Local Economic Development (LED) and Urbanism for the Israeli Mayors' Institute

Local Economic Development and

Urbanism

Israeli Mayors Institute on City Renewal

June 2010

[email protected]

www.miu.org.il

mailto:[email protected]

http://www.miu.org.il/

Nachman Shelef

• Serial high-tech and social entrepreneur. Founder or member of the

starting team of high-tech and clean-tech startups such as Nice,

NiceCom, Atrica, ConteXtream, EnStorage, My6Sense; of Benchmark

Israel a venture capital fund; and of NGOs such as IVN – Israel

Venture Network, and MIU – the Movement for Israeli Urbanism.

• Former general partner in Benchmark Capital, an international venture

capital fund that invested $490M in Israeli startups.

• Former vice-president at 3Com, a multi-national corporation, and

general manager of business units that spanned CA, MA, and Israel.

• B.Sc. Summa cum Laude in electrical and computer engineering from

the Technion.

Agenda

• A brief history of LED

– Summary of current thinking

• LED in the context of cities and towns

– Urban Economics

– Cities have natural economic advantages

– How does the urban economy develop?

– How can we jumpstart economic development?

What is LED?

• 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.

Economic Development

before the 1800s…

• …was boring!

– Production followed

Population

Production

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.

A Brief History of LED

Prior to WWII

• Economic Development was

focused by each nation on

developing their own economy

– Included trade with other

nations

– Included investment in

territories, colonies and other

nations directly or indirectly

under the control of empires in

order to exploit their resources

Post WWII

• A new concept was born - Economic

Development aid to other nations

aimed at improving quality of life

without altering basic social structures

(conquering)

– Driven by multiple factors:

• The recognized need for global

stability – to avert another WW

• Political influence – the ―cold war‖

• Create bigger markets for goods and

services – globalization

– Creation of the UN, the WorldBank,

the IMF, ITO / GATT / WTO

– The Marshall Plan

– Creation of USAID

• Continued investment in own LED


• Results of Marshall Plan seemed

promising

– Investment in hard infrastructure brought on

rapid economic growth in western Europe

• The recipe for LED seemed to be clear

and this brought on huge investments that

kicked off three waves of LED

• Most of these investments have been

fruitless…


• Since the 1960s, LED has passed through three

broad stages or 'waves' of development.

– In each of these waves LED practitioners have

developed a better understanding of successful and

unsuccessful programs.

– Today LED is in its 'third wave'.

– Although LED has moved through each of these waves,

elements of each wave are still practiced today.

– Each of the waves had some basis in a prevailing

economic development theory

– With each wave the appreciation of the difficulty and

complexity of LED grew

The Three Waves of LED

Nations Regions / Sectors

Cities and Towns

Hard Infrastructure and

Manufacturing Transplants

Attract Foreign Investment and Support Local Businesses

Skills/Education, Attractive Policies

and Public/Private Partnerships

1960s to early1980s

1980s to mid 1990s

Late1990s onwards

Summary of Current Thinking on LED

Participatory approach

• Including all stakeholders and sectors

• Led by local government

Growth of local businesses

• Promotion and support of innovation and entrepreneurship (both business and social)

• Business friendly policies

Focus on cities

• As engines of economic development

• Urban regeneration as a tool

Goal is quality of life for all

Employment Environment Livibility Social inclusion

Have we all learnt the lessons

of past LED attempts?

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

http://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















Typical Shortcuts proposed for LED

• Attract:

– Outside investment

– Outside transplants

– Outside talent

– Outside residents

• Connect:

– Under-developed regions to successful ones

… if only LED was so easy…

Agenda




– Urban Economics




Urban Economics from

Econ171 Economic Development

UC Berkeley

16

Lecture 27 Urbanization by Atanu Dey

Cities are the biggest idea

• Cities represent the largest and the most

persistent human artifact

• Cities are the aggregation of the biggest

ideas of humans

• Urbanization matters because that is what

humans naturally tend to do

Lecture 27 Urbanization Atanu Dey 17

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.‖


Economic Growth Urbanization

Urbanization Matters for

Economic Growth

• Why is this so?

