Urban Economics: Why Cities are Natural Economic Engines

‫כלכלה עירונית‬
‫כיצד נבנית "מערכת אקולוגית" עירונית של עסקים ותושבים‬

‫עיר ללא הפסקה ופרברים סביב לה‬
‫סוגיות אורבניות בתל אביב‬
‫קורס חדש וחלוצי של "המכללה החברתית-כלכלית"‬
‫בשיתוף עם מרחב על אורבניות בישראל‬

‫‪nachman@miu.org.il‬‬
‫0102 ‪May‬‬
‫‪www.miu.org.il‬‬

Agenda
• A brief history of LED
– Summary of current best practices
• LED in the context of cities and towns
– Urban Economics
– Cities have natural economic advantages
– How does the urban economy develop?
– How can we jumpstart economic development?

What is LED?
• The purpose of local economic
development (LED) is to build up the
economic capacity of a local area to
improve its economic future and the
quality of life for all. It is a process by
which public, business and non-
governmental sector partners work
collectively to create better conditions for
economic growth and employment
generation.

The Industrial Revolution

• Group I - English-speaking
• Group II - Japan
• Group III - northwest Europe
• Group IV - the rest of Europe and European-dominated
economies in Latin America.
• Group V - the rest of Asia and Africa.

A Brief History of LED
Prior to WWII Post WWII
• Economic Development was • A new concept was born - Economic
focused by each nation on Development aid to other nations
developing their own economy aimed at improving quality of life
– Included trade with other without altering basic social structures
nations (conquering)
– Included investment in – Driven by multiple factors:
territories, colonies and other • The recognized need for global
nations directly or indirectly stability – to avert another WW
under the control of empires in • Political influence – the ―cold war‖
order to exploit their resources • Create bigger markets for goods and
services – globalization
– Creation of the UN, the WorldBank,
the IMF, ITO / GATT / WTO
– The Marshall Plan
– Creation of USAID
• Continued investment in own LED

• Results of Marshall Plan seemed
promising
– Investment in hard infrastructure brought on
rapid economic growth in western Europe
• The recipe for LED seemed to be clear
and this brought on huge investments that
kicked off three waves of LED
• Most of these investments have been
fruitless…

• Since the 1960s, LED has passed through three
broad stages or 'waves' of development.
– In each of these waves LED practitioners have
developed a better understanding of successful and
unsuccessful programs.
– Today LED is in its 'third wave'.
– Although LED has moved through each of these
waves, elements of each wave are still practiced
today.
– Each of the waves had some basis in a prevailing
economic development theory
– With each wave the appreciation of the difficulty and
complexity of LED grew

The Three Waves of LED

1960s to 1980s to mid Late1990s
early1980s 1990s onwards

Regions / Cities and
Nations
Sectors Towns

Skills/Education,
Hard Attract Foreign
Attractive Policies
Infrastructure and Investment and
and
Manufacturing Support Local
Public/Private
Transplants Businesses
Partnerships

Summary of Current Thinking on LED

Goal is quality of life for all

Employment Environment Livibility Social inclusion

Participatory Growth of local
Focus on cities
approach businesses
• Including all • Promotion and • As engines of
stakeholders and support of economic
sectors innovation and development
• Led by local entrepreneurship • Urban regeneration
government (both business and as a tool
social)
• Business friendly
policies

Have we all learnt the lessons
of past LED attempts?

Which Programs Do Not Work
(But We Still Keep Using Them!)
• Unfortunately there are countless examples of failed
LED strategies and projects. These include:
– Expensive untargeted foreign direct investment marketing
campaigns
– Supply-led training programs
– Excessive reliance on grant-led investments
– Over-generous financial inducements for inward investors (not
only can this be an inefficient use of taxpayers money, it can
breed considerable resentment amongst local businesses that
may not be entitled to the same benefit).
– Business retention subsidies (where firms are paid to stay in the
area despite the fact that financial viability of the plant is at risk)
– Reliance on "low-road" techniques, e.g., cheap labor and
subsidized capital
– Government-conceived, -controlled, and -directed strategies
http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTURBANDEVELOPMENT/EXTLED/0,,print:Y~isCURL:Y~contentMDK:
20185187~menuPK:402643~pagePK:148956~piPK:216618~theSitePK:341139,00.html

Typical Shortcuts proposed for LED

• Attract:
– Outside investment
– Outside transplants
– Outside talent
– Outside residents
• Connect:
– Under-developed regions to successful ones

… if only LED was so easy…

Urban Economics from

Econ171 Economic Development
UC Berkeley

Lecture 27 Urbanization by Atanu Dey

14

Cities are the biggest idea
• Cities represent the largest and the most
persistent human artifact
• Cities are the aggregation of the biggest
ideas of humans
• Urbanization matters because that is what
humans naturally tend to do

Lecture 27 Urbanization Atanu Dey 15

Urbanization Matters
• Economic Growth and Urbanization are bi-
directionally causally connected

Growth Urbanization
• Why is this so?

