LED aims to induce economic development and growth in a locality with the objective of creating jobs and improving the quality of life for everyone by realizing a locality's full comparative advantage.
LED is the result of joint planning by a municipality, its community and business sectors. This means that all economic forces in the local situation have to be brought on board to identify resources, understand needs and work out plans to find the best ways of making the local economy fully functional, investor friendly and competitively productive.
The fundamental difference between Local Economic Development (LED) and traditional one-dimensional approaches to economic development (like national industrial policy, technology transfer or SME support initiatives) is that LED combines different approaches to local development into one integrated concept thereby cross-cutting many different portfolios.
At national level, such a holistic and multidisciplinary approach would produce enormous complexity with regard to issues and actors. In contrast to this, the focus that LED puts on the local and regional levels reduces this complexity and allows actors to pursue an integrated path of economic development.
Thus, LED recognises that people, business and governments at local levels are best able to restructure economic situations that will stimulate growth required to create jobs and to reduce poverty.
Definitions of LED
"The purpose of LED is to build up the economic capacity of a local area to improve its economic future and the quality of life for all. It is a process by which public, business and non-governmental sector partners work collectively to create better conditions for economic growth and employment generation." (World Bank)
" LED is an ongoing process by which key stakeholders and institutions from all spheres of society, the public and private sector as well as civil society, work jointly to create a unique advantage for the locality and its firms, tackle market failures, remove bureaucratic obstacles for local businesses and strengthen the competitiveness of local firms." (GIZ)
"LED is a participatory process which encourages social dialogue and public-private partnerships in a defined geographical area. LED enables local stakeholders to jointly design and implement a development strategy which fully exploits local resources and capacities, and makes best use of the area's comparative advantages." (ILO)
"LED is a participatory process where local people from all sectors work together to stimulate local commercial activity, resulting in a resilient and sustainable economy. It is a tool to help create decent jobs and improve the quality of life for everyone, including the poor and marginalized. LED encourages the public, private and civil society sectors to establish partnerships and collaboratively find local solutions to common economic challenges. The LED process seeks to empower local participants in order to effectively utilize business enterprise, labour, capital and other local resources to achieve local priorities (e.g. promote quality jobs, reduce poverty, stabilize the local economy generate municipal taxes to provide better services)." (UN-Habitat)
The evolution of LED: From locational marketing to a more holistic approach to LED
LED is not a new concept. Before becoming popular in many developing countries since the 1990s, it had already been implemented for many years in various forms in industrialized countries.
In the early stages of LED, activities focused strongly on the marketing of locations to external investors, often linked with incentive systems such as tax breaks and/or reduced costs of public services (such as water and electricity) and infrastructure development.
In a second phase, attention shifted to indigenous economic potentials, striving to support the competitiveness of existing firms and business start-ups. This was often done via entrepreneurship development and training programmes, business support and business linkage mechanisms, providing access to finance, skills development and sectoral development approaches.
In the the third and latest phase a more holistic approach to LED has become prevalent. In this phase, LED enhances the individual business support and sectoral development approaches of the second development phase by making the entire business and community environment more conducive to economic development.
The focus of the third phase is therefore on:
- providing a competitive local business environment,
- encouraging and supporting networking and collaboration between businesses and public/private and community partnerships,
- facilitating workforce development and education,
- focusing inward investment to support cluster growth, and
- supporting quality of life improvements.
LED as a concept reflects and respects the fact that a local area's economy is more than a collection of individual firms and markets. It is a composition of networks and dynamic systems of interactions of a much wider range of stakeholders that shape the economic fabric of a locality.