Presented to the Israeli Mayors Institute on City Renewal Sep 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

1. Local Economic Development
in the Urban Context
The Israeli Mayors’ Institute on City Renewal
September 2011
nachman@miu.org.il
www.miu.org.il

2. • What is the current thinking on LED and how did it develop?
– A bit of history

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

4. 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.

5. 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

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 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

8. • Why is so much invested and so little accomplished?
– The outdated view of LED in Israel

9. 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

10. 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…

11. Attract Big Outside Business Transplants
• How
– Provide incentives to big businesses to move to your city
– New industrial parks at the outskirts of city
• Why it doesn’t work
– Good candidates for transplant are bad at helping develop the local economy…
• Good candidates for transplant, need to be relatively independent of local suppliers,
customers, talent, financers, etc…
– Demand for transplants is so high relative to the supply that the price to be paid
to attract them (through incentives) is higher than the benefit.
– Supply of industrial parks is higher than demand
– Economic development depends more on business variety than on size
• Better to have many small different businesses than a few large businesses
• What can be done instead?
– Later in the presentation

12. Attract Outside Talent / Affluent Residents
• How
– Lavish marketing, branding and advertising campaigns that
focus on outsiders
– Incentives to relocate to your city / town
– New ―luxury‖ neighborhoods on the outskirts of the city / town
– Regional colleges and universities in fenced off campuses
outside of cities / towns
• Why it doesn’t work
– Talent enables mobility
– Demand for talent is so high relative to the supply that the price to attract them
(through incentives) is higher than the benefit
– People talented in one area expect talent in all other areas that effect their life
• work, school, services, goods, entertainment, recreation and culture
– Demoralizing message to existing residents – ―you are not good enough‖
– Regional colleges do not create a strong connection to any city / town
• What can be done instead?
– Later in the presentation

13. Connect Under-Developed Regions to
Successful Ones
• How
– Highways from the furthest towns and cities to the center
of Israel
– Trains also, with stations on the outskirts of cities and
towns
• Why it doesn’t work
– Commute times of over 60min a day are hard to sustain long term for a
significant population
– It is more common that successful cities develop goods and services that
remote towns need than the other way around
– ―Great Cities‖ develop the towns in the region that surround them from the
closest to the furthest, in that order
• The influence of the ―Great City‖ will be felt in a town only after the towns closer to the city have
been influenced significantly
• What can be done instead?
– Later in presentation

14. Economic Development is not ―Fair‖
• The strong get stronger
– Successful cities / towns create and attract more talent,
investments and businesses and become more
successful… ~15% bonus in economic
output for doubling city size!
• LED is incremental
– It develops based on the existing local economy
– There is NO shortcut!
– But, when it works, the process can be fast…
How do you leverage natural
development forces?

15. • Why do people gather together in cities?
– to survive and develop

16. 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 16
Dey

17. 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
17
Lecture 27 Urbanization Atanu Dey
1950 1975 2003 2030

18. More Big Cities and
Big Cities are Getting Bigger
~15% bonus in economic
output for doubling city size!
• Successful cities grow to metros
• Metros grow to mega-metros (>5M pop)
– 1955 – 11 Mega-Metros
– Today - 50 Mega-Metros
– 2015 – 60 Mega-Metros
18
1955 - 11 mega-metros 2015 - 60 mega-metros

19. Economic Output is Focused in City-Metro Regions
• 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
19

20. • Why is development focused in cities?
– Urban Economies

21. Cities Have Natural Economic Advantages
Urban Economies
Scale
• Sharing of fixed costs by a large
quantity of outputs
Localization
Agglomeration
• Input-sharing and competition
within the industry
Urbanization
Agglomeration
• Innovation and exchange of
ideas and technology
21
Lecture 27 Urbanization Atanu Dey

22. 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

23. • Why focus on city design?
– Cities have natural economic advantages

24. 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

25. 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

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

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

28. 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

29. • What about other economic advantages?
– City design, the neglected opportunity

30. 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
Institutions •
•
Health and Wellbeing
Land Use and Planning (Real-
Estate and Infrastructure)
Place and •
•
Urban Form and Real-Estate
Transportation and Communication
Infrastructure •
•
Energy, Water and Waste
Natural Resources

31. • Why focus on local businesses?
– LED is incremental

32. Why focus on Local Businesses?
LED is incremental
It develops based on the existing local economy
• 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

33. What is the difference between
Economic Development and Economic Growth?
• Economic development depends more on business variety than on size
– Better to have many small different businesses than a few large businesses

34. • Why LED in the context of cities?
– Different strategies for 4 types of cities

