business briefing: world urban economic development

World Markets Series

BU S I N E S S B R I E F I NGWorld Urban EconomicDeve lopment

Includes exclusive CD-ROM

The official business and technology briefing for the

World Competitive Cities Congress 19–21 May 1999,

Washington, D.C.

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Washington, D.C.




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BU S I N E S S B R I E F I NGWorld Urban Economi cDeve lopment



Academic House24-28 Oval RoadLondon NW1 7DP

EDITORIAL Tel: +44 171 428 3030Fax: +44 171 428 3035

SALESTel: +44 171 526 2400Fax: +44 171 526 2350

E-mail: [email protected]

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WORLD MARKETSR E S E A R C H C E N T R EWORLD MARKETSR E S E A R C H C E N T R E

World Competitive Cities Congress19–21 May 1999. The World Bank Headquarters, Washington, D.C.


The World BankSince its incorporation in 1946, the World Bank has become the largest provider of economic development assistance and is today recognised as the leading worldwide development agency.

The organisation assists the developing world to attain stable and sustainable growth. It encourages communication and co-ordination between leading private and governmental international bodies in the promotion of economic reform and long-term growth and investment.

In 1997, the Bank launched the Urban Partnership, a forum for information exchange and the promotion of urban economic development. The inaugural World Competitive Cities Congress is one of the main initiatives developed by the Urban Partnership to address the challenges and opportunities facing today’s cities.

As we enter the new millennium, the World Bank has repeated its pledge to improve the quality of assistance in its goal to quash poverty in the volatile global economy.

World Economic Development CongressAn international initiative to promote the dissemination of information and encourage a dialogue for the development of infrastructure and national economies.

Key players from government, multilateral agencies and the private sector involved in infrastructure development convene annually at executive summits, briefings and congresses to forge partnerships and develop international strategies on investment, technology and expertise.

This year, the World Economic Development Congress and the World Bank have come together to address the challenges and issues facing the government and business leaders of the world’s cities and megacities. This collaboration has resulted in the first World Competitive Cities Congress, the ultimate platform for information exchange.

World Markets Research CentreThe World Markets Research Centre is an established information provider of solution-focused services through in-depth, comprehensive industry analyses and the leading online country risk analysis service.

The highly acclaimed Business Briefings Series consists of a rich and diverse portfolio on international publications. The Briefings bring together the views and expertise of eminent industry and market leaders providing authoritative coverage and appraisal of each market. Each publication is tailored to reach a specific sector and is researched, written and designed to provide strategic analysis, stimulate ideas and support investment decisions.

An initiative for the promotion of global urban economic development organised by the World Bank and the World Economic Development Congress.

The inaugural congress will play host to international mayors, key decision-makers from both the private and public sectors and eminent academics to foster dialogue on the best practices in becoming and remaining competitive in the global economy.

The congress will address the cutting edge issues affecting the senior managers of the world’s leading cities, and will incorporate discussion on policy, investment plans, urban poverty, infrastructure and new project opportunities for investors.

The definitive forum for the international leaders in urban management and development.

Business Briefing: World Urban Economic Development, published on behalf of the World Competitive Cities Congress, brings together the views of government and business leaders on the issues and challenges facing the world’s cities and megacities in the global business environment.



1st Annua l Wor ld Compet i t i ve C i t i e s Congres s19–21 May 1999

In Strategic Partnership with

WEDNESDAY, 21 MAY 1999

12:00–1:00pm MAYORS’ SUMMIT LUNCHEONBy Invitation Only

1:00–5:00pm MAYORS’ SUMMITBy Invitation OnlyHosted by: The City of Washington, D.C.Mayor Anthony Williams District of Columbia Co–Chaired by: Jack Miller Vice Chairman, HealthCare and Public Sector, KPMGProfessor Sir Peter Hall Bartlett School of Planning,University College London

5:00–6:30pm Evening Reception for Mayors and Congress Participants

THURSDAY, 20 MAY 1999

7:00–9:00am Registration & Refreshments

7:30–8:45am Business Breakfast for Mayors and Congress Delegates

8:55am Chairman’s WelcomeJack Miller Vice Chairman, Health Care and PublicSector, KPMG

9:00am Opening AddressMayor Anthony Williams District of Columbia

9:10am Special Keynote AddressJames Wolfensohn President, The World Bank

9:30am Keynote Session APOLICY AND FINANCE FOR CITIES IN THE NATIONAL ANDGLOBAL ECONOMYThe Challenges of City Development in a Framework ofFederal Policies and the Global EconomyAlice M Rivlin Vice Chair, United States FederalReserve and Chair, Financial Responsibility andManagement Authority,Washington, D.C.Mexico City Case Study: Governance and Urban EconomicDevelopmentMayor Cuauhtémoc Cardenas Mexico CityBarcelona Case Study: Governance and Urban EconomicDevelopmentPasqual Maragall Former Mayor, City of BarcelonaFinancing Strategies: Efficient Use of Municipal, Federal andPrivate Finance George Peterson Senior Fellow,The Urban InstituteDiscussion on Examining the Critical factors in UrbanCompetitivenessLed by: Janice Perlman Founder and ExecutiveDirector, Mega Cities Project Inc

10:50am Refreshments & Networking Break

11:20am Keynote Session B CASE STUDIES: ASSESSING COMPETITIVE CITY STRATEGIES Chaired by: George Brouwer Director,Industry Group for Government and Non-ProfitOrganizations, KPMG

Washington, D.C. as a Competitive City Mayor Anthony Williams District of ColumbiaRio de Janeiro: Making Competitive Cities AccontableMayor Paulo Fernandez Conde City of Rio De JanerioSofia: Privatization and Accessing International CapitalMarketsMayor Stefan Sofianski City of Sofia Prague: Renaissance City in the New European EconomyMayor Jan Kasl City of PragueDiscussion led by: Angela Griffin Leader of UrbanSector, The World Bank

1:00pm LuncheonLuncheon Address: Creative Cities and EconomicDevelopmentProfessor Sir Peter Hall Bartlett School of Planning,University College London

2:30pm Choice of Two Concurrent Sessions

2:30pm–4.00pm Critical Issue Session AACCESSING DOMESTIC AND INTERNATIONAL CAPITAL MARKETSFOR MUNICIPAL FINANCING Case Studies of International Bond IssuesSol Garson Secretary of Finance,City of Rio De JaneiroCase Studies: New York CityMark Page Deputy Director and General Counsel, NewYork City Office of Management and Budget,New York CityCase Studies from The NetherlandsMayor Luigi van Leeuwen City of ZoetermeerAssessing the Appetite of the Investment Community forMunicipal Bond IssuesDavid Masten-Rosen Managing Director,Bear StearnsThe Role of the Rating Agencies at the Sub-national LevelJane Eddy Managing Director, Standard & Poor’sDiscussion led by: Juan Costain Principal FinancialSpecialist, The World Bank

2.30pm–4.00pm Critical Issue Session BOVERCOMING THE POLITICAL OBSTACLES TO MOBILIZING PRI-VATE FINANCE AND PARTICIPATION IN INFRASTRUCTUREChaired by: George Brouwer Director, IndustryGroup for Government and Non-Profit Organizations,KPMG

Privatization and Marketization Of Public Services InIndianapolisGaining Consensus Between City, Regional And FederalAuthoritiesMayor Stephen Goldsmith City of Indianapolis

Examining the Potential for Applying of the UK PrivateFinance Initiative at the Local Level in Other CountriesAdrian Montague Chief Executive,UK Treasury Taskforce for the PFIDelivering Infrastructure in Growing Cities: Clarifying theEvolving Role of the Multilateral AgenciesShahid Yusuf Economic Advisor, The World Bank

Assessing the Current Availability and Terms for PrivateInvestment CapitalEverett Santos Managing Director,Emerging Markets PartnershipDiscussion led by: Declan Duff Director:Telecoms,Transport and Utilities, IFC

4:00–5:00pm ROUNDTABLE DISCUSSIONS & NETWORKING BREAKPrivate Finance Initiative: Examining the Potential forApplying the UK Private Finance Initiative at the LocalLevel in Other CountriesFacilitated by: Adrian Montague Chief Executive,UK Treasury Taskforce Water & Wastewater : Models for Overcoming the PoliticalChallenges of Privatization Facilitated by: Vincent Gouarne Chief:Water andSanitation Division, The World BankMunicipal Bond Issues and Credit Ratings at the Sub-National LevelFacilitated by: Marcela Huertas Financial Specialist:Capital Markets Development, The World BankMunicipal Financing Strategies and the Implications ofFederal Fiscalism Facilitated by: George Peterson Senior Fellow,The Urban InstituteAvoiding the Y2K Bug For City Governments: Ensuring YouAre PreparedFacilitated by: Carlos Braga Program Manager:Information for Development, The World Bank

5:00–5:30pm Keynote SessionREINVENTING GOVERNANCE AND THE PROVISION OF SERVICESTransparent & Participatory Governance: A Key toCompetitive Cities in the Global EconomyKlaus Toepfer Under Secretary-General and ActingExecutive Director,United Nations Centre for Human Settlements(HABITAT)Transforming City Government: The Critical Role of PublicManagement Jack Miller Vice Chairman, Health Care and PublicSector, KPMG

5:30–7:00pm Reception to Launch the World Competitive Cities Award

FRIDAY, 21 MAY 1999

8:00am Breakfast & Networking

9:00am Keynote AddressRebecca Mark Chief Executive Officer, AZURIX andVice Chair, ENRON Corp.

9:20am Critical Issue Session CSmart Cities: Harnessing The Power Of Communications AndInformation Technology To Build Competitive LocalInformation Platform

Session partner:

Session C-1Building Competitive Local Information Infrastructure ForMetropolitan Development And Public ServicesChaired by: Jack Pellicci Vice President Global Public Services,Oracle CorporationDetermining the Leadership Agenda and Architecture for A‘Smart City’ and Fitting Your Community into GlobalInformation Infrastructure in the Networked Economy

Dr William Mitchell Dean, School of Architecture andPlanning, MITCase Study–Manchester.Net: Harnessing Multimedia forEconomic Development, Public Service Delivery, Education,Cultural InnovationThe Honorable Richard Leese Council Leader,Manchester City Council, UK Case Study- Kuala Lumpur : Financing and Developing theMultimedia Super-CorridorTan Sri Dr Othman Yeop Abdullah ExecutiveChairman, Multimedia Development Corporation Discussion Leader: Dr Saskia Sassen Professor ofUrban Planning, University of Chicago

10:50–11:00am Refreshment Break

11:00am Choice of Two Concurrent Sessions (Choose C-2 or D below)

11:00am–12:30pm Session C-2Building Government-Private Partnerships in DevelopingCompetitive Digital Infrastructure for Urban Developmentand Public ServicesChaired by: Jack Pellicci Vice President Global PublicServices, Oracle CorporationCase Study: Rotterdam: Using IT to Enhance ExistingIndustrial BaseMayor Hans J Simmons City of RotterdamCase Study: Singapore One: Evolution of an Intelligent CityDr Leong Keng Thai Director General,Telecommunications Authority of Singapore Case Study: Dublin, Ireland: Utilizing IT to Attract ForeignInvestment, Create Industrial Zone and Develop HumanResourcesJohn Travers Chief Executive Officer,Forfas, Ireland

11:00am–12:30pm Critical Issue Session DDETERMINING THE OPTIMUM POLITICAL STRATEGIES ANDPARTNERSHIPS FOR COMPETITIVE CITIESRegional Cooperation in a Prospering Area – The Region ofBonnSigurd Trommer Chief Executive Officer,City of BonnAssessing the Strategy Employed by Frankfurt to Develop aMajor Financial Center and Build Alliances with Other Citiesin the RegionDeputy Mayor Glaser City of FrankfurtCase Study: Washington, D.C.Larry Herman Partner, KPMG

12:30pm LuncheonLuncheon AddressGerhard Schulmeyer Chief Executive Officer,SIEMENS Corp.

2:00–3:30pm Critical Issue Session DSTRATEGIES FOR OUTSOURCING KEY FUNCTIONS: REDUCINGCOSTS AND GAINING EFFICIENCIESLed by: Phil Garland National Solutions Leader-Outsourcing, KPMGLarry Belinsky, Senior Manager, KPMG

2:00–3:30pm Critical Issue Session ESTRATEGIES FOR MARKETING AND PROJECTING CITIES FORECONOMIC DEVELOPMENTLed by: Charles Landry Specialist Consultant,The World Bank

3:30pm Close of Congress


BUSINESS BRIEFINGWorld Urban EconomicDevelopment

3

E x e c u t i v e D i r e c t o r Gino C UssiPub l i s h e r Tina PriceEd i t o r Elizabeth CooperA s s i s t a n t E d i t o r Liam DavenportS u b E d i t o r Sam SwerlingHe ad o f C omm i s s i o n i n g Nigel LloydA r t E d i t o r s Phil Hendy

Karen McDonaldSam Learmonth

He ad o f R e s e a r c h Guy DunnR e s e a r c h A s s o c i a t e Gus SelassieA s s o c i a t e P u b l i s h e r Adam CzarnockiCop y C o - o r d i n a t o r Nick BermanCD - ROM Pub l i s h e r Tim GreenP r o du c t i o n C o - o r d i n a t o r Julie LuckHe ad o f C i r c u l a t i o n Ian FarrarMa r k e t i n g C o - o r d i n a t o r Sharon GaltonS a l e s D i r e c t o r Simon OldfieldPub l i c a t i o n Man a g e r Shahed SalahuddinR e g i o n a l M a r k e t i n g E x e c u t i v e s Syed Ahmed

Tshiona ChanyalewMuhiud DinJohnny LeeGuy YefetMai Zhao

S a l e s R e s e a r c h Mishka DiazPia Kemppainen

Ad v e r t i s i n g S u ppo r t Sarah LeeRuth Richards

S p e c i a l t h a n k s t o Piers Merrick, The World Bank

Howard DeanNeville Lloyd

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All information obtained by the World Markets Research Centre, World Congress, Inc. and the World Bank is as current

and accurate as possible. However, due to human or mechanical errors, the World Markets Research Centre and each of the

country analysis contributors cannot guarantee the accuracy, adequacy or completeness of any information, and cannot be held

responsible for any errors or omissions, or for the results obtained from the use thereof. Statistical and financial data in this publication

has been compiled on the basis of factual information and does not constitute any investment advertisement or investment advice. ©1999

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BUSINESS BRIEF ING:World Urban Economic Development

MAY 1999

Foreword from World Congress, LLC by V i d a r J J o r g e n s e n and Ma l c o lm L o c k e 8Chairman and CEO and Vice President, World Congress, LLC

Foreword from the World Bank by J ame s Wo l f e n s o h n , President, World Bank 12

Welcome by An t h on y A W i l l i am s Mayor, Washington, D.C. 15

The Changing Prospects for Cities in Development – The Case of Vietnam by T im C ampb e l l World Bank 16

Urban Development – The New Development Frontier by An g e l a G r i f f i n Urban Sector Manager, World Bank 19

Creative Cities and Economic Development by P r o f e s s o r S i r P e t e r H a l l University of London 24

European Cities: Engines of Growth on their Way into the Third Millennium 28by M i c h a e l P a r k i n s o n Director, European Institute for Urban Affairs, Liverpool John Moores University

World-class Local Economies by Wi l l i am B a r n e s and J ame s B r o o k s National League of Cities 32

Competitiveness Diagnosis and Definition of a Plan of Action for an Industrial Area 37by P r o f e s s o r F e r r a n L emu s Pompeu Fabra University, Spain

Global Competitiveness Strategy: A Micro-Economic Place-Based Approach 40by Gen e P a r k , T e d L yman and D r E g a n Economic Strategy Group, ICF Kaiser

Democratic Governance in the Information Age by P r o f e s s o r s J o n gwoo H a n and S t u a r t T h o r s o n Syracuse University 45

Fiscal Innovations and Urban Governance by P r o f e s s o r Om P r a k a s h Ma t h u r National Institute of Public Finance and Policy 49

Financing Cities: The View from the WDR 2000 by Wi l l i am D i l l i n g e r and S h a h i d Y u s u f World Bank 55

The City Marketing Process in Germany by Dan i e l Z e rw e c k University of Dortmund 62

Financial Management of the City of Rio de Janeiro – A Change of Mindset 66by S o l G a r s o n B r a u l e P i n t o Municipal Finance Secretary, City of Rio de Janeiro

Private Sector Participation and Urban Development by J o a n C l o s i M a t h e u Mayor of Barcelona 70

Regional Co-operation in a Prospering Area – The Region of Bonn 72by S i g u r d T r omme r Chief Executive Officer, Planning and Building Department, City of Bonn

Bucharest – Present and Past by V i o r e l L i s General Mayor of Bucharest 74

Frankfurt’s Millennium Jump by P e t r a R o t h Mayor of Frankfurt am Main 76

Public and Private Partnership and Urban Developments by And r i s B e r z i n s Chairman, Riga City Council 77

North American Urban Political Economy, Urban Theory and UK Research by A l a n H a r d i n g Liverpool John Moores University 80

City Services in the Competitive Marketplace by S t e p h e n G o l d sm i t h Mayor, Indianapolis 86

Rio de Janeiro – Towards Competitiveness by L u i z P a u l o F e r n a nd e z C o nd e Mayor, City of Rio de Janeiro 92

NORTH & LATIN AMERICAN PERSPECTIVE

EUROPEAN PERSPECTIVE

FINANCE & MARKETING

GOVERNANCE

POLICY & STRATEGY

CONTENTS

Slum Improvement Project in Dhaka Metropolitan City by Quamru l I s l am S i dd i qu e , ABM A sh r a f u l A l am , 96Moh i bbu r R ahman , Am inu r R ahman and Ha s i n J a h an Rural Development & Cooperatives, Bangladesh

Kathmandu’s Experience in Public/Private Partnership and Urban Development 108by An i l C h i t r a k a r Mayor, Kathmandu Metropolitan City

China and Urbanisation by L ew B a x t e r Editorial Director, Sino Media 110

Market Development and the Civil Rights Movement in China 118by Ka t e X i a o Z h o u and T D a v i d B u r n s University of Hawaii

Commitment to Shenyang’s Development by Mu S u i x i n Mayor, Shenyang, China 126

Yantai – A Bright Pearl of the Yellow Sea by J a n g J i n j i n g Mayor, Yantai City 131

Cape Town: An Emerging City 135by Noma i n d i a M f e k e t o and Ph i l i p v a n R y n e v e l d Mayor and Chief Finance Officer, Cape Town

Only Good Leaders Will Take the Right Road 138by Ann B e r n s t e i n Founding Executive Director, Independent Policy Think-tank, the Centre for Development and Enterprise

Telecommunications and Competitive Cities by Ch a r l e s K e n n y Development Economics Divisions, The World Bank 141

Competitive Cities in a Digital Society by J a n e t C a l d ow Institute for Electronic Government, IBM 145

The Role of Information Technology in Attracting Foreign Investment, Creating Industrial Zones and Developing Human 148Resources by J o h n T r a v e r s Chief Executive, Forfás

The Information Revolution: Urban Infrastructure for the Next Millennium 156by Rob i n G a s t e r President, North Atlantic Research

Why Mass Transit Needs the Automobile 160by A t e f e h R i a z i Vice President and Chief Information Officer, Technology Division, Department of Operations Support

How Different Are We?: American & European Land Use and Transportation by Pau l Marx Office of Policy, Washington, D.C. 165

Gas Sector Restructuring and Privatisation: Lessons from Argentina, Brazil, Poland, Hungary and Vietnam 170by P e t e r L L aw a n d B en t R S v e n s s o n Oil and Gas Division and International Gas Development Unit, World Bank

Practices in the Provision of Infrastructure & Services: Issues for Reconsideration 178by P r o f e s s o r B i p l a b K a n t i S e n g up t a Indian Institute of Technology, Kharagpur

Bail Out: The Global Privatisation of Water Supply 184by P e n e l o p e J B r o o k C owen Senior Private Sector Development Specialist, World Bank

Research of Drinking Water in the New Millennium 187by J ame s F M anwa r i n g Executive Director, American Water and Wastewater Association Research Foundation

Additional Information 195

WATER & WASTEWATER

UTILITIES & SERVICES

TRANSPORTATION

IT & COMMUNICATIONS

AFRICAN PERSPECTIVE

CHINESE PERSPECTIVE

ASIAN PERSPECTIVE

Wor ld Urban Economic Deve lopment

Honorary Chairman:

George P. Shultzformer US Secretary of State

Featured Global Leaders:

• Marc Andreessen, CTO, Netscape

• Henry Kissinger, former U.S. Secretary of State

• Kenneth Lay, Chairman & CEO, Enron Corp.

• Göran Lindahl, President & CEO, ABB

• Jérôme Monod, Chairman, Suez Lyonnaise des Eaux

• Lawrence Summers, Deputy Secretary, US Treasury

• Domingo Cavallo, Congressman, Argentina

• Stanley Fischer, First Deputy Managing Director, TheInternational Monetary Fund

• Charles Frank, First VP, European Bank of Reconstructionand Development (EBRD)

• James Harmon, Chairman & President, The Export-ImportBank of the U.S.

• Bill Joy, CTO, Sun Microsystems

• George Muñoz, President, Overseas Private InvestmentCorporation (OPIC)

• Tom Boren, President & CEO, Southern Energy, Inc

• Chris Gent, Chief Executive, Vodafone Group

• Gregory Hawkins, CEO, BUY.COM

• Sanjay Kumar, President, Computer Associates

• Ian Robinson, CEO, Scottish Power

• John Roth, CEO, Nortel

• François Roussely, Chairman, Electricite de France

• John Sidgmore, Chairman, UUNET and Vice Chairman,MCI/WorldCom

I am greatly impressed by this Congress. It's forums likethis which help us develop our business efficiently. I was

able to meet 5 key Ministers where I would normally havetaken several days to fly to see each one of them."

Robert Kinzie, Chairman, Irridium

A call to action on Infrastructure and Economic Development

with a special focus on the internet economy

Chief Executive Officer Summit

Infrastructure Finance Summit

Global Communications and IT Summit

Integrated Energy Summit

Transportation Infrastructure Summit

Chief Financial Officer Summit

Water and Wastewater Summit

22-24 SEPTEMBER 1999 • WASHINGTON, D.C. USAImmediately prior to the IMF/World Bank Annual Meeting

WORLD ECONOMIC DEVELOPMENT CONGRESS22-24 SEPTEMBER 1999 • WASHINGTON, D.C. USA

To join this global think-tank:

CALL1-800 647 76001-212 869 7567

FAX1-800 717 32371-212 869 7311

[email protected]

You are invited to join a distinguished gathering ofOver 1200 Government and Corporate Leaders From over 80 countries

For more details visit www.worldcongress.com

8

Foreword f rom Wor ld Congres s , LLC

On behalf of World Congress, LLC, and our publishing partners, the WorldMarkets Research Centre, it is our pleasure to present you with this limitededition copy of World Urban Economic Development in 1999.

This important publication is being produced in conjunction with the 1st AnnualWorld Competitive Cities Congress. This Congress is an initiative for urbaneconomic development jointly organised by World Congress and The WorldBank and hosted in Strategic Partnership with KPMG.

The World Competitive Cities Congress involves a select audience of mayors andsenior government decision-makers from the world’s key cities plus policy expertsand senior executives from leading providers of investment capital, services andtechnologies for infrastructure, public services, city administration and management.

The Congress allows the exchange of ideas and insights with peers from across theworld. In particular, the Congress focuses on building partnerships between thepublic and private sectors that will enhance a city’s competitive positioning.

The 2nd Annual World Competitive Cities Congress will be held in May 2000and we look forward to you joining us at that important event, as well as at otherWorld Congress events including:

Eighth Annual World Economic Development Congress 22–24 September 1999, Washington, D.C.

Second Annual Conference on Capital Markets Development at the Sub-national Level November 1999, New York

Please contact Malcolm Locke on (tel) +212-869-7567 ext. 15 or (e-mail)[email protected] for more details on how you can participate, or visitwww.worldcongress.com for continuous programme updates.

Sincerely

Vidar J Jorgensen Malcolm LockeChairman & CEO Vice PresidentWorld Congress, LLC World Congress, LLC

KPMG InternationalKPMG International Headquarters

Burgemeester Rijnderslaan 201185 MC Amstelveen

NetherlandsPhone: 31(20)6566700E-mail: www.kpmg.com

With offices and affiliates worldwide,KPMG International is a leader among pro-fessional services firms serving governmentorganizations. KPMG’s client roster includesmajor cities around the world — amongthem, Washington, DC, the site for this firstWorld Competitive Cities Congress.

As a provider of information-based services,KPMG delivers understandable businessadvice, helping clients to analyze their oper-ations with true clarity, raise their level ofperformance, and enhance the value they canprovide to their constituents.

KPMG has developed a proprietary modelfor analyzing and transforming governmentbased on 85 years of working with the publicsector around the globe. Capabilities are asdiverse as operations improvement, audits,information risk assessment and manage-ment, information system consulting, and,where appropriate, privatization and out-sourcing.

KPMG International’s member firms havemore than 6,700 partners and 92,000 profes-sionals in 157 countries. Additional informa-tion about KPMG’s worldwide capabilitiescan be accessed via the Internet atwww.us.kpmg.com.

John R. MillerVice Chairman, Health Care &Public SectorKPMG345 Park AvenueNew York, NY 10154-0102Phone: 212-872-5833E-mail: [email protected]

Hans-Peter BarthSenior Partner, Public SectorKPMGMarie-Curie-Strasse 30D-60439Frankfurt/Main, GermanyPhone: 49(69)9587-2562E-mail: [email protected]

Rainer G. BeltznerSenior Partner KPMGConsultingKPMG121 Bloor Street EastSuite 405Toronto, Ontario M4W 3M5CanadaPhone: 416-961-1474E-mail: [email protected]

George BrouwerDirector, Industry Group forGovernment and Non-ProfitOrganizationsKPMGP.O. Box 297612502 LT The HagueNetherlandsPhone: 31(70)3382356E-mail: [email protected]

Never before has so much technology and information been available to mankind. Never before has mankind been so utterly confused.

© 1999 by KPMG LLP, the U.S. member firm of KPMG International.

12

I would like to extend a very warm welcome to all delegates, participants andsponsors of this inaugural World Competitive Cities Congress. The breadth ofthe agenda is a measure of just how much there is to hear, to share and to learn.To us at the World Bank and to our partners in this event, DC Agenda, GeorgeWashington University and the World Economic Development Congress, it isclear that rapid global urbanisation is changing our world. This congress, whichwe hope will become an annual series, is inspired by the need to create suchoccasions where all of us working to advance cities might co-ordinate our efforts.

The focus of this first congress is the Competitive City, and it is difficult toenvisage a more timely or pressing issue for discussion. The combination ofurbanisation, democratisation and globalisation are set to usher in an urban agein which over 80% of the world’s population will live in cities by 2015. Thatnumber alone should alert us to the scale of our task.

But what these breathtaking predictions often obscure is that over 90% of thisexpansion will take place in the cities of less-developed countries. Of the 17 citiesthat now have populations in excess of 10 million inhabitants (the so-called‘megacities’)1, 13 are located in countries of the developing world. If we were to takejust two of those cities – Rio de Janeiro and São Paulo – we would be consideringan economy greater in size than that of all the Andean countries combined.

By 2015, another nine cities will reach megacity proportions, all of them in thedeveloping world2. We can be sure that wherever we work, whatever we do, ourfutures will be inextricably linked to the futures of our cities in a way notexperienced by previous generations.

This city phenomenon presents us with a series of challenges:

• we must choose to become part of forging this urban age;

• we cannot let the situation swell over us;

• increasing pressures on land, infrastructure and social services will need to beaddressed; and

• we must ensure that the poor and the vulnerable, the children, the elderly andthe disabled will not be forgotten.

Foreword f rom the Wor ld Bank

1. The seventeen megacities referred to, in descending order of population size, are: Tokyo,Mexico City, São Paulo, New York, Bombay, Shanghai, Los Angeles, Calcutta, BuenosAires, Seoul, Beijing, Lagos, Delhi, Osaka, Karachi, Rio de Janeiro and Cairo.(Source:United Nations)

2. The nine cities referred to are: Dhaka, Hangzhou, Hyderabad, Istanbul, Jakarta, Lahore,Metro Manila, Tehran and Tianjin. (Source: United nations Urban Agglomerations Data,published by United Nations Department of Economic and Social Affairs – PopulationDivision.


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We will have achieved nothing if we change the face of those at the margins ofour societies from rural poor to urban slum dwellers, street children and thoseforced to drift between the city and its fringes.

We must work to ensure that, as cities grow, they do so in an equitable andenvironmentally sustainable manner. Efficient and responsive governmentstructures will be critical. We need to develop strategies to ensure that cities andlocal authorities remain accountable and represent the interests of theircommunities at all levels, both powerful and less so.

All groups in society – government, private sector, civil society, employeeorganisations, religious groups and non-governmental organisations – must beconsulted and must participate if urban development is to be equitable andsustainable. This is true even at the level of a village; in a city it is surelyimperative. I am convinced that poverty alleviation and sustainable developmentmust be pursued through partnerships and co-operation. An inclusive, multi-sectoral approach needs to find a balance between the macroeconomic andfinancial realities that we must work with and the structural, social, and humanaspects without which there will be little improvement in the quality of life.

The urgency of our task and the importance of our success lies in the numbers:three billion people still live under US$2 a day, 1.3 billion people are withoutaccess to safe water, 130 million children still not in school. Of these, urbanpopulations account for a greatly increasing percentage. We must act now.These numbers are unacceptable. They will not wait on our debate. In the next25 years, another two billion people will be added to our world.

The World Bank has, for the last 27 years, played an active part in the debateabout urban development. Since a specific urban lending portfolio was launchedin 1972, the World Bank has approved urban loans totalling over US$25 billion.These loans have assisted cities in every part of the world and in every aspect ofurban development. Over those 27 years, we have noted the changes andobserved the energy of city officials who have readily taken on the challenges ofgreater decentralisation and the responsibilities of planning their city’s future.

Cities can be the engines of national growth, propelling economies as theycompete with other global cities. The World Bank is no mere spectator in thisglobal revolution. We are working in over 6,000 cities and the experiences of ourpast efforts now form the vision for future assistance.

Guiding our institution is a newly minted Global Urban Strategy. This documentoutlines our comprehensive approach to the many issues involved and takes its leadfrom the dynamism and commitment exhibited by our clients and partners indevelopment. We hope that the ideas expressed in this will contribute to a commoncurrency of knowledge and provide the platform for further and greater successes.

The World Bank recognises that it cannot – nor should - work alone. All of usassembled for the World Competitive Cities Congress have a critical part to play.The experiences, the lessons and the best practices that we will discuss in thecoming days will all form vital parts in a global effort. The future of an urbanworld depends on comprehensive efforts, ours importantly among them.

James WolfensohnPresidentWorld Bank

15

Dear Conference Participants,

I would like to welcome each of you to Washington, D.C., our nation’s capitaland the hub of commerce, technology, business, government and culture. Thereason you are here – as participants in the 1st Annual World Competitive CitiesCongress – is to share ideas and also learn about strategies and tactics to rejuvenatecapital cities.

While you are here, you will see that Washington is experiencing a remarkablerebirth. Our government, the business community and our citizens are workingtogether to make the city work for all our people. We are working as partners toattract new businesses and residents and to restore our schools and neighbourhoods.

Together, we are making progress. There is a new sense of optimism in our city.Business and financing incentives abound and our capital city is becoming morecompetitive. Wall Street has renewed confidence in our city’s ability to managegovernment operations and its finances.

Capital cities face formidable and unique challenges as we enter the 21st century.How will capital cities fare in the next century? What actions and strategies arerequired for transforming and remoulding these metropolitan areas? How will cityleaders cope with burgeoning populations and urban sprawl? How best to providehousing, clean water, schools and safe neighbourhoods for city residents? The listis a long one.

This meeting of the minds allows visionary leaders from around the world to shareideas and solutions to common challenges. I am sure you will come away with asense of solidarity because we are faced with similar obstacles that will surely testour resolve and our resources. Enjoy your time in Washington, D.C. and restassured that this is your home away from home.

Sincerely,

Anthony A WilliamsMayor, Washington, D.C.

Welcome

16

Tim Campbell is the World Bank’sAdvisor in Urban Development andManager of the Urban Partnership,which was established in 1997 to

shape the World Bank’s urbandevelopment agenda through thepreparation of an urban strategy,

development of products andestablishment of partnerships inurban development around the

world. Previously, he was amember of an Advisory Group

working to enhance the quality ofthe Bank’s efforts in urban

development and decentralisation inLatin America and the Caribbean.

Mr Campbell is the author ofnumerous publications related to

urban development, with theemphasis in the last few years ondecentralisation. Before joining theWorld Bank in 1988, Mr Campbell

conducted research at theUniversity of California at Berkeleyand taught at Stanford University

a report by

T im C ampb e l l

Advisor in Urban Development and Manager, Urban Partnership, World Bank

Recent trends in urban affairs around the world arechanging the needs of client countries and the waydevelopment assistance agencies do business.Decentralisation, democratisation and reform ofintergovernmental finance among borrowingnations mean that more and more nationaldevelopment business moves through subnationallevels of government. And, because cities contributein important ways to national development, evenmodest improvements in productivity can have largeeffects in national welfare.

For example, the economies of the two majorurbanised deltas in Vietnam – the Red River Deltaand the Mekong Delta – produce nearly 70 percent of the nation’s GDP. By improving the fiscalbalance of the cities, as Haiphong and Ho ChiMinh City have done in, for instance,strengthening tax collection and by taking othermeasures, such as clearing away obstacles toproperty transactions, the cities can improve boththeir fiscal balance and their competitiveness vis-à-vis other cities in the region.

Moreover, because of a growing emphasis onparticipation in governance, cities in many parts ofthe world are showing that they are prepared to playnew roles and assume new responsibilities. Cityexecutives are increasingly proactive, and the mostpromising among them are making substantivecontributions to the national development agenda,in poverty alleviation, environmental quality, tradeand job creation. At the same time, the World Bankand other development assistance agencies areovercoming an institutional lag in capacity, havingturned away from urban problems during the decadeof debt in the 1980s.

A N ew F o c u s o n C i t i e s

The World Bank has developed a strategy for urbandevelopment and launched a Cities Alliance (the“Alliance”), conceived to focus the energies of thedevelopment community on the rich promise thatwell-managed cities can offer in the future. TheAlliance is a bold and ambitious initiative aimed at

fostering new tools and new approaches to moveout in front of the cycle of need that drives areactive response from cities, nations anddevelopment institutions. As a party of this Alliance,the World Bank has launched a series of citydevelopment strategies (CDSs) (see below). TheUrban Partnership, in the World Bank, developedand pioneered the first of these in Haiphong,Vietnam. The Haiphong strategy, described below,established a prototype – geared to improve thecompetitiveness of the city – and this approach willbe further refined and adapted to meet the needs ofspecific cities around the world.

T h e C a s e o f V i e t n am – T owa r d s a S t r a t e g i c V i s i o n

The World Bank was invited by the Government ofVietnam to develop a strategy for Haiphong, anindustrial port with a population of a little over onemillion in the heart of the Red River Delta, one ofthe nation’s richest rice-growing regions, lying inthe northern part of Vietnam. The city is known forits leadership and innovation. For the past severaldecades, the city has made its living as a steel andshipping centre for the cities and towns in thenorthern region, including Hanoi. In addition,Haiphong is perched on the edge of Halong Bay,near Cat Ba island. The bay is a natural inlet 40miles long and is studded with hundreds of giantlimestone formations which tower hundreds of feetinto the air. It is one of the world’s most beautifulnatural formations and is a UNESCO WorldCultural Heritage site.

A city development strategy for Haiphong has tobegin with an understanding of its rapidly changingproductive structure – one that is moving fromheavy industries to labour intensive, lightmanufacturing exports. The most important findingof the Haiphong analysis is that the city has an as yetuntapped potential in the promotion of lightmanufacturing exports and a stronger service-basedeconomy. These options promise to complement,perhaps eventually outweigh, the benefits ofpromoting export processing zones and industrialparks, at least in terms of rates of return on

The Chang ing Prospec t s for C i t i e s in Deve lopment – The Case o f V ie tnam

POLICY & STRATEGY

The Chang ing Prospec t s for C i t i e s in Deve lopment – The Case o f V ie tnam

investment. The city’s strategic interest is not, at themoment, being directed to support the creation ofjobs in labour-intensive export of shoes andgarments nor in the development of a ‘softer’services basis to support future growth. Rather, thecity’s strategic attention is turned in the direction ofheavy industry and industrial parks. The changingnature of the city’s needs and small-scale production,in addition to neighbourhood infrastructure andmaintenance, suggests that a broader range ofoptions can be developed to give Haiphong a morerobust and competitive economy.

C i t y D e v e l o pmen t S t r a t e g i e s – N ewApp r o a c h e s t o U r b a n D e v e l o pmen t

To help civic leaders articulate a shared vision for thecity’s future, CDSs aim to set out communityvisions, priorities and actions and help guide theallocation of resources. CDSs are intended to:

• identify and develop city consensus-buildingprocesses to take stock of a city’s unique attributesand to establish priorities, strategies and actions fordevelopment;

• assess the city’s economic growth prospects and

link these to the city’s employment as well as tothe surrounding region and the nation;

• assist local authorities to outline financing andinvestment strategies, taking into account city-based resources and revenues, as well as privatesector investors and financial sector partners; and

• build capacity and share knowledge acquired informulating and implementing city developmentstrategies among the broader urban communityworldwide.

At the same time, environmental and governanceissues are inextricably linked to successfulinvestments. There are measures which need to betaken on both these fronts to improve the city’sprospects for growth and its efficiency ofmanagement and governance. A key strategy for allthese objectives is for the city to become moreactively involved directly at the neighbourhoodlevel, where public infrastructure is under-capitalised and where the city has alreadydemonstrated excellent results in improvingsustainable service delivery – for instance, inimproving water supply and other services inneighbourhoods and residential blocks.


BUS INE S S BR I E F ING

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Development


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The official business and technology briefings for the

World Competitive Cities Congress from 19 to 21 May 1999,

Washington D.C.


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P r o x ima t e S t e p s

The analysis concludes that the city has ample scopeto broaden its development strategy to include aservices orientation to complement shipping andsteel. Further, the city has the financial and revenuebase to afford to increase its capital investment tosupport new components, but it should weigh trade-offs in spending on a few large investments – such asnew bridges – or many smaller ones – such as streets,drainage and other neighbourhood improvements.In concrete terms, the city can take one or more ofthe following actions:

• develop tradeable services – tourism, banking,finance, culture and other branches – and servicesto support growing exports;

• expand the current development strategy for thecity to include ways of supporting small-scalecity-building actions designed to fill in gaps inexisting neighbourhood infrastructure tosupport labour-intensive manufacturing exportsand create new amenities to begin creating aservices city;

• create a business council of local and regionalfigures, with international consultants, to developan action plan to modernise the city as a businessenvironment;

• bring Haiphong’s environmental quality to withinthe quality standards of internationallycompetitive cities in the same rank, and mobiliseinterest and community participation to identifyenvironmental problems, set priorities and agreeon concrete steps to move forwards;

• mobilise local neighbourhood groups toparticipate in the creation of facilities and services(called hereafter the “city bricks programme”)needed to improve health and welfare and tosupport small-scale improvements (streets,lighting, draining, water and sewerage);

• use the city bricks programme to strengthen linksbetween government departments (possibly byusing community-based programmes) to achievegreater efficiency in city government (inidentifying needs, applying city revenues,implementing projects, etc.);

• invest in solid waste landfill and educate citizensabout recycling and payments;

• create a strategic general plan for the city –perhaps featuring the city bricks programme,but making sure that the plan covers the four

main areas of successful cities – and set a courseto obtain necessary resources for the city toreach its full potential.

The Development Strategies in Vietnam illustrate thebenefits – in effectiveness and impact – in recentwork being carried out in client countries of theWorld Bank under the Cities Alliance:

• The findings of very rapid growth in lightmanufacturing in the Red River Deltasurrounding Haiphong also widened the scope ofanalysis to a regional perspective, becausemanufacturing and trade involves workers faroutside the city of Haiphong. In effect, ruralworkers, as well as urban residents, benefit fromimproved urban economies, and socompetitiveness of cities leads to benefits far fromthe urban landscape.

• The regional perspectives adopted in the abovework – both in Haiphong and in Ho Chi MinhCity – have led to a fresh focus on the connectionbetween cities and rural populations (throughmarkets, trade, remittances and the like). Thisperspective helps to break down the typical, andwasteful, fights in development assistanceorganisations about rural versus urbandevelopment. The regional perspective also leadsto a new appreciation of the role of city-basedregions in national development, in places like theRed River Delta and the Mekong Delta. Aregional approach to development could treatthese areas as more coherent entities, aroundwhich programmes of development assistancemight be organised. But this is only one possibleidea for organising assistance, and no conclusionhas yet been reached on the next steps.

Compe t i t i v e C i t i e s i n t h e F u t u r e

The Vietnam examples illustrate an approach that isnow being taken in dozens of cities around theworld, with and without donor assistance, inresponse to the emerging emphasis on urbandevelopment. However, unlike the 1970s, whencities were growing even faster than they are today,the urban focus now responds to a morecompetitive international environment of trade anddeal-making.

Cities are now working in their own self interestand engaging the private sector in a moreconstructive dialogue. National leaders anddevelopment assistance agencies, as Vietnam hasshown, are finding ways to join in this partnershipand advance the common interests of urban andregional development. ■

19

Angela Griffin provides leadership instrategy and priorities on aninstitution-wide basis for WorldBank work in the urban andgovernment sectors. Prior to joiningthe World Bank in March 1998, MsGriffin worked in local governmentfor 29 years. She has held threechief executive positions, since1985, in municipalities in the UKand New Zealand, the most recentbeing Chief Executive of theWellington City Council. Ms Griffinhas fulfilled a number of additionalroles in her career, includingestablishment of the Women’sEnterprise Development Agency inthe UK, vice president of theWellington branch of the NewZealand Institute of Mangement,and Chair of the local branch ofthe UK Society of Local AuthorityChief Executives.

a report by

An g e l a G r i f f i n

Urban Sector Manager, World Bank

The world is rapidly urbanising. It is estimated that,within a generation, the majority of the developingworld’s population will live in urban areas. Thismeans that the existing urban population of theworld – which is currently approximately 2.5 billion– will double within a generation. At the same time,political and fiscal decentralisation is underway in allregions, with the result that, as cities are growing insize, they are also gaining more and more politicaland economic influence.

Globalisation will increasingly transform some citiesfrom engines of national growth to engines of globalgrowth. In several developing countries, such as thePhilippines, Brazil and India, large urbanmetropolitan regions have emerged that account fora significant share of national GDP. Thesemetropolitan centres increasingly have more incommon with other global metropolises than withother cities in the nations where they exist.Increasingly, these metropolitan centres are playing amore autonomous role in the global trading system.By creating an environment of openness framed byinternational rules, globalisation has made regionalautonomy more feasible.

The new inter-governmental relationships beingestablished as a result of this new paradigm ofurbanisation, decentralisation and globalisation are notalways perfect. In most cases, municipal authorities arebeing burdened with more responsibilities without thenecessary authority or capacity to finance and managemunicipal operations. The income gaps between citiesare also widening. Cities that have the administrativeand financial strength to tap into the global economyare benefiting, while the less-prepared cities are beingleft behind.

The interaction of urbanisation, decentralisation andglobalisation is creating many opportunities for cities,but it is also laying some potentially dangerous traps.This new paradigm is, without a doubt, bringingabout positive change in cities around the world, butthat change must be carefully managed ifopportunities are to be created for all citizens. Urbanpoverty – visible in every city in the world –continues to be a clear danger. Local government

capacity is one of the most important factors indetermining whether a city is able to use the newparadigm to its advantage. Not surprisingly, it is anarea that is receiving considerable attention from theinternational development community.

Development organisations, such as the World Bank,also view the current opportunities as a double-edged sword. They can capitalise on the emergingopportunities and help their client countries bypassmultiple stages of development. At the same time,however, missed opportunities can result in asignificant set-back to a country’s development goals.The challenge for development organisations is tofind more effective ways to work with localgovernments, helping them realise the benefits of thenew paradigm. For donor organisations – those thathave been used to dealing with central governments– this will represent a significant change in direction.

T h e Wo r l d B a n k ’ s R e s p o n s e

A N e w G l o b a l U r b a n S t r a t e g y

The mission of the World Bank (the “Bank”) is tofight poverty and to help people help themselves andtheir environment by providing resources, sharingknowledge, building capacity and forgingpartnerships in the public and private sectors. Toachieve this in the cities of the 21st century, theWorld Bank has developed a new Global UrbanStrategy (the “Strategy”). The Strategy is a result of amulti-disciplinary effort that has received guidanceand input from a Bank-wide steering committee anda variety of Bank partners, including central and localgovernments, academics, donor agencies, non-governmental organisations (NGOs) and private-sector companies. At the heart of the Strategy is arealisation and acceptance of the ‘city’ as a client.This change of perspective has very significant policyimplications on the Bank’s operations. The Bank’snew client – ‘the city’ – requires customised productsand tools, different types of lending instruments and,perhaps most importantly, different sets of skills. TheBank has made a decision to take on this challengeand help shape the cities of the 21st century throughthe implementation of the Strategy.

Urban Deve lopment – The New Deve lopment Front ie r

POLICY & STRATEGY

The aim of the Strategy is to develop sustainablecities that fulfil the promise of development for theirinhabitants – in particular, by delivering upwardmobility for the poor – and contribute to theircountry’s long-term development. The vision ofsustainable cities is based on four interrelateddimensions: livability, competitiveness, bankabilityand good governance and management. The firsttwo are desired outcomes, while the latter two arethe requirements for achieving the desired outcomes.

Livability

Livability represents the household’s criteria of a citythat works. In particular, attention is paid to ensure thatthe poor achieve a healthy and dignified living standardand share the resources of society. The agenda forimproving livability includes reducing poverty andinequality, creating a healthy urban environment,enhancing personal security, establishing an inclusivecivil protection system, creating opportunities forbroad political participation and making cultural andrecreational amenities available to all.

Competitiveness

Competitiveness is defined in terms of the creation ofan enabling environment, for and within cities, thatpermits firms and individuals to become productive.The agenda under this dimension of the Strategyaims to ensure that the benefits of urbanagglomeration are achieved and the diseconomies(caused by congestion, pollution and crime, forexample) are minimised.

Bankability

Bankability is defined in terms of financial soundness,as reflected in a municipality’s respect for hard budgetand its efforts to mobilise fully and use judiciouslyeven a weak resource base. For the smaller number ofcities that are capable of accessing capital markets,bankability is defined in terms of achievingcreditworthiness. The foundation of bankabilityinvolves a clear and internally consistent system oflocal revenues and expenditures, balanced bytransparent and predictable intergovernmentaltransfers, good financial management practices andappropriate conditions for municipal borrowing.

Good Governance and Management

Good governance and management is defined interms of accountability, integrity and transparency inthe exercise of authority – outcomes that aregenerally promoted by the trends towards makinglocal offices contestable through elections andseparating the governance and management roles.The framework for intergovernmental relations, andsharing of responsibility, between the local andpublic and private sectors, are also central to thestructure of incentives for municipal government.The agenda under this dimension of the Strategy willinclude work on intergovernmental assignment offunctions, expenditures and revenue sources.

Imp l emen t i n g t h e S t r a t e g y

B u i l d i n g B l o c k s o f t h e S t r a t e g y

Local government capacity building is the mostcritical building block for achieving the goals theBank is setting for itself in the Strategy. The Bank’s

experience in urban development makes it clearthat the goals of the strategy will not be met if theBank fails to build the capacity of local governmentsto deal with the challenges that confront themtoday. Local governments need help in carrying outtheir responsibilities under the new paradigm. Theyneed help in establishing effective and transparentfinancial management and budgeting systems,incorporating citizens’ views into their decision-making process and executing their role infacilitating private sector activity. The Bank iscurrently developing products and tools that willhelp the local governments in these important areas.

Partnership building is another important cross-cutting aspect of the Strategy. The Bank will partnerlocal government associations, NGOs and professionalorganisations in implementing the Strategy. Theseorganisational units allow members to shareinformation. They serve an important professionaldevelopment function, and they help cities lobby stateand central governments for policy change. From thepoint of view of development organisations such asthe World Bank, the partnerships are also importantinformation nodes. The Bank is a unique reservoir of22


The mission of the World Bank is to fight poverty and to help

people help themselves and their environment by providing

resources, sharing knowledge, building capacity and forging

partnerships in the public and private sectors.

Urban Deve lopment – The New Deve lopment Front ie r

knowledge from all corners of the world and is takingits knowledge management role very seriously,recognising that knowledge management activities cansignificantly improve the performance of Bank clientcountries. The partnerships provide an excellentchannel for supplying information to, and buildingconsensus among, stakeholders such as city managersand mayors, citizens and the private sector. In 1997,the Bank, in association with several partners,launched the Urban Partnership to marshal expertiseand resources from around the world to address theconcerns of cities in the 21st century.

Products/Tools and Initiatives Developed to Implement

the Strategy

The following products/tools and initiatives havebeen developed to address specifically the needs andproblems of cities in the 21st century.

• City Development Strategies – a dynamic processof profiling city options, the Bank engages a city’skey stakeholders in a long-term process toconcretely define and prioritise actions to resolvetheir city’s problems.

• Street Children Initiative in East-Central Europe– research and programme identification to helpcities in transitional economies solve the problemof an alarming rise in urban child poverty,homelessness, child prostitution and drug use.

• Disaster Management Facility – a global partnershipwith other donors and private industry toencourage better mitigation and preparation fornatural disaster emergencies.

• Urban Age, Global City Magazine – the Urban Agemagazine provides a global forum in which worldcities, their leaders and private citizens exchangeideas, knowledge and information. Thisinternational quarterly magazine has 40,000subscribers in 187 countries, and is published insix languages: English, French, Arabic, Spanish,Russian and Mandarin.

• Cultural Heritage – a partnership that allows citiesto pursue culture-led initiatives that capitalise onthe role that culture plays in urban developmentand economic development.

• The Cities Initiative – a new World Bank-UnitedNations Centre for Human Settlements (Habitat)partnership that will help cities develop holistic citystrategies to establish development and investmentpriorities and to implement city-wide and nation-wide programmes to provide services for the poor.

• Partner Search – a facilitative approach to

partnership building; currently two Bank partners,the Bertelsman Foundation of Germany and theUK and Australia Chapters of InternationalCity/County Management Association, areseeking partners in cities in developing countries.

Na t i o n a l U r b a n S t r a t e g i e s a n d t h eC omp r e h e n s i v e D e v e l o pmen tF r amewo r k

The Strategy recognises that national legal and policyframeworks can unleash or undermine the potentialsof cities, and it attempts to build a constructiverelationship between cities and national governmentsthrough National Urban Strategies (NUS). The NUSwill help to develop the policy framework that canallow the cities of the 21st century to come into theirown – they will help create the enabling environmentfor livable, competitive, bankable and wellgoverned/managed cities. The NUS will bedeveloped and incorporated into the ComprehensiveDevelopment Framework (CDF). Proposed by MrJames Wolfensohn, President of the World Bank, theCDF is a holistic approach to development, presentinga long-term view of the structural, social and humanaspects of development. It attempts to present theseimportant issues in the form of a matrix that tracksprogress in sectors that are essential to bring aboutlong-term sustainable change in a country. The CDFalso maps the development players, such asgovernments, donors, private sector and NGOs, tohelp provide a better framework for donor co-ordination. This new approach to development isdesigned to allow the developing countries and theirpartners to think more strategically about thesequencing of policies, programmes and projects andthe pacing of reforms. The Bank and its partners areplanning to apply the CDF in select pilot countries.The Strategy will be implemented in the pilotcountries to build urban partnerships that can focus thepolicy dialogue on key bottlenecks to urbandevelopment and jointly monitor the impact of thepolicies on the long-term development of the country.

Con c l u s i o n

The new paradigm resulting from the interaction ofurbanisation, decentralisation and globalisationpresents great opportunities to cities in developingcountries. These opportunities, if capitalised upon, canhelp countries bypass multiple stages of development.The capacity of the local government is a keydeterminant of the ability of the city to capitalise onthese opportunities. The World Bank is preparing tomeet the biggest developmental challenge of the 21stcentury by implementing a new Global UrbanStrategy that can help improve the livability,competitiveness, bankability and governance andmanagement of cities. ■ 23

24

Professor Sir Peter Hall is Professorof Planning at the Bartlett School

of Architecture and Planning,University College London. From1991 to 1994, he was Special

Adviser on Strategic Planning to theSecretary of State for the

Environment, with special referenceto issues of London and South Eastregional planning including the East

Thames Corridor and the ChannelTunnel Rail Link. He is a member

of the Deputy Prime Minister’sUrban Task Force, established in

May 1998. He received his Master’sand PhD degrees from the

University of Cambridge and hastaught at: the London School of

Economics; the University ofReading (1968-88), where he wasDean of the Faculty of Urban and

Regional Studies; and the Universityof California at Berkeley (1980-92),where he is Professor Emeritus of

City and Regional Planning.Professor Hall is the author or editor of nearly 30 books on

urban and regional planning andrelated topics.

a report by

P r o f e s s o r S i r P e t e r H a l l

Professor of Planning at the Bartlett School of Architecture and Planning, University of London

Cities have always been creative places. From theirvery beginnings in the Middle East 5,000 years ago,they were the cradles of every advance in the arts, inscience, in medicine, in philosophy. The Athens ofPericles, in the fifth century BC, was the scene of aunique creative explosion that produced Socrates,Plato, Aristophanes, Euripides, Herodotus,Thucydides and others too many to list. RenaissanceFlorence emulated Athens almost exactly 2,000 yearslater, rediscovering the naturalistic art of classicalGreece and Rome and developing it over twocenturies into the peaks represented by Leonardo daVinci and Michelangelo.

No city ever quite replicated the multifariousachievement of Athens, but other European citiesfollowed Florence in achieving supreme excellencein one field. London, in the time of Shakespeare andMarlowe, created the modern drama. Vienna waswithout rival as the city of music from 1750 to 1900;likewise Paris as the capital of painting between 1870and 1910. Then, in the 1920s, for a few brief years,Berlin flourished across a huge range: in theatre, incinema, in the visual arts.

What made these places so creative? Why did theirgolden ages seldom last for more than a century,and often less than that? Why did so few of themhave second golden ages – and what is theexplanation for those that managed the trick, likeLondon? Economics provides part of theexplanation. These cities were both large and rich,though not always the biggest or the wealthiest oftheir time. In all save Athens, the wealth accrued toa favoured few, who provided the patrons either asindividuals or collectively. They were usually thekinds of rich people who had made their moneyrecently, sometimes in very risky enterprises, andwho were willing to back new and revolutionaryideas in art.

But, as in every economic explanation, there alsohad to be a supply side. To a remarkable degree, theartists were also new and self-made people. Many ofthem were immigrants to the city, sometimes fromthe surrounding countryside, very often from fardistant places in the empire which the city ruled,

and sometimes even from outside. They wereessentially outsiders who were trying to establishtheir footholds in the city. And sometimes thepatrons were outsiders too, like the non-citizenmetics in ancient Athens or the Jews in Vienna.That outside-trying-to-be-inside spirit was veryimportant in explaining the kind of art produced byartists like Christopher Marlowe or Pablo Picasso orBertolt Brecht.

Artistic and intellectual creativity is justlycelebrated and prized, but there is a more mundanecreativity too, the kind that produces newtechnologies and new forms of commercialorganisation, thus generating great new firms andeven entire new industries. And this form ofcreativity, too, is distinctly urban – as witnessManchester in the 1780s, Berlin in the period from1840 to 1900, Detroit around 1900 or the SanFrancisco Bay Area around 1950. These cities werefar less well known than the artistic cities; theywere upstart places where money was being made,not spent. They were full of risk-takingentrepreneurs and brilliant technicians, and it wasthe union of the two that produced Siemens inBerlin, Ford in Detroit or Hewlett-Packard in theBay Area.

There is a third kind of creativity too: the kind thatconsists in providing practical and sometimesimaginative solutions to the problems that arethrown up by rapid urban growth and urban size.Rome in the early centuries AD was an outstandingexample, bringing food and fresh water to serve apopulation of one million people. London and Parisin the nineteenth century solved the problems ofpublic health and public order in different butrelated ways. New York at the turn of the presentcentury developed new technologies that allowedthe city to grow vertically at the core andhorizontally at the edge. Los Angeles, a few yearslater, rejected that image of the city, determining tobe different: the first dispersed city based onuniversal automobility. These cities, it can beargued, did what they did because they had to: theprice of failure would have been catastrophic. Butmany developing cities in the world today, at the

Creat i ve C i t i e s and Economic Deve lopment

POLICY & STRATEGY

end of the 20th century, do not seem to havesucceeded in following them – at least yet.

How will creativity manifest itself in the 21stcentury city? There are at least two clear trends.One is the progressive convergence of artistic andtechnological creativity, two forms that havetraditionally been held to belong to different peopleand to opposite sides of the brain. During thecentury that is passing, there have been twooutstanding early examples: the motion pictureindustry of Hollywood, from around 1910, and thepopular music industry of Memphis, Tennessee,around 1955. It is no accident that both areAmerican, because both were popular artsreproduced through new technologies, and bothwere created by quintessential outsiders.Hollywood was the creation of Jewishentrepreneurs, all first-generation immigrants:Memphis music was a unique union of two strainsof music produced by the poorest and most isolatedgroups in the entire United States, the black cottonfarmers of the Mississippi delta and the white hill-billies from the Appalachian mountains to the east.They could only have come into being where socialand racial barriers were weak and crumbling, andwhere there was an acceptance of – even a belief in– experimentation.

It is no accident, perhaps, that the United Stateshas so far proved equally outstanding in thedevelopment of the new multimedia industriesthat are developing on the basis of the marriage ofcomputing and telecommunications. The basictechnologies here are the Internet, developed inthe 1960s by the American armed forces formilitary purposes, and the World Wide Web,actually discovered in Europe. But again it hasbeen American ingenuity that has developed themany commercial platforms that have exploitedthe new technologies in the 1990s, such asNetscape and Yahoo!

True, this is a game anyone can play, and advancesare being made in Europe and Japan and Israel.But, significantly, some of the key locations for thenew industries are the cities: Los Angeles, SanFrancisco, New York City, London. That isbecause the development of new ideas demandsserendipity and synergy between minds, and it iseasier to find this in great cities. It is also becausethere is a special relationship between multimediaand other activities that have always been clusteredin great cities: the media, including the liveperforming arts, advertising and public relationsand tourism.

Cities, at least in the developed world, are nolonger locations for mass-production manu-

facturing: they are places for high-tech research anddevelopment and prototype production for creativeand cultural industries of all kinds, from theatres andmuseums to publishing and broadcasting, fortourism, for command and control functions ingovernment and transnational corporations and forspecialised finance and business services. And in allthese, creativity plays a crucial role: witness theinnovations in the financial sector in the 1980s,such as securitisation and corporate bonds, and therole they have played in hugely extending the totalvolume of business.

One point is certain: reports of the death of the cityhave been much exaggerated. Some cyber-gurushave predicted that the virtual world of the Internetwill dissolve the traditional agglomerationeconomies that underpin urban economies, but it issurely significant that the most thoughtful amongthem finally reject their own hypothesis. The fact isthat creative synergy seems to demand face-to-faceinteraction; indeed, the historical evidence seems tosuggest that the more people communicateremotely (whether by phone, fax or e-mail), themore they finally need to meet each other. It is forthis reason that all the graphs of personal businesstravel – by plane, by high-speed train and by car –climb ever upwards, paralleling the growth oftelecommunications traffic – or that the businesshotel and convention businesses are booming.

Communications are thus vital for the creative cityof the 21st century. A major international airporthub is a necessity, as is a position as a keyinterchange on the developing high-speed railsystems that are proliferating in Japan and Europe,and must soon develop in other parts of Asia andin America. But increasingly, and intriguingly,there is another key requirement, which is qualityof urban life. Just as cities had to guarantee purewater and sewerage systems for their people acentury ago, in order to keep them alive, so theynow compete to make their cities attractive to visitand to live and work in. For, in a post-industrialservice economy, this becomes one of the keylocational factors, first in bringing in business andleisure tourists and then in attracting large-scaleinward investment.

Thus, urban regeneration becomes a device whichsimultaneously achieves several objectives: it clearsthe ruins of the lost industrial economy; providesnew flagship buildings to act as symbols of an urbanrenaissance; and provides a high-quality urbanambience for visitors and residents alike. Barcelona,Bilbao and Glasgow are outstanding Europeanexamples of this approach and San Diego, Seattle,Toronto and Boston have developed NorthAmerican approaches in the same idiom.26



This double reinterpretation of the role of thecreative city – the marriage of art and technology onthe one hand, the physical urban renaissance on theother – is so far seen mainly in the cities of thedeveloped world, above all in Europe and NorthAmerica. But it has obvious implications for thedeveloping world, especially for the burgeoningmetropolitan cities of the newly-industrialisingmiddle-income countries of Asia, Latin America andthe transition economies.

First, as the experience of the most successful late-20th-century cities has shown, urban economiescan now run the entire gamut of development in alittle more than a generation. In doing so, citieslike Hong Kong and Singapore move first fromlabour-intensive production, through moresophisticated high-technology manufacturing, toadvanced services. At each stage, technological andorganisational innovation is shown to be crucial –as Singapore has publicly announced, the end resultis a knowledge-based economy based oncontinuous innovation and thus on high-qualityhuman capital.

Second, in the later stages of this process, quality ofurban life becomes a crucial factor. Not for nothing

have Singapore and Hong Kong invested heavily inrapid transit systems and planned new residentialareas and in extensive parks and waterfrontrecreation areas. But it is not just a matter of a cleanand well-planned modern environment, for thiscould produce a sterile city. It is surely significant,for instance, that both Asian and Latin Americancity administrations are increasingly concernedabout protecting and even to restoring their historicurban patrimony, and that conservation is now highon the policy agenda in a way that was not evident20 years ago.

Of course, urban quality does not guarantee creativegenius. As is often said, Nobel Prizes can and docome out of slum laboratories, and greatundiscovered artists will always languish in garrets.The interesting facts, however, are that, increasingly,universities build laboratories to retain and attractinternational star scientists, while the garretsoccupied by the starving artists soon becomeimmensely fashionable and expensive. Creativity isno longer an incidental miracle that happensoccasionally in exceptionally-favoured cities; in aglobalised economy where no place can rest on itslaurels for long, it is now a central part of the businessof being a successful city. n



















28

Michael Parkinson is the Director ofthe European Institute for Urban

Affairs, an urban research andconsultancy group within Liverpool

John Moores University. Hepublishes extensively, lectures

nationally and is a regularcontributor to the media abouturban regeneration. He acts asadvisor on urban affairs to the

European Commission, theOrganisation for Economic Co-

operation and Development and theBritish government. He is the

Scientific Director of the UrbanAudit for DG XVI of the

Commission. He led the research oncities for Europe 2000 and Europe

2000+ documents. He also led theevaluation of Action for Cities andsubsequent City Challenge for the

Department of the Environment. Heis a Specialist Advisor to the House

of Commons Select Committee onthe Environment. He has authoredand/or edited a number of booksand papers on local government

and urban affairs.

a report by

M i c h a e l P a r k i n s o n

Director, European Institute for Urban Affairs, Liverpool John Moores University

S o c i a l C o h e s i o n o r E c o n om i cC ompe t i t i v e n e s s i n E u r o p e a n c i t i e s –a F a l s e D i c h o t omy ?

In the last decade, there has been a transformation inthe perceptions of the role cities play within the EU.Cities are now high on the European agenda for avariety of reasons, detailed below.

• Traditionally, cities have been seen in theirrespective national economic hierarchies.Increasingly, they are seen in a wider Europeaneconomic context at least.

• There has been a rapid growth in thedevelopment of networks between cities at aEuropean level, designed to promote tradinglinks, exchange good practice and promote theinterests of cities at a European level.

• There has been growing awareness of thecontribution and potential of cities to Europe’seconomic competitiveness. Cities are increasinglyseen as economic assets, not liabilities, which needto be exploited not only at a national but also at aEuropean level.

• There has also been, however, growingrecognition of the double-edged character ofmuch economic change in cities during thisperiod. The search for economic growth has notalways led to social equity; indeed, it has oftencontributed to increased social exclusion.

The twin challenges to European cities ofcompetitiveness and cohesion are caused by fourlinked factors:

• globalisation and the loss of local control overlocal economies;

• economic restructuring and the informationrevolution which has created the divided servicesector and its Porsche-hamburger economy;

• growing competition between cities and regions,which has created winners and losers within – as

well as between – cities; and

• the restructuring of welfare states and the loss ofstate support for vulnerable individuals andgroups.

These structural changes are being exacerbated bycyclical factors such as global recession, as well asby the enlargement of the EU through membershipof the accession states in the east. The precise formsthat these developments take vary by country,region and city, but they pose similar challenges todecision-makers at urban, national and Europeanlevels. As a result, the major challenge forEuropean cities into the next millennium will be toincrease their economic competitiveness without atthe same time increasing social exclusion. Cities,national governments and the EuropeanCommission will need to determine which urbanstrategies they wish to pursue and how to reconcilethe two goals of competitiveness and cohesion. Inthe recent past, governments have alternatedbetween policies either seeking to promote socialwelfare or strengthening individual or areaeconomies. In many countries, the realisation isnow growing that the two goals of cohesion andcompetitiveness are not mutually exclusive and thaturban strategies need to focus both upon socialneed and economic opportunity.

This raises an important question for the EU: whatcontribution does, and should, the EU make to thedevelopment of European cities and what should itsurban policy be? At present, the Commission doesnot have an explicit urban policy, but many of itsactions directly and indirectly impact upon cities.Do they need refining and developing? If so, in whatways? Since the bulk of EU funds go to regions andcities through the structural programmes,Commission policy has, in the past, primarilyfocused upon issues of social and economic declineor backwardness. Given the challenges facingEuropean cities, this balance has seemed appropriate.But the evidence presented in this conference hasdemonstrated the economic potential of manyEuropean cities. This raises the question of how theCommission can best capitalise upon the economic

European C i t i e s : Eng ines o f Growth on the i r Way into the Th i rd Mi l l enn ium

POLICY & STRATEGY


potential of these cities and how it can use its funds,policy instruments and influential position topromote and extend the good practice found inthese cities.

T h e E u r o p e a n C omm i s s i o n ’ s P o l i c yR e s p o n s e t o t h e U r b a n C h a l l e n g e

During the 1990s, the European Commission hasplayed an increasingly important part in meeting thischallenge, encouraged by the European Parliamentand many cities. Gradually, Commission policy hasbroadened and deepened to confront the complexmix of opportunities and problems European citiesface. The Commission’s growing involvementduring this period can be traced both through itspolicy documents in this period – Urbanisation and theFunctions of Cities in the EU, Europe 2000, Europe2000+ and Towards an Urban Agenda – as well asthrough the introduction and expansion of UrbanPilot Projects and the Community initiative,URBAN. The publication of Sustainable urbandevelopment in the European Union: a framework foraction marks a further important stage in this process.

The framework represents the Commission’s currentthinking and planning for the future of Europeancities. In it, the Commission has proposed 24 actionsto meet four broad challenges faced in our cities:

• strengthening economic prosperity andemployment;

• promoting equality, social inclusion andregeneration;

• protecting and improving the urban environment;and

• contributing to good urban governance andempowerment.

The Commission plans to respond to them byencouraging and financing more integrated, area-based and partnership actions at national and local leveland facilitating the exchange of good practice abouturban regeneration through a range of institutions andnetworks. We can ask a series of questions:

• How good is the document? • Are its arguments right? • Does it offer cities enough support? • How well does it fit with Agenda 2000 and the

future of the union and structural funds? • What are the likely next steps and who must take

them?

The process has presented some political risks for theCommission. For example, there was a danger that:

• people would argue that the document did notcontain enough substance – that the mountain

had laboured to produce a mouse;• others might argue on the grounds of subsidiarity

that the Commission should do less – not more –in cities;

• that the Commissioners would not be willing touse their internal political capital to push citiesfurther up the Commission’s agenda; and

• that the different parts of the Commission wouldnot be united in their support of the policy.

In fact, those risks have in the main been avoided.The document has had a good reception. Forexample, national and local policy-makers in manyEuropean countries agree:

• its key principles are right;• it builds upon good practice at European and

national level; • it is a significant move beyond the Commission’s

previous policy documents;• nobody argued that the Commission should do

less for cities;• other Directorates have been robust in support of

the framework;• Commissioner Wulf-Mathies now seems

convinced of the merits and political advantages ofa more ambitious urban strategy.

There is clearly substantial support for the overallprinciples and framework. That is the good news.But what are cities concerned about? The genie hasbeen let out of the bottle by the document and anumber of big issues will not go away. The agenda isnow wide open. In the coming months, Europeancities could have a lot to say. They should get readyto make their contribution count.

Ma i n s t r e am i n g t h e URBAN I n i t i a t i v ea n d t h e R e f o rm o f S t r u c t u r a l F u n d s

Many cities are concerned by the link – or lack of it– between the framework document and the reformof the structural funds proposed in Agenda 2000. Inparticular, continental Europeans – mainly, althoughnot exclusively, from the south – are concerned thatthe potential opportunities of increased support andresources are outweighed by the proposed demise ofthe Community initiative, URBAN. Many believethat URBAN has:

• delivered high quality projects;• encouraged the principles of integration,

partnership, targeting and subsidiarity in MemberStates which do not always practise thoseprinciples themselves;

• forged valuable direct links between theCommission and cities;

• had given Commission support to cities outsideObjective 1 and 2 regions. 29

For many, URBAN has been a genuine successstory, as well as a public relations triumph for theCommission which they believe should not bejeopardised. However, cities are not entirely unitedon this issue. In particular, the British, with theirgreater experience of the limitations targetedregeneration initiatives, recognise the value ofprojects supported by URBAN but are moresceptical of it as a policy principle. They encouragedthe Commission to be brave and mainstream theprinciples of URBAN rather than marginalise themin a single Community initiative. The evidence fromBritain of over 20 years is that, to achieve a genuinelyintegrated, partnership-based approach to urbanregeneration, all the mainstream programmes andresources of all public agencies have to be involved.The economic and political weight of specialinitiatives like URBAN are relatively modest inrelation to need or to the resources being invested incities. As a result, however good individual URBANprojects are, they have a relatively minor impactoverall upon cities.