• Economies of scale and agglomeration

Lecture 27 Urbanization Atanu Dey

The Big Picture
• The World is getting more urbanized

Lecture 27 Urbanization Atanu 17
Dey

Ginza Area in Greater Tokyo

18

Share of World Population Residing in Urban Areas
By World Region 1950-2030
100
Israel 92%
87
85
80 80
80 77
74 73 75
73 72

66 64
61 61 61
60
Percent

54 54
51
48

42
39 39
40 37

29
25 24

20 15
17

0
World Africa Asia Europe Latin Northern Oceania
America America
and the
Caribbean
19
1950 1975 2003 2030

Some fun facts
• Half the world’s population occupies only 1.5 percent of
the world’s land area
• The world is heterogeneous
– Wealth is unequally distributed
– North America, European Union and Japan account for 75
percent of the world’s wealth
– Around 1 billion have less than 2 percent of the world’s wealth

Lecture 27 Urbanization Atanu 20
Dey

More fun facts
• Growing cities
– 35 million (a quarter of Japan’s population) lives in
Tokyo – 4 percent of its land

• Mobile people
– 35 million people move every year within the US

• Specialization
– Western Europe trade around 35 percent of their GDP

22

Urbanization and Growth
• Growth correlates with urbanization

• ―… no country in the industrial age has
ever achieved significant economic growth
without urbanization.‖

23

Story of Civilization
• 900M
• Civilization is about • 3% in cities
1800
cities
• 1,600M
1900 • 10% in cities
• The world is getting
urbanized = civilized • 6,000M+

• Projected 10,000M

24

Why Cities Persist?
• Cities have natural economic advantages

• The advantages outweigh the disadvantages

• Positive relationship between size and productivity

• Larger cities produce more innovations

• Cities are engines of economic growth
– They manufacture wealth

26

Cities are Engines of Growth
• They manufacture wealth
– Manufacturing occurs in urban areas
– Why rich countries are predominantly urban
• Urbanization makes mass production
possible
– Manufacturing is related to scale economies
– Scale economies require people in terms of
variety and quantity

27

Cities and Transaction Costs
• Transaction Costs are lower in cities
• Infrastructure has scale economies
– High fixed costs
– High aggregate demand reduces the average
costs
• Education can be more efficiently
produced and consumed in cities

Lecture 27 Urbanization Atanu Dey 28

Fun Observations
 As producers seek scale economies, agriculture disperses but
manufacturing clusters

 Services become even more clustered than manufacturing

 Cities facilitate scale economies of all types
 Doubling city size will increase productivity by 3%-10%
 In the US, 96% of all innovations occur in metros

 Smaller cities specialize, receiving industries as they mature and relocate
 Mid-size cities have mature industries and are industrially specialized
 Large cities are diversified and are service oriented

 Most countries have an urban hierarchy: a few large cities and many small
cities with varied economic functions
29

Education
• Major factor in economic growth
• Cannot be efficiently provided in villages
• Scale economies are huge in education
– High fixed costs and low marginal costs
– Especially using ICT (Information and
Computing Technology)

30

Mega Regions
• 40 mega-regions, 1.2 billion people
– Around 70 percent of world output
– 85 percent of all innovations
• 5 billion people living in 191 countries
produce the rest
• A resident of a mega-region is 8 times as
productive in goods, and 24 times as
productive in innovations
31

Internal Scale Economies

• The cost of producing each unit of
something changes when the volume
produced increases or decreases

• What’s the reason for increasing returns to
firm scale?

34

External Agglomeration Economies

• Localization economies
– Clustering of Firms in the same Industry
– Arise from clustering of activities near a specific
facility, such as a transport terminal, a big market
or a large university.
• Urbanization economies
– Diversity of different Industries in the same area
– Arise from common infrastructure, the diversity of
labour and market size.

