Futurists and local economic development

Futurists use a forward-looking philosophy to chart their organisations’ strategies. They are not so caught in the here and now. Rather they imagine and then mobilise people towards a future that does not yet exist. It means you can not yet plan for it, you first have to imagine it. Futurists are not caught up like most of us with trying to make what we have to work better, nor are the plugging gaps. They force us to think about completely new architectures of technology, social arrangements and capabilities.

Elon Musk and Jeff Bezos are considered global futurists. Many of the near emergent technologies, like driver-less cars or advances in artificial intellegence were hard to imagine just a decade or two ago, now they seem to be around the corner. Yet, cities, business and governments are still planning with a short term cycle, mainly using what exists or what is lacking as guiding their decisions.

A lot of emphasis here in South Africa are placed on data, prioritising left behind areas and dealing with social integration. Every now and then I wonder if we are not simply getting better at preparing for the past? You know, that one that will never come back? What if the very industries that we have now will not be viable in just a few years? What if the cities and towns that emerged around old industries are no longer viable or sustainable?

This morning I read about New York hiring a futurist to help them imagine and plan for the future on a CNN site.

“In an unlikely move for a city, New York is also hiring a senior futurist to gather insights on possible cultural, economic and environmental changes ahead”

Wow, imagine we could do that here in South Africa? I know we have a long list of problems that require our immediate attention, but should we not set aside some time to also imagine the longer term future? That way, bureaucrats and technocrats can develop better models and designs that can be presented to politicians and citizens. More important, we can get more designers, engineers, scientists and business people mobilised to think about and design for a future that is imminent.

“New York’s latest efforts are designed to be proactive, rather than reactive”

From my perspective, most of our companies and local governments are not ready for what is coming. We are all caught with trying to cope with what is and what should have been done. Then our local political climate sucks a lot of energy from our economy, resulting in resource rich companies growing while all the rest is holding up their breaths, waiting for something to happen.

I know this sounds negative, but with the digital revolution in manufacturing, and the rapidly integration of fast numbers of enterprises into the networked knowledge economy, I see many of our industries falling behind. Not all companies, but many. I often ask my students to imagine the following:

  • What does the future of local economies, secondary cities and the currently unemployed in South Africa look like?
  • What are technologies that we can expect to have a profound change on our country in the medium to longer term? What does this demand from our institutions, policies and businessess?
  • Can we get more people involved in thinking about the long term future?
  • How do we shift from a low skills labour intensive economy towards a knowledge economy without leaving millions behind?
  • What do we have to equip our students and children with to empower them to shift with the times and prepare for this future?

We have so many priorities that we have to address at the same time. Perhaps while we are running on this treadmill we need to also think further into the future.

Just thinking out loud!

The photo at the top of this post was during a Local Economic Development study tour I led to Germany together with Frank Waeltring in 2009. The tour group was a diverse range of senior government officials and the objective was to learn about Germany’s experience with economic change, industrial change and cooperation between many different stakeholders in a decentralised way.

 

Between a rock and a hard place. Sectoral vs. local approaches to private sector development

I am preparing for a presentation at a conference in May about development programmes shifting from a sectoral to a regional or local perspective. This got me thinking about these shifts in focus and why they appear.

In economic development, it is often necessary to choose whether to intervene at a sectoral level, or whether it would be better to take a locational or geographic approach. In my experience I have learned that when you start with the one, i.e. with a specific sector or value chain, you often end up with the other, i.e. supporting specialization or addressing specific issues in a certain location. But this is of little consolation to managers of development programmes and Local Economic Development units who are then typically measured by the wrong indicators or that have different incentives due to the design of their programme or institutional mandate.

During my MBA, the Professor in Organisational Development introduced us to a really elegant tool to assess whether a tension or conflict between different approaches could really be addressed. He introduced us to Polarity Management, a simple instrument developed by Johnson (1992). According to Johnson, many problems that we face today are not really problems to be solved, but polarities to be managed. Johnson argues that we can continually try to solve these problems by shifting our strategies to another mode where we perceive lots of benefits. The trouble is that after a while of some negative aspects emerge, and suddenly the benefits of the other strategy seems to be more attractive.

Polarity management is an instrument that can be used by change management practitioners to understand these polarities and to manage them. It implies that perhaps these different strategies even depend on each other, like breathing in versus breathing out. We need both, even if they have very different objectives, benefits and downsides. This means that the strengths and the weaknesses of alternatives must be understood, and then managed.

