The Need For A Paradigm Shift
The policy and institutional framework for regional development plays an important role in the solving of massive unemployment, provision of greater and diversified volume of production, better infrastructure (soft and hard), improved community services, rising average wealth, and improved quality of life. A region is a constituted social order with people engaged in distinct political, cultural and economic practices. These practices are embedded and developed historically and sustained and reinforced within networks, processes and infrastructures.
Geography shapes the economic development of a country and regions are a policy platform for action and progress. However, the boundaries of a region and the idea of regional development is conceptualized in different ways depending on one’s perspective and interest. Ethnic politicians conceptualize regional development in terms of cultural elements, identity factors, and politics. For them, a region and the model of regional development starts from territorial control of a linguistic group, its resources, and voices. The very idea of a region is anchored on the principle of self-determination of the cultural group. A focus on the cultural domination factor is devoid of spatial dimension and economic level analysis.
Economists give attention to what firms do in regions and how their performance influences employment, profit, GDP and growth. For citizen-based political parties, regional development is the provision of aid and other assistance to regions which are less economically developed. To economic geographers, regional economic development is a cumulative process in which local actors (individuals, firms, governments and business coalitions) create local growth coalitions and seek to establish mutually beneficial relationships with other organizations beyond the local milieu. Economic geographers focus on the clustering of economic activity and linkages between firms without linking their presence to material wellbeing in the areas where they are located.
The scope and content of regional development may therefore vary in accordance with the definition of a region, and how the regions and their boundaries are perceived internally and externally. Given this variation in criteria, how can one construct a regional development model and policy? Who is responsible for regional development policy analysis, formulation, and implementation?
Ethiopia is composed of nine national regional states (see map). According to the constitution of the Federal Democratic Republic of Ethiopia, the activities within the powers of the regional governments include, among others, the formulation, approval and implementation of their own economic and social development policies, strategies, and plans. However, due to the lack of capacity and private interest of political elites, the regions could not fully exercise their economic decision-making authority. The regions lack technical experts to conduct techno-economic surveys which examine the region’s resource endowment to prepare an overall plan for the development of the regions.
None of the regions use Geographical Information System (GIS) tools and analyses to create geo-spatial database for the purpose of implementing and upgrading spatial development strategy and planning. In addition, there is a lack of urban master plans for the development of regional towns.
Top-down approach to solving regional development problems in Ethiopia
Owing to the lack of their own economic analysis at the regional, district and local levels, the regional governments instead adopted national development strategies formulated by the ruling EPRDF party. The top-down application of sector-based national development plans had its limitations. (For a discussion on the outcome indicators of economic and social welfare of regional development, see EBR, Nov 15, 2019, No. 79 issue).
The first limitation is about the resource base of the regional development plans and programs. The regions are not placed on a self-sustaining basis through their own resource mobilization: collection of user fees, efficient administration of taxation, and creation of favorable conditions for domestic investors in the respective regions. They depend on federal government grants which in turn is pinned on the hope of massive foreign investment and aid. Political instability caused by ethnic conflicts and illicit financial outflows from the country have shown much cannot be gained by way of foreign investment and aid. Ethiopia has lost a huge amount of financial loans, investment, and aid due to internal conflicts, money laundering, corruption, tax evasion, and trade miss-pricing/ miss-invoicing. The regional governments, which did not consider resource constraints, but envisaged only the quantity of service provisions and infrastructure construction they could deliver, were caught off guard when the capital budget of the central government was suddenly reduced to half.
The second problem of adopting national development strategies was the kind of disregard given to the existing differing local conditions of the regions. For instance, due to the top-down approach, the objectives and strategic orientations of the development programs of the regions focuses mainly on seed-farming cultivation, while giving little attention to other cultivations such as enset plantations or other problems of arid areas.
The third problem was that the five-year development programs were basically a sector-based development strategies aimed at tackling economic problems by way of sector intervention. The allocation of resources to the sectors, such as to basic social services or physical infrastructure, did not aim at reaching particular poor groups, households, or individuals in the respective regions. Rather, it was aimed at achieving universal coverage in a certain area or community by expanding public services. It was assumed that the allocation of government expenditures to sectors might bring about a trickle-down effect in poverty alleviation. However, sector targeting did not reach poor households and individuals. There is a need for the privatization and accumulation of local resources and promotion of investment and technology at the local level. For this to happen, it is important to solve constraints facing local entrepreneurs: availability of capital and credit, adequacy of equipment and technological upgrading, availability of raw materials, markets for products and marketing, quality of infrastructure, and good governance.
Local Context of Institutional entrepreneurship
In the literature of organizational study, the ways in which business people shape or transform existing informal arrangements with the political support of legitimate power is called institutional entrepreneurship. Business people and regional power elites—institutional entrepreneurs—’create a whole new system of meaning that ties the functioning of disparate sets of institutions together’ for the purpose of business autonomy, risk-taking (expanding business ventures), and the creation of goods and services in the region. Institutional entrepreneurs dismantle the prevailing dysfunctional markets and barriers.
Building a business in any of the nine regions is very difficult due to the lack of formal regulatory institutions in the country. Compared to developed countries, the country’s constitution, laws, and property rights, are less developed and entrepreneurs rely heavily on informal institutions like networks, ethnic relations, and party political affiliations. While this is generally true for the country there are however, differences between and within regions.
