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Poor Places, Thriving People
Therefore the incentive is encouraging inefficient production, thus creating an economic efficiency loss for the economy. However, if enterprises in the target area eventually achieve economies of scale and agglomeration, then the target area’s profitability disadvantage will be reduced, and the incentive will no longer be necessary. So the economic efficiency test is that growth in the target area eventually becomes self-sustaining. What little information is available suggests that MENA’s spatial financial incentives have been no more successful than those in other parts of the world. From the 1960s onward, Algeria implemented regional economic development programs for priority areas. These programs included investment in state-owned industries. The strategy involved spreading industrial activity beyond Algiers and Oran with the creation of new industrial poles in peripheral coastal sites: Arzew in the west and Annaba and Skikda in the east. The 1968 program for the Amazigh (Berber)-speaking Aurès region in eastern Algeria, for example, envisaged expansion of a textile factory, a brick and tile plant, a tannery, a powdered milk factory, a furniture factory, mines, data processing centers, and large-scale artisanal units. However, the continued polarization in Algiers remained (Sutton 1976), both for public and private investments. Between 1966 and 1972, 1,116 out of 1,821 private investment projects submitted for state approval were for Algiers wilaya provinces alone. The second-place wilaya (oasis) attracted only 144 applications. In short, spatial financial incentives in Algeria did not pass the impact test. The Syrian Arab Republic also experienced difficulties during the 1990s in using industrial zones as incentives to locate businesses in lagging areas. Although the main vocation of the country’s industrial zones was to ensure the appropriate zoning of industrial activity, to minimize pollution, and to preserve the residential environment, they were also used to encourage economic activity in lagging rural areas. The director of Syria’s Private Industrial Sector (Shahin 1999) describes how the government provided land in rural industrial zones at “symbolic prices” with the aim of “limiting migration and lessening the pressure on services in large cities.” Rural areas benefited from concessional loans, tax exemptions, and assistance with inputs and marketing. The government also deliberately located large public industrial enterprises in rural areas with the aim of reducing the cost of raw materials for the private sector there. Despite these efforts, economies of agglomeration prevailed: the private sector persisted in locating in urban areas because of the availability of inputs and services. The rural areas remained competitive only