In development we have many polarities, for example wealth creation versus poverty reduction, or designed interventions versus enabling evolution, project versus process, top down versus bottom up, and many others. It is very expensive and even risky to shift between these, and an organisations current expertise, instruments and orientation may find it very hard to make these shifts effectively. But some try and some even manage to do this.

This post is for those organisations that are undecided about their strategy and their focus.. A key question then is how do we manage these alternatives, especially if we want the best of both worlds?

There are 3 steps to better understand a polarity:

  1. Fill in the headings of the two polarities in the matrix
  2. Capture the strengths and the weaknesses of both in the columns
  3. Determine if there is a movement of preference between the polaries, meaning that when the negative consequences of a particular strategy becomes too much, strategy is shifted to the other approach for its apparent strengths. Then over time, the negatives start to weight in on the positives, resulting in a shift to the other approach.

Below I have quickly written down some of the positives and negatives of both approaches. This is an incomplete list but I think it is sufficient to illustrate the point. The PDF of the graphic below can be found here. For those that cannot read so small, the bottom line is this: there are pluses and minuses to both paradigms. Under each strategy, the benefits of the one approach may outweigh the negatives of that approach, but be aware, these weights are changing and after a while the other strategy may become more desirable!

Polary table

 

 

 

 

 

 

 

 

 

 

 

 

The third step in understanding the polarity is to look at whether there is a shift between these polarities. From my experience working in a dozen or so developing countries, development programmes are either designed to be sectoral or geographic, with very few programmes designed to do both. From a local perspective, institutions and programmes are designed and resourced to either be targeted at specific industries and sectors, or they have a locational focus. It is very hard for programmes and institutions to build a case that a strategic shift to the other paradigm may be needed, even if for only a part of the resources to be dedicated to the other approach. This typically happens when the negatives of a current path starts to outweigh the positives, and the benefits of the other approach increasingly looks appealing. The danger is that a compromise is reached, instead of a synergy being developed.

From a Local Economic Development perspective, growing the technical capability to pursue both strategies simultaneously is important. This does not imply that both are equally important at any given time, as both these approaches have different timescales, resource requirements, and objectives. For example, it would be unwise to leave a dominant sector to its own devices in order to focus on emerging enterprises. At the same time, focusing on the issues of a dominant sector might distract attention from purposefully promoting emergence, diversification and economic resilience. Yet, many programmes and organisations are forced to choose, often too early when not enough is understood about the dynamics of the place or the industries. For me the worst reason to choose an particular approach is because some or other decision maker has attended a training course or conference, or because a particular approach is deemed “best practice”. In fact, most of my time is spent trying to help leaders and decision makers get out of a mess because their programme or institutions was designed based on some ideology or “solution” without enough attention being given to the requirements, trajectories and complexity of the specific context.

For national governments and international development programmes there seems to be a continuous shift between these two. Almost like a flip-flopping from one to the other. I think that the shifts are counter productive, as the learning from the previous shifts are often lost. If I just think back over my 16 year career how often the value chain or sub sector approaches or alternatively cluster and Local Economic Development have become fashionable again and then losing its appeal after a short time.

My conclusion is that while there is a tension between these approaches, the shifting between the strategies are not taking place at an institutional or programmatic level. Decisions about these strategies are made at higher levels of government and development cooperation with little regard for the challenges faced at sub national level in developing countries to build and grow “the right” institutions that can ensure long term economic evolution and development.

At the implementation level, regional development programmes should do both:

  • Sectoral programmes that ignores the impact of their sector on the geographic areas they are working in are most likely creating negative externalities, even with the best intentions in mind and even when they achieve their objectives of inclusiveness, job creation or export promotion. The negative externalities could be about the environment (mono economy, mono culture), or about increasing the coordination cost of every economic activity not related to the priority sectors (institutional or locational lock-in to particular paths and trajectories). Sectoral programmes that ignore opportunities for regional nuances to develop in their targeted sectors miss important opportunities to enable diversification and emergence of unique regional capabilities.
  • Location development programmes that do not collaborate with other locations to build sufficient scale in particular sectors to justify investing in particular regionally significant institutions will forever remain trapped in low value add, or perpetual dependence on the priorities and mood shifts of national governments. While trying to help every kind of economic activity in a region, you have to at some point also start promoting specific industries and sectors in order to try and reach some leverage or scale.

