Note of comments made by Larry Hannah for closing session of LED Workshop held on January 10, 2005
It’s not usually desirable to be asked to speak last but today I consider it a privilege.
It’s a privilege because the day has presented us with a coherent story that, in my opinion, establishes the rationale and the mechanics to enhance Bank operations – Local Economic Development (LED).
I would like to start by congratulating the organizers for designing such a well-structured seminar. The speakers also deserve applause for offering such pertinent information and analysis.
This workshop demonstrates the truly cross-sectoral nature of LED. I understand that 83 participants are enrolled, from many networks and various sectors. This also reflected in the panelists from across the Bank, IC, INF, DEC, PREM, etc. This type of turnout for an internal workshop shows a high level of cross-network interest in this topic. I suppose it is not surprising when we hear how OECD countries invest so heavily in local and regional economic development, on improving their local investment climates, providing hard and soft infrastructure, and enabling private sector development at the local as well as national levels. These integrated and coherent efforts in OECD countries give models for us to adapt with our clients.
So let me take a few final moments of your time today to report on my interpretation of what we heard today and to make a few modest suggestions for how it might be used in our work together.
The title of the first session says it all – what happens in urban areas is the main determinant of economic outcomes for most countries. I think all of us are familiar with the basic concepts of agglomeration economies and how cities capture many benefits of the economic development process. What this session added, however, was a clear approach to describing and measuring that process so that appropriate strategies can be devised that can enable cities and city-regions to contribute further to national growth. The examples mentioned from OECD countries give us confidence that the strategic LED approach being proposed for World Bank clients is both true and tested.
The second session took one of the two pillars of our institution, improving the investment climate (the other being poverty reduction or inclusion), and showed us how regulations and their enforcement at the local level are important determinants of economic development. Although the conclusions presented in this session now seem obvious, I had not seen them presented so articulately until now.
What struck me in this session is how logical this agenda would be for the Urban group in the Bank because of their long and successful experience in working with mayors and local officials. If Urban was to take the information on local investment climate that we heard about today, and operationalize it, I believe that the Bank could take advantage of a major business development opportunity. Although Urban has, in my opinion, a comparative advantage in leading this type of work, the results are truly crosscutting. PSD, PREM, HD, ESSD, other INF units and probably others all have significant stakes in the outcomes.
The third session on City Strategic Planning gave us confidence that these OECD practices can be adapted for our clients; it gave us evidence of how this has been done. After all, what is being proposed involves taking a tried and tested technique (strategic planning) and applying it in support of a rather modern objective – increasing city competitiveness. The presentations and the discussants remarks all recognized that competitiveness is about the entire environment in which citizens and businesses operate not some zero-net-gain transfer. This is why it is called the “enabling’ environment.
Another theme I heard today was that modern local government needs to be mindful of the needs of its businesses and firms, as well as the preferences of individual citizens.
The Cities Alliance, representing clients and multiple donors alike, also has clearly articulated both the need as well the demand for strategic planning and LED at the city and city-region level. If we needed any more evidence, we only have to consider the comments from the Latvian country manager. Clearly there is a taste for this at both the national and local government level. Operationally, I see important implications for this type of planning.
The fourth and final session provided some innovative ideas on how LED is being incorporated into existing, or planned Bank operations. We know there are many other operations that have LED elements, but it seems from discussions that we need to undertake further analysis to identify exactly what these components are and in which projects they are being tested.
The examples of existing operations applying LED concepts leads me to conclude that it can be an inexpensive and effective way to address local growth and local business enabling environment issues. However, the way forward still needs further “product development” and leadership from your network to be truly effective. Let me offer my own understanding of what the future menu of LED operational inputs might look like.
From what I have heard today, I think we can see the broad characteristics of what an LED product line might look like. This, of course, assumes the necessary substance in CASs.
Before I mention the specific products, let me remind us that it is clear that LED is a crosscutting theme. It is intimately connected to labor market policies, infrastructure, governance, PSD issues, growth strategies, fiscal policy, decentralization and so on. This means that LED is often going to be an organizing framework, an augmentation of how we pursue our business, not necessarily a freestanding product. So I would suggest that we are talking about LED-enhanced operations rather than LED loans per se. One advantage of this approach is that it allows for cooperation and collaboration among different units in the Bank which we have all learned at this workshop, is the natural way this business has developed up to present. It also makes sense for our city clients, who cannot deal with strategic issues on a sector-by-sector basis.