The recent experiments of the Dutch, Danish andIrish governments with special urban initiatives alsoconfirm this case. It is also true of the Commissionprogrammes themselves. For example, many of theDirectorate’s policies on transport, agriculture,research and development, energy and social affairshave as great an impact upon cities as the urbaninitiatives or even regional policy carried out by DGXVI. Increasingly, these wider policies must be thefocus of action in EU urban policy. In the longerterm, cities should recognise that the URBANinitiative has probably served its purpose and that it isnow time to move on. They will achieve more byconcentrating their energies on the Commission’smainstream programmes and making them moresensitive to cities through revised guidelines than byattempting to rescue the more visible – but in theend less important – initiative.

T h e S e a r c h f o r I n t e g r a t i o n

The framework clearly represents a more integratedapproach to urban issues by the Commission. Theplan for a Commission inter-service group toencourage further integration is welcome. But it isclear – and has been accepted by Madame Wulf-Mathies – that the Commission has much further togo, including linking the European Social Fund(ESF) and the European Regional DevelopmentFund (ERDF), to achieve a more integratedapproach. Indeed, many, including Eurocities (aEuropean association of metropolitan cities), arguethat we need a Commissioner for Urban Affairs toreally achieve such integration. This idea hasreceived a mixed response from Europeanpoliticians, whose national experiences of such an

initiative were mixed. But the idea is unlikely to goaway. However, whatever happens, the Commissionwill have to begin to deliver on the expectations ofgreater integration raised by the document.

At the same time, it is very clear that Member Statesand local authorities still have to get rid of theirtraditional functional and departmental boundariesand their sectoral approach to policy-making todeliver a more integrated approach to urban policy.In particular, many Member States have yet to acceptthe key policy principles. It is important that, whenrevising the guidelines, the Commission should insistthat Member States endorse those principles whenapplying for structural funds so that cities’ interestscannot be ignored by unsympathetic national orregional governments.

En c o u r a g i n g P a r t n e r s h i p s a n d A r e a -b a s e d R e g e n e r a t i o n

The framework document encourages horizontalintegration between different partners in the public,private and community sectors, as well as verticalintegration between different levels of government.In terms of partnership and the strengthening of theeconomy of cities, it can be argued that thedocument needed to provide greater incentives forthe private sector to become more involved in urbanregeneration. Business representatives have arguedthat, although the private sector was already playingan important role in urban regeneration, thedocument did not send strong enough signals tomake businesses realise the potential opportunities ofgetting involved in regeneration and the economicthreats to them if they did not.

Similarly, although the social partners in thecommunity and voluntary sector received substantialad hoc support from the Commission’s programmes,the document should offer more long-term, sustainedstrategic support for the social partners. The proposalsto encourage area-based regeneration initiatives,funded through Operational Programmes, areattractive. It is important, however, that theseinitiatives are made to work properly. Many countries,including the UK, France, the Netherlands, Irelandand Denmark, have recent experience of theseapproaches. European cities must learn from theirsuccesses but try to avoid their failures.

Hou s i n g – a M i s s i n g L i n k B e twe e nC ompe t i t i v e n e s s a n d C o h e s i o n ?

Housing remains a central issue for urban policy.There is a huge demand for the Commission torecognise that, next to jobs – for which it hasresponsibility – housing – for which it does not – wasthe most important element of urban policy. There is30



substantial support for the view that, if it cannotfinance mainstream housing activities, theCommission should at least support housing-relatedregeneration activities, including, for example,training programmes, community capacity building,the provision of community facilities andenvironmental improvements. Again, there isconsiderable experience to build upon in differentcountries which cities and the Commission couldpull together so that we do not reinvent the wheel.

S u s t a i n i n g t h e P o l i t i c a l L i n k B e twe e nC i t i e s a n d t h e C omm i s s i o n

The probable demise of URBAN and, hence, theloss of direct links between the Commission andcities is a potential problem for some cities. It couldmean that, in future, cities will have made their casesindirectly through regional and national governmentstructures and intermediaries. To sustain the gains ofthe past years, cities will need to find a new way ofputting their case directly to the Commission. Inturn, the Commission will have to find a way ofreceiving and negotiating cities’ demands. This willdemand political goodwill and institutional creativityat both a local and national level.

However, cities will also need to develop better linkswith their own national governments. Cities cannotexpect the Commission to deal with all the problemsor opportunities that European cities face. These willhave to remain essentially a national responsibility.The crucial issue is to determine where theCommission can genuinely add value to cities, ratherthan adopting the begging bowl policy whichdemands European money simply because socialexclusion exists in cities. Also, as CommissionerWulf-Mathies has argued, the cities must pull moretogether in their common cause rather than askingfor special attention for the interests of the large,medium or smaller cities as they sometimes do.

At the same time, European cities need to decidewhat priorities they want for an EU urban policy.They must, in particular, consider the relationshipbetween economic competitiveness and socialexclusion and determine whether they want a moreneeds-based urban policy which focuses on socialexclusion or one that is more opportunity-orientedand which focuses on the economic changes and thepotential of cities. A number of commentators haveargued that, in the implications of some of the majoreconomic trends, shifts like IT had been overlookedin the Commission document and that it should beanticipating the policy consequences of thoseemerging trends rather than simply reacting tofamiliar forces. The Commission will need greaterclarity from cities on what they really want on thiscrucial issue.

I n t e g r a t e d U r b a n D e v e l o pmen t P l a n s– T h e S h a p e o f T h i n g s t o C ome ?

Arguably the most significant part of the frameworkdocument is the Commission plans to introduceIntegrated Urban Development Plans. These willrequire that cities are integrated into regionaldevelopment plans, as a central feature of structuralfund negotiations, in future. Although confined toObjective 1 and 2 regions, this is an importantbreakthrough, which places cities at the centre ofregional policy. In the short term, they would attractmore support and resources for cities. But in thelonger term, the plans could be a lever to achievemuch better working relationships between cities andtheir regions. This idea has enormous potential, theimplications of which have not yet been explored.

The challenge is to develop the right spatialarchitecture for urban policy so that different levels ofgovernment – European, national, regional and local –can make the best intervention – whether atneighbourhood, city, sub-regional or regional level.The proposal for Integrated Urban Development Plansopens that important debate. The approach is alreadybeing explored in a number of countries – for example,in France, with Contrats d’agglomeration, and in theUK, with the Local Government’s Association plansfor wider conurbation strategies in its NewCommitment to regeneration. Both echo the essentialprinciples of Territorial Action Plans proposed byEurocities itself. There is much to be worked out. Thatmust be part of the next phase of work.

Nex t S t ep s a nd f o r Whom?

There is now a lot to play for. The importantmomentum that has been started must not be lost. Theprinciples have been accepted but the crucial thingnow is to put them into action. In terms of highpolitics, the battle to support the cities must besustained. All European cities should rally to Wulf-Mathies’ plea to exert pressure upon nationalgovernments so that they support the Commission’smore ambitious strategy. It will also be important, asCommissioner Wulf-Mathies has suggested, that thenext two Presidencies – the Finnish and the German –keep the urban issue at the top of the Union’s agenda.More specifically, over the next year, the Commissionwill have to develop and make operational many of thecrucial principles and implicit commitments which itand the Commissioner have made. To help it do so,there will be plenty of consultations and workinggroups in the coming months. Another Urban Forumwill almost certainly be called. For the cities, this is animportant opportunity to make a sustained,constructive and detailed contribution to this crucialphase of the debate. For their citizens’ sake, they mustnot miss it. ■ 31

32

William Barnes is the Director ofthe Center for Research andProgram Development at the

National League of Cities (NLC) inWashington, D.C., a post he hasheld since 1991. Before this, he

served as Senior Policy Analyst andResearch Director, having previously

been Assistant Director of UrbanObservatory Programs. His main

responsibility as Center Director hasbeen developing the NLC’s capacity

and agenda research, includingannual studies of city fiscal

conditions. He is the author of NLCreports, as well as of articles andreviews in scholarly journals on arange of topics. He obtained hisPhD from the Maxwell School at

Syracuse University.

James Brooks is the InternationalProgram Manager at the NLC, a

non-profit membership organisationin Washington, D.C. that representsand serves municipal governments

and their elected officials. Hejoined the staff at NLC in

December 1988. Mr Brooks is incharge of the outreach, educationand training programmes relating

to global economic competitivenessfor US cities and towns. Before

joining the NLC, he was employedby the International Franchise

Association.

a report by

Wi l l i am B a r n e s and J ame s B r o o k s

Director, Center for Research and Program Development and International Program Manager,

National League of Cities

As a local leader, you’re concerned about your localeconomy. You know that the condition of the localeconomy determines the quality and quantity of jobsavailable to local residents, the financial base ofgovernment to provide needed services andinfrastructure and the overall quality of life in localdistricts. And you know that it is a real challenge tokeep your local economy strong. This is especiallytrue today.

The highly competitive global economy that hasemerged in the closing years of the 20th centuryplaces new demands on local economies and localleaders. To sort through these new demands and takea fresh look at what you are doing – and could bedoing – to help your local economy compete, youwill need to achieve progress on three fronts:business growth and job creation; economicopportunity for all; and effective governance of yourlocal economic region.

Wha t i s “Wo r l d - c l a s s ” ?

No matter what your city’s location is or its size, theglobal economy is all around you – on your mainstreet, in your districts and in your schools. Yourlocal economy is a part of it, just like every otherlocal economy around the world. Your job as a localleader is to accept this fact, to help others accept itand to ensure that your local economy lives up toworldwide standards. You want your local economyto be what author Rosabeth Moss Kanter calls“world-class”.

World-class means being competitive – meeting thehighest standards set anywhere for goods andservices and for residents’ quality of life. These arethe two sides of the world-class coin; each plays anessential part in success. A world-class localeconomy is not just a great place to work and dobusiness. It is also a great place to live – a placewhere all residents have opportunities to participateand succeed. And it is a place where the capacity andthe will exist to address problems and create thefuture. NLC President Greg Lashutka, Mayor ofColumbus, Ohio, defined “world-class” in his 1996State of the City address:

“A world-class city is a place wheregovernment and the private sector are almostalways in harmony and focused on a commonagenda for sustained progress. It’s a city withphysical infrastructure that supports daily lifeand work as well as the social infrastructurethat can solve problems and manage thefuture.”

Achieving a world-class local economy is animportant objective for large and small cities alike. AsCouncil member Fred Guerra of San Marcos, Texas,stated in the NLC’s 1993 Futures Report, GlobalDollars, Local Sense, “Small cities can do it too. Wecan buy into the global economy.”

The local economy is:

• the key factor in determining your area’scompetitiveness and the quality of life for residents;

• the gateway for your city and your city’s districtsinto the global economy;

• the window through which outsiders see yourcity; and

• a region that includes many governmentaljurisdictions.

To compete successfully, a world-class localeconomy requires:

• jobs and business growth;

• effective governance for the region; and

• economic opportunity for all.

T h i n k a n d A c t R e g i o n a l l y

How do you achieve a world-class local economy?One key is to think in terms of the real “localeconomy”: the whole region. It is only on a regionalbasis that local governments and other stakeholderscan come up with the resources needed to meetworldwide standards – and avail themselves of all that

Wor ld-c la s s Loca l Economies

POLICY & STRATEGY

Wor ld-c la s s Loca l Economies

the region has to offer. Working on a regional basisalso enables you to address problems in parts of theregion that may be standing in the way ofregionwide success.

Just as cities must accept the reality of the globaleconomy as a key factor in local decision-making, sothey must also accept the reality that regionaleconomies are the real economies in the UnitedStates today.

In NLC’s 1994 study, Local Economies: The U.S.Common Market of Local Economic Regions, William RBarnes and Larry C Ledebur observe that, from aneconomic perspective, the US is overlaid with “LocalEconomic Regions”. These are mostly metropolitan-centred, integrated economies, of which central citiesand suburbs are interdependent parts.

Cities and their suburbs, according to Barnes andLedebur, are “all in it together.” “They are not twodistinct economies,” the authors assert. “They are asingle economy, highly interdependent and withtheir fortunes inextricably intertwined.”

Columnist Neal R Peirce refers to thesemetropolitan-centred regional economies as“citistates”. He says that these entities “must performas critical actors more on their own in the worldeconomy than anyone would have dreamed since thebirth of the nation state.” As David Rusk writes inCities Without Suburbs, “the real city is the totalmetropolitan area – city and suburb.”

For local leaders, performing on your own in theworld economy means focusing on regionalapproaches to problem solving. It means acceptingthat central cities, suburbs and rural communities areinterdependent parts of a local economic region, andthat they need each other to survive and thrive.William R Dodge makes the case for regionalapproaches in NLC’s 1996 report, RegionalExcellence: Governing Together to Compete Globally andFlourish Locally:

“A practical, integrated and functioningeconomy is not constrained by politicalsubdivisions. The mobility of capital and labour,as well as the tendency of industries to clustertogether, has made the local economic regionthe working unit of the global economy.”

NLC’s National Municipal Policy has incorporatedthese perspectives on behalf of the nation’s cities.

NLC believes that all economics begin locally. Thereare interlocking relationships among core cities,suburbs, edge cities and contiguous rural areas whichmake up local economic regions that together fill out

our nation’s geographic borders. The real USeconomy is the linked, interdependent system – the‘common market’ – of local economic regions. Thecritical task for local leaders, then, is to view both theglobal and the local economy from the standpoint ofthe region. Looking inwards, you will see the manyparts that comprise the local economy – the variouscommunities and stakeholders, the assets andliabilities they bring to your competitiveness effortsand the potential problems that must be addressed inorder for the region to prosper. Looking outwards,you will see the world as it exists today – a highlycompetitive global arena in which your region andothers compete for world-class status and success.

Adopting a regional approach to the challenges of theglobal economy means accepting that your city’sfuture is tied to the performance of the localeconomy of which it is a part. And it means workingtogether with neighbouring cities and towns tonurture the economy you hold in common.

In Global Dollars, Local Sense, the NLC AdvisoryCouncil states that regional collaboration is “vital” ifAmerica’s cities and towns are to competeeffectively in the global economy. This point has notbeen lost on many leaders across the country, asJames A Brooks observes in NLC’s Leading Cities ina Global Economy: In practice, many local and stateofficials are focusing on regional approaches toproblem solving. They have concluded that centralcities and their suburbs are interdependent parts of alocal economic region, and that they need eachother to survive and thrive.

L o c a l I s G l o b a l

Recognition of the efficacy of regional problemsolving has coincided with increasing awareness ofthe impact of the global economy on cities andtowns. A recent survey of city officials by the NLCand the Meyner Center for the Study of State andLocal Government, at Layfayette College, found thatnearly three people in five (59%) view the rise of acompetitive global economy as having positiveimpacts on cities. Significant proportions of therespondents reported positive impacts in their citiesfrom social and cultural contacts with foreign cities(70%), foreign tourists (63%), foreign directinvestment (50%) and legal immigration (47%).Clearly, many cities are already coming to terms withthe fact that the global economy cannot be ignored;that it can play an important part in local economicsuccess; and that global and local are one and thesame. Consider the facts below.

• World trade in goods and services now exceedsUS$4 trillion a year, up 13-fold in real termssince 1950. 33

• The US remains the world’s largest tradingnation, with US$975 billion in merchandiseimports and exports in 1992, up from US$466billion in 1980.

• The share of the US civilian workforce whosejobs are supported by exports rose from 7.6% in1986 to 11% in 1992. By 1993, the jobs of 10.5million Americans were supported by exports, upfrom 6.7 million in 1986.

• The US is the top-ranked international directinvestor, with an estimated US$486 billion incumulative investments abroad at the end of 1992.

• The US is also the largest host nation for foreigninvestments, with US$404 billion in 1992 – upnearly 500% since 1980.

The stakes for cities and towns in addressing theglobal economic reality portrayed in these statisticsare high. Whether they are competing forproduction facilities, major conventions,transportation hubs or tourism dollars, localeconomies are at the front lines of the globaleconomy. And even if they are not directly orextensively involved in non-US trade, cities andtowns must still accept that the rules of the gamehave changed – that global competition is for realand has yielded tough new standards by which citiesand businesses are judged.

In October 1996, local leaders from across thecountry gathered at an NLC Symposium inColumbus, Ohio, to wrestle with these issues anddevelop competitiveness strategies for the future.Hosted by Mayor Lashutka, the two-day symposiumbrought together city officials, economicdevelopment experts, non-profit representatives andothers for a first-ever discussion of “Achieving WorldClass Local Economies”. In a presentation at thesymposium, Rosabeth Moss Kanter, author of WorldClass: Thriving Locally in the Global Economy, painted apicture of the challenge facing local leaders: it is notthat every business is suddenly international in scope.But standards are changing. Awareness of standards ischanging. Companies and individuals are shoppinginternationally for goods and services and also forplaces – places where brainpower flourishes areincubators for social advances as well as technologicalones. For long-term economic advances to take hold,according to Kanter and others, it will be up to localleaders to embrace the changes needed to achieveworld-class local economies. What it takes is acommitment to a new level of performance andcompetitiveness for the local economic region. Thismeans doing everything you can to create schools,roads and highways, neighbourhoods, a governmentand a workforce that are all world-class. The fact is

that your city’s success in the global economy hingeson its ability to address the full range of issues facinglocal leaders, from poverty and homelessness toeducation, transportation and crime. At the sametime, your success in resolving difficult local issueswill improve your city’s economic prospects. In Pathsto Economic Opportunity: Case Studies of LocalDevelopment Strategies to Reduce Poverty, NLC’s PhyllisFurdell observed:

“Social and economic progress are inextricablylinked. In recent years, it has becomeincreasingly clear that we cannot solve socialproblems such as crime, drug abuse, familybreak-up, malnutrition, and homelessnesswithout solving the associated economicproblems first… Conversely, economic progressdepends on social progress. Without serious andefficiently targeted investments in childcaresupport, early education, better school-to-worktransitions, dropout prevention, and adultretraining, a large proportion of today’s andtomorrow’s workforce will be unable tocontribute to the economy.”

Gu i d i n g P r i n c i p l e s

The challenge for cities and towns in the globaleconomy was described by the NLC AdvisoryCouncil in Global Dollars, Local Sense: Communitiescannot isolate themselves from the globalisationprocess; such a strategy would be counterproductive.Community leaders will face the new realities andseek creative ways to ensure that all of theirconstituents benefit from the global economy. Cityand town officials must be catalysts for change, sothat their communities will not be victims of change.

This article is taken from a guidebook that wascreated to help local leaders fulfil their role as catalystsfor change. In the guidebook, we present seven“Guiding Principles for Leadership” Together, theprinciples redefine “economic development” into aframework of local economic policy. They provideone way of looking at the wide range of activities thatlocal leaders and others can undertake to improvecompetitiveness. They are intended not as individualsteps to be taken one after the other but as variouscomponents, or pieces, of a strategy for success.

In order to achieve a world-class economy you, as alocal leader, need to follow the steps laid out below.

• Know your local economic region – yourability to achieve a world-class local economydepends, to a significant degree, on yourgovernment’s acceptance that a regionalapproach is the right approach to economicdevelopment and governance.34


Success also depends on a good workingunderstanding of the inner workings of yourregion’s economy – how the parts connect andinterrelate and how the economy affects thequality of residents’ lives.

Develop frameworks for action andunderstanding – an understanding of the need toachieve a world-class local economy must extendbeyond local government. Citizens, businesses,the media and community organisations must allsee how global competition affects the localeconomy and how a regional approach is theright approach to economic development andgovernance. It is up to local leaders, therefore, tospeak out about the local economy and to createprocesses and forums that allow diversestakeholders to address these issues and developstrategies for success.

• Build partnerships and governance capacity – forregional approaches and global frameworks tosucceed, local governments need to reach outacross jurisdictional lines and work together toachieve shared goals. But governments cannot doit alone. Businesses and community organisationsmust also play a part, drawing on their specialstrengths and resources to help you improvecompetitiveness and quality of life throughoutyour local economy.

• Connect local and global – a world-class localeconomy is built on the understanding that localis global and vice versa. Working with citizensand business and community leaders, local officialscan take action to develop and affirm basicstrengths – including quality education, a soundinfrastructure and a healthy environment – thatposition the local economy as world-class. Localleaders can also find ways of connecting moredirectly with the global economy through trademissions, sister city relationships and otheroutreach programmes.

Promote opportunity and inclusiveness – worldclassmeans that all citizens have the opportunity toparticipate and succeed in the local economy. As alocal leader, you can help others understand thatdistress in one part of your local economy inevitablyaffects the other parts – and that opportunity andinclusiveness are keys to success.

You can also promote connections betweeneconomic development and anti-poverty efforts andengage key community stakeholders – especiallybusiness – in reducing economic insecurity.

Engage the state and federal governments – yourlocal economic region plays an important role in

the economic fortunes of your state and thenation as a whole. As a result, the state and Federalgovernments have an important stake in helpingyou achieve a world-class local economy. Yourjob is to show state and Federal officials why andhow they should be contributing to your localeconomy’s success. This is about more thanapplying for the right grants; it is about framingyour work with other levels of government as apartnership to improve competitiveness andquality of life.

• Be strategic – every community has a uniqueblend of strategic assets to build on in achieving aworld-class local economy. These may includetelecoms, schools, transportation systems, trainingand workforce development programmes,business clusters, childcare and more. The key isto look at what you have got on a regionwidebasis and to gauge how these assets, bothcollectively and individually, can play a part inyour economy’s success. Then it is a matter of“connecting the dots” and investing in thoseassets that will get you where you want to be. ■

The National League of Cities (NLC) is the largest andmost representative organisation serving municipalgovernments in the US. Founded in 1924 as the AmericanMunicipal Association by ten state municipal leagues, todayits direct members include 49 state municipal leagues andmore than 1,500 communities of all sizes. Through themembership of the state municipal leagues, NLC representsmore than 1,800 municipalities.

Although most of the nation’s larger municipalities aremembers of the league, more than 75% of NLC’s directmembers have populations less than 50,000, and small cities,towns and villages play an equal and key part in the activitiesof the organisation.

In its activities, NLC encourages full participation by theentire city leadership team, not just by one or two topofficials. Through NLC, mayors and city council membersjoin together to establish unified policy positions, advocatethese policies forcefully and share information thatstrengthens municipal government throughout the nation.NLC’s diverse membership is one of its greatest strengths,and the organisation’s non-partisan structure takes fulladvantage of the broad base the membership provides.

Acting on behalf of local governments, NLC’s own goals includeinfluencing national policy and building understanding andsupport for cities and towns. Through a wide range ofprogrammes and services, NLC assists both local leaders in theirjobs as policy-makers and public servants.

For more information about NLC, please contact the Centerfor Public Affairs at (202) 626 3120, or by e-mail [email protected]


37

Professor Ferran Lemus has beenAssociate Professor of InternationalTrade and Global Markets at thePompeu Fabra University, Spain, apost he has held since 1996. Inthis period, he has also been amember of GROUPEURO – theEuropean Commission WorkingEuropean team assisting with theintroduction of the Euro. SinceAugust 1998, he has been seniormanager for internationaldevelopment at GFE Associats,specialists in strategic urbandevelopment. Between September1995 and April 1998, he wasregional director of Argentaria, acorporate and investment bank inCatalonia and, for three yearsbefore that, he was general areamanager of the bank in Paris,responsible for restructuring.Between March 1987 and June1992, Professor Lemus heldpositions at Barcelona City Hall,with a trade fair firm and a riskcapital firm respectively. Previously,he was with the BarcelonaDevelopment Agency, the Banco deVizcaya and Cobega SA – the CocaCola Concessionaire. Professor Lemushas an Economic Science degreefrom Central University, Barcelonaand a Master’s in European Studiesfrom Reading University, UK. Hehas also attended the SeniorExecutive Program at ColombiaUniversity, New York, US.

a report by

P r o f e s s o r F e r r a n L emu s

Associate Professor of International Trade and Global Markets, Pompeu Fabra University, Spain

F r amewo r k o f t h e S t u d y

In the middle of 1998, GFE Associats wascommissioned to evaluate the competitive position ofMataró’s productive fabric and to lay down thestrategies and future measures to be undertaken.Mataró, an important city situated in the hinterland ofBarcelona, has a large industrial sector within itsproductive base and a considerable presence of activitiesbelonging to sectors that are ‘mature’ or in decline. Thecity has very good roadway communications, amagnificent climate and is close to Barcelona.

Maresme county, of which Mataró is capital,accounts for 4% of the GDP of Catalonia, while thefigure for the city of Mataró itself is 1.5%. WithinCatalonia, the number of inhabitants accounts for5.3% and 1.7% respectively.

The current processes of economic globalisation andinternationalisation are posing new challenges ofcompetitiveness for regions and cities with aconsiderable industrial component, while at the sametime highlighting the need to design and linktogether strategies and measures to improve theprovision of resources for the territory and topromote more competitive work by local companies.

On the basis of work by Michael Porter (TheCompetitive Advantage of Nations, 1990), we developeda method for analysing national economies byincorporating strategy and business factors as basicelements of the competitiveness of a zone. In MichaelPorter’s work, the economy was divided intomicroclusters, which we took to be groups ofcompanies that engage in the same activity and/orrelated activities within a specific geographical setting.

The competitive advantage of a zone will bedetermined by the position of its economy as awhole, and of the clusters which make it up, inrelation to four groups of factors:

• the situation of the factors of production (humanresources, capital, infrastructure, etc.);

• the situation of demand (trends, sophistication, etc.);• the support sectors (providers of services,

distributors, etc.); and• the inherent structure of the sectors and the

strategies of the companies forming part of them.

The interrelations between these four groups offactors are structured into the so-called Porter’s“diamond” of competitiveness.

On the basis of the competitive advantage of the entiregeographical sphere and identification of the clusters(or microclusters) and potentially interesting emergingsectors to be analysed, the diagnosis will be set out andthe lines of action deriving from it framed intoobjectives that are as specific as possible. Althoughgovernment measures play a significant role, themeasures and strategies adopted by companies are themain factors in the competitive development of theproductive fabric. This implies that the success of theactions and lines of strategic change proposed willdepend largely on the involvement of the various localagents – primarily the government and businessmen.

Me t h odo l o g y A pp l i e d

The classic definitions of the competitiveness of acountry associate it with various indicators such aslabour productivity, return on capital devoted toindustry or the positioning of its goods and servicesin world markets. Such definitions are clearly nonetoo viable for measuring the competitiveness of theproductive fabric of a smaller geographical area suchas a municipality or a city.

The competitiveness of the productive fabric willdepend on:

• the actual sectorial structure of the municipality;• the situation of the territory’s structural factors; and• the state of the resources available and the

strategies adopted by the local productive fabric.

This article presents this methodology adapted to alocal setting. Together with generic factors, such as thedynamism of the national or regional economy andthe fiscal and monetary framework, competitiveness –the ability of companies to position themselves in themarkets and to generate greater added value – will be

Compet i t i venes s Diagnos i s and De f in i t ion o f a P lan o f Ac t ion for anIndus t r ia l Area

POLICY & STRATEGY

measured by a number of more specific factors whichthe possible strategies, and measures used to improvethem, can be based on. These factors can be gatheredunder three broad groups:

• the business concentration, which expresses thedimension, structure, location and specialisationof the zone in particular economic activities thatcan be correlated with certain external features;

• the zone’s provision of resources and infrastructure,within which the importance of the quality andquantity of investments and government action inthe zone and the quantity and quality of the zone’shuman resources should be stressed; and

• the competitiveness of the companies that formpart of the zone’s productive fabric – factors thatmeasure this competitiveness are market-accessstrategies, quality-improvement programmes andhuman resources policies.

Once the competitiveness of the municipality as awhole has been analysed, the key clusters and emergingactivities for the future of the city’s productive fabricwill be identified. These will form the subject of amore specific diagnosis revolving around the basicfactors that determine their competitiveness.

The field work was structured around:

• the use of databases and specific studies of thezone in question;

• in-depth interviews of the main agents in the localeconomy (local government, companies andsectorial representatives etc.); and

• the carrying out of a survey on thecompetitiveness of the business fabric of the zonebased on 150 interviews covering the main factorsof competitiveness and strategies to determine themake-up of the zone’s productive structure.

P r i n c i p a l R e s u l t s

The present situation of Mataró’s productive fabricpresents a number of threats and opportunities,around which future strategies and action planswould have to be structured.

Outstanding amongst the weaknesses or threatshindering better competitive positioning of themunicipality are the considerable industrial one-pointedness (highly centred on activities with littleadded value), the small dimensions and scant capacityfor action of local companies and the lack ofinternationalisation of the city’s companies. These,together with the lack of a commercial strategy andof innovation policies, are the main shortfalls of themunicipality’s business fabric.

On the other hand, the municipality is locatedstrategically between Barcelona and the northern partof the Catalan coastline and is one of the maincentres of population and economic activity in thesecond metropolitan orbit. This means that itpresents a number of strengths and opportunitiesaround which future lines of action can bestructured. Significant future potential for the city’seconomic development lies in:

• a notable improvement in the area’s access routesand infrastructure;

• a growing tendency towards tertiarisation of localeconomic activity; and

• the dynamism of the municipality’s emergingsectors (services for companies, construction,leisure, etc.

De f i n i t i o n o f t h e P l a n o f A c t i o n

The city is currently experiencing a time of change, inwhich its future depends on taking advantage of thepresent economic dynamic and the opportunitiesoffered by the new metropolitan setting. As thecounty seat and one of the major nuclei of populationin the metropolitan hinterland, the city has anopportunity to gain a place as a major commercialcentre and a focus for leisure and entertainmentservices and activities. At the same time, the city’ssizeable industrial fabric, the new roadwayinfrastructure, the municipality’s business tradition andthe potential for development of new economicsectors makes Mataró a strategic element in the newmetropolitan productive setting.

The Plan of Action drawn up is structured as follows:

Strategic Lines – main horizons which orient anddefine the will to act of the municipality’s productivefabric. The Strategic Lines are structured and renderedviable by the definition of Objectives, which developthe Strategic Line within a highly specific orientation.

Measures – sets of projects that make it possible tofulfil the Strategies and Objectives.

Actions and projects – the most specific elements ofthe Plan, mainly involving work that can be carriedout in the short term and which has immediate effect.

S t r a t e g i e s

In order to take advantage of the opportunitiesdetected, and at the same time face up to the threatsand weaknesses identified in the diagnostic phase, wedrew up three strategies directed at designing anddeveloping a new, more modern and competitiveproductive fabric, with higher added value of theeconomic activities carried out within them. 38


Strategy 1: To Design a New Productive Fabric Based

on Activities of Higher Added Value

The measures proposed within this strategy focus onactivating and developing the synergies necessary tomake a qualitative leap in the current economicstructure of the municipality. The four basicmeasures within this strategy are:

• to facilitate reconversion of the least competitivesectors without this leading to a net reduction of jobs;

• to boost diversification of the economic base;• to provide the present business fabric with tools

for internationalisation;• to increase the capacity for action of local

companies by encouraging processes of companyconcentration; and

• collaboration between SMEs.

Strategy 2: To Structure the New Strategies and

Infrastructure to Ensure the Future Competitiveness

of the Zone

The objective of this strategy is to modernise andimprove company support infrastructures so as toensure the competitive capacity of the local productivefabric. The measures defined here are directed atimproving the range of industrial sites available, both

quantitatively and qualitatively, boosting andimproving local business-support infrastructure andimproving the area’s human resource pool.

Strategy 3: To Develop New Transversal Activities to

Generate Tangible and Intangible Capital in the

Municipality

The underlying objective of this third strategy is to takeadvantage of the opportunity that will be generated bythe new dynamics of the metropolitan area to increasethe intangible capital of the city whilst widening theresearch base and accumulated know-how of the areaand designing a new ‘intelligent’ city. The highlyattractive geographic setting and the new socio-economic situation in the metropolitan hinterland aredestined to be factors of attraction for business researchand development activities and a foundation for theimplementation of a project of metropolitan scope.

The action plan was approved recently and we willfollow its evolution closely in order to compare andcontrast the results as they are achieved and correctthose processes which do not live up to theexpectations entertained.

We hope to have occasion to recount the successesachieved. ■

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40

Gene Park is an associate in ICFKaiser’s ESG. His areas of expertise

include economic analysis, policydevelopment, industry research andinstitutional analysis. He has playeda central role in US policy studiesas well as studies for international

organisations, including ScottishEnterprise and the Province of

Alberta, Canada. Prior to his workat ICF Kaiser, he worked as a

research assistant at the BerkeleyRoundtable on the International

Economy. Mr Park has a Master’sDegree in Urban Economic

Development from the University of California.

Ted Lyman is Senior Vice Presidentand Group Director in the

Economic Strategy Group (ESG). Heis responsible for economic

planning and economic strategydevelopment projects for clientsaround the world. Over a long

career in the consulting profession,his main focus has been on

developing strategies for enhancingfast-changing economies in and

outside the US. Mr Lyman has 25years of experience in both

developed and developing countriesassisting government and private

sector leaders.

Dr Egan is Project Manager withthe ESG, which he joined while

completing his doctoral dissertationin 1996. He has extensive research

experience relating to regionaleconomic development, with aspecial focus on information

technology and structural economicchange. His dissertation, The SpatialDynamics of the US Computer Software

Industry, was the first long-termstudy of the relationship betweenthe software industry and regional

economic development.

a report by

Gen e P a r k , T e d L yman and D r E g a n

Associate, Senior Vice President and Group Director and Project Manager, Economic Strategy Group, ICF Kaiser

I n t r o d u c t i o n

This paper reviews how a set of place-basedapproaches can be used to improve economiccompetitiveness strategy in developing regions. As theglobal economy has expanded, virtually everycountry has recognised the critical role of exportearnings to economic development. Similarly,increasing trade liberalisation through the GeneralAgreement on Tarrifs and Trade, Association ofSouth East Asian Nations and the Southern CommonMarket are creating new opportunities and challengesin reaching export-based economic developmentgoals. If a country’s or region’s industries are notcompetitive, increasing globalisation may underminetraditional sources of export earnings, particularlythose dependent on resource-based and labour-intensive industries. At the same time, theopportunities to participate in an increasinglyintegrated world economy are too significant to fallvictim to the ineffectual practises of the past. Thequestion is: what type of policies should developingeconomies deploy to improve competitiveness?

Experience shows that macro-economic developmentstrategies alone, while critical, cannot guaranteesuccess. While economic and political stabilityencourage foreign investment, provide a level playingfield for domestic producers and can, in effect, “getthe prices right” to allow market forces to operatemore freely, they do not in themselves guaranteerising wages and living standards.

In contrast, the global competitiveness strategy approachdescribed in this paper provides an overarchingframework for guiding economic developmentprogrammes aimed at improving the competitiveness ofa specific region or nation. The global competitivenessapproach emphasises four interrelated themes, which arelinked in that they have a microeconomic focus onglobal competitiveness and involve initiatives,investments and forms of organisation which are place-based – specific to the economic reality andcompetitiveness needs of regions or countries.

Market focus – Many traditional commodities thatnations depend on for exports are experiencing a

price decline which will only continue in thefuture. These commodities include not only rawagricultural products and minerals but also manytypes of labour-intensive manufacturing goods. Atthe same time, new geographic markets are openingaround the world and specialised niches aredifferentiating former ‘mass-markets’. In today’sglobal economy, finding the right niches andtrading partners are more critical than ever.Industries that can take advantage of new marketopportunities will reap the rewards of morelucrative markets but those that fail to adjust will seedeclining prices and market share.

Industry clusters – Experience and empirical analysishave shown that groups of related industries whichare concentrated geographically – ‘industry clusters’– tend to be more resilient and competitive. Relatedindustries in close proximity often can share scarceresources such as skilled labour, managementexpertise, producers of intermediate goods andservice providers.

Economic foundations – Undifferentiated factor inputs(land, labour, capital) are insufficient in explainingeconomic growth and prosperity. A new set of‘economic foundations’ are increasingly recognised asessential to economic development which will bediscussed later in this article.

Linking economic foundation development to industryclusters can create a competitive advantage that is farmore sustainable than cost advantages. Economicfoundations are maximised clusters, if spatiallyconcentrated. This phenomenon, sometimes referredto more generally as ‘external economies’, partlyexplains the success of many dense, urban economies.

Public/private governance – The right institutionalmechanisms must be in place for these new economicdevelopment initiatives to succeed. Public/privatecollaboration is particularly important to ensure thatthe provision of vital services matches the needs of theprivate sector. This is especially critical for developingcountries which tend to have less robust economicfoundations and more limited resources. Together,these components form the basis of the place-based

Globa l Compet i t i venes s S t ra tegy :A Mic ro-Economic P lace-Based Approach

POLICY & STRATEGY

Globa l Compet i t i venes s S t ra tegy : A Mic ro-Economic P lace-Based Approach

global competitiveness approach. This newunderstanding of what makes economies successfulrecognises that regions and nations need co-ordinatedand comprehensive frameworks, not simply studies, toguide concrete initiatives to build their economies. Byusing the place-based global competitivenessapproach, developing countries and regions candevelop effective strategies to address key constraintsto economic growth and achieve other critical policyobjectives. Examples include:

1. Decreasing dependence on commodity exports –developing competitive forward and backwardlinkages through global competitiveness strategiescan increase local value-added to manufacturing,agribusiness, resources, and services.

2. Creating jobs – high unemployment is a majorsource of poverty in many developing countries.Promoting industry clusters through a globalcompetitiveness strategy can dramatically increaseemployment opportunities. Free zones nowaccount for a large share of manufacturing jobs inmany regions. The positive impacts onemployment from the free zones can be enhancedby increasing the competitiveness of potential localsuppliers of intermediate goods and service inputs.

3. Building more competitive firms – privatisationand trade liberalisation increase the importance ofdeveloping competitive industries. Sectors, suchas tourism, which can provide valuable foreignexchange, can be targeted for growth.

4. Improving terms of trade – many developingcountries suffer from a narrow export base,therefore terms of trade are sensitive to commodityprice swings, such as oil on the import side andagricultural products for exports. Increasingproduction in a wider array of sectors for bothdomestic and export markets can help improve andstabilise the balance of trade.

In short, while macroeconomic reforms can create thenecessary preconditions for economic growth, it iscompetitive industries that reduce poverty and createwealth and jobs. Place-based global competitivenessstrategies can help developing countries attain thevariety of economic development goals outlined above.

T h e Impo r t a n c e o f P l a c e - B a s e dS t r a t e g i e s i n t h e G l o b a l E c o n omy

Increasingly, the economic performance of regionsaround the world is diverging from that of theirsurrounding nations: some urban and rural regionsare moving far ahead, while others are being leftbehind. In the US, as the graph below indicates,metropolitan regions have diverged in their average

wage level since 1975, with over 50 metropolitanregions having real average wages either 20% betteror 20% worse off than they were 20 years ago.

Why should this level of regional economicdivergence persist, and even widen, after 50 yearsof regional convergence in incomes? Today, themost significant economic connections occurwithin regional concentrations of industries andsupporting activities. These economic regionsoften cut across local administrative and politicaljurisdictions and are driven by global trade,investment and technology flows. The success ofregions from Silicon Valley to China’s Pearl RiverDelta illustrates how individual regions can bythemselves increase foreign investment andprosperity. Regional organisation and initiative canclearly make a difference, whatever directions theirnational economies evolve.

A major factor in regional divergence has been thedevelopment in recent years of worldwideproduction networks, in which regions specialise indifferent intermediate stages of final products, bethey computers, automobiles, furniture, food orapparel etc. The rise in international trade of bothgoods and services reflect this heightened level ofinter-regional economic interdependence and theconsequent success of regions which perform well inthis new context.

E l emen t s o f G l o b a l C ompe t i t i v e n e s sS t r a t e g y

M a r k e t F o c u s

The rapid integration of global markets is creatingnew opportunities for nations and regions that areprepared to compete in the world market. To exploitthe new opportunities of the global economy,industries must learn to focus on global marketopportunities. While strategies aimed at increasing 41

Figure 1: Wage Performance in 1975 and 1995 in US RegionsNu

mber o

f MSAs in

each C

ategory

(out o

f 315

)

70 -80%

80 -90%

90 -100%

100 -110%

110 -120%

Over120%

100

80

60

40

20

0

Average 1995 Wages as a % of Average 1975 Wages

productivity, including micro-economic strategies,are a key component to improving competitiveness,production strategies alone are inadequate. The abilityto understand key markets around the world is vitaltoday. Many small or inadequately organisedindustries in developing countries, however, lack thiscapacity despite its increasing relevance to their futureprosperity. In north-east Brazil, for instance, manyregional farmers lack the market intelligence necessaryto determine which crops they can produce mostcompetitively and where they might market theirgoods. In contrast, other regions have managed togauge accurately market trends and exploit newexport markets. Mexico, for example, successfullyanalysed the market potential of papaya in the US andhas seen its exports soar.

I n d u s t r y C l u s t e r s

Despite the increasing regional specialisation andinterdependency associated with globalisation, manyregions in recent years have developed upstream anddownstream linkages to key industries within theregion. Firms benefit from proximity and closerelationships to qualified service and commodityinput suppliers. Proximity helps build critical mass inlocal labour markets, helps justify increasedinfrastructure investment, builds a local market toattract more outside suppliers, can improve the flowsof market and technological information to local firmsand improves the overall responsiveness of the localindustrial system.

The important developmental difference betweenbroad clusters and narrow segments of productionchains is that clusters are dynamic, innovative regionswhich are capable of adjusting to – and in factproducing – innovation which expands the productionchain and the value added at each stage (see Figure 2).Regions with a more narrow focus are often subject toeconomic decline when these changes occur becausethey cannot adapt as quickly without the support ofintermediate suppliers and key service providers.

Using industry clusters rather than single industries asthe unit of analysis can provide the basis for a newapproach to economic strategy. Focusing on relatedvertical and horizontal linkages, industry clustersprovide a means of extending a region’s industrydevelopment efforts along the value chain frommanufacturing assembly towards higher value-addedactivities, such as research and marketing services.

Examples of successful clusters around the worldabound. A high concentration of related software,computer and electronics manufacturers, suppliers,researchers, specialised workers and services hascontributed to the success of Silicon Valley in the USand has had a similar effect in Bangalore’s high-techeconomy in India. Each of these software clusters arelinked to different international production chains inelectronic components, consumer electronics, othersoftware and the increasing variety of downstreamindustries with dedicated software suppliers. Otherregions specialise in segments of production chainsrelated to natural resources – providing minerals orprimary agricultural products, for example – and canincrease their competitiveness through higher levelsof processing and niche marketing.

E c o n o m i c F o u n d a t i o n s

Successful industries, especially those which havedeveloped into clusters, are supported by economicfoundations that deliver the ‘soft’ inputs required tomove up the value chain. Key economicfoundations include:

• worker skills and education;• sources of technology and R&D;• capital finance;• business climate; and• physical infrastructure.

Often, these can be benchmarked against otherregions to provide a picture of the relative strengthsand weaknesses in a given region. Once public andprivate leaders know which economic foundations arecritical to their industries and clusters and how theycompare to other regions, they can take steps toactively shape their future economy by developingeconomic foundations. If foundations are developedto be responsive to the needs of industries,competitive advantage can be created.

Our research and experience have identified twospecial categories of regional economicfoundations: quality of life and social opportunity.A quality environment is increasingly critical forhigh value-added economic activities, such asresearch and development and headquartersfunctions. A lack of social advancement becomes along-term drain on the economy and often points42


Figure 2: Example of an Industry Cluster

Telecommunication Cluster

Semiconductor SectorMemory ChipsMicroprocessorsComponents

TelecommunicationsEquipment Sector

Transmission EquipmentFibre optics Telephones

PABX

Consumer Electronics SectorRadioTVVCR

Computer Equipment SectorPrinters

Hard DrivesCPUs

Phone Sets PABX TransmissionEquipment

Accounting

Tech. Support

Quality Testing

R&D

Entrepot

LANComponents Modems Cables Fibre

Optics

MetalStamping Plastics Business Support

Services

Transceivers

Semi-conductors

Tool& Die

ElectricalApparatus Moulding Packaging

ResearchCentres

FinancialInstitutions

RegulatoryAgencies

Education& Training

PhysicalInfrastructure

Promotion Agencies

LeadingExports

Suppliers

Foundations

Globa l Compet i t i venes s S t ra tegy : A Mic ro-Economic P lace-Based Approach

out weaknesses in the educational system. In otherwords, poor social and environmental performancerepresent long-term weaknesses in the region’seconomic foundations.

At the same time, social and environmental concernsare often represented in their own right, independentof their effects on economic development, bypowerful constituencies. The need to achieveconsensus in economic vision and strategy makes itincreasingly imperative to respond to these issues indevising economic strategy. The types of place-basedtechniques described in this paper can be used toidentify the likely effect of growth on both socialopportunity and environment.

For example, different industry clusters offer differentlevels of economic growth potential, have differentenvironmental effects and contribute in differentways to problems of social exclusion and inequality(see Figure 3).

P u b l i c / P r i v a t e G o v e r n a n c e

Competitive regions and nations have always beencharacterised by the ability of enterprises to worktogether. The particular aim of public/privatecollaboration is to keep economic foundations in stepwith the changing market requirements of industriesand industry clusters. Industry cluster strategies needto place particular emphasis on mobilising public andprivate sector stakeholders, as well as concerned non-governmental organisations, to work together toimplement new initiatives. New organisations areoften necessary to enable leaders from differentsectors, departments and localities to work togethermore effectively.

T y p i c a l S t e p s i n a P l a c e - B a s e dE c o n om i c D e v e l o pmen t P r o c e s s

The experience of the last decade has shown howplace-based initiatives can help developing regionsand countries meet their economic developmentchallenges. Although initiatives must be tailored tomeet the specific challenges of each region, theytypically include the following components:

1. Industry Market Outlook – analysis of domesticand world markets serves to highlight keyindustries with high market growth potential forpossible focus in a strategic plan. Trade patternscan be analysed for each market segment toidentify specific geographic regions that might betargeted during implementation phases.

2. Industry Cluster Analysis – quantitative analysiscan identify established and emerging industriesand established clusters through a four-step

process: identification of industries with commonmarkets; determination of shared supplierindustries; identification of key occupationalneeds; and analysis of patterns of spatial co-location. In addition, industry supply gap analysiscan identify the key suppliers required to enhancecompetitiveness.

3.Organisation of regional working groups – industryworking groups can be organised for each keyindustry, consisting of business, government anduniversity leaders, to identify economic foundationneeds and industry problems.

4. Strategic plan – using diagnostic results, a strategicplan featuring action initiatives is prepared. Theplan addresses highlighted issues, such as industry-specific training and supplier attraction plans, and isdesigned to become the basis of economic action.

5. Implementation – a plan, in order to be successful,must go beyond recommendation toimplementation. Such an implementationprogramme involves identifying and empoweringkey organisations and leaders to take responsibilityfor overseeing implementation.

I C F K a i s e r I n t e r n a t i o n a l

ICF Kaiser International, Inc. is one of the world’slargest consulting, engineering and programmemanagement companies. It provides fully integratedcapabilities to clients in four related market areas:environment, infrastructure, industry and energy.The company combines the strengths of ICFIncorporated, a consulting firm, and Kaiser Engineers,Inc., an engineering and construction company.

The Economic Strategy Group (ESG) is a business unitthat develops and implements economic strategy,focusing on regions encompassing metropolitan areas,states and cross-border economic complexes. For nearly20 years, ESG has applied a set of action-orientedapproaches to economic strategy that have beensuccessfully used in: 43

Social ImpactsLow-income job opportunities Geographic distribution of jobs

Rural workforce roleCommunity suppliers

Environmental EffectsToxic Releases

Relative Pollution PotentialPollution Control Effectiveness

Economic PerformancesAgglomeration Value added

Growth Exports

Apparel

Agriculture

Business Services

Tourism

Figure 3: Regional Clusters

• leading economic centres: Charlotte, NorthCarolina; Austin, Texas; Los Angeles County;Greater New York Metropolitan area; SiliconValley; Hong Kong; Florida; Arizona; the Mid-America region; Osaka, Japan;

• emerging economies: the north-east region ofBrazil; Tianjin, China; Malaysia; Bangalore, India;Chihuahua, Mexico; and

• transforming economies: Slovenia; Slovakia;South Hungary; Jena (former East Germany); theMiddle East

These efforts have been sponsored by state and local governments, business leadership groups,public/private consortia, partnerships betweennational and local governments, internationalagencies and private sponsors. Consulting assistancewas requested at a time when the sponsoring nation or region’s economy was undergoing a major competitive challenge that called for a dramatic rethinking of strategy for the future. TheESG:

• analyses the region’s economic drivers; • examines the strengths and weaknesses of the

area’s industrial clusters; • assesses markets for the products and services of

the clusters;

• mobilises local stakeholders in identifying industryrequirements and organising for action; and

• provides recommendations in the form ofstrategies and action implementation steps aimedat creating a higher value added economy.

The ESG develops innovative, action-orientedeconomic development strategies in major regions ofthe US and in other countries. It has many decades ofaccumulated experience in the analysis of alternativeapproaches to economic development and in workingwith business and government leaders in developingregional economic strategy initiatives. Makingstrategy a reality is ESG’s specialty. We achieve thisthrough a range of activities – from designing trainingcentres, technology commercialisation, and businessspin-off centres to alternative methods for enterprisefinance, new telecommunications and environmentalinfrastructure. Our analysis is designed to give strategya strong foundation and our processes are designed toenable strategy to move naturally to action. ■

For further information, contact

Theodore Lyman, Senior Vice President

Economic Strategy Group,

ICF Kaiser International

101 Lucas Valley Rd., San Rafael, CA 94903

Tel: 415 507 7282, Fax: 415 507 7290


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Jonghoo Han is an AssistantProfessor of Political Science atSyracuse University’s Maxwell Schoolof Citizenship and Public Affairsand a Senior Associate in theGlobal Affairs Institute (GAI). Hecurrently teaches two courses:Politics in the Cyber Age; andPolitics in Korea and Japan. Hismain responsibilities in the GAIinclude several research projectswith major universities, associationsand research institutes in Korea onthe issues of governance in theinformation age. He has frequentlyaddressed conferences on electronicgovernment and democraticgovernance (empowering citizenship)and organises a tele-video lectureseries for the Graduate School ofPublic Administration at SeoulUniversity.

Stuart Thorson is Director of theGlobal Affairs Institute andProfessor of International Relationsand Political Science at the MaxwellSchool of Citizenship and PublicAffairs at Syracuse University. Heholds a courtesy appointment inComputer and Information Scienceat the same university. ProfessorThorson created, designed andimplemented the Maxwell School’sGlobal Collaboratory, a facility thatuses advanced communications andcomputing technologies to supportglobal collaborations and distancelearning. He has written over 40articles and book chapters in theareas of foreign policy, conflictresolution, computer modelling anddemocratic theory.

a report by

P r o f e s s o r s J o n gwoo H a n and S t u a r t T h o r s o n

Professor and Director, Governance in the Information Age Project, Global Affairs Institute,

Maxwell School of Citizenship and Public Affairs, Syracuse University


The dawning of the global information age is having adramatic impact on governance. Governments areacknowledging the need for significant internalreengineering to improve efficiencies and to delivermore transparently high quality government services tocitizens. Information technology (IT) is playing a keyrole in many of these reengineering efforts.Traditionally, benefits accruing to governments fromtechnology integration have been viewed in terms ofcost savings and return on investment from specificprojects. However, in an exploding information-basedeconomy, governments must deal with a complexrange of issues, including regulation/deregulation,licensing, incentives and risk management among theweb of providers and carriers (networks, content,cable, broadcast, wireless voice and data andtelephone). In this paper, we want to explore brieflysome of these issues then illustrate them with specificreference to reengineering efforts in South Korea.

Go v e r n a n c e a n d D i g i t a l D emo c r a c y

It is increasingly clear that governments are in theinformation business and that the politically andeconomically successful systems of governance will bethose which manage information effectively on a globalscale. For example, the combination of high-speed andrelatively low-cost computing and communications,the end of the cold war and the rise of a global economyall suggest that physical location will matter less in the21st century than it has in the current one. Already,cities such as London, New York, and Tokyo, like thelarge multinational corporations, are acting, in manyways, as independent actors in the emerging globalpolitical economy. Thus, a city may be a part of anation-state and yet act in significant ways quiteindependently of that nation-state.

While physical location is mattering less, it is still truethat people must be somewhere. It is just that where

they are will decreasingly determine the‘government’ services they will expect. A personshould be as able to renew their New York driver’slicence from Montevideo as from their home inupstate New York; and if they happen to be inAntwerp they will expect the same (or better) qualityof healthcare as if they were ‘home’. All this posessignificant challenges to traditional systems ofgovernance. Governments will, in the literal sense,become more virtual. That is, governments mustgovern without always being physically present. As asimple example, smart traffic lights permit the controlof traffic without requiring the physical presence of apolice officer (thus offering the possibility ofreassigning these resources elsewhere).

Factors that are shaping governance demands includethe following:

• The global political economy is becomingincreasingly bit rather than atom-based. Most ofthe traditional techniques deployed bygovernments have been based on their abilities toexert controls over atom flows. Import tariffs taxmovements of physical goods. Health practiceregulation is based on the assumption thathealthcare providers will have their atoms nearthose requiring medical care. Yet, advancedcommunications networks are not containedwithin simple geographic boundaries (for example,how will the bit-flows be taxed or controlled?),and telemedicine promises to enable care to bedelivered (infrastructure permitting) where theneed is, rather than where the appropriatephysician happens to be at the time.

• The end of the cold war means that the rigidstate-based territorial divisions of the world arebecoming transformed in often puzzling ways.

• Growing influences of global cities, transnationalcorporations1, international organisations and non-

Democrat i c Governance in the In format ion Age

GOVERNANCE

1. Authors define ‘transnational corporations’ (TNCs) or ‘stateless corporations’ using the following criteria: first, the scale of annualsales of TNCs exceeds the GNP of small Third World countries; second, more than half of companies’ profits are made outsidetheir home country; third, there is the presence of interlocking ownership and the existence of multiple identities and multipleloyalties; lastly, there is a strong degree of distancing itself with a fixed nationality. See Business Week, 14 May 1990.

governmental organisations have eroded theconventional authority of the nation-statesubstantially. Nation-states are finding it necessaryto delegate and decentralise their conventional areasof jurisdiction to local, regional power groups aswell as international organisations. Each govern-ment has to deal with the effects of transnationalpower and the consequent challenges posed bygrowing global economic interdependence, therebylegitimising new international organisations, such asthe World Trade Organization (WTO), to supportglobal governance.

• In this context, the conventional bonds betweenthe nation-state and its business units have becomelooser and consequently the national identities ofthe business corporation and national interestshave become blurred. An appropriate question onthe relationship between each nation-state and itsbusiness corporation would be: “Does it make anydifference what a company’s nationality is as longas it provides a job?”

• The rise of a global political economy, coupledwith the worldwide trend toward decentralisationof political authority from national to localgovernment, means that cities (and regions) facenew challenges and opportunities.

Together, these factors suggest that successfulgovernance will increasingly require thoughtful ITplanning, sophisticated deployment, management ofinformation assets and the knowledge of how toincorporate different levels of authorities and agentswithin the nation-state boundary. In addition, therewill be a need for new local, national and internationallegislation to provide a regulatory climate in whichinformation-based economies can flourish.

Building these governance institutions for the 21stcentury is one of the most challenging tasks faced bysocieties worldwide. Moreover, these challenges areoccurring at precisely the time when globalcompetition is fierce and resources scarce. Theglobalisation of today’s world rewards thosegovernments who are attuned not only to the bestadministrative practices in the conduct of their ownaffairs but also to those practices of governments intheir region and around the world. In the GlobalInformation Age, with markets playing a preponderantrole in the distribution of resources and, ultimately,power, governments worldwide are undergoing amajor process of adaptation – a reengineering processknown in the US as ‘government reinvention’.

This process of reinvention goes beyond meredevolution of power, downsizing, outsourcing andcreating new regulatory environments: it presupposesa change of paradigms, a redesign of governance (the

relationship between government and the people)and a complete transformation of the waygovernment works internally as well. The basicprinciples on which this process is built include:

• putting citizens first;• making citizens into customers of government;• implementing initiatives to promote transparency

and accountability in administration;• reducing the cost of government by downsizing,

outsourcing and improving government efficiency;• empowering government employees through

training and a reward system based on performance,productivity and creativity; and

• simplifying bureaucratic processes and cuttingred-tape.

IT can be an effective tool in the translation of theseprinciples into concrete steps of reform, by allowinggovernments to perform their functions in moretransparent and innovative ways. It becomes a tool inthe managing of information, more specifically in thecreation, gathering, manipulation, distribution,protection, interpretation and storage of information.

In the process of reinventing government andstrengthening democratic institutions, IT can play animportant role in many different areas: first andforemost, in the citizens’ access to governmentinformation and the consequent possibilities ofparticipation that this entails. There are manyexamples already implemented both in the US and inother countries around the world. In the US, moststate governments have created websites with basicinformation concerning the history of the state and thestructure of the state government and informationabout elected officials, state agencies and state courts.They have also put all laws, codes and regulationsonline. These sites are becoming increasingly moreinteractive, providing not only information but, inmany cases, actual services. This one-stop approach togovernment information and service delivery isproving to be extremely effective: individuals andbusinesses need to make a single contact with theirgovernment and, in turn, they (hopefully) receive aco-ordinated and effective set of information andservices to satisfy their needs. A very good example ofthis approach in the US is the US Business Advisor(http://www.business.gov/), a one-stop websitecontaining federal government information relevant tobusinesses and business transactions, with the purposeof making the relationship between government andbusinesses more productive. Many communities in theUS have established public access of this informationin various other ways. Examples includeInfo/California’s use of stand-alone kiosks in shoppingmalls, grocery stores and libraries; and the CommunityVoice-Mail in Seattle (Washington), which uses atwo-way messaging system that allows homeless


46

Democrat i c Governance in the In format ion Age

people and other individuals without access to atelephone to receive messages from programmecounsellors or potential employers.

T h e C a s e o f K o r e a

South Korea, where President Kim Dae Jung hasexplicitly embraced the objective of transforming thecountry into an information society as a way ofresponding to Korea’s recent economic woes,provides an interesting example of the subtle interplaybetween governmental reform and the informationage. In this regard, a most salient feature is theextremely large difference between Korea’sadministrative centre, the capital city of Seoul, andother provinces and local cities regarding their levels ofinformatisation. The Hyundai Economic ResearchInstitute’s survey on regional informatisation indexdocuments these differences. Seoul has the highestlevel of informatisation, with an index score of 169.47.Scores then drop to 94.24 for the capital city ofInchon and Kyunggi province. This is followed by the

city of Choongcheong province (90.53); the city ofTaegu and Kyungbook province (85.32); the city ofTaejeon and Choongnam province (80.36); and,finally, Chejoo province (the home of President Kim)has the lowest score at 58.02.2 The government indexof informatisation also marks discrepancy between thecentre and the periphery: Seoul 125.05; Pusan 118.09;and Choongcheong 63.01 (the lowest).

There are several factors explaining this gap betweencentre and periphery. First of all, Korea’s informationpolicy was articulated as a strategic nationaladministrative and economic policy. Informatisationwas understood, firstly, as a construction of high-speed government information network (KII-G) tobe completed by 2010 rather than as an infrastructureto serve private industry and citizens. All the majorscholarly conferences that we participated in last yearfocused on the issue of the realisation of electronicgovernment rather than that of how government canencourage and incorporate informatisation in thecivil sectors. Thus, informatisation seems to be

2. The regional informatisation level index with its average 100 is composed of three major indexes: social, economic and government.The social index is based on the number and annual sales of regional cable telecommunications services, and number of subscribers,the number and annual sales of the value-added telecommunications lines, distribution of computers and ISP spread of computers.The economic index is the information expenditures as a proportion of total expenditures in local and regional information andtelecommunications industries. The government index includes the proportion of informatisation-related public officials, distributionof computers in the public offices and the informatisation budget as a proportion of total budget in the local and regional offices.

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understood mainly as a reengineering of governmentefficiency. The Ministry of Information andCommunication, established in December 1994, is,however, currently implementing the Blueprint forKorea Informatisation Infrastructure as a single andintegrated network to be jointly utilised by local andprivate sectors. The estimated cost of this network isabout US$60 billion.

The national government has played the mostsignificant role as both the creator of informationdemands and the architect of Korea’s informationeconomy. Public and private local actors havegenerally not been able to initiate their owninformatisation policies due to both the centralisedpolitical, cultural and administrative structure and tothe lack of financial autonomy. Such a strongpresence of central government’s leadership innational informatisation helps to explain why thenational government tried to implement anElectronic Resident Card even in the face of severeresistance from citizens. This centralised, top-downstyle of an informatisation implementation plan hasserved as an obstacle to local innovation. Forexample, local and regional actors, both private andpublic, are still waiting for the construction of thecentral government’s promised integrated database.

Of course, local autonomy in Korea is still in the veryearly stages despite its revival in 1993. The level offinancial autonomy in the regional and localadministrative units remains very low, with aroundhalf of the budget provided by the centralgovernment. Only on two occasions have localcitizens actually elected their representatives. Localdevelopment of information infrastructure in suchareas as virtual communities, local digital politics andelectronics has been meagre. Electronic services fromlocal government agencies have been modest andconfined to such areas as the issuing of records withindividual identification cards, land documents andautomobile registration. Widespread developmentsof local information infrastructure will depend onmore developed local autonomy in politics,economy and informational culture.

The political culture on the issue of freedom ofinformation can provide an example of the sometimesslow process of informatisation in Korean society. Onlyvery recently has the Korean governmentinstitutionalised the free access and transparentmanagement of information. The three mostimportant statutes related to freedom of informationwere enacted in the 1990s: the Public InformationDissemination Act, in 1996; the Basic Act Relating toAdministrative Regulation and Civil Affairs, in 1993;and the Administrative Procedure Act (APA), in 1996.A principal objective of the APA is to promote thefairness, transparency and reliability of public

administration through the establishment of provisionsfor common administrative procedures and citizenparticipation. The APA incorporates detailedprocedures concerning the proper steps foradministrative actions and guidance, advancenotification, public hearings and the submission ofopinion by interested parties. Interestingly, the maindriving force behind the APA was not initiated by thegovernment but arose from the civil pressure anddemand for an institutionalised base of citizens’ accessto the information over which the central governmenthas a monopoly. The state leadership and control oversociety established and embedded in political culturethroughout Korea’s long history may prove to be adistorting factor in the direction of a Korean version ofan information society.

In the information age, successful governance willdepend upon a fragile balance between formal politicalinstitutions and the competencies, norms, values andethics of both citizens and public officials, that is,between government and civil society. The informaland highly normative sense of community and trustthat permits decentralised societies to function is basedupon subtle premises of citizen and administrativecompetence. Thus, it is critical for Korean society thatit build the kind of civil society that will provide thesocial fabric necessary for the balanced power relationswith the state and that informatisation be the mostimportant tool as a means of building a consensus forlegitimate democratic system.

Overall, South Korea is ranked in the middle group ofcountries in the area of informatisation. In the areas ofinformation and telecommunications industry policyand government network systems, Korea appears to begradually catching up with the leading group ofWestern countries. However, since the genericframework of state and society relations will mainlyinfluence the actual implementation of the goal ofcreating an information society, it is critical thatKorea’s civil society should be strengthened.

Con c l u s i o n

The Global Information Age poses severe challengesand almost unlimited opportunities to the world’ssystems of governance. In particular, developmentsin information and communications technologies aredriving both the process of economic globalisationand the related pressures for governmentalreengineering. In this paper, we have examined someof these pressures both abstractly and with specificreference to reform efforts now underway in SouthKorea. Evidence from the Korean case supports themore general observation that information-agereform efforts must be simultaneously directed at theinstitutions of government and the civil society inwhich that government is embedded. ■48


Om Prakash Mathur holds theHDFC-endowed Professor-Chair inHousing and Urban Economics atthe National Institute of PublicFinance and Policy, New Delhi.Prior to taking up the Chair inApril 1992, he was Director of theNational Institute of Urban Affairs,New Delhi. He is currently amember of the Steering Committeeconstituted by the EuropeanCommission to assist in theidentification and implementation ofurban sector projects in Asia, underits Asia Urbs Programme. Hisearlier assignments include: SeniorEconomic Planner at the UnitedNations Centre for RegionalDevelopment, Nagoya, Japan(1978–1984); UN Senior RegionalPlanning Advisor/Project Manager,Imperial Government of Iran(1975–1978); and Director, Multi-level Planning Division, PlanningCommission, Government of India(1971–1975). He has served as ashort-term Consultant to the UnitedNations University, the World Bank,Asian Development Bank, the UnitedNations Centre for HumanSettlements, the United NationsDevelopment Programme, theUnited Nations Children’s Fund andthe United Nations Economic andSocial Commission for Asia and thePacific, Bangkok. An economist bydiscipline, he has attended graduatecourses at the MassachusettsInstitute of Technology and HarvardUniversity, Cambridge,Massachusetts, US. He is on theeditorial board of the Journal of theReview of Urban and RegionalDevelopment Studies (TokyoInternational University), and onthe Advisory Board of the Journal ofthe Environment and DevelopmentEconomics, University of York.

49

a report by

Om P r a k a s h Ma t h u r

HDFC Professor-Chair of Housing and Urban Economics,

National Institute of Public Finance and Policy, New Delhi

Fi s ca l Innovat ions and Urban Governance

GOVERNANCE

Over the past decade or so, the developing andtransitional economies have made use of an interestingarray of fiscal instruments to strengthen the finances oflocal governments. Driven by the twin objectives ofcarrying forward the decentralisation goals and meetingthe widely prevalent fiscal crises, these instruments havetypically included adjustments in the local tax rates anduser charges, efficiency improvements in local taxadministration and enforcement, use of innovativerevenue sources, new intergovernmental fiscalarrangements, contracting out of services and anincrease in long term borrowing etc.

Somewhat similar developments are beginning to beobserved in India. A 1992 amendment to theConstitution marked a major development in thedirection of rationalising the state-local fiscalrelations. Independent of the Constitution (seventy-fourth) amendment, attempts have been made inseveral states and cities of the country to change andreform the system of property taxation. Innovativefinancial and institutional arrangements have alsobeen made, albeit sparingly, in the provision of suchurban infrastructure and services that havehistorically been in the public domain and providedby the public sector. Several local governments havebegun to use market-based rating systems forassessing their capacity to compete for financialresources in the capital market. Many others havefocused on changing their financial accounting andmanagement systems.

The issue is: have these fiscal instruments and othermeasures led to improved governance of cities andtowns; have these measures helped to promoteaccountability, transparency and participation at thelocal level; or have these instruments served primarilyas revenue-raising tools to bolster up the finances oflocal governments?

Using cases of three innovative fiscal initiatives,(reform of property taxation system in AndhraPradesh, issuance of bonds by the AhmedabadMunicipal Corporation and public-privateparticipation in the provision of infrastructure toTirupur), this study attempts to address the above-stated issues and explore the interconnectionsbetween fiscal innovations and urban governance.

I n t roduct ion : Exp lor ing the Connect ionsbetween F inance and Governance

Numerous studies have been carried out in recentyears on the finances of local governments in thedeveloping economies.1 Apart from a few exceptions,these studies are focused on one single issue: whatshould be done to improve and strengthen thefinances of local governments? What instrumentsshould be used to make the local governmentsfinancially viable? What should be done to enhancetheir creditworthiness so that they can access thecapital market and enter into such financialarrangements as would permit them to meet theirgrowing expenditure responsibilities?

Mention should be made at the outset that the issue ofthe finances of local governments has historically beena matter of widespread concern in most developingeconomies, mainly on account of the extremelyunsatisfactory state of their finances and their highlevel of dependency on the central and provincial orstate governments. Its growing importance in recentyears has, however, been spurred by a large-scalereappraisal of the role of local governments that hastaken place in a number of developing countries.Recent years have seen almost universally strongtrends towards decentralisation and consequentialreallocation of functions and responsibilities betweenthe different levels of governments.2 In this context,

1. All references to local governments in this study refer to urban local governments. These include municipal corporations,municipal bodies and other forms of city/town governments.

2. Recent studies have shown that as a political phenomenon, decentralisation is widespread in developing and transitionaleconomies. Of the 75 countries with population greater than five million, all but 12 claim to have embarked on some transferof political power to local units of government. See William Dillinger, Decentralization and its Implications for UrbanService Delivery, The World Bank (1994: Washington, D.C.), and Roy W Bahl and Johannes F Linn, Urban PublicFinance in Developing Countries, The World Bank (1992: Washington, D.C.).

questions have been asked about the role, functionsand responsibilities of local governments: should thelocal governments be concerned – as provided for inthe classical formulation – with resource allocationfunctions, such as the provision of public goods,whose benefits are likely to be limited to localjurisdictions or should they assume responsibility forfunctions such as economic stabilisation, incomeredistribution and poverty reduction?3 Drawingjustification from the principle of subsidiarity, manydeveloping countries have favoured a decentralisedorganisation of responsibilities where a function isassigned to a higher level of government when it is ina better position to carry it out compared to a lowerlevel of government. With the application of thisprinciple, local governments in many countries areexperiencing fundamental changes in the division ofauthority vis-a-vis the higher levels of governmentsand vis-a-vis the market.

The Notion of Subsidiarity... just as it is wrong to withdraw from theindividual and to commit to the community at largewhat private enterprise can accomplish, so it islikewise unjust and a grave disturbance of right orderto turn over to a greater society of higher rankfunctions and services which can be performed bylesser bodies on a lower plane. This is a fundamentalprinciple of social philosophy, unshaken andunchangeable. Of its very nature the true aim of allsocial activity should be to help members to the socialbody, but never to destroy or absorb them.

