ECONOMIC GARDENING: PROMOTING LOCAL ECONOMIC DEVELOPMENT

By Gayl D. Ness

Department of Sociology, University of Michigan

Abstract

The end of Colonialism in Asia and Africa following World War II left a legacy of strong states and central planning to promote economic development.  Where that planning has followed market discipline and created the physical infrastructure of a modern state it has often been quite successful.  But it has also sometimes missed important opportunities for the development of local entrepreneurship and local productive enterprises.  Surprisingly, a small town in Colorado, USA, began working on a specific plan precisely to find and promote local entrepreneurs.  Through trial and error, it proved highly successful and developed a model that is now being used in many parts of the US. The term Economic Gardening implies finding and growing local entrepreneurs, rather than promoting Economic Development by enticing external investors to bring money and jobs to one’s local.  The problem with this form of promoting Economic Development is that when success raises standards of living and wage rates, external investors often leave searching for lower costs elsewhere. Since the entrepreneurs in Economic Gardening are local, they do not leave when their business becomes successful. The plan involves providing formal, expert assistance in such things as marketing, finding capital and making business plans. The model provides an excellent set of procedure by which local governments can promote sustained economic development. This paper delineates specific processes for practical measures in promoting Economic Gardening.

 

Abstract

The end of Colonialism in Asia and Africa following World War II left a legacy of strong states and central planning to promote economic development.  Where that planning has followed market discipline and created the physical infrastructure of a modern state it has often been quite successful.  But it has also sometimes missed important opportunities for the development of local entrepreneurship and local productive enterprises.  Surprisingly, a small town in Colorado, USA, began working on a specific plan precisely to find and promote local entrepreneurs.  Through trial and error, it proved highly successful and developed a model that is now being used in many parts of the US. The term Economic Gardening implies finding and growing local entrepreneurs, rather than promoting Economic Development by enticing external investors to bring money and jobs to one’s local.  The problem with this form of promoting Economic Development is that when success raises standards of living and wage rates, external investors often leave searching for lower costs elsewhere. Since the entrepreneurs in Economic Gardening are local, they do not leave when their business becomes successful. The plan involves providing formal, expert assistance in such things as marketing, finding capital and making business plans. The model provides an excellent set of procedure by which local governments can promote sustained economic development. This paper delineates specific processes for practical measures in promoting Economic Gardening.

I  A Colonial Legacy:  Central Planning

One of the strong legacies of the vast colonial system that ended after World War II is the idea that a newly independent state will have a strong central government that promotes economic development through central planning and especially through the creation of five year plans Ness and Ando 1984).[1]  The apparent success of the Soviet Union and its five years plans found great favor especially in European Socialist and Communist parties in the 1930s, which had considerable influence on leaders of the newly independent states.  Central economic planning and five year plans were found everywhere and were quite the rage. 

In addition, the US Marshall Plan began a process of bilateral development assistance that enhanced this movement by working with governments to promote development. The United Nations’ declaration of the 1960s as the decade of development and the creation of the United Nations’ Development program (UNDP) further enhanced this movement.  Then both bilateral and internal development assistance began building the informational infrastructure by developing such things as population censuses and national income accounting, which allowed for more precise and accurate central planning.

Where that planning accepted market disciplineand built the infrastructure of the modern state, especially where it developed human capital through education and health programs, it was often quite successful.  In Southeast Asia, Singapore, Malaysia and Thailand are excellent examples of effective and successful central planning.  Where governments followed the Soviet model, rejecting the market and using physical targets, there could be both successes and massive failures.

            For example, Communist China embarked on a “barefoot doctors” program that was vastly successful in reducing infant mortality from 195 to 32 in the 30 years from 1950 to 1980.  By contrast, the more democratic India allowed the Indian Medical Association to veto a similar plan to use paramedics to provide health services in the rural areas.  The result was a slower IMR decline, from 190 in 1950 to 105 in the same three decades.  In effect by strong central action, China saved some 30 million babies that would have died if it had had India’s IMR record.  When strong central governments do the right thing, it can be very beneficial. 

