What is “Local Economic Development”?
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Local Economic Development (LED) is a process based on strategic partnership between government, business, the non-governmental sector and the local community that improves a city’s competitive position and encourages economic growth, increases wealth, creates jobs, attracts investment, and improves the quality of life for all citizens in the community. LED is based on the principle that wealth and improved quality of life in local communities is created not by government but by the private sector, which depends on favorable local business conditions to grow and create prosperity. Local governments have the key role of creating favorable environments for business success. |
Local economic development benefits the entire community, including local government, businesses, and citizens. By competing with other cities to provide the most favorable business environment that includes the highest quality infrastructure and services at the lowest cost to businesses, cities can dramatically increase businesses’ growth, encourage new business creation, and attract investments. Better services and infrastructure allow businesses to offer products and services at a lower cost, thus generating more sales and creating new jobs and more taxes. Increased tax revenue from business growth and higher employment means that cities can improve services and invest in infrastructure, becoming even more attractive to businesses and improving the quality of life for citizens in their community.
The practice of LED in the United States and Europe has evolved significantly in recent years. This in part reflects the move away from the interventionist approaches to economic management that were common in the U.S. and large areas of Europe during much of the 1960s and 1970s and more recently, in the transitional countries of Central and Eastern Europe.
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Cities, not nations, are the true engines of economic growth.
--Jane Jacobs, U.S. Urban Scientist
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In the past, local and regional economic development was managed through the policies of national governments with direct intervention in the economy through state-controlled companies. Over the last 20 to 30 years, experience has shown that local and regional economic development can be managed more effectively at the local level, and a more facilitative approach has evolved in which local authorities can play a critical and significant role. The emphasis now is on creating a favorable local business environment in which existing and new companies can grow, led by the private entrepreneur.
Key elements of this environment include:
- Effective and ongoing partnerships between the public and private sectors.
- Simple and business-friendly legislation and regulations.
- Promotion of business support and training facilities for existing and new enterprises.
- Access to credit for businesses, including micro and small and medium enterprises.
- Suitable local infrastructure (roads, communal services, business premises, etc.).
As detailed in this toolkit, local governments can employ a variety of approaches to create a more favorable business environment, including:
- Supporting existing small and medium-sized enterprises.
- Encouraging the formation of new enterprises.
- Ensuring that the local investment climate is functional for local businesses.
- Attracting external investment (domestic and foreign).
- Investing in hard infrastructure (roads, utilities, property, etc.).
- Investing in soft infrastructure (educational and workforce development, institutional support systems and regulatory issues).
- Supporting the growth of particular clusters of businesses.
- Targeting particular parts of the city for regeneration or growth.
Five Guiding Principles of Local Economic Development
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Supporting small and medium enterprises is particularly important, because experience in the United States and Europe shows that about 80 percent of new jobs in cities are created by the growth of businesses already located in that municipality. Furthermore, recent history in Central Europe proves that cities are at economic risk when they are overly dependent on one major employer or industry. A balanced and healthy economy will include a variety of small (fewer than 50 employees) and medium-sized (fewer than 250 employees) businesses, including retail, commercial, and service providers, to meet the needs of residents and the need to diversify the economy. Developing the service and distribution sector and encouraging new manufacturing enterprises are necessary if cities are to take advantage of their industrial and manufacturing tradition. For the development of the local economy to remain stable over the long term, it must be based on diverse, flexible, and growing local companies.
Successful long-term economic development requires a real partnership between local government and the local business community, and long-term strategic planning provides a systematic way to manage change and build community-wide consensus and a shared vision for a better economic future. Strategic planning is a powerful technique for bringing business leaders and local government officials together to create private-public partnerships that will improve the city’s business climate and competitive position.
Improving a city’s competitive position is a key goal of any effective LED strategy. In the new global economy, nations compete against nations, regions compete against regions, and cities compete against cities to provide the best environment for businesses to develop and grow. When a multinational company is looking for a new place to invest its resources (for example, to build a new manufacturing plant), it may know what part of the world it wants to invest in (Eastern Europe, for example), or even what country it wants to invest in (Ukraine), but often, it is up to the cities in that region to compete for the investment.
Why is Local Economic Development Important?
Over the last 30 years, major changes have taken place in the world of work, business, and economics. Most local communities in developing and transitional countries have had to develop and adapt to new forms of work. In Ukraine, these changes have occurred in the 15 years following the country’s independence and the transition from a command to market-based economy. During this transition, many of the old enterprises have failed to meet the demands of the new marketplace; as a result, many people in Ukraine today are either unemployed or have to subsist on very low incomes.
The changes in the world and in Ukraine mean that old economic policies and practices are no longer able to quickly address unemployment, low incomes, and poverty. New policies and approaches are needed, and local economic development techniques based on public-private partnerships have proven to have a quick and effective impact on unemployment and income levels. Experience in the United States and Europe shows that mayors and city managers, in partnership with business and community leaders, can effectively deliver local economic development.
Local Economic Development Today
Today, this modern approach to local economic development is practiced widely in communities from Australia to South Africa and Slovakia. It has also recently become accepted as one of the most useful interventions in Eastern Europe to assist the transitional development of a market economy. In Ukraine in the last few years, local economic development has been introduced successfully in a few communities, but with the country’s new-found recognition in the world and its potential for attracting investment and capital, now is the time for all Ukrainian communities to adopt a new approach to economic development and to improve the quality of life for their citizens.