35

Economies
• Internal scale economies arise from
sharing of fixed costs by a large quantity of
outputs and are higher in heavier
industries
• External Agglomeration Economies:
– Localization economies arise from input-
sharing and competition within the industry
– Urbanization economies come from industrial
diversity that fosters innovation and exchange
of ideas and technology
36

The 12 Urban Economies of Scale
Type of economy of scale Example
1. Pecuniary Being able to purchase intermediate inputs at volume discounts
2. Static
Internal Falling average costs because of fixed costs of operating a plant
technological
Technological
3. Dynamic
Learning to operate a plant more efficiently over time
technological
4. ―Shopping‖ Shoppers are attracted to places where there are many sellers

Outsourcing allows both the upstream input suppliers and downstream firms to
5. ―Adam Smith‖
Static profit from productivity gains because of specialization
Localization 6. ―Marshall‖ Workers with industry-specific skills are attracted to a location where there is a
labor pooling greater concentration
7. ―Marshall-
Reductions in costs that arise from repeated and continuous production activity
Dynamic Arrow-Romer‖
over time and which spill over between firms in the same place
learning by doing

8. ―Jane Jacobs‖ The more that different things are done locally, the more opportunity there is for
innovation observing and adapting ideas from others
External or
agglomeration 9. ―Marshall‖ Workers in an industry bring innovations to firms in other industries; similar to
Static labor pooling no. 6 above, but the benefit arises from the diversity of industries in one location.

Urbanization
Similar to no. 5 above, the main difference being that the division of labor is
10. ―Adam Smith‖
made possible by the existence of many different buying industries in the same
division of labor
place

11. ―Romer‖ The larger the market, the higher the profit; the more attractive the location to
Dynamic endogenous firms, the more jobs there are; the more labor pools there, the larger the
growth market—and so on

Spreading fixed costs of infrastructure over more taxpayers; diseconomies arise
12. ―Pure‖ agglomeration
from congestion and pollution

Cities, it turns out, have
natural advantages
• Cities naturally offer Variety, a wide range of valued choices. They
naturally offer Convenience. In cities, there are more choices close
at hand. Discovery is another city advantage. Cities offer people
more chances to discover things they didn't know they liked, things
they didn't know they wanted to know, and people they didn't know
they could make things with (including fun and babies). And cities
naturally offer more Opportunity to their citizens in the form of
access to jobs, education and smart people.

• But here's the problem: We keep screwing it up.
• We keep undermining the city’s natural advantages. Instead of
building compact cities that magnify, amplify and intensify these city
advantages, we've blown it…

LED in the Context of Cities
from the easiest to the most difficult

LED in a Great City

LED in the Region of a Great City

LED in a Town Outside a Great City Region

LED in a City that is not Great

A Great City generates much more wealth than it consumes for mere existence.
A Great City generates enough wealth to support growth in the city as well in its surrounding region.

LED in a Great City




LED in a Great City



LED in a Great City
What makes the city the true engine of LED

• Compact and vibrant mixed population communities lead to
interaction, opportunity and innovation
• Easy access to skilled and unskilled talent
• Easy access to customers and markets
• Easy access to suppliers
• Easy access to technology and knowhow
• Easy access to credit
• Easy access to low-cost startup space and to expansion
space
• Low regulatory barriers to small business
• Lot’s of imports to replace

LED in a Great City



LED in a Great City
• What is the role of Urban Planning and Transportation in creating a
great place to live and to develop economically?

If the City provides
Mixed age Small
Density Mixed use
buildings Blocks

It can become a LED generator

LED in a Great City

LED in the Region of a Great City The cycle of city development


Density
Quality Variety
Of &
Life Access

Innovation
Opportunities People &
Culture

Intensity Development

LED in a Great City




• Create a great place to live and to develop
economically
• Provide attractive and efficient access to the City
• The City will do the rest
– The Five Economic Forces Exerted by Cities on Their
Own Regions
1. City markets
2. City jobs
3. City developed technology
4. Transplanted city work
5. City generated capital

LED in a Great City

Leveraging the five forces to
LED in a Town Outside a Great City Region accelerate LED in the region of a
Great City

ToD in the Center of Regional Towns of a Great City

Is Beer-Sheva a Great City?

