Leadership and Institutions in Regional Endogenous Development

Leadership and Institutions in RegionalEndogenous Development

NEW HORIZONS IN REGIONAL SCIENCE

Series Editor: Philip McCann, Professor of Economics, University of Waikato,New Zealand and Professor of Urban and Regional Economics, University ofReading, UK

Regional science analyses important issues surrounding the growth anddevelopment of urban and regional systems and is emerging as a major socialscience discipline. This series provides an invaluable forum for the publicationof high quality scholarly work on urban and regional studies, industrial locationeconomics, transport systems, economic geography and networks.

New Horizons in Regional Science aims to publish the best work byeconomists, geographers, urban and regional planners and other researchersfrom throughout the world. It is intended to serve a wide readership includingacademics, students and policymakers.

Titles in the series include:

Firm Mobility and Organizational NetworksInnovation, Embeddedness and Economic GeographyJoris Knoben

Innovation, Agglomeration and Regional CompetitionEdited by Charlie Karlsson, Börje Johansson and Roger R. Stough

Technological Change and Mature Industrial RegionsFirms, Knowledge and PolicyEdited by Mahtab A. Farshchi, Odile E.M. Janne and Philip McCann

Migration and Human CapitalEdited by Jacques Poot, Brigitte Waldorf and Leo van Wissen

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International Knowledge and Innovation NetworksKnowledge Creation and Innovation in Medium Technology ClustersRiccardo Cappellin and Rüdiger Wink

Leadership and Institutions in Regional Endogenous DevelopmentRobert Stimson and Roger R. Stough with Maria Salazar

Leadership andInstitutions inRegional EndogenousDevelopment

Robert StimsonThe University of Queensland, Australia

Roger R. StoughGeorge Mason University, USA

with

Maria Salazar

Fundacion Rafael Preciado Hernandez, A.C., Mexico City,Mexico

NEW HORIZONS IN REGIONAL SCIENCE

Edward ElgarCheltenham, UK • Northampton, MA, USA

© Robert Stimson, Roger R. Stough and Maria Salazar 2009

All rights reserved. No part of this publication may be reproduced, stored in aretrieval system or transmitted in any form or by any means, electronic, mechanicalor photocopying, recording, or otherwise without the prior permission of thepublisher.

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ISBN 978 1 84844 059 3 (cased)

Typeset by Cambrian Typesetters, Camberley, SurreyPrinted and bound in Great Britain by MPG Books Group, UK

Contents

List of figures viPreface viiAcknowledgements ix

1. A new perspective on regional endogenous development 1

PART I DEVELOPING A NEW CONCEPTUAL MODELFRAMEWORK FOR ENDOGENOUS REGIONALECONOMIC GROWTH AND DEVELOPMENT:INCORPORATING RESOURCE ENDOWMENTSAND MARKET FIT, LEADERSHIP, INSTITUTIONALFACTORS AND ENTREPRENEURSHIP

2. A new conceptual framework for regional endogenousdevelopment 19

3. Resource endowments and market fit 254. Leadership 325. Institutions and institutional factors 436. Entrepreneurship 64

PART II EXAMPLES OF REGIONAL DEVELOPMENTINITIATIVES INVOLVING LEADERSHIP ANDINSTITUTIONAL FACTORS: CASE STUDIESFROM NORTH AMERICA, EUROPE AND THEPACIFIC RIM

7. Case studies from the United States 758. Case studies from Europe 909. Case studies from the Pacific Rim 112

10. Modeling endogenous regional economic development:measurement, operational issues and conclusions 122

References 133Index 147

v

Figures

1.1 The Harrod–Domar and the Solow production functions 51.2 The neoclassical production function 61.3 Production function and increasing returns to scale 92.1 The virtuous circle for sustainable regional development 202.2 The regional competitiveness performance cube (RCPC) 212.3 A new model framework for regional endogenous development 23

vi

Preface

Increasingly leadership and institutional factors are being seen as playingimportant roles in the process in regional endogenous growth and develop-ment. The so-called ‘new growth theory’ emphasizes endogenous processesand while some of the literature does refer to leadership and institutionalfactors, including entrepreneurship, there has been little analysis of the explicitroles that leadership and institutional factors play in the growth and develop-ment of cities and regions, and in particular there seems to be no publishedmaterial that attempts to model and measure the impacts of leadership onregional growth and development and limited work that considers such a rolefor institutions.

In this book we set out to give explicit attention to the role of leadershipand institutional factors in the growth and development of cities and regions.Our objective is to provide a detailed rationale for the study of leadership andinstitutional factors, including entrepreneurship, in the growth and develop-ment of cities and regions, and to demonstrate why leadership, institutions andentrepreneurship can – and indeed do – play a crucial enhancing role as keyelements in the process of regional endogenous growth.

The book is organized into ten chapters and two parts. The introductorychapter provides a brief overview of the evolution of the new growth theory inregional economic development in which the emphasis is on endogenousfactors. We discuss leadership and institutional factors in that context.

Part I of the book contains five chapters in which we focus attention onendogenous processes. In Chapter 2 we discuss a framework for regionalendogenous development which incorporates a ‘virtuous circle’ for thesustainable development of a region. The chapter proposes what we call a‘regional competitiveness performance cube’ (RCPC) as a conceptual modelin which the interplay between regional resource endowments and market fit,on the one hand, and leadership and institutional factors, incorporating entre-preneurship, on the other hand, may interact to propel a region on a path ofenhanced growth and development. A ‘new model framework for regionalendogenous growth and development’ is proposed, which explicitly incorpo-rates these factors as mediating variables in the model.

In Chapters 3, 4, 5 and 6 we focus the discussion in turn on ‘resourceendowments and market fit’, ‘leadership’, ‘institutional factors’ and ‘entrepre-neurship’. The chapters provide a discussion of the nature of those factors and

vii

how they affect and/or enhance the process of regional growth and develop-ment. Those chapters incorporate reference to some of the key literature onthose topics.

Part II of the book contains three chapters of ‘case studies’ of cities andregions from around the world in which we highlight how leadership and insti-tutional factors have enhanced the regional development process. Chapter 7has case studies on places in the US, while Chapter 8 has case studies fromEurope and Chapter 9 has case studies from the Pacific Rim region. The casestudies reviewed in these chapters are from already published works, and arechosen to explicitly demonstrate how leadership and institutional factors haveplayed crucial roles in the development of the particular city or region in ques-tion and how those factors have played crucial roles in the endogenous growthand development process, especially as catalytic factors in helping turn aroundregions that were in decline.

The final chapter proposes a new ‘operational model framework of endoge-nous growth and development’ which incorporates proxy measures of leader-ship, institutional factors and entrepreneurship as variables that mediate theimpacts of resource endowments and market fit on regional growth, placingemphasis on the effects those endogenous factors may have on the develop-ment of cities and regions. There is a discussion on how to operationalize themodel.

This book represents ‘work in progress’, and much remains to be done inempirically testing the new model frameworks of endogenous regional growthand development that are proposed. As we discuss in Chapter 10, that presentsconsiderable challenges because of the lack of readily available informationand data bases to generate the variables on leadership and institutional factorsthat are required to operationalize the new model framework discussed.

However, we trust that this book does demonstrate the potential signifi-cance of leadership and institutional factors, including entrepreneurship, askey intervening or mediating factors in the process of regional endogenousgrowth and development. We believe it fills a notable gap in the regionalscience literature that focuses on endogenous growth within the context of the‘new growth theory’.

Robert Stimson and Roger StoughOctober 2007

viii Leadership and institutions in regional endogenous development

Acknowledgements

There are a number of people who have provided invaluable assistance to theauthors in the preparation of this book. First and foremost is Dr Maria Salazar,who was a graduate student at George Mason University working with RogerStough. She collaborated with the authors as a research assistant and preparedmuch of the material for the case studies in the chapters in Part II of this book.She also co-authored several papers that were written by the authors whileundertaking the research which led to the development of the new theoreticalframework for conceptualizing regional endogenous growth and developmenton which the chapters in Part I are based. Alistair Robson, a former graduatestudent at the University of Queensland who worked with Robert Stimson,also contributed to the research on which the chapters in Part I draw. Secondly,we wish to thank Ginta Palubinskas in the School of Public Policy at GeorgeMason University who drafted the initial version of the case study onTampera, Finland and Tracey Johnstone in the UQ Social Research Center atthe University of Queensland who worked with the authors to help prepare thetext and diagrams for publication.

The authors wish to acknowledge the financial support of the AustralianResearch Council Linkage International Scheme (grant #LX0346785) and theGeorge Mason University Foundation for a research project on ‘RegionalEconomic Development and Performance: Roles of leadership andInstitutional Factors in Endogenous Growth’ which forms the basis of thisbook.

ix

1. A new perspective on regionalendogenous development

1.1 REGIONAL ECONOMIC DEVELOPMENT:A PROCESS AND AN OUTCOME

This book is about the role that leadership and institutions play in regionaleconomic development. A major, if not the most important, long-term objec-tive of regional economic development is to internalize a process that ensuressustainable development. Such a process begs for and enables a proactivestrategic approach to development, as against a reactive approach, to manag-ing risk in adjusting to changing circumstances.

We propose that leadership and institutions, along with entrepreneurship,play crucial roles in maintaining and enhancing regional economic perfor-mance and achieving sustainable development. Of course a region’s resourceendowments, and the regional economy’s ‘fit’ with respect to market condi-tions, are also crucial factors affecting regional economic performance. Butour argument is that leadership (including entrepreneurship) and institutionalfactors may serve to enhance or detract from the effectiveness and efficiencywith which those resource endowments are used and how markets arecaptured.

Our view is that strong leadership means a city or a region will be proac-tive in initiating regional economic development strategy to:

• set a vision for the future development of the region• implement plans and processes that facilitate institutional change• monitor regional performance and adjust strategies and plans.

This, in turn, will enhance the capacity and capability of the region to posi-tively adjust to changing circumstances, attain a good fit with market condi-tions, and harness its resource endowments in order to maintain and improveits performance and to achieve sustainable development as a learning regionand to be one that is competitive.

In this book we outline a new framework to conceptualize regionaleconomic development that explicitly encompasses this perspective. Theories

1

and approaches to endogenous regional growth and development that havebeen emerging – particularly over the last 20 years or so (and even longer intothe past) – tend to neglect or at best underplay the role of leadership, and theway institutional factors are considered is usually simplistic. Our approach,which builds on the contributions of many writers who have addressedendogenous processes in regional growth and development, is an integrativeapproach in which we propose a model of regional endogenous developmentthat puts leadership and institutional factors, along with entrepreneurship, asexplicit and key mediating variables between the traditional focus on resourceendowments and market factors as independent variables impacting regionalgrowth and development.

Regional economic development seems to defy precise definition. Forexample, Blakely (1994) proposes that local or regional economic develop-ment is a function of a wide range of factors. He says it is:

a process in which local governments or community based organizations areengaged to stimulate or maintain business activity and/or employment. The princi-pal goal of local economic development is to stimulate employment opportunitiesin sectors that improve the community, using existing human, natural and institu-tional resources. (p. xv)

Blakely gives this definition of regional economic development (RED):

RED = f (natural resources; labour; capital; investment; entrepreneurship; transport;communication; industrial composition; technology; size; export market; interna-tional economic situation; local institutional capacity; national, local and stategovernment spending; development schemes). (p. 53)

Such an array of factors encompasses both exogenous and endogenousvariables. These concepts are encapsulated in Malecki’s (1991) definition ofregional economic development, which he defines as:

a combination of qualitative and quantitative features of a region’s economy, whichthe qualitative or structural [are] the most meaningful … The qualitative attributesinclude the types of jobs – not only their number – and long-term and structuralcharacteristics, such as the ability to bring about new economic activity and thecapacity to maximize the benefits which remains within the region. (p. 7)

And he goes on to say:

the standard theory of economic growth and development has concentrated onquantitative changes, despite an increasing awareness that regional growth depends,often critically, on aspects that are understood only in comparison with otherregions or nations. The facts of regional development suggest that it is not enoughto rely on the concepts of growth without an equivalent concern for the forces which

2 Leadership and institutions in regional endogenous development

commit growth to take place, or prevented it from occurring. These are the concernsof regional development, whether examined at the national, sub-national or localscale. (p. 7)

Regional economic development might thus be viewed as:

• being a multi-dimensional phenomenon• involving a wide array of factors• representing a complex process.

It needs to be seen as:

• being both a product and a process• incorporating both qualitative and quantitative characteristics• incorporating a policy dimension• being influenced by strategy and the implementation of plans and mech-

anisms to facilitate regional change• being dynamic.

Regional economic development is quantitative with respect to the measuredbenefits it creates through increasing wealth and income levels, the availabil-ity of goods and services, improving financial security, and so on. It is quali-tative in creating greater social/financial equity, in achieving sustainabledevelopment, and in creating a spread in the range of employment and gain-ing improvements in the quality of life in a region. Regional economic devel-opment might no longer be viewed as something that is concerned primarilywith the manipulation of capital, labor and technology to maximize productionin response to prices and markets; rather, there are fundamentally new valuesystems and factors that are beginning to underpin economic systems, many ofwhich we do not yet fully understand.

The multi-dimensional aspect of economic development led Stimson et al.(2002) to propose the following definition:

Regional economic development is the application of economic processes andresources available to a region that results in the sustainable development of, anddesired economic outcomes for a region and that meet the values and expectationsof business, of residents and of visitors. (p. 7)

While that definition is far from perfect, it does reflect a shift in economicproduct and process thinking. Stimson et al. (2002) say this:

A balance between the qualitative and quantitative goals of economic developmentpresents a challenge to traditional neoclassical economists and to the emerging

A new perspective on regional endogenous development 3

breed of economists who recognize that regional economic development can occuron a more sustainable basis. This is not to suggest that neoclassical theory ideasshould be dismissed – far from it. Rather, they need to evolve to accommodate thosechanging values that society holds on expected gains from economic development.(p.7)

1.2 EVOLUTION OF REGIONAL DEVELOPMENTTHEORY

Over time, various approaches to theory about economic growth and develop-ment have evolved, and much of that theory has been formulated in a non-spatial context. Traditional neoclassical economic growth theory, basedlargely on the famous Solow (1956) model, has been replaced by a suite ofmodels and arguments that are known as new growth theory (Romer, 1986,1990; Barro, 1990; Grossman and Helpman, 1991; Rebelo, 1991; Arthur,1994) and evolutionary economics (Nelson and Winters, 1982).

1.2.1 Neoclassical Theory and Production Functions

Most models of economic growth focus primarily on the basic factors ofproduction: the capital stock and the labor force. Natural resource endowmentsare sometimes incorporated as a third factor but most often are subsumed aspart of the capital stock. Standard growth models have at their core one or aseries of production functions. Production functions measure the value ofoutput, given the value of the factors of production (that is, capital and labor).In the basic growth model, economic growth (Y) occurs by either increasingthe capital stock (K) through new investment in factories, machinery, equip-ment, roads and other infrastructure, and through increasing the size of thelabor force (L), or both. Thus,

Y= f (K, L) (1.1)

This production function is at the heart of every model of economic growth.It can take many different forms, depending on what we believe is the truerelationship between the factors of production and output. Recent work byAudretsch and Keilbach (2005) that adds the notion of entrepreneurship capi-tal to the mix of inputs illustrates this point. The relationship being modeledby the production function approach depends (among other things) on the rela-tive abundance of each factor, how efficiently each is used, and the mix ofeconomic activities. Much of the debate in the academic literature oneconomic growth seems to be about how to best represent the aggregate


production process. Audretsch and Keilbach (2005) and others are driving thedebate in new directions.

The Harrod–Domar (H–D) growth model in the 1940s assumed that K andL are used in constant ratios and always used in fixed proportions to producedifferent levels of output. Over short periods and in the absence of severeeconomic shocks the model predicts growth pretty well. However, that modelis very rigid since it requires that the capital–labor ratio must always grow atthe same rate.

In the mid 1950s, Robert Solow (1956, 2000) recognized the problems thatarose from the rigid production function in the H–D model, which did notallow for substitution between factors of production. Solow’s answer was todrop the fixed coefficients production approach and replace it with a neoclas-sical production function that allows for more flexibility and substitution. Thedifference is illustrated in Figure 1.1.

Two influential studies by Abramovitz (1956) and Solow (1956) presenteda major challenge to the then conventional view that capital and labor are themain engines of economic growth. While examining different time periodsand using different methods, those studies reached the important conclusionthat no more than 15 pe cent of the measured growth in US output in the late19th century and the first half of the 20th century could be accounted for bythe growth in measured inputs of capital and labor. A prime candidate account-ing for the ‘residual’ was technological change (T), although the residualcaptured or served as a measure of all the growth in input that could not beattributed to growth in measured inputs of capital and labor.


Source: Adapted from Bretschger (1999: 26).

Figure 1.1 The Harrod–Domar and the Solow production functions

Y

K

Y (Harrod–Domar)

Y (Solow)

The neoclassical production function, which allows substitution betweencapital and labor in its general form, is thus augmented to:

Y= F (K, L, T) (1.2)

However, a limitation in this neoclassical growth model is that T is not aproduction factor like K or L. Neoclassical theory credits the bulk of economicgrowth to an exogenous or completely independent process of technologicalprogress. That is, to obtain ‘unceasing growth’, one must consider an externalfactor that increases the productivity of inputs over time (Freeman, 1997: 325;Hayami, 2001: 171). Though intuitively plausible, that approach had at leasttwo drawbacks. First, using the neoclassical framework, it is impossible toanalyse the determinants of technological advance because it is completelyindependent of the decisions of economic agents. Second, the theory fails toexplain large differences in residuals across countries with similar technolo-gies. The neoclassical production function is illustrated in Figure 1.2.

1.2.2 Comparative Advantage

A fundamental principle in regional economic development is that of spatialinteraction through the movement of goods, services and people. Internationaltrade theory has held as a central tenet the notion of comparative advantageand disadvantage in the factor mix between regions which renders a regionadvantageous or disadvantageous vis-à-vis another region as a result of thosedifferentials in cost and resource endowments. Thus trade occurs and regionalspecialization emerges.


Source: Adapted from Bretschger (1999: 31).

Figure 1.2 The neoclassical production function

Y

K

y

y′

Technical Progress

Export-based theories of regional development have placed emphasis onforeign investment and/or outside exploitation, the income raised from exportsbeing the impetus for growth, with regional specialization emerging as aconsequence of the play out of these factors. For example, Rostow’s (1960)model of sequentially staged economic development provides this perspectiveof internal growth, export base and economies of scale, attributing economicdevelopment to changes occurring within a region through processes such asthe application of technology to a local resource and/or the rise of purchasingpower. Rostow introduced into this analysis the notion of a leading sector inthe process of regional development. However, an important consideration inthe notion of export-led growth driving internal growth is that as trade devel-ops, involving larger numbers and a larger scale of production, then certaincompetitive advantages emerge through scale and scope economies.

Counter-arguments to neoclassical theories of growth that emerged fromthe 1950s included polarization theory, as represented by Perroux (1950),Myrdal (1957) and Hirschman (1958), and more recently work on industrialdistricts and business clusters (Feser, 1998). Advocates of polarization theoryargued that production factors are non-homogeneous, that markets are impor-tant, and that the price mechanism is disturbed by externalities and economiesof scale. Deviations from equilibrium are not corrected by counter effects;rather, they set off a circular or cumulative process of growth or decline, witha complex set of positive and negative feedback loops contributing to a growthprocess the direction of which is fundamentally undetermined. In the spatialcontext of regions, these feedback effects generate spread and backwardeffects, transferring impulses from one region to another. Spatial structure canbe an important element in this process of growth, generating leading andlagging regions that are interdependent. It is argued that it is not onlyeconomic, but also social, cultural and institutional factors that explain whysome regions prosper while others do not.

1.2.3 ‘New Growth Theory’ and the Competitiveness of Regions

Increasingly, with the transformation from an economy based on physicalproduction to one based on knowledge-intensive production, there was ques-tioning of the traditional neoclassical models of economic growth, and by thelate 1980s and early 1990s endogenous growth became a new model focus forregional growth and development. For example, in a study of the US, Japan,France, Germany and the UK, Denison (1979) found that capital investmentgrowth in those countries accounted for less than half of their economic growth.That is, increases in output were not as heavily attributable to capital invest-ments as thought but more to improvements in human capital (the quality oflabor, education, training and experience) (Malecki, 1991). The influence of


that type of empirical study, and the attempt to incorporate those mechanismsinto theory led to the emergence of what is called the new growth theory.

Work in new growth theory does separate endogenous and exogenousfactors for analytical purposes. However, the importance of endogenousfactors – through which growth is a product of factors within the region – isviewed as being fundamental, arising from the knowledge base of a region andhow it is enhanced through learning to become a continuous process (asproposed early on by Arrow, 1962) and an internally created source of compet-itive advantage (Romer, 1986, 1990; Lucas, 1988). The driving force ofregional economic development is the endogenous capability of a region tolearn and innovate (Saxenian, 1994; Jin and Stough, 1996). While somewhateclectic in nature and still evolving, the new growth theory represents thecontemporary thrust in development theory (Todaro, 1994: 88–9).

Advocates of new growth theory seek to explain technical progress as itgenerates economic development as an endogenous effect rather than accept-ing the neoclassical view of long-term growth being due to exogenous factors.In new growth theory, models of regional economic development allow foreither agglomeration effects or market imperfections. And they also allow forboth convergence and divergence through the development process.

In this new approach those cumulative processes which self-reinforcecontinuous growth or decline in a region assume a new significance throughthe explicit recognition of additional endogenous change processes, includingentrepreneurship, learning, education, acquiring institutional capacity, theadoption of new technologies, as well as recognizing exogenous processes,such as the migration of firms and households (Karlsson et al., 2001: 4).

Thus, the production function is expanded to include research and devel-opment (R) and human capital (H) development through education:

Y= f (K, L, T, R, H) (1.3)

These variables are seen as ‘endogenous growth conditions’, and are supposedto generate spillovers and externalities, including economies of scale(Malecki, 1998a: 43–4). The term endogenous implies that economic growthis influenced by the use of ‘investment resources’ generated by the economyitself, in contradiction to the reference made to exogenous factors in the Solowmodel (Johansson et al., 2001: 3).

Models of endogenous growth bear some structural resemblance to theirneoclassical counterparts but they differ considerably in their underlyingassumptions and the conclusions drawn (Todaro, 1994: 89). The most signifi-cant difference is that these models assume that the national economy issubject to increasing returns to scale; that is, a doubling of capital, labor and


other factors of production leads to more than a doubling of output. For exam-ple, investment in research or education not only will have a positive effect onthe firm or the individual making the investment but also may have a positivespillover effect on others in the economy. This beneficial effect on others –called a positive externality – results in a larger impact from the investment onthe entire economy. This interaction constitutes the externality. Since growthcan perpetuate in these models without relying on assumptions of exogenoustechnological change they often are referred to as endogenous growth models.The production function may be represented as illustrated in Figure 1.3.

What is significant about endogenous growth theory is that it places empha-sis on the importance of local factors in creating and maintaining sustaineddevelopment as opposed to ones external to the region. That is, models ofendogenous growth suggest an active role for public policy and domesticactors in promoting economic development (Stimson et al., 2002: 277;Johansson and Karlsson, 2001: 3).

1.2.4 Explicit Considerations in the ‘New Growth Theory’

A considerable focus in the new growth theory literature has been on thenotion that:

• research and development (R&D)• innovation and new technologies• the development of an innovative milieu

have been fundamental in explaining the rapid growth of some regions, and in


y

k

Production function of the new growth theory

Neoclassical production function

Source: Bretschger (1999: 180).

Figure 1.3 Production function and increasing returns to scale

particular in accounting for the emergence of technology-intensive regionssuch as the Silicon Valley in the US (Saxenian, 1994).

But that does link back to the importance of agglomeration and localizationeconomies that lead to the development of new industrial spaces (Scott, 1988;Porter 1990; Krugman, 1991). In addition, some writers – such as Fukuyama(1995) – suggest that not just economic but also cultural factors are importantin the rise of those new technology regions, supporting the innovative milieuthesis (Castells and Hall, 1994) and giving weight as well to the roles of entre-preneurship and leadership as key factors in regional growth (Rees, 2001).

Modern production systems are centered on skills, information and inter-personal contacts. For example, evidence from Japan and from the newlyindustrialized countries (NICs) showed that the success derived from bringingthese factors into play in an economy will determine the success or failure ofnations in achieving sustainable development. The NICs have emphasizeddevelopment of human resources through education, an emphasis on R&D,and technological learning. At the same time, these factors have been linked toboth local networks of suppliers and to external markets (Malecki, 1991:152–279).

R&D generally serves two functions – learning and the pursuit of techno-logical innovation – which provide industries with the tools to absorb newtechnology and create new products. As Malecki (1991: 53) says: ‘New prod-uct innovations are the primary route of entry on new firms and new indus-tries, and thus the greatest source of new jobs in an economy’. In mostdeveloped countries, R&D is highly linked to production, and as a result R&Dis mostly performed by private sector industries. However, linkages betweenuniversities, government research institutions and industries are common andeven more such linkage is promoted by government policies since evidenceshows that market mechanisms alone might be insufficient (Malecki, 1991).Silicon Valley in California and Route 128 in Boston in the US are examplesof this phenomenon.

Skills are crucial to R&D and for the creation of new products. As Malecki(1991) says:

Skills make possible the accepting and interpretation of information, for improve-ment and enhancing technology, and for generating new knowledge. They ulti-mately determine economic outcomes. (p. 320)

Evidence from developed countries show that ‘skilled people are the keyelement in the networks that tie a place to other places and keep innovative-ness alive’ (Malecki, 1991: 272). The contrary is also true, with the lack of anadequate base of skills preventing or complicating technology transfer andmaking it more difficult for learning capabilities to take place (ibid.: 275).


There is plenty of evidence to show that the proliferation of technology isincreasingly driving economies into knowledge-based, capital-intensiveproduction rather than labor-intensive production. Writing in the 1990s,(Porter, 1990: 77; Malecki, 1991: 319) indicated that in the proximate future,few high paying jobs would exist for the unskilled and low skill jobs (such aslaborers) and that those jobs were expected to decrease by more than 50percent.

Linkages between economic and education units create spillovers not onlybecause of the development and diffusion of new technologies, but alsobecause of the process of learning and innovation that is created through theinteraction between researchers, producers and suppliers (Malecki, 1991:173). Moreover, networks of firms and the existence of an active R&D envi-ronment complement and allow firms to gain access to the links and assetsnecessary to succeed in the new or knowledge-intensive economy (ibid.: 190).University research is shown to greatly influence the location of high techno-logical clusters and high technology employment (Anselin et al., 2000). Ananalysis by Malecki (1998a) of seven high-tech areas (such as Silicon Valley,Greater Boston, Research Triangle and Western Crescent in the US,Cambridge in the UK, Munich in Germany and Kyushu in Japan) found thatthe linkages between R&D units, the education infrastructure, and the size ofthe city are: ‘the most significant factors behind the success of these high-techareas’ (Malecki, 1998a: 264).

In the development of endogenous growth conditions organizational andinstitutional structures seem to play important roles. For example, the threemain actors in the development of human resources are:

• governmental agencies• education institutions• innovative firms and entrepreneurs.

The role of government with the influence of diverse stakeholders establishesmany of the institutional norms and makes decisions regarding educationalactions. The role of higher education institutions is to provide education andR&D services, employ personnel and R&D activities according to theirspecific requirements for production; and the competencies that originate anddevolve from the educational system. This general realization has led severalauthors to expand the theory of endogenous growth to include a broader arrayof variables into models of regional economic development. For example,some models now do attempt to provide a way to see how community andinstitutional and non-traditional economic variables influence economicdevelopment (Johansson and Karlsson, 2001: 3). Some examples of institu-tional and non-traditional economic variables might be leadership and the


cooperation of local leadership groups in influencing regional economicperformance, entrepreneurship and the associated spontaneity which may alterthe economic orientation of the region, and social capital which maycontribute to increasing returns to a regional economy by reducing transactioncosts (Johansson and Karlsson, 2001; Stimson et al., 2002).

1.3 ENDOGENOUS GROWTH: POLICY AND STRATEGYCONSIDERATIONS

The concept of a learning region has evolved, based on the premise that theagility and/or response capability of a region is dependent on its learning infra-structure (Simmie, 1997; OECD, 2000) and the way it uses knowledge andideas to maintain a competitive advantage through the learning process(Maillat and Kibir, 2001: 255). Florida (1995) says learning regions:

function as incubators and repositories of knowledge and ideas, and provide anunderlying environment of infrastructure which facilitates the flow of knowledge,ideas and learning. Learning regions are increasingly important sources of innova-tion and economic growth, and are vehicles for globalization. (p. 520)

Knowledge creation through learning has thus become a central proposition ofthe endogenous growth theory formulation (Stimson et al., 2002: 276).Through learning it is not possible to envisage how a closed regionaleconomic system could survive, develop and maintain itself.

However, exogenous factors – such as trade, labor mobility and migration,knowledge and innovation diffusion, foreign exchange, business cycles, capi-tal mobility, monetary and fiscal policies imposed by higher levels of govern-ment, and the decisions made in headquarters of firms affecting operationslocally – all remain important to a region’s economic performance and itsdevelopment over time. Those factors are not substantially under the controlof local decision-makers.

The increasing importance being placed on the role of endogenous forcesin regional economic development does raise significant issues for the role ofpolicy and strategy and their meaning. Karlsson et al. (2001: 5–6) pose thesequestions:

What is the role for national policy and for regional policy?Are top-down policies appropriate, desirable and effective?Are bottom-up policies capable of impacting locations beyond the regionand in what ways?What should be the combinations of top-down and bottom-up policies?


What are the roles of culture and values, and how do they vary from placeto place?Can policies be created and implemented that will effectively and effi-ciently induce self-organizing adjustment processes?

Not surprisingly, contemporary thinking is diverse on how to plan for aprocess to facilitate regional economic development in an environment ofglobal competition, rapid change and a concern over sustainability (Stimson etal., 2002: 8). Imbroscio (1995) advocates strategies for greater self-reliance;McGee (1995), Park (1995) and Ohmae (1995) advocate regional economicdevelopment strategies based on strategic alliances and inter- and intra-regional network structures, including digital networks (Tapscott 1996); andSternburg (1991), Hall (1995), Henton (1995), Stough (1995), Waites (1995)advocate the need to base regional economic development on the growth ofclusters of industries. But as Stimson et al. (2002) point out, there remains:‘no universal model or framework guaranteeing success for regional economicdevelopment’ (p. 38).

It can be argued that the focus on endogenous growth processes in policyterms is related to the philosophies of both liberalism and neoliberalism:

• Liberalism embraces the belief that unencumbered individual decision-making and individual action are the appropriate and beneficial basis forthe socio-political and economic organization of society.

• Neoliberalism, while embracing that view, additionally asserts that thebest outcomes for society will be achieved when the state retreats fromintervention in such matters.

The latter is seen in much of the current policy dogma in local or commu-nity development (see, for example, Ife, 2002), which argues that enhancedself-reliance amongst an empowered local population has the potential to bodepositive social and economic change, with local integration into national andinternational economies occurring through local regions exploiting theircompetitive advantage and fostering economic diversification (OECD, 1993),aided and abetted by free market, enhanced competition, efficiency and effec-tiveness policies (D’Arcy and Giussani, 1996; Stillwell, 2000). Herbert-Cheshire and Lawrence (2001) draw attention to the link in these arguments toentrepreneurship and the role of the entrepreneur as an innovator (Kurato andHodgetts, 1998), an issue to which we return later.

