Presented to the Milken-Koret fellows program 2011 Abstract: After more than 50 years of massive investment in Local Economic Development (LED) worldwide, what has been learned regarding what works and what does not? If in the past economic development was focused on employment generation, today the accepted definitions of LED are much more intricate – they define the purpose of LED as achieving “quality of life for all” and the process as a collective effort of “public, business and non-governmental sector partners“. This sober view has developed over decades of huge but mostly fruitless investments in LED worldwide, in three waves, that where kicked off by the success of the Marshal Plan. Have the lessons of the past been learned or do we keep investing in approaches that have failed in the past? Unfortunately not, we still see; Top down efforts by central government to lead LED programs, instead of a participatory approach, including all stakeholders and sectors, led by local government. A focus on outside big business transplant, instead of support of innovation, entrepreneurship and policies focused on the success of local businesses. Attempts to jumpstart and support LED over entire regions, instead of focusing on cities as the true engines of economic growth. Why have the leading LED practitioners worldwide focused on cities and urban economic development over the last decade? 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.”. 1.2 billion people living in the 40 mega-metro regions worldwide produce around 70% of world output and 85% of all innovations. 5 billion people living in 191 countries produce the rest. A resident of a mega-metro is 8 times as productive in goods, and 24 times as productive in innovations. Cities are engines of economic growth, they manufacture wealth. Why is this so? Cities have natural economic advantages that include internal scale economies and external agglomeration economies. But poor city design can undermine these advantages and create barriers to economic development, whereas good city design can enhance these advantages. How can we leverage the natural economic advantages of cities with good city design? Compact mixed-use development that focuses on pedestrian and public transport access is key. How does the urban economy develop? How can we jumpstart economic development, when it is missing, in Israeli cities? Viewing economic development in the context of a network of interrelated towns and cities clarifies that different types of towns and cities, within the network, require different approaches to LED. Great cities that generate more wealth than they consume require one approach for continued development. Towns and cities within the region of a great city require a second approach. Towns that are outside the region of a great city require a third approach and lastly cities that are not great require a forth approach.

1. Local Economic Development
in the Urban Context
April 2011
nachman@miu.org.il
www.miu.org.il

2. What is LED?
The Old Simple View
• Local Economic Development is
Employment Generation

3. What is LED?
The Current View
• 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.

4. Economic Development
before the 1800s…
• …was boring!
– Production followed
Population
Production

5. 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.

6. A Brief History of LED
The success of the Marshall Plan kicked off
1960s to 1980s to mid Late1990s
early1980s 1990s onwards
three waves of LED
Regions / Cities and
Nations
Sectors Towns
Skills/Education,
Hard Attract Foreign
Attractive Policies
Infrastructure and Investment and
and
Manufacturing Support Local
Public/Private
Transplants Businesses
Partnerships

7. Summary of Outdated Thinking on LED
Goal is Employment Generation
Top-Down Attract outside Focus on
approach businesses regions
• Central Government • Promotion and • Attempts to
conceived, controlled, support of big jumpstart and
and directed business support LED over
strategies transplants entire regions
• Total dependence on • Attract outside • Connect under-
central government investments and developed regions
outside talent to successful ones

8. Summary of Current Thinking on LED
Goal is quality of life for all
Employment Environment Livibility Social inclusion
Participatory Growth of local
Focus on cities
approach businesses
• Including all • Promotion and • As engines of
stakeholders and support of economic
sectors innovation and development
• Led by local entrepreneurship • As a great place to
government (both business and live and work
social) • Urban regeneration
• Business friendly as a tool
policies

9. Why is LED Important?
• Big differences in productivity possible since the Industrial Revolution
144x
Tel-Aviv Metro Area
43% of Population
on 7% of Area
produces 59% of GDP
64x
10x
Pre - Industrial Revolution Agriculture

10. Urbanization Matters for
Economic Growth
• Economic Growth and Urbanization are bi-
directionally causally connected
Economic Growth Urbanization
• ―… no country in the industrial age has
ever achieved significant economic growth
without urbanization.‖
Lecture 27 Urbanization Atanu Dey 10

11. Opportunities are Focused in
Cities
• The World is getting more urbanized
– Opportunities are focused in Cities where people concentrate
Half the world’s population
occupies only 1.5% of the
world’s land area
Lecture 27 Urbanization Atanu 11
Dey

12. The World is Getting More Urbanized
100
Israel 92%
87
85
80 80
80 77
74 73 75
73 72
66 64
61 61 61
60
Percent
54 54
51
48
42
39 39
40 37
29
25 24
20 15
17
0
World Africa Asia Europe Latin Northern Oceania
America America
and the
Caribbean
12
Lecture 27 Urbanization Atanu Dey
1950 1975 2003 2030

13. Cities Have Natural Economic Advantages
• Doubling city size will increase productivity by 3%-10%
• Successful cities grow to metros
• Metros grow to mega-metros (>5M pop)
– 1955 – 11 Mega-Metros
– Today - 50 Mega-Metros
– 2015 – 60 Mega-Metros
• Mega-Mertos are at the core of Mega-Regions
13
1955 - 11 mega-metros 2015 - 60 mega-metros

