The Political Rationale of Local Economic Development

The political rationale of local economic development is straightforward. Politicians seek legitimacy. One of the key elements of legitimacy is economic prosperity. In most locations, the main source of economic prosperity is local jobs (in some locations, transfers from elsewhere, be they through government programs or from migrant workers, may be more important than local jobs). Therefore, politicians have a keen interest in making sure that somebody is creating jobs. This may be government itself. But as public funds are increasingly scarce in most countries, it is the private sector which has to deliver jobs.

A second point has to do with one of the big trends of the 1980s and 1990s: the demise of central government industrial policy and other types of statist development policy. In the context of structural adjustment, and the predominance of neo-liberal concepts of economic management, selective policy interventions such as industrial policy came under fire and were reduced or phased out. This, however, left a lacuna in all those places where markets work less than perfectly, that is about everywhere. This leads us back to the first argument: Local actors had to jump into the fray to secure their legitimacy. It is unlikely that a local election has ever been won on the basis of strictly neo-liberal, non-interventionist agenda.

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