Some regions in the country create favorable conditions for business people to overcome the lack of formal and regulative institutions. These regions never say no to companies seeking help in obtaining permission, securing government order, or getting financial resources. In these regions the relationship between the regional/ local government and the private sector is a win-win scenario. The private sector helps the local/ regional government with tax income, while it receives facilitation to expand. The regional and local government fulfill the function of “husbandry” and “midwifery”, a role which describes the attraction, cultivation, and nurture of entrepreneurial forces.
On the contrary, there are regions which literally kill business and private-sector development in the name of language, culture, and ethnic differences. In these warring regions, disruptions in production and supply chains is shutting sellers out of profitable markets and these regions will remain backward due to their unstable economic and political environments.
Framework for New Paradigm of Regional Development Policy
Four preconditions are necessary for a paradigm shift in the regional development policies in the country in order to mobilize their own resources and promote private sector and institutional entrepreneurship. First, there is a need to emphasize the economic aspects of regional development. Regions have to be more of an economic rather than a political concept and there should not be confusion between the two. According to new theories, regional development should focus on bringing about economic and social improvement: more and better quality infrastructure (soft and hard); improved community services; greater and more diverse volumes of production; lower unemployment; growing number of jobs; rising average wealth; and improved quality of life. (see, McCall, T. 2010, What Do We Mean by Regional Development?)
Ethnically defined regionalism hinders the free flow of labor and capital. People belonging to other ethnic groups might feel insecure in migrating to and working in other regions. This insecurity hinders the maximization of income by moving to places of opportunity. Securing fixed capital investment is the other problem. People might have insufficient confidence to invest in places of their own choice, as they might anticipate harassment or confiscation of their properties. Instead, they may prefer to invest in cities which have their own administrative autonomy. This brings about not only lopsided development, but also, speaking in economics lingo, will lead to a sub-optimal solution in terms of GDP. Scarce resources that could have been better invested in rural manufacturing, for example, could go to the ever-growing service sector in the urban areas, mainly towards hotels and coffee houses. This is an example of misallocation of resources and a great loss to a given country where the main priority is the eradication of poverty.
For the author of this article, regional development means the development of the human and social capital of the region, and the ability of a region to produce with a comparative or absolute advantage, the goods and services demanded by the local, district, and interregional economic system to which it belongs. This definition of regional development focuses on growth mechanisms, spatial dynamics, and planning in response to rapid population growth effects in the regions. The challenges of the regions in Ethiopia include food insecurity, massive youth unemployment, fragmentation of the local economy, missing and dysfunctional markets, low level of industrialization, lack of infrastructure provision, and a misbalanced growth of towns.
Second, the regional administration should be filled with and controlled by professionals whose operating environment is stable, predictable and standard. Professional administration relies on the skills and knowledge of their operating professionals to function. In its analysis and measurement of regional realities, professional bureaucracy uses scientific reasoning. It always measures the divergence that actual objects have from the parameters of ideal models. Currently, party ideology and politics have full control over the regional bureaucracy and we have a regional bureaucracy that is not self-regulating and learning from practice (monitoring and evaluation). In public institutions, jobs and positions at all levels are assigned by the ruling party.
The regional administrations, which are supposed to be autonomous are not free from the control of the ruling party. In the respective regions, there is no institutional capability and system necessary for the design of long-term regional development policies. Taking into account the high turnover rate, there aren’t many policy formulators and implementers left to consistently base decisions on evidence and research-based knowledge. Party politics and ideological practice has literally killed the process and structure of policy change system. Scientific bureaucracy should replace patron-client relations, informal governance system, unauthorized transactions, favoritism, nepotism, and other corrupt practices, which ultimately worsen the development of the regions.
Third is adopting a bottom-up approach when designing and implementing regional development policies. Bottom-up refers to a social group process; flat non-hierarchical per-groups dynamics facilitated by networks. Regional development is primarily a social group entrepreneurs’ movement rather than an hierarchy organization. It is a place-based and people-centered planning and activity; and the local level governments are appropriate for the role. The bottom-up policy stresses local specific interventions that are necessary for exploiting the full potential of the local endowment structure. To upgrade the local endowment structure, to uncover opportunities and risks, the local government conducts feasibility studies. This study helps the local government to figure out which industries to support within the districts for the purpose of local economic transformation. Bottom-up regional policy targets not only sectors but also firms, which do the trading.
Fourth, due to the complex interplay amongst the federal government, the regional leadership, and private entrepreneurs, there are variations in different regions as to how entrepreneurship is defined and understood. There is a need for local governments to go beyond their regulative activities and actions as a coercive power. International literature suggests that in a market economy, the location of labor and capital is largely determined by private economic forces. It is, therefore, important that local governments recognize private-sector-led market forces as the primary determinants of the location of economic activity in their region and they can use it as a means to influence the location of economic activity. The development of the private sector shapes the local perception of entrepreneurship; it provides a roadmap that defies the practices involving myth-making and identity claims perpetrated by ethnic princes.
My view is that the hither to top-down approach, cultural and political conceptualization of regions do not provide the mechanisms for regional development. On the contrary, these factors can stifle innovation and reinforce negative stereotypes. Sitting around a kitchen coffee table and talking about past cultural history and the creation of political animosity amongst people does not bring about regional development and there has never been such cases in world history. Regional development is not only about distribution of resources as ethnic politicians claim. It is also about the creation of resources; you cannot concentrate on distribution and ignore the creative part of the regional economy. To bring about development from within, regions need spatial transformation strategies and plans, and this is achieved through an economic mentality and mindset.
8th Year • Nov.16 – Dec.15 2019 • No. 80