That said, one lesson I take away from our discussions today is that LED can easily be used to enhance all of the standard Bank products. Let me try to suggest, in a rather preliminary fashion, how that might work.
AAA work seems already to incorporate LED issues in many instances. However, the LED aspects are rarely highlighted or presented in a sufficiently distinct way so as to energize LED reforms and actions. Almost all of the IC/BE work touches on local issues but, even where a local diagnostic is available, it may not have sufficient “traction” to compete with national programs for attention. It wouldn’t be too difficult to conduct more strategic LED studies, both free standing and within national exercises, that would create the understanding and constituency for reform in the LED arena. From what I’ve learned today, the TA that the Bank has been providing has incorporated best practice well. City Strategic Plans focused on LED issues are good examples that could be built on. The state of the cities work mentioned earlier is another promising business line, as a pre-curser to integrated lending programs. I think more of these could serve as very effective preparation for both investment loans and development policy lending.
Development Policy Lending (DPL is the new name for all types of adjustment loans) will remain an important element in Bank relations with virtually all of our clients. The pressure to make reforms in the business environment/investment climate will grow not shrink. We have heard today that there is a local agenda in this respect. However, I know that the local BE doesn’t gets the same attention as national IC issues, for several reasons. One is that the issues themselves are not as dramatic (health inspector versus national bankruptcy legislation). Two, the local issues don’t have their own champion either in the Bank or with the client. Three, the local reforms seem difficult to implement and monitor because they require actions by many parties on the borrowers side. Finally it requires some imagination to see how those dispersed local actors can be motivated under the DPL model.
So what should we do to make LED more effective as a policy theme in our adjustment operations? My first suggestion is to develop a very specific local business environment module that could be “plugged-in” to DPLs where BE/IC was a major theme. This approach would be quite focused and accordingly would provide staff and clients, with the confidence that worthwhile results could be achieved. I believe such a module could be drawn together from existing BE/IC exercises and adjustment operations where BE is a major theme.
Let me talk about APLs and SILs separately, even though the former is a subset of the latter, because I think the LED enhancement should be slightly different in each case. Since LED is a strategy with long-term goals and short, medium and long-term actions, it is particularly well suited as a framework for the medium term policy matrix that is required for every APL. The process of establishing and moving on the implementation of an LED strategy could easily be structured around the triggers for each loan under an APL. For example, a diagnostic and creation of an LED plan could be phase one, implementation of the plan could be phase two and so on. LED is also attractive in that its goals are truly outcomes – growth, increasing in employment, etc. - not public sector inputs. Thus LED could be a powerful theme for the policy matrix/triggers under an APL, the Yemen project gives us some pointers in this regard.
For SILs, LED could also be used to establish a clear justification for specific investments, as we saw in the Romanian example. But I have a more ambitious task in mind. If we are lending for, say infrastructure, then we need some way to understand how priorities are set and competing investments vetted. Strategically planned LED offers, in my opinion, a robust technique for doing this. Combined in some creative way with more traditional cost-benefit work, the expected impact of the investments should be much greater and more focused on what our clients tell us they want – jobs and economic growth.
A specific example of how LED could enhance an existing product in our arsenal is to use LED as the front-end in municipal lending programs, as is being discussed for Georgia. An LED focus within the strategic planning exercise, as we heard described today, would undoubtedly better prepare municipalities and cities to approach lenders, the private sector and other donors. An LED screen seems to me to be more in tune with the growing emphasis on market based solutions for public infrastructure and meets requirements for good governance, transparency and participation, especially with the vitally important business sector.
In conclusion, today I heard it reiterated that cities are a major source of growth that often determines the overall performance of a country. We learned that cities perform differently and that the way they approach local economic development issues may have a significant affect on performance. LED was shown to be an amalgam of a positive local business environment and the right investments in hard and soft infrastructure. I also learned that good LED is underway both inside and outside the World Bank.
So today I believe we had a chance to look into the future of the Bank’s work – LED is cross sectoral, it empowers our clients, comprises all stakeholders including the private sector and is built upon the latest thinking about local government – the enabling role.
Thank you.
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