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Poor Places, Thriving People
Colors of Benetton. It is too early yet to say whether they pass the sustainability and efficiency tests. As map 6.2 shows, some of the subsidized zones are very close to the booming east coast, and the fact that some businesses choose to locate there could be due more to spillover effects from agglomerated areas than to the financial incentives.
New Paradigm of Regional Economic Development Policy Because financial incentives for regional economic development have such a poor track record, governments in developed countries are adopting a new approach to regional economic development policy. This approach accepts that the forces of agglomeration are too strong to be overridden by public money. So it goes with the flow of the market, helping lagging areas to capitalize on genuine competitive advantages. Rejecting centralized and top-down approaches to planning, it emphasizes the need for local ownership of initiatives and consistent involvement of the private sector. The role of the government becomes one of facilitator: building links among (a) the private sector, (b) central government departments, (c) local administrations, and (d) education and research institutions (see table 6.2). It may be impossible to overpower the forces of agglomeration, the thinking goes, but there is no reason governments cannot help overcome diseconomies of coordination. We will now look at the elements of the new paradigm as they appear in the global literature, much of it by the OECD. Infrastructure is effective only in combination with education. A recent study (OECD 2009, 82) modeled the relationship between road infrastructure (kilometers of roadway per capita) and subnational growth rates (gross regional domestic product, or GRDP) across developed countries
TABLE 6.2
Old and New Paradigms of Regional Economic Development Policy Old paradigm
New paradigm
Unit of intervention Strategies Tools
Trying to compensate for locational disadvantages of lagging regions Administrative units Sectoral approach Subsidies and state aids
Actors
Central government
Tapping underused potential to enhance regional competitiveness Functional economic areas Integrated approach Mix of soft and hard capital (capital stock, labor market, business environment, social capital, and networks) Different levels of government (with private sector)
Objectives
Source: OECD 2009.