European policies and projects Prof. Guglielmo Wolleb, 2013-14.

European policies and projects

Prof. Guglielmo Wolleb, 2013-14

Local development: basic theory

Topics

What is local development Advantages of local development

Consistent with citizens’ preferences Enhancement of endogenous resources Better local knowledge Widening human base of development “Learning by doing” Institutional building Enrichment of social capital

Topics

Governance of local development

Decentralisation of institutions

Institutions, public goods and collective action

Policy integration

What local development policy is not

What is local development?

Various definitions Three essential ingredients for local

development: Planning and implementation of strategies

specifically tailored to the features of well delimited areas

Strategies aimed at the enhancement of local resources

Informed and aware participation of local subjects in strategy

Three ingredients in detail

What is local development?First ingredient: Planning and implementation of

strategies specifically tailored to the features of well delimited areas

How to identify an area suitable for local economic development ? What does ‘local’ mean exactly? How to draw boundaries of an area for local dev't? “Local” refer to areas with homogenous internal

characteristics These characteristics may relate to the economy,

population, society, institutions or to other variables e.g. ethnicity, language etc.

Homogeneity can also be seen as the space of action for subjects closely interacting in the fields of production, institutional or of social relationships


For these reasons homogeneity of a territory is always relative to the variables used

One possible delimitation of the areas is that relationships take place directly, face to face, and on a continuous base

Local is usually sub-region or sub-province This delimitation does not often coincide with

administrative borders. This is problematic because responsibility for policy is distributed along administrative borders.


Second ingredient: strategies aimed at the enhancement of local resources

A second problem refers to the social and economic content of local development

Not all dev't in an area can be defined as local dev't

Local dev't implies utilization and enhancement for economic ends of endogenous resources


Local resources can be tangible or intangible, physical or human

Can be natural or cultural heritage, endowment of human capital, production specialisations, social capital or other specific to that territory

Local dev't means businesses take account of physical and human characteristics of a territory and do not treat the area as an empty space


Third ingredient: informed and aware participation of local subjects in strategy

To be local, local actors must play a significant active role in the planning, drawing up and implementation of a strategy

Local dev't is not wholly or mainly drawn up by centres outside the area

Advantages of local development

Consistent with society’s preferences Enhancement of endogenous resources Better local knowledge Broadening human base of development “Learning by doing” Institutional building Enrichment of social capital

Consistent with society’s preferences

Local actors know better their preferences and are better able to formulate consistent economic and social goals

Local participation in elaborating dev't strategy makes it more congruent with local system of preference (local function of social welfare) and maximises local economic well-being

Enhancement of endogenous resources Each area has partly specific or idiosyncratic dev't

resources Often not used optimally Often in backward areas. In fact, under-exploitation leads

to backwardness Reasons for under-exploitation are often internal to area

(internal constraints on dev't) Full and better use of

resources through strategies calibrated to the characteristics of the area provides an opportunity for dev't for all areas and an opportunity to reduce regional imbalances

Better local knowledge

Local actors know endogenous resources best

In addition to codified knowledge (knowledge that everyone can access and that are easily transmittable and independent of specific places) also local "know-how“ exclusively possessed by local actors living and / or working in the area

Knowing more about their territory, local actors can plan more efficacious strategies

Broadening the human base of development

Local actor involvement broadens and improves human resources underpinning dev't

Taking part in strategic decision-making incentivates personal involvement and commitment. Local actors are active, identify with decisions and make greater effort

This may have positive effects on efficacy and efficiency and hence on economic dev't

“Learning by doing”

Cooperation in planning strategy allows socialisation of knowledge and put in motion “learning by doing” processes

Local actors meet, exchange opinions, mutually enrich knowledge

Local actors learn by doing, from success and failure and analysing best practices. Continuous monitoring and evaluation improves management of intervention

Institutional building

Local institutions also learn by doing

Local institutions within a framework of participative political processes, make more contact, cooperate in decisions and weave closer ties

Institutional building can have positive effects on economic dev't

Enrichment of social capital

Participation in decisions by adopting forms of direct democracy is generally associated with the formation of local social capital

Continuous direct contact, sharing choices, cooperation in the implementation of policies can increase mutual trust between the actors, civic pride, density of their network relationships and facilitate collective action

Richer social capital lowers transaction costs, encourages production of public goods and creation of externalities with possible positive effects on dev't


Many advantages of local dev't are linked to active participation and capacity to cooperate of local actors in planning and implementing dev't strategies

But effects of participation and cooperation are not automatic but depend on the framework of rules, responsibilities and procedures, that is on the governance of local dev't policy

Issues in governance:


Governance is not the same as government Governance – running of area characterized by

cooperation between different actors, institutional and other, pursuing the same ends. This is in contrast to a more rigid and hierarchical division of responsibilities where each actor separately pursues different ends

Today these two modes of management are not radical alternatives. Forms of governance coexist with traditional forms of government. Coexistence is not necessarily easy.