Stockholm
The Gr Stockholm Transit
Oriented Metropolis The Gr Copenhagen Transit
Oriented Metropolis

What about rail stations in
the center of the towns? The 1961 National Capital Plan Source – Prof. Danny Gatt
for Gr Washington BC

LED in a Great City

LED in the Region of a Great City LED in a Town Outside a Great

City Region
• Need to become a Great City (or wait for a Great City to develop nearby)

• Leverage current thinking on LED
• Create a great place to live and to develop economically
How? • In the existing center of town

• Produce and sell something of value to a solvent market by turning
Jumpstart the
any advantage into an opportunity
economy

• Earn Imports
• Replace imports for yourself and for economically similar towns
Leverage initial through innovation and improvisation
sales to • Repeat last two steps forever

LED in a Great City



• Need to become a Great City (or wait for a Great City to develop nearby)

• Leverage current thinking on LED
• Create a great place to live and to develop economically
How? • In a small focused area of the city (urban acupuncture)

• Produce and sell something of value to a solvent market by turning
Jumpstart the
any advantage into an opportunity
economy

• Earn Imports
• Replace imports for yourself and for economically similar cities
Leverage initial through innovation and improvisation
sales to • Repeat last two steps forever

LED in a Great City How to Jumpstart the cycle of city
development



Density
Quality Variety
Of &
Life Access Where is the
―handle‖ ?

Innovation
Culture


Local Agenda 21

• The Local Agenda 21 (LA21) Campaign promotes a
participatory, long-term, strategic planning process that
helps municipalities identify local sustainability priorities
and implement long-term action plans.
• It supports good local governance and mobilizes local
governments and their citizens to undertake such multi-
stakeholder process.

• A 2002 survey found that
– more than 6,400 local governments in
– 113 countries have become involved in LA21 activities over a
– 10-year period.

But, a great strategic plan…
• … in a binder on the shelf…

• Is just that -

• A great plan on the shelf!

• The questions remain the same:
– How do you advance ever closer to your vision of a
successful town, based on daily decisions and based
on existing budgets?
– How do you jump-start the cycle of city development?

LED in a Great City How to Jumpstart the cycle of city
development



Density
Quality Variety
Of & The
Life Access
―handle‖

Innovation
Culture


Urban Regeneration as a LED Tool
or
How to increase Density, Variety and Access
•Provide loans to accelerate
private storefront and
Use the ―charrette‖ collaborative urban
residence renewal planning tool as the basis of a LED program
•Create a great place to live for local
residents
•Create a great place to succeed for local
First stage: businesses
• Surgical urban •Leverage the true identity of the city / town
intervention plan in as seen by the local residents
the public space
•Local residents strengthen their sense of
belonging by planning their town

•Leverage existing budgets for
public building projects to
implement the plan
Third stage: •Local residents are
• Private Development
Second stage: empowered by seeing their
Construction and • Renewal of the plans adopted and
Renovation near the public space implemented
public space

The critical role of the MIU in
LED in Israel
Goal is quality of life for all
In order to improve the quality of living in Israel, while contributing to the global
sustainability effort, the MIU promotes qualityLivibility
Employment Environment urban living based on compact,
Social inclusion
quality and sustainable urban environments.

Participatory Growth of local
Focus on cities
approach businesses
• Charrette all
Including – • Making theand
Promotion local • Weengines of as
As view the city
collaborative and
stakeholders environment great
support of the key mechanism
economic
planning
sectors with all for the locals
innovation and that provides
development
• stakeholders
Led by local • entrepreneurship
Compact, quality • peopleregeneration
Urban the
• government
Quality in Density (both business and
and sustainable opportunities to fulfill
as a tool
Toolbox for all social)
cities provide their inherent
sectors • opportunities and
Business friendly potential
• Mayors Institute breed innovation
policies

Thank You

nachman@miu.org.il
May 2010
www.miu.org.il

Can LED be achieved by attracting
transplants?
• Transplants within a city region vs.
transplants from afar
• What do transplants need? What makes
transplants possible?
• What is their influence on the local
economy?
• How many are available?
• What are the costs to attract one?

Can LED be achieved in peripheral
cities and towns by their residents?
• Yes! If it can be achieved (and it can not
always be achieved) then it can be
achieved by the local residents
– the problem is not the residents!
– What are the conditions that enable LED?

