Regional development - A public policy perspespective

Roberto Villarreal, Ph.D.
Presentation for Reflection and Discussion
Institute of Electrical and Electronic Engineers (IEEE), New York Section
New York City, 27 July 2010

◦ All responsibility for the contents of this presentation is solely the
author’s, as these may not necessarily reflect the official position
of institutions where the author has collaborated or is presently
associated with.
◦ Head of the Units for Public Sector Investment, and Privatization (Ministry of Finance, Federal
Government of Mexico, 1995-1997)
◦ Member of the Board in several parastatal enterprises and regulatory commissions of Mexico (oil and
gas, electricity, railroads, airlines, water, rural development, technological research, etc., from 1995 to
2007)
◦ Head of the Unit for Social and Regional Development (Office for Public Policies, in the Office of the
President of Mexico, from 2002 to 2005)
◦ Undersecretary for Urban Development (Secretariat for Social Development, Federal Government of
Mexico, 2006)
◦ Liaison of the Federal Executive with the Senate and the National Governors Association in Mexico, in a
task force to reform the National Planning Law to address regional development strategies (2006)
◦ Head of the Division for Territorial Development at the Organization for Economic Cooperation and
Development (OECD, Directorate for Government and Territorial Development, 2008)
◦ Chief of the Branch for Development Management (United Nations, Department for Economic and Social
Affairs, Division for Public Administration and Development Management, 2009-2010).

2

 Thanks for the kind invitation to make this presentation
◦ Institute of Electric and Electronic Engineers (IEEE), New York
Section
◦ In particular, to Amitava Dutta-Roy, Ph.D., who contacted me and
was in charge of all communications and preparations

 The objectives are to foster:
◦ An interdisciplinary analysis on regional development
◦ Some knowledge sharing and learning
◦ Perhaps, networking to strengthen an active community of
practice on regional development management

3

1. INTRODUCTION

2. WHY IS REGIONAL DEVELOPMENT IMPORTANT?

3. BASIC CONCEPTS ON REGIONAL DEVELOPMENT

4. A CLOSER LOOK AT INFRASTRUCTURE

5. ATTENTION TO PUBLIC GOVERNANCE

6. WHAT TO DO TO PROMOTE REGIONAL DEVELOPMENT?

7. FINAL REMARKS

4

 Development is a very complex process aimed at
rising the living conditions of people
◦ Improving standards of life
 Private goods and services: Food, housing, clothing, energy, transportation…
 Public services: Education, healthcare, water, sanitation…
 Public goods: Security, clean and safe environment…

◦ Enhancing freedoms and rights
 Human rights: rights to life, physical integrity, self-determination, equality
before the Law, non-discrimination, transit, private property, justice…
 Social rights: Education, health, decent work, social insurance and
protection…
 Political rights: Freedoms of expression, association, petition before public
authorities, vote and be voted in elections for public office, access to public
information…

5

 Development is gradual and can assume many
different styles
◦ Some basic attributes to be considered comprise:

 Dynamism
 Inclusiveness
 Equity
 Sustainability

6

 Development is fostered by the people
◦ Acting as individuals, or organized in many different forms to
pursue specific tasks
 Community organizations, firms, corporations, labor organizations,
producers associations, consumers associations, school
associations, professional associations, sports clubs, other types of
civil society organizations, political parties, etc.

◦ Success* depends on a variety of fundamental factors:
 Skills and knowledge
 Attitudes and values
 Organization and coordination
 Rules, informal and formal institutions
 Vision, creativity and leadership

* Specifically, in their efforts to pursue development, both in
exclusive (private) and non-exclusive (public) matters.
7

◦ One very important and particularly complex organization
among these is government
 Constituted to deal, on behalf of the people, with public affairs
 Delivering determined public goods
 Security, maintenance of the Rule of Law, justice, public health, monetary system,
macroeconomic and financial stability, international relations, etc.
 Securing, through public policies, an adequate provision, by both non-
government and government stakeholders, of goods and services of
fundamental importance for development
 Water, sanitation, healthcare, transportation, telecommunications, energy, science
and technology research and development, etc.
 Providing public administration on determined matters
 Taxes, public budget, public finance, registrations, licenses, permits,
concessions, public information, etc.

