towards an integrated model of local economic development

04

Towards an integrated model of local economic development and social cohesion

Collection of Studies into Local and Regional Public Policies on Social Cohesion

Mario Rosales OrtegaChilean social scientist (Catholic University of Lyon, France). Master of Development Social Science (Latin-American Faculty of Social Sciences, FLACSO). Ex-Executive Secretary of the Chilean Association of Municipalities, ACHM (1997-2000). Author of Decentralisation and Local Democracy in Latin America (FLACMA/UCLG, Quito-Barcelona, 2008); Good Local Governance (Bolivariana University, Santiago, 2005) and The Secrets of a Good Mayor (IULA, Quito 1994 and Monterrey Technological University, Mexico, 2000).

This document has been produced within the framework of a European Union grant. The content of this document is the exclusive responsibility of the author and should not in any way be considered a reflection of the position held by the European Union.

Editor: URB-AL III ProgrammeTravessera de les Corts 131-159.Pavelló Mestral, 4, 08028 BarcelonaTel. +34 934 049 470 E-mail [email protected]

© Publisher: Diputació de Barcelona (URB-AL III Programme Orientation and Coordination Office)

Editorial Board: Jordi Castells, Octavi de la Varga, Eduardo Feldman, Sara Sotillos, Carla Cors and Verónica Sanz Editing: Directorate of Communication, Diputació de BarcelonaDesign: Estudi Josep BagàPrinting: DRGLD: B. 34618-2012

Rafael Urriola UrbinaChilean economist (University of Chile) and Master of Public Economy and Planning (University of Paris, Nanterre, France). Director of the Protection and Social Inclusion Programme of the Chile 21 Foundation. Professional of the Economic Commission for Latin America and the Caribbean (ECLAC). Ex-Head of the Institutional Planning Department of the National Health Fund (FONASA, Chile). International consultant (PAHO, ECLAC). Author of Economy and Health: What needs to be measured (CuadMédSoc, Chile, 2012, 52(2)41-53); Economy and Health: Contributions and experiences in Latin America (PAHO-Chile, 2011, editor and compiler); Chile: social protection in health (Pan American Journal of Public Health, Washington, 2006); Health Care Financing and Equity: Public Insurance in Chile (ECLAC Review No 87, Santiago, 2005).



04

Mario Rosales Rafael Urriola

Identificación, sistematización e intercambio de experiencias exitosas para la cohesión social localOlga Del Rio

01 Guías metodológicasURB-AL III

7

9 Prologue to the study into local economic development and social cohesion

11 Introduction

13 I. The concepts of local economic development and social cohesion 13 a) The concept of local economic development (LED) and small businesses 24 b) The concept of social cohesion and its relation to local economic development

33 II. Description of cases of local economic development 33 Introduction 34 1. The dynamic industrial city of Rafaela, in Argentina 39 2. The small industry park in Villa El Salvador, Lima 46 3. Vegetable export production in Almolonga, Guatemala 49 4. Resettlement and regeneration of the old quarters of Santiago de Chile 55 5. Tourism and environmental development in the port of La Libertad, El Salvador 58 6. Textile mills and school uniforms in Ecuador 66 7. Summary of cases

73 III. Conclusions and policy recommendations

73 III A. Conclusions 73 a) Conceptual compatibility of local economic development and social cohesion 74 b) Importance of endogenous capacities and production and social articulation 76 c) Territorial and regional aspects 77 d) Levels and types of intervention 78 e) ‘Meso’ coordination of businesses with public-private services and support networks 80 f) Synergies between local economic development and social cohesion 81 g) The need to foster virtuous interaction between public and private actors 83 h) Local economic development strategy goes beyond the merely productive 83 i) The role of innovation in local economic development 84 j) Local solutions to global crises 85 k) Conclusion: LED and social cohesion strategies have complementary goals and means

Contents

8

86 III B. General policy proposals 86 a) National decentralisation processes must continue and be intensified 88 b) Running municipalities with horizontal styles of ‘good governance’ 89 c) Intergovernmental coordination and development of the municipal association movement 90 d) Territorial-level actions to achieve LED with social cohesion

93 Bibliographical references

9

The series of Studies into Local and Regional Public Policies on Social Cohesion has been produced by the URB-AL III Programme Orientation and Coordination Office. Its aim is to present the current situation regarding a set of central problems that form part of the present agenda for political bi-regional European Union-Latin American discussions on social cohesion.

This study deals with the issue of local economic development and its relationship with social cohesion.

Local economic development is a process that results primarily from activating and boosting local entrepreneurial capacities. This process, which promotes traditional and non-traditional production resources, can generate new production activities, create employment and contribute to reducing poverty in an area.

Strengthening economic development processes in a territory requires local governments to apply an innovative triple strategy. Firstly, it calls for resources and key actors in the territory to be mobilised and aligned with a set of strategic group objectives. Secondly, the local economy’s level of linkage to and integration into the markets must be increased. Finally, local policies and strategies must be harmonised with those generated in higher levels of governments.

The relationship between local economic development and social cohesion is very close. In fact, strengthening local economic development is an essential step towards achieving social cohesion objectives, and as such, it is an excellent way to build more cohesive territories. Achieving these two objectives is an important political goal that requires careful attention to be paid when designing public policies. It is particularly important to incorporate social cohesion into the design of courses of public action aimed at revitalising the territorial production system. This not only enables the problems identified to be productively linked to public initiatives designed to tackle them, but it also allows group objectives to be defined, at the same time as improving the capacity for generating attractive political arguments that will bring the territory’s key actors on board with these objectives.

Local economic development is an excellent way to build more cohesive territories. However, taking this approach involves addressing a series of important challenges. It calls for the region’s decentralisation processes under way to be re-launched and reinforced. It is also necessary to promote effective collaborative governance schemes in the territories. Finally, progress must be made towards coordinating intergovernmental agendas, budgets and public policies.

Prologue to the study into local economic development and social cohesion

10

For all these reasons, fostering local economic development is a key objective for any Latin American government interested in building a legacy that it can be proud of.

Jordi Castells i MasanésDirector of International Relations at Diputació de Barcelona and General Coordinator of the Orientation and Coordination Office of the URB-AL III Programme

11

This study was commissioned by the URB-AL III Programme Orientation and Coordination Office from the Chile 21 Foundation. The study is the end result of a project that began with a document presented by one of the authors at the 3rd Regional Dialogue on Social Cohesion organised by the OCO in Lima (Peru) at the end of 2011. This second text incorporates the opinions and contributions of the participants at the event and is complemented by an analysis of other cases. In addition, this document studies some aspects in greater depth in order to compare the diverse situations and draw conclusions that may be useful for national and local authorities in Latin America in the complex, changing and heterogeneous world they operate in.

The study is divided into three parts. The first chapter, which is conceptual in nature, looks at the concepts of local economic development (LED) and social cohesion (SC). It then goes on to evaluate the interaction and potential positive synergies that could be developed through programmes that address both concepts and it highlights the usefulness of establishing virtuous macro-micro linkages, i.e., between territorial development and national policies. On this subject, the authors search for interrelations between LED and SC, examining the social fabric –within the connection between national and local policies– and describing the stakeholders (partners, allies and counterparts) in order to identify the potential for cooperation among them, while not forgetting the aspects that

threaten these processes, such as distrust, opposing interests or, simply, the parties not knowing each other.

In the second chapter, the authors examine six cases of LED. These cases are analysed and evaluated from the perspective of an integrated LED-SC model; one which enables social gaps to be reduced, productive integration to be increased and local institutions to be strengthened by creating employment through productive initiatives. This is achieved by studying the producers’ organisation and linkages between each other and between the producers and other social actors, including public and private institutions, in the framework of fostering the sustainability of territorial development.

The six cases were chosen in view of their enormous differences and because they contain successful elements. The cases are: industrial development in Rafaela, an Argentinian city with 100,000 inhabitants; a small industry park created in the municipality of Villa El Salvador, with 400,000 inhabitants, in Lima (Peru); horticultural export production in Almolonga, an indigenous municipality with 14,000 inhabitants, in Guatemala; the redevelopment of the centre of Santiago, with 200,000 inhabitants, through a neighbourhood resettlement and planning policy; the development of tourism in the port of La Libertad in El Salvador, with 36,000 inhabitants; and the manufacture of State-commissioned school uniforms by communities in Ecuador.

Introduction

12

The third chapter begins with preliminary conclusions which invite senior officials in local governments and national authorities, who meet to generate public policies, to systematically consider their territories’ capacities for LED and SC, i.e., the LED-SC model we are proposing. The second part of the third chapter details aspects related to possible public policies in the territories capable of designing strategic and operational lines of action within the framework of LED-SC strategies.

13

a) The concept of local economic development (LED) and small businesses

Local economic development approaches

Local economic development has been gaining ground as a policy proposal based on the observation of some European cases (the Italian ‘industrial districts’ and the Spanish ‘local business systems’), some Latin American cases, and from its later conceptualisation. Various international organisations subsequently integrated it into their cooperation policies and actions (ILO, IDB, European Union, ECLAC, German, Spanish, Swiss cooperation, among others). Nowadays, local economic development as a policy to support territorial development is being promoted throughout the world.

Essentially, the purpose of local economic development (LED) is to activate and strengthen local entrepreneurial capacities in order to promote traditional (agriculture, crafts, small and medium-sized industry) and non-traditional (renewable energy, environmental protection, care of and/or enhancement of local heritage and culture, tourism) production resources, thereby generating new production activities and employment. In this regard, LED offers a complementary option, different to the classic regional development economy, which aims to modernise the territory by means of regional planning.

“The endogenous development theory holds that capital accumulation and the technological process are, without doubt, key factors of economic growth. In addition, it identifies an endogenous path of self-sustained development by arguing that the factors that contribute to the capital accumulation process generate external and internal economies of scale, reduce transaction costs and favour economies of diversity. The endogenous development theory therefore recognises the existence of increasing returns on cumulative factors and the role of economic, private and public actors in investment and localisation decisions” (Vázquez-Barquero, 2000).

Many LED experiences come from sectors that have been displaced or marginalised by the different crises that have affected Latin America. Bearing in mind that as a result of various adjustment programmes, in many countries the role of the state was minimised and its involvement in social policies limited to alleviating poverty or extreme poverty with targeted subsidies while cutting resources originally intended for supporting territorial productive initiatives.

LED seeks to activate new development mechanisms to make a sustainable contribution to reducing poverty, as it involves a highly endogenous element in as much as its resources basically come from the same territory.

I. The concepts of local economic development and social cohesion

14

“ ...the concentrated development strategy is not the only one that exists nor the only one possible, as there are others that are equally important, above all in terms of employment and territory, such as ‘bottom-up’ development strategies, which are diffuse and sustained not only by economic factors but also social, cultural and territorial factors. Generally, this type of local economic development, based on the use of endogenous resources and implemented by small businesses, has been appearing with little or no political-administrative support from central bodies of the public administration (Alburquerque, 2004).

Nevertheless, experts and territorial organisations assume that local development does not only depend on local resources, but that it should also use and channel the resources and support coming from outside the territory as, although the aim is to strengthen territorial capacities, it is essential for the local economy to increase its involvement in national and even international markets.

“The local economic development approach is far from being an autarchic project. On the contrary, it aims to promote bottom-up development involving local actors and to endogenise the territory’s foundations for economic growth and productive employment. This, in turn, increases the possibilities of taking advantage of existing opportunities

for external dynamism” (Alburquerque, 2004).

In this regard, LED should help generate virtuous linkages between the micro, meso and macroeconomic aspects of territorial policies and, also, foster public-private interaction in the local arena in order to strengthen public policies by fully incorporating private initiatives, creativity and resources.

LED is far from being an approach that only addresses the territory’s problems and those of its producers from a purely local viewpoint. In fact, it involves several levels of analysis that must be considered, activated and included in territorial development policies.

• The micro level is effectively the arena where we find the social actors, entrepreneurs and productive activities, these being, “…fundamentally improvements and changes at the microeconomic level, i.e., within productive, labour and business management activity” (Alburquerque, 2004).

• The meso level is made up of institutions and their policies, essentially related to the bodies and legal framework maintaining and supporting production. This includes financial services, technical services and the provision of inputs to the various businesses; it also includes the policies and actions of local and regional governments to disseminate the benefits of development among the

15

local population, using services to train the workforce, provide healthcare for workers and their families, and generate mechanisms to support innovation, among others. “Development demands action on the macroeconomic level, improvements and changes to the microeconomic level, and reforms and changes of content on the meso-economic (or intermediary) level of public administrations’ actions and strategic alignment with socioeconomic stakeholders” (Alburquerque, 2004).

• The macro level is formed of the development strategy proposed by the national governments setting the general rules for these strategies –for example, free-trade agreements, tariffs, tax or monetary policy– but also determining the institutions, rules, policies and national processes that –directly or indirectly– foster or hinder local economic development.

• The meta level is essentially a set of values, attitudes and behaviours inclined towards local economic development. “In the meta level, one important aspect relates to cultural values geared towards development which are shared by a large part of society. These values include: social recognition of economic success, general acceptance of the idea that predatory behaviour and free riding endanger social development, prioritising long-term investment in education and capacity-building, and a great propensity to save. If these values are not established in a society,

it is very difficult to promote them via macro or meso policies” (Meyer-Stamer, 2000).

These diverse components or levels interact dynamically with each other, reinforcing one another and reflecting a systemic nature. Thus, public interventions linked to LED transcend the purely productive aspects of the businesses operating in the territory and are linked to the meso, macro and meta levels (in LED terminology) including, for example, the ideological-political beliefs of the local authorities and their greater or lesser acceptance of the LED option for overcoming poverty and strengthening social cohesion.

“Specifically, the advantages of the innovative entrepreneur lie in the social construction of these basic components of the territorial innovative environment and not only in his or her entrepreneurial nature which is, also, a result of this territorial context. Thus, health and education systems, and the existence of a local culture that fosters creativity and entrepreneurship, should no longer be exclusively considered as social issues, as they form a substantial part of an environment that encourages technological innovation, by making the most of human resources in a climate that encourages productive and business development” (Alburquerque, 2004).

LED also awards innovation and systemic competitiveness an important role in revitalising productive systems. Innovation

16

does not only emerge or spread on the micro level of business, but it does so throughout the entire system, which should be continuously perfected. The waves of innovation that revitalise local development can be initiated in businesses themselves, but they may also come from the other macro, meso and meta levels of the territorial economic development system.

“Technological innovations have been at the heart of the revolutions in production processes. The incorporation of new techniques requires modifying manufacturing systems, which leads to increased productivity and reduced costs which, in turn, has a favourable impact on potential demand. In addition, incorporating new technology enables transport and communications systems to be improved and increases the level of quality and the variety of the products and services being offered. Thus, commercial exchanges increase and this stimulates economic growth. However, all these technological innovations require management and organisational changes and improvements in businesses and the public administration in general, as well as different types of involvement between socioeconomic and institutional stakeholders, sometimes as a precondition for introducing these improvements. In reality, technological innovations never occur in isolation, but as part of the social and institutional transformations indicated. Therefore, we must understand technological innovation in its broadest

sense, i.e., including the social changes and innovations that accompany it and make it possible”.

“In turn, competitiveness is ‘systemic’ or structural, which means that businesses do not face the competitive struggle of the markets alone, as they firmly depend on other aspects, such as the availability of business development services, the provision of basic infrastructure, the nature and scope of research and development for innovation, business management training, the link between the education system and capacity-building of human resources and the territorial productive and business requirements, the network of local suppliers and competitors, the level of demand from local users and the degree of creative interaction between the public sector and social stakeholders” (Alburquerque, 2004).

Local economic development is becoming particularly relevant nowadays, with economic crises becoming increasingly frequent, probably due to the growing complexity of the markets and the difficulty of regulating economic life. As indicated by Vázquez Barquero:

“…economic recovery also requires a series of structural measures that activate the real economy and foster an increase in productivity and competitiveness. The International Monetary Fund summarises the measures announced by some of the G20 countries over recent months, the aims of which combine increasing

17

productivity and competitiveness with creating equality and social cohesion, and preserving natural and cultural resources. Among these measures we would highlight the following:

• Fiscal stimulus of demand by reducing individual income tax, indirect taxes, and corporation tax; and lending to citizens on low incomes so that they can meet the demand for consumer goods.

• Increased public spending on transport and communications infrastructure, whether through central or local administrations.

• Supporting small and medium-sized businesses, promoting strategic activities, such as those involving high technology or defence, and the development of renewable energies (solar and wind power).

• Actions aimed at improving the quality of health (providing more hospitals and doctors) and education (improved training).

• Helping vulnerable groups, such as the unemployed, the poor and pensioners” (Vázquez Barquero, 2009).

To sum up, as proposed by Alburquerque, “…among the guidelines for designing local economic development policies, certain decisive areas must be highlighted, such as:

• Selecting, adapting and disseminating the most suitable technologies for achieving the goals of local economic development.

• Training human resources according to the innovation needs of the different local productive systems.

• Expanding the domestic market and generating productive employment linked to the necessary attention to basic needs (which is urgent in societies with accumulated deficiencies).

• Using the different supranational integration schemes as a platform for gradual exposure to the demands of international competitiveness.

• Fostering creative interaction between public and private stakeholders in order to build institutionality and an ‘innovative territorial environment’ that facilitate access to business development services for local SMEs and micro enterprises.”

LED places essential value on strengthening and continuously developing the human capacities in a territory. Producers’ entrepreneurial skills are vital, as is innovation for obtaining improvements in production and sales with the backing of specialised centres, political leadership and good governance to support the economic process and improve the quality of life of the inhabitants of a particular territory.

18

Advantages of local economic development for the territory

The local economic development model or strategy aims to have a positive effect on the territory by strengthening and maximising local capacities. Thus:

• The LED model proposes policies and delivers tools that enable any territory to generate the foundations of its own progress, helping to achieve greater equity and cohesion among territories.

• LED requires the full development of local capacities, as it depends on them for its success.

• The LED model prioritises creating employment over producing value, since the small and medium-sized businesses that constitute its action base are characterised precisely by their employment of a great deal of labour with relatively little capital.

• The LED strategy is essentially participative, as it is based on organisation, coordination and collaboration between producers and other social actors, including the public and private institutions providing services and territorial governments.

• The LED approach awards innovation a vital energising role because it leads to productivity gains and improves local businesses’ capacity for breaking into new markets.

• LED is not a ‘localist’ model and it

does not ignore processes developing in the national and international arena. On the contrary, local economic development seeks to reinforce local productive activities so that they can compete in national and international markets.

• LED pursues sustainable territorial development, which is aided both by the reduced size of the productive activities it promotes, and by the fact that the producers are from the territory.

Policies to support SMEs and the LED-SC strategy

Whatever the case may be, local economic development cannot disregard the general framework in each country. One may ask how local experiences with small and medium-sized enterprises (SMEs) could be successful if there has been so much trouble achieving results on a general level, although it is important to recognise the limitations, such as policies designed and implemented centrally which do not consult with or adequately consider the territorial actors. Therefore, in this section we briefly summarise the recent and useful evaluations of policies to support SMEs in the region, given that these evaluations are useful when implementing LED strategies.

The difficulties facing SMEs could be summed up in the following way (Mideplan, 1992): barriers and a lack of marketing networks; severely

19

restricted access to credit; technological backwardness; under-qualified workforce; legal and tax informality; little management training; problems accessing capital and service markets in order to operate, and insufficient access to infrastructure. As a consequence of this, all countries carry out programmes to make their businesses more competitive, and therefore improve their position in domestic markets and, less frequently, to allow them to enter international markets.

The areas of intervention detected in a very recent study (Ferrero et al., 2011) responding to the diagnosis that has been circulating for a long time among specialists, include access to financial and technological tools, technical assistance, training, foreign trade, associative practices, supplier development, public purchasing systems and agglomerations, among others. However, it has been noted that SME support policies have obtained only limited achievements. Among the reasons underlying this wide gap between efforts and results (detailed in a study by Goldstein and Kulfas, 2011) are the inconsistency between objectives, instruments, programmes and budget allocations and the lack of comprehensive approaches and territorialisation mentioned frequently in the later chapters of this document.