            On the other hand, China’s Great Leap Forward in 1958 was a massive disaster, which led to some 30 million deaths from famine in the early 1960s.

The early tentative movements to promote development in the 1950s often involved policies for import substitution industrialization.  The World Bank even proscribed such strategies.  This implied raising tariff barriers to protect local industries from foreign competition and providing various subsidies and tax holidays to support those industries.  These typically failed, producing little more than deep inefficiencies and higher costs to consumers.  In the 1960s there was a substantial change in policy to export promotion rather than import substitution.  This proved highly successful.

Now central governments in the developing world typically promote development by luring foreign investors to come in to build factories and create jobs.  Where this is effectively controlled and monitored it can help greatly to produce jobs, increase incomes and raise standards of living and human welfare.  But this kind of developments has serious problems that are the fodder of daily news reports.  Foreign investors come with very large pocketbooks, leading to much corruption, which is extensively reported in countries with a relative free press.  It also leads to lack of the kind of monitoring and government control that can saves lives and raise real living standards.  Factories collapse; they burn down with great loss of life from locked exits.  Workers are often subjected to harsh and even deadly working conditions when governments lack the capacity and will to regulate work places.  And finally, if those investments and jobs raise living standards, they inevitably raise wages rates, often leading the foreign investor to leave in search of lower costs. In the recent past, Ireland provided an excellent example of the widespread loss of jobs from the rising living standards and wages that were the result of successfully enticing foreign investors.

2. The Decentralization Movement: Political and Economic

In 2005 the World Bank published an important document to which we have often referred[2]: East Asia Decentralizes: Making Local Government Work,(World Bank 2003). This noted different degrees of political and administrative decentralization. Made a case for greater decentralization, and noted both problems and potential advantages to be gained from increasing decentralization.

In 2001 The United States National Research Council published a paper entitled, Best Practices in State and Regional Innovation Initiatives (NRC 2001).  The study began with the acknowledgement that “Most of the policy discussion about stimulating innovation has focused on the federal level.”  By contrast, “This study focuses on the significant activity at the state level.”  It found that at state and local levels, there were new networks of political, business and academic leaders that were very effective in fostering innovation and thereby promoting economic development.

These examples only illustrate two important, increasingly global, trends – political and economic --now underway in both developing and developed areas.  The most notable in Asia today is thepolitical drive to decentralize government, to give greater power and authority to local elected officials. This political movement often restructures government, increasing the number, levels and powers of local elected officials, and turning more and more administrative responsibilities to local bodies.

3.  Economic Decentralization

The economic decentralization is somewhat less recognized in the developing countries, but is gaining great popularity in the United States.  There it is called Economic Gardening[3].  A simple analogy is used to differentiate this movement from more common attempts to promote economic development by seeking to attract large external investors.  Attracting foreign investment is called Big Game Hunting.  Governments (National level in many developing countries, but also at the state levels in the United States) seek out large foreign investors and provide them with tax benefits and other inducements to invest in factories that bring jobs to the area.Economic Gardening seeks to grow their own local entrepreneurs to invest in local enterprises, which bring jobs to the areas.

The history of Economic Gardening provides a view of economic forces that are common in developing nations.  It began in Littleton, Colorado, a small town of 41,000 in the Denver Metropolitan Area (Woods and Gibbons 2010).  In the 1950-60s two large corporations – in oil and aircraft manufacturing – brought factories and thousands of jobs to the Littleton area.  Here was a typical success in “Big Game Hunting.” The standard of living rose and with it the general quality of life. But the recession of the late 1980s saw the loss of thousands of those jobs as all corporations cut jobs, moving some jobs off shore to reduce labor costs. This led Littleton civic leaders to rethink how best to promote the kind of development that would be sustain able, that would bring jobs to stay. 

