Local Economic Development Research Paper

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Local economic development is concerned with the well-being of a place, a locality. Distinct from ‘economic development’ more generally, local economic development focuses on particular contexts, which vary across space. ‘Context’ refers to the constellation of endogenous behaviors and formal and informal institutions that have evolved in a place and interact with exogenous cross-currents that may be social, cultural, economic, political, ecological. Approaches to local economic development vary substantially, and are themselves context-specific. ‘Local’ has different meanings relative to the broader context in which places are conceptualized. ‘Economic development’ also has different meanings; that is, the nature of ‘wellbeing’ is variously interpreted, relative to researchers’ theoretical perspectives. Accordingly, ‘local’ and ‘economic development’ are addressed separately, and approaches to local development as a field of study are elaborated subsequently.

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1. The Term ‘Local’

‘Local’ can mean a neighborhood, town, or metropolitan area in the context of a region or nation; it can refer to a region in the context of a nation; and it can signify a nation or even a multinational region in the context of the global economy. ‘Local’ is relative, referring to scale specificity and relations among processes at different scales, although it is not itself specific to a particular scale. Examples of local development within the USA illustrate the point. In the 1960s and 1970s local development typically entailed subnational, regional units, such as Appalachia, which were recognized as problem areas amid general national prosperity. The US South was compared to a Third World country because it hosted footloose branch plants of multinational corporations (MNCs) that did not invest locally in institutions or in people, via upskilling (Cohen 1977). By the end of the 1980s and in the context of profound economic restructuring nationwide and globally, economic volatility, a large federal deficit, and reduced federal funding to states, ‘local’ in the USA continued to refer to regions, but also to urban areas, some of which confronted problems of industrial decline and outmigration of people and capital (Rodwin and Sazanami 1989). At the same time, ‘localized distress’ also referred to problems of defense conversion in cities and towns in several regions in the aftermath of the Cold War (Markusen and Yudken 1992). Further, ‘local’ referred to slums in cities in all regions of the country (Goldsmith and Blakely 1992).

What is ‘local’ about each of these situations is the conceptualization of problems specific to a particular place in relation to a broader context. Although the problems are local, the broader context is critical in understanding the structures, agents, and processes that affect local contexts: for example, MNCs and related corporate strategies and spatial divisions of labor; the pressures of competition in the global economy on places that must survive or thrive via entrepreneurialism and local funding; changes in power relations among the superpowers and the changing geopolitical map that affects defense-based economies; the changing geography of urban employment and residential patterns in relation to changes in migration, interethnic relations, and firm strategies and their spatial divisions of labor.

The localness of problems does not mean that they are unique. Similar problems may emerge in different places during economic upturns and downturns that sweep across space. What varies among places experiencing similar effects of economic change are the political, economic, social, cultural, and ecological processes and (local) state–society relations associated with locally specific configurations of institutions and behaviors, and their histories. A round of investment is likely to affect places differently in light of different histories of labor-management relations, gender relations, industrial foci, and so forth. Massey (1984) used a geomorphological metaphor to convey this idea: each round of investment brings its own division(s) of labor and related distribution of economic activity—a stratum—that is overlaid on previous socioeconomic ‘strata’ and impacts a locality relative to the characteristics and combinations of previous strata. Massey conceptualized places in terms of their respective histories of successive layering of socioeconomic strata in relation to wider divisions of labor at national and international scales in association with multilocational firms, often MNCs.

While local problems can vary substantially within nations, the parameters of variation may vary from nation to nation in the context of different modes of state regulation and state–society relations, as well as nationally based systems of production and innovation (Porter 1990). Local economic development issues in the USA, for example, rarely involve an interventionist state at the national scale. In contrast, states in Western Europe or East Asia are much more directly engaged in development processes, although in different ways. Western European countries, with long histories of independence in the global economy, tend to focus developmental efforts internally to resolve problems of regional imbalance, whereas East Asian countries, being ‘late developers,’ have focused more on asserting a national position in the global economy as a matter of survival (Gershenkron 1962). Thinking about national development as ‘local’ is especially common in discussions about the role of the state and state–society relations in East Asia, and more generally among countries characterized either as late developers, or nations whose relative position of power has declined and which are confronted with regaining and sustaining competitiveness. Similarly but from a somewhat different vantage point, early dependency theory saw former colonial territories as being actively underdeveloped in the modern world system (Gunder Frank 1967)—a situation of local underdevelopment (as opposed to development) relative to national or supranational agents such as MNCs.

2. The Term ‘Economic Development’

What constitutes economic development depends on perspective. Neoclassical approaches measure economic growth in terms of aggregate indicators such as population, employment, productivity, and income. Political economy orientations distinguish economic development by focusing on qualitative changes in conditions of living and opportunities for work. At issue is not just employment, but type of employment and whether work situations offer opportunities for skill improvement, upward mobility, and appropriate compensation. Qualifying principles have, however been interpreted differently.