Stimson et al. (2002: 277) state that:

what is significant about endogenous growth theory is that it emphasizes the impor-tance of local factors in creating and maintaining sustained development as opposed


to ones external to the region … [it] … provides a way to see a broad array ofcommunity and institutional and non-traditional economic variables – includinglearning, leadership and social capital – as major inputs to a successful regionaleconomic development process … Endogenous growth theory embodies the notionthat it is possible for regional economic growth and development to be sustained bylocal internal forces.

Stimson et al. (2002) refer to the importance of the following in that process:

• learning and learning agents• leadership• institutions and institutional structure• infrastructure (and especially ‘smart infrastructure’)• human capital• networks and alliances.

1.4 CONCLUSION

There have been criticisms of the new growth theory. For example:

• It can be argued that it is extremely difficult to identify anything approx-imating a knowledge-producing sector in real economies.

• Significant problems do remain over how human capital should bemeasured in empirical work; for example, whether stocks of, orincreases in, education best reflect human capital.

• There is no agreed mathematical model that can capture properly theeffects of factors such as leadership, institutional arrangements, socialcapital, or values.

Thus, while new growth theory has made important contributions to ourunderstanding principal sources of endogenous growth, it has not as yetprovided a specific model for measuring their impact. And nor has itdeveloped an operational procedure demonstrating how to incorporatethose endogenous factors and processes into models of growth andproductivity.

But what endogenous growth theory does do is to make it abundantly clearthat, in addition to factor costs or price differentials, factors such as thosediscussed in this chapter are important in regional economic development.Regional economic development thus cannot be reduced to a narrow set ofeconomic factors; rather it will be influenced by a range of social and culturalfactors as well. That includes leadership and institutional factors. The abilityof a region to effectively address these endogenous factors will significantly


determine its agility and rapid response capability in responding to changingcircumstances and will affect its capacity to ride shocks.

Thus, the new framework we propose in this book to conceptualize theeconomic development and competitive performance of a region is firmlyembedded in endogenous growth theory.


PART I

Developing a new conceptual model frameworkfor endogenous regional economic growth anddevelopment: Incorporating resourceendowments and market fit, leadership,institutional factors and entrepreneurship

2. A new conceptual framework forregional endogenous development

2.1 A ‘VIRTUOUS CIRCLE’ FOR REGIONALDEVELOPMENT

The idea of ‘sustainable development’ – paying explicit attention in regionaldevelopment to what is being called the ‘triple bottom line’ – may be concep-tualized as a virtuous circle as set out in Figure 2.1. We suggest that that circleis maintained by effective leadership as it is used to change and adjust institu-tions in order to adopt the structure, processes and infrastructure of a regionaleconomy to meet and anticipate changing circumstances, and to facilitate theoptimal use of its resource endowments and to assist industries to tap their fullmarket potential and achieve market fit.

As outlined at the beginning of Chapter 1, our view is that strong leadershipmeans a city or a region needs to be proactive in initiating regional economicdevelopment strategy to monitor regional performance. It needs to set a vision forthe future development of the region, and implement plans and processes that willfacilitate institutional change and encourage and facilitate entrepreneurship. This,in turn, will likely have the effect of enhancing the capacity and capability of thecity or region to positively adjust to changing circumstances helping it to attain agood and/or improved fit with market conditions, and for it to more effectivelyharness its resource endowments in order for it to maintain and improve regionalperformance and for it to achieve a sustainable development path as a learningregion, and for it to be one that is competitive and entrepreneurial.

We are advocating this process; and we are also arguing that this is theprocess that, while often used, is all too often used in a less than thoughtfulmanner and not in a pre-planned way. Our argument is derived from the notionthat the presence of leadership in regions that are performing well, or which havebeen re-engineered and turned around from performing poorly to perform better,has been crucial in providing the right policies and creating and facilitating theright environment. The Silicon Valley region in the US, for example, has chan-neled resource endowments into efficient allocations (Leipziger, 1997). In suchplaces, leaders have initiated crucial institutional reforms, policies, projects andenvironments that benefited citizens in general (Rowen, 1998).

19

2.2 A CONCEPTUAL FRAMEWORK: THE REGIONALCOMPETITIVENESS PERFORMANCE CUBE (RCPC)

A three-dimensional conceptual model has been proposed (Stimson, Stoughand Salazar, 2003) to illustrate how a city or region’s economy might movefrom a sub-optimal to an optimal position within what we have called theregional competitiveness performance cube (RCPC). This is represented inFigure 2.2. The dimensions of the cube are:

• strong vs. weak leadership (L)• effective vs. ineffective institutions (I)• good vs. poor resource endowments and market fit (REM)

The REM dimension may be split into (a) resource endowments, and (b)market fit, to produce a four-dimensional RCPC hyper cube. However, forsimplicity we use the three-dimensional representation as our focus in thisbook is more on the L and I dimensions of the cube.

At any point in time a city’s or a region’s economy will locate somewherewithin the sphere of the RCPC. Regions will vary greatly on the REM dimen-sion, particularly concerning the magnitude, quality and mix of their resource


Source: The authors.

Figure 2.1 The virtuous circle for sustainable regional development

endowments, and also with respect to the prevailing market circumstances, thecompetitiveness of their industries and the effectiveness of their institutions inseeking to achieve a ‘fit’ with prevailing market conditions. Those in turnaffect the capacity of a region to tap into market opportunities and facilitateentrepreneurship. Our proposition is that the performance of a region on thesethree dimensions – L, I and REM – in the RCPC will condition a region’s posi-tion at a given point in time within the RCPC and its path or trajectory overtime through the RCPC.

Few, if any, cities or regions will have a perfect fit because markets andmarket demand are dynamic due to the changing circumstances of bothendogenous and exogenous factors. Our proposition is that at all times aregional economy needs to be trying to adjust its institutions and productiveorganizations so as to maintain and enhance market fit by efficiently and effec-tively harnessing its resource endowments to be competitive, and thus tosustain itself. Some regions do this better than others; and how well a regionaldoes it can change dramatically over time, for better or for worse.

Thus, the trajectory over time of a city or region through the performancespace represented by the RCPC will be dependent on the evolving interactionsbetween the efficiency and effectiveness with which L and I provide catalytic

A new conceptual framework for regional endogenous development 21

The leastdesired orsub-optimalposition fora region

The mostdesired oroptimalposition fora region

Resou

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Figure 2.2 The regional competitiveness performance cube (RCPC)

processes and create situations conducive to the harnessing of its REM. Wewould argue that regional economic development strategy needs to be formu-lated, and that appropriate plans need to be developed and mechanisms imple-mented that are geared towards shifting the position of a region within the RCPCtowards the top right-hand corner of the cube in order to achieve a position thatreflects performance optimality for a sustainable development outcome.

2.3 A MODEL OF REGIONAL ENDOGENOUSDEVELOPMENT

Using the three dimensions defining the axes of the RCPC in Figure 2.2, andin addition giving explicit consideration to the importance of entrepreneurship(E), Stimson et al. (2003), Stimson, Stough and Salazar (2003) and Stimsonand Stough (2004 and 2005) have proposed a new model framework forregional endogenous growth and development that is depicted in Figure 2.3.That model may be represented as follows where REM is resource endow-ments and market fit:

RED = f [REM mediated by (L, I, E) (2.1)

In the model the outcome of the regional economic development process(RED) is the degree to which a region has achieved a competitive perfor-mance, displays entrepreneurship, and has achieved sustainable development.Those outcome states are defined as the dependent variables in the model.That outcome state is conceptualized as being dependent on a set of quasi-independent variables relating to a city or region’s resource endowments andits ‘fit’ with market conditions (the REM axis in the RCPC in Figure 2.2), thatbeing mediated through the interaction of sets of intervening variables thatencompass factors defined as leadership and institutions (the L and I axes inthe RCPC in Figure 2.2) which may interact to facilitate, encourage orsuppress entrepreneurship (E). Importantly, the new model framework repre-sented in Figure 2.3 is seen to incorporate both direct and indirect effects inthe interactions between REM (the quasi-independent variable) and L, I and E(the intervening variables). Also, the interactions between the intervening vari-ables L, I and E may be both direct and indirect.

It is suggested in Figure 2.3 that these dynamic interrelationships and howthey evolve and operate over time will shape the nature of the developmentand performance of a region, which may be measured and evaluated andbenchmarked using well-developed and tried tools of regional economicanalysis, including, for example, shift–share analysis (Stimson et al., 2006)and in particular through a focus on the regional shift component.


23

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The crucial dynamic depicted in Figure 2.3 is how the intervening variables(L, I and E) interact to create catalysts for more effective and efficient utiliza-tion of a city or region’s resource endowments and how effectively it capturesmarket opportunities. In other words, the interaction of L, I and E become thecrucial catalytic factors in shaping not only the performance of a region –especially in influencing how effectively the REM factors are utilized andtapped – but also in enhancing the capacity and capability of a city or regionto efficiently, effectively and successfully address the challenges and contin-gencies it faces over time in dealing with uncertainty and risk and in copingwith change.

2.4 OVERVIEW

Our proposition is that regions inevitably are influenced by their institutions,leadership, social composition, economic structure and the degree of entrepre-neurial activity – all of which interact and evolve in a unique manner over timeand display a unique set of circumstances and a particular outcome state atspecific times. The conceptual model framework developed above stresses thedynamic uncertainty of reality that confronts regions in the contemporaryworld. Regional economic development over time is the outcome state ofthose independent and mediating factors and processes that affect regionaleconomic development. In the model in Figure 2.3, RED may be measured andevaluated through performance indicators which relate to:

• the competitive performance of a city or region vis-à-vis other places• the degree of entrepreneurial activity occurring• the degree to which it has attained sustainable development vis-à-vis

‘triple-bottom-line’ economic growth and performance, social equity,and environmental quality indicators.

A way to conceptualize that outcome state for a city or region at any pointin time, and its progress in economic development and its performancethrough time, is to envisage its path through the regional competitivenessperformance cube (RCPC) as proposed in Figure 2.2.

In the four chapters that follow we elaborate on the components of themodel framework that represent the independent and mediating variables –REM, L, I and E – and explain why they are such crucial interrelated factorsshaping the competitive performance of a region (RED), the dependent vari-able in the model.


3. Resource endowments and market fit

3.1 INTRODUCTION

This chapter considers the REM dimension in the model discussed in Chapter2, namely resource endowment and market fit.

It is widely recognized that economic growth and performance are relatedor tied to the resource endowments of a region and also to market conditionsand the markets a region serves and which it potentially might tap – what werefer to as market fit. Thus, as stated by Stough et al. (2001: 178): ‘The betterendowed a region is in terms of resources the better it should perform ceterisparibus.’

The capacity of local leaders to act and the capacity of institutions to beeffective will be considerably dependent on the resources available to them;but conversely the effectiveness and efficiency of leadership and of institu-tions in a region can act to enhance its resource endowments and its capacityto tap markets.

3.2 THE NATURE OF RESOURCE ENDOWMENTS

3.2.1 Factors of Production and Other Considerations

In the context of local economic development planning, Blakely (1994: 144)refers to the ‘5Ms’ that represent resources crucial to the economic develop-ment process and which need to be evaluated as part of strategy formulation.These are:

• materials• manpower• management• markets• money

They are similar to those resource endowments traditionally considered ineconomics as factors of production, namely: natural resources, land, labor,capital and entrepreneurship.

25

The resource endowments of regions are diverse and differ markedly fromplace to place. They include:

• the area size of the region• natural resources, such as climate, land, topography, materials• regional locational and environmental assets• historical economic base and industry structure and diversity• entrepreneurship• investment capital• competitive position• population and human capital• technological and other infrastructure• access to markets; agglomeration economies• and so on (Fainstein, 1983: 32; Judd and Parkinson, 1990: 21).

3.2.2 Enhancing Resource Endowments

Traditionally resource endowments of a city or region were seen to bestoweither a comparative advantage or disadvantage on a place. However, a wellendowed city or region might succeed even if it has few or relatively poorresource endowments or if there are few opportunities for economic expansion(Jessop, 1998: 96), and this may be achieved through strong leadership andeffective institutions acting as the catalysts and facilitating entrepreneurialactivity to stretch and leverage those resource endowments that exist and toenhance market capture. Conversely, poor leadership and inadequate, inap-propriate or ineffective institutions often means those resource endowmentsare not being used effectively and that market opportunities are not effectivelypursued and tapped. In that way a city or region might experience a competi-tive advantage or disadvantage.

De Santis and Stough (1999) have linked the notions of leadership andresource endowments to develop an operational model to test the interactionof those dimensions with regional economic performance in a study of 35metropolitan areas in the US. Their proposition is that once exogenous factorsare controlled for, then regional economic performance depends on leadershipand resources, with leadership modeled as a variable that amplifies the inde-pendent effect of resources. Their study is interesting because it links institu-tional factors to measures of resource endowments, focusing on corporatestrength and human capital, as well as the presence of financial institutions, asaspects of resource endowment. Leadership variables are drawn from thenotion of slack institutional resources, which Cyert and Marsh (1963: 36)define in the context of the firm as the difference between the resources madeavailable to a firm and the total necessary for it to be maintained. De Santis


and Stough (1999) propose that slack exists at varying levels and at varioustimes in all organizations, representing ‘excess’ resources that may be mani-fest as sources of voluntary contributions to ‘civic activities’, or locally-basedand focused community efforts by public, private and non-profit organizationsand foundations. Such allocation of excess resources to those types of organi-zations and activities may be seen as enhancing both the leadership potentialand the institutional capacity of a region. The De Santis and Stough (1999)study demonstrates that local regional leadership factors do enhance theresource base and are critical in explaining the strength of regional economicperformance.

Special importance is now also being placed in those resources that thepublic, private sector and non-profit sectors (NGOs) can direct towardscommunity economic development or community problem-solving (Stough etal., 2001). The degree to which such actors and decision-makers commitresources into the community as well as the availability of resources foreconomic development will determine the scope and scale of local action, thuspotentially enhancing the resource endowments of a region.

3.3 MARKET FIT

In the conceptual model framework outlined in Chapter 2 we specificallyincorporate the notion of market conditions/market fit within the REM compo-nent of the model of regional endogenous growth and development, becausethe ability of enterprises in a region to engage in trade with other regions tocapture market share outside as well as inside the region is crucial. For a longtime economic base theory has told us this.

3.3.1 Comparative Advantage

Trade theory in economics tells us that the resource endowments of a regionmay bestow either a comparative advantage or disadvantage on a place. Butmore recently – as Johansson and Karlsson (2001) emphasize – the role of thefunctional region vis-à-vis its location, trade and industry specialization isbeing viewed in a different light. Location specialization and regional growthare more dependent on technology and scale effects together with influencesfrom durable regional characteristics.

Until the 1980s, comparative advantages were mainly seen as being derivedfrom resource-based models, but since that time economic specialization has,to a large extent, increasingly been viewed as dependent on increasing returns,with differences in resources (factor initiatives) explaining only parts of tradeflows and the location of production (this argument follows Krugman, 1981,

Resource endowments and market fit 27

1991). With increasing returns as a basic explanation, trade was seen as devel-oping because there are advantages in specialization among regions with simi-lar resource endowments; thus specialization and trade are driven by scalerather than by comparative advantage, with the gains from trade arisingbecause production costs fall as the scale of output increases. Johansson andKarlsson (2001) also show how the internal market potential of a functionalregion is the prime home market which, together with increasing returns toscale, may give rise to processes of endogenous growth (or decline).

3.3.2 Scale Effects and Agglomeration

Of course scale factors relating to the size and to the industrial diversity of acity or region and the market opportunities it represents, as well as its externalmarkets and their size and scope, will also affect a region’s potential and thefeasibility of it to tap markets and that will be of considerable importance inimpacting the nature and rate of economic development and growth that mightbe achieved in a city or region.

Maier (2001: 132) points out that new growth theory places increasedemphasis on agglomeration effects. Patten (1991) argues that re-agglomera-tion of economic activity is occurring with the shift towards more flexibleproduction modes. The scale effects of agglomeration do suggest that largerplaces – particularly large metropolitan cities – are likely to have a combina-tion of resource endowments, market fit and other factors that provide themwith an important advantage vis-à-vis smaller places. It is evident also thatindustry diversification is associated with urban scale, and that the role of newtechnologies – such as ICTs – is acting to enhance those effects (Duranton andPuga, 2000).

Thus, we are not underestimating the effects of scale and agglomeration inour model of regional endogenous growth and development outlined inChapter 2. Indeed, as seen in much of the recent work in theories of endoge-nous growth, local externalities (Scott, 1988; Feser, 2001) are key factors inthe regional economic development process.

3.3.3 Competitive Advantage

Johansson and Karlsson (2001) propose a simple model that emphasizes therole of the functional region vis-à-vis:

• location• trade• industry specialization


They see location, specialization and regional growth as dependent on tech-nology and scale effects together with influences from durable regional char-acteristics. Johansson and Karlsson point out that up until the 1980scomparative advantages are mainly derived from resource-based models, butthat since then economic specialization is, to a large extent, dependent onincreasing returns and that differences in resources (factor initiatives)explain only parts of trade flow and the location of production (this argu-ment follows Krugman 1981, 1991). With increasing returns as a basicexplanation, trade develops because there are advantages to specializationamong regions with similar resource endowments; thus specialization andtrade tend to be driven by scale rather than by comparative advantage, withthe gains from trade arising because production costs fall as the scale ofoutput increases.

Johansson and Karlsson (2001) also show how the internal market poten-tial of a functional region is the prime home market which, together withincreasing returns to scale, can give rise to processes of endogenous growth(or decline). Thus, resource-based and scale-based mechanisms combine.Regional market size is important as it extends market potential. When aregion has both, its competitive advantage increases, and there will be anincreased possibility of the region growing a wide range of industry sectors,many of which may be exported to other regions.

Porter (1990: 1) notes how:

competitiveness has become one of the central preoccupations of governments andindustry in every nation [yet] there is no accepted definition of competitiveness.(p. xii)

However, it is now certainly regarded as a key element of regional economicdevelopment and it is a central thrust in many regional development strategiesand plans.

Stimson et al. (2002) state:

if regional development is primarily concerned with the competitiveness of ‘factorcosts’ of production and the maximization of profits to establish a favorable envi-ronment for investment or to compete for trade, [then] this may lead [regional]economies along unsustainable development paths, with undesirable social andeconomic outcomes. We need, therefore, to rethink the relationship betweencompetitiveness and sustainable economic development. (p. 29)

Moore (1996) links competitiveness to collaborative arrangements, whichinclude strategic alliances, partnerships and resource sharing, which we havediscussed as endogenous factors in the context of institutions and institutionalarrangements.


3.4 EXOGENOUS INFLUENCES

While the issues discussed above relate predominantly to factors that areendogenous to a region, in the context of contemporary globalization and theassociated rapid growth in trade, increasingly some factors may be exoge-nous as well. This is seen, for example, in the internationalization of capitalflows and the interregional movement of labour. Physical resources inparticular are often playing less important roles as a result of the ability ofregions to readily substitute between endogenously and exogenouslysourced factor inputs. Thus, it is not necessarily the magnitude of volume ofendogenous resource endowments that is crucial in the regional economicdevelopment process; rather, it is the capacity and capability of a region’sinstitutions and its leadership to capture those exogenous factors needed toenhance endogenous deficiencies and as well to create new endogenouscapacity and capability. Doing so may be greatly enhanced through theeffectiveness of the other two dimensions in the RCPC in Chapter 2 – the Land I dimensions – which we have already discussed at length. It is thecombination of the way the L and I dimensions interact to enhance the REMdimension that is crucial, particularly in the context of the shift in focus fromthe comparative advantage to the competitive advantage of a region as beingkey in the development process to ensure a region’s industries and itssupporting infrastructure to achieve a ‘fit’ with market opportunities in thebroadest sense.

Global and national processes of economic and political restructuringincreasingly are imposing new challenges and opportunities to cities andregions. For example, deep-seated sectoral shifts have redefined the economicbase of advanced capitalist economies. In places such as North America,Western Europe and Australia, these shifts have manifest themselves in thestagnation and decline in many mass production labor-intensive activities suchas textiles and heavy manufactures. As a result, many cities and regions haveexperienced unfamiliar uncertainty as they could no longer rely on past prac-tices but had to search for new economic activities and development strategies.For example, in the US, steel jobs in the city of Pittsburgh practically disap-peared as firms closed and residents left before its reemergence as a center forinformation technology-based activities and producer services (Sheppard andLeitner, 1998: 286–7). The revolution in information and communication tech-nologies (ICTs) and the accelerating pace of technology change, along withthe mobility of capital, exacerbate that uncertainty and the rate and scope ofthe transformation that may occur in a city or region (Sheppard and Leitner,1998: 287).


3.5 CONCLUSION

From the foregoing discussion it is evident that resource-based and scale-based mechanisms combine to impact regional development. Regional marketsize is also important as it extends market potential. When a region has both,its competitive advantage increases, and there will be an increased possibilityof a region ‘growing’ a wide range of industry sectors, many of which may beexported to other regions. The recently popular concept of industry clusters islargely based on such premises.

The challenges of globalization and other exogenous forces means thatcities and regions – or even locations within them – need to create a favorableset of conditions among the intervening variables in our model. Those regionsthat do offer a favorable set of conditions derived not only from their resourceendowments but also through enlightened leadership and effective institutionsand which encourage and facilitate entrepreneurship will be more likely tobecome places with a competitive advantage (McGuirk et al., 1998: 110).


4. Leadership

4.1 INTRODUCTION

This chapter focuses on the L dimension in the model discussed in Chapter 2.As we will see in the discussion that follows, leadership is a complex issue. Itcan occur in many ways and it can assume many different forms. It can havea profound effect on institutions. Also it can exhibit aspects of entrepreneur-ship. However, leadership warrants special attention because of the catalyticeffect it can have as an explicit factor in the regional endogenous developmentprocess.

4.2 LEADERSHIP IN THE CONTEXT OF REGIONALDEVELOPMENT

Leadership has been given many definitions. It is not a straightforwardconcept, particularly in the context of regional economic development, andthere has not been a lot of published research that has systematically analysedthe nature of leadership and its role in regional economic development.Nonetheless, it is important to try to define it so that it can be articulated withrespect to the goals of this book.

While it is common for leadership to be defined in terms of a ‘great person’,in the context of regional development it might be more appropriately seen asan expression or result of ‘collective action’. Thus, in regional economicdevelopment, leadership has been given not a ‘starring role’ but has beenviewed as a ‘collaborative action’ (Fairholm, 1994; Heenan and Bennis, 1999).Referring to regional economic development, Parkinson (1990) defines lead-ership as:

the capacity to create stable and durable mechanisms and alliances that promoteeconomic regeneration and identifies a range of micro-level skills and macro-levelresources that can generate that capacity. (p. 241)

And Stough et al. (2001) suggest that leadership might be thought of as:

the tendency of the community to collaborate across sectors in a sustained, purpose-

32

ful manner to enhance the economic performance or economic environment of itsregion. (p. 177)

4.2.1 Definitions of Leadership

Despite our attempt above to bind the concept with a definition we think fitsthe context of regional economic development, it is important to review therange of definitions that have been used in other contexts. By way of illustra-tion, we take a number of definitions of ‘leadership’ that reflect the diversityof approaches and focuses that researchers from a variety of disciplinaryperspectives have taken.

Burns (1978) defines leadership as:

[the act] of persons with certain motives and purposes to mobilize, in competitionor conflict with others, institutional, political, psychological, and other resources soas to arouse, engage, and satisfy the motives of followers. (p. 19)

Gardner (1990) sees leadership as the:

process of persuasion or example by which an individual (or group) induces a groupto pursue objectives held by the leader or shared by the leader and his followers.(p. 1)

Bennis and Nanus (1991) treat leadership as that which:

invents and creates institutions that can empower [individuals] to satisfy theirneeds, chosen purpose and visions that are based on key values of the work forceand creates a joint architecture that supports them, and, finally moves followers tohigher degrees of consciousness. (p. 218)

Rost (1991) defines leadership as:

an influence relationship between leader and followers who intend real changes thatreflect their mutual purposes. (p. 102)

4.2.2 Why Leadership is Crucial

Heenan and Bennis (1999) point out that, in the ‘new economy’ of increasinginterdependence and technological change, collaboration is not just desirable;it is crucial.

In a previous era, influence, power and decision-making often depended onsingle individuals or very small groups and leadership was based on a tradi-tional hierarchical authority relationship between a leader figure(s) andfollowers. But in today’s world, power, influence and decision-making are

Leadership 33

more dispersed among power stakeholders working together towards acommon goal (Judd and Parkinson, 1990; De Santis and Stough, 1999;Heenan and Bennis, 1999). It is through collaboration and collective processesthat regions possess or acquire sufficient flexibility and knowledge to adjust toshocks and continuous changing conditions (Saxenian, 1994; Stough et al.,2001) – hence the connection between leadership and institutions. In this senseStimson et al. (2002) say that:

leadership for regional economic development will not be based on traditional hier-archy relationships; rather, it will be a collaborative relationship between institu-tional actors encompassing the public, private and community sectors – and it willbe based on mutual trust and cooperation. (p. 279)

It will be about:

• shared power• flexibility• entrepreneurialism

in order to ‘energize’ a city or region to meet its competitive challenges andadapt its environment to the needed challenges (Porter, 1990).

In this sense, Stough et al. (2001) see leadership as ‘the vehicle that steersthat adjustment process’, operating by targeting and guiding adjustment ininstitutions (social rule structures) that enable a region to change in ways thathelp to sustain regional economic development and that involves the capacityto engage in risky behavior (Doig and Hargrove, 1987; Hofstede, 1997).

It is in this context of risk that there is an obvious link between leadershipand entrepreneurial activity, and this has been a focus of attention from both amanagement and a business development perspective in studies of the firm aswell as in regional economic development. With respect to the former, theentrepreneurial role of a leader is to:

• innovate and develop products or services to market• effectively compete with – or out-compete – competitor firms.

In the latter context, community leadership for regional development maycontain many individual entrepreneurs; however, their desire to collaborate –to work together – to create positive externalities beyond their own self-inter-est or profit is what generates and/or enhances effective leadership in a collec-tive context for regional economic development. This is illustrated bySaxenian’s (1994) proposition that leadership will be characterized by hori-zontal structures rather than by vertical structures.


It is evident also that there is interdependency between leadership and insti-tutional considerations. Collaboration, trust, power distance and entrepre-neurialism are products or outcomes of the interactions between those twodimensions in the regional competitive performance cube (RCPC) discussedin Chapter 2, and it thus becomes a moot point as to whether the key compo-nents referred to above belong to one or the other or both of the L and I dimen-sions.

In regional economic development, it is the dynamic, or more precisely thecatalytic effect of leaders and of leadership that is crucial.

4.3 PERSPECTIVES ON LEADERSHIP

It is useful to consider in more detail a number of perspectives on leadershipin order to more fully understand the context in which it is being used inregional economic development.

4.3.1 Social Psychology Perspectives

Vaughan and Hogg (2002: 231–41) provide the following perspectives onleadership from the point of view of social psychology.

1. One perspective is the great person theory, which attributes effectiveleadership to innate or acquired individual characteristics, where the focusis on personality attributes.

2. Explanations that emphasize the functional requirements of tasks or situ-ations, where the focus is on explaining the actions of collectivities ratherthan individuals or on attributing to the leader an important role in groupachievement, but where leadership is not seen as an invariant property ofindividual personality.

3. Behavioral perspectives on leaders (after Lippitt and White, 1943) havemade the distinction between three leadership styles: autocratic leader-ship based on giving orders to followers; democratic leadership based onconsultation and obtaining agreement and consent from followers; andlaissez-faire leadership based on disinterest in followers.

4. Interactionist perspectives of the leadership effectiveness of particularleadership styles emphasize contingency or situational factors and taskfactors (Fiedler, 1995). The distinction is made between socio-emotionalleaders, who are concerned with group member feelings and relationshipsrather than with group tasks, and task-oriented leaders, who areconcerned with group tasks rather than with relationships among groupmembers. The effectiveness of either style of leadership is contingent on

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situational control, which is influenced by leader–member relations, taskstructure and positional power.

5. Another perspective suggests that without followers there can be noleader, with the role of the leader being conferred on an individual bymembers of the group. This perspective is one of leadership as a growthprocess, there being a dynamic transaction between leaders and theirfollowers (Hollander, 1958; Bass, 1990), with leadership defined as aprocess of social influence through which an individual enlists and mobi-lizes the aid of others in the attainment of a collective goal (Vaughan andHogg, 2002: 238).• One basis of this process may be interpersonal equity transaction,

where the leader–member exchange theory of leadership suggests thateffective leadership rests on the ability of the leader to develop hierar-chical exchange relationships with individual members of the group;and the group value model takes the view that procedural justicewithin groups makes members feel valued, and thus leads to enhancedcommitment to and identification with the group (Tyler and Lind,1992).

• A second basis of this process is that leaders are group members (Lord,1985) and that they are either (more or less) prototypical or schematicmembers of leader categories or are able to embody the ideal norms ofthe group based on self-categorization theory (Turner et al., 1987).

• A third basis of the process is that, paradoxically, on the one hand lead-ers epitomize and represent the group while on the other hand they areagents of change within the group (and are thus simultaneouslyconformist and deviant), which is represented by the notion of idio-syncrasy credit.

Hollander’s (1958) transactionalist theory proposed that followers rewardleaders for achieving group goals by allowing them to be relatively idio-syncratic, and thus display tranformational leadership (Bass, 1990) char-acterized by charisma, inspirational motivation, intellectual stimulationand individualized consideration, which motivate followers to work forgroup goals that transcend individual self-interest.

The orientation in social psychology is thus on leaders as individuals in a vari-ety of group contexts – teams, committees, organizations, friendship groups,groups – with leaders being people with ‘great ideas’ that group membersagree upon, and who people follow. As Vaughan and Hogg (2002) say: ‘lead-ers enable groups to function as productive and coordinated wholes’ (p. 231).A considerable focus in the social psychology literature on leadership has beenon measurement of the key characteristics of leaders, as seen in the pioneeringwork of Fiedler (1995), who developed two different but related measures.


These are often used interchangeably, and involve leaders’ perspectives oftheir co-workers to measure leader–member relations. Recent developmentsof this contingency approach to leadership may be seen in Fiedler’s (1995)cognitive resources theory. It attempts to search for the qualities that wouldpredict success among leaders. As pointed out by Oskamp and Schultz (1998:89), an ‘exciting offshoot’ of this work is a leader training program that:‘attempts to improve organizational effectiveness by manipulating levels ofsituational control and leadership styles’ (p. 89).

4.3.2 Management Perspectives

The social psychology perspectives on leadership have, to a considerabledegree, been incorporated within an organizational context and adopted andadapted into management perspectives on leadership. Here the focus is onleaders and leadership in business organizations, and in particular within thefirm.

The management literature abounds with books on leadership, but there isevident an era shift in focus on style and substance. The 1980s and 1990stended to glamorize the ‘leader at the top’ (such as Lee Iococca and JackWelch) and draw lessons from history’s great leaders (for example Gandhi,Churchill and Lincoln). Abramson (2002) reviews a shift to new perspectiveson leadership evident in a number of recent books which emphasize leadershipas:

hard work performer by people who are presented with opportunities to lead everyday in their organization. It is not just the leader at the top who leads, but also indi-viduals at all levels throughout organizations who are presented daily with oppor-tunities to make a difference. (p. 37)

Heifetz and Linsky (2002) place importance on the need for leaders toconsciously build effective personal relationships, find partners, keep close totheir opposition, accept responsibility and acknowledge losses when neces-sary. Leaders need to ‘orchestrate’ conflicts by ‘controlling the temperature’,‘holding steady’ and ‘pacing’ when new work needs to be done. Of coursethere are always situations where leaders may need to take exception with thegeneral view of colleagues or followers in order to move a process along.