Papal Encyclical Quadragesima Anno

In many countries, the role of local governments hasundergone a major shift on account of the new fiscalrealities facing them. These realities, characterised bysevere limitation of financial resources, have led to

the downloading of a large number of functions andresponsibilities to local governments, oftenunaccompanied by devolution of fiscal powers andfinancial resources.4 As a result of both these trends,towards decentralisation and fiscal pressures, localgovernments have come to acquire, in a number ofcountries, economic and social responsibilities thatare often new and unanticipated. This has led themto ask: are these their legitimate responsibilities, andwhat should the local governments do to generateresources in order to meet expenditure on suchresponsibilities? What kinds of new fiscal and otherinstruments should they bring into use?

A second development that has brought the issue ofthe finances of local governments to the forefront isthe increased mobility of capital, technology and otherfactors of production across nations, combined withthe worldwide trend towards globalisation. Althoughtheories about the local effects of globalisation andglobal restructuring processes are partial and far fromrobust, indications exist that there is considerable localsensitivity to such processes. In several instances, thefiscal problems of city governments have beencompounded by global economic restructuring andshifting locations of labour and capital.5 A few studiesthat have analysed such effects have shown thatglobalisation has, on the one hand, led to thereformulation of relations between the public andprivate sectors at the local level and, on the otherhand, increased competition between cities and citygovernments for domestic and external investments.6

Cities in many developing countries are at the centreof globalisation, and are being called upon to enhancetheir competitiveness and to respond to the challengeof the opening up of the national economies.7

Globalisation has accelerated the demand for city-based infrastructure and services, and has led the local

50


3. In the classical formulation, the public economics literature assigns three roles to the public sector: (i) macro stabilisation; (ii) incomedistribution; and (iii) resource allocation. The public economics model assigns the first two of these roles to central government.Subnational governments enter the picture only with respect to the third role of government – resource allocation. See R Musgraveand P Musgrave, Public Finance in Theory and Practice, McGraw Hill (1984: New York). Views on fiscal federalism anddecentralisation in general are constantly changing between nations and, across time, within particular nations. See Vito Tanzi,Fiscal Federalism and Decentralization: A Review of Some Efficiency and Macroeconomic Aspects, Annual BankConference on Development Economics, The World Bank (1995: Washington, D.C.), and Wallace E Oates, “FiscalDecentralization and Economic Development”, in National Tax Journal, Vol. 46, No. 2 (1993: Washington, D.C.).

4. Such downloading is uniquely observed in transitional economies where budget cuts and public sector restructuring implementedby higher levels of government have trickled down to the local level. The fiscal pressures have created a chain reaction as onelevel of government undertakes to reduce its transfers to the next level of government. See for further discussion, Environmentand Planning, Vol. 12, 1994, and A R Hobson and France St-Hilaire, Urban Governance and Finance : A Questionof Who Does and What, IRPP, (1997: Quebec).

5. Janice Caulfield, Taxation and Equity within Metropolitan Areas, presented at the OECD/Sweden Workshop onGoverning Metropolitan Areas: Institutions, Finance and Partnerships (1997: Stockholm).

6. See Fu-chen Lo, Changing Patterns of Global Production, Technologies, and the World City System, The UnitedNations University (1996: Tokyo), and Fu-chen Lo and Yue-man Yeung, Emerging World Cities in Pacific Asia, TheUnited Nations University (1996: Tokyo).

7. See Om Prakash Mathur, “Governing Cities : Facing Up to the Challenge of Poverty and Globalization”, in PatriciaMcCarney (ed), Cities and Governance, University of Toronto (1996: Toronto).

Fi s ca l Innovat ions and Urban Governance

governments to innovate new financial and otherpartnership arrangements for meeting the increasedinfrastructure and service requirements.

Yet another development that has made a vitalimpact on the finances of local governments is theglobal thrust towards governance. Governance hasacquired a new meaning wherein it is seen as aprocess of setting priorities and sets of actions notonly by the government but by other stakeholders aswell – the non-governmental sectors, business,industry and, in fact, the civil society as a whole.8 Inits new formulation, governance is much more thanmaking available to citizens certain social goods, suchas water supply, conservancy services, primary health,roads and street lighting; it is concerned as muchwith the institutional arrangements (who does what),the financing modes (how the different functions arefinanced, for instance, via tax, non-tax, grant or debtfinancing), cost recovery mechanisms, fixation ofaccountability and the like. Good governancerequires a proper choice of fiscal instruments, choiceclearly falling on those instruments that have a widercivil society acceptance and which are likely to leadto greater accountability and transparency. It hasadded a new dimension to the fiscal behaviour andresponsibilities of local governments.

As these pressures have mounted, local governments inthe developing countries have resorted to using a mixof fiscal instruments and arrangements for raisingresources and better managing the patterns ofexpenditure. Experience in the developing countriesindicates that these have typically included putting intouse innovative sources of local revenues, improvedefficiency in local tax collection, reduction in capitalexpenditure, new intergovernmental fiscalarrangements, selling local (municipal) assets, defermentof maintenance, expenditure control and managementand long-term borrowing. In many countries, strategiesin this sphere have meant adoption of such options asprivatisation, public/private partnerships andimplementation of market-oriented cost recoveryapproaches.9 Many countries have established municipal

development funds (MDF) to compensate for the lackof long-term capital for urban infrastructure.

Changes of a somewhat similar nature have beenobserved in the system of local governmentfinancing in India. As in the case of much of thedeveloping world, the finances of local governmentsin India10 have historically been in a dismal state.Recent estimates have shown that the locally-generated tax revenues comprise only 4.6% of thetotal revenues raised by the central government and8.05% of revenues raised by the state governments.11

On a per capita basis, the municipal governmentsraise only about one-fifth of the revenues raised bythe central government. Considering the fact thatthe municipal areas produce over 50% of thecountry’s GDP, it is evident that the municipalitiesare not able to establish effective linkages withactivities carried out within their own jurisdictions.Much of the GDP gains from city-based activitiesaccrue to either the central or state governments.12

Furthermore, the municipal governments are able tofinance no more than 60% to 65% of their recurrentexpenditure out of their own, locally-generatedresources. For historical reasons, user charge as aprinciple for charging for services is applied, at best,on a limited scale.

Table 1: Revenues of the Central, State and

Municipal Governments 1991–1992

Total Per capita

Government (Rs. billion) (Rs.)

Centre 833.2 986.8

States 484.6 573.9

Municipalities 39.0 205.3

Source: Finance of State Governments, 1993-94. Reserve Bank of India (Bulletin 1994).

In the allocation of fiscal powers, the municipalgovernments in India have access to revenue sourcesthat are characterised by low levels of elasticity andbuoyancy, with the more elastic of themconstitutionally falling within the domain of thecentral and state governments.13 Moreover, themunicipal governments enjoy little autonomy in

51

8. McCarney et. al., “Towards an Understanding of Governance : The Emergence of an Idea and its Implications for UrbanResearch in Developing Countries”, in Richard E Stren (ed), Urban Research in the Developing World (1994: Toronto).

9. An interesting table on local choices of fiscal strategies is contained in Terry Nichols Clark (ed), Urban Innovation:Creative Strategies for Turbulent Times, (1994: Sage Publications). Also, see Jeffrey I Chapman, Long-TermFinancial Planning: Creative Strategies for Local Government, ICMA (1967: Washington, D.C.), and OECD,Infrastructure Policies for the 1990s (1993: Paris).

10. India is a federation of union and states; the subject of local government falls within the domain of states who are responsiblefor their creation, constitution and assignment of functions and fiscal powers.

11. Redefining State-Municipal Fiscal Relations : Options and Perspectives for the State Finance Commissions,National Institute of Public Finance and Policy, (1995: New Delhi).

12. The inter-governmental allocation of the sources of revenue is structured in a way that much of the gains from activitiesundertaken in cities accrue to the central and state governments.

13.The Constitution of India does not directly assign any tax powers to local governments. The state governments, out of the taxpowers that they enjoy under the Constitution, allocate a few taxes to local governments.

adjusting the tax bases, tax rates and even theprocedures for tax administration and enforcement.The entire local tax and non-tax system is thusobsolete and has seriously constrained the efficientfunctioning of cities and their governance.

The municipal governments in India haveencountered increasing demographic and socialpressures in recent years. During the census decades1971–1991, for instance, urban population in thecountry increased at annual rates varying between3.1% to 3.8%, and doubled from 109.1 to 217.6million persons. This demographic expansion wasaccompanied by a phenomenal increase in thenumber of persons below the poverty line, whichrose from 60.1 million in 1973/1974 to 83.3 millionin 1993/1994. This phenomenon, which is alsoassociated with the growth of slums and squattersettlements, has placed an enormous financial strainon local governments.14

Parallel to the developments in the other parts of theworld, cities and city governments in India havecome to also face the multiple challenges ofdecentralisation, globalisation and governance. TheConstitution (seventy-fourth) Amendment Act,1992 (the “Amendment Act”) has ushered an era ofdemocratic decentralisation into the country,incorporating specific provisions for theempowerment of local governments.15 TheAmendment Act has laid down, in the 12th Scheduleof the Constitution, a list of functions that itconsiders appropriate to be performed by themunicipal governments. Many of these functions –for example, planning for economic and socialdevelopment, urban poverty alleviation, urbanforestry and protection of the environment – are newand unanticipated, and they carry importantredistributional and interjurisdictional implications.

The Amendment Act envisions, over a period oftime, a major vertical and horizontal restructuring inthe state-municipal fiscal relations. Questions havetherefore arisen as to who and which level ofgovernment should finance such services aseconomic and social planning and povertyalleviation, and what should be the respective rolesof the central, state and local governments in theirfinancing. The idea of decentralisation to the locallevel as a way of improving governmentresponsiveness and accountability is very muchrelated to the notion of fiscal responsibility, whichrequires that governments making decisions on

expenditure programmes should assumeresponsibility for taxing those who benefit fromthem. Decentralisation is expected to also generategreater efficiency in service delivery and lowerpublic spending.

Defining horizontal and vertical restructuring

Horizontal restructuring refers to the redefinition ofpublic-private and reconstitution of localgovernment roles vis-a-vis the market.

Vertical restructuring refers to revising thefunctional and fiscal relations between the differentgovernmental levels.

Several cities in India are faced with the challenge ofglobalisation. Recent estimates indicate that cities –particularly the larger cities – have been the majordestination for foreign direct investment (FDI) thathas accrued or been committed to India in recentyears. Several of these cities are in direct competitionfor such investment, which has acceleratedsignificantly the demand for developed land,housing, roads, power, water supply, seweragesystems and other linked services and infrastructure.Indeed, the fruition of such investments is linkeddirectly to the availability of infrastructure andservices in cities and towns.

Given the increasing recognition that traditionalsources – for example, public sector financing – areunlikely to be adequate for meeting the city-linkedinfrastructural needs, questions have arisen as to whatthe local governments should do in order to attractinvestment for the provision and upgrading of city-based infrastructure and services and as to whatsources they should tap for raising new capitalresources for financing infrastructure and services.

Mainly as an outgrowth of the provisions of theAmendment Act, India has, in recent years, also seenan increasing discussion on governance, inparticular, on the relationship of electedrepresentatives, bureaucracy and the civil society.What role should these stakeholders play in thegovernance of cities? Who should be responsible fordetermining local priorities? These discussions haveimplicitly brought in issues of accountability and ofinstruments that would be able to finance servicesfor which the municipal governments in the newset-up are responsible for. Pressures have mountedon local governments, albeit in different ways,

52


14. For a fuller discussion, see Om Prakash Mathur, “State of India’s Urban Poverty” (1994: Asian Development Review,Manila).

15. The Constitution (seventy-fourth) Amendment Act, 1992 assigns a constitutional status to local governments, meaning thatthey stand protected by the Constitution from arbitrary dissolution or suspension. It provides for regular elections at municipallevels, with provisions in respect of elections having been brought at par with those at the level of states and the centre.

leading them to consider how to better use the giventax bases, improve financial performance andmanagement, apply more appropriate pricingsystems and enter into financial partnerships in orderthat the infrastructure and services needs of cities canbe effectively met.

These changes in the role and responsibilities of localgovernments are accompanied by importantinitiatives that are designed towards local fiscalstrengthening, the most important of these being theConstitution (seventy-fourth) Amendment Act,1992, referred to earlier. This initiative hasconfronted the states with a unique opportunity toredesign a system of local governance and financethat is coherent and adapted to today’s needs.Specifically, it contains a provision for the setting up,in each state, of a Finance Commission to determinethe principles governing:

• the distribution between the state and themunicipalities of the net proceeds of the taxes,duties, tolls and fees leviable by the state, whichmay be divided between them, and the allocationbetween the municipalities at all levels of theirrespective shares of such proceeds;

• the determination of the taxes, duties, tolls andfees which may be assigned to, or appropriated by,the municipalities;

• the grants-in-aid to the municipalities from theConsolidated Funds of the states.

Independent of the Amendment Act, attempts havebeen made in different states and cities, selectivelyso far, to improve and strengthen the finances ofmunicipal governments to enable them to raiseadditional resources and involve other partners inthe provision of what have traditionally beenlabelled as municipal infrastructure and services.

In several parts of the country, the basis of propertytaxation has come under major review andrestructuring. Property taxes have been animportant and stable source of revenue formunicipal governments but, in recent years, havesuffered on account of a highly constrained systemof valuation and assessment and pooradministration and enforcement. Several states andcities are now attempting to reform the propertytax system in order to enhance the revenue-yielding capacity of this important source. Severalmunicipal governments have introduced changes in

the system of financial accounting and managementin order to be able to streamline and better managemunicipal expenditures.

A major development in recent years has been toprivatise municipal services and involve the privatesector in their provision, delivery and management.Similarly, a few municipal governments (forinstance, Ahmedabad, Pune and Nagpur) havetaken steps to access the capital market for financingtheir growing infrastructure needs.

While these actions are still limited to a fewmunicipal governments, these are importantlandmarks in the history of municipal finance inIndia. The issue is whether these actions and fiscalinstruments are serving revenue-raising goals or alsoleading to better governance of cities. To whatextent have the fiscal initiatives led to or promotedaccountability, transparency and participation? Havethese been designed in a way that they have widercivil society acceptance? Is there any link betweenfiscal innovations and governance?16

The issue ranges over a wide spectrum of publicfinance concerns, including the nature of taxes thatshould be raised within cities and their distributionalimpact, questions of fiscal responsibility,accountability and control, debt financing and howlocal finance might be improved to limit economicdecline and social disparities within cities. ■

A c k n ow l e d g emen t

This article is an extract from a study entitled FiscalInnovations and Urban Governance, which can be foundon the CD ROM accompanying this business briefing andwhich is a synthesis of the field cases prepared by Mr S P KNaidu, (Reform of Property Taxation in AndhraPradesh), Mr P U Asnani, (Issuance of Bonds by theAhmedabad Municipal Corporation) and Ms Usha PRaghupathi, (Public-Private Participation in theProvision of Infrastructure to Tirupur). The authorextends his deepest gratitude to them for their painstakingdocumentation of the cases.

The author further acknowledges his gratitude to the AsianGURI partners, Professor Emma Porio (Philippines) andProfessor Nazrul Islam (Bangladesh), the Toronto GURIpartners, Professor Richard Stren and Professor PatriciaMcCarney, and his other professional colleagues in India whohelped him, on several occasions, to better understand theconnections between finance and governance. The author aloneis responsible for the deficiencies of the study.

54


16. The ability of municipal governments to levy their own taxes, set and adjust user fees, and raise their own revenues with theapproval of their own constituents is an essential, and often overlooked, aspect of effective participation democracy. See MarkH Bidus, Municipal Development and Democracy in Central America, U.S. Agency for International Development(1995: Washington, D.C.).

55

William Dillinger is a senioreconomist in the World Bank'sLatin America and CaribbeanRegion. He specialises in politicaleconomy and intergovernmentalfiscal relations. Prior to working inLatin America, he worked in south-east Asia and Sub-Saharan Africa.He is a graduate of the Universityof California (Berkeley) and HarvardUniversity.

Shahid Yusuf is currently StaffDirector of the World DevelopmentReport 1999/2000. Prior to thisappointment, he served as Advisorto the World Bank’s ChiefEconomist. He was also LeadEconomist for the East AfricaDepartment and for the ChinaDepartment. He holds a BA inEconomics from CambridgeUniversity and an MA and PhD inEconomics from Harvard University.

a report by

Wi l l i am D i l l i n g e r a n d S h a h i d Y u s u f

Senior Economist, Latin America Region, World Bank and Staff Director, World Development Report 1999/2000

This year’s World Development Report (WDR) isabout major global trends and their implications forfuture development policies. Many of these trendsare relevant to the theme of this conference.

T r e n d s o f t h e 2 1 s t C e n t u r y

U r b a n i s a t i o n

The first trend is urbanisation. At the turn of the 21stcentury, half the world’s population will be living inareas classified as urban. As recently as 1975, thisshare was just over one-third; by 2025, it will rise toalmost two-thirds. The fastest change will occur indeveloping countries, where almost three-fourths ofthose added to the world’s population in the nextcentury will reside in urban areas. Almost 1.5 billionpeople are expected to be added to urbanpopulations over the next 20 years (see Figure 1).Most of this growth will occur in Africa and Asia.(see Figure 2). The speed of urbanisation and thesheer numbers involved will pose one of the majordevelopment challenges of the next century.

L o c a l i s a t i o n

The second major trend is – for lack of a better word– localisation. This refers to a growing dissatisfactionwith centralised political power and increasingdemands for local political autonomy. In some cases,this arises from disenfranchised ethnic groups; inother cases it arises simply from the emergence of anincreasingly educated and urbanised citizenry whodemand greater control over the governmentdecisions that affect their lives.

One manifestation of localisation is thefragmentation of old states and the proliferation ofnew ones. In the last 40 years, the number ofcountries has more than doubled – from 96 in 1960to 192 in 1998. The number of countries with fewerthan one million people has almost tripled – from 15to 43. Another manifestation is the increasingnumber of countries describing themselves as

democratic. This rose from 76 in 1990 to 117 in1995. At present, two-thirds of all countries nowclaim to be democracies (see Figure 3). Yet anothermanifestation is decentralisation – the transfer ofpower and responsibilities to subnational tiers ofgovernment. The action has been grudging at times,more forthcoming at others when sheddingexpenditure responsibilities has made sense to fiscallyrestricted central governments. But the trend is clear,and the numbers speak for themselves. In 1980, outof the 48 largest countries of the world, only 10 hadelected subnational governments. Today, the figureis 34 out of the same 48.

Half the countries that decentralised politically alsodecentralised major functional responsibilities (seeTable 1). Brazil, Mexico and Poland have alldecentralised primary education from the national tothe provincial level, while healthcare has beendecentralised in Colombia and the Philippines.Often, this has meant substantial increases in thesubnational share of public expenditure: in Mexico itincreased from 11% in 1987 to 30% in 1996; and inSouth Africa it increased from 21% to 50%.1, 2

F i n a n c i a l G l o b a l i s a t i o n

A third important trend is financial globalisation. Thefinancial markets of the leading industrial nations havemelded into a global financial system, permitting everlarger amounts of capital to flow across borders.Worldwide portfolio investment flows have shot upby nearly 200 times since 1970 – to more than US$1trillion in 1997. At the same time, mutual funds,hedge funds, pension funds, insurance companies andother investment and asset managers now compete fornational savings. Although most of the resources havebeen generated in industrial nations, the consequencesfor developing countries will be far-reaching. This isbecause these institutional investors have diversifiedtheir portfolios internationally, enlarging the pool ofavailable financial capital. In 1995, they managedUS$20 trillion, of which an average of 20% wasinvested abroad. This is a ten-fold increase in the funds

Financ ing C i t i e s : The V iew f rom the WDR 2000

FINANCE & MARKETING

1. IMF (International Monetary Fund), Government Finance Statistics, Washington, D.C., 1997.2. IMF (International Monetary Fund), Government Finance Statistics, Washington, D.C., 1998.

under such management, and a forty-fold increase intheir investment abroad since 1980 (see Figure 4).

The supply of financial resources is likely to becomeeven larger over the next two decades, fed bypension and mutual funds in industrial countries.The value of global pension assets rose from US$6trillion in 1992 to US$9.7 trillion in 1997.Although the rate of growth of pension assets in theUK and the US might drop to 6% to 7% a year overthe medium term, the projected value of globalassets for 2002 is a hefty US$13.7 trillion.3 Theseresources will be aggressively seeking high returnsthroughout the world.

I m p l i c a t i o n s f o r t h e F i n a n c i n g o f C i t i e s

These trends have important implications for thefinancing of cities. Firstly, rapid urbanisation willincrease the demand for infrastructure finance.Absorbing the 2.4 billion new urban residents overthe next 30 years will require massive investment inhousing, water and sanitation, transport, power andtelecommunications (see Figure 5). In dollar terms,the amount of investment will be substantial: Asiaalone will need to invest US$280 billion a year overthe next 30 years.4

Past experience shows that the demand forinfrastructure investment is particularly acute when acountry is going through urban transition – the yearsof rapid urban population growth fuelled by rural-urban migration. Thus, demands will be particularlygreat in Asia and Africa, which are just beginningtheir transitions (see Figure 6).

Due to growing localisation pressures, much of thedemand for investment is likely to fall on localgovernments. In most developing countries, it hastraditionally been central governments that mobilisedand allocated most resources for public infrastructure.Resources were mobilised through domestictaxation, domestic borrowing, forced savingsschemes, external debt and donor assistance and wereallocated through central government ministries orgovernment-owned enterprises.

Localisation pressures are changing this.Responsibility for infrastructure provision isincreasingly being decentralised to subnational unitsof government. In this respect, developing countriesare beginning to follow the pattern alreadyestablished in industrial countries. As shown inFigure 7, central governments’ share of publicinvestment spending is generally below 50% incountries with a GDP per capita over US$5,000.

Where will the money come from? Some of it willcome from the global capital pool. Well-run localgovernments offering solid returns will be able tosupplement their domestic savings with resourcesfrom all over the globe.5 This is evident in localgovernments’ growing use of Eurobonds.

But much of it will not and should not come fromthis pool. It is important to put infrastructurefinancing in perspective. To begin with, not all urbancapital investment needs to be directly provided by

56


Population (billion)

Urba

n Po

pulat

ion

2020 Year201020001990198019701960

Developing Countries Developing CountriesDeveloped Countries

1950

5

4

3

2

1

0

Population (billion)

Urba

n Po

pulat

ion

Middle East & North Africa

Europe & Central Asia

Africa Latin America South Asia East Asia

202020001980

1.2

3

2

1

0

Figure 1: Most of the Urban Population will be in Developing Countries

Note: Developing and developed countries are based on World Bank definitions.

Source: United Nations, World Urbanization Prospects, 1998.

Figure 2: Urban Population is Increasing Fastest in Africa and Asia, 1980–2020

Source: United Nations Department of International Economics and Social Affairs, 1996, World Urbanization Prospects, New York.

3. The Economist, 13 June, 1998.4. Royston C Brockman and Allen Williams, Urban Infrastructure Finance, Manila: Asian Development Bank, 1998.5. Athanasios Vamvakidis and Roman Wacziarg, Developing countries and the Feldstein-Horioka puzzle, International

Monetary Fund Working Paper 98/2, Washington, D.C., 1998.


the public sector. Housing – including the on-sitecosts of water, sewerage, power and access –accounts for about 30% of gross capital formation.6

Much of that will continue to be mobilised andallocated within the private sector, and largely fromdomestic sources. In industrial countries, developersare required to provide on-site infrastructure as acondition of development approval. These costs areincorporated in the price of finished housing and areultimately financed through the mortgage market,with no direct government involvement. Indeveloping countries, poor and lower-incomehouseholds often have to finance housing from theircurrent income – adding space and infrastructure astheir means allow. In both cases, capital is mobilisedand allocated independent of government. Off-sitecosts of power, water supply and telecoms can also befinanced directly by the private sector throughconcessions or privatisation.

Publicly financed infrastructure, however, willcontinue to be necessary – particularly for streets(where cost recovery is difficult), for social services(where cost recovery is undesirable) and for slumupgrading (where it is often both). Recent estimates forIndia suggest that urban investments will require publicfunding equal to nearly 2% of GDP – even though theprivate sector’s share of infrastructure funding, already25%, is expected to increase to 45% by 2006.

There are many ways in which local governments canfinance these responsibilities. One is through localtaxation. In principle, local governments can generatecurrent account savings from local tax revenue anduse the savings for investment. Such savings maycontribute much in some sectors, for example, watersupply. However, they are not likely to finance thegamut of infrastructure investments, particularly at thepeak of the urban transition. An alternative is for localgovernments to borrow. In principle, there is muchto be said for financing infrastructure through debt.Roads, schools and pipelines have long useful lives,and debt spreads out costs of infrastructure to matchits useful life. But where will they borrow? Theexperience of industrial countries directs our attentionto domestic sources and two mechanisms inparticular: municipal bonds and municipal funds.

M u n i c i p a l B o n d s

In the US and Canada, municipal governments relyon the domestic bond market. Bond debt bysubnational governments in the two countries nowtotals more than US$7.4 trillion.7 Several factors have

been critical to the success of this approach. First,both countries have well developed capital markets. Along history of macro-stability has made privateinvestors willing to make the kind of long-termfinancial commitments required for infrastructurefinance. Investors are familiar with and confident in

57

(Percent of Total Countries)

Demo

cratic

Cou

ntrie

s

Year1974

0

10

20

30

40

50

60

70

1990 1991 1992 1993 1994 1995

Figure 3: Number of Formal Democracies, 1974–1995

Source: Data for 1974: Larry Diamond, 1996, Is the third wave over?, Journal of Democracy.

Data for 1990–1995 are from Freedom House, Freedom in the World: The Annual Survey of Political Rights and Civil

Liberties, 90-91, 91-92, 92-93, 93-94, 94-95 (New York: Freedom House, 1985 and years following); and Freedom Review 27

(January-February 1996). A formal democracy is defined as one which meets the minimalist criteria for electoral (as opposed to

liberal) democracy, for instance, one in which political decisions are reached by means of competition for people’s votes.

Table 1: Half the Countries that have Decentralised Politically since 1980 also

Decentralised Significant Functions

Decentralising Politically Bangladesh, Iran, Kenya, Korea (Rep. of),

Morocco, Mozambique, Nepal, Nigeria,

Pakistan, Romania and Thailand

Decentralising Politically Argentina, Brazil, Colombia, Ethiopia, Mexico,

and Functionally Philippines, Poland, Russia, South Africa,

Uganda, Ukraine and Venezuela

Note: Sample includes all economies with populations of 20 million or more in 1997 that changed to multiparty politics

between 1980 and 1995 (with the exception of Colombia and Venezuela, which already had multiparty politics at the

national level but appointed governors and mayors (in the case of Colombia)). Source: Freedom House 1996, Freedom in

the World, US Gov. CIA, World Fact Book and country-specific sources.

1980

At home

1995

US$16 trillion 80%US$ 0.1 trillion 5% US$4 trillion 20%

US$ 1.9 trillion 95%

Abroad

Figure 4: A Growing Pool of Institutionally-managed Funds are Invested

Abroad

Source: International Monetary Fund (IMF), 1998. International Capital Markets, Washington, D.C.

6. Stephen K Mayo, Housing: Enabling Markets to Work, Washington, D. C.: The World Bank, 1993.7. Mansoor Dailami and Danny Leipziger, Infrastructure Project Finance and Capital Flows: A New Perspective,

Washington, D.C.: World Bank, 1998.

the laws and procedures governing defaults andbankruptcies. Public disclosure guidelines and marketintermediaries (for example, credit rating agencies andbond insurers) help investors process information onthe risk of their investment. Local governments,moreover, have well-established financial trackrecords and the autonomy to respond to changingfinancial circumstances rather than going into default.

In many developing countries, these conditions do notexist. Long histories of macroeconomic instabilitymake long-term financial commitments extremelyrisky. Information about potential borrowers isunreliable and the legal framework needed to giveinvestors recourse in the event of default is insufficient.At the same time, municipal governments are viewed

– often correctly – as a particularly risky investment.They lack the autonomy to raise revenues or reducespending – particularly on personnel. In addition, localpolitical commitment to long-term financialobligations is not well established. Under theseconditions, even if long-term private savings wereavailable, local governments would often be barredfrom the domestic capital market.

Even so, municipal bond markets are emerging inmore countries:

• in Latin America, 52 municipalities and provincesaccessed capital markets in 1991–998,9;

• Asia’s local bond market is estimated at US$477billion; and

• all Czech cities with more than 100,000 peoplehave issued municipal bonds.

Other developing countries with a municipal bondmarket include Poland, Russia, South Africa andTurkey.

The track record of these emerging municipal bondmarkets has been mixed. Much like the US in the 19thcentury, the initial years have been marked by defaults.Ankara and Istanbul have both defaulted on their bonddebt, as have most Brazilian states. However,governments are taking measures to increase investorconfidence. In Poland, for example, legislation on amunicipal bankruptcy law and controls on the volumeof subnational debt are now being considered.

M u n i c i p a l F u n d s a n d B a n k s

The other long-term credit mechanism found inindustrial countries is the municipal bank or fund(MDF), which has a long and successful history inWestern Europe. European MDFs were typicallyfounded to address a market failure: the unwillingnessof private capital markets to provide long-term creditto small but creditworthy municipalities. In theirinitial years, many of them (including Crédit Local deFrance, the Spanish Banco de Credito Local and theBritish Public Works Loans Board) financed theiroperations through loans from the centralgovernment. In effect, central governments used theirstrong credit standing to raise money cheaply in capitalmarkets and on-lent the proceeds to municipalitiesthrough the MDF. More recently, MDFs have sprungup throughout the developing world.

Under an MDF, the central government bears theultimate risk of municipal default. Some governments

58


Kenya

ZimbabweIndonesia

IranMartinique

BoliviaRwandaMalaysia

Dominican Republic

ThailandEgypt

Tunisia

PeruBrazil

Sri LankaChile

Guatemala

Venezuala

Argentina

Indonesia

SouthAfrica

Mexico

Guinea

Urba

n Po

pulat

ion G

rowt

h Ra

te (%

)

Share of Public Investment (% GDP)

10 1 2 3 4 5 6 7 8 9 10

2

3

4

5

6

7y=0.24x++2.18

R =0.222

Figure 5: Rapid Urbanisation is Linked to Heavy Public Investment

Note: Sample shows developing countries for which data is available. Countries in transition and countries with population

less than five million are excluded.

Sources: Government Finance Statistics, IMF 1998; World Development Indicators, The World Bank

LAC

ECA

HIC

MNA

SSA

EAP

SAS

Urba

n Po

pulat

ion G

rowt

h 19

96

Urban Population (% Total)

(Percentage annual)

020 30 40 50 60 70 80

1

2

3

4

5

6

Figure 6: Asia and Africa Just Beginning the Urban Transition

Note: Developing and developed countries are based on World Bank definitions.

Source: World Development Indicators, The World Bank, 1998.

8. A B Assesores, Sub-Sovereign Capital Market Transactions in Latin America: Six Case Studies, 1998.9. Maria E Freire, Marcela Huertas and Benjamin Darche, Subnational Access to the Capital Markets: The Latin

American Experience, Washington, D.C.: World Bank, 1998.

have responded to this risk by behaving as diligentinvestors, insisting on prudent lending standards andstrict debt service enforcement. Others have not. Inthe latter cases, levels of default have been high. Onemechanism for encouraging MDFs to act as prudentinvestors is to dilute the government’s exposure withsome private participation. Under Colombia’sFinancier de Desarrollo Territorial S.A. programme,for example, private banks originate all municipalloans and bear the full risk of default, with thegovernment acting merely as a second-tier bank toprovide liquidity. The Czech Republic’s MunicipalFinance Company acts along similar lines.10 (Indeed,many of the European MDFs have shifted to marketsources to finance their operations and are in theprocess of privatisation.)

Whether the bond or the bank approach makes sensedepends on the conditions in a particular country.Both can operate simultaneously, as they do in theUK. What is clear is that the solution lies not merelyin the choice of an instrument but in a stablemacroeconomy, a legal framework defining therights and remedies of lenders and borrowers and asupply of creditworthy borrowers. Centralgovernments, specifically, will need to adopt a legalframework for municipal borrowing, defining the

rights and obligations of lenders and creditors and aprocedure for municipal bankruptcy. And they willneed to do their part to enhance municipalcreditworthiness by stabilising intergovernmentaltransfers and scaling back unfunded mandates andregulations that limit local expenditure flexibility.They will also need to work with local governmentsto facilitate municipal revenue mobilisation.

Local governments, for their part, can improvetheir attractiveness to borrowers by institutingaccounting, auditing and disclosure standards thatare compatible with international standards. Theycan also improve the quality of their collateral byallowing central governments to deduct debtservice directly from intergovernmental transfers orby pledging a specific tax or other revenue sourceto service debt on a specific loan. Loan contractscan specify that the payment of debt service on aspecific loan will be given contractual priority – orthey can prohibit a municipality from issuingadditional bonds backed by the same revenuesource until a specific debt is retired. Actions aremore persuasive than words, however. The mostconvincing evidence that a local government canoffer to potential lenders is long, unblemishedcredit history.7, 10


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ies

BUS INE S S

BR IE F IN

G

Latin America

n Minin

g

& Mineral Extract

ion

•IDENTIFYING OPPORTUNITIES & RISKS IN GLOBAL MARKETS •

An Analysis of the Mining Sector in Latin america and perspectives on the Future




10. George E Peterson and Sonia Hammam, Building Local Credit Systems, Washington, D.C.: World Bank, 1997.11. In Panama and Uruguay, a ceiling is established annually through national legislation. In India, state governments are

permitted to borrow domestically only if they have no outstanding liabilities to the central government. (Since all of them do,the point is moot.) In Chile, local governments are altogether forbidden to borrow.

12. Jürgen von Hagen, A Note on the Empirical Effectiveness of Formal Fiscal Restraints, Journal of Public Economics44: 199–210, North-Holland, 1991.

13. James M Poterba, State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics, Journal ofPolitical Economy, 102 (4): 799–821, 1994. Poterba did find that US states with rules that make it more difficult to rundeficits adjusted more rapidly to fiscal shocks. These rules are self-imposed rather than mandated by the federal government.

14. Junaid K Ahmad, Decentralizing Borrowing Powers, Prem Notes No. 15, World Bank, Washington, D.C., 1999.15. J Litvack, J Ahmad and R Bird, Rethinking Decentralization in Developing Countries, Washington: IBRD, 1998.


C o n c l u d i n g O b s e r v a t i o n s

I want to end on a somewhat cautionary note. Indeveloping and transitional countries, the experiencewith subnational debt is mixed. Particularly in newlydemocratising countries, central governments areoften under intense political pressure to provide debtrelief to local authorities that find themselves infinancial difficulty. Even when a debt is strictly aprivate transaction between a subnational borrowerand a private lender, the central government’s role inensuring the stability of the financial system can drawit – albeit reluctantly – into the transaction. As aresult, subnational borrowing is always plagued bythe moral hazard of an assumed bail-out. Theallocation of loans and enforcement of debt servicetend to become politicised, and national taxpayersultimately bear the financial risk of bad loans.

Private financing of subnational debt has not succeededin avoiding central government exposure to subnationaldebt. When the consequences are a pending strike bypublic employees over unpaid salaries or the failure of amajor bank, central governments have often stepped into assume or restructure the debt of subnationalgovernments that have borrowed too much. This setsup a cycle of perverse expectations, encouragingsubnational governments to overborrow and domesticbanks to overlend, secure in the knowledge that thenational government will come to their aid.

A common central government reaction to this risk isto step up regulation. Governments in developing andtransitional economies impose a wide range ofcontrols on subnational borrowing. Some control thedemand side, imposing an aggregate ceiling onsubnational government borrowing keyed to debtservice as a proportion of current revenue (CostaRica) or expenditure (Russia).11 National governmentscan also prohibit subnational governments fromundertaking certain forms of debt, as in Mexico,where subnational governments may not issue externaldebt. National governments also regulate subnationalborrowing through the supply side. In Colombia, thenational banking regulation commission requiresprivate banks to increase their reserves for loans to

subnational governments.

Recent evidence suggests that regulation alone is notenough, even in developed countries withsophisticated credit markets. In the US, for example,the most significant effect of formal fiscal restraints –such as various types of balanced budgetrequirements or debt limits – is to induce subnationalgovernments to substitute non-restricted forrestricted debt. Such constraints reduce somewhatthe average levels of debt but they do not reduce thefrequency of serious debt crisis.12, 13 Brazil, which alsorelies on ex ante regulation, recently completed thethird restructuring of state debt in 10 years. Eachdebt crisis arose despite a blanket ceiling onsubnational borrowing and a web of restrictions andcontrols on various forms of debt. Regulation failedto withstand the pressures of regional politics.

This implies that a laissez-faire approach may be moreeffective than a regulatory one. Allowing subnationalgovernments to fail and forcing them to work out theirobligations with their creditors may be a more effectivemethod of subnational debt control than even the mostsophisticated system of regulations.14, 15 ■

61

Share of

Central G

overnm

ent in

Total G

overnm

ent

Expe

nditu

res on

Pub

lic In

vestm

ents

GDP per capita (1987 US$)

10

0

20

30

40

50

60

70

80

90

100

y=-9.79Ln(x)+122.93R =0.412

0 5,000 10,000 15,000 20,000 25,000 30,000

Figure 7: As Countries Develop, Central Governments’ Share of Public

Investment Falls

Note: Sample includes all the developing and developed countries when the share of central government investment in total

government investment could be calculated in the mid-90s and mid-80s. The public investment is an average of the shares of

central government in the mid-80s and mid-80s.

Sources: Government Finance Statistics, IMF 1998; World Development Indicators, the World Bank 1998.

62

Daniel Zerweck is a member of theacademic staff of the Department

of Urban and Regional Planning atthe University of Dortmund, faculty

of Special Planning. His areas ofscientific interest include urban

and regional development planning,city and regional marketing,

housing, geographic informationsystem and internet-based planningand participation. Mr Zerweck alsoworks as a freelance consultant, in

particular in the fields of citymarket and internet presentation.His doctoral research focused on

residential locations in metropolitan areas.

a report by

Dan i e l Z e rw e c k

Department of Urban and Regional Planning, Faculty of Special Planning, University of Dortmund

The goal of the following essay, as developed throughsingle cases, is to define the city marketing processsystematically. Many examples actually illustrate thatthe city marketing process does not follow an idealprocess. However, from a scientific perspective andfor the purposes of political consulting, it is importantthat a systematic approach is employed.

The first step in the discussion is to define the term “citymarketing” since there is no uniform definition. First, adefinition will be given followed by an explanation ofthe process of city marketing. A description of thesignificant details between marketing for firms andcommunities will be given in the conclusion.

De f i n i n g Ma r k e t i n g a n d C i t y M a r k e t i n g

Marketing is a term derived from the Anglo-Saxonlanguage group that is presently used,predominantly in Germany, as a comprehensiveconcept of planning, action and controlling. Usingsystematically gathered information, all aspects of abusiness must be consistent with the present andfuture needs of the market, as well as consistentlymeeting the goals of a business.

Marketing was originally developed for consumergoods. It was later expanded and applied tomunicipalities. Currently, marketing serves twoprincipal functions: on the one hand, marketing is abusiness management method with a marketoriented business concept; and, on the other, it is anentrepreneurial function of sales.

Implementation is made through so-called marketingmanagement. Marketing planning is the basis ofprofessional marketing management and issynonymous with rational decision-making inmarketing. Marketing goals are derived by asystematic situation analysis and the consideration offuture market and business decisions.

Discussions concerning city marketing haveincreased in Germany since the second half of the1980s. The term “city marketing” has gained inpopularity, yet its frequent use has reduced its

conciseness and expanded its range of definitions.Therefore, the expression “city marketing” is usedgenerically in relation with regional marketing, citymarketing and central city marketing andmanagement. However, the term “city marketing” isalso used when marketing covers an entire city andall its relevant subjects.

City marketing encompasses more than publicrelations or site marketing. It is a managementmethod whose purpose is to influence all internaland external factors using advertisement, projectmanagement and market analysis. The purpose ofcity management is to organise and lead theadministrative system of a city so that the necessarydecisions can be made for the orderly developmentof the city. City marketing is a comprehensive andaction-oriented city management method thatseeks to institutionalise, clarify and integrateprocesses of co-operative authority of all public andprivate decision-makers in the city under theapplication of functional, entrepreneurialmarketing management in a politicallyadministrative system city.

C i t y M a r k e t i n g P l a n n i n g

Even if the following description of marketingplanning places the process of marketing managementin the foreground, it should be emphasised that,especially for city marketing, the institutionalisation –in other words, the meeting of different parties and theexchange of positions in the communications process– is of great importance. Contact and discussionbetween the parties is the first outcome.

Through city marketing planning, an attempt can bemade to direct the activities of a city to certainsubjects. Visions, models and goals of the city aredeveloped so that strategic concepts are derived andconcrete measures for implementation can beacquired (see Figure 1).

C o n c e p t P h a s e

The starting point, in addition to strategic andoperative city marketing planning, is developed in

The C i ty Market ing Proces s in Germany

FINANCE & MARKETING


the concept phase. The concept phase can bedivided into two subordinate components. TheInitiation Phase is characterised by the normativeframework in which city marketing is placed. Insome instances, this phase can be developed indifferent forms. For a start, one or many parties maytake the initiative for a city marketing concept.Studies in Germany1 show that, in most cases,initiators are administrative heads or specialisedeconomic development or urban developmentplanning departments. The local economy can alsoinitiate city marketing. This is especially the case forthe “Central City marketing concepts”.

Questions concerning the understanding of thedefinitions and organisation of city marketing areclosely tied to the Initiation Phase. Morespecifically, the question is posed of when andwhich interest groups should be involved in theprocess. In principal, the goals in which citymarketing are to be attained are agreed upon. Thiscould result in a rough vision of what the “cityrepresents”, in which the city is set in a positivecontext with its competitors.

The Analysis Phase is the second step of the conceptphase and is often referred to as a situation analysis.Information is gathered on:

• external factors, such as economic, social, cultural,legal, political, technological and ecologicalenvironments, as well as parties relevant toredevelopment and competing cities;

• internal conditions of the city – the strengthsand weaknesses of the city are derived from ananalysis of the potentials of the city in relation tothe potentials of possible competitors and achances-risks-analysis, together with a portfolio-analysis2, is adopted;

• marketing instruments and the possibilities ofinfluencing market occurrences, especiallypreferences and competitive advantages, are todevelop; and

• the market reaction – in other words, the resultsof implementing alternatives and strategies, as wellas methods of reactions to different situations.

63

S t r a t e g i c D e v e l o p m e n t

Control During Process

Control During Process

Control D

uring

Process Control During Process

• decision-makers iniate• first goal formulations guidelines (politics, administration, local economy)s community performance goals

situation analysis• strength-weaknesses• chances-risks• competitive advantages/ disadvantages

forecasts• qualitative• quantitative

• vision/model, subjects, goals• philosophy/municipal identity• corporate identity• market segmentation and target group formulation

development, assessment and selection of strategies corresponds to a long-term marketing mix (product-pricing-communication-distribution-mix).

concrete selection and determination of measures, include guidelines for implementation; corresponds to a short-term marketing mix (product-pricing-communication-distribution-mix).

• selection of measures (short-term, rapid implementation, inexpensive) to achieve initial success and increase acceptance• measures to induce durability

• plan progress and goal attainment-control (dates, finances, personel, etc.)• cause analysis

• similar to initiation (concept phase)• process is renewed

I n i t i a t i o n A n a l y s i s G o a l F o r m u l a t i o n

D e t a i l P l a n n i n g

I m p l e m e n t a t i o nC o n t r o l o f R e s u l t sU p d a t i n g

Concept Phase 1 Concept Phase 2 Solidification Phase 1

Implementation Phase 4 Implementation Phase 3 Implementation Phase 2

Solidification Phase 2

Implementation Phase 1


Control during Process


Control d

uring

Process Control during Process

• decision makers iniate• first goal formulations guidelines (politics, administration, local economy)s community performance goals




development, assessment and selection of strategies; corresponds to a long-term marketing-mix (product-, pricing-, communication-, distribution-mix)

concrete selection and determination of measures, inc. guidelines for implementation; corresponds to a short-term marketing-mix (product-, pricing-,communication-, distribution-mix)


• plan progress- und goal attainment- control (dates, finances, personell, etc.)• cause analysis












Control d

uring

Process Control during Process

• decision makers iniate• first goal formulations guidelines (politics, administration, local economy)s community performance goals




development, assessment and selection of strategies; corresponds to a long-term marketing-mix (product-, pricing-, communication-, distribution-mix)

concrete selection and determination of measures, inc. guidelines for implementation; corresponds to a short-term marketing-mix (product-, pricing-,communication-, distribution-mix)


• plan progress- und goal attainment- control (dates, finances, personell, etc.)• cause analysis









Figure 1: Phases of the City Marketing Process

Source: Author.

1. Zerweck (1996). See also Grabow and Hollbach-Grömig (1998).2. The above mentioned studies show that cities compare their strengths and weaknesses with competitors, yet an analysis of

chances and risks are seldom undertaken.

S o l i d i f i c a t i o n P h a s e

This phase defines much of the strategic marketingplanning and can be defined into subordinatecomponents. In conjunction with the previouslymentioned development of general goal formulationsby initiators of the city marketing process, a situationanalysis solidifies the city marketing goals. The goalsserve as the basis for development strategies.

The main goals of each of the subjects for the specificcity are formulated through the solidification ofpartial and subordinate goals.

Strategic subjects are unique to every city and mustbe selected. They have a high level of autonomy andshould be formulated with the help of dimensionssuch as ‘target groups’, ‘target group functions’,‘substitute technologies’ and ‘spatial marketcoverage’. Also taken into account, within theframework of city marketing, are local (internal)target groups – for example, citizens – regional(external) target groups – for example, residents ofthe surrounding countryside – and super-regional(external) target groups – for example, tourists.

Two things must be taken into account whenformulating a city marketing goal system. First, thegoals must be compatible with each other. In otherwords, goal competitors must be avoided andcomplimentors of goals should be supported.Secondly, the development of goal systems in citymarketing does not mean the development ofoverloaded goal hierarchies if the above mentioneddefinition of city marketing emphasises action. Goalsare to be established with regards to the context,extent and time of the market segment. City goalscan be differentiated by different aspects, such asfinancial (‘the addition of new entrepreneurs’),spatial orientation (a mitigation of traffic problems),as well as psychological city marketing goals(‘improved identification’).

Once medium and long-term decisions concerningthe implementation of marketing powers areproduced and solidified goals are derived from thesituation analysis, one is able to speak of citymarketing strategies. On one hand, the strategy setslargely long-term policy behaviour and, on theother, it guides the construction of resources andabilities in the direction that seems to increase thecompetitive advantage of a city. Such strategies arealways directed to build and concentrate strengths,prevent weaknesses and use synergistic potentials.

I m p l e m e n t a t i o n P h a s e

Translating strategies into operative city marketingplans is an implementation process. Two tasks are

presented here, the first being the specification ofstrategic contents in the form of tactical andoperational measures which must be carried out.The Implementation Phase can further be brokendown into the order of ‘Detail Planning’,‘Implementation’ and ‘Control’. A further step is theaddition of a continuum, which, in principal, stressesthat marketing is not linear and non-continuous butrather that it is a continuous and iterative process.The second task of operative city marketingplanning is the advocacy of acceptance by membersof the organisation.

Detail planning summarises the deployment of ashort-term marketing mix. The marketing mixdescribes the interrelation between marketinginstruments, such as the product, pricing,communication and distribution mix, with thepurpose of formulating implementing measures for acertain point in time. The instruments must beclassified and single instruments must be chosen andrecombined. However, the combination of theseinstruments is not necessarily optimal.

Just as with the goal system, the measures of citymarketing must be compatible. They must form arelatively contradictory-free, complementarymeasures catalogue. It is very important that measuresare presented in an understandable and open form andare clearly explained. Included with each measureshould be a clear implementation plan and a timeline.Equally important is the assignment of measures tothe responsible institutions and individuals.

A decisive factor is the budgeting of the catalogue ofmeasures. The relevant question for marketing on acommunity level is to determine which parties areinvolved or should take part in financing citymarketing. This question is closely related to theclaims, goals and institutionalisation of the citymarketing concept. Lastly, a ‘questionnaire’concerning the measures must be distributed andanswers given for the following questions: What?Why? Who? When? How long? How expensive?

Wider implementation from a theoretical view isunproblematic after a catalogue of measures (oftenreferred to as a marketing handbook) is madeavailable. This does not mean, however, that anyproblems may arise in the practical implementation.As a general rule in implementation, one must keepin mind that not all measures can begin concurrentlyand therefore choices should be made accordingly.Since city marketing is an action-oriented method,measures which may show early signs of successshould be initiated and maintained. Generallyspeaking, one should start with measures that begineasily and end quickly are generally unproblematicand have low implementing costs.64



A description of city marketing planning would beincomplete without considering marketing control.In the depiction of the city marketing process,marketing control is located in the ImplementationPhase after Detail Planning and Implementation.This is due to the fact that something must beproduced and then implemented before it can becontrolled. Indeed, marketing control is not only areference to control in the sense of how far the goalshave been reached. City marketing control coversthe whole city marketing process. In the forefrontlies the cause-analysis opposite goal attainment, and itis the goal of control to improve the contents of thework and the process.

City marketing control can be oriented towards theprocess as well as the results. Process control tests, ina timely manner, whether concepts were elaborated,measures and duties implemented, time and cost planswere followed or decisions made and informationalneeds fulfilled. Studies by the author (1996: 14pp)show that, in practice, the majority of controls use themethod of defining measures of success.

Changes in situations should ‘actually’ presentthemselves after implementation of city marketingconcepts. The concept should produce changeswhich reflect the idea of a continuum. Therefore,city marketing concepts must, after a certain time, bereformulated (updated).

Con c l u s i o n

The City marketing process is illustrated in steps withtheir tasks defined, using a systematic and phaseordered description.

Two critical points need to be made from thisdescription. A realistic assessment shows that, inpractice, certain steps or phases can begin even ifprevious steps have not been completed. Certainsubjects could, due to the pressures exerted byproblems, be the trigger that initiates communitymarketing. Therefore, information and researchare, in this case, present on a higher level than inother areas. It is well known that it is difficult toagree on goals; after all, city marketing requires theinvolvement of many parties. Controversialsubjects require more time for the parties to cometo an agreement.

If the phase description is to be implemented evenafter it has been elaborated by the first city marketingconcept by a community, it will still face difficultiesin its implementation and control at the beginning.Control concerns itself, as previously mentioned, notonly with the results but also the process. That is whyit is not only applied to the whole process, but is alsoin the steps found in the middle. Therefore, goals

need not be modified when single measures do notprove to be adequate.

The second point is concerned with the importanceof other city marketing management functions, suchas the organisation. These management functions areplaced in a changing and influential relation with citymarketing planning.

In addition, the differences between private firms andcities based on marketing is the characterisation ofcity marketing as ‘three-fold marketing’: the city isnot only the firm, but also the marketer of its waresand place. Contrary to a firm, a city constitutes anddevelops its interests but not all interests can berepresented. With the question of interests is also thequestion of whether goals can be combined, which,in the framework of city planning, is not always soeasily defined. While firms seek goals, such aspreserving competitiveness and high profit margins,communities must also address municipal economiesand social goals.

Therefore, the formulation of goals is greatlyinfluenced by a federal system of goals from otheradministrative bodies and of laws withoutentrepreneurial or quasi-economic intentions. Thatis why that orientation towards target groups withinthe framework of city marketing produces goals forthe general populace, while other goals address acertain segment of the populace represented byspecific target groups.

If one understands city marketing as a modernmethod of city management, then one understandsthe approaches and methods that entrepreneurialmarketing serves. However, one should always bemade aware of the different statuses of theorganisation, especially the rights of the user (thelocal community), especially if city marketing is notintended to be cloaked under the blanket of localeconomic development. ■

B i b l i o g r a p h y

Busso Grabow, Beate Hollbach-Grömig:Stadtmarketing – eine kritische Zwischenbilanz,Difu-Beiträge zur Stadtforschung, 25, Berlin: DeutschesInstitut für Urbanistik (Hrsg.), 1998.

Daniel Zerweck: Stadtmarketing. Umsetzung vonStadtmarketingkonzepten in Nordrhein-Westfalen,Beiträge zur Stadt- und Regionalplanung, 12,Dortmund, Selbstverlag Fachgebiet Stadt- undRegionalplanung, Fachbereich Raumplanung, UniversitätDortmund (Hrsg.), 1996.

Also published under: http://srpplus.raumplanung.uni-dortmund.de/dz/dzstama.pdf 65

66

Sol Garson Braule Pinto is Secretaryof Finance of the City of Rio deJaneiro, a position she has held

since 1996. Previous positions heldhave been: Superintendent of theMunicipal Budget (1994–1996);

Aide to the Secretary of Finance ofthe City of Rio de Janeiro

(1993–1994); and Economist ofBNDES, the economic and

development bank (1975–1993).Between 1969 and 1973, she wasa credit analyst at Citibank. For

five years she was Professor at theDepartment of Economics in theUniversidade Candido Mandes –

Ipanema (1974–1979). She has anMSc in Economics at FundaçãoGetulio Vargas, Rio de Janeiro

(1975) and a BSc in Economics atthe Universidade Federal.

a report by

S o l G a r s o n B r a u l e P i n t o

Municipal Finance Secretary, City of Rio de Janiero

The financial management of the City of Rio deJaneiro within the period from 1993 to 1997 isrecognised as a success story. Indeed, the results thathave been achieved prove the growth of revenuesand control of expeditures throughout that period,which has made possible the accumulation ofcurrent savings – the basis for financing the R$2.6billion investments during these five years.

Although this is a fundamental issue, it is only oneaspect of the experience built up in the cityadministration. This report, in case study form,focuses on the process of change that made theseresults possible.

In the strategy adopted, professional administrationand the quest for public credibility are outstandingfeatures. To this end, city managers were chosenamong experts in the respective fields. Credibilitywas to be achieved not only regarding the electoratebut also to obtain the confidence of the citizens ingeneral. Specifics apart, our city’s financialmanagement should be evaluated under the sameparameters as those used in the private businessworld. To achieve transparency of actions andresults gained requires the internal dissemination ofchanges, thus ensuring that the new practices areactually absorbed and integrated into the system.This would disrupt the traditional discontinuity inpublic administration.

By talking the same language as the investors, Rio deJaniero distinguished itself as the first Latin Americancity to issue securities abroad. The operation wassuccessfully conducted in 1996 (the last year of anadministration), thus ratifying investors’ confidencein the soundness of the municipal finances. Both thecity and its citizens, have benefitted from that.

As will be seen in this case study, the quest fortransparency was both a goal in itself and, at the sametime, a strategy to attain other goals, which havebecome outlined in the course of time.

The case study will show that the results achieved ineach stage not only allow but require the process toadvance in the search of new goals. In 1997, the

former Secretary of Urbanism took office as mayor,preventing the administrative discontinuityfrequently found in public administrationaccompanying political change. The city and itsinhabitants will also have benefitted from thisexperience.

B e g i n n i n g o f t h e S t o r y

In January 1993, following an election won by anarrow margin in the second round, the CityCouncil was installed. The Mayor-elect broughtwith him experience both of the private and thepublic sector: in an executive capacity, as StateFinance Secretary of Rio de Janeiro; and in thelegislative capacity as a Federal Congressman. As aprofessor of Economics of Universidade FederalFluminense (Rio de Janeiro State FederalUniversity), he had devoted himself, together with atask force, to understanding the economy of the Stateof Rio de Janeiro. In these studies, the deeperexamination of economic issues crosses the tenuousboundary of legislative and executive functions fromwhich appears a diagnosis of the urban disorderamong the causes of the city’s decline over the past10 years. A team had to be formed which wouldmanage a city where:

• the population had reached 5.5 million inhabitants,of which one million live in slums;

• as the core city of a metropolitan region, theurban structures, such as hospitals, nurseries andschools, had to be in place to attend to another 3.5million potential users, who live in the adjoiningmunicipalities and who frequently come hereseeking essential assistance;

• the educational network, the largest at local levelin Latin America, had been entirely absorbed bythe municipality in the process of merging theState of Guanabara with that of Rio de Janeiro.Our teaching staff at the time had to care for over550,000 students. In addition, payment ofpensions to over 20,000 retired teachers had to besecured, not to mention of the support personnel,under various conditions.

Financ ia l Management o f the C i ty o f R io de Jane i ro –A Change o f Mindse t

FINANCE & MARKETING

Financ ia l Management o f the C i ty o f R io de Jane i ro – A Change o f Mindse t

All this had to be achieved within the municipality’stax revenues, including transfers from the state andFederal governments. In 1992, these had amountedto R$2.1 billion1. However, at the beginning of1993, the prospect of a drop in the IPTU (UrbanReal Estate Tax) revenue, as a result of variousreducing factors on the amounts to be paid asinstituted that year by law, was added to the removalof the business licence renewal fee collection, whichwas aimed at reducing the number of unlicensedestablishments. Besides, the revenues actuallycollected were reduced as inflation rates rose,because they were indexed to the past inflation rate.

The result was an accumulative 19% less than that of1992 – a total amount of R$1.7 billion.

It is worth highlighting two overall areas of strategythat have conditioned the development of themunicipality in general, and which were essential tothe success of the financial administration –professional management and public credibility.

In professional management, political matters areclearly separated from the actions of the municipality

and are based on technical data provided by thesecretaries and presidents of associated agencies, suchas foundations, agencies and public companies,which were chosen because almost all of them areprofessionals in the matters they handle. Theadministrative machine therefore works in a lessbiased and more agile way.

The professional management, in its turn, foundsupport in the municipal technical staff, which hasa level of training higher than that of the nationalaverage.

Public credibility is not limited to maintaining thefaith of the electorate and attracting popular supportin general. It was necessary to obtain the confidenceof the private sector. This was achieved by changingthe way we work with our suppliers and servicerenderers and by demanding fair prices and payingthem promptly. This had a positive effect oninvestments in our domestic bonded debt andattracted partnerships in projects such as public serviceconcessions. The foreign sector was also addressed,later on, in an attempt to attract purchasers for the firstmunicipal securities’ issue in Latin America.

1. In the course of this text, the amounts related to the financial administration are at the price levels of December 1997, usingthe IGP-DI/FGV as a deflation factor.

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Credibility required transparency of action. Itremained to be seen how to translate thistransparency to the public. Articles spontaneouslyappearing in the press and general media were onlyone means. With regard to our specific situation,we wanted to be measured by the parametersgenerally used in the private sector in Brazil,which were already in use in several othercountries, to evaluate the performance of ourpublic administrations.

F i n a n c i a l A dm i n i s t r a t i o n

T h e M u n i c i p a l F i n a n c e S e c r e t a r i a t –

T h e O r i g i n a l S t r u c t u r e

The task of becoming familiar with all thedepartments, talking to their respective heads,assessing the different ways in which they workedand making the required changes was all quitedifficult in the beginning.

In addition, it was important from the start to spreadthe concept that management would be professional,rather than being based on political fidelity.

As the new Finance Secretary, I brought fiveprofessionals with me: three as direct advisors and twowho were put in charge of the Real EstateDirectorate and the Presidency of the MunicipalTaxpayers’ Council (an administrative appeal entity),both of which involve the participation ofrepresentatives of the Municipal Finance Secretariat(SMF) and the community in general.

The SMF, in addition to the units mentioned above,also contains units related to the administration of taxrevenues; internal control, specifically the FinanceInspector-General and Audit-General Office; andthe Municipal Treasury.

The Municipal Treasury was responsible for allpayments and for the management of the publicdomestic bond-secured and bank debts.

The structure of the control area included: a centralagency – the Inspector-General Office – which wasresponsible for the accounting and directing of

budgetary spending; and advisory units in eachSecretariat, the head of which was appointed by theSecretary. This official was in charge of theissuance of allocation notes (empenho) and theacknowledgement of debts related to theacquisition of goods and services (liquidação dedespesa). These two budgetary spending procedureswere necessary if the budget was to be madeavailable to each Secretariat.

The debts were then referred to the MunicipalTreasury for payment. Agencies, foundations andcompanies had financial directors who made theirown payments using funds transferred by theTreasury. Although their own revenues werenearly always insignificant, they were free to spendtheir budgets by sending their demands to theMunicipal Treasury, generally on the payment-due date.

The units responsible for the budget and forResource Mobilisation (with the banks and othergovernmental agencies, the latter generally by meansof agreement) were directly subordinate to theMayor’s Office.

I n i t i a l C h a n g e s – F i n a n c i a l

M a n a g e m e n t a n d C o n t r o l

At this point, fundamental changes were made: thebudget and the Resource Mobilisation departmentswere transferred to the Municipal FinanceSecretariat; and a Controller General Office (CGM)was created.

The creation of this office, subordinate to the Mayor,was a pioneering idea in public administration, bothin the way it had been created and with the functionsit began to take over.

T h e C o n t r o l l e r G e n e r a l ’ s O f f i c e –

L e g a l i t y a n d E c o n o m i c E f f i c i e n c y

With the creation of the CGM, the FinancialInspection Unit became a General Accountant Unitand the Sectional Inspection Units became theSectional Accounting and Auditing Units (one perarea, covering, for example, health or education).68


By talking the same language as the investors, Rio de Janiero

distinguished itself as the first Latin American city to issue

securities abroad.

Financ ia l Management o f the C i ty o f R io de Jane i ro – A Change o f Mindse t

Under this new structure, the internal control systembecame concerned not only with the legal aspects,but also with economic efficiency, as well as theeffectiveness of the budgetary and financialadministration.

In parallel, a General Auditing Department wascreated to perform operational audits. Opportunitiesto improve the practices in use were identified in aprocess of discussion with the direct and indirectadministration entities involved.

As the control network became more dense, theCGM gained the power of veto over theappointment of the financial directors by examiningthe professional ability of those appointed. Inaddition, each board of auditors or trustees now hada representative from the CGM and SMF.

Evaluation of the economic efficiency of expenditurerequired the creation of a new means of control, forexample, price schedules, which define the priceceiling for the acquisition of goods and services andfor the review of the contracts for acquiring them.

Therefore, through not only the new structurecreated but also the new procedures adopted, analliance and a homogeneous philosophy wasestablished for the CGM and SMF.

T h e B u d g e t a n d T r e a s u r y T o g e t h e r –

A N e c e s s a r y C h a n g e

Placing the budget and Treasury under the sameadministration was crucial to financial management.

As we have seen before, the Municipal Treasury isresponsible for paying for the acquisition of goodsand services by the various Secretariats, foundations,agencies and companies. Therefore, to initiate theprocess, the secretaries and the presidents of thoseentities check if they have resources available intheir respective budgets. So, once the budget isreleased, it is as if they were given a cheque book.The distribution of expenditures over time willdepend on the established rules – monthly orquarterly limits, etc.

In Brazil, especially in high inflation rate periods, theamount of the budget resources released has often beenout of tune with financial availability. Adjustment wasmade upon payment, “at the cashier’s booth”, withconstant losses to the contracting parties – the publicsector – and, sometimes, to the contracted parties – thesuppliers of goods and services – whose bills hadremained “at the bottom of the stack”. In general,under inflation, suppliers used to protect their interestsby overestimating prices in order to compensate forpayment delays. As the budget spending units hardly

knew when they would actually pay for the goods andservices they had purchased, which depended on thetime of disbursement, they had no effective way ofevaluating the prices submitted to them at the biddingprocesses. Such practice had to be eliminated.

Placing the budget and the Treasury under the sameadministration was a necessary condition, but not asufficient one. In order to match their actions, theyneeded to know the amount of municipal revenuesand expenses and to have some idea about theirrespective dynamics.

T h e S t o r y C o n t i n u e s

Reporting on an experience such as the financialadministration of the City of Rio de Janeiro is nosimple task.

How can we transmit to the public, using unusualterms such as ‘empenho’, ‘liquidação’ and ‘pagamento’, thenotion of the cultural change that has occurred as theleading thread of the actions accomplished?

How can we make a report that is to be seen as a meansfor orienting future administrations without falling intothe void of the propaganda for political purposes?

The usual procedure in the public administration inBrazil is exactly the opposite. Good administrationwas lost due to a lack of solid foundations that wereweakened by a lack of openness about theirdifficulties and data.

In the management of its finance, the municipalityof Rio de Janeiro opted for transparency. Disclosureto the general public and investors provides theprofessional manager with the freedom required fortheir action, whilst demanding that the mayormaintain the philosophy of that action.

Despite our specific characteristics, which have beenemphasised in the course of this case study, themessage of the experience should not be restricted tothe public sector.

Cases of success should not be assessed solely by theresults achieved during the period assessed. Theessential aspect is continuity, which presumes acultural change, so that those who participate in theprocess start doing so by following the new culture.

The City of Rio de Janeiro elected the path of theprofessional management so that it could beappraised with the same parameters used by theprivate sector. What perhaps may not be obvious isthat, in doing so, the administration benefits, insofaras it keeps everything in order. To sum up, oncestarted, the story continues! ■ 69

70

Joan Clos i Matheu was electedMayor of Barcelona by the city’sPlenary Council on 26 September

1997 and, on 26 October 1997, hebecame vice-president of the

Executive Bureau of the Council ofEuropean Municipalities andRegions. After the municipal

elections of 1995, he became first-deputy mayor and president of the

Treasury and InfrastructureCommission. In 1991, he assumedthe post of second-deputy mayor

responsible for OrganisationalStructure and Economy. In 1987,he became councillor-president of

Ciutat Vella (Old City) DistrictCouncil, where he helped to

regenerate the historic centre ofBarcelona. He first entered

municipal politics in 1979 asdirector of the Municipal Health

Services Department at BarcelonaCity Council and was elected

councillor in 1983. He graduated inmedicine and surgery from theFaculty of Medicine, Universitat

Autònoma de Barcelona in 1974,and in 1977, he completed apostgraduate course in publichealth and epidemiology atEdinburgh Medical School.

a report by

J o a n C l o s i M a t h e u

Mayor of Barcelona

Local authorities in Spain carry little weight in termsof their share of total public expenditure. Theremarkable process of decentralisation from central toregional government undertaken in Spain since theadvent of democracy in 1975 has not resulted in agreater level of government participation in the affairsof local communities. Over the past few years,however, an all-party group of Barcelona councillorshas prepared a special law – in effect, a municipalcharter – to advance the legal basis for localgovernment autonomy. This municipal charter hasalready had the sanction and approval of both the cityand regional administrations, before going forward forcentral government approval. The charter reflects twotruisms. First, the city is running services beyond thescope of its competence; secondly, Barcelona is thehub of a powerful metropolitan area – the sixth largestin terms of population in Europe – and it requiresmechanisms for co-operation at a metropolitan level,in infrastructural investment and land planning, as wellas the efficient management of services such astransportation and waste treatment, amongst others.

Despite the above mentioned institutional limitations,the legitimacy of the leadership of Barcelona’s localgovernment concerning the city and its area ofinfluence is not in question. This strong position isbased on a combination of local patriotism and policyand civic involvement in the city government and itsmayor, which has been built round the undoubtedsuccess attained in terms of the city’s development.The civic coalition embraces both citizen participationin the formation of local policies and public/privatecollaboration in the financing and management of theleading projects to promote the city.

The Pla Estratègic (Strategic Plan) Association,promoted in 1988 by the City Council, is aparadigmatic example in the line of civic participation,an experience in strategic planning based on consensusand one copied by other cities all over the world. Theexecutive committee is formed by the most influentialinstitutions of the city: trade unions, businessassociations, universities, Chamber of Commerce, etc.,and the work and discussions by different commissionsbring together a large number of citizens. The Councilhas also recently promoted the strategic plans for

specific sectors, such as culture and education. Thesehave also benefited from a large civic participation.

An important function, as an organ of consultation andparticipation, is performed by Barcelona’s Economicand Social Council, which was formed by the CityCouncil, the trade unions and the business associations.The council debates and provides information on theprojects and issues related to economic and socialpromotion. To conclude this brief reference toparticipation experiences in Barcelona, I wouldidentify, for its broader territorial scope, the IndustrialAgreement of the Metropolitan Region of Barcelona,a strategic alliance between entrepreneurs, trade unionsand local administrators to promote competitivenessand good working conditions.

Public/private sector collaboration in financing andmanaging the leading projects of the city is a distinctiveexample of Barcelona’s successful development. Thebest demonstration was the experience of the hugeurban transformation undertaken at the time of theOlympic Games of 1992. The investments of theOlympic project amounted US$10 billion, of which15% was spent on the Games, while infrastructure andbuildings constituted 85%, financed mainly by theprivate sector (about 53% of the total, which implies astrong multiplying effect of public investment). Thisprivate participation was not only directed at privateprojects, like hotels, communication towers and theport of Barcelona, but also at public projects, the mostsignificant of which was the construction of more than4,000 homes in the Olympic Village, under themanagement of the 100% publically-owned OlympicHolding company.

After 1992, the urbanisation of the city continuedapace. The budget constraints of the public sectorwere a result of the aforementioned describedfinancial investment. In fact, both national andinternational private operators showed increasedinterest in large investment projects in the city,with local authorities responding by adopting anew and more flexible style of urban development,based on maintaining the overall direction of theprojects while strengthening their collaborationwith private operators.

Pr iva te Sec tor Par t i c ipat ion and Urban Deve lopment


Pr iva te Sec tor Par t i c ipat ion and Urban Deve lopment

This new style of collaboration takes different formsaccording to each particular project. In some cases,private operators make possible the carrying out oflarge urban transformation projects, while otherprojects, which need to be submitted for approval,involve the transformation of their use as defined inthe general urban plans: the conversion of industrialto residential uses and redistribution of constructableproportions, etc. In all cases, the city benefits in tworespects. First, in terms of city development, andsecondly, in terms of greater profitability of publicinterests than those foreseen in urban legislation;urbanisation costs of public spaces, new publicfacilities, the proportion of price-restricted housing,etc, as a counterpart to the surplus opportunitiesoffered by this process.

Barcelona’s experience of private participation inurban transformation is not solely limited to the majorprojects referred to above. The City Council hasopened up two successful lines of co-operation inurban renovation. One of them is the campaign“Barcelona posa’t guapa” (‘Barcelona, make yourselfbeautiful’), focused on the restoration of façades andhistorical buildings, which over the past few years hasaccounted for over 10,000 different interventions.Public funding has been more than doubled byprivate sponsorship and together both have had astrong induced effect, since they represent only 20%of total investment.