Dini and Stumpo (2011), in turn, consider that “the difficulty of building sufficient institutional development capacity, in most countries, the extremely low allocation of human and financial resources, the fragmentation and poor

coordination of actions and, sometimes, the focusing of interventions on a reduced and more dynamic group of firms, are elements that help to explain the scant results achieved.” All this in spite of the fact that since the end of the 1970s several States have been building an institutional framework in favour of SMEs known as the “SME statute”, or a specific regulatory framework for the sector, such as in Argentina, Colombia and Brazil, among other countries in the region.

The areas where SME support policies run into problems could be defined as the institutional structure, the regulatory framework and the intervention systems (just as in the LED experiences analysed in this document). Raising the issue of institutional structure means identifying the role and responsibilities of promotion agencies.

The institutional framework is, generally, complex, as it is composed not only of agencies specifically responsible for the sector, but also of other institutions that implement policies which have a direct or indirect impact on small businesses, such as development banks, science and technology promotion agencies and export promotion centres, among others. However, we must not forget that the degree of autonomy, experience, budget availability and the quantity and quality of human resources are some of the elements that define the quality of this complicated institutional structure.

The current regulatory framework forms part of this environment in which policies

20

are developed. It is made up of specific legislation to support SMEs, which is particularly important for designing local development policies, as these can be supported by these regulations. A pertinent example is that, in the case of Ecuador, support for this sector is constitutionally defined and, therefore, excludes competition from large companies in the case detailed in this document (supplying school uniforms). Local institutions’ powers differ from country to country, organism and type of programme. They are usually in charge of implementing and coordinating capacity-building programmes, running assistance services, providing information and fostering coordination among the different stakeholders.

Goldstein and Kulfas indicate that the system which shows the greatest ‘capillarity’ is found in Brazil –with a decentralised public sector in which the state governments use 29% of the total governmental resources and the municipalities use 26%–,1 there SEBRAE (the SME support service) has a large network of agencies spread across the territory and enjoys the support of a network of public, national and decentralised institutions and private organisations that help it carry out its work. This was a key point when creating and promoting production clusters became

1. See the global report: Local Government Finance (UCLG, 2011) and Descentralización política y fiscal en América Latina (Rosales, 2012).

one of the priorities of SME support public policy. It is clear that decentralising institutional support for SMEs is an essential factor for providing technical and financial capacities for the initiatives implemented in a local territory.

In Ecuador, the process of decentralisation started in the 1990s. Productive development policies were transferred to the municipalities and para-municipal corporations, provincial councils and professional business associations, but unfortunately it was not enough to achieve any notable success (Burneo and Grijalva, 2010). Similar situations have occurred in other Latin American countries but, as we know, the degree of deconcentration and decentralisation of the State and development policies varies enormously.

To strengthen LED it is very important to recognise existing programmes promoting the creation of businesses. In all of the countries in the region policies have been implemented to encourage the creation of new businesses and to help them through the initial phases of their development. The series of instruments all have different aims. In some cases, policies are implemented to foster the creation of dynamic businesses or to support young entrepreneurs; on other occasions they are focused more on generating self-employment. Policies may even encourage the creation of businesses in a broader sense, with no specific focus, or offer various programmes to meet more than one objective. Local authorities and territorial agencies can make a valuable

21

contribution as intermediaries between users and national programmes which, although they have a local aim, are somewhat distanced from the real users.

There have been debates in this field which have also been taken up by specialists in LED. For example, there is recurring criticism of the individualist character versus systemic interventions and a debate about whether it is necessary for authorities to act only on the failings of the market or whether they should assume that the market structurally leads to concentration and exclusion, i.e., it tends to limit competition in its strictest sense.

One of SMEs’ needs is financing, but one has to ask oneself: what can local governments do to influence interest rates? Local governments can help create local credit funds for small and micro-businesses using techniques known as ‘micro-lending’.2 However, from a local development perspective it must be

2. A small support programme for small local producers funded by the European Union and implemented by the International Union of Local Authorities (currently FLACMA) was implemented in association with small municipalities in Ecuador and Chile with interesting and lasting results, such as the creation of a savings and credit cooperative in Biblian (Ecuador) and a methodology for awarding credit by a local committee made up of authorities, business people and community representatives in San Esteban (Chile), similar to the microcredit model used by the Grameen Bank in Bangladesh, created by Muhammad Yunus.

assumed that budget availability will be scarce.

In most countries it is possible to find a comprehensive support system to improve access to financing which provides businesses with various types of instruments, such as: lines of funding, guarantees, assistance services and capital programmes for early support. Generally, they offer preferential rates on certain lines but they are not widely available. One instrument that could be hailed as a success is the NAFINSA productive chains programme in Mexico. This programme fosters the introduction of SMEs as suppliers to large companies and the government, and it offers access to e-factoring, a system that greatly improves efficiency. Nevertheless, numerous difficulties persist with regard to access to the larger business finance instruments such as factoring and leasing, etc.

Goldberg and Kafuk highlight a method that had been rejected by the prevailing liberal scheme. The countries in the region are promoting public purchasing power as a way to compensate for market distortions in which supply capacity is concentrated in large companies. Laws are passed to provide the right conditions for SMEs to be able to participate in public tenders and transaction systems are set up to help them with operational processes. In several countries there are initiatives for taking advantage of state purchasing power but, as the cited authors remind us, in many cases the strategies have gone no further than sanctioning regulations

22

that have never been put into practice; in others, although some of these regulations have been implemented, it has not been possible to gauge their impact on SME dynamics.

It is also worth mentioning the experiences in Brazil, which are designed to increase the SME sector’s participation in public tenders through the introduction of a regulatory framework, like the one in Mexico mentioned above. It should be noted that there are similar laws even in the USA. Using these regulations to support SMEs by simple extension could also favour specific locations.

Whatever the case, LED strategies for promoting SMEs must have clearly defined objectives, as accepting all approaches could easily lead to contradictions, and it is possible that not detailing the criteria may result in the creation of policies that are too broad, ambiguous and inconsistent and which therefore end up being useless. In this document, by including a social cohesion/inclusion objective, these criteria are given priority over those of simple productivity/price although, in the medium term, it is consumers who will complain if they are paying ‘subsidies’ for inefficient productive units. Likewise, it is necessary to prevent LED/SC policy from creating a type of productive ghetto for the poor as, in that case, far from promoting social inclusion, it crystallizes and legitimises the phenomenon of exclusion.

One aspect of the LED/SC strategy to

consider is the way of implementing support programmes by adopting a more decentralised and integrated vision. Some analysts suggest clustering, associative strategies and the development of productive chains as central elements of this more comprehensive outlook, which is much more relevant for local development policies. Others, such as experts in LED, assert that programmes to support small and medium-sized businesses should be decentralised to the territories, and sub-national governments (intermediate and local) should take on a more important role of facilitation, coordination and management.

Based on these experiences, analysts often ask whether LED excludes large companies. In fact it does not, but it is true that local authorities can create policies for SMEs whereas policies for large businesses are rarely generated at the local level. Otherwise, these businesses take decisions with a wider perspective in the strictest sense, i.e., globally. Thus, intermediate and local authorities in the territories usually complain that the management levels of international companies established in their areas systematically avoid contact with the territories’ own institutions

There are more pessimistic opinions (Reinecke and White, 2004) regarding the policies promoted by national governments. On the one hand, these authors indicate that central governments create SME support policies but, on the other hand, when looking at the regulations and transfers as a whole, these

23

may benefit larger companies more than smaller ones because, even if only in the administrative sense, complying with laws and regulations is a heavier burden for SMEs than for large companies. All in all, the results of specific local economic development policies would be more positive if the country in question had a decentralised institutional SME support network.

Although the LED model offers both experiences and observable cases as well as a general operational approach and application tools, it is not completely clear how to transform the specific experiences of territorial development we know about into national development policies. One of the main obstacles is the relative weakness of local governments in most of Latin America, as this is the level of government best suited to generating and supporting endogenous development based on local capacities.

A text published very recently analyses experiences selected from the shortlisted projects in the competition ‘Experiences in social innovation’ that was run by the Social Development Division of ECLAC with the support of the W.K. Kellogg

Foundation.3 It should be noted that these experiences were mainly focused on the agricultural and rural sector.

The conclusions about the experiences presented in this ECLAC study highlight their completeness: “In the experiences analysed, via different paths and with different intensities, a common feature is the simultaneous intervention in complementary areas such as technical and productive assistance, organisational strengthening, social and technological capacity-building, supporting marketing and generating forms of saving and credit.”

The second criterion identified is flexibility, i.e., “in the combination of these dimensions of intervention there is no unique and correct sequence, nor one single way of combining and considering the elements. In the gradual process of building these integrated intervention strategies, each of the experiences constructed a totally original path and combined the components in a very personalised way. Each experience was implemented

3. The competition mentioned was launched in 2004 and received almost 4,800 applications from practically the whole of Latin America and the Caribbean, from which 72 experiences were selected as finalists. The selection process included a field visit, which ensured that all the entries showed five important qualities: be socially innovative and sustainable, be cost efficient, be replicable and guarantee the genuine involvement of the community or beneficiaries (Rodríguez and Alvarado, 2008).

24

in such a specific historic, social and institutional context that the success of the public policy seems to be inversely proportional to its rigidity.”

A third criterion is decentralisation, in which “the institutional flexibility required for adapting to the specific circumstances of each place is easier to build if there is greater proximity between public decision-makers and the beneficiaries of their policies.”

Another criterion to take into particular account is pluralism, understood as “the openness and ability to reinstate and adapt traditional technical and environmental knowledge. To achieve this openness it is necessary to develop institutional attitudes and abilities for recognising and understanding this knowledge and being able to incorporate it into previously existing formal proposals.”

In addition, forming producers’ associations and working together in groups is also considered one of the keys to success.

b) The concept of social cohesion and its relation to local economic development

There are different conceptualisations of social cohesion. Likewise, there are various

concepts within the same family (inclusion-exclusion, vulnerability, social protection, etc.) that are used synonymously, despite not really being synonyms (Urriola, 2010). This document is based on a definition adopted by the URB-AL III Programme Orientation and Coordination Office which states:

“A socially cohesive community on any scale, whether local, regional or national, depends on its members sharing a sense of inclusion and belonging, participating actively in public affairs, recognising and tolerating differences and enjoying a degree of equality in access to public goods and services and the distribution of income and wealth. All of this should take place in an environment where institutions generate confidence and legitimacy and where the rights of citizenship are fully exercised.”

Therefore, the idea of social cohesion is based on the concepts of inclusion and belonging –or equality and belonging– and it originated in societies with a welfare state. The basic definition presented in the Latin American region is “the dialectic between established social inclusion and exclusion mechanisms and the responses, perceptions and attitudes of citizens towards the way these operate” (ECLAC-AECI, 2007). However, in order to add a more operational dimension to the concept, the EU adopted what are called the Laeken indicators, which include income, employment, education, health, etc.

25

Judging from the available bibliography, the concept itself has begun to be used in social policies relatively recently. In fact, only in the last 15 years or so, the European Union (1997) and ECLAC-AECI (2007) incorporated this useful and complementary concept into their agendas for evaluating public action in favour of social protection: social cohesion.

The Council of Europe Summit of Heads of State in 1997 established that social cohesion is “one of the foremost needs of the wider Europe [...] and an essential complement to the promotion of human rights and dignity.” Thus, the idea of social cohesion in Europe was institutionalised because of the need for an in-depth examination of feelings of belonging, trust and security. The document that outlines the European Union (EU) strategy on this issue (Council of Europe, 2004) defines social cohesion as “the capacity of a society to ensure the welfare of all its members, minimising disparities and avoiding polarisation. A cohesive society is a mutually supportive community of free individuals pursuing these common goals by democratic means.” Later, in 2005, this definition was refined as: SC is “the capacity of a society to ensure the lasting wellbeing of all its members, including equal access to available resources, respect for the dignity of diversity, personal and collective autonomy and civic participation” (Council of Europe, 2005).

The URB-AL III Programme’s own methodological guide recognises the recent nature of the inclusion of the

concept into governmental agendas by establishing that “since the Rio de Janeiro Summit (1999), social cohesion has become the central pillar of relations and political dialogue between the European Union and Latin America. Thus, after the statements from the EU-LA summits in Guadalajara (2004) and Vienna (2006), the heads of state and government meeting in Lima in 2008 reaffirmed that social cohesion is a priority issue that has to be approached by governments in both regions in order to overcome the problems arising from poverty, social inequality and exclusion.”

Social cohesion from a more functional point of view –in the sociological sense of the word– has also been defined as “the promotion of stable, cooperative and durable communities” (Matarasso et al., 1998). This vision is dominated by the idea of “reinstating harmony” rather than strengthening potential, which is the main sense of the EU’s current definition. Many of the definitions of social cohesion refer to a sense of belonging and a common set of values, which limits (and perhaps even contradicts) the scope of the definition provided by the EU as this recognises and values diversity. It is not possible to understand the European debate without remembering that Europe is made up of societies with historic migration that accounts for a significant proportion of the population who, in addition, have come from very diverse cultures and some of them have not easily adapted to the cultural patterns of the countries receiving these migrations.

26

For this reason, there are other definitions that place the emphasis on the capacity to live and react in a common way according to a society’s principles, for example, democracy. However, this meaning sheds doubt on those objectives that may not be common and which could themselves exclude people. Social cohesion according to ECLAC (2007) “is understood in terms of both the effectiveness of established social inclusion mechanisms and the behaviours and value judgments of the members of society... It is defined as the dialectic between established social inclusion and exclusion mechanisms and the responses, perceptions and attitudes of citizens towards the way these operate.”

To illustrate the direction and scope of the debate in Europe, the OECD (1999) proposed the following 16 indicators of social cohesion: 1. Divorce rate; 2. Fertility rate; 3. Percentage of single-parent families; 4. Local association membership; 5. Rate of electoral participation; 6. Population born abroad; 7. Mixed marriages; 8. Asylum seekers; 9. Suicide rate; 10. Average age at which women have their first child; 11. Working mothers; 12. Crime rate; 13. Rate of drug-related deaths; 14. Work stoppages due to illness or accident; 15. People in correctional facilities; 16. Acquisition of nationality.

It could be said that some of these indicators are closely linked to Europe’s recent history, with its high rates of immigration and to other levels of development.

For the purposes of this document it should be noted that the term ‘exclusion’ is used as a valid approximation of non-cohesion although it has different meanings related to the form of exclusion: economic (in relation to consumption, work and services), social (in relation to housing and social protection in general), cultural (school abandonment, illiteracy in any of its forms, abandonment of basic/native identity), physical (alcoholism, physical disability) or legal (without access to the justice system, undocumented immigrants). In any case, positively intervening in the networks that determine processes of exclusion will help to advance social cohesion and, along these lines, social protection is one of the key areas for doing so.

Nevertheless, as indicated by Menéndez (2010), the concept of social cohesion tends to be absorbed or blurred by other related concepts, such as inequality, equity, social inclusion and wellbeing. If we look at the European Union agenda we find that agreements on social cohesion mainly translate into a wide range of policies and indicators designed to reduce gaps in incomes and guarantee greater access to employment, education and health services.

ECLAC, as Menéndez points out, states that this is probably due to the fact that the tradition of social citizenship in European societies assumed, based on social rights, that there is an intrinsic relationship between social inclusion and the provision of mechanisms of integration and wellbeing with the full

27

social belonging of individuals, which has never been the normal or average situation in Latin America.

Thus, several definitions of SC have arisen. Even the Inter-American Development Bank (IDB) has provided a definition of social cohesion:

“A set of factors that help to establish an equitable distribution of opportunities among society to participate in economic, social, political and cultural life.” But also as “the set of positive externalities accruing from social capital in addition to the sum of factors promoting equity in the distribution of opportunities among individuals.”

To a certain extent, the term SC has appeared as an antonym of social exclusion, which, in any case, has still not been clearly defined. Despite having existed for more than three-quarters of a century (Alanis et al., 2010), there is no single definition that satisfactorily explains what this concept includes. Two of the most commonly mentioned definitions today are the following:

“[Individuals] ... suffer social exclusion when: (a) they suffer generalised disadvantages in terms of education, professional training, employment, housing, financial resources, etc.; b) their opportunities to access the main institutions that distribute these opportunities of life are substantially inferior than the rest of the population; c) these disadvantages and reduced

access persist in time.”

Furthermore, the term ‘exclusion’, that has grouped together the new forms of poverty, has a much stronger meaning: it does not only refer to humans who are not integrated into growth but also those who cannot adapt to economic and sociological changes, and who therefore position themselves –or see themselves positioned– outside the production apparatus. As it becomes more widespread, social exclusion springs up as the result of an accumulation of precariousness and social ‘handicaps’ that usually lead to long-term unemployment, the disintegration of the family fabric and people losing their homes.

In general, in Latin America the concept of SC appears to have been subsumed or confused with the other concepts mentioned above. For example, Durán (2008) –speaking at the 3rd Ibero-American Conference on International Studies organised by the Spanish International Cooperation Agency– indicated that social cohesion “being a looser concept aims –among other objectives– to increase citizens’ involvement in the design, debate and supervision of public policies, with the conviction that this will widen the scope of social participation by all the groups that make up society.”

Perhaps the fundamental problem of achieving SC in Latin American countries is that the prevailing conditions are, in contrast to what is being sought, heterogeneity and even

28

an unacknowledged racism against indigenous people; elitism and exclusion; perception of the State not being their own; lack of stable political commitment; breakdown of the labour movement.

One has to wonder, then, if there is a beneficial solution to be found in the LED-SC link. That is what we hope to conclude in this document. It would therefore seem reasonable to understand social cohesion as a contract.

The contract –as a metaphor– implicitly establishes indicators that constitute social cohesion. In fact, the URB-AL III Orientation and Coordination Office (OCO) points out: “improving processes and local public policies designed to increase social cohesion in territories through actions undertaken in five sectors (or dimensions) of intervention: productive-occupational, civic, territorial, institutional and social. This perspective maintains that social cohesion is not just an empirically observable social model, but constitutes a reference point to be aspired to” (Del Río, n/d). Returning to the OCO’s basic definition, presented at the beginning of this section, this could be summarised as:

Inclusion in diversity (productive and social).

• Access to and satisfaction of the actors’ basic needs.

• Citizens’ rights and duties and participation.

• Equal access by actors to the bodies that ensure and guarantee the abovementioned contractual elements.

These elements are developed further by Courtis and Espejo (2007):

“Among the characteristic elements of a contract that are considered important for maintaining the convenience of using the contractual metaphor to justify the assumption of an active role by state institutions in the matter of social cohesion, we find the following:

i The necessarily inclusive nature of the contract, in relation to the participating actors and social groups. This involves a wider consideration of perspectives and interests articulated by diverse social groups and sectors – particularly those in situations of greater vulnerability.

ii Guaranteed access to minimum levels of satisfaction of basic needs, such as freedom –understood as a feeling of not being dominated– and, therefore, as an essential requisite for assuming obligations based on a contract by the parties involved.

iii The need to assume the dynamic and variable character of the obligations stipulated in a social cohesion contract, as the contingency and rhythm of change that characterise contemporary society modify the perception of the minimum conditions necessary to guarantee the effective practice of active citizenship.

29

iv The importance of establishing mechanisms for dialogue and renegotiation of the obligations arising from the contract, for the purpose of updating the requirements, in view of the changeability mentioned in the previous point.

v The demand for a complex system of guarantees as an enforcement mechanism for the obligations established in the social cohesion contract. This system must include institutional and extra-institutional guarantees. Among the former, different forms of political guarantee should be considered, and –in the case of failure on their part, and within the possibilities and limitations offered by these mechanisms– jurisdictional or quasi-jurisdictional assurances that provide victims with the means to complain in the case of non-compliance. The latter include active forms of participation in the public sphere and self-governance by citizens, if the aim is to view them as real participants in the contract that binds them.”

In addition, in November 2011 the OECD published the report Perspectives on Global Development 2012 – Social Cohesion in a Shifting World, which defines the three pillars of SC which are decisive for development results. These are: social inclusion, social capital and social mobility.

