100
SEARCH FOR NEW DEVELOPMENT POLICIES
ARIZONA STATE UNIVERSITY
ENT 305 - PRINCIPLES OF ENTREPRENEURSHIP
WEEK 3
8.1 INTRODUCTION:
Over the past two decades, the process of integration of productive systems and
markets has steadily reached a global dimension; and countries are ceding leadership to
innovative companies (generally multinationals) as new information, transportation and
communication technologies facilitate and strengthen interactions between organizations.
The process of globalization means increased market competition, which requires
adjustments in the productive systems of the countries, regions and cities involved in the
process. As firms do not compete alone, but rather in the context of their productive and
institutional environment, globalization encourages new ways of organization in city and
regional systems, in accordance with the new international division of labour. Productive
adjustment, unemployment and poverty have become challenges for cities, regions and
territories, which compete in an increasingly globalized world. The spatial and social impacts
of the globalization process have led to reactions on behalf of local communities. As a result,
new development policies have emerged that focus on alleviating poverty and making regions
more competitive. But there are different interpretations that explain local responses to the
challenges of globalization.
The scope of local initiatives changes from case to case. In some cases, they pretend to
mobilize endogenous potential to find solutions to community problems and needs, as
proposed by the populist approach to development. In other cases, the aim of local initiatives
is to use local people's capabilities and creative capacities for sustainable economic and
societal transformation, as suggested by the human development approach. Finally, most local
initiatives are geared towards taking action on the key processes that determine capital
accumulation, as proposed by the evolutionary approach. All of these approaches claim to
adhere to an endogenous development model, despite their very different nature.
This book argues that new development policies hide analytical and theoretical logics.
Undoubtedly, local development initiatives arise spontaneously when governments and local
communities set out to respond to the challenges and opportunities posed by globalization.
101
Local initiatives follow a territorial development approach, which refers to the capital
accumulation and growth process of a locality or region, which has a culture and institutions
that help support productive transformation and economic and social progress. The book
concludes that all interpretations of new development policies refer to the endogenous
development model.
8.2 SOCIAL AND TERRITORIAL IMPACTS OF GLOBALIZATION:
The economic dynamics between countries, cities and regions are very different from
one another. Each region has human, institutional, cultural and natural resources that make up
its development potential. Within a local economy, one can identify, for example, specific
productive structures, labor markets, entrepreneurial capabilities and technological know-
how, natural resources and infrastructure, institutional and political systems, and historical
and cultural heritage. Based on this, each economy articulates its processes of growth and
structural change and generates a wide variety of economic, social and political situations,
projects and processes.
Economic, technological and institutional changes over the past 25 years have led to
major transformations in productive systems. The imbalance between the supply and demand
of local products occurs due to changing tastes and increased competition in the market, and
this changes the competitiveness of a region, both in poor and rich countries. Relative
increases in production costs (especially labor and energy) affect the production functions of
firms and trigger processes such as the closure of industrial firms, changes in the location of
productive plants and an increase in the competitive advantage of some local productive
systems. Delocation of productive activities, increased sub-contracting and expansion of firm
services, in turn lead to new changes in the economy and productive systems of cities, regions
and countries.
The results vary from one economy to another, depending on the capacity of each
region to respond to these new challenges. The studies conducted show that the factors that
determine the process of productive restructuring and economic growth are: the diffusion of
innovations in the productive structure, the skills and qualifications of human resources, the
entrepreneurial capabilities of enterprises, the flexibility of the entrepreneurial organization,
the transformation and adaptation of institutions, and the integration of enterprises, cities and
regions in competitive and innovative networks, both at the national and international levels.
Globalization accelerates productive transformations and economic development
processes, paving the way for new territorial productive systems, which some call Island
102
economies and in which global urban areas play a growing role (Veltz 1999; Scott 2001a); or
if you prefer, a new spatial division of labor at the international level. This spontaneous
process led by economic, social and political actors has increased the diversity of economic
and territorial systems. New products have emerged, some production processes have changed
and regions have adopted new economic and productive functions. Urban and regional
systems have become increasingly polycentric and regional and urban hierarchies have tended
to shrink as firm and city linkages and networks have strengthened, precisely as a result of the
impact of globalization.
The productive systems of more dynamic cities and regions, which form the basis of
the global economy, are more diversified than in the cold war years. These are shaped by
high-tech industrial activity (such as microelectronics, biotechnology, robotics, or the
aerospace industry), manufacturing activities that in the 1950s and 1960s were characterized
by standardized production, have restructured and differentiated production by introducing
innovations (such as the garment or automotive industries), advanced service activities (such
as marketing, design or technical assistance), and financial and cultural services.
Increased and diversified production of goods and services and activities that stimulate
and encourage productive systems have diversified territorial systems (Scott 1998). Two
processes explain this. On the one hand, the conversion of national urban systems into
European or Latin American urban systems (i.e., into global urban systems) gives rise to
changes in inter-city relations that also change cost and price systems as well as institutional
and entrepreneurial relations at the global level. Therefore, more diverse conditions are
created in the economic, political and institutional functions of cities and regions in a more
interactive and closely linked system. On the other hand, the growing diversity of products
and activities reduces the capacity to concentrate productive and commercial functions in a
city or urban area due to agglomeration diseconomies. This dynamic leads to the creation of
more flexible urban systems and the reduction of existing hierarchies (Sassen 2001, 2007).
The increasing diversity of regions and productive systems is particularly evident in
the dynamics of rural areas in developed and developing countries, which are undergoing
increasingly complex stages of adjustment, as a result of the crisis of traditional agriculture,
depopulation, and the economic crisis, lack of basic infrastructure, and environmental
degradation (Saraceno 2006). The strength of rural development lies not in agricultural
economies of scale, but rather in the increased scope of the economy, when diversified
agricultural production is combined with different industrial and service activities. Similarly,
the industrial space is also very diverse and a variety of development models can be identified,
103
with very different growth paths (Vázquez-Barquero 2005).
Thus, the process of economic integration has increased market competition, and has
driven the adjustment of productive systems of countries, regions and cities over the decades,
immersed in globalization. This has led to the creation of increasingly diversified productive
and spatial systems. However, globalization has not eliminated poverty or the gaps that exist
in the income levels of most of the world's population. Poverty is an old problem that did not
appear on the international scene with its tragic effects until the 1980s, at the time of the
disintegration of the Soviet Union, when society in general and the scientific community in
particular raised the question of disparities in the living standards of the population. For
decades, traditional economic thinking and international organizations maintained the
hypothesis that income levels in less developed countries would tend to converge with those
of richer countries, based on the idea that growth rates in less developed countries were
greater than in developed countries. (Timur 2001). Studies conducted after the 1980s showed
persistent gaps in living standards between countries and regions and pockets of poverty large
poverty in less developed countries, particularly in Africa and Eastern Europe, and countries
that have been unable to integrate themselves into the international economic system.
There is general agreement among experts and international organizations that there
are inequalities in income distribution in the global economic system. The human
development index conducted by the United Nations Development Program (UNDP), shows
that more developed countries have a higher level of development than poor countries (0.895
compared to 0.518 in 2003), with twenty years higher life expectancy at birth (78.0 years
compared to 52.2 years in poor countries), a more literate population (95.7% in rich countries
compared to 54.2% in poor countries), and a GNP per capita that is 20 times greater
(Rp.25.665,000 compared to Rp.1.328,000 in poor countries)..665,000 compared to
Rp.1,328,000 in poor countries). poorest countries in 2003, according to the index).
The information and data described by Summers and Heston (1991) and Maddison
(2001) show that income differences tend to increase in the long run, resulting in a growing
gap between poor and rich countries. In the early nineteenth century, the per capita income of
rich countries was about three times that of poor countries, while today it is 20 times greater.
Since the mid-1970s, income differences between countries have continued to increase
(Todaro and Smith 2006). In 1960, the income level of the richest 20% of the world's
population compared to the poorest 20% was 30:1. By 2000, the richest people had 70 times
the income of the poorest. In other words, less than 50 million of the richest people received
as much income as 2,700 million of the poorest people.
104
The gap in income levels, and the difference between rich and poor countries hides a
very serious fact, namely that more than 1,000 million people live in absolute poverty (with
an income of less than one dollar a day, and more than 800 million of them can be considered
extremely poor) (World Bank 2002). Absolute poverty has been increasing and in 1980 it
reached almost 1,400 million people and has been decreasing since then. By the end of the
1990s, extreme poverty affected more than 1,200 people, despite the fact that the proportion
of the population living below the poverty line increased from 28.3% of the population in
1987 to almost 24% in 1998.
According to the World Bank, between 1993 and 1998 poverty in the more globalized
developing countries decreased by 14% and reached 762 million people, poverty being
predominantly in rural areas; whereas in the less globalized poor countries, poverty increased
by 4% and reached 437 million people. In Asia, overall, poverty reduced in absolute terms, as
a result of rising income levels in large countries such as India and China. In Sub-Saharan
Africa (where 16% of total poverty is concentrated) the number of poor people increased from
217 to 290 million. But in Latin America, absolute poverty increased in the 1990s so that the
absolute poverty rate in 1997 was above the absolute poverty rate in 1980, as recognized by
the Economic Commission for Latin America and the Caribbean (CEPAL 2002).
The high levels of unemployment and poverty reached in the early 1980s led to a
major shift in development policy, as local and regional actors began to take actions that
focused on local and regional economic growth processes. Hence, a new development policy
was initiated, which can be understood as a local response to neutralize the negative impact of
productive adjustment on employment and living standards of the population.
As a result of increasing globalization, cities and regions in developing and developed
countries need to restructure their productive systems to cope with increasing competition and
changing market conditions. To this end, initiatives that foster changes in the organization of
production, diffusion of innovations, increased trade and access to product and factor markets
are implemented, and ultimately, these will make firms and regions more competitive. Given
the inadequacy of macro-economic policies to solve the problems related to job creation and
the improvement of social welfare, local and regional actors, spontaneously, try to channel the
adjustment process through actions that, in the end, propose to increase the productivity of
agricultural and industrial enterprises and services, and increase competition in the national
and international markets of the companies located in their territory.
105
8.3 NEW DEVELOPMENT POLICY:
This new development policy is characterized by its strategic view of economic
development, which gives local actors the capacity to stimulate productive restructuring and,
subsequently, increase the level of employment and welfare of local communities. Local
initiatives are very diverse in nature (Vázquez-Barquero 2005).
Development and Cluster of Supervising Companies:
One of the objectives of local initiatives is the establishment and development of
enterprises and the creation of enterprise networks. In Rafaela, Argentina, an industrial area
undergoing productive restructuring (Ferraro and Costamagna 2000), an Entrepreneurship
Development Center was established in 1996, financed by the Inter-American Development
Bank (IDB) as well as by local companies and the municipal government. The center provides
technical and financial assistance to local and regional firms, which will allow them to
increase production, have a greater presence in the market, and increase the
internationalization of small firms.
In contrast, in the Sierra de los Cuchumatanes, Guatemala, on the border with Chiapas
(Cifuentes 2000) during the 1990s, cooperatives and associations were restored and began to
acquire full legal capacity (Formal Organizations of Agricultural Producers). These
organizations also recovered experience and knowledge of self-management that existed
within local communities, and were lost during the civil war. In addition, more informally
structured organizations, or Interest Groups, are also encouraged to bring together people who
share common productive and commercial interests.
As Scott (2005) points out, increasing the cooperative base of shoe production clusters
in Marikina (Philippines) is one of the goals of shoe producer groups. The Marikina Footwear
and Leather Goods Producers' Cooperative, for example, provides financial services to
cooperative members; among these are "the right to take out loans, purchase raw materials at
lower prices, and discount letters of credit". The cooperative owns a footwear brand (B&G)
that its members can use in making shoes. The cooperative provides distribution and
marketing services to its members.
The government of Penang, in Malaysia, established the Penang Development Center
(PDC), whose main objective is to promote socio-economic development, including the
attraction of export-oriented multinational companies. The PDC played an important role in
the formation of the electronics cluster in Penang with the significant presence of
multinational companies (Clarion and National Semiconductors, Intel, Motorola, Hewlett-
Packard, AMD, Hitachi), located in the 1970s; and consumer electronics companies (such as
106
Sony, Toshiba, Pensangko, Komag, Seagate, and others) located in the 1980s and 1990s.
PDCs helped stimulate the formation of corporate networks, as well as differentiate and
diversify the productive structure, especially after the late 1980s. A productive structure has
been created in which domestic SMEs have forged ties among themselves and with
multinational companies. However, the lack of coordination between the Penang government
and the Malaysian Federal Government limits the development of local initiatives to improve
human capital and spread innovation in the local productive structure (Rasiah 2005).
Finally, over the last decade in Latin America, Asia and Africa, various forms of
microcredit and financial support to microenterprises and small businesses have emerged
(Armendariz and Murdoch 2001; Lacalle 2002). Grameen Bank, founded in 1974, is a success
story. In 1999, it had more than 2,300,000 clients (95% women) and a loan volume of more
than 2,715 million dollars and was estimated to help 12 million people in Bangladesh. In turn,
International Action, founded in 1961, has a network of 19 credit offices in Latin America,
with more than 380,000 clients (57% women) and with loans of more than 335 million
dollars.