The second experience is the creation of jointventures where the municipality is the mainshareholder, but where there is a substantialparticipation of financial institutions, real estate firms,utilities companies and area-based services (shops,hotels, etc.), with the objective of promoting therenewal of old and historic districts. The jointventures promote and manage projects incollaboration with the owners of houses, buildingsand real estate operators, offering around 20% offinancial support for the cost of the projects. Thesocial benefits of these promotions often include theprivate funding of the restoration of inner courts ofhousing blocks and the supply of new public facilities.

Other examples of public/private partnership involve alarge number of institutions devoted to the economicpromotion of the city under the leadership of the CityCouncil. The two most remarkable examples are theFree Trade Zone Consortium and the Barcelona TradeFair. The Consortium is one of the most importanteconomic agencies in Barcelona and plays a key role inthe development of Barcelona as an industrial centre,with the industrial area of the Free Zone and thepromotion of other industrial areas. It is also a logisticscentre with its Commercial Free Zone and thedevelopment of a highly advanced Logistics Park, aswell as other activities related to logistics promotion.

The Trade Fair of Barcelona is another importantagency, owned 50% by the City Council and 50% bythe Chamber of Commerce. It ranks among the eightmajor European trade fairs. The city council also has amajority participation in companies’ joint ventures, likeMercabarna, in charge of the city’s wholesale markets,and Tractament i Eliminació de Residus, S.A., a societyfor waste treatment, etc.

In order to advance sectoral economic activities inBarcelona, the city council has promoted the settingup of several joint ventures, such as Barcelona NewProjects (real estate), Barcelona University Centre,Barcelona Tourism Consortium, Barcelona EuropeanFinancial Centre and Barcelona Logistics Centre.

Barcelona City Council also displays remarkableinitiative in the promotion of employment and thecreation of new enterprises. Barcelona Activa is themunicipal company created for this purpose and itplays an active role in personnel training and in thepromotion of new entrepreneurs, with a virtualseedbed/incubator (the most advanced in Europe),and other online facilities for new and smallenterprises, like Infopyme. The agency benefits fromthe presence of an advanced informatics municipalnetwork system. With the objective of reinforcingthe creation of new enterprises, it is also currentlybeing constituted as a mixed capital-risk firmfocusing on small projects.

The experiences referred to above are, due to thelimitations of space, only a selected and obviouslyincomplete list of the partnership links between theCity Hall and the private sector in Barcelona. Iconclude with a brief reference of how to envisagethe development of collaboration in the future. In thefuture, the city and its metropolitan area will requirean enlargement of the public/private partnership.Current studies and debates are being conductedbetween those parties involved in focusing on privateparticipation in the financing and management oflarge infrastructure works so as to overcome theinfrastructural availability gap that will otherwise actas a bottleneck for the city’s future development: railnetworks and metropolitan public transport, roadnetworks, port and airport extension andenvironmental infrastructures etc.

The successful future of the city, and itsconsolidation as one of the leading European cities interms of quality of life, welfare and attractingeconomic activity, crucially depends on themobilisation of private resources for infrastructuralinvestment, as well as on finding private/publicmanagement solutions for a stronger presence of thelocal public sector in place of central government, inaccordance with the principal of subsidiarity in therendering of public services. ■ 71

72

Sigurd Trommer has, since 1987,been a member of the board ofexaminers in the urban planning

department of the FederalExamination Authority for the

senior technical civil service, andchairman of the board since 1988.Between 1986 and 1997, he was a

lecturer at the universities ofBraunschweig and Bonn. Since

1973, he has been Chief ExecutiveOfficer of the Planning and Building

Department at the cities ofNeustadt am Rübenberge(1973–1982); Wolfsburg

(1983–1990); and Bonn (since1990). He held several positionsbetween 1967 and 1973 as an

architect and civil engineer. From1964 to 1970, he was engaged in

interdisciplinary studies ofarchitecture, civil engineering

and geodesy.

a report by

S i g u r d T r omme r

Chief Executive Officer, Planning and Building Department, City of Bonn

Many cities of the “Old World” have historiesstretching back over centuries. The city of Bonn isover 2,000 years old. During positive phases of theirdevelopment, cities have always exercised an influencebeyond their boundaries. For instance, they wagedwar which, on the one hand, brought death anddestruction; on the other hand, it was the motor ofprogress and development. They expanded and theypursued successful alliance policies, such as the cities ofthe Hanseatic League in medieval Europe.

Vestiges of such historical behaviour still exist today incompetition. In general, it is noticeable, however, that,while cities maintain lively contacts with their distantcounterparts, there is a total lack of communicationwith their neighbours. There are few intermunicipal,or regional, communications structures in Germany,but, in the evolving European Community, only thosecities which can bring sufficient political and economicweight to bear can expect to possess outstandingprospects. For cities below a threshold of one millioninhabitants, that means having to enter city alliances.The city of Bonn (310,000 inhabitants) has chosen aflexible, communicative approach to achieve this.Triggered by the structural crisis of the move of itscapital functions to Berlin, it has, at an informal level,joined with the neighbouring Rhein-Sieg district(560,000 inhabitants) and Ahrweiler district (130,000inhabitants) to draw up a joint model for the future.This was done in a relatively short period of time andit became the basis for compensation claims to theFederal government to help manage the crisis. Theinitiative was successful. The approach followed by thecity of Bonn and the surrounding region is almostunique in Germany, although there are utilitarianalliances between cities – such as local public transportnetworks, joint sewage disposal and water supplies andpublicity for cultural events – but a consensualcommon strategy to shape the future hardly ever exists.

The co-operation in the Bonn region has producedfurther positive results in addition to those alreadymentioned:

• A joint economic development company was setup, as well as a joint company for tourismdevelopment and congress promotion.

• Planning co-operation was extended to draft ajoint plan dealing with the allocation of industrialzones within the region together with a joint planrelating to the allocation of new residential areas.These plans include a framework of qualitystandards for the development of these areas.

• Work is currently under way on a joint retaildevelopment plan. Its purpose is to concentrate theretail trade in the historically grown city centres andto prevent self-induced competition by allocatinglarge-scale shopping centres at the edges of cities,which, in the end, would dry up the economic basisof our city centres. Whether this ambitious projectwill lead to success has yet to be proved.

There are, of course, also a number of intermunicipalproblems where there are differences of opinion andfor which no solution is in sight. There is no point insearching for solutions to irreconcilable differences.Instead, those issues where there is a convergence ofinterests should be concentrated on. This regionalstrategy is based on the recognition that problemswhich appear insoluble at present may become solubleones after a certain time as circumstances change.

The question is often asked whether such informal,voluntary co-operation should be transformed intoinstitutionalised structures; for instance, a regional citywith a regional parliament, or a functional associationwhich might be given tasks such as planning, wastedisposal and cultural promotion etc. No doubt, formalstructures are feasible, but such institutional mergersinitially require an enormous expenditure of politicalenergy to establish organisational structures and thedistribution of posts. Once this work is done, theresultant exhaustion means that a longer period of restis required so that a deficit of several years of effectiveaction arises as far as the real work is concerned.

The conclusion to be drawn, therefore, is not only toform operational but also strategic functionalalliances. These do not necessarily need to coincidegeographically. Thus, in the Rhineland, there is, forexample, an alliance of the four cities on the Rhine– Bonn, Cologne, Dusseldorf and Duisburg – in thetransport sector, covering several regions. An alliance

Reg iona l Co-operat ion in a Prosper ing Area – The Reg ion o f Bonn


Reg iona l Co-operat ion in a Prosper ing Area – The Reg ion o f Bonn

for representing common interests exists betweenBonn, Cologne and municipal neighbours as well asthe associated Chambers of Commerce and Industry.An alliance in the scientific sector is starting betweenthe cities of Aachen, Cologne and Bonn, based solelyon the recognition that these cities have the highestdensity of academic potential in Germany.

A high-quality digital infrastructure supports thedevelopment of regional potential. Examples of this are:

• POLIKOM: an office communications andconference system which the Federal governmentintends to use to build up an efficient electroniclink between the ministries in Bonn and Berlin.After successful testing, this system can also beextended to connect Bonn and Berlin with theinstitutions of the EU in Brussels respectively.

• Internet: together with many other initiatives, thewww.umzug-nach-bonn.de Internet page offers adetailed view of current and future residentialopportunities in the region, including allinfrastructure, such as kindergartens, schools,shopping, cultural and leisure activities. Networkedwith the property pages in the print media, thisInternet facility has developed very successfully.

• GEOMED: with funding from the EU, this

project is intended to enable computer-basedinteractive telecommunications between publicadministrations, citizens and business.

• Digitised planning: the great advances in thedigitisation of planning bases (for example, mapswith information about topography, propertystructure, land use, technical infrastructure andecologic potentials) and the computer-aideddrawing up of plans mean that the realisation timesof urban development projects from idea toapproval are considerably reduced.

Our approach in Bonn and its region of voluntaryintermunicipal co-operation is something of achaotic approach. But chaos often converges to self-organisation and the development of competencies.The advantage of this approach is great flexibility,result-orientated performance and great resilience.Such an intermunicipal system, forming regionalconsciousness, requires a creative administration ofabove-average intelligence and state authoritieswhich reward such regional commitment bypreferential treatment. It is also desirable that, beyondthe involvement of its associations in this process,business exercises a clear and positive influence onpolitics and administration to follow the path toregional co-operation rather than looking atneighbours merely as competitors. ■

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74

Lis Viorel was elected in 1998 asGeneral Mayor of the Municipality

of Bucharest. In 1997, he waselected as President of the Second

District Organization of the NationalPeasant-Christian and Democratic

Party (PNT-CD) and Vice Presidentof the Bucharest Organization of

the PNT-CD. In 1996/1997, he wasGeneral Vicemayor of the

Municipality of Bucharest and, from1992 to 1996, he was Vicemayorof the Second District Town Hall.

From 1968 to 1992, Mr Viorelpursued a professional career as a

design engineer. A Romaniannational, he was educated at the

Politechnical Institute, Thermo-energetic faculty, the Academy of

Economic Studies and the IndustryEconomy Faculty at the University

of Bucharest.

a report by

L i s V i o r e l

General Mayor of Bucharest

The city of Bucharest is the political, administrative,economic, scientific and cultural centre of Romania.It houses the institutions and specialisedorganisations that co-ordinate and organise thenation’s economy and control the complex networkof industrial units, as well as the Hungarian Academyof Science, research institutes and other majorcultural entities, including higher education collegesand its several universities.

The genesis, development and the features ofBucharest can be expressed in one image:crossroads – Bucharest has been the gatewaybetween the Occident and Orient for centuries.Since ancient times, the area of the fields irrigatedby the Dimbovita, Colentina and Arges rivers wasinhabited by protohuman and human groups.Palaeolithic artefacts, with origins dating backsome 150,000 years ago, have been found in andaround Bucharest. The oldest Neolithic sedentaryplaces belong to the Polished Stone Age, around4,000 B.C. Ceramics and jewellery have also beenfound dating from the same period, from which itis obvious that the population in this area at thattime was creative and endowed with artistic taste.

The earliest documentation of Bucharest’sattestation dates back to 1459. Born to be a capital,the town flourished on the original settlementsthanks to its position as a busy settlement on theroutes from the Low Danube to Transylvania. In1862, the town became the capital of modernRomania and, from 1918 – the date of Romania’sGreat Union – the capital of all Romanianprovinces. The number of inhabitants increasedfrom 177,646 in 1862, to 276,179 in 1899, up to2.1 million citizens at present.

The Second World War and 45 years ofcommunism impoverished the intellectual andmaterial patrimony of the town. Discontinuitypoints are breaking through the urban structure –the most symptomatic one being the People’sHouse – annihilating, functionally andsymbolically, a part of the old centre of the town.This is a brutal rupture from the point of view ofthe historical significances of the former Bucharest.

Despite these difficult times, the town hasenormous potential and is only waiting for anappropriate moment to relaunch itself onto thecommunity of European capitals and accomplish itsoldest mission: to be the crossroads of Europe and acentre for culture.

Bu c h a r e s t ’ s D e v e l o pmen t s i n c et h e R emov a l o f C ommun i sm

With the removal of the communist regime,Bucharest rediscovered its European dimensions.Economic, social and cultural life embarked upon anatural development that was based upon the needsof the population, rather than the whims of acertain leader. New banks and business centres wereset up and the communications and transportsystems empowered.

The team of people running the Bucharest localadministration plans for the development of thecity are considering the city’s development fromeconomic, social and cultural angles. We want togive Bucharest back its dignity as a Europeanmetropolis where the specific features ofRomanian culture can be experienced against abackground of modern city life as the 20th centurydraws to a close.

The development of Bucharest cannot be isolatedfrom the development of the rest of the country.Bucharest faces many problems and we need tobuild, restore and improve the quality of services.The municipality is making every effort to do this,but it lacks the funding to carry out all the work.Hence, we need investment from Romanian andforeign businesses. From the point of view of townplanning alone, the reconfiguration of the hugearea which emerged from demolition work of the1980s is one of the prime concerns of themunicipality.

An international town planning competition hasbeen organised, called “Bucharest 2000”. TheUS$10 billion plus investment effort required for thisproject can be covered through the creation of theUrban Development Agency, focusing all the

Buchares t – Present and Pas t


Buchares t – Present and Pas t

internal and international private initiatives, togetherwith the complementary efforts, by the municipality,to offer prompt and considered decisions to supportthe entrepreneurial moves expected and on which somany hopes are pinned.

A second thrust, which is extremely important forthe reaffirmation of our cultural identity and urbancivilisation, concerns the restoration of the historiccentre of Bucharest, an area comprising about 120hectares. This historic centre includes houses datingfrom the 18th century, some of which are ofparticular historical and architectural importance.This area, previously Bucharest’s commercial centre,is currently in a state of advanced decay, so much sothat only rapid restoration work can now save it fromtotal destruction. As has happened with otherhistorical centres in other great European cities, thisarea will become a centre for tourism, trade andfinance. Banks, housing and recreational areas,businesses and services, as well as antique storeswould all be well-placed here and would addresssome of Bucharest’s many problems.

One of these problems is a shortage of housing. Thepressure of demand for homes, which cannot be metby the relatively small number of homes built by themunicipality (2,000 apartments per year), coupledwith the small budget allocated for the purpose, canbe redressed only if new districts are developed byprivate efforts.

On the other hand, the municipality is interested inthe general state of the property stock built,primarily the housing in the city districts. Most ofthis housing was built with state funds toinadequate standards. We realise that this largehousing stock will soon start to pose seriousproblems of renovation, and supporting the effortsof the owners of these homes to restore and adaptthem to contemporary standards is one of theutmost priority.

Romania is currently undergoing a process ofrestructuring the big autonomous state systems ofgovernment monopolies and is privatising them.Alongside the electricity and gas companies, we arelooking at the companies that supply the publicservices in Bucharest, for instance, public transport,heat and power supply and water supply andsewerage services.

With regards to the last of these, we are looking todevelop the matter of the privatisation of watersupply and sewerage services in Bucharest. Thisprivatisation seems to be the biggest and mostattractive generally in Eastern Europe. This projectwas begun in 1997 by a detailing of the strategy,and subsequent approval from City Council.

However, the privatisation was only effective afterMarch 1999, when an important package of lawswent into force. This project started with aconference that was attended by numerous andhigh-profile companies from France, Germany, UKand the US, the representatives from internationalfinancial institutions and diplomats.

Following the interest expressed by the maincompanies and the submission of the pre-qualification documents, we are currently in theevaluation phase. Throughout the next two weeks,we will finalise the selection so that the mostsuitable companies that will be chosen canparticipate in this delicate stage. The deadline forthe resolution is 30 June 1999 (including theconclusion of the agreements).

Another project to which privatisation may apply isthe completion of the third station of wastewatertreatment, Crivina-Ogrezeni. The sponsor for thisproject is Suez Lyonnaise des Eaux, while theEuropean Bank of Reconstruction andDevelopment (EBRD) is financing the project.

With regards to heat supply, we ascertain that, atpresent, the fulfilment of the heat and domestic warmwater demand of the consumers has severalshortcomings, namely:

• the available level of heat in sources is lower thanthe level of the required heat; and

• the distribution of the output capacity against theconsumers is not uniform all over the city.

In this context, we have started a programme toincrease the output capacity by leasing plots of landto independent manufacturers of heat and power inorder to build new power units.

Two projects have already begun: the new powerunits in the north-east and in the south-west of thecity, for 500 Gcal/h each.

The Bucharest CHP north-east project is in its finalstages of planning, just waiting for the finalisation ofnegotiations with our partner ABB Electro-Invest(Sweden), the winner of the bid for the project. Theconcession contract of the land was concluded on 14January 1999 and the off-take energy agreements willbe signed before the summer.

The second project, in the south-west of the city, isin the preparation phase. It already has the approvalof the City Council and, after the previouscontract’s conclusion, an international competitionis to be initiated in order to select the sponsor forthis second project. ■ 75

76

Petra Roth is Mayor of Frankfurtam Main, a post she has held since1995. Since 1987, she has been a

member of the State Government ofHessen and Chairman of the CDUCommittee for Housing and UrbanDevelopment. Between 1977 and

1989, she served as arepresentative of the Welfare

Organization of the State of Hessenand as a member of Frankfurt City

Council. From 1973 to 1988 shewas an Honorary Social

Representative for the district ofFrankfurt and between 1963 and1970 she worked as a medical

assistant.

a report by

P e t r a R o t h

Mayor of Frankfurt am Main

Frankfurt, Germany’s traditional trade fair centre andfinancial capital, is developing to become the Euro-City. Frankfurt boasts the highest GDP of any otherGerman city and the Greater Frankfurt area has thehighest GDP per job of any region in Europe.Frankfurt airport services more passengers than anyother airport in continental Europe, as well asmanaging Europe’s biggest air cargo operation. Thecentral railway station is the largest in Europe. Notonly in terms of traditional infrastructure, but alsowith regards to the Information Super-Highway,Frankfurt leads the list: all international telecomsconnections are connected through Frankfurt, whichhas established itself as the major Internet-crossroadsin Germany.

Now, more than ever in its 1,200-year-old history,Frankfurt is facing major changes which are indeedchallenges. With the introduction of the Euro and theadvent of the common European currency, thegeography of Frankfurt am Main has already changed.Frankfurt is one of the three cities, alongside Brusselsand Strasbourg, in which strategic decisions for theEU are being made. Effective from New Year’s Day1999, Frankfurt, the traditional centre of finance andtrade, has indeed become the Euro-City, with arecognisable presence to the rest of the world. Thiswill affect all considerations of city policy and will adda new dimension to many local issues.

Saskia Sassen, a professor of Sociology at theUniversity of Chicago and well-known authority onurban development, placed Frankfurt among the30–35 global cities responsible for guidinginternational progress. She foresees that Frankfurt, asthe capital of Euro-Land, will be capable ofestablishing itself as a leading European centre. Weagree with the multitude of experts who predict thatFrankfurt will be among the trio (including Londonand Paris) of preferred cities in Europe for locatingbusinesses. Facts like these help guide our decisionsin preparing Frankfurt for its future growth and shapeour new role within Europe.

If you walk through Frankfurt, you will see amultitude of construction sites that are quite active.Frankfurt’s office towers hold a symbolic significance.

They are the most advanced, technologicallydeveloped and architecturally mature buildings oftheir generation. The skyscrapers are accepted as themost desirable form of office accommodation for themore than 40,000 existing companies in Frankfurtand those wishing to establish a presence within thecity. In order to accommodate the ever-continuinggrowth, we are constantly improving and updatingthe city’s infrastructure.

We have many exciting plans for Frankfurt’s future.With the high-rise development plan, which waspassed by the city council last year, Frankfurt’s urbangrowth will accomplish its “Millennium Jump” into ametropolis. The 15 new high-rise blocks, which willbe built in three clusters within the city, willdramatically change the skyline of our city. Theproposal not only combines aspects of living andworking within the city but it also enhances thecultural offerings, with additions such as the UrbanEntertainment Center. This development willincrease the likelihood of Frankfurt sustaining its roleas the prime location for international companies andnew investments.

In view of its new functions as a Europeanheadquarters, I believe Frankfurt has established avery competitive infrastructure. The city is veryproactive in the promotion and acquisition of foreigndirect investments. My participation in the WorldCompetitive Cities Congress should underline theimportance which Frankfurt sees in the exchange andpromotion of economic development. ■

Frank fur t ’s Mi l l enn ium Jump


Preparing for the “Millennium Jump”: Investors

Viewing a Model of the High-rise Development

77

Andris Berzins was elected Chairmanof Riga City Council in March 1997.Between December 1995 and March1997, he was State Minister ofLabour Affairs, Ministry of Welfare.Before this, he held several offices:Ministry of Welfare, Republic ofLatvia (September 1994–December1995), including (from May 1995)Deputy Prime Minister; StateMinister of Labour, Ministry ofLabour, Ministry of Welfare (August1993–September 1994); and DeputyMinister of Welfare (July 1992–August 1993). Between 1986 and1992, Mr Berzins held a number ofjunior ministerial posts. Between1982 and 1986, he was SeniorInspector, State Committee forVocational and Technical Education.He has also been a teacher andadministrator at several schools inLatvia (1975–1982) and anengineer at Lower TemperatureLaboratory, Institute of Physics ofthe Academy of Science(1971–1975). He graduated fromLatvia University in 1979 with anMA in History.

a report by

And r i s B e r z i n s

Chairman, Riga City Council

Riga, the capital of the Republic of Latvia, is locatedin the centre of the Baltic States region. Riga isLatvia’s largest city and the biggest business centre inthe Baltic States. Both Western and Easternbusinessmen consider the Baltic States as a uniformeconomic region, with Riga as the largest citylocated in the centre of it. Riga has a specific interest,therefore, in further integration of the Baltic States.

The three Baltic States have similar legislation sothat a positive business environment becomes amajor factor in competition for foreign investment.The population in Riga is 796,800, with 38%Latvians and 47% Russians. The city is a majorseaport and the only port in the Baltic Statesspecialising in container cargo. Its airport alsohandles the largest volume of traffic and, togetherwith the port, road and railway connections, Rigaplays a key transportation and transit role betweenWestern European countries and Russia. This is therole that Riga has played historically.

Riga is also an industrial centre, accounting for some52% of the country’s industrial output.Manufacturing includes shipping, electricalequipment, pharmaceuticals, processed food andtimber products. While Riga is dependent on thenational and international situation, the city itself isin a position to influence economic developmentthat may be favourable to itself. The strategytherefore places a high priority on preparation of anEconomic Development Program. Preparation ofsuch a programme will involve input from theprivate, as well as the public, sector. Tourism isgoing to be one of the key factors in the economicstrategy. Riga has already placed a high priority onupgrading its “hard services” – drinking water,sewerage and waste management.

Current changes taking place in Riga’s economy arecharacteristic of the whole country. The mainchange is that from a centralised and state-controlledeconomy to a free market economy – Riga’seconomy has to find its own place in the Europeanand world economy. It is the very foundation ofRiga’s economy that is undergoing a process ofchange. The driving forces which have supported

Riga’s economic development during the last 50years are collapsing dramatically and new ones areappearing in their place. Unfortunately, there is noprecise information about the existing situation inLatvia and there are very few forecasts for futuredevelopment possibilities. Since 1991, when Latviaregained its independence, the primary goal for thedevelopment of the capital of the Republic of Latviahas been to see Riga as an economically vibrant,modern and dynamic city, but still maintaining itsnatural and cultural heritage. Together with theGovernment of Latvia, the city of Riga has beenattempting to create an open Western-style economyin compliance with the EU standards. An importantstep towards open trade was the Latvia’s entry to theWorld Trade Organization (WTO), which tookplace in 1998. Membership at the WTO is veryimportant for Latvia as it will increase its trade andeconomic potential, activate the inflow of foreigninvestment and accelerate integration within the EU.

Accessibility of Eastern and Western markets isprovided by developed transport and tele-communications infrastructure. The activity of RigaHarbour and Riga International Airport has beenincreasing year by year. This is particularly importantfor ports and other transportation facilities, whichtraditionally have been the basic sectors of the city’sdiverse economy. Riga International Airport is thesecond largest in the Baltic States, both in terms ofpassenger and cargo turnover. About US$4 million isscheduled for investment in the airport in 1999,including construction of a new arrival hall.

Investment is seen as one of the majorpreconditions of long-term city development.About 80% of all Latvia’s enterprises with foreigncapital and approximately 50% of the country’sforeign investment stock are located in Riga. In1996, 1997 and 1998, Riga managed to attractmore foreign investment than most other cities inthe Baltic States. This can be explained by theoverall economic stabilisation, successfulprivatisation process and improvements in FDIlegislation. The majority of foreign investmentshave been made in Riga or other big Latvian citieswith a developed service sector, a wide range of

Pub l i c and Pr iva te Par tner sh ip and Urban Deve lopments


suppliers, a favourable strategic position and goodinfrastructure. Direct foreign investment and thenumber of enterprises with foreign capital in Rigahave rapidly increased over recent years. Riga has inplace most of the important pre-conditions forincrease in foreign investment:

• growth in economic activity;

• offers of competitive incentive packages andproject proposals;

• no restrictions on foreign investors;

• development of a free land market;

• opportunities for foreign companies to participatein the privatisation process;

• many development projects already successfullycompleted (see separate publication, SuccessfulDevelopment in Riga);

• the supportive attitude of state and municipalbodies. Transport and communications, financeand industry have been the priority sectors interms of foreign investment. These sectors of theeconomy show substantially larger amounts ofinvestment than other sectors. Foreign investorsconfirm that the leading sectors are still the mostattractive. In 1997 and 1998, with the liberalisationof the land market and the continuation ofprivatisation, investments in such sectors as realestate, tourism and energy became more active.

In order to attract investment, first an investment-friendly economic environment has to exist, thecentral government having a key role in determiningtax policies, land and property relations, developing asecurity market and fostering general economicstability in the country. Secondly, an appropriateinfrastructure has to be developed, the responsibilityfor which lies primarily with the municipalgovernment. The condition of the urbanenvironment points to the necessity of making regularinvestment in the infrastructure with the expresspurpose of preserving it. Nevertheless, in the contextof, and when compared with, the whole of Latvia,Riga’s economic condition can be assessed as

favourable. More than half of the people employed inRiga are working in the service industries (includingnational administration) and the city considers itnecessary that Riga’s tourism potential, currentlyinsufficiently utilised, should be given its properposition in activating the economic environment.

It is worth noting that personal income tax is one ofthe most stable state taxes. However, in 1995, thecomplicated mechanism for distributing the taxamong the municipalities motivated the Riga CityCouncil to take over the collection of this tax itself,thereby both increasing revenues and becoming moreaware of economic activities within the city, creatinga database on the taxpayers and legal bodies and, inthe future, envisaging advantages in co-operationwith the more stable taxpayers. Most of the budget isspent on health and social care, education and culture.

The city of Riga is actively seeking ways to attractadditional financial resources for investments in thecity infrastructure. These should be deemed as urgentmeasures, since the facility depreciation principleholds that an increase in depreciation leads toincreased financial resources merely to provide forthe system’s survival. Eventually, in the long run,maintenance expenses exceed the total capitalinvestments for a complete update of the system. Forexample, emergencies are increasing rapidly in theantiquated water system and this situation has had aknock-on effect because of the amount of money forpreventive and reparative work. Not only the facilitydepreciation principle but also inflation demonstratesthat Riga can only gain from capital investment inthe infrastructure through attracting credit resourcesand planning to repay them out of future budgets:the amount of money needed to repay the creditresources in the future is lower than the cost of ever-rising maintenance expenses and the accumulatedvolume of future capital investments.

At this moment, Riga is implementing three bigprojects directed towards infrastructure develop-ment. The Riga City Council, governments of othercountries and international organisations are involvedin the following projects:

1. Riga Water and Environmental Project costingLVL46.3 million including Eiropas Rekonstrukcijas78


In 1996, 1997 and 1998, Riga managed to attract more foreign

investment than most other cities in the Baltic States.

Pub l i c and Pr iva te Par tner sh ip and Urban Deve lopments

un attîstîbas bankas (ERAB) and EuropeanInvestment Bank (EIB) credits of US$22.5 millionand 15 million ECU, which will be recovered fromrevenues. The aim of this project is to improve thequality of water.

2. Riga Public Transport Development Project withtotal costs of US$18.5 million, 80% invested usingcredit from the World Bank, which is guaranteedby the Latvian government. The bus andtrolleybus park and the buying of new vehicles,will be improved.

3. Waste Disposal and Processing Project, which willimprove the city’s waste disposal site and providenew ecological technology. This project issponsored by Riga City Council, a World Bankcredit of US$7.95 million, a WorldEnvironmental Fund donation of US$5.12million) and a donation from the Swedishgovernment of US$1.5 million. The total costs ofthis project are US$25 million.

In the last few months, we have been workingtogether with the World Bank for another importantproject, the Central Heating Improvement Project.There are also negotiations taking place on theDaugava River Crossing Project.

Since 1991, Latvia has achieved considerable successin consolidating reforms and improving its generaleconomic environment. The banking system has notonly been stabilised but it has also regained publictrust following the banking crisis of 1995. The liberalLatvian legislation and strong monetary policy makeRiga an attractive place for foreign currency depositsand transactions. Recently established branches ofthe Estonian Hansapank, the French SociétéGénérale, the German Vereinsbank and therepresentative office of the German Dresdner Bankare the best evidence of the increasing prominence ofRiga as a financial centre. The government and theBank of Latvia consider that the sustaining ofnational currency stability is the chief task ofmonetary policy. The policy is to retain theexchange rate pegged to the SDR in future, therebyhelping to curb inflation and increase trust in theeconomy and financial system. The governmentbelieves that it will be possible to retain thecompetitiveness of Latvian goods and services byimproving productivity through acceleration ofstructural reforms.

On the subject of environmental protection,environmental assessment and land-use legislationare the key legislative tools allowing municipalitiesto control and regulate urban development. Afterrestoration of the Baltic States’ independence,different legislative initiatives on the environment

and development planning have taken place inthese countries, including Latvia. During theperiod 1993–1998, various plans were developed inLatvia in accordance with its laws. Examples ofthese plans, from Riga, which is the leader inplanning in Latvia are that: the Riga DevelopmentStrategy was prepared at the end of 1995; the RigaCity Council adopted the Official Plan of Riga;and the Riga Region Development Strategy wasinitiated by the Riga City DevelopmentDepartment at the end of 1998.

Different initiatives have also been promoted indifferent sectors in Riga itself. All these initiatives arevery important for targeted development,environmental protection, nature conservation,national heritage management and for dealing withcommon problems by different stakeholders in thecity. Each land-use plan being developed in Latviamust, by law, undergo the state’s ecological expertiseto evaluate the policy and adopt solutions containedin the plan in accordance with environmentalprotection requirements.

One of the most important indicators gauging theoverall development of a particular country, regionor city is a credit rating. Although credit ratingagencies attempt to analyse municipalities’ financialperformance and economic development, mostinvestors familiarise themselves with credit ratingsassigned to a city to understand the local economicenvironment better. In the case of Riga, the creditrating is even more important as the municipality isa shareholder and an owner of real estate andactively participates in economic activities. Themunicipality of Riga operates in a fairly neweconomic environment that is still characterised bythe ongoing redistribution of serviceresponsibilities, equalisation of payments and taxincome between the central and local authorities.The direct debt to operating revenues was a low 9%at the end of 1998. However, despite the fact thatRiga has initiated a series of large projects that helpto upgrade its engineering infrastructure, significantinfrastructure needs remain.

Today, the Municipal Council is trying to limit newadditions to the city’s debts to keep the debt serviceat manageable level. It is expected by both localauthorities and international credit agencies that, infuture, Riga should strengthen its position as acommercial centre of the Baltic States, as theeconomy continues its projected medium-termgrowth. Although the comparatively poorinfrastructure standards constrain Riga’s economicgrowth, our city’s investment policy is focused onfurther improvements, since it is believed that Riga’seconomic welfare and development depends on thequality of engineering infrastructure. ■ 79

80

Professor Alan Harding is Professorof Urban Policy and Politics at theEuropean Institute for Urban Affairs,at Liverpool John Moores Universityand is Professor-designate of Urban

and Regional Governance in theDepartment of Politics and

Contemporary History at theUniversity of Salford, a post hetakes up in October 1999. Hisinterests span pure and applied

research, policy analysis and adviceand the provision of professional

consultancy services. ProfessorHarding currently is Director of‘Economic competitiveness, social

cohesion and urban governance inLiverpool and Manchester’, one of

four projects financed by theEconomic and Social Research

Council’s Cities programme. He hasacted as a specialist adviser to the

House of Commons SelectCommittee for the Environment,Transport and Regional Affairs

relating to Regional DevelopmentAgencies in England. He graduated

from Middlesex University beforecompleting a Masters in Public

Policy and Public Administration atthe London School of Economics.

a report by

A l a n H a r d i n g

Professor of Urban Policy and Politics, European Institute for Urban Affairs, Liverpool John Moores University

T h e ( E v e n t u a l ) R i s e o f N o r t hAme r i c a n U r b a n P o l i t i c a l E c o n omy

In 1976, when European debates within urban theorywere dominated by neo-Marxist and neo-Weberianapproaches to cities as sites for the provision of socialand welfare services, the very different notion of ‘thecity as growth machine’ slipped into the US urbanstudies lexicon with the publication of HarveyMolotch’s article of the same name.1 In 1983, the yearin which Castells brought the radical phase ofEuropean urban studies to a halt with a famouswarning against ‘the useless construction of abstractgrand theory’,2 the concept of an urban regime had asimilarly unobtrusive birth when the phrase was usedby Fainstein and Fainstein to describe “the circle ofpowerful elected officials and top administrators” in UScity government.3 Had the story ended there it is

unlikely that the world – especially outside NorthAmerica – would have heard much more of urbanregimes and growth machines. As it has turned out,though, from the late 1980s onwards, urban scholarshave hardly seemed able to hear enough about thesetwo approaches within US urban political economy.

Since 1987 and the publication of Logan and Molotch’sUrban Fortunes,4 Stone and Sanders’ The Politics of UrbanDevelopment5 and Elkin’s City and Regime in the AmericanRepublic,6 America’s major urban journals have been fullof references to regimes and machines.7 More inconnection with this article, there is now substantialnon-American literature that adopts the concepts – orthe language – of both theories and claims to findsomething akin to urban regimes and growth machinesin a variety of places and times. They form theostensible basis of work undertaken in the UK,8

Nor th Amer i can Urban Po l i t i ca l Economy,Urban Theor y and UK Research


1. Harvey Molotch, “The city as growth machine”, American Journal of Sociology, 82, 2 (1976), 309–355.2. Manuel Castells, The City and the Grassroots, (London: Edward Arnold 1983, xviii).3. Norman I Fainstein and Susan S Fainstein, “Regime strategies, communal resistance and economic forces”, in Norman I

Fainstein, Susan S Fainstein, Richard C Hill, Dennis Judd and Michael P Smith (eds.) Restructuring the City: thepolitical economy of urban redevelopment, (New York: Longman 1983, pp245–281 and p256).

4. John Logan and Harvey Molotch, Urban Fortunes: the political economy of place, (London: University of CaliforniaPress 1987).

5. Clarence Stone and Heywood T Sanders (eds.) The Politics of Urban Development, (Lawrence: University Press ofKansas 1987).

6. Steven L Elkin, City and Regime in the American Republic (Chicago, IL.: University of Chicago Press, 1987).7. Gerry Stoker, “Regime theory and urban politics”, in David Judge, Gerry Stoker and Hal Wolman (eds.) Theories of Urban

Politics, (London: Sage 1995, pp54–71); John Logan, R B Whaley and K Crowder, “The character and consequences ofgrowth regimes: an assessment of twenty years of research”, Urban Affairs Review 32, 5 (1997), pp603–630.

8. See, for example, Nigel Axford and Steve Pinch, “Growth coalitions and local economic development strategy in southern England:A case study of the Hampshire Development Association”, Political Geography 13, 4 (1994), pp344–360; Keith Bassett,“Partnerships, business elites and urban politics: new forms of governance in an English city”, Urban Studies 33 (1996),pp539–555; Keith Bassett and Mike Harloe, “Swindon: The rise and decline of a growth coalition”, in Mike Harloe, ChrisPickvance and John Urry (eds.) Place, Policy and Politics: Do localities matter? (London: Unwin Hyman 1990), pp42–61;Phil Cooke, “Municipal enterprise, growth coalitions and social justice”, Local Economy 3, 3 (1988), pp191–199; PatrickDunleavy, Keith Dowding, Desmond King and Helen Margetts, “Regime politics in London local government”, Paper to theESRC Local Governance Programme conference, Exeter, September 1995; Alan Harding, “The rise of urban growth coalitions,UK-style?”, Environment and Planning C: Government and Policy 9, 3 (1991) pp295–317 and “Regime-formation inManchester and Edinburgh”, in Gerry Stoker (ed.) Community, Power and Participation: the changing local governmentof Britain (London: Macmillan, forthcoming); Paul Lawless, “Partnerships in urban regeneration in the UK: the Sheffield CentralArea Study” Urban Studies 31 (1994), pp1303–1324; M Greg Lloyd and David A Newlands, “The ‘growth coalition’ andurban economic development”, Local Economy 3, 1 (1988), pp31–39; David Valler, “Local economic strategy and localcoalition-building”, Local Economy 10 (1995), pp33–47, and; Andrew Wood, “Analysing the politics of local economicdevelopment: making sense of cross-national convergence”, Urban Studies 33, 8 (1996), pp1281–1295..

Nor th Amer i can Urban Po l i t i ca l Economy, Urban Theor y and UK Research

France,9 the Netherlands,10 Germany,11 Italy12 andAustralia.13 They are also used for comparative purposes,whether they draw on two countries – for example, theUK and the US14 and the UK and France15 – or more.16

The completion of 10 years’ worth of non-US work onurban regimes and growth machines makes now anappropriate time to consider what added value theseapproaches have brought to the way urban politics isstudied, particularly in the UK.

U r b a n R e g ime s a n d G r ow t h Ma c h i n e si n a N u t s h e l l

So much has been written about urban regimes andgrowth machines in recent years that mostcommentators in urban studies will already befamiliar with their central arguments. Non-urbanists,however, might start here. Briefly, both approachesare characterised by antipathy towards ‘structuralist’accounts of urban change. They are particularlysceptical about two long-established and influentialstrands within urban theory: the ecological approachwithin American urban sociology, first advanced inthe inter-war years; and the neo-Marxist approachesof the 1970s.17 Most of all, though, they take issuewith the public-choice-influenced argumentsadvanced by Peterson in a book entitled City Limits.18

Peterson argued that cities effectively “die” if theyare deserted by people and firms in big enough

numbers. Cities therefore have no choice but to tryto capture and retain potentially mobile businessesand residents if they are to survive. This means thatcity administrations are compelled by the logic oftheir circumstances to compete against each other byengaging in what Peterson calls “developmentalpolitics”; that is, by devising strategies to improvelocal circumstances with respect to economicdevelopment and employment growth. As a result,they are left with little scope for what he calls“redistributive politics”. In other words, there arestrict limits to their capacity to use resources –gathered largely from affluent sections of the urbanpopulation – to provide goods and services whichprimarily benefit their poorer counterparts.

Urban regime theory and the growth machine thesisdo not deny that city administrations compete forfirms and households. Neither do they dispute theimportance of local developmental politics. Rather,they object to two features of Peterson’s analysis. Thefirst is his assertion that local politics hardly mattersand that the environment in which cityadministrations operate determines all their significantchoices. The second is his implication that cities havea single set of “interests” which can be understoodwithout reference to preferences that are expressed, bycity residents and users, through the political system orother channels. Thus, the advocates of the regime andgrowth machine approaches, whilst not always

81

9. Patrick Le Galès, “Urban regimes and comparative urban politics”, Paper to ECPR joint sessions workshop on The changinglocal governance of Europe, Bordeaux, March 1995; Myron A Levine, “The transformation of urban politics in France: theroots of growth politics and urban regimes”, Urban Affairs Quarterly 29, 3 (1994), pp383–410.

10.Pieter Terhorst and Jan van de Ven, “The national urban growth coalition in the Netherlands”, Political GeographyQuarterly 14, 4 (1995), pp343–361.

11.Elizabeth Strom, “In search of the growth coalition: American urban theories and the redevelopment of Berlin”, UrbanAffairs Review 31, 4 (1996), pp455–481.

12.Serena Vicari and Harvey Molotch, “Building Milan: alternative machines of growth”, International Journal of Urbanand Regional Research 14, 4 (1990), pp602–624.

13.Janice Caulfield, “Community power, public policy initiatives and the management of growth in Brisbane”, Urban Policyand Research 9, 4 (1991), pp209–219; Janice Caulfield and John Wanna (eds.) Power and Politics in the City:Brisbane in transition (Melbourne: Macmillan Australia Educational 1995).

14.Alan DiGaetano and John S Klemanski, “Urban regime capacity: a comparison of Birmingham, England and Detroit,Michigan”, Journal of Urban Affairs 15, 4 (1993), pp367–384 and Urban Governance in Comparative Perspective:the politics of urban development in the UK and US (Minneapolis: University of Minnesota Press 1998).

15.Peter John and Alistair Cole, “Urban regimes and local governance in Britain and France: policy adaption and coordinationin Leeds and Lille”, Urban Affairs Review 33, 3 (1998), pp382–404.

16.Alan Harding, “Urban regimes in the United States of Europe?”, European Urban and Regional Studies 4, 4 (1997),pp291–314; Paul Kantor, Hank Savitch and Serena Vicari Haddock, “The political economy of urban regimes: acomparative perspective”, Urban Affairs Review (1997); Harvey Molotch, “Urban deals in comparative perspective”, inJohn Logan and Todd Swanstrom (eds.) Beyond the City Limits: urban policy and economic restructuring incomparative perspective (Philadelphia: Temple University Press 1990); Harvey Molotch and Serena Vicari, “Three waysto build: the development process in the US, Japan and Italy”, Urban Affairs Quarterly 24, 2 (1988), pp188–214.

17.Logan and Molotch, Urban Fortunes, pp4–12; Mark Gottdeiner and Joe Feagin, “The paradigm shift in urban sociology”,Urban Affairs Quarterly 24, 2 (1988), pp163–187.

18.Paul E Peterson, City Limits (Chicago: University of Chicago Press 1981); John Logan and Todd Swanstrom, (eds.)Beyond the City Limits: urban policy and economic restructuring in comparative perspective (Philadelphia:Temple University Press 1990).

disagreeing with Peterson’s conclusions, invariablytake issue with the way he reached them.19 For them,cities and urban life are produced and reproduced notby the playing out of some externally-imposed logic,but by struggles and bargains between different groupsand interests within cities. The outcomes of thesestruggles and bargains, they argue, far from serving thegeneral “good of the city”, reward some groups whilstdisadvantaging others.

A major goal of urban regime theory and the growthmachine thesis, then, is to put the politics back intourban political economy. Both approaches areprimarily interested in the urban politics ofproduction, rather than consumption; that is, witheconomic development rather than social andwelfare services. Each also stresses the importance of‘human agency’ in decision-making within the broadfield of production. Like earlier community powertheorists in the US,20 they attempt to account forimportant aspects of urban change by examining theactions of the groups, individuals and institutions thathelp produce them rather than assuming that peopleare swept along by larger forces over which theyhave no control.

Neither approach assumes that the various ‘actors’ inthe urban politics of production are unaffected byforces beyond the immediate locality. That helps todistinguish them from the most ‘localist’ accountswithin the older community power debate, whichoften ignored external factors, whether they were theinfluence of higher levels of government or of widermarket changes.21 Both nonetheless insist that there isnothing automatic about the interactions between‘urban elites’ and the effects which flow from them.In contrast to structuralist accounts, they areconcerned with the role of human agency in shapingwhat Logan and Molotch22 call “the politicaleconomy of place”.

The key to both approaches is their concern withprocesses of coalition-building, primarily for the

purposes of promoting economic change andemployment-creation. Urban regime theory isbased upon neo-pluralist arguments about theimportance of interaction between politics andmarkets. Like leading neo-pluralist commentators,23

urban regime theorists insist that in liberaldemocratic societies there are two, interdependentsystems of authority: one based on popular control,(the various organs of representative government);the other on the ownership of private productiveassets (largely the business community). Businessdecisions are critical to public welfare, widelyconceived so that public officials cannot beindifferent to them. Since productive assets liesubstantially in private hands, officials cannot‘command’ businesses to perform their necessaryfunctions; they can only provide inducements.

It follows that, although there are some policy areasin which governments can achieve desired policyoutputs through bureaucratic means, including thepurchase of goods and services from private sectorsuppliers, there are many areas in which the controlthat public officials can exercise over outputs is lesssecure and predictable. Wherever policy successrelies upon the promotion of market activity, therewill clearly need to be bargaining and joint workbetween actors in the public and private sectors.Urban regime theorists put such bargaining at thecentre of their concerns and suggest that it finds itsfullest expression in public-private sector coalition-building. In developing this argument, theyeffectively distinguish between local governmentand local governance. Stone24 argues that“successful electoral coalitions do not necessarilygovern”. He suggests that, in order to achieveanything beyond straightforward statutory tasks,elected city leaders and their officials need thesupport of other powerful interests, especiallywithin the business community.

Urban regimes regularise relations of mutual benefitand support between public and private sectors.

82


19.See, for example, the debate between Sanders and Stone and Peterson in Heywood T Sanders and Clarence Stone,“Developmental politics reconsidered”, Urban Affairs Quarterly 22 (1987), pp521–539 and “Competing paradigms: arejoinder to Peterson”, Urban Affairs Quarterly 22 (1987), 548–551 and Paul E Peterson, “Analyzing developmentpolitics: a response to Sanders and Stone”, Urban Affairs Quarterly 22 (1987), pp540–547.

20.See Floyd Hunter, Community Power Structure: a study of decision makers (Chapel Hill: University of NorthCarolina Press 1953); Robert A Dahl, Who Governs? (New Haven: Yale University Press 1961); Peter Bachrach andMorton S Baratz “Two faces of power”, American Political Science Review 56 (1962), pp947–952; Nelson WPolsby, Community Power and Political Theory, 2nd ed. (New Haven: Yale University Press 1980).

21.Alan Harding, “Is there a new community power and why should we need one?”, International Journal for Urban andRegional Research 20, 4 (1996), 637–655.

22.Urban Fortunes bears this subtitle.23.See, above all, Charles E Lindblom, Politics and Markets: the world’s political-economic systems (New York: Basic

Books 1977).24.Clarence Stone, Summing up: urban regimes, development policy and political arrangements, in Stone and Sanders,

pp269–290 at p286.

World Markets SeriesBU S I N E S S B R I E F I NGASEAN at 30


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They bring together those who have access to, andcan deliver, various resources, be they material,such as finance, personnel and land and buildings,or intangibles, such as political, regulatory andinformational resources. No single organisation orgroup monopolises these assets and there is no“conjoining structure of command” to link asset-holders together.25 A governing regime musttherefore be constructed through informalbargaining and the ‘tacit understandings’ of itsmembers. Urban regimes work through a system of‘civic co-operation’ based upon mutual self-interest.They are “informal arrangements by which publicbodies and private interests function together inorder to be able to make and carry out governingdecisions.”26 They fuse what is otherwise a veryfragmented capacity to act and enable independentsocial forces and organisations to co-ordinate theiractions in a way they would not otherwise do overthe range of issues upon which they can agree. Thebroader the coalition of forces linked togetherwithin a regime, the more resources it collectivelydeploys and the greater the chances are of membersenhancing its governing capacity by putting ‘smallopportunities’ the way of potential allies and buyingoff opponents with ‘side payments’.

Urban regime theory, then, concerns itself with theway in which urban local authorities need to buildbridges with other interests, particularly in theprivate sector, in order to achieve certainproduction-related goals. Although it is intrinsic tothis argument that the needs and demands ofbusiness leaders will inevitably limit and helpdetermine the options pursued by urban authorities,the channel of influence is broadly perceived asrunning from the public to the private sector. Thegrowth machine thesis, by contrast, focuses uponthe same themes but sees the flow of influence asrunning in the other direction. Logan andMolotch’s arguments are founded upon theassertion that “the activism of entrepreneurs is, andalways has been, a critical force in shaping the urbansystem.”27 They focus on how growth strategies aredefined and promulgated by local businesscommunities and how business leaders attractsupport from other interests, be they localauthorities or non-local investors.

The growth machine thesis offers finer-grained detail

about the types of actor who play leading roles ingrowth strategies. For Logan and Molotch, the key tothe growth machine is the way “parochial” (forwhich read ‘local’) capital can help create conditionsin which non-local, “metropolitan” capital isattracted to particular areas. The most active playerswithin parochial capital, according to Logan andMolotch, are property owners. Property ownersstrive to maximise the rental value of their landand/or buildings by intensifying the uses to whichthey are put or seeking to replace one set of uses withother, higher-value ones. They are a particularlydynamic and self-serving sub-set of local privatesector interests whose high level of commitment tolocal economic growth is explained by the fact thatthey are ‘place-bound’; that is, their material interestsare geographically rooted.

In attempting to promote flows of non-localinvestment into their localities, property ownersform alliances with other business interests. Someof these are similarly constrained, spatially. In thecase of the US, key banks, utilities and mediaconcerns, for example, can only operate inspecific ‘patches’. Others operate in wider marketsbut readily support development strategiesbecause they can see how direct and indirectbenefits for company performance might flowfrom them. Growth machine supporters alsoinclude public and quasi-public organisations.Local authorities, in particular, are seen as naturalallies in that they are “primarily concerned withincreasing growth.”28 Quite why this is seen asbeing so in most, but not all, cases is notsatisfactorily resolved in Urban Fortunes. At certainpoints, Logan and Molotch, like othercommentators in urban political economy,29

suggest that urban political leaderships can followanti- or controlled-growth strategies. At otherpoints they argue, like the much-deridedPeterson, that certain institutional features in theUS system of local government predispose localauthorities towards competitive, growth-orientated behaviour. And at yet other points, it isimplied that local public officials have somefreedom of manoeuvre with respect to the politicsof production, but fail to use it. Like otherinterests, they can be seduced by the ideology of‘value-free development’, promulgated by coregrowth machine activists.

84


25.Stone, Regime Politics, p5.26.Stone, Regime Politics, p6.27.Logan and Molotch, Urban Fortunes, p52.28.Logan and Molotch, Urban Fortunes, p53.29.For example, Pierre Clavel in The Progressive City: planning and participation, 1969–1984 (New Brunswick:

Rutgers University Press 1986) and Robert DeLeon in Left Coast City: progressive politics in San Francisco1975–1991 (Lawrence: University Press of Kansas 1992).

Nor th Amer i can Urban Po l i t i ca l Economy, Urban Theor y and UK Research

Urban regime theory, by contrast, sees little role forideology in binding coalitions together. For Stone,in particular, the power of a regime lies in the factthat it can draw in a multitude of different, oftenideologically incongruent, interests without theneed for a meeting of minds on all issues. All that isrequired is that regime members work togetherconstructively on those issues on which they canagree and not let their disagreements threaten theintegrity of the regime. Thus, regime memberssupport growth strategies because they calculate thatthe material benefits of having influence as a‘supportive’ insider are greater than those thatmight accrue from being a critical outsider. It isthese material calculations, more than anything else,that Stone has in mind when he argues that theopponents of a broadly based, well organised regimecan win battles against particular developmentprojects but rarely the war against growth politics inits broadest sense.

Regime theory is also broader and more dynamicwhen it comes to identifying a range of ‘idealtypical’ local governing arrangements. Variants of

the growth machine model are recognised by bothStone and Elkin as a common and powerful form ofcoalition in US politics but not one that isnecessarily dominant at all times and in all places.Both argue that the nature of a regime can vary,depending on the wider political and economiccircumstances in which it is formed. Elkin, forexample, describes how the role of the then moreinterventionist Federal government affected thenature and extent of local coalition building in the1960s and 1970s. Both he and Stone also imply thatonly in certain periods does the search for localeconomic competitiveness assume dominantproportions in local politics. At other times, it ispossible for less ambitious and inclusive regimes toconcentrate upon relatively routine service deliveryissues or challenge the growth agenda of localbusiness leaders. Both nonetheless imply that it issome variant of the growth machine model – witha stronger role for elected authorities – that ispredominant in times of pronounced economicchange; that is, when local economic prospects aremost under threat or in periods where there aregreatest opportunities. ■

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86

Stephen Goldsmith was electedMayor of Indianapolis, America’stwelfth largest city, in November1991. He has earned a national

reputation for efficiency andinnovation in government. Inprofessional life, he has been

Research Fellow in Criminal Justiceand Management at Harvard

University’s Kennedy School ofGovernment, and Assistant and

Adjunct Professor at IndianaUniversity’s School of Public and

Environmental Affairs. He has beenProsecuting Attorney, Marion County

(1979–1990); Chief Trial Deputy,City of Indianapolis (1976–1978);and Deputy Corporation Council,

City of Indianapolis (1974–1975).He has also been an attorney inprivate practice in two periods:

1972–1978 and 1991. MrGoldsmith graduated from the

University of Michigan (JD) in 1971and has an Honorary Doctor of

Laws from Wabash College (1993).

a report by

S t e p h e n G o l d sm i t h

Mayor, Indianapolis

Ob s e r v i n g t h e P r i v a t e Ma r k e t p l a c e

Every day, the private sector introduces newproducts, improves old ones, expands services andreduces costs in general. The desktop computer onwhich this article is being written, for example, wasnon-existent 25 years ago and essentially unaffordableuntil very recently.

Government, on the other hand, becomes lessresponsive and more expensive over time. Spendingby the federal government increased from US$92billion in 1960 to US$1.5 trillion today. Yet very fewpeople would say that government services are bettertoday than they were 40 years ago.

Why are private sector companies more efficient,more customer-oriented and more innovative thangovernment? The answer is that these companiesmust compete in the marketplace and they will go outof business if customers do not like the goods andservices they offer. No matter how successful acompany is today, if it loses touch with its customers’needs, or charges too much, another company willsteal its customers away tomorrow.

Government, which has a lock on the delivery of awide range of services and the management of manyassets, is not only a monopoly, but a particularlyeffective form of monopoly:

• Government cannot go out of business. Everycitizen of the US, like it or not, is a customer forgovernment services – and a new customer is bornevery eight seconds. Poorer Americans, inparticular, are customers for government servicesbecause they cannot afford to go elsewhere.

• Government controls revenue. If more money isneeded to provide a service, government can andwill raise taxes to pay for it. While the private sectormust persuade people to make purchases,government simply takes dollars. If a citizen decidesnot to buy what government is selling by refusingto pay taxes, that citizen will wind up in jail.General Motors would never close a plant if it couldseize the assets of people who do not buy their cars.

• Government is allowed to spend more than it takesin. While many states and cities are required bylaw to enact balanced budgets, many governmententities are not – including the federalgovernment. And even governments that, by law,must balance their budgets nevertheless avoiddoing so by borrowing, deferring capital spendingand employing bookkeeping devices. Privatecompanies and families can only spend on deficitsin the short-term before going out of business;government can go into debt indefinitely.

• Government delivers “essential services.”Whenever reform-minded managers or electedofficials exert pressure to reduce costs, status-quomanagers can mount an effective defence bypointing to the essential nature of their task: a callfor budget cuts in a municipal Department of PublicSafety might be met with a cry that the streets willbe less safe; attempting to slow the growth ofeducation spending might be met with a challengesuch as, “Aren’t our kids worth a few extra dollars amonth?” This is a strategy that resonates powerfullywith constituents, who have neither the time northe inclination to scour budgets to see if savings arepossible without cuts in service quality.

What limits government’s incentive to be efficient isnot public ownership per se, but the monopoly thatgovernment enjoys over the services it provides. Thekey issue is not public versus private – it is monopolisticversus competitive delivery. This is why we prefer theterm “marketisation” to the more commonly-used“privatisation”. As a rule, one can predict theresponsiveness and efficiency of a company by theamount of competition its products face. The morerigorous the competition, the better the product.Utilities and large monopolies, for example, tend to beless efficient and customer-oriented. To the extent thatwe move services into the marketplace, or createmarkets for their delivery, we can also increaseefficiency, improve service quality, and reduce costs.

Mov i n g S e r v i c e s i n t o t h e Ma r k e t p l a c e

One of the challenges in moving services into themarketplace is that governments at all levels

C i ty Ser v i ces in the Compet i t i ve Marketp lace



diversified over time in order to support the serviceswe think of as fundamental. For decades,governments vertically integrated themselves intoperforming services that would be best performed bythe private sector. And it will probably take decadesfor governments to peel back the layers and returnto providing only the services that are their trueprovince. Some services are more obviouscandidates for competition than others, andidentifying this “low hanging fruit” can providegovernments with lucrative and relativelystraightforward competitive initiatives.

This can be a confusing and controversial task,because managers always insist that their jobs arefundamental to government operation. There are afew basic questions that managers can ask themselvesto determine a given service’s “ripeness” forcompetition, however. Based on what we inIndianapolis observed during our on-the-job training,the following graph is a useful tool for thinking aboutservices to be competitively bid:

Core versus Ancillary: The horizontal axis of thegraph above describes whether an activity is a “coreservice” that government must provide for citizens –a necessary, non-divisible public good – or whether itis an “ancillary service” performed, presumably, tosupport the provision of core services.

The core service behind any given activity can oftenbe determined simply by repeatedly posing thequestion: “Why is this service necessary?” Eachiteration will move the answer closer to a coreservice. For example, Indianapolis operates a CentralEquipment Maintenance Division that, among itsother duties, changes the oil in police cars. Whydoes it do so? Because the city’s police departmentneeds a well-maintained fleet. Why? So that policeofficers can patrol, make emergency runs quicklyand pursue suspects if necessary. Why? So that thepolice department can protect the public. Why? Atthis point, the answer is that protecting the public isa core service.

Therefore, the position of a given activity along thehorizontal axis of the first graph above is determinedby how closely it relates to the performance of a coregovernment service.

Policy versus Implementation: This is similar to thedistinction David Osborne described, in ReinventingGovernment, as the difference between “steering”and “rowing”. Does the activity by its naturerequire the making of policy, or is it an activity thatinvolves the implementation of policy that hasalready been established?

The distinction between policy and implement-ation is often difficult. People’s opinion may varyover whether a police officer, recognising certainbehaviour as domestic violence and making anarrest, is making a policy decision or implementingpolicy. However, some activities are easilyidentifiable as being more policy-making thanothers: deciding to equip city buses with lifts forthe handicapped is a policy decision; installing thelifts is implementation. The position of an activityalong the vertical axis is determined by how muchpolicy-making it requires.

The second chart, with various services, looks like:

Q u a d r a n t I V : A n c i l l a r y I m p l e m e n t a t i o n

Any service that falls into Quadrant IV is a candidatefor immediately moving to the marketplace, with thepresumption that the private sector can probablyprovide it better and cheaper. In Indianapolis, one ofour first successful marketisations was the city’smicrofilm division, which employed 22 workers andhad an annual budget of US$700,000. We discoveredthat it cost the city 10.5 cents per page to microfilm adocument. The lowest private sector bid offered aprice of 3.3 cents per page and produced higherquality copies. The decision to privatise was easy and,over the first four years of the contract, the city savedmore than US$1.3 million as a result.

It is important to note again that even though it isprobable that the private sector can provide anyQuadrant IV service better and at lower cost thangovernment, it is the process of competition, and notmerely provision by the private sector, that producescost savings.

Indianapolis provides an example that illustrates thispoint as well. Each month, the Department of PublicWorks (DPW) sent out bills to its customers for sewer 87

Implementation

Policy

Core Ancillary

Q11

Q1V

Q1

Q111

Implementation

Policy

Core Ancillary

Budgeting

Police

Parting

Microfilm archives

Courts

Crack Sealing

Garbage Collection

Personnel

service; this service cost the city US$3 million eachyear. Since this activity almost exactly parallels thebilling procedure of our local water utility, weapproached the DPW about taking over the city’ssewer user billing. The water utility made a proposalthat would have saved us 5% annually on our sewerbilling. Not satisfied, we approached other utilities inthe area and asked them to bid with the water utilityto provide our sewer billing. When forced tocompete for the service, the water utility creativelyfound a way to lower its bid by 70%. Last year alone,the city saved more than US$3.5 million on the costof billing its sewer users.

There are enough government services in QuadrantIV that any level of government could generatesubstantial savings by simply moving all these servicesinto marketplace.

Q u a d r a n t I I I : C o r e , I m p l e m e n t a t i o n

Activities in Quadrant III are also good candidates formoving to the marketplace. However, because theseactivities are closer to core services of government,government may actually be able to provide them ata cheaper rate than the private sector. Therefore,Quadrant III services provide the best opportunitiesfor public employees to win contracts. It is alsoprobable that if Quadrant III activities are bidcompetitively, private sector companies will developcompetencies in these activities and either capturecontracts or stimulate improved service by publicsector providers.

Garbage collection is a Quadrant III activity becauseit is one of the core services of most municipalgovernments; but the actual picking up of refuse doesnot involve policy decisions. In Indianapolis, theDPW used to collect garbage through a patchworksystem that divided the city into 25 districts, whichwere serviced by DPW’s in-house crews and fourprivate hauliers. DPW had franchise agreements withthe various refuse collectors that gave each amonopoly in its service area. Not surprisingly,hauliers’ prices increased every year.

When the time came to renew hauler contracts in1993, we opted instead to reconfigure the servicedistricts and compete them out. After reducing thenumber of districts from 25 to 11, we guaranteedDPW at least one district to ensure that the cityretained the capacity to collect refuse in case problemsarose. We also limited private collectors to amaximum of three districts to prevent monopolisticsituations and predatory pricing

Empowered and cost-conscious DPW employeesfound ways to provide more service for less moneyand won the maximum three districts in the process.

Competing out garbage collection resulted in morethan US$15 million in savings over the followingthree years.

Q u a d r a n t I I : A n c i l l a r y , P o l i c y

Our experience is that most of the activities inQuadrant II are carried out by the Department ofAdministration. Decisions about personnel policiesand budgeting are several steps removed from theprovision of core government services, but involvereasonably important policy decisions.

Q u a d r a n t I : C o r e , P o l i c y

Quadrant I includes services and activities that couldbe considered both “core” and “policy” – such aszoning, police and fire protection and the courts.These activities will probably be the last that anentrepreneurial government examines in its efforts tomove services into the marketplace.

A c t i v i t y - B a s e d C o s t i n g

Regardless of the service being considered forcompetition, governments must possess a thoroughunderstanding of the costs associated with its existingoperations in order to move services into themarketplace. But while private companies must keepa close eye on costs at all times, government tends tomonitor only expenditures. While this may seem asubtle distinction, it is a critical one. A carmanufacturer, for example, would not stay in businesslong if managers knew only how much they spentmaking cars, without knowing how much it cost tomanufacture a single car. Yet for all levels ofgovernment, this tends to be standard procedure.

When I took office in January of 1992, no one in citygovernment could tell me the cost of filling apothole, paving a street, planting a tree or collectingrefuse. If we were simply interested in privatisation,this might not have been such a significant problem.However, our interest is in marketisation, and anyreasonable evaluation of competitive bids requires usto know how much a given activity costs us toperform in-house.

In the spring of 1992, we hired KPMG PeatMarwick to lead a process called activity-basedcosting (ABC). For every identifiable activity ofgovernment, ABC would determine the cost ofeverything that went into producing that activity.The process used private sector definitions ofdepreciation and loaded in all the costs of idleequipment, building space and other fixed costs.

One of the first services that was subjected to theactivity-based costing process was the Department of88



Transportation’s (DOT’s) snow ploughing operation.The results provided a good example of how the simpleact of measuring costs can, by itself, improve the qualityof service. We divided the snow ploughing groups intoregions and then analysed the costs of each activityassociated with ploughing snow. First, the consultantsexamined all of the equipment used; then all of thematerials; then all of the labour for every mile of snowploughed. Managers discovered that the cost ofploughing snow varied wildly from region to region.The labour cost of ploughing a mile of snow wasUS$39.90 per mile in the central region, but onlyUS$13.20 in the south-east region. The cost ofmaterials varied from US$48.97 in the south-westregion to US$9.25 in the north-east region. Total costfor ploughing one mile of snow ranged fromUS$117.59 in the south-west region to US$39.96 inthe south-east.

It may be that differences in topography, road layout ormiscellaneous other factors contributed to some of thedifference in cost between regions; but it was clear thatthey could not account for such a huge discrepancy. Byexamining the numbers and applying the bestmanagement practice in each region to all the regions,we were able to improve the mix of equipment,resources and training in each location.

As this example shows, there are benefits to thecosting process wholly independent of competition.Because every dime of government spending isallocated to some outcome, managers scramble toreduce waste and overhead.

Although we did not compete out Indianapolis’ snowploughing operations, we did compete out more than70 other city services, none of which would havebeen possible without activity-based costing. Usingprivate sector rules for our accounting allowed cityworkers and managers to prepare legitimate internalbids and provided us with a meaningful standardagainst which to compare private proposals.

Max im i s i n g V a l u e

Simply saving money is not enough. Governmentmust respond to customer preferences and maximisevalue from every tax dollar it spends. Towards thisend, measuring and rewarding performance becameindispensable, requiring officials to pay close attentionto what government actually produces rather thansimply the amount of money it spends on a givenservice. This task is complicated by the previouslymentioned vertical integration of government, whichmakes it difficult for managers to distinguish betweenoutcomes and outputs.

For example, everyone expects the police departmentto make the city safer – an outcome. Yet somehow this

led the Indianapolis Police Department to operate afull-service print shop that prints the department’s owntickets and arrest warrants – an output. Everyoneexpects the DPW to dispose of sewage in a way thatenhances water quality – an outcome. Yet somehowthis led Indianapolis to spend tens of thousands ofdollars assembling a television studio just to maketraining tapes – an output.

Distinguishing outcomes from outputs can beextremely difficult. Early in my administration, at ameeting of the city’s department directors, I expressedmy frustration at our progress in being able to measureour performance. I told the director of the DOT thatI wanted to know exactly how many potholes hiscrews filled in a week. “I thought you wanted tomeasure performance,” he replied. “You shouldn’tcare how many potholes my department fills. Youshould care how smooth the roads are. How do youknow we’re not doing such a poor job filling potholesthat we have to go back out and redo them later?” Hewas right – smooth roads are the outcome; fillingpotholes is the output.

Because government simply confiscates dollars ratherthan competing for them, government managers donot get good information about their customers’needs and wants. Therefore, government must inventprocesses to determine preferences, includingneighbourhood forums, focus groups and publicopinion surveys. In contrast, in the privatemarketplace, it is a relatively straightforward task todetermine what outcomes people desire: follow theirdollars. Do they spend their earnings on vacations, amortgage or their children? Marketplace activitydemonstrates what outcomes people value and howmuch they are willing to pay to produce them.

In Indianapolis, our goal is to produce added value forour citizens. It is therefore our responsibility to shiftresources toward activities that produce desiredoutcomes for citizens. Whenever we produce more ofa desired outcome without increasing cost, or producethe same outcome at a lower cost, we add value forour customers. If we cannot produce a dollar’s worthof outcome for every dollar’s worth of governmentspending, then we must not spend the dollar. For ourmanagers, this equation is the bottom line.

An example from my days as a prosecuting attorneyillustrates the point of the value equation. Havingdetermined that making an arrest for domesticviolence made the recurrence of violent activity lesslikely, we set up an enhanced prosecution effort and devoted substantial resources to it. Eventually, a researcher asked what should have been an obvious question: “Does the additional sanction ofprosecution over and above the initial arrest furtherreduce the recurrence of violence?” 89

We soon discovered the answer in most cases was“no”. We were devoting substantial resources todoing very effectively something that did not producethe outcome most desired by citizens – a reduction indomestic violence. Clearly that does not mean weshould not fully prosecute and seek convictions forthose who commit domestic violence. But if ourdesired outcome is to decrease domestic violence, andif we have limited financial resources, then we shouldknow how to focus our resources on achieving thedesired outcome.

Only by identifying a clear and specific set ofoutcomes can managers truly begin to maximisevalue. Of course, measuring and pricing theseoutcomes is useful only insofar as managers are willingto act on that knowledge to improve service delivery.Government bureaucracies are notoriously rigid, andit takes powerful incentives to motivate governmentemployees to break with traditional practices andimplement creative solutions.

Compe t i t i o n i s K e y

It is competition that causes managers to take theactivity-based costing process seriously and use thenew information at their disposal to make prudentchoices about service delivery.

When we announced that we were going to openup a part of our DOT’s crack-sealing operation forcompetitive bid, the drivers’ union made thelegitimate point that if we wanted them to competefor the bid, we had to free them from all theunnecessary overhead that was loaded into theirbudget. It turned out that, in this particular division,there were 32 managers supervising 94 workers.This was not a good ratio by anybody’s standards, sowe complied with the union’s request andeliminated 14 of the 32 managers. Armed withgreater decision-making authority, front lineworkers found creative ways to improve efficiencydramatically. For example, union workersdetermined they did not really require eight menworking with two trucks to seal cracks. Byremoving a certain piece of equipment from thesecond truck and adding it to the first, the DOTcould seal cracks with one truck and five workers.The union bid for the job, and won. When askedabout the competitive process afterwards, one of theDOT workers said, “It was like going from darknessinto daylight.”

The DOT example taught us that if we are seriousabout allowing public employees to compete forcontracts, it is our duty to free them from as muchunnecessary bureaucracy and cost as possible. Toencourage city workers to seek out unnecessary costs,I established a “Golden Garbage Award”, to be given

on a regular basis to city employees who findegregious examples of government waste.

The December 1992 winner of the Golden GarbageAward was a manager at the city’s AdvancedWastewater Treatment (AWT) plant. Several yearsago, the DPW set up a full-service television studioto make training tapes for new AWT employees. Atthe press conference announcing that we would getrid of this equipment, the manager was asked why hehad identified the studio as government waste. Themanager answered: “We aren’t in the business ofvideo production. We’re in the business of trainingemployees. Eventually, we will be asked to competeagainst private sector providers of training services,and all of this equipment – and the cost of this wastedsquare footage – will be loaded into my overhead. IfI’m going to compete, I need to get rid of all this.”He answered exactly the way an efficientgovernment manager should.