A useful framework for evaluating the alignment between LED and SC can be

found in ECLAC (2007), which defines three policies for promoting social cohesion (SC):

i) the growth of opportunities in the productive economy; ii) the development of individual capabilities; and iii) the establishment of more inclusive safety nets to deal with vulnerability and risk. As this shows, these policies are compatible with LED policies. In fact, links established with adequate LED can strengthen SC and vice-versa.

LED places great value on the synergy that is created when the human and technical capacities in the territory are strengthened and continuously developed. Thus, the essential elements are the producers’ entrepreneurial capacities, innovation to improve production and marketing with the support of specialised centres, territorial political leaders and good governance to back up the economic process and improve quality of life for the territory’s inhabitants. Together, these are desirable characteristics of social cohesion.

Additionally, there is an even more recent text from ECLAC (Rodríguez et al., 2011) which draws very similar conclusions to those proposed in this document. That is, the goals of LED and SC seem to converge at the point where they focus on these objectives or related indicators.

“The four categories for assessing the impact of experiences in local economic development in their respective territories were: creation of opportunities,

30

dissemination of know-how, generation of wellbeing, and leadership and institutionalisation. Furthermore, the elements that the LED theory considers should be present in a territory in order to achieve local economic development were taken up again: promoting productive enterprises and capacity-building; production chains; joint strategic planning processes; public-private agreement; local governments acting as facilitators; leadership and social participation; institutionalisation of the process.”

In the third chapter, we underline the effects of LED policies on the components of SC. The more the elements that make up SC are strengthened, the more beneficial the joint LED-SC strategy will be.

33

For the purposes of this study we have selected several cases of local economic development that we consider involve positively evaluated processes, which represent the situations of different municipalities and which also come from different countries. The cases presented occurred in Argentina, Chile, Ecuador, El Salvador, Guatemala and Peru, and represent situations in urban municipalities (one central and another suburban), medium-sized cities, including a port city, and a rural municipality with an indigenous population. In terms of the local economies, the cases reflect very different situations ranging from the export industry to small businesses and handicrafts, administrative and service activities, agricultural production and tourism.

The cases4 have either been directly updated by the authors especially for this study or are documented experiences that have been complemented with recent information. The updates were made

4. The cases of Rafaela, Villa El Salvador and the commune of Santiago de Chile were raised some years ago by Mario Rosales and followed up later: they were published in the book El buen gobierno local (‘Good Local Governance’, Bolivariana University, 2005). The case of La Libertad (El Salvador) was raised directly by Mario Rosales during a seminar on LED held in San Salvador, with the support of the Canadian Federation of Municipalities, FCM (February 2012). Almolonga, written by Mario Rosales in 2012, is based on secondary information. The case of the textile mills and school uniforms in Ecuador was documented and written by Rafael Urriola.

based on recent secondary information and the authors also spoke to qualified sources that were able to provide new data and/or corroborate or contribute additional information. The cases chosen are the following:

1. Rafaela (province of Santa Fe, Argentina). This is perhaps the most complete and well documented local economic development experience in this country. Rafaela is a small-medium-sized city of approximately 100,000 inhabitants whose local government was concerned about the economic situation and therefore developed capacities to support local entrepreneurs, playing a key role as the coordinating body for public, private, local and national efforts.

2. Villa El Salvador (a working-class urban municipality in Lima, Peru). In the 1970s an invasion of homeless families settled in the area, first becoming a social movement and later forming a municipal district. Among their achievements, its residents set up a small business and handicrafts industrial park with the support of the municipality, the national government and UNIDO. This is the best known case of LED in Peru. Villa El Salvador is now home to more than 400,000 inhabitants.

3. Almolonga (Guatemala). This is a small indigenous municipality of 14,000 inhabitants whose smallholder farmers produce and

II. Description of cases of local economic development

34

export vegetables to other Central-American countries and Mexico.

4. Santiago (Chile). This commune of 200,000 inhabitants and political capital of the country led a process of resettlement and neighbourhood regeneration to modernise and revitalise the city centre, attracting new residents and boosting the urban economy.

5. Port of La Libertad (El Salvador). This municipality of 36,000 inhabitants, together with the central government, promoted a dynamic process of transforming the traditional commercial port into an attractive tourist harbour, taking advantage of its proximity to San Salvador.

6. In addition, in Ecuador we have documented a national experience in which the State purchased school uniforms for primary and secondary school students from small manufacturers and dressmakers.

These six experiences are detailed in the following pages:

1. The dynamic industrial city of Rafaela, in Argentina5

Summary

Rafaela is the third city in the province of Santa Fe, Argentina, with close to 100,000 inhabitants. Rafaela shows an extraordinary level of economic dynamism and has 432 manufacturing industries of all sizes –several of which export–, which brings with it an unusual quality of life and social harmony. What seems to lie at the heart of this process is the entrepreneurial character of the city’s first migrants and founders, who arrived in the second half of the 19th century from the region of Piedmont (Italy). Austere and hard-working, from a humble social background, Rafaela’s first residents skilfully took the scarce resources available to them and transformed an agricultural region into a thriving industrial area. After Argentina began a process of conversion and greater integration into the global economy, the Municipal Administration of Rafaela took up (in 1991) an active role in promoting local development to tackle the economic crises that were threatening its industries and employment.

5. Case originally raised by Mario Rosales based on field visits, interviews and secondary information in 2001 with the support of the Friedrich Ebert Foundation. Updated several times until 2012.

35

Origins and development of Rafaela

Initially the main activity was farming, followed later by small agricultural businesses linked to dairy farms, tanneries and other agricultural and livestock production. Then Rafaela’s producers themselves created the first farming machinery, which formed the basis for today’s metal-mechanical industry. Currently, there are 432 manufacturing businesses of varying size operating in Rafaela, many of them located in the growing Industrial Park. Until 1990, Rafaela’s industrial and production process was driven by the businesses themselves and by their chambers of commerce, which bring various branches of production together in the powerful Trade and Industry Centre of the Department of Castellanos, which also encompasses other neighbouring municipalities.

At the end of the 1980s, the municipality was in a precarious economic situation and its administrative structure was not working effectively. From 1991, the new municipal authorities –led by the young Peronist mayor Omar Perotti– launched a municipal modernisation process, achieving a balanced budget, improving the quality of internal municipal procedures and opening the door to collaboration with the private sector.

The Municipal Council soon warned about the threat to its economic activities caused by Argentina’s growing integration into the global market and the structural adjustments of the

country’s economic policies. Mayor Perotti and his team decided to develop a local policy to promote production and they created the Municipal Secretariat of Economic Planning, with the aim of reaching agreement with organised private stakeholders, thereby supporting the productive sector, in particular small and medium-sized businesses. In this way the municipality of Rafaela went from being a good service administrator to become a local government promoter of economic development. One of the first activities was to support the organisation of small producers by creating the Regional Chamber of Small Businesses of Rafaela (CAPIR) in 1993.

Over time, the area’s small businesses developed growing links with producers’ organisations –with a long tradition of representation and guild activity– in order to boost their activities. The principal vehicle for municipal action is the Secretariat of Economic Planning, which has carried out the following initiatives, among others:

• Supporting the organisation of small businesses by creating the Regional Chamber of Small Businesses of Rafaela (CAPIR), which once operational, joined forces with the Trade and Industry Centre of the Department of Castellanos as a specialised organisation.

• Developing support programmes to market products made by small and medium-sized businesses, with business tours, capacity-building, creating a web portal and other similar methods.

36

• Devising a local public initiative (extensionismo) aimed at forging productive linkages among universities, state agencies and small and medium-sized enterprises. Within this framework, universities and state agencies provide the firms with tailored technical assistance and knowledge.

• Creating the Local Development Training and Research Institute (ICEDel) to serve small businesses.

• Supporting the construction of the Industrial Park and its extension.

• Supporting the creation of the Business Development Centre (backed by the IDB), a pioneering programme implemented by the Trade and Industry

Centre with municipal support.

The municipal policies were well received by Rafaela’s business community, particularly owners of small and medium-sized enterprises. The municipal philosophy is that all development policies and actions must be carried out in conjunction with business organisations. Therefore, in Rafaela a stable alliance was developed between the local public and private sector –which were later joined by the universities– which has resulted in a coordinated network of support organisations and a complex set of policies that employ various development and support instruments.

One of the features of the process in Rafaela is its endogenous nature, which originates and is centred on the capacity of local stakeholders and is firmly rooted in the territory and the traditions that have developed there. Rafaela’s productive process generates income per capita on a par with nearby industrial cities such as Rosario and Córdoba.

As to whether Rafaela’s development process and stakeholders have the capacity to withstand and successfully overcome the successive crises that have affected the Argentinian economy, the small municipality of Rafaela stood up well to the onslaught of the restructuration and adjustment process the Argentine economy underwent at the beginning of the millennium. Only one industry was forced to close down. Pablo Costamagna, ex-head of the Secretariat of Economic Planning, added conditions

Rafaela’s institutional system

1906 Rural society

1912 Technical Education School (EET)

1928 National Institute of Agricultural and Livestock Technology (INTA)

1932 Trade and Industry Centre (CCI)

1966 Chamber of Metallurgical Industries (CIM)

1972 National Technological University, Rafaela (UTN)

1978 Chamber of Foreign Trade (CCE)

1983 Consulting and Technological Services Directorate (DAT)

1983 Dairy Industry Technological Research Centre (CITIL)

1991 Secretariat of Economic Planning (SPE)

1992 Regional Development Foundation (FDR)

1993 Regional Chamber of Small Businesses of Rafaela (CAPIR)

1995 Rafaela Regional Centre (CEMRAF)

1996 Rafaela Strategic Plan (PER)

1996 Business Development Centre (CDE)

1997 Local Development Training and Research Institute (ICEDel)

Source: Local Development Training and Research Institute (ICEDel). Municipality of Rafaela

37

for maintaining dynamism: “Rafaela will come through this again”, he stated, “provided that we concern ourselves with tackling three challenges well: improve our export capacity, develop a strong facility for technological innovation and train a new generation of young entrepreneurs who will take up the baton and know how to face the future...”. This would not be an easy task, despite being clearly thought out. Costamagna expressed the feelings of local public and private stakeholders.

A closer inspection of Rafaela’s economy reveals an important sector of 432 manufacturing businesses, which generate almost 8,000 jobs and exported industrial goods to the value of US$ 202 million in 2005, rising to US$ 242 million in 2007. Some 67% of the exports were made by the food sector, and 32% were car parts, machinery and transport equipment (Municipal Industrial Census, 2006).

The situation in Rafaela is economically and socially solid. 51.6% of its population

Characteristics of Rafaela’s manufacturing industry (businesses registered, personnel employed, turnover and amount of exports)

Area of activity Businesses registered 2006

Personnel employed 2006

Turnover excl. VAT 2005

FOB exports 2005

Quantity % Quantity % Pesos % Dollars %

Total 432 100.0 7,798 100.0 1,935,976,424 100.0 201,948,137 100.0

Food and beverage products 108 25.0 2,079 26.7 1,180,535,073 61.0 135,237,958 67.0

Textiles, clothing, dyed hides 26 6.0 159 2.0 13,040,619 0.6 -- --

Wood and related products (except furniture), straw items, woven rope and leaf goods

22 5.1 70 0.9 2,003,421 0.1 -- --

Paper, paper products, publishing, printing, recordings

29 6.7 224 2.7 24,866,327 1.3 15,000 --

Chemical substances and products 12 2.8 86 1.1 7,710,258 0.4 19,395 - -

Rubber and plastic products 8 117 1,5 1.9 13,439,916 0.7 99,799 - -

Non-metallic mineral products 29 6.7 405 5.2 42,097,490 2.2 1,000 - -

Manufacture of base metals 3 0.7 74 0.9 6,678,904 0.3 -- --

Metal products, except machinery and equipment

66 15.3 436 5.6 55,642,427 2.9 597,065 0.3

Machinery and equipment 42 9.7 1,094 14.0 155,430,917 8.0 7,293,349 3.6

Machinery and electrical devices 10 2.3 141 1.8 51,304,944 2.6 61,437 - -

Medical, optical and precision instruments and clocks/watches

4 0.9 59 0.8 7,624,932 0.4 -- --

Vehicle parts, trailers and semitrailers, transport equipment

37 8.6 2,293 30.2 278,598,182 14.4 56,995,034 28.2

Furniture, mattresses and other 32 7.4 559 7.2 96,566,811 5.0 1,601,200 0.8

Recycling 4 0.9 12 0.2 427,200 0.0 26,900 - -

Source: Rafaela Industrial Census 2006. Local Development Training and Research Institute (ICEDel), Municipality of Rafaela

38

is active and the level of unemployment stood at only 5.4% in 2009 (Municipal Administration, 2010). Furthermore, 80% of the population live in homes that they own and 81.7% have medical insurance. 97.6% of the population over the age of five are literate and of the 28.1% that study, 15.3% are at university.

Strengths:

• The entrepreneurial and productive tradition and culture that exists within Rafaela’s industrial, commercial and agricultural business community.

• Strong public and private sector institutions, which have developed its capacity for forming associations and alliances to support the productive sector.

• The Municipal Administration’s ability to play a dynamic role in fostering local development.

• The openness and vision of its business groups for building alliances and reaching policy agreements with the municipality.

• The capacity for generating collaboration networks and securing external support, particularly IDB resources, for research and innovation.

• Rafaela is the centre of the Department of Castellanos’ productive zone, which includes two other municipalities and a total of 800 businesses.

Weaknesses:

• Small city and immediate surroundings and relatively limited ability to withstand economic processes and the evolution of the national and global economy.

• The Municipal Administration put its economic development policies on the back burner for a number of years, although they have now been prioritised again under mayor Omar Perotti, who was re-elected after some years out of office.

Results:

• The operation of a dynamic industrial sector with 432 businesses, which export goods to the value of US$ 242 million annually (2009), 51% of the population are economically active and unemployment affects only 5.4% of the EAP.

• A large institutional support network exists to help Rafaela’s business community. This network includes the Trade and Industry Centre, the Secretariat of Economic Planning, the Business Development Centre (1996), the Local Development Training and Research Institute (1997) and several others, totalling some twenty organisations supporting local development.

• Since 1991, the Municipal Administration has been running a Municipal Modernisation Programme

39

which involves organising the budget, gathering its own resources and incorporating quality into administrative procedures and services, winning it the National Quality Award in 1995.

• The creation of the Secretariat of Economic Planning (1991) and the Municipality’s intervention as a local economic development facilitator in collaboration with stakeholders from the productive sector, resulting in the organisation of small businesses in CAPIR (1993).

• Design of the Strategic Plan to strengthen Rafaela as a regional production centre with an international presence (1996).

• The healthy economic results have filtered down to the population and Rafaela has a solid service infrastructure, good indicators of healthcare, education and income and has developed a complex and integrated institutional system that ensures governance.

2. The small industry park in Villa El Salvador, Lima6

Summary

The movement of homeless families who invaded urban land in Lima in 1971 originated the Self-Managed Urban Community of Villa El Salvador (CUAVES, 1973), which urbanised, organised, built homes and carried out local development in the middle of the desert to the south of Lima. Villa El Salvador was officially recognised as a Municipal District in 1983, it was visited by the Pope in 1985 and it has received international support (Prince of Asturias Award, Spain, 1987). Less well-known, but highly relevant is its Industrial Park –which nowadays hosts more than 1,500 small and medium-sized enterprises–, which contributes to the economic development and social harmony of this new municipality. Villa El Salvador now has more than 400,000 inhabitants

6. Case originally raised by Mario Rosales in 2001 with the support of the Canadian Federation of Municipalities and the Friedrich Ebert Foundation. Later updated (2010, 2011 and 2012).

40

Origin of Villa El Salvador7

In May 1971, two-hundred families invaded unoccupied private lands to the south of Lima. This sparked a fierce conflict with the Military Junta, headed by Juan Velasco Alvarado, which escalated with the arrival of thousands more families over the following days. The people were moved to a nearby area of desert, close to the sea and the Pan-American Highway, some 25 kilometres south of the centre of Lima.

Since its beginnings, Villa El Salvador has been an example of an exceptional social process characterised by the strong organisation of its people. The Self-Managed Urban Community of Villa El Salvador (CUAVES) is structured from the bottom up in a pyramidal form supported by the leaders of each block and sector where the families live. At the end of the 1970s –when Villa El Salvador already had 125,000 inhabitants– the thousand blocks of housing that existed at the time had 5,000 active leaders. Thus, the residents organised themselves and created the capacity for self-government, pressure and negotiation.

7. Video and history of Villa El Salvador available at: “http://www.munives.gob.pe/Videos/ HistoriaVillaElSalvador/HistoriaVillaEl%20Salvador.htm”. And a video about the Industrial Park at: “http:// www.munives.gob.pe/videos/pives/pives.htm”.

An agreement8 signed on 11 May 1971 with the central government not only involved recognition, but also the transfer of residents from Pampas de Lurín and the later channelling of support. The ‘planning stage’ enabled the organised occupation of the space provided, establishing areas for housing, business, recreation, agricultural production and, in particular, land for the future Industrial Park. However, the space earmarked for installing large and medium-sized industries did not attract external companies for various reasons: weak service infrastructure, unstable social image and lack of technical, financial and political support.

One of the most important achievements of Villa El Salvador’s development process is that it went from being a movement of residents, led by a territorial organisation (CUAVES), to becoming a municipality, which meant that both the central government and Parliament recognised the territory and its inhabitants’ organisations capacity for self-government. In fact, on 1 June 1983 the national government passed a law creating the Municipal District of Villa El Salvador and on 1 January 1984 the City Council took office –after being elected in November 1983– led by the first mayor of Villa El Salvador, Michel Azcueta.

8. “After several days of conflict, agreement was reached between the Housing Ministry and a resident’s committee. The agreement involved the voluntary abandonment of the lands taken over in return for relocation”. See appendix 2.

41

Having a local government reinforces the municipality and allows it to establish new contacts, win allies and work with the central government, institutional public and private stakeholders and the international community to attract resources and various types of cooperation. Among the development actions promoted by the newly created municipality of Villa El Salvador was the creation and efficient running of an industrial park.

From 1986 –during the term of Michel Azcueta, an ex-teacher of Spanish origin–, the municipality and Producers’ Association –whose members include Villa El Salvador’s craftspeople and workshops– redesigned the park to focus on micro-businesses and home workshops. They also secured the strategic support of the United Nations Industrial Development Organisation (UNIDO), which granted aid for setting up the Industrial Park.

History and evolution of the Industrial Park

The growth of the Villa El Salvador Industrial Park has gone through five stages, defined as follows:9

1. “The initial period, between 1971 and 1975, coincided with the military regime of Juan Velasco Alvarado and could be called ‘the planning stage’. Its greatest achievement was to raise awareness within the population about the need for such an area… for activities that would generate employment and would benefit the entire community. Together with the residential zone and the agricultural forest zone, the industrial zone became part of the ‘founding myth’ of Villa El Salvador.”

2. “The second period, from 1975 to 1985, spanned the presidential terms of Morales Bermúdez and Belaúnde. From May 1976, the management of the Industrial Park fell to the Ministry of Housing. Selecting qualifying beneficiaries and assigning plots was the responsibility of the Ministry of Industry (MICTI), while the National Building Company (ENACE) financed the work, adjudicated the plots and recovered the investment. In 1976 part of the industrial zone was invaded by a ‘population overflow’ and by

9. Taken from “El Parque Industrial de Villa El Salvador”. Es mi Perú, 5 January 2008, with a map of the Industrial Park. “http://esmiperu.blogspot.com/2008/01/el-parque-industrial-de-villa-el.html.”