In researching possible alternative strategies the Littleton leaders came upon a highly important set of findings.  In the US by far the greatest job creation comes from small companies, not large ones.  These data are now collected and made available on line through www.yourecocnomy.org, a service of the Edward Lowe Foundation, Cassopolis, Michigan (www.edwardlowe.org) They also discovered that local governments using incentives to attract large investors (Big Game Hunting) were declining and those continuing to use such incentives had lower than average growth rates, as they …”faced more competition, and may be ‘trapped in a race to the bottom’”(Warner 2010). In effect the use of business incentives to attract outside investors was not working. They also found a burgeoning literature on entrepreneur development and what is now called “new growth theory” (Birch 1978 and Rohmer 1986). 

After much discussion, many trials and errors, Littleton hit on an effective strategy that used city funds and local leadership to build a capacity to identify and assist local entrepreneurs start businesses.  They city began in 1990 with a half time worker and a small budget in its new Business/Industry Affairs (BIA) department.  Today it has four full time staff.  It provides a range of services.  These include research on demographic trends, the use of search engines and social media to develop marketing strategies and advertise products.  They also provide assistance in Geographic Information Systems and graphic design.  They have developed a program where experienced business people provide assistance to new local entrepreneurs as Business Coaches.  Typically the BIA is in contact with 300-400 businesses yearly and provides direct services to over 100.  In the first two decades of its work, it added 15,000 new jobs to the town’s businesses.  These ranged from information providers, to herb shops that advertise on the Internet and export throughout the country, or others that provide photographic services and planning services.  And remember this is all done in a city of 41000 people.

Economic Gardening has now become a major movement throughout the United States.  The central organization promoting Economic Gardening in the United States is the International City/Country Management Association (ICMA).  See its large web site at www.imca.org.  There are now annual conferences on the subject; the 11^th International Economic Gardening Conference was held in June 2013 in Kansas City, Kansas, USA (http://conference.nationalcentereg.org/).  Many states in the US now have added Economic Gardening to their usual economic development strategies. Christine Hamilton-Pennell (2010) has produced an excellent article explaining the advantages and the processes of economic gardening.

The Internet has helped immensely in a variety of ways.  Any local entrepreneur can now quickly learn how to find information on the demand for products, assistance in developing technologies, finding capital, and advertising products.  The Internet has also helped the Economic Gardening model to spread widely. 

4. Economic Gardening and Local Government

A.  Entrepreneurship in Asia

Asia has no shortage of entrepreneurs and entrepreneurship.  There is the well-known and ubiquitous informal economy, which is often dominated by women; this is especially true in Southeast Asiafor reasons of deep culture.  The problem with this infomal economy is that it is usually locally oriented and does not export out of the local community. To promote economic development more widely, it is necessary to formalize this rich entrepreneurship through the formation of legal entities, which will export goods and services beyond the local community. 

Since 2006 the World Bank has been taking an interest in this development strategy and has begun to survey countries to collect data on the number of new limited liability firms created each year (Klapper and Delgado 2007).  The first observation from these surveys is the large number of new firms being established.  The survey also measures “Business Density” or the number of formally registered limited liability firms started per 1000 of the working age population (ages 15-64).[4]

For this introduction, let us look only at the most recent findings from Southeast Asia, and include Hong Kong and Republic of Korea for comparison.

Table 1.

Number of New Firms and Business Density

Southeast Asia plus Hong Kong and Republic of Korea

Country	Year	New Firms	Business Density
Cambodia	2009	2,003	0.22
Indonesia	2011	43,775	0.27
Lao PDR	2011	398	0.1
Malaysia	2011	45,445	2.42
Philippines	2011	11,435	0.19
Singapore	2011	32,308	8.45
Thailand	2009	27,520	0.59
Hong Kong	2011	148,329	27.67
Republic of Korea	2011	65,973	1.83

What is immediately apparent here is the large number of firms being established, even in very poor countries, such as Laos and Cambodia.  Also apparent is the great variance in Business Density.  Density is higher is the more developed (Singapore and Malaysia) than the less developed (Cambodia and Laos).  But also notable are the relatively low rates of density in countries like Thailand, Indonesia and the Philippines, which all have actively growing economies.  This indicates there is much room for improvement.

