The Future of Local Economic Development (Adrian Atkinson)

Drawing on his experience and recent work with ILO, Adrian Atkinson reviews the underlying issues of local economic development (LED) in urban and peri-urban areas and makes the case for a re-thinking of support to local enterprise and employment, linking them directly to the macro-economic crisis approaching many cities as a result of ‘peak oil’.

Anyone who knows me from the DPU thinks immediately of Environment and Sustainable Development, my having initiated this stream of teaching back in the early 1980s and exited in the process of helping set up what is now the Masters course on these issues. These days, however, my main focus is on local economic development (LED) and at the end of this piece we will see how this relates to the issue of sustainability (or, shall we say, unsustainability of the global economy…)

Officially my entry has been through the International Labour Office (ILO), starting on the theme of the ‘informal economy’, producing a Course Guide for Local Governments on how they should recognise the importance of the informal economy to the wellbeing of their citizens and thence help them to do better (this can be found and downloaded from my entry on this web site). I then produced a draft for a major discussion paper on the informal economy for the 2002 International Labour Conference which, to be honest, was a wonderful opportunity for me to learn more about the real world in which the majority of the urban population of the South live.

Meanwhile the NGO which I helped establish in the year 2000 came to focus on LED and we managed to scrape together some funding from different agencies to hold some workshops in Colombia and eventually participate in a course at Universidad de los Andes that we had suggested but which eventually was organised by Italian Cooperation. In this context we developed a policy paper on LED that can be found on our web site at in the ‘documents’ section under the title Local and Regional Economic Reconstruction in an age of Global Economic Crisis.

This sets out a critique of globalisation indicating how it undermines local economies, precipitating increasing poverty and the proliferation of the informal economy, and what might be done to combat this situation. Whilst not arguing against trying to compete in the national and global economy, the main principle advocated in the paper is to produce locally for local needs so as to provide jobs that will yield an income for citizens that facilitates buying the produce of other local undertakings. In other words, rebuilding local economies through an upward spiral following the hollowing out that has been effectuated by the neo-liberal ‘compete or die’ economy.

Last year I then become involved in two further pieces of work on the issue of LED. The first, commissioned by the ILO but funded by the Cities Alliance with the participation also of UN-HABITAT and UCLG, aimed to produce a Policy Advisory Note on Urban Employment comprised of a research paper and a shorter policy document (publication of which has been delayed). The other was for the Inter-American Development Bank (IADB) comprising the results of research into past slum upgrading programmes as to what had been done to stimulate local economic development in the programmes and then to provide Operational Guidelines for the Bank concerning how they might go about building LED and income generation into their slum upgrading programmes and projects.

What became glaringly evident in carrying out the IADB research and, indeed, has been with me since I started down this path, is the way that ‘informal settlement upgrading’ people think little or not at all about local economic development. This is odd given the rather obvious fact that the poverty found in slums would seem prima facie to be a matter of weak economies and lack of jobs, crying out for attention but probably due to ‘housing’ people being predominantly ex-architects. Meanwhile, ‘informal economy’ people never make the link between this and the way that most of those in the informal economy actually build their own houses and communities and that this is largely a separate world from the city to which they are attached, with relative few of the economically active inhabitants foraying out into that world – to shine shoes, recycle waste, cycle a pedicab, sell a few cigarettes or cheap snacks or phone cards to passing motorists etc. etc. - to bring in meagre incomes that are redistributed within the communities and just about keep his population (in the south increasingly the majority) alive. These ‘informal economy’ experts are mainly reformed economists.

The Policy Advisory Note is divided into two parts, the first of which looks at what the development agencies are trying to do to improve local economic activity and the second putting together an altogether more coherent and comprehensive approach that would involve a genuine local economic planning process but which so far is only to be found in the real world in fragments.

