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Regional Governance, Institutions and Development


(University of Paisley-Scotland) Setting the Stage. Regionalism and regional-based economic development initiatives are becoming ... – PowerPoint PPT presentation

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Title: Regional Governance, Institutions and Development

Regional Governance, Institutions and Development
  • From
  • Michael Danson and Geoff Whittam(University of

Setting the Stage
  • Regionalism and regional-based economic
    development initiatives are becoming increasingly
    important, particularly in Europe.
  • These changes are affecting the role of
    governance, institutions, institution-building
    and institutional change in regional development
  • These changes are interconnected with a number of
    characteristics which first came into the
    economics and geographic literature in the 1980s.

characteristics which first came into the
economics and geographic literature in the 1980s
  • institutional capacity,
  • thickness,
  • the invisible factors in regional development,
  • networking, and
  • industrial districts.

The Challenge
  • How to adapt these new changes and address
  • Innovative Economy how to succeed in the new
    economy and ensure everyone participates
  • Livable Community how to create communities
    where people want to live
  • Community-based Regionalism how to ensure
    inclusive and equitable communities
  • Governance Reform How to reform government to
    make it more responsive

Collaborative Economics, Inc
Institutions, networks and partnerships
  • generally seen to be the answer to regional
  • subject to policies and procedures established by
    governing authority
  • This is the reason for our concentration on

  • concerned with how regional economic development
    is affected by
  • democracy,
  • participation,
  • regional self-determination,
  • public-private partnerships and
  • accountability.

Decentralization, Devolution, or Democracy?
  • Some institutions which were created in order to
    improve economic growth have started changing
    into organizations whose primary roles are now
    the coordination of economic development
    activities rather than being directly involved in
  • The primary example used by your authors is the
    regional development authority or RDA which is
    used extensively many parts of the world,
    especially in Europe.
  • Much of the change has been caused by what is
    called decentralization which is often
    characterized as an increase in democracy. In
    this sense some think of the central governing
    authority giving way to democracy and
  • The other side of regionalism is the trend toward
    the federal or central government relieving
    itself of responsibility for policy areas that
    have become a liability.

three primary reasons for these changes
  • 1) the federal or central government lacks the
    resources to manage them effectively,
  • 2) because the economic burden can be off-loaded
    by passing them onto lower tiers of government,
  • 3) because the political burden of being
    responsible for unsuccessful policies is deemed
    to be high.

Industrial Renewal
  • Is a basic requirement for an economy to keep
  • can refer to
  • innovation and development within established
  • the attraction of new industries through such
    measures as direct foreign investment,
  • the formation of new indigenous firms,
  • or a combination of all three strategies

problems associated with industrial renewal
  • grown over the last two decades in what can be
    described as "mature" economies.
  • is tied specifically to the decline of
    traditional manufacturing and extraction
    industries within these "mature" economies
  • focus on governance structures,
  • industrial districts,
  • networks and
  • partnerships.

Mississippi as an Example
With a little more perspective
  • The changing nature of innovation within
    industrial production can be cited as the
    principal cause of the accelerated need for
    policies to tackle the problems associated with
    industrial renewal

The effect on mature economies
  • the "Fordist" techniques of production and
    "Taylorist" methods of scientific management have
    been replaced with new production methods such as
    flexible specialization
  • the increasing internationalization of business
    organization has led to the growth of mass
    production methods in low-cost countries or
    low-cost regions

New Reality
  • Globalization of business changes the meaning of
  • New technologies changes time and space
  • Changing demographics changes the profile of
  • New reality The anonymity of civic leadership

  • The development of new methods of production such
    as flexible specialization has coincided with a
    growth in the small medium enterprise (SME)
    sector in the "mature" economies