Con c l u s i o n

In addition to getting more value for tax dollars,properly structured marketisation can also providebusiness opportunities for citizens, especially minorityand women business owners and enterprisingresidents of poorer urban neighbourhoods. Forexample, contracts with private companies canrequire vendors to use their best efforts to do businesswith minority and women-owned enterprises. InIndianapolis, many vendors exceed the targetedparticipation levels specified in their contracts andsurpassed the city’s previous commitment to thesebusinesses – not as set-asides, but through market-driven, value-added decision-making.

Likewise, competing out city services can offer realbusiness opportunities for residents of poorneighbourhoods. In the current system, we tax peoplein poor neighbourhoods, accumulate their limitedwealth and then use that wealth to hire a worker fromoutside their neighbourhood – a parks departmentworker from a middle-class neighbourhood, forexample – to come in and provide a service that theneighbourhood may not want in the first place. Bycompeting out the delivery of services, municipalgovernments can provide opportunities forneighbourhood-level business development, asneighbourhood groups can bid to perform their ownservices and use the revenue stream to leverage otherpossible business opportunities.

Perhaps most importantly, to the extent thatmarketisation reduces the size and cost ofgovernment, it leaves more money for families tospend on themselves. Moving services into themarketplace can be the fairest, most populist way toapproach city services. ■90


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92

Luiz Paulo Fernandez Conde ismayor of the city of Rio de

Janeiro. He is also President of theIbero-American Center for StrategicUrban Development. He has been

President of the Institute ofBrazilian Architects, Rio; Director ofthe Faculty of Architecture and CityPlanning of the Federal University

of Rio de Janeiro; and CityPlanning Secretary of the

Municipality of Rio de Janeiro. MrConde, an architect and city

planner by profession, is a graduateof the National Faculty of

Architecture at the University of Brazil.

a report by

L u i z P a u l o F e r n a nd e z C o nd e

Mayor, City of Rio de Janiero

Competitiveness, integration and attractiveness havebecome terms often used as attributes in discussionon the ideal structuring for urban spaces – within ascenario marked by permanent transformations.

Recently, in the international seminar ‘Cities in theThird Millennium - Competitive Integration’,which was held in Rio de Janeiro, this theme wasthe subject of stimulating debates. The eventenjoyed the participation of Professor Saskia Sassen,who addressed the role of the cities and, inparticular, the major metropolises, within theprocess of globalisation. She holds that, contrary toforecasts, cities tend to increase their importancethrough worldwide integration and the facility ofcommunications. She stressed, furthermore, that“the key process from the perspective of the urbaneconomy is the growing demand for services byfirms in all industries and the fact that cities arepreferred production sites for such services, whetherat the global, national or regional level.”1

Globalisation and the technologies available to theinformation society2 create the impression of thedispersion of reality – the location no longerimportant, due to the easy access, in both form andtime, required for everything. Apparently, thereexists a perception that companies are leaving thecities, when in actual fact they are opening up spacesfor new activities, for new and better-qualifiedservices. The cities become more sophisticated andnew opportunities abound.

The challenge lies in how to take advantage ofthose opportunities without succumbing to thedangers. The worst-case scenario is that of citieswhich do not know how to anticipate the risks andare thus unable to seize what opportunities arepresented to them.

Cities must have their own vision of the model theywant for themselves – a model which has thebroadest social consensus across the whole city.

Humanised development must be achieved, takinginto account the democratisation of knowledge,minimising the social cost of change.

It is quite clear that there exists, and will continue toexist, growing competition among cities, regionsand countries, in which there will be winners andlosers. If the process is not properly managed, socialcosts, such as unemployment, social exclusion andcollective impoverishment, will become a reality, inboth the winning and losing cities.

For the public administrator, the outcome of thisprocess of transformation only makes sense if directedtowards the interest of the citizens. A competitive cityis, first and foremost, one with quality of life. Thereinlies the essence of what economists denominate“comparative advantages”, present in the struggle formarkets and investment-allocation decisions.

Today, we can no longer ignore the evidence that itis up to the cities to determine the greater or lesserdegree of countries’ competitiveness, in the currentscenario made up of market blocks.

With globalisation, cities will undergo furtherchange, as they cease to compete on the grounds oflow-cost production and move on to an economybased on knowledge and know-how. This must bethe basis for the creation of wealth, employment andsocial cohesion.

The future will decree that local governments nolonger be seen as a mere bureaucratic institution forhandling administrative affairs. In fact, they will act

Rio de Jane i ro – Towards Compet i t i venes s


1. Professor Saskia Sassen, University of Chicago, Cities in the Global Economy, basic text presented in the Seminar Citiesin the ‘Third Millennium – Competitive Integration’, Rio de Janeiro, January 1999.

2. Article by Professor Roger Stough of the George Mason University – Effect of Information Technology Innovations onMetropolitan Regions, analyses the impact of the spread of new technologies on the expansion of metropolises. Throughnetworks it is possible to substitute communication for trips and face-to-face meetings through telecommuting, telepurchasingand telemedicine. Advanced logistical and intelligent systems make it possible to increase the productivity of the traditionaltransportation infrastructure, thus reducing congestion and increasing mobility.

Rio de Jane i ro – Towards Compet i t i venes s

as institutions that promote and take on anevermore active role in the groundwork for“putting the city on the map”. It is new andchallenging behaviour.

If the world faces up to the irreversible challenge ofintegration, we have before us the mission ofconstructing channels which allow not only easiercommercial and financial interchanges but also thecirculation of ideas, dialogue, strategic planning andthe essential exchange of experiences.

It is with this vision that the city of Rio de Janeirohas been preparing for competitive integration.

Recently, Brazil has been in the world’s headlines,due to the exchange crisis triggered by aspeculative attack on its currency. In the latestWorld Economic Forum in Davos, thevulnerability of economies was the focal point ofthe meeting, with the recognition that: “In thenew global economy, no country can beconsidered immune, even those that are not yetfully integrated suffer the secondary effects ofdeclining commodity prices and the perception ofincreased emerging risk.”3 Naturally, we wouldrather see our country appearing in the media inother ways. However, in the comments on thecrisis, the world became aware of Brazil: the eighthlargest economy, with a modern and competitiveindustrial base in several of its segments, plus anenviable potential for growth.

Rio de Janeiro is the second city in Brazil, fourth inLatin America and twentieth largest conurbation inthe world, including its metropolitan region.

With a GDP of US$51 billion, it carries considerableeconomic weight, comparable to several countries.

Some 80% of Rio de Janeiro’s business is in thetertiary sector, although it also possesses a solidindustrial base, made up especially of plants in thesectors of beverages, pharmaceuticals, chemicals andpetrochemicals.4

The city’s financial market is the second mostimportant in Brazil.

Along with the city of São Paulo, 219 miles to thesouth, it makes up an important axis ofdevelopment5 which is taking on ever morecomplementary features.

Rio de Janeiro is home to large private corporationsand important public-sector organisations, notablythe National Economic and Social DevelopmentBank (BNDES), and PETROBRAS (PetróleoBrasileiro S.A.)6

We have South America’s largest technological base,housing the country’s most advanced researchcentres, 11 universities, and 62 research anddevelopment institutions, bringing together 6,500graduates at Master’s and Doctorate level, in themost varied areas of science.

As a consequence, we answer for a sizeable portionof Brazilian knowledge-intensive companies, such asthe nuclear industry and software production – thislatter, responsible for 40% of Brazilian production,involving 4,000 companies. In 1998, the RiosoftProgram inaugurated the Rio-Boston Software

93

3. New Thinking for a New Global Economy, David Morrison, Director 1999 Annual Meeting World Economic Forum, Davos.4. Rio is the capital of Brazil’s petroleum industry. As the country opens up economically, and given the proximity to the

largest oil field, the Campos Basin, responsible for 70% of Brazilian output, the city has been attracting major foreigncorporations that are locating their headquarters in Rio. Recently, 80 of these companies have opened offices in the city.

5. Together, the macro-regions of Rio de Janeiro and São Paulo amount to over 27 million persons, responsible for some 40%of Brazil’s production – US$300 billion. Along the macro-axis formed by the cities, important projects are appearing, suchas the metal-mechanical pole in Porto Real, based on the VW and Peugeot facilities, and the hub port of Sepetiba, the largestin South America.

6. From a universe of the 20 largest state-controlled corporations and 20 largest Brazilian private-sector companies, 15 have theirheadquarters in Rio de Janeiro, responsible for a turnover exceeding US$77 billion.

The 21st century will find a new society, based on new models

of organisation and new values.

Connection, to promote Rio in the second largestinformatics pole in the US.

Also to be noted is the fact that the averageschooling of our economically active population is7.9 years, the highest reached among Brazil’smetropolitan regions.

Projects such as the Teleport7, the Port of Sepetiba8,the expansion of the Antônio Carlos JobimInternational Airport, the privatisations andupgrades of federal highways and the rail andsubway systems, the conclusion of the LinhaAmarela urban highway – the largest road-buildingproject carried out in the city in the last twodecades – and major investments intelecommunications amount to a new dimensionfor Rio de Janiero’s logistical infrastructure system.

No less important for the image of the city are theprojects for the revitalisation of the Historic Centerand the emblematic Favela-Bairro9 project, which hasintegrated to the urban fabric a part of the populationhitherto segregated both physically and socially.

Tourism is expanding10 now in a more organisedmanner as a result of the project especially conceivedto enhance this natural vocation. The slogan“Incomparable Rio” synthesises the message of thecity’s new image.

Hotel occupancy is reaching unprecedented levels.In 1997, all this effervescence was confirmed by theInternational Congress and Convention Association,which indicated Rio as the city which attracted mostevents in the Americas.

Rio has also hosted international meetings on alarge scale, such as the ECO 1992 Summit,sporting events such as Formula Indy, besides the

Carnival and New Year’s Eve on its beaches. NextJune, we shall be hosting what will be the largestsummit meeting of heads of state in this close of thecentury. The Summit Meeting of Latin America,the Caribbean and European Union will bring toour city over 50 heads of state and diplomaticdelegations.

The formulation of this vision of the future is due,in part, to our initiative in drawing up the StrategicPlan for the City of Rio de Janeiro.11 Now in itsfourth year of implementation, it is considered alandmark for others which have followed it.

This initiative, in 1997, led to the incorporation ofthe Development Agency of the City of Rio deJaneiro – Agência Rio, which has contributed to theprocess of attracting investments and integratingpublic and private interests.

A recent survey by Arthur Andersen International,in partnership with Fortune magazine, 1998 BestCities for Business, highlighted Rio de Janeiro as thebest city for investment in Brazil, and the fourth bestin Latin America12 – confirming that our actions areset at the right pace.

This has been a century of great dreams and mighty utopias. The 21st century will find a newsociety, based on new models of organisation andnew values. The future can no longer be seen as anoutgrowth of the past, as transformations will occurin all their magnitude, creating insecurity,eliminating paradigms and opening up a wide rangeof challenges.

The competitive city will be, first and foremost,one of harmony with social, economic and culturalintegration. It will be a vibrant and welcoming city. ■

94


7. The Teleport offers a full-strength telecommunications infrastructure, with highly reliable services, dedicated 24 hours perday to the transmission and reception of voice, data and images, with free access to international networks, and autonomyfrom the local network. In 1998 it was chosen by the World Teleport Association, as the Best Developing Teleport of theYear.

8. The Port of Sepetiba, located to the south of Rio de Janeiro, unites the ideal conditions to become a cargo-concentrating portfor the whole of the Mercosur (Hub Port), with potential to handle six million TEU’s.

9. The concept of Favela-Bairro is that of broadening access for the considerable part of the population formerly deprived ofsanitation infrastructure, transportation and public services. The project receives financial support from the InteramericanDevelopment Bank (IDB), and has so far benefited over 300,000 persons. In 1997, thanks to the results obtained, it wasplaced on the list of Best Practices Projects, by UNO Habitat.

10.In 1994, the flow of foreign tourists was 671,000 visitors, whilst in 1998 it had already surpassed 1.3 million, with forecastsof two million for the year 2000.

11.The Strategic Plan got under way in 1993, through public/private sector co-operation. Rio de Janeiro became the first city inthe Southern hemisphere to undertake a project of strategic planning, in this regard joining others such as San Francisco, NewYork, Rotterdam, Lille, Lisbon and Barcelona.

12.The work was based on a poll carried out with over 1,200 executives all over the world, who appraised the cities, besidesanalysis of information from the cities themselves, addressing themes such as business environment, labour force andquality of life.

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96

a report by

Quamru l I s l am S i d d i q u e , A B M A s h r a f u l A l am , Moh i b b u r R a hman , Am i n u r R a hman and Ha s i n J a h a n

Local Government Engineering Department, Ministry of Local Government,

Rural Development & Cooperatives, Bangladesh

C a s e S t u d y

O b j e c t i v e s

The basic objective of this study is to highlight some ofthe innovative socio-economic programmesimplemented for urban slum dwellers under the SlumImprovement Project (SIP) of the Local GovernmentEngineering Department (LGED) in Dhaka, and thelessons learned from them. Specific objectives are toassess various aspects of the project’s activities, including:

• the physical and social infrastructure activities;

• the abilities of the infrastructure to meet basichuman needs;

• the capacities of basic and socio-economicservices to improve the overall living conditionsof slum dwellers;

• the impacts of such programmes on the commonconditions of poverty;

• the innovative policies, approaches, practices andlessons regarding resource mobilisation; and

• the effectiveness and sustainability of cost-recovery techniques.

B a c k g r o u n d o f t h e S t u d y

This SIP was the first successful model for slumupgrading in urban Bangladesh. It was designed in1985 to improve the quality of life for slum dwellersby mobilising community resources and improvingtheir access to government resources.

The SIP accomplished a major breakthrough inproviding a basic physical infrastructure system to theurban poor. The underlying philosophy of the projectwas to establish an integrated economic, social andphysical development programme in urban slumsthrough community organisation and the provision ofloans for income generation. Other activities, such ashealth, education, sanitation and environmentalimprovements have been planned alongside the credit

operation. Physical and human development areviewed as interdependent, insofar as the sustainabilityof physical development is contingent upon thesuccess of human development.

This case study, therefore, is based on experiences inDhaka, since slum problems here are, as in othermega-cities in developing countries, particularly acute.It is for the overall benefit of policy planners andconcerned professionals that case studies areundertaken, in order to discern the inherentcapabilities of the model so that it can be developed asa sustained, cost-effective and replicable model. Thisstudy should be of equal benefit to policy planners,professionals and practitioners, in discerning methodsand means to solve common problems in slums.

P u r p o s e s o f t h e S t u d y

This study attempts to analyse the operational issues andproblems relating to slum improvement interventionsin mega-cities. The purpose of the study is four-fold:

1. the context within which the interventions weremade are established;

2. a description of the interventions, the successesachieved and the problems and constraintsencountered, are presented;

3. the lessons learned from the experience arediscussed; and

4. the policy and management issues are identified.

The analysis provides a detailed description of the SIPin its origin and growth, approach, technologiesadopted, institutional arrangements, costs andfinancing and its achievements. The achievements arediscussed in terms of government progress towards asustainable, cost-effective and replicable slumimprovement programme.

C a s e S t u d y C o v e r a g e a n d S c o p e

The study covers 18 slums within the DhakaMetropolitan City (DMA), where improvement

S lum Improvement Pro jec t in Dhaka Metropo l i tan C i ty

ASIAN PERSPECTIVE

Quamrul Islam Siddique, a policyplanner, innovator and practitioner

of rural and urban developmentinterventions with 30 years'experience, is currently Chief

Engineer of the Local GovernmentEngineering Department (LGED),

Government of the Peoples Republicof Bangladesh.

A B M Ashraful Alam, a professionalengineer, with 15 years' experience

in infrastructure development projectsunder the LGED, has been

responsible for implementing,supervising and monitoringenvironmental and urban

infrastructure development projectsfor five years.

Mohibbur Rahman, an academic withmore than 25 years' experience in

training, research and projectactivities in various rural and urbandevelopment interventions, has beena BME specialist with an LGED/AsianDevelopment Bank project for three

years.

Aminur Rahman, an architect/plannerwith over six years' experience in

the field of physical planningdevelopment of human settlements,has been employed as a physical

planner (both urban and rural) withan LGED/Sida project since

mid-1996.

Hasin Jahan, a technology specialiston a World Bank project for one

year, has four years’ experience inthe field of urban development with

environmental and gender issues.


activities have been under implementation by theLGED since 1991. The basic information on slums,slum populations, sex ratios, numbers of families andcoverage under these activities was taken from the1996 review of the SIP for the Urban PovertyReduction Project (UPRP), commissioned by theAsian Development Bank (ADB) and LGED.

M e t h o d o l o g i e s o f t h e S t u d y

Design formulation – In order to arrive at soundmethodologies, major considerations focused onrelevance, reliability, accuracy and costeffectiveness, among other factors. Themethodology was therefore developed based onrecent studies and field observations. The studiesconsulted were primarily sources from the LGED,ADB and World Bank and included printedreports, documents, guidelines and manuals on theproject components, as well as quarterly reports on

the various slum activities as secondary data.Primary observations by the study team membersfocused on: group discussions; rapid andparticipatory appraisals with slum dwellers;discussions with project management and staff,professionals and practitioners in the field; and anIndependent Household Survey (IHS) to assess theperceptions and opinions of the beneficiariesregarding project interventions.

Independent household survey – The methodology forthis survey focused on specific criteria, so that unbiasedopinions were polled through a set of simple,objective and relevant questionnaires. It wasrealistically developed and based on standard methods,including physical infrastructure interventions, socialand service infrastructure facilities, economic activities,efforts on cost recovery and the participation ofbeneficiaries in the slum projects.

Sample size and sampling – The survey covered thepopulations of all 18 slums under the SIP in Dhaka,in which there are over 6,000 households. A 10%sampling was done in each of the 18 slums.

Whilst the UPRP-Centre for Urban Studies (CUS)survey proved useful to the establishment of broaderdemographic and socio-economic patterns and

planning purposes, both the focus-group interviewsand the IHS also generated useful insights intocommunity dynamics, demographic data, incomeand expenditure patterns etc.

The sampling was based on coverage of the totalslum area, representing all the occupational groups inthe slums, with more weight given to the dominantoccupational groups. The representation of womenin the survey was 50%.

The questionnaire was developed in accordance withthe objectives of the study, and was pre-tested.

Orientation and training of the survey team – The surveyteam consisted of 10 surveyors, and two supervisorswere entrusted with the responsibility of conductingthe survey. They were provided with an orientation/training session on the methodology of the IHS andthe administration of the survey in the field.

Focus group discussions – Five focus group discussionswere arranged, with slums grouped for rapid andparticipatory appraisal. Specific questions were raisedand discussed in these appraisals concerning theactivities, the participation of slum dwellers in theactivities, efforts towards sustaining project activitiesand resource recovery efforts. In addition, problemsand suggestions for improvements were given by theslum dwellers.

Organisation of data collection – Each survey teammember was allotted 55–70 sets of questionnaires,where each set consisted of a separate questionnairefor all of the components. There were seven femaleand three male surveyors in the team. The twosupervisors, together with the team members, visitedthe survey areas to observe the work first-hand andsort out any problems in the field. The survey wasconducted in April 1997.

Ma j o r F i n d i n g s o f t h e C a s e S t u d y

P h y s i c a l C o n d i t i o n a n d E n v i r o n m e n t

The upgrading of physical infrastructure includedthe development of footpaths and drains and theinstallation of tube wells, latrines, street lighting 97

[This SIP] was designed in 1985 to improve the quality of life for

slum dwellers by mobilising community resources and improving

their access to government resources.

and dustbins. These facilities obviously have adirect impact on the general improvement of theslum environment. They have also indirectlyimproved the health conditions of the poor andtheir quality of life. However, it was observed inthe field that the improvements are not equalwithin all SIP slums, and that maintenance,especially of drains and refuse, seems to be poorerin some places (for example, in Khilgaon).Sometimes, physical components do not respond tothe characteristics of the local land terrain and,consequently, water-logging and overflow ofdrains and sewers can be caused. For example, inBauniabad (Mirpur) and Wari, the overall physicaland drainage conditions seem to be quitesatisfactory, while in Lalbag, four out of five slumsremain in poor condition due to water-logging inthe wet season and overflowing drains andsewerage in almost all seasons. Khilgaon Bagichaand City Pally also have water-logging problems.Therefore, it is suggested that the operatingprocedures for the SIP regarding physicalimprovements should be more flexible and shouldrecognise local people’s needs and the peculiaritiesof individual sites. In addition, low-cost andlabour-intensive technologies should beencouraged so that the slum dwellers canparticipate in construction work and thereby affordthe cost of development more easily. To make thiscomponent more effective, a government “food forwork” programme may also be implemented.Moreover, innovative strategies are needed toensure long-term and sustainable maintenance forthe physical infrastructure.

A common feature found in almost all SIP slums(bastees) is the malfunction of drains due to blockagescaused by careless disposal of solid waste into house-side drains instead of the provided garbage bins. Thisis a very common practice found in almost all poorresidential areas, market places and other congestedareas, but it is severely obstructing the properimprovement of physical and environmentalconditions in these areas, and causing health hazardsaround the city. Slums and squatter settlements, inparticular, are consistently marked by poor living andenvironmental conditions, and by limited access tobasic services through official sources.

Environmental improvement in slum areas dependsgreatly on the improvement of latrine facilities. TheSIP has had success in providing sanitary latrines, butin some cases, due to their poor socio-economicbackground, slum dwellers showed limited interestin upgrading this particular utility. For many poorfamilies, latrine prices, although subsidised, remainhigh. To overcome this situation, a latrine subsidyshould be flexibly implemented and dependent onthe incomes of the beneficiaries.

Most slums are more seriously threatened bynatural calamities, heavy rainfall and subsequentflooding, epidemics and eviction than non-slumhouseholds. Women, in particular, face specialdifficulties, as victims of violence and sexual abuseby mastaans (touts) and others. Hence, socialmobilisation, leadership training for people’sorganisations and possible linkages betweenwomen and existing legal aid-related institutionsneed to be emphasised.

I n c o m e a n d E x p e n d i t u r e P a t t e r n s

With limited scope, the IHS (covering 18 slums inDhaka) generated some interesting insights into theincome and expenditure patterns of male andfemale-headed households. The incomes andexpenditures of slum dwellers, from the IHS, areshown in Tables 1 and 2, which show that thepredominant range of monthly incomes is betweenTk1,000 and Tk3,000, which constitutes 74% ofthe total sample of households. Only about 13% ofrespondents have incomes above Tk3,500 permonth, and again, about 74% of families spendbetween Tk1,000 and Tk3,000 per month. Thisimplies that the lowest income group (74%) exhaustall of their earnings just on surviving in the city.

From the IHS, it has been found that, overall, slumdwellers spend 50% to 60% of their incomes on food.The second highest monthly expenditure is forhousing purposes, which represents between 15%and 18% of their total earnings.

A g e S t r u c t u r e a n d L a b o u r F o r c e

P a r t i c i p a t i o n R a t e

The compositions of sample slums are marked bythe predominance of children (44%) in the overallpopulations, and a higher dependency ratio ofabout 70%. The higher dependency ratio indicatesan overwhelmingly large base of active-agepopulation (54.5%). Subsequently, poorerhouseholds are characterised by a higher labourforce participation rate than less poor households.About two-thirds of men and all working womenare engaged in low or no-skilled, low-paid jobs.The different occupational statuses of males andfemales is shown in Table 3.

The average monthly wage for female workers(Tk1,050) is less than half that of male workers(Tk2,150). The occupational history of theworking population reveals that with increases inage, both men and women tend to change frommore energy-consuming work (for example,rickshaw pulling, construction work, factory work,etc.) to relatively less energy-consuming work(such as petty trading, housemaid work, etc.).98


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However, this horizontal mobility does notnecessarily ensure greater income.

L e v e l o f E d u c a t i o n a n d S k i l l s

The results of the IHS regarding the educationallevels of the respondents are indicated in Table 4.Education has been categorised into nine levels. Thefirst group consists of those who can neither read norwrite (more than 40% of the slum population), andabout 9% are able to sign their names only.

T e c h n o l o g i e s A d o p t e d

Technologies introduced in the project were simpleand had already been widely used elsewhere inBangladesh. They included hand-pump tube wells,water-sealed pit sanitary latrines, masonry bins forrefuse disposal, surface drains and footpaths. Publiclatrines-cum-bio-gas-plants proved very successful inimproving the sanitation situation, and also providedsome respite to energy conservation. Choices oftechnology were made by the project designers, basedon their own perceptions and discussions with thecommunities regarding what best suited their needs.Options were determined by the budgetary constraintsof the project and the availability of the technology.

For water supply, suction hand pumps were used,which can extract water from a depth of sevenmetres underground. In low water table areas, Tarapumps were used, which can lift water from a depthof 15 metres. This technology worked better insmaller urban centres than in Dhaka where thepopulation density and the depth of the water table

are both high. In Dhaka, women generally preferredto have piped water connections. The LGED tried tomediate the provision of this service from the WaterSupply and Sewerage Authority (WASA) in Dhaka,but faced problems with the legal ownership of theholdings occupied by the slum residents. Apparently,WASA connections are made only in holdingsoccupied by the slum residents and only in the nameof the legal owners of a land holding. Despite theserules, there are numerous illegal water connections inneighbourhoods where slum residents pay muchmore than the amount charged by WASA for regularhouse connections. These connections are operatedby middlemen, who have managed to obtain themon payment of an illegal service charge.

For solid waste disposal, dustbins were constructedby the project. One large masonry bin was allottedper 100 families at a cost of Tk1,800. Also providedwere: one corrugated iron dustbin for 20 families ata cost of Tk930, where users contribute Tk2 each;and one pushcart to carry refuse from the dustbins tothe masonry bin. Refuse from homes is carried to thedustbins mainly by women and children. Somemodifications in the designs were made to cater forlocal needs and for problems of waste scattering dueto birds and animals.

S o c i a l M o b i l i s a t i o n a n d C o m m u n i t y

P a r t i c i p a t i o n

The SIP is basically a package programme for thesocial, economic and physical improvement of thecommunity. Success in these fields of actiondepends largely on social mobilisation efforts.Raising health and education awareness andmobilising resources for socio-economicempowerment and physical improvement bothrequire regular interactions (for example, meetingsand discussions) among different groups of people(such as Community Health Workers (CHWs),credit groups, Sub-project ImplementationCommittees (SPICs), Community Organisers(COs), Project Implementation Committees(PICs) and a wide range of community people).To accomplish the organisational work, COs playa vital role: they are the main links between thecommunities and the project officials. All physicaland social service components of the SIP arechannelled through the COs. At the communitylevel, SPICs, CHWs and credit groups dependgreatly on the COs. It has been generally observedin the field that, considering their poor socio-economic background and low level of trainingand experience, the performance of the COs inorganising slum communities has beenappreciable. However, project officials at thepolicy level sometimes do not want to recognisethe central role played by COs. Their status in the100


Table 1: Income Levels of Slum Dwellers

Sl. No. Monthly Income Number of Households Percentage

1 < 1000 20 3.91

2 1,000–1,500 94 18.36

3 1,501–2,000 82 16.02

4 2,001–2,500 114 22.27

5 2,501–3,000 89 17.38

6 3,001–3,500 48 9.38

7 > 3,500 65 12.70

Source: IHS, LGED, 1997.

Note: Incomes expressed in Tk (US$1 = Tk43).

Table 2: Expenditure Levels of Slum Dwellers

Sl. No Monthly Expenditure Number of Households Percentage

1 < 1,000 18 3.41

2 1,000–1,500 96 18.18

3 1,501–2,000 107 20.27

4 2,001–2,500 106 20.08

5 2,501–3,000 92 17.42

6 3,001–3,500 47 8.90

7 > 3,500 62 11.74

Source: Ibid.

Note: Expenditures expressed in Tk (US$1 = Tk43).


project hierarchy is very low and there is no jobsecurity. The participation of beneficiaries in theproject activities can be delineated according toeight distinct categories:

1. community group formation – introduction tothe community, IHS and base line surveys, groupformation and group meetings;

2. slum improvement committees – formation ofcommittees, selection of a chairman and vice-chairman from the community, participation inmeetings, dissemination of training informationand representation to higher committees;

3. selection of CHWs from the community;

4. selection of teachers (preferably from thecommunity);

5 selection of group leaders;

6 savings activities, such as the establishment ofsavings targets for all group members, openingaccounts in commercial banks and monitoringsavings activities;

7. income-generating loan activities – selection ofloanees, preparation of budgets and finalisation ofthe list of loanees to ensure full loan recovery(with a service charge); and

8. infrastructure development activities – selection ofschemes for each component, establishment ofimplementation processes and liquidation ofadvances.

S u s t a i n a b i l i t y

Guidelines for the SIP identify certain steps topromote sustainability. The revolving fund for thepayment of COs’ salaries, however, has not yet beenfully developed, although arrangements were madewith UNICEF to support the COs’ positions foranother five years. Arrangements for the utilisation ofthe welfare fund by project authorities are in practicein some slums. Regarding land tenure, it wasobserved in the field that tenurial security has aprofound impact on the sustainability of the SIP.

Once tenure becomes more secure, tenants are likelyto pay more attention to improving their slums.Furthermore, the level of sustainability will not be thesame for all components of slum upgrading. Forexample, there is a strong demand for credit, so it ismore sustainable than a savings programme. Similarly,water, electricity and education are higher prioritiesto slum dwellers than dustbins, latrines and drains.The level of sustainability of each SIP componentmay also vary from one slum to another, dependingon the needs of the residents and the topographicaland environmental characteristics of the slum.

C r e d i t , S a v i n g s a n d

R e c o v e r y o f C r e d i t

Of all slum improvement components, the creditfacility appears to be one of the most attractive andsuccessful. Many poor families in SIP slums haveincreased their incomes and earning capacities byinvesting their loans in various profitable fields.

Reasons behind the loans are shown in Table 5,according to which more than 63% of slum dwellerstake loans for small trading activities, from whichthey earn profits.

The recovery of loans was found to be quitesatisfactory. In fact, it is the provision of creditprogrammes which attracts poor families to the SIPfor improvements to their living conditions.However, based on field experience, there arealternative suggestions that can be put forward forfurther improvements to their conditions:

• First, the criteria for selecting a loanee should bebased on both economic and non-economicattributes. To involve a higher number of poorfamilies, preference should be given to low percapita income, female-headed households andunder-privileged or disadvantaged families, such asfamilies with a disabled person and fewer incomeearners. These measures for loan disbursement arevery important, particularly for targeting poorerfamilies who cannot be covered under the existingcredit distribution system.

• Second, the high rate of loan recovery, along withthe ability to pay a high service charge (15% per 101

Once the tenure becomes more secure, tenants are likely to pay

more attention to improving their slums.

annum), indicates that slum dwellers are some ofthe most successful investors. Given this situation,existing loan sizes should be increased to meet thegrowing demand for credit.

• Third, credit management within some SIPslums is not always fair and democratic.Management committees within or outside theslum communities should not select loaneeswho are not in accordance with SIP guidelines.

In parallel to credit, the SIP mobilises savingswithin slum areas. However, unlike credit, only apartial success has been achieved in this sector.Statistics reveal that slum dwellers are willing andable to save more money than the targeted amount.To dispel any doubt about the safety of their hard-earned savings, a strong monitoring capacity withdiligent and efficient management is necessary.

C o s t R e c o v e r y

The SIP did not contemplate any direct cost recoveryfor the operation and maintenance of infrastructurefacilities. It required the beneficiaries to contributeTk500 per tube well and Tk500 per latrine to acommunity fund, to be used to remunerate the CHWsonce the UNICEF assistance ended. In addition, the

SIP expected the community to supply labour towardsother physical improvements. Unfortunately, this planhas been only partially realised.

Generally, one tube well was provided for 10 familiesat a subsidised price of Tk500 (approximatelyUS$12), making the contribution per family Tk50. Insome cases, dysfunctional tube wells were repaired.Here, too, the users contributed Tk500, and whenthe cost of repair was beyond this amount the projectwas subsidised. The users contributed to all of thecosts for the construction of tube well platformsexcept cement, which was supplied by the project.

P e r c e p t i o n s a n d P r e f e r e n c e s o f

S l u m D w e l l e r s

Different categories of men and women in the slumsand squatter settlements perceived different causes fortheir poverty, as was revealed during focus groupinterviews conducted during the survey. The mostcommon perceptions cited included:

• low income or lack of capital; • low levels of education and skills; • poor living and environmental conditions; • high indebtedness; • fewer income-generating family members; and• social factors, such as insecurity, violence,

desertion, polygamy and dowry.

To redress these problems, they suggested thefollowing:

• regular income opportunities; • access to capital and interest-free credit; • education and on-the-job skill development

opportunities; • entitlement to land and shelter; • easier access to water, sanitation, and electricity; and • greater security and stability.

A c h i e v emen t s , Imp a c t s a n dC on s t r a i n t s

M a j o r A c h i e v e m e n t s

The key success factors of the SIP relate to its basis ina multitude of beneficial social initiatives. Theseinclude community participation, a democraticprocess of decision making, community involvementin the development of plans and implementation ofactivities and the positive involvement of electedrepresentatives at every level of implementation.

The overall performance and achievements of theSIP are satisfactory, although the project has coveredonly a very small portion of the total slumpopulation. Nevertheless, the model has proven102


Table 4: Educational Levels of Slum Respondents

Level of Number of Percentage of

Sl. No. Education Households Households

1 Cannot read or write 202 40.97

2 Can read and write 62 12.58

3 Primary up to Class V 118 23.94

4 Up to Class VII 52 10.55

5 Secondary School 6 1.22

6 Higher than Secondary 5 1.01

7 Graduate 5 1.01

8 Masters nil nil

9 Others (able to sign) 43 8.72

Source: Ibid.

Table 3: Occupational Status of Slum Dwellers

Sl. No Occupation Male (%) Female (%)

1 Rickshaw/Van/Pushcart Puller 27.8 –

2 Auto Scooter/Baby Taxi/Tempo Driver 2.6 –

3 Driver of Other Mechanical Vehicle 0.9 –

4 Helper of Mechanised Vehicle 2.7 0.07

5 Vendor/Hawker 3.9 1.7

6 Petty Trader/Shop Keeper 11.2 2.23

7 Night Guard/Cleaner 5.03 1.15

8 Day Labourer 16.22 7.6

9 Garment/Other Factory Worker 5.94 15.76

10 House Maid/Servant 0.78 12.78

11 Other 13.83 10.23

12 Unemployed 6.56 5.84

13 Housewife - 38.51

Source: Ibid.


effective and significant physical, social andeconomic improvements are already evident inparticipating slums. A brief list of majorachievements of the SIP is highlighted below.

Although slum development has long been neglectedin Bangladesh cities, the SIP model made asignificant breakthrough in providing an integratedpackage of basic physical, social and economicinfrastructure facilities for the urban poor. At present,the SIP is the single largest programme providingservice and assistance to thousands of poor urbanhouseholds in the country.

Of all SIP components, the micro-creditprogramme was particularly successful andattractive. Many poor households have increasedtheir incomes using this facility.

Empirical studies show that the SIP has significantlyraised the level of health awareness among slumdwellers. As a result, within SIP slums, the incidence ofenvironmental diseases (such as diarrhoea, respiratoryproblems and scabies) has been reduced substantially.

A notable achievement of the SIP is theempowerment of poor women through communityinvolvement, particularly through the savings andcredit programme. The SIP has raised the overallstatus of women in the family as well as in thecommunity, and thus incidences of divorce andabandonment of women has declined remarkably.

Slums and squatter settlements are usually environ-mentally hazardous. The SIP has significantly changedthis by improving the physical infrastructure andoverall environmental conditions in slum areas. Peopleliving in SIP slums have more access to basic servicesthan their counterparts in non-SIP slum communities.

As a “pro-poor” programme, the SIP has been ableto introduce notions of social development togovernment officials.

I m p a c t s o f t h e P r o j e c t

Major impacts which have been effected by the SIPin slum areas around Dhaka are summarised invarious categories below.

The social sector – A strong mutual respect and senseof unity among slum dwellers has been created, alongwith an increase in self-confidence and awareness.Respect for women within the family and thecommunity has been dramatically enhanced, andthere have been great improvements to the generallaw and order in the area. Non-social and antisocialactivities have declined, with accompanying increasesin the development and awareness of education

among adults and children. There is also a growingawareness of the issues of marriage dowries, childmarriages and family planning.

The economic sector – The encouragement of habitsleading to increased savings among poor people hasresulted in the creation of funds that can be put to usefor the benefit of communities. The credit schemeintroduced by the SIP has led to enhanced economicactivity among women, as well as increased incomesfor families. Facilities have also been provided for self-employment through “needs-based” training.

The environmental sector – Many urban infrastructurefacilities have been provided for the directimprovement of slum dwellers’ environmentalconditions. Such improvements include theinstallation of tube wells for the supply of safe waterand the construction of drains to facilitate theremoval of contaminated water. Dustbins have beeninstalled to keep the area free of solid waste and badsmells, and footpaths have been built to keep mothersand their children out of damp atmospheres. Sanitarylatrine facilities, for the use of all family members,have been constructed, as well as community latrine-cum-bio-gas-plants, to promote a more sustainablebalance between the environment and therequirements of the population.

The political sector – There have been noticeableimprovements in institutional consciousness amongwomen within the project areas and also in theoverall consciousness of civil rights. Methods whichfacilitate the creation and exposure of leadership havealso been devised.

M a j o r C o n s t r a i n t s a n d W e a k n e s s e s

The SIP is a package programme for in situimprovements to slum communities. Theprogramme is carried out following SIP guidelines,which, in many ways, are not flexible enough tomeet the differing physical and social characteristicsand needs of people living in different parts of the 103

Table 5: Purposes for Taking Loans

Loan Number of Percentage of

Sl. No. Item Households Households

1 Business 74 63.79

2 Housing 13 11.21

3 Land Purchasing 1 0.86

4 Sending Family Members Abroad 2 1.72

5 Wedding 4 3.45

6 Education nil nil

7 Religion nil nil

8 Illness 8 6.90

9 Household Expenditure 6 5.17

10 Others 8 6.50

Source: Ibid.

city. For example, under the existing SIP operatingguidelines, it is difficult to reach the poorest of thepoor (the “hard-core” poor), who remain virtuallyoutside the reach of the SIP credit and savingsprogramme. As a result, their economic conditionshave not improved much, even compared to peoplewith slightly higher incomes.

The success of slum upgrading projects depends verymuch on tenurial security, but land tenure issues arenot comprehensively addressed by the SIP.Improvements to livelihood conditions, particularlyfor floating and homeless populations, cannot beachieved without solving these critical housingneeds. To date, the SIP has not addressed this vitalhousing issue.

Numerous studies indicate that the number of slumson private lands is gradually increasing, while thoseon government lands are declining. Given thissituation, SIP activities should spread to private

slums. Unfortunately, due to unattractive orunrealistic terms and agreements, the SIP has givenvery little attention to private slums.

The SIP emphasises physical infrastructuredevelopment, but the slum communities also havecritical non-physical needs. This emphasis reflects thetraditional strengths of the LGED. Areas such ashuman resource development, social mobilisation andmotivation and community organisation, all vital forslum improvement and sustainability, need to bedeveloped further.

Beneficiaries and field-level organisers raisedconcerns over the local procedures for handlingproject funds. This points to serious issuesconcerning a lack of transparency and fiscalaccountability in the SIP model.

Although the slum has become an inevitable part ofurban life and its landscape, eviction is still aconstant threat to the existence of slum dwellers,and thus it is a serious constraint on theimprovement of living conditions in slumcommunities. To combat this constraint, relatedSIP procedures and policies for the promotion oftenurial security need to be further developed.

L e s s o n s L e a r n e d

The proliferation of slums appears to be, at least atpresent, an unavoidable part of urbanisation inBangladesh. Slum dwellers, recently arrived migrantsand the very poor are all parts of the city’s populationand, as such, they require infrastructure and servicesjust like other inhabitants. At the same time, they areregarded as a potential human resource for thedevelopment of the city; a resource that requires someattention both for social and economic developmentand for necessary infrastructure development. Theabsence of basic support services saps the strength ofthe urban poor and denies society the fullcontribution they could make. The paradox is thatthe slum dwellers, if given a little support, canbecome worthy citizens and even act as a potentialhuman resource. Furthermore, they can be profitablyemployed in development work, through communityparticipation, social mobilisation, income-generatingactivities, skill training and adequate credit.

U r b a n G o v e r n a n c e b y D e c e n t r a l i s e d

D e c i s i o n - M a k i n g

Partnerships and consultations with localcommunities on major investment decisions help toincrease levels of accountability, not only within citymanagement but also among urban residents whomust ultimately pay for the services they demand.Engaging community groups is effective because itputs decisions in the hands of those who are mostmotivated and able to ensure a good performance,and who are best placed to see a direct link betweentheir efforts and community improvements.

There is a need for a more decentralised system withmore decision-making at community levels. Thisessentially refers to a situation whereby decision-making and planning are not done centrally butrather at a local level.

The SIP hierarchy of management structures forproject implementation is unique and is also themost interesting feature of the approach. Thishierarchy has potential for ‘vertical unbundling’, inthe sense that it creates structures at communitylevels and links them to the formal decision-makingauthorities. However, the management structure in104


At present, the SIP is the single largest programme providing

service and assistance to thousands of poor urban households

in the country.

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this case could not deliver the desired results, asplanning decisions remained centralised, (at the PICand CCC levels) and community level groups(especially women’s groups and SPICs) werebasically carrying out what was decided at thehigher levels.

W e a k n e s s e s o f T r a d i t i o n a l U r b a n

F i n a n c i a l I n s t i t u t i o n s

The challenge for cities is to tap into the wealth theygenerate in order to finance the many commongoods – services, such as water, power, sanitationand transportation – that are so essential to makingthem fit places to live in and maintaining theirproductive potential.

The present institutions lack the capabilities oftrained and qualified staff and are incapable of thefinancial resource mobilisation and managementnecessary for the delivery of urban infrastructure andservices in slum areas. The existing financialarrangements governing municipal finance cannotcope with the increasing demand for basic physicaland social infrastructure, especially at low cost, forthe poorest people.

R e f o r m a t i o n s t o t h e T r a n s f e r o f

R e s o u r c e s

If decentralisation is to provide opportunities formore sustainable forms of urban financing, the rulesgoverning transfers of resources between higher andlower levels of government need to be clarified.

Much can be done to install better inter-governmental finance systems. Clarifying functionalresponsibilities and identifying revenue sources forthe provision of local services should occur intandem. Cities should not only be given access torevenues that they are best able to exploit, (forexample, service fees, property taxes andimprovement charges), but they should also be giventhe freedom to determine the rates for these charges.At the same time, rules governing the structure ofshared revenues should be stable and transparentover long periods. Regulations concerning thetransfer of funds to local governments should bestable and transparent as well, and should emphasise,far more than they do, performance in financialmanagement, efficient use of resources andmobilisation of local revenues.

Where direct beneficiaries can be identified, usercharges, for services like water and sewerage, serve tomake households aware of the links between theprovision and the cost of those services. Such directcharges can also oblige users to re-examine theirbehaviour and make the tough choices that are

necessary to cut back on their consumption ofincreasingly scarce resources like water. Where benefitsgo to the general public, (for instance, local roads andstreet lighting), local taxes are more appropriate.

E n c o u r a g e m e n t o f P r i v a t e S e c t o r

P a r t i c i p a t i o n

The shift to greater private sector participation bringsseveral benefits to service delivery, not the least ofwhich are efficiency in managing investments,reliability of services, lower costs and greaterdiscipline in assuring cost recovery.

Authorities at national and local levels play criticalroles in determining responsibilities concerning thedelivery of services, the efficiency of pricing and theenforceability of contracts.

Public sector interventions to protect the poor mustbe carefully crafted so as not to distort prices forservices and discourage private participation.Subsidised prices for services have been shown tobenefit the “better-off” disproportionately and limitthe capacity of infrastructure agencies to extendservices to the poor. Moreover, numerousexperiences have shown that the poor are willing topay for reliable services.

I n c r e a s e d A c c e s s t o C r e d i t

To meet the service responsibilities being shifted tocities, as well as the demands for capital investmentsgenerated by the fast pace of urbanisation, citygovernments need to position themselves to getbetter and greater access to credit.

Effective institutions are fundamental at municipallevel, with credible and intelligible accounting andmanagement systems, independent auditingprocedures, transparent procurement arrangements,adequate financial reporting mechanisms, appropriateadministrative reforms to control personnelexpenditures and accountable local officials backedby reasonably satisfied tax-payers.

The creation of credit facilities appears to be one ofthe most attractive and successful elements of slumimprovement. This is important, as the availabilityof credit can act as a stimulus in motivating poorfamilies to take part in slum upgrading programmes.

The high rate of loan recovery, along with an abilityto pay high interest (15% or higher), shows that slumdwellers are some of the most successful investors inthe growing urban informal sector. The potentialcredit market among the urban poor is large andgrowing very fast. The poor generally know inadvance how they want to apply credit funds, so the106



limit or size of credit should be flexible and based onthe merit of the submitted project.

Clear strategies are needed for both communitiesand service providers to ensure the operation andmaintenance of physical infrastructure and thecontinuation of group activities. Cost-sharingarrangements need to be specified. An effectiveprocess of social mobilisation is essential to createthe climate of community ‘ownership’ necessary tosustainability.

S k i l l e d a n d V o c a t i o n a l T r a i n i n g

The SIP tried to ensure the delivery of materials fornumerous provisions, rather than arranging for theirmanufacture within the community. However, theservice delivery package included technical trainingfor the maintenance and repair of these provisions.Although the maintenance and repair of the tubewells, latrines, drains, footpaths and dustbins wereassigned to the users, and contributions were made,no system was devised for the use of thecontributions collected.

Not only in the SIP, but generally speaking, thepresent approach to urban sanitation seldomconsiders any technological options betweenconventional sewerage and the ‘pour-flush’ latrine.Very few urban centres can afford a conventionalsewerage system due to its high cost. Yet the pour-flush variety, being an on-site option, cannot beused where population densities and wastewaterquantities are high, or where soil permeability islow. With the many technological advances made inrecent years, numerous alternative sewerage systemsare now available in various countries, and are just aseffective as conventional sewerage at a fraction oftheir cost. Attempts to replicate the SIP modelwould benefit from these technical breakthroughs inoptions for sanitation.

W o m e n ' s P a r t i c i p a t i o n N e c e s s a r y f o r

S u s t a i n a b i l i t y

Women’s participation in water and sanitationprogrammes is indispensable to the promotion of safewater and safe latrines. Their involvement hasincreased due to their empowerment in managementactivities, and has thereby increased their social status.In contrast, the current domination of men in theWSS programme is not conducive to gender issuesand inhibits women’s broader participation. ■

R e f e r e n c e s

Asian Development Bank (ADB) and LocalGovernment Engineering Department (LGED), UrbanPoverty Reduction Project, Draft Interim Report, (1996).

A B M Ashraful Alam, Current Urban DevelopmentIssues in Bangladesh, (Paper submitted at the UMP-Asia Regional Network of Experts Meeting forUMP Phase 3, Manila, Philippines, 1996).

A B M Ashraful Alam, et al, Public-NGO Partnershipto Sustained Municipal Services, (Dhaka: 1997).

Bangladesh Bureau of Statistics (BBS), StatisticalPocket Book of Bangladesh, (1995).

Centre for Urban Studies, Study of the Urban Poor inBangladesh, (1989).

Government of Bangladesh (GoB) and UnitedNations Development Planning (UNDP),Bangladesh Urban Sector National Programme Document,(1994).

LGED, Slum Improvement Project Reference Manual,(1997).

Ministry of Housing and Works, GoB, BangladeshNational Report, (submitted to United NationsConference on Human Settlements (Habitat-II),(1996).

Planning Commission, Government ofBangladesh, Study of Urban Poverty in Bangladesh,Final Report, Volume 1, Survey Result, (ADB andthe Government of Bangladesh (GoB), Dhaka:1996).

Rahman, Mohibbur, LGED Experience in Sanitationand Waste Disposal, (presented at ITN/World BankWorkshop, Dhaka, 1997).

UNDP and GoB, Bangladesh Urban Sector StrategyStudy, (1995).

United Nations International Children’s EmergencyFund (UNICEF) and LGED, Report on the Evaluationof the Slum Improvement Project, (1994).

World Bank, Livable Cities for the 21st Century,(1996).

This article is an extract from Best Practices Case Books:Urban Infrstructure Development in Asia; List of SelectedCase Studies, published by United Nations Centre forRegional Development in collaboration with: UnitedNations Centre for Human Settlements (Habitat); theNational Economic Social Developement Board,Thailand; the Bangkok Metropolitan Administration;the World Bank; and the Urban ManagementProgramme for Asia and the Pacific. The full casestudy, Case Study on a Slum Improvement Project in DhakaMetropolitan City, can be found on the CD-ROMaccompanying this Business Briefing. 107

108

Anil Chitrakar joined KathmanduMetropolitan City (KMC) as amember of the City Planning

Commission. The commission wasfounded in 1997 and has been

responsible for setting up a newstructure, a new management

system, recruitment of staff andpreparation of departmental

strategies. He is currently involvedin resource mobilisation for the

various programmes developed bythe KMC.

a report by

An i l C h i t r a k a r

Mayor, Kathmandu Metropolitan City

The concept, political will and administrative andlegal mechanisms for the involvement of the privatesector in rebuilding and revitalising Kathmandu wasmotivated by the simple realisation that the human,financial and physical resources at the city’s disposalwere not enough. The message to the private sectorwas simple: Kathmandu Metropolitan City (KMC)cannot do it alone.

The city planners and officials hastily arranged ameeting with the private sector to see what it had tosay. Based on these discussions and the question posedby the private sector, KMC has now undertaken astrategic approach to rebuilding Kathmandu,involving the private sector.

F e a t u r e s o f K a t hmandu ’ s S t r a t e g y

S h a r e d V i s i o n f o r K a t h m a n d u

One of the key areas of debate with the private sectorwas the need to agree on a shared vision forKathmandu. Together, we have reached a consensusfor rebuilding Kathmandu’s core area as a worldheritage city, developing Kathmandu as a sportsdestination and the promotion of Kathmandu as acentre for information technology in South Asia.

S u s t a i n i n g I n v e s t m e n t s

The city has made huge investments in the form ofbus terminals and toilets. The city’s staff assigned tothese projects had little motivation, but when theywere contracted out to the private sector, theinvestments not only became sustainable butactually profitable.

C o s t - b e n e f i t S h a r i n g

The profits that the private sector will gain will bebeneficial for the city: the city will gain from theinvestments made indirectly in the form of jobscreated or the beautification of a particular area.The private sector is currently too weak to absorball the risks. Confidence is low within the systembut KMC has taken this in stride because it hasnothing to lose.

B a l a n c i n g P r o d u c t a n d P r o c e s s

The process of city building may be compromised inorder to attain the product. For example, properconsultation is needed with the public so that theneeds of the poorer and weaker sections of society arenot compromised.

B i a s f o r A c t i o n

Kathmandu has many plans awaiting implementation.The best way to attract the private sector is to showvisible results from the partnerships. As the sayinggoes, “nothing succeeds like success”.

T r a n s p a r e n c y a n d F r e e F l o w o f

I n f o r m a t i o n

The key to successful partnerships between the cityand the private sector lies in attaining a high level ofconfidence and total transparency. Previously,when correct information was not provided, thegap was usually filled by misinformation. KMC,through its Metro FM, Intranet and Internet, makesall its decisions available to the public, which hasgreatly reduced mistrust between the city and theprivate sector.

M e a s u r a b l e a n d T a n g i b l e R e s u l t s

The city has set measurable and tangible targets andoutputs so that people know that their participation isyielding tangible results, whether it be jobs, services,better quality of air and water or even a sense of pridein the city. The basic principle is that neither the citynor the private sector wants to waste time.

F u l l C o m m i t m e n t b y t h e

C i t y L e a d e r s h i p

Kathmandu has 177 elected members in the CityCouncil and 35 elected chairmen of the sub-municipal areas (wards) as members of the city board(executive body). The two bodies are led by theMayor and Deputy Mayor. Full commitment of allthese bodies and individuals has been crucial toattaining success in public/private partnerships.

Kathmandu’s Exper ience in Pub l i c /Pr i va te Par tner sh ip and Urban Deve lopment

ASIAN PERSPECTIVE

Kathmandu’s Exper ience in Pub l i c /Pr i va te Par tner sh ip and Urban Deve lopment

The concept, the mechanism and even specificprojects have received full endorsement from the city board and council. This has sent a clearand powerful signal to the private sector,including the acknowledgement that the city iswilling to balance public and private interest, tomeet the private sector halfway and to cushion theprivate sector against risks and legal/regulatoryobstacles.

Comp l e t i n g t h e T r i a n g l e – t h e F i n a n c e S e c t o r

The city and the private sector are anxious for the finance or banking sector to become anintegral part of the partnership. An informalconsortium has been formed within the bankingand finance sector in Kathmandu to work withthe city. In this effort, the role played by theAsian Development Bank is particularly laudableand the city has also begun working with the World Bank.

An economically poor country like Nepal willrequire economic support for some time to come.What has been achieved is a bond between thethree pillars of society – the private sector, thefinance sector and the city. Other pillars may beadded as the city develops.

New Initiatives to Strengthen Partnerships

As part of its proactive nature, KMC has started toswitch over its accounting system to corporateaccounting, so that, at the end of each fiscal year,we will be able to bring out audit reports for publicinformation. The tax and fee systems of the city arealso being revised to include more direct servicefees as opposed to indirect taxes. These steps willmake the city more accountable to the people.

An integrated road tax is being proposed to improvetraffic congestion and air quality. Parking spaces inthe city are being managed by the private sector.Improving the city’s revenue base and Kathmandu’senvironment should attract the private sector evenfurther: five of the 35 wards’ solid waste is nowmanaged by the private sector; the city’s wastewaterplant and the septic service is now ready to bemanaged the private sector; and the new publictoilets built by the city are already privately managed.

There are plans for the private sector to manage theadvertisement space in Kathmandu in the near future, aswell as plans to develop sports complexes andamusements parks with private investment. It is a trulywin-win situation for both the city and the private sectoras Kathmandu looks set to move ahead into the newmillennium hand in hand with the private sector. ■

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An Analysis of the AutomotiveManufacturing Technology Industryand Perspectives on the Future




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Lew Baxter is Editorial Director ofSino Media Limited, a multinationalmedia agency with offices in China,

North America and Europe. Itworks closely with mainland Chinese

media and other organisations,including the Ministry of ForeignTrade and Economic CooperationsBusiness Daily and International

Business Monthly publications. He isalso senior foreign editorial

consultant for weekly multilingualBeijing Review magazine, the flagship

of the China InternationalPublishing Group. He has 25 years’experience in the media, including,

in the UK, The Sunday Times andDaily Telegraph and, in Europe and

the US, as editor of theinternational Offshore Oil Weekly. He

is the former Managing Editor ofthe UK-based City Press Internationaland former editor of the business

magazine Trident. In his capacity asa journalist he visits China and theFar East regularly and will returnto head up Sino Media’s Beijing

office from January 1999.

a report by

L ew B a x t e r

Editorial Director, Sino Media

In the 20 years of China’s dramatic reform andopening policy its urbanisation strategy has notactually kept pace with industrialisation or exactlystreaked ahead of all expectations, which was adeclared, desired and essential part of the package forboosting economic development.

Admittedly, since the founding of the People’sRepublic 50 years ago this October, the number ofcities has soared from 132 to 668, at the last count in1997, and, by the year 2010, its urban planners arepredicting that there will be at least 1,000 cities,almost 100 of them with over one million people.

The government’s policy of controlling the scale ofthe urban population since 1949 has meant thatChina’s non-agricultural population has increasedfrom 27.4 million to close on 223 million, but thisstill hovers far below the 60% urbanisation level thatChina’s economists and planners believe should bethe target by the middle of the next century.

Indeed, all Chinese cities are in a natural process ofcontinual expansion, which is underlined by statisticsthat show that urban areas accounted for just 7.6% ofChinese territory in 1984; by 1996 it had reached 18%.

Yet China’s basic urbanisation, at 18%, is laggingbehind its actual industrialisation, at way over 25%,which is reckoned by the World Bank to be thefastest in any comparable global context. Citydwellers in China account for only 29.9% of the totalpopulation while the world average is around 42%.

There are particular reasons for this, not the leastbeing the outmoded household registration system, athrowback to the original planned economy, whichis one of the main obstacles to the country’surbanisation plan. It is still virtually impossible formost rural people to become permanent residents inurban areas and they are certainly not welcome in themajor east coast cities.

Despite this, there is a floating rural population of 80million, 34 million of whom have worked in citiesfor more than six months but mostly on a temporarybasis and many drafted in to work on the massive

infrastructure projects which are transforming thebigger metropolitan areas, certainly along the easterncoastal strip.

China insists that this has all been planned and that itsurbanisation policy has effectively kept in check thenumber and scale of large cities while providinggreater room for the development of small-to-medium-sized cities and rural towns. This is debatable.

This focus on mid-size county-level cities is, thegovernment believes, the panacea to the ever-expanding sprawl of the larger cities, which are nowessentially spinning out of the control of the planners.In the early days of reform, the focus was on pouringmoney and resources into developing the east coastconurbations but this is now being seriously re-thought. Indeed, a halt has been ordered on any newbuilding in rural areas at the fringe of big cities.

At every provincial level there is a Communist Partythink tank working on plans to expand smaller citiesand, as a result of rural reform in the last two decades,‘township enterprises’ have boomed. Yet, in the past,the birth of such a town or small city was almost usuallyat the whim of local officials. That is all changing.

Today, there are 400 small towns in China that haveintroduced an experimental reform of the householdregistration system which ensures that the residentswho have migrated from the countryside will betreated as full citizens. And they will be granted thesame access to the national social welfare system,employment and education which was previouslydenied to them.

China’s Ninth Five Year Plan, which takes it to2010, has stressed that the starting point and final goalof the country’s modernisation drive must focus onimproving the living standards of both urban andrural communities.

In terms of the big cities, though, rapidmodernisation and urbanisation have brought in theirwake the all too familiar environmental problemswhich have dogged the developed world since theend of World War II. China is only just realising,

Ch ina and Urban i sa t ion

CHINESE PERSPECTIVE

Ch ina and Urban i sa t ion

with something of a jolt, that along with improvedliving standards and higher incomes comes thedisturbing downside of urbanisation.

Pollution and congested roads in Beijing, Shanghaiand Guangzhou – as well as a string of other less highprofile cities – are high on the agenda of issues to betackled as a matter of urgency this year. Such is theconcern of both the authorities and the public thatweekly air pollution indexes from 32 major cities arepublished in the press and at least half a dozen ofthem regularly reach serious levels.

There are also moves to try and control the real estateand construction industry which, since the early1990s, has been allowed to run amok, dictated not byreal market demand or needs but often by the greedof developers, both domestic and foreign.

A case in point is the once beautiful tropical island ofHainan, China’s southernmost province. At the turnof the decade, it was the scene of chaoticuncontrolled growth with an overheated real estatesector. By the end of 1993, there were an astonishing480 firms involved in real estate development, one-tenth of the country’s total.

An immediate and dire consequence was that manybuildings remained uncompleted – and still are –leaving the island littered with empty shells of high-rise apartment and office blocks. Unofficially, it isacknowledged that much of this real estatedevelopment was merely a front for the laundering ofdirty money by domestic and international criminalsand drugs barons.

Now, premier Zhu Rongji has personally intervenedand forbidden any new building work in Hainanand, after almost a decade of economic ups anddowns, its people have become more sober-mindedafter paying dearly for their shortsightedness and lustfor quick profits.

Meanwhile, as Shanghai’s Pudong new area bragsabout its astonishing progress, registering a GDP ofY71 billion last year, an increase of 17% comparedto all of Shanghai’s 8%, and something in theregion of US$28 billion total investment, vastnumbers of the impressive office towers are emptyand will remain so indefinitely. This fact isconveniently glossed over.

As a result of the huge changes sweeping China,almost 80% of the country’s urban residents are nowapparently suffering from stress. A nationwidesurvey carried out last November discovered thatstress levels in the major cities has been risingconsiderably since 1995 with 75% of peopleconvinced it can only get worse.

The whole fabric of China’s society is changing andthe most pressing personal worries for a lot ofChinese people appear to be unemployment and therise in pollution levels. According to researchers thismounting pressure is largely the result of people’sfailure to adjust to the speed of the country’sreforms, but in fact there were no precedents to helpgauge the effects of what has been described as a‘roller-coaster’ economy.

Conversely, the living standards of urban dwellershave risen remarkably since the early 1990s andofficial statistics claim that, by the end of 1997, outof every 100 urban households, 54 had bought theirown homes, 69 had telephones and 69 lived inapartments with at least two bedrooms.

Recent statistics place the 1997 urban income levelat Y5,160 (US$633), up by a dramatic 155% on the1992 figure, with the average annual increasestanding at 20%.

Housing reform in urban areas has probably been themost controversial and significant change in the socialstructure for most city-dwelling Chinese, which hasimpacted in every city and brought about a tranche ofrelated developments in terms of mortgages and creditfacilities through the banking system, somethingunheard of 10 or even five years ago.

Speeding up the residential housing sector was a keyelement in Zhu Rongji’s state of the nation addressat the National People’s Congress in March, withhousing construction in urban areas expected toaccount for about 4% of the country’s GNP up to theend of this year.

Last year, a national reform plan was introducedwhich effectively ended the practise of welfarehousing distribution in which work units allocatedand paid for living quarters. It was aimed atencouraging people to buy their own homes. Thiswas – and is – to be achieved by the introduction ofa public housing fund to which contributions aremade by both employers and employees, with thelatter paying 30% of their monthly income.

The government does intend to introduce morepolicies to help residents, based on their income, butit will also continue what is called the ComfortableHousing Project, whose purpose is to help low-income families. Some industry insiders predict thatprivate housing will, within a short period of time,become part of the mainstream of the real estatesector as the glut of hotels, offices and luxurybuildings begins to take its toll.

Annual urban housing construction is now runningat 200 million square metres and plans to the end of 111

this year and into the next century call for nearly afurther billion square metres of housing.

Ironically, although the major banks have beeninstructed to offer mortgages for house purchaseand other credit facilities for a wide range ofconsumer products, such as household goods andautomobiles, it is recognised by the governmentthat the repayment periods, between 10 and 20years, are usually too short. This means that manypeople cannot take full advantage of these schemesand there have been calls for the term to beextended to 30 years.

While more Chinese urban dwellers are dreaming ofowning a car and a house, it is the need for a healthyenvironment which preoccupies most of them atpresent. This is an issue which a nervous centralgovernment, along with local municipal authorities,are increasingly aware could create a scenario for socialunrest, probably more so than the issue of redundantworkers – a result of the clamping down on loss-making state enterprises – which are roughly estimatedat 30 million but which independent observers saycould be as high as 50 million. The latter is stillconsidered, though, a crisis in the making which couldbe the anvil on which could shatter any urbandevelopment schemes.

Tackling pollution in the cities is now a seriouspriority and Beijing has announced expenditure ofY40 billion (US$4.8 billion) to clean up its air overthe next four years. This year alone it will invest Y11billion (US$1.3 billion) in widely-publicised projectsand these massive sums are matched by Shanghaiwhich is spending upwards of US$1 billion in anattempt to clean up the polluted Suzhou River. It isestimated that only 67% of the air in Shanghai iscurrently breathable.

Much of the inner city pollution has to be attributedto the traffic which clogs the stretched road networksto the limit. Vehicle ownership in China has nowreached 13 million and is expected to reach 20million by the end of this year and 40 million 10years into the 21st century.

The current roads infrastructure simply cannot copeand so the government races ahead with its record-setting level of highway construction in a bid to keeppace. Existing plans call for a 12% to 15% increase inspending this year on roads – well over 1998’s Y180billion (US$21.7 billion).

By the end of last year, there was a total of 12,498kmof roads in Beijing, twice that of 1979, and yet, in adesperate attempt to prevent the increasing numberof gridlocks, under a veil of secrecy, it has startedbuilding a special ‘beltway’ encircling the whole of

its urban area, which will divert incoming traffic and,it hopes, improve the city’s traffic flow.

Now, even architects have been dragged into thedebate and have been instructed that when they aredesigning residential estates within city boundariesthey must allocate five parking spaces for every 10households.

Beijing, for example, has 1.4 million vehicles,increasing at an annual rate of 18%, but only 360,000parking spaces. Where once even the bigger cities inChina were dominated by bicycles, today it iscommonplace to see cars and trucks parkedeverywhere including residential districts, clutteringup public pavements and even parkland.

The country is in the midst of a three-year US$1.3trillion spending spree on public works and otherfixed assets, which is aimed at reviving the economy,which was slowing down, and creating new jobs.

As a result, its economy is likely to achieve robustgrowth over the next two years according to theAsian Development Bank, despite the Asian financialcrisis; indeed, in the first three months of this year, ithad reached a healthy 8.3%, although pundits aresceptical that this can be maintained.

All of this will have a marked impact on itsurbanisation programme and a considerable amountof that money will need to be allocated toinfrastructure projects, such as roads and publictransport networks, in its major cities if they are toallow the populations a sustainable and pleasantenvironment.

The problem now facing China is that it is notpossible to have integrated nationwide city plansbecause there is still little notion of regional links andhardly any concept of regional planning. Centralgovernment simply does not want to lose control,hence its edicts banning new construction andbuilding in the countryside, effectively keeping atight rein on policy.

Individually, China’s cities are managed relativelywell in comparison to other Third World countriesand there are admirable civic plans in abundance. Butat each and every level the local authorities areunable to defend themselves against each other, theConfucian values which are still rife permitting nocriticism of higher decisions and corruption stillendemic; the pay-off is the final arbiter.

In terms of overall urban planning, China is still,therefore, essentially a feudal state and, until this isacknowledged and met head-on, the country’surbanisation programme is unattainable. ■112


A large-scale state enterprise, the Jiangxi Gongqing Feather and Down Factoryis situated in the Gongqing Open Development Zone in the central part of theNanchang-Jiujiang Industrial Corridor amid the lovely scenery at the southern footof Lushan on the banks of Lake Poyang. The Beijing-Kowloon railway and theNanjing-Jiujiang motorway pass through this area and it is connected by watertransport sailing directly from Lake Poyang along the Yangtze River to the sea.Nanchang and Jiujiang airports are located at its southern and northern ends.Communications by land, sea and air are convenient.There are both domestic andinternational program-controlled telephones, communications are advanced, theenvironment is exquisite and basic facilities are complete, making conditions forinvestment in a thriving business particularly favourable.

The Jiangxi Gongqing Feather and Down Factory is the largest domestic,modernised factory specialising in the manufacture of feather and down productsand is entitled to export and import on its own account. There are over 6,000managerial and technical staff and over 6,000 items or sets of advanced productionequipment forming a multiple production organisation mainly based on feather anddown manufactured products together with other lines. It has the productioncapacity for an annual output comprising over 3,000,000 articles of every varietyof clothing, 8,000,000 square metres of sprayed-adhesive cotton, 3,000,000 piecesof computerised embroidery and 2000 tonnes of feather and down processing —this is the highest in the country.

Its line of ‘Yaya’ brand products has won great favour among all sections of society.It has won provincial and ministerial awards for quality, was honoured with firstplace among the famous trade marks of Jiangxi Province and won a nominationprize at the first awards for Chinese Renowned Trademarks. Its products are soldin 30 provinces, cities and autonomous regions throughout China, and do well inover 60 countries and regions worldwide.Yaya from China has become the friendof the whole world.

The Jiangxi Gongqing Feather and Down Factory hopes to co-operate sincerelywith persons at home and abroad and develop together.

THE JIANGXI GONGQINGFEATHER AND DOWN FACTORY

MAIN PRODUCT S :

• Clothing of all types for all seasons - feather and down, fur and leather manufacturedproducts, acrylic cotton clothes, spring and autumn clothes, shirts, knitted clothes

• Sprayed-adhesive cotton to every specification

• Computerised embroidery

• Feather and downJIANGXI GONGQING

FEATHER AND DOWN FACTORY

Jiangxi, Gongqing, China

Tel: (0792) 4341919, 4342446

Fax: (0792) 4341446

P.C. 330401

realised which combined low-cost expansionwith rapid economic advance. Over the last tenyears, the company’s gross assets haveincreased fifty times in value, its net assets haveincreased 350 times while sales income hasincreased thirty-fold so that it was strongenough to become one of the 100 strongestenterprises in the garment and textile industrynationally and to be chosen as one of the 18key enterprise groups in Shenyang. In 1998, agross industrial output of 707,180,000 yuan,sales income of 690,970,000 yuan, interest of87,560,000 yuan and foreign exchange fromexports of US$ 2290,000 were achieved.

The Shenyang Dawn Garments Group wasfounded in April 1995 while its predecessor theShenyang Dawn High Quality Garments Factorywas set up in 1956. For more than thirty yearsafter its foundation, the enterprise did notchange much but, from the 1990s, in only threeand five years, it developed from a processinggroup of enterprises to a state-owned enterprisewith competitive brands. The basis for this rapidadvance was the development of an outward-looking economy. Trial operations of ShenyangLifu Garments Company Ltd, a Sino-Japanesejoint venture controlled by "Dawn", were begunin 1990 with profits for that year amounting to1,370,000 yuan. By using foreign capital,technology and management, Lifu suits (Aonite)were produced from 1992 and won the franchiselicence of the International Wool Bureau, the

The Shenyang Dawn Garments Groupis a large, listed, joint-stock company andmultinational business group which ismainly based on state-owned assets andwhich concurrently has diversifiedoperations. Its leading product is itsfamous brand of garments and itsprincipal activity is the production ofwoollen clothing material. It combinesthese in a single organisation withinternational trade, real estatedevelopment, international transport,clothes and fashion shopping cities andadvertising. The Group comprises 26enterprises (companies) with total assets ofRenminbi 800,000,000 yuan, 8,000 staff and anannual output of 2,600,000 individual or sets ofgarments and 2,000,000 metres of spun nylon.