 To these aims, people need to secure that effective conditions are
permanently in place to maintain an effective and satisfactory people-
government relationship
 Responsiveness, people-centered approaches to public administration and
development, transparency, accountability, efficiency, engagement of non-
government actors in specific activities, etc.

8

1. INTRODUCTION






7. FINAL REMARKS

9

LEVELS AND TRENDS OF PER CAPITA INCOME IN OECD REGIONS*,
1995-2005
Economic growth rates, annual average 1995-2005

III
LOW INCOME I HIGH INCOME
FAST GROWTH FAST GROWTH

IV LOW INCOME II HIGH INCOME
SLOW GROWTH SLOW GROWTH

Level of per capita income, log-values in 2005 SOURCE:
* Territorial Level 2 (TL2, equivalent to Federal States in Mexico). The reference Federal States, Mexico. Villarreal and
axes to distinguish the quadrants correspond to the average income level and the Sanchez-Reaza,
average growth rate among all TL2 OECD regions. Other TL2 OCDE regions. OECD (2008) 10

 There are several reasons:

◦ Equity: to offer people in different regions opportunities to
attain comparable living conditions

◦ Efficiency:
 to facilitate the use of untapped resources in some regions
 to benefit from positive inter-regional externalities and reduce
negative ones
 Environmental, social, local public finance, market access, etc.

◦ Cohesion: to preserve unity and solidarity within regions in
a supra-regional coalition
 country level
 large inter-national regions
 globalization

11

1. INTRODUCTION






7. FINAL REMARKS

12

 A region is essentially constituted (and is to be
determined) by 3 fundamental elements
◦ Territory
◦ Resources
◦ Governance

◦ Regions and administrative-political demarcations need not
geographically coincide
 Sub-national
 Metropolitan regions
 Supra-national or international

◦ Approximating a region by the largest administrative-
political demarcation in its territory may seem to make
practical sense in some cases, yet this approach risks
overlooking crucial aspects of resources and governance
that fundamentally affect its development

13

 Territory STATIC
FEATURES
◦ Topology
 Location
 Bordering and farther away regions
 Size
 Integration
 Continuity
DYNAMIC
FEATURES
◦ Geography (opportunities
for public
 Surface and beneath features policy
 Climate interventions)

 Natural risks

14

Resources……………… Each in many different types:
ONLY IN RATHER COSTLY WAYS


MOST HAVE NO MOBILITY, OR

(opportunities for public policy interventions)

◦ Natural
 Land ……………………………… Wooden, agricultural, arid, etc.
 Water……………………………… Salt, soft; underground, rivers, lakes, seas; rain, etc.
 Mineral
 Energy…………………………… Coal, hydrocarbons, gas, hydraulic, eolic, solar, etc.
 Ecosystems
……………………… Different supports for biodiversity

◦ Human/social
……………………… Size, age, sex, growth, migration, settlements, etc.
 Population
……… Education, training, learning attitudes, etc.
 Skills and knowledge
 Technologies
………………… Orientation to science, R&D, innovation, etc.
 Culture and values
………… Beliefs, traditions, aspirations, historical experiences,
 Governance social psychology, relationships, do’s and don t’s,
etc.
◦ Economic ………………… Constructions, machinery and equipment for
 Physical capital exclusive use.
………………… Constructions, machinery and equipment for non-
 Infrastructure
MORE exclusive use (in water and sanitation, transportation,
INFO  National or international telecommunications, energy, public health, public
savings and finance education, public administration, security and
defense, etc.
Produced goods and services kept for future use by
producer or made available to others 15

1. INTRODUCTION






7. FINAL REMARKS

16

 Infrastructure consists of diverse facilities to
perform support activities, which bundled, permit
the production and delivery of determined services
 extraction, collection, storage, processing, transportation and distribution of water, for agricultural,
industrial, urban or human uses
 loading and unloading, fueling, dispatching, transit, monitoring and parking vehicles for land, rail,
water or air transportation
 extraction, transportation and processing of carbon, oil or gas as primary sources for the production of
energy, in the forms of heat or electricity
 processing of primary energy from nuclear, wind or solar sources for generation of electricity
 transportation and distribution of electricity
 transmission and processing of signals to provide fixed or mobile telephony or internet
telecommunications
 collection, transportation, processing and treatment of solid or liquid residual materials of different
grades of toxicity, as part of the maintenance of conditions of sanitation and public health
 first, second and third level medical and para-medical interventions for healthcare
 research, codification and dissemination of new knowledge, and education and training of
professionals, for scientific and technological innovation
 Etc.