But most importantly, the economic activity, available institutional capabilities and the regional context prescribes where to start. And when you have started down a chosen path, be sensitive to when it may be necessary to foster additional organisational or collaborate with other institutions with different more adequate capabilities to enable the benefits of the other strategy to be leveraged. A key challenge in developing countries is that we do not have a rich layer of supporting institutions pursuing different strategies. Everyone seem to be trying more or less the same approaches, or chasing the same politically set targets.

In our capacity building sessions in Mesopartner we always elaborate on the importance of value chains and sectors to Local Economic Development practitioners, and the importance of regional competence development for value chain and sector development specialists. Actually, the process of diagnosing industries and regions are very similiar, even if you would give slightly more attention to different issues and perspectives.

In the end, from a bottom up perspective, supporting specific industries allows for scale and focused public investment, but caution must be taken to not create path dependence or institutional lock in. At the same time, a regional approach is critical as it allows for emergence of new kinds of economic activity and for diversity to emerge. I think we need to development of synergies for both, but it depends on the context what your priority should be. Simply being aware that there are pluses and negatives to either strategy is already a good start! This makes it much easier to collaborate with other organisations and programmes that have different objectives and priorities.

Now I have some questions to my readers:

  1. What is your current approach in your programme or organisation? Sectoral or locational?
  2. Have you even been through a shift from the one to the other in your programme, or do you cater for both?
  3. How did making the shift work out? Did you have the networks, resources and expertise to make this shift?
  4. What would you do differently next time?
  5. Please share your thoughts by commenting below, or send me an email if I can paste your comments unanimously if you are afraid to upset somebody higher up the chain.

References:

JOHNSON, B. 1992.  Polarity management : identifying and managing unsolvable problems. Amherst, Mass: HRD Press.

 

Innovation systems in Metropolitan Regions of developing countries

During 2015 Frank Waeltring and I were commissioned by the GIZ Sector Project “Sustainable Development of Metropolitan Regions” (on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ), Division 312 – Water, Urban Development, Transport) to write a discussion paper about a hands-on approach to innovation systems promotion in metropolitan regions in developing countries. The discussion paper can be found here.

Frank (left) and Shawn (right) in front of the Berlin Wall Memorial

This assignment was a great opportunity for us to reflect on Frank’s experience on structural change in territorial economic development and my experience on industrialization and innovation systems in developing countries. We also had to think hard about some of the challenges of using a bottom up innovation systems logic in developing countries, as such an approach would rely heavily on the ability of local public management to coordinate strategic activities aimed to improve the dynamics between various public and private stakeholders. It was great to reflect on our past Local Economic Development experience and our more recent work on innovation systems, industrial upgrading and complexity thinking.

A key aspect of this discussion document was to think long and hard about where to start. We know many economic development practitioners in cities are often overrun by demands from both politicians and industries for support. We also know that by selecting promising sectors based on past data and assumptions about job and wealth creation often end in little impact and much frustration. We agreed that an innovation systems approach must be aimed at stimulating the innovative use of knowledge, so we decided to not start with a demand focus (assuming the officials are already responding to some of the demand) or with statistics but a knowledge application focus. The use, generation and recombination of knowledge is central to the technological upgrading of regions, industries, institutions and societies. From our experience in promoting innovation systems and our recent research into non-consensus based decision making (this is where you do not select target sectors based on consensus or assumptions about growth potential, but you look at emergent properties in the system) we decided to start with three questions to understand the dynamics of knowledge flows in the region:

  1. Which enterprises, organisations and even individuals are using knowledge in an innovative way? Obviously this question is not simple and can only be answered by reaching out in the local economy to institutions, firms and individuals.
  2. Which stakeholders are actively accumulating knowledge from local or external sources? Again, this is an exploration.
  3. Who are individuals or organisations that know something about unique problems (challenges, demands, constraints) in the region? These could be buyers, supply chain development officials, public officials, engineers or even politicians that are willing to articulate unique demands on the regional economy that might not have been responded on by local (or external) enterprises.

These three questions are treated as an exploration that will most likely be most intensive at the start. In our experience economic development practitioners should constantly be asking themselves these questions when working on any form of private sector upgrading.