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 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

37. • What can be done differently to make LED more effective?
– Some strategies and tools that leverage development forces

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

40. 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

41. LED in a Town Outside a
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
Great City Region
Need to become a Great City (or wait for a Great City to develop nearby)
How?
• Outdated thinking • Current thinking –
– Attract: Focus on
• Outside investment – Local businesses
• Outside transplants – Local residents
• Outside talent
– Local connectivity
• Outside residents
– Connect:
• Under-developed
regions to successful
ones

42. Attract Big Outside Business Transplants
• How
– Provide incentives to big businesses to move to your city
– New industrial parks at the outskirts of city
• What can be done instead? Focus on local businesses
– Offices, retail and other non-polluting businesses in the city center
– Retention and growth of existing local businesses – a great place for business
• Renewal of city center
– Development of new local businesses based on existing businesses
– Development of local businesses for existing needs (import replacement)
• Plugging the leaks, keep the money circulating in your city
– Development of local businesses that leverage local and regional advantages
– Economic development office
– Attract outside business transplants from a neighboring ―great city‖
• only if you are in the region of a ―great city‖ and are ―next in line‖

43. Attract Outside Talent / Affluent Residents
• How
– Lavish marketing, branding and advertising campaigns that focus on outsiders
– Incentives to relocate to your city / town
– New ―luxury‖ neighborhoods on the outskirts of the city / town
– Regional colleges and universities in fenced off campuses outside of cities / towns
• What can be done instead? Focus on local residents
– Retention and growth of existing talent – a great place to live and
develop
• Renewal and intensification of existing neighborhoods
– Education and training for new talent growth
• Colleges without fences in city centers
– Attract outside talent from a neighboring ―great city‖
• only if you are in the region of a ―great city‖ and are ―next in line‖

44. Connect Under-Developed Regions to
Successful Ones
• How
– Highways from the furthest towns and cities to the center of Israel
– Trains also, with stations on the outskirts of cities and towns
• What can be done instead? Focus on local
connectivity
– Transportation in the metro region of a ―Great City‖ and just beyond
– Transportation between towns and cities in remote areas
• To leverage regional advantages and to provide a bigger local market
– ToD at train stations or strong connection of train stations to town
center
– Connect remote developing town to a successful city market
• Only if the town has developed a very high value product or service and is
transport limited for distribution

45. 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

46. 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.$44.9B 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

47. Laboratory for Urban Intensification as a LED Tool
or
How to increase Density, Variety and Access
• Tools for the intensification and renewal of
deteriorating urban residential
neighborhoods in Israel, while reinforcing
the quality of housing and urban variety.
• Aging residential projects, built by the
government cheaply and quickly following
massive waves of immigration in the 50s,
60s and 70s, constitute the largest part of
Israel’s housing stock, yet they are also the
most neglected, and are characterized by:
– small residential units – cramped quarters
inappropriate for growing families
– uniform housing stock – all apartments are of
the same size and plan
– low-quality construction – improvements
within apartments are expensive, and
improvements to the building as a whole are
even more so
– lack of access to amenities, community
services and good consumer products
• The tool is based on Merhav’s 10 Principles
for Good Urbanism

48. Plugging the leaks
• Keep the money circulating in your city

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

50. Backup Slides

51. LED in a Town Outside a Great
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
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

52. 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)

53. LED in a Great City How to start 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?

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

55. Cities are Engines of
Economic Development and Growth
• Why is this so?
– Economies of scale and of agglomeration
Lecture 27 Urbanization Atanu Dey 55

56. 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

57. 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 57

58. 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 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

59. 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.

60. 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

61. 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

62. tools for local economic renewal
• bizfizz
– BizFizz is the leading business support model in the UK in which
Coaching is the preferred methodology for offering business support to
entrepreneurs living in areas of economic decline. Over the last seven
years, BizFizz programmes have provided coaching to entrepreneurs
across England and Scotland. The Civic Trust and new economics
foundation are delighted that Coaching and supporting entrepreneurs
by developing local resident led networks has been recognised by
national government.
• plugging the leaks
– The issue is not necessarily that too little money flows into a
neighbourhood. Rather, it is what consumers, public services and
businesses do with that money. Too often it is spent on services with
no local presence, and so immediately leaves the area.
• local multiplier 3
– LM3 has been tried and tested across the UK, from agriculture to
social enterprise to local government procurement, to determine how
money coming into your community is then spent and re-spent. 'The
Money Trail' shows you how to use LM3 to find out what's really
happening in your local economy, and how you can make it better.