Klapper and Delgado (2007) reported some interesting findings from the analyses of these data.  Entry rates are negatively related to the cost of starting a business, and they are positively related to the quality of government.  By sectors the developing countries show high proportions (50+%) in wholesale and retail sales, while the more developed countries show the highest proportions (60+%) in services, including finance and real estate.  These are not surprising findings, but they do give some hints at how policies should be shaped in the developing countries to promote more local business.

           

B. Resistance to Gardening

Despite the rich resource of local entrepreneurship, the movement to economic gardening, like the movement to political and administrative decentralization, faces certain resistance at the national level. Central bureaucracies have grown massively as an integral part of foreign colonial rule. That growth only accelerated with independence and the push by central governments to engage in economic planning and development promotion. Both latent organizational and economic forces will lead these centralized bureaucracies to resist new efforts to decentralize or to promote development through promoting local entrepreneurs.  The organizational forces are those that keep organizations growing.  Position and budget requests are never reduced; they are always growing.  All organizations face internal pressures to add more staff, more positions and more responsibility and authority.  That always means increased budget requests.  The current political pressures to decentralize government are inevitably threatening to central bureaucracies.  Central bureaucracies grow, gain more and more power, and are very reluctant to give power to lower units. This is a process that has been recognized by social scientists for half a century and more (Shils 1960), and is known to inhibit the growth of local government..

There are economic pressures as well that will lead central governments at least to neglect, and possibly to actively resist, giving priority and resources to promoting local entrepreneurs. The rewards of the Big Game Hunting Strategy are many and powerful. The vast disparities in wage levels and in government regulations globally will always attract large foreign investors to places of low labor costs and weak government regulations. Moreover the competition in these industries is quite intense, leading to very hard bargaining by the foreign investors.  This inevitably leads to weakness of worker protection, building and workplace regulation.  The result is what we often read in news headlines: collapsing factories, factory fires with large loss of life, and corruption.

What political leader can resist the attraction of cutting the ribbon for a new factory with 500 jobs?  And the complex network of wealthy foreign investors and even more complex local regulations and requirements for firm creation inevitably leads to corruption. 

           

C. Promoting Economic Gardening: Some Practical Steps

Despite the potential and real resistance, promoting Economic Gardening is possible and can produce substantial positive results.  Hamilton-Pennell (2010) identifies of some key principles that can be enumerated especially for the United States.  I have gone through the central points and adjusted them to what I know of Asia.  Cultures are difference.  In Asia – East, South and Southeast polticial and economic culturesshow both similarities and profound differences.  What will work in the United States, will not naturally work in Asia without some adaptation.  So here is my translation of what Littleton did and what Asian cities, districts and provinces can do.

In thinking about what can be done, we have in mind actions at the local level.  What can a Mayor, District Officer or Provincial Governor do? They actually have considerable capacities to initiate action.  Here are some ideas for practical steps

1.      Do it yourself. Do not wait on the central government, nor even ask central government for support.  Look at your own resources and recognize what you already know how to do.  Then work out a way that you yourself can help to promote local entrepreneurs. Every Mayor, District Officer or Governor has great capacities to initiate productive programs.  They should not be afraid to use their powers to promote economic gardening.

2.      Engage local leadership.  Rather than hand a fully developed plan to local leaders, engage them in discussions of their perceived problems and potentials and help them to see advantages to providing assistance to local entrepreneurs. Call informal meetings to discuss local conditions and ask for ideas about what to do. The idea is to plan together

3.      Develop new horizontal networks. Bureaucracies are typically organized hierarchically, with orders moving down and information moving upward.  Often the structure inhibits the development of horizontal linkages that bring together different specializations.  Local leaders should branch out, linking business groups, banking, academic institutions, and community groups to build the broad base of technologies that is needed to promote development. In 2000 The Asian Urban Information Center of Kobe (AUICK) published an exercise in dynamic modeling of population-environment dynamics in five Asian Cities (Ness and Low 2000).  Khon Kaen, Thailand was one of the cities studied. The study suggested a future of City-University Partnerships (CUPs) where local university scientists would work with city administrators to collect data and undertake modeling exercises to examine possible futures for their own planning.