A second dimension is about assessing the interplay between institutions and industries and its effect on innovative behavior within regions. Who is working with whom on what? Why? What are the characteristics of the life cycles or maturity of various kinds of stakeholders in the region? Thus we are trying to understand how knowledge “flows” or is disseminated in the region. While some knowledge flows are obvious, perhaps even formal, some knowledge flows could be more tacit and informal. For instance, while knowledge flows from education is quite formal, the informal knowledge exchange that takes place at social events is much more informal, yet very important.

Apart from the identification of the dynamics and interrelations between the industries and the different locations, one other key factor is to identify the drivers of change who want to develop the competitive advantages of the region.

We also present our technological capability upgrading approach as six lines of inquiry, some of which have been covered in earlier posts on this weblog:

  1. The company-level innovation capability and the incentives of firms to innovate, compete, collaborate and improve, in other words the firm-level factors affecting the performance of firms and their net-works of customers and suppliers. These include attempts within firms to become more competitive and also attempts between firms to cooperate on issues such as skills development, R&D, etc.
  2. The macroeconomic, regulatory, political and other framework conditions that shape the incentives of enterprises and institutions to develop technological capability and to be innovative.
  3. Investigation of the technological institutions that disseminate knowledge.
  4. The responsiveness and contribution of training and education organisations in building the capacity of industry, employees and society at large.
  5. Investigation not only of the interaction and dynamics between individual elements in the system, but of the whole system.
  6. Exploring poorly articulated needs or unmet demands that are not visibly pursued by the innovation system.

We, and of course our GIZ colleagues of the Sector Project Sustainable Development of Metropolitan Regions, are very keen to engage with the readers on these ideas? Please post your comments, questions to this weblog so that we can have a discussion.

Best wishes, Shawn and Frank (Mesopartner)

 

 

Complexity and international development

A while ago I posted an article about the exciting developments in the various fields around complexity science and development (actually there are several earlier articles making reference to this topic). Recently Marcus Jenal wrote a great review of the work of Ben Ramalingam (author of the blog Aid on the Edge of Chaos) and Harry Jones with Toussaint Reba and John Young. The paper can be downloaded here.

 

Perhaps you have noticed that I often make reference in my posts to “complexity”, “evolution” and “complex systems” in the context of development. Some have even asked me why I do this. Well, already there are moves by donors and monitoring bodies to start using a more complexity-sensitive approach to evaluation. This is not entirely fair, as too many development programmes are still designed in a very linear way (log frames, impact chains are mostly used in a linear fashion). This means that to reach your impact you must combine your programme activity with faith and good luck (plus good weather) because most programmes are operating in a sea of complexity. There are just too many factors that can influence your outcomes. And even if you hit all your targets the system may remain exactly the same way. (wink wink: I wonder why no-one is making more of a fuss of the poor track of donor programmes in South Africa that were supposed to deal with systemic failures in education, rural development and even Local Economic Development?)

Another reason I am interested in these topics (other than my usual curiosity) relates to my practical activities around building industrial systems from the bottom up. Although I am still biased towards manufacturing with some emphasis on specialized services, I am trying my best to understand the complexity of not only relations between the actors, but also between the factors that are influencing their behavior. Then throw in some factors like policies several self justified meso-level organizations, mix in some government failure, market failure, network failure and also just the uncertainty from Europe. That makes for a complex system where there are a myriad of vicious and virtuous cycles and then the dynamism of time delays.Mix into this that the political system in South Africa also fights bottom up decision making. Local stakeholders have a limited number of instruments at their disposal and can hardly hold other spheres of the public sector (and other organisations) accountable. Despite this all kinds of firms are innovating, and there are even innovation systems that involves individuals in public agencies that are committed to support local actors (even if their institutions is unwilling or incapable to assist).

I find a lot of comfort and maybe some good questions in the literature on complexity and perhaps also the literature on evolutionary economics. Perhaps I even find some comfort that even the so-called industrialized world is struggling with the increasingly complex and interrelated policy environment.

If you are working on bottom-up industrial policy then please let me know, perhaps we can exchange notes.

More on bottom up development

I was reminded by a reader that Robert Chambers of the IDS is known to be a strong proponent of bottom up development, because it overcomes some of the issues of the complexity of development.