17

 Infrastructure investments exhibit important special
characteristics

◦ Planning
 Long gestation lags
 Technical complexity
 Long useful life

◦ Finance
 High capital intensity
 Capital costs constitute a large proportion of total unit service cost

(continues…)

18

◦ Strong linkages of infrastructure to regional development
 Non-moveable, their services circumscribed to determined technical
and economic efficiency geographical ratios
 Rates of utilization and return largely dependent on (uncertain)
local/regional demand
 High income-elasticity (demand for these services growths proportionately
faster than local/regional income)

 Unless installed capacity evolves closely with regional growth, low
utilization and return rates would be attained, or supply bottlenecks
would be observed
 As a result, as long as demand or market risk is considerable, capital costs are
relatively high and services prices tend to be also high

 Given that infrastructure services are usually inputs to production or
distribution activities for all industries, as well as for final consumption, the
situation in which service prices are relatively high is very worrisome
 It impacts negatively on regional competitiveness and wellbeing

(continues…) 19

◦ Infrastructure industries require regulation to address situations
of potential abuse of market power*
 SUPPLY SIDE: Production of services from infrastructure in
many cases exhibit considerable economies of scale
 Efficient production tends to be concentrated in few large
producers
 Competition within determined geographical ratios is low

 DEMAND SIDE: Services from infrastructure often have few and
inefficient substitutes
 Low price elasticity: service demand lowers relatively slightly when
prices increase

 Thus, production and demand features make it likely that
monopolistic pricing occurs
 Consequently, public regulation is needed to attain fair and efficient service
prices
 This adds regulatory risk, and in turn rises capital costs and service
costs, depending on the quality of regulation and predictability of its
enforcement
* Of course, there are needs for other types of regulation stemming
from matters like public safety, service quality and consumer
protection. These are not discussed here to keep focused on the most
important matters for regional development. 20

 Infrastructure services are crucial for wellbeing and competitiveness
◦ For consumers:
◦ These services are essential for them to exert many of their human capabilities
 Supply shortages or quality defects have deep real negative impacts
 Also, expenditure on these services represents a significant share in their total
consumption budget
 Economic effects on purchasing power, consumption levels and wellbeing are very large

◦ For producers:
 Many of these services constitute intermediate inputs of production for practically all
productive activities (primary, secondary and tertiary sectors)
 Supply bottlenecks constrain aggregate output and limit employment
 In addition, outlays on purchases of these services add to a considerable proportion in
total and unit costs of production
 Relative high unit costs decrease competitiveness, limit access to markets outside the region or
internationally, reduce growth and diminish job creation

◦ Therefore, unless adequate and timely actions are taken to efficiently promote
investment in infrastructure sectors and adequately regulate them, regional
development is severely hampered

1. INTRODUCTION






7. FINAL REMARKS

22

 Public governance for development
◦ consists in the set of informal or formal rules,
mechanisms, regulations, laws and institutions by
which decisions are made by all stakeholders on
matters related with development affairs

◦ Thus, it is not circumscribed to decision making by
government or within the government sector
 Rather, it encompasses overall decision making by all
relevant stakeholders

23

 Public governance may exhibit different features
over time and across regions
◦ So, some forms of public governance may be in some cases
more or less conducive to development and affect it
attributes
 Dynamism
 Inclussiveness
 Equity
 Sustainability

◦ Among key elements of good or effective governance are the
following:
1. Laws and regulations which are adequate*, clear and effectively
applied
2. Well functioning legal and juridical system for the delivery of
justice and the enforcement of contracts and property rights
(continues)
*In the sense that they relate to existing culture and values, are
realistic in terms of compliance costs and enforcement, etc. 24