4.      Identify community resources. What human capital and institutions exist in the community? What are the physical assets – roads, transportation, educational institutions etc.  One asset often overlooked is libraries.  Littleton, for example, began by having the city library second a librarian to the BIA.  This provided expertise in using various search engines to find information on demand, sales, technologies and capital sources for new businesses.

5.      Identify successful local business people. These effective local business and women can act as coaches for new enterprises.  The Business Coaches program has proved highly successful in many areas. Finally, but not first, one can look for external assistance. 

6.      Seek External Support.  The United Nations Development Program and many bilateral aid organizations, such as US AID, have programs specifically to assist small businesses.  There are also many NGOs that do the same.  Unfortunately access to the UN and Bi-Lateral AID agencies usually requires going through the central government, but it is worth exploring possibilities for external support in these agencies.

Conclusion

One of the most productive arenas for action of local government bodies lies in promoting economic development.  Finding investors to build factories and create jobs is one effective avenue for promoting development.  But an equally productive arena also exists in finding and supporting local entrepreneurs to build businesses and promote development, an activity known as economic gardening.  This has now become a major movement in the United States and has great potential in the developing world as well.  This provides one more reason to promote decentralization and one more set of highly productive activities that local governments can undertake.

References

Birch, David Z, 1979, The Job Generation Process, (Cambride: MIT Press)

Hamilton-Pennell, Christine, 2010, “Strengthen Your Local Economy Through Economic Gadening”  InFocus, Vol 42, No.4, ICMA, pp 1-36.

Klapper, Leora and Juan Manual Quesada Delgado, “Entrepreneurship,”  Viewpoint, Note 316, The World Bank Group, Financial and Private Sector Development Vice Presidency, (Washington DC: The World Bank

National Research Council, 2001, Best Practices in State and Regional Innovation Initiatives:  Competing I the 21st century, (Washington, DC: The National Academies Press).

Ness, Gayl D and Hirofumi Ando, 1984, The Land is Shrinking:  Population Planning in Asia, (Baltimore: Johns Hopkins Press).

---- and Michael Low (2000),  Fuve Cities: Modelling Modern Asian Urban Populaton Environment Dynamics, (Singapore: Oxford Univesity Press)

-----, 2010,Challenges and Dilemmas of Local Government in a Global Age.Paper delivered at the First International Conference on Local Government, Khon Kaen University Conference on Local Government, Khon Kaen, Thailand November 17-18.

-----, 2012, “Thailand’s Decentralization:  Global Forces and Local Conditions,” in Peeerasit Kamnuansilpa and Bonnie P. Brereton, eds, Local Governments in a Global Context, (Khon Kaen, Thailand: College of Local Administration), pp 17-36

Romer, Paul, (1986) “Increasing Returns and Long Run Growth,” Journal of Political Economy,   Vol. 94, No. 5, Oct., (Chicago: Univefrsity of Chicago Press)

Shils, Edward, 1960, “Political Development in the New States,” Comparative Studies in Society and History, I and II, Vol II, pp 265-92 and 379-411.

Warner, Mildrew and Lingwen Zheng, 2010, “Local Economic Development 1994-2004: Broadening Strategies, Increasing Accountability,” The Municipal Year Book, 2010 (Washington, DC: IMCA).

Woods, Jim and Christian Gibbons, 2010, “Economic Gardening: Is it Right for your Community”, IMCA Publications, Vol 92 No 9  

World Bank, 2003, East Asia Decentralizes: Making Local Government Work, (Washington, DC: The World Bank) 267 pp.

2013 National Conference http://conference.nationalcentereg.org/

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[1].  This is a distinctive characteristic of the nationalist independence movements of post-World War II, which were opposed to Imperialistic Industrial Capitalism.  By contrast, the national liberation movements of the late 18^th and early 19^th centuries were opposed to Monarchic Mercantilsm, and thus promoted private property and free markets, implying relatively weak states and little or no government economic planning.

[2].  Ness. 2010

[3].  A major organization promoting Economic Gardening in the United States is the International City/Country Management Association (ICMA).  See its large web site at www.imca.org.

[4]. Unfortunately, the Bank does not report the difference between local and foreign companies.