14. Cities Have Natural Economic Advantages
• 40 Mega-Metro Regions Today
– A resident of a mega-metro region is 8 times as productive
in goods, and 24 times as productive in innovations
Population Economic Output Innovations
14
Economic Output is Focused in City-Metros

15. Cities are Engines of
Economic Development and Growth
• Why is this so?
– Economies of scale and of agglomeration
Lecture 27 Urbanization Atanu Dey 15

16. Urban Economies
• Sharing of fixed costs by a large quantity of outputs
• Input-sharing and competition within the industry
• innovation and exchange of ideas and technology
16
Lecture 27 Urbanization Atanu Dey

17. The 12 Urban Economies
Type of economy of scale Example
1. Pecuniary Being able to purchase intermediate inputs at volume discounts
2. Static
Internal Falling average costs because of fixed costs of operating a plant
technological
Technological
3. Dynamic
Learning to operate a plant more efficiently over time
technological
4. ―Shopping‖ Shoppers are attracted to places where there are many sellers
Outsourcing allows both the upstream input suppliers and downstream firms to
5. ―Adam Smith‖
Static profit from productivity gains because of specialization
Localization 6. ―Marshall‖ Workers with industry-specific skills are attracted to a location where there is a
labor pooling greater concentration
7. ―Marshall-
Reductions in costs that arise from repeated and continuous production activity
Dynamic Arrow-Romer‖
over time and which spill over between firms in the same place
learning by doing
8. ―Jane Jacobs‖ The more that different things are done locally, the more opportunity there is for
innovation observing and adapting ideas from others
External or
agglomeration 9. ―Marshall‖ Workers in an industry bring innovations to firms in other industries; similar to
Static labor pooling no. 6 above, but the benefit arises from the diversity of industries in one location.
Urbanization
Similar to no. 5 above, the main difference being that the division of labor is
10. ―Adam Smith‖
made possible by the existence of many different buying industries in the same
division of labor
place
11. ―Romer‖ The larger the market, the higher the profit; the more attractive the location to
Dynamic endogenous firms, the more jobs there are; the more labor pools there, the larger the
growth market—and so on
Spreading fixed costs of infrastructure over more taxpayers; diseconomies arise
12. ―Pure‖ agglomeration
from congestion and pollution

18. Cities have natural
economic advantages
Poor city design Good city design
• can undermine • can enhance these
these advantages advantages and
and create barriers catalyze economic
to economic development
development
Improving City Design is a neglected opportunity
for Economic Development in Israel

19. Typical Faults in City Design that
Undermine Economic Advantages
• Highway that cuts the city in half
• Universities and Colleges in fenced off campuses on the outskirts of cities
• Employment parks on the outskirts of cities
• Train stations on the outskirts of cities
• Retail malls on the outskirts of cities
• Lack of a city center that encourages interaction of people
• Tree-like street network undermines accessibility vs. simple grid
• Car based sprawl and zoning vs. people based compact mixed-use development
• Low densities that require huge investments in infrastructure and operation costs
• Fences, fences and more fences

20. Highway that cuts the city in half
Chicago vs. Tel-Aviv

21. Highlights of Smart Growth Economic Benefits
Source: Growing Wealthier,
Center for Clean Air Policy January 2011

22. Infrastructure Savings
(construction and operation)
• Compact development reduces infrastructure costs and saves money.
– Average annual cost to service a new family of four
(police, fire, highway, schools and sewer):
• Compact suburban Shelby County, KY = $88
• Sprawling Pendleton County, KY = $1,222
– Sources: Brookings Institution
Annual Cost to Service a New Family
$1,400
$1,200
$1,000
$800
$600
$400
$200
$-
Sprawling Compact

23. The Neglected Opportunity
The Basic Structure of the Economy
People and • Education and Training
• Business and Social
Talent Entrepreneurship
• Financial and Business
Policies and • Stability and Security
• Social Justice and Inclusion
• Health and Wellbeing
Institutions • Land Use and Planning (Real-
Estate and Infrastructure)
• Urban Form and Real-Estate
Place and • Transportation and Communication
• Energy, Water and Waste
Infrastructure • Natural Resources

24. What is the difference between
Economic Development and Economic Growth?

25. How Does Economic Development Happen?
D + nTE + A nD
• Existing work generates new work!
– D is a Division of work
• The work required to provide a
product or service is made up of
Divisions of work
– A is Additional work
• An existing division of work inspires
a new Additional product or service
– TE is Trial and Error
• Generating new work requires
much Trial and Error

26. 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.