The three waves of LED - #1:
Wave Focus Tools

First: During the first wave the focus To achieve this cities used:
was on the attraction of:
1960s to •massive grants
early 1980s •mobile manufacturing •subsidized loans usually
investment, attracting outside aimed at inward investing
investment, especially the manufacturers
attraction of foreign direct •tax breaks
investment
•subsidized hard infrastructure
•hard infrastructure investment
investments
•expensive "low road"
industrial recruitment
techniques

Wave Focus Tools

Second: During the second wave the To achieve this cities provided:
focus moved towards:
1980s to •direct payments to individual
mid 1990s •the retention and growing of businesses
existing local businesses •business
•still with an emphasis on incubators/workspace
inward investment attraction, •advice and training for small-
but usually this was becoming and medium-sized firms
more targeted to specific •technical support
sectors or from certain
geographic areas •business start-up support
•some hard and soft
infrastructure investment

•During this wave much effort was also invested in trying to improve rural
quality of life, urbanization and city growth was seen as a problem

Wave Focus Tools

Third : The focus then shifted from To achieve this cities are:
individual direct firm financial
Late 1990s transfers to making the entire •developing a holistic strategy
onwards business environment more aimed at growing local firms
conducive to business.
•providing a competitive local
investment climate
During this third (and current) wave •supporting and encouraging
of LED, more focus is placed on: networking and collaboration
•soft infrastructure investments •encouraging the development of
•public/private partnerships business clusters
•networking and the leveraging of •encouraging workforce
private sector investments for the development and education
public good •closely targeting inward
•highly targeted inward investment investment to support cluster
attraction to add to the competitive growth
advantages of local areas •supporting quality of life
improvements

LED focus on Cities and Towns
• At the threshold of the 21st century, cities
and towns headline the World Bank's
development campaign.
• Within a generation, the majority of the
developing world's population will live in
urban areas, while the number of urban
residents will double, increasing by over 2
billion inhabitants.
• Cities and towns are not only growing in
size and number, they are also gaining
new influence.
• The urban transition offers significant
opportunities to improve the quality of life
for all individuals, but whether this potential
is realized depends critically on how cities
are managed and on the national and local
policies affecting their development.
http://siteresources.worldbank.org/INTINFNETWORK/Resources/urban.pdf

THE WORLD BANK URBAN & LOCAL
GOVERNMENT STRATEGY

• Urbanization is a defining phenomenon of this century…
• …main challenge for the urban policy maker is to
understand the importance of managing this system of
cities or ―portfolio of places‖ (of different sizes and
vocation) within a country so as to maximize the benefits
of agglomeration economies…
• With more than half of GDP coming from cities, the
economic future of most developing countries will be
determined by the productivity of these burgeoning
urban populations.
• This interdependency between macro-economic
performance and urban welfare has been seen in the
aftermath of macro-economic crises in Argentina, Brazil,
East Asia, and Russia

http://www.wburbanstrategy.org

Local Economic Growth
• Cities are engines of economic growth. As a nation's primary source of
job creation and wealth generation, cites produce goods and provide
services which strengthen economic opportunities for the entire country.
Local Economic Development (LED) is a process of planning and
implementation that seeks to increase the economic potential of a city,
town, or region. LED aims to improve the economic future and the
quality of life for all local residents and businesses. Although the process
can be time-intensive, it is important to bring the public, business and
civil society sector together to work collectively in creating better
conditions for growth and employment generation. This ensures that all
available local resources are accessed and that there is sufficient buy-in
across all sectors to increase the chances of sustainability.

• Much of a city's potential competitive advantage lies in its various forms
of capital (human, natural resources, land, location, and infrastructure).

• Decentralization has forced local governments to take more
responsibility for designing their own economic development strategies,
usually in partnership with the private sector.
http://www.makingcitieswork.org/urbanThemes/Localecongrowth

Peering into the Dawn of an Urban Millennium

• Urbanization—the increase in the urban share of
total population—is inevitable, but it can also be
positive. The current concentration of poverty,
slum growth and social disruption in cities does
paint a threatening picture: Yet no country in the
industrial age has ever achieved significant
economic growth without urbanization. Cities
concentrate poverty, but they also represent the
best hope of escaping it.

www.unfpa.org/swp/2007/english/introduction.html

Competitive Cities in the
Global Economy
• Cities are important generators of wealth, employment
and productivity growth and often quoted as the engines
of their national economies. Productivity levels are
generally higher in metropolitan area and the increased
trade and capital flows give rise to increased flows of
people, goods, capital, services and ideas. In many
OECD countries, metropolitan regions produce a larger
percentage of the national GDP than their representative
population percentage. The growing economic and
demographic importance of metro-regions and their
increasing relations to the worldwide economy raises
important policy issues.
http://www.oecdbookshop.org/oecd/display.asp?lang=EN&sf1=identifiers&st1=042006041e1