Badaracco (2002) focuses on the ‘ordinary’ as opposed to the ‘heroic’leader, who moves quietly, patiently and incrementally. He calls them the‘quiet leaders’, exercising modesty and restraint, focusing on solving big prob-lems through a long series of small efforts, which, he claims, often turn out tobe the best and quickest way to make an organization a better place. Badaraccoprovides a ‘tool kit’ of approaches for quiet leaders – ‘busy time’, ‘drill down’to uncover new information and ‘seek compromises, not total victories!’

Leadership 37

Kotter and Cohen (2002) emphasize eight steps for successful change.These are:

• increase urgency• build the guiding team• get the vision right• communicate for buy-in• empower action• create short-term wins• don’t let up• make change stick.

They propose that leaders move from an ‘analysis–think–change’ approach toa ‘see–feel–change’ approach. They say people do not change because ofpersuasive analytical argument; rather, they change because they have been‘emotionally reached’ by dramatic visualizations of problems or solutions. Themessage is that ‘change leaders make their point in ways that are emotionallyengaging and “compelling” as possible … supply valid ideas that go deeperthan the conscious and analytic part of our brains—ideas with emotionalimpact’.

That emotional side of leadership is taken up by Goleman et al. (2002) whodescribe six leadership styles:

• visionary• coaching• affiliative• democratic• pacesetting• commanding.

The first four styles tend to build a positive emotional environment withinorganizations, while the last two frequently create a negative environment.

4.3.3 Entrepreneurial Perspectives

There is an obvious link between leadership and entrepreneurial activity, andthis has been a focus of attention from both a management and business devel-opment perspective in studies of the firm as well as in regional economicdevelopment. With respect to the former the entrepreneurial role of a leader isto innovate and develop products or services to market and to effectivelycompete with – or out-compete – competitor firms. In the latter context,community leadership for regional development may contain many individual


entrepreneurs; however, their desire to collaborate to create positive externali-ties beyond their own self-interest or profit is what generates and/or enhanceseffective leadership in a collective context for regional economic development.

The role that entrepreneurs play in economic development dates to thework of Schumpeter (1934) and his theory of economic development wherethe entrepreneur is seen as a ‘risk-bearer … [as] a person who has character-istics such as: initiative, authority or foresight’. For Schumpeter, entrepreneursare the prime movers of economic development:

the agents who initiate new combinations of means of production [and] whosupplied the will and the action necessary to disrupt the position of production andestablish the new. (Schumpeter, 1934; High, 2002).

Kurato and Hodgetts (1998) refer to the entrepreneur as an innovator who:

recognizes and seizes opportunities; conveys those opportunities intoworkable/marketable ideas; adds value through time, effort, money or skills;assumes the risk of the competitive market place to implement those ideas; and real-izes the rewards from these efforts. (p. 30)

In terms of local communities or regions, Herbert-Cheshire and Lawrence(2001) suggest that an entrepreneurship model will:

become dependent on the ability of motivated individuals to find their place in theglobal economy by becoming more inventive, business-like and risk-taking in creat-ing new opportunities for value-adding and niche marketing. (p. 4)

While the entrepreneurial effect on economic development is widelyaccepted and proven (Kirzner, 1973; Malecki, 1991; High, 2002), Schumpeter(1934), as well as many other authors (Hirschman, 1958; Doig and Hargrove,1987; Weiss, 1988), often treat leaders and entrepreneurs as synonymous.Although it is true that both share such characteristics as initiative, risk bear-ing, vision, determination, and so on, they cannot be seen as being equivalents;that would make sense only if one sees the effect of individuals alone. Actingby themselves entrepreneurs can advance products and industries and be lead-ers within their range. However, as the world becomes more integrated andinterdependencies assume increasing importance, a separation of leadershipand entrepreneurs becomes more apparent, especially when we are talkingabout carrying or taking individual economic success (at a business level) tothe more complex level of the development of a region as a whole.

To illustrate, as seen commonly through the world, such as in LatinAmerica, individual entrepreneurs have created successful companies andinstituted innovative combinations of factors of evolution, but economicdevelopment for the region has not only been less than desirable, but also

Leadership 39

highly unequal in its impact. In some contexts, however, such as we see in partof East and Southeast Asia, the existence of entrepreneurs could not havecreated the externalities their actions led to without the right or supportivepolicies and the right environment. In that case leadership at a collective(community) level, rather than individual entrepreneurs, has steered or guidedpower stakeholders to organize themselves for development (Leipeizeger,1997; Rowen, 1998). Community leadership, rather than individual entrepre-neurs, has forged horizontal and collaborative relationships which have beencrucial to the innovative milieu and the technological advantage of places suchas the Silicon Valley in the US (Saxenian, 1994).

Take Australia as an example. Over the last couple of decades the efficacyof entrepreneurship has become a feature of government policy, particularly asit relates to research and regional development (Beeson and Firth, 1998;Kenny, 1999) as seen, for example, in the views and policy recommendationsencompassed in a series of federal government reports, including: the HilmerInquiry of 1993 into national competition policy; the 1995 Karpin Report intoindustry, leadership and management skills; and the 1994 McKinsey andCompany report into how to unlock the growth potential of regions. Thosereports advocate improvements in economic performance through theimproved performance of firms and institutions (Hilmer Inquiry) and theadoption of more appropriate attitudes and behaviors more widely across soci-ety (Karpin and McKinsey Reports). Wright (1998) discussed how entrepre-neurship now involves a whole range of enterprising qualities associated withself-reliance, autonomy and accountability; it involves ‘active citizenship’(Cruickshank 1994; Kearns 1995), whereby individuals are expected tobecome ‘entrepreneurs of themselves’, acting in a responsible and self-reliantmanner to improve the conditions of their own existence (Rose 1989, 1993).And according to Day (1998) it involves the fostering among local populationsof a new cultural trust through changes in attitudes and behavior to: ‘free thespirit of competition, initiative, self-reliance, risk-taking and so on’ (p. 92).

In the context of rural and regional development in Australia, Herbert-Cheshire and Lawrence (2001) state that the emphasis on competition, self-interest and personal advancement is: ‘inherently individualistic and lies atodds with the rhetoric of community spirit and social capital that characterizesthe bottom-up approach to local development’ (p. 5). But the implicit assump-tion seems to be that the entrepreneur’s motivation is no longer self-interestbut the facilitation of community initiatives and the empowerment of othersthrough what Herlau and Tetzschner (1996) refer to as ‘the provision of lead-ership, motivation, passion and vision’ (p. 116).

In the UK, Boyett and Findlay (1997) refer to these as ‘community entre-preneurs’, while in the US Henton et al. (1997) refer to them as ‘civic entre-preneurs’. In this work there is a focus on capacity building of skills for


development, leadership and collaboration to help create a competitivecommunity.

4.4 KEY COMPONENTS OF LEADERSHIP FORREGIONAL ECONOMIC DEVELOPMENT

Leadership for regional economic development that is community-basedand/or region-wide in its impact will not be based on traditional hierarchy rela-tionships; rather it will be a collaborative relationship between local institu-tional actors – encompassing the public, private and community sectors – andit will be based on mutual trust and cooperation (Bower, 1983; Osborne, 1988;Gray, 1989; Judd and Parkinson, 1990; Bryson and Crosby, 1992; Fosler,1992; Stimson et al., 2002). This proposition is supported by a comparativecase study of leadership in regional economic development in ten metropoli-tan regions in the US sponsored by the W.K. Kellogg Foundation andpublished in 1997 by the Academy of Leadership at the University ofMaryland.

No single individual or organization has the authority or power to undertakefully effective region-wide economic development; consequently, to be effec-tive regional leadership is a collective responsibility, and it involves local lead-ers who need to inspire and motivate followers through persuasion, example,data-informed arguments and empowerment (Burns, 1978; Bunch 1987;Kouzes and Posner 1987; Neustadt and May, 1990). Bryson and Crosby (1992)perceive an environment in which no single organization is ‘in charge’ nor hasthe legitimacy, power, authority and the knowledge required to tackle anymajor public issue, so that institutions must ‘join forces’ in a ‘shared-powerworld’ of intermediate institutions. Stimson et al. (2002) say that these are ‘thebasic elements of local leadership for economic development’ (p. 280).

The following might, then, be proposed as key components of, or evenpreconditions for, effective regional leadership to enhance the economicdevelopment process in a city or region:

1. Collaboration, as leadership is about an expression of vision and theimplementation of processes for the collective good – and for the wholecommunity – of a region (Fairholm, 1994).

2. Trust is essential for effective collaboration. Leaders and followers musthave mutual trust to risk participation in collective action (Fairholm,1994). If trust is lacking, leaders will find it difficult to have their viewsaccepted.

3. Shared power, which is characterized by low power distance and decen-tralized leadership power. The ‘power distance’ concept is defined by

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Hofstede (1997) as the degree of inequality in power between a lesspowerful individual and a more powerful individual, the existence ofwhich engenders mistrust and makes cooperation and collaborative diffi-cult. Power and responsibilities need to be dispersed while power basesare independent.

4. Flexibility, which is necessary for innovation and creative thinking andwhich rigidity in control mechanisms hinders (Bentley, 2002: 33).

5. Entrepreneurialism, where community leadership shows entrepreneurialcharacteristics, believes in change, and initiates it to ‘energize’ a region tomeet its competitive challenges and adapt its environment to the neededchallenges (Porter, 1990), and this involves the capacity and willingnessto engage in risky behavior (Doig and Hargrove, 1987; Hofstede, 1997).

From the foregoing discussion and examples it is evident that leadershipencompasses the notion of:

• shared vision or purpose• proactivity• collaboration• creating change.

Heenan and Bennis (1999) claim that in the new economy of increasing inter-dependence and technological change, collaboration is not simply desirable. Itis crucial.

In earlier times, leadership tended to be based on traditional hierarchicalauthority relationships between leader and follower, with influence, power anddecision-making dependent more on individuals. But today the more commonview is that these are shared among stakeholders working together towards acommon goal. It is through collaboration and collective processes that a regionwill have the sufficient flexibility and knowledge to adjust to shocks andcontinuous changing conditions (Saxenian, 1994; Stough, 2001). In this sense,leadership might be seen as ‘the vehicle that steers that adjustment process’(Stough et al., 2001), operating by targeting and guiding adjustment in institu-tions (social rule structures) that enable a region to change in ways that helpto sustain regional economic development.


5. Institutions and institutional factors

5.1 INTRODUCTION

This chapter focuses on the I dimension in the model discussed in Chapter 2.Institutions and institutional factors have for a long time been seen as playingcrucial roles in the process of regional endogenous growth and development,and have been widely discussed in the regional economic development litera-ture as well as in the general literature on economic development. Institutionalfactors cover a wide range of issues concerning governance and government,and may refer not only to the role of the public sector but also to private sectorand NGO and community actors and structures, and as well to the contempo-rary notion of public–private–community partnerships. And they encompassnotions of social capital, and networks and alliances of collaborative arrange-ments.

The discussion of institutions and institutional factors that follows providesa comprehensive overview of their nature and roles with respect to regionaldevelopment and indicates why they can be important enhancing or detractingforces influencing the growth and development of cities and regions and howthey affect regional competitiveness. It will be evident that leadership inparticular, and also entrepreneurship are interrelated to institutions, and somescholars do not draw the explicit distinctions which we choose to do in thisbook. However, institutions and institutional factors warrant specific anddetailed consideration.

5.2 INSTITUTIONS AS RULE STRUCTURES

Institutions are of vital importance in any society. They provide the rule struc-tures and the organizations within a society for it to operate. The nature ofinstitutions and the institutional structures in a society can have a profoundinfluence on how effective and efficiently a society operates and on thecompetitiveness of a national economy and on regional economies. Theyrepresent both endogenous and exogenous forces depending on the level ofscale and the nature and structure of governance and government as it pertainsto a nation and the regions within a nation. What might be an endogenous

43

factor at one level of spatial scale (such as the nation or a state or province)becomes an exogenous process at another level of scale (such as a local areaor city).

Rule structures are about the:

• principles• standards• laws• regulations

within which a society and economy operate and actors function. They are thestructures and processes which govern or inform:

• what may or may not be done,• what the consequences are if violated,• (and thus) how things may be done.

It is important to distinguish between government and governance:

1. Government is the system by which a nation, state or region is governed,through a body of persons elected or appointed to govern or conduct thepolicies and affairs of an organization.

2. Governance is the act or manner or process of governing and the office orfunction of governing.

In the context of regional economic development, the terms ‘institutions’ or‘institutional arrangements’ are used in a broad way to refer not only to thesestructural and process issues, but also to those things that are provided or influ-enced by those structures and processes, such as:

• the provision and cost of infrastructure and services and facilities• fiscal and monetary mechanisms• the redistribution of resources and benefits for purposes of equity and

social justice information• the regulation of land and development• the organization of territory.

These may facilitate or influence the interactions between the public andprivate sectors and the community in either a positive or a negative way. It isself-evident, thus, that there will be a symbiotic relationship between institu-tions and leadership.

Blakely (1994) refers to the necessity of having appropriate institutional


arrangements to manage and fund the regional economic development strategyprocess, and to ensure the implementation of plans and actions. Assessing thecapacity and capability of local organizations to initiate, undertake and carrythrough local regional economic development strategy planning is a funda-mental component of the tasks of that process. Institutional capacity buildingis often part of the implementation of plans and actions that come out of a localor regional economic development strategy planning process. In that context,institutional capacity and capability is a crucial issue that can have an enhanc-ing and/or catalytic effect or which can have a detrimental or stultifying effecton the growth and development path of a city or region. That is now beingdiscussed as well in the context of the creation of ‘learning infrastructure’ andthe ‘learning region’ (Simmie, 1997; OECD, 2000).

5.3 INSTITUTIONS, LOCAL GOVERNANCE ANDECONOMIC PERFORMANCE

5.3.1 Constraints

In economics, one of the most significant contributors to the debate on the roleof institutions and institutional change and its impact on economic perfor-mance is Douglas North (1990), who defines institutions as the ‘rules of thegame’, stating that they: ‘define and limit the set of choices of individuals’.They are the ‘humanly devised constraints that shape human interaction’ (pp.3–6). Those constraints can be formal (designed and enforced by politicalauthority) or informal (evolved as a result of custom or tradition as codes ofconduct). According to North (1990): ‘The major role of institutions is toreduce uncertainty by establishing a stable (but not necessarily efficient) struc-ture to human interaction’ (p. 4).

A distinction is made between institutions and organizations.Organizations, while being similar to institutions, are seen by North as:‘groups of individuals that have a common purpose, let it be economic, polit-ical or social’ (p. 4). He says that what organizations come into existence andhow they evolve will be: ‘fundamentally influenced by the institutional frame-work, that is, organizations are the players, and institutions are the rules’(p. 4). North goes on to say that:

Institutions, together with the standard constraints of economic theory, determinethe opportunities of a society. Organizations are created to take advantage of thoseopportunities, and as organizations evolve, they alter the institutions. Therefore,institutions and organizations are mutually related and share a symbiotic relation-ship. (p. 7)

Institutions and institutional factors 45

It is accepted that economic performance over time is fundamentally influ-enced by the way institutions evolve, how they decrease uncertainty throughmaking predictable the rules of the game and the behavior of players, how theyallow individuals to have access to proper information about the decision-making process, and how they decrease market imperfections that in turndecrease transaction costs. As stated by Clingermayer and Feiock (2001):‘Institutions can provide the stability in collective choices that otherwisewould be chaotic’ (p. 3). Institutions will affect the performance of an econ-omy through their effect on exchange and production (North, 1990).

According to Clingermayer and Feiock (2001), institutions matter becausethey affect the behavior of policymakers, they provide incentives for politicalexchange and affect political and policy outcomes, and they impact upon notonly policy adoption but also administration and implementation of policies.Those authors say:

Policy choices derived from institutional constraints at one point in time may resultin path dependent development. Once a particular path is taken, it might be costly,if not impossible, to move local government policies in a dramatically differentdirection. Local government institutions may constitute self-reinforcing mecha-nisms in that they bolster the power of key interests advantaged by the existing setof institutions. (p. 126)

5.3.2 How Institutions may Enhance Capital Accumulation

Vazquez-Barquero (2002: 12) emphasizes how institutions can condition thecapital accumulation process and as a result the economic development ofcities and regions. That is because their behavior can:

• reduce transformational and production costs• increase trust among economic and social actors• improve entrepreneurial capacity• increase learning and relational mechanisms• reinforce networks and cooperation among actors.

It is thus widely argued that securing economic growth at the local levelcannot be reduced to a set of narrow economic factors, with institutions –along with social and cultural factors – being of great importance.

Amin and Thrift (1995: 10) refer to what they call ‘institutional thickness’,which is a combination of features including the following:

• the presence of many institutions• inter-institutional interaction• a culture of collective representation


• identification with a common industrial purpose• shared norms and values.

All these serve to constitute the ‘social atmosphere’ of a particular locality. Thus,broadly conceived, institutions include not only formal organizations but alsoinformal conventions, habits and routines which are sustained over time. Aminand Thrift (1995) say that the notion of ‘thickness’ is conceived to: ‘stress thestrong presence of both institutions and institutionalizing process, combining toconstitute a framework of collective support for individual agents’ (p. 10).

While institutional thickness is a strong indicator of their ability to offsettransaction costs, too much ‘thickness’ will increase time involved in meetingthem and thus transaction costs. Thus, it is more appropriate to think of therelationship between transaction costs and institutional thickness as a U-shaped relationship rather than as a monotonically decreasing one.

In a study of total factor productivity growth and economic performance inEast and Southeast Asia, Rodrick (1998) says: ‘differences in the quality ofgovernment agencies are a plausible source of the variation in economicperformance in the region’ (p. 79). He concludes that: ‘the quality of govern-mental institutions matters for growth’ (ibid.). He found that the associationbetween institutions and growth is remarkably close:

Taiwan, Japan and Singapore have the best institutions, and the highest growthrates; the Philippines and Indonesia have the worst institutions and the lowestgrowth rates; and Thailand, Korea and Malaysia are intermediate. (p. 32)

Rodrick finds the key factors concerning governance to be:

• quality of the bureaucracy, especially autonomy from political pressure,expertise and efficiency in the provision of government services andsuperior modes of recruitment and training;

• rule of law, particularly sound political institutions, strong courts andorderly succession of political power;

• risk of expropriation, particularly relating to the possibility of confisca-tion and forced nationalization;

• repudiation of contracts by government, including postponement, scal-ing down due to budget cuts, and changes in government priorities.

5.3.3 Local Governance

Thus, along with economic resources, important factors that create competi-tive advantage are the existence of local mechanisms and alliances, or what isgenerally called local governance.


As discussed by McGuirk et al. (1998), local governance ‘incorporates therange of interests, both private and public and community based, that areinvolved in managing, servicing and regulating the local urban region’ (p.111). For example, the strength, structure and stability of the private andpublic sectors in a city or region, and the character of the political relationsbetween them, the degree of social division, and the existence or not of favor-able legislation, will all affect the capacity of a place to respond to externalthreats or opportunities. Political antagonisms within a city, for example,might be so great that no coherent response, negotiation or agreement amonga broad range of political and social groups is possible (Parkinson, 1990:21–2). Jewson and MacGregor (1997: 14) suggest that, in the local context,‘politics matter’. That is, changing forms of governance present opportunitiesfor resistance, innovation and participation, along with attempts at more effec-tive social discipline.

The effectiveness of local governance is also intricately linked to attributesof leadership, and in particular to the uncertainty that may derive from leader-ship turnover, weak or ineffectual leadership and incoherence or inconsisten-cies in the interrelationships between the elected politicians and officials andthe bureaucracy. Furthermore, uncertainty can also be created by the lack ofclear political goals and unclear divisions of tasks between actors and stake-holders, which is often the case where the public policy process is character-ized by reactive as against proactive action and initiatives. These triggers ofuncertainty, and the typically short-term perspectives that accompany them,may result in increased transaction costs reducing the competitive standing ofa city or region.

Local governance, then, becomes part of the competitive advantage ofcities. Some examples of city governance include (McGuirk et al., 1998: 111):

• central government initiatives, often with statutory authority, institutedin a local context, for example Newcastle’s Honeysuckle DevelopmentCorporation (HDC);

• local public or quasi-public development agencies, often with statutorypowers, carrying out local economic development activity, for examplethe Hunter Economic Development Council (HEDC);

• newly formed organizations or alliances of local business elites that mayor may not coordinate their activities with the local authority, e.g.Newcastle’s City Centre Committee.

McGuirk et al. (1998) have this to say:

The combined task of these institutions of local governance is to create investment-ready production sites equipped with all the requisite social and physical infra-structure, and favorable business climate. (p. 111)


5.3.4 Central–Local Relations

As most cities or regions are a part of a larges de jure entity it is inevitable thatthey will be influenced by the decisions of higher levels of government. Thus,central–local relations have important implications for the responsibilities ofsub-national or sub-state governments on how regional development ismanaged (Bentley, 2002: 33). Rigid controls hinder the flexibility necessaryfor innovation and creative thinking (Brooklyn et al., 2002). Decentralizationof power can enable community leaders to make their own decisions accord-ing to the specific needs of a city or region. That is, they have wide-rangingauthority or are part of the key decision-making group (Fainstein, 1983: 44).

According to Jessop (1998), it can be said that the extent of local action andaccess to funds will ‘depend on the amount of institutional decentralizationexisting within a nation’s urban system’ (p. 2292). Thus the focus needs to beon the degree to which the city or region has a wide-ranging authority to makedecisions.

5.4 INSTITUTIONAL ARRANGEMENTS SHAPINGPOLICY OUTCOMES

We now turn to consider some of the specific ways in which institutionalarrangements may shape policy outcomes and the implications for regionaleconomic development. These considerations include:

• the political institutional environment• the nature of executive government• uncertainty and leadership turnover• external constraints on local policy choices• inter-institutional collaboration and network interaction• trust as a governance device• institutional decentralization• organizational culture• culture of governance

5.4.1 Political Institutional Environment

Policy stakeholder relationships tend to influence the nature of leadership ingovernment. Mouritzen and Svara (2002) say that relationships that are gener-ally characterized by interaction, interdependency, reciprocal influence,dynamic tension and mutual respect between policy stakeholders makes adifference in leadership characteristics and performance. A less fragmented


political system provides greater opportunities for executive leadership toimplement policies and enables considerable continuity and stability to beachieved in public management (Clingermayer and Feiock, 2001; Pollitt andBouckaert, 2002).

Because such local policies involve making deals (for example, coalitions,contracts, bond issues, intergovernmental agreements and public–private part-nerships), having the support of strategic groups in the community is neces-sary to negotiate and carry out complex deals. Successful negotiations orcoalitions will depend on the level of intimacy and the effectiveness withwhich actors in the business community and in the various levels of govern-ment work.

Therefore, the nature of a local community or region’s political environ-ment will determine particular kinds of behavior and encourage particularkinds of people to participate in local politics and local policy-making. Asstated by Clingermayer and Feiock (2001):

The ability of elected officials to achieve their preferred goals depends substantiallyon their ability to control line departments [and on] their ability to influence strate-gic stakeholders. (p. 13)

Hambleton (1994: 62) cites the example of Chicago where the former MayorDaley used the party and informal networks to build up enormous power in themayor’s office.

5.4.2 The Nature of Executive Government

Mouritzen and Svara (2002) argue that:

the form of local government structures defines the rules concerning how politicalpower is obtained, maintained, exercised and shared. Institutions set up how politi-cal power is constituted. (p. 79)

Thus, incumbent mayors, for example, will fill that office in different ways‘depending on their personal characteristics and political forces and otherconditions within specific cities’ (ibid.). Mouritzen and Svara (2002) say thatmayors can provide leadership in three areas. They can be:

• policy leaders who shape the context of progress and projects;• public leaders who help determine the direction that citizens want their

city to take;• political party leaders who promote the interests of their political orga-

nization.


In addition, mayors can differ in their style of leadership, some ‘reacting tocircumstances as they arise, others positively anticipating and helping to shapechange’ (p. 80).

Hambleton (1994) refers to the two dominant forms of local government inthe US:

1. The mayor–council form of government where there may be a strongmayor, who serves as a strong and directly elected chief executive and ishighly visible, or a weak mayor, where there is fragmentation of authorityand the mayor has limited powers and authority.

2. The council–manager form of government where the city manager resem-bles the managing director of a private company, which can create a lead-ership gap but where the mayor acts as a facilitated coordinator and guiderather than an executive.

Clingermayer and Feiock (2001: 32) note that the form of local governmentcan also determine the ability of officials to deal effectively with externalactors and provide the local executive with the ability to ‘speak for the city’and act as an entrepreneur for economic development in dealing with ‘privatesector elites’. In the US, case studies have shown the importance of a politi-cally powerful mayor for economic development efforts, citing the examplesof Mayor Lawrence in Pittsburgh, Mayor Daley in Chicago and MayorSchaeffer in Baltimore as strong mayors who exercised internal control overcity agencies and dealt effectively with external actors in the business commu-nity and in the state or federal government (Fosler et al., 1982; Clingermayerand Feiock, 2001: 15; Mouritzen and Svara, 2002: 288–9). It is argued thatcity managers cannot provide political leadership as they are not elected.

The form of government and system of representation a city chooses willinfluence its ability to pursue certain kinds of policy options, and institutionalfactors that strengthen the executive may enhance the ‘grantsmanship’ of a citygovernment (Clingermayer and Feiock, 2001: 19, 33; Pollitt and Bouckaert,2002: 50).

5.4.3 Uncertainty and Leadership Turnover

Clingermayer and Feiock (2001) claim that:

local leadership turnover affects transaction costs and policy choices involvinglong-term objectives and future commitments [and that the resulting uncertainty]affects the ability of the municipality to negotiate contracts, make credible commit-ments to suppliers, and faithfully uphold and enforce contacts once they are inforce. (p. 73)


They go on to say that communities entertaining substantial personnel changewithin the local bureaucracy, among chief administrative officers, or withinthe city council can ‘create political uncertainty that may reduce time horizonsof long-term commitments with vendors, investors and contractors’ (p. 76).The result is often less consistent organizational outcomes.

Uncertainty can also be created by the lack of clear political goals andunclear division of tasks between the key stakeholders; that is the relatedeffects on the bureaucracy (Mouritzen and Svara, 2002: 89). In addition theimplementation of reactive rather than proactive policy initiatives ‘creates alack of direction that naturally would leave community stakeholders wonder-ing what their goals are and how tasks will be accomplished’ (p. 90), that canresult in low trust in institutions.

5.4.4 External Constraints on Policy Choices

As discussed by Clingermayer and Feiock (2001) constraints imposed byhigher levels of government ‘establish the basic rules of governance’ sincethey ‘explicate the boundaries of legitimate local government activities anddelineate procedures for making choices’ (pp. 114–15). Constitutional levelinstitutions may increase or decrease the costs associated with pursuing partic-ular policy goals, and they may, therefore, induce certain outcomes by deter-mining what policies are in the interests of local citizens and public officials(ibid.). Moreover, external constraints may directly affect the incentives oflocal actors and their ability to pursue their interests successfully, as seen, forexample, in the limited tax advantages of certain municipal bonds as a conse-quence of the US Federal Tax Reform Act of 1986 (ibid., 93).

5.4.5 Inter-institutional Collaboration and Network Interaction

Fairholm (1994) says that leadership is not so much a function of the individ-ual leader as it is a function of collective action, of association and coopera-tion – it is an expression of community. Thus, according to Amin and Thrift(1995), the involvement of key community institutions (for example, localchambers of commerce, development agencies, trade associations, financialinstitutions, firms, political parties, government agencies, business serviceorganizations, and so on) in the local area ‘provides a basis for the growth ofparticular local practices and collective representations of social networks’ (p.102). Those institutions need to be ‘actively engaged with and conscious ofeach other, displaying high levels of contact, cooperation and informationinterchange that may lead, in time, to a degree of mutual isomorphism’ (ibid.).Such high levels of interaction should lead to the development of what Aminand Thrift (1995) refer to as:


sharply defined structures of domination and/or patterns of coalition resulting inboth the collective representation of what are normally sectional and individualinterests, and the socialization of costs. (p. 102)

Those interactions can also generate mutual awareness of involvement in a‘common good enterprise’ in which the interdependency between actors isunderstood and appreciated (Conti and Giaccaria, 2001: 119). Amin andThrift, (1995: 103) refer to this as the ‘process of institution institutionaliza-tion’.

Mouritzen and Svara (2002) argue that passiveness is manifested by isola-tion of key stakeholders who operate with relatively weak connections andfew partners. Where participation is achieved from a diversity of key sourcesin policy advice, then the scope of accountability and its perceived legitimacywill be greater through it being ‘home grown and owned’ (Mouritzen andSvara, 2001: 101–3; Pollitt and Bouckaert, 2002: 55).

5.4.6 Trust as a Governance Device

Fairholm (1994: 3) emphasizes how local or community leadership takes placein situations or cultures where leaders and followers need to trust each otherenough to accept the risk, vulnerability and uncertainty of being involved incollaborative action.

Storper and Scott (1992) discuss how differing levels of trust in a regionmay explain the degree of cooperation and the establishment of alliances andpartnerships among actors. The less the level of trust the greater will be theaccumulating efforts of exchange. This is the other side of the coin from theinstitutional thickness concept in that places that lack institutional thicknesswill tend to be places that have low levels of trust. Pollitt and Bouckaert(2002) put it this way: ‘trust is a governance device in the sense that itcontributes to prosperity by reducing transaction costs. It does so by enablingmuch shorter contracts and radically reducing monitoring costs’ (p. 7).

5.4.7 Institutional Decentralization

The decentralization of power is claimed to enable community leaders to maketheir own decisions according to the specific needs of the region. According toWeiss (1988) it is seen as a key ingredient for close working between govern-ment and local and regional businesses to ‘materialize entrepreneurial ideas’(p. 89). Decentralization entails a significant degree of vertical dispersion ofauthority, with community leaders having wide-ranging authority and/or beingpart of key decision-making groups (Pollitt and Bouckaert, 2002: 41).

Fainstein (1983: 44) states that the extent of local action and the access to


funds depends on the amount of institutional decentralization existing withina nation’s urban system, and notes the difference between the US and the UKsystems. In the former there is widespread acceptance of ‘home rule’, while inthe latter the presence of a highly centralized system prevents local councilsfrom having more active local action to foster growth.

It is also claimed that decentralization entails that power does not reside ina single person or entity; rather, power and responsibilities are dispersed.Nations with high power-distance relations are characterized by centralizationand expect the upper echelons of the hierarchy to give directions and exercisecontrol (Hofstede, 1997; Mouritzen and Svara, 2002). Pollitt and Bouckaert(2002) claim that those extra layers increase the distance of the government’stop to its bottom and ‘hinder the always difficult job of translating broad goalsinto specific goals and manageable objectives’ (p. 52). Further, they suggestthat: ‘centralized states lead towards narrower focus on service specificoutputs and results while decentralization leads towards a more strategicconcern with policy and impacts’ (p. 43).