42

land speculators. In May 1977, the State awarded the Industrial Park area to private companies, which were to take over responsibility for its development.”10

3. “The third period ran from 1986 to 1991, when the local government and a coalition of producers’ associations stepped up their efforts to regain control of the Industrial Park for the community, arguing that it was part of Villa El Salvador’s integrated development plan. The mayor, Michel Azcueta (who was re-elected in 1986 for a new three-year term in office), and the Producers’ Association ran a campaign to refocus the park towards small businesses. The United Nations Industrial Development Organisation (UNIDO) played a decisive role by providing technical assistance and institutional support for refocusing the project and securing sources of

10. The story continues: “The state agency in charge of the project did little to implement these plans. On the contrary, 160 hectares of the Park were used for housing programmes. In 1980, under President Belaúnde, the industrial zone was transferred to the Ministry of Industry, reformulating the Industrial Park project, which was to be focused on ‘advanced technologies’. The main objective was to foster the creation of private export companies and generate new sources of employment. Private investors did not show interest or even erect a perimeter fence around their plots, in addition it took time to install basic services such as water and electricity and the economic crisis limited the capacity for attracting private investors”.

funding.”11

4. “The period between 1991 and 1995 […] was rather [...] a time of paralysis due to unfortunate changes in the leadership of the Villa El Salvador Association of Small and Medium-Sized Businesses, whose directors became embroiled in internal political conflict. In March 1991, there were 200 companies operating in the park, while others were building on their plots and providing employment for some 1,200 workers. By the end of 1991 the building work had finished and the service centres for five areas of

11. “UNIDO’s main contribution was the organisational design of the park. The basic criterion was to group the businesses together by area of activity. The UNIDO consultants observed that the industrial area would be the fundamental structure of the park. The preliminary studies identified seven activities: carpentry, metalwork, foundry, clothing, footwear and leather products, handicrafts and the food industry. The Producers’ Association reorganised itself into unions for each activity and different areas of the park were assigned to the seven groups. The UNIDO design created common service centres for each industrial activity that were located close to the centre of each block; these service centres had rather expensive machinery that would have been unaffordable for the small producers, and they offered services defined and controlled by the businesses located within each block, thus it was indicated that these centres would be the common property of the business owners in each block or area of industry. The Industrial Park project was designed to accelerate the modernisation of small-scale production in Villa El Salvador, affirming its links with the ‘formal economy’.”

43

activity (clothing, footwear and leather products, carpentry, metal-mechanical and foundry) had been set up. At the same time the Productive Development Centre was inaugurated to provide capacity-building and services for metal-mechanical activities, and a sales and exhibition centre was opened. In 1991, the Central Association of Entrepreneurs and Micro and Small Enterprises (APEMIVES) published its first directory indicating its members’ versatility in adapting to the new macroeconomic context. A study in February 1991 showed that 42% of APEMIVES members were developing new products and 31% offered new services with their installed capacity.” The situation in the municipality also became critical and there were a string of mayors, which resulted in a large number of small businesses abandoning the park.12

12. “During the municipal government of the Movimiento Independiente Obras (1993-1995), Villa El Salvador entered a crisis of governability when an arrest warrant was issued for mayor Jorge Vásquez Torres, just seven months into his term of office, as the courts had found him guilty of embezzling funds from the municipality Villa El Salvador. In January 1994, the deputy mayor César Soplin took over as mayor, but he was forced to resign in February of the following year when a warrant was issued for his arrest, thus illegally leaving the position of mayor to councillor Wilder Sánchez. In September 1995, the National Electoral Board named councillor Ricardo León Paulino as mayor. The successive change of mayors, who also acted as presidents of the Autonomic Authority, the withdrawal of support by the Ministry of Industry and the

5. “From the end of 1995, work began to renovate and consolidate the Industrial Park. This period was marked by a more stable political atmosphere with the re-election of Michel Azcueta as mayor in November 1995, winning 58% of the votes. Azcueta’s fundamental goal during this period was to promote industrial and economic development, which resulted in the Villa El Salvador Integrated Development Plan (1995-2005). One of the first measures was to reactivate the Industrial Park with the creation of the Business Development Centre, designed to process specialised information about markets and technology, as well as provide business services (marketing, technical training, communication, legal advice, accountancy, etc.).” “In 1997, in a move to support small businesses (Villa El Salvador’s local development actors) the municipality set up a scheme to reward SME excellence in three categories: SME businessperson of the year, best young entrepreneur and best female entrepreneur. In 1999, an internationalisation award was created to recognise successful entrepreneurs exporting their products abroad. This same year saw the development of the trade fairs: Estudiantil, EXPOPYME, Posibilidades, Villa Mueble and the footwear and leather fair.”13

troubled climate of violence in the sector, led to a large number of small businesses abandoning not just the Industrial Park, but also the District of Villa El Salvador.”

13. “Of all of them, the one that stands out is

44

The text concludes: “The Industrial Park is an ambitious, long-term project that is unprecedented in the history of Peru. There is no other place in Peru that brings together such a unique combination of efforts to promote industrialisation on a small scale. In fact, Villa El Salvador has been a testing ground for policies aimed at reducing urban poverty in Peru.”14

Expansion of Villa El Salvador

Catapulted by its success as a social movement of residents seeking to resolve their housing and employment problems, Villa El Salvador has systematically grown in size and number of inhabitants. In 1972, it had 73,000 inhabitants; by 1981 that number had increased to 134,000; in 1993 the population numbered 255,000 and grew again to reach 350,000 in 2000. Today there are more than 400,000 people living and working in Villa El Salvador. Because of

the Second National Fair of Micro and Small Industry EXPOPYME 99, which brought together 280 exhibitors (in 1998, the number of exhibitors was 125) and was attended by almost 170,000 people. The level of sales reached US$ 1,500,000, some 50% more than was achieved in 1998. The exhibitors won contracts and signed agreements for future sales for an additional amount estimated at 2 million dollars. The producers’ relocation to the Industrial Park enabled living conditions in the residential zone to be improved, eliminating the negative effects associated with air pollution, traffic congestion, the disposal of industrial waste and noise nuisance.”

14. Ibid.

this huge population increase, the new residents vastly outnumber the district’s founders and the early traditions and social networks have been weakened. The Industrial Park now hosts approximately 1,500 micro-businesses, which produce more than 500 diverse products that are sold throughout Peru or exported abroad.

Strengths

• The support of the social movement, CUAVES, which has an integrated vision of development, and the subsequent support of the recently created municipality.

• Early organisation and installation of Villa El Salvador’s craftspeople and small businesses in the Industrial Park.

• Leadership and development vision of the municipality of Villa El Salvador and of its mayor, re-elected for two non-continuous terms in office, Michel Azcueta.

• Municipal development plan, with the early incorporation of the productive component.

• The municipality’s capacity for forming alliances and mobilising support from the central government, private agencies (NGOs) and international organisations (UNIDO, Cooperation of Canada, Europe).

45

Weaknesses

• The park’s operational sensitivity to political and social crises.

• Conflict between the CUAVES social movement and small businesses (to a certain extent: local planning vs. market).

• Insufficient training, technical and financial assistance for improving product quality and gaining better markets and prices.

• Strong pressure from migration and population growth, which have generated social instability in Villa El Salvador.

Results

• Effective operation of the Villa El Salvador Industrial Park, with approximately 1,500 businesses spread across 388 hectares, producing 500 different products, and including permanent sales centres, exhibition rooms, banks and restaurants.

• Technical assistance and investment from the central government (US$ 6.44 million), from the United Nations Industrial Development Organisation and other international organisations (US$ 2.34 million).

• Innovation that enabled quality to be improved and exports to Ecuador,

Associations and professional guilds in Villa El Salvador Activity

1 ADEICOSUR Association of Promoters, Entrepreneurs and Industrialists Various

2 ADIAPIVES Villa El Salvador Industrial Park Artisans’ Association Handicrafts

3 AFAPIVES Villa El Salvador Industrial Park Association of Foundries and Related Businesses Foundry

4 AMITAVES Villa El Salvador Association of Micro-workshops and Artisans Various

5 APC-PIVES Association of Footwear Producers and Related Businesses Leather and footwear

6 APEMIC Association of Small and Micro Enterprises Various

7 APEMICOVES Villa El Salvador Association of Medium-sized Textile Businesses Clothing

8 APEMINAVES Association of Small and Medium-sized Enterprises Food

9 APEMIVES Central Association of Entrepreneurs and Micro and Small Enterprises Central

10 APIMEAVES Association of Small Metal Businesses Metal-mechanical

11 APROPIVES Industrial Park Property Owners’ Association Various

12 ASIMVES Villa El Salvador Association of Woodworking Businesses Carpentry

13 ECOPIVES Villa El Salvador Industrial Park Association of Ecology and Ornament Ecology

14 OPPEMIAVES Organisation of Industrial Park Property Owners and Similar Various

15 SEPIVES Villa El Salvador Industrial Park Organisation of Businesses Consortium

16 Territory 9 President of Territory 9

Source: Villa El Salvador Industrial Park

46

Chile, Argentina, Bolivia, Brazil, Italy, Germany and Spain.

• Integrated model of territorial development generated by an organised social movement (CUAVES) which created a municipality, approved a strategic development plan and incorporated housing, town planning, services, environment and local economic development issues.

3. Vegetable export production in Almolonga, Guatemala15

“The Almolongan man and youth see themselves as daring people who will try many things in order to make money. They have the idea that they must excel. They are competitive, hard-working and do not like wasting their time on activities they consider idle. Moreover, they are austere and this is reflected in their lifestyle. This concept can also be seen in their daily productive activity.”

Local Productive System of the Municipality of Almolonga. University of San Carlos, Guatemala, 2008.

15. This text is a summary written by Mario Rosales –from FLACMA’s Latin American Observatory of Decentralisation– with information from the report Sistema productivo local del municipio de Almolonga. University of San Carlos, Guatemala, 2008, and other sources.

Summary

Almolonga, a small Guatemalan municipality of 20 square kilometres with almost 14,000 inhabitants, is an interesting case of endogenous development based on the production, marketing and export of vegetables. The vegetables are produced by rural Mayan families who obtain up to three harvests per year, which they distribute across Guatemala or export to other Central-American countries. Other important local actors are intermediary traders, carriers and some supply shops. The producers have a strong entrepreneurial family culture reinforced by Protestant Christian beliefs, but they do not receive any important external aid, either from the municipality, the government or private institutions. Nevertheless, Almolonga remains strong and its producers have spread into neighbouring municipalities, renting or buying up additional arable land. The valley’s good environmental conditions (it is located at an altitude of 2,200 metres and has a sufficient supply of water) makes it possible to obtain three harvests per year, which notably increases production and ensures the region’s great productivity.

47

Almolonga’s production and exportation of vegetables

Since the 1950s, the Mayan municipality of Almolonga, Guatemala, with 13,880 inhabitants, has had an intense family-based agricultural industry focused on growing vegetables, which are exported to Honduras, El Salvador, Nicaragua, Costa Rica and even Mexico. The production comes mainly from family businesses and 50% of the population are economically active. Almolonga’s producers have expanded into neighbouring municipalities, where they rent additional lands to increase production.

Although the local vegetable producers form the area’s economic base, transportation companies and traders are also employed to deliver the goods and act as intermediaries for various products, and there are also mechanical workshops, around ten supply shops, a market and two banks.

The family plays a key role in the area’s productive activity, with the fathers organising and managing production, his sons helping with irrigation, fumigation, fertilising and cleaning tasks and the women –in addition to running the house– preparing food for the group, participating in the harvest, sorting the produce and helping to sell it in the market square. In addition to the family’s efforts, workers from neighbouring municipalities are usually employed.

An important element is the active presence of Protestant churches, which

have helped to reinforce the locals’ frugal and responsible behaviour and entrepreneurial nature. According to some reports, evangelical churches arrived in the second half of the last century and helped to reduce the level of alcoholism and improve family relationships with their religious practices.

Almolonga’s production has spread into the neighbouring municipalities of Quetzaltenango and Totonicapán, where farmers rent lands and purchase vegetables from the other municipalities of Quiché, Huehuetenango, San Marcos and Quetzaltenango. In addition to vegetable production, other important elements include money orders sent back from migrants to the USA and the generation of income from hot water bathing services which much of population benefits from. All of which contribute to the economic success of this municipality.

Almolonga’s limitations stem from the dominance of a traditional culture of entrepreneurship which, although valuing the capacity for individual work, places little or no importance on organisation and collaboration between producers, or on technical progress. The local government does not get involved in or promote activities to support local producers on the understanding that economic development is not a municipal issue. Nor are there networks of private institutions –not for profit or otherwise– which help small rural producers.

48

To sum up, the area’s productive activity is dynamic, but traditional, and there is a serious lack of institutional support networks to help productive activities and innovation. Furthermore, the municipality’s economic progress has not led to improvements in education and health services, partly because the traditional culture does not place enough importance on these areas to improve productivity. The new generations of young people, rather than become producers, instead dream of emigrating to the United States to work, save money and buy a pickup truck or lorry in order to work as intermediaries.

Conclusions16

• “The municipality of Almolonga is a local productive system, but it is only partially so in social and cultural terms, as there are many weaknesses in its organisational capacity as a territory. Almolonga has no formal or informal cooperation networks in the economic area... The municipal government lacks initiative in the promotion of local economic development and principally in the strengthening of the territory’s organisational capacity.”

• “Socially speaking, Almolonga is moving towards changes in generational thinking, especially in

16. Selected paragraphs from the study Sistema productivo local del municipio de Almolonga. University of San Carlos, Guatemala, 2008.

young people. Thanks to the economic success achieved over the years, many young people have received a basic and varied education, in many cases to university level; this means that they do not want to work as farmers but would rather work in the service sector. This has led to changes in the workforce and in the reproduction of the productive system, which to a great extent has been based on the transfer of knowledge from generation to generation within the same family. Furthermore, many young people hope to travel to the United States, acquire the money to buy a vehicle and focus on working as carriers.”

• A critical limitation of “the local productive system is the territory’s environmental vulnerability which –according to secondary studies, interviews, observations in the field and photographic documentation– stems from the risk of landslides, mudslides and floods. An additional threat is the constant erosion of the soil that results from the sloping ground, deforestation and the failure to employ soil conservation techniques.” “On a municipal level, there is no treatment of organic and inorganic waste, as the municipal treatment plant is not working and the current local authorities have not proposed any measures regarding its repair.”

49

4. Resettlement and regeneration of the old quarters of Santiago de Chile17

Summary

Between 1940 and 1990 the commune of Santiago –centre of Greater Santiago and political capital of Chile– deteriorated, lost population and its service infrastructure became underused, resulting in high economic and social costs due to the migration of its inhabitants. From 1990 onwards, the municipality and the private Santiago Development Corporation (CORDESAN) led a process of neighbourhood regeneration and resettlement involving collaboration and alliances between the municipality, civil society, private companies and the central government. As a result of this strategy, 97,000 new homes were built between 1990 and 2008 in a bid to attract and retain population, and improvements were made to the urban environment, yielding economic, social and environmental benefits. This neighbourhood resettlement and regeneration had a positive impact and revitalised the municipality’s local communities thanks to the mass construction of homes and the creation

17. Case systematised by Mario Rosales based on field visits, interviews and secondary information in 2001 with the support of the Canadian Federation of Municipalities and the Friedrich Ebert Foundation. Updated in 2010 and 2012.

of a university zone, the reactivation of commerce and services and the support given by the territory’s existing businesses and public administrations.

The resettlement strategy

In the early nineties, the central area of Chile’s capital –the commune of Santiago– was run-down and under-populated, especially the oldest neighbourhoods. The number of inhabitants fell from 450,000 in 1952 to 231,000 in 1992 (Carrasco, 1997).18 The houses in the area were being used as warehouses, and were either rented out in parts or simply left empty. In contrast, the population of Santiago’s greater metropolitan area –with 34 communes– had grown to 6 million inhabitants, who established themselves in new urban settlements in the outlying communes. The extension of services to these outlying areas resulted in high town planning costs, whereas each new resident in the commune of Santiago would save the State US$ 6,124 (Valenzuela, 2004)

18. Carrasco, Gustavo: “Despoblamiento, deterioro, cambio de rol. Comuna de Santiago 1930-1990”. Boletín INVI, no. 30, May 1997. According to Carrasco, the poorest sectors of the city residing in tenements around the centre of Santiago moved because of “the mass eradications at the end of the 1950s”; urban regeneration planning at the start of the 1960s; eradications of squatter settlements in the 1960s and 70s (for example: shantytowns on the bank of the River Mapocho), demolition of houses after the earthquake in 1985, installation of warehouses, workshops, commerce, industries, car parks and services.

50

as this central commune already had good infrastructure, varied transport links, complete services and facilities, green areas, commerce, universities and technical institutes, in addition to being the centre of private banking, business and national government and thus eliminating the need to invest in extending the city outwards.

At the beginning of the 1990s, the municipality –under the new mayor, Jaime Ravinet– decided to reverse the depopulation of the commune by launching an Urban Development Strategy created by the Catholic University (although without consultation with the community) and the private Santiago Development Corporation,19 (led by the mayor himself). The strategy mobilised businesses, universities, banks, commerce and housing cooperatives who all worked together under the leadership of the municipality. The Santiago Convention was later created to update the Development Strategy, bringing together 16,000 managers in hundreds of meetings in order to analyse the problems and propose solutions. During this convention, the development proposal underlying the resettlement programme was restructured and validated. The first actions carried out to launch the resettlement programme were:

19. The public-private Santiago Development Corporation, CORDESAN, was created by law to address the damage caused by the earthquake that devastated the city in 1985.

• The construction of Los Reyes Park, using municipal resources and Spanish cooperation funds, transforming the south bank of the River Mapocho (previously occupied by shantytowns) into a large green area and enhancing the north-west district where the resettlement was due to begin.

• The Santiago Development Corporation (CORDESAN) set up a Land Bank –a land registry offering buildings and land at market prices– and an Application List, with the names of families interested in buying property in the commune.

• At the request of the municipality, the Ministry of Housing created an urban renovation subsidy that awarded approximately US$ 8,000 (UF 200) to each family buying a home in the commune. This award was added to the deposit that each family applying for a mortgage had to put down in order to buy a home in Santiago.

• Private banks provided mortgages of up to 25 years to finance the part of the cost of the home not covered by family savings and the State subsidy.

• The municipality and CORDESAN ran a high-profile campaign to improve the image of the commune and publicise the advantages and benefits of living there.

• The housing cooperative ‘Habitacoop’, a strategic partner in the programme, began building the first apartments

51

for the families on the waiting list, and they were later joined by private developers in the mass construction of new homes.

With these initiatives, a positive dynamic was generated in which companies bought land and old houses to build new homes to meet the existing demand. The municipality and CORDESAN –which acted as a forum for public-private cooperation– facilitated the process, providing information and coordinating agreements with private stakeholders, encouraging the organisation of users and their families and investing in the organisation and regeneration of the central neighbourhoods.

Parallel actions that facilitated the resettlement process

Another important driver behind the resettlement process were the Advancement Committees created in 20 of the commune’s neighbourhoods. These committees facilitated the involvement of various actors including citizens, neighbourhood organisations and the different private stakeholders in the area. The committees helped to generate neighbourhood planning actions based on the stakeholders’ demands and different territorial alliances, such as:

• The relocation and formalisation of street vendors in the Franklin neighbourhood and centre of Santiago. The municipality negotiated with traders’ organisations and helped

them acquire bank loans to purchase premises in various shopping centres that were specifically built to relocate them.

• The transformation of the city’s old rail terminal into the Mapocho Station Cultural Centre –a private and autonomous organisation that was initially operated with public funds, but which gradually became self-financed.

• The elimination of conflictive services (the prison and the old bus terminal in the city centre) with private companies signing agreements with the municipality and the government to create new offices by renovating old buildings.

• An alliance between the municipality and several universities and training centres to create the República University Zone, by renovating the existing architectural heritage in an area of old palaces and historic family mansions.

• Furthermore, the municipality helped to revitalise the commune’s classic neighbourhoods (Londres, Concha and Toro) by encouraging private property owners to invest in and renovate their properties while preserving traditional building styles.

• A street-improvement programme, based on agreements with residents, to improve common areas and the facades of houses paid for with joint contributions from the municipality and

52

the owners of the chosen properties.

• The reconstruction and painting of old facades along the city’s main roads, with the municipality contributing to the design and the property owners providing the investment.

• The remodelling and pedestrianisation of the centre of Santiago, with the agreement and financial support of businesses located in the sector who contributed to municipal resources.

The resettlement of Santiago is considered a successful intervention initiated in the 1990s to address the commune’s deterioration and population decline, and which reactivated the economy by generating new dynamics in the central commune of Santiago.

