such an entity into being.
One final missing piece of the puzzle is the need for this office to be a leader in making
the education of youth in the LA region such that they will be capable integrating into the
new economy in this region. This can not be left to LAUSD alone and giving iPads to
students at LAUSD will not make the difference. There needs to be a much greater
attention and financial commitment to the education of the population in the region for it
to continue to be a region which attracts startups, the creative class, etc. The education of
the population in the region is a primary economic development issue of the long term
health of LA regional economy which is why a regional governmental body is needed with
the authority and funding to ensure that the education of the region is such that it can
partake in the new economy. LAUSD is not a regional economic development think tank.
Its goals and intention are good, but the education LAUSD is traditionally focused on
giving tends toward the preparation needed to enter into a service or manufacturing sector
economy. For a high school diploma to mean something twenty years from now, or even
ten years from now, there needs to be a dramatic shift in the curriculum in response to the
needs of the new economy. Every student needs to come out of high school with a basic
understanding of how software is developed, how it affects every aspect of our lives, in
short, tech savy. Computer Science needs to be taught starting in Kindergarten all the way
till graduation of 12th
grade. Thus, closing the gap in the digital divide is the key to being
the leader in the new economy for any region. LA is in very, very bad shape when it
comes to this, but the LA Mayor’s Office is the vehicle which can make the difference by
taking leadership and vision casting, upsetting the apple carts, and waking people up to
what is happening and how far behind our children will be if things do not change soon to
address the needs of the new paradigm.
22
LADWP has provided hundreds of millions of dollars for this venture out of a state mandate to reduce
greenhouse emissions. See: http://laincubator.org/about/
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Conclusion
In 2001, Florida concludes his book The Rise of the Creative Class by stating that “either
your region is a growing Creative Class Center or a laggard with large concentrations of
the Working or Service Classes.” P. 321. In the thirteen years which have passed since
this statement was made, much progress made toward uniting the digital divide along the
lines Florida recommended but the issue still is at the core of how money should be spent
on local economic development. Almost all the thought leaders referenced in this memo
mention the importance of universities as an essential element of the new economy.
Education is one the most important keys to bridging the digital divide but technology has
advanced to such a degree since the iPhone that it has become and continues to become
more simple in its utility. There is a trend in high tech both in software and hardware to
make products so smart, that you do not need to be smart to use them successfully. The
fact that my aged mother, almost eighty years old, has a both a smartphone and iPad,
both purchases by her at her own initiative all within the last two years, is a testament to
this. This trend justifies continued investment in KBD, not exclusively, there is still an
old paradigm which demands to be nurtured, but there is an understanding that the old
will continue to diminish or be transformed by the new paradigmand that the new should
be more and more the focus of local economic development. However, this focus on the
tech economy growth must be combined with efforts to close the gap in the digital divide.
CSR on the part of the large tech companies in the form of donations of their product to
under served populations and communities which might otherwise not enter into the new
paradigm need to be encouraged and coordinated by political leaders and part of other
policy strategies such as those referenced above which only government can implement to
close the gap.