During the transition from a planned to amarket economy in the early 1990s, when facedwith fierce competition in both the domesticand foreign markets, the business, which wasthen small with only 860 staff, did not remainconfined to small-scale production but wentalong with the tide of the market economy,making bold reforms and forging ahead eagerlyunder the impetus to reform and open up to theoutside world. Starting with the establishmentin 1989 of the first joint venture in Shenyang,the Shenyang Lifu Garments Company Ltd, andafter implementing a strategy for capitaloperations including the winning of influenceabroad, famous product projects, reorganisationof assets and diversification, development was

Gold Prize of the Superior ChineseGarments Exhibition and the designationof "Ten Famous Garment Brands ofChina". Output value, sales income andinterest all increased rapidly by 50% perannum so that, in four years, it obtainednet earnings from Lifu and realised theaim for the joint venture of "high startingpoints, high standards and high returns".The essence of developing influenceabroad lay in opening up or pushingforward into markets while the factoryabandoned the use of specialist foreigntrade companies as intermediaries and

linked up directly with foreign firms in order torealise low-cost expansion and to promotediversification. In 1992, it started up theShenyang Lihe Garments Company Ltd as aChinese-Hong Kong joint venture with the rightto export on its own account. Having seized thisopportunity of intensifying its operations, itimplemented a strategy of low-cost expansionby "encircling the city with villages". It usedrural enterprises with low rents and labourresources in order to organise over 10 firms as

holdings or equity participation or looselyconnected processing enterprises. With the widebusiness prospects from deregulation, itimproved its capital structure through aninternational transport company, a real estatedevelopment company, Chinese famous brandsclothes cities and an advertising company whichwere established in succession. From the

foundation in 1995 of the ShenyangDawn Garments Group, when itintensified operations until 1996, at theturning point when it concentrated onthe reorganisation of its assets andindustrial upgrading, it resolutely tookover larger concerns. It successivelybought and reorganised a bankruptsecond-ranking large-scale enterprise,the Shenyang No.2 Woollen Mill and themiddle-ranking Shenyang Shirt Factory andbecame the trustee of a bankrupt second-ranking large-scale enterprise, the ShenyangNo.1 Woollen Mill and the loss-making middle-ranking Shenyang No.6 Woollen Mill. Thus itcompleted its aim of asset reorganisation foreconomic expansion and dominance. This led tothe creation of a structure for capital operationswith the acquisition of material for makingfamous brand garments and lines of clothing.

Competition in the contemporary garmentindustry has gradually changed to competitionin equipment, technology and human resources. Contention between firms has been transformed fromcontention on labour costs tocontention in famous brandsof garments. Therefore, theGroup has expanded itsinvestment in technology,stresses market research anddevelopment, and rapidlyabsorbs and applies prevailinginformation. Guided by themarket, it continuously adjustsits range of products to meetconstantly changing marketdemand, and vigorously seizes business opportunitiesto obtain benefits. Theenterprise is linked up in alldirections with internationaladvanced technology introducing computerisedautomated typesetting, plate making andcutting systems vacuum packaging machinesand 466 sets of comprehensive advancedproduction equipment for woollen textiles,dyeing and finishing from Japan, France, theUSA and Italy. It is in the front rank forgarment and wool spinning design techniquesand technological equipment both domesticallyand internationally. It has promoted its brands

by grafting advanced new wool spinningtechnology from the Colombo Company ofItaly, married with consummate garment design from Carven of France and Koshino ofJapan. By the superiority of its Dawn Ladies’ Clothes and Lifu Suits which won the International Gold Prize at the 1998 SecondFrench International Fine Quality Products(Technology) Exhibition and of its three majorDawn nylon "Zhuda" brands which won thehighest award for the Chinese wool spinningindustries in 1997, namely the first prize of the "Weierjia" Cup, it has opened a salesnetwork of 100 franchises and 300 special

sales counters in 20 areasunder provincial jurisdictionand over 60 cities inChina. The Group has alsoregistered trademarks forits products in the USA,France, Italy, Australiaand Hong Kong andfounded multinationaloperating companies andchain stores. Products donot only sell welldomestically but are also sold in more than 30 states and regionsincluding the USA, Japan,France and Hong Kong.

With "taking talent worldwide for superbclothing worldwide" as the aim of its businessculture, the Group has recruited and retainedtalent people in a rational manner. It has co-operated through joint ventures with a numberof world-class experts in garment design bothin European and Asian styles ands has importedadvanced international technology, design andmanagement, choosing to recruit some of the"top ten designers" of China such as Zhao

Shenyang Dawn Garments Group Yufeng and Yao Bin. By "absorbing 100rivers and going hand in hand with theFour Seas", it has seized opportunitiesand moved to the fore. Through its useof people, intelligence and strength, abrand new future structure for Dawn hasemerged created by maintaining itsposition while continuing to develop.

In order to implement the strategicthinking proposed by the Shenyang CityCommittee and Government of "going forward with the giants", Dawn’s staff have been encouraged and made resolute inorder to race forwardand become afamous internationalbrand. On 18thOctober 1998, the"China Dawn – aDisplay of ChineseGarments Past andPresent" successfullypushed forward ontothe "fast track" fortop-level fashion atthe Louvre in Paris,realising the firstbreakthrough forChinese garments in"going forward withthe world giants".Dawn Garmentsobtained the approval of the top fashion societyof France. The French government VIPs and topworld fashion designers such as Valentino andPierre Cardin enjoyed the display. In a highlevel assessment, it was stated that "Dawn inChina" gave expression to the "awakening ofChinese clothes" and that "China will becomean active centre for fashion in the thirdmillennium". This received the solemncommendation of the State Bureau for theTextiles Industry and the Shenyang CityGovernment. It was also a new starting point ingiving an imposing image to "Dawn".

Shenyang Dawn Garment Group, No. 10, Kunshanzhou Road, Huanggu

District, Shenyang, China 110032

Ms. Hong ming Wang, Chairman of the Board was kindly received by Juang Zemin, President of P.R. China.

Dawn Garments Group Show Area

Chinese Dawn – Ancient and Modern (Paris) Fashion Show acheived great success in Paris

Lifu Garments Co. Ltd.

Lifu Exclusive Shop

Lifu Suit

Dawn Garments (Garments’ Showroom)

DBD

Transmission & TransformationEquipment Group Corporation

Northeast Electric

Northeast Electric Transmission & TransformationEquipment Group Corporation is one of the 56 enterpriseGroups, which are experimental units of the State Council.Now it has become the largest enterprise Group corporationamong electric transmission and transformation equipmentprofessions and the industrial base for manufacture, scienceresearch and export.

500kV, 360MVA autotransformer with OLTC in operation at Gezhouba Hydropower Station

500kV GIS is under routine tests for the Yimin Thermal Electric Power Plant

Sample of cables

President Zuo Changlin

Heavy-current network

testing station, the largest in China

500kV ZnO surge arrester is working

Northeast Electric Transmission & TransformationEquipment Group corporation prides itself in scienceresearch and development. The company takes comprehensivemeasures to examine and inspect their products to the highestdesign. The technological apparatus, testing and measuringfacilities compare with other international corporations. Thecorporation is able to manufacture excellent products inaccordance with national and international standards. Ourcompany represents the most advanced manufacturingstandards of Chinese electric transmission and transformationproducts. Main products of the corporation are powerinstrument transformers, gas-insulated switch gears (GIS),high-voltage circuit-breakers, disconnectors, electrical wire andcables, high-voltage electrical porcelains, power capacitors,enclosed busbars and lighting arrester, including more than200 series, 1600 varieties, 43000 specifications. With theleading position among the same professions on a generalquality level and each main economical and technical quota,the corporation has the comprehensive capacity to provide acomplete set of equipment to satisfy 40% of generatorinstallations in China. The products’ market covering rateand main equipment of the corporation come up to 90% andabove. Selling to 40 and more countries and regions, thecorporation enjoys a good reputation all over the world.

118

a report by

Ka t e X i a o Z h o u and T D a v i d B u r n s

University of Hawaii

Market development in China is the midwife of thecivil rights movement. Civil rights are defined in Chinaas the right of free speech, the right to own property,the right of free movement and the right to changeoccupations. The Chinese civil rights movement hasresulted in a parallel society, defined as a social realityseparate from the state, a different belief system(pluralism versus communism), a different informationdistribution system and a different economy (largelyinformal). The parallel society provides the foundationfor the creation of civil society.

Ba c k g r o u nd o f C h a n g e

Before explaining the Chinese civil rightsmovement, it is necessary to discuss the absence ofcivil rights under the planned economy. Up to 1980,most Chinese people lived and worked in anenvironment that constrained or even deniedindividual rights. In the urban sector, most adultworkers worked in danwei (urban work places) andtheir life and work were controlled by the state andby their work place. The state factories providedbasic welfare needs, including healthcare, pensions,education, housing and other welfare expenditures,to urban workers in exchange for their loyalty andcompliance.1 As long as these commitments weremet, workers submitted themselves to the authorityof the state. In exchange for limited welfare, urbanpeople lost their rights to challenge authority.

This welfare dependence strengthened the party-state’s power. The dominance of state power led toarbitrary rule, which caused fear among the people.Abuse of power was rampant. The constant politicalstruggles against the ‘enemy’ of the state, themiserable fate of the ‘enemies’ and their familymembers, combined with the material dependence,silenced very effectively the voice of dissent. EvenLiu Shaoqi, the head of state, could not escape thearbitrariness; he was tortured and died naked on acement floor in a detention house.

In the countryside, the most effective state controlover the rural population was the hukou system(household registration system determining grainrationing to each individual), which bound ruralpeople to the land. After collectivisation in 1956, thecadre controlled farmers like feudal lords, replacingfamily heads as decision-makers. The state did notprovide farmers with a social safety net comparable tothat available in the city. They had to rely uponthemselves for education, retirement and medical care,etc. When the state-led famine occurred between1959 and 1961, most famine victims (between 25million and 45 million) were farmers.2 State controlover grain allocation effectively smothered rural civilsociety while collectivisation eliminated farmers’autonomy without providing a corresponding welfarebenefit. This sowed the seeds of its own destructionsince it motivated 80% of the Chinese population toseek alternatives to the system. Whenever there was achance, farmers tried to sabotage the system, and theyfinally succeeded in the late 1970s, achieving the goalof reviving their family autonomy of production.

T h e R i g h t t o b e L e f t A l o n e

The first phase of the civil rights movement wascalled baochan daohu (turning production to thehousehold). In the late 1970s, farmers began to makedeals with the local party head to farm on their own.When this illegal practice spread throughout thecountry, the central government gave in, leading toa rapid increase in agricultural productivity. Thefarmers just wanted most to be left alone – left totheir own devices. Resources (primarily labour, butalso capital in the form of farmers’ savings) werereleased from agriculture, stimulating commercialactivities and trade (long-distance and local).3

F r e e d om o f Mo v emen t

One consequence of increased agriculturalproductivity was the massive flow of rural migrants

Market Deve lopment and the C iv i l R ight s Movement in Ch ina

CHINESE PERSPECTIVE

T David Burns

Kate Xiao Zhou is an assistantprofessor of comparative politics

and political economy of East Asia(China and Japan) in the

Department of Political Science atthe University of Hawaii. Her main

research interests include thedynamics of transition from central

planning to markets, Chineseeconomic development, Chinese

business, globalisation in East Asiaand comparative studies of

businesses and Asianentrepreneurship. She has

published articles on politicaleconomy and women’s studies,

along with a book titled How theFarmers Changed China: Power of thePeople. She graduated with a BA

from Wuhan University, an MS fromTexas A&M University and a PhD

from Princeton University.

T David Burns received his PhD inEconomics from George Mason

University in 1997. In hisdissertation, Institutional Dynamics

Among Imperfect Agents, heinvestigated the origins of informal

institutions and the spread ofcustoms using computer simulation.

Kate Xiao Zhou

1. Andrew G Walder, Communist Neo-traditionalism: Work and Authority in Chinese Factory, Berkeley: Universityof California Press, 1986.

2. D Yang, Calamity and Reform, Stanford: Stanford University Press, 1996.3. Kate Xiao Zhou, How the Farmers Changed China: Power of the People, Boulder, CO: Westview Press, 1996.

into cities. This led to the re-emergence ofprofessional traders. These economic developmentshave enormous implications for rightsconsciousness in China. First of all, the oldrationing system became useless as a tool of controlbecause, in the new market economy, migrantscould buy food with money in the marketsdominated by rural people. By mid-1985, morethan one-fifth of rural people had changed theirstatus in terms of occupation and residence whileurban people had stayed put.4 The geographic andoccupational mobility varied from region toregion, but in some rural areas like Zhejiang, morethan 70% of the population experienced bothgeographic and occupational mobility, while inother places, the percentage was much lower (aslow as 10% to 12% of rural people).5 An increasingnumber of Chinese people have been able to buy“the right to live where they want”, breaking thegovernmentl over physical, residential and socialcontrol.

One recent survey suggests that the job turnover rateamong migrant workers in Guangdong, the mostdeveloped industrial area in China, is very high, with66% of migrant workers changing their jobs.6

Every day, across China, 100 million Chinese migrantsare defying the state control over mobility. Althoughnot organised, these migrants have produced the largestco-ordinated civil disobedience in the history ofmankind. This massive migration pattern illustrates therelative gains ordinary people made in terms of therights to live and to work in spite of the government’sformal regulations and the hukou system.

T h e R i s e O f T h e C o n t r a c t S y s t em

Market development and contract relations broughtindependence to Chinese urban people. Theincreasing market supply of housing, medical careand, above all, jobs, means that more and more urbanpeople are able to cut their client relationship to theparty head at their work place. From the standpointof the party officials, changing of jobs is a form ofsocial disorder and disloyalty. As the labour markethas achieved some degree of maturity, contractrelations are replacing dependency relationships inChinese cities. Subordinates, rural migrant workers,

skilled working women and ordinary workers havebegun to negotiate with the formerly powerful. As aresult, more and more people have more freedom tochoose those for whom they would like to work.Most people have become less dependent on thestate for their way of life – a dependency that hadbeen the dominant feature of the ChineseCommunist state for more than 40 years.

Increasingly, the labour market has become subjectto contracts with clear terms of economic sanctionsand the rights of the employees and employers.Contractual relations also provide less social andpolitical control than formerly. The terms of thecontract and the service length are defined clearly.For example, every new employee in a Chineseuniversity is given a xieyishu (a contract agreement),which states the terms and the time of employment.If the new employee wants to change jobs within theagreed-upon term, they have to pay a fine. Theamount of the fine is also specified in the agreement.This is a radical departure from the situation a fewyears ago when every urban job was for life – the so-called ‘iron rice bowl’.

The increased use of contracts has led to an increaseduse of courts to settle disputes. Starting in 1993, thenumber of labour disputes has increased by 57%annually while, in 1996, workers won 51% of cases.7

T a k i n g t h e O f f i c i a l s t o C o u r t

Although appealing to high authority was an ancientChinese tradition, the Communist regime effectivelyweakened that tradition by constant politicalmovements and by daily economic control overpeople’s lives. Market development has reopenedsocial space. In the beginning, most disputes wererelated to business deals that went sour. Mostdisputes that go to the formal court now also involveproperty rights. Some even involve intellectualproperty rights, a new form of property rights.

As market development and more and more urbanpeople began to rely on the non-state sector foremployment, economic independence broughtabout political awareness. Recently, increasingnumbers of people are daring to use the tradition topetition the supreme rulers “for redress of heartfelt

120


4. Ibid.5. Lei Jieqiong, et al., Gaige yilai zhongguo nongcun hunyan jiating de xingbianhua (The Change of the Marriage

and the Family in the Chinese Countryside Since the Reform of the Economic System), Beijing: BeijingUniversity, 1994.

6. Nongcun jingji yanjiu zhongxin (Rural Economy Research Center), Zhongguo nongcun laodongli liudong yu renkouqianyi yanjiu zhongshu (Summary of the Studies on China’s Rural Labor Mobility and Population Migration),working paper, 1995.

7. Chinese Statistical Bureau (1997), Zhongguo tongji nianjian 1997 (Chinese Statistical Yearbook 1997), Beijing:China Statistical Publishing House.

Market Deve lopment and the C iv i l R ight s Movement in Ch ina

grievances from alleged thefts by corrupt localofficials to pensions denied.”8

The rights of ordinary citizens to sue governmentofficials has become a fact of life despite continuationof state control over police and armed forces. Whenmillions of people take officials to court, the regimecan no longer run business as usual – the governmentsimply could not afford the legal bill!

G r ow t h o f t h e L aw P r o f e s s i o n

The development of markets also led to the increaseof professional men and women, including the legalprofession. As the market demand for legalprofessionals has increased, law has become one ofthe more highly paid professions, and supply hasfollowed demand. Between 1985 and 1997, thenumber of law offices increased by 177%, while thenumber of lawyers increased by 721%; the numberof notaries by 18%; and the number of personnelworking for notaries 68%.9 As more and morelawyers live a life that is economically independentof the state, they show more concern for theirclients. As a result, there are many examples ofindividuals suing government officials or a state-owned enterprise and winning the case. Theseexamples will encourage people to use the court. Asmore lawyers represent more people in thisdiversified environment, legal social learning istaking place, despite the corruption and interventionof the state.

R e l i g i o u s F r e e d om

Market development also opened social spacebetween the state and individuals, increasingindividual freedom, especially freedom of religion.First of all, various kinds of religious activities existside by side with local markets. Second, majorreligious holidays have become the biggest market-gathering occasions. Third, in order to attracttourists, thousands upon thousands of religioustemples have been rebuilt. Most of the money camefrom private donations.

F r e e d om o f S p e e c h

Market development led to the relatively free flowof information in China by enabling the unofficialpublication of all sorts of reading materials. Asindustry boomed, the ability to reproduce books,

videos and computer software, etc. spread beyondthe reach of the censors and central planners. To agreat extent, there was a close association betweenthe spread of illegal or politically incorrectmaterials and the relative free flow of informationin China.

Materials the government tried hardest to suppress(works on democracy, human rights, violence, KungFu and sexuality) were often what people preferredto read and to watch. In an effort to make money orto meet the public demand, many private and semi-private factories rushed to produce the forbiddenbooks, magazines, journals and any other works thatcaught the eye of the state censor.

Although the official media remains a tool of statepropaganda, the narrow limits of press freedoms havegenerally improved since the late 1980s.

For the editors of Tunnel, the Internet was perhaps themost ambitious challenge to Beijing’s control ofinformation. “The computer network ... disseminatestechnology onto the desks of each and every one ofus,” they explained in their inaugural editorial. “It canundermine the two pillars of an autocratic society:monopoly and suppression.”10

Con c l u s i o n

Both the Chinese government and the internationalcommunity emphasise the top-down approach todevelop legal and civil rights in China. In the US, theFord Foundation is leading the way in China to helpestablish a system based on civil liberties and thepresumption of innocence until proven guilty. InOctober 1998, China even hosted a Human RightsConference.11 But for those formal and legal systemsto take hold, there must be a civil basis for people’sacceptance of individual rights. Our cases show thatrights consciousness has been developing among thegrass roots. Market development, mobility ofindividuals and freedom of press happen together ornot at all.

What is interesting about the Chinese civil rightsmovement is an apolitical appearance. People whoparticipated in the movement followed no leadersand formulated no explicit credo or doctrine. Butwhen Chinese people are increasingly pursuing life,liberty, property and happiness, they are creating acivil rights movement. ■

121

8. Erik Eckholm, “Please, Mr. Bureaucrat, Hear My 20-Year-Old Plea,” 7 December 1998, Internet version.9. Chinese Statistical Bureau (1997), Zhongguo tongji nianjian 1997 (Chinese Statistical Yearbook 1997), Beijing:

China Statistical Publishing House. 10.William J Dobson, “Dissidence in cyberspace worries Beijing” San Jose Mercury News, Internet version, Sunday, 28 June

1998.11.The New York Times, “China Hosts Human Rights Conference”, Internet version, 21 October 21 1998.

Shenyang Machine Tool Company Limited, an extra-large national industrial enterprise, is the largestmachine tool manufacturer in China and has beenselected as one of the 100 national pilot entities forexperimenting the modern enterprise systems. Theheadquarters of the company is located at 247# WestShuncheng Street, Shenhe District, Shenyang, which isthe one of the national major heavy industry cities,enjoying the convenient transport facilities andexceptional export-oriented development advantage.

The company was established in April of 1994.Having been listed for public offering since July of 1996,the company now owns an equity capital with 3,409,190,000 and 11,438 employees. Products of the companyare a variety of more than 300 different types and 1,000

different specifications, mainly including machingcentres, CNC lathes, CNC boring and milling machines,universal lathes, horizontal drilling and boring machines,radial drilling machines, special machine tools, CNCcontrolling systems etc. Now the company’s enjoying theindependent right for import and export and its productsare covering 29 provinces of the country and more than80 overseas countries.

The company is practising the Business Units systemwith the company as investment entity and the businessunits as the cost and profit entities. The Shenyang No.1Machine Plant and the Sino-Czech Friendship Plant of thebusiness units are the largest manufacturers in China ofthe universal lathes and drilling and boring machinesrespectively. National Research Institutes for Lathes and

Drilling Machines are located at these two factories. TheLiaoning Precision Factory of the company is a CNCsystems manufacturer designated by the State.

With China’s Opening and Reform continuouslybroadened, the company has been accelerating its paceof introducing overseas financial resources andadvanced management and technologies. In January1995, an agreement with the World Bank for a loan ofUS$ 121 million had been signed. Through theInternational Competitive Bidding, some internationalconsulting companies have been invited to assist thecompany’s modernization, an institutional modernsystem was designed by Knight Wendling Company ofBritain and is being implemented with the help of EDSCompany of the USA, and a technological consultancy is

offered by the BRRA Company of Germany to develop 7kinds of CNC lathes for the enhancement of thecompany’s future design capabilities by training a groupof the company’s design engineers.

Now, the company is carrying out a global strategy interms of keeping up their market, capital, technology andintellectual property etc., with internationaldevelopment. The entire project is drawing to theconclusion with the implementation of the companyreform, restructuring and convertion in place. By the endof this project in 2001, with the product capabilityreaching 3,600 sets of CNC lathes annually, which is 15%-20% of national total products in this regard, thecompany will become the largest manufacturer base ofCNC lathes in China.

CNC Controlling System - CAK6150C Mazak Controlling System - S1-30N President Jiang Zemia is visiting SMTC Ltd. Machining Centre TH5940

Shenyang Machine Tool Co. Ltd

126

a report by

Mu S u i x i n

Mayor, Shenyang, China

Shenyang, a famous historical and cultural city ofChina, is the centre of politics, economy and culturein north-east China, the important industrial base ofChina. I am deeply aware of the responsibility I holdin in the capacity of Mayor of such an important city.With the trust and high expectations of its 6.8million people, I will work with utter devotion forthe benefit of Shenyang citizens.

It would be a memorable achievement for Shenyangif I, in my term, and the Shenyangnese together, cantry our best to create a beautiful future and welcomethe new millennium as China practises reform andopen policy in the rapid development of the world.Shenyang’s future is extremely bright not onlybecause its people have shown themselves to havegreat enthusiasm in constructing our own city butbecause Shenyang itself has already shown its hugecapacity and potential in Chinese economy andsocial life. However, there are still many hardobstacles to overcome in the process.

The efforts that I, in my term as mayor, will makewill include:

• the adoption of an active macromanagementpolicy, which will be adopted for promoting theregional economy development with a steadyincrease so that the people benefit from it;

• an emphasis on the construction of agriculturalinfrastructure, the adjustment of agriculturalstructure and the modernisation of agricultureproduction. The agricultural and sideline productswill be extended to further processing so as toprovide abundant supply in the market;

• a focus on the industrial restructure of Shenyang,in order to maintain its leading position inindustrial economy of China. With regards to this,the pillar sectors of machine building, automobileassembly and the medical and chemical industrywill be developed greatly;

• support and promotion of the high-techindustries, such as electronic information, biologytechniques and energy-saving environment;

• an active role, as the centre of the city, taken bythe regional and central markets in marketcirculation and regional economic development;

• a focus on the development of tourism,information services, communications and traffic,in order to meet the practical demands of urbanmodernisation so that the metropolitan functionsimprove gradually; and

• attention to the banking sector, trust, insurance andsecurities exchange, so as to accommodate theregional economic development and ensureShenyang as the north-eastern regional financialcentre.

A scientific city development scheme and a sustainabledevelopment strategy will be implemented to improveliving conditions in the city. We are determined todevelop Shenyang as a modern metropolis and arefollowing steps to perfect urban functions and improvethe environment. With the implementation of anurban environmental transformation project, anexpress highway network around the city centre willbe linked and a modern urban traffic framework willbe formed. The main roads, squares and parks will betransformed, according to the ‘Green, Fine, Clean andBright’ idea. Everyone will be involve in the makingthe city environment-friendly. The inner river inShenyang will be revitalised to be a Ring WaterSystem and Ring Park characterised by ‘a green carpetof grass and trees, flowing water and linking scenery’.With regards to industrial pollution, the factoriespolluting the areas surrounding the residential areaswill be moved away. In addition, we will implementnon-hazardous treatment of wastewater, industrialwaste and other waste. Measures will be brought in toaddress air pollution as well.

Shenyang’s preferential opening-up policies will beadopted to promote further exchange with the worldand expend the city’s opening scale. We aim to providefirst-class services to the domestic and overseas touristsand are going to develop the tourism facilities so thatthey utilise the many natural tourism resources andprofoundly historic ethnic tourism resources. Shenyangwill be more closely linked with the world following

Commitment to Shenyang ’s Deve lopment

CHINESE PERSPECTIVE

Yantai Moon Group Co, Ltd., (originally namedYantai Refrigerating General Factory), set up in1956, is a large Group enterprise specializingin freezing, air conditioning facilities’manufacturing as well as in complete sets ofrefrigerating engineering design, installing, trialrunning and technical consulting services. It is aa large, sole-invested state-owned First Gradeenterprise with 3200 staff and workers and atotal fixed assets of 558 million yuan, coveringan area of 450,000m2, and construction area of160,000m2. It comprises 17 legal companies(including one stock exchange company and sixSino-foreign joint ventures), nine branches andinternal accounting units.

The Moon Group, as a main refrigerating andair-conditioning facility production and exportenterpprise approved by the State for theimport and export business, is a First Gradenational company, first among China’smachinery refrigerating industry to obtain theQuality system certificate of ISO9001: 94issued by the Norway Classification Society(DNV), and it is one of the one hundred largestand most efficient Chinese machineryenterprises. In 1998 the company realized an

annual profit of 18.8 million yuan with profit andtax of 34.32 million yuan.

As a leading enterprise in the same domesticindustry for its strong technical background,complete specifications and good performance,the Moon group has set up in China, accordingto the international general technical standard,the largest, most precise compressor testsystem; domestic top-level air-conditioningpurifying workshop mainframe assembly line;resins and casting production line; polyurethaneboard production line; and, British screwrefrigerating compressor rotor Moon and Yanji.These are recommended as domestic fineproducts by the China Quality InspectionAssociation, which has boasted the company’stop quality among the same kind.

The Moon Group Technology Centre was listedas the key province-supported enterprisetechnology development centre, and it is a teamassembled by 300 specialists to have strongability in refrigeration design, automatic controldesign, computer assistance design, a large,complete set of engineering design andtechnical information, technical standard andtechnical management, which promoted therapid transfer and application of latest domestictechnology and patent fruits. The main productsare a varied series of piston refrigerating

compressor screws, refrigerating compressorlithium bromide absorption refrigerators, waterchiller for air-conditioning, hot water machineset, indoor and outdoor prefab cold storage,large cereals-cooling machine set, ice-makingcomplete set, boat refrigerating set, vacuumcold drying complete set, mesh-belt successivequick freezers, ice-stored cooling apparatus,totalling seven series and 400 specifications ofair-conditioning, freezing cold storage, ice-making, fast freezing, cold drying and freshnessretaining. In the mean time, the group alsomanufactures refrigerating containers, non-standard dry-goods containers. Industrial

boilers, medical hyperbaric oxygen chambers,plat-fin heat-exchangers, pressure vessels,cast-iron parts, industrial plant buildings, metalstructures. These form a unique productadvantage.

The Moon Group has set up 11 permanentsales-branch companies and offices in somelarge and intermediate domestic cities, andover 100 sales services in China. The completesales promotion systems can, at any time,provide customers with technical consulting,engineering design, equipment facilitating,installing and trial running, equipmentmaintenance, technical training, and after-salesservices. The national key projects, such as theGezhou Dam Power Station, the Capital Aiport,the people’s Conference Hall, and the series oflarge refrigerating and air-conditioning ‘TurnkeyPackage’ engineering works were all biddenamong domestic and international bidding. TheMoon Group has been successfully charteringcustomers.

In managing production, the Moon Grouphas created a promising way to actively leadthe operating capital away from activatingand absorbing limited domestic state-ownedcapital to control and apply more foreigncapital to promote the state-owned capitalfirst, thus adding value and developing.

Firstly, it has actively implemented the foreignleading strategy of applying foreign capital andintroducing technology to have overallrenovation. Since 1992, the Group set upsuccessively joint ventures of Yantai HondaRefrigeration Equipment Co. LTD.; YantaiDunham-Bush Industry Co. LTD., with Americanmanufacture; and, Yanta ACME RefrigerationEquipment Co. LTD., with Australia.

Yantai Jialing Cold & Heat Equipment Co. Ltd.,with Hong Kong; Yantai Moon Refri containersCo. Ltd., with Korea; and, Yantai EBARA Air-conditioning Co. Ltd., with Japan, totaling sixSino-foreign joint ventures. The Group hasimported vertical, enclosed-screw cold-watermachines from the American Company; lithiumbromide absorbing refrigerators from Dunham-Bush EBARA Co., Japan; and, refrigeratingcontainers’ manufacturing techniques fromBritish Ocean Company. The total Sino-foreignjoint venture investment amounted to 42.45million USD, with the Chinese proportion upto50%. Secondly, through shareholdingcompanies’ renovation, the Group has createddirect financing channels. Upon approval of theState Securities Supervision Commission on

May 28, 1998, the core enterprise of the MoonGroup actively implemented merging to speedup the newly growing economic indicators. OnMay 6, 1997, the Moon Group formally mergedthe Yantai General Boiler Factory to set upYantai Moon Boiler Co. Ltd.; Yantai HyperbaricOxygen Chambers Co. Ltd.; Yantai Moon MetalStructure Co. Ltd.; and, Yantai Moon HeatExchanger Co. Ltd. Furthermore the MoonGroup has trans-regionally bought the HaiyangXujiadian Vehicle Overhaul Plant to set up theMoon Complete Set Engineering Co. Ltd. Andto adapt the domestic expanding requirementpolicy for the residential buildings promotion,the Group has, at the original golden factory siteof the city proper, rebuilt Moon SanzhanDecoration Material Wholesales Market.

In recent years, Moon not only provided peoplewith convenient and comfortable living,entertaining sites and various facilities, butactively participated in the common humangoals of global environment protection, thepursuit of societal harmony of interest,enterprises and individuals.

Towards the 21st century, Moon, leading thescience and technology, pays more attention tothe successive improvement of the humanbeing’s living and to penetrating various fieldsthat people need.

80 Xishan Rd, Zhifu, Yantai, China P.C.: 264000 Tel: (0535) 6243451 Fax: (0535) 6252302

A brief introduction of

YANTAI MOON GROUP CO. LTD

128


the development of new international airlines. The cityneeds to establish friendship with the overseas cities inorder that the economic and cultural interchange willbecome more extensive. Strengthening the co-operation and communication with the foreign cities,the increase of import and export trade will bestimulated. Foreign investment promotion will focus onco-operation and joint-venture projects so thatcompanies in Shenyang will be given greater access tothe international market and will be more in harmonywith the global economy. We will create a wonderfulworking and living environment for our overseasinvestors and provide them with ‘citizen treatment’.

Shenyang’s living standards will be improved graduallywith the continuously progressing development ofsocial programmes by the establishment andimprovement of the social security system. We will

make a huge effort to develop the residential districts,focusing particularly on the housing of low-incomefamilies and on the total elimination of shanty-towns.We will implement a basic-living security system,which will provide the basic living security to thosewho need it most. Unemployment rates will becontrolled through better employment training andexpansion of the employment channels. Healthcare foreveryone will be ensured through the improvement ofthe service. By enhancing the development of thecultural facilities, the citizens’ cultural life will beenriched. Education standards will gradually beimproved with great attention paid to education,increasing investment to the education undertakingsand the improvement of the education conditions. Thesupply systems of heating, gas, water, power and otherpublic utilities which are closely related to thepopulation will be developed to operate effectively sothat they meet people’s increasing living demands.

The principles of ‘Be honest in performing one’sofficial duty, be due to diligence, be proficient in one’sprofessional work and render services to repay thepeople’s trust’ will be initiated and advocated in thisterm of municipality. The governmental authoritieswill carry out a new style of working attitude,streamlined procedures and high efficiency. Inaddition, working performances will be subject to thesupervision of the people. Every official will competeto be ‘an excellent civil servant that the people are

satisfied with’. All of these above-mentioned measureswill mean that the new term of municipality will givea totally new appearance to the system.

Having been elected Mayor by the people, I,together with my colleagues, will fulfill mycommitment to the letter so that Shenyang, with itsnew appearance, can take its place in the world. Wewant to turn Shenyang from being a traditionalindustrial city into an international, modernmetropolis. Shenyang will develop from being anoutdated and irrational city into a multi-functionalnew city; to be a north-eastern centre of trade,tourism, traffic, communication, finance, science andtechnology; and to have high standards of living fromnow for the future. Let Shenyang people have awonderful city. To this end, I will blaze a new trailforwards through brambles and advance bravely.

S h e n y a n g ’ s P o s i t i o n i n N o r t h - e a s tC h i n a

Shenyang, as the provincial capital of Liaoning, is thecentre of economy, culture, traffic, commerce,finance, science and technology and information forthe north-eastern area of China. It has nine districtsand four cities under its jurisdiction. Geographically,it lies in the hinterland of the Liaodong Peninsula, inthe south of the north-east area of China and, as aheavy industrial base, it plays a decisive role in China.Shenyang is also a particularly large economic centralcity covering 12,980 square kilometres and having apopulation of over 6.8 million. According to thelatest statistics, published by State Statistics Bureau ofChina in 1998, Shenyang is listed fifth, among the219 cities in China, in terms of overall capability.

Shenyang is a culturally renowned city with a longhistory. In the early New Stone Age, more than 7,000years ago, its ancestors began farming and fishing andsettling in the area. About 2,000 years ago, the HanDynasty set up its county-level regime – HouchengCity. And more than 300 years ago, the former QingDynasty once founded its capital in Shenyang, namedShengjing. When the capital was moved to Beijing,Shengjing was kept as its accompanying capital.

Shenyang’s modern industry began at the end of 19thcentury. By the 1930s, Shenyang had become the

We want to turn Shenyang from being a traditional industrial

city into an international, modern metropolis.

Commitment to Shenyang ’s Deve lopment

129

largest industrial centre in the north-east area ofChina. In the early 1950s, 26 key industrial projectsin 156 large construction projects of new China werecarried out in Shenyang for investment andconstruction. This resulted in Shenyang becoming awidely renowned heavy industrial city and one of theequipment industry bases in China.

With the solid industry basis and comprehensivecapability of providing the auxiliary products,Shenyang is a comprehensive industrial citycharacterised by an industry producing metallurgy,building materials, automobiles, medicines,petrochemicals, light industry, textiles, electronicsand aviation and aerospace, etc. In recent years,Shenyang has accelerated its industrial reconstructionand assets restructure, and has focused oninvigorating the large and medium-sized SpecialOperation Executives. Eighteen large enterprisegroups have been set up, including:

• Shenyang Machine Tool Company, which is oneof the largest machine tool manufacturers in Chinaand the machining base of computer numericalcontrol (CNC) machines in China as well;

• the Northeast Power Transmission &Transformation Group Company, which is one ofthe largest in the sector in China;

• Shenyang Special Environmental ProtectionEquipment Group Company, which is the firstlisted company in the environmental protectionmachinery sector;

• Shenyang Dawn Garment Group Company,which is a large transnational corporation ofcotton spinning and weaving and garmentmaking; and

• Northeast Pharmaceutical Factory, which is thelargest material medicine production base inChina.

Shenyang’s enterprises in the aviation and aerospacesector are also coming first nationally – the firstChinese jet plan is being produced there. For manylarge construction projects, such as the hydroelectricpivotal project of the Changjiang Gorges, Shenyangprovided complete sets of key equipment. Shenyanghas more than 50 enterprises in all kinds of sectors.

The wind of reform and the opening up of China tothe outside world brings a unique historicopportunity of development of science andtechnology in Shenyang. At present, 428 scientificresearch institutions, about 3,000 private-runscientific research enterprises, 30 colleges anduniversities, 550,000 employed people and a large

batch of international advanced testing and detectinginstruments for the national-level test bases forms itswide and comprehensive scientific research system.As a result, this considerable strength takes Shenyanginto the leading position in China. The sectors, suchas integration of machine and electricity, precisechemicals, electronics and information, newmaterials and computer software etc, have been themain factors in the economic development ofShenyang.

In the light of its target to become a financial centrein north-east China, Shenyang is actively advancingreform in its financial systems and the opening up ofthe financial sector. As a result, there are 1,945financial institutions in Shenyang. Nowadays, inShenyang as a city with open finance, the foreign-funded financial organisations, such as DutchCommercial Bank, are coming in in a continuousstream. Its stock market is also conducting a brisktrade: its total amount of transactions of stock adds upto an annual Y34.51 billion and the total number ofits transaction centre members expanded to 94.

Enjoying a comprehensive transport network,including aviation, railway, highway and local traffic,Shenyang has, in geography and reality, become thehub of communications and telecommunications inthe north-eastern area of China. Its fast, accurate andhighly efficient telecommunications system has givenShenyang tight links with places both nationally andinternationally.

These geographical advantages influence Shenyang’seconomy increasingly day by day. By taking the localmarket as its target and relying on modernised traffic,Shenyang is forming a well-known, city-groupeconomic area in central Liaoning. The area ofShenyang’s 150km radius contains: Anshan, the cityof steel; Fushun, the city of petrochemicals; Benxi,the city of coal; Dandong, the city of light industryand textiles; Yingkou, the main port; Liaoyang, thecity of chemical fibre; and Tieling, the city of grainand coal. This industrial city group gives Shenyangthe endowed good conditions for developingShenyang’s economy.

As the new millennium is drawing closer and closer,Shenyang municipality has decided that far morecreative and effective work will need to becontributed to the new Shenyang and the newmillennium. Shenyang will become much morebeautiful and prosperous with committed endeavourfrom its citizens. Meanwhile, the municipality iseagerly anticipating the endorsements and co-operation from its friends at home and abroad. Thepatronage from its domestic and overseas friends iswarmly welcomed and deeply appreciated. Shenyangis always open to the world. ■

1) 330 CC X 24 BTLS/CARTON, 330 CC X 4 X 6 BTLS/CARTON

1008 CARTONS/20’ CONTAINER

2) 355 CC X 24 BTLS/CARTON, 355 X 4 X 6 BTLS/CARTON


3) 640 CC X 24 BTLS/CARTONS

570 CARTONS/20’CONTAINER

4) 500 CC X 12 BTLS/CARTONS


5) 355 CC X 24 CANS/CARTON


Address:

16/F, Tsigtao Beer Tower, May 4th Square, Hong Kong Road Central, Qingdao. China.Tel: (0532) 571 2437: 571 5165Fax: (0532) 571 4533

Being a world-famed brand, Tsingtao beer is well received

by people for its crystal clarity, snow-white fine foams

with prolonged adhesion to the glass and its refreshing mel-

low taste. It has been awarded the China National gold medals

seven times and the championship prizes three times in the

international wine appraisals held in the United States.

Tsingtao beer has been exported since 1954 and presently it is

available in 40 countries and regions. Besides its regular beer,

a series of products including Tsingtao Stout, Tsingtao Light,

Tsingtao Red, Tsingtao Premium and Dragon + Phoenix canned

beer, etc. were developed.

Now the company’s import and export business is handled

by Tsingtao Brewery Imp./Exp. Co., Ltd. Friends who are inter-

ested in establishing a business relationship with us, please

feel free to contact us.

Specifications of Tsingtao Beer:

Contact Person:

Mr Wang Zhi Guo, Mr Chu Liang JingE-mail: [email protected]

131

a report by

J a n g J i n j i n g

Mayor, Yantai City

Although Yantai has quite a long history, it onlybecame a city relatively recently. In 1858, because ofan unfair treaty signed between the Qing Court andthe French government in Tianjin, Dengzhou (theold name of a city near Yantai, now under theadministration of Yantai) became a trade port. Threeyears later the port moved down the coast to Yantai.

Due to its enviable geographical location – situatedin the middle of the Shandong Peninsular, borderingthe Yellow Sea and the Bohai Bay, overlooking theLiaodong Peninsular, Japan, South Korea and theDemocratic People’s Republic of Korea – Yantaiplays an important role among a number of citiesalong the Bohai Bay economic circle, where thestate gives priority to its development. Yantaiadministers four districts, one county, seven county-level cities and one Economic and TechnologicalDevelopment Zone. Yantai covers a total area of13,700 square kilometres and has a total populationof 6.434 million, of which the city proper occupies2,643.6 square kilometres and has a population of1.568 million.

Due to its location, 11 of Yantai’s districts, countyand county-level cities border the sea. Its coastline is909 kilometres long and it is considered to be animportant area for fishing in China. Its undergroundmineral resources are also very rich: there are over70 minerals found in Yantai, among which thedeposits of 40 kinds have been proved. Its depositsof gold, talc, magnesite and molybdenum all rankamong the top five in China. Gold deposit andproduction, in particular, are both ranked first forthe whole of China.

Yantai has good traffic and telecommunicationsservices and a complete network of highwaysconnects all the towns and villages:

• There are direct trains to Beijing, Shanghai,Jinan and Qingdao, etc. and, at present, theLancun-Yantai double-track and Dezhou-Yantai railways are under construction. Inaddition, the Yantai-Dalian ferry railway hasbeen listed as one of the priority statepreconstruction projects in 1999.

• Yantai now has nine ports, of which four areequal to any in the state. Yanta Port is animportant trade hub port in northern China andhas navigation lines to over 100 ports in morethan 70 countries and regions.

• Yantai Airport is one of the best in the state andnow has 23 airlines flying to many cities home andabroad, including Seoul, Hong Kong, Beijing,Shanghai, Guangzhou, Dalian and Shenzhen.There are over 90 flights a week in the high season.

• There are 1,307,000 telephone lines and all phonecommunication is now programme-controlled. Inthe Yantai region, 14.3% of people have atelephone, while 38.4% of people in Yantai cityhave telephones.

In recent years, Yantai has won many awards, suchas National Clean City, Superior InvestmentEnvironment of China (one of 40 cities), NationalModel City for Environment Protection andNational Excellent Tourism City. There has been agreat improvement in the provision of sufficientenergy supplies, as well as in the provision ofsufficient power, water, gas and heat supplies. Thepower capacity is 1.5 million kilowatts. The largeLongkou Kengkou power plant, which is the firstfactory to be built through funds raised by both thelocal and national governments, has a capacity ofone million kilowatts. The city’s water supply isalso sufficient to meet local demand, with anaverage daily tap-water supply of over 255,000tons. The Bohai gas project, which is now beingplanned, will be able to produce a daily supply of1.5 million m3, including 0.8 million m3 forresident use, when it is completed.

Yantai has made great progress in education andtechnology. In 1998, Yantai was honoured as theNational Model City for Technology Innovationand all 12 districts and counties under itsjurisdiction were made Advanced Science andEducation Counties (or districts). Nine were alsodesignated as having the Strongest Science andTechnology Power, an award bestowed on only100 counties or districts throughout China. There

Yanta i – A Br ight Pear l o f the Ye l low Sea

CHINESE PERSPECTIVE

Shenyang Special Environmental Protection

Equipment Manufacture Co Ltd is a national

large-scale enterprise, designated as the

Environmental Protection Industry Base of

China by the State Council and as the cadre of

Shenyang Environmental Protection Group by

the Shenyang Municipal Government.

The Company has 18 branch companies,

and has offices in the United States, Japan,

Australia, Germany and Hong Kong. The company specializes in environmental products,

including waste treatment equipment, dust removal equipment, noise control equipment,

and also potable water equipment, chemicals, pharmaceuticals, special wires, boiler dust

removal equipment, auto parts, casting and realty development.With its strong management

team and technical forces, the company offers superior quality products. The prominent

leadership represent by LiuGui Qin, Chair and General Manager, who is a National Model

worker and an Excellent Entrepreneur, ensures the healthy development of the business.

The fixed assets of the company is 15.9 billion RMB yuan.The company occupies 1.58

million sqm.The sales revenue of 1997 reached

10 billion RMB yuan. Since 1995, the company

has received a number of honourable titles,

such as ‘National Advanced Enterprise for

Environmental Protection Technology’, ‘One of

the ºNational Top 100 Enterprises of

Environmental Protection Industry’, ‘AAA

Credibility’.

While vigorously pursuing industrial

wastewater treatment, the company also

places a great deal of effort in

contracting projects of large city sewage

treatment, where the treatment process for city sewage has been successfully developed.

Fj series Flotation Cleaner is a gap-filling product patented in China. It was listed on National

Torch Program by the Science and Technology Commission of China. It was defined as the best

practical technology (Grade A) by NEPA (National Environmental Protection Agency) and is to

be diffused across the country.

Flotation Cleaners and its

co-working chemicals are widely used

in oil fields, oily wastewater of

Petroleum or Chemical Industry,

wastewater from refinery process, cabin

ballast water, steel-rolling water, coking

wastewater and industrial wastewater

from paper mills. It can be also used in

pretreatment of municipal sewage.

SHENYANG SPECIAL ENVIRONMENTALPROTECTION EQUIPMENTMANUFACTURE CO. LIMITED

Address: No. 118 Renao Road,

Shenhe District, Shenyang, China

Tel: 024-24801450 24801451 24801413

Cable: 4319 Shenyang Fa: 024-24812328

Postal Code: 110011

BUSINESS SCOPE AND PRODUCTS

Pure Water Production Line

Corner of Sewage Treatment Agent Workshop

Floatation Cleaner

Shenyang Southern Sewage Treatment Model Plant

National Model WorkerNational Excellent Woman EnterpriserThe Board Chairman and General Manager:Lui Guiqin

are 47 state-owned scientific research institutionsand 1,190 privately-owned or collective-ownedtechnological enterprises, in which 290,000scientifically-qualified people are working. In 1998,more than 78 scientific and technologicalachievements were awarded by provincial, orhigher, authorities. A total of 112 projects werelisted in the Torch Plan of the State and Provinceand five projects that were listed in the 863 Plan ofthe State have been carried out.

A compulsory education system of nine years hasbeen introduced in Yantai and the general level ofeducation ranks alongside that of the best cities inChina. Achievement of qualifications is the mostadvanced in the country. There are six universitiesand colleges in Yantai with a total of 25,000 students.

Yantai is one of 14 coastal cities that have receivedofficial State Council approval to open up to theoutside world. International communications andco-operation has increased greatly in Yantai and thecity has now established sister-city relationship withBeppu and Miyako, in Japan; San Diego, in the US;Tauranga, in New Zealand; Kunsan, in SouthKorea; Toljatti, in Russia; and Phuket, in Thailand.In recent years, Yantai has successfully held the1996 China Yantai-East Asia Cities Import and

Export Commodities Fair, the Second Asia-PacificEconomic Cooperation (APEC) InternationalTrade Fair and the Second APEC Small andMedium-Sized Enterprises Technology Exchangeand Fair. In 1998, a total US$500 million of foreignfunds was utilised. Altogether, a total of US$3.8billion foreign funds have been utilised. Over 1,860foreign-invested enterprises have been put intooperation, of which 183 enterprises have investedmore than US$10 million. The total import andexport volume amounts to US$2.23 billion andmakes up 23% of the local GDP.

Yantai is ranked 18th in terms of GDP among thelarge and medium-sized cities in China, according tostatistics released by the State Statistics Bureau in1996, and 33rd in China’s 50 Economic Powers.Seven of its districts or counties were named asCounties of Strong Economy of the state or theprovincial level. In 1998, local GDP was RMB80.5billion and the added value of the first, second andtertiary industries was RMB14 billion, RMB41.94billion and RMB24.56 billion respectively. The GDPper capita was RMB11,200. The total fiscal incomewas RMB5.35 billion, which included a local fiscalincome of RMB2.75 billion. The utilisable incomeper capita for urban residents was RMB6,049 and thenet income per capita was RMB3,167. ■


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135

a report by

Noma i n d i a M f e k e t o and Ph i l i p v a n R y n e v e l d

Mayor and Chief Finance Officer

The metropolitan area of Cape Town is situatednear the southern tip of Africa and has a populationof approximately three million people. It is a coastalcity of unusual natural beauty, built around a rangeof mountains, including the famous TableMountain, which have recently been declared anational park and are home to an immense variety ofindigenous flora.

The population of Cape Town is very diverse.Under apartheid, it was not only highly segregatedalong racial lines but there were very substantialdifferences in income levels across the city. Manyparts of the city provide an extremely attractive livingenvironment with natural beauty and very highservice standards. However, approximately 50% ofhouseholds have incomes below what is regarded asthe poverty line, and a further 15% are at levels justabove this. The task of reconstruction is thereforenot only to make the city more racially integratedand open but to significantly reduce the gap betweenrich and poor by enhancing the conditions of thoseliving in poverty.

The ability to do this, in terms of political andinstitutional capacity and economic potential, doesexist. It is of critical importance to the future of thecity that the process is effectively managed over thecoming decade.

The city has a varied economic base, largelydominated by service industries, especially tourism,but that also includes a significant manufacturingsector. South Africa’s national parliament is situatedin Cape Town. The city also boasts world-classmedical services and strong tertiary educationinstitutions, including the University of CapeTown. The hinterland is rich in agriculture –mainly fruit, wine and wheat – much of which isexported through the port of Cape Town, alongwith other goods from across southern Africa. Therecent successful conclusion of a trade deal with theEU is expected to give the economy of the area afurther boost.

The tourism sector has grown rapidly in the last fewyears. Numerous hotels have been built and the

guesthouse sector is booming. Much of this growthis due to increasing numbers of international visitorsarriving at Cape Town International Airport, whichis currently being enlarged.

To effect reconstruction it is necessary forgovernment and other institutions, and especiallylocal government institutions, to undergo verysubstantial change. This process is currentlyunderway. Under apartheid, there were more than70 racially-based local councils in the metropolitanarea of Cape Town with 18 different administrations.In 1997, these were re-organised into six councilswithin a metropolitan structure. The City of CapeTown, with 1.3 million people, is the largest of theseven authorities.

In 2001, another process of local government re-organisation is due, which will create a singlemetropolitan council to run Cape Town. This islikely to be accompanied by major changes to theway in which services are delivered, with water,sewerage and electricity distribution services inparticular being shifted out of local government intoindependent utilities providing services on behalf oflocal government.

Local government in Cape Town is almost entirelyself-funded. Approximately half the revenues arefrom water and electricity tariffs, while taxes areraised mainly through the property tax togetherwith turnover and employment levies on business.Loans are raised from the private financial sector tofinance capital investment in infrastructure. Themost recent Fitch IBCA credit rating for the Cityof Cape Town is A1 for the short term and A+ forthe long term. (These ratings are shortly coming upfor review.)

A process of modernisation of the property taxsystem is underway, with a general valuation of allproperty in the metropolitan area based oncomputer-aided mass appraisal techniques due forimplementation in 2001.

The decision to create a single metropolitan-widelocal government for Cape Town has been driven

Cape Town: An Emerg ing C i ty

AFRICAN PERSPECTIVE

by the need to tackle poverty through addressingthe city’s major service and housing backlogs, aswell as to promote economic development andplan effectively for a rapidly changing anddeveloping city. A properly controlled process ofland release for new development on ametropolitan basis is likely to be one of thesignificant positive outcomes of the newmetropolitan system. There is already a goodnetwork of bulk infrastructure in place, which isbeing augmented as new areas are opened up. Thecreation of a single metropolitan-wide tax baseenables the development of underdeveloped areasto be effectively financed.

While the main thrust of the re-organisation oflocal government is towards metropolitanisationtogether with the creation of utilities for servicedelivery, there is also a process underway to explorenew forms of local governance at a community orneighbourhood level. Bylaws have recently beenpassed to set up city improvement districts, wherelocal areas can vote to raise a surcharge on theproperty rate, which is then passed back to the areafor local improvements. A non-profit companycalled the Central City Partnership has recentlybeen created to co-ordinate and drive thedevelopment of the downtown area. Already, apartnership between the City of Cape Town andbusiness has led to the introduction of extra policinglinked to a new network of surveillance cameras inthis part of the city, resulting in a very dramaticdrop in crime. The system is now being rolled outto some of the poorer areas, where problems withcrime are most prevalent.

There are a number of significant developments duein the near-to-medium term. By far the mostsubstantial is the planned piping of gas to CapeTown from the Kudu gas fields off the southernNamibian coast. Indications are that these gas fieldsare very large. The viability of the project isdependent upon the conversion and upgrading of acoal-fired power station currently owned by theCity of Cape Town to a gas-fired entity with anoutput of 1,000MW. Gas would also need to be soldto a very large new steel plant north of Cape Town.It is highly likely that this project, which wouldentail investment of an estimated US$1.5 billion,will go ahead in the fairly near future. Most of thepower consumed by Cape Town is currentlygenerated from coal-fired power stations over 2,000kilometres away and the gas-fired station would be

much cleaner and cheaper. The spin-offs for theindustrial sector if gas is readily available in themetropolitan area would be immense.

Much smaller in financial terms, but also verysignificant for the city, is the proposed development ofa major conference centre. The lack of such a facilityis a constraint for the city at the moment. As anattractive Third World centre with a growinginternational profile there is substantial interest inholding international conferences in Cape Town and,despite the lack of adequate facilities, there has been avery marked increase in such events in the recent past.It is likely that the conference centre would be situatedclose to the Victoria and Alfred Waterfront, the city’sextremely successful harbour redevelopment.

The city has a programme in place to developinfrastructure and economic activity into poorer andless developed parts of the city. A key element to thisis what is known as the Landsdowne Wettoncorridor. This is a development axis stretching froma relatively wealthy part of the city to some of thepoorest areas. In a joint project with the nationalgovernment, there is a large amount of newinfrastructure either being built in the corridor orbeing planned for the near future.

A century ago, prior to the age of air travel and thebuilding of the Suez Canal, Cape Town was a keycosmopolitan centre of the Southern hemisphere – astopping-off point for ships rounding Africa. It isnow showing the potential to re-emerge as asignificant international centre of the south.

An indication of this was the city coming third,behind only Athens and Rome, in its bid to host the2004 Olympic games. It is already being regarded asone of the important international venues formillennium events, with President Mandela hostingcelebrations on Robben Island in Cape Town’sTable Bay, as part of the city’s programme. It hashosted a stream of key international dignitaries inrecent times and, with a strong possibility of SouthAfrica being made a permanent member of theUnited Nations Security Council, this could becomea firmly established phenomenon.

With its diverse population, its mountains andbeaches, its good infrastructure and services, itssound governmental and other institutions and itsinternational political profile, Cape Town is well setto compete successfully in the new millennium. ■

136


Some Representatives of the City of Cape Town

Mayor Nomaindia Mfeketo nmfeketo.cct.org.za

Chair of the Executive Committee Saleem Mowzer smowzer.cct.org.za

City Manager Andrew Boraine aboraine.cct.org.za

Chief Finance Officer Philip van Ryneveld pvryneve.cct.org.za

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138

Ann Bernstein is Founding ExecutiveDirector of the Centre for

Development and Enterprise (CDE),an independent policy think-tank.She started CDE Research, as wellas the CDE Resource Booklet series.

In July 1997, she was re-appointedto the Board of the Development

Bank. In 1994, she was appointedto the Development Bank

Transformation Team of SouthernAfrica. In 1993, Ms Bernstein was

appointed to the independentcommittee of experts asked by themulti-party negotiating process to

look at the regional boundaries fora democratic South Africa. In 1992,she was a founding trustee of theInstitute for Multi-party Democracy.In 1991, she was a Visiting Scholar

at the Institute for the Study ofEconomic Culture, Boston University.An earlier post of her professionalcareer was spent working for theUrban Foundation (1982–1995),South Africa’s largest privately-

funded research organisation. Shewas educated at the University of

Witwatersrand and the University ofCalifornia, Los Angeles, where she

was awarded an ErnestOppenheimer Memorial Trust

Fellowship.

a report by

Ann B e r n s t e i n

Founding Executive Director, Independent Policy Think-tank, the Centre for Development and Enterprise (CDE).

The history of Pretoria since 1950 is that of a citybuilt around “ethnic exclusion and ethnic patronage”.The tide has turned. Pretoria at the end of the 20thcentury is now a city in search of a new identity.

Pretoria is one of the least ‘African’ of South Africa’smetropolitan areas. It is a city surrounded to thenorth by poorly serviced dormitory suburbs in whichconditions are even worse than those in the formerblack areas within the boundaries of the greaterPretoria metropolitan council.

Functionally, Pretoria is a three-lobed metropolitancomplex of about 2.5 million people of whom abouthalf are located in the former homelands. Thesethree lobes – a southern core (official Pretoria), anorth-western satellite (Winterveld) and a north-eastern satellite (former KwaNdebele) – are highlyinterdependent, yet each is separated from the othersby considerable distances, agricultural land andpolitical boundaries. Nowhere else in South Africahas intra-metropolitan apartheid and segregationbeen so pronounced.

Winterveld is one of the most glaring legacies ofapartheid; a settlement of about 200,000 people,most of whom live in shacks with poor servicinglevels. More than 80% of those who work do so inPretoria; unemployment is estimated at more than40%. In many respects, the area is administered as ageographically marginal outpost of Mafikeng (NorthWest government). Winterveld – like the settlementsin KwaNdebele – is not a town in its own right andis dependent for its economic survival on links witha proper city, Pretoria.

Considering that some 86% of formal employmentis primarily met within the central core area ofMetropolitan Pretoria (Pretoria City Council), it isnot surprising that the Centre for Developmentand Enterprise (CDE) was concerned with the issueof effective economic linkages. On average, socio-economic conditions in formal Pretoria are betterthan those in other South African metropolitanareas. However, this is because Pretoria haseffectively excluded a large part of its population.Most of the city’s poor and marginalised are to be

found outside city boundaries. While blackhouseholds in legal Pretoria increased their realincomes by 17% between 1985 and 1995, realincomes in Winterveld dropped by 12%. In 1994,the new provincial boundaries perpetuated aracially divided Pretoria. This functionalmetropolitan region is bizarrely located in threedifferent provinces. This allows legal Pretoriato externalise the costs of its growth anddevelopment by passing off responsibility for the poor to other, less resourced authorities (North West and Mpumalanga provinces) – ratherlike what apartheid planners of the 1960s and 1970shad in mind.

Pretoria has become what it is today – a highlyfragmented and divided metropolis – through aconcerted political programme of division andseparation lasting more than 50 years. Thedormitory communities that depend on and servePretoria have been politically and administrativelyexcluded from their claim on the budget, capacity,resources and energy of the country’s third largestcity. They have been condemned to perpetualmarginal status.

But it was not only apartheid that was exaggeratedin Pretoria. The public sector component of theeconomy and parastatal industry was alsoexaggerated. The average size of an industrialenterprise (86.5 workers) is almost twice that ofJohannesburg-Randburg (44.1). The percentage ofwhite employees in industry (36.3%) is nearly twicethe national average (20%). Pretoria industries aremore capital-intensive than the national norm, lessprofitable and more often established withgovernment support. With a downsizing,restructuring public sector and several parastatals(for example, Iscor and Denel) scaling back, thecity’s economic pattern is unlikely to last. Pretoriahas to find a new economic base.

The city is suffering from an identity crisis, whichrelates in part to three factors:

• the continued exclusion of blacks from the city;• its sustained public sector focus; and

Only Good Leaders Wi l l Take the R ight Road

AFRICAN PERSPECTIVE

Only Good Leaders Wi l l Take the R ight Road

• a failure to come to grips with the past.

A bold move to deal with all three of theseinhibiting factors towards a truly non-racial andregionally-orientated public/private partnership isa more realistic, sustainable way forward. What isneeded is an agreed and inspiring vision of thecity’s future – a growth-orientated vision offocused excellence.

Developing such a vision will need a thoroughunderstanding of the Pretoria economy and trendsaffecting it. This city, of all cities, could positionitself cheekily as the capital of the ‘Africanrenaissance’, but the CDE failed to find anyonethinking so boldly about Pretoria’s future.

According to CDE, ‘Parliament for Pretoria’ is aninsufficient focus for the city’s development. If thiscampaign is allowed to dominate publicconceptions of the city’s future, it could divertattention away from more fundamental issues. It hasbeen calculated that there are only 960 jobs directlyand 3,655 jobs indirectly linked to Parliament,although about 8,700 other jobs could be affected.

Some other possibilities are detailed here.

• Pretoria probably has the most advanced andconcentrated research, development and trainingcapacity of any city on the African continent –these resources can be pooled into aninternationally competitive consortium focusedon the needs of the continent;

• Pretoria has some of the country’s best highways,hospitals, sports stadiums, zoos, libraries,museums (35) and public parks – about 66 naturereserves, game farms, holiday resorts and spas inand around the city, and the renowned NationalZoological and Botanical Gardens;

• Market the city as a domestic tourist attractionthrough public/private partnerships aimed atattracting visitors to the diverse physical, cultural,historic and symbolic assets, old and new;

• Build on Pretoria’s advantage as one of SouthAfrica’s most liveable cities to attract further

investment – crime rates are lower than the rest ofurban Gauteng, and schools are good; and

• Build on Pretoria’s manufacturing strengths, forexample in the motor industry, which couldincreasingly be focused on exports (particularlyto Africa). Metropolitan government must workwith the motor industry, understand its needsand ensure that the city does not lose to coastalmetropolises.

On the financial side, Pretoria planned for anoperating surplus with capital expenditure (R332million) being prioritised through the IntegratedDevelopment Plan (IDP) five-year budget process.Its relative good financial standing is a positivefactor but does not guarantee future success,particularly with the added development pressuresand innovative financing mechanisms required tomeet such pressures. Effective leadership and an‘entrepreneurial’ flare are going to be much neededin the future.

Probably more than any other South African city,Pretoria faces critical decisions concerning its future.

Making those decisions will not be easy, becausemuch is at stake – economically, culturally, politicallyand symbolically. Bold and courageous leadershipwill be needed to move beyond the current cautiousmode of the ‘adaptive modernisation’ which couldgradually lead to the city’s decline.

What kind of vision do the new national and localpolitical leaders have for Pretoria? Or is there aperception that things were not that bad inapartheid’s capital?

No city should assume that the future will be like thepast. Cities that do not find a new local, regional orglobal niche will decline. The central message of thecentre’s research is that in the context of the twinprocesses of political democratisation and economicglobalisation, Pretoria has the potential to become an‘African rising star’. This will require a radically newapproach to the city and its future. Pretoria needs to:

• build a new foundation for sustainable andinclusive economic growth in greater Pretoria; 139

Pretoria has the potential to become an ‘African rising star’.

This will require a radically new approach to the city and

its future.

• resolve its identity crisis by adopting a bold andunifying new growth and development vision inwhich the city emerges as a place with“something for everyone”;

• look northwards for cues on what form this newidentity might assume, and focus as much on itspotential links with the north as on its actual linkswith the south;

• pursue a new developmental agenda centred onthe city’s potential to become the entrepreneurial,training, research and development hub of centraland southern Africa, drawing on its establishedstrengths in these areas, but making Africa as awhole its new frontier;

• face its interdependence with poor commutercommunities now located in North West andMpumalanga and develop a wider vision builtaround this reality;

• lobby for the relocation of parliament to Pretoriabut use this as a lucky trigger to unleash the city’sbroader development;

• offer the country a quid pro quo for parliament’srelocation to Pretoria by making a significant andlong-lasting commitment to the development ofthe neighbouring marginal settlements ofWinterveld and KwaNdebele; and

• cultivate a new multiracial, multiclass ‘growthcoalition’ with the common purpose of fosteringthe expanded city’s future growth, developmentand prestige.

Pretoria already has much going for it in terms ofphysical and cultural infrastructure, local/metropolitan finances and capacity, not least, physicalcloseness to the new state and closeness to theemerging commercial and industrial hub of SouthAfrica (Midrand, Sandton and Johannesburg).

The challenge is to find the ‘champions’ who can builda leadership class for Pretoria that will reflect a newinclusive vision and a more diverse set of interests.Subtle national intervention might be required toencourage leaders, across the city, to emerge.

S i n c e t h e CDE P ub l i c a t i o n w a s L a u n c h e d

On two of the more important key policy directionsproposed by the CDE in the Pretoria document,current observations are as follows:

• A number of very recent statements by theGauteng provincial Government and National

Demarcation Board (a board of appointedexperts investigating the local authorityboundaries throughout South Africa) allindicate that Winterveld is high for inclusionfor incorporation into Pretoria management.This will occur under the notion of a ‘crossborder arrangement’ between the respectiveProvinces, the details of which are still to beironed out.

• Some recognition is given to the restructuringof the economy but it is generally felt that thishas not occurred sufficiently well and thatPretoria needs to continue to look at itseconomic imperatives and direction. On paper,the Pretoria Metro Infrastructure Programme(the “Metro”) appreciates the importance ofdeveloping an economic vision and strategy butthis is neither fully developed nor effectivelycommunicated. The existing vision essentiallyconsiders the notion of Pretoria as the capital forSouth Africa; establishing an integrated urbanarea providing integrated and accessible socialfacilities; promoting economic growth; andfacilitating a people-friendly managementsystem. It is apparent that the vision is notnecessarily focused on the strengths and keystrategies advocated by the CDE. Furthermore,it is not clear how the current programmes ofaction are aligned to the vision, what prioritiesfor public and private intervention are chosenand what trade-offs are required in order toachieve meaningful results.

Their 1998 IDP indicates, for example, that theyhave not adopted an economic vision per se. Theoverall vision included in the IDP documentacknowledges that “our well being could not besecured and advanced without integrated economicdevelopment forming a central part of ourplanning.” Projects identified for economicpromotion have, however, been established andfunded, but the rationale for such investment is notclear and it is not apparently evident upon whatstrategy such projects have been initiated.

The CDE published its report on Pretoria entitledPretoria: From Apartheid’s Model City to a risingAfrican Star? in July 1998. As part of the CDE’sproposal to Malcolm Locke of The World Bank,sponsored World Competitive Cities Congress, andby invitation from the congress publisher, WorldMarkets Research Centre, we have prepared thisarticle adapted from our Business Day media launchreport of 7 July 1998 entitled Only Good Leaders willtake the Right Road. Information for 1999 iscurrently not available from the Metro and we baseour concluding remarks on media reports and the1998 Integrated Development Plan. ■140


141

Charles Kenny is part of the writingteam for the World Bank’s WorldDevelopment Report 1999/2000,which focuses on globalisation,decentralisation and urbanisation.He was previously in the WorldBank’s Telecommunications andInformatics division, where heworked on the Internet and relatedtelecommunications issues. He haswritten and researched widely onthe links between informationtechnology and development, urbanpolicy and economic growth.

a report by

Ch a r l e s K e n n y

Development Economics Divisions, The World Bank

Impo r t a n c e o f I T

Following Nathan Rothschild’s London issue ofsterling bonds for the Prussian government in 1818,the Rothschild family dominated the Europeanforeign issue bond market for the rest of the 19thcentury. Their strength was founded on two things:contacts and communications. Along with bribingand beguiling most of Europe’s leading statesmen,the family operated its own system of courierswhich, most famously, made Nathan Rothschildthe first Londoner to hear the news of Napoleon’sdefeat at Waterloo.

The vital role of information in finance has onlygrown since then. And information technology (IT),advanced from the horse and rider, has becomeincreasingly important in the broader economy aswell. A range of studies from the micro to the macrohave found that telecommunications infrastructure isclosely related to firm productivity, sector expansionand economic growth. This effect can be particularlylarge in poorer countries. A recent McKinsey studyestimated that adding one telephone to the networkin countries with a GNP per capita of US$100 addsUS$12,000 to GNP.

The future will be even more dominated by IT. Thecost of voice transmission circuits has dropped by afactor of 10,000 over the last 20 years and computingpower per dollar invested has risen by a factor of10,000 over that same period. The effects of thesechanges have already begun to work their way intothe economy. They have digitised and globalised thefinancial world, which sees over one trillion SWIFTtransactions daily. They have fostered the un-precedented growth of the Internet and they haveseen the world IT market grow by about 12% a yearbetween 1985 and 1995. But the revolution is farfrom complete. By next year, electronic commercewill be worth US$300 billion, and it is growingexponentially.

One example of the opportunity that this creates forcompetitive cities is the software and service exportindustries of Mumbai (Bombay) and Delhi in India.Software exports from India are already worth

US$2.7 billion a year, and 25,000 Indians areemployed in remote services. McKinsey estimatesthat remote services employment in the countrymight rise as high as three million in the next 10years – a US$50 billion industry.

But improved information infrastructure offersopportunities well beyond the IT sector itself, havinga productivity impact on businesses large and small.In Nairobi, for example, one manufacturer ofindustrial spare parts and machinery recently saw hisbusiness expand by 35% after additional telephonelines were installed. In Dar es Salaam, a small import-export firm now uses 10 cent e-mails rather thanUS$20 faxes to place orders for products in NorthAmerica and Europe. As a result, the company hasseen its telecommunications bill drop from overUS$500 to US$45 a month. With thousands ofentrepreneurs and businesses, it is clear that thetelecommunications revolution can have a significantimpact on city competitiveness.