27. LED in the
Context of Cities
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
Beer-Sheba

28. 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
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?
If the City provides
Mixed age Small
Density Mixed use
buildings Blocks
It can become a LED generator

29. LED in a Great City
LED in the Region of 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
The Five Economic Forces
Exerted by Cities on Their Own Regions
City City
Transplanted
City markets City jobs developed generated
city work
technology capital
• Create a great place to live and to develop economically
• Provide attractive and efficient access to The City
• The City will do the rest

30. LED in a Great City
LED in the Region of a Great City
Leveraging the five forces to
LED in a Town Outside a Great City Region accelerate LED in the region of a
Great City
LED in a City that is not Great
ToD in the Center of Regional Towns of a Great City
Is Beer-Sheva a Great City?
Stockholm
The Gr Stockholm Transit
Oriented Metropolis The Gr Copenhagen Transit
Oriented Metropolis
What about rail stations in
the center of the towns? The 1961 National Capital Plan Source – Prof. Danny Gatt
for Gr Washington BC

31. LED in a Great City
LED in the Region of a Great City LED in a Town Outside a Great
LED in a Town Outside a Great City Region
LED in a City that is not Great
City Region
• Need to become a Great City (or wait for a Great City to develop nearby)
• Produce and sell something of value to a solvent market by turning
Jumpstart the any advantage into an opportunity
economy
• Earn Imports
• Replace imports for yourself and for economically similar towns
Leverage initial through innovation and improvisation
sales to • Repeat last two steps forever
• Leverage current thinking on LED
• Create a great place to live and to develop economically
How? • In the existing center of town

32. LED in a Great City
LED in the Region of a Great City
LED in a City that is not Great
LED in a Town Outside a Great City Region
LED in a City that is not Great
• Need to become a Great City (or wait for a Great City to develop nearby)
• Produce and sell something of value to a solvent market by turning
Jumpstart the any advantage into an opportunity
economy
• Earn Imports
• Replace imports for yourself and for economically similar cities
Leverage initial through innovation and improvisation
sales to • Repeat last two steps forever
• Leverage current thinking on LED
• Create a great place to live and to develop economically
How? • In a small focused area of the city (urban acupuncture)

33. LED in a Great City How to unlock the cycle of city
development
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
Density
Quality Variety
Of & The
Life Access
―handle‖
Innovation
Opportunities People &
Culture
How do you
advance ever closer
to your vision of a
successful town,
based on daily
decisions and based
Intensity Development on existing budgets?

34. E.g. - The Main Street Program's Success
Economic Statistics:
• 1980-2007 Reinvestment Statistics
• Dollars Reinvested:- Total amount of reinvestment in
physical improvements from public and private
sources.$44.9 Billion Average
• reinvestment per community: $11,083,273
• Net gain in businesses: 82,909
• Net gain in jobs: 370,514
• Number of building rehabilitations: 199,519

35. City Center Renewal as a LED Tool
or
How to increase Density, Variety and Access
•Provide loans to accelerate
private storefront and
Use the ―charrette‖ collaborative planning
residence renewal 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
First stage: businesses
• Surgical urban •Leverage the true identity of the city / town
intervention plan in as seen by the local residents
the public space
•Local residents strengthen their sense of
belonging by planning their town
•Leverage existing budgets for
public building projects to
implement the plan
Third stage: •Local residents are
• Private Development
Second stage: empowered by seeing their
Construction and • Renewal of the plans adopted and
Renovation near the public space implemented
public space

36. Thank You
and see you in November 2011
‫כנס אשקלון־מרחב לפיתוח כלכלי עירוני‬
"‫"העיר כמנוע לצמיחה כלכלית‬
nachman@miu.org.il
April 2011
www.miu.org.il

37. The critical role of Merhav in
LED in Israel
Goal is quality of life for all
In order to improve the quality of living in Israel, while contributing to the global
sustainability effort, the MIU promotes qualityLivibility
Employment Environment Social inclusion
urban living based on compact,
quality and sustainable urban environments.
Participatory Growth of local
Focus on cities
approach businesses
• Charrette all
Including – • Making theand
Promotion local • Weengines of as
As view the city
collaborative and
stakeholders environment great
support of the key mechanism
economic
planning with all
sectors for the locals
innovation and that provides
development
• stakeholders
Led by local • entrepreneurship
Compact, quality • peopleregeneration
Urban the
• government
Quality in Density (both business and
and sustainable opportunities to fulfill
as a tool
Toolbox for all social)
cities provide their inherent
sectors • opportunities and
Business friendly potential
• Mayors Institute breed innovation
policies

38. 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 strategies
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

39. Infrastructure Savings
(construction and operation)
• Compact development reduces infrastructure costs and saves money.
– Average annual cost to service a new family of four
(police, fire, highway, schools and sewer):
• Compact suburban Shelby County, KY = $88
• Sprawling Pendleton County, KY = $1,222
– Sources: Brookings Institution
• Nationally, the U.S. can save over $100 billion in infrastructure
costs over 25 years by growing compactly.
• Chicago can save $3.7 billion over 20 years by growing compactly.
• Charlottesville, VA can save $500 million in transportation costs
with compact development.
– Sources: Urban Land Institute, Chicago Metropolis 2020; Thomas Jefferson Planning District Commission