◦ Among key elements of good or effective governance are the
following (continued…)
3. Responsive, efficient, transparent, accountable and
coordinated* government
4. Sound public finance, with tax and public income
proportionate to the efficient cost of public goods and
services that are required
5. Adequate and effective regulations on land use, and sound
rules for transparent and efficient planning of infrastructure
6. People-public-private partnerships (PPPP)
7. Adequate and effective means for consultation, information
sharing and engaging of civil society and the private sector
in public decision making
8. Stable economic and financial envirinment
9. Good financial markets (credit, capital, leasing, etc.)
10.Fair and effective ways for resolution of conflicts and
controversies
25

 Multi-level governance1
◦ Government is usually organized in different levels (for
instance, national, state, local) and over different
demarcations

 Historically these tend to be constituted following notions of
sovereignty, acquired rights, power, bounded autonomy,
culture, etc.

 This reflects in diverse constitutional arrangements which define the
roles for each government levels, their responsibilities and faculties

26

 Re-organizations of government at several levels take place on
exceptional extraordinary cases, and sometimes political-
administrative demarcations are simultaneously re-structured

 Leading considerations come from regional development needs

 Horizontal re-structuring (across entitities at every level of
government)
 Aimed at enhancing uniform and effective implementation and
delivery of public policies
 Public expenditure and finance, public services, etc.

 Examples
 Metropolitan regions: Toronto, Ottawa, Milano, Paris, Mexico City,
etc.
 Inter-state regions: Canada, Mexico, etc.

27

 Vertical re-structuring (across levels of government)
 Intended to distribute and combine responsibilities among the supra-
national, national and sub-national levels in ways that best use of their
comparative advantages
 leverage on law making and regulation
NATIONAL
 capacity to generate tax and public income
 knowledge of specific development priorities and investment
needs LOCAL

 capacity to make multi-stakeholder partnerships, etc.

 Effective coordination implies collaboration and communication
within and across levels of government
 to jointly support a shared vision of development, both horizontally
and vertically
 Political factors (redistribution of power) may work in different
directions and facilitate or hinder these changes

28

 Multi-level governance 5

◦ Engagement of non-government actors (private sector, civil
society, international organizations, etc.) is important to
enhance regional development strategies
 To improve public information for decision making
 Needs and priorities
 Proposals, initiatives, new ideas
 To bring in additional resources for investment
 Public private partnerships
 Strategic projects (infrastructure, science and technology research and
development, social integration, etc.)
 To constitute checks and balances on public sector decisions
and actions
 Monitoring, evaluation, social auditing
 Reduce inefficiencies
 To strengthen accountability
 To extend and diversify ownership over strategies, thus
reducing opposition and favoring their continuity
over time 29

◦ Engagement of non-government actors to be fully successful
requires:
 Presenting to everyone a positive net gain investment from their time
 By design, regional development strategies should provide gains for a
diverse community of stakeholders and not only to narrowly defined
groups
 Fair and inclusive methods to attract participation
 To avoid corruption and capture of public strategies by interest groups
 Preserving commitment, trust and continuing support
 Accountability is fundamental, to effectively observe expected results
 Transparency, including timely reporting and disclosure of impartial
performance, output and outcome evaluations
 Efficient organization of the participation and engagement of these
non-government stakeholders, as well as effective coordination with
corresponding government actors
 Multi-lateral contracts (alliances, covenants, partnerships), councils or
observatories, online forms of e-participation, etc.