There are two kinds of initiatives that the development agencies are tending to support. One is the conventional Keynesian idea of labour-intensive public works which the ILO has for many years been supporting in a large numbers of countries. The problem with this is that unless governments increase greatly the money they put into infrastructure provision (and maybe they should when it come to providing decent living conditions for the majority of urban populations!) the construction sector rarely exceeds ten percent of total formal employment that may be raised by a small increment by substituting labour for machines. Empirical evidence shows that after major programmes of this kind, the jobs evaporate so this is clearly no permanent solution to congenitally weak urban economies.

The other approach – that originates in the ideas of Schumpeter in the early 20th Century and became part of the ‘critique of underdevelopment’ in the early developmental years but following the ‘neo-liberal counterrevolution’ has become gospel – is based on the assumption that the entrepreneurial spirit needs to be stimulated as the very foundation of ‘development’. So the idea is to have training courses and other means to encourage and advise on how to run a business and to help launch businesses by lending money to would-be entrepreneurs to capitalise their businesses. Some 40 international development banks, UN and bilateral agencies and other interests have come together to form the Donor Committee for Small Enterprise Development (DCED). Many projects and programmes are funded in this framework that compete and overlap to promote the development of entrepreneurialism and SMEs – this was particularly frenetic upon the fall of Communism, to get the ex-communist populations into the mindset of being private and doing business.

The problem here is twofold: firstly, such initiatives have put a lot of resources into the creation of very few businesses. Maybe the simple answer here is that not many people are prepared to take risks – or maybe, as brilliantly analysed by Abhijit Banerjee and Esther Duflo1, they are culturally unattuned to becoming private business people and maybe they shouldn’t be being pushed over the edge like this. Or maybe ordinary people in the South can see beyond the ideological barrage to the reality that most small businesses fail within the first or second year- simply because there is no way they can compete with the products of multinational capital or increasingly with cheap Chinese imports, leaving the would-be entrepreneurs with debts they may take years or forever to pay off! Of course the ‘informal economy’ is full of what amounts to ‘micro-enterprises’. However, this is the result not of preference but of the fact that there is no alternative work and the only means of survival is to be able to sell something.

Even in the UK where such statistics are kept, and even before the current economic crisis, thirty percent of new enterprises failed within three years. Precious little research has been done on small enterprise survival rates in the South. Whilst being less obviously critical in official documents, I sometimes see this enthusiasm to launch poor people into business on the part of the development agencies as plucking the wings off flies and not even bothering to see them struggle and die. It is said that the blossoming of micro-finance institutions in recent years shown the interest in wanting to start a business but as Banerjee and Duflo show, little of the money – lent at high interest rates making money at least for the micro-bankers – is spent on social and personal needs (medical emergencies, weddings, funerals, status goods) and relatively little on actually starting or expanding businesses.

The second half of the Policy Note advocates a coherent, integrated approach to reconstructing local economies as a thoroughly participatory process (Parecon – or the participatory economy). This is not entirely new in that LED initiatives generally call for some kind of Stakeholder Forum to be set up to steer the process – but then jumps straight into looking for products that can be exported (this was, in the past conceptualised on what was known as ‘economic base theory’ that says that local economies are driven by their export sectors). The Policy Note goes on to call for an analysis of the local economy and also what citizens are lacking that could be locally produced.

The slogan then is ‘recolonising’ the local – or shall we say the sub-regional - economy. ‘Local’ in this context is thus urban and peri-urban and looks for resources in the urban hinterland, to be then processed in the countryside or the city and then manufactured into materials and things that people need to live or to improve their lives. It is in this context that the designing of new productive initiatives is researched and prioritised and in the process a new ethic disseminated that what is advertised as being good for you on television is not actually as good as things produced by your neighbour.