Institutional cooperation can be vertical or horizontal Vertical cooperation – between different levels of

institutions. E.g. in European Cohesion Policy, the EU, state, region, municipality

Horizontal cooperation – same level institutions. E.g. different municipalities in one province, different regions in one country.

Partnership – cooperation with private entities. May be only private bodies or mixed public – private actors

Multilevel governance entails cooperation at all these levels. Difficult to enact.


Precise norms required. Overall normative framework generally laid down by highest level institutions

Financial resource allocation, monitoring and evaluation of policies, technical assistance also carried out by highest levels

Local actors organize coalitions, plan detailed strategy and implement projects

Through concertation Concertation must be regulated and managed. Not

spontaneous or anarchic. Local actors lay down operating rules


Main problems of concertation: Who needs to be involved?

Distribution of powers among different local actors

Blend of “Direct democracy” and “delegated democracy”

Competence and experience accumulated over time by local actors


Who needs to be involved? Concertation normally inclusive but it is not

always opportune for all parties to be involved in all decision-making processes

Potentially important actors, stakeholders or knowledgeable actors, should never be excluded

But too many participants (or the wrong participants) lengthen time, raise costs and reduce efficacy


Distribution of powers among different local actors

Outcomes of concertation affected by the asymmetry of legal or factual power of various local actors

Strong actors can sway outcome away from the collective interest


Blend of “Direct democracy” and “delegated democracy”

Which decisions must be taken in a full meeting and which should be delegated to specific political or technical bodies?

Too many full meetings imply the risk of scarcely innovative choices and distributive outcomes or of purely political and not technically optimal solutions.

Too much delegation entails the risk of solutions favoured only by small groups without broad consensus


Competence and experience accumulated over time by local actors

Quality of design and efficiency of management depend on the capabilities, skills and experience accumulated by local actors

Weak and inadequate skills, low administrative efficiency, lack of familiarity with collective action strategies can lead to weak and inefficient performance

Decentralisation of instituions

A corollary of the importance of participation in local dev't is the importance of a decentralized institutional system

Simpler to organize efficacious local actor participation in a decentralised system

In decentralised system local institutions should better reflect citizens’ preferences

They have greater powers and therefore more control over dev't strategies and policies


At the same time citizens have more control over the work of local institutions

Local actors have more autonomy because they depend less on vertical relations with the centre and more on internal horizontal relationships

Degree of decentralization and characteristics can obviously differ greatly from one institutional system to another. Highest degree of decentralization in federal systems in general

Big move towards decentralisation in EU and other European countries in recent years

See the introduction of the principle of subsidiarity in the European Treaty (Maastricht 1992) and then in the Italian Constitution (2001)


The principle of subsidiarity states that public intervention should be made at the institutional level as close as possible to the citizen, unless there are reasonable grounds for believing that the intervention can be undertaken more efficiently at a higher level

This principle therefore does not go into the issue of which is the best level for an intervention. Burden of proof is on the upper level to produce good reasons for carrying it out

The principle of subsidiarity states as well that public intervention must be made, wherever possible, taking into account and valuing the contribution of individual citizens and organized associations

Decentralisation of instituions

The alternative to a decentralized institutional system is a centralized system with local branches that depend on the centre. There are also cases of local institutional dev't in this institutional context


Institutions may play a driving role in local economic development

This role is associated with the production of public goods and with the promotion of collective actions

Let see in detail the link between institutions, public goods and collective action in the framework of local development

Institutions, public goods and collective action Local dev't is facilitated by the creation

of favourable overall conditions for economic activity Favourable contexts made possible by production of

public goods Public goods - no rivalry in consumption and no

excludability conditions Club goods - no rivalry in consumption, but targeted to

a specific set of subjects (those who belong to the club) with the exclusion of other subjects (those who do not belong to the club)

local public goods - assets of the club where club members are people who live and / or work in a given area within which the public good exerts its impact

Institutions, public goods and collective action Some of these goods have an important effect on the

competitiveness of enterprises as they create positive externalities for firms operating where these public goods produce their effects

positive externalities refer to advantages in terms of increased earnings or cost reductions deriving from production or consumption by third parties

E.g.: construction of a road by the public sector brings advantages in terms of reduced costs of all companies operating in that area, the promotion of a technical school by a business association brings advantages of revenues or costs for all firms in terms of availability of skilled labour

Institutions, public goods and collective action Public goods can be tangible or intangible. Tangible:

transport infrastructure, computer networks, education and health facilities. Intangible: trust, social cohesion, knowledge