In Porto Alegre, the prefecture, in collaboration with private economic and social
actors established the community credit institution PORTOSOL, a non-profit company with
two main principles, namely the combination of real guarantees and solidarity ties, and the
provision of services to groups of small entrepreneurs.
Diffusion of Innovation and Knowledge:
Another key axis of the new development policy is the diffusion of innovation and
knowledge throughout local productive structures, as seen in the initiatives implemented in
regions with dynamic productive and development levels which are very different. Therefore,
in Rafaela, in 1997 the Rafaela Regional Center (Centro Regional de Rafaela) was established
which is part of the National Institute of Technology, which provides services such as
laboratory analysis and tests, product research and development, technical assistance to local
companies and training for qualified workers.
A particularly interesting case is that of the Technology Center do Couro, Calçado e
Afins (CTCCA) in Novo Hamburgo, Rio Grande do Sul in Brazil. It is a private, non-profit
organization founded in 1972 and established with the aim of assisting shoe apparel
companies at the beginning of their export activities, by providing services that allow them to
maintain the quality standards required by international markets. After thirty years, it has
become an institution capable of stimulating product and process research and development
activities in the Brazilian shoe industry. In Asia, in both developed and developing countries,
107
technology policies are at the core of development programs. In Japan, technology support
policies in the 1980s focused on promoting structural change in underdeveloped regions,
through supporting high-tech activities in peripheral locations. In China, the Zhong Guan Cun
Scientific and Technological Park in Beijing, since 1999, has been an example of how to
combine training with scientific research and both with the creation and diffusion of
innovations. In its central area there are 2,400 companies and public centers, which are the
result of investments from multinational companies such as IBM, Microsoft, HP, Oracle,
Siemens, Motorola, NTT, Fujitsu, Panasonic, Samsung and Mitsubishi, among others.
Finally, in Malaysia, the Malaysia Technological Park, located within the "Multimedia
Super Corridor", on the outskirts of Kuala Lumpur, was established in 1996 as an instrument
to transform Malaysia into an economy focused on the production of high-tech and
knowledge-intensive goods and services. The complex provides services and infrastructure for
companies that stimulate the creation and diffusion of technological and knowledge
innovations. It provides technical and financial services to entrepreneurial initiatives seeking
to turn innovative ideas into businesses; assists in the implementation of research projects
through its Biotechnology division (in the areas of molecular biology, biochemistry,
pharmacology and food science); provides training services in engineering, biotechnology,
and information technology; and provides well-equipped space and services for companies
wishing to locate in an environment focused on the knowledge economy.
Building Infrastructure for Regional Development:
Initiatives targeting infrastructure and social capital development are traditional
instruments for urban and regional development. Investment in the overhead capital of today's
economy is a long-term policy response to the challenges of globalization and competition
among cities. In Asia, over the last fifteen years important investments in infrastructure (such
as international airports, ports, highways, subways, high-speed rail) have been made in
leading cities such as Bangkok, Kuala Lumpur, Seoul, Beijing or Shanghai. The aim is to
make These global city regions are more attractive to inward investment and global capital,
and as a result, inter-city networks are beginning to form (Douglas 2001; Scott et al., 2001).
Moreover, in Latin America, almost all local development experiences involve
Improving accessibility, meeting social capital needs and making the city a more attractive
place to live and produce. The Villa el Salvador initiative (located in South Lima, Peru) bases
its strategy on the creation of industrial parks to provide industrial land, equipment and
services needed by microenterprises and small and medium-sized enterprises (Benavides and
108
Manrique 2000). The Local Economic Development Program at the Mayor's office in
Medellin, Colombia includes urban and metropolitan infrastructure projects.
Concern for sustainable development has led cities to develop imaginative projects
such as that of Curitiba, Brazil (Cambell 2001; World Bank 1999) where in the late 1990s, a
project was launched that attempted to integrate urban infrastructure measures (the
construction of a road that communicated fourteen neighborhoods on the outskirts of the city)
with business initiatives based on goods (community huts) where micro-enterprises and small
businesses could be established with support services available through professional and
entrepreneurial training. The urban transportation system was transformed into a surface
metro system and is considered the main element of the urban development model. The
innovations introduced in Curitiba's urban transportation have been emulated in other cities in
Latin America, such as the surface metro, Transmilenio, in Bogotá, Colombia.
To neutralize the negative impacts of social exclusion, cities have launched urban
development initiatives such as neighborhood restructuring in Caracas, Venezuela (Baldó and
Villanueva 1996; Villanueva 1998). A good example is the Catuche project in 1993, an
initiative that relied on Jesuit Pastoral Fathers to provide these marginal neighborhoods with
the basic services and social capital necessary to improve the environment and living
conditions of residents. Some of the most important actions in this initiative were the
environmental cleaning of the Catuche River, the improvement of relations between
neighbors, the construction or reconstruction of public services and new housing and the
promotion of micro-enterprises to carry out construction work. The project is managed by the
Quebrada de Catuche Consortium, made up of members of the Catuche community,
representatives of promoter groups, and professional participants. It is funded by the Caracas
municipal government, the national government, and non-governmental organizations.
New Governance for Regional Development:
At the heart of the new development policy are measures aimed at improving the
organization of development in a city or region in order to provide efficient answers to future
problems and challenges. The development of a territory or region is organized based on the
decisions of public and private institutions. Often, as is the case in Bogotá, Rosario or
Quezaltenango, in the early stages of a local development policy, local leaders stimulate the
implementation of a new development policy local initiatives, but they must also rely on
explicit or tacit support from other local actors.
In Latin America, as in Asia, endogenous development policies are also based on
109
to initiatives where social and economic projects are coordinated through new forms of
governance such as partnerships between public and private actors, international agencies, or
non-governmental organizations. In Villa El Salvador, the Autonomous Authority of the Cono
Sur Industrial Zone (Autoridad Autónoma del Parque Industrial del Cono Sur) was established
and brings together public and private agents working to develop the Industrial Zone. In
Jalisco, Mexico, local entrepreneurs, including executives of multinational companies as well
as public actors, participated in the creation of local supplier networks. The development of
municipal institutions is also one of the hallmarks of Rafaela's Development Policy
(Costamagna 1999). Strategic planning helps cities and regions to define goals and initiatives,
as in Rosario, Argentina.
The definition, design and promotion of local development initiatives and strategies
have also been strongly supported by international organizations such as the OECD, the
European Union, the United Nations Development Programme (UNDP), the International
Labor Organization (ILO) and the World Bank, since the early 1990s. Various UN agencies,
often through joint programs with other agencies and entities, proposed the establishment and
promotion of Local Economic Development Agencies (LEDAs) in developing countries and
countries in transition with the aim of fostering economic activity and supporting the
improvement of living standards in cities and areas with economic and social problems
(Canzanelli 2003).
Currently, there are 42 LEDA organizations in Central America, the Balkans and Africa,
working on
with broad autonomy. It is a non-profit organization, with mixed public and private capital,
which aims to create and develop the necessary environment for starting companies and
providing support services for economic development in the region, as well as for social
inclusion. Thus, LPEL stimulates and supports the formation and development of networks of
local actors, which will allow them to identify their own development paths and which will
stimulate a wave of economic, productive, social and institutional innovation.
The current Local Human Development Program in Cuba since late 1998, promoted
by UNDP and ILO, is an example of a new form of international cooperation that has
advanced the introduction and dissemination of relevant innovations, particularly in the area
of cooperative practices. (Panico et al., 2002). It has helped bring about important changes in
cooperation through the articulation of resources from different International Agencies, from
governments and other public and private organizations, and enhanced decentralized
cooperation. In addition, it has led to innovation and transformation in the local development
110
process with the creation of Municipal and Provincial Working Groups to design and
implement local initiatives, and the start of the Rotational Fund for Local Economic
Development Initiatives, a tool to finance small and medium-sized local enterprises.
Within this general framework, Old Havana has become an example of good practice
with respect to development policies through multilateral funding, thanks to the stimulus of
the Office of the City Historian, which functions as a Development Agency. Among the more
important initiatives are: rehabilitation of the historical heritage, improvement of urban
infrastructure, support to tourist activities, restoration of skills, (such as the brotherhood of
embroiderers and weavers) and improvement of social services (for the elderly and disabled
children).
8.4 DIVERSITY OF INTERPRETATION:
New development policies are spontaneously emerging as a response on behalf of
local communities and governments to the social and territorial impacts of globalization. Do
these initiatives have an economic rationale? Do they adhere to an economic model of
development? Can different interpretations of development be understood in relation to
endogenous development?