At the same time I found a recent blog post by Ben Ramalingam at the Aid on the edge of chaos blog about a meeting held earlier in May about Complexity and International Development. I am very jealous because Eric Beinhoecker, Robert Chambers and Ben Ramalingam (lead author of a fantastic paper  of a 2008 Overseas Development Institute working paper ‘Exploring the Science of Complexity: Ideas and Implications for International Development and Humanitarian Efforts’) were all in the same room talking about complexity and development. Can we have some of this in South Africa too? I have in previous posts mentioned some of the work these gurus are doing on complexity.

For some insights into the discussions at that meeting head over to the blogsite of Duncan Green (Oxfam) where he wrote a post titled “so the world is complex – what do we do differently“.

Perhaps what I neglected to say this explicitly on my previous post is that bottom-up development is about much more the Local Economic Development. You would have noticed that in my recent posts I have associated bottom up diagnosis with innovation systems, industrial development, advanced manufacturing, the service sector and many other topics. We have to strive to understand the system, and not get caught up with specific target groups. This will take us further from understanding and carefully intervening into the complex local system.

Also to clarify. You do not diagnose the complexity of the system by analysing data. You do this by engaging with people, and allowing them to reach a deeper understanding of the system that they are part of.

Let me know if I again forgot to say something!!

The irony of bottom-up development

From the participants of our trainings on local and regional economic development it seems evident that many national governments are paying lip service to bottom-up development. Often Local Economic Development (LED) is related to attempts to decentralise certain decision-making to lower tiers of governments. However, this is done in an uneven way where powers to make decisions about financial allocations, education, health investments are centralised. Even is places where local economic development decisions are decentralised to the local level, other national policies counteracts the power of local stakeholders. For instance, LED is decentralised by law in many Southern African countries, however, skills development, university programmes and even small enterprise development programmes are all designed and run from a national level. I do not count a local office of a national or provincial programme as “localisation”, as local representatives have no power over funding allocation and programme development. Other national programmes such as tender regulations, public procurement rules, and public finance legislation were all implemented to contain corrupt or incompetent public officials (thanks for that), but it also inadvertently reduces the ability of local government to drive their own development agenda. My late business partner liked to refer to that as “unintended consequences”.

Despite these obstacles to local development there are several brave souls that are trying to do local economic development from the bottom-up. They may be constrained in many ways, but they continue to try and mobilise local stakeholders.

Often bottom-up development activities in countries and specifically at the local level are driven by external development organizations (ranging from donors to charities). From my experience in Africa I can say that international development cooperation is often more serious about bottom-up development than most governments. While I know from my previous experience (I worked for GTZ on LED) that many national government officials think this is western ideology of democracy that is being forced down the throats of developing countries, I also know from experience that imperfect solutions that are developed by locals often have critical momentum that simply outperforms even smart initiative coming from the national level. But these development organisations are Macro level actors from outside of the country, so on a hierarchy they would be above the top!

Ok, I understand. For many national governments in Africa, their biggest obstacle to programme implementation is often the lower ranking officials in local governments. But this is not the cause of their problems, it is simply a symptom of other problems. A symptom that is further re-enforced by a lack of an ability to respond to the local context. Perhaps this is why local governments accross Africa are struggling more and more, despite evidence that national governments in Africa are improving their performance. But more about that in another post.

So the irony of bottom-up development is this: bottom-up development is often still happening in parts of Africa not because of top-down (national) support, but because of international (above-the-top down) support.

Until this situation changes, bottom-up development will always be limited to making local stakeholders feeling better about addressing some of their own issues without a guarantee that the framework conditions will re-enforce their goodwill. Sometimes this will yield excellent results if the right champions drive the activities, thus making it dependent on individuals and not systems. But for local initiative to become systemic, in other words, leveraged with multiplier effects, governments across Africa would have to sincerely embrace bottom-up development by addressing the constraints that limits local action.

Developing territories from the bottom up

Its been a while since I have made a post, largely because watching the discussions in our local press is so amusing and entertaining. I had to keep my fingers in fists not to type anything I would regret later. This is a poor excuse, so let me get back to the reason why you are reading this post.

Strangely, our discussions here in South Africa is not yet focused on the real issues of how to grow the local economies. Most projects contained in Integrated Development Plans are still un-systemic and often deal more with social than with business and growth related issues. Yes, with our history this is important. But I would immediately argue that it is possible to have systemic interventions (that unlocks growth and investment) that at the same time also has benefits or leveraged impact for the poor and marginalised.