5.4.8 Organizational Culture

The culture of an organization affects leadership as does leadership affectorganizational culture. Wallach (1983) says organizational culture includes:

• bureaucratic dimensions relating to hierarchal, procedural and structuralaspects of culture;

• innovative dimensions relating to levels of freedom for creativity and achallenging work environment;

• supportive dimensions relating to teamwork and encouraging a trustingworking environment.

Fairholm (1994) notes the presence of such dimensions in public sectororganizational culture accounts greatly for government performance andhow things are done. Osborne and Gaebler (1963: 11–12) point out thatgovernments that are rigid, narrowly focused and preoccupied with rules andregulations do not function well in the contemporary rapidly changing,information rich, knowledge intensive society and economy. A regime witha flexible, fast moving, performance-oriented form of organization is thetype of administrative culture that can better respond to the new globalrequirements (Pollitt and Bouckaert, 2002: 59–60). Highly structuralbureaucratic organizations are slow to respond to the individual needs ofeither internal or external stakeholders, focusing more on process and proce-dures than on responsiveness to the needs of their various stakeholders(Fairholm, 1994: 138).


5.4.9 Culture of Governance

Pollitt and Boukaert (2002) propose three models to describe administrativecultures:

1. The Rechtsstart model, where the state is a central integrating force witha focal concern on the enforcement of laws. Here the instinctive bureau-cratic stance is one of rule-following and precedent, and the actions ofboth individual public servants and citizens is set in that context ofcorrectness and legal control. France and Germany are cited examples ofthis model.

2. The public interest model, where the state has a less extensive and domi-nant role within society, with ‘government’ being regarded as something ofa necessary evil and where ministers and officials must constantly be heldto account. While law is an essential component of governance, its partic-ular perspectives and procedures are not as dominant, and the process ofgovernment is seen as one of seeking to obtain public consent (or at bestacquiescence for measures devised in the public (general, national) inter-est. It is recognized that different interest groups will compete with oneanother with government playing referee. Fairness and independence arekey values, with pragmatism and flexibility as qualities prized above tech-nical expertise. The US is cited as an example of this model.

3. A complex mixture of the above two models exists in societies such as theNetherlands, Finland and Sweden, where the administrative culture ismixed, with a communal approach and open attitude that brings a rangeof experts and groups into the policy-making process. It is interesting thatthe examples of this are mostly for countries that are relatively small. Soscale may be an important variable in building and maintaining a success-ful ‘complex mixture’ model.

Each of these models affects the process of administration, with its ownpattern of values and assumptions. The Rechtsstart system would be charac-terized by stickiness and slowness when reform or implementation of newideas comes into play. Pollitt and Bouckaert (2002) say:

This is because change would always require changes in the law, and culturally,because senior civil servants highly trained in administrative law may find it moredifficult to shift to a ‘managerial’ or ‘performance-oriented’ perspective. (pp. 53–4)

At the same time, the public interest model may also face impediments toadjustment depending on multiple stakeholder or interest group negotiationand collaboration.


5.5 INFRASTRUCTURE, NETWORKS, ALLIANCES ANDTHE LEARNING REGION

Increasingly the private sector is composed not only of businesses but also ofnon-profit organizations and other social and or political organizations thathave a stake in the community.

In the contemporary world of ever-increasing complexity, uncertainty andchange, those who occupy the upper levels of organizations or governmentoften become increasingly unable to understand what is really happeningwithin the organizations or within the community. Command and controlmodels of decision-making will often lead to the solving of the wrong prob-lems and might generate conflict and confrontation within the community(Jewson and MacGregor, 1997: 8–9). Partnerships or collaboration amongstakeholders may allow governments to decrease their financial constraintsand to diffuse responsibility for success or failure (Stimson et al., 2002: 279).There seems to be a tendency today among local stakeholders (public, private,immediate and individuals) to participate in collaborative approaches to localproblem-solving in a city or a region (McGuirk et al., 1998: 109).

5.5.1 Smart Infrastructure

A fundamental aspect of institutions and institutional arrangements forregional economic development is the way infrastructure is provided and thedegree to which it is ensured that the appropriate type of infrastructure provi-sion is facilitated. Infrastructure is often seen as underpinning the businessattractiveness of a region or locality (Florida, 2002), and as an incentive forfirm attention. However, the concept of what constitutes infrastructure haschanged dramatically as governments and organizations in regions contem-plate the requirements of the contemporary knowledge-based economy. Thatrequires a consideration of:

• what constitutes smart infrastructure• the facilitation of networks and alliances

to engender collaborative advantage, and the provision of a learning infra-structure through strategy that will provide the strategic infrastructure for aregion to be competitive.

The notion of smart infrastructure has been developed by Smilor andWakelin (1990) to refer to the milieu of hard and soft infrastructure servicesneeded to support value-adding activity, enhance creativity and innovation,mobilize resources and provide quality lifestyles. In addition to the more tradi-tional infrastructures – including airports, seaports, telecommunications,


education and R&D facilities, and cultural facilities and services – smart infra-structure is seen to comprise:

• talent for innovation and role models• technology for innovation and R&D• climate for business support, finance and technology venturing• know-how for business and technology support and development.

Public policy is influential in determining how these factors are harnessedin promoting innovation and value added production. Smilor and Wakelin(1990) see organizations and the institutions that support them – public,private and intermediate – as being a component of the crucial smart infra-structure for facilitating an innovative milieu. These include, for example,business angles, networks, venture capital pools, consortia and professionalsupport organizations. Regulatory and government support environments needto facilitate:

• enlightened but quality-oriented planning and development controls• business incubators• technical support programs• competitive taxation arrangements• intellectual property protection• maintenance of quality indicators• advanced transportation and telecommunications systems access.

5.5.2 Networks and Alliances

Increasingly networks and alliances are being seen as part of the infrastructurenot only for business operations but also for regions enabling them to success-fully compete. For example, the Silicon Valley Joint Venture Network(SVJVN) in California in the US is a strategic partnership initiative created in1995 to help develop new enterprises. And Cooke and Morgan (1998) tell howthe development of networks in the UK and Europe are important instrumentsof economic infrastructure for regional and local development, with networksof association involving learning, and enhancing capacity building to improveknowledge, production and industry development.

Networks and alliances involve collaborative effort, and are seen by Jarillo(1988) as providing the strategic infrastructure for supporting regional devel-opment, creating a catalytic effect in technology-based development, as seenin Italy’s Tuscany region (Bianchi 1996). What we are seeing is the notion ofcollaborative advantage (Huxam, 1996) emerging as an attribute for a regionto attain in addition to it possessing competitive advantage. Stimson et al.


(2002) note that: ‘it is this new thrust toward collaborative advantage and howto achieve it that will be a focus of new methods in regional economic devel-opment strategy formulation, planning and implementation’ (p. 12).Addressing networks and network infrastructure is particularly important infostering innovation. Thus, Tijssen (1998) proposes a network as an:

evolving mutual dependency system based on resource relationships in which theirsystemic character is the outcome of interactions, processes, procedures and insti-tutionalization. Activities within such a network involve the creation, combination,exchange, transformation, absorption and exploitation of resources within a widerange of formal and informal relationships. (p. 792)

Discussing networks and systems of networks in regional development,Fischer (2002) has this to say:

The interactions between the organizations and institutions should be facilitated bymeans of policy if they are not functioning sufficiently well. In periods of structuralchange, regions might have to redesign many of its (sic) organizations and institu-tions as well as the interface between them … this widens traditional supply-sidediffusion measures towards policies that recognize innovation and diffusion asinterdependent processes. This translates into a greater role for demand-drivenprograms, network-building initiatives, measures to upgrade the technology diffu-sion infrastructure and improve its relevance for and accessibility by smaller firms.In order to achieve maximum leverage technology diffusion policies have to buildon existing interrelationships in regional innovation systems, especially networkswithin which firms collaborate and exchange tacit forms of knowledge. (p. 27)

The objective of all of this in the context of regional economic developmentstrategy formulation and planning may be seen as being about how to facili-tate or create the development learning infrastructure for a learning region(Simmie, 1997; OECD, 2000), with the provision of technology and knowl-edge infrastructure, information and telecommunications (ICT) infrastructure,transport infrastructure and linkage infrastructure between the government,business and research sectors. Stimson et al. (2002: 294) identify the follow-ing examples of regional learning infrastructure:

1. Transportation infrastructure, including intelligent transportation systems,which increase the accessibility and mobility of people and goods in a region.

2. Communications and information infrastructure, including agglomeratedcompetencies and capabilities, which provide complementary and corecompetitiveness and capabilities for the effective co-evolution of techno-logical innovations.

3. Dense business networks and a high trust business environment thatmakes possible organizationally effective and quick knowledge creation,transformation, synthesis and diffusion.


4. Institutional infrastructure – including business networks, public/privatepartnerships, business–government–university linkage – that provideseffective organizational linkage and institutional trust to reduce transac-tion costs of doing business and enhancing learning capability of institu-tions and individuals.

5. Effective information infrastructure for the exchange of information andknowledge and for monitoring changes in regional structure, regionalcompetencies and capabilities, and regional development.

6. Existence of agile regional governments so that essential decisions andcoordinated actions can be made to improve and strengthen the learninginfrastructure of a region.

7. Existence of agile communities and associations – including effectivecooperation among stakeholders in knowledge creation, transformation,synthesis and diffusion – and the cooperative provision of training andeducation to enhance the knowledge and skills stocks in a region.

5.6 PLACE SURPLUS AND SOCIAL CAPITAL

Bolton (1992) discusses the notion of a ‘sense of place’ in referring to: ‘thecomplex of intangible characteristics of place that make it attractive to actualand potential residents and influence their behavior in observable ways’ (p.193). He suggests that sense of place is a form of social capital, a location-specific asset that has some of the characteristics of ‘capital’.

De Santis and Stough (1999) link leadership and social capital to resourceendowments, proposing the notion ‘organizational slack’ which exists at vary-ing levels at different times as voluntary contributions to ‘civic activities’ andwhich may help create what Bolton (1992) describes as ‘place surplus’.

A city or region needs to have the institutional fabric – that is, a cultureor tradition of political coalitions and collaboration among stakeholders – towork and create a broad constituency for change that has the breadth and theintegrity to push beyond the parochial interest of certain groups, whether itbe private or public (Fairholm, 1994). Social capital has emerged over thelast decade or so as a new way of thinking about the role of the more intan-gible factors in local community performance and development. It is aconcept that is rather imprecisely defined and is difficult to measure.Basically it is about factors such as institutions, networks and trust relation-ships. Coleman (1988) sees it as that which ‘infers the structure of relationsbetween actors and among actors’. Fukuyama (1995) sees it as the ‘20percent’ solution, it being able to reduce considerable friction in markettransactions in regional systems. Malecki (1998b: 11) notes that such fric-tion is reduced in three ways by:


• creating a system of generalized reciprocity;• establishing information channels and providing sorted and evaluated

information and knowledge;• simplifying market transactions through instituting norms and sanctions

by which economic exchanges can occur, bypassing costly and legalis-tic institutional arrangements associated with market transactions.

In the context of regional economic development, social capital contributesto increasing returns across the board by reducing transaction costs. Embeddedin social capital and often supported by institutional thickness is the notion oftrust (Granovetter, 1985; Fukuyama 1995), which makes it possible for non-routine transactions to take place with a minimum of friction. Some innova-tive regions, such as Emilia Romana (the third Italy), are said to have highlevels of trust among firms and to possess the institutions upon which compet-itively and collaboratively productive activities rest, including the provision offinance. Stimson et al. (2002: 278) note that usually high levels of trust andsocial capital in a region are indicative of effective leadership.

However, relating social capital to local or regional economic developmentis not well developed. Bolton (1999) draws attention to Hirschman’s (1970)distinction between ‘exit’ and ‘voice’, saying that a reasonable interpretationof Hirschman’s analysis is that people’s perspectives of the quality of thesocial network shape their choice between exit and voice – a choice peoplemay feel compelled to make as a response to a decline in quality of life in theircommunity. According to Bolton (1999): ‘Exit is out-migration; voice ispersistence and participation in public discussion’ (p. 13).

Thus local government will need to work to facilitate ‘voice’, and to inventnew initiatives that increase the effectiveness of ‘voice’. While Hirschman(1970: 49–50) notes that people with the most consumer surplus are mostlikely to exercise the most voice, because they have most to lose by acquies-cence or a quick exit, they will continue to speak up and delay exit as long astheir surplus is still intact. In an analogy, Bolton (1999) refers to ‘placesurplus’, which is attributed to the combination of goods the consumer buys ina place and also to the unpaid goods consumed that are provided or are avail-able at the place. Full consideration of place surplus should also take accountof producer surplus, from the participation of labor and the provision of capi-tal. Bolton suggests a goal of local planning should be to operate a networkthat generates large place surplus for many citizens, thus creating an incentivefor voice and delaying exit. Hirschman (1970: 79) also discusses ‘loyalty’ asa ‘spatial attachment’. Bolton (1999) suggests that loyalty can reinforce placesurplus as a force promoting voice rather than exit, and that it might actuallybe a substitute for place surplus. For Bolton the critical issue is how socialnetworks build loyalty.


The analogy discussed by Bolton (1999) thus leads him to the propositionthat there will be a positive correlation between the level of place surplus, andthus the propensity to use voice, and the ‘quality’ of a sense of place definedby tangibles and intangibles that incorporate attributes such as good neighbor-hoods and school districts, low crime rates, clean streets, civic amenity, and soon. Loyalty is achieved through fostering of tolerance, trust and reciprocity.Bolton’s attempt to analyse social capital within the traditional concept ofconsumer surplus being extended to aggregate surplus or place surplus is apromising step to better link the notion of social capital to institutions in thecontext of local economic development and enhancing community perfor-mance. Thus Bolton, in his various writings, stresses how policymakers needto take account of the distribution of place surplus, of the costs of creating andmonitoring it, and to encourage voice.

Governments make investments through place-based policies and programsthat have the intentions of building community and attracting investment. Thismight be thought of as network-augmenting capital, ranging from communityfacilities to ceremonial occasions to institutions that improve the politicalprocess. Governments develop pricing and subsidy schemes to attract firms toexpand the tax base load, increase employment opportunities and maintain andgrow population. Often that is done in selective and targeted ways, withgovernments acting as entrepreneurs and taking risks, internalizing externali-ties with the objective of enhancing place prosperity. This is just the same asprivate groups (business or community) developing and augmenting networksto achieve benefits (economic and otherwise) external to each member of thegroup, with those benefits also becoming internal to the group, taking advan-tage of what are known as the ‘adoption externalities’ of networks whichLiebowitz and Margolis (1994: 1416) refer to as the ‘tragedy of the commonsturned on its head’.

Strategies for social capital development will involve ‘support for continu-ous life-long learning, initiatives to improve community awareness importantto social and economic well-being, encouraging the development of commu-nity and professional organizations and building trust amongst differentgroups that comprise a local community’ (Stimson et al., 2002: 349).

5.7 IMPLICATIONS

Institutions do have a powerful influence on how organizations and regionsadjust to change and stressors. They can be powerful positive or negativeendogenous influences on how the impacts of exogenous forces are managed.It is not the nature and structure of institutions per se that is necessarily impor-tant, but rather the capacity of institutions to be fast and flexible to adjust


appropriately to change and to anticipate change and manage risk in anincreasingly uncertain and competitive world. Here the link between institu-tions and leadership is evident.

The question is: what does all this mean for institutions and policy?Clearly with the shift in emphasis in regional economic development strategytowards how to build, maintain and enhance regional competitive advantage,this has put the focus on ‘value factors’, including efficiencies, performanceand intangibles such as quality of life, human capital and social capital(Putnam, 1993; Fukuyama, 1995). But Stimson et al. (2002: 11–12) note thatit is still common for governments to ‘promote comparative difference andprovide incentives to attract industries to regions’. These include publicpolicy mechanisms such as:

• business attraction efforts, including strategies to ‘pick winners’;• business retention efforts, such as propping up declining industries;• business creation approaches, including attempts to ‘grow’ new enter-

prises;• import substitution by expanding local production to combat an

imported good or service;• incentives, such as tax relief, infrastructure augmentation, marketing

and training assistance, and subsidies to firms.

Porter (1990) is highly critical of such incentive and subsidy approachesbecause they encourage governments and regions to bid against each other andcreate negative externalities. Rather, Porter advocates that:

by investing in specialized training, building cluster-specific infrastructure, andimproving the business climate with streamlined regulations, states can attractinvestment and upgrade the national economy. (p. 89)

Blakely (1994: 58) points to a change in emphasis that is occurring from firmattraction policies and mechanisms in local economic development strategy toattracting and generating entrepreneurial people and skills, and in improvingand promoting amenity and other quality of life attributes of communities. Itis now about building institutional capacity and capability, enhancing networkdevelopment and facilitating public–private community partnerships. It isabout the way ‘place prosperity’ can be enhanced through flexible innovativeinstitutional development and through strong and effective leadership togenerate an improved resource endowment of a region.

Furthermore, enhancing network development is crucial as today, accord-ing to Powell (1990), increasingly in a network mode of resource allocation,transactions occur neither through discrete exchanges nor by administrativefiat but through networks of individuals or institutions, engaged in reciprocal,


preferential and supportive actions. In addition, in the contemporary era ofglobalization, Florida (1995) says:

the shift to knowledge-intensive capitalism goes beyond the particular business andmanagement strategies of individual firms. It involves the development of newinterests and a broader infrastructure of the regional level on which individual firmsand production complexes of firms can draw. The nature of this economic transfor-mation makes regions key economic units in the global economy. (p. 531)

That represents a major challenge for both the institution of government andfor leadership in ensuring that appropriate infrastructure is provided and avail-able within a region and for the region to link into in terms of national andinternational networks (physical, electronic and knowledge).

In an overview of successful regional development initiatives, Stough(1995) identifies five attributes that communities that have successfully under-taken regional economic development have and the implications for institu-tional arrangements:

• local initiative is crucial for initiating and sustaining regional economicdevelopment;

• local initiative is consistently undertaken by non-government or inter-mediate regional/community organizations;

• such intermediate organizations are effective economic developmentplanning organizations;

• economic development plans are a basis for cross-sector collaboration;• successful regions have access to or create access to a broad range of

local and extra-local resources.

In their later work, De Santis and Stough (1999) note that local economicdevelopment effectiveness is related to:

• the degree of political jurisdictional fragmentation;• the degree of cooperation among local stakeholders (public, private,

intermediate and individuals);• the tendency for a region to participate in local problem-solving;• the availability of resources locally for economic development.

These findings represent useful pointers to the institutional considerations thatshould be addressed in regional economic development strategy formulation.


6. Entrepreneurship

6.1 INTRODUCTION: ENTREPRENEURSHIP IN THEREGIONAL DEVELOPMENT PROCESS

Entrepreneurship in leadership-driven regional economic development isdifferent from the concept as applied in the private sector where the motiva-tion for entrepreneurial discovery and innovation is deeper than the directprofit motive. Sometimes this form of leadership is referred to as civic leader-ship and involves private and public entrepreneurs.

Where traditionally the entrepreneur is motivated by the promise of ‘pureprofits’ – that is, above and beyond the normal level expected from the pursuitof venture formation and development – the private or public entrepreneur inthe regional development process is differently motivated. Those involved inleadership-led development are often motivated by what we call here ‘love ofregion’ that stems from longer term, often intergenerational ties to their placethrough legacy effects related to their family and/or their business history. Theysee redirecting the economy as a way to reduce the effects of economicdecline/threat and thus maintenance of their family position and businessviability at that place. While they may also be motivated by responsibility totheir region and the improvement of the social or community milieu it ispersonal benefit of their family and business that is often at the core of theirmotivation to help implement change that will enhance economic sustainabil-ity of their region. Thus, entrepreneurship in regional economic development isnot directly, at least, a response to the lure for pure profits but rather to the lureof maintenance and sustainability of one’s family and business and position.

But what more specifically is entrepreneurship in this development context?The behavior is similar to private sector entrepreneurship in that it is the seek-ing and recognition of opportunities and new ways of achieving goals andobjectives that underlie regional development strategy. Examples might be:

• finding and developing new industrial sectors to bridge the economy toemerging opportunities, such as technology clusters

• finding and obtaining new resources to implement development strat-egy, such as obtaining funds from higher levels of government to createnew infrastructure that underpins development strategy.

64

In this context, entrepreneurs are from diverse backgrounds including govern-ment, community organizations, bankers, CEOs who head up committees tosolve bottlenecks in development strategy implementation, and so on. They mayalso include elected officials and bureaucrats who act in an entrepreneurial way,often in conjunction with business and community leaders. What is importanthere is that as leadership broadens to include multiple stakeholders – from busi-ness, the public sector and non-government organizations – in the future devel-opment of the region, those stakeholders need to become increasinglyentrepreneurial (aware, creative and opportunistic) in their quest to implementthe strategy. This is the form entrepreneurship takes in successful leadership ininitiating, fostering and implementing regional economic development strategy.

Beyond the above discussion, the concept of entrepreneurship in theleadership-driven regional economic development context needs clarificationin that leadership and entrepreneurship are not mutually exclusive concepts oractions:

• Effective leadership must convey and convince participants in a devel-opment process that both new and creative approaches and actions arenecessary.

• Successful entrepreneurship needs to be executed in a way that support-ing actors contribute to if not follow the path or vision the entrepreneurhas on where greater profit and/or community benefits can be achieved.

So while the two concepts overlap and are related in significant ways they arealso different.

A major purpose of this chapter is to clarify this relationship and make clearhow the two are similar and how they are different, and how this symbiosisoperates in the context of leadership executed in the economic developmentprocess. The chapter first examines the nature of entrepreneurship and leader-ship and then explores their relationship in an effort to explain how the twooperate in the regional economic development process on the one hand, andthe nature of their complementarity on the other. It then lays out examples ofhow regions have behaved entrepreneurially in pursuit of leadership-driveneconomic development strategy. It concludes with a discussion of the attrib-utes of entrepreneurial behavior in pursuit of economic development strategy.

6.2 ON THE NATURE OF ENTREPRENEURSHIP ANDLEADERSHIP

6.2.1 Classical Economic Theory

The formalization of entrepreneurship and related theory stemmed from the

Entrepreneurship 65

work of Schumpeter (1934). Classical economic theory was erected on thepremise that supply determined demand and that as supply changed a newequilibrium would be achieved as demand ‘sopped up’ that supply – that is, thedemand curve moved up to meet the new supply curve. In short, supply deter-mined all and economic systems were seen as in or moving toward equilib-rium in the long run as with the classical economic model.

However, the behavior or performance of economic systems witnessedmajor disequilibrium episodes that persisted over relatively long periodsthroughout the 19th and much of the 20th centuries (for example, the GreatDepression of the 1930s). Consequently, despite the possibility, or not, thatsuch systems moved toward equilibrium and/or achieved it in the long run,these systems were often not in an equilibrium state for extended periods – ifat all – thereby creating huge disruptions in the maintenance of jobs and wealth,and their creation. Attempting to understand this was the focus of the work ofmany economists including such luminaries as John Maynard Keynes whoturned the basis of the classical perspective on its head arguing that the prob-lem was that demand determined the performance of economic systems, notsupply. Thus, the solution could be achieved by increasing demand whichwould in turn increase employment, and wealth creation, and thus drive thesystem toward equilibrium. This of course has since been replaced with a seriesof adjustments in the theory erected on the expectation behavior of economicagents (Lucas, 1998) which in turn meant that government policies designed toincrease demand mostly through government spending failed to work, at leastin the long run. This was emphatically demonstrated when the behavior of theeconomy contradicted the prediction of the Philips Curve relationship whichargued that interest rates were negatively related to unemployment.

The point of this discussion is to illustrate that large-scale economicsystems are difficult to keep in equilibrium or even to keep moving towardequilibrium. Schumpeter’s thinking on entrepreneurship is important in thiscontext in that he argues that the nature of large-scale systems is to be essen-tially in a state of disturbance and thus while they may be viewed as movingtoward equilibrium are thrown out of equilibrium before they reach it. Theentrepreneur is the agent that creates such disequilibrating behavior – that is,the agent that drives Schumpeter’s ‘creative destruction’.

In Schumpeter’s view, entrepreneurs are driven to create new goods andservices or alternative ways to produce existing ones because the entrepreneursees opportunities to achieve ‘pure profits’ – that is, profits above those thatwould be expected under prevailing conditions. Of course there are inherentrisks to such first movers. This is where the notion of entrepreneurs as risktakers comes from. By taking the risk of creating a new product or service theentrepreneur is banking on her ability to see beyond existing conditions to afuture where the envisioned product or service will be wanted and in so doing


receive profits above those that would be achieved if she entered into theproduction of known items or adopted known processes.

Later, Kirzner (1973) stood Schumpeter’s argument, at least in part, on itshead. He argued that economic systems by their nature experienced disequili-brating effects due to cyclical forces, and natural and man-made disasters. Inthis view the entrepreneur perceives opportunities in the market place to createnew goods and services that would help drive the disequilibrated systemtoward equilibrium. In short, Kirzner’s entrepreneur was an equilibrating forcein contrast to Schumpeter’s entrepreneur.

In many ways Schumpeter and Kirzner agreed in that they both see theentrepreneur as discovering and acting upon opportunities in the market placeand being motivated to this end by the anticipation of ‘pure profits’. And theyboth argue that economic systems are not by their nature stable and thus, atbest, are moving toward and/or away from equilibrium conditions. They differ,however, in their view of the effect of the entrepreneur’s behavior:Schumpeter seeing the effect as disequilibrating, and Kirzner as it being equi-librating.

6.2.2 A Regional Development Context

This discussion is of interest because it lays out the basic foundations of entre-preneurship as it evolved in a profit-making context and how it may relate tothe behavior of large-scale economic systems. As such, it provides a platformon which to erect a view of the entrepreneur in non-market situations.Entrepreneurial behavior on the part of a region is only partly analogous. Theentrepreneur in this context is a fuzzier construct and raises questions such as:Is the entrepreneur a government economic development organization or is ita non-profit or community development corporation or some ad hoc group?

While it might be argued that such groups perceive the opportunity for theregion to improve economic performance with increased job and wealthcreation in aggregate, it is seemingly clear that the motivation on the part ofsuch group agents is not just for the pursuit of ‘pure profits’. In fact, the pursuitmay be for improvement in the aggregate social welfare of the region. Sowhere does the motivation for this come from? To answer this question it isnecessary to expand the notion of individual and group motivation or goal-driven behavior to a broader frame that goes beyond the pursuit of exceptionalindividual gain. At the same time, however, communally or group-directedentrepreneurial behavior may be viewed as:

• either contributing to ‘creative destruction’ and disequilibrating forcesin the economy (after Schumpeter); or

• contributing to equilibration (after Kirzner).

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The motivation for this broader view of entrepreneurship is embedded inpotential but relatively vague individual or corporate gain on the one hand andpossibly for social welfare benefit on the other.

1. It is possible to see individual and/or corporate economic gain occurringfrom enhanced regional economic culture or context (business climate).This can occur from strategy implementation that enhances the physicaland institutional infrastructure of a region. Most often such benefitsaccrue initially to older business owners who have family, personal andcorporate history in the region (and thus may be viewed as possessing‘love of region’) in that their historical relationship or role acts to preservelegacy effects and social position.

2. Social welfare gain and community benefit can occur from the spillovereffect of improved physical and institutional infrastructure on job andwealth creation for a broader set of actors. Here, the literature on socialand non-profit entrepreneurship is informative in that it argues that moti-vation for entrepreneurial behavior in the other than profit sectors comesfrom the fact that humans are social agents and thus may achieve personalreturns (profits or psychic benefits) from helping to achieve specificoutcomes that are perceived to be good for society. This argument or setsof arguments span the range of non-profit entrepreneurship from social topublic sector entrepreneurship.

6.2.3 Contingency Theory

Before finalizing the above line of thought it is important to return to the leader-ship construct. As noted in Chapter 4, there are a number of theories of leader-ship. Further, elements of these have been reviewed and assessed. Here, however,the focus is on the contingency theory of leadership because it provides a strongbasis for exploiting and deepening our understanding of the link between leader-ship and entrepreneurship. Contingency theory argues that leadership is evokedby an event, occurrence or perceived opportunity that threatens an actual orperceived status quo or in the above referenced terminology, ‘equilibrium’. Suchcontingencies or events may be natural (earthquakes, tsunamis, hurricanes,droughts, famines) or man-made (economic cycles, wars, new technology, newsocial theories, large-scale theft, misguided public policies). While this theorymay be applied to explain incremental acts of leadership motivated by minoropportunities or threats, our concern here is with regard to major leadershipprocesses where whole regional systems are directed in a new or modified direc-tion due to a major disequilibrating event (physical or man-made).

Contingency theory may be used to bridge, explicate and define the rela-tionship between leadership and entrepreneurship:


• major contingencies evoke or beg for change and breaking with oldtraditions and processes

• such contingencies may be viewed as the catalyst or pre-conditions forthe emergence of significant new leadership

• that leadership must be energized by a different vision of how theregional economy can evolve and offset the conditions causing poorperformance such as job loss and wealth stagnation or degeneration

• in discovering or creating a new model for economic growth and devel-opment, that leadership is entrepreneurial

• however, implementing such a model also requires discovery of newtechniques, methods, products, industrial sectors, finance, and so on

• this is where entrepreneurship is fundamentally important in the leader-ship-driven adjustment process of regional economic development.

Contingencies are thus seen as the primary catalyst evoking the leadership thatguides the redevelopment process and in turn evokes entrepreneurialresponses to implementing that process. In our view, leadership is the criticalmover that may play a catalytic role in redevelopment initiatives, and entre-preneurship is the critical process for discovering and creating the methods,processes and products/services that propel the movement of the old economyto the new.

6.2.4 Contingencies: Roles and Examples

Contingency theory posits destabilizing events or occurrences that serve as thecatalyst that evokes leadership needed to move systems toward equilibrium. Inthis regard it is consistent with Kirzner’s (1973) view of the relationshipbetween entrepreneurship and the operation or direction of economic systems.As noted above, this view may serve to explain responses to incremental orless than system-wide impact events. Certainly leadership occurs in sub-unitsof organizations and sub-parts of economic systems and thus may be viewedas incremental in nature. Such cases of leadership are ongoing and likely existquite broadly even in near equilibrium conditions. However, broad system-wide impacting leadership rarely occurs unless existing conditions areseverely threatened or are exposed to an unanticipated or misunderstood andthus not well predicted system disequilibrating event.

As noted earlier there are many different sources of such events as theworld is exposed to considerable uncertainty. Consequently, natural disastersand man-created shocks (often not intended to create destabilizing events)most usually are the sources of such events. At the same time they are notalways the source as it is conceivable that perceived opportunity if properlymarketed to stakeholder groups could be a catalyst of leadership that drives a

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system toward a different outcome or equilibrium. For example, one mightargue that the development strategy of Hyderabad to become a second centerof the IT services industry in India is a case of opportunity-driven rather thanthreat-driven leadership. Another similar case is the rise of Austin in Texas asa technology center. However, the cases of opportunity-driven systemsimpacting leadership are rare compared to threat-event-driven ones.

Most of the cases that are discussed and assessed in Part II of this book arethreat-event-driven ones. For example, many of the North America cases(Chapter 7) deal with leadership that arose or failed to arise to the threat ofdeindustrialization. Some of the cases in Europe also are such examples.Others such as Freiburg (Chapter 8), Hong Kong, Singapore, and Chihuahuain Mexico (Chapter 7) were driven by political change. Further, there are manycases of regions that have experienced leadership-driven redevelopment inresponse to natural disasters (and there are many where leadership failed or isstill in question despite the transfer of significant amounts of resources fromhigher levels of government, as seen recently in New Orleans and the dysfunc-tional responses to the hurricane Katrina disaster).