Evolution after the year 2000

Although the municipal governments from the year 2000 onwards continued to apply the model without any great alterations, this was in fact a weakness, as some serious shortcomings had already been identified by this time, such as the expulsion of low-income population, slow resettlement, the negative effects of the mass construction of high-rise apartments and urban social dynamics.

Contrary to expectations, the 2002 Census indicated a drop in population in the commune of Santiago, which fell from 230,000 to 200,000 people. If one considers the 26,000 homes that were built up to 2001 –which could house 68,000 people–,

this meant that the process of population decline had not been reversed and the mass construction of homes had in fact displaced the previous inhabitants, whether due to the demolition of their old homes or the rising cost of living in Santiago.20

20. The 68,000 potential new inhabitants expected up to 2001 was in fact reduced by half if one considers that 50% of the new apartments were inhabited by families from the commune.

Commune of Santiago: building permits for new homes 1990-2008

Year Homes built per year Total homes built

2008 17,000 97,223

2007 11,530 80,223

2006 14,794 68,693

2005 10,996 53,899

2004 8,738 42,903

2003 4,715 34,165

2002 3,055 29,450

2001 3,610 26,395

2000 2,472 22,785

1999 1,189 20,313

1998 3,600 19,124

1997 5,012 15,524

1996 2,521 10,512

1995 4,658 7,991

1994 1,122 3,333

1993 948 2,211

1992 779 1,263

1991 314 484

1990 170 170

Data: CORDESAN. Created by M. Rosales

53

In the years following the 2002 Census, the construction of homes increased, peaking in 2008 with a record 97,000 new apartments built since the start of the process, with potential capacity for more than 200,000 inhabitants, half of whom would have to come from outside the commune.

The municipality confirmed that the mass construction of apartments –almost all of them sold and inhabited– was reversing the population decline, although this could only be empirically verified with data from the new Census in 2012. To sum up, the mass construction of high-rise housing in neighbourhoods previously occupied by single-story houses, added to the profound transformation of the surrounding area, is generating complex social dynamics in which entire neighbourhoods are changing or are essentially being reborn.

The continuation of the resettlement model by the mayors who came afterwards, rather than being a good thing, could in fact be considered a mistake. Although the creation of thousands of new apartments and the regeneration of the neighbourhoods and urban areas continued, the dynamic that has been generated needs to be reviewed, both due to the negative effect of the radical transformation of the areas targeted, and because of the displacement of the previous population of the commune.

North-south direction of the mass construction of apartments

The construction of thousands of new apartments started in the north of the commune, in the neighbourhoods of Balmaceda, Brasil, Yungay and in the historic quarter (at the top of the map), moving south towards the neighbourhoods of Lira, Almagro, Ejército and República (in the middle of the map). The southern neighbourhoods have been less affected by the process, although they have also experienced growing construction of high-rise apartments.

The neighbourhoods in the north of Santiago are home to the city’s oldest and most valuable urban heritage –close to the historic quarter– which highlights the need for a review of the strategy. In fact, the mass construction of apartments –designed to provide housing for disadvantaged social groups– conflicts with the need to protect and care for the most valuable urban heritage, as has fortunately occurred in the neighbourhoods of República and Concha and Toro, where there have been conversions, but without damaging the historic buildings.

To summarise, the public-private alliances behind the renovation of the commune of Santiago –with private investments of more than $3 billion– have also generated negative effects which recent local authorities have not reacted to. This raises doubts about the relationship between global public policies and the dynamics

54

generated by successful public-private alliances.

Strengths

• Constitution of public-private alliances between local government, central government, private construction companies, commercial banks, universities and neighbourhood organisations for building homes and intervening in old neighbourhoods within the commune of Santiago.

• Citizen participation, as a counterpart to municipal actions, which began with the Santiago Convention (1990) and continued as improvement work was carried out on the neighbourhoods, streets and facades of homes and buildings.

• Mobilisation of private resources for managing and financing the programme (commercial banks, developers, families). In 2008, investment in homes was estimated at more than US$ 3 billion (the municipality of Santiago has an annual budget of US$ 110 million).

• A resettlement plan as part of a commune development strategy and the (public-private) Santiago Development Corporation (CORDESAN), which acts as a co-executor.

• Positive emulation among the neighbourhoods and their organisations and the multiplier effects spreading out

to neighbouring communes which have replicated the strategy.

• Since 2000, when Jaime Ravinet’s last term in office ended, the process has continued under new municipal authorities run by different political parties to the initiating mayor.

Weaknesses

• It is difficult to maintain participation in certain neighbourhoods when applying the policy of no municipal intervention without the active involvement and contribution of the neighbourhood stakeholders.

• Drastic changes to the urban landscape, with the loss of old buildings and alteration of traditional urban dynamics.

• Many low-income families have been forced to leave the commune of Santiago because of rising property prices and rents.

• Mass construction of small apartments in high-rise blocks, in relation to the old houses that previously occupied the commune, with a negative impact on the urban landscape and the social dynamics of the affected areas.

55

Results

• Resettlement and renovation of the commune of Santiago with the construction of 80,000 new apartments and a private investment of over US$ 3 billion, commune population increased by 30,000 people (pre-2012 Census estimations), improved neighbourhoods and urban infrastructure and revitalisation of economic activity and services.

• Planning and improving the urban space with a positive impact on the environmental due to less population commuting into the city centre every day (reducing the number of journeys in the urban area); relative reduction of pollution and traffic congestion; formalisation of street trade; more green spaces and pedestrian areas.

• Strong participation and contribution by the community, civil society and private companies through the Santiago Development Corporation; the 1st and 2nd Santiago Convention; the neighbourhood Advancement Committees, and the involvement of private stakeholders in urban interventions.

• Design and application of an urban planning model which has transformed the commune of Santiago and produced multiplier effects in neighbouring communes and other cities across the country.

• Reactivation of positive economic and population dynamics in the commune of Santiago.

5. Tourism and environmental development in the port of La Libertad, El Salvador21

Summary

La Libertad is a municipality of 36,000 inhabitants, located just a few minutes from San Salvador, the capital of El Salvador. For decades it was the country’s main commercial port, but after losing this status at the end of the last century, La Libertad had to reorganise itself and revitalise its economy. The mayor Carlos Molina (representative of the FMLN party), formed an alliance with the central government (held by the ARENA party), and the local private sector to promote the transformation of the city into a national and international tourist port. In six years of action the local government has achieved some important results, including resolving the problem of solid waste disposal, and has made economic gains.

21. Case raised by Mario Rosales based on field visits, interviews and secondary information for a seminar on local economic development organised by COMURES and the Canadian Federation of Municipalities (FCM), February 2012.

56

Origins and evolution of the port of La Libertad

La Libertad, in El Salvador, is a municipality of 36,000 inhabitants located 35 kilometres from the capital, San Salvador. For many years it served as the main port in this Central American country. However, when the new port of Acajula, with its three modern docks, was built between 1970 and 1975, La Libertad lost its position as the principal loading and unloading point for international trade goods.

Nevertheless, La Libertad, with its fishing pier, beaches and restaurants dotted along the coastline, was also a traditional tourist destination frequented by many of the inhabitants of the neighbouring capital, who took advantage of its proximity, easy access by main road and its tradition of fine cuisine. This popularity as a tourist destination protected the town from the serious impact of losing its position as the country’s main commercial port.

La Libertad’s seafaring origins permeate the image and operation of its tourist activities. Like many other coastal shipping towns, it had a rather informal appearance, with many unpaved streets and a string of untidy restaurants blocking the ocean views. There was not enough public parking and the existing hotels were inadequate. It is certainly true, however, that the local cuisine was highly renowned, but it was served in a rather disorganised, informal and unsafe fashion.

Five years ago, an alliance was formed

between the municipality of La Libertad –led by the mayor Carlos Molina, from the left-wing FMLN (Farabundo Martí National Liberation Front) party– and the right-wing central government held by the ARENA party (National Republican Alliance), to make a joint investment of almost US$ 13 million to build a large modern tourist seaside promenade to tidy up the space and provide new buildings to house restaurants, a theatre, a shopping centre, a long promenade, green areas and secure parking. The mayor took the project up eagerly and initiated works to transform the old shipping and fishing docks into an area for recreation and the sale of fresh fish, regional products and handicrafts.

However, the transformation of La Libertad was not easy. Local restaurant owners resisted the project as they were concerned that the construction work would drive away their customers. Likewise, the local craftspeople, small traders and street vendors selling food were suspicious of this large-scale project, fearing that they would find themselves pushed out by modernity.

The municipality publicised the project and negotiated with local stakeholders to gain their support and contributions for the renovation. Mayor Molina’s two three-year terms in office –initiated in 2006– span the period from the construction of the boardwalk area in collaboration with the central government and with the support of local hotel and restaurant owners, small businesses, traditional fishermen and residents, until the present

57

day with the promenade and tourist pier fully operational.

Anyone who knew La Libertad in the past, would probably not recognise the attractive town if they visited it again today and the only point of reference they would find is the old shipping dock, now transformed into a revamped promenade and market selling fresh fish and handicrafts.

It is important to highlight that when mayor Molina took charge of managing the project, the municipality was facing financial problems caused by the closure of the old commercial port. The question was raised about how the municipality was going to regain financial balance and obtain investment resources. La Libertad took advantage of a national policy of landfill closures –agreed by the national government and the Corporation of Municipalities of the Republic of El Salvador (COMURES)– which were to be replaced with a limited number of new and modern landfill sites spread across El Salvador.

An area of the municipality’s extensive rural land was selected for the construction of the new landfill site that would receive not only the municipality’s solid waste, but could also accept waste from other neighbouring municipalities as a service paid for at market prices.

The modern landfill site in La Libertad today serves 13 nearby municipalities that have had to close their own sites and need to dispose of their waste correctly. Thus,

what began as a problem for La Libertad –the disposal of solid waste– has become an opportunity to generate income that has boosted municipal coffers and provided funding for various investments.

Strengths

• Leadership of mayor Carlos Molina, driving the transformation of a former commercial export-import port into a tourist area, taking advantage of its proximity to the capital, San Salvador, located just 35 kilometres away and the international airport.

• Capacity for building a broad public-private alliance with the central government and the local business community, traders, craftspeople and small producers to promote the project to transform and modernise the promenade, pier and town centre.

• Community participation in the different parts of the project to recover the most typical elements of the local culture: street-vendors’ carts selling drinks, typical handicrafts, areas for traditional fishing, singers and dancers, and shopping in the town centre.

• Using the construction of the new municipal landfill site to sell services to 12 neighbouring municipalities, thereby obtaining resources for investing in building works and improving municipal services.

58

Weaknesses

• At the start of the project, resistance from the owners of restaurants and other tourist businesses who were concerned that the construction work would drive their regular customers and tourists away.

Results

• Investment of more than US$ 13 million in the construction of a seaside promenade and tourist pier with 126 new businesses; 1,260 families have benefitted; tourist port as a national and international attraction; creation of a joint police force; providing a venue for sporting events; activation of daytime and night-time tourism.

• Construction of the Melara municipal landfill site which serves 13 municipalities and 16,670 inhabitants, including La Libertad, generating regular municipal income. The landfill competes by offering lower costs than the country’s private sites.

• The PATI project, run with national employment promotion funds, which has benefitted 1,170 people by installing vegetable gardens, cleaning beaches and painting murals.

• Central Park: investment of US$ 280,000 spent on a stage for holding events, gardens, a children’s playground, area for young people, shopping zone, and street furniture.

• Mario A. Molina Training Centre: 632 professional training grants (gastronomy, hotels, waiters, barperson); 480 people qualified as cooks; 136 computer grants; 80 grants to eradicate child labour and additional work.

• Chain of four sports centres, with an investment of approximately US$ 1 million.

• Large private investments in new restaurants, hotels and tourist services which have increased the services and facilities offered and consolidated the new vocation of this town and municipality.

6. Textile mills and school uniforms in Ecuador22

Ecuador has undergone profound transformations since the new Constitution was approved in 2008 after a debate lasting more than 15 months and involving hundreds of professionals and parliamentary members. It should be noted that Article 1 of the Constitution defines: “…as popular and solidarity economy, all individual and collective economic forms and practices that are

22. Case described by Rafael Urriola based on documentary information and interviews with qualified sources (2012).

59

self-managed by their owners who, in the case of groups, also have the quality of workers, suppliers, consumers or users of the same, prioritising human beings, as the subject and purpose of their activity, focused on a good way of living, in harmony with nature, over profit and the accumulation of capital.” (This was later defined more precisely).

According to Ochoa (2010), the draft Bill from the Institute of Popular and Solidarity Economy (IEPS) establishes that: “Popular economy is understood as the group of individual and family ventures dedicated to producing goods and services for their own consumption or for the market, with the aim of generating income for the livelihood of those involved, by means of self-employment, and the collective forms of economic organisation, self-managed by their owners who are associated as workers, suppliers, consumers or users, in order to obtain income or a livelihood in activities focused on a good way of living, rather than making a profit or accumulating capital.”

The Social and Solidarity Economy Movement of Ecuador (MESSE), in turn, states that: “it is a form of harmonious coexistence between people and nature which satisfies human needs and guarantees sustainability of life, with a holistic approach, through the strength of organisation, using ancestral knowledge and practices to transform society and build a culture of peace.”

The constitutional precepts include supporting the Popular and Solidarity Economy (PSE) by promoting, developing and driving the production, distribution and consumption of goods and services and access to production assets in order to contribute towards achieving a good way of living (or buen vivir in Spanish). Within the current definitions, the PSE and small businesses are to a certain extent synonymous and therefore the following quotes should be viewed from this perspective.

In a clear attempt to promote small businesses, article 288 of the Constitution establishes that: “Public procurement shall meet criteria of efficiency, transparency, quality and environmental and social responsibility. Priority shall be given to domestic products and services in particular those originating in the PSE, and micro, small and medium-sized production units.” The PSE Institute, created in April 2009, has identified institutional and bureaucratic barriers preventing small businesses from becoming preferential State suppliers, therefore, it is necessary to develop a public policy to determine within State institutions the products and services that the PSE can supply with special privileges in the procurement process.

With this in mind, regional economic development programmes have been created to introduce projects built by PSE actors in a coherent, complementary and coordinated way with strategic allies in the public and private sector, thereby avoiding the dispersion and duplication of

60

resources in projects that do not share a common thread.

Finally, the Popular and Solidarity Economy Bill was put before the National Assembly in March 2011. Among its main institutional and financial innovations it created the Popular and Solidarity Financial Sector Liquidity Fund, which can issue emergency loans to cover temporary liquidity deficits in these organisations for periods of no longer than 120 days and which do not exceed 10% of the trust assets nor 100% of the beneficiary’s assets.

In addition, a deposit insurance system was set up to protect deposits made by members of the organisations in the sector, as part of the Deposit Insurance Corporation (COSEDE) established by the Creation of the Financial Security Network Law, by setting up a specific fund.

It was decided that, without affecting the incentives that the general legislation recognises in favour of popular and solidarity economy organisations, the State will foster, promote and award incentives to people and organisations covered by this law, with the aim of fostering and promoting their development in the framework of the social and solidarity economic system.

School uniform project in the framework of the popular and solidarity economy (PSE)

The main objective of the Hilando el Desarrollo (Weaving Development) project is to achieve universal basic education by giving away free uniforms to children in rural schools throughout the country’s provinces, thus encouraging them to enrol in schools, and generating a model of economic inclusion by forming links with actors in the popular and solidarity economy. The beneficiaries are:

• Children in schools located in rural areas and with the highest level of unmet basic needs.

• Actors in the popular and solidarity economy: artisans and micro-businesses in the area’s textile sector (Hilando el Desarrollo Aid Report, 2011).

The project launched in Ecuador to produce school uniforms within the framework of the Popular and Solidarity Economy (PSE) –unlike the other cases selected in this study– has a particular characteristic: the fact that the basic initiative arose from a strategic public decision taken by the central government, which began by defining support for participative projects focused on very low-income sectors in the Constitution of the Republic. Basically, this support involves addressing a need (school uniforms for public schools pupils from low income families) with materials produced by –and therefore, favouring–

61

small production units (family businesses).

The general process is shown in the following table.

In April 2009, a law was passed to create the National Institute of Popular and Solidarity Economy (INEPS) as a public legal entity attached to the Ministry of Economic and Social Inclusion. The INEPS works in coordination with the National Institute of Public Procurement (INCOP) to ensure that this constitutional mandate is enforced, defining the following mission: “Support the Popular and Solidarity

Economy by promoting, developing and driving the production, distribution and consumption of goods and services and access to production assets, in order to contribute towards achieving a good way of living.” Since 2007, a series of provincial, regional and national socialisation workshops have been held to prepare the law in the context of the National Plan for Good Living (Buen Vivir in Spanish), which promotes a social, solidary and sustainable economic system offering equal opportunities in a plural economy.

PRIVATE SECTOR: AITE - CAPEIPI – TEXTILE COMPANIES - COACS - ECOLOF - NGOS

HILANDO EL DESARROLLO CIRCUIT 2011

RAW MATERIAL GENERATIONUNIFORM

PRODUCTIONDISTRIBUTION AND

CONSUMPTION

PSE actors. Small textile companies

5,0001,013,039 kits

MINISTRY OF EDUCATION

(527,978,505)

SCHOOL CHILDREN(1,013,039)

Textile manu-

facturers(20)

Dyers(30)

Yarnmanu-

facturers inEcuador

(2)

Yarn producers

• India• Pakistan• Malaysia• Indonesia

Source: National Institute of Popular and Solidarity Economy of the Ministry of Economic and Social Inclusion

62

Initial evaluations of this initiative repeatedly identified institutional and bureaucratic barriers that could prevent PSE actors becoming preferential suppliers to the State, and highlighted the need for a public policy to determine which State products and services PSE actors could provide with preferential treatment in the procurement process (a change in civil service culture). Along these lines, a new legal framework was developed. For example, Ministerial Agreement 0262, which enables production proposals developed by PSE actors to be co-financed and which allows enterprises identified in participation with PSE actors to be promoted.

Included among these enterprises are territorial economic development programmes designed to create projects with PSE actors in a coherent, complementary and coordinated way with strategic allies in the public and private sector, thereby preventing the dispersion and duplication of resources in projects that do not share a common thread.

In March 2011, the president of Ecuador, Rafael Correa Delgado, presented the draft Popular and Solidarity Economy Law to the National Assembly, as an urgent economic matter. The Bill was designed to recognise, promote, strengthen and protect the popular economy for the common good based on the principle of solidarity.

The project covers individuals, legal entities and other forms of organisation

which, according to the Constitution, make up the popular and solidarity economy and the public institutions responsible for guiding, regulating, controlling and monitoring them.

Therefore, the provisions of this law are not applied to guilds, professional, labour, cultural, sporting or religious associations, among others, whose main social objective does not include engaging in economic activities involving producing goods or providing services.

Among the main innovations, as previously mentioned, are the Popular and Solidarity Financial Sector Liquidity Fund and the Deposit Insurance System. It was decided that, without affecting the incentives that the general legislation recognises in favour of popular and solidarity economy organisations, the State would foster, promote and award incentives for people and organisations covered by this law, with the aim of fostering and promoting their development in the framework of the social and solidarity economic system.

The project also established the Inter-institutional Committee, as the steering body of the popular and solidarity economy; the Popular and Solidarity Economy Superintendency, as technical organisation with national jurisdiction, in the form of a public legal entity with its own assets and administrative and financial autonomy and coactive jurisdiction.

The law contains aspects relating to

63

the forms of organisation (community, association and cooperative) and popular economic units (individual, family and domestic enterprises, retailers and craft workshops), which conduct economic activities involving producing goods and providing services that will be promoted by encouraging association and solidarity.

In any case, the concepts that have been developed are still open to debate. With regard to the subjects, firstly the idea is that the beneficiaries will be enterprises linked to small companies (individual, family or community) providing for their own consumption to meet basic needs based on the idea of ‘Good Living’ (Buen Vivir in Spanish or Sumak Kawsay in Kichwa.)

A second more idealistic viewpoint proposes a responsible relationship between people and nature (similar to the concept of sustainable development) based on organisation and ancestral practices (of culture, traditions, customs, etc.) which lead to the construction of a fairer society.