– Economies of scale and of agglomeration


The Big Picture• The World is getting more urbanized

20Lecture 27 Urbanization Atanu

Dey

Half the world’s population

occupies only 1.5 percent

of the world’s land area

Lecture 27 Urbanization Atanu Dey

21

Ginza Area in Greater Tokyo

2 9

3 7

4 8

6 1

15

2 5

3 9

5 4

17

2 4

3 9

5 45 1

6 6

7 3

8 0

4 2

6 1

7 7

8 5

6 4

7 4

8 0

8 7

6 1

7 27 3 7 5

0

20

40

60

80

100

Perc

ent

World Africa Asia Europe Latin

America

and the

Caribbean

Northern

America

Oceania

1950 1975 2003 2030

Share of World Population Residing in Urban AreasBy World Region 1950-2030

22Lecture 27 Urbanization Atanu Dey

Israel 92%

Economic Activity is Spiky

• Wealth is unequally distributed

• North America, European Union

and Japan account for 75% of

the world’s wealth

• Around 1 billion have less than

2% of the world’s wealth

Agenda


– Summary of current best practices


– Urban Economics




Cities have natural economic

advantages• The advantages outweigh the disadvantages

– Successful cities grow to metros grow to mega-metros

• Positive relationship between size and productivity

– Doubling city size will increase productivity by 3%-10%

• Larger cities produce more innovations

– In the US, 96% of all innovations occur in metros

• Cities are engines of economic growth

– They manufacture wealth

Lecture 27 Urbanization Atanu Dey25

Mega Regions• 40 mega-regions, 1.2 billion people

– Around 70% of world output

– 85% of all innovations

• 5 billion people living in 191 countries produce the rest

• A resident of a mega-region is 8 times as productive in

goods, and 24 times as productive in innovations

26

1955 2015

11 mega-metros 60 mega-metros

Cities are Engines of Growth

• They manufacture wealth

– Manufacturing occurs in urban areas

– Why rich countries are predominantly urban

• Urbanization makes mass production possible

– Manufacturing is related to scale economies

– Scale economies require people in terms of variety

and quantity

• As producers seek scale economies, agriculture

disperses but manufacturing clusters

• Services become even more clustered than

manufacturing27

Lecture 27 Urbanization Atanu Dey

Cities and Lower Costs

• Transaction Costs are lower in cities

• Infrastructure has scale economies

– Transportation, water, sewage, electricity…

– High fixed costs. Higher with sprawl!

– High aggregate demand reduces the average costs

• Education can be more efficiently produced and

consumed in cities

– Major factor in economic growth

– Scale economies are huge in education

• High fixed costs and low marginal costs


Internal Scale Economies

• The cost of producing each unit of

something changes when the volume

produced increases or decreases

• Economies arise from sharing of fixed costs


External Agglomeration Economies

• Localization economies

– Clustering of Firms in the same Industry

– Arise from clustering of activities near a specific

facility, such as a transport terminal, a big market

or a large university.

• Urbanization economies

– Diversity of different Industries in the same area

– Arise from common infrastructure, the diversity of

labour and market size.


Economies

• Internal scale economies arise from

sharing of fixed costs by a large quantity of

outputs and are higher in heavier

industries

• External Agglomeration Economies:

– Localization economies arise from input-

sharing and competition within the industry

– Urbanization economies come from industrial

diversity that fosters innovation and exchange

of ideas and technology

Lecture 27 Urbanization Atanu Dey31

The 12 Urban Economies of ScaleType of economy of scale Example

Internal

1. Pecuniary Being able to purchase intermediate inputs at volume discounts

Technological

2. Static

technologicalFalling average costs because of fixed costs of operating a plant

3. Dynamic

technologicalLearning to operate a plant more efficiently over time

External or

agglomeration

Localization

Static

4. ―Shopping‖ Shoppers are attracted to places where there are many sellers

5. ―Adam Smith‖Outsourcing allows both the upstream input suppliers and downstream firms to

profit from productivity gains because of specialization

6. ―Marshall‖

labor pooling

Workers with industry-specific skills are attracted to a location where there is a

greater concentration

Dynamic

7. ―Marshall-

Arrow-Romer‖

learning by doing

Reductions in costs that arise from repeated and continuous production activity

over time and which spill over between firms in the same place

Urbanization

Static

8. ―Jane Jacobs‖

innovation

The more that different things are done locally, the more opportunity there is for

observing and adapting ideas from others

9. ―Marshall‖

labor pooling

Workers in an industry bring innovations to firms in other industries; similar to

no. 6 above, but the benefit arises from the diversity of industries in one location.

10. ―Adam Smith‖

division of labor

Similar to no. 5 above, the main difference being that the division of labor is

made possible by the existence of many different buying industries in the same

place

Dynamic

11. ―Romer‖

endogenous

growth

The larger the market, the higher the profit; the more attractive the location to

firms, the more jobs there are; the more labor pools there, the larger the

market—and so on

12. ―Pure‖ agglomerationSpreading fixed costs of infrastructure over more taxpayers; diseconomies arise

from congestion and pollution

Cities, it turns out, have

natural advantages • Cities naturally offer Variety, a wide range of valued choices. They

naturally offer Convenience. In cities, there are more choices close

at hand. Discovery is another city advantage. Cities offer people

more chances to discover things they didn't know they liked, things

they didn't know they wanted to know, and people they didn't know

they could make things with (including fun and babies). And cities

naturally offer more Opportunity to their citizens in the form of

access to jobs, education and smart people.

• But here's the problem: We keep screwing it up.

• We keep undermining the city’s natural advantages. Instead of

building compact cities that magnify, amplify and intensify these city

advantages, we've blown it…

http://www.ceosforcities.org/

http://www.ceosforcities.org/

Agenda




– Urban Economics




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.

LED in a Great City




LED in a Great City

What makes the city the true engine of LED

• Compact and vibrant mixed population communities lead to interaction, opportunity and innovation

• Easy access to skilled and unskilled talent

• Easy access to customers and markets

• Easy access to suppliers

• Easy access to technology and knowhow

• Easy access to credit

• Easy access to low-cost startup space and to expansion space

• Low regulatory barriers to small business

• Lot’s of imports to replace

LED in a Great City




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?

It can become a LED generator

If the City provides

Density Mixed useMixed age buildings

Small Blocks

LED in a Great City




The cycle of city development

DensityVariety

&Access

Innovation&

Culture

DevelopmentIntensity

Opportunities

QualityOf

Life

People

LED in a Great City





• Create a great place to live and to develop

economically

• Provide attractive and efficient access to the City

• The City will do the rest

– The Five Economic Forces Exerted by Cities on Their

Own Regions

1. City markets

2. City jobs

3. City developed technology

4. Transplanted city work

5. City generated capital

LED in a Great City




Leveraging the five forces to

accelerate LED in the region of a

Great CityToD in the Center of Regional Towns of a Great City

StockholmThe Gr Stockholm Transit

Oriented Metropolis The Gr Copenhagen Transit Oriented Metropolis

The 1961 National Capital Plan for Gr Washington BC

Is Beer-Sheva a Great City?

What about rail stations in

the center of the towns?

LED in a Great City




Source – Prof. Danny Gatt

LED in a Town Outside a Great

City Region

• Need to become a Great City (or wait for a Great City to develop nearby)

How?

• Leverage current thinking on LED

• Create a great place to live and to develop economically

• In the existing center of town

Jumpstart the economy

• Produce and sell something of value to a solvent market by turning any advantage into an opportunity

Leverage initial sales to

• Earn Imports

• Replace imports for yourself and for economically similar towns through innovation and improvisation

• Repeat last two steps forever

LED in a Great City





• Need to become a Great City (or wait for a Great City to develop nearby)

How?

• Leverage current thinking on LED

• Create a great place to live and to develop economically

• In a small focused area of the city (urban acupuncture)

Jumpstart the economy

• Produce and sell something of value to a solvent market by turning any advantage into an opportunity

Leverage initial sales to

• Earn Imports

• Replace imports for yourself and for economically similar cities through innovation and improvisation

• Repeat last two steps forever

LED in a Great City




How to Jumpstart the cycle of city

development

DensityVariety

&Access

Innovation&

Culture


Opportunities

QualityOf

Life

People

LED in a Great City




Where is the

―handle‖ ?

Summary of Current Thinking on LED







Focus on cities





Local Agenda 21

• The Local Agenda 21 (LA21) Campaign promotes a participatory, long-term, strategic planning process that helps municipalities identify local sustainability priorities and implement long-term action plans.

• It supports good local governance and mobilizes local governments and their citizens to undertake such multi-stakeholder process.

• A 2002 survey found that – more than 6,400 local governments in

– 113 countries have become involved in LA21 activities over a

– 10-year period.

But, a great strategic plan…• … in a binder on the shelf…

• Is just that -

• A great plan on the shelf!

• The questions remain the same:

– How do you advance ever closer to your vision of a

successful town, based on daily decisions and based

on existing budgets?

– How do you jump-start the cycle of city development?

How to Jumpstart the cycle of city

development

DensityVariety

&Access

Innovation&

Culture


Opportunities

QualityOf

Life

People

The

―handle‖

LED in a Great City




Urban Regeneration as a LED Toolor

How to increase Density, Variety and Access

First stage:

• Surgical urban intervention plan in the public space

Second stage:

• Renewal of the public space

Third stage:

• Private Development Construction and Renovation near the public space

Use the ―charrette‖ collaborative urban

planning 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

businesses

•Leverage the true identity of the city / town

as seen by the local residents

•Local residents strengthen their sense of

belonging by planning their town

•Leverage existing budgets for

public building projects to

implement the plan

•Local residents are

empowered by seeing their

plans adopted and

implemented

•Provide loans to accelerate

private storefront and

residence renewal







Focus on cities





The critical role of the MIU in

LED in Israel


• Charrette –collaborative planning with all stakeholders

• Quality in Density Toolbox for all sectors

• Mayors Institute


• Making the local environment great for the locals

• Compact, quality and sustainable cities provide opportunities and breed innovation

Focus on cities

• We view the city as the key mechanism that provides people the opportunities to fulfill their inherent potential


In order to improve the quality of living in Israel, while contributing to the global sustainability effort, the MIU promotes quality urban living based on compact,

quality and sustainable urban environments.

Thank You

[email protected]

June 2010

www.miu.org.il

mailto:[email protected]

http://www.miu.org.il/

Local Economic Development (LED) and Urbanism for the Israeli Mayors' Institute

Education

Transcript of Local Economic Development (LED) and Urbanism for the Israeli Mayors' Institute