Higher-Density Development
• Most public leaders want to create vibrant, economically strong
communities where citizens can enjoy a high quality of life in a
fiscally and environmentally responsible manner, but many are not
sure how to achieve it. Planning for growth is a comprehensive and
complicated process that requires leaders to employ a variety of
tools to balance diverse community interests. Arguably, no tool is
more important than increasing the density of existing and new
communities, which includes support for infill development, the
rehabilitation and reuse of existing structures, and denser new
development. Indeed, well-designed and well-integrated higher-
density development makes successful planning for growth
possible.

http://www.uli.org/sitecore/content/ULI2Home/ResearchAndPublications/Reports/Affordable%20Housing/Content/Higher%20Density%20Development.aspx

We must have strong cities
to have a strong America.
• CEOs for Cities is a national network of urban leaders dedicated to
creating next generation cities that hold the answers to many of the
challenges our nation faces.

• If you care about keeping America globally competitive, fostering
innovation, providing citizens access to opportunity and education,
combating climate change, improving healthcare outcomes and
learning how diverse people can co-exist peacefully, then you must
be concerned about cities because that is where the solutions to
these challenges will be met.

• You can’t have a strong America without strong cities.

http://www.ceosforcities.org/about

Economic Vitality requires a
Supportive Physical Framework
• The Congress for the New Urbanism views
disinvestment in central cities, the spread of placeless
sprawl, increasing separation by race and income,
environmental deterioration, loss of agricultural lands
and wilderness, and the erosion of society's built
heritage as one interrelated community-building
challenge.
• We recognize that physical solutions by themselves will
not solve social and economic problems, but neither can
economic vitality, community stability, and environmental
health be sustained without a coherent and supportive
physical framework.

http://www.cnu.org/charter

Key Assets for Prosperity are
in Cities
• …metropolitan areas are the engines of national prosperity
• To achieve true prosperity, our nation must leverage the key
assets - innovation, infrastructure, human capital, and
quality places - principally concentrated in metropolitan
areas
• Prosperity—true prosperity—is based on achieving three
types of growth:
– Productive growth boosts innovation and entrepreneurship,
generates quality jobs and rising incomes, and helps the U.S.
maintain its economic leadership
– Inclusive growth expands educational and employment opportunities,
reduces poverty, and fosters a strong and diverse middle class
– And sustainable growth strengthens existing cities and communities,
conserves fiscal and natural resources, and advances U.S. efforts to
address climate change and achieve energy independence

http://www.brookings.edu/~/media/Files/Projects/blueprint/blueprint%20docs/execsumbp.pdf
http://www.brookings.edu/projects/blueprint.aspx

…metros are the new
norm in global economic development…
• …metros are more than the sum of their parts. When they function at their
highest pitch, metros epitomize the special ―multiplier‖ value of
concentration, clustering, and agglomeration in economic life, a value
celebrated over the centuries by economists such as Adam Smith, Alfred
Marshall, and Paul Krugman. The gains are manifold. Thanks to the cost-
effective sharing of fixed resources in relatively dense locations,
infrastructure investments yield markedly higher payoffs in metropolitan
areas than in non-metro areas…
• Metropolitan density yields invention: Patenting rates rise markedly with
increased employment density, such as is provided by metropolitan areas.
• Metro areas also accelerate residents’ wage growth, because they promote
learning, help match people to jobs and people to people. Economists
Edward Glaeser and David Maré found that workers in large metro areas
earn a 33 percent wage premium, that the premium accrues to them over
time, and that it stays with them when they leave the area. Metro areas
themselves seem to speed the accumulation of human capital.
• And finally, metropolitan land-use and placemaking bring special
advantages. More compact development patterns preserve rural lands and
valuable ecosystems that rapid suburbanization might otherwise consume.

http://www.brookings.edu/articles/2009/0311_metro_katz.aspx

A REVIEW OF THE FISCAL AND COMPETITIVE ADVANTAGES
OF SMARTER GROWTH DEVELOPMENT PATTERNS
• This paper makes the case that more compact development patterns and investing
in projects to improve urban cores could save taxpayers money and improve
overall regional economic performance.
• The cost of providing public infrastructure and delivering services can be
reduced through thoughtful design and planning. Several studies suggest that
rational use of more compact development patterns from 2000 to 2025 promise the
following sorts of savings for governments nationwide:
– 11.8 percent, or $110 billion, from 25-year road building costs;
– 6 percent, or $12.6 billion, from 25-year water and sewer costs; and
– 3.7 percent, or $4 billion, for annual operations and service delivery.
• Regional economic performance is enhanced when areas are developed with
community benefits and the promotion of vital urban centers in mind. Studies
show that productivity and overall economic performance may be improved to the
extent compact, mixed-use development fosters dense labor markets, vibrant
urban centers, efficient transportation systems, and a high ―quality-of-place."
Productivity increases with county employment density.
• Suburbs also benefit from investment in healthy urban cores. Finally, studies
suggest that to the extent these smarter development patterns foster equity in
regions by improving center-city incomes and vitality, they will also enhance the
economic well-being of the suburbs as well as the city. City income growth has
been shown to increase suburban income, house prices, and population. Reduced
city poverty rates have also been associated with metropolitan income growth.
www.brookings.edu/urban/pubs/200403_smartgrowth.pdf

New Strategies for Regional
Economic Development!
• …metropolitan areas have fared significantly
better than rural areas in terms of economic and
population growth in recent decades…
• Approaches that adopt a tabula rasa approach
to the dynamic relations of cities, regions and
the nation lack the necessary understanding to
provide real solutions for the needs of diverse
communities. By adopting a local economic
development approach, place-based strategies
will be able to position America for success in
the 21st century.
http://www.lincolninst.edu/pubs/dl/1708_928_America 2050 report 2009.pdf

City Development = Local Economic Development

―If the last century was the century of urbanization,
the twenty-first will be the century of cities.

It is in the cities that decisive battles for the quality
of life will be fought, and their outcomes will
have a defining effect on the planet’s
environment and on human relations.‖

• Jaime Lerner, Former Governor of Paraná, Brazil, and former Mayor of Curitiba
http://www.worldwatch.org/node/4854

Local Economic Development,
Human Development,
and Decent Work
Best practices and trends
• Based on the review of hundreds of LED programs from 24 organizations
Worldwide
• Current Trends:
– The most significant item that characterizes them is the participatory
approach.
– … participation is now considered the base, the condition sine-qua-non for
fostering local economic development strategies and actions.
– A new trend is, however, coming along: participation is not seen as an
instrument for building consensus, but as a way of good governance. The
accent on good governance, in fact, is more and more evident in the most
recent initiatives, such as the Ilo, Undp and Unops Ledas, the World Bank,
South Africa and it, in fact, also responds to the human development aims of
United Nations.
– Objectives, strategies and tools, of course, vary from case to case.
– Also in this case “raditional”objectives could be recognized in the
t
improvement of employment, when job creation, promotion of micro and small
local enterprise, attraction of external investment, territorial revitalization are
mentioned. However a new typology of advanced objectives is recognizable:
the improvement of the quality of life of the citizens in a more integrated
approach, which includes human development, decent work, inclusion of the
socially excluded people and the protection of the environment.

References
The World Bank Infrastructure Group Urban Development ―Cities in Transition: World Bank Urban and Local Government Strategy‖ (2000)
http://siteresources.worldbank.org/INTINFNETWORK/Resources/urban.pdf
The World Bank ―Systems of Cities, Harnessing urbanization for growth and poverty alleviation‖ (2009) http://www.wburbanstrategy.org
The World Bank Urban and Local Government Strategy ―Urban Strategy Paper Concept Note‖ FINANCE, ECONOMICS & URBAN DEPARTMENT
SUSTAINABLE DEVELOPMENT NETWORK (2009) http://www.wburbanstrategy.org
USAID ―Making Cities Work, Local Economic Growth, Introduction‖ (2009) http://www.makingcitieswork.org/urbanThemes/Localecongrowth

OECD Territorial Reviews, ―Competitive Cities in the Global Economy‖ (2006)
http://www.oecdbookshop.org/oecd/display.asp?lang=EN&sf1=identifiers&st1=042006041e1
ULI–the Urban Land Institute ―Higher-Density Development: Myth and Fact‖ (2005)
http://www.uli.org/sitecore/content/ULI2Home/ResearchAndPublications/Reports/Affordable%20Housing/Content/Higher%20Density%20Developme
nt.aspx
CEOs for Cities ― www.ceosforcities.org/about ― (2008) http://www.ceosforcities.org/about
CEOs for Cities Newsletter ReThink: 06.18.2009 ―Amplifying City Advantages, Excerpts from Carol Coletta's speech to the Congress for the New
Urbanism‖ (2009)
CEOs for Cities ―Cities and Economic Prosperity, A Data Scan On The Role Of Cities In Regional And National Economies‖ (2001)
http://www.ceosforcities.org/work/cities_and_economic_prosperity
The Congress for the New Urbanism ―Charter of the New Urbanism‖ (2009) http://www.cnu.org/charter