Some commentators have suggested that the ITrevolution will go even further than that, arguingthat the ‘death of distance’, fostered by decliningtelecommunications costs, presages the death ofcities. This prediction is wrong. Since the widespreadconstruction of canals in Britain in the 1750s, wehave seen an ever more rapid decline in costs ofcommunication. Yet the process of global urban-isation has never been so rapid as it is today.Changing communications technology alters whatmakes for a competitive city; it does not destroy theeffect of agglomeration economies that underlie cityprosperity. Effective proximity to deep labour andoutput markets and the transfusion of ideas andinformation all still require physical proximity. Forexample, 96% of new product innovations in the USare still made in metropolitan areas and a recentestimate suggests that, even if all of those in the USwho were capable of telecommuting for their jobshad the opportunity to do so today, the travelreduction would only equal about 1% of commutingtrips each day. In fact, it appears that improvedtelecommunications infrastructure actually leads toan increase in the number of face-to-face meetingsbetween business partners in cities.

Te lecommunicat ions and Compet i t i ve C i t i e s

IT & COMMUNICATION

T e l e c ommun i c a t i o n s a n d t h e C h a n g i n g R o l e o f C i t i e s

The role of cities will change, however. Cities willincreasingly be seen as nodes – centres for globalbusiness operations or through-routes for goods andservices travelling worldwide. The effect ofdeclining communications costs of all types hasbeen a ‘splicing up the value chain’, for example, inproduction processes. Between raw and finalproducts, goods are moving around the globe –often remaining the property of the samemultinational company but, at different stages,being worked on in factories from Rio to Taipei toDetroit. Each time the item moves, it will passthrough cities that act as national and internationalgateways for goods and services. Connected withthis role will be the panoply of services that a nodalcity requires – international airports, luxury hotels,secretarial and consultancy support, strong localfinance and labour markets and, not least, a world-class telecommunications network.

It is hard to overemphasise the importance oftelecommunications and informatics infrastructure inattracting investment and retaining a role as a node inthe global economy. Directly, advanced infrastructureis the most important factor in determining theregional headquarters location of East Asian multi-nationals, according to a recent survey of firms inSingapore, Taiwan Hong Kong and China. It was thesecond most important factor in determiningproduction and sourcing operations (see Table 1).

Indirectly, IT can have a dramatic impact on theefficiency of a city as a gateway for products andinformation. For example, Singapore hasdramatically reduced the costs of import and exportthrough Tradenet. This networked informationsystem allows importers and exporters to declaregoods from their office computers. The informationis routed to various government departments andclearance is usually received within 15 minutes.Combined with a realtime vessel management

system at the port, this has allowed for shipturnaround times of under 10 hours and estimatedsavings of about 1% of the city-state’s GDP. Everyyear, the average customs official in Singapore is ableto clear US$666 million worth of goods. Comparethis performance with other developing countries:in Egypt, for instance, imports face three days ofdelays going through clearance procedures and theaverage customs official clears just US$600,000worth of goods a year. These delays cost theequivalent of a 15% tariff on imported goods.

Clearly, then, the presence and use of cheap andwidespread information infrastructure is vital to citycompetitiveness. At the moment, however, thequality and cost of information infrastructure variesmarkedly around the world. To take one example,the cost of high-capacity leased lines vital to theoperation of information industries and the Internetvary greatly across countries. The cost of leased linesin Argentina is approximately 50 times its cost in theUS. The same is true of international telephoneservice charges. Table 2 lists the cost of a three-minute peak-rate call to New York from variousdeveloping countries around the world. The tablesuggests that a Moscow-based exporter facessignificant disadvantages compared to his Budapest

142


Table1: Factors Contributing to Firm’s Location Choice by Major Activity

Ranking of Factors in Decisions on Placing

Factor Regional Headquarters Production Sourcing Average

and Service

Advanced infrastructure 1 2 2 1.7

Distance from market 3 6 3 4.0

Manpower (skill and availability) 2 4 5 4.1

Other costs 7 5 1 4.3

Cost of labour 6 1 5 4.5

Ordinary infrastructure 4 8 4 5.3

Entry to local market 7 3 5 5.5

Other 4 7 5 5.8

Source: Mody and Reinfeld, 1997.

Country Cost

Russia 7.91

China 7.31

Indonesia 5.42

India 5.01

Thailand 4.94

Brazil 4.94

Chile 3.83

Hong Kong 3.79

Poland 3.43

South Africa 3.25

Hungary 2.80

Singapore 2.54

Source: Economist Intelligence Unit.

Table 2: Cost of a Three-minute Peak Call to New

York (US$, 1997)

Changing Patterns

Constant Thread

www.startec.com

They come to the cities, as they have done for centuries, seeking opportunies and new lives.And while their circumstances may change, one thing remains constant — the need to stay connected — which is why Startec provides superior international communications services for ethnic communities and their families. Through its multilingual customer service center that is tailored to meet the distinct cultural needs of immigrants, Startec connects various ethnic communities in cities around the the world, bringing The World Closer to Home.

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Changing Patterns

Constant Thread

counterpart, having to pay nearly three times asmuch to contact US import firms.

How do cities create a broad-based, low-costtelecommunications network? Evidence at thenational level, at least, suggests one clear answer.Privatisation and competition greatly increases therollout of service and lowers its price in both basic andadvanced services. Figure 1, based on evidence from aset of Latin American countries, shows that privatisedopen markets saw basic line roll out approximatelythree times faster than countries with a state monopolyand a recent study of African Internet service providerssuggests that countries with a highly liberalisedtelecommunications network saw costs of Internetaccess eight times lower than those with a completelyclosed market.

Compe t i t i o n i n C i t i e s

But what about the benefits of competition in citiesin particular? Overall, the results are likely to be evenmore impressive. The higher the density of users, thelower the fixed costs of entry into the sector and sothe greater the ease of competition. Indeed,population-dense, competition-friendly Asian citiesare leading the world in access to new technologies,especially in the wireless sector. Code DivisionMultiple Access (CDMA) technology is being rolledout rapidly to offer wireless users comprehensive andquality access in tunnels, subways and buildings.

But even in Africa, competition has become intensein cities where it has been allowed. Mobitel, a secondcellular service operator, began service in Accra,Ghana, in 1992. The company’s business plan calledfor it to extend services to the country’s second maincity only when it could finance the expansion out ofretained earnings. But, after a new operator

announced it could provide services in both citieswithin a few months, Mobitel rushed to provide itsown service –and halved prices at the same time.

For competition to be as strong as possible awidespread liberalisation of the telecommunicationssector is required. India – keen to preserve its lead inIT services – is contemplating new policies aimed atexpanding competition across a range of services.Proposals include allowing Internet service providersto bypass the state monopoly telecoms company,VSNL, by using cable TV networks to access clientsand setting up their own international connectionsto the US Internet backbone. (This has already putdownward pressure on the price of VSNL’sconnection.) The policy also recommends allowingthe railways and power companies to compete withVSNL. The more widespread that competition isallowed, the better.

Yet, competition in cities will require the same rulesto work as it does nationally. Without strongregulation – especially over the issue of inter-connection charges between operators – telecomm-unications will remain largely under monopolycontrol. In Poland, the benefits of liberalisation havebeen thwarted by poor regulation. Around 200telecommunications licenses have been issued since1990, but only 12 were in use in 1996. Unfavourableterms of revenue sharing with the dominant stateoperator, limited access to its network andprohibitions against setting up transmission networkshave all been listed as major impediments to newcompetition. This is why the World Bank’s reformagenda in the telecommunications sector has beenbased on the three equally important principles ofprivatisation, competition and effective regulation.

Of course, regulatory policies are nearly always inthe hands of national rather than city governments.Because of their control over regulatory andcompetition policy – along with macroeconomicstability and investment and tariff policies – nationalgovernments are clearly the most importantdeciding factor in the success or failure of a city butnational governments should recognise thisresponsibility when deciding policy. Without anadvanced infrastructure network, cities will be at agreat disadvantage in attracting internationalinvestment and creating globally competitiveproducts and services. And, as much as the costs ofgovernment failure will be felt, especially in cities,national leaders should recognise that the costs ofcity failure will be felt country-wide in anincreasingly urban world. ■

The views expressed in this article are those of the author anddo not reflect those of the World Bank, its executive directorsor member governments.144


Percent per year

Statemonopolies

Privatisedmonopolies

Privatisedcompetition

25

20

15

10

5

0

Figure 1: Main Telephone Rollout in Latin America has been Faster in Open,

Privatised Markets

Source: Wellenius, 1997.

145

Ms Caldow is Director of IBM’sCenter for Electronic Communitiesand Institute for ElectronicGovernment (www.ieg.ibm.com).Located in Washington, D.C., theInstitute is a leadership resource ingovernance, economic development,citizen services, technology, publicpolicy, education and healthcare forthe digital society. Formerly theDirector of Strategic Managementfor the County of Fairfax, Virginia,her innovations in government wonher national recognition atHarvard’s Kennedy School ofGovernment. An author, researcherand frequent speaker, she holds anMBA and a BA in sociology.

a report by

J a n e t C a l d ow

Director, Center for Electronic Communities, Institute for Electronic Government, IBM

Just as cities grew and their economies flourishedalong civilisation’s earliest trade routes, the ability oftoday’s cities to leverage the world’s new trade route– the Internet – will determine competitive advantagein a global digital economy and society. Becoming a“competitive city” involves multiple dimensions –technology infrastructure, knowledge-workers, high-tech industry, e-government, e-commerce and e-communities. Equally important is the technologicaltransformation of traditional economic developmentassets, such as good schools, safe streets, a cleanenvironment, quality healthcare, livable land use andgood governance. The extent to which a city candeliver an enabling infrastructure and then usetechnology to transform all the dimensions within thatcommunity will determine distinct competitiveadvantage over other communities.

L o c a l B u s i n e s s e s a n d E - c omme r c e

History teaches us that businesses bypassed by 20thcentury mass transportation systems declined ordisappeared. The same risk exists today in the digitaleconomy. Whether a business serves only the localcommunity or considers the world to be its market,an online presence is mandatory in the digitaleconomy in order not to be left behind. One trait ofa competitive city is an aggressive strategy to leveragesmall and medium-sized business interests.

Electronic commerce, or e-business, is defined as anyexchange of value over the Internet. E-business isprojected to grow to over US$3 trillion by 2002.That figure represents only the tip of the iceberg. Forexample, only a small percentage of car buyersactually purchase a car over the Internet today.However, the majority of prospective car buyersconduct pre-purchase research on the Internet, maketheir decisions and then complete the transactionoffline. Buyers present themselves armed withdownloaded information on safety statistics, models,option packages, colour selections and the price theyare willing to pay for the car. Economic growthhinges on both online and offline aspects of business.

In the economic shift to e-business, small and medium-sized businesses are losing local online customers to

heavily advertised Internet brands. Consider the case ofa person who remembers his mother’s birthday andwants to send flowers or purchase a gift over theInternet. Search engines are still primitive andfrustrating. It is likely that that person will take the pathof least resistance and go directly to a known Internetbrand instead of searching for local online businesses.Cities can combat this with strategies as simple asproviding a yellow pages of online local businesses onthe city website so that residents think local first –whether it is to shop, arrange lawn services, hire anelectrician, or find a local manufacturing supplier.

Facilitating local businesses to go online and improvingaccess to those businesses can enhance market sharepotential as well as sales and income tax revenue. Incollaboration with the business community,educational programmes for small businesses abouthow to become an e-business are effective measures.

A t t r a c t i n g K n ow l e d g e -wo r k e r s a n dH i g h - t e c h I n d u s t r y

People no longer have to work where they live. Theirjobs may be located in another city or state or even inanother country. This new breed of knowledge-worker is a scarce resource, just as raw materials werein the Industrial Age. Millions of new jobs are beingcreated around e-commerce and, worldwide, there isa shortage of skills. The US Department of Commercereports that the information technology economicsector is growing at three times the rate of any othersector worldwide. Jobs displaced in the digitaleconomy are being replaced with new Internet-related jobs at both a higher rate and at higher pay.

Governments are competing to attract knowledge-workers to live within their jurisdiction, regardless ofwhere they work, in order to preserve and growproperty taxes, sales taxes and other revenue sources.New knowledge workers look to a technologyinfrastructure for the foundation of their work andway of life.

As former chairman of Citibank, Walter Wriston,stated: “Money goes where it is treated well.” A keycompetitive advantage in the digital economy is the

Compet i t i ve C i t i e s in a Dig i ta l Soc ie ty

IT & COMMUNICATION

public policy, legal, legislative environment thatallows e-commerce to flourish. Public policies,including taxation, consumer protection, security,privacy and universal access, shape an environmentconducive to competitiveness.

U s i n g T e c h n o l o g y t o T r a n s f o rmCompe t i t i v e A s s e t s

Traditional economic development assets, as referredto in the introduction to this piece, such as greatschools, safe streets, a clean environment, qualityhealthcare, liveable land use and good governance, arejust as important as they were in the past, except thatnew expectations have emerged. How well technologyis exploited in each of those assets is the newdifferentiation. What is the student/PC ratio? Are theschools wired? Can citizens and businesses conductbusiness with government online? Is there a healthyand growing market of high bandwidth capability –telecommunications, wireless, cable – to the home andbusinesses? Do transportation systems, law enforcementor hospitals employ the latest technological advances?Are higher education resources committed to newtechnologies, retraining and producing a workforce ofknowledge workers? Are technology strategiesemployed in urban planning and with a view tohelping alleviate urban sprawl? Are processes in placecontinually to re-evaluate traditional competitive assetsin a digital society?

E - g o v e r nmen t

Already, 60% of the population in more than 10 UScities are online, outpacing even the most liberalInternet growth projections. Other cities around theworld boast equal or higher percentages. We alreadyknow the business case is there to move citizenservices from standing in line to online. Depending onthe service the population required to use that service,and other variables, early studies indicate thatgovernments are saving up to 70% by moving servicesonline compared to the cost of providing the sameservices over the counter. And that figure does notinclude public costs – taking a day off work, driving,traffic congestion, parking and waiting in line.

On average, a single government may have anythingfrom 50 to 70 different agencies or departments. Thetypical first-generation government Internet presenceis characterised by a proliferation of individualdepartmental websites each with a separate URL,offering its own department information and onlineservices. Some governments had the foresight to createone central website, from which a citizen could thenbecome linked to any department. Unfortunately, thebottom line is that either approach has the same effect.It forces the citizen to have to know what departmentto go to for what service.

Leading-edge governments are beginning to rethinktheir Web strategies from their citizens’ perspectives.Instead of launching online services on a department-by-department basis, they are aggregating services acrossdepartments, accessible through a common portal.

A portal is a window to an array of Web-based content.Portals are typically multifunctional, offering a variety ofcapabilities aggregated in one place. (In other words, ifyou did not have the portal, you would have to go to alot of different places on or off the Web.) Ingovernment, the portal is most likely to be the maingovernment website. On this government portal,people are given a variety of choices. For example,when citizens reach the portal and see a category,Online Citizen Services, they click once to access analphabetised list of all available online transactionservices, regardless of department. So whether you needto pay a parking fine, apply for a marriage licence orrenew a realtor licence, the citizen simply clicks thedesired transaction from the list. A form comes up alongwith secure credit card payment capability if a financialtransaction is involved. The citizen completes thetransaction and gets confirmation right then and there.They do not need to know, nor do they care, whatdepartment actually processes the transaction. And theydo not have to surf down through multiple departmentsto find the service. Keep in mind how annoyinglengthy telephone menus can be. It is the same principleonline. In the background, the transaction is processedusing Web-enabled tools which access, update andtransfer data to and from disparate legacy systems anddatabases of the responsible department(s).

The first step in building a portal approach is to makean inventory of services across departments, then applya comprehensive set of selection criteria to filter outonline candidates. Criteria should address questionssuch as: what is the annual volume of transactionsassociated with the service? Is the service routine innature? Does the service require positive identification?Does delivery of the service create staff or seasonalbottlenecks? Has this service process recently been re-engineered? Are there any public policy issues whichmust be addressed? Is the service already online on adepartmental website? What is the current cost ofproviding the service? Using weights for thesemeasurements, prioritise or rank the services. Knowhow fast the population in your jurisdiction is movingonline and establish an aggressive timeline to transitionservices ahead of that rate.

Not all government operations consist of one simpleform and one payment. Many government servicesrequire non-linear, complex collaboration amongemployees across departments. Those operationsaffect overall process, service quality and delivery timeto citizens and businesses as well. Permitting and re-zoning are examples which include multiple players –146


Compet i t i ve C i t i e s in a Dig i ta l Soc ie ty

citizens, businesses, utilities, multiple governmentdepartments and, many times, boards and authoritiesup through the executive office or legislative body –and frequently involve intergovernmental levels.What if all those players had common and highbandwidth access to each other, seamless processes,electronic workflow and data exchange?

The same portal infrastructure can host work e-communities through a combination of the Internetand intranets. (An intranet is just like the Internet –same protocols and accessible through the Web –except that it is not open to the public. Intranetstypically require IDs, passwords and are completelyseparate and secure through firewalls.) Throughintranet technologies, employees as well as externalauthorised members can share information andcollaborate across the boundaries of their communities.

To achieve e-government, the quest is not so muchfor the ‘killer application’ as it is for a set of ‘killercapabilities’ and integrating strategies to leverage thepower of the Internet.

E - c ommun i t i e s

People are not just citizens of a government; they areparents, volunteers, neighbours, business owners andemployees, people with shared ethnic backgrounds,consumers, students, sports enthusiasts, senior citizensand children. Each community has its own members,its own networks of relationships, financial exchangeand interactions. Overlapping communities and theirmembers weave the rich tapestry of society. Mainstreets, market squares, town halls and local pubs serveas traditional centres of community.

With the birth of the Internet, our notions ofcommunity were redefined. Unlike any other time inhistory, community is no longer constrained bygeography. What if a resident could interact with hiscommunity – government, business, social or recreation– in one place in a way that provides competitiveadvantage, fosters community and promotes economicdevelopment? One e-community portal becomes theplace for people to manage their lives and conductbusiness – aggregated in one convenient place.

An e-community portal approach enables a citizen topay a parking fine, check on a senior citizen, reservea book at the library, register their child for a soccerteam, buy tickets to a sporting event, e-mail theteacher, shop locally online, express an opinion to anelected representative, participate in a public hearing,review employment opportunities and get the localmovie listing in one place. In the physical world,these activities increasingly encroach upon leisuretime for people whose lives are already overextended.A citizen would have to make phone calls, check the

newspaper, consult the phone book and get in a carand drive around to accomplish those simple tasks. Ascities explore competitive advantage, the quality oflife issues loom among the most important.

The extent and variations of this model are virtuallyunlimited. A good start is aggregating citizenservices. Once a portal infrastructure is in place,other e-communities of interest can easily beaggregated along with government services atmarginal costs and with big paybacks.

Pu t t i n g i t a l l T o g e t h e r –C o l l a b o r a t i o n F r amewo r k

The challenges associated with creating a competitivecity in the digital society and economy arecharacterised by multiple dimensions and interrelatedcomplexities. For example, each enabled onlinetransaction – business or government-related – meansone less car trip and its effects on traffic congestionand pollution. When online transactions number inthe millions, the cumulative benefits are profound.

To achieve success requires an integrated overallstrategy. Dependencies along this critical path must beidentified and prioritised and actions taken in a co-ordinated fashion. Each initiative should be designed toleverage others – e-government, infrastructure,leveraging local online businesses, attracting high-techindustry and knowledge-workers, creating e-communities and improving the quality of life. Theconnections among these variables create strategicadvantages. Otherwise, good intentions will fall victimto fragmentation and sub-optimisation of opportunities.

Smart cities require smart businesses, smart citizens,smart non-profits, smart government and collaborationthroughout the community. Establishing a specialgovernance body, such as a steering committee, blueribbon task force or special council, is an effectivemethod to engage actively the multiple public andprivate stakeholders in the planning and execution ofstrategies, public policies, initiatives and pilot projects.Conducting seminars, educational programmes andestablishing a speakers’ bureau for outreach to citizens,community groups and civic associations are alsoimportant ingredients to an informed and participativecommunity. Digital democracy issues, such as universalaccess through PCs available in libraries or shoppingmalls, public opinion polling on the city website andother communication strategies, will strengthen andaccelerate accomplishment of goals.

At this new juncture in the evolution of the Internet,cities have an historic opportunity to enact the future,redefine prosperity, create cohesive communities anddeliver competitive advantage for their citizens andgenerations to come. ■ 147

148

John Travers is the Chief Executiveof Forfás – the policy and advisory

Board for industrial developmentand science and technology in

Ireland and the body in which themain legal powers of the state forindustrial promotion and technology

are vested. Previously, he workedas Chief Economic Advisor in the

Government Department ofEnterprise and Employment and in

senior management posts in theDepartment of the Taoiseach (Prime

Minister) and Department ofFinance. He has also worked as aconsultant on United Nations and

World Bank projects in theindustrial development field in a

number of countries and formerlyworked in business in the industry

and services sectors. He is amember of the Management Boardof the Department of Enterprise,

Trade and Employment; a memberof the Government-appointed

National Science, Technology andInnovation Board for Ireland; and a

member of the Government-appointed National Competitiveness

Council. Mr Travers holds post-graduate qualifications in planning,economic development and business

management from both theNational University of Ireland andthe University of Pennsylvania. Heis a member of the Board of the

Graduate School of Business atUniversity College, Dublin.

a report by

J o h n T r a v e r s

Chief Executive, Forfás1

Ireland has been appropriately dubbed the “CelticTiger” and, within Ireland, Dublin is the urbanpivot of a remarkable success story. First, some basicfacts: The Republic of Ireland has a population of3.7 million people with a labour force of 1.6million. One-third of that population and labourforce live and work within the greater Dublinconurbation.

Ireland is, however, an integral part of the EU – asingle market of some 370 million people. Ireland is afounder member of the European Monetary Union(EMU) and is the only English-speaking country of the11 Member States of the EU which established EMUon 1 January 1999. Of these 11 countries, Ireland wasranked in the top three in meeting the entry criteriarelating to low inflation, stable currency exchangerates, internationally competitive long-term interestrates and a low and stable government budgetarydeficit. Indeed, Ireland is one of the few EU countrieswhich has consistently achieved government budgetarysurpluses in recent years.

This admirable performance for a small country hasbeen facilitated by the fact that Ireland has achievedrates of economic growth over the past 10 years thatare higher than those of any other Organisation forEconomic Co-operation and Development (OECD)country. Table 1 illustrates this growth.

Table 1: Average Annual Change in GDP,

1989–1998 (%)

Ireland 6.83

UK 1.96

EU 2.14

US 2.53

Total OECD 2.43

Source: OECD Economic Outlook, December 1998.

The exceptional rate of economic growth whichIreland has achieved has been reflected in equallyimpressive rates of employment growth, as Table 2indicates.

Table 2: Average Annual Employment Change,

1989–1998 (%)

Ireland +2.71

UK +0.29

EU +0.24

US +1.33

Total OECD +0.90

Source: OECD Economic Outlook, December 1998.

Over the most recent five-year period, to the end of1998, employment growth in Ireland has acceleratedto an average annual rate of increase of over 4.75%per year. Current indications are that significantemployment growth is set to continue over the nextfive years.

Unusually, by reference to most other OECDcountries, employment in the manufacturing sectorin Ireland, underpinned by strong productivitygrowth, has shown substantive increases over the past10 years, with a significant acceleration inperformance over the most recent five-year period,as Table 3 illustrates.

Table 3: Manufacturing Employment Chance,

1990–1997 (%)

Ireland +38.6

UK -1.0

EU +3.9

US -2.0

Source: EU, Eurostat.

The services sector remains the main source ofemployment increase in Ireland, however, with atotal employment increase of over 40% (265,000jobs) in the sector in the 10 years to the end of 1998.

In considering Ireland’s economic performance, itis essential to note that Ireland is one of the mosttrade-dependent economies in the world. Exportsof goods and services in Ireland accounted for over92% of GDP in 1998 and imports accounted forover 78% of GDP. The average annual increase in

The Ro le o f In format ion Techno logy in At t rac t ing Fore ign Inves tment ,C reat ing Indus t r ia l Zones and Deve lop ing Human Resources

IT & COMMUNICATIONS

1. Forfás is the Government Policy Board for Industrial Development and Science and Technology in Ireland. It is also the legalentity through which the promotion of FDI and Irish-owned enterprise is undertaken by the specialist agencies IDA Irelandand Enterprise Ireland.

The Ro le o f In format ion Techno logy

the volume of exports over the 10 years to the endof 1998 amounted to over 12.5%. The balance oftrade in favour of exports has exceeded 10% ofGNP each year on average over the last 10 years.Ireland’s export performance is primarily driven byexports from the high-tech sectors of electronics,software, chemicals and pharmaceuticals. Exportsfrom these four sectors account for over 75% oftotal exports.

This trade-dependence of Ireland’s economy to aconsiderable extent drives the public policy agenda inIreland. As a country, Ireland is highly supportive ofan open-trading international protocol frameworkthat promotes, encourages and facilitates tradebetween countries. For that reason, it operates a non-restrictive regulatory framework in respect of capitalflows, an extensive range of trade-facilitating andinvestment-supporting double taxation agreementswith other countries and a well-developed andderegulated financial services industry that is alsotrade-supporting.

A high priority is also accorded in the public policyarena to the development of an internationallycompetitive logistics sector, encompassinginfrastructure, service levels and the incorporationof service-enhancing and productivity-increasinginformation technology (IT) innovations withinthe sector.

Foreign Direct Investment (FDI) is the key driver ofIreland’s trading performance. For more than 40years, there have been no restrictions on the nationalorigin of ownership of business firms. There is norestriction on capital flows, and an extensive rangeof double taxation agreements exists betweenIreland and countries across the world.

In the manufacturing sector, there is a total of 900foreign-owned companies operating in Ireland.Together, these account for an employment totalof 120,000, some two-thirds of total manufacturingoutput and over 80% of manufacturing exports.The foreign-owned sector has been expandingrapidly in recent years and is particularly strong inthe following areas: electronics, teleservices,software, financial services, chemicals, healthcareand pharmaceuticals.

On a per capita basis (taking relative population sizesinto account), Ireland is by far the most successfulcountry in Europe in attracting foreign investment.This is the case for investment in both themanufacturing and services sectors. With itspopulation of 3.7 million accounting for just 1% ofthe population of the EU, Ireland’s market share ofFDI projects in Europe in 1997, coveringmanufacturing software, teleservices and shared

services projects, amounted to 23% of the total ormore than 20 times its population share.

The FDI projects that Ireland attracts are mainly inthe knowledge-intensive, high-growth, high-value-added sectors. In the general manufacturing sector,for example, Ireland’s market share of FDI in Europehas consistently remained at some 13% of the total, asFigure 1 illustrates.

However, in the more knowledge-based and ITintensive sectors, Ireland’s market-share of FDI issignificantly higher than in the case of generalmanufacturing.

FDI in the computer software sector has beenincreasing in importance in recent years. Ireland hasthe largest absolute market share in this sector inEurope with some 55% of FDI software projects inEurope locating in Ireland in 1997. This was morethan twice the market share of the next mostsuccessful country (France at 21%) and considerablyhigher than the third most successful country (theUK). A feature of FDI projects in the software sectorin Ireland is that almost 90% of them engage inR&D activities, drawing on a highly skilledworkforce in the sector.

Similarly, Ireland’s market share of FDI projects inteleservices (over 28% on average over the1994–1997 period) and in shared services, whichexceeded back-office activities (37% on average overthe 1996–1997 period), is the highest in Europe.

Clearly the IT sector has been a major contributor tothe development of Ireland’s economy and this has 149

Eastern Europe OtherGermanyBelgiumNetherlandsIrelandFrance

1995–1997 1990–1992

UK0%

5%

10%

15%

20%

25%

30%

35%

Figure 1: FDI in Europe; Market Share of Manufacturing Projects

(Number of Projects)

Source: Commissioned Research.

150


been the case for many years. More than 20 yearsago, government industrial policy identified theelectronics industry as an industry of major growthpotential for Ireland. In order to exploit theopportunity, a number of initiatives were undertakenby the government:

• A worldwide intelligence-gathering system onkey developments in the electronics industry wasput in place by the main FDI promotion agency –IDA Ireland;

• A systematic, consistent and professionalpromotional programme was put in place andcontinually updated in response to the changinglocational needs of business firms to attract to

Ireland investment from the best and mostadvanced electronics companies in the world.

• The capacity of the third-level sector to providegraduates in electronic engineering and computerscience was considerably enhanced. On a percapita basis, the output of graduates withqualifications in computer science and engineeringin Ireland is among the highest in the world.

• New research programmes in electronics were putin place in the third-level sector to match theincreased resources put into teaching.

• The telecommunications system was radicallyupgraded in the early 1980s and Ireland wasamong the first countries in Europe to achieve alargely digitalised telecommunications system.

The results that have been achieved from theseinitiatives are impressive:

• In 1988, the number of people employed inforeign-owned electronics companies in Irelandamounted to less than 10,000 people. A decadelater, that number has increased to over 43,000people and is growing rapidly.

• Two-thirds of these employees are withcompanies engaged in the manufacture ofelectronics hardware. One-third are engaged insoftware activities.

• Nineteen of the top 25 computer companies in theworld have manufacturing operations in Ireland.

• Electronics accounts for over one-third of exportsfrom Ireland.

• Ireland is the second largest exporter of softwareproducts in the world – second only to the US.

• Almost one-third of the PCs sold in Europe arecurrently manufactured in Ireland.

• Over 40% of packaged software and 60% ofbusiness application software sold in Europe is alsoproduced in Ireland.

• Considerable government promotional effort hasgone into ensuring a good fit between therequirements of foreign-owned electronics firmsin Ireland for profitable, effective operations andthe long-term development needs of Ireland’seconomy. Today, some 70% of the expansion ofthe electronics sector in Ireland comes from theexpansion of existing foreign-owned firmsincreasingly well anchored in the economy andundertaking research and development (R&D)

Belgium GermanyNetherlandsUSAFranceUKIreland

US Dollars

Spain$0

$5

$10

$15

$20

$25

$30

Figure 2: Cost Of Payroll; Total Hourly Compensation,

Including Additional Costs (US$)

Source: US Department of Labour 1998.

UKFranceSpainGermanyBelgium

Percentage

Ireland0%

5%

10%

15%

20%

25%

30%

Figure 3: Rates of Return (%) Onus Investment in Europe 1991–1996

Source: US Department of Commerce 1998.

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and marketing as well as promotion activities.‘New blood’ higher up the industry value-chaincontinues to be introduced to ensure the industryretains a competitive edge and to round-out theindustry clusters located around three of Ireland’smain urban centres – Dublin, Cork andLimerick/Shannon.

• The electronics sector in Ireland has evolvedrapidly over the last 20 years, from less sophisticatedassembly operations to complex integratedmanufacturing and software operations, includinghigh-value R&D and marketing functions. Puremanufacturing and assembly operations are beinghived off to low-labour-cost countries. In line withthese developments, company size is increasing.For example, out of over 300 foreign-ownedelectronics companies, 10 companies now employmore than 1,000 employees.

• The electronics sector in Ireland is an increasinglyhighly skilled sector. On average, third-levelgraduates account for some two-thirds ofemployees in the large-scale projects thatcompanies like Dell, Intel, Hewlett-Packard andIBM have established in Ireland.

• Irish-owned electronics companies have alsogrown strongly in parallel with the FDI sector.They now provide a high proportion of thehardware components and software required bythe FDI sector, and many are significantinternational trading companies in their own right.They provide an important strategic balance in thedevelopment of the electronics sector in Ireland.

Closely related to the underlying factors that havedriven the development of the IT sector, theinternational financial services sector – an ITdependent sector – has shown remarkable growth inIreland over the past 10 years. Ireland’sInternational Financial Services Centre (IFSC) islocated in the centre of Dublin. It has grown in ashort number of years to become, afterLuxembourg, the second largest offshore financialcentre in Europe. Thirteen of the 25 largest banksin the world now operate from the IFSC. As ofmid-1998, the total of non-domestic mutual fundsassets under management at the IFSC amounted toover 110 billion Euros or US$121 billion. In theyear up to July 1998, the IFSC funds sectorincreased by 49.5% – the largest increase of anymajor offshore centre in the world.

The recent success of Ireland’s economic policies isdue to several factors:

• Clearly, the early identification some 25 years agoof the potential of the IT sector as a powerful

instrument of employment and wealth creation inthe Irish economy was a critical first step.

• The development of a consistent set ofgovernment policies over more than a quarter ofa century, which facilitated the exploitation ofFDI investment in the IT sector in Ireland, hasalso been central to the success achieved. Thesepolicies were not dirigiste in nature. Rather, theywere sufficiently flexible to create a businessenvironment for firms trading internationally inIreland within which a fast-changing globalindustry could thrive.

• Maintaining a competitive cost base in Ireland hasbeen crucial (see Table 4).

Table 4: Index of Unit Labour Costs in the

Business Sector

1987 1998

Ireland 100 99.0

Italy 100 112.9

Germany 100 116.5

Japan 100 116.8

Netherlands 100 118.6

France 100 120.1

Spain 100 131.7

US 100 143.8

Portugal 100 164.1

UK 100 170.8

Source: OECD.

Figure 2 shows that total hourly compensation inIreland is low by international standards.

• The relatively low cost base in Ireland,combined with high productivity rates,particularly in the FDI sector, has translated intohigh rates of return on investment thus creatinga virtuous circle which attracts furtherinvestment (see Figure 3).

• High rates of return on investment areencouraged and rewarded by a corporation taxrate that is one of the most competitive in theworld. At present, the rate of corporation tax formanufacturing and IFSC companies is 10%compared with 30% in the UK and 60% forGermany for the equivalent.

A new uniform rate of corporation tax of 12.5%will be introduced for all sectors in Ireland to applyfrom 1 January 2003. The standard rate ofcorporation tax will be reduced progressively tothis rate.

• The fundamental determinant of Ireland’ssuccess in FDI and in the management of itseconomy has been in the quality of its human152


The Ro le o f In format ion Techno logy

resource base, which is underpinned by a high-quality and business-friendly education system.In the most recent IMD World CompetitivenessReport (1998), Ireland was ranked first in Europefor the quality of its education system.

• Reflecting the public policy priority attached toinvestment in human resources in Ireland, thelatest OECD comparative figures show that theproportion of total public expenditureaccounted for by education in Ireland is higherthan in any other EU country. At present, sixout of every 10 of Ireland’s third-level studentsmajor in engineering, science or businessstudies-based subjects.

• There is a strong tradition of collaborationbetween the third-level sector and companiesand educational establishments in othercountries. These links mean that, for most younggraduates, the transition from academic studies tothe workplace is a simple, natural progression.Many young graduates work abroad followinggraduation in order to gain experience.

• Statistics indicate that over 40% of Irishgraduates aged 40 years or over have spent oneyear or more working abroad before returningto take up employment in Ireland. The mostrecent census data shows that 50% of thegraduates in the 25–29 year age group havespent at least one year working overseas. Theseare the highest proportions in the EU.

These returning graduate emigrants have playedan important part in providing the high-leveltechnical and management skills required by aburgeoning IT sector in Ireland and are animportant resource of labour-force vitality,innovation and enterprise.

• There is a worldwide shortage of people withcomputer-related skills both at the graduate andundergraduate levels. The skills shortage incomputer-related disciplines is not simply withinthe IT sector itself but is far more widespreadbecause IT applications are pervasive throughoutmost areas of economic activity. For these reasons,considerable priority had been given by thegovernment in Ireland to increasing the supply ofpeople with IT skills at university and post-secondary levels.

Provision has been made for a 50% increase inoutput of IT specialists from a 1997 base whichalready provides one of the highest rates ofgraduates with IT skills in the world on a percapita basis. The increased output will be achievedwithin four years. (The intake of additional

people has already started.) The demand forpeople with IT skills is so pervasive throughoutthe economy that Ireland has taken the view that,in current circumstances, the over-production ofpeople with IT skills is not possible

• Because the IT sector in Ireland is heavilydependent on telecommunications, a goodtelecoms system has been a critical component ofthe success achieved. Investment in a fully digitalsystem – one of the first in Europe – took place20 years ago and the system continues to beupgraded to the highest international standards.

• The telecoms market in Ireland is fullyderegulated and there is an active policy ofencouraging new telecoms providers, from bothdomestic and overseas services, to enter themarket so that service is maintained at a highand increasing level and that prices are kept low.The Telecoms Regulator actively promotescompetition and has, over the past 12 months,issued 37 licences. Eleven telecoms companiesare already active in the market.

• The telecoms companies operating in Irelandactively market Ireland as a location for telebasedactivities. Some maintain special overseas officesfor this purpose. The prices available to FDIprojects locating in Ireland are probably the mostcompetitive in Europe.

• All the main population centres in Ireland havewidespread cable TV (CATV) penetration and55% of the population has access to cableservices. At present, the CATV system is beingupgraded to provide widespread access to digitalTV, Internet access and other interactiveservices. In Dublin, the CATV penetration rateis 83% – the highest CATV penetration of anycity in Europe.

• As part of the process of acceleratingderegulation and promoting competition in thetelecoms sector, the main cable TV company,which is in the ownership of the main telecomsincumbent at present, has been put on themarket for sale and this sale will be completedover the next few months.

• The sale of the main telecoms incumbent,which has a majority state shareholding atpresent, is also underway and is due to becompleted later this year.

• At present, Ireland ranks among the mostcompetitive locations in Europe for Internetaccess charges. The major telecoms operator hasrecently announced a flat-rate internet service 153

charge for 100 hours per month. This makesIreland the first country in Europe to introducea flat-rate Internet access charge and willprovide Ireland with the lowest Internet accesscharges in Europe.

• A public/private initiative to provide broadbandaccess to industrial zones throughout the countryhas already been put in place.

• In Dublin, the Taoiseach, in April 1999,officially opened two Digital Parks as a furtherpart of the public/private telecoms investmentinitiatives. One of these Parks will provide abase for a cluster of telecoms-intensive FDIprojects in the IT sector in a low-density,campus environment. The other Park will havean inner-city location in the docklands areaclose to a number of universities. It will focus onthe attraction and development of softwareprojects, including multimedia content projectsand digital support services. In both cases,buildings will be available in advance ofdemand, so that project start-up time can beminimised. The Parks will start with a 155 Mbitinfrastructure capability, upgrading quickly to622 Mbits.

• Also, as part of the public/private telecomsinvestment initiative, the government havecommitted to a US$100 million investmentproject to radically increase international telecomsconnectivity. Contracts will be signed by June ofthis year to provide a network operational in2000, which will give access to many hundreds ofgigabit capacity between Ireland and its maintrading locations in Europe, in the Americas andacross the globe.

• A business-friendly National Policy onCryptography and Electronic Signatures hasrecently been published. Taoiseach Ahern and USPresident Clinton co-signed a US-Ireland JointCommuniqué on Electronic Commerce (e-commerce) in November 1998, which identifieskey areas of compatibility in approach in promotinge-commerce on a global basis and areas whereincreased co-operation on e-commerce issuesbetween the US and Ireland will be put in place.

Ireland has clearly been highly successful over the past25 years in developing a strong FDI sector in IT andan increasingly sophisticated locally-owned sector.Some of the underlying determinants of that successhave been briefly outlined in earlier paragraphs butperhaps the most important of those factors has beenthe ability of government policy to identify emergingtrends in the sector and to shape the businessenvironment for IT investment in Ireland in a way

that has reflected the needs of business in an area ofrapidly changing technological change.

Rapid and accelerating technological changecontinues to shape the evolution of the IT sector.Major discontinuities in trends are emerging. Inparticular, five significant discontinuities can bediscerned:

• The telecoms and datacoms industries are rapidlyconverging on the same technologies andnetworks, giving a tremendous impetus to a newdata communications industry boosted by theproliferation of Internet protocol networking.

• E-commerce is emerging as an area of majorgrowth potential which will provideopportunities not only for companies offeringgoods and services for sale through electronicmarketing and sales channels but also for businessfirms which provide the software and physicalequipment which make these electronictransactions possible.

• The huge growth in mobile telephony willcontinue, and will be supported by furtheradvances in mobile communication networksand the further downsizing of computingdevices the use of which will increase greatly.This will provide major opportunities for themanufacture and software servicing of a host ofsmall mobile computing-communicationdevices at a level greater even than the fast-growing PC market.

• Significant changes are evolving in computersoftware and computer server architecture. Theuse of corporate intranet systems is expandingrapidly. The rapid growth in the market for smallcomputing and communication devices is likelyto bring rapid changes in this area.

• Pre-packaged, desktop-based software is beingreplaced by personalised, tailored servicesdelivered over the Internet and this trend is likelyto increase and develop rapidly.

The challenge for Ireland is to find out how boththe private sector and the government can best shapetheir very different but complementary roles andactivities to take account of these discontinuities sothat the IT sector can continue to thrive. Whilecomplacency is the ultimate threat to the success ofany business venture or government policy, pastexperience indicates that the fundamental capabilitydoes exist in Ireland, in both the business andgovernment sectors, to meet the emergingchallenges within the IT industry successfully. Onlythe future will tell. ■154


156

Robin Gaster has been President ofNorth Atlantic Research, a

Washington Internet, e-commerce,and telecoms consulting firm, for

the past 10 years. Before that, hewas a fellow at the Office of

Technology Assessment. He has alsoworked at the International

Monetary Fund and as a professorat the University of Virginia andUniversity of California Berkeley.The author of numerous articles

and a book on transatlanticrelations in telecoms, he has a PhDfrom Berkeley University and a BA

from Oxford University.

a report by

Rob i n G a s t e r

President, North Atlantic Research

Within five years, it will be clear that the future ofthe Web is not global, it is local. We will see that theWeb will become the backbone infrastructure of ourlocal communities. Why? Because, however wiredwe become, the vast majority of our informationneeds are local. We need information about localschools, local doctors, local sports, localentertainment, local politics and development, localservices, local banks, local realtors, local retailers andlocal restaurants. Our information environment isoverwhelmingly local.

A local information site (LocalNet) means much morethan a shift in the character of the Web. It involves aprofound change in local/social relations as well.

Power will shift dramatically from service providers toconsumers, from politicians to voters, from newspapersto columnists. In many areas where it is currentlyexcluded, new kinds of market forces will quicklydominate. At the same time, the signals sent by themarket – currently the binary impulse of buy/not buy– will become more sophisticated, helping vendors andproviders of all kinds of products to improve theirservices and meet the real needs of their customers.

As a result, there will be an explosion of newservices aimed not at separating users from theirwallets but simply at building and serving acommunity – not because entrepreneurs and largerbusinesses will suddenly be struck by a Scrooge-likeconversion to good deeds but because the only wayto make money consistently on the Web will be tobuild a community.

Those same people will realise what is now staringthem in the face: that it is infinitely easier to bring anexisting community online than it is to create a newcommunity online from scratch. Onlinecommunities today are tenuous and transitory;communities rooted in bricks and mortar tend to stayput. Their interests change more slowly, they aremore easily identified and they have a much deeperfinancial commitment to the community itself.

In consequence, we see a world in which thedemand for deep, local digital infrastructure will

drive a profound shift of services online, enabling aremarkable improvement in quality with a reductionin cost and effort. It will be a world where things wedo today will be done differently, and where thingswe cannot even envision are today everywhere.

T h e V i s i o n

Consider a world in which most of the localpopulation has daily access to the Web, and wherethere is, indeed, a deep local information poolonline. What difference would that make?

Government – Governments will be forced onlineby their constituents and by the dawning realisationthat online processes are faster, much cheaper andmuch more satisfying for constituents. All the basicgovernment services – permits, licences, applicationsand many simple processes will be available onlineand will be increasingly conducted online.

Healthcare – Telemedicine makes the headlines but,on a day-to-day basis, it is irrelevant. Most of the time,most people will be served locally. What they need isaccurate information about potential providers –where they went to school, what specialties they arecertified in, their office hours and policies, locations(including maps and directions), insurance informationand forms, and, above all, information posted by pastand current patients, providing instant feedback.Hospitals will be able to do the same but will also useLocalNets for extensive outreach into the localcommunity for education, group treatment and, ofcourse, marketing. They too will find many of theiractivities ‘revealed’ online – their rates of success forcertain procedures, for example.

Education – Parents today are forced to becomeexperts in a complex, often dysfunctional andinformation-poor process: the school system. Only‘professional parents’ can master the system, andthey inevitably, in the end, depart. Localinformation sites will change all this, creating anexus through which information can be collated,institutionalised and remembered – the collectivememory of the system in action. Informationempowers, and LocalNet sites will provide the

The In format ion Revo lu t ion :Urban In f ras t ruc ture for the Next Mi l l enn ium

IT & COMMUNICATIONS

Urban In f ras t ruc ture for the Next Mi l l enn ium

information that local people need to deal with andradically improve the system.

Non-profits – Non-profits have tremendousinformation needs but they also have poor access topublishing tools. This will change dramatically. Forexample, a soccer league for children will find that itcan manage outreach, sign-up, team assignments,rosters and results online, along with the addition ofcoaching resources, the attraction of local sponsorsand even the development of fundraisers. Makingthings easier means that non-profits can do more,while reducing costs.

All this is to say that, in areas like healthcare andeducation where markets have worked poorly, thecause of this is often limited information. Marketsonly work when buyers have the right information.LocalNets will provide that information, and willdramatically improve local service delivery inhealthcare, education and other non-profit areas.

Entertainment – All kinds of entertainment todayjostle for eyeballs in the commercial marketplace.Consumers have a hard time sorting out thepossibilities. Local information would once againprovide filters for managing the information flow,allowing smaller players a chance against themegabucks of the big entertainment conglomerates,especially in local markets. This matches thedemocratisation of digital tools, which have, forexample, brought video editing suites down in priceto only a few hundred dollars.

Business listings – While large companies canalways find ways to reach their markets, smallcompanies, especially microcompanies, find it muchharder. The local web will change this dramatically,making it simple for one-person operations to reachvisibility quickly and cheaply. We can expect anexplosion of entrepreneurial activity as the criticalmass needed to prosper is sharply reduced. Onceagain, the local community can benefit from betterservices tuned sharply to local needs, as well asreduced costs.

Services – Local service businesses, from babysittingto home healthcare to carpentry to bookkeeping,will boom as efficient markets emerge for theseservices and as the feedback mechanisms built intothe digital environment help to create trust-basedrelationships. With this mechanism in place, thequality of services will also go up sharply. Matchingdemand to supply will become easier, encouragingnew suppliers to enter the market.

Transactions – LocalNets facilitate microtransactionsof every kind – just as auction sites, like Ebay, donationally. Fundraisers and other activities will benefit

from the re-entry into the local economy of objectsand even services that cannot be easily marketed inother ways. It is possible, in short, that auctions at thelocal level will start to replace other forms oftransaction, such as classified ads, for example.

Politics – Local sites are potentially hugelyempowering for citizens. They will provide moreinformation but, more importantly, they will allow,in fact encourage, asynchronous access to politicalactivity. The current political system places hugedemands on the time and energy of participants.Opening up discussion to the world of asynchronouscommunication will bring in the disempoweredmajority who have neither the time nor the energyto attend the relevant meetings or undertake thenecessary commitments. How this will affect localpolitics is unclear, but that it will do so, in powerfuland unpredictable ways, is obvious.

Such a powerful set of capabilities, flowing overthe new digital medium, will spawn all kinds ofservices and opportunities that currently we canbarely envision. We can already see that the powerof intermediaries in print, in music and on otherpublishing areas is eroding quite quickly. We canexpect all kinds of other disintermediating activitiesto follow. New services will spring up and old onesmay return. For example, once a critical mass oflocal merchants is online, it may be feasible torestart a local delivery service on a collective basis– with potentially dramatic reductions incongestion and pollution.

Local sites start with content. Without compellingcontent and services they cannot exist but, given thatcontent, there is no end to the opportunities anddramatic changes that online infrastructure willbring. So, how do we get there?

There are two answers: technical, and financial.

T h e T e c h n o l o g y

Most of what has been described has nothing to dowith broadband. Of course, all services work betterwhen they work faster but a vast amount can be donein a narrowband environment.

Hence, on the technology side, the real issues breakout as follows:

Access – how rapidly will homes and businessesbecome Web-enabled? At one extreme, the US andparts of Europe have about 30% of their populationsonline. In parts of the developing world, less than10% of the population even has a phone. Clearly,LocalNets will come to the industrial world first,although their power may quickly become apparent 157

and, hence, their migration into less supportiveterrain accelerated.

In the industrial countries, most urban areas meet thebasic criteria and as new access technologies comeonstream – notably TV-based technologies likeWebTV, and hand-held technologies like thirdgeneration wireless – access and PC ownership willincreasingly diverge.

High speed – cable, telephone, wireless and satellitecompanies are all racing to provide high speed accessto the Net. Clearly, this will provide a better andmore attractive experience and will also facilitatecertain broadband services. By 2004, industryconsensus suggests that, five years from now, morethan 80% of US residents will have access to 1Mbplus service at an incremental cost of less thanUS$20 per month.

Content – the technologies for bringing contentonline are improving at a dramatic rate. Clearly,within a couple of years, Web publishing will bebuilt into standard word-processing andcomputational programs. Database managementwill, in turn, be eased, allowing even neophytes tocreate compelling content. This democratisation iscritical for the self-publishing element of the localinformation site, a key component in its long-termprosperity.

Services – powerful online services are rapidlybecoming available. These include free e-mail, chat,calendars, scheduling, news and much more. Suchservices are important because they add anotherlayer of self-publishing and a further set ofcapabilities to rapidly expanding content. Forexample, online calendars and scheduling allow localsites to provide a flow of personalised reminders bye-mail to users for any event. For example, sportsleague sign-ups, courses, theatre and PTA meetingscan all be enabled by online scheduling.

Together, these technologies will allow local peopleto access and publish to local sites, creating the basisfor the coming information revolution.

T h e B u s i n e s s Mod e l

Local information sites will work only if they aresupported by an appropriate business model. Whilethe model will vary from place to place, it must bebased on a few core truths.

1. Local sites must be market basedUnless they meet genuine information needs,local sites will fail and markets are the best way totest for failure. There are no successful local sitessupported primarily by government grants.

2. Content comes firstAny business model must start with compellingcontent and services. Without that, nothing elseworks.

3. Content means more than informationContent means information, community and,above all, tapping into the collective wisdom ofthe local community, which has a collectivehistory and understanding of its own conditionthat no single publisher can begin to approximate.Sites which rely on directory-style listings will fail.Those enabling the community will succeed.

4. ‘Local’ is a flexible termLocal sites need a base of around 50,000 users tosucceed. Their size is partly driven by the need toacquire that density. However, size varies withfunction: for some items – such as childcare –local means close at hand; for others – such as aunique course at a prestigious university – localmay mean within three hours drive.

5. Multiple revenue sourcesLocal sites can prosper if they understand thatthere are multiple revenue sources, which becomericher and more easily tapped as time goes on.Hence, sufficient start-up capital is a must, but sois an understanding of how to create a self-financing (indeed profitable) business.

6. All sites must adopt the virtuous circleThe virtuous circle is simple: good contentproduces more traffic, which generates greaterrevenues, which, in turn, fund more content.

7. Traffic and revenues are distinct and should not beconfusedWhile traffic is the driver of revenues, it is not thesource. That lies overwhelmingly in the localbusiness community and needs to be addressedand managed separately.

8. Finally, in almost all cases, there will be only oneLocalNet in a given communityOnce a community has committed itself to aparticular site, only egregious mismanagementwill break its hold on the community’s attention.Corollary: being first really matters.

Con c l u s i o n s

These lessons are all important. Remembering themwill help us to bring visions to reality. In doing so,we will change our societies for ever by bringingnew capabilities to people who have not had themand by finally providing some tools which make thedevelopment of community a financial, as well associal, necessity. ■158


160

Atefeh Riazi is Vice President andChief Information Officer of the

Technology Division in theDepartment of Operations Support.She is responsible for the system-

wide implementation of theAutomated Fare Collection (AFC)

programme, which has a budget ofUS$950 million. The system services469 subway rail stations and 3,700buses (in addition to 1,500 privatebuses) with a combined ridership of

approximately six million (fourmillion rail and two million bus)

passengers. Ms Riazi alsoadministers the organisation’s

computer and network operationsand applications development.

a report by

A t e f e h R i a z i

Vice President and Chief Information Officer, Technology Division, Department of Operations Support

This article seeks to attract more funds for publictransportation but it will also make the case for morethoughtful planning of our highway infrastructure.Why, as a long-time executive of the mass transitindustry, would I advocate for cars, as well as forbuses and trains?

Let me give you two statistics. According to the USCensus Bureau, as of 1 November 1998, theresident population of this country was270,933,000. As of 1996, the latest date for whichwe have figures, the number of registered motorvehicles in this country was 206,400,000. Thismeans that one car exists for almost every humanbeing who officially lives in the US.

This fact accounts for the many debates on the prosand cons of our mobile society. In January 1997,James Q Wilson, Collins professor of Managementand Public Policy at UCLA, invited Commentaryreaders to “Imagine the country we now inhabit –big, urban, prosperous – with one exception: theautomobile has not been invented.” He goes on tolist the well-known arguments of those who wouldban the automobile: engineers, public healthspecialists, environmentalists, big-city mayors andenergy experts, among others. He doesn’t includepublic transportation executives, but we would bein there too, with the familiar arguments: cars causepollution and congestion, stress and social isolation.Motor cars even refocus our national priorities: thebillions of dollars we spend on roads could bebetter spent on education, health, welfare andcriminal justice programmes. In his article, MrWilson convincingly refutes many of these specialinterest ideologies.

Before I tell you why I respect much of Mr Wilson’sanalyses, I want to describe a big and prosperous,though not urban, America, without the car. In fact,I want to go back one step further in time and tellyou about America without the highway.

By the end of the 18th century, there were only fourreal roads in America and the ‘highways’ that existedwere few and far between, uncomfortable and slow.The technology of the time did not allow the easy

removal of tree stumps. Even on the National Road,pride of the American highway system (now part ofHighway 40), builders were permitted to leavestumps up to 15 inches high – slightly under knee-height. To give you an idea of the ardours of a long-distance trip, the most successful of the stagecoachcompanies running along the National Road wasnamed the Shake Gut Line.

Not unsurprisingly, then, when the railroad offeredmany thousands their first real chance of leavinghome, people flocked to them. From virtuallynothing in 1830, railroad mileage rose to 30,000 by1860 – more than the whole of the rest of the worldput together – and to 200,000 by 1890.

As railroads permitted more people to relocate, travelwithin cities became problematic. The advent of thecable car, followed by the trolley, were welcomeevents. So many urban areas implemented thesesystems across the land that the US could boast of thefinest system of public transportation in the world. Itis a little-known fact that, at the turn of the century,Berlin had the most extensive tramline network inEurope; but in America it would have ranked onlytwenty-second.

These trams opened up suburban life. Thepopulation of the Bronx went from under 90,000 to200,000 right after the introduction of the tram. By1902, New York trams alone were carrying almostone billion passengers annually. Cities becamebigger, busier, more confusing. ‘Rush hour’ and‘traffic jam’ became household words.

Popularity, however, did not give rise toprofitability. Between 1922 and 1932, the numberof tramline miles in America almost halved (cars andbuses had arrived). In that same decade, a companycalled National City Lines – a cartel made up ofGeneral Motors and a collection of oil and rubberinterests – began buying up tramlines and convertingthem to bus routes. By 1950, it had closed down thetram systems of more than 100 cities, includingthose of Los Angeles, Philadelphia, Baltimore andSt. Louis. The company was eventually taken tocourt, convicted of engaging in a criminal

Why Mass Trans i t Needs the Automobi l e

TRANSPORTATION


conspiracy and fined US$5,000. This was less thanthe cost of a new bus.

This cartel may have crippled public transportationin America but it was really the motor car thatbrought about its demise. Or rather, it was America’spassion for its motor cars.

In 1893, two brothers in Springfield, Massachusetts,Charles and J Frank Duryea, built America’s firstpetrol-powered car. Five years later, there werefewer than 30 working cars in the entire US. Withina little over a decade, there were 700 – not cars – butcar factories, dotting the land.

Today, with a car for almost every man, woman andchild in America, it is hard to believe that theprototype was considered a mere ‘fad’. It should beremembered that, at the dawn of this century, carswere costly, unreliable and frightening. And noinfrastructure was in place – the gas stations, trafficsignals, road maps, insurance policies, drivers’licences and parking lots just weren’t there.

Furthermore, since there was almost no place to goin them, cars were really pointless. In 1905, America

possessed not a single mile of paved rural highway.(As of 1997, we had 3,959,231 miles of roadway.)The federal government long refused to providehighway funds, arguing that it was a matter for thestates, and the states were reluctant to subsidise whatmight be a passing fancy.

Nevertheless, before the 1920s were half over,America would be producing 85% of all the world’scars and the automobile industry would be thecountry’s biggest business.

Eventually, the federal government decided to makemoney available for interstate highways and the taskwas handed to the Secretary of Agriculture – assomething to do in his free time.

Later, Franklin Delano Roosevelt saw theconstruction of a national high-speed highwaysystem as the ultimate public works project. ThePennsylvania Turnpike, the nation’s first multilanehighway, opened on 1 October 1940, and astounded

Americans with its cloverleaf interchanges, longentrance and exit lanes and service areas.

Two months after the Pennsylvania Turnpikeopened, the mayor of Los Angeles rolled onto theeight-mile-long Arroyo Seco Parkway and usheredin the age of the freeway. It was soon renamed thePasadena Freeway. Ironically, it was intended tolure shoppers downtown, rather than help localsflee to the suburbs.

The paving of America began in earnest in the1950s, when President Eisenhower appointed acommittee to study America’s transportation needs.As historian Kenneth T Jackson has observed: “Thecommittee considered no alternative to a massivehighway system, and it suggested a major redirectionof national policy to benefit the car and the truck.”

The chairman of the committee sat on the Board ofGeneral Motors.

Eisenhower’s landmark Interstate Highway Act of1956 inaugurated the construction of 42,500 milesof superhighway, slicing into and remodelling oldneighbourhoods and cities. The law kicked off an

era when America would spend US$118 billion oninterstate highways. In another way of putting it,we would spend 75% of our transportation fundson highways and slightly less than 1% on masstransit for cities.

Now, what does this very short history oftransportation mean to us today?

As mass transit executives – and as citizens who livein the communities shaped by and dependent uponthe use of the automobile – we might be tempted toconclude that the automobile is a very unfortunateaccident of history made worse by, as James Wilsonstates in Commentary, “public policies that make autouse more attractive than the alternatives.”

Here are statistics we point to:

• In 1996, in terms of wasted time and gasoline,congestion cost the average San Bernardino driverUS$1,090 (the highest in the nation), the average 161

As mass transit executives . . . we might be tempted to conclude

that the automobile is a very unfortunate accident of history . . .

San Francisco Bay Area driver US$950 (thirdhighest in the nation), the average Los Angelesdriver US$920 (fourth highest in the nation) andthe average San Jose driver US$750 (fifth highestin the nation).

• Vehicle emissions, such as volatile organiccompounds (VOCs) and carbon monoxide (themajor precursors to urban smog) are 250%higher under congested conditions than duringfree-flowing traffic, directly tying congestion toair quality.

• Motor vehicles account for about 25% of UScarbon dioxide emissions. For every gallon ofgasoline consumed by an automobile, about 19pounds of carbon dioxide are emitted. In a year,the typical American car pumps almost five tonsof carbon dioxide into the atmosphere (WorldResources Institute).

• In 1997, traffic accident fatalities numbered 37,831.Non-fatal injuries in car crashes were 2,440,924.More than 5,000 pedestrians were killed by carsand 117,200 were injured by cars. (FHA).

What history very clearly teaches us is that there issomething in the American spirit that loves a car andthat business and government policies areinextricably intertwined. It is a pointless exercise tostruggle to get Americans out of their cars.

Here are a few more facts and figures, provided byJames Q Wilson:

• In 1969, 80% of all urban trips involved a car andonly one-twentieth involved public transport; by1990, car use had risen to 84% and public transithad fallen to less than 3%.

• In 1990, three-quarters or more of the trips to andfrom work in 19 out of our 20 largestmetropolitan areas were by a single person in anautomobile. The exception was metropolitanNew York, but even there – with an elaboratemass-transit system and a high residentialpopulation that walked to work – solo car usemade up over half of all such trips.

• Between 1980 and 1990, while the WashingtonMetrorail system added 43 miles of line and 30stations, the number of people driving to workincreased from 980,000 to 1,394,000, and thetransit share of all commutes declined.

Policymakers and transit officials have looked toEurope, with its well-developed infrastructure forpublic transport, to curb the ills of the ubiquitousautomobile.

It has been proposed that we emulate our colleaguesacross the sea with high fuel taxes, good mass-transitsystems that link our cities, heavy restrictions ondowntown parking and restraints on building suburbson open land.

Charles Lave, an economist at the University ofCalifornia at Irvine, has pointed out that most ofWestern Europe has long had just these sorts ofpolicies in effect. Yet, between 1965 and 1987, thegrowth in the number of vehicles per capita has beenthree times faster in Western Europe than in the US.

Despite policies that penalise car use, make travelvery expensive and restrict parking spaces,Europeans, once they can afford to do so, buy cars.According to Lave, the average European car isdriven about two-thirds as many miles per year as theaverage American car.

In sum, if people can afford it, they will want topurchase convenience, flexibility and privacy: a car.These facts are as close to a Law of Nature as one canget in the transportation business, James Wilson says.

And so, should we give up?

Not at all. Consider two articles that recentlyappeared in The New York Times.

“Over the last decade, an increasing number ofmountain ski communities [in Denver] haveadopted a combination of publicly and privatelyoperated bus services, weaving a network ofcommunity bus routes that together link 20towns. Since 1989, total annual ridership onsuch routes has tripled to 16 million … withskier traffic up by 20% in the last three years, astate agency is pushing for construction of ahigh-speed monorail that would run 160 milesfrom Denver’s new airport through theRockies.” (March 5, 1999.)

‘Amtrak Unveils Its Bullet toBoston…Northeast to Get First 150-mile-an-hour Train by December.’ The new high-speed rail line intends to change commutinghabits along the Northeast corridor fromWashington to Boston by competing head onwith air shuttles and interstate highways. Butmore important … the high-speed trainprovides a model for its rail service across thenation …” (March 10, 1999.)

And in my own backyard of New York City, wehave seen an 18% surge in subway and bus ridershipin the past year, due to the restructured fares and freetransfers that make mass transit an attractivealternative. While people love their cars, they do not162



like sitting in traffic; and, while the typicalautomobile owner will take the car for a weekenddrive or to a shopping mall, he or she will also usemass transit when it makes sense – when it isconvenient, comfortable and cost-effective.

James Wilson offers us something else to think about:

“There is an excellent rail line from O’HareAirport to downtown Chicago, and somepeople use it. But it has done little or nothingto alleviate congestion on the parallel highway.People do not like dragging suitcases on andoff trains. And the train does not stop wherepeople want to go – namely, where they live.It stops at busy street corners, sometimes indangerous neighborhoods. If you take thetrain, you still must shift to a taxi at the end,and finding one is not always easy.”

As transit providers, we need to think differently.We talk about changing the car commuter’s attitudebut I believe we must change our own first.

When it comes to our customers’ travel, we focuson the product or mode of transport, not on thequality of transport. We need to figure out how tomake the journey attractive, rather than the meremechanics of moving people. We need to devisemore flexible schedules and lobby for dedicatedlanes and intermodality. We have got to stopthinking about separate modes of transport and aimfor seamlessness. We need to look beyond ourcurrent users and rather at the potential customersout there sitting, often in frustration, inautomobiles. What do we know about them astransportation shoppers? What might bring a carcommuter into the transit system?

Famed management consultant Peter Druckeradvises marketers to “understand those who aren’tyour customers”. And Bill Gates counsels hisproduct designers to focus on their most unhappycustomers, because they show where improvementis needed to win greater business. After we intransit understand what our non-user wants we candevise the payment mechanisms, conveniencefeatures, schedules and routes that entice people touse our product.

On a broader scale, we need more information abouthow people – and goods – travel. In the 12-yearperiod between the publication of NationalTransportation Trends and Choices in 1978 and MovingAmerica in 1990, the Department of Transportationdid not undertake a major nationwide examinationof transportation. Attempts at information-gatheringsince then have been anaemic. Yet we needquantified economic and social arguments to support

























any ambitious plans we may devise for newtransportation institutions or paradigms – both publicand private. As we know from the brief history thatintroduced this article, our highways grew out of anational need to create jobs. Today’s platform forinvestment in infrastructure is probably more alliedto social change and the global economy. But weneed hard facts to help us develop policies.

The states’ lack of data is particularly crippling,according to Alan Pisarski, a transportation expertwho spoke on these issues to the TransportationResearch Board in January 1999. Our lack ofrecognition of economic trends and basic economicskills in transportation policy and planning,especially at the state and local levels, has hurt ustime and time again, he asserts. We missed the trendson job and truck travel growth in earlier decades andwe have no clear picture of how new economicarrangements are affecting both freight andpassenger markets.

We are facing another set of significant changes: anaging population that will travel more but whichwill have diminished visual acuity and reactiontimes; more immigrants, who traditionally usepublic transit systems; more people living insuburbs, but who need faster transportation to

inner-city jobs; and more people who will reversecommute to suburban job sites.

The above speak directly to us as mass transitprofessionals. But as citizens in our cities, we needto concern ourselves with the automobile. Trafficcongestion and pollution have reached criticalpoints, and highway construction cannot keep pacewith automobile use. The infrastructure thatsupports our economy can no longer be sustained.We need to promote alternative fuel engines. Weneed to make better use of our existing roads. Wecan move traffic faster through dedicated lanes,synchronised traffic signals and intelligent transportsystems (ITS) technology. We need to provide theintermodality that will make public transportconvenient, so that we can begin to alter, evenslightly, the culture of the private car. It is better,smarter use of cars that I advocate, not theirabolition from the roads.

We in public transit need to work with our colleaguesin federal and state highway departments and theautomobile industry to build a transportation systemthat works for all modes of travel. This is becausetrains and buses are key solutions to contemporarytravel, and because our customers will use all modesof transportation if it makes life easier for them. n























165

Paul Marx is senior economist forthe Federal Transit Administration(FTA) in the Office of PolicyDevelopment, Washington, D.C.,with responsibility for innovativefinancing and joint development. Hehas reviewed for approval US$6.3billion in transit cross-border anddomestic leases and bondrefinancing. He started with theFTA in 1990 after spending nineyears analysing Federal ShipFinancing Guarantees for the USMaritime Administration. He has anMBA in International Finance fromGeorge Washington University andan MA in International Strategy andPolicy from the US NavalWar College.

a report by

P au l M a r x

Senior Economist, Federal Transit Administration, Office of Policy, Washington, D.C.

There is a significant difference between public transituse in Europe and in the US1. This difference hasoften been attributed to the fact that Europe has manyold cities that lend themselves naturally to transit, andthe US does not. The Americans’ evident love for theautomobile is also often cited. However, Europeanand American cities seem to be facing many of thesame problems of traffic congestion, lower air qualityand rising costs of basic infrastructure. Bothcontinents are discussing similar issues, includingurban growth management, increasing automobileownership and use and the increasing encroachmentof new development on long-standing green space.Are we in fact so different that solutions developed onone side of the Atlantic cannot be applied to theother? As a result of proposal of a research tour in thissubject to the German Marshall Fund of the US, theauthor of this paper was accepted as a 1999Environmental Fellow2.

This fellowship will centre on a two-week tour ofseveral Northern European cities, and will include fourparticipants: Ms Judith Corbett, Executive Director ofthe Local Government Commission; Ms MarleneNagel, Community Development Director, Mid-America Regional Council; Ms Carin Weiss, DeputyDirector, King County Department of Transportation;and the author (the “Fellows”). The participants areresponsible for producing a preliminary report on theirfindings, upon return from their tour, as well as a moredetailed report the following year. They are alsoexpected to incorporate their findings and experiencesinto the ongoing activities of their organisations.

T h e B a s i c Q u e s t i o n

In the US elections of November 1998, there were240 state or local ballot initiatives on such issues as

‘Smart Growth’, urban growth boundaries, agriculturalland purchase initiatives and other programmes to reinin helter-skelter development patterns. More than 70%of these initiatives were approved, authorising localexpenditures in excess of US$7.5 billion to implementthem. These initiatives are being proposed as possiblelocal solutions for American cities’ runaway growth inresidential and commercial development. This growthhas its origins, however, in national policies that weredeveloped before and after World War II. Policies andprogrammes, such as the standardisation (and tax-deductibility) of home mortgage instruments, or theconstruction of the Eisenhower Interstate HighwaySystem, radically skewed the economics of residentialand commercial construction decisions towardssuburban development. Local land-use practices,zoning and the ascent of the automobile industry onlyperpetuated the imbalance.

The premise of the proposed research is that national(federal) policies may be required to moderate someof the unintended consequences of prior nationalpolicies. The Federal Transit Administration has themeans to affect local land-use policies through itstransit capital grants programmes. (Public transitproviders must purchase land for stations and otherfacilities.) It follows that it may have some capabilityto influence land development patterns through theapplication of specific policies that lead to moretransit-oriented developments.

One such policy was refined over the last three yearsand incorporated into the definition of a transitcapital project. It is the Joint Development Policy.3

This policy encourages public transit operators tosupport, and even initiate, local residential andcommercial development that uses the propertyaround their transit facilities. Activities that can be

How Di f f e rent Are We? :Amer i can & European Land Use and Transpor ta t ion

TRANSPORTATION

1. Jack M Reilly, Local Bus Transit Service Design and Quality in Western Europe, an unpublished paper, CapitalDistrict Transportation Authority, for the German Marshall Fund, January 1999.

2. The German Marshall Fund is an American foundation established in 1972 by a gift from the Federal Republic of Germany inappreciation of American post-World War II recovery assistance. In addition to the Environmental Fellowship Program, the Fundsupports other environmental, political and economic activities that strengthen co-operation between the US and the nations ofWestern, Central and Eastern Europe. Eight American and eight European individuals are selected each year for two-week to one-month Environmental Fellowships. This year’s programme centres on land use, transportation and air quality.