Contingencies appear to be at the heart of the forces that evoke systemicimpacting leadership. Further, most of these seem to be threatening contin-gencies. Although there are cases that appear to be driven primarily by discov-ery or opportunity, and by the successful marketing of such approaches tocapitalize on the opportunity, these seem to be rare or at least much lessfrequent than threat-driven contingencies.

6.3 ENTREPRENEURIAL CHARACTERISTICS OFLEADERSHIP-DRIVEN ECONOMIC DEVELOPMENT

Regional leadership needs to show entrepreneurial characteristics. Derivedfrom Schumpeter’s (1934) and Kirzner’s (1973) ideas of entrepreneurialism, aregion may be thought of as being entrepreneurial if such leadership shows thefollowing characteristics:

• It believes in change and initiative to ‘energize’ it to meet competitivechallenges and to keep progressing. In short, leadership needs to exhibitdiscovery, opportunistic and innovative behavior.

• It possesses insights to enable it to identify opportunities and pursueinnovative ideas to improve or adapt a region’s environment to meet theneeded challenges facing it through ‘new combinations’ or innovationin institutional arrangements (Jessop, 1998: 84–5; McGuirk et al., 1998;Jessop and Sum, 2000: 2290).


Those entrepreneurial characteristics can be seen if attention and effort isfocused on the following actions (Jessop, 1998: 85):

1. Using new methods to create location-specific advantages for producinggoods/services or other urban activities to shift the economic base of thecity. Examples include technopoles, agglomeration economies, and so on.

2. Introduction of new types of urban place or space for producing, servic-ing, working, consuming, living, and so on. Examples can include gate-ways, intelligent cities, multicultural cities, creative cities, and so on.

3. Refiguring or redefining the urban hierarchy and/or altering the positionof a given city within it. Examples include the development of a regionalgateway, hubs, and so on.

4. Finding new sources of supply to enhance competitive advantage.Examples include attracting inward investment or reskilling the workforce. Therefore, the focus on this factor will be on the tendency shownby the community to undertake entrepreneurial local initiatives.

5. Opening new markets, whether by place-marketing specific cities in newareas and/or modifying the spatial division of consumption throughenhancing the quality of life for residents, commuters or visitors.

6. Finding new sources of supply to enhance competitive advantages.Examples include changing the cultural mix of the cities, finding newsources of funding, or re-skilling the workforce.

In each regard, entrepreneurialism in the context of a region contains theelement of uncertainty that many see as the very essence of entrepreneurialactivity. In this sense, ‘it is speculative in design and therefore dogged by allthe difficulties and dangers which attach to speculative as opposed to ratio-nally planned and coordinated development’ (Jessop, 1998: 84–5).

6.4 CONCLUSIONS

This chapter has shown the relationship between leadership and entrepreneur-ship and has laid out the nature of entrepreneurship in the context of leader-ship-driven regional economic development. It used contingency leadershiptheory to further elaborate on the nature of regional economic developmentleadership and to draw an analogy between such leadership and bothSchumpeterian and Kirznerian theories of entrepreneurship. This served toillustrate that the concepts of leadership and entrepreneurship are related so tospeak at the ‘hip’ but are different in that leadership is most often catalyzed bydisequilibrating contingencies and entrepreneurship (taking here theKirznerian view) is driven by discovery and opportunities in response to such

Entrepreneurship 71

contingencies. It was also recognized that raw opportunities sometimes servethe role of threat contingencies but not often.

Entrepreneurship in the context of leadership-driven economic develop-ment takes on a number of characteristics such as new methods, new industrytargets, new institutions, new methods of finance, provision of new and differ-ent physical and institutional infrastructure and new actors. The next twochapters illustrate these characteristics through a variety of case studies takenfrom North America and other parts of the world.


PART II

Examples of regional development initiativesinvolving leadership and institutional factors:Case studies from North America, Europe andthe Pacific Rim

7. Case studies from the United States

In this chapter we present five case studies from the US. These are for:Pittsburgh, Pennsylvania, Houston, Texas, Austin, Texas, the State ofColorado and Indianapolis, Indiana

7.1 PITTSBURGH, PENNSYLVANIA, USA

7.1.1 Background: An Industrial Collapse

The collapse of the steel industry in the early 1980s hit Pittsburgh so forcefullythat, in the period from 1979 to 1988, the region suffered a decline of 44percent in manufacturing jobs (Clark, 1989: 41; Sbragia, 1990: 53–4). Such adecline caused the region to lead the nation in population loss during thoseyears. However, by the late 1980s, Pittsburgh was rising from the debris of acollapsed steel industry, towards a city of standing in cultural offerings, withone of the best public education systems in the country, and very livable neigh-borhoods. Such an urban renaissance was not only due to the fact thatPittsburgh possessed potential sources of new employment and therefore wasable to develop ‘new exports’, but also because it was the result of private andpublic leaders concerned with the region’s economic development (Sbragia,1990: 53–4).

In Pittsburgh, there has been a long history of cooperation. The culture ofcooperation between the public and private sectors has been so sustained thatit has given Pittsburgh policymaking a distinctive character. The recentprominent involvement of the non-profit sector in the city’s economic devel-opment strategy has also been noteworthy. The ‘politics of consensus’describes Pittsburgh politics more accurately than it does that of many othereastern and mid-western cities in the US (Sbragia, 1990: 58–9). In the back-ground has been strong leadership on the part of the many Fortune 1000companies in Pittsburgh through the Allegheny Conference organization.This organization played an important role in Pittsburgh’s regeneration and inbuilding the culture of cooperation that has resulted in Pittsburgh’s economicregeneration.

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7.1.2 The Process of Regeneration

The process of regeneration in Pittsburgh may be divided into phases. The firsttwo phases, Renaissance I and Renaissance II, describe the strategies intro-duced by private and public leaders who were concerned about the region’sfuture. In both phases, public and private leaders implemented projects thatwere directed towards the regeneration and the renewal of the city.

1. Renaissance I was built on a relationship between a strong Mayor, DavidLawrence, and a strong businessman, Richard King Melon. This partner-ship, mainly led by the private sector and with the public sector playing afacilitating role, was based on a series of environmental, physical andinstitutional changes (Sbragia, 1990: 60).

2. Renaissance II coincided with the collapse of the steel industry in theregion and was designed to redevelop real estate and help the city copewith the economic problems of the 1980s. During this period, first MayorPeter Flaherty and then Mayor Caliguiri made neighborhood revitaliza-tion a priority. The public sector took the leading role in the partnership.In that context, those mayors and neighborhood groups became importantelements of the city’s political and policy equation, and their incorpora-tion into the city’s policymaking laid the basis for the strikingly consen-sual nature of redevelopment in Pittsburgh in the 1980s (Sbragia, 1990:59–60). Sbragia (1990) and Judd and Parkinson (1990) point out that bothof these periods of high development generated important lessons: theimportance of commitment from the top in the face of changing politicalleadership; subordination of personal or business interests; a bond of trustbeing present between the private and public executives and organiza-tions; and both the public and private sectors being active in initiating andimplementing development strategies.

3. Renaissance III sought to address the problems of the city’s economicbase. With the realization that the steel industry would not be able togenerate enough jobs, both the University of Pittsburgh and CarnegieMellon University adopted a strategy that sought to change Pittsburgh’seconomic base. Developing advanced technology firms was seen as theappropriate strategy to follow (Clark, 1989; Sbragia, 1990). NamedStrategy 21, it was characterized by the consensual-style policymakingrooted in Renaissance I and II. However, Renaissance III differed from thepast in that it was characterized by the interdependence between thepublic and the non-profit sectors (universities and science centers).According to Sbragia (1990: 62), this strategy involved bargaining thatforced actors to listen and cooperate with each other.


7.1.3 The Success

Despite the fact that traditional industries were unable to remain competitive,Renaissances I, II and III all helped the city address unemployment by diver-sifying its economy. Pittsburgh’s subsequent economic growth derived mainlyfrom the educational and advanced technology industry sectors. While it istrue that the economy did not recuperate entirely from the 1980s crisis –particularly when compared with neighboring counties – it is clear that localleadership was the crucial variable in determining how the city responded andreadapted to economic changes (Sbragia, 1990: 53; Judd and Parkinson,1990b: 298). The involvement of the private, public and non-profit sectors inPittsburgh’s economic development made the city better off than if no sucheffort had been made. The absence of such partnerships would have exagger-ated and exacerbated the economic decline.

7.2 HOUSTON, TEXAS, USA

7.2.1 Background: Free-wheeling Capitalism

Between the late 1930s and early 1980s, the city of Houston was known for itsremarkable record of economic progress. ‘Urban Reaganomics’ and ‘urbanentrepreneurialism’ were concepts pioneered in Houston long before theywere given those names (Parker and Feagin, 1990: 216). Houston was charac-terized as having a modern weak government and being an unplanned and freeenterprise city (Parker and Feagin, 1990: 217–18). Houston’s economicsuccess was rooted in its oil industry, the value of trade through its port, itsfederally subsidized space-defense complex, and its evolution into a nationalmedical center. The combination of such diverse economic resources allowedHouston to become known as ‘the city that never knew the Great Depression’(Parker and Feagin, 1990: 221).

7.2.2 A Recession

Nevertheless, by the mid-1980s, the oil recession, along with many bank fail-ures and considerable out-migration, generated more hardship in the city thanwas the case in the nation at large. In the face of growing economic downturnsand despite the obvious need for action ‘Houston’s elites were slow to respondto economic decline and they were slower to recognize the full range of itscauses’ (Parker and Feagin, 1990: 221).

In 1982, Houston was spending 11 cents per capita on economic develop-ment while states such as Louisiana or Arizona were spending 94 and 68 centsrespectively (Parker and Feagin, 1990: 221). Parker and Feagin argue that the

Case studies from the United States 77

reason for such a relaxed approach was that prior to the 1980s Houston’seconomic development seemed to take care of itself, and thus business elitesconcentrated on creating and perpetuating a ‘good business climate’ (ibid.).

7.2.3 An Entrepreneurial Approach

As was the case with many cities in the ‘sunbelt’ areas of the US, Houston hasbeen characterized by its aggressive entrepreneurial elites. Houston’s businesselites have been particularly successful in creating private-public partnershipsin which the governments are little more than sycophants and servants of busi-ness interests. Since Houston’s founding, the power structure of the city hasbeen dominated by a succession of leaders from the business community andmore specifically high-level corporate executives. Entrepreneurial groups –such as the Suite 8F Crowd or The Greater Houston Chamber of Commerce –were deeply involved in Houston’s development. Virtually without interrup-tion, the local business elites have been able to exercise dominance overgovernmental decisions, use public expenditure to support business goals, andlimit the scope of government regulation (Parker and Feagin, 1990: 227–9).This is partly due to a weak civic tradition and limited involvement of othernon-business stakeholder organizations such as unions, voluntary groups, andso on. Thus, in Houston: ‘business leadership towers over almost everyoneelse’ (Savitch and Kantor 2002: 77).

In 1984, the leaders of the Houston Chamber of Commerce established theHouston Economic Development Corporation (HEDC) in an attempt to helpHouston’s economy diversify. However, few of the nine pivotal areas regard-ing diversification and economic development had firm roots in the Houstoneconomy. Besides such diversification attempts, the HEDC tried to maintainHouston’s reputation as a city with a favorable business climate in order tobring money into the city. Ironically, some argue that such an advantage is atthe root of Houston’s downturn since the tax giveaways led to minimal impactand a general lack of local and state services, and thus the impoverishment ofmany (Parker and Feagin, 1990: 229). In fact, according to Savitch andKantor (2002: 86) the civic gospel in Houston is that the city governmentshould be managed like a business corporation and thus, limit public expendi-tures and maximize personal revenues.

7.2.4 Lack of Leadership and Institutional Capacity

Parker and Feagin (1990) argue that Houston’s incapacity to exercise alterna-tive options for economic development is rooted in the fact that there is noactive arena for political debate through an organized opposition to contest andchallenge the status quo. Therefore:


Houston’s leaders operate in a reactive mood, trying to hold off the worst effects ofeconomic downturns. Much of the HEDC focus has been on narrowly drawn busi-ness concerns. (p. 229)

According to Savitch and Kantor (2002: 77), politics in Houston arenonpartisan. Rather than parties, private interest groups (chamber ofcommerce, realtors, and so on) select political candidates, diminishingcompetitive politics and emphasizing personality over programs.

The Houston economy became shaped by the entrepreneurial efforts ofbusiness elites; however, the policy responses of a ‘favorable businessclimate’ have not resulted in collective benefits. The main causes of this seemto be the lack of community leadership that promotes the economic develop-ment of the region as a whole rather than for the benefit of a single group andrelated institutional infrastructure. This is despite the presence of an entrepre-neurial and strong business community group that has dominated the politicsof the city, but this has not resulted in an attempt to create a more inclusivestyle of politics. The focus on making Houston a city with a ‘good businessclimate’ has created economic benefits only for some (Parker and Feagin,1990; Parkinson, 1990: 305).

7.3 AUSTIN, TEXAS, USA

7.3.1 Background: Technology-induced Growth

Austin represents a unique case for having launched spectacular technologi-cally induced growth in the 1980s and 1990s, despite the fact that it had previ-ously been a relatively limited regional economy, albeit a state capitaldominated one. Formerly known as a sleepy college town of 200,000 resi-dents, whose principal employers were the state government and theUniversity of Texas, it is now a region that has transformed itself into one ofthe most vibrant technology-intensive regions in the US, with a population ofalmost one million (Miller, 1999: 1). Austin’s economy is now based ontechnology-intensive industries such as software development, semiconductorR&D, computer system integration, software consulting, data processing andInternet-related services. Over the period 1994–98, employment grew 4.7percent per annum. Technology-related industries comprise Austin’s largestemployment sector (European Commission, 1999: 5).

7.3.2 The Turning Points

According to Miller (1999), the Austin success was the result of several actorsworking together to create a new economic base; that is, Austin’s high-tech


transformation was driven by a vision and a plan that was aggressivelypursued by a group comprised of businesses, academics, and government lead-ership and partnership (Miller, 1999: 1). Universities and other centers oflearning have also played a key role in educating and training the workforce,conducting research and transferring technology to the market place. Accessto capital, a friendly business environment, and the quality of life that the cityoffers, were also behind the Austin economic development success (EuropeanCommission, 1999: 5).

However, it is important to note that while state and local governmentplayed a crucial role, the driving force behind this vision sprang from theprivate sector through the Greater Austin Chamber of Commerce and a vision-ary, Dr George Kozmetsky (Miller, 1999: 1). Kozmetsky was one of the co-founders of Teledyne in Silicon Valley, who came to Austin in 1966 to becomethe Dean of the UT-Austin College of Business and Administration. By the1980s, he had helped to create numerous high-tech entrepreneurial organiza-tions and promoted the development of a technology-based city (Miller, 1999:3–4).

The turning point in Austin’s high-tech development occurred in 1983when the city won the nationwide competition for hosting theMicroelectronics and Computer Technology Corporation (MCC). MCC choseAustin over 57 cities across 27 states. Determined to win the competition,Governor Mark White’s office, the University of Texas and the businesscommunity, led by the Austin Chamber of Commerce, put together a packageof incentives totaling US$20 million. The establishment of MCC served as the‘trigger point’ for Austin’s development as a future technology center (Miller,1999: 4). The successful recruitment of MCC became the focal point for localleaders to develop the next phase of Austin’s economic development. In1984–85, the Austin Chamber of Commerce started to look for new ways toupdate the last plan that dated to 1957. The Chamber requested SRIInternational to design a plan for Austin’s development over the next 10–20years. The resulting plan – entitled Creating an Opportunity Economy –proposed that the future of Austin should be molded in terms of a 5-sectoreconomy, with three sectors being science and technology-related, and theother two being government and support services. The focus was on researchand development; technology manufacturing and technology-based informa-tion (Miller, 1999: 4). Miller (1999) tells how ‘the Austin region’s leaders tookthe recommendations to heart and created a plan to implement them’ (p. 5).

The next major event that helped build the reputation of Austin as a high-tech, R&D and manufacturing center came in 1988, when the semiconductorresearch and development consortium Sematech was attracted to and locatedin Austin. Sematech is a public–private partnership created between theFederal Government and the domestic semiconductor industry originally to


face the competition that Japan posed to the domestic US sector. Sematech isregarded as responsible for the revival of the US semiconductor industry. Theexperience that Austin gained with the establishment of MCC made the job ofrecruiting Sematech much easier. Recruiting Sematech involved virtually thesame cast of players with the addition of US Representative J.J. Pickle, whorepresented Austin in Congress. Using his influence, Congressman Pickle,along with the aid of the rest of the Texas congressional delegation, ensuredthat Sematech would receive sufficient government funding to exist. UTprovided the site to create the facility and build a 92-acre university researchpark around it (Miller, 1999: 5).

During the period 1993–98, technology-based industries added almost130,000 to the regional employment base, representing a growth rate of 4.7percent per annum over this period (Miller 1999: 1). In 1998, the economy ofAustin grew at a rate of 4.6 percent and created 26,200 jobs, the highestgrowth rate in 1998 for any metro area in Texas. The unemployment rate in1999 for Austin was the lowest (2.2 percent) when compared to 4.6 percent forthe state of Texas, and 4 percent for the US. Per capita GDP also grew fromabout US$9,000 in 1980 to about US$18,000 in 1996 (Miller, 1999: 1).

7.3.3 The Success Factors

There are several factors that led to Austin’s development as a technology-intense economy. These are:

1. Entrepreneurial spirit: Technology entrepreneurship in Austin has had along history and it played a key role in the development of the region’shigh tech economy. A good example can be seen in Michel Dell, founderof Dell Computer Corp. Dell is the second largest manufacturer ofcomputers in the world and the world leading direct computer system’scompany. Started in Dell’s dorm room at UT, Dell Computer is now thelargest private sector employer in the Austin region (Miller, 1999: 5).

2. Public–private partnerships: According to a study carried out by theEuropean Commission (1999), ‘Austin’s economic boom was builtentirely on public–private partnerships’ (p. 13).

As mentioned above, winning the nationwide competition to host MCCwas the result of an all-out recruitment effort involving Austin’s GovernorMark White’s office, the University of Texas and the business community ledby the Austin Chamber of Commerce. Later on, recruiting Sematech involvedcooperation among virtually the same cast of characters that had landed MCC(European Commission, 1999: 13). Thus, Austin had benefited from the abil-ity of these three groups to work together in support of a common plan in


transforming Austin into a center for technology-intensive employment. TheGreater Austin Chamber of Commerce took the lead (among the other players)and had a notable tracked record in aggressively recruiting high-tech firms toAustin. The UT-Austin had the resources (financial and talent) to offer signif-icant incentives to prospective arrivals. Furthermore, the governance arrange-ments were appropriate to ensure the provision of financial incentives and toattract businesses when necessary, as well as to provide the necessary sales-manship by the governor and the mayor (Miller, 1999: 6).

1. Economic resources and positive business climate: States can foster andattract economic activity by offering a business friendly regulatory andtax environment. For example, the state of Texas has no income, businessor property tax and the regulatory burden is considered low (EuropeanCommission, 1999: 8). The state of Texas also offers a number of incen-tive programs designed to make capital more available for businessexpansion and relocation. These incentive programs, along with theadequate supply of venture capital, have fueled technology growth in theAustin region. For example, Austin Venture is the largest venture capitalfirm in Texas and one of the largest in the US. More than 40 percent of thefirm funds are invested in Austin and typically on activities related toinformation technology (Miller, 1999: 9).

2. Educated workforce/training: The Austin area is well known for its highlevel of education, which is a result of a solid primary and secondaryeducation system, strong community colleges, and an accomplishedresearch university (UT-Austin).

Although Austin has become a ‘technopolis’ and a knowledge-intensiveeconomy, renowned for its high technology and high economic growth rates,civic leaders started to look ahead in preparing Austin’s economy for the 21stcentury. Consequently, the Greater Austin Chamber of Commerce and manycivic leaders commissioned a new economic development strategy report, thatput emphasis on developing emerging industry clusters of the future such asmultimedia, logistics/distribution, telecommunications, transactions services,biotechnology, and so on (Miller, 1999: 11).

7.4 COLORADO, USA

7.4.1 Background: Resource Dependence and Boom and Bust

In the State of Colorado, the traditional emphasis on mining, oil and gas, andagricultural industries has been replaced by an emphasis on greater industrial


diversity, from aerospace, communications and computing, to the environ-mental industries, biotechnology and biomedical industries (Snow, 1999: 1;European Commission, 1999: 4). A trend toward ‘niche’ manufacturingsectors – such as high-tech mountain bikes and skiing equipment – is alsoevident (European Commission, 1999: 4). Since the 1980s, Colorado emergedas a favored location in the United States for job growth in technology-intensive industries:

A strong Federal presence, good research universities, a highly educated and welltrained workforce, a State government focused on fostering a positive businessclimate, an exceptional environment, a superior quality of life, and the opening ofDenver International Airport, all contribute to attract venture capital to Colorado.(Snow, 1999:1)

However, this level of success did not always exist. In fact Colorado wascharacterized by a ‘boom and bust’ economy with its dependence on tradi-tional sectors, such as agriculture, mining, and oil and gas. In the mid 1980s,as the state was in the midst of a severe depression and Denver was seeminglybecoming an economic ‘ghost town’, the new Governor, Roy Romer, tookseriously the urgent need to diversify Colorado’s economy:

His administration focused on creating an environment favorable to the develop-ment of business, particularly small business, through the use of tools such as‘enterprise zone’ tax credits, customized job training programs, financial assistance,and small business development centers. (Snow, 1999: 1)

By 1998, the Development Report Card for the State – an economic bench-marking report prepared annually by the non-profit Corporation for EnterpriseDevelopment – rated Colorado highly among all states in the US (Snow, 1999:1). It was rated:

• 2nd place for business vitality, measured by the number of new busi-nesses formed each year, and the competitiveness of existing businesses

• 3rd in the nation for development capacity, measured by the quality ofits human technology, financial and infrastructure resources

• 4th for economic performance, as measured by employment growth,earnings and job quality, equity, social and health conditions.

7.4.2 The Actors and the Factors Involved in Promoting RegionalDevelopment

The actors involved in promoting the regional development of Colorado arenumerous. However, these actors can be placed into several broad groups,including: business, individual entrepreneurs and other leaders; local, state and


federal governments; and universities. According to the EuropeanCommission (1999) ‘It is often difficult to separate the role of each; theircontribution to regional economic development, are [sic] often the result ofcooperation encouraged by public-private partnerships’ (p. 6). The centralfactors in the success seem to have been the following:

1. Public–Private Partnerships: Through public–private partnerships andother arrangements, business has played a key role in promoting condi-tions that led to the creation of new enterprises (European Commission,1999: 6). One example is the Boulder Technology Incubator (BTI), a non-profit corporation that assisted many firms in developing technology-based business by providing management resources, capital access, train-ing, and promotion of technology transfers and joint ventures. It is esti-mated that BTI has added nearly 800 jobs and $200 million in theeconomy (European Commission, 1999: 6).

2. Venture Capital and Entrepreneurial Spirit: Venture capital and entrepre-neurial spirit has fueled the application of market technology and enabledcommitted individuals to bring good ideas to the market (EuropeanCommission, 1999: 6). According to Snow (1999), in Colorado ‘individ-uals are willing to take risks, work very hard for many years in order tobring an idea to fruition and in the process gain material rewards.Promising individuals may find “angel” investors, “mentors” and businessadvisors willing to help’ (p. 7). One example is the Colorado CapitalAlliance Inc., a non-profit angel capital network formed in 1996 by busi-ness leaders around the state of Colorado. This non-profit network hashelped many entrepreneurs find mentors to support their needs (EuropeanCommission, 1999: 6).

3. State and Local Government: State governments can influence the pace ofinnovation and economic growth in a region (European Commission 1999:8). In fact in Colorado, state governors, mayors and other local leaders haveoften provided personal leadership and the vision needed to rebuild the stateeconomy. They have done this by catalyzing and coordinating activities topromote economic growth, by facilitating flexible regulatory and favorabletax policies, by supporting research and university activities related to tech-nology transfer, by improving transportation and communications infra-structures and by fostering an overall good quality of life to attract andretain investment (European Commission, 1999: 8). There are many exam-ples that show Colorado leaders’ commitment to the state’s economicgrowth. One such instance was when: ‘in the midst of a severe economicdownturn, former Colorado Governor, Roy Romer, declared his state “Openfor Business”. This set the tone for an economic turnaround based on thepromotion of small business’ (European Commission, 1999: 8).


4. Universities and community colleges: Educational institutions havetailored the skills of the workforce to the needs of the industry, and havebeen crucial to research and development and technology transfer in theregion (European Commission, 1999: 6); that is, at the request of individ-ual companies, or the state government, they have developed curriculageared to specific company needs. For example, the Colorado Bio-processing Center on the Colorado State University Campus helpedSynergen Inc. of Boulder to obtain trained process personnel for theirmanufacturing plan (Snow, 1999: 5).

Coalitions among government, business and research communities havethus allowed Colorado to achieve economic growth based on an agreed plan(European Commission, 1999: 6). The State government has created a goodbusiness climate. The availability of ‘angel’ and ‘venture’ capital has been anessential factor in the development of new business, bringing many entrepre-neurial ideas into reality. Universities and community colleges have alsoplayed a key role in educating, training and carrying out joint applied researchwith industry. Finally, Colorado’s geography and its exceptional environmenthave also mattered in the location decisions of businesses (Snow, 1999: 15).

7.5 INDIANAPOLIS, INDIANA, USA

7.5.1 Economic Collapse

Indianapolis is located in the State of Indiana in the heart of the Mid West ofthe US. It was part of the US Manufacturing Belt that extended from Chicago,Illinois and Milwaukee, Wisconsin eastward to New York and Boston. In the1960s and 1970s this was the heartland of US manufacturing producing nearlytwo-thirds of US value added in the 1950s, much as the Golden Triangle inEurope that extends from the Midlands in Great Britain across the EnglishChannel through Paris to Turin and Milan in Italy and then northward to theNorth Rhine-Westphalia region (lower Rhine river valley) and the Randstad inthe Netherlands. Indianapolis was a mid-level center of the ManufacturingBelt with an urban region population of less than one million. Its primaryeconomic activities ranged from pharmaceuticals (headquarters of LillyPharmaceuticals, Inc., one of two or three of the largest companies in thatsector in the world), a variety of automotive-related plants, for exampleAllison Diesel, Inc. (engines and transmissions) and the state capital ofIndiana.

As Japanese production methods gained acceptance and demonstrated thatsuch methods could produce superior products, both more efficiently and with


lower cost labor, the whole US economy became increasingly threatened. Bythe mid-1960s job growth in Indianapolis stagnated, and plants began to relo-cate to lower wage areas mostly in the South and Southeast of the US as thenascent rise of economic centers in the so-called Sunbelt in the US began tooccur. In short, the Indianapolis economy was under serious threat as theforeign competition utilizing new production processes and in some casestechnology, and with lower wages, increasingly demonstrated superior output.Indianapolis had been pushed out of the comfortable equilibrium it hadenjoyed with few exceptions (for example, during the Great Depression) sincethe beginning of the industrial revolution. A more detailed description of theforces impacting competitiveness in Indianapolis in the 1950s and thereafterappears in City of Indianapolis (2007).

7.5.2 Developing a Strategy

At this time in the mid-1960s senior business and community leaders, facingthe growing reality of economic decline, began to understand the threat and todiscuss how to address it. One of the first acts was to form the GreaterIndianapolis Progress Committee (GIPC – pronounced ‘gipsy’). GIPC wascomposed of CEOs of major corporations such as Lilly (the Lilly Foundation;at that time one of the largest if not the largest foundation in the US), variousauto components-related firms and the Indianapolis Water Company (an oldorganization that had for over 100 years been led by senior community lead-ers). There were several reasons why the membership of this ‘club’ was onlyCEOs. First, these were the heads of organizations that were historicallyrooted in Indianapolis. Second, CEOs usually play a minor or no role in suchbroad-based private sector organizations as Chambers of Commerce.Consequently, the broader and more diverse and thus representative organiza-tions did not have the senior leadership needed to drive the development of anew and different economic strategy. Third, these were heads of organizationsthat provided a major portion of regional employment. Fourth, CEOs morethan any other persons controlled the ‘slack resources’ (Cyert and Marsh,1963) of their companies. This was important because any initiative to counterthe economic competitiveness would require resources and many of thesewould have to come from outside government. CEOs were the persons whocontrolled the ‘slack’. Slack resources are those that are available to be usedat the discretion of senior leadership and historically have been deployed forcommunity and philanthropic purposes deemed important by such leaders.The size of slack tends to vary with level of performance. Fifth, persons whohead established corporations in a region most likely have their lives andlivelihood, their families and associates embedded in the region and thus willhave, for lack of a better term, ‘love’ and thus commitment to the health of


their region. In short, they will care a great deal about the maintenance of theregion as the home of their family, employees, associates, friends andcompany and thus will have a high level of motivation to find a solution tothreats.

GIPC, with the services of a major ‘think tank’, developed a strategy tostabilize and regenerate the economy. The heart of the strategy was targeted tothe service sector. Under this strategy Indianapolis would initially become theamateur sports capital of the United States and then the primary center forassociation headquarters in the middle part of America. It is important to notehere that the leadership for the Indianapolis response to the extreme competi-tiveness threat came primarily from the private sector in the form of CEO lead-ers. For sure then mayor Richard Lugar was soon to join in and back the effort,but the prime movers came from non-government sources (see City ofIndianapolis, 2007; Hudnut, 1995 for more background on the development ofa strategy).

7.5.3 Implementation and Outcomes

As the strategy was formed and implementation began it was necessary tocreate the infrastructure to support the amateur sports capital theme. Thisincluded the construction of a wide variety of sports infrastructure elementssuch as pro-quality stadiums, a natatorium that would support national andinternational sports events, a veladrome, and so on. Neither the State ofIndiana nor the City of Indianapolis had the resources to fuel the constructionof these facilities on its own. Only when the Lilly Foundation agreed to redi-rect its yield (amounting eventually to several hundreds of millions of dollars)to the infrastructure development objective was it possible to create a resourcepool large enough to support the construction part of the strategy. It is impor-tant to note that one part of the strategy was the construction itself as manyjobs were created and maintained over a ten-year or so period in this way.

Another element at the core of the strategy was the attraction of amateursports associations to Indianapolis. As construction of the infrastructure beganto unfold the region was able to attract the American Athletic Union (AAU)headquarters to the region. This was a centerpiece organization and thus beganto convey that the Indianapolis strategy was serious and that it could work ifthe plan implementation continued. As more associations were attracted to theregion, infrastructure in the form of conference facilities and spaces foraccommodating meetings were needed. For sure, as national associations wereattracted they in turn attracted others for exchange of information, planning,program development and other meetings, thus creating a need for hotel, meet-ing and conference infrastructure. In short, by the early 1980s the implemen-tation of the strategy was gaining notoriety nationally and internationally. For


example, by the mid-1980s Indianapolis had been selected as the site for the1987 Pan American Games (one of the pre-competitive events leading up tothe Olympics), had attracted a premier team from the National FootballLeague (The Baltimore Colts), and other professional sports teams as well asan increasingly wide diversity of associations of all kinds. This part of the casestudy draws on works by the City of Indianapolis (2007) and Hudnut (1995,1998).

