Local and Regional Development Agencies

Local economic development agencies (LEDAs) and Regional economic development agencies have been employed in many countries, not just in Europe, as a focal point for the formulation and implementation of local and regional development initiatives. In the development cooperation field, the International Labour Organisation (ILO) is promoting the creation of LEDAs.

The rationale in favour of creating a LEDA appears to be convincing - particularly if the government executive is not very effective altogether, as it tends to be in many developing and transformation countries, and if it has little experience in interacting with business, let alone come up with major development interventions. However, it is important to note that there is next to no hard evidence that such agencies have had a major impact on growth and job creation either in industrialised or in developing and transformation countries. Thus, the creation of such agencies is not necessarily a magic formula to foster development. There are two typical constellations which involve different challenges.

The first constellation is a setting where a number of organizations exist who are to some extent executing activities which are part of local or regional economic development. In a country like Brazil, is any region there are two vocational training organizations, one SME promotion organization, several business organizations, state and local government, universities, and possible NGOs and other organizations. In such a setting the creation of a development agency is not easy feat since all the other organizations may perceive it as an effort to interfere with their agendas. If the agency tries to coordinate everybody else, a massive power struggle may erupt. In other words, in a setting where numerous organizations do already exist it is essential to make sure that they accept the idea of launching a development agency, and preferably come up with the idea by themselves. The alternative approach to deploying a LEDA in this context would be to merge the existing organisations into one large agency. While this has advantages, such as consolidation of budgets, easier management, fewer agendas and vested interests and high cross-fertilisation of ideas, it has a long lead-time whilst the cultural, procedural and technological differences are harmonised. It usually also leads to a rationalisation of staff within the agencies, which may be a politically difficult situation for local stakeholders.

The second constellation is a setting where hardly any of the organizations mentioned above exist. In such a location, the obvious risk is that agency tries to do everything, from skills development to SME promotion, from microfinance to investment promotion, and ends up doing everything in an amateurish, ineffective manner. In such a setting, it is essential to set up the agency in a way which encourages the emergence of specialized organizations, possibly as spin-offs from the agency itself.

In any case, it is essential to understand that a development agency is a means, not a goal, of a local or regional development initiative. In particular, it is not useful to start an initiative with the explicit purpose of creating an agency. In the course of an initiative, it may appear to local stakeholders that a development agency may be useful. If the decision to create one is based on a reasonably wide consensus among key stakeholders and does not involve petty politics, an agency can play a very important role in the implementation of LED interventions. Another scenario would be a situation where the relationship between local government and business is tense, and where an LED agency is set up as an arbiter.

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If local stakeholders decide to create a LEDA, a couple of questions arise. One if them is: Should it be a fixed-term or a permanent agency? International experience shows that both solutions have their. The following table summarizes arguments in favour of and against either solution.

 

	Fixed-term	Permanent
Arguments in favour	Can experiment with highly innovative interventions without concern for organisational culture	Can consistently deliver routine services
	Does not appear as a threat to existing organisations	Offers stable job perspective for staff
	Can easily be discontinued if ineffective
Arguments against	Cannot follow initiatives through	Over time becomes bureaucratic and inflexible
	May have problems in recruiting staff	Pursues incremental but not radical innovation

It is important to emphasise, though, that fixed-term vs permanent is not necessarily an alternative. In fact, would like to have both:

• A fixed-term agency is crucial in delivering routine activities, such as developing real estate, constantly updated promotional material, support for business start-ups, etc.
• A permanent agency becomes essential when routine activities are not sufficient to promote the growth of your local economy, and when you need innovative initiatives to overcome organisational and path dependency.

This takes us to another important conclusion: It is not useful to have a single agency which is in charge both of routine activities and innovative projects. The organisational cultures in either activity are profoundly different. In routine activities, entrepreneurial personal traits can become a nuisance, whereas they are a boon in project activities. Well-established organisational procedures are excellent to secure the effective delivery of routine activities, but they are a nightmare when you try to launch innovative projects. Looking at the above table, the staff issue illustrates this point: How likely is it that a person who aspires a job for life is highly innovative, risk-taking and entrepreneurial? You would employ this kind of person to give routine advice to business. You would not employ this person to prepare and launch a highly innovative business mentoring scheme.

But what do you do if you operate in a setting where neither type of agency exists and where the environment for business is not particularly favourable, both in terms of commercial business development services and government-driven development interventions? One option is to develop a hybrid agency, something akin to a development centre in an industrial organisation. A hybrid agency might be a permanent institution, or at least have a long tenure as a fixed-term agency (say, 10 years). Its task would be threefold:

• promote the development of business development services,
• develop and hand over economic development and business promotion instruments for the government institutions,
• run fixed-term innovation projects to open new growth opportunities for the private sector.

Its task would not be the routine delivery of business services. Activities under each of the three headings would be fixed-term, thus creating a strong incentive to formulate an exit strategy early on and to empower other organisations to take over responsibility.

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