3. This policy can be viewed or downloaded from the Federal Transit Administration website at: http://www.fta.dot.gov.

supported with federal transit funding include sitepreparation, enhanced foundations or utilities orrefurbishment of the shell of an existing structure toaccommodate a variety of transit-oriented uses. Thepurpose behind the policy is to use the public transitservice as a catalyst for redevelopment inneighbourhoods that have been ‘left behind’ byrising suburbanisation.

In the US, this is a particularly thorny issue becauseland-use decisions are legally and traditionally local.Part of the reason for the unintended consequencesof prior federal policies is that the policies weredeveloped with quite specific, national goals, most ofwhich had little to do with individual land usedecisions. For example, the Interstate HighwaySystem was intended to link urban areas by road,facilitating travel and commerce, yet many land-owners found that access to the highway increasedthe value of their land enormously, so they sold theland for development rather than retaining it forfarming. This economic behaviour led to much ofthe suburban development that we see today.

There are significant differences in culture and landuse between the US and Europe. For example, thereare national corporations in the US (large and wellcapitalised) that undertake most design andconstruction activity, often accumulating large parcelsof land for that purpose. In most European countries,design and construction are highly regionalised, oftenundertaken by relatively small entities. It is thereforemuch more difficult to accumulate land for ‘mega-developments’ in Europe than in the US. Thus, in theUS, one can find nearly identical communities inwidely separated towns or suburbs, while in Europethere will be significant differences in style from cityto city and even from district to district. Otherdifferences are more difficult to typify.

Europeans walk and ride bicycles much more thanAmericans do.4 Is this because of a difference in basicculture, or because more European locations are easierto navigate on foot or by bicycle? The most likelyanswer is “both”. Yet the influences of the automobileis giving increasing similarities between the US andEurope – particularly with regard to its ownership anduse, traffic congestion and increasing pressure todevelop in suburban or even exurban locations.5

One dialogue that spurred the author’s interest inthis subject was that within Germany as it sought toreincorporate the eastern states after 40 years of

separation. In the western states, a wide variety ofenvironmental and business laws were passed overdecades, which had no parallels in the east. Thus,infrastructure, land use and business developmentpatterns were established on completely differentprinciples. One major difference had to do withlevels of disposable income and automobileownership. In the west, noise and air pollutionregulations were passed to deal with steadily risinglevels of auto ownership and use. In the east, lowerincomes and insufficient road investment reducedautomobile ownership and the ability to drivesignificant distances. However, with post-reunionreconstruction, the eastern states faced major shiftsin practice.

Where, before, investment and behavioural choiceshad been limited by exogenous factors (such as theIron Curtain), now they were returning to more of amarket basis. Thus, demand that had been depresseddue to lack of income and choices now began to befelt. The question was, should the environmental andother regulations of the western states be applied tothe east, thus dampening their burgeoning growth, orshould the regulations be moderated (or eliminated),thus reversing major advances in public comfort andlifestyle in the west? The answer has been somewherein between, with some frightening prospects arising asa result. Since reunification, automobile ownershipand use in eastern Germany, as in most newlyindustrialised countries, has mushroomed. As infra-structure is rebuilt or built anew, the prospect is forincreased automobile use. Is there a concomitantpressure to build new suburban developments as well?How is Germany dealing with this pressure –nationally, or locally? Are other European countries orcities addressing this issue? Can their examples beapplied to cities in the US?

How T o P r o c e e d

The tour spans just two weeks, and will include thefollowing locations: Wuppertal/Düsseldorf, Brussels,Copenhagen, Aarhus, Berlin, Heidelberg andStrasbourg. In each of these locations, the Fellows willmeet with local officials who are responsible for landuse, transport, planning, public participation and theenvironment. Given the breadth of the subject, it willbe important to ask questions that are focused, but alsorelevant in more than one location. For example,questions about land use around public transit facilitiesshould be expressed in terms of the local public transitsystem. In a town where public transit is provided

166


4. Martin Cames of the Institute for Applied Ecology (Öko-Institut e.V., Freiburg), with other authors of Chief Benefits forthe Future, posits that active support for environmentally compatible traffic, such as cycling, walking or public transport, maygenerate significant numbers of new jobs in Germany.

5. Advertisements in The European regularly offer expensive residential properties around Paris, accessible from London on theEurostar.

solely by bus, opportunities for shaping local land-usedecisions will be far fewer than in a town where rapidrail stations bring hundreds or thousands of travellerseach hour. Yet, if in both locations the transitoperation operates in a granted right-of-way (forinstance, it ‘owns’ no land at all), land-use decisionswill be generated through a very different dynamic.

The questions that might be answered during the two-week fellowship, although the answers may not becomparable from place to place, and not all of willseem relevant to some officials or locations that he willvisit, will be:

a) What is your town or district’s current growthpattern? More or less population, changes inindustry or services mix, increasing suburb-anisation or shifts in major activity centres?

b) Are the people in your community concernedwith preserving green space for the future? Howdo they express this concern?

c) Do you have any policies or regulations in placeto control further growth, or to direct it towardsa certain location or to control its type?

d) Are there specific land uses that are governed bytradition or precedent?

e) Is your town or district autonomous with regardto land-use decisions or does the state have someauthority in specific land uses (such as S-Bahnright of way or new highway construction)?

f) Is a new highway or public transit project plannedand, if so, is it funded locally or nationally?

g) Under what circumstances does the town ordistrict control what an individual or firm may dowith its land?

h) Is there a public debate or information processrequired for specific land uses or changes in landuse?

i) Does your public transit operator participate inany land-use decisions near its light rail, metro orbus transfer stations and how?

j) Are there national policies (such as environmentallaws or tax benefits) that affect land use or arelocal laws more relevant?

k) Do you have rules about specific land uses arounda train station, a subway stop or a tram stop?

Why B o t h e r ?

The US faces a significant and growing problem overthe next few years – the cost of unconstrainedgrowth is likely to reduce overall economic product-ivity. Recently published work by Newman andKenworthy6 indicates that a much higher percentageof American wealth and gross domestic product mustbe expended (as compared with Europe or Asia) to

maintain and improve transport infrastructure. Wehave exhibited our wealth, and our growingproductivity, in an excess of conspicuousconsumption, exemplified by owner-ship and use ofthe automobile. As these automobiles that we drivehave become more and more efficient, we havedriven them farther and farther, requiring more andmore highways. However, at what percentage of ourGDP. Does this infrastructure cost actually inhibitour rate of productivity? Highway and subwayprojects in major cities now cost upwards of US$100million per mile.

America’s population is aging. A large bubble of‘baby boomers’ is looking for a more urban (andurbane) lifestyle, but not finding it at reasonablecost. This, one of the wealthiest generations ofAmericans, may find their wealth eroded fromhaving to pay outrageous premiums for the urbanlifestyle they seek.

The US is moving, in fits and starts, towards a globalclimate change policy. Meeting the goals of theKyoto Protocols on carbon emissions will requiremore than technological fixes – it will requirechanges in individual and corporate behaviour. Oneway to foster such a change is to provide the samerange of individual living and work choices as existsin many European cities.

One cannot legislate against ‘sprawl’ per se, becausethere are many families that still seek the suburbanresidence with backyard and white picket fence.They are willing to drive significant distances toaccommodate such a lifestyle. However, there aresignificant numbers of ‘empty-nesters’ and dual-income households who are unwilling to live in asuburban, single-family house. They much prefer adowntown apartment or terrace house. They havebeen willing to bid up prices in such places as SanFrancisco, New York or Portland, Oregon, by asmuch as 7% per annum in the last five years.

However, if we allow this imbalance between urbanand suburban development to continue, we face thepossibility of having the ‘baby boomers’ see theirwealth eroded by having to compete for increasinglyexpensive residences, while the following generationsee their wealth also eroded by falling demand for thesuburban lifestyle. The author’s premise is thatincentives for influencing land use may remove someof this imbalance, and that this is a proper role for theFederal government. The Marshall Fund Fellowshipwill help to validate this premise and may identifyrelevant national or state policies that would beuseful to adopt in the US. ■

168


6. Peter Newman & Jeffrey Kenworthy, Sustainability and Cities: Overcoming Automobile Dependence, IslandPress, 1999.

170

Peter Law joined the World Bankin 1990 as a senior energy

specialist and works in the Oil andGas Division. He is the author of

natural gas and power sectorstrategies for several countries,

including Romania, Croatia,Hungary, Poland, Brazil, Pakistanand Turkey. His work has focused

on institutional reform, hydrocarbonsector restructuring, regulatoryissues and gas tariff policies intransition economies. His recent

activities include the World Bankappraisal of the Bolivia-Brazil gaspipeline project, with responsibility

for the economic analysis, andadvising the government on sector

restructuring and regulatory reform.Before joining the World Bank he

spent 20 years in the privatesector, first working for ImperialChemical Industries and then for

British Gas. He has publishedextensively on issues concerning

natural gas development.

Bent Svensson is a Senior EnergyEconomist at the World Bank in

the International Gas DevelopmentUnit, which he joined in 1991.

Since 1992, he has worked in theOil and Gas Division in a numberof different fields: institutional and

regulatory issues, energy sectorassessments, petroleum sector

restructuring and on natural gasproject financing in developing

countries. Prior to joining the Bankhe was a country and gas policy

expert at the International EnergyAgency, OECD, responsible for

country reviews of energy policiesand regulatory issues in Europeanand North American gas markets.Before joining the World Bank he

was Head of Finance andEconomics Division in KOMGAS (apartnership of the five regional

natural gas companies in Denmark),responsible for analyses for contract

negotiations of gas purchases,investments and costs analyses ofprojects, and co-ordination of theregional companies internationalborrowing. Earlier still he was a

Senior Researcher and ProjectManager.

a report by

P e t e r L L aw a n d B en t R S v e n s s o n

Senior Energy Specialist, Oil and Gas Division, World Bank and Senior Energy Economist,

International Gas Development Unit, World Bank

Since the mid-1990s, international oil and gascompanies have shown strong interest in developinggas markets in World Bank client countries.Sometimes, the focus is on developing local gasmarkets for industry and power generation or onexporting gas to a neighbouring country. In most cases,however, the government is strapped for cash andneeds to attract private investors to realise capital-intensive gas projects. More often than not, the startingpoint is an oil and gas sector where fuel prices aredistorted, dominated by a single vertically-integratedstate monopoly that essentially regulates itself, withweak oversight from a government ministry.

This article reviews experiences in five countries thathave embarked on gas sector reform – Argentina,Brazil, Poland, Hungary and Vietnam. Each casestudy reflects a gas market at a different stage ofdevelopment, with varying dependence on gasimports and a range of approaches to legal and sectorrestructuring. The article focuses on thedevelopment of each sector’s structure and its legaland regulatory framework and on the strength of thenew government institutions set up to implementand monitor the new framework.

A r g e n t i n a

In 1992, Argentina became the first country in LatinAmerica to pursue wholesale restructuring andprivatisation of its natural gas sector. Today, Argentinaconsumes some 20 billion cubic metres of gas a year,most of which is domestically produced. The gasmarket is mature, accounting for nearly half of primaryenergy consumption. Argentina has imported gas fromBolivia since the 1970s and it now exports gas to Chile.

L e g a l F r a m e w o r k

The legal framework for the energy sector contains aset of acts specific to downstream gas services that aretotally separate from those dealing with hydrocarbonexploration and production and other energy forms.

The 1992 Gas Law formed the basis for theprivatisation of the state-owned Gas del Estado andestablished the framework for the new industry

structure, tariff setting and network access (see Figure1). The law took less than two years to design andapprove – a relatively short time for reform of thismagnitude. At the time it was passed, the law wasunique among developing countries for itstransparency and pro-competitive stance. The lawmandates private ownership and industry unbundlingand avoids conflicting interests through restrictions oncross-ownership. Gas distributors and producers cannotown a majority shareholding in transmission.Distribution companies have regional monopolies butdo not have exclusive rights to supply large consumers.Transmission companies have no regional monopoliesand cannot buy or sell gas. The law requires that thirdparties have access to gas transmission lines and, whileit sets no restrictions on the import of natural gas, anenterprise wishing to export gas is required to obtaingovernment authorisation.

The Gas Law also created Enargas to regulate thedownstream gas sector. Funding and staffing needswere initially underestimated. The annual budget,US$8.5 million in the first year, doubled after twoyears. With the exception of a US$5 million start-upbudget from the government, Enargas has from thebeginning been funded ‘independently’ by levies onthe privatised industry. This set-up helps to minimisethe risk of political interference.

The prices of gas and competing fuels were raised tointernational levels before privatisation and theprinciples of fuel price liberalisation were embodiedin the gas legislation.

S e c t o r R e s t r u c t u r i n g

At the time the reform began, Gas del Estado had amonopoly in the downstream gas sector, operatingall of the country’s transmission and distributionlines. It bought gas from Yacimientos PetrolíferosFiscales (YPF), the state oil and gas productioncompany and by far the country’s largest producer.The government opted to restructure (unbundle)the industry before privatisation.

Gas del Estado was reorganised into twotransmission companies (both of which were

Gas Sec tor Res t ruc tur ing and Pr iva t i sa t ion :Les sons f rom Argent ina , Braz i l , Po land , Hungar y and V ie tnam


obliged to offer services on a non-discriminatorybasis) and eight regional distribution companies.Buenos Aires was divided into two distributionareas served by both transmission companies,thereby introducing some competition in supply.The six (now seven) other distribution companiescover the rest of Argentina. While thesedistribution companies have a right of first refusalfor the construction of new networks in theirservice areas, consumers can bypass distributioncompanies if cheaper gas is available.

Downstream privatisation was achieved in 1992 by asimultaneous sell-off of the entire downstream gasinfrastructure through international competitivetender. Restrictions were placed on the number ofunits that could be awarded to winning bidders – forexample, a winning bidder could not own bothtransmission companies or more than twodistribution companies. The process proved highlysuccessful, attracting 55 bids from internationalconsortia and raising some US$2 billion – muchmore than had been expected. Privatisation hascreated a highly competitive downstream gas sectorwhere private investors have to assess carefully theirbusiness risks.

Since privatisation, an additional US$2 billion hasbeen invested in industry expansion and furtherinvestments are planned for gas exploration and

production and for new export pipelines. Themain issues in the sector today are consideredsecond-generation issues, such as how to ensure aproperly functioning secondary market fortransmission capacity.

One important issue remains unresolved,however. Before its privatisation, YPF controlledmore than 80% of Argentina’s natural gas reservesand production and it still controls around half.Thus, YPF retains a dominant position inupstream gas supply, where true competition hasyet to be achieved.

B r a z i l

In 1995, in a step to allow private participation inthe energy sector, Brazil’s constitution was changedto remove the monopoly of Petrobras, the state oiland gas company. Since then, reforms haveproceeded quickly. The gas sector is poised fortransformation from a small industry that consumesjust four billion cubic metres of gas a year, derivedfrom a few domestic oil and gas fields, to a majorindustry sustained by large gas imports. Gas importswill start in 1999, with the completion of a US$2billion gas import pipeline from Bolivia. Eventhough the pipeline is not yet complete, its fullcapacity – 11 billion cubic metres a year – has beenbooked by shippers. A second major import172


Imports

From Bolivia

Two private transmission companiesContract carriage with first-come, first-served capacityNot allowed to buy and sell gasRegulated transmission rates

Transmission

YPF (50%)Other private producers (50%)Wellhead prices not regulated

Production

Nine distribution companiesRight of first refusal for construction of pipelines in distribution areaBypass of distribution company possiblePrice cap on distribution margin

Distribution

Industry Structure Regulation

MinistryExports

To Chile

Federal Agency(Enargas)

Federal Agency(Enargas)

Figure 1: Gas Sector Reform in Argentina

Gas Sec tor Res t ruc tur ing and Pr iva t i sa t ion

pipeline from Argentina and liquefied natural gasimports are being planned.


A Hydrocarbon Law was passed in 1997 to open thesector to private participation and competition. The lawwas designed and implemented in less than two years.

The law covers upstream and downstream oil and gasdevelopment (except gas distribution). For upstreamactivities, it defines the legal framework for awardingexploration concessions. For downstream activities, itincludes provisions for negotiated third-party accessto oil and gas infrastructure and allows privatecompanies to import and export hydrocarbons(subject to authorisation by the regulatory agency)and gain access to the market.

The law includes a three-year transition period toachieve full deregulation of fuel prices and does notplace restrictions on cross-ownership in the gaschain. In 1994, well before gas reform began, thegovernment had started raising the prices of themain competing fuels (fuel oil and liquefiedpetroleum gas) and removing subsidies. Thetimetable to achieve full deregulation included inthe Hydrocarbon Law assured potential investors inthe gas sector that price risks were small. By the timethe Hydrocarbon Law was passed and the Bolivia-Brazil pipeline was becoming a reality, competingfuel prices were close to international levels.

The law created the Hydrocarbon Sector RegulatoryAgency to regulate the sector. The agency’s staff isexpected to increase from the current figure of about150 to 350 by the end of the transition period in2000. The agency does not yet have an independentfunding source. During 1998, the agency’s budget,approved by Congress, was about US$120 millionbut only half of this was actually spent. The agencywill soon have new and more “independent” sourcesof revenue from bonus payments made by theindustry after the bidding for new exploration areas.

Designing and implementing downstream regulationshas been very time-consuming and it may have beenbetter to create separate agencies to oversee upstreamexploration and development and downstream serviceactivities. The key future challenges for the regulatoryagency are to ensure smooth harmonisation andimplementation of regulation at the state and federallevels and to introduce real competition in a sector stilldominated by Petrobras.


Until the Hydrocarbon Law was passed, Petrobrashad a legal monopoly on the import, production

and transmission of natural gas and petroleum forthe whole of Brazil. Individual states wereresponsible for distribution. Today, majorityprivate ownership is allowed in all areas of thenatural gas business, but, because of its traditionalrole, Petrobras is likely to remain dominant in theproduction and transmission of oil and gas for sometime. This dominance will ease when Petrobrasreduces its shareholding in the Bolivia-Brazilpipeline company as stipulated by the Braziliangovernment. Moreover, Petrobras is taking only aminority role in gas distribution, an activity thathas largely been sold off to foreign and domesticprivate companies.

Brazil has been successful in attracting privateinvestment for the Bolivia-Brazil pipeline and for theRio de Janeiro gas distribution company, as well asfor several smaller distribution companies.

Po l a n d

Poland has a well-established natural gasinfrastructure, distributing some 10 billion cubicmetres a year to towns and villages throughout thecountry. Less than half the gas originates fromdomestic production; the rest is imported bypipeline from Russia. Gas accounts for only 8% ofprimary energy in a sector dominated by indigenouscoal but there is good potential for increasing theshare of gas, particularly for heat and powergeneration. Domestic production is declining,however, and increasing dependence on importedgas is anticipated. Poland expects to access most ofits additional requirements through its participationin the Europol gas pipeline. The pipeline, nowunder construction, will form part of a new arterialroute for Russian supplies to Western Europe.Poland also recently agreed to import modestvolumes from North Sea suppliers, which representsa first step towards supply diversification.


Two key laws govern Poland’s energy sector – theGeological and Mining Law (1994) and the EnergyLaw (1997). The Geological and Mining Law dealswith upstream exploration and exploitation of oiland natural gas (as well as other minerals). Underthis law the government has provided attractivepetroleum exploration and development contractterms and, after a slow start, several foreigncompanies have signed exploration licensingagreements. Nevertheless, the best prospectiveareas have been reserved for the Polish State Oiland Gas Company.

The Energy Law is a downstream law designed todeal with the transmission, distribution and trading 173

of so-called network fuels, including electricity,natural gas, liquid fuels and district heat. The basicprinciples set out in the law are: separation of thepolicymaking, regulation and ownership functionsof the state; price liberalisation; demonopolisation;privatisation; and introduction of third-party access.The law took about five years to design and beapproved by Parliament – an extended period thatreflects the complexity of political consensus-building in Poland and the long debate withinPoland and the EU (which Poland soon expects tojoin) on how competition should be introduced inthe gas and electricity sectors.

The Energy Law is very general, avoids detail andis widely applicable across the network fuels.Comprehensive regulation specifying the detailsneeded to implement the law is currently underpreparation. Without this, it will not be possible toregulate the sector and private companies will lackincentive to invest.

The law places no restrictions on cross-ownership ofinfrastructure. It mandates third-party access only fordomestic producers, a move intended to keeppowerful foreign gas companies, such as Gazexport(the export arm of Russia’s Gazprom), at a safedistance from the market.

The Energy Law stipulates that there will be atransition period of two years (until 2000), after whichenergy prices should be set by competition or, in thecase of natural monopolies, by regulation. Since 1990,Poland has raised industrial gas prices to WesternEuropean levels (and residential gas prices somewhatabove industrial prices), but, until the Energy Law waspassed, potential investors considered governmentcontrol of gas prices to be a major risk.

The Energy Law created the Energy RegulatoryAgency to regulate retail tariffs of network fuels, adaunting task given the breadth of its jurisdiction andthe technical complexity of Poland’s energynetworks. The agency has now issued some 2,000licences to energy sector enterprises, a tremendousachievement – especially since the agency has only30 staff members (out of an anticipated 200). Theagency’s next major task is to begin the process ofapproving tariffs for the electricity and heatingsectors, followed by approval of tariffs for the gassector in 2000.


The Polish State Oil and Gas Company is avertically-integrated company responsible for naturalgas imports, domestic oil and gas production and gastransmission, storage and distribution. It holds a defacto monopoly on these activities by virtue of its

dominant position in the market. Although thecompany is the only producer of natural gas inPoland, this might change if foreign explorationefforts prove to be successful.

The company is currently being restructured: non-core drilling and service companies are beingprivatised and the new industry structure isexpected to separate hydrocarbon prospecting andproduction, gas transmission and gas distribution.However, restructuring has been slow and barriersto private entry have been high. This has resultedin almost no private investment in downstreamnatural gas development. However, Poland is inthe pre-accession phase of integration with the EUand will ultimately have to open up its gas marketsin line with other EU Member States, as well asadjusting its policies to comply with the EUDirective on the Internal Market Liberalization forNatural Gas.

Hun g a r y

Hungary was the first Eastern European country toattempt reform and privatisation of its gas sector. Inthe early 1990s, gas consumption was around 11billion cubic metres a year, with half produceddomestically and half imported from Russia. Giventhe good potential for expanding the market,privatisation was expected to attract serious interestfrom Western European gas companies. In addition,a new pipeline between Hungary and the WesternEuropean gas network was planned (and completedin 1996), offering the prospect of diversifyingsupplies and arranging gas import deals with WesternEuropean suppliers.

Today, the main players in the Hungarian gas sectorare the majority privately-owned company MagyarOlaj-és Gázipari Rt (MOL) – which deals withhydrocarbon exploration and production, refiningand natural gas transmission, storage and wholesaledistribution – and six majority privately-ownedregional gas distribution companies that serve sometwo million customers.


The two key acts governing the gas sector are theMining Act (1993) and the Gas Act (1994). The GasAct covers downstream gas activities and establishedthe Hungarian Energy Office to regulate the sector.The energy office is responsible for proposingchanges in gas prices, though final approval rests withthe government. The Gas Act stipulates that gassupply (transmission and distribution) should besubject to a licence but includes no specificrequirement for suppliers to offer third-party accessto transport facilities. 174


Sector: oil & gasEstablished: 1st January 1994Independent Auditor: Ernst & YoungNo. of Employees: 1350Fiscal Year ended: 31 DecemberHead Office: Plynarenská 1, 657 02 Brno,

Czech RepublicPhone: +420 5 455 48 111Fax: +420 5 455 48 666

Main Officers:Chairman and MD: Ing. Libor MartinekCommercial Manager: Ing. Ivan KnoflicekPersonnel andLegal Manager: JUDr. Miloslava PavlicovaInvestment Manager: Ing. Jiri HloskaOperational Manager: Ing. Ladislav HorskyFinancial Manager: Ing. Drahomira Truneckova

Major Shareholders:National Property Fund 711 486 (47.65%)Local Authorities 507 636 (34.00%)Other legal entities 262 562 (17.59%)Restitution Investment Funds ---Others 11 342 ( 0.76% )

Main Affiliated Associated:in process of negotiating

Background:The principal activities of the JMP, a.s. company are:Distribution and sale of natural gas in a given territory to thelargest possible group of consumers, with regard to safety ofoperation, supply reliability and to legally fixed price.Development of the distribution network and new additionalconsumers.Its economic prosperity, laying stress on increase of JMP, a.s.share prices on the market JMP, a.s. actively supports socialactivities, too.It takes advantage of legal possibilities of sponsoring.The major part of support was directed to national health serv-ice and handicapped persons.The rest found its target in sports, cultural activities and edu-cation. The South Moravian Gas Company (hereafter JMP,a.s.) is the largest gas distributing company in the CzechRepublic with a 28 per cent share of natural gas sales in thecountry. Its main supplier is Transgas obtaining natural gasfrom Russia. The District Offices of JMP, a.s. are spread onthe whole area of South Moravia - in Jihlava, Kromeriz,Hodonin, Zlin a Brno. The biggest office is that of Brno captur-ing 41 per cent of all business activities.A round-the-clock emergency service is organized for defectand breakdown elimination on the gas distribution network and

gas consumption equipments. Gas distribution and servicestations is in district towns and large places of sale secureuninterrupted contact with customers. Information and adviso-ry centres of JMP, a.s. offer expert advice and information forthem.JMP, a.s. continues to expect a rise in consumer numbers,taking into account the continuity and further introduction ofgas supply to communities and the consequent increase in thenumber of households fully equipped with gas facilities,despite the slight decrease in gas sales mainly due to theunusual warm winter season, which occurred in the previousperiod. Moreover, due to the higher margin negotiated, therewas no loss in overall income. We continue to anticipate asubstantial growth in large industrial consumers as they them-selves modernize their plants. We will also continue to use ourexpertise in participation in gas fired cogeneration plants, andare prepared at any time to co-operate and share in such newprojects.

Stock Prices: in 1998Lowest 2 600,- CZKHighest 3 000,- CZKclose (31st December 1998) 2 700,- CZKTotal Shares: 1,493,046

31.12.1998 31.12.1997Balance Sheet Data(CZK Thousands)assetsFixed Assests 5 399 484 4 947 866Current Assets 2 967 752 1 364 888Other Assets 2 643 058 1 986 642Total Assets 11 010 294 8 299 396liabilitiesEquity 3 612 629 3 377 466Basic Capital 1 493 046 1 493 046Liabilities 7 207 663 4 809 860Other Liabilities 190 002 112 070Total Liabilities 11 010 294 8 299 396

Income Statement Data (CZK Thousands)Production 9 237 757 8 124 459Operating Economic Result 595 479 327 913Economic Result from Financial Operations -182 347 4 798Income tax to ordinary income 226 535 104 397Economical Result from Ordinary Activity 186 597 228 314Extraordinary Economic Result 807 38 036Earnings before Tax 414 603 394 869Income tax 227 199 128 519Economical Result for the Accounting Period 187 404 266 350

PerformancesROA = Return on Assets 5,96% 5,31%Current Ratio 0,55 0,39Quick Asset Ratio 0,54 0,37Cash-Position Ratio 0,41 0,28Capital Intensity 83,90% 97,70%Total depts/Total assets 65,00% 58,00%

Price reform came quite late in the reform effort. In1995, a ministerial decree on gas pricing stipulatedthat, from 1997, gas prices should be set according toa formula intended to provide an 8% regulated rate ofreturn to MOL and the distribution companies, withannual price revisions until 2001. The pricingmechanism was based on a price cap that includedthree main components: actual input costs; expectedcost changes due to such factors as inflation andexchange rate variation; and measures for efficiencyimprovements. The new pricing system was intendedto rationalise gas prices, which were heavily subsidisedin the early 1990s (particularly for households), andentitled consumers to compensation if a company’srate of return rose above a certain level.

Since privatisation, efforts to implement the newpricing system have encountered political obstaclesand price increases to the residential sector have beenlower than was stipulated by the price review rules.

MOL has argued that it has not been allowed torecover the full cost of imported gas and raising gasprices remains a politically charged issue.


In 1991, MOL was established as a joint stockcompany by consolidating the numerous enterprisespreviously held under the Hungarian National Oiland Gas Trust. Since then, shares in MOL have beensold to domestic and foreign investors. However,Hungarian privatisation law stipulates that the statemust retain at least 25% of the company plus a“golden share”. This will ensure that the statecontinues to exert significant control.

Today, MOL is Hungary’s only producer of naturalgas and its only licensed wholesale distributor. Itowns all high-pressure gas transmission lines, is notrequired to offer third-party access and has a right offirst refusal to purchase all natural gas imports.Although MOL has no legal monopoly on gasexploration and production, for all practicalpurposes it holds a de facto monopoly in all gasactivities except distribution.

The distribution entities were restructured intojoint stock companies and, in 1992, the government

decided to sell the majority of shares in thesecompanies to foreign investors. Institutional reformhad barely started, however, and the governmenthad neither committed itself to resolving the gaspricing issue nor implemented a proper regulatoryframework. In the end, the government revokedthe invitation to bid for private tenders and the firstattempt at privatisation failed.

The second attempt was made in 1996 afterregulations on gas pricing were in place. The sixregional distribution companies were offered for salebased on a 50% sale of shares plus one share, with a“golden share” retained by the state. Privateinvestors had to commit to expanding thedistribution networks and transferring theirmanagement skills to the company. In return, thebuyers would retain an exclusive right to supply theareas covered by the distribution systems. Thissecond attempt at privatisation was highly successful.

International competition attracted 24 prequalifiedforeign bidders and raised some US$500 million, ortwice the companies’ book value.

Since privatisation, MOL has gained a firmfoothold in the gas distribution business and nowholds a minority shareholding in five of the sixregional distribution companies. However,Hungary expects to be among the first EasternEuropean countries to join the EU, which willrequire MOL to offer third-party access to itstransmission lines to comply with the EU directiveon gas.

V i e t n am

Vietnam’s gas industry is just starting from scratch.The first move was in 1995, when associated gasfrom the White Tiger offshore oilfield was landedonshore. In 1998, between one billion and 1.5billion cubic metres of this gas was consumed bytwo power stations near Ho Chi Minh City. Aproject for exploiting non-associated gas from twofields in the Nam Con Son basin is now beingnegotiated between a consortium of privateproducers and Petrovietnam, with about threebillion cubic metres a year of gas production fromthe first phase planned to be used for power176


The best arrangement would be to have separate laws for

the upstream and downstream sectors because their roles

are so different.

Gas Sec tor Res t ruc tur ing and Pr iva t i sa t ion

generation. Vietnam’s hydrocarbon potential ismuch larger than these numbers suggest, however.Prices for petroleum fuels are at international levelsand domestically produced coal is priced close tothis level.


The Petroleum Law was passed in 1993, followed,in 1996, by an implementation decree. Both dealwith the exploration, development and productionof oil and gas. However, all upstream activities areassigned exclusively to Petrovietnam, thegovernment enterprise authorised to conductpetroleum operations and enter into petroleumcontracts. The Petroleum Law states thatpetroleum contracts can be in the form ofproduction-sharing contracts or joint ventures withprivate companies. It specifies model contractprovisions. There is no legislation for downstreampetroleum operations such as gas transmission, gasprocessing and gas distribution.

Although the Petroleum Law sets up a new agency(State Management of Petroleum Operations) as theregulating entity for the oil and gas sector, thegovernment is leaning heavily on Petrovietnam toperform the regulatory functions instead. Thus, thereis a potential conflict of interest.

S e c t o r S t r u c t u r e

Petrovietnam receives associated gas at no cost andtransports it onshore through its pipeline. The gas isconsumed by Electricity of Vietnam, the state powermonopoly, but a number of independent powerproducers are involved in negotiations for powergeneration contracts. The government hasappointed Petrovietnam as an exclusive gas trader toinitiate and develop the gas market in Vietnam. Thismove creates a risk of high costs, inefficientlyallocated resources and a slowdown in gas marketdevelopment. It will also discourage investors frominvesting in the downstream gas industry.

Because of the lack of downstream legislation, thebasic agreements for developing the Nam Con Sonbasin – including gas prices, infrastructure accessand rights and obligations – will initially beincorporated into the contracts between privateproducers, transporters, the state company thatwill purchase the gas and the government. This isnot an ideal situation. It would have been better ifregulations for gas transmission and distributionlicences, the setting and approval of gastransmission tariffs and the definition of the third-party access rules and technical standards had beenin place. Such regulations would increasetransparency, reduce the perceived risk by

potential investors and facilitate speedydevelopment of the gas market.

L e s s o n s

The case studies show that the legal framework forgas may range from separate laws for upstream anddownstream operations to a single law coveringboth or even an umbrella law encompassingpetroleum and electricity as well as gas. The bestarrangement would be to have separate laws for theupstream and downstream sectors because theirroles are so different. These laws should besupported by regulations, licences and contracts,including the detailed commercial, technical andenvironmental regulations needed to implement thelaws. Implementation and monitoring should besupported from the outset by an adequately fundedand staffed regulatory institution. The regulatorshould be financed by the industry to ensurefunding independent of government.

Of the countries studied, Argentina comes closestto best practice. Argentina introduced separate anddetailed upstream and downstream laws and awell-designed regulatory framework beforeprivatisation – an approach that proved attractiveto foreign investors. Vietnam, by contrast, lackssuch a legal and regulatory framework andinvestments in upstream activities began withproduction sharing contracts before the PetroleumLaw was passed. With no regulatory framework inthe downstream sector, there is a significant riskthat negotiations will be delayed and downstreamdevelopments slowed.

Argentina’s restructuring and unbundling of theindustry before privatisation was also important,not only for successful privatisation but also for thehighly competitive industry that resulted. Reformtransformed the Argentine gas industry overnight –from a public monopoly to a very competitiveprivate industry. There were two key reasons forthis outcome: the government was committed toprivatisation and detailed legislation was introducedaimed at making the gas sector highly competitive.Poland and, to some extent, Hungary show thatcompetition and privatisation can be held back if atraditional integrated monopoly remains even aftera new legal and regulatory framework has been putin place. Countries starting from scratch can avoidthis market dominance or monopoly problem.

The case studies support the need to liberalise gasprices early in the reform process. The firstprivatisation attempt in Hungary failed largelybecause of the government’s failure to produce aclear pricing policy – in contrast with the successfulexperience of Argentina. ■ 177

178

Biplab Kanti Sengupta is Professorin the Department of Architecture

and Regional Planning at theIndian Institute of Technology,

Kharagpur. His specialist interestsare urban management and finance;city and metropolitan planning; new

town planning; environmentalplanning and design; and planningeducation. He has been a memberof the Council of the Institute of

Town Planners, India, and Chairmanof the Education Standing

Committee since 1989. He is anExpert Committee Member at

national, state and local levels.Professor Sengupta is an

International Fellow at the MetroCenter, Johns Hopkins University, USand Visiting Faculty, Asian Instituteof Technology, Bangkok. His workhas been widely published and is

the author of numerous papers andprojects.

a report by

P r o f e s s o r B i p l a b K a n t i S e n g up t a

Department of Architecture & Regional Planning, Indian Institute of Technology, Kharagpur


In most of the developing world, the rapid pace ofurbanisation is causing concern to the nationalgovernments, the planners and policymakers and theinstitutions involved in managing the urban affairs.Urbanisation – which is essentially a process of a largeconcentration of people and specialised diversifiedforms of economic and social functions within limitedgeographical areas – brings with it a variety of rapidlygrowing demands to satisfy both basic and specialisedneeds of the population and activities. Along with thegrowing size of urban areas, the management andprovision of the needs become increasingly complex.

Problems of urban poverty and unemployment andinadequacy of urban housing and infrastructure havebeen recorded throughout history. The severity of theproblems reflects primarily the rapidity of overallpopulation growth and the acute shortage of resourceswith which to equip the new urban population.

According to the 1991 census, the Indian urbanisationlevel is at about 26%. A net addition of about 58million was made to the previous census figure of159.46 million. The decadal growth of 36.2 from1981 to 1991 was lower than that of the period from1971 to 1981, which was 46.1%. This absolutenumber of 217 million would require more massiveinvestment in social and physical infrastructures toonly maintain the existing level of urban services, letalone to improve their accessibility. The level ofurbanisation for 2001 is estimated to be between 31%to 32% (Task Force), and 35% (NCU); and anabsolute urban population of 320 million (TaskForce), and 340–350 million (NCU). India’s urbanpopulation is projected at 454 million in 2010.

This article is taken from an Invited Paper which waspresented at the 47th NTCP Congress on UrbanInfrastructure Development.

The possibilities of relieving urban pressures throughmeasures to restrain migration from the countrysideand arguments for greater emphasis on ruraldevelopment as against urban development, and onsmaller towns as against major cities, are inconclusive.

Greater emphasis on development in rural areas or thesmaller towns is unlikely to cause a significantreduction in the growth in urban population or theproblems of the larger cities over the next decades.Trade-offs between levels of urban services andcorresponding costs have not yet been adequatelyanalysed in relation to resource availability.

Since independence in 1947, India has been engaged inpromoting urban development. Along with variousmeans of planned urban development, Western, andparticularly British, planning models and practiceguidelines have been adopted to decentralise the primarycities, and to accommodate the growing needs ofindustrial development, capital function, etc., includinghousing the large-scale refugees after partition.

National policies in India’s general approach to urbandevelopment had indicated, since the third five-yearplan that:

“Urbanisation is an important aspect of theprocess of economic and social development andis closely connected with many other problems,such as levels of living, cost of providing servicesin towns of different sizes, provision of housingfor different sections of the population, provisionof facilities like water supply, sanitation, transportand power, civic administration, fiscal policiesand the planning of land use.”

Infrastructure is the basic requirement of urban lifeand its adequacy and accessibility are two importantingredients and key contributors in the upgrading andenrichment of quality of urban life that is the primaryobjective of any planned development effort.

The Bhore Committee (under the chairmanship ofJoseph Bhore), in 1946, recommended that thedevelopment of towns on the basis of comprehensiveplanning, including standards and norms, should beaccepted by the central and state governments,statutory undertakings and private enterprises for bothexisting and new towns. Subsequently, theCommittee on Plan Projects (COPP) and the Bureauof Public Enterprise (BOPE) dealt with the norms,standards and capital costs of the new towns.

Prac t i ce s in the Prov i s ion o f In f ras t ruc ture & Ser v i ces :I s sues for Recons iderat ion


Prac t i ce s in the Prov i s ion o f In f ras t ruc ture & Ser v i ces

Planners have adopted various space norms andstandards as bases for their plan preparation duringlast 50 years. Norms and standards are tools foranalyses and decision making, but the difficulties liein identifying the rationale behind most of them.This article looks at some of the considerations thatcan produce more efficient patterns of urban growth.

S t a t u s a n d L e v e l s o f U r b a n I n f r a s t r u c t u r e

The fundamental shortage of resources for urbaninfrastructure to deal with the additions to population,let alone to ameliorate existing conditions, poses inacute form problems for the quality of services to beprovided. The possible extent and implications oflower standards of service as a ‘trade-off’ to lower costsrepresent a critical element in determining theproportion of the population that can be provided withthe services. Also of great importance is the relationbetween original capital cost and maintenance cost.

Considerable opportunities may exist for lower costservices of minimum ‘utility’ quality. For water andsewerage, ‘trade-offs’ of both convenience and healthare involved. On the other hand, a larger proportionof the population supplied with lower quantities,rationed by restricted outlets or higher charges, may

improve overall health and also reduce the risks ofcontagion spreading from previously unserviced areas.

Evidence from communal provision of water andsewerage facilities on economics is contradictory.Individual supply appears generally to lead to muchbetter maintenance, but much depends on localcommunity spirit and habits. Other possibilities ofeconomising resources arise from the fact that manywater-using devices, such as toilet flush tanks, are notdesigned for high water economy, principallybecause water has traditionally been so cheap andcharges inadequately related to volume used.

Infrastructure can be divided into two areas:

• physical infrastructure, including water supply,sewerage, drainage, electricity, solid waste andtraffic and transportation; and

• social infrastructure, covering education, health,socio-cultural facilities, distributive services,miscellaneous facilities, other facilities and servicesincluding communication, commercial facilitiesand recreational facilities.

Urban centres in India present a grim picture withregard to availability of basic infrastructure. At the

Main products

The main products of the Henan Jiyuan Iron and Steel Company are pigiron, cables, round bars, screw-thread steel and cast-iron sections. Itsproducts are of excellent quality and are reliable. Round bars and screw-thread steel are mainly sold to key national projects such as the pivotalXiaolangdi Water Conservancy Dam on the Yellow River, the ThreeGorges Dam on the Yangtze River, the Chemical Fibre Works of theLuoyang Petrochemical Complex and the Shanxi Yangcheng Power Plant.They meet with customer approval. Our occupancy of the domesticmarket for cast-iron sections stands at 30% while export sales are madeto Canada and the United States. Product quality has achieved theadvanced international level of the 1990s. In April 1998, Jiyuan Iron andSteel passed external examination and verification of the Beijing ISO 9000International Standard Quality Systems Certification Centre with nodifficulty and obtained its ISO 9002 Quality Systems Certificate.

Matters for which Business is Invited

The Company is tendering for the following projects in order to increaseits competitiveness, develop new products and import advancedproduction technology.

Co-operation in tertiary standard screw-thread steel production technology

Tertiary standard screw-thread steel bar is the replacement product forthe current secondary standard screw-thread steel bar. It has enormouspotential in the Chinese domestic market especially in some key nationalprojects in the province where heavy use is made of it. The Company isinviting commercial co-operation for production technology in respect of

this product and is planning to invest 98,000,000 yuan. It is also reformingits steel-rolling and steel-smelting production lines in order to create theproduction capacity for an annual output of 300,000 tonnes of tertiaryscrew-thread steel bar. Specific projects for reformation include thereform of steel-ladle high-performance continuous casting through on-linerefining technology and the reform of steel billet heat-transfer, hot-rollingtechnology. After these projects have been completed, it will be possibleto produce F12 - F40 mm tertiary screw-thread steel bar.

Reform of iron-smelting system technology

In order to adapt to developments in the market economy, the Companyis preparing to invest 30,000,000 yuan in a technological reform of its iron-smelting system. Specific projects are comprehensive mixing technology forthe raw materials area, pellet sintering technology, globe hot-air furnaceand bag-type dust extractor. When complete, the Company’s iron-smeltingtechnology will be matchless and both the quantity produced and qualityof the melted iron will be increased. It will be possible to produce350,000 tonnes of high-quality melted iron every year.

Environment for co-operation

Communications at the company’s location are convenient in alldirections. National Road No. 207 crosses from north to south while theroad from Jiyuan to Xinxiang passes from east to west. The Company hasits own railway track which connects with the normal tracks of theJiaozuo-Zhicheng line. There are abundant resources of iron ore and coaland there is ample water and electricity. These provide particularly goodconditions for the development of the iron and steel industry and firmsboth at home and abroad are cordially invited to favour us with a visit.

Invitation to do Business from the HENAN JIYUAN IRON & STEEL COMPANY

Address: Tiantan District, Jiyuan, Henan, China. Telephone: (precede with the code for China) 0391-6698888 (switchboard) Fax: 0391-6695008 Telex: 470823 JZJY CN

aggregate level, 21% of the urban population is livingin squatter settlements, where access to basic servicesis extremely poor. Although 82% of the urbanpopulation is reported to have access to safe drinkingwater, there are severe deficiencies with regard to thequantity of water available to urban residents. Nearly46% of urban households have flushing toilets, butonly 28% of the urban households are connected tothe public sewerage system. Though nearly 300urban centres have a sewerage system, only 70 ofthese have sewage treatment facilities. Only 60% ofthe refuse is being collected by municipal authoritiesin the urban areas of India. There is, thus, a majorgap in the provision of urban infrastructure andservices, despite previous efforts.

The cost of urban infrastructure and services dependson a variety of factors that include topography,geology, density of population, the quality of servicesprovided and technology options, etc. The RakeshMohan Committee has calculated the financialrequirements of core infrastructure by 2001 for urbanpopulation of various states by using two sets ofnorms adjusted to 1994–1995 prices. According tothe Planning Commission (Low Range) estimates,the urban areas of India will require additionalinvestment of about Rs327.27 billion by 2001. Ifthese services are to be provided at a higher range ofnorms, the investment required is about Rs441.38billion. On the other hand, according to the ZakariaCommittee standards, the financial needs will beabout Rs293.37 billion.

U r b a n P l a n n i n g S t a n d a r d s

Standards are established yardsticks quantifying thedesired minimum requirements of communityfacilities, open spaces and rights-of-way etc. Some ofthese are established by law and take the form ofminimum standards which have come to be recognisedas necessary in the public interest. Urban Planningstandards govern the pattern of land allocation withinspecified land uses. The standard of ‘desirability’ isadopted for the design of future urban patterns.

Planning standards are based on different considerations,such as social values, safety, ease of movement, perceivedneeds and the stage of economic development of thatsociety. These may be subject to revision over time.

Recommendation C.3(b) (for national action) ofHABITAT : United Nations Conference on HumanSettlements, Vancouver, 1976, states that:

“Standards for shelter, infrastructure and servicesshould be compatible with local resources, beevolutionary, realistic, and sufficiently adaptableto local culture and conditions, and beestablished by appropriate government bodies.”

Standards supply measurement units for termsappearing in the statement of principles. In dealingwith standards for the location of uses, time anddistance criteria are primary units for measurement ofconvenience. Thus “close proximity”, “convenientdriving range”, “easy walking distance” and“accessible to railroad transit or utilities” are definedin time or distance standards, usually in terms ofminutes or miles of travel.

Standards are not absolute, but are more in the natureof guides or criteria to be followed under averagecircumstances. Where there is a marked range ofvariation in circumstances, variable standards oflocation may be warranted.

T h e I s s u e s

The despondency surrounding the task ofameliorating urban conditions arises primarily fromspeed of urban growth and shortage of human as wellas financial resources. There are further contributingfactors which operate with much greater force andare more difficult to solve:

• Housing appears to be a “bottomless pit”,individual projects being too marginal to have anyreal impact and the costs of major programmesbeyond the realm of possibility.

• Water supply and sewerage projects often appear tobe fighting a losing battle, the backlog growingfaster than it can be filled. Soaring urban land pricesmake urban projects increasingly expensive.Comprehensive urban plans have tended to beunrealistic in terms of resources and implementationcapacity, and have been out-of-date by the timethey are completed.

• Many new roads and transport facilities, housingand utilities, employment sites, markets and socialfacilities will have to be provided. Equallyobvious, much can be done to promote moreefficient use of public and private resources and togenerate additional resources.

• Because of the important and extensiveinteractions between investment decisionsusually undertaken in an unrelated manner eitherby individuals or by various public entities,private benefits, or benefits from individualpublic enterprises, may vary considerably fromthe social benefits.

• Levels of urban services and housing can betailored to the resources available, both publicand private to some extent: poor housing in theurban centres is primarily a reflection of thebasic poverty. 180



• Considerable opportunities certainly exist forimproving the price mechanisms to harness marketforces in producing a more efficient pattern ofurban development, as well as to increase the totalof resources available for public purposes.

E v a l u a t i o n

Fundamentally, we are seeking a basis for scaling theland area needed to accommodate growth in urbanareas over the next 10–15 years. More particularly,having established in principle where each categoryof use should be located in the future, we are nowinterested in estimating how much land will beneeded for each such use.

This first involves the derivation of space standardsappropriate to each class of use followed by theapplication of these standards to the appropriategrowth index previously developed. Density standardsare employed for industrial and residential uses, withemployees and families or dwelling units per net orgross acre of land being the measures respectively. Forschools and certain types of recreation areas, localadaptations of general empirical standards of minimumsite sizes for designated multiples of school or totalpopulation are customarily used as standards. For retailbusiness uses, standards are based on trade areapopulation or the volume of retail sales per unit ofretail floor area, and wholesale standards are based onwholesale employment per unit of wholesale area.

There are three aspects that need to be recognised:scientific, cultural and social. In practice, these threedimensions should be blended in a way that makesstandards intrinsic, for instance, evolving from abalanced cognition of scientific, cultural and socialprinciples appropriate to the place, time, cultureand economy of technological resources of thesociety concerned.

Very often, unreasonably high standards statutesprovide for a level of services which make suchsettlements beyond the reach of low-income families.Families in relatively high income brackets areattracted to these localities and the intended targetgroup is gradually priced out. The development planin urban areas must therefore pay adequate attentionto the needs of low income settlements.

Major observations are identified below :

1. Legislation and the associated by-laws andregulations governing standards for housing and thephysical environment, including infrastructure, areusually unrealistic financially, inappropriatetechnologically and unenforceable administratively.Urban authorities are incapable of implementingofficially formulated standards and this has affected

the credibility of those authorities, encouragedarbitrary and discriminatory practices and causedadministrative delays and obstacles. Theconventional approach used in setting the standardstook no account of the dynamism of humansettlement development or of regional urban andcommunity variations. Absolute standardsinvolving maxima or minima were subject toarbitrary technological decisions and could besupported or opposed by contradictory researchfindings, particularly with regard to public health.

2. Infrastructure provision resulted, in many cases,in improved, albeit informal, security of tenurefor the house or land, that might be eithersocially and politically perceived oradministratively sanctioned. However, unlesssome level of official tenure was obtained, it wasunlikely that sustained improvements in thequality of shelter would be achieved and thatsustained willingness and capability to care andmaintain infrastructure at the community levelwould be generated. This was particularlyrelevant for slums and other such environments.

3. The integrated comprehensive approach to theareas wherein the project aimed to addressphysical, social and economic needs ran the risk ofreducing the impact on priority elements byspreading resources over a wide range of projectcomponents. Previous experiences showed thatthe integrated approach had not achieved thedesired objectives and an alternative policy was toidentify priority needs and to target resourcesmore widely and more speedily on specificelements, such as water supply and sanitation.

4. A gap had been identified between existing urbandevelopment and infrastructure service coverage. Inareas that had remained underserviced, includingthe majority of low-income settlements, theresidents had developed informal, rudimentaryinfrastructure solutions, which, although inadequateboth in terms of service level and environmentalhealth standards, represented the capacity of localcommunities to cope collectively with theirneighbourhood infrastructure problem. Currentsettlement improvement practices generally ignoredthe potential of supporting and incrementallydeveloping such local solutions by supplementingthe resource base, the technical skills and theorganisational capacity of the community.

5. The fragmentation of responsibilities for urbaninfrastructure services manifested itself in theintroduction of urban and, in some cases, nationaland regional authorities that had generated severeproblems of planning and co-ordination and hadreduced the effectiveness of investments and the 181

efficiency of the delivery of urban services. Suchdivisions of responsibilities were particularlyharmful at community level, where lack ofintegration and co-ordination of water supply,sanitation, power supply, drainage, street lighting,refuse collection, access and circulation and socialservices created confusion, waste, social alienationand mistrust.

6. The urban governments have failed to stimulatethe supply of land for the formulation of newsettlements. A critical constraint on the supply ofland for urban uses was the insistence, by urbanauthorities, on high infrastructure standards fornew developments as an elusive or preventivemeasure against their formation.

7. There was a requirement for a reconciliation ofthe needs perceived by planners and those felt bythe beneficiaries. The need for an institutionalframework to handle common responsibilities,such as maintenance of infrastructure and services,applied at neighbourhood level as well as at urbanand national levels.

R e c ommend a t i o n s

Through extensive data collection and workingexperience with reference to both local conditionsand established standards elsewhere, an elaborateplanning standard has to be formulated. This standardhas to relate to available resources sustainability. Theplanning standards and guidelines must lay downdevelopment densities, location factors and siterequirements for various land uses for provision forcommunity facilities etc.

Low-cost solutions are essential. Most of the areashave by now been able to find adequate technologicalsolutions. Low-cost techniques have been developedwhich are technologically feasible and communallyacceptable. The most significant achievement in thisrespect has been in the matter of human wastedisposal and water supply distribution systems.

The three elements of standards are coverage, the levelof services and lower costs. The level of services is alsoclosely linked with the satisfaction level of thecommunity. The most commonly available option isthat of reducing per capita availability of services andmaking the facilities available on a community basis ona per capita rate. Despite the problem of communityresponse to maintenance, barring occasionalexceptions, this is at present the most commonlyacceptable cost-saving approach. No attempt has beenmade to prescribe any norms, be it for physical orsocial infrastructure, but a possible mechanism hasbeen outlined, in the hope that this will help a plannerto formulate and adopt appropriate standard.

1. Central governments should formulate anddisseminate a wide range of experiences ininfrastructure options with the objective ofpromoting flexible and innovative solutions whichhave been shown to allow for and encourageprogressive, incremental improvements. Thepurpose of national intervention should be theprovision of technical assistance which haspromoted a sensitive and responsive approachrather than the introduction of controllingregulations or inflexible guidelines which might beemployed by officials as instruments of restriction.

2. Existing tenure arrangements should bethoroughly investigated and documented. Centralgovernments should adopt measures wherebyassured long-term security of tenure might beintroduced and guaranteed.

3. Policies for the integrated approach to upgradingprojects should review and investigate nationwideand citywide programmes which haveconcentrated initially on identified priorities(taking account of the need to supporttechnological improvements with complementaryand supportive community development activitiesconcerned with community acceptability) andcommunity care and maintenance of theinfrastructure elements in question.

4. Urban-scale public agency programmes andneighbourhood-scale self-help initiatives shouldbe integrated development activities withcommon objectives for the provision ofinfrastructure and the delivery of services to low-income communities. Innovative institutionalarrangements which recognise and optimise theopportunities for shared responsibilities betweenurban and neighbourhood levels should beintroduced to support action programmes.

5. Administrative reforms which vested publicauthorities with responsibilities for specific urbanservices should be reviewed, taking into accountthe demonstrated need for an integrated approachto the provision of infrastructure and managementof services by combining responsibilities at themunicipal level.

6. Urban authorities should actively promotehousing development on residential landequipped with low-cost sanitation and watersupply solutions.

7. A continuous dialogue must be establishedbetween the concerned agencies and thecommunity throughout the implementation andmaintenance of infrastructure systems, andneighbourhood community institutions should be182



involved in the setting of priorities and thecomposition of the infrastructure package.

8. Acknowledging the importance of infrastructureas a critical feature in the development process, adeeper study of the issues involved can offer newinsights into the role of planners and functioningof the planning system.

9. An awareness of the problems of implementationand the importance of understanding the significanceof negotiative practice in the process is essential. ■

B i b l i o g r a p h y

UDFPI Guidelines, I.T.P.I, New Delhi, August, 1996.

Public Private Partnership in the Provision of UrbanInfrastructure Services: Issues and Strategy, T.C.P.O;New Delhi, Sept,1997.

The India Infrastructure Report, Expert Group onCommunication of Infrastructure Project, NCAER, NewDelhi, June 1996.

Urbanization, Sector Working Paper, World Bank,Washington, D.C.,1972.

Integrated Urban Infrastructure Development, SDR,New Delhi, July–August,1995.

B K Sengupta, Indian Experiences of New TownPlanning, New Town in Perspective, INTA Press, UK,1997.

K C Sivaramakrishnan, Indian Urban Scene, IndianInstitute of Advanced Study, Simla, 1978.

Task Force Report on Planning and Development ofSmall and Medium Towns and Cities, Government ofIndia, 1997.

Task Force Report on ‘Housing and Urban Development’;Planning Commission, New Delhi, 1983.

Guidelines for Human Settlement Standards, UnitedNations Economic and Social Commission for Asia and thePacific, Bangkok, 1979.

Impact of Slums and Squatter Settlements,Infrastructure & Services; United Nations Economic andSocial Commission for Asia and the Pacific, Bangkok, 1984.

F Stuart Chapin Jr and Edward J Kaiser, Urban LandUse Planning, University of Illinois Press, 1979.

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184

a report by

P e n e l o p e J B r o o k C owen

Senior Private Sector Development Specialist, World Bank

They did it with the airlines, railroads, electricity andtelecommunications. Now, federal, state andmunicipal governments around the world arepositioning themselves to privatise their watersystems. For many cities, cutting water fromgovernment purse strings holds enormous potential,but there is resistance in some quarters to what isperceived as private sector overreach.

Private sector participation is a general termcovering a broad variety of options for involving theprivate sector in service provision. These range fromservice contracts – by which the private sectorprovides specific technical services such as piperepairs or meter reading – to management contractsand leases – under which the private sector takes onresponsibility for the overall operation andmaintenance (O&M) of a water and sewerage system– to concessions – through which, in addition toO&M, the private sector takes on overall investmentresponsibilities for the improvement and expansionof water and sanitation services.

These options differ in their allocation of risks andresponsibilities between the public and privatesectors, their complexity and their duration, but allinvolve a partnership between the government andthe private sector.

Governments’ motivations for seeking private sectorparticipation in water and sanitation vary. They may be looking to secure sustainable improvementsin the efficiency with which services are delivered –often after years of failing to attain this throughpublic sector projects focused on training and the upgrading of management systems. They may be looking for new sources of finance for needed investments in network rehabilitation andexpansion, or for new water and sewage treatmentfacilities – looking for both for greater efficiency inthe design and implementation of investments andfor relief for national and municipal budgets. Orthey may be looking for ways to make serviceproviders more sensitive to customer needs andpreferences. Often, their motivations are a mix ofsome or all of these. Private sector participation cananswer all of these goals.

Countries and cities that have implemented privatesector contracts have, in many cases, seen significantimprovements in service efficiency and responsiveness,as well as more rapid expansion of services tohouseholds formerly forced to rely on inferior quality, or more expensive, informal services. BuenosAires, in 1993, granted responsibility for operations,maintenance and investment in water and sanitation toa private sector consortium, Aguas Argentinas. Withinthe first two years of operations, production capacityexpanded by 27%, an additional 500,000 peoplereceived water services, an additional 400,000 receivedsewerage services and response time for repairs fellfrom over a week to just two days. More recently,Aguas Argentinas has begun to work with localcommunities and non-governmental organisations tofind innovative ways to expand services more rapidlyand affordably into informal settlements.

Not all attempts at private sector involvement in waterand sanitation have been as successful as the BuenosAires case. In Caracas, Venezuela, an attemptedconcession failed to attract any bids. This was due, atleast in part, to both a failure to establish good workingrelationships among participating municipalities and apolitical commitment that was perceived as weak. InTucuman, Argentina, a concession arrangementcollapsed because of the unwillingness of thegovernment to stand behind promised tariff increases;and in Guinea, a lease arrangement that has had somesuccess in improving service quality is hampered by alack of credible provisions to extend affordableconnections to a very low-income population. In eachof these cases, the government failed to providecredible and secure arrangements for striking a balancebetween a fair rate of return for the private operatorand appropriate protection of consumer interests.

The success of private contracts in deliveringbenefits to consumers depends, first and foremost,on a high level of political commitment, the designand quality of the private sector contract itself andthe institutional arrangements a government puts inplace to support that contract. It also takes rigorousmanagement, a high degree of technical skill,careful attention to the concerns of stakeholders(from employees and unions to community

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The Huarong Industries (Group) Ltd of Inner Mongolia wasfounded in 1985 and currently holds assets totalling 170,000,000yuan, with eight subordinate economic entities, two equityenterprises and companies located in offices in Beijing, Guangzhouand Hancheng. Its business lines include building materials, realestate, car parking systems (equipment), machinery manufacturing,healthcare products, dairy products and trade.

Of these, the Huade Building Material Products Ltd of InnerMongolia, a Sino-Korean joint venture, is the largest producer ofconcrete products in the North China region. It has taken the leadin giving impetus to the new revolution in the building materialsindustry, changing an ashen terrain to a colourful one which is full ofvitality. On the basis of our customers’ various requirements, we canproduce brightly coloured floor bricks, decorative building blocks,wall bricks and curb stones to scores of different specifications in avariety of colours together with new-style, light, fire-retardant,thermal, hollow blocks. These are all irreplaceable in such uses aslandscaping parks, city construction, and protecting roads andslopes.They are ideal building materials to replace clay bricks.

The company has researched and manufactured fully automatic,vertical car parking equipment that has such characteristics as

requiring low investment, occupying a small area, capacity for alarge number of cars and improving the environment.This productis most suitable for use in such locations as the commercial districtsof large and medium-sized towns, busy areas, hotels and restaurants.Therefore, it seems particularly important to build vertical carparking where land is of very high value. We can manufacture carparking equipment on the basis of different customer requirementswith different numbers of levels and to different specifications. Itonly requires one person to operate and is computer controlled,automatically metering time and charges, and it can go up and downfreely. Such facilities have great prospects in China.

At present, the company has recently introduced an excelsiorcement board production line which is at an advanced level on aworld scale. Apart from possessing a wide variety of uses andhaving lasting, weathering qualities, excelsior cement board alsohas the following properties:

• resistance to fire• resistance to moisture and dry rot• resistance to damage by vermin, insulated• sound-proof, sound-absorbing• a variety of finishes

Its uses are as follows:• flat and small-span roof covering boards• large-span roof (over 6mm) covering boards• walls for every kind of structure• interior partition walls for every kind of structure• heat and sound insulated ceiling boards• concrete cross members• projects for peaceful living

We very much welcome friends both at home and abroad toco-operate widely with us, so that we can learn from each otherand develop together. All Huarong staff are making a concertedeffort to build a modern-day enterprise, cultivating prestigiousproducts and striving to create first-class benefits.

Nei Meng Gu Material ProductsA Survey of the Company

Top: Building constructed of concrete blocks

Above:Wall bricks made of concrete

Left: Brightly coloured floor bricks

Company address:21 Xincheng Dongjie, Hohhot,Inner Mongolia, China, 010010Telephone: 86 471 4953742 4961887Fax: 86 471 4951628

Factory address:Jinchuan Development Zone, Hohhot,Inner Mongolia, China, 010080Telephone: 86 471 3901029 3901372Fax: 86 471 3901029

organisations) and transparency and fairness. Finally,it means listening to prospective private sectorinvestors to find out their concerns about the localenvironment and their ideas about what is possible.

Private sector arrangements are based on partnershipsbetween the public and private sectors. Establishing agood partnership means defining and preparing forthe government’s future, as well as current, roles andresponsibilities. A critical aspect of this process isputting arrangements in place for monitoring andregulating private contracts so they are perceived ascompetent and independent of political or industrypressures. Another aspect is determining exactly whatrisks and responsibilities the government will retainonce the private sector contract is in place and howit intends to manage them.

Governments of developing countries can realisegreat benefits from private sector involvement.Planning is needed at every stage to ensure thegreatest possible benefits. This planning begins with:developing strategies in the water and sanitationsector, which take full advantage of the potential forprivate sector involvement; building consensus infavour of appropriate policy, regulatory andinstitutional reforms; designing and implementingspecific reforms and transactions; and – finally –

developing government capacity in the design andexecution of private infrastructure arrangements andin the regulation of private service providers.

There are no blueprints for a successful engagementwith the private sector to improve water andsanitation services and no substitutes for carefulpreparation, political commitment and earlyattention to the broader regulatory and institutionalframework that will support and sustain apartnership with the private sector. Where thesefeatures are present, strong benefits can flow toconsumers in the form of better, more responsive,more cost-effective services.

A number of multilateral agencies and bilateraldonors offer active programmes of support for citiesand national governments looking to explore optionsfor private sector participation in the water andsanitation sector. The Toolkits for PrivateParticipation in Water and Sanitation, developed bythe World Bank, with the assistance of the UK’sDepartment for International Development, provideguidance on such issues as how to choose a privatesector participation option, how to design a processfor refining and implementing that option and howto ensure that contracts and regulatory arrangementscover all the relevant issues. ■


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187

a report by

J ame s F M anwa r i n g

Executive Director, American Water Works Association Research Foundation

The American Water Works Association ResearchFoundation (AWWARF) (the “Foundation”) is anon-profit corporation dedicated to theimplementation of a research effort to help utilitiesrespond to regulatory requirements and traditionalhigh-priority concerns of the industry. It serves aplanning and management function and awardscontracts to other institutions such as water utilities,universities and engineering firms. The funding forthis research effort comes primarily from asubscription programme. Through this, over 1,000water utilities voluntarily subscribe to the researchprogramme and make an annual paymentproportionate to the volume of water they deliver.

The Foundation’s research agenda addresses a broadspectrum of water supply issues: resources, treatmentand operations, distribution and storage, waterquality and analysis, toxicology, economics andmanagement. The ultimate purpose of this co-ordinated effort is to assist water suppliers inproviding the highest possible quality of water,economically and reliably. True benefits result whenutilities implement research findings.

Since 1986, the Foundation has funded over 500research projects valued at more than US$144million. Project reports have been published on 300of the studies; the remainder are currently ongoing.

Member utilities in the Foundation come from 48states, the District of Columbia, nine Canadianprovinces, Australia, the Czech Republic, France,Great Britain, the Netherlands and New Zealand.The population served by the Foundation’smembership exceeds 175 million people.

H i s t o r i c a l P e r s p e c t i v e

Since the beginning of human life, people haveunderstood the importance of water. Civilisationoccurred where water was good and plentiful and thesimple knowledge of where to find drinking wateroften made the difference between life and death.

Four thousand years ago our ancestors knew thatwater could be improved by being filtered through

charcoal and they understood that impure watershould be boiled over a fire. Those truths passed fromgeneration to generation and remain with us today.In fact, distillation, boiling and filtration remainedthe primary methods for treating water throughoutmuch of our recorded history.

During the 17th century, the invention of themicroscope led to the discovery of micro-organismsin drinking water. But nearly 200 years passed beforescientists made the association between those micro-organisms and disease and ushered in a new era inwater treatment. In 1754, the first American waterworks began operation in Bethlehem, Pennsylvania.

At the dawn of the 19th century, the one newtechnique for treating water was the slow sand filtrationsystem – a process still used by many municipalities.However, the 20th century brought a dramaticallyquickened pace of discovery and invention.

In 1914, the first federal standards, related to interstatequarantine regulations, were applied to drinking water.Taste and odour concerns caused by algae were alsoaddressed. In 1924, powdered activated carbon becameavailable and sparked widespread improvement in thequality of drinking water in this country.

In the United States, chlorine was approved as adisinfectant, and the results were remarkable. In 1900,there were 36 deaths from typhoid per 100,000population. By 1950, the death rate had dropped to0.1 per 100,000, and that extraordinary success wasattributed to the introduction of chlorine.

In the 1970s, scientists discovered thatdisinfectants combine with natural organic matterin water and form minute concentrations of by-products, some of which are known to becarcinogenic in animals. The challenge for thedrinking water community is to minimise theformation of these compounds, while still ensuringthat pathogens are killed or inactivated.

In 1974, Congress passed the Safe Water DrinkingAct, and the need for research escalated. It has beenestimated that, over the next 20 years, the drinking

Research o f Dr ink ing Water in the New Mi l l enn ium

WATER & WASTEWATER

water community will experience change that will befive times greater than it has experienced in the past100 years. An active research programme is essentialto guide the drinking water community through themaze of possibilities that will confront it.

Cu r r e n t R e s e a r c h A g e nd a

The Foundation’s planning process is designed toproduce a balanced research agenda that is directedtowards microbial risks (25%), chemical issues (15%),infrastructure needs (25%), management concerns(15%), customer relations (10%) and environmentalissues (10%). The value of the Foundation’s 1999research agenda is expected to be approximatelyUS$22 million, a slight increase over the 1998 level.The principal philosophy underpinning theFoundation’s research effort is that public healthprotection is a fundamental objective.

To accomplish these goals, the Foundation employs anumber of operational strategies including thedevelopment of national and international partnerships.These co-operative ventures serve to avoid duplicativeresearch and stretch existing resources by co-ordinatingactivities. The type of global network also serves toidentify emerging drinking water issues.

The following paragraphs qualitatively describe thebasis of the Foundation’s research priorities.

M i c r o b i a l R i s k

Over the past nine years, microbials and disinfectionby-products (M/DBP) have become the centrepieceof the regulatory development efforts of the federalgovernment and thus, by extension, a priority of theFoundation. While the latter are chemicalcontaminants, they must be considered withmicrobial control because of their inherentrelationship. For instance, an increase in disinfectantsto control microbes may lead to an increase in theproduction of disinfection by-products. Significantuncertainties remain in assessing the health risks, notonly of the combined use of chlorine but also the useof alternative disinfectants such as ozone, chlorinedioxide and chloramines.

The development of a framework for providingsimultaneous protection against pathogens and DBPsgives rise to three questions:

• What are the health risks caused by exposure tomicrobial pathogens?

• What are the health risks caused by exposure toDBPs from different treatment processes?

• How can these risks be simultaneously controlled?

The ranking of M/DBP as one of the highest researchpriorities is based on several factors. First, theCryptosporidium outbreak in Milwaukee in 1993, inwhich more than 100 people died and many thousandsof people became ill, served to underscore the risks ofinfectivity from harmful pathogens and the vulnerabilityof certain subpopulations to protozoans such asCryptosporidium (already referred to). Second, officialshave now recognised that DBPs also pose a health threat.Third, because of the high uncertainty, the widespreadhuman exposure to drinking water, the severity of theknown effects from certain microbes and the potentiallyhigh costs of further regulation of drinking water, thecombined issue of microbial risks and disinfection by-products was assigned a high priority.

Current and recent past research in the microbial areahas focused largely on the protozoan pathogensCryptosporidium parvum and Giardia lamblia. Primaryareas of research include treatment effectiveness(inactivation and physical removal methods) andanalytical methods for quantifying these pathogensand determining viability and infectivity. A significantamount of work has also been completed onCryptosporidium and Giardia occurrence, particularlyin source waters. The Foundation has alsoparticipated in several Cryptosporidium and Giardiahealth effects studies in collaboration with the USEnvironmental Protection Agency (USEPA). Othermicrobial research has included occurrence andtreatment studies for pathogenic bacteria, viruses andalgae and development of microbial risk assessmenttools for water utilities.

Ch em i c a l R i s k s

The research goal of this area is to protect thedrinking water consumer from adverse health effectsdue to chemicals. The basis for the work ondisinfection by-products was addressed in theprevious section.

Although it has now been more than 20 years sincethe discovery of chloroform and othertrihalomethanes in drinking water, there is stillsubstantial controversy and significant knowledgegaps regarding the adverse health effect of DBPs.Epidemiological studies conducted on populationsexposed to chlorinated water have generally beeninconclusive. Likewise, epidemiological studies ofreproductive effects have been similarly inconclusive.Toxicological studies on rodents and otherlaboratory animals have shown that a number ofDBