An Introduction to Place-Based Development Economics and Policy

In this chapter we start observing that the Washington Consensus doctrine has failed to provide a general recipe for economic development. Major economic improvements took place where the requirements for fiscal austerity, privatization, and market liberalization were not met. Where this recipe was applied, very little progress was recorded, while serious imbalances occurred. The current view that a more “humble” search for paths to development is needed has replaced the claim that best practices can be applied anywhere. The failure of the Washington Consensus gave a notable boost to a spatial perspective. If there are no general recipes, then opportunities and constraints must be considered on a case by case basis. Dealing with development policies, therefore, involves dealing with regional policies. In the central part of this chapter we review an unresolved debate in this field. Is it better to invest in people regardless of where they live, or should we support the development of places to help people more effectively? Should all regions grow simultaneously or could just a few drag the others? Is the goal of developing backward regions unnecessary or unattainable? A debate is emerging between people-based (spatially blind) policies and place-based policies. The World Bank supports spatially-blind policies, while European Cohesion Programs are conceived as place-based interventions. In the last part of this chapter, we review the 2014 European Cohesion Policy reform and outline its merits and weaknesses.

In this chapter, we start showing that development processes are spatially uneven. In advanced regions there are factors that lead to increasing returns: economies of specialization, economies of scale, and external economies. Opening markets might thus bring about regional divergence as a result of a cumulative inflow of mobile resources to the more advanced regions. We then observe that in lagging regions there may be, however, untapped immobile resources, and their valorization justifies place-based policies. Current profitability may be in favor of a certain spatial distribution of activities, but potential profitability may be in favor of a different distribution. The possible movements that may arise will depend on the formation of ex ante expectations. It is therefore reasonable to think that intentional actions such as place-base policies—supporting the best exploitation of untapped, immobile resources where they exist—are justified and may produce significant results. We will lastly examine whether and how realistic it is to assume that these resources are untapped, taking into account a strong objection: if resources are available, they will be spontaneously exploited in a market capitalism system.

Taking cues from the most recent debate in the field of economic geography, we will see in this chapter that local resources can remain untapped because of the consolidation of routines and narratives that are against change even when it improves everyone’s situation. We will also see that changing narratives and changing private actors’ routines in order to use local untapped resources is possible if identified obstacles—mainly the lack of mutual experience between actors of innovation—are overcome. The experience of change, which would support both a change of routines and a change of narratives, is apparently possible only as a result of previous experience. This is a trap. The chapter starts, however, by discussing an apparently powerful way of avoiding any trap: if mobile resources tend to abandon lagging regions, building industrial districts and/or cluster could be as making immobile local resources that are normally mobile.