Why are we not talking about building local meso-level institutions that not only supports local industries or address local issues, but at the same time draws on science and research to create new solutions? Why are so many local municipalities still doing such shallow Local Economic Development? At what point will the private sector at the local level realise that they need to be more reflective of their competitiveness and cooperation. OK, granted, this happens in some places. But not everywhere. And not enough.

It seems to me that so many solutions are still driven from the national level of government (and business) in South Africa. At what point will locals start demanding “economic” service delivery, which means infrastructure that supports the growth, profitability and expansion of business. Why bother with “small town economic development” if the potholes in the main road are as deep as opencast mines? (see the picture further down below)

Perhaps a reason for this hesitance to seriously and systemically engage in “Territorial Development” is because Local Economic Development is still seen as a narrow field of enterprise support through public planning instruments, instead of being seen as a multidisciplinary approach aimed at improving the local economic system. The systems perspective and an understanding of the complexity of this systems seems to be lacking. You cannot develop the tourism sector in a small town by itself, without dealing with retail, infrastructure, and many other issues.

I know there are many places that gets this right, and where a proper and interactive relationship exist between local government and local business.  But we need much more than a few anecdotal examples. We need to inspire our local businesses to invest, to grow and expand. Inspire them to paint their shops, and tidy their yards. Get them to think of new ideas, new opportunities. Only when we unleash the creativity of our existing businesses will new businesses emerge.

Look at the nice pothole below. The largest employer in this little town is moving to Johannesburg. Guess what, hardly any of its employees are staying behind and starting businesses. With them, they take their spouses, who are often providing services as teachers, medical staff, managers in other firms, and local consumers.

– Why would locals start a business here in this town?

– Why is fixing the potholes and the general look of the town not a major priority?

If business was important here, the main street would not look like this

– How can a few isolated “entrepreneurship” training and other isolated projects undo the impact of the large corporate moving away?

– Why can not a single business person here remember when last a local official contacted them to find out if there is anything that the municipality to can do to support the business in growing.

I think I know the answer. Business is simply not important here. LED in this place is about little projects and not about the bigger system. Business people also tend not to block roads and burn councillor houses.

Perhaps we should coin a new phrase “local private sector development” to describe what we should be doing as Territorial Development Practitioners. But then again, we know that you have to look at the whole system at the territorial level, so perhaps this title is not a good idea. To grow territories from the bottom up would need a focus on the private sector, but it would also require attention the public sector, both as a provider of critical infrastructure and other services, as well as a coordinator of many essential (and often overlooked) public goods. My main point is this. While the national frameworks are important, local energy is what matters. South Africa appears to be trying to build local economies from the top down (depending on national policy, grants and programmes), and not from the bottom up with based on an  understanding the local economy, opportunities and constraints, and then using local energy and resources.

Connecting innovation systems with local and regional economies

Many of you have asked me how I connect my current focus on innovation systems and technological upgrading with industries with my past experiences of local and regional economic development. I thank you for repeatedly asking this question, and apologise for not providing you with an answer. The reason for my silence was that I was also not exactly sure how to connect these topics. But I think I am now starting to understand how these topics relate to each other.

Let me try to explain this.

Before I continue I need to make sure that you understand that an innovation system is far more than one or two innovative firms.  Freeman (1987:1) defined an innovation system as “the network of institutions in the public and private sectors whose activities and interactions initiate, import and diffuse new technologies.The emphasis is mainly on the dynamics, process and transformation of knowledge and learning into desired outputs within an adaptive and complex economic system.

So how does innovation systems work within regions or places? Well, it is often affected by issues such as trust, social and informal networks, formal relationships, common customers or common inputs and other factors. You will notice that it sounds very similar to the characteristics of a cluster in its early days. The main characteristic of a local or regional innovation system is that it is mainly focused on a specific geographic space and on the specific knowledge spill-overs that occur around certain firms, industries or institutions unique to that space.

You will immediately notice that innovation thus favours places with more people and more firms. You are right, a close relationship exist between density of interactions between people (provided for by towns and cities, nightlife, and frequent social exchanges) and the innovation system. It does not mean that innovations are limited to these spaces, but simply that they emerge faster or with more success in these spaces. This is largely caused by the increasing importance of knowledge exchange and interaction between firms, knowledge service providers and technological and educational infrastructure. But more about that in a seperate post.