Populist Approach:
This approach argues that development is often linked to the capacity of local
communities to use their development potential, and thus respond to the challenges of a
particular historical moment. Therefore, at any given moment, a territorial community can, on
its own initiative, come up with new ideas and projects that allow them to use their resources
and find solutions to their problems and needs. A "development from below" strategy that
allows the mobilization and channeling of resources and capacities present in the territory,
will result in economic progress when local actors interact, organize themselves and
implement their initiatives in a consistent and coordinated manner (Friedmann and Wevber
1979; Stöhr and Taylor 1981).
This interpretation has the support of those who believe that development is not
imported, but rather generated thanks to the economic and social work and efforts of local
communities. In order to eliminate poverty and create jobs, the most efficient strategy is to re-
establish an autonomous development model that will encourage the existing development
potential of the region and stimulate the production of small farms, small and medium-sized
enterprises and handicraft industries, and thus contain poverty. The process of urbanization is
massive and involves the participation of the population in the development process (Kitching
111
1982).
This populist view of development emerged as a reaction to the impact of
globalization, hence development strategies and policies based on solidarity, autonomy of
local communities, and harnessing the development potential of the region have received
particular attention in recent decades. Giordani (2004) argues that the social economy
overcomes the separation between capital and labor, and introduces solidarity into the
economic process, and he proposes a new model of development that includes the public
sector (government), the private sector (business) and the private sector social sector.
economic sector for Venezuela. From this point of view, solidarity will be the center of
production, accumulation, distribution and consumption.
The social economy emerged spontaneously as a response to social deficiencies (in
employment, housing, quality of life) that neither the market nor the state can address
(Toscano 2000). These are social welfare-focused projects implemented by cooperatives,
micro and small enterprises, savings banks and non-profit organizations; where what matters
is that the work is done by the members involved in the management, and decisions are made
democratically among the members. The social economy is a culture of development that
enables the integration of groups at risk of exclusion, capitalizes on the development potential
of the region, and stimulates production and employment.
In short, this approach argues that today, what is important about development is its
autonomous nature, based on the use of its own resources and therefore it can be produced in
any region or area, as all areas have development potential available. The point is to use local
resources in projects designed and managed by the citizens themselves and local
organizations, in such a way that the population can control the process through local
development initiatives.
This is an optimistic interpretation of the development process. It assumes that the
needs of the community will be well met, and the success of local initiatives will be assured
when the community determines, takes responsibility for and controls the project, no matter
how limited the means available and/or the investment made. In addition, it considers that
what matters are the resources and potential of the area and the capacity on which income is
based. It also considers that development policies should be implemented by local action
groups, the most efficient public actions are those that are designed and managed from the
bottom up, which also gives democratic value to development policies and citizen decisions to
meet the needs of the community - their needs.
But this approach has important limitations. Most importantly, it ignores the fact that
112
the development process depends on capital accumulation, that savings and investment are
necessary mechanisms to ensure the continuity of economic progress and the process of social
transformation in the long run; and that they are, after all, the mechanisms that will facilitate
the economic sustainability of development. The importance of introducing knowledge into
the production process is often overlooked, and the role of production institutions and
organizations in gaining increased profits is not fully appreciated. Finally, it is an autarchic
approach to development, and ignores the fact that local economies are integrated in national
and international productive systems, and that in one way or another it is useful to capitalize
on their impact on these processes.
Human Development Approach:
The development process is conditioned by the institutions and culture of the territory,
as recognized by sociologists (Weber 1905; Putman 1993; Fukuyama 1995), historians
(Landes 1998; North 1990) and economists (Lewis 1955; Lasuen and Aranzadi 2002; Guiso et
al., 2006). Economic success depends on cultural factors such as work ethic, saving ability,
honesty, tenacity and tolerance, as well as norms and institutions that govern relationships
between communities and territorial organizations. Therefore, culture and institutions have an
influence on economic performance, and no doubt, on the development process.
However, culture is more than just an instrument that facilitates and influences the
development process, as the mechanisms that support the development process are related to
the projection and use of individual and collective capabilities as well as the creative and
entrepreneurial capacities of the population. In other words, the core of the development
process lies in the development of human capabilities and in particular in the creative capacity
of the population, which is one of the keys to the process of capital accumulation and
economic progress of communities and regions.
Sen (2001) proposes an important shift in the interpretation of development, when he
argues that the concept of development goes beyond the economic growth and per capita
income of a country or region, given that they are merely instruments for exercising the
capabilities of the population. What matters is that the society carries out the tasks and
activities it wants, and is able to carry them out. This means that economic development is
achieved by using the capabilities that society has developed thanks to the material and human
resources and culture that a region has.