Especially in the 1970s and early 1980s, researchers focused on the effects of corporate strategies (notably of large, multilocational firms such as MNCs) on conditions of work. Scholars were concerned with people—workers—and how firms’ locational strategies for different types of facilities (e.g., branch plants, administration, or research and development—R&D) signified different consequences for wages, type of work, human capital investment, and so on. During this period traditional Anglo-American corporate strategies prevailed worldwide, which competed on the basis of price (as opposed to quality or innovativeness) such that branch plants routinely employed cheap, low, or unskilled labor. Consequently, the places hosting branch plants were generally considered sites of exploitation and underdevelopment.

Later in the 1980s and throughout the 1990s, Schumpeterian-inspired approaches predominated, offering a view of development with reference to innovative capacity. This perspective developed in the USA in the context of growing numbers of small firms and a concern with how to foster entrepreneurialism; the larger context was one of increasing numbers of competitors in the global economy and, relatedly, new corporate strategies emanating from different sociocultural contexts and entailing different systems of human relations. People, from a Schumpeterian perspective, are of interest insofar as they are useful to firms in establishing and sustaining competitiveness, which generally signifies economic development. Schumpeterian thinking tends to be firm-oriented because analysis typically focuses on the competitiveness of firms or industries (measured in terms of technical advance, productivity, and the like), generally in relation to skill-based production—a departure from prevalent corporate strategies in the 1970s and 1980s. Ironically, Schumpeterian and neoclassical analyses implicitly converge on the assumption that the well-being (competitiveness) of firms and industries signifies positive conditions for workers, that is, it ‘trickles down.’

A recent concern has been the exclusionary and politically charged character of development studies, whether people or firm-oriented. Scholars have recognized researchers’ own biases that underlie what appear as simple and value-neutral representations of reality. One important byproduct of those concerns is the identification of differentiated processes relative to different types of people, as well as different yet related dimensions of change (e.g., social, cultural, economic, political, ecological). From this perspective, the constituent components of economic development cannot be aggregated into a single, essentialized assessment.

3. Context and Approaches to Local Economic Development

Understandings of local economic development have stressed exogenous and endogenous processes or the articulation of the two.

3.1 Exogenous Processes

Consider the ‘branch plant economy,’ which is characterized by a significant percentage of employment in branch plants of MNCs. Critically at issue are corporate strategy and related management principles. During the 1970s and early 1980s, for example, MNCs commonly produced in large volume for mass markets using cheap and low or unskilled labor. The effect on localities was dependency, especially when corporate strategies were focused on price competitiveness (rather than, say, quality control). In this context, firms routinely relocate as wages or union or other pressures increase. The resultant capital mobility renders localities and their employable populations hostage to the impulses of exogenous corporate decision making, which typically is detached, physically and otherwise, from the localities in question. Moreover, places become pitted against each other in a zero-sum game of wage competition, thereby hampering cohesive resistance among workers across space.

Conditions of high capital mobility and exogenous domination of localities have been approached in various ways. Some scholars viewed processes at different scales as interacting—for example, local histories, industrial configurations and production ensembles with national and international corporate strategies, and industrial change (Markusen 1987, Massey 1984, Storper and Walker 1989). Others in different ways saw localities as objects of corporate processes at larger scales. Although there was general consensus that branch plant economies associated with Taylorist management connoted underdevelopment, some scholars focused on the corporate decisionmaking component with reference to firms’ product and innovation cycles (Malecki 1981), whereas others researched the underdevelopment and dependency components in the context of what had become known as a ‘new international division of labor’ (NIDL) (Froebel et al. 1980).

3.2 Endogenous Processes

Not all local economies are dominated by large firms (Taylor and Thrift 1983) and, moreover, spatializing industry and management is not necessarily neatly hierarchical. Whereas under the model of high capital mobility and exogenous domination scholars interpret change with reference to large firms’ locational strategies, in situ industrial change or development suggests important endogenous processes. Local economies evolve in various contexts that are neither wholly dependent on, nor the object of, exogenous processes in the sense described in Sect. 3.1.

One of these contexts is a localized version of what Schumpeter called ‘creative destruction,’ in reference to small, innovative firms successfully challenging the pre-existing corporate order in a region and founding a new wave of economic development. The genesis of Silicon Valley is a case in point.

From another perspective, Scott (1988) developed a theory of local development based on corporate restructuring, specifically the termination of many activities in large, multilocational corporations that had been spread out across regions and the move to subcontract previously internal activity to local independent firms. Borrowing from the ‘new institutional economics,’ Scott suggested that the costeffectiveness of externalization strategies during times of market instability (and given the condition of a highly segmented local labor market) would engender dense and cost-competitive interfirm interaction in a local economy, thereby signifying local development based on a new production system. More generally, scholars explained uneven development with reference to new production systems (Storper and Walker 1989) or industrial configurations (Markusen 1987) in new industrial spaces.