I want to leave you with 3 questions that I have found to be useful to better understand the relationship between places and innovation systems. I use it frequently at the start of an assessment into an innovation system, or to stimulate thinking of public and private leadership.

1) Why are people innovating in this specific location (and not on another space)?

2) How does this space or place support innovation, and more specifically, how does it reduce the costs of innovation?

3) How do innovations in firms affect this space?

Bear in mind that with innovation I mean product, process as well as organisational or business model innovations.

Ask these questions and let me know what you find. I am sure that you will find that many places do not actively support innovation (unless you have some really determined or stubborn innovators there). Nor do they make it cheaper for people to innovate, exchange knowledge or stimulate joint problem solving (or opportunity exploitation). To me it also seems increasingly obvious that the role of cities and towns in Africa are not fully exploited in national economic development as spaces for innovation.

In South Africa, innovation happens mainly in 9 major and about a dozen secondary urban spaces. No amount of public policy will break this pattern until settlement patterns change, or until smaller places start to attract skilled people that can afford to innovate from cities.

So how can we support innovation systems in each and every town? How can we built regional and local institutions that reduce the cost and risk of innovation. Again, I dont mean only product development as an innovation. I mean process and business model innovation as well.

Until we can build our own local technological and educational institutions using local priorities and local resources from the bottom up the trend of urbanisation and migration to the major centres will continue. This is great in terms of reducing the costs of innovation, but it makes us very dependent on national policy, and only a few good local administrations. I would prefer a situation where we can build our local institutions around local issues, this giving firms in for example a mining region a head start in innovating around problems or opportunities related to mining.  For instance, in the Mpumalanga  province (South Africa) we have a lot of coal mining with its associated problems. Why is it so difficult to create a small but focused research institute or technological institute in a town that will focus on applied research and knowledge generation around environmental technology related to coal mining? Could this not be an impulse with environmental solutions as well as innovation as outcomes? I could imagine that such an institute could create positive externalities in a space that would lead to innovation that our both cutting edge and relevant to our society.

Now if you think about it, then Africa is rich with millions of ideas (also known as opportunities, challenges and obstacles) that could serve as impulses to create, stimulate or grow local innovation systems around relevant issues. Dont get me wrong, I dont mean that the public sector must do the research, and then the private sector must commercialise the research (although a little of this certainly helps). I mean that public funds or public private partnerships could be used to establish local institutions that create positive advantages for firms to innovate within regions through reducing the costs of finding relevant information (about a problem, opportunity or technology) and by highligthing opportunities for application of new ideas (by better articulating demand or applications). But there must be sufficient scale of infrastructure to allow the people with the right knowledge, experience and perhaps financial resources to settle in the region to exploit (or address) the opportunities through innovation.

Let me know what you find when you ask these questions.

PS. I know I will receive hundreds of angry e-mails that I am implying that rural areas are doomed.  Re-read my post before hitting ‘send’.

Local economic development as an evolutionary process

Modern evolutionary economics is about 20 years old now, and many research programmes continue to add to the content of the subject. I think that development practitioners have a lot to learn from this subject. When we work at the local level, with local stakeholders and local resources, we are often confronted by the failures of traditional economic models (for instance the obsession with supply and demand). For instance, traditional economics often focus on distribution or allocation of wealth, while in evolutionary economics the focus is more on wealth creation. Traditional economic models assume that you can use the data of the past to make reliable predictions about the future. Just this simple insight will already change many LED approaches that emphasize working with the youth and the marginalised (solving an allocation problem) towards understanding the systemic interaction of economic technologies, social technologies and physical technologies that co-evolve to create wealth.

To be more precise, an economy should be recognised as a complex adaptive system (Beinhocker, 2007; Ramalingham, Jones, Reba and Young, 2008). This means that the economy is a system of interacting agents that adapt to each other and their environment in a complex way. Complex adaptive systems are sub-systems of open systems. It recognises that change and advancement are forces within the system created by the agents, and that it takes energy to create and process information, and to create order.

Dosi and Nelson (1994) explains that “evolutionary” implies a class of theories that tries to explain the movement or change of something over time. It furthermore involves both random elements which generate or renew some variables, as well as mechanisms that systematically create variation. Central to these theories are the concepts of deductive and experimental learning and discovery.