“We are a country that has started to value our solidarity economy enterprises (not create them, but recognise them)”, indicate IEPS texts. In fact, the popular economy generates 60% of total national employment and it is most visible in rural areas, with 70%, while in urban areas it reaches 55%, and in private areas, 3%.

In March 2011, the Hilando el Desarrollo workshop was held, as part of the Public Solidarity Market programme, during which national textiles producers were

able to demonstrate their skills and abilities for making school uniforms for public schools. Participating in the workshop were craftspeople from the provinces of Imbabura, Pichincha, Cotopaxi, Chimborazo, Bolívar, Cañar, Azuay, Loja, Santo Domingo de los Tsáchilas, Los Ríos, Esmeraldas, Manabí, Guayas, Santa Elena and El Oro. During these workshops, contracts for purchasing rural public school uniforms were agreed for an amount in excess of two and a half million dollars. 366 workshops were chosen to produce the uniforms, generating 1,692 jobs in the 15 provinces listed above.

Through these workshops, national producers gain an opportunity to engage in decent and valued work that fosters working in partnerships as part of the popular and solidarity economy. In June 2011, officials from the Provincial Department of Education in Azuay and from the National Institute of Popular and Solidarity Economy of the Ministry of Education and Ministry of Economic and Social Inclusion (MIES) explained the requisites that micro, small and medium-sized textile producers in the province would have to meet for the production of 55,000 uniforms under the 2011-2012 government procurement policy for goods and services for State institutions.

In another province, Guayas, in February 2011 the Hilando el Desarrollo inclusive fairs were launched, through which the national government initiated the procurement processes to purchase uniforms needed by students in coastal

64

areas in order to start the following school year. The Hilando el Desarrollo programme was designed to provide free school uniforms for schoolchildren in the country’s rural areas.

During this fair, contracts were signed for the production of 50,000 uniforms for students in Azuay, which would be distributed among pupils at primary and secondary schools (urban and rural), and all levels of the country’s Millennium Educational Units.

The programme, therefore, is the result of joint coordinated action between the Ministry of Social Development Coordination and MIES, through the National Institute of Popular and Solidarity Economy. In addition, it is supported by the following public institutions: the Internal Revenue Service (SRI), the National Institute of Government Procurement, the Ecuadorian Government Procurement Service and the National Development Bank (BNF). It is also backed by the following private institutions: the Ecuadorian Textile Industry Association (AITE) and the Pichincha Chamber of Small Industry (CAPEIPI), independent textile companies, non-governmental organisations and savings and credit cooperatives (COACs).

The General Coordinator of School Administration is the operational unit of the Ministry of Education. In 2011, it invested US$ 27,978,504 in providing free school uniforms, benefiting 1,013,039 children all over the country.

The procurement process is decentralised and is the responsibility of the regional and provincial education departments, technical colleges and rural education networks in the various provinces. Under the terms of the relevant laws, procurement processes were implemented through a system of quotations, minor works and services and inclusive fairs.

In order to reduce levels of exclusion and inequity in the public market, to promote the activity of micro and small business units, to diversify the mechanisms for economic exchange and encourage complementarity and solidarity, in 2011 the ‘inclusive fair’ public procurement process represented 57% of the total budget, facilitating the economic inclusion of 1,168 small producers on a national level and generating 5,992 temporary jobs. This was reflected in support from MIES-IEPS:

• Training 1,500 small producers in the inclusive fair public procurement process.

• Technical assistance for 57 inclusive fairs.

• Coordinating technical and administrative training for 500 craftspeople by SRI and SECAP.

• Strengthening 92 associations.

• Channelling 108 lines of credit (US$ 737,400) through the BNF, COACs and NGOs.

65

• Fostering local development in 23 provinces.

• Promoting citizen oversight in 57 inclusive fairs.

Furthermore, with the aim of generating an economic inclusion policy for PSE actors involved in the programme, in June 2011 MIES-IEPS signed cooperation agreements with the National Development Bank (BNF) to the value of US$ 447,690, through 61 national lines of credit. The general results are shown in the following table:

Summary of Hilando el Desarrollo 2011

Improvement

2010 2011

2,350 temporary jobs improved. 5,992 temporary jobs improved.

1,450 people trained in the procurement process.

1,500 people trained in the Inclusive Fair procurement process.

400 craftspeople trained in the tax passport educational programme system in 12 hours by the SRI.

240 people trained in technical aspects.

US$ 737,400 in credit arranged for 108 people through BNF, ECLOF and the Nueva Esperanza Cooperative.

No existing credit articulation.

Marketing

2010 2011

100% of the procurement process via minor works and services and quotations.

57% of the procurement process of the total investment through the inclusive fairs.

Production

2010 2011

235 small crafts producers hired. 1,168 small crafts producers hired.

2 associations participated in the process.

92 associations participated in the process.

Consumption

2010 2011

946,296 children received free uniforms.

1,013,039 children received free uniforms.

66

7. Summary of cases

The following table summarises the characteristics of each case in terms of the operation and functioning of its micro, meso, macro and meta levels, allowing a multiple comparison to be made.

Thus:

a) Rafaela, Argentina, is the experience with the greatest systemic character, relative development and degree of consolidation. At the same time, it is the oldest case linked to the arrival of immigrants from the north of Italy during the second half of the 19th century who worked in livestock rearing and agriculture. Today’s city, with 100,000 inhabitants, now has hundreds of small and medium-sized businesses –supported by an important network of public and private institutions–, some of which have export capacity (mainly car parts and pieces). Its weaknesses are related to management problems in the weakest companies, a lack of expansion of the overall productive system (slow creation of new businesses) and the difficulty of spreading the knowledge acquired to other Argentinian territories so that they can emulate this successful strategy. One of Rafaela’s addition strengths is its municipal influential capacity and good relations with the central government, which it has maintained for years, thus enabling it to compensate for the problems of

national macro-policies with specific support actions in moments of crisis in the national and global economy.

b) Villa El Salvador, Peru –urban municipality in Lima with 400,000 inhabitants–, shows extremely interesting achievements and is a LED experience started at the beginning of the 1970s involving groups of farmers and poor immigrants from the Peruvian Sierra. These immigrants organised themselves, urbanised and planned the territory, generating a municipal district and creating an industrial park for small businesses. Today, Villa El Salvador’s development has ground to a halt due to a lack of continuity in the support policies implemented by the municipal and national governments and because of a split that has appeared between the municipality and the small businesses in the park. The question arose of how local (and regional) governments could implement stable and permanent support policies that transcend party political cycles and are therefore sustainable over time. After the success it achieved in its first decades, the park (and territory) now seems to have been forgotten by public policies. One serious problem is that mass migration has meant that Villa El Salvador’s original inhabitants –pioneers and constructors– now number less than a quarter of the population, which helps to explain the conflict and rift that has formed between the local government –which basically represents the new population– and the Industrial

67

Characteristics of the cases, their limitations and difficulties

Micro level (characteristics, companies and production)

Meso level(services in the territory)

Macro level(national economic policies)

Meta level(business values, public ethics, solidarity)

Difficulties for LED strategies in the territory

Rafaela, Argentina. 100,000 inhabitants. 432 businesses. Goods for the domestic market and exportation (car parts and transport equipment).

Banks, industrial chambers, municipal authority and the IDB support the businesses with services.

National policies do not affect Rafaela and key support is obtained through political networks.

Strong entrepreneurial culture originating in the actions of European migrants, there is innovation.

- Rafaela’s small size affects its economic dynamism.- Slow creation of businesses and technical progress.- Lack of major support from the provincial and national public sector.

Villa El Salvador, Perú. 400,000 inhabitants. 1,500 small businesses. Goods for the domestic market (clothing, leather and footwear, furniture, metal-mechanical).

Strong initial municipal, national and international support (UNIDO), but not stable, or institutionalised.

There are macro policies, but they lack stable national support systems (policies).

Traditional entrepreneurial culture, collaboration networks, although very little culture of innovation.

- Strong pressure and demand from new immigrants.- Weak local policies to support LED.-Conflicts between local authorities and the Industrial Park

Almolonga, Guatemala. Indigenous municipality of 14,000 inhabitants. 230 small agricultural producers grow vegetables for the domestic market and exportation.

There is no effective municipal or national support. Only supply companies provide some advice and training.

There are no effective and stable national policies to support small producers.

Traditional farming culture, austere and entrepreneurial with ethical-religious (Protestant). components.

- Weak local and national LED support bodies.- Low level of training of farmer-producers.- Little collaboration between producers.- Lack of local strategic vision.

Santiago, Chile. Central municipality of the city, with 190,000 inhabitants. Construction of 100,000 new apartments, a university zone, parks, formalisation of street trade, revitalisation of the commune’s economy.

Alliance between municipality, private development corporation, central government, banks, construction companies, universities and NGOs. Participation of neighbourhood organisations and citizens.

Support from the central government by means of subsidies for building homes in the city centre to regenerate old, run-down neighbourhoods.

The model was based on public-private-social alliances which encourage the contribution of resources by the stakeholders in the territory, making the resettlement model sustainable.

- Difficulty of maintaining participation.- Expulsion of poor families and erosion of neighbourhood social networks.- Mass construction destroyed part of the traditional architectural heritage.- Model not modified by the municipality to correct shortcomings.

La Libertad, El Salvador. Traditional port town with 36,000 inhabitants that was transformed into a tourist destination and a tourist boardwalk and pier were built. Municipal landfill site sells services to 12 municipalities and increases municipal revenue.

Municipal commitment and policies to integrate all the stakeholders and benefit the population by improving services and creating social programmes.

National government, through the Environment Ministry, invested and supported the transformation of the commercial port into a tourist area. Also the local social programmes.

Fostering entrepreneurial spirit by encouraging the installation of businesses and supporting small producers to formalise their situation and join the project.

- Difficulty of securing the private sector’s collaboration in the tourist port project. - Increase of floating population during holiday periods and at weekends which adds pressure to environmental and security services.- Long-term environmental risks of the municipal landfill site for 13 municipalities.

Various local organisations in municipalities in Ecuador5,992 temporary jobs improved.In 2011, 1,013,039 children received free school uniforms.

1,500 people trained at inclusive fairs.400 craftspeople trained in the tax passport educational programme.US$ 737,400 in credit for 108 people through the BNF, ECLOF and the Nueva Esperanza Cooperative.

Rafael Correa, president of Ecuador, presented the draft Popular and Solidarity Economy Bill before the National Assembly (March 2011).

Popular economy according to the common good and based on the principle of solidarity.

- Lack of resources and bureaucracy in the financial bodies and public departments of the Ministry of Education.- Lack of LED strategies in the territories the clothing producers are based in.

Source: analysis of the cases. Created by the authors

68

Park –conflicts that have been worsening over recent years. In any case, this shows that it is possible to build, maintain and make competitive a park of small and micro-businesses generated in an area inhabited by the poorest sectors of the population.

c) Almolonga, Guatemala, is a case or process initiated in the second half of the last century which shows the great potential for development that exists in some groups of farmers and indigenous people in Guatemala. Despite its dynamism and export achievements, the experience is maintained almost exclusively by the capacities of local agricultural producers who do not receive any effective support from the municipal government, or from national policies in their favour: only the production capacity of the farmers and the dynamism of the market keep this experience alive. Therefore, there is great potential for expansion that could be achieved if stable local and national support is generated and if public-private service networks and linkages are created to ensure that the positive economic effects filter down to the population by improving and extending public services in education, health and infrastructure. Nevertheless, it has been shown that because they have a suitable productive environment –in this case lands that sustain several harvests per year–, the region’s indigenous smallholders can grow and expand their businesses.

d) The commune of Santiago, Chile, with 190,000 inhabitants. After a successful start in the 1990s when public-private alliances were formed to generate the economic and social dynamism that triggered the mass construction of apartments and the planning and regeneration of a municipality (the historic centre of a capital city that had begun to lose population), the resettlement process was slow to take effect. The data gathered prior to the 2012 Census show that 20 years after it began –and after having built 100,000 new homes– the depopulation trend in Santiago is just starting to reverse. However, the municipality has not corrected the negative effects of the resettlement programme, such as the expulsion of low-income families, the destruction of social networks and the identity of certain neighbourhoods, the loss of architectural heritage and the lack of clarity regarding the vocation and future of the central commune of Santiago. Nevertheless, through its neighbourhood resettlement and urban planning schemes, the capital municipality of Chile has revitalised its economy.

e) Port of La Libertad, El Salvador, with 36,000 inhabitants. Since 2006, the municipality and central government have been working together –with the support of local private stakeholders– to convert this traditional historic port into a tourist destination. The results support a gradual and informal process of change of production profile that

69

has been taking place over several decades. Now the local authorities and government are helping to consolidate the emerging tourist city model while preventing its dynamic from being conditioned only by the market. The economic dynamism –restructured through joint action carried out by the local and central government– is not limited to taking advantage of the territory’s tourist profile as La Libertad has also built a municipal landfill site and is selling this service to neighbouring municipalities in the urban area of the national capital, which generates new and stable municipal income.

f) Small clothing producers in various parts of Ecuador, maintained by State purchasing power, are an atypical case. They have been included because the method is part of a national policy to build a social and solidarity economy through national laws and policies. Complemented by regional LED support actions, this experience could be an interesting strategy for supporting those territories with a concentration of productive activities likely to be sustained by public purchasing capacities. However, the strategy does not currently seem to properly consider specific regional development actions in those areas where there is a concentration of clothing producers supported by a national policy.

The table on the following page compares the different dimensions of social cohesion, considering the elements

in the guide Identification, Systemisation and Exchange of Successful Experiences in Local Social Cohesion, published by the URB-AL III Programme OCO, which identifies these key issues:

• The productive-occupational dimension.

• The social dimension of access to services.

• The territorial dimension of reducing territorial imbalances.

• The civic dimension of developing active citizenship.

By studying these very varied situations it is possible to identify some additional findings and reflections that may serve as preliminary considerations for a LED-SC strategy and which are detailed in the following chapter:

• First of all, the cases indicate that in many regions there are effective opportunities for growth and development that have not been detected or encouraged by national policies and that existing prejudices regarding the inability of local actors (public and private) is hindering or delaying their full empowerment. Urban Villa El Salvador and rural Almolonga are notable cases of endogenous development in poor regions with indigenous or farming populations, groups that traditionally have been denied the capacity to generate endogenous development.

70

Possible interventions for improving local social cohesion

Dimensions of social cohesion

City of Rafaela Villa El Salvador Industrial Park

Indigenous municipality of Almolonga

Commune of Santiago de Chile

Port of La Libertad

School uniforms in Ecuador

Productive and occupational dimension: equal access to employment and the benefits of economic growth.

Expansion of the business support sector to generate complementary employment and economic dynamics.

Substantially improve local and national policies to support the Industrial Park (meso-level development).

Establish and implement local and national policies to support small producers and LED process (meso-level development).

Improve local services and infrastructure to attract new population and national and international service companies.

Lack of a development strategy to protect the tourism and environmental profile and attract investment and installation of tourism companies and services.

Develop sustainable LED policies in territories with a concentration of clothing producers.

Social dimension: universal access to basic social services and public safety.

Improve coordination of public services (education, health, social services) with policies to promote LED (integrated networks).

Coordination of public services (education, health, social services) with policies to promote LED (integrated networks).

Coordination of public services (education, health, social services) with policies to promote LED (integrated networks).

Improve education services (public and university), health, safety and neighbourhood networks.

Improve education, health and safety services in line with local development needs.

Develop policies to coordinate public services with a LED strategy (development of the micro and meso level and integrated networks).

Territorial dimension: reduction in territorial imbalances.

Disseminate Rafaela’s experience and policies in other Argentinian territories to generate LED effects.

Disseminate Villa El Salvador’s experience and policies in other territories, which could also reduce the impact of migrations.

Disseminate and extend the experience in neighbouring territories to obtain LED effects.

Santiago has advantages over other territories; it must reduce inequality between the city’s neighbourhoods.

The dynamism of tourist and recreational development enables regional inequality with the rest of the country to be reduced.

Validate and consolidate LED strategies and dynamics.This improved programme could be extended to other areas and territories

Civic dimension: developing active citizenship.

Greater integration of civil society in LED dynamics and policies.

Regain the capacity to work together in public-private-civil society alliances affected by political conflict.

Establish policies and actions that allow civil society to be integrated into LED policies and actions.

Municipal educational and university system and community networks should form and consolidate civic behaviour among Santiago’s residents.

Tourism development requires the civic and ethical behaviour of the inhabitants to generate a pleasant and safe environment.

In territories with a concentration of clothing producers, establish LED strategies and coordinate the participation of civil society and citizens.

Source: six cases of LED. Created by the authors

• Secondly, the cases show that stable policies to support the production sector created by regional institutions –particularly local governments– help to boost productive activity and can be decisive for the sustainability of the experience and for overcoming temporary economic downturns or crises.

• The development of small businesses in Villa El Salvador would not have been possible without the initial territorial planning carried out by the social organisation CUAVES, which set aside the space for the Industrial Park, and without the local government’s efforts to transform the original project for a large-scale industrial park (which failed to attract big companies) into a site

71

for the region’s own small producers and microenterprises. In Rafaela, the municipality played a key role in organising and integrating small producers into the production network and business activity. In La Libertad, municipal leadership was vital for taking advantage of public investment opportunities and transforming the commercial port into a tourist destination. In Santiago de Chile, the local government led the resettlement programme and successfully coordinated public and private stakeholders. In contrast, in Almolonga the fragility of the experience is reflected in the lack of local and national public support, and in Villa El Salvador the local government, which initially backed the project, has now sadly distanced itself from the producers in the Industrial Park.

• The existence of a meso level –made up of institutional networks to support productive activity operating in the territory– does not only contribute to the economic dynamism and sustainability of the production company sector, it also provides institutional density, added value and decent employment. Institutional LED support networks in Rafaela strengthen its businesses, generate regional knowledge networks and deliver public health and education services –which undoubtedly aid productive development–, but they also create new jobs, provide stability and contribute to social cohesion.

• The analysis of these experiences reveals the existence of an economic cycle that threatens businesses, as well as a political cycle that often changes national, regional and local policies and disrupts guidelines and development strategies and policies. This political cycle –which has not been sufficiently addressed in analyses from a LED perspective – generates changes that could be as dramatic and negative as any economic crisis. In Rafaela, this change has not occurred and the local government has been able to maintain good relations with the national government. In Santiago, however, a change of political party in the local government although not leading to the termination of the resettlement experience –as it had already been institutionalised– has weakened municipal capacity for adjusting the model, which is starting to show cracks. The Villa El Salvador Industrial Park boom coincided with governments led by mayor Michel Azcueta, but subsequent changes of mayor have contributed to the conflict between the authorities and producers.

• LED is not purely a production experience, it is an integrated process. In addition to economic activity, LED occurs when the population as a whole views the generation of businesses and the creation of employment as essential development goals, as has already been the case in Villa El Salvador. As already mentioned, LED is linked to the existence of the meso sector –which also generates employment–,

72

to the provision of social and cultural services for the population (such as education and health) and to the dissemination of an entrepreneurial culture, which plays a key role in Rafaela, with the contribution of immigrant entrepreneurs from Italy, or the evangelical churches of Almolonga, which helped to establish a productive culture based on a strong work ethic.

• The group of cases observed allows us to verify that the concordance between national and local policies is usually circumstantial. The political cycle that encourages the democratic renovation of both national and local authorities does not help LED. The precarious Latin American institutional culture links the renewal of the elected authorities to an almost obligatory change of development strategies –if they exist at all– in all levels of government. This is a great obstacle in the way of both national State policies and effective long-term development strategies and plans in intermediate and local levels of government.

73

III A. Conclusions

This document presents very diverse experiences of LED with the aim of establishing potential compatibility between local economic development strategies and social cohesion policies. This study compares situations and evaluates the possibility of extending the application of successful components by suggesting policies that make the most of the conditions or areas in which the experiences analysed show strengths and, therefore, have the capacity for replication taking into account the conceptual and practical elements of LED and SC.