7.5.4 A Model Success Story and Lessons

By the late 1980s the economic development strategy created in the late 1960shad achieved success and was recognized as a model for the redevelopment ofother city regions in the US and abroad. Its mayor, William Hudnut, whofollowed Richard Lugar in the early 1970s and remained in office for morethan 15 years, became one of the most sought after city mayors in the US forspeaking engagements with requests to explain how Indianapolis achievedsuch extraordinary revival. While much of the success was due to continuedand focused leadership on the part of Mayor Hudnut, it is important to recog-nize that initially the leadership came from the private sector and resources forthe major investments that were needed to make the vision a reality came fromthe private sector as well as the public sector at the state and local level. Inshort, the private sector played an initial major leadership role and providedcritical resources that could not have been amassed otherwise. Also, it isimportant to recognize that significant stakeholder involvement occurred withthe State of Indiana, Indianapolis and private sector organizations like theLilly Foundation partnering to create success. Further, it is not difficult fororganizations like GIPC to create strategies for their region; what is difficultis to build broad stakeholder participation of those who were not members ofthe organization. It may be claimed that GIPC was and is an elite organizationand that is true. However, it worked carefully to market the strategy conceptand to attract diverse stakeholders into the strategy development process. Sowhile it was elite in nature it also used its leadership to attract other partnersand to incentivize their commitment and participation. This of course waseasier once senior public sector leadership committed to the strategy. Thisdiscussion on achievements and outcomes draws again on such works as theCity of Indianapolis (2007), Hudnut (1995, 1998) and Stough (2007).

It is important to recognize pattern elements that appear to be characteris-tic of leadership in the US that evolve out of the US case studies. First, thereare more than a few cases where private sector leadership provided catalyticleadership for a redevelopment strategy and its implementation. The role ofthe Allegheny Conference in Pittsburgh (see above) is a case in point. Anothercase that supports this claim, not reported here, is that of Baltimore, Maryland.


Baltimore experienced industrial and port decline in the 1960s due mostly tothe same competitiveness forces that so negatively impacted the economies ofplaces like Indianapolis and Pittsburgh, namely de-industrialization. Baltimoreformed the Greater Baltimore Committee (GBC) with a membership of 100CEOs from the region and adopted a strategy to rebuild Baltimore from itsharbor outward. This was the same model Baltimore had used to rebuild theregion and its economy following a conflagration that destroyed most of thecity in the 19th century. The strategy was implemented with great success andBaltimore became another model of urban region regeneration in the face ofde-industrialization-driven competitive forces. The Baltimore case representsanother pattern related to success and that is that regions that have achievedsuccessful regeneration in the past often adopt anew the strategy used at anearlier time(s). Some of the European cases presented in the next chapter illus-trate this thesis, for example, Rennes, France and Birmingham in GreatBritain.


8. Case studies from Europe

In this chapter we present seven case studies from Europe: Birmingham, UK;Liverpool, UK; Rennes, France; Lille, France; Freiberg, Germany; Tampere,Finland; and Rotterdam, the Netherlands.

8.1 BIRMINGHAM, UK

8.1.1 Background: Adjustment Through Entrepreneurship and StrongMunicipal Leadership

Birmingham is Britain’s second largest city ‘Its history is dominated by twothemes – its emergence as a great industrial city and a tradition of civicachievement unequalled by any other British city. These themes continue todominate the city today’ (Loftman and Nevin, 1998: 130). Indeed,‘Birmingham is regularly described as the most dynamic city in the world’ (p.131). It is commonly known as a city which, over the years, has been able toprovide strong and active municipal leadership, entrepreneurship and politicalpragmatism. That is, the city has a longstanding tradition of elected leaders,chief officers and political parties working together in the interest ofBirmingham: ‘The persistence of this climate of co-operation setsBirmingham apart from other English major cities’ (ibid.).

This tradition of enterprise and civic leadership can be traced back to the1870s when Joseph Chamberlain was the mayor. During that time:‘Birmingham gained an international reputation as being the best governedcity in the world’ (ibid.: 132–3). In more recent years, Birmingham’s civicleaders have continued not only with the legacy of Chamberlain, but also withthe history of municipal activism and political pragmatism (ibid.).

8.1.2 Vulnerability

Throughout most of the nineteenth and twentieth centuries, the economy of thecity was based on manufacturing. However, that overdependence made thecity vulnerable to the structural changes in the national and global economy,particularly during the recession of the 1980s. Within a decade, the WestMidlands region was transformed from ‘being one of the nation’s most

90

economically prosperous regions to a low-wage low-productivity economysuffering chronic levels of unemployment’ (Loftman and Nevin, 1998: 133).

8.1.3 Consensus for Regeneration

The manufacturing base was particularly devastated, with the city losing 46percent of total manufacturing employment between 1971 and 1987 (Loftmanand Nevin, 1998: 134).

Reflecting the City Council’s tradition of pragmatic politics and cross-partycooperation, a broad consensus emerged between the city’s major players inthe 1980s to respond to the collapse of the city’s manufacturing industry. TheCouncil sought to broaden the city’s economic base through the promotion ofthe service sector and the creation of a new image for the city (ibid.: 135). Thisconsensus emerged despite frequent changes in the political control of theCouncil over that period. Birmingham’s political and business leaders wereable to adopt a non-ideological and pragmatic approach by working in closecollaboration with local political opponents and the private sector (ibid.: 134).

In the transformation of Birmingham, it is important to mention the successof the city in attracting both private sector and European Community funds,which were to be a key element in carrying out the pro-growth strategy. Forexample, the Council established the Economic Development Committee inthe 1980s to focus on tackling the city’s economic problems. Under the charis-matic leadership of Sir Richard Knowles and the efforts of Councilor AlbertBore, the power of this committee grew considerably, allowing Birminghamto ‘succeed in its application to central government Assisted Area status, gain-ing access to essential European Community funds to support its economicdevelopment activities’ (ibid: 139).

Another example was the Council’s use of two quasi-public sector compa-nies – Hyatt Regency Birmingham Ltd and NEC Ltd – to finance and raisemoney to secure funds for the projects (ibid.: 139). In addition to securingfunds for carrying out the projects: ‘the city council also sought to engage theprivate sector in the formulation of policies aimed at re-imaging and promot-ing Birmingham’s city centre’ (ibid.).

In 1988, a City Centre Challenge Symposium was held to debate the futuredevelopment of the city. The 1988 symposium resulted in the formulation ofthe strategies for revitalizing the city (Beazley et al., 1997: 188). Some of theprojects in this strategy were:

• the £180 million International Convention Centre (ICC)• the £60 million National Indoor Arena• the £31 million Hyatt Hotel built as part of the ICC development

(Beazley et al., 1997: 189; Loftman and Nevin, 1998: 143, 147).

Case studies from Europe 91

It has been argued in research on regional development, the media, and byprofessional bodies that Birmingham City Council’s £300 million investmentin its projects and strategies had generated considerable regional benefits by‘diversifying the city’s local economy, attracting private investment and plac-ing the city in the international map’ (Loftman and Nevin, 1998: 147).However, it is also noteworthy that many of the successes have resulted in thediversion of scarce Council resources away from ‘basic’ services, such aspublic housing and education services (Beazley et al., 1997: 189).Furthermore, it is argued that many of the jobs created by the redevelopmentprograms are of low quality. For example, in 1991, 42 percent of the 275permanent jobs at the ICC were jobs within cleaning, catering and securityoccupation sectors (Beazley, et al., 1997: 190). An analysis by Beazley et al.(1997) found that these huge socio-economic impacts are the results of limitedgeneral public involvement or debate concerning the development of the city.

8.1.4 Community Reaction

Since 1993, increasing community resistance to regeneration proposals sawthe election of a new leadership in the Council which has implemented a ‘backto basics’ philosophy whereby local services, such as education and socialservices, are receiving priority in council resources over prestige developmentand civic boosterism activities (Beazley et al., 1997: 191). Therefore, it seemsthat the sustainability of the city’s development will depend on the ability ofthis new Council to make development proposals more sensitive to commu-nity needs (Loftman and Nevin, 1998: 147). However, those shifts in strategieshave not changed the way policymaking is done in Birmingham. The newadministration has continued to show political pragmatism, municipalactivism and political consensus around the city’s strategies. But this time it isbeing done with the participation of the general public (Beazley et al.,1997:190).

8.2 LIVERPOOL, UK

8.2.1 Background: Industrial Decline and Lack of Capacity toRespond

Liverpool provides a marked contrast to the Birmingham case study discussedabove. Parkinson (1990) describes Liverpool in these terms:

Liverpool provides a classic location to examine the role of leadership in urbandecline and regeneration. During the past two decades it has experienced a profound


transformation under the impact of international economic restructuring, which hasset before it major social and political challenges. However, a crucial feature of thecity during this period is the way in which leaders reacted to the challenges it faced.In many respects, the city’s economic failure has been matched by a political fail-ure that has exacerbated the costs of change. Ironically, the importance of leader-ship in urban transformation is illustrated by its absence – or incoherence – inLiverpool. (p. 241)

Leadership is seen by Parkinson (1990: 241) as the capacity to create stableand durable mechanisms and alliances that help to promote economic regen-eration and allows the identification of a range of micro-level skills andmacro-level resources that can generate that capacity. Liverpool’s leaders,however, seem to have had a deficit in both these respects. Over the years, thecity’s leaders have failed to demonstrate the necessary political skills to formcoalitions that are stable enough to promote economic regeneration. Moreover,Liverpool’s leaders have also shown a lack of many of the resources thatunderpin leadership capacity (ibid.). For example, the relationship between thepublic and private sectors in the city is seen to be weak, and the controversialrelationship of the City Council with the central government has created littlenational support towards the city (ibid.: 241, 244).

Adding to this lack of leadership, Liverpool has encountered problems inits quest for economic growth as the city is highly dependent upon a singleindustry, namely the port and warehousing (Savitch and Kantor, 2002: 56–7).Liverpool lost much of its competitive advantage when trade shifted awayfrom Western Europe toward North America and when automation took place.In 1950, the port generated 27 percent of Liverpool’s employment, howeverby the 1990s that had declined to under 4 percent. Today, the port barelyemploys 500 people, and Liverpool continues to lose jobs as new industrieshave been established in other cities such as Manchester, which is only 50miles away (Savitch and Kantor, 2002: 57). Also, the city’s social structure ischaracterized by a large working class, a relatively small middle class, and theabsence of a versatile capitalist class (Parkinson, 1990: 244; Savitch andKantor, 2002: 57).

These negative characteristics had created more than two decades of regimeinstability in Liverpool. The city’s highly volatile and partisan party politics, alimited governmental capacity, a lack of powerful business leadership, and theinability to construct coalitions between the public and private sectors has notallowed the city to respond proactively to economic decline and build theelements of a regeneration strategy (Parkinson, 1990: 242).

The period from 1973 to 1983 saw a dramatic escalation in the city’seconomic problems, combined with a period of political paralysis becausenone of the city’s three political parties could achieve the necessary electoralsupport to get a majority on the council and develop a coherent response to


economic decline (Parkinson, 1990: 245–6). While Liverpool’s economicdecline is intimately connected to the city’s port, that decline began in the1920s with the evolution of new technologies in transportation and communi-cation which sent the port into a long-term decline, causing profound impacton the economy, and in particular fostering long-term structural unemploy-ment (ibid.: 242, 245–7). Liverpool was, even at this early time, showing apoor ability to respond to threat and economic decline.

8.2.2 Delayed Reaction and Intervention

Despite the need for urgent intervention, it was not until 1987 that a stream ofpolicy documents came from the City Council advocating the need to diver-sify the economic base of the city and, in particular, the need to regenerate thecity center as the center of a regional market. Moreover:

the city commissioned a variety of consultancy studies to examine the tourist poten-tial of the city, the problem of the city’s image and city marketing, the economicpotential of the design industry, and most significantly, the merits of creating a part-nership between the public and private sectors to guide economic development.(Parkinson, 1990: 253)

Since the turn of the 21st century, things started to change and Liverpoolis now showing some signs of regeneration. The economic collapse of theearly 1980s has been arrested. Its docklands are going through some degreeof renaissance, and new housing and tourist attractions are being built.Furthermore, there has been some growth taking place in modern sectors ofthe economy that show potential. The political complexion of the city haschanged, and many of the internal divisions of the recent past seem to belessened. However, many old perceptions linger, and the city still bears thereputation of ‘riot city’, with high levels of public employment, an under-qualified and unskilled workforce, and a high rate of unemployment. As aresult, the city is still at a loss for investment, with much of its land beingvacant or derelict (Parkinson, 1990: 305; Savitch and Kantor, 2002: 57,85).

8.3 RENNES, FRANCE

8.3.1 Background to a Transformation

Le Gales (1990: 85), writing on the French city of Rennes, describes it as adynamic city, which was able to pool its social and economic resources andbecome a symbol of urban regeneration in the 1980s in France.


The transformation of Rennes began after 1945 with the election of aChristian Democrat, Y. Freville, as mayor. His vision marked a turning pointin the history of Rennes as he implemented innovative strategies to turn thecity into an international intellectual and cultural center (Le Gales, 1990: 71).His program had four main elements aimed at:

• controlling the expansion of the city• developing higher education• improving the city’s infrastructure• attracting high-tech industries and developing research institutes and

universities (ibid.).

His time in office is recognized as one of the most innovative eras in thecity’s history as he was able to bring together virtually all local actors (theuniversity, the Chamber of Commerce, trade unions, young entrepreneurs, andso on) to be involved in the development of the city (ibid.: 72). Furthermore,Freville was able to secure a close network of high-powered civil servants whosupported development projects. The Freville regime also gained strength bybuilding strong ties with various local agencies (public financial institutions,developing agencies, and so on) that contributed the resources necessary tofacilitate the projects (ibid.: 79).

8.3.2 A New Crisis

Yet, by the end of the 1970s, an economic crisis hit Rennes. The negativegrowth rates experienced in the traditional sectors of the economy and theclosure of a series of plants brought significant job losses to the city (Le Gales,1990: 79). In 1981, the increased pressure from the population to revitalize theeconomy brought a leftist government to power for the first time in 23 years.This new government brought considerable change to Rennes that resembledthe years during Freville’s regime. Such changes turned the city again into oneof the most dynamic cities of France (ibid.).

8.3.3 Institutional Response

The new government strategy was characterized by the creation of a plan fordevelopment where the consultation process was very broad. Eight workinggroups headed by union leaders, business organizations, academics, public andvoluntary sectors were established to decide policies for each of the mainimportant economic areas of the city. The major theme of the policy was basedon the assumption that job creation in Rennes could be achieved by the mobi-lization and development of scientific research capabilities (Le Gales 1990:


78–9). Important institutional arrangements were in place to make it possiblefor the government to implement such strategies. For example, the politicalconsensus and the broad participation of actors that was achieved allowed thenew Mayor to mobilize national financial support and the interest of the localsfor economic development (ibid.: 83–4). Important development and planningagencies were developed in Rennes (for example, CODESPAR) whichallowed and thus enabled representatives of the business sector, the unions,and local authorities to work together and create partnerships (Le Gales,1990).

Rennes is thus a city characterized by having had emerge local high qual-ity social capital conditions – mayoral leadership, broad consensus, social andeconomic resources – that allowed it to develop and implement successfulstrategies. Rennes emerged as a place characterized by high-order services,new technology firms, a good quality of life, high levels of research, and agood employment structure which allows it to remain a symbol of urbanregeneration (Judd and Parkinson, 1990: 28).

8.4 LILLE, FRANCE

8.4.1 Background: Industrial Decline

By the end of the nineteenth century, the city of Lille in northern France wasthe second largest textile region in the world after the Manchester–Lancashireregion. Its growth was enhanced by canal access to the ports of Flanders,Ghent and Antwerp. However, during World War I, the city suffered enormousdeprivation, and then like other cities during the 1920s, it experienced reces-sion and unemployment (Fraser and Baert, 2003: 87).

Although some economic prosperity returned to Lille after World War II,the lack of urgency to restructure or change old patterns of industrial manage-ment further decreased investment. As a result, Lille started to experiencesocial and physical decay typical of many former prosperous industrial cities,including those of the Nord regions (ibid.: 88). However, Lille was hit espe-cially hard as the city area was considered peripheral and remote from thecountry’s economic and cultural life. It is estimated that over the period1945–1996, the Lille area lost approximately 294,000 jobs in its traditionalindustries of textiles, agriculture, mining and related sectors. The coal indus-try lost all its labor force (approximately 90,000), and there were importantlosses in the chemicals, metalworking and service sectors. The economicdecay of Lille was evident by the abandoned and decaying factories through-out the area (ibid.: 88).


8.4.2 Planning Initiatives for Regeneration

The fist initiative to reverse the economic decay of Lille came from the centralgovernment in the late 1960s with its strategy to divert growth away fromParis to other regions in France. The strategy, called Metropoles d’Equilibrewas designed to divert investment to provincial city regions (Fraser and Baert,2003: 93). However, a major influence in the recovery of Lille was the highquality of its political and technical leadership that led restructuring in the cityover the 25 years (ibid.). Of particular importance was the role played by thePrime Minister, Pierre Mauroy. He was responsible for pushing and incen-tivizing the construction of the Channel Tunnel, and later on as a Mayor ofLille he pushed for the city to link up to the new European transport infra-structure network and reap the associated benefits (ibid.: 91).

After hard lobbying by the authorities in Lille, it was agreed that the citywould be the link between London, Brussels and Paris. This link greatlyimpacted the economic regeneration of Lille. The economic revival of the citywas further assisted by local forces which gathered together to form theComité Grande Lille, a body of some 300 people representing a cross-sectionof Lille’s society. That group still meets every two months to discuss issuesand problems of current importance (ibid.: 102–3).

8.4.3 Major Projects

The economic revival of Lille may be seen in two major projects that signalthe process of the regeneration of the metropolitan area:

1. The first was Euralille. According to Fraser and Baert (2003), securing theEurostar link through Lille was the first step to drive the city’s economyforward into the post-industrial era. The link led to a reconstruction of avast area of the city including the creation of shopping centers, the stationthat links the city of Lille and neighboring areas, office complexes, a parkarea, and so on (ibid.: 102).

2. The second was the regeneration of Roubaix, the second city of the Lillemetro region that signaled the process of regeneration in the region. In the1990s it was a city in decline, with unemployment rates of approximately27 percent and declining services and shopping facilities. Furthermore, thecity was poorly connected to other parts of the metropolitan area (ibid.:106). As with the city of Lille, it was a new mayor, M. ReneVandierendonck, who brought a remarkable change to the unpromisingsituation of Roubaix. That change started in 1994 when the new mayorattracted the private sector and other actors together and formed them intoan integrated team that in turn proposed a strategy based on the investmentin three major public assets:


• the first was the improvement of the city image by upgrading thosepublic facilities that had fallen into decay

• the second was the improvement of the transportation links bothwithin the city and between the other centers of the metro region

• the third was the physical redesign of the city.

As these three initiatives evolved, others were added that progressivelyattracted the private sector to capitalize on the potential of other assets in theLille region (ibid.: 104). It is said the entire program has had an impact onemployment growth of 2,500 jobs attributed just to the enterprise zone.However, it is not clear if those jobs are being taken by locals who suffer fromunemployment or by those who commute into Roubaix but live in othersuburbs (ibid.: 105). Most probably it is a mix of the two.

8.4.4 Revival and Altered Image

The dramatic economic revival of Lille has greatly altered the perception andimage of the region. For example, according to Fraser and Baert (2003: 102),Euralille is hailed as one of the largest and most stimulating projects incontemporary Western Europe. Furthermore, the regeneration of Roubaixrepresents a flagship project for the metropolitan area. In the case of both Lilleand Roubaix, their respective mayors, backed by the Comité Grand Lille, hada vision of how the metro area of Lille could reinvent itself. In both cities themayors and their staff had the necessary:

skills to negotiate, coordinate and assure [that the] finance [was available] to makethings possible, and not to have to wait on that initiative coming from somewhereelse. (Fraser and Baert, 2003: 106)

8.5 FREIBERG, SAXONY, GERMANY

8.5.1 Background to Success: Capturing New Industrial Activity

The city of Freiberg in Saxony (in the former East Germany) has beenanalysed by Musyck (2003) as an example of regional development based oncapturing new industry activity in the field of recycling and environmentaltechnologies and services. This case is viewed as a ‘relatively successfulprocess of economic renewal resulting from a combination of endogenousassets and exogenous impulses’ (p. 273), which helped the creation of new andinnovative firms.

It appears that there are three distinct but interlocking factors that under-pinned success in the Freiberg case (ibid.: 271):


• long-term historical assets and localized capabilities• the restructuring of existing local research institutes• public policies in support of environmental protection and applied

research.

8.5.2 Industrial and Political Transformation

Until the middle of the 19th century, the mining and metallurgical industriesdominated the economy of the Freiberg region through a sustained growthsupported by continuous efforts in science, education and technological devel-opment. However, from then onwards, the mining industry entered a steadydecline, which led to the closure of many of the mines (Musyck, 2003: 277).Thus, the need to restructure and diversify the economy of the region towardsother economic activities started in the middle of the 19th century. Thisprocess was driven by the creation and expansion of indigenous small andmedium enterprises.

According to Musyck (2003), at the turn of the 21st century, about half ofthe inhabitants of the city were engaged in other industrial activities for theirlivelihood. Most of the newly created firms engaged in chemical, metallurgi-cal, electrical, electronic, scientific instruments, and mechanical engineeringindustries. The research potential of Freiberg was also significantly boostedwith the creation and expansion of several institutes of fundamental andapplied research. These institutes were seen as necessary complements to theexisting industrial activities (p. 277).

The demise of the communist system at the end of the 1980s brought toEast Germany significant economic problems that stemmed mainly from thenon-competitiveness of the regions’ firms. As a result, a large number of firmsdisappeared, which translated into the collapse of production and massiveunemployment (ibid.: 273). However, the sudden dismantling of the GermanDemocratic Republic, while precipitating a deep crisis in the local labormarket, allowed, within a few months, large numbers of qualified scientists tobecame available. This formidable body of immediately available expertiseallowed for the creation of the eco-sector in Freiberg (ibid.: 274).

8.5.3 The Process Underlying Successful Emergence of an Eco-sector

The emergence of the eco-sector is seen by Musyck (2003: 274–84) as beingthe result of three factors:

1. The first is the entrepreneurial capabilities that exist in Freiberg. Therewere many individuals desperate to find a job where few existed. Theyhad the vision to make risky decisions and to capitalize on years of


experience in the fields of science and applied research – in a phrase, ‘tocreate their jobs’.

2. The second factor was the existence of a large amount of capital that waschanneled from the local and central government to promote research andtechnology activity to solve environmental problems. The institutionalsupport given to these entrepreneurs by the public sector allowed for thedevelopment of SMEs in Freiberg. The combination of local actors, insti-tutional support, and the new market conditions allowed for the passagefrom the ‘old’ structure to the ‘new’.

3. The third factor was the environment of trust and strong local identity thatexisted in Freiberg. That provided a strong sense of solidarity and collab-orative networks that were essential for the development of the eco-sector.

The development of small and medium-size businesses (SMEs) in Freibergcannot be fully understood without a discussion of the role played by publiccontracts, subsidies and research grants. The government offered a wholerange of specific technology initiatives in addition to ten R&D infrastructure-based measures in the advisory, information and technology transfer fields(Musyck, 2003: 291). The Ministry of Economic Affairs and the Ministry ofEducation each spent about DEM 2 billion between 1990 and 1996 in support-ing technology initiatives and innovation programs. Most of that public inter-vention came in the form of contract research rather than just subsidies; thusfirms had to compete for them and gradually earn their position in their homemarket. Overall ‘the picture that emerges in Freiberg is that subsidies mayhave provided a “once-and-for-all-catch-up” for a certain time but that thesector has and probably will not be dependent on public funding in the longterm’ (ibid.: 292).

8.5.4 Predisposing Attributes for Ability to Cope and Rejuvenate

The Freiberg case demonstrates how a range of historic, economic and socio-cultural factors – such as the accumulation of skills and the tradition of entre-preneurship – may predispose a region to embark on a process of industrialtransformation based on indigenous entrepreneurial potential of SMEs. Addedto these factors, the presence of a radical shock to the economy in the form ofthe fall of communism, turned out to be a catalyst for a renewal of the region’sindustrial structure. When radical shocks do occur, they might prompt localactors to act and rediscover a common identity, appreciate the role of theirsocial networks and realize the extent of their collective experience and skills.In the case of Freiberg, public–private co-operation and strong social capitalwere fundamental factors in the initial success of the eco-sector (Musyck,2003: 281–2).


The lack of data makes it difficult to document the size and development ofthe eco-sector in Freiberg. However, ‘different strands of data converge toindicate that the sector has been growing steadily to become a substantial clus-ter of activity in the region’ (Musyck 2003: 287). But overall, it is estimatedthat the number of eco-sector firms in Freiberg in the year 2000 was around106 firms. That figure represents a substantial increase from the 57 firms thatwere identified in 1994. Furthermore, during the second half of the 1990s, theeco-sector in the region was recognized as a center of excellence for recyclingand environmental technologies. ‘This highly localized centre of excellencefor recycling is considered to be unique in Germany’ (ibid.).

As this case study by Musyck (2003) shows, the development of the eco-sector in Freiberg, is the result of a ‘combination of endogenous potential andconstructive policies’ (p. 293). It demonstrates how:

carefully balanced policy measures provided timely support to a number of highlyqualified professionals who found themselves suddenly plunged into a severeeconomic distress in the early 1990s and were willing to build new (risky) ventureson the basis of their own human capital. (p. 293)

8.6 TAMPERE, FINLAND

8.6.1 Background to Success: Resource Endowment and anEntrepreneurial Spirit

Tampere owes its economic success to a well-established entrepreneurialspirit, an endowment of natural resources, as well as a long history of cooper-ation between public and private leaders. All of these factors have contributedto Tampere’s development into Finland’s industrial capital, as well as to itsability to maintain economic competitiveness after experiencing a deep indus-trial recession in the early 1990s.

Tampere was chartered in 1779 by King Gustav III of Sweden to nurturethe development of free enterprise in a traditionally agrarian society. Believingthe site to be conducive to the development of industry due to a natural powersupply from the Tammerkoski rapids, the King established Tampere as a freetown where trade and industrial enterprise were unrestricted and agriculturalactivities common to existing towns of the time were completely forbidden(Kostiainen and Sotarauta ND). The townspeople were directed or led to linktheir livelihood with trade, factories or handicrafts and were given specialprivileges, such as inexpensive loans, and exemptions from taxes and importduties on raw materials, in order to speed the development of industry inTampere (Tuulasvaara-Kaleva, NDa). The expectation was that the politicallygranted freedom of enterprise together with the natural power supply from the


Tammerkoski rapids would enable Tampere to successfully develop into anindustrial town.

Within a few years, in 1783, Finland’s first paper mill was established inTampere (City of Tampere, NDb). Later, in 1820, James Finlayson, aScotsman, founded a cotton mill in town, that was the first major industrialestablishment in Finland (City of Tampere, NDb: 1). Then, in 1861, an inlandwater ship manufacturer and a broadcloth factory combined resources to formTampella, a company that manufactured grinders, water turbines, ships andlocomotives needed by Finish factories (City of Tampere, NDc: 1–2). Overtime, a number of other industries were established in Tampere, but the city’stextile, engineering and wood-processing industries formed the core of itseconomic base.

8.6.2 Institutional Evolution

Shortly after Tampere was chartered, the town’s administrative system beganto change. The existing administrative system, broadly used to govern thecountryside, was gradually transformed to a system for governing a town. In1802, a steward was hired to manage Tampere and plans were made to build atown hall (Tuulasvaara-Kaleva, NDb: 2). In 1809, Finland passed fromSwedish rule to Russian rule, but Tampere remained relatively undisturbed. Inthe 1830s, the steward was replaced by a mayor and Tampere’s wealthiermerchants were invited to city administrative court meetings to negotiate townissues (Tuulasvaara-Kaleva, NDc: 1).

The families who controlled the early industrial institutions of Tampere werecentral actors in the development of the town. They filled the roles of employ-ers, as well as of town administrators (Tuulasvaara-Kaleva, NDc: 2; Kostiainenand Sotarauta, ND: 10–11). They were politically influential and obtained priv-ileges for the town through personal connections with the Tsar’s court(Tuulasvaara-Kaleva, NDc: 2; Kostiainen and Sotarauta, ND: 10–11). In 1875,a new municipal law was passed making an elected town council the new deci-sion-making body of Tampere, but this did not diminish the industrialists’ influ-ence over town affairs: votes were calculated based on the amount of taxesindividuals paid and people who worked for others were not allowed to vote(Tuulasvaara-Kaleva, NDc: 2). Consequently, Tampere’s factory owners andwealthier merchants were those who elected the town council. The power tovote a council member in or out afforded Tampere’s leading families continuedauthority over town affairs and influence in the town’s development.

In the early years, the owners of Tampere’s factories took care of theirworkers’ basic needs through the provision of housing, schools, libraries and,in the case of Finlayson, a church and a hospital as well (Kostiainen andSotarauta ND; Tuulasvaara-Kaleva NDd). The industrialists also cared for the


town’s needs, particularly with regard to education. In 1839, the Finlaysonfactory founded a school which all of Tampere’s children could attend free ofcharge (Tuulasvaara-Kaleva NDe). Later, when students emerging fromTampere’s existing municipal schools could not apply to attend the university,a private high school was established for boys to qualify them for entrance tothe university (Tuulasvaara-Kaleva NDe). Several years later, in 1886, anindustrial school was founded in Tampere to teach students the ‘skills andknowledge that could be demanded from masters and foremen in the differentfields of industry’ (Kostiainen and Sotarauta, ND: 10). At the turn of thecentury, Tampere had a number of educational institutions including elemen-tary schools, secondary schools, a technical school, an agricultural school, aswell as an institute where workers could receive education (Tuulasvaara-Kaleva, NDe: 2).

During the course of the 19th century, Tampere was transformed from asmall, agrarian-based village into ‘the most highly industrialized locality inFinland’ (Lapintie et al., 2002: 67), where textile mills, paper mills and themetal industry provided thousands of jobs. By the middle of the 19th century,approximately 60 percent of Tampere’s labor force was employed in industrialproduction (City of Tampere, NDd: 1) and by 1870, 40.5 percent of Finland’sentire industrial workforce worked in Tampere (Kostiainen and Sotarauta, ND:9). By the end of the 19th century, more than half of the city’s labor forceworked in the textile industry’s three largest factories (Tuulasvaara-Kaleva,NDd). At that time, the labor-intensive textile industry dominated Tampere’sindustrial structure, with the mechanical engineering industry holding secondplace among the city’s industries (Kostiainen and Sotarauta, ND: 9).

Tampere entered the 20th century as a thriving industrial center known forits skilled workforce and motivated industrialists (Kostiainen and Sotarauta,ND: 10) because its political, economic and institutional factors had comple-mented each other throughout the 19th century, allowing Tampere to excel.While institutional changes had occurred, they had not hampered the town’sindustrial development: when Sweden’s rule of Finland ended and Russianrule began, privileges granted under Swedish rule were continued by the Tsar;when the privileges ceased in 1895, Tampere’s excellent geographical loca-tion, natural power supply and industrial heritage enabled it to continue todevelop as an industrial center (Kostiainen and Sotarauta, ND: 10).