Beinhocker explains a simple formula that is common to all evolutionary systems. Firstly, a system needs to create variety (for instance through many innovators trying new things), and then there must be some selection or fitness criteria (often this is provided by markets). Next there is a selection process, where the ‘best’ or rather most-suitable designs are selected, and thereafter these choices are amplified or repeated (also known as imitated).

So if you think of your local economy, then consider how certain businesses came about. The variety of businesses is a direct result of novelty or variety creation, and how they ‘fit’ to the criteria of local consumers,resulting in these business models being ‘chosen’. Every now and then, a business person with a new or different idea comes along, and this in many cases may even result in local consumers changing their fitness criteria. This describes a process where economic resources (as well as labour and technology) are continuously being allocated to those who are able to combine or create new ideas, new products, and new business models.

In the next few posts I will try to delve deeper into this topic, as I believe that it holds many important insights to why local economies grow in such an unpredictable and dynamic way, and why so few local governments or organised business in Southern Africa struggle to have any real positive and leveraged effect on local economies.

References and additional reading:

BEINHOCKER, E.D. 2007.  The origin of wealth. Evolution, complexity, and radical remaking of economics`. London: Random House.

DOSI, G. & NELSON, R.R. 1994.  An Introduction to Evolutionary Theories in Economics. Journal of Evolutionary Economics, Vol. 4(3).

NELSON, R.R. 1995.  Co-evolution of industry structure, technology and supporting Institutions, and the making of comparitive advantage. International Journal of the Economics of Busienss, Vol. 2(2) pp:171-184.

RAMALINGHAM, B., JONES, H., REBA, T. & YOUNG, J. 2008. Exploring the science of complexity. Ideas and implications for development and humanitarian efforts.  Working Paper 285, London: Overseas Development Institute.

On the ground in Soweto

Early in May  I had the privilage of working with the international NGO Worldvision on a Local Economic Development in Soweto. The objective of the assignment was to assist Worldvision to focus its support activities in Orlando East. Zini Godden assisted me as the co-facilitator, and the method we applied was the PACA (Participatory Appraisal of Competitive Advantage) methodology.

Firstly, family and friends were all very worried about me working in Soweto. This was rather odd, as I have been working in predominately black areas since 2002. It shows that there are still some very large judgements about Soweto. For those that want to know, we stayed in a great guest house in the centre of Orlando East. And we had great food. Actually, there is a whole group of guesthouses in Soweto that are quite busy accommodating international tourists.

Secondly, Orlando East is very busy. It is busy on the surface, with people constantly moving about in the region. But it is also busy under the surface. The tavern that we used as our base during our workshops had a credit card terminal. This may sound odd to my foreign readers, but for a business in South Africa to keep a credit card terminal the business must process at least 3000 euro (R30,000) per month. That is a lot of spending power! At the same time, the new Maponya shopping mall in Kliptown is a must see!!!

Thirdly, there are many committed people working in Orlando East. We refer to them as champions, and they go out of their way to make sure the community functions. I have actually not witnessed this level of community involvement ANYWHERE where I have worked before. Some of these people are ward councillors (yeah, they do actually work in some places), community development workers, social workers and many others. The business people gave a lot of their time during several days of workshops, meetings and brainstorming.

Lastly, there are many untapped business opportunities in Orlando East. Unfortunately, there is also low local savings, which means that there is poor formation of investment capital in the region. At the same time, there is a lack of office space for businesses to start, and most investment is taking place in small spaza shops.

On the topic of spaza shops, I witnessed something really sad while working there. While the economic development unit of the City of Johannesburg was working with community structures and the hawkers to formalise and train the hawkers, the Metro police raided the stands of the hawkers. The heavily armed Metro Police moved in and basically destroyed the stands and confiscated the goods of the hawkers. I was so angry. This is a terrible example of how one unit in a municipality can work against another. Contrary to popular belief, many hawkers have invested ALL their savings in their stands. In same cases I estimate the investment to be in the region of more than R5000 (500 Euro) in several instances R10,000 (1000 Euro). I confronted an official and he told me that they were focusing in unlicensed or counterfeit goods (show me an unlicensed or counterfeit banana and win a prize). The official became aggresive when I took photos and insisted that they have warned all the hawkers in writing!!

Look at these pictures and tell me what you think!