Local economic development is most effective in cities, as cities have natural economic advantages over other areas. Cities benefit from economies of scale and agglomeration that lower costs and drive innovation. Well-planned cities that are compact, mixed-use, and offer diverse transportation options best leverage these advantages by facilitating interaction, opportunity, and access to talent, customers, suppliers, and resources. LED initiatives are most straightforward in great cities and become increasingly difficult in smaller cities and towns lacking the self-sustaining momentum of major urban areas. Urban planning and transportation play key roles in creating the conditions that allow cities to fulfill their potential as engines of economic growth.

1. Local Economic Development and
Urbanism
Israeli Mayors Institute on City Renewal
June 2010
nachman@miu.org.il
www.miu.org.il

2. 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.

3. 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?

4. 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.

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

6. 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.

7. A Brief History of LED
Prior to WWII Post WWII
• Economic Development was • A new concept was born - Economic
focused by each nation on Development aid to other nations
developing their own economy aimed at improving quality of life
– Included trade with other without altering basic social structures
nations (conquering)
– Included investment in – Driven by multiple factors:
territories, colonies and other • The recognized need for global
nations directly or indirectly stability – to avert another WW
under the control of empires in • Political influence – the ―cold war‖
order to exploit their resources • 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

8. A Brief History of 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…

9. A Brief History of LED
• 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

10. The Three Waves of LED
1960s to 1980s to mid Late1990s
early1980s 1990s onwards
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

11. 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 • Urban regeneration
government (both business and as a tool
social)
• Business friendly
policies

12. Have we all learnt the lessons
of past LED attempts?

13. 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

14. 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…

15. 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?

16. Urban Economics from
Econ171 Economic Development
UC Berkeley
Lecture 27 Urbanization by Atanu Dey
16

17. 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

18. Urbanization Matters
• 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 18

19. Urbanization Matters for
Economic Growth
• Why is this so?
– Economies of scale and of agglomeration
Lecture 27 Urbanization Atanu Dey 19

20. The Big Picture
• The World is getting more urbanized
Half the world’s population
occupies only 1.5 percent
Lecture 27 Urbanization Atanu
Dey
of the world’s land area
20

21. Ginza Area in Greater Tokyo
21
Lecture 27 Urbanization Atanu Dey

22. Share of World Population Residing in Urban Areas
By World Region 1950-2030
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
22
Lecture 27 Urbanization Atanu Dey
1950 1975 2003 2030

23. 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

24. Agenda
• A brief history of LED
– Summary of current best practices
• 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?

25. 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
25
Lecture 27 Urbanization Atanu Dey

26. 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
1955 2015
26
11 mega-metros 60 mega-metros

27. 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
manufacturing
27
Lecture 27 Urbanization Atanu Dey

28. 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
Lecture 27 Urbanization Atanu Dey 28

29. 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
29
Lecture 27 Urbanization Atanu Dey

30. 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.
30
Lecture 27 Urbanization Atanu Dey

31. 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
31
Lecture 27 Urbanization Atanu Dey

32. The 12 Urban Economies of Scale
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

33. 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…

34. 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?

35. 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.

36. 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

37. 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 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

38. 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

39. LED in a Great City
LED in the Region of a Great City The cycle of city development
LED in a Town Outside a Great City Region
LED in a City that is not Great
Density
Quality Variety
Of &
Life Access
Innovation
Opportunities People &
Culture
Intensity Development

40. 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
• 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

41. 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

42. 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)
• Leverage current thinking on LED
• Create a great place to live and to develop economically
How? • In the existing center of town
• 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

43. 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)
• 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)
• 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

44. LED in a Great City How to Jumpstart 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 &
Life Access Where is the
―handle‖ ?
Innovation
Opportunities People &
Culture
Intensity Development

45. 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 • Urban regeneration
government (both business and as a tool
social)
• Business friendly
policies

46. 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.

47. 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?

48. LED in a Great City How to Jumpstart 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
Intensity Development

49. Urban Regeneration as a LED Tool
or
How to increase Density, Variety and Access
•Provide loans to accelerate
private storefront and
Use the ―charrette‖ collaborative urban
residence renewal 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
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

50. The critical role of the MIU 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 urban living based on compact,
Social inclusion
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
sectors with all 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

51. Thank You
nachman@miu.org.il
June 2010
www.miu.org.il