8.6.3 Decline and Transformation

Tampere’s development proceeded relatively smoothly until World War I,which not only shook the region to the core but unleashed events that all butdismantled Tampere’s economy. Shortly after the soviets seized power inRussia in October 1917, Finland took advantage of the opportunity and


reestablished its independence on December 6, 1917. But, even as Finlanddistanced itself from Russia, it could not steer clear of the suffering emanatingfrom the Bolshevik Revolution. In 1918, Finland, too, sustained a short, albeitheavy clash between landowners (the Whites) and workers (the Reds). Thisconflict pushed Tampere to the brink of disaster. Heavily populated by work-ers, Tampere became the main base of the Reds (Sylvelin, 2004: 3), and thisbrought the fight directly into the town. Shortly before the end of the war, adecisive battle was fought in Tampere and major portions of the town weredestroyed (Tuulasvaara-Kaleva, NDf: 1).

Tampere was left in physical, community and psychological ruins: a deeprift remained between those who had supported the Reds and those who hadsupported the Whites during the war (Tuulasvaara-Kaleva, NDf). Though thetug and pull between competing political forces continued after the war, the1919 municipal elections showed that Tampere remained a Red town when theSocial Democrats won a majority in Tampere’s town administration(Tuulasvaara-Kaleva, NDf). Having arrived at a modus vivendi, the townspeo-ple came together to rebuild their town and to restore their industries:Tampere’s population had suffered a severe political break during the war, butthe town’s entrepreneurial spirit had survived.

Following World War I, Tampere’s previously dominant textile industrybegan losing ground to the metal and mechanical engineering industries. Thegap closed substantially in 1931 when Finland’s State Airplane Factory wastransferred to Tampere, expanding the need for Tampere’s engineering indus-try (Kostiainen and Sotarauta, ND: 11). The engineering industry gained afurther boost when an airport was established in Tampere. In the five yearperiod from 1931 to 1936, more than 12 percent of Tampere’s total workforcecame to be employed in the metal and mechanical industry (Kostiainen andSotarauta, ND: 11). Employment in the metal industry surged again with theoutbreak of World War II when Tampere began manufacturing weapons andmunitions. In 1943, the metal industry became the largest industrial sector inTampere, employing nearly 27 percent of the town’s workforce (Kostiainenand Sotarauta, ND: 11; Martinez-Vela and Viljamaa, 2004: 9).

Following World War II, Tampere became the production center of metalproducts and machines to be sent to the Soviet Union as part of the war repa-rations that Finland was forced to pay to the Soviet Union. This keptTampere’s metal and engineering industries strong after the war, much asmanufacturing weapons, munitions and vehicles had done during the war(Martinez-Vela and Viljamaa, 2004: 9). The end of war reparation payments in1952 did not cause a drop in the number of industrial jobs. In fact, the numberof industrial workers in Tampere continued to grow until 1956, peaking at31,878 (Kostiainen and Sotarauta, ND: 12). Thereafter, the numbers began tofall as machines increasingly replaced workers.


8.6.4 Institutional Responses

As the overall number of industrial jobs in Tampere began to decline, the city’sleaders realized that they had to develop a means of offering more local educa-tional opportunities to young people in order to stave off a brain drain(Kostiainen and Sotarauta, ND: 15). In 1960, while more than half ofTampere’s population still relied on industry for its livelihood (Martinez-Velaand Viljamaa, 2004: 9), city leaders succeeded in having the School of SocialSciences transferred from Helsinki to Tampere. The School of Social Sciencessuited Tampere, because it had been developed to ‘offer educational possibil-ities to people with limited means who had not graduated from high school’(Kostiainen and Sotarauta, ND: 14). The institution opened new possibilitiesboth for Tampere’s residents, as well as for the city itself. By attracting theSchool of Social Sciences, Tampere expanded its institutional base andbecame more than simply an old industrial center – it became a city that couldprovide young people with a higher education. Tampere prized the School ofSocial Sciences, financed it, and nurtured its growth. In 1966, the school wasrenamed the University of Tampere (Kostiainen and Sotarauta, ND: 15). Thecity’s postindustrial image began to evolve.

Just as King Gustav had sensed the potential of the Tammerkoski rapids indeveloping an industrial center, so did the leaders of Tampere sense the poten-tial of bringing institutions of higher education to Tampere as its industriesdeclined, so much so that even as they were developing the University ofTampere, city leaders were already working to bring a second university totown. The second university would be oriented toward technology. In 1965,city leaders persuaded the Helsinki University of Technology to open a branchin Tampere (Tuulasvaara-Kaleva, NDe), and then, without delay, they concen-trated their efforts on separating the branch from its parent university in orderto form an independent university of technology in Tampere (Kostiainen andSotarauta, ND: 15). Tampere’s efforts succeeded; in 1972, the branch brokeoff, and began operating as the Tampere University of Technology (Kostiainenand Sotarauta, ND: 15). Within the span of twelve years, Tampere had gainedtwo local universities and changed its own destiny. Instead of accepting theinevitable fate of an industrial town brought about by industrial decline,Tampere’s leaders had identified and assembled resources that would bothincrease the productivity of its existing resources and would position Tamperefor success in the future.

Tampere’s University of Technology emphasis on cooperation with indus-try and its dedication to transferring expertise to companies rapidly establishedit as a pioneer in research services in Finland (Kostiainen and Sotarauta, ND:15–16). This allowed the town to push forth quickly onto the cutting edge ofinnovation and to gain respect as a research center. As respect for Tampere


grew within the research community, the town became a magnet for knowl-edge workers. Sensing this, the Technical Research Centre of Finland (VTT)established its own laboratories of medical and occupational safety and health,as well as a textile laboratory in Tampere (Kostiainen and Sotarauta, ND: 16),expanding the town’s institutional base. By the mid-1970s, ten years after thetransfer of the School of Social Sciences from Helsinki, Tampere was nolonger known only for its industrial capacity, but for its academic and researchprowess as well (ibid.). Its post-industrial image was gaining strength.

Industrial job losses in Tampere continued to accelerate from the mid-1970s until 1995, leaving Tampere’s industrial employment reduced frommore than 35,000 to 20,000 workers (Kostiainen and Sotarauta, ND: 13;Martinez-Vela and Viljamaa, 2004: 9–10). Job loss numbers increased signif-icantly in the early 1990s, when all of Finland experienced a major recessiondue, in part, to the collapse of trade with the former Soviet Union (Kostiainenand Sotarauta, ND; Rice and Shadur, ND; Rantala, 2001). At that time, manyof Tampere’s industries which had been dependent on exports to the SovietUnion collapsed, unable to offset their losses in the export market throughdomestic sales since all of Finland was in an economic slide. During thecourse of 1990–93, Finland suffered a 10 percent drop in its GDP and overallunemployment rose to almost 20 percent (Kautonen et al., 2002; Rantala,2001: 64; Rice and Shadur, ND: 8).

The recession devastated Tampere’s existing economy. Its weaker indus-tries disintegrated, surviving industries downsized, and unemploymentskyrocketed. As the recession subsided, Tampere’s mechanical engineeringindustry emerged as the city’s strongest surviving industrial sector (Kostiainenand Sotarauta, ND: 14; Martinez-Vela and Viljamaa, 2004: 10). Tampere’s cityleaders resolved to put an end to the city’s unemployment problem through‘education and a new kind of entrepreneurship’ (Tuulasvaara-Kaleva, NDf).They decided to reinvent Tampere’s waning industrial economy as a knowl-edge economy. This proved possible due to the long history of cooperationbetween public and private leaders, as well as the educational resources thatTampere had developed over the years; Tampere’s business, educational andpublic sectors worked together to bring about the desired change.

In the years following the recession, knowledge transfers from Tampere’suniversities strengthened the city’s mechanical engineering industry and auto-motive innovations fortified what remained of the manufacturing sector.However, overall, the city’s industrial base continued to decline and Tampere’sworkforce was increasingly employed in services. By 1999, only 28 percent ofthe city’s workforce remained in secondary production, while 70 percent of itsworkforce was employed in services (Lapintie et al.: 71).

As many of Tampere’s traditional industries became obsolete, Tampere’sleaders developed a strategy to restructure the empty industrial floor space


which opened up in the city center. Complementary zoning, preservation ofold structures, an expansion of the district heating network to include newconstruction, and a steady cooperation between the University of Technology,Technology Centre, Technical Research Centre of Finland, local businessesand the municipality were vital factors in helping the city implement its revi-talization plan (City of Tampere, NDd). As vacated factories were turned intohomes and offices, small and medium-sized business took root and Tamperebegan to prosper again.

8.6.5 A Strategic Approach

By 2001, city leaders had developed a vision for Tampere’s future and haddetermined that, among other things, Tampere would become a citizen’s infor-mation society and a center of expertise growing in a sustainable manner by2012 (Tampere, ND). At that time, Tampere’s leaders envisioned a society inwhich the research and education community would have close relations withthe local business community and more educated people would be moving in,rather than moving out of the city (ibid.). Instead of seeking to draw industriesinto town as King Gustav III of Sweden had done in an effort to developTampere’s industrial economy, the city’s leaders in the 21st century sought todraw and retain educated minds that would concentrate on generating researchof global value through academic and industrial networking and makeTampere a leading center of the knowledge economy. Interestingly, both thestrategists of the 18th century and those of the 21st century made use, in part,of the same natural resource to attract the entrepreneurs they sought – theTammerkoski rapids. Touted as a free source of power to the industrialists ofthe bygone era, they are now used to generate inexpensive electricity forTampere, keeping both the cost of business and the cost of living in Tamperedown and making it an attractive place to work and live.

Today, two-thirds of all Finns live within a 200-kilometer radius ofTampere, 34,000 students attend Tampere’s two universities and polytechnics,and cooperation between companies and universities has expanded thecompetitiveness of Tampere’s industry (Tampere International BusinessOffice, 2005). Tampere currently boasts several innovative developmentprograms including: BioneXt Tampere – a development and investmentprogram which focuses on research, product development, clinical applicationand international commercialization of biotechnology; eTampere – a programwhich seeks to make Tampere the world’s leading information society; and theRegion Centre of Expertise Programme which concentrates on helping exist-ing companies to expand and new businesses to emerge. Tampere’s selectedfields of expertise are: mechanical engineering and automation, informationand communication technology, and health technology (Tampere International


Business Office, 2005). The university–industry networking that Tampere cityleaders envisioned in 2001 has become a reality and resulted in close cooper-ation between local companies, local research organizations and local univer-sities. It has become one of Tampere’s competitive strengths, drawing globalmarket leaders into the region to take advantage of the adequate supply ofcompetent researchers and the internationally competitive research environ-ment that Tampere has built.

The decision to transform Tampere’s industrial economy to a knowledgeeconomy did not represent a sudden, radical shift away from production sinceTampere’s business structure had already been moving away from industrytoward services during the 20 years that had preceded the recession. Nor wasit a decision made outside the normal parameters of Finnish society. Rather,the decision was a well-calculated move on the part of city leaders in a timeof crisis, made to ensure Tampere’s economic competitiveness under changingmarket conditions in accordance with Finland’s national economic develop-ment policy; it was a manifestation of the belief that the city’s economicsuccess no longer rested on its manufacturing capabilities, but rather on itsability to create, absorb and trade in new knowledge. Today, 228 years afterbeing ordered to develop as an industrial economy, all indications are thatTampere will continue to grow and prosper as a knowledge economy, led by aCity Council that continuously reassesses and adjusts the city’s competitivestance in a global environment.

8.7 ROTTERDAM, THE NETHERLANDS

8.7.1 Background: A Commitment to Partnerships

According to Jacobs (2000: 140), Rotterdam provides an illustration of how‘local political commitments influenced partnership building and policyimplementation’. In Rotterdam, active public–private partnerships haveadopted regional policy innovations that have allowed the city to respond tochanges (Harding et al., 1994: 23). Furthermore, the presence of active politi-cal leaders has allowed Rotterdam to be in a better position with respect toboth the central government of the Netherlands and the European Union. Forexample, with the appointment in 1996 of Mayor Bram Peper, Rotterdamgained strategic importance thanks to his involvement and networking throughthe Euro-cities. That provided Rotterdam with an influential voice within theEuropean Union, and it subsequently made the city eligible for much neededeconomic resources.

The city of Rotterdam is the summer apex of the wealthy Randstad (RingCity) of the Netherlands, and it plays a vital role in the Dutch national econ-


omy. It has a population of over a million (including the city and its immedi-ate surrounding municipalities), it is one of the world’s largest ports, and it isa major center for petrochemicals, commerce and corporate services.However, more than any other city in the Netherlands, Rotterdam ‘directlyexperiences the ups and downs in the international economy’ (Harding et al.,1994: 23). The reason for this is due to the fact that Rotterdam relies heavilyon some sectors which are failing or being restructured. For example, thecollapse of the ship-building industry, and the restructuring of the oil andpetrochemical sector along with port technology development has led toimportant job losses (Hajer, 1993: 61; Jacobs, 2000). This uncertainty andrisky environment has forced the city planners to act in an: ‘entrepreneurialfashion and to work hard to protect its position as the world’s biggest port’(Harding et al., 1994: 41). Recently, as world trade has been revived, it isexpected that strong trade through the port will pick up. However, there is alsothe belief that for the port to have bigger local effects, it needs to developgreater added value, and it needs to remain competitive, especially when othercompetitors (such as the port of Antwerp) are performing better (Jacobs, 2000:38).

8.7.2 Constant Adaptation: The Leadership Role of Policymakers

Thus, it has been necessary for the city to constantly adapt itself to remaincompetitive and capture new markets (Jacobs, 2000: 65–7). In order to achievethis, policymakers in Rotterdam have developed and demonstrated the follow-ing characteristics:

1. Innovation and flexibility: With the increase in global competition the cityof Rotterdam needs to remain competitive. In order to do this, policy-makers have supported the development of local labor skills and theconnection of the local community to expanding regional economies.Furthermore, the Rotterdam City Development Corporation (OBR) hasimplemented changes to put greater stress on public–private partnershipsand new flexible roles and structures for public institutions (Hajer, 1993:61).

2. Public–private partnerships: According to Hajer (1993), public–privatepartnerships are not new in the city of Rotterdam. Jacobs (2000) tells how:‘In order to protect its position as the world’s biggest port, [the city] hasalways had to work hand in hand with business’ (p. 19). However, sincethe beginning of the 1990s Rotterdam has been strongly promotingpublic–private partnerships as a way to improve competitiveness,economic development and urban regeneration. These networks and part-nerships have ‘produced “shared visions” that bring corporate and


community interests together in a variety of programs’ (Jacobs, 2000: 13).For example, the Rotterdam Port Promotion Council promoted the portthrough a public–private partnership between the Municipal PortManagement and companies in the greater Rotterdam Region. Due to thefact that the promotion of the port is crucial for the economic developmentof Rotterdam, this cooperative approach seemed essential and necessary(Jacobs, 2000: 151).

3. Consensual politics: Jacobs (2000) points out that municipal sectoraldirectors, company directors, city aldermen, and economic elites all haveinfluenced and contributed to direct the agenda towards growth andinvestments in Rotterdam’s port. For example: ‘the local chamber ofcommerce provided an important link between the political and economicelites driving growth, and individual business influenced the city councilthrough personal networks, the Mayor and public officials’ (Hajer, 1993:61). Jacobs (2000) and Hajer (1993) attribute the presence of consensus tospecific values and institutions that can be found in the local culture ofRotterdam (Hajer 1993: 61; Jacobs 2000: 13). Policies in Rotterdam arecharacterized by being accommodative and consensual, providing the citywith a historical record of orderliness in politics, institutions andeconomic affairs. The incorporation of political parties, different subcul-tures and minority interests into the political system has allowed the cityto reduce conflicts and cleavages (Jacobs, 2000: 17).

4. Leadership: From 1996 to 1997, Mayor Bram Peper and a multipartygroup of Aldermen represented by the Labor Party, Greens, Liberals,Democrats and Christian Democrats governed Rotterdam. According toJacobs (2000), the Mayor: ‘performed an active role promoting the cityand contributing to policy debates along with the political parties, busi-ness and communities’ (Jacobs, 2000: 18). During his tenure as Mayor ofRotterdam (1982–98), Mayor Peper ‘attended to maintaining the highprofile of the city through influential networks such as Euro-cities’ (Hajer,1993: 60).

According to the author, Mayor Peper and the Aldermen recognized thatRotterdam and its port were facing intense competition in the world marketand that a consensual approach to policy was needed. Thus, the city developeda range of policy initiatives that involved extensive consultation with commu-nity and business groups (Jacobs, 2000: 149). Other cases of leadership inRotterdam were also present. Such is the case of the director of RotterdamCity Council, Riek Bakker, whose regeneration plans and dramatic change ofinstitutional norms allowed the council to be a key player in the process ofrevitalizing the city (Couch, 2003: 118).


8.7.3 Major Projects

The characteristics mentioned above could be seen in the Kop van ZuidProject (South End) in Rotterdam. This project was intended to improve theeconomic base and ‘marketability’ of Rotterdam’s port (Fraser and Baert,2003: 86–7). The Kop van Zuid area lies on the south part of the city, knownas the ‘old south’. By the 1970s, that part of the port was redundant, withdocks, adjoining warehousing and transshipment areas vacant and derelict.

However, in 1987, the city council began a master plan for the area thatconsisted in creating a metro station, a public galleria, retailing, tax offices,customs offices, the court of justice and further office space for commercialletting (Couch, 2003: 120). The project also contained some social housingand private housing, supermarkets and other facilities that serve local need(ibid.: 124). This redevelopment project is credited with bringing greateconomic resources to the city. It is said that the project yields property taxrevenue equal to about 5 percent of the city’s total property tax income(Couch, 2003: 124).

Furthermore, the Kop van Zuid project has been important in promoting thecity as a leading hub for foreign investment and for its emphasis in creatingmarket and business opportunities for the city (Jacobs, 2000: 163).

8.7.4 Collaboration and Innovation

The case of Rotterdam highlights the ability of the city planners to engage incollaborative and innovative projects. Rotterdam is also a case where impor-tant efforts have been made to adapt the city to a changing environment. Notonly has Rotterdam showed its capacity for extensive consultation, but also ithas engaged in positive administrative changes and reforms (Jacobs, 2000:147, 174).


9. Case studies from the Pacific Rim

This chapter presents case studies from the Pacific Rim. They are: Newcastle,Australia, Hong Kong, Singapore and Chihuahua, Mexico.

9.1 NEWCASTLE, AUSTRALIA

9.1.1 Background: An Inner-city Redevelopment Project in anIndustrial City in Transformation

Newcastle is a former iron and steel heavy manufacturing city located onAustralia’s east coast to the north of Sydney. It is the regional capital of theHunter Valley region. In this case, the redevelopment of the inner-city 45hectares Honeysuckle site under the auspices of a development corporationimposed by the state government of New South Wales is examined. TheHoneysuckle site stretches along a continuous 3 km strip of Newcastle’sharbor. At that site, the Honeysuckle Development Corporation (HDC) hasbeen implementing a strategy that intends to guide redevelopment over thenext 20 years, presenting what McGuirk et al. (1998: 107) have described as:‘one of the greatest opportunities for urban renewal and revitalization inAustralia.’

The Newcastle and Hunter region has had a traditional reliance on heavyindustry: ‘Coal, steel, textiles and shipbuilding have been its industrial back-bone and have had a profound impact on the economy, landscape and externalperception of the region’ (McGuirk et al., 1998: 112). By the late 1980s,however, the city faced severe crisis as its industrial base started to undergomassive contraction. This change, partly caused by the integration of Australiainto the global economy, left the locality struggling to respond to the local andregional impacts of global economic change. The economic crisis inNewcastle was reflected by the decline in manufacturing employment from24.6 percent in 1976 to 13.8 percent in 1991 (McGuirk et al., 1998). The mostaffected areas of Newcastle have been the urban areas surrounding theHoneysuckle site: ‘Most of its industrial infrastructure had become obsolete,the urban landscape derelict and polluted, and the image of the industrial cityhad become negative rather than powerful and positive’ (p. 112).

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9.1.2 A Collaborative Government Initiative

The wide-ranging problems of Newcastle prompted the response of a widerange of actors, including the federal, state and local government along withthe private sector. These actors took an entrepreneurial approach that sought tocreate development opportunities to cope with the crisis and rescue the citycentre (McGuirk et al., 1998). In 1986, the Newcastle City Council (NCC)sponsored a series of ‘Partners in Progress’ workshops to find out how the citycould be revitalized. Together, the council and local business interests identi-fied the unused Honeysuckle goods yard as the single most important devel-opment site in the city. ‘It was visualized as a potential catalyst to trigger abroader rejuvenation of the whole central city area while addressing the prob-lematic industrial image in Newcastle’ (ibid.: 113–14).

According to McGuirk et al. (1998), more than $50.4 million has beenspent in the HDC area. As a result, existing industry and port activity is beingconsolidated, while abandoned sites are being cleared and groomed for rede-velopment, setting the stage for private investment. This regeneration has beenaccompanied by a marketing campaign presenting Newcastle as a ‘forward-looking city with a go-ahead attitude and plentiful opportunity for profitable,trouble free investment’ (p. 117). It is estimated that A$120 million has beengenerated in the regional economy as a result of the multiplier effect of HDCspending.

Despite these results, the redevelopment program has been subject to criti-cism, especially because many have questioned how much such redevelop-ment has been focused on the local needs of the region. No attention has beenpaid to the local skills base and employment needs and how they might beadapted to suit the employment generated by the Honeysuckle redevelopment.Current experiences suggest that the jobs created are jobs that serve a newworkforce rather than dealing with the sizeable remnant workforce ofNewcastle’s industrial economy (McGuirk et al., 1998). Therefore, ‘in thelikely absence of an expanding productive base in the region it is questionablewhether the Honeysuckle redevelopment can sustain employment expansionin the services and retail sectors’ (p. 123).

If the entire community does not reap the benefits of the program it is likelythat conflicts will arise. Conflict over the course and outcomes of the redevel-opment program can threaten the image so promoted by the locality as acompetitive business environment. As a result, investment might fail to arriveinto the region and thus, raise questions on the sustainability of the program(McGuirk et al., 1998: 126–7).

Case studies from the Pacific Rim 113

9.2 HONG KONG

9.2.1 Background: An Entrepreneurial City-state

Despite the fact that Hong Kong is a city-state with very few natural resources,it has emerged as one of the richest economies in Asia (Chuen-Chau, 1997:41). Hong Kong’s phenomenal growth can be related to its unique character-istics that have been man-made. Such characteristics derived from a soundmacroeconomic environment, a good policy mix and the presence of localinstitutions, all of which were conducive to a commerce-based development.For example, Hong Kong is considered as a place where one can find:

political stability, no exchange controls, a stable currency fully backed by interna-tional reserve assets, a well-defined and well administered system, a non-interven-tionist government with low taxation, and a geographic location between New Yorkand London. (Chuen-Chau, 1997: 57)

Those unique characteristics have attracted outside capital to the region, whichwas a key factor for the city’s economic development.

According to Jessop and Sum (2000), Hong Kong is also a city thatembraces the practice of entrepreneurial strategies and political alliances –based on public–private partnerships – that have allowed it to successfullyadapt itself to such radically changing circumstances as its incorporation intoChina. More specifically, Hong Kong’s success can be attributed in great partto two important factors:

1. Entrepreneurship: Chuen-Chau (1997) notes how entrepreneurialism hascharacterized Hong Kong since its founding. Hong Kong has maintainedan entrepreneurial mentality, where the exploration of new markets andthe searching out of new products or sources of supplies have been thenorms: ‘Producers in Hong Kong are known for their flexibility,resilience, adaptiveness and focus on short-run profits’ (p. 69).

2. The role of government and institutions: According to Chuen-Chau(1997): ‘enterprise does not function in a vacuum. It depends on the exis-tence of accommodating institutions, supporting infrastructures, a healthyand educated labor force, and certain rules, many of which only thegovernment can provide’ (p. 69). Hong Kong’s government providedsuch necessary institutional frameworks.

From the 1970s, the presence of these two factors could be seen as crucialinstitutional catalysts for growth. Chuen-Chau (1997: 70) argues that thegovernment of Hong Kong provided an environment conducive to privateenterprise – including respect for property rights, low taxes, free and equal


access to all markets, accessible information, credit availability, good infra-structure, and so on – which were central for the development and attractionof business. The government in Hong Kong is also characterized by bringingpredictability and continuity to the economic environment and by providinginstitutional support (Jessop and Sum, 2000: 2297).

9.2.2 Impact of China’s ‘Open Door’ Policy and Reunification in 1997

However, the open door policy of China, and the later transfer in 1997 of HongKong from British rule to absorption in China, opened many questions andconcerns about the economic and institutional future of Hong Kong. This isespecially true since China had the advantage over Hong Kong in low laborand land costs, putting the Hong Kong manufacturing base at danger.

9.2.3 Response: Leadership, Institutional Factors andEntrepreneurialism

In response to this challenge the government as well as private economicactors proposed that the best strategy for Hong Kong would be to shift manu-facturing northwards (Chuen-Chau, 1997: 59). Therefore, by the mid-1990s,almost 25,000 factories – mostly labor-intensive industries – were being real-located to the rapidly growing nearby regions of Guandong and Fujian inChina. This resulted in the so-called ‘hollowing out’ of Hong Kong as a manu-facturing center, and the beginning of its specialization in ‘front office opera-tions’ – marketing, finance, design, packaging and quality control(Chuen-Chau, 1997: 59). Jessop and Sum (2000) point out that the shifting ofmanufacturing northwards was also the result of the coalescence of the strate-gies pursued by various actors – private and public, economic and political –in the Hong Kong region.

With the changing global economy and its effect on Hong Kong, twoconsultancy reports were sponsored by different factions of capital andpublic organizations (for example, the Trade Development Council) and thegovernment departments (for example, the Trade and Industry Department)to outline strategies to restructure the city. Such reports represented publicdebates of what constituted the most advantageous mode of inserting HongKong into the changing global economy. For example, the first report, calledThe Hong Kong Advantage, sought to portray the city as a new type of urbaneconomic space that would establish a ‘beyond the gateway’ image, or morespecifically, to offer ‘new combinations’ of functions for a knowledge- andinformation-based economy with access to mainland China (Jessop andSum, 2000):


These new horizons of action show certain features of Hong Kong’s entrepreneur-ial and/or governance capacities that are socially embedded on the interpersonal,institutional and societal levels. (p. 2302)

According to Jessop and Sum (2000), one way to understand the success-ful implementation of entrepreneurial strategies in Hong Kong is to lookbeyond city dignitaries. Despite the fact that strong leadership roles are seenin many dignitaries (for example, the Chief Executive of Hong Kong, TungChee-Hwa), it is argued that besides city dignitaries there was a wide range offactors and institutional actors that helped to consolidate the strategies thatwere pursued (Jessop and Sum, 2000: 2291). For example, the strategicalliances among actors in the region were consolidated not only by theirlinguistic affinities and kinship ties, but also through the socio-cultural prac-tices of guanxi (relationship) (ibid.: 2308). In the strategy to base Hong Kongas a ‘gateway city’, the guanxi helped to build the mutual relationships neededto establish subcontracting partnerships and joint ventures. That is ‘the abilityto consolidate in collective action allowed economic actors to share risks andcope with uncertainty through dense social and institutional networks’ (Jessopand Sum, 2000: 2308).

Ultimately, one can see in Hong Kong strategies that: ‘envisage complexarray of private–public partnerships and networks co-operating under Hong-Kong’s leadership to promote the overall competitiveness of an emergingmulti-centered city-region, not only in economic terms but also in cultural andcommunity matters’ (Jessop and Sum, 2000: 2308).

9.3 SINGAPORE

9.3.1 Background: Ingredients for Success

In November 1990, Lee Kuan Yew handed over the prime ministership ofSingapore to Goh Chok Tong. In the three decades following self-rule in 1959,the first-generation leaders – as epitomized by Lee Kuan Yew, Goh Keng Sweeand S. Rajaratnam – had transformed the island-state from a ‘basket economy’into one of Asia’s four newly industrializing ‘mini-dragon’ economies. Asoutlined by Soon and Tan (1997: 213), between 1959 and 1990, the secondprime minister set out an agenda that placed human resource development atthe center of the development effort. Also, he outlined a science, technologyand R&D-based strategy to transform Singapore into a developed nation.These two ingredients have been crucial to Singapore’s economic performance(ibid.: 218–19).

In the 1960s, Singapore was characterized by the absence of an agricultural


sector, natural resources, and industrial tradition and entrepreneurship.Normally those factors would have been considered a great handicap. ButSingapore’s policymakers turned them into an advantage by transformingSingapore into a competitive base for multinationals (ibid.: 218–19). At thesame time, the government also recognized the need for a competent bureau-cracy to help implement its policies. It also understood the vital importance ofindustrial peace, which helped the government to have the support of workerswhen the government shifted to export-oriented industrialization (ibid.).

9.3.2 Strategic Planning Policies Implemented

Although government intervention does not always lead to the desired results,in the case of Singapore they were designed so effectively that they created thepreconditions for success (Soon and Suan Tan, 1997: 221). Among some of thereasons for this successful intervention were the following:

1. The government always took a flexible approach to planning; one that didnot depend on a rigid time frame (Soon and Suan Tan, 1997: 226, 229).Policy initiatives were always under continued change and revisionaccording to the necessities of the country (ibid: 223). It was recognizedby the government of Singapore that policies are unlikely to be effectivewithout good governance and appropriate institutional frameworks.Therefore, strong institutions were established at an early stage, includingthe two statutory boards, the Economic Development Board (EDB) andthe Housing and Development Board (HDB). Such boards had amplefunds and strong powers to promote industrial activities and grant loansand incentives (ibid.: 221, 233). Institutions in Singapore have beenrecognized for being efficient and dedicated. As Rodrik (1998) points out:‘the quality of governmental institutions matters for growth … Taiwan,Japan and Singapore have the best institutions and the highest growthrates’ (p. 97).

2. A key element in Singapore’s public policies is that they were built aroundconsensus. The government usually ensured that any major modificationsto its development strategy were thoroughly explained, well examinedand coordinated among government, industry, businessmen and laborstakeholders (Soon and Suan Tan, 1997: 246).

3. The influence of Singapore’s leaders: According to Soon and Suan Tan(1997):

Throughout three decades of rapid economic growth, one fundamental factorhas been political continuity. This continuity has been reinforced by thepersonal characteristics of Singapore leaders. They were intellectually curious,


pragmatic, hard-working, with an understanding of global trends, and withpersonal and professional integrity … [thus] the policies adopted in Singaporecannot be analyzed and understood apart form the people who were drivingthem. (p. 223)

These key elements are clearly seen in Singapore’s Strategic EconomicPlan (1991). That plan was drawn up based on work by eight subcommitteescomprising representatives from both government and the business sector.Also, the plan signaled strategies to place Singapore as a global city andemphasized attracting high-tech, knowledge-intensive industries (Soon andSuan Tan, 1997): ‘Singapore’s success shows that even the most unpromisingstarting point need not stop a country from development. What matters is agrowth-oriented leadership with a realistic strategy and intelligent policies’ (p.265).

Specifically, Singapore’s successful experience shows four basic elements:a government with a vision of long-term development; a stable environmentconductive to economic growth; a public policy that emphasizes investment;and the capacity for sustained accumulation of human and physical capital(Soon and Suan Tan, 1997).

9.4 CHIHUAHUA, MEXICO

9.4.1 Background: A ‘Maquiladora’ Region Faces Decline

Chihuahua is a state located in the north of Mexico, which has a tradition ofprimary sector employment. The state of Chihuahua is a major producer ofminerals, both metallic and non-metallic. It is Mexico’s largest state (242,000sq. kilometers) and has a population of 2.9 million. The income per capita isabout US$5,801 annually. In 1998, the state generated 4.3 percent of thenational GDP (US$17.1 billion) (Friedman, 1966: 25–65).