Brookings Institution’s Metropolitan Policy Program ―Blueprint for American Prosperity, Unleashing the Potential of a Metropolitan Nation, An
Overview‖ (2008) www.blueprintprosperity.org
Brookings Institution’s Metropolitan Policy Program ―Miracle Mets, Our fifty states matter a lot less than our 100 largest metro areas‖ (2009)
http://www.brookings.edu/articles/2009/0311_metro_katz.aspx
The Brookings Institution Center on Urban and Metropolitan Policy ―INVESTING IN A BETTER FUTURE: A REVIEW OF THE FISCAL AND
COMPETITIVE ADVANTAGES OF SMARTER GROWTH DEVELOPMENT PATTERNS‖ (2004)
www.brookings.edu/urban/pubs/200403_smartgrowth.pdf
United Nations Population Fund ―State of World Population 2007 Unleashing the Potential of Urban Growth - Online Report, Introduction, Peering
into the Dawn of an Urban Millennium‖ (2008) www.unfpa.org/swp/2007/english/introduction.html
Lincoln Institute of Land Policy ―America 2050, New Strategies for Regional Economic Development!‖ (2009)
http://www.lincolninst.edu/pubs/dl/1708_928_America 2050 report 2009.pdf

Worldwatch Institute ―State of the World 2007: Our Urban Future, Foreword - The Honorable Jaime Lerner‖ (2007)
http://www.worldwatch.org/node/4854

Cities / Towns separated into 4
groups
• Should we differentiate between different
categories of cities? And score within each
category differently?
• Subjective separation based on economic
behavior
1. Part of Tel-Aviv metro area
2. Next to become part of Tel-Aviv metro area
3. Part of secondary city metro area (Haifa,
Jerusalem, Beer-Sheva, Ashdod)
4. Periphery – all the rest

tools for local economic renewal
• bizfizz
– BizFizz is the leading business support model in the UK in which
Coaching is the preferred methodology for offering business support to
entrepreneurs living in areas of economic decline. Over the last seven
years, BizFizz programmes have provided coaching to entrepreneurs
across England and Scotland. The Civic Trust and new economics
foundation are delighted that Coaching and supporting entrepreneurs
by developing local resident led networks has been recognised by
national government.
• plugging the leaks
– The issue is not necessarily that too little money flows into a
neighbourhood. Rather, it is what consumers, public services and
businesses do with that money. Too often it is spent on services with
no local presence, and so immediately leaves the area.
• local multiplier 3
– LM3 has been tried and tested across the UK, from agriculture to
social enterprise to local government procurement, to determine how
money coming into your community is then spent and re-spent. 'The
Money Trail' shows you how to use LM3 to find out what's really
happening in your local economy, and how you can make it better.

local multiplier 3
• Local money flows in Localton (top) and Leakyville
(bottom) The area in blue represents money that’s
stayed in the local economy

revitalize older, traditional business districts
• The Main Street Four-Point Approach™ is a community-driven, comprehensive
methodology used to revitalize older, traditional business districts throughout the
United States. It is a common-sense way to address the variety of issues and
problems that face traditional business districts. The underlying premise of the Main
Street approach is to encourage economic development within the context of historic
preservation in ways appropriate to today's marketplace. The Main Street Approach
advocates a return to community self-reliance, local empowerment, and the
rebuilding of traditional commercial districts based on their unique assets: distinctive
architecture, a pedestrian-friendly environment, personal service, local ownership,
and a sense of community.
– Organization
– Promotion
– Design
– Economic Reconstructing
• the four points of the Main Street approach correspond with the four forces of real
estate value, which are
– social,
– political,
– physical, and
– economic.

Economic Statistics: The Main Street Program's Success
Historic Preservation Equals Economic Development

• 1980-2007 Reinvestment Statistics
• Dollars Reinvested:- Total amount of
reinvestment in physical improvements from
public and private sources.$44.9
BillionAverage
• reinvestment per community (i):$11,083,273
• Net gain in businesses:82,909
• Net gain in jobs:370,514
• Number of building rehabilitations: 199,519

Eight Principles of Success

Comprehensive

Incremental

Self-help

Partnerships

Identifying and capitalizing on existing assets

Quality

Change

Implementation

Urban Economics: Why Cities are Natural Economic Engines

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