Public goods can be produced by different entities and in different forms

Public Institutions at different levels are responsible for defining the production of public goods . For local dev't the role of public Institutions that produce local public goods is of particular importance

Public goods can also be produced by private entities. It may be appropriate to offer incentives for the production of public goods

Some public goods may be the result of unintentional actions or processes


Public goods often require collective action Collective action is justified in situations where

individual actions for achieving their particular goals do not lead to an optimal collective outcome

The management of commons is a typical case requiring collective action

Subjects who participate in collective action can be purely private bodies or there can be private-public partnerships

Collective action involves cooperation between different actors taking part

Institutions, public goods and collective action This cooperation is achieved through consultation

processes where different subjects compare their different points of view and seek a common solution to common problems

Cooperation does not necessarily mean that the interests of participants are convergent. There may be no common solution

The role of Institutions in the choice of strategy and alignment of the different positions is very important. Institutions can play a non-partisan role, make choices with a long-term time horizon, take risks associated with innovative choices


Social capital also plays a key role in collective actions

Social capital endowment makes positive outcome of collective action more likely. Lowers risk of opportunistic behaviour and facilitates the alignment of individual positions


Efficacy of public good heavily dependent on outcome of collective action. Three risks of collective action : produces no outcome

leads to compromise solution that does not serve collective long-term interests

leads to solution serving minority rather than collective interests

Policy integration

It is often said that dev't policy must include integrated sets of measures

What is integration and what forms can it take?

Policy integration

Local dev't requires closely integrated policies. Sets of complementary and synergic measures with the same objective

Integration allows concentration of resources for priority objectives. Lack of integration leads to dispersal of resources and multiple objectives.

Sets or packages may include widely differing types of intervention

Integration in local policy is mainly horizontal: multi-sector packages

Policy integration

Examples: Restoration and re-opening of cultural monument Access to the area improved Services to increase exploitation of the monument Marketing measures to publicise the monument and its

availability Monument linked to others cultural goods in a circuit to

increase level of attraction Training courses for personnel involved in the

management of the monument

Policy integration Local policies vs. sectorial policies A sectorial policy is e.g. a national

policy aimed at a specific industry Sectorial policies may also require forms of

integration: chain policies A chain policy brings together interventions

aimed at the value added chain

Policy integration Chain policy not aimed necessarily at the same

area as the various links of the chain can be located at distance from one another

The objective is often to avoid specialization in the low value added segments of the chain

E.g.: Intervention linking farm to food production Intervention linking food production to food

machinery production Intervention aimed at strengthening distribution

networks of agri-food products

Policy integration

Policy integration also occurs when policy is implemented by different levels of institutions

European, national and local policies need to be consistent. Their goals and impact must be consistent

Frequent problem in the literature is sectorial policies that increase territorial imbalances, thus conflicting with cohesion policy


It is important to avoid misunderstandings.

What local development is not


not self-referential or self-sufficient: Skills available outside may be lacking in the local

context

External intervention may be necessary in order to break up local collusion mechanisms

The optimal size of many interventions is greater than local


not spontaneous because

It takes place within a system of rules imposed by the centre

It requires its own system of rules for operation

Success of local development strategy largely depends on adequate system of national and local rules and on their interplay


Not in contrast with the processes of globalization because mobile resources are attracted

to competitive and attractive local contexts synergy between the enhancement

of immobile resources and attraction of mobile assets

globalization has reduced the regulatory power of nation states and made regional and local government more relevant

What local development policy is not Not confined to traditional industries

Many cases of local dev't based on Hi tech In Italy, local development studies reveal

systems of small enterprises specialised in traditional sectors

But elsewhere numerous examples of local dev't in hi-tech sectors such as biotechnology, IT and media

Specific characteristics of local systems and types of public good creating external economies vary


not the only possible form of development Economic dev't may also be the result of

government policies not specifically targeted to a region or economic conditions not depending on local actors

Long term there may be no gap between endogenous and exogenous dev't

Endogenous dev't may result from previous exogenous dev't

What local development policy is not The opening of a large ‘external’ company can, for

example, lead to the spread of knowledge and expertise in the area, and this becomes a specific asset of the area

This legacy is incorporated into local resources and can be used in case of closure or relocation of company

More generally, an external event can produce long-term changes or enrichments (as well as dissipation or depletion) in the endogenous resources of a territory

What local development policy is not Local dev't is not the only possible form of dev't,

and local dev't policies are not the only possible policies of dev't

Optimum territorial dimension varies from policy to policy

Depends on economies of scale and on the area on which it exerts its impact

Some policies can only be national, supranational or global. E.g. policy against global warming is necessarily global, enhancement of Po river valley is interregional etc..

In some cases the same policy may have local and extra-local components. E.g. and environmental policy also has local dimensions

European policies and projects Prof. Guglielmo Wolleb, 2013-14.

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