Alonso (2006) believes that Sen's approach presents development as an open-ended
process that utilizes people's opportunities and capabilities, which change and transform as the
113
process takes shape. A city, region or country develops when the necessary mechanisms are
created and when the institutions that allow citizens to freely choose the capabilities they wish
to develop are in place. It is therefore a continuous process of economic and societal
transformation based on the development of individual potential and capacity, and affects all
types of regions, regardless of their level of development.
This interpretation places humans at the center of the process of economic and social
transformation, and this has important implications. Most importantly, it is understood that the
results of human activity, in the material sense, are never an end in themselves, but rather an
instrument for achieving the general well-being of citizens. Furthermore, poverty (meaning
low income levels) is no longer a limitation to development as it is not the amount of
resources of a region that matters, but the capacity of its people.
The cultural approach to development is the interpretation that transformations and
changes in economies and societies are generally brought about by the capabilities of people,
and more specifically by their creative and entrepreneurial capacities. This allows the problem
of poverty to be addressed in a more natural way, as despite the lack of economic resources,
human capacities can be utilized and developed to improve the well-being of the population.
On the other hand, this view of development argues for a culturally sustainable development
model that interprets economic and social change as an open-ended and continuous process
and therefore conceptualizes structural change and economic progress no matter what the
amount of resources available and the general level of income.
However, this view does not sufficiently consider the relevance of the development
potential of the region in the process of economic development. Furthermore, this approach
does not give true value to the development mechanisms and forces that condition the capital
accumulation process, which is why the proposed actions are usually restricted, and limit the
possibility of a self-sustaining development process. Finally, this approach can be referred to
as assisted development, and does not have the capacity to promote economically and socially
sustainable development processes.
Evolutionary Approach:
From the perspective of the economic evolution of a country or region, the main issue
of development is to identify the mechanisms that facilitate the process of growth and
structural change. Economic development is generated as a consequence of the application of
savings to productive investments, and hence, relies on processes that stimulate productivity
increases in the economy. However, in analyzing this question it is convenient to identify
114
mechanisms that allow neutralizing the impact of the law of diminishing returns, which,
according to neoclassical theory, can bring the economy to a steady state (Sala-i-Martin
2000).
One of the main forces of the capital accumulation process is the organization of the
productive system, as seen in advanced economies, in developed countries, and in developing
countries over the last two decades (Becattini 1997, 2002; Pietrobelli and Rabellotti 2006).
The question lies not in whether the productive system of a region or area is formed by large
or small firms, but rather in the organization of the production system, and its impact on
productivity behavior and competitiveness. Clusters, local productive systems, and industrial
parks are thus forms of organizing production, based on the division of labor between firms
and local exchange systems that result in increased productivity and economic growth. They
are organizational models that allow for increased profits when inter-firm interactions allow
for the emergence of external economies of scale, which are usually hidden in productive
systems, and are ultimately one of the potentials of local economic development.
The introduction and diffusion of innovation and knowledge, in turn, is another
mechanism for increasing productivity and economic progress, as it stimulates economic
growth and structural change in the productive system (Maillat 1995; Freeman and Soete
1997). The application of innovation enables firms to expand their product range, and create
larger clusters and build smaller, more economically efficient factories, thereby strengthening
internal economies of scale. In addition, innovation helps firms define and implement
strategies that focus on exploring and opening up new product and factor markets.
Technological adaptation supports production differentiation and creates economies of scope.
Thus, the introduction and diffusion of innovations leads to an increase in the stock of
technological knowledge in the productive system, which in turn creates external economies
that benefit all types of firms in the system.
In the current scenario, characterized by greater globalization of production and
exchange and service activities, cities remain the preferred place for economic development,
as they are where investment decisions are made and industrial and service firms are located
(Lasuen 1973; Scott 1998). Cities are where endogenous development occurs. It generates
externalities that lead to increased profits, it has a diversified productive system that enhances
economic dynamism, it provides space for networks where relationships between actors lead
to knowledge diffusion, and it stimulates innovation and learning processes.
Finally, the development process also has strong institutional and cultural roots (Lewis
1955; North 1990, 1994). Hence, economic development is stronger in regions with
115
developed, complex and flexible institutional systems. Its strategic relevance lies in the
development of institutions that enable the reduction of transaction and production costs,
strengthen trust among economic and local actors, expand networks and cooperation among
actors, and strengthen learning and interaction mechanisms. In other words, institutions
condition productivity behavior, as well as profits and economic progress.
Finally, development mechanisms become the economic capacity of the region
(Vázquez-Barquero 2002, 2005). This creates the environment in which processes of
economic growth and structural change are organized and carried out. The process of capital
accumulation requires the combined action of each of the development forces, so that the
influence of each of these forces on productivity and profits is determined by the behavior of
the others. That is, the interaction of development forces and their synergistic functioning
stimulates economic development and social progress.
The evolutionary approach to endogenous development is an interpretation that goes
beyond the proposals of traditional neoclassical growth theory, using an analytical model that
considers increasing profits to be the focus of economic progress, and considers that the
introduction of innovation and knowledge is key in the development of the economy
development process, and analyzes development from a territorial perspective. It also
proposes a model of self-sustaining development, which is based on the creation of a surplus
that allows reinvestment and guarantees the sustainable transformation of the productive
system through the constant change of development forces. This approach is itself a model of
analysis and action.
However, this view is only partial to the economic dynamics of a country or region as
it does not show the relevance of the macroeconomic system, but rather relies on the
assumption that the economy maintains macroeconomic equilibrium. Furthermore, while it
interprets economic growth under competitive conditions, it does not include an analysis of
the demand function or the integration of the local economy into the system of international
economic relations. Finally, this interpretation mainly focuses on the conditions of economic
change and transformation of the economy and society in general, thus excluding important
elements that affect the sustainability of development in social, cultural, and environmental
analysis.
8.5 ENDOGENOUS DEVELOPMENT AN ACTION APPROACH:
Since the mid-1980s, there has been a search for new development policies due to high
unemployment and poverty, caused by the negative impacts of globalization and productive
116
adjustment. Local government and community initiatives have become instruments of new
development policies in a number of developing and developed countries (Aghon et al., 2001;
Altenburg and Meyer-Stamer 1999; Scott 2001b).
Faced with the inadequacy of the central government's economic policies in solving
problems related to job creation and improving living standards, local actors spontaneously
try to complete the process of adjusting the productive system. They define and implement
measures aimed at increasing the productivity of agriculture, industrial enterprises, and
service enterprises; and they implement development projects focused on improving the
welfare of citizens, and raising the living standards of the population.
This is where new development policies are born and why they are so important in the
economic development process, as they act as a catalyst for development mechanisms and
forces, through local initiatives: by facilitating the development of entrepreneurship and the
creation of enterprise networks, by encouraging the diffusion of innovation and knowledge,
by enhancing urban development and by stimulating the dynamics of institutional structures.
By promoting the diffusion of innovation and knowledge, by enhancing urban development
and by stimulating the dynamics of institutional structures. To this end, the new development
policy emphasizes the importance of creating a territorial environment favorable to
development through local initiatives, which take into account the economic, social and
cultural dimensions of the territory.
The above discussion leads us to consider that the new development policy is subject
to a complex concept that brings together different views on development. At the heart of this
interpretation lies the regionalized nature of the process of growth and resource-dependent
structural change. The concept of endogenous development cannot be reduced to a single
interpretation, given that the territorial basis of development differs from place to place,
realities change, and the conditions under which the development process takes place also
change. However, the concept of endogenous development cannot be reduced to one common
interpretation, given that the territorial basis of development differs from place to place,
realities change, and the conditions under which the development process takes place also
change. In this case, different approaches to development are not necessarily contradictory,
but can be integrated in a more complex interpretation, which can be called endogenous
development.
The populist approach makes more sense in a broader interpretation of the
endogenous development, which considers that the entrepreneurial and creative capacity of
the population is the mechanism that stimulates structural change and progress in the economy
117
and society of a place and region through local initiatives that support the process of capital
accumulation. In turn, the evolutionary development approach is an interpretation that states
the mechanical aspects of the development process and is useful for analysis and action. It
therefore helps us to see current development problems and guides actors' responses to the
challenges of globalization. Finally, the cultural development approach, understands
development as a culturally sustainable process. However, its sustainability requires the
support of an evolutionary development approach, as the process of economic development is
stimulated by human capabilities, as well as region-specific resources and assets that drive
development forces.
In this way, the concept of endogenous development has become an interpretation that
helps determine the strategies and policies that local actors can implement by taking
advantage of the opportunities that exist in globalization. Development policies should be
based on the economic, social, environmental, institutional, political and cultural factors that
combine uniquely in each locality, each region. Therefore, the new development approach
states that development initiatives differ from locality to locality, region to region; and it is
local people and organizations who decide how to respond to the challenges that each place
and region faces in the development process.