30

1. INTRODUCTION






7. FINAL REMARKS

31

 Macroeconomic policies are not enough to achieve
dynamic, inclusive, equitable and sustainable
development
◦ Monetary policy, trade liberalization, social protection, etc.
◦ Evidence from all countries shows that development and
growth remain regionally uneven (and there is no convergence)

 Need to complement coherently with other policies
◦ International experience shows that mechanical income
transfers or subsidies to lagging regions have major
disadvantages*
 If operated on scales to significantly narrow inter-regional gaps,
these policies are not sustainable over long periods of time
 Constitute inefficient use of scarce fiscal and financial resources
 Provide inadequate incentives to both lagging and progressing
regions
* Although politically, and election wise, may be attractive in some
circumstances for politicians.
32

◦ Rather, international attention is increasingly directed to other
kinds of public interventions at the regional level
 Seeking to enhance in permanent manners competitiveness, income
growth, private investment, job creation and fiscal revenues

 Most common public policies in this regard include:
A. policies to enhance local public goods (safety, law enforcement, public
health, social cohesion, clean and safe natural environment, culture of
innovation, public information dissemination, etc.)

B. policies to enhance governance
 Effective government organization and coordination
 Local government quality (responsiveness, efficiency, transparency,
accountability, etc.)
 Institutions, procedures, actions to facilitate cordination among non-
government stakeholders and between these and government
 Adequate local laws and regulations

C. policies to increase human capital
• Besides its local importance, it s portable and thus efficient under uncertain
local conditions, and fair to people
(continues) 33

D. policies to provide sufficient, efficient annd quality services
from infrastructure*

• Based on the analysis offered in Section 4 of this presentation,
policies to this aim would look at:

1. Disseminating trustworthy information about likely
perspectives of development in the region, as to diminish
demand risk or uncertainty

• This may be achieved on the basis of:
• laws and regulations that result in credible planning in specific
sectors
• public strategy making and delivering, supported by wide
consensus among relevant stakeholders
• Regional multi-stakehioilders councils, observatories,
conferences, etc.

* This is is evidently a different focus than expanding
local infrastructure or increasing investment
34

2. Having clear and sound criteria and policies regarding the
roles of public and private investments in infrastructure
sectors and projects
• Considering constitutional, legal and strategic frameworks
• Looking at the overall public investment budget and public debt
trends
• Prioritizing public resources to regions with weaker regional
development perspectives, and within these prioritizing projects
with highest rates of socioeconomic return
• Looking at the feasibility of promoting private infrastructure or
efficient public-private partnerships
• Assessing public regulatory capacity
• Directing private resources to regions with stronger development
outlooks
• Enforcing adequate public regulations, in ways that minimize
regulatory risk and corruption
• Promoting adequate finance in terms of sound contracts and funding
• Overall investment risks must be efficiently shared among
investors, owners and public authorities

35

E. policies to maintain an open, inclusive and
competitive economic and social environment
• Economic competition
• Transparent government
• Anti-corruption mechanisms
• Social inclusion programs
• Political competition

F. Organized engagement of diverse non-
government actors (private sector, civil society,
international organizations)
 Transparency and accountability
 Enhanced information for decision making
 Innovation
 Ownership of strategies, support and continuity
 Better governance

36

1. INTRODUCTION






7. FINAL REMARKS

37

 Promoting regional development is important globally and
for countries to enhance the living conditions of the
people
◦ Creativity and leadership are called for

 There are no scientifically researched proposals on how to
promote it
◦ But there is significant activity and innovation going on at sub-
national, national and supra-national levels in different parts of
the world

 It would be extremely valuable to create a world repository
of knowledge to be publicly available online, to facilitate
information sharing on existing practices
◦ Professionals in infrastructure sectors, regional development
management and public administration, as well as academic
researchers in these areas, can make numerous contributions,
stemming from respective communities of practice

38

STATIC DYNAMIC
CLASSES OF
RESOURCES
IN THE PAST NOW IN THE FUTURE IN THE PAST NOW IN THE FUTURE

International
International savings
savings
Minerals Finance
Minerals International Finance
BOVILITY Energy savings Population
Energy Population
Water Finance Knowledge
Knowledge
Technologies
Technologies
Skills
Population
Skills
Knowledge Skills
Culture
Land Technologies Culture Values
Water Land Land Culture Values
NO Governance
Minerals Water Values
MOBILITY Ecosystems Governance Physical
Energy Ecosystems Governance Physical capital
Ecosystems Physical capital Infrastructure
capital Infrastructure
Infrastructure
National
savings
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PRESENTATION 40

Regional development - A public policy perspespective

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