In the 1970s and 1980s, the economic development of Chihuahua wasprimarily driven by the Maquiladora (in-bond) model. Taking advantage ofbeing geographically located on the border with the US, and the fact thatMexico had lower wages and land costs, the State of Chihuahua implementedpolicies to attract foreign firms seeking to reduce costs. Over time, theMaquiladora industry model transformed Chihuahua into the largestMaquiladora region in the world (Avila, 1998: 2), creating great economicgrowth in the area. For example, it is argued that from 1970 to 1985, theMaquila model in Chihuahua generated the equivalent of 5 percent ofMexico’s GDP (Ruiz Duran, 2000: 5).

Over time, however, the huge success of the Maquiladora model alsocreated dependency. By the late 1980s, there was a notorious rate of decrease


in the number of Maquiladoras established in the state. Some of the reasonsfor this were that countries with lower labor costs than Mexico were alsopromoting the siting of foreign industries in their localities (for example,China and Central America).The economic decline of Chihuahua was so largethat, according to official data, by 1992 the State was able to create only 154new jobs out of the 28,000 needed every year to meet the new labor forcesupply. Unemployment and underemployment combined reached levels of 22percent (Avila, 1998: 3).

9.4.2 An Entrepreneurial Initiative

At this time and in response to this perilous state of economic decline a groupof businessmen (called Grupo Chihuahua) met in the late 1980s to plan a strat-egy that would lead Chihuahua out of the crisis. The intervention of the privatesector in Chihuahua was clearly ignited and supported by Francisco Barrio, thenew Governor of Chihuahua, who believed strongly that the involvement ofthe private sector was the key to economic development offering the initiativeand much needed governmental support (Avila, 1998; Ruiz Duran, 2000).

Those factors gave rise to the creation of public–private partnerships,which up to this point were a rare occurrence in Mexico. Chihuahua Siglo XXI(Chihuahua 21st Century) was an entrepreneurial initiative launched in 1990,first in the city of Chihuahua in Mexico, and later on throughout the entireState of Chihuahua. This initiative had the purpose of redesigning Chihuahua’seconomy to make it highly competitive as it entered the 21st century (RuizDuran, 2000). Also, the strategy sought to elevate the quality of life of thepopulation, attract foreign direct investment and generate more and higherquality jobs (Ruiz Duran, 2000; INEGI, 2003).

The idea for the private sector was to find a strategy that would help thecapital city of Chihuahua develop those economic sectors for which there wasa comparative advantage. Therefore, the private sector along with state author-ities started a process to explore possibilities to redesign Chihuahua’s econ-omy. From this partnership it was agreed to form the Economic DevelopmentAssociation. This agency (formed by a group of businessmen, the governmentand the two main universities of the city) was in charge of creatingChihuahua’s economic strategy (Avila, 1998; Ruiz Duran, 2000).

9.4.3 Objectives

The main objective of the strategy was to promote the integration and thecreation of industrial clusters to increase linkages, learning and competitiveadvantages in the locality. Following the identification of the strategic sectors,the Development Economic Association formulated several strategies to


promote and augment the comparative advantages of the region. Two require-ments were put in place:

1. The first was that the strategies should aim for the increase in investmentin the region; that is, strategies should look for ways of making the regionmore attractive to foreign and national investors.

2. The second was that the strategies should aim for the improvement in thecompetitive position of the main sectors of Chihuahua (Avila, 1998).

In 1998 elections took place in Chihuahua. Here, a candidate from the tradi-tional party (PRI) won the elections. As a result and very unfortunately, theinitiative has been almost stopped by this winning candidate (from the oppo-sition political party) who considered the initiative as ‘inheritances from pastadministrations’. Today, Chihuahua Siglo XXI has continued operations(although at a very small scale) since the new government came to power, bydemands from the different actors that have participated in the process (Avila,1998: 9). However, some of the initiatives were able to survive, ‘hidden’ in theworking plans and programs of some state agencies (that is, the technologydevelopment program, which was aimed at strengthening the economic infra-structure of the main clusters). Moreover, there is an initiative (the EconomicPromotion Law) in front of Congress, which attempts to deny the right of newadministrations to stop further development of the implemented programs.

9.4.4 Lessons Learned

There are some lessons that can be learned from this strategy analysis:

1. The importance of entrepreneurship: The experience of Chihuahua showsus how an entrepreneurial private sector is needed for some initiatives toget started. The state cannot be everywhere. It acts with imperfect knowl-edge and limited resources (Friedman, 1966: 25, 65). The ChihuahuaSiglo XXI initiative demonstrates that an entrepreneurial private sector hasthe potential to contribute immensely to local planning. However, theChihuahua case shows that initiatives can also die if they do not have astrong participation of the government.

2. The role of different actors: In today’s world, the choice is to adaptsuccessfully or fail. Furthermore, in making these changes the role oflocal leadership is vital (Friedman, 1966: 25, 65). In the case ofChihuahua, we see leadership characteristics in the presence of privatebusinessmen who took the initiative, and in the Governor of Chihuahua,Francisco Barrio, who embraced the initiative and increased the relianceon local action to get things done.


3. Develop clusters: After six years of intervention, some of the economicsectors showed the initial signs of clustering: some companies were work-ing together by making strategic alliances and were cooperatively fundingeconomic infrastructure initiatives (Ruiz Duran, 2000).

4. Implement strategy plans: Perhaps the biggest legacy of Chihuahua SigloXXI is how notorious is its absence. There seems to be a clear awarenessamong economic actors of the state that currently there is a lack of acomprehensive regional development strategy (Avila, 1998; Ruiz Duran,2000).


10. Modeling endogenous regionaleconomic development: measurement,operational issues and conclusions

10.1 INTRODUCTION

In this book it has been our proposition that regions inevitably are influencedby their institutions, leadership, and the degree of entrepreneurial activity asmediating or intervening variables that may enhance or detract from theircapacity and capability to maximize the effectiveness and efficiency withwhich they utilize their resource endowments and achieve market fit. All ofthese factors interact and evolve over time in a manner specific to a city or aregion, for the city or region to display a unique set of circumstances and tohave achieved a particular outcome state at any point in time and to influencethe changing competitive performance of a region over time.

The conceptual model framework depicted in Figure 2.3 in Chapter 2stressed the dynamic uncertainty of reality that confronts regions in thecontemporary world. Regional economic development (RED) over time, andthe outcome state of those factors and processes that affect RED, might bemeasured and evaluated through performance indicators relating to:

• the competitive performance of a city or region vis-à-vis other places;• the degree of entrepreneurial activity occurring;• the degree to which it has attained sustainable development vis-à-vis the

‘triple-bottom-line’ of growth and performance; namely, economicgrowth and wealth creation, achieving social equity, and achievingfavorable environmental quality outcomes.

A way to conceptualize that outcome for a city or region at any point intime, and the progression of its economic development and performancethrough time, is to envisage its path through the regional competitivenessperformance cube (RCPC) as proposed in Figure 2.2 in Chapter 2.

Returning to the RCPC, and to the model framework of regional endoge-nous development set out in Figure 2.3 in Chapter 2, our proposition is thatwhile resource endowments and market fit (REM) is a crucial dimension in

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differentiating regional economic performance, the interplay of that dimensionwith the dimensions of leadership (L), institutions (I) and entrepreneurship(E), is increasingly crucial in enhancing the capacity and capability of a regionto harness its resource endowments, overcome deficiencies in them, and toachieve market fit for its industries. The interaction between these dimensionswill influence how, over time, a region’s relative competitive performance canchange vis-à-vis other regions, and how its position within the RCPC canchange over time. While a region might have good and plentiful resourceendowments, and be strong on the REM dimension, poor institutions and lackof leadership can create sub-optimal performance; and while a region mighthave some deficiencies in terms of the REM dimensions, if its attributes on theL, I and E dimensions are strong and effective, then the region’s performancecan be lifted. The implication of this proposition for a region and its economicdevelopment strategy formulation and implementation is for its leadership andinstitutions to give due and full consideration to the wide range of attributesrelating to the REM, L, I and E dimensions, and for the intent of the strategybeing to shift the position of a region towards the top right-hand corner of theRCPC cube (as shown in Figure 2.2). That requires a region to develop a strat-egy process that addresses the virtuous circle for sustainable development (asshown in Figure 2.1 in Chapter 2).

That raises the issues of both analysis and strategy: first, how to analyse,measure and evaluate the performance of a region on the REM, L, I and Edimensions of the regional endogenous development model; and second, howto identify and implement the process and tasks involved in strategy develop-ment.

It is towards these ends that we now turn in this chapter.

10.2 SOME KEY CONSIDERATIONS

Before proposing the development of an operational model of regionalendogenous development, first an aside to discuss a number of basic consid-erations that may help guide that process.

The multi-sectoral analysis (MSA) methodology, developed by Robertsand Stimson (1998), and applied by Stimson et al. (2002: 235–74), doesprovide a potential analytical framework to systematically collect informationon, and to measure regional performance with respect to aspects of the L, I andREM dimensions of the RCPC. In particular, that methodology can be usefulin helping to create regional strategic architecture by identifying:

• What core competencies does a region need to build or maintain?• What sector markets should a region develop or maintain?

Modeling endogenous regional economic development 123

• What strategic infrastructure does a region need to develop?• What resource endowments should a region conserve and maintain?• What approach should a region take to developing marketing intelli-

gence?

Stimson et al. (2002: 345) have argued that a regional economic develop-ment strategy needs to have three important functions, these being to:

• identify the fundamental elements of capacity building to supporteconomic development – what, when taken together, are termed strate-gic architecture;

• define strategic intent in terms of direction, destiny and discoveryopportunities for economic development;

• define the main thrusts of strategies for achieving strategic intent formanaging economic development processes and for capacity building –setting a future path.

The interaction of leadership and institutions will need to be effective todeliver a planning process that will provide the ‘details of initiatives, actions,resources, management, timing the delivery of resources, infrastructure,competencies and other supporting structures to execute strategy’ (Stimson etal., 2002: 345). This approach draws on the work of Hamel and Prahalad(1994: 118), who emphasize the importance of what they call strategic archi-tecture. The strategic economic development architecture of a region may beconceptualized as providing the capacity for it to compete in the future. Sucharchitecture is a design or a high level blueprint for the development of newcapabilities, the acquisition of new core competencies or the enhancement ofexisting ones, and the reconfiguring of the interface with customers. Itdescribes the process or recipe for developing and utilizing core competencies,mobilizing resources, developing markets and achieving desired endings inrealizing strategic intent for the future development of a region. It includescontinuous monitoring and building to leverage and stretch core competencieswithin a region to create markets and service customer requirements. Centralto the development of the strategic architecture for a region is the identifica-tion of the existing core competencies – the bundle of resources, skills, tech-nologies, applications and management that give the region its competitiveadvantage – which develop over time as part of the learning process of orga-nizations and the region. Stimson et al. (2002: 175–7; 257–73) demonstratethe adoption of the Hamel and Prahalad model to a regional developmentcontext in the Cairns–Far North Queensland Region in Australia and in amodified form to the Northern Virginia region in the Washington Metropolitanarea of the US.


Stimson et al. (2002) also note the importance of identifying and describ-ing those change agents who are ‘anticipated to influence both the develop-ment and future management of regions. These include consideringprocesses of change relating to economic, technological, societal, environ-mental, legislative and governance considerations’ (p. 347). A region’s lead-ership and institutional capacity building needs to be of a nature appropriatefor agile responses to managing regional risk factors, both exogenous andendogenous.

10.3 DEVELOPING AN OPERATIONAL MODEL

The crucial dynamic depicted in the regional endogenous growth modelFigure 2.3 in Chapter 2 is how the intervening variables measuring the L, I andE mediating components interact to create catalysts for more effective andefficient utilization of a region’s resource endowments and how effectively itcaptures market opportunities (the independent variables measuring the REMcomponent). In other words, the interaction of L, I and E become the crucialcatalytic factors in shaping not only the performance of a city or region – espe-cially in influencing how effectively the REM factors are utilized and tapped– but also in enhancing the capacity and capability of a city or region to effi-ciently, effectively and successfully address the challenges and contingenciesit faces over time in dealing with uncertainty and risk and in coping withchange.

10.3.1 Difficulties

A major impediment to developing such an operational model is the difficultythat arises as a result of not having specifically defined and agreed on variablesthat might measure the REM, L, I and E components of the model frameworkfor RED. That problem is exacerbated in not having a precise definition ofregional economic development and competitiveness performance. There is aconsiderable degree of what might be described as a ‘nebulous’ quality aboutthe precise meaning of, let alone measurability of the components of the modelframework. Furthermore, because the intent is to be able to ‘track’ over timethe path of a region through the space in the RCPC, as represented in Figure2.2 in Chapter 2, a dynamic measure of RED is needed.

Even if we are able to propose and agree upon a set of operational variablesthat might measure the components of the model framework, then there is thefurther issue concerning the availability of secondary data suitable for provid-ing a data base for regions across a state, province or nation.


10.3.2 An Endogenous Growth Measurement Approach

One feasible approach to measuring RED performance across the regions of astate or a nation is to take a simple surrogate measure of endogenous growth,namely the regional or differential shift component derived from a shift–shareanalysis of regional employment or revenue/income change over time.

Secondary data tends to be readily available to do that in most countries andtypically may be achieved using census data for industry employment inregions. That regional shift component is a reasonable surrogate measure ofthe degree to which employment growth or decline in a region is due toendogenous or within-region processes and factors against changes due tonational and industry-mix shift effects. The regional shift component measureis thus proposed as the dependent variable and as a surrogate for RED in themodel framework, and it is designated EG in the operational model proposedbelow.

10.3.3 Proposing Variables for an Operational Model of RED

In what follows we suggest sets of variables that might be appropriate tocontemplate as measures of the independent and the mediating factors in themodel framework for endogenous economic development.

Regional economic development and growth over time is represented asfollows:

RED = f [(RE, M) mediated by (I, L, E)] (10.1)

In that model the elements might be measured by combinations of variablessuch as those proposed below:

RED = endogenous growth in region, measured as:• the aggregate regional differential shift component value in a

shift–share analysis using employment or revenue/income as themetric

• an employment-based location quotient measuring change over time(but this might not explicitly capture just the effect of endogenousfactors)

RE = resource endowments, measured by a set of variables such as:• area size of the region• climate• topography• agglomeration of industry key sectors (measured by Location

Quotients for employment in industry sectors)


• population size and rate of growth/decline• education levels (a derived index of human capital) and literacy• per capita income, income distribution, and income distribution

change over time• housing ownership• investment in industrial and commercial construction, benchmarked

to• the region’s national share vis-à-vis its national share of population• infrastructure investment (per capita), such as on roads, schools,

hospitals, and so on• industrial structure and change in industrial structure (measured by

an industrial diversity index)• regional organizational slack

M = market fit, measured by a set of variables such as:• basic economic activity in major industry sectors (measured by

Location Quotients for employment in industry sectors)• airline connections with other regions/cities• road freight in/out movements• volume and value of exports in core competitive locally produced

commodities and services.

It would also be useful to use variables that measure the degree to which theregion’s products fit with changing demand and related markets, to ascertainthe degree to which supply fits the local market, and to evaluate the extent towhich the local infrastructure provides the necessary linkages to exportmarkets.

L = leadership, measured by a set of variables such as:• the degree of change/stability in local political leadership• expert assessment of leadership quality• corporate headquarters located in the region• density of business and community organizations per 10,000 popula-

tionI = institutions, measured by a set of variables such as:

• institutional thickness (corporate and community organizations per10,000 population)

• layers of government/government fragmentation• formal institutions of governance, measured by number of public

agencies per 10,000 population• number of headquarters of major corporations (for example Fortune

1000 firms)• value foundation capitalization per 10,000 population


• government fragmentation• level of regional organizations (number and budget level)• index of social capital

E = entrepreneurship, measured by sets of variables such as:• churn rate or business start-up rate• number of small firms as a proportion of all firms• venture capital activity• corporate venturing activity• patents issued per 10,000 workers• Location Quotient of employment in ‘symbolic analyst’ occupations.

We would argue that RED is positively related to RE, M, L, I and E, but thatthere are likely to be lead and lag effects in the short to intermediate run, andperhaps cyclical effects in the longer run. Thus,

REDt = REt–1 + Mt–1 + (It–1 to It–10/10) + Lt–2 + Et–2 + e (10.2)

We have added lags to the independent variables of 1 and 2 years and havetaken a ten-year average for the institutional variable. For sure these lags doexist but further research and sensitivity analysis is needed to determine theproper lag periods. For example, there is some literature which suggest that theappropriate lag for E is at least 5 years.

The challenge remains as to how best to test such a model of endogenousgrowth and development, and to develop appropriate data sets for a number ofregions and/or nations in order to do so.

10.4 INITIAL ENDOGENOUS MODELINGATTEMPTS

Two attempts have been made to undertake preliminary modeling ofendogenous regional economic development. This work began with theauthors using the regional shift component from shift-share analysis as ameasure of regional endogenous growth. This seemed to make sense giventhat it is that component of the shift–share model that purportedlymeasures local effort of contribution. The main concern lies with the factthat it is a residual that results from extracting the national and industryeffects from actual economic change (employment, income/earnings orwealth). In this sense it is not a direct measure of endogenous contributionbut it is difficult to envision how one might directly measure endogenousregional growth.


10.4.1 Modeling Endogenous Growth Across Regions in Australia

The first attempt was a study by Stimson, Robson and Shyy (2004) that wasexploratory in nature (not theory driven) in that measures of a wide variety ofvariables (including both stock and flow measures) were used in a backwardremoval stepwise regression analysis of the endogenous regional growth oflocal government areas of the major states of Australia. The regional shiftcomponent from shift–share analysis was the dependent variable. The studyperiod was 1991–2001. The analysis was run on data for non-metropolitanLocal Government Areas in each of the five mainland states of Australia sepa-rately, thus fitting a model for each state and then for the aggregate of allstates.

The results of these analyses may be summarized as follows, first for thestate level models:

• all models had high R2 values• explanatory variables differ across states• population growth had a strong positive effect in all states• population size had a strong effect in most states• industry specialization and change was positive in all but one state• structural change, income and unemployment variables significant in

only one or two states• concentration of jobs in broad industry sectors showed mixed direc-

tional effects• university and technical qualifications strong in two states but less so in

others; change in qualifications positive across all states• occupational categories had mixed effects• coastal location variables were generally not significant and negative

where they were.

The findings from the Australian study produced some findings that relateto existing theoretical perspectives on economic development, however, thestudy as much as anything underscores some of the huge measurement issuesinvolved in empirical work in regional endogenous growth research.

10.4.2 Modeling Endogenous Growth in US Metropolitan Cities

The metropolitan regions of the US are the units of analysis used in a NorthAmerican study of regional endogenous growth conducted by Stough et al.(2007). This study, while employing the same methodology as theAustralian study, was driven by the theoretical framework that has beenevolved in this book. In short, variables (often very crude) that depict the


dimensions of the framework are operationalized and measures wereobtained. The dependent variable was the same as in the Australian study.The results of this second study are summarized below. First, we report theresults from the general model – the model when all metropolitan regionsare included – and then the three models created when the data are partialedon city size.

First, the findings for the aggregate model:

• Educational attainment has a positive effect on endogenous growth.• Government plays an important role: relative strength of industry pres-

ence; employment change is very important.• Routine personal service workers positive; routine production workers

negative; symbolic workers no effect.• Entrepreneurship capital positive effect.• Population size matters in the kinds of variables that are important.

Results from the fitting of the specific models are:

1. Large regions:• Population change positive• Income and unemployment negative• Location quotients manufacturing and government negative• Local government size and change positive• Social capital positive• Entrepreneurship capital negative [enterprises employing 5–9

workers]2. Medium regions:

• Population change positive• Bachelor education level negative; doctoral positive• Personal services positive• Local government employment strong positive• Entrepreneurship capital negative [self employed and enterprises

employing 1–4 workers]3. Small regions:

• Population size negative!• Bachelor degrees negative; doctoral positive• Location quotient manufacturing negative• Personal services negative• Change in local government employment positive• Entrepreneurship capital positive [enterprises employing 1–4 work-

ers]; change in [enterprises employing 5–9 workers] positive.


10.4.2 Implications

While the US study application discussed above provides findings that aremore specific with respect to the theoretical framework developed in thisbook, it does leave more questions than it answers. The largest one is that theoperationalization of the variables is questionable in a number of cases andthus substantive conclusions at this time are little more than working hypothe-ses. At the same time, the Australian and the US study applications, whiledifferent in a number of ways, are also quite similar in that they use spatialunits of analysis, the same methodology and the same dependent variable. Soit is useful to ask what if any similarities there are in the two studies and whatthe differences are.

The similarities include:

• Methodologies are the same• Endogenous growth measure is the same• There is a relatively small number of independent variables• Statistically significant variables include: population size; population

change; human capital level; industrial structure; occupation (and entre-preneurship in the US study)

• Explanatory power of the significant variables varies between the twostudies and among the disaggregation levels (states in Australia: metrosize categories in the US study).

The differences are:

• Different units of analysis – scale issues• Australian study exploratory in nature; US study theory driven• Some of the institutional and entrepreneurship variables in the US study

are significant correlates of endogenous growth• Spatial autocorrelation was tested in the Australian case and found to be

modest; not in the US study as the spatial units are not contiguous• US study used a three-year time span for calculations – but some insti-

tutional and entrepreneurship variables are likely to have long lageffects, not ones that are likely to be detected over three or four years.

10.5 CONCLUSIONS

This book has outlined a new approach to examine the processes of endoge-nous growth and how regional development may be influenced by, and facili-tated through, leadership, institutional factors and entrepreneurship as


intervening variables which, it is hypothesized, may have a catalytic effect onthe endogenous growth processes, but which also account for local resourceendowments and factors relating to the ‘market fit’ of a region. A new modelframework was proposed to conceptualize the interaction of those endogenousprocesses.

In the chapters in Part II, a range of case studies of cities and regions fromaround the world – the US, Europe and the Pacific Rim – were examined toascertain the nature and significance of leadership, institutional factors andentrepreneurship in the way those places have responded to the challengesthey faced which had, in most cases, severely and negatively impacted theperformance of once successful regions. Those case studies demonstrated theimportance of those endogenous factors as having had a catalytic effect onregional growth and development and the rejuvenation of some of those citiesand regions, but where those endogenous forces were lacking or inappropriate,then the outcome for the city or region was less than desirable and certainlysub-optimal.

In this chapter we have shown how an operational model to measureendogenous regional growth and development might be formulated, with thesuggestion of potential variables that might be used for the independent andintervening components that might explain differences in the level of perfor-mance of a city or region or of the dependent endogenous growth outcomevariable. Further, we summarized some results from initial attempts inAustralia and the US to operationalize this model of endogenous regionalgrowth. While the results are encouraging there still remain significantmeasurement issues, especially of the leadership and institutional variables.Significant and extended research will be required to develop this approach tothe level where it can be fully operationalized and in a way that evokes legit-imacy and agreement.


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20 percent solution 59

Acs, Z. 11adoption externalities 61agglomeration 28agglomeration economies 26agility 15Allegheny conference 75, 88alliances 53, 57American Athletic Union (AAU) 87Antwerp 109Arrow, K. 8Arthur, B. 4Audretsch, D. 4Austin 79, 82Austin Venture 82autocratic leadership 35

Barro, R.J. 4benchmarked 22BioneXt Tampere 107Birmingham 90–92Blakely, E.J. 2, 25, 44, 62Bolton, R. 59–60bond of trust 76bureaucracy 52business environment 58

capital accumulation 46capital stock 4Carnegie Mellon University 76Castells, M. 10catalytic 32catalyzed 71change agents 125Channel Tunnel 97Chihuahua 118–19Chihuahua Siglo XXI 119–20civic leadership 64clusters 121collaboration 33, 41, 56collaborative action 32

collaborative advantage 56–8collaborative approaches 56Colorado 82, 85command and control models 56Committee Grand Lille 97–8community 104

leadership 34, 53leadership, lack of 79

comparative advantages 27competitive advantages 57, 71

of cities 48competitive challenges 34competitive performance 15competitive politics 79competitive position 26competitiveness arrangements 29consensual politics 110consensus 117Constant Adaptation 109contingency leadership 71contingency theory 68cooperation 53, 106core competencies 123–4council–manager form of government 51cross-party cooperation 91cross-sector collaboration 63culture of cooperation 75cyclical effects 128Cyert, R.M. 26, 86

De Santis, M. 26, 34decentralization of power 49, 53decision-making groups 53democratic leadership 35Development Report Card for the State

83disequilibrating contingencies 71dynamic interrelationships 22

East Germany 99economic development 39economic development strategy 65

147

Index

economic environment 115economic growth 4, 46economic performance 47Economic Promotion Law 120economic revival 97economic specialization 27economic structure 24economic sustainability 64economic systems 66educational institutions 103effective institutions 31efficiently 21elites 77endogenous assets 98endogenous deficiencies 30endogenous factors 29, 43endogenous growth 126endogenous growth conditions 8endogenous growth theory 14endogenous regional growth 129, 132endogenous resource endowments 30entrepreneurial 65

activity 24characteristics 70effect 39spirit 81

entrepreneurialism 42entrepreneurs 39entrepreneurship 1, 2, 21–2, 25–6, 65,

68, 71, 114, 120, 128environmental protection 99environmental quality 24environmental technologies 98equilibrium 7, 66European Commission 84European Union 108exogenous forces 31, 61

factors of production 25Finland 101Finland’s State Airplane Factory 104Finlayson 102Florida, R. 12Freeman, C. 6Freiberg 98–100Freville, Y. 95Fujian 115 Fukuyama, F. 60, 62

generalized reciprocity 60

German Democratic Republic 99globalization 30–31governance 44, 52–3government 44Granovetter, M. 60Great Depression 77great person theory 35Greater Baltimore Committee (GBC) 89Greater Indianapolis Progress Committee

(GIPC) 86–8group value model 36Guandong 115

Hall, P. 10Harrod–Domar (H–D) growth model 5heroic leader 37hierarchical authority 42High, J. 39Hirschman, A. 7, 60history of cooperation 75Hofstede, G. 34, 42, 54home rule 54Honeysuckle redevelopment 113Hong Kong 114–15Houston 77–8Houston Economic Development

Corporation 78Houston’s economic development 78Hudnut, W. 88human capital 14, 26Hunter region 112Hyatt Hotel 91

ICTs 30implement strategy plans 121Indiana 85industrial image 113industrialists 107ineffective institutions 26information infrastructure 59infrastructure 14, 56–8innovation and flexibility 109institutional arrangements 70institutional capacity 45institutional change 1institutional considerations 63institutional decentralization 49institutional infrastructure 59, 68institutional norms 11institutional thickness 46–7, 53


institutions 14, 24, 43, 45, 127intelligent transportation systems 58intergovernmental agreements 50internalizing externalities 61internationalization of capital 30

Johansson, B. 8, 11, 27–8jurisdictional fragmentation 63

Karlsson, C. 8, 11–12, 27–8Kirzner, I.M. 67, 69knowledge-based 11Kop van Zuid project 111Kozmetsky, G. 80Krugman, P. 10, 27, 29

laissez-faire leadership 35leader–member exchange theory 36leadership 1, 14, 19, 24, 26, 65, 69, 110,

127definitions 33enlightened 31leadership-driven economic

development 72learning agents 14learning infrastructure 45, 56, 59Lille 96, 98Lilly foundation 86Liverpool 92, 94

city council 93local business elites 48local governance 48Local Government Areas 129Location Quotients 127location-specific advantages 71loyalty 60–61Lucas, R.E. 66Lugar, R. 88

Malecki, E. 2Maquiladora 118market conditions 1, 21, 25market fit 20, 122, 127market opportunities 21Marsh 26, 86mayor–council form of government 51mediated 126Metropoles d’Equilibre 97Mexico 118Mid West 85

mini-dragon economies 116mini-sectoral analysis 123modern weak government 77mutual awareness 53Myrdal, G. 7

natural resources 25Nelson, R.R. 4neoclassical production function 6Netherlands 108network-augmenting capital 61networks 57–8networks and alliances 14new economy 33new growth theory 14new model framework for regional

endogenous development 23New South Wales 112Newcastle 112newly industrialized countries 10NGOs 27niche manufacturing 83nonpartisan 79nonprofit sector 75–6North Rhine-Westphalia 85North, D. 45

Ohmae, K., 13oil recession 77open door policy 115opportunity economy 80organizational culture 54

Pacific Rim 132partnerships 53, 56Perroux, F. 7Philips Curve 66Pittsburgh 75place prosperity 61place surplus 59–61place-based policies 61place-marketing 71policy 13political complexion 94political leadership 76political restructuring 30politics of consensus 75polytechnics 107Porter, M. 10, 29, 62pragmatic politics 91

Index 149

pre-conditions 69primary catalyst 69production functions 4public and private sectors 76public entrepreneur 64public interest model 55public policy 57public–private partnerships 50, 81, 84,

109Putnam, R. 62

qualitative 3quantitative 3

R&D 10, 11Randstad 85, 108Rechtsstart model 55reconstruction 97Rees, J. 10regeneration 76, 97regional competitiveness performance

cube (RCPC) 21–2, 30, 35,122–3, 125

RCPC hyper cube 20regional development strategies 29regional economic development 2,

63regional economic development strategy

58regional economic development strategy

planning 45regional gateway 71regional leadership 70regional market size 31regional performance 19REM 20Renaissance I 76Renaissance II 76Renaissance III 76Rennes 94, 96Research Triangle 11resource endowments 1, 20, 25–6, 31,

122, 124, 126resource-based 31resources 27response capability 15reunification 115role of institutions 45Romer, P.M. 4, 8Rotterdam 108, 110

rule structures 44rules of the game 45

Salazar, M. 20Saxenian, A. 8, 34, 40, 42scale issues 131scale-based 31Schumpeter, J.A. 39, 66scientific research capabilities 95sector markets 123self-categorization theory 36Sematech 81sense of place 61shared power 41shift–share analysis 22, 126, 128significant variables 131Silicon Valley 11Singapore 116slack institutional resources 26smart infrastructure 56SMEs 100social atmosphere 47social capital 59social capital development 61social composition 24social equity 24social networks 52, 60socio-emotional leaders 35Solow production function 5Solow, R. 5Soviet Union 104spatial attachment 60spatial scale 44spatial structure 7stakeholders 52–4, 56, 65steel industry 75stepwise regression analysis 129Stimson, R. 3, 9, 12–14, 20, 22, 29, 41,

57, 60, 62, 129Stough, R. 8, 13, 20, 22, 25–7, 34, 42,

59, 63, 88, 129strategic approach 1strategic architecture 124strategic infrastructure 124strategic intent 124strategic planning policies 117sunbelt 78sustainable development 19

Tampere 101–3, 108


task-oriented leaders 35technical progress 6Technical Research Centre of Finland

106technological change 5technological infrastructure 26technologically induced growth 79technology 11technology firms 76technology-based city 80The Hong Kong Advantage 115threat contingencies 72total factor productivity 47tragedy of the commons 61transaction costs 47, 53transactionalist theory 36

triple-bottom-line economic growth 24trust 41, 53, 61Tsar 103

University of Pittsburgh 76University of Technology, Tampere

105

values 55Venture Capital and Entrepreneurial

Spirit 84virtuous circle 19voice 60, 61

Winters, S.G. 4World War I 103

Index 151

Documents

Leadership and Institutions in Regional Endogenous Development