It should be noted, however, that this chapter is not just a summary of conclusions, but a development of the conclusions taking into account the conceptual framework set out in chapter 1 and the examples presented in chapter 2. Likewise, the second part of this chapter summarises the relevant policy proposals which, according to the authors, could strengthen both LED and SC.

With regard to the selection of projects in the area of economic competitiveness, LED considers that local entrepreneurial capacities should be reinforced to add value to both traditional productive sectors and emerging activities. Thus, there are no sectors that are excluded a priori from LED initiatives, although a central element from an economic point of view is that there are business capacities and certain comparative advantages in order to approach the task.

Furthermore, local stakeholders should be empowered and social participation by the population must be encouraged, thus connecting LED with areas of social cohesion.

a) Conceptual compatibility of local economic development and social cohesion

In essence, LED proposes that local entrepreneurial capacities can and must be activated and boosted in order to add value to traditional productive sectors (agriculture, handicrafts, small and medium-sized businesses) and to emerging activities (renewable energies, caring for the environment, protecting local heritage and culture, tourism), thereby generating new productive enterprises and numerous jobs. Unfortunately, as most local economic activities are on a very small scale –low added value, limited level of coordination, low income–, national development policies have instead tended to support larger productive activities, prioritising the generation of added value, disregarding the fact that these initiatives generally create only limited numbers of jobs.

As previously mentioned, this study has adopted the definition of SC provided by the URB-AL III Programme Orientation and Coordination Office: “A socially cohesive community on any scale, whether local, regional or national, depends on its members sharing a sense of inclusion and belonging, participating actively in public affairs, recognising

III. Conclusions and policy recommendations

74

and tolerating differences and enjoying a degree of equality in access to public goods and services and the distribution of income and wealth. All of this should take place in an environment where institutions generate confidence and legitimacy and where the rights of citizenship are fully exercised.”

Consequently, the goal of both conceptualisations is the inclusion in productive processes and social improvement –using participative methods– of the stakeholders and population of a territory. There are also similarities between both concepts when national agencies define, in the framework of SC, support for vulnerable groups and under-developed entities –small businesses, marginalised communities, neglected areas, municipalities without resources and others–, which could apply a LED strategy, which in turn, supports sectors with greater relative vulnerability. Therefore, promoting local economic development, as a way of aiding territorial development, enables or strengthens social cohesion because it reduces economic and social exclusion.

As previously discussed, LED combines economic dynamics –productivity, competitiveness, comparative advantages, relative prices and access to markets– with socio-cultural factors linked to the opportunity cost of the proposal, i.e., the social, cultural and territorial elements of the location in which the LED project is to be carried out. The simultaneous application and development of LED and social cohesion (in which the beneficiaries

are those who are most vulnerable and generally the first to be excluded) is one of the main contributions proposed by this document, which adds and strengthens the positive value based on a more decentralised and articulated role played by the State. Political and technical support for local projects provided by national budgetary planning is not enough in itself; the success of these projects correlates with the political commitment and activities of local governments and territorial networks of LED support institutions.

When evaluating the concepts, with regard to strengthening social cohesion through the introduction of LED policies, it can be concluded that the concepts of social cohesion and local economic development are compatible, complementary and have mutually reinforcing positive synergies. Therefore, we should not wait for a specific level of social or institutional maturity before launching LED policies, as the presence of conditions for developing an experience or project also indicate the potential for social cohesion, citizen participation and possible commitments between actors that are not necessarily visible in earlier stages.

b) Importance of endogenous capacities and production and social articulation

There are numerous interesting examples of local development in Latin America –some of which are described in this document– and also in the rest of the world.

75

Many of these cases draw attention from outside their own borders, as is the case of the territory of Mondragón, in the Basque Country (Spain), both due to its great economic contribution and for the positive effects gained from greater social cohesion. More than 250 businesses in the Mondragón territorial cooperative corporation generate almost €14 billion per year and employ more than 84,000 people. The Mondragón cooperative industrial complex was created in the 1950s and its businesses have continued to grow and expand. Today the group is present in several countries throughout the world, including Latin America. Being a cooperative organisation, the wellbeing of its members and their families is an ever-present goal which contributes to social cohesion in the territories where it has arisen.23

Likewise, in China –whose economic growth is currently astounding experts– “…the most dynamic areas of the economy are the social and cooperative economy sectors, businesses that do not sell shares or offer dividends, and which are owned by municipalities or small cities, non-profit societies” (Navarro López, 2007).24 Here we also find the ingrained presence of productive apparatus and local institutions in the territory, such as municipalities and cooperatives.

Local economic development is a complementary option, different to

23. See: «http://www.mondragon-corporation.com/» 24. See: «http://www.eumed.net/rev/china/»

the classic concepts of development or territorial development through regional planning. With LED, the aim is to activate development mechanisms based on local, or endogenous, capacities even if these are not maximised. Furthermore, LED makes a more sustainable contribution towards reducing poverty as its fundamental resources come from within the same territory.

In most of the cases selected –Rafaela, Villa El Salvador, Almolonga, La Libertad– it is clear that local economic development has been generated through the activity of local producers, driven by their need for employment and income, when the rest of the national or regional productive system does not offer alternative opportunities for satisfactorily meeting their needs.

In fact, local economic development is not an exceptional situation; on the contrary, it is a normal part of life in the territories, where the inhabitants usually engage in various types of productive activities to address to the problems of providing basic goods and generating regular income. The difference can be explained when the national authority ‘intervenes’ to boost opportunities in these sectors, which generates a virtuous circle for taking advantage of endogenous capacities. However, it is a matter for debate whether the activities in these cases are territorially sustainable given that political changes can reverse the initiatives.

Considering the cases presented and the existing literature, an important finding

76

from this analysis is that the success of these LED initiatives is strengthened when there are local social actors linked to cohesive ventures and even more so if they are supported at a macro level.

c) Territorial and regional aspects

It is widely known that small businesses and microenterprises provide most of the employment in Latin American countries; therefore, their presence, operation and consolidation have a strong influence on maintaining basic social equilibrium, even if their contribution to the total product is rather low and their productivity levels fall below national averages. It is, therefore, evident that this area has important potential for development, despite being generally overlooked.

However, owing to the concentration of consumer markets in large cities and the dynamics of globalisation, the emphasis of development policies has been placed on supporting medium and large businesses located in important urban areas or large industries dedicated to extracting raw materials, to the detriment of intermediate

and small cities and those in rural areas. Thus, territorial economies have been sidelined and their potential has not been tapped. In fact, the advance of neoliberal thinking, which grants full decision-making power to the markets, has delayed or even eliminated lines of territorial development, also known in the French school of the 1970s as aménagement du territoire (spatial planning). The European crisis, in particular the high rates of unemployment in some EU countries since 2009, should be an incentive to reconsider territorial development reflections and proposals.

Nowadays, experts and territorial organisations agree that local economic development cannot depend solely on local resources, it should instead tap into and channel resources from outside the immediate area, as –although the idea is to boost territorial capacities– it is essential for the local economy to become increasingly integrated into national and international markets, as is the case with Mondragón that was mentioned above and those of Rafaela and Almolonga, among the cases analysed. The local economic development approach could

Cases of endogenous dynamism in LED

Territory Endogenous dynamism

Rafaela (Argentina)

Small agricultural producers (originally migrants from the north of Italy) develop local capacities for producing simple agricultural tools and machinery, which results in the development of greater industrial capacities.

Villa El Salvador (Perú)

Informal producers of consumer goods (footwear, clothing, leather, food and metal-mechanical) organise themselves to set up a small business industrial park increasing their production and markets.

Almolonga (Guatemala)

Indigenous farmers take advantage of the comparative benefits of their territory (good soil, abundant water and several annual harvests) to increase their vegetable production and gain national and internationals markets.

La Libertad(El Salvador)

Small businesses originally set up within an import/export port turn themselves into tourism companies –with hotels, restaurants and various tourist services– in order to survive the closure of the commercial port.

77

be wrongly considered as an autarchic project but, on the contrary, it is designed to strengthen the endogenous dynamic by connecting it with global environments.

To sum up, if part of the phenomena of exclusion that social cohesion (as a public policy) aims to resolve can be expressed in the abandonment of regions or cities and their respective inhabitants, then LED policies merge completely with those of SC.

d) Levels and types of intervention

Local economic development is a proposal that addresses the problems of the territory itself and those if its producers from a viewpoint that goes beyond purely local aspects. In fact, various levels of analysis and intervention have been identified and should be considered, activated and included in territorial development policies for social cohesion purposes.

• The ‘micro’ level, where entrepreneurs, social actors and productive activities are located and carry out their activity, i.e., within production and labour spaces under business management. We should mention that at the micro level, the decisive role is played by the actors themselves, because at this level the public offer is expressed in an exogenous way, i.e., the actors respond to a given demand.

• The ‘meso’ level, made up of territorial institutions, their policies and actions,

or basically, the public and private and regulatory support organisms that maintain and encourage productive activities. This includes financial services, technical services and those providing businesses with supplies; local government policies and actions to disseminate the benefits of development among the local population by training the workforce, providing healthcare for workers and their families, and systems to support productive innovation and modernisation, among others. Development involves not only macroeconomic policies and improvements and changes on a microeconomic level; it also requires strategies, policies and actions at a meso-economic level (or intermediate level), which is where decentralised local governments are located and engage in strategic alliances with socioeconomic agents.

• The ‘macro’ level, comprised of national government development policies (interventions), which lay the ground rules for the operation of the economic system, including free trade agreements, tariffs, tax and monetary policy and even the definitions for regional policy (which is generally understood as the government strategy on economic matters). Also at this level we find the institutions, laws, policies and national processes that directly or indirectly foster or hinder local economic development.

78

• The recent literature also incorporates the ‘meta’ level, which is essentially the stakeholders’ values, attitudes and behaviours with regard to LED. It encompasses the cultural values towards development that are expressed and shared by diverse groups in society. These values include: social recognition of economic success (the role of the entrepreneur versus collective action, for example); criticism of predatory behaviour and free riding when individual action threatens social development; society’s priorities for long-term investment in education and training; acceptance of investment and saving. LED also depends on the strength, direction and persistence of these values. It is undoubtedly apparent that this level is profoundly ideological and cultural and that the population’s adoption of ‘hegemonic’ values (in a Gramscian sense) depends on their universality, i.e., encouraging their adoption by recognising diversity.25

• The different interventions and levels of action interact dynamically, reinforce each other and become systemic in nature. Thus, public interventions related with LED transcend the purely productive aspects of the businesses operating in the territory and are

25. As an example of a ‘meta’ level intervention, consider the very topical debate generated by the depth of the crisis in Europe which revolves around whether recovery is possible through individual effort or if greater public involvement is essential.

connected with the meso, macro and meta levels (in LED language), also including the ideological-political beliefs of the local authorities towards eradicating poverty and building social cohesion, as shown in the following chart.

e) ‘Meso’ coordination of businesses with public-private services and support networks

Essential aspects of the LED strategy include aligning and complementing micro, meso and macro policies and reinforcing responsible and entrepreneurial values, attitudes and behaviours at the meta level. At the same time, the strategy should foster public-private relations and strengthen public policies by incorporating private initiatives, creativity and resources.

Therefore, the activities of small producers on a micro level are combined with the support policies of local governments and other public and private agencies that help them, providing them with essential services (supplies, technology, credit, innovation and marketing) to improve their operation, development and integration into domestic and foreign markets. In this way, LED aims to promote local producers in the territories by means of decentralised policies, from a second ring of action close to the producers or a meso dimension (see chart above).

Perhaps what most distinguishes LED

79

from other strategies for supporting small and micro enterprises is that it proposes developing stimulus policies adapted to the real situation in each territory, both in terms of providing direct support and services for businesses and improving general public services (education, health, social welfare), which must be constantly adjusted to meet

the needs of the beneficiary producers, workers and families. Therefore, local economic development, as an integrated and complex territorial strategy, helps to strengthen social cohesion and this, in turn, reinforces the economic, social and cultural environment thereby facilitating LED.

Levels of LED

The cultural and value environment is decisive.

The key to local development are networks of institutions that support LED at the meta level.

The activities and services of institutional networks at meta level –supporting companies, education, health, development agreements– not only help LED but also reinforce social cohesion.

The meta level is made up of the values, collaborative culture and social relations that help generate LED.

The macro level is formed of the laws, institutions and national development policies.

The meso level is situated in the territorial and institutional setting surrounding businesses, and it is made up of LED support networks.

The micro level is where production companies operate.

Meta level (institutional values

and culture)

Macro level(national policies)

Meso level(LED support networks)

Micro level(businesses)

80

These meso activities are different from national policies which, because of their design and distance, are standardised to respond to average national needs and are, therefore, unsuited to the specific requirements of each particular territory. It is at this meso level where local economic development strategy and the goals of social cohesion naturally meet and, additionally, it is a useful space for correcting and adapting central public policies.

To summarise, the social cohesion dimension is very important for fully achieving a LED strategy as business services and public assets such as education, health and social protection work together in the same strategic direction to promote the population and businesses as a whole. Therefore, both approaches are totally compatible.

f) Synergies between local economic development and social cohesion

The previous sections of this document have concluded that LED and SC complement each other, but there seems to be a synergy that makes them more powerful. In fact, the cases of Rafaela and Villa El Salvador –the latter in its initial stage before the massive influx of new inhabitants– illustrate this statement. The harmony achieved between economic and social aspects improves social cohesion, which, in turn, reinforces economic and social stability, which helps to generate a suitable climate for developing productive activities, thereby generating a virtuous

circle. This is particularly clear in the case of Rafaela.

Villa El Salvador also accomplished important local development and social cohesion objectives with the creation of its Industrial Park and the generation of employment –complemented by improvements to housing, infrastructure and services–, but these results have been undermined by the effects of a significant increase in population (today in excess of 400,000 inhabitants) that was attracted by this successful experience, and which has resulted in the initial achievements becoming quite meagre. In turn, the financial success of Almolonga’s indigenous farmer-exporters does not seem to have brought about greater social cohesion because of a lack of institutional support for modernising businesses and helping to transfer the positive effects of this economic development to the general population through better services, both in terms of coverage and quality.

Nevertheless, the achievements of LED with social cohesion are not a threshold that is reached and passed once and for all. All progress can be defined as an unstable balancing act that requires constant revision and adjustment of strategies and support actions, which explains why these policies should be decentralised, including as stakeholders the producers, local governments, private and non-governmental organisations and other social actors in the area of the initiative.

In addition to the microeconomic action

81

of businesses and the meso intervention and support of local governments and public and private service-providing institutions, the national government must adjust national macro policies to local economic development needs. This does not normally occur with national policies, which usually have sectoral distortions in which the different ministries and national public entities design standardised polices which are applied indiscriminately in the country without the necessary coordination, specificity or prioritisation among ministries and sectors. It is also unusual to find effective actions for adjusting these policies to the regional and local characteristics and specific needs.

g) The need to foster virtuous interaction between public and private actors

In the same way as the lack of coordination and suitable articulation between local and national territorial

policies hampers the public sector, the same happens with the need to integrate public and private sector initiatives and efforts.

The business sector has its own institutions –not directly linked to the productive sector– which can play important roles in supporting businesses. One of the most important are employers’ union organisations –generally known as ‘chambers’– which coordinate the various production branches whether by productive speciality or by size. In Rafaela, which is characterised by its high density public-private institutional local development support network, the area’s business organisations have played a key role in supporting and promoting their members in alliance with the local public sector and academic bodies. These guild organisations are generally very well organised and wield a lot of influence, in proportion to the resources they introduce into the economy, and they tend not to trust participative, collective and

Social cohesion in Rafaela, Villa El Salvador and Almolonga *

Indicators of social cohesion Rafaela Villa El Salvador(1st phase)

Almolonga

Equal access to goods and public services XXX XX X

Good distribution of income and wealth XXX XX X

Active participation in public affairs XX XXX X

Recognition and tolerance of differences XXX XXX XX

Feeling of belonging and inclusion XXX XX XX

Trustworthy institutions XXX XX X

Score (from 3 to 18 total possible points: a higher score indicates greater social cohesion)

17 14 8

* Social cohesion indicators are present in the definition used by URB-AL III and the scores assigned have been established by the authors based on their observation, analysis and evaluation of the cases.

82

popular institutions such as those usually connected with LED initiatives. Therefore, establishing this coordination can make all the difference and may boost the success of the experience or project (case of Rafaela). This is notable in the case of Mondragón in Spain and in the area of Chianti in Italy, among others.

However, generating understanding and coordination between public stakeholders and their private counterparts is no easy task and it requires overcoming numerous difficulties connected with the diverse institutional cultures, different timings and priorities and the mutual distrust that stems from age-old ideological and political conflicts. Nevertheless, there are net profits to be made by entrepreneurs committed to building a climate of public-private collaboration that helps local businesses place their products on national and international markets, which are becoming increasingly competitive and are constantly evolving.

Public-private collaboration is not only found in the productive and innovative areas of businesses, effective cooperation can also help improve public services, such as education and health, by increasing the level of training in the workforce, the technical capacities of professionals and improving local health systems. It is easier to maintain improvements in productivity and to stimulate innovation when a collaborative culture is generated and consolidated, as this facilitates natural dialogue and cooperation among the various institutional, private, public and

non-governmental stakeholders.

Social cohesion is also strengthened by these practices, if one considers that agreements and coordination among public and private entities to promote LED generally involve territorial actors operating in areas beyond the purely business. In the ABC Region of Greater São Paulo26 (Brasil), municipalities, business organisations, unions, universities and organisations of civil society came together to agree a strategy (Strategic Plan 2000-2010) which enabled them to overcome the risk of businesses closing or migrating to other states or countries due to the loss of competitiveness.27 One of the results of this process was the creation of the Economic Development Agency of the Greater ABC Region, formed of the seven municipalities, plus companies, unions, universities and other civil associations in the area.28

26. The São Paulo ABC Region is made up of seven municipalities that have formed an association and other organisations to aid regional economic development.

27. http://www.consorcioabc.sp.gov.br/institucional/historico

28. http://www.agenciagabc.com.br/grandeabc0709br/agenciagabc/index.php?id=89

83

h) Local economic development strategy goes beyond the merely productive

The documents examined, as well as the history and evolution of the cases analysed, leads to the conclusion that LED transcends the realm of mere production. Support policies implemented at the meso or intermediate level –where we find the municipality and its institutional allies– are essential for maintaining business activity. Although national macro policies ought to generate a suitable national climate for the development of small producers, it is vital that these policies are in tune with the territorial initiatives of local actors and governments. Thus, the different national institutional sectors must be compatible and coordinate with each other, but they must also try to link ground-level initiatives and policies (from micro and meso levels) with those that come from above (macro level).

Likewise, the values and behaviours that foster LED should be learned, disseminated and constantly reinforced: entrepreneurial spirit, collaboration among actors, stable institutions and the trust that the entire population must have in its institutions and authorities, as well as these institutions’ essential accountability to their citizens. The cases show that if local institutions maintain permanent bodies for debating, proposing and evaluating their policies and activities –ensuring that these policies and activities involve the public–, the goals of LED with social cohesion can be developed and consolidated more effectively.

However, those hoping to replicate LED experiences should bear in mind that, in many cases, the resources can be diverted from their objectives. In a world of open and competitive markets –where public control becomes diffuse and difficult– widespread corrupt practices are a permanent risk. Local economic development could be better strengthened if it is linked to positive civic values, such as a productive entrepreneurial spirit (as opposed to merely speculative efforts), social responsibility, collaboration among actors, respect for the environment and the culture of each territory, more accountability and transparency in public and private institutions.

i) The role of innovation in local economic development

LED also awards innovation and systemic competitiveness an important role in energising productive systems. Innovation does not appear and is not disseminated only at the company level but in the entire system, and it should be constantly renewed and perfected to keep up to date with change, continuously adapting to the variations in national and global economic-social environments. In fact, it is the technological innovation of its companies that has kept the experience in Rafaela up-to-date and there is institutional innovation in the case of Villa El Salvador which transformed an informal invasion into a vibrant mini-city with its own dynamic and problems.

