A gap exists between needs and resources. It is necessary to close it and, as we do so, also access knowledge, information and contacts. Local governments have the capacity to mobilize diverse economic initiatives without having to take over their management or funding. For that purpose they require modern promotional tooling, instruments that are capable of supporting productive ventures with positive impact on the local economy: what they consist of and how to establish them combining effectiveness and a better course?
1. Needs and local resources: leveling the equation
Social needs in any locality tend to be greater than the available financial resources. However, there exist other local assets that are poorly used, such as knowledge, capacity to mobilize initiatives, ability to sail waters little known by strangers, the possibility to turn locational advantages (population, site, weather, soil, subsoil, water, access, etc.) into competitive advantages. Financial aspects tend to be turned into myths to the detriment of other factors that are crucial for local development.
(i) The local gap and how to close it
One of the dimensions of the local gap is the above-mentioned one between social demands and the available financial resources. How can this be tackled? on the one hand, by rigorously prioritizing the needs and ensuring public spending efficiency; on the other hand, by making much better use of intangible assets in order to mobilize third parties’ initiatives.
Another dimension of the local gap is poor access to knowledge, information and contacts, something that is particularly serious in an increasingly globalized world. If this other dimension of the local gap were narrowed, new opportunities would open for the region. For this to happen, it will be at least necessary (i) to mobilize the scientific and technological community to enrich educational contents and develop stronger ties with local entrepreneurs, and (ii) to establish local economic promotion instruments with a potential to facilitate access to investments, contacts, markets, and modern business engineering.
(ii) The use of intangible assets
On occasions, greater credibility is given to external support than to the local capacity to take initiative. Certainly, such affirmation is not intended to extol any sort of isolationism (extra-local support is welcome); it just acknowledges the fact that the local initiative tends to become one of the key elements setting the difference between successful and unsuccessful localities.
A valuable, highly underused resource is the capacity of city and state governments to facilitate the deployment of initiatives of a series of players, be the same productive endeavours, educational programs, health-care services, among others. What matters is the mobilization of working capacity, discernment, capital, organizations; the enormous local energy that is being wasted. It is not a question of having the local government execute per se those initiatives, but helping unleash the huge amount of energy existing within any locality or region.
To play this critical–and, at the same time, subsidiary–role, it is necessary to understand and know how to manage complex processes. From an economic point of view, it is important to understand how savings are generated and how they can or cannot be oriented toward investment, how productive initiatives emerge and are structured, how local investments may compete in a globalized world; also to know how to cope with the inevitable tensions inherent to any growing economic process.
To some officials, it might seem easier to implement traditional programs than to mobilize third parties’ initiatives. Yet, such per se execution faces local budget constraints: this approach only makes it possible to carry out projects or programs that have a financial allocation. The promotion of other players’ initiatives, however, may unleash an infinitely greater social energy mass.
(iii) Flight of resources due to the lack of good projects and mechanisms aimed to channel investments
Examples abound of situations where resources were available but the same did not help to trigger any development at all. A dramatic case is the extra-zone transfer of savings generated within the region; this is outrageous when, at the same time, efforts are made to attract investments: more local savings are captured than the amounts loaned or invested in the same community, and balances are transferred where they can be applied. These painful cases evidence that (i) there is local saving capacity, and (ii) the holders of those savings cannot control their use or find attractive modalities to invest in local projects.
This does not imply the absence of investment opportunities in the area, but maybe that they have not been explored well or that there are no appropriate institutional vehicles to channel resources toward investments. For instance, it is difficult for a small investor to be able to participate in local productive investment directly as he can not always appropriately assess the benefits of a project, its structure, its promoters’ records and actively accompany the investment he is doing. Neither is it convenient for him to jeopardize his small savings with the risk a single operation entails. By contrast, if a channel such as a local fund to support productive investment existed, local savings could be attracted and applied to sound investments in the region.
2. Local development as a way to access new opportunities
It is necessary to know our own things but also the extra local ones, be they new knowledge, new technologies, new demands, new markets, new ways of conceiving, structuring and developing businesses, new manners of managing common goods and social initiatives, effective ways of participation. Innovation and the search for better opportunities must be encouraged, as is the case in central countries. Otherwise, we will lag behind global development.
The modern local development approach is more aimed toward promoting than directly doing or, more clearly said, doing by way of promoting. Promoting, facilitating, assisting, helping, inducing, are appropriate verbs for contemporary local governments, as a great deal of players who have the knowledge and capacity to take initiatives cannot manage to express themselves due to the lack of support, sponsorship, encouragement. They need to be backed.
(i) Modern instruments for economic promotion
Overall, municipalities do not have instruments to efficiently promote local productive initiatives; without state-of-the-art tooling they find it very hard to take advantage of opportunities. Sur Norte and Opinión Sur have been promoting three promising instruments to energize local development: developers of local productive ventures, socially and environmentally responsible angel investor networks, and local funds to support productive investments. The critical aspect of production chain leading firms’ mesoeconomic responsibility is also taken into consideration; that is, that their decision matrix should include the secondary effects these decisions have on third parties.
A Developer is basically a small, qualified team dedicated to identifying economic opportunities and organizing them so that they can be used to benefit local development; on the basis of such opportunities, it helps structure and develop new projects.
Angel investors are the ones who support an initiative at its fledgling stages. They invest in projects that, in their opinion, have a good growth potential. They assess both the merits of the initiative and the characteristics of the entrepreneur. On occasions, several angel investors form a network, sometimes informally and other times formally organized. The role of angel investors goes beyond their financial contribution since they add value through their contacts, their market knowledge, their understanding of economic processes and the modern ways in which businesses are structured.
The Fund is usually made up of capital contributed by firms with interests in the region, by foundations, and by national or state public allocations. It is managed with the two-fold purpose of attaining an appropriate return and a positive impact on the local economy.
(ii) Establishing the new local development instruments
Certainly, it is necessary to assess the appropriateness of the new instruments for each specific locality and, if this is so, to choose the best way to materialize them. The Local Government can summon the relevant players and fund the minor costs of the first meetings. In those gatherings, the challenges and options that will need to be addressed in order to start the process of establishing the new instruments are considered; economic and management aspects as well as criteria for the choice of opportunities are tackled.
These sessions are a space where selected players may assess and adjust the new instruments and processes so that the same may suit the unique characteristics of their localities; also, to determine how to choose people with the capacity to promote them. To create a Fund, it will be necessary to gather people who know how to invest resources in projects having a positive impact on the local economy, and how to accompany the firms in their portfolio as they develop. A Developer requires people who are able to identify opportunities and organize them to better serve small and medium-sized producers.
Both entities should operate in synch with the local or regional scientific and technological community, which is the mainstay for the generation and transfer of knowledge to improve the quality of life of the population. Their contribution might be materialized through participating in boards and support programs for the assisted ventures.
(iii) The indispensable ethical compass
Local development is a long march in which players with infinite interests and aspirations participate. The diversity of interests may exceed the management capacity and enervate the process. At those times, it is worthwhile to rely on an ethical compass based on values that transcend changing circumstances, which allows setting the course for the development of the whole.
A compass cannot work out per se any given situation, yet it guides our thinking and orients decisions that have to be made, most of the times, on the basis of incomplete information. In those cases of grays and turbulence, knowledge-based, ethics-assisted experience may help us find better local development paths.