SME is not just European or third world
  • Americas 25 million SMEs employ 53 of the
    private work force, generating more than 50 of
    the nations GDP and most importantly 75 of the
    net new jobs added to the economy. SMEs in the
    US also represent 96 of all US exporters and
    account for 35 of federal contracts. (Source
    U.S. SBA (Small Business Administration).
  • How does the SBA define a small business?
  • A. SBA has established a size standard for most
    industries in the economy. The most common size
    standards are as follow
  • 500 employees for most manufacturing and mining
  • 100 employees for all wholesale trade industries
  • 6 million for most retail and service industries
  • 28.5 million for most general heavy
    construction industries
  • 12 million for all special trade contractors
  • 0.75 million for most agricultural industries
  • About one-fourth of industries have a size
    standard that is different from these levels.
    They vary from 0.75 million to 28.5 million for
    size standards based on average annual revenues
    and from 100 to 1500 employees for size standards
    based on number of employees. Several SBA
    programs have either alternative or unique size
    standards, such as the Small Business Investment
    Company Program.

The Evolving Economy

The first 100 years of our countrys history
were about who could build the biggest, most
efficient farm. The second 100 years were
about the race to build efficient factories.
The third 100 years are about ideas. -- Seth
Godin Fast Company, August 2000
New Growth Theory and Innovation
Paul Romer says ideas are the primary source of
economic growth. Recipes (new ideas) combine
ingredients (resources) in new and different ways
to yield more valuable economic results. The
recipes come from the innovation process.
How do Ideas Come About?
  • We know 3 very pertinent things
  • Ideas require intelligent seeding
  • Ideas that sit on the shelf are worthless. Ideas
    have to move, grow, and touch lots of people and
    businesses to provide benefits.
  • Universities/colleges, traditional sites of RD
    and smart people, are certainly part of the

Habitat for Innovation and Entrepreneurship
What distinguishes Silicon Valley is not its
scientific advances or technology
breakthroughs. Instead, its edge derives from a
habitat or environment that is tuned to turning
ideas into products and taking them rapidly to
market by creating new firms. The Silicon Valley
We are heregt Industrial districts
  • . Industrial districts, networks and partnerships
    are regarded as new methods of production
  • Industrial districts were noted by Marshall in
    Principles of Economics in 1890. They have
    recently been "rediscovered" in many regions of
    mature economies.
  • Industrial districts can now be analyzed as "new"
    types of industrial productive systems, because
    they very different than the traditional (new
    tradition) neo-classical notion of the firm.
  • There is an increased awareness of institutional
    capacity, governance and institutional change in
    regional development

definition of industrial districts
  • "a socio-territorial entity which is
    characterized by
  • the active presence of both a community of people
    and a population of firms
  • in one naturally and historically bounded area.
  • In the district, unlike in other environments,
    such as manufacturing towns, community and firms
    tend to merge. T
  • he fact that the dominant activity is an
    industrial one differentiates the industrial
    district from a generic economic
    region.(Becattini (1990, 38))
  • Becattini clearly identifies is the importance of
  • socio-political factors,
  • the links between suppliers and clients, and
  • the impact of the community in enhancing the
    performance of firms within industrial districts.

three broad approaches have been adopted to
analyze these "new" forms of industrial
productive systems
  • the transactions costs approach, a neo-classical
    framework developed by Williamson through Coase
  • The "embeddedness" school.
  • critical of the neo-classicists
  • Emphasize the essential dynamism of the districts
  • Case approaches focusing on political and social
    aspects of individual case studies

Industrial Districts and Marshall
  • arose primarily out of his empirical studies of
    the steel and textile industries
  • within these industries, the greater the
    opportunities that existed to split up the
    production process, the greater the chances were
    that specialist firms would develop.
  • benefits of production accruing to the individual
    large firm were differentiated between internal
    economies of scale (dependent on the organization
    and efficiency of the management of the
    individual firms) and those arising to the
    industry as a whole, or external economies
    (dependent on the general development of the

According to Marshall
  • external economies "can often be secured by the
    concentration of many small businesses of a
    similar character in particular localities or as
    is commonly said, by the localisation of
    industry" (Marshall 1916, 26).
  • In effect this localization of industry can be an
    alternative to larger size for the individual
  • And a hint to how SMEs can be particularly

Specialization and the small firm.
  • To Marshall, specialization allowed firms to
    operate at smaller levels because localization
    economies were usually more significant than
    internal scale economies
  • It was the combination of localization and
    specialization that gave rise to the notion of
    industrial districts.
  • Although Marshall noted that large firms
    frequently located in industrial districts, he
    also added that small firms benefit from external
    economies from being located in industrial
    districts by providing inputs and specialty

Marshall and Constructive Cooperation Trust and
  • Marshall coined the term "constructive
    cooperation" to identify a willingness to
    cooperate with similar firms in sharing
    information and efforts to obtain better markets,
    materials, and capital without become cartels
    that seek to control prices.
  • Marshall saw constructive cooperation among
    competitors as a particularly British trait.
  • This form of cooperation requires extensive trust
    and could not occur without out it.

Organization and Cooperation
  • Organization is the general rule which underpins
    Marshalls analysis of the entire production
  • Cooperation in the sharing of knowledge (which
    leads to increased innovation) and the
    development of an industrial atmosphere (which
    results in the establishment of new organizations
    that facilitate production and trade, namely
    constructive cooperation) both derive from this
    general rule.
  • Implicit in Marshall is an evolutionary approach
    to industrial organization that links between
    Marshalls original industrial districts and
    contemporary industrial districts.
  • The connection is the development of trust and
    cooperation that we have identified within
    Marshalls original industrial districts.

Evolving Relationships and Trust
  • In Marshalls view, social institutions arise in
    industrial districts and trust evolves dependent
  • tradition,
  • custom,
  • habit and
  • legal restraint.
  • The establishment of such social institutions
    help SMEs gain external economies of scale and
    get advantages from being close-knit
    geogragphically and economically.

Gains from Trust and Cooperation
  • product innovation,
  • the sharing of knowledge, information, productive
    capital and even personnel
  • an "industrial atmosphere" and the establishment
    of "constructive cooperation."
  • constructive cooperation and trust being achieved
    without resort to formal enforcement mechanisms.

Arrow on Trust and cooperation
  • The achievement of a productive system based on
    cooperation and trust undoubtedly leads to
    economic efficiency and "is an important
    lubricant of a social system." (Arrow, K. (1974)
    The Limits of Organization. New York Norton.).
  • "Collective undertakings of any kind, not merely
    governmental, become difficult or impossible not
    only because A may betray B but because even if A
    wants to trust B he knows that B is unlikely to
    trust him"(Arrow, K. (1974) The Limits of
    Organization. New York Norton.).

Partnership and Regional Development
  • In the 1970s and 80s, regional development
    usually involved one agency deciding the
    appropriate strategies and undertaking the
    necessary steps to implement such initiatives.
  • Now, regional development bodies appear to be
    essentially networked organizations, achieving
    their objectives by working in partnership with
    other public and private actors.

An example National Rural Development
  • The National Rural Development Partnership (NRDP)
    is a multi-faceted organization bringing together
    partners from all levels of government as well as
    private for profit and non-profit organizations
    to address the needs of rural America.

NRDP Structure
  • The NRDP brings together partners from local,
    state, tribal, and federal governments, as well
    as from the for-profit and nonprofit private
    sector. The NRDP has three main components

The Partnership at the National Level
  • National Rural Development Council
  • Office of Community Development
  • National Rural Development Coordinating
  • NRDP Task Forces
  • Rural Policy Fellows Program
  • National Federal Partners

The Partnership at the State Level
  • State Rural Development Councils (SRDCs) are
    composed of the agencies and organizations that
    play a part in developing the rural areas of that
    state. As a result, federal, regional, tribal,
    state, and local governments, along with the
    non-profit and for-profit sectors, all play an
    important role in the work of each State Council.
  • The State Rural Development Councils define their
    own mission, structure, operating guidelines, and
    action plan. SRDCs rely upon time and resources
    volunteered by their partner members to address
    critical community concerns and to respond to
    fast-breaking opportunities. Currently, there are
    38 State Councils.

A Specific Example
  • The Mississippi State Rural Development Council
    hosted Regional Roundtable Discussions throughout
    Mississippi in 2000 that attracted local, state,
    and federal outreach groups interested in
    addressing issues of concern to the state's rural
    communities, including representatives from the
    Appalachian Regional Commission.
  • MSRDC surveyed rural communities to determine
    their interest in the topic selection, identified
    speakers and partners, coordinated the time and
    location of meetings, and scheduled facilities.
  • Tailored to address the concerns of the region
    where they were held, the roundtables allowed
    rural community leaders and citizens to network
    with government officials, talk with resource
    providers, and provide information about rural
    concerns and recommendations to address those
  • Participants incorporated the information
    gathered through the roundtables into strategic
    plans. This is the Community Development Project
  • Mississippi State Rural Development Council is
    also working with the Mississippi State
    University Extension Service, the Mississippi
    Planning and Development District, USDA-Rural
    Development, and the Tennessee Valley Authority
    to implement the Community Development Project.

Another Partnership?
    comprised of three member organizations which are
    committed to developing a prosperous economy and
    the highest quality of life in Starkville,
    Mississippi Oktibbeha County. Member
    organizations Starkville Area Chamber of
    Commerce Starkville Convention Visitors
    Bureau Oktibbeha County Economic Development

East of England Development Agency
  • EEDA plays an active role in a number of
    successful initiatives with groups ranging from
    community based partnerships to large-scale
    projects like the Luton Vauxhall partnership

Vauxhall Partnership
  • When Vauxhall and its parent company GM Europe
    announced in December 2000 that it was to close
    its Luton Vectra production facility the East of
    England Development Agency (EEDA), set up a
    partnership group to tackle the impact of the
    closure on the local economy of Luton as well as
    on the employees at the plant who would lose
    their jobs. The partnership brings together a
    large number of organisations including Luton
    Borough Council, Vauxhall, government agencies
    and EEDA.

Actions of the Vauxhall Partnership
  • Retraining and Support Services The partnership
    decided that the immediate need was to identify
    the skills shortages in the local area, map the
    skills of the Luton workforce and then determine
    the retraining and re-skilling need for effective
  • Once this was completed the partnership moved
    quickly to secure funding to put a retraining
    program in place.
  • Almost 1.5 million, drawn from various sources
    including the European Social Fund, EEDAs Skills
    Development Fund, Vauxhall and the Governments
    Rapid Response Fund, has been put into the
    programme. The Employment Service has also funded
    courses and altogether more than 1,000 employees
    have been retrained.

Actions of the Vauxhall Partnership
  • Counselling Services A help centre on site at
    the plant was set up to give workers access to
    welfare and financial advice and assess their
    retraining needs. A dedicated help desk for
    Vauxhall workers will now be provided at Luton
    town centres job centre. Employees have also
    been able to get advice and support on how to
    embark on new careers and preparing CVs. The
    partnership also assisted the provision of
    counselling services through a scheme run by the
    Luton Health Action Zone.

Partnership Panacea?
  • the experience of the Third Italy, where
    consensual networking appeared to be the secret
    behind a thriving regional economy, has been well
  • It is easy to see why partnership is construed as
    the new panacea.
  • The motives of a development agency for linking
    up with other public and private bodies may be a
    combination of push and pull factors
  • on the one hand the search for functional
  • on the other hand a constant quest for additional
    resources from other public and private actors.

Two important aspects of partnership
  • Motives and interests of the partners involved
  • May differ between public and private actors and
    various tiers of government, and between
    divergent economic interests, different time
    perspectives, incompatible strategies, and
    territorial politics.
  • Consequences for the participating organizations
  • Who gets access to resources
  • Who has most influence over the partnership

links between networking and partnerships
  • within the regional economic development
    structure of the late twentieth century, there
    arose a dominant partnership model approach that
    stressed the possibility of realizing synergies
    and capturing positive externalities through
    formal networking.

advantages of partnership
  • Increasingly innovative policies and better
    operational decisions
  • Increased continuity and consistency in policy
  • Better Resolution of conflict and disagreement
  • Coordination and integration of disparate actions
  • Aggregation of separate budgets
  • High level of strategic planning and decision

Actions of the Vauxhall Partnership
  • Support for Suppliers In December last year the
    Regional Supply Network East launched an
    excellence club to promote good performance and
    working practices for East of England automotive
    suppliers. To qualify for the 400 Club,
    businesses have to score 400 or more in the
    European Foundation for Quality Management
    Excellence Model, which sets standards for
    production processes, management techniques,
    performance measurement and customer service.

Networking through Industrial Districts
  • Policy strategies of RDAs are increasingly aimed
    at developing organizations of small and medium
    enterprises (SMEs) through "networking"
  • Such arrangements are often referred to as
    industrial districts.

The exact nature of these industrial districts
depend on
  • Regional Governance
  • Decentralization / regionalization of the country
  • Local partnership
  • Financial means
  • Political debate. What type of support for
    endogenous development?

There are lots of claims being made
  • About being part of a cluster
  • About being part of a network
  • About being part of an industrial district

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  • What conditions are necessary for the
    establishment of formal organizational structures
    that will lead to firms cooperating within the
    process of production and therefore real

Scottish Enterprise
  • The principal agency with the task for economic
    management of the Scottish economy, Scottish
    Enterprise (SE), has recently identified
    networking arrangements among SMEs as a way to
    achieve growth and hence job creation among them.
  • acknowledges that there are problems with
    existing networking agencies within the Scottish
  • Seeks ways to encourage the effectiveness of both
    formal and informal networking arrangements

Two major problems
  • Why does Scotland generate so few new ventures,
  • Why do those ventures that are created seldom
    grow into substantial companies?

Growth Rates
  • low rates of enterprise creation , but
  • growth of surviving enterprises was at least as
    good in Scotland as elsewhere.
  • Conclusion problem was the overall birth rate,
    with the policy implication being that measures
    to expand the pool were more appropriate than
    "picking winners."

The Role of Networking
  • to achieve the desired objective of new firm
    formation is to be successful, an understanding
    of the essential components of successful
    networking is needed

A key question
  • whether new firms are conducive to the creation
    of networking and industrial districts.
  • based on the best practice models identified in
    regional economic regeneration strategies
    elsewhere in Europe and in North America, these
    strategies rely on trust and cooperation.

Exchange requires some cooperation
  • wherever exchange takes place, either on the
    market or through firms, a degree of cooperation
    takes place.
  • The division of labor, so crucial toThe Wealth of
    Nations, is dependent on cooperation between the
    parties involved

cooperation and competition
  • "Trading partners, derive mutual benefits from
    cooperation in production from which their
    incomes are ultimately derived, but they compete
    over the proceeds of production because what one
    gets the others cannot have. Every business
    relationship is therefore by its nature both
    rivalrous and cooperative" (Burchell and
    Wilkinson 1997, 219).

  • Important issue is how to keep Opportunism out of
    cooperative relationships
  • The costs of using the market mechanism can be
    reduced by organizing production within the
    structure of the firm (Coase, 1937).
  • Contracting arrangements can act as a means of
    reducing the costs of coordination, but there are
    costs involved in establishing and monitoring
    contracts (Williamson 1993).

Alternatives to Contracts
  • Two norms are widely accepted.
  • (1) Commitments are to be honoured in almost all
    situations one does not welsh on a deal.
  • (2) One ought to produce a good product and stand
    behind it" (Macaulay 1963, 63).

Developing Trust
  • Trust can evolve from cooperation
  • Gambetta defines trust as "a particular level of
    the subjective probability with which an agent
    assesses that another agent or group of agents
    will perform a particular action, both before he
    can monitor such action (or independently of his
    capacity ever to be able to monitor it) and in a
    context in which it affects his own action"

Gambettas Assumptions
  • If probabilities can be calculated then there
    must be some way to monitor behavior.
  • If behavior cant be monitored, how is
    opportunism prevented?
  • Gambettas answer institutions will develop
    which will ensure certain types of behavior

Not just transaction costs
  • literature on industrial districts identifies
    trust and cooperation in a way that transcends
    the notion of simply reducing transaction costs
  • "A carefully nurtured collective identity can
    potentially provide the social fabric which
    sustains cooperation in an industrial district as
    in a corporation" (Best, 1990, 237)
  • This requires a relatively homogeneous system of
    values and views

The example of Third Italy
  • History of strife before World War II
  • Selective history recall

Kinds of Trust
  • Contractual trust is the trust that exists
    between trading partners and that results in the
    belief that goods will be delivered on time, be
    of the required specification and be of the
    agreed quantity and quality.
  • Competence trust refers to the belief that a
    trading partner will fulfill a particular task.
  • Goodwill trust occurs when initiatives are
    undertaken beyond the specific remit of a
    contract goodwill trust extends beyond existing
    relations and includes the transfer of new ideas
    and new technology.

From contractual trust to goodwill trust.
  • . Policy delivery can be utilized to promote a
    cultural change.
  • Collective action needs to be developed to
    guarantee cooperation and trust within the
    productive system.
  • Hodgsons example of seatbelts coercion plus

Potential problem of coercion
  • Over-reliance on coercion, however, may well lead
    to distrust.
  • Actors may well question the amount they are
    actually trusted if they have to be continually
  • if one actor is able to exercise coercion over
    another this suggests an unequal distribution of
    power in the relationship. "It introduces an
    asymmetry which disposes of mutual trust and
    promotes instead power and resentment"

A solution
  • large organisations that are not able to make
    membership compulsory must also provide some
    noncollective goods in order to give potential
    members an incentive to join
  • Group identity (dirty dozen example)

  • Free rider problem
  • Once established inter-firm relationships develop
    norms of behavior, custom and practice facilitate
    trust and cooperation, which can result in
    "embeddedness (Granovetter 1985).

The SEs Problem (sound familiar?)
  • Scottish companies tend to be restricted to the
    peripheral, low value added areas of the sector,
    such as catering, supplies, labor-only contracts,
    and maintenance.
  • Unable to integrate forward because of a lack of
    market strength and too low on the value chain to
    establish an export oriented sector of any note,
    such companies realize few opportunities by
    cooperating in an industrial cluster.

Corporate venturing
  • assistance to entrepreneurs or SMEs to exploit
    new ideas, corporate restructuring through staff
    creation of new independent businesses, and the
    development of new profit centers and
    subsidiaries to exploit new products, processes
    and markets.
  • Major obstacles
  • financing. Equity Gaps.
  • the perception of entrepreneurs by the community

What else reduced entrepreneurs?
  • the very agencies established to promote business
    start-ups lacked trust and cooperation in the
    indigenous entrepreneurs under their charge.
  • dependency culture in which it was believed that
    native Scots entrepreneurs could not be a dynamic
    part of the regeneration process
  • AND

Opposition to spin-offs and buy-outs
  • There is evidence that RDAs and government
    departments have been opposing management
    spin-outs, effectively scuppering the opportunity
    for technology based developments by sanctioning
    the closure of RD laboratories in nationalized
    industries, and dampening enthusiasm and support
    for management/worker rescues of branch plant
    closures (Strathclyde Regional Council 1988
    Danson 1991).

  • Those who would have most difficulty establishing
    a business elsewhere - the young, women and the
    working class, appear to face higher hurdles in
    Scotland than in the southeast of England and
  • Lack of security and of alternative employment in
    the event of failure, and the effects on family
    life of creating a new firm are the major
    concerns of potential entrepreneurs according to
    the SE report (1993, 24).

  • Mentoring
  • Knowing an entrepreneur is an important rocket
    for changing someone from a potential to an
    actual business creator.
  • Those who are most dissuaded from making the
    transition are least likely to have a set of
    relevant contacts

The role of mulitnationals
  • With an economy dominated by branch plants,
    however, it is unclear how multinational
    enterprises can be encouraged to adopt more
    cooperative strategies, and so to become more
    embedded into the Scottish economy.

The Wheel of Local Development
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