But what of old industrial spaces? These are not necessarily subject to decline, as well evidenced by the reindustrialization of the US industrial heartland following deindustrialization. In this context, subcontracting to firms from other sociocultural contexts, such as Japan, gradually changes local corporate culture and social relations from Taylorist (where subcontractor–client relations are typically antagonistic and short run) to collaborative (where, in longrun relationships characterized by trust, client firms help subcontractors develop knowledge and problemsolving skills to enable increasing independence). Regional restructuring occurs through transnational corporations (TNCs) that become locally embedded and committed to training workers in new, upskilling proceses (Florida 1996).

Another type of context departs from hierarchical models of interfirm relations and is focused on lateral or horizontal networks. This type of context entails communities comprised of a large informal economy, or small firms in mature as opposed to new and strategic industries, or communities that are not major hosts to TNC facilities. Localized small-firm networks can evolve either in the absence of policy to achieve this end (as in the case of the Emilia Romagna region in Italy) or as a result of proactive brokering and assistance via local governance (such as communities in the USA in the 1980s and 1990s reacting to lack of federal funds and industrial decline, or countries such as Taiwan that have institutionalized programs for small firms). Constrained by their size, small firms or informal organizations are unable to achieve the efficiency that is possible for large firms. Scale economies can be achieved by pooling resources, that is networking. As in the case of industrial revitalization, competitiveness lies in an appropriate (interorganizational) human relations system, one that emphasizes collaboration and cooperation—‘social capital’ (Cooke and Morgan 1998). Some research focused on understanding how networks achieve competitiveness (e.g., Sengenberger et al. 1990), while other research focused, from a local policy perspective, on how to foster such networks in places where they may not already exist (Rosenfeld 1992). Policy-conscious research interfaced with growing interest on the part of local politicians to assist in the development of entrepreneurial economies to foster change via local and regional institutions (Osborne 1990).

At the national scale, among ‘developmental states,’ endogenous change may occur through state-assisted industrial development in which foreign capital is effectively manipulated to restrict branch plants (and thus dependency) and encourage subcontracting with local, independent firms, sometimes via networks of entrepreneurs (as in the cases of Hong Kong, Taiwan, and South Korea) (Wade 1990).

3.3 Connecting Exogenous and Endogenous Processes

Researchers interested in endogenous development who are attuned to globalization focus on the connections between particular places and global agents. Unlike the model of capital flight (Sect. 3.1), in which global agents are necessarily ‘dominant’ and capital is mobile, at issue is how local and global competitive forces may be connected to develop entrepreneurial economies (Storper 1997).

Most MNCs, which produce in one country and market products elsewhere, have evolved into TNCs that functionally integrate marketing and production of different components in a wide variety of countries and localities therein. Global production in this context has become more complex than a strategy of establishing branch plants in diverse locations.

Many TNCs withdraw wholly or partially from production itself and focus energies on coordinating a global system of subcontracting via tiers of networks of firms across nations and world regions (Gereffi and Korzeniewicz 1994). This type of production system can result in positive local change, if the state is developmentally oriented and invests in upgrading of production processes and upskilling of workers regarding the local component of a global commodity and knowledge chain. Alternatively, such networks entail uneven power relations across regional divisions of labor, and some regions remain trapped in a Taylorist-oriented low-skilled, low-cost production component (Hart-Landsberg and Burkett 1998).

Other TNCs remain production-oriented and sink costs into localities by establishing plants that become locally embedded (Amin and Thrift 1994). This is a possibilist perspective in which the long-run investment of foreign capital (capital fixity as opposed to capital mobility) is contingent on: the synergy of preexisting local structures (revisiting Massey’s geomorphological metaphor), strategies of TNCs specific to facilities in each place of production, and agency (social interactions, leadership). Questionable, however, in this rosy, albeit possibilist picture, is the partiality of so-called ‘development.’ Embeddedness itself is partial and usually confined to elite circles; workers, if empowered, are only partially empowered and are disempowered in other respects; and workplaces often remain homogeneous and exclusionary (Ettlinger 1999).

4. The Rele ance of Reflexivity

The question ‘development for whom?’ underscores the partiality of all research on local economic development. Poststructuralism calls for reflection on our biases and assumptions with attention to the consequences of our frameworks, and it opens researchers’ minds to questions and information precluded by traditional paradigms. A case in point is the assets based community development (ABCD) approach to local development that considers local assets in ways previously considered unthinkable (Kretzmann and McKnight 1993). The unemployed, for example, may be seen as an untapped and extremely valuable local regional resource. Critically at issue is understanding that developing industries and regions are not coincident because people in places outside of firms are as central to local development as those who are fully employed. This highlights the multiple realities in places, requiring a conceptualization of local development as a hybrid phenomenon that cannot and should not be essentialized (Escobar 1995).


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