84

The waves of innovation that drive local development can be initiated in businesses, but they can also come from the other macro, meso and meta levels of the institutional system to support territorial economic development. Ideally, the different bodies of the State should monitor these initiatives in order to support them when they come up against what are known as ‘bottlenecks’, i.e., insufficient capacity to tackle problems associated with the productive cycle or how this relates to the specific setting (for example, connectivity problems with infrastructure that stop products reaching the market, as observed in the experience in Guatemala). In any case, innovative practices should also have a systemic territorial connotation, meaning that once generated they should be disseminated and applied throughout the whole productive system, so that this operates as a territorial cluster in which improvements in productivity and competitiveness can help all the companies in the territory and the benefits can reach the entire population.

The fact that innovation does not come from the isolated individual action of one company –although it does not exclude it– but from the complex system of institutions that support and are part of it, enables its developments to be used by all the businesses and sectors involved. Likewise, the fact that innovation is generated not only by businesses but also by universities and other stakeholders in the territory aids the development of innovative institutional networks whose existence, in turn, reinforces social cohesion.

j) Local solutions to global crises

LED has become particularly relevant in the current climate, when economic crises are recurrent and increasing in frequency, depth and scope, probably because of the growing complexity and changes in the operational strategies of the markets and the difficulty of regulating economic life in times of globalisation with national economic tools.

Local economies are, in fact, an area of resistance and survival for local communities during these potential global crises. When the local economy is robust, coordinated and has greater horizontal connectivity with suppliers, clients and multiple institutions, crisis situations can be tackled with relatively low social costs. This was the case in Rafaela with the crisis in 2000, during which only four small businesses went bust, which can be explained by the policies implemented by the municipal government, with national support and in agreement with business associations.

It seems obvious to ask national authorities to introduce countercyclical policies in times of crisis but, in practice, central governments usually reduce support programmes for the groups that need them most during an economic slowdown, exactly the circumstances in which local governments must be reinforced. This is necessary both to support hard-hit companies and reduce the negative impact on employment, and to turn the crisis into an opportunity for productive adjustment and innovation.

85

In the case of Rafaela, the fall in domestic prices as a result of the crisis led to an increase in the international competitiveness of local companies producing automobile parts and pieces, which not only enabled them to boost their production levels but also to break into new markets. The commune of Santiago, in turn, opened the door to developers which resulted in stronger neighbourhood activities, especially education, business and services.

k) Conclusion: LED and social cohesion strategies have complementary goals and means

To sum up this section, it can be concluded that establishing local economic development strategies in territories –which involves coordinating public, private and social stakeholders– is totally compatible with social cohesion and, in fact, helps to make it stronger. This can occur within the productive and occupational dimension, through access to jobs and the benefits of economic growth with equity; in the social dimension, improving access to basic social services and citizen security, whether by increasing income or gaining greater influence with national authorities by increasing awareness among citizens; in the territorial dimension, by reducing territorial imbalances; and in the civic dimension, by building more active citizenship.

Cohesive territorial communities have better conditions for development. The

operation of collaborative institutional and social networks and the existence of a civic culture of trust between people and institutions help to create an ideal climate for businesses to flourish and generate decent employment.

86

III B. General policy proposals

This section presents the policies shown to be the most effective for developing a combined LED-SC strategy. They are a selection that was identified during the analysis of the case studies and other similar experiences.

a) National decentralisation processes must continue and be intensified

To stimulate LED –as a development strategy that can increase social cohesion– it is necessary to re-launch and reinforce national decentralisation processes that are currently on hold or being questioned in several countries in Latin America.

As discussed above, LED requires the existence and effective operation of a meso or intermediate level which, on the one hand, supports local businesses and, on the other, links family services to business needs: such as general education and innovative entrepreneurship and health and social welfare services offered to workers and their families by establishing public-private alliances and cross-sectional institutional networks to support LED.

In the 1980s several Latin American countries began decentralisation processes to strengthen municipalities, democratise local power and improve territorial governance. Various countries made important progress, but there are some in which decentralisation has reached greater levels, thereby favouring

local governments and their territories, such as in Brazil, Colombia, Bolivia and Peru, where the possibility of supporting local development from the municipality is actually a reality.

However, in Argentina the strong decentralised level is the provincial government; Chile and Mexico have municipalities with limited capacity to support local economic development, and in Central America decentralisation is reduced and countries like Costa Rica, Nicaragua and Panama are highly centralised.

A national policy of decentralisation must combine several components in order to effectively promote LED and social cohesion. The main ones are:

87

• Political decentralisation, in which local authorities are democratically elected, are duly empowered, regularly account to their citizens and have the autonomy to agree development goals through alliances with private and non-governmental sectors. With the degree of decentralisation achieved in Brazil, Colombia, Peru and Bolivia this is possible, but that is not the situation in the region’s other countries.

• Administrative decentralisation, so that the competences transferred to the municipalities include those needed for promoting economic development and providing public services connected with LED. This occurs, for example, in Argentina but not in Chile, where it is difficult for local governments to articulate LED strategies.

Evolution of decentralisation in Latin America: 1980-2000% Expenditure of intermediate and local governments in local government expenditure

Brazil 2008 55.0 Argentina 2006 50.8 Peru 2007 34.0 Colombia 2006 33.0Brazil 1900 32.4 Mexico 2007 31.8Colombia 1982 26.3 Bolivia 2008 27.0Argentina 1980 22.3 Ecuador 2004 22.1Mexico 1980 22.0Ecuador 1980 18.3 Latin American 18.9Bolivia 1986 14.8 average

Latin American 11.6average China 2007 14.0 Uruguay 2005 13.2Peru 1980 9.1 Venezuela 2000 8.0Uruguay 1980 8.6 El Salvador 2007 7.0El Salvador 1978 5.8 Paraguay 2007 6.5Paraguay 1980 5.5 Dominican Rep. 2006 5.3Guatemala 1980 4.5 Guatemala 2009 4.4Costa Rica 1980 4.0 Costa Rica 2007 3.7China 1980 3.7 Nicaragua 2006 3.8Dominican Rep. 1980 3.4Nicaragua 1980 3.4Venezuela 1979 2.4Panama 1980 2.0 Panama 2005 1.7

88

• Fiscal decentralisation, so that local governments have the resources and necessary autonomy to decide how to use them, thereby making local contributions to LED feasible, which does not occur in Central America, with the relative exception of El Salvador. Chile and Uruguay’s municipalities have financial resources below the regional average, and in Argentina and Mexico it is the intermediate governments and not the local ones that have sufficient resources and autonomy.

b) Running municipalities with horizontal styles of ‘good governance’

For central governments, modernising local administration must be based on both greater compliance with the rules and on the use of ‘new public management’ techniques, incorporating the most modern instruments for selecting, applying, monitoring, evaluating and correcting public projects and programmes. Numerous experts on municipal issues disagree with this formula, which could result in more central control, in addition to the unnecessary outsourcing and/or privatisation of local services. From this point of view, the emphasis is placed on the internal improvement of public management and not on interaction with local stakeholders.

An alternative option is to extend local governance29 by promoting collaborative forms of municipal management or ‘good local governance’.30 The emphasis is on building municipal capacities, in which relationships with citizens are improved through participation and creating alliances and collaborating with territorial public, private and non-governmental actors. In contrast to traditional administration, the emphasis is placed on making municipal management more horizontal in order to add initiatives and human, material and financial resources from various sources. This is the right strategy for forming LED support networks.

To sum up, transforming the public management models of the territorial groups appears to be decisive for processes of local economic development. In this regard, the most suitable model or style for LED processes is ‘good local governance’,

29. According to the Royal Academy of the Spanish Language, governance is: “the art or manner of governing whose objective is to achieve lasting economic, social and institutional development, promoting a healthy balance between the State, civil society and the market economy”.

30. See: Jessop, Bob, The rise of governance and the risks of failure: the case of economic development. Lancaster University (United Kingdom); Stoker, Gerry, Governance as a theory: five propositions. Dpt. of Public Administration. Glasgow University (United Kingdom); Brito, Morelia (University of Zulia), “Good local governance and democratic quality”. Keynote speech. Political Science Congress. Salamanca (Spain), 2002; Rosales, Mario, Good local governance. Bolivariana University. Santiago de Chile, 2004.

89

which prioritises agreements, collaboration and alliances with local actors for the purposes of development. This model is a superior stage of municipal institutional development to the patronage system, the bureaucratic model and, even, the ‘new public management’ technique. Thus, local governments can overcome the vertical and paternalistic style to seek more horizontal and collaborative action, which is much more in tune with the objectives of LED. This gradual transition between management styles or models is presented in the following table.

c) Intergovernmental coordination and development of the municipal association movement

One of the main obstacles facing LED with social cohesion goals is the lack of coherence between the national policies of the different ministries and institutional sectors and territorial initiatives. In Latin America, where centralism dominates, the central levels have more power and resources and tend to impose their policies. However, national sectorial public policies are not consistent with each other either, so that territorial governments have to contend with different inconsistencies. To resolve these problems it would be helpful to achieve greater clarity in the distribution of powers and functions among the levels of government and, particularly, to ensure that central authorities pay more attention to the problems and demands of local levels, which would require drastic changes in centralist institutional culture and its behaviour, especially with regard to selecting projects and allocating resources.

A more effective and immediate measure seems to be the intervention of associations of municipalities in conflicts between national and territorial levels and departments. When local governments organise themselves into national, sub-national and territorial associations the debate about policies and forms of coordination shifts to more political bodies and, therefore, has a greater possibility of resolving the problems of competences and the validity of

Styles or models of managing local governments

• Pre-bureaucraticpatronagemodel.There is no stable institution and radical changes usually occur when there is a change from one administration to another. This is still present in rural municipalities in territories with less relative development.

• Bureaucraticmodel.Relies on respect for and application of laws and bylaws and its internal organisation is based on organisation charts, regulations, routinely updated budgets, internal audits and respect for institutional hierarchy.

• Newpublicmanagement.Incorporates private sector forms of management and places key importance on efficiency and the rational use of available resources. It relies more on tendering, outsourcing and privatisation to improve services.

• Goodlocalgovernance.Dynamism comes from the leadership of the authorities, dedicated technical-professional teams and forming agreements with public and private stakeholders in the territory. Obtains and mobilises resources through coordination with other levels of government, public-private alliances and citizen participation.

• In practice these management styles are usually combined, although the trend is towards a gradual evolution from the first model to the last one – or ‘good local governance’. However, in Latin America the patronage style of politics means that very often changes of government lead to ‘raids’ on civil servants aligned with the outgoing political party.

Adapted from the proposal by Saúl Barrera, ex-Executive Director of the Tax Administration Service (SAT) in the municipality of Lima and from the concepts of ‘good local governance’.

90

national and territorial strategies through negotiation and the reconciliation of interests.

In Brazil, Colombia, Bolivia, El Salvador and Peru, national associations are an effective means of holding dialogues with the central government making national strategies and policies compatible with those of the territories, including matters related with LED. In the case of El Salvador, COMURES, the national association of municipalities, negotiated and agreed a national strategy with the central government to manage the collection and final disposal of solid waste. Another example occurred in Bolivia, between the Bolivian Federation of Associations of Municipalities (FAM), the central government and parliament in which LED competences were established and resources were allocated.

Nevertheless, the municipal association movement must also be present in intermediate and territorial levels, so that the groups of municipalities can discuss and negotiate more fluidly with sub-national political, administrative and technical authorities, as required. In Bolivia and Chile sub-national associations of municipalities have achieved an interesting level of development, but this is not a common situation in all countries.

Territorial municipal associations are also important for coordinating the actions of several neighbouring municipalities that are designed to enhance LED and help establish larger public-private

coalitions. This is the case of the previously mentioned ABC Region of São Paulo, which unites seven municipalities that have generated a LED strategy and different actions based on a large public-private alliance of municipalities, state government, private companies, unions and organisations of civil society.

d) Territorial-level actions to achieve LED with social cohesion

Although national changes are very important for activating LED strategies and policies with social cohesion objectives, it is not necessary to wait for that to happen in order to further promote local economic development. In fact, the cases described in this study demonstrate this clearly. So, it is perfectly possible for individual local governments or groups of them in associations to design, coordinate and promote local economic development policies.

Observing these cases shows that with good local political leadership it is possible to forge ahead with processes of LED even if the national policies in place are not ideal. Looking at the three most successful experiences of local economic development mentioned –Rafaela, Villa El Salvador and La Libertad– it is clear that a key element has been strong municipal political leaders who were capable of reaching agreements with the central government thanks to their good contacts and relational skills. These leaders made up for the lack of national policies or their shortcomings.

91

A good mayor and a collaborative municipal council can promote a local economic development strategy based on seeking agreements and alliances with other levels of government and the various institutional and social stakeholders in the territory. Furthermore, it is also necessary to have social and institutional organisations that represent the production and non-governmental actors with whom the agreements will be reached.

Collaborative processes between public and private actors are difficult and call for persistence and the political will of the local authorities. They also need closer management styles that encourage dialogue and facilitate inter-institutional conversation, negotiation and agreement with the invariably highly diverse territorial actors. In this regard, ‘good local governance’ takes on relevance as it prioritises participation and horizontal agreements with the most effective economic development actors: entrepreneurs and the institutions that can support them.

Additionally, there are several methodologies to help local governments come together and reach agreements with local development actors. These include participatory strategic plans, participatory budgeting and the PACA method as some of the tools that help generate and execute the necessary strategic agreements for organising LED.

To summarise, it is easier to promote LED as a way to achieve social cohesion

in countries where the decentralisation of the State is most effective, as local governments have more power over LED, and have the human and financial resources and effective autonomy to implement it. However, it is still possible to carry out processes of LED for social cohesion in countries where the decentralisation of the State is still pending, but in this case it is vital to have strong political leaders, good relations between the municipality and central government and local stakeholders and participative-collaborative styles of management of the ‘good local governance’ type.

93

Abrahamson, Peter (2006). “El modelo nórdico de protección social y sus efectos en la cohesión social”. Presentation at the International Seminar organised by the Economic Commission for Latin America and the Caribbean (ECLAC) and the Government of Panama, Cohesión social en América Latina y el Caribe: una revisión perentoria de algunas de sus dimensiones. Panama City, 7 and 8 September 2006.

Alburquerque, Francisco (2004). El enfoque del desarrollo económico local. ILO, Argentina.

Burneo, M.; Grijalva, W. (2010). “Políticas e instituciones de apoyo a las pymes en Ecuador”, in: Ferraro C.; Stumpo, G. (compilers): Políticas de apoyo a las pymes en América Latina: entre avances innovadores y desafíos institucionales, chapter 5, pp. 209-244.

Carrasco, Gustavo (1997). “Despoblamiento, deterioro, cambio de rol. Comuna de Santiago 1930-1990”. Boletín INVI, no. 30, May 1997.

Christiansen, Niels; Markkola, Pirjo (2005). “The Nordic Welfare State. A Historical Re-appraisal”, in: Christiansen, N.F.; Petersen, K.; Edling, N.; Haave, P. (eds.). Copenhagen. Tusculanum Museum (2008).

Council of Europe (1997). Final declaration of the Second Summit of Heads of State and Government. Strasbourg.

Council of Europe (2005). Methodological Guide: Concerted development of social cohesion indicators. Council of Europe, Brussels.

Council of Europe (2004): Strategy for social cohesion of the Council of Europe. Council of Europe. Brussels.

Courtis, Christian; Espejo, Nicolás (2007). Por un contrato de cohesión social: apuntes exploratorios. Social Policies Series, No. 129. ECLAC.

Del Río, Olga (2012). Identification, systemisation and exchange of successful experiences in local social cohesion. URB-AL III Methodological Guides.

Dini, Marco; Stumpo, Giovanni (2011). Políticas para la innovación en las pequeñas y medianas empresas en América Latina. ECLAC - Cooperazione Italiana.

Durán, Roberto (2008). “Apuntes exploratorios sobre la viabilidad de la cohesión social en Latinoamérica”, in: Aldecoa, F.; Corner, J. (coords.): La cohesión social en Iberoamérica. Marcial Pons, Madrid.

ECLAC – Spanish International Cooperation Agency (2007). Cohesión social. Santiago.

“El Parque Industrial de Villa El Salvador”. Es mi Peru, 5 January 2008, with a map of the Industrial Park. “http://esmiperu. blogspot.com/2008/01/el-parque-industrial-de-villa-el.html”

Bibliographical references

94

Ferraro, Carlo (compiler) (2011). Apoyando a las pymes: políticas de fomento en América Latina y el Caribe. ECLAC - AECID. Santiago, December 2011.

Goldstein, Evelin; Kulfas, Matías (2011). “Alcances y limitaciones de las políticas de apoyo a las pymes en América Latina. Debates para un nuevo marco conceptual y de implementación”. In: Ferraro, Carlo (comp.): Apoyando a las pymes: políticas de fomento en América Latina y el Caribe. ECLAC - AECID. Santiago, December 2011.

Gutiérrez Rolando, Alonso et al. (2008). El sistema productivo local del municipio de Almolonga. San Carlos University, Guatemala.

“Hilando el Desarrollo”. Aid Report. Ecuador, 2011.

Matarasso, F.; Chell, J. (1998). Vital signs: mapping community arts in Belfast. Comedia, Stroud (Gloucestershire).

Menéndez Viejo, Lucía (2010), Análisis de la cooperación europea para la cohesión social en América Latina. Working document no. 15.

Meyer-Stamer, Jörg (2001). Evaluación participativa de la ventaja comparativa. Santa Catarina (Brazil).

Mideplan (1992). Fomento de la pequeña producción. Mideplan, Chile.

Ochoa, Eric (2010). “Ecuador y economía solidaria”. Cuaderno Ideas, January 2010.

OECD (2011). Perspectives on Global Development 2012 – Social Cohesion in a Shifting World. November 2011.

Political Constitution of Ecuador, 2008.

Reinecke, Gerhard; White, Simon (2004). Policies for small enterprises. Geneva, ILO.

Rodríguez Luz, Ángela; Bernal, María Elisa; Mauricio Cuervo, Luis (2011). Innovación social y desarrollo económico local. Social Policies Series, no. 170. ECLAC, Social Development Division. Santiago, May 2011.

Rodríguez, A.; Alvarado, H. (2008). Claves de la innovación social en América Latina y el Caribe. Economic Commission for Latin America and the Caribbean - ECLAC, Santiago.

Rosales, Mario (2004). El buen gobierno local. Bolivariana University. Santiago de Chile.

Rosales, Mario (2012). Descentralización del Estado y finanzas municipales en América Latina. Federation of Latin-American Cities, Local Governments and Associations (FLACMA) - Bolivariana University. Santiago de Chile.

Steinberg, Federico (with the collaboration of Nicolás Sartorius and Vicente Palacio). Propuestas para la cohesión social euro-latinoamericana. Spanish Observatory of Foreign Policy. Working document 1/2006.

95

United Cities and Local Governments (UCLG) (2008). Decentralization and local democracy in the world. First Global Report. Barcelona.

United Cities and Local Governments (UCLG) (2011). Local Government Finance. Second Global Report on Decentralization and Local Democracy. Barcelona.

Urriola, R. (2010). Indicadores para la protección social de la salud. PAHO (on PAHO-Chile website).

Valenzuela, Mauricio (2004). “Programa de Repoblamiento Comuna de Santiago: un programa de gestión urbana”. Urbano Journal, May 2004. Concepción University.

Vázquez Barquero, Antonio (2010). “Desarrollo endógeno y globalización”. EURE Journal, December 2000, vol. XXVI, no. 079. Pontifical Catholic University of Chile. “http://redalyc.uaemex.mx/pdf/196/19607903.pdf”

Vázquez Barquero, Antonio (2009). Desarrollo local: una estrategia para tiempos de crisis. Universitas Fórum.

04

URB-AL III is a regional decentralised cooperation programme run by the European Commission, the aim of which is to contribute towards increasing the level of social cohesion in sub-national and regional groups in Latin America.

Led by Diputació de Barcelona, the URB-AL III Programme Orientation and Coordination Office’s mission is to facilitate the implementation of the programme by providing technical assistance and support in the different projects in order to help achieve the programme’s objectives.


towards an integrated model of local economic development

Documents

social protection

social cohesiontowards

concept of social cohesion

local democracy

social inclusion programme

cohesin social localolga

economic commission

chile eclac