Education and training is crucial here including planning skills, technical skills and organisational skills. Clearly the issue of how to finance – bootstrapping – new initiatives has to be tackled where, however, in practice there are many potential mechanisms that can be tapped into. There is no prejudice here against private enterprise and the issue is to help those who want to go down this route to set up production of materials and goods that are prioritised by the planning process and hence are more likely to result in higher survival rates. However, a Parecon is more attuned to a ‘social economy’ approach (what in Brazil is referred to as the Solidarity Economy – for which the Ministry of Employment and Work now possesses a discrete Secretariat). This means organising cooperatives and municipal, community and social enterprises that are about collaboration in ‘recolonising’ the local economy rather than competition for ‘successful’ entrepreneurs to make profits.

An essential component – even first step – in this process is increasing local food production – or ‘urban and per-urban agriculture’ (UPA). Few development workers realise just how widespread is malnutrition in southern cities today. At last increasing attention is being paid to this with such schemes as Mayor Garzón’s ‘Bogotá sin Hambre’ and Chavez’s promotion of urban agriculture in neighbouring Caracas. Actually these initiatives have been inspired by the Cuban experience where, following the collapse of the Soviet Union, the country lost not only its market for sugar but also its access to fossil fuels and with this agrochemicals. Early experiments in organic hydroponic horticulture – known as ‘organoponicos’ – suddenly came into its own as the country found itself on the edge of starvation: people spontaneously started even in urban areas to grow things to survive and the government helped with information on how to do it effectively. Now, 90% of vegetables consumed in Havana are grown in and around the city (something that was, of course, the case with all cities a century ago but is far from the case with regard to the average city – particularly in the North - today).

In fact it was not only Cuban cities that were thus affected by the collapse of the Soviet Union: the criminal ‘shock therapy’ implemented in Russia following the end of the Soviet Union precipitated a collapse of urban economies that sent the population out into the countryside spontaneously to grow their own food in what is referred to as the ‘dacha movement’ (that started in a small way many decades earlier). Even with the weak revival of the national economy (that is now based overwhelmingly on sales of petrol and gas – which won’t be going on for too much longer) Russian citizens right across the country continue to grow their own food, it being estimated that by 1999 some 35 million ‘urban’ families were producing forty percent of the country’s food.

And here we come to what informs and motivates my interest and efforts concerning LED: we saw already with the collapse of the Soviet Union how local economies suddenly had to take on many things that had previously come to the city from elsewhere in the Soviet Union through the integrated Comecon economic system. In the coming years we are going to see the same thing happening step by step worldwide. As petroleum production declines, following ‘peak oil’, and shortly thereafter natural gas and thence coal, the global economy is going to fall apart in stages. My articles on Cities after Oil, that are available on my entry to the DPU Associates web site, go into the reasons for this and attempt a first scenario of what this is likely to mean for global culture as a whole. Cities that have started the process of ‘recolonising’ the local economy are going to be in a much better position, as this ‘collapse’ unfolds than those cities that continue to rely on resource flows from elsewhere.

So the message is: go for it! This can be taken in easy steps: moving from the very weak local economic initiatives one generally finds amongst local authorities, to one where there is a recognition that more has to be done on behalf of citizens to improve their economic condition, initiating a local economic and employment forum and discussing how far down the road to coherent planning people are prepared to go. The process can then be geared up, step by step, as the problem of sourcing materials and goods from afar becomes increasingly difficult with rising prices and falling availability. The Transition Towns (and Cities) movement that started in a small way in Ireland, took off in the UK and is spreading rapidly through Europe, Australia and New Zealand and even Japan, needs to take up the issue of LED in a more coherent way than it is yet doing (local currency – viz Transition Town Totnes - is a nice idea but does little to reorient resource flows…). And for DPU-type teachers on urban development in the South, here is something, I believe, that really requires more attention!


1 Banerjee and Duflo, ‘Mandated Empowerment: Handing Antipoverty Policy Back to the Poor?’, Annals of the New York Academy of Sciences, No.1136, 2008

The views expressed in 'Recent News & Reflections' are those of the author and do not necessarily reflect those of any of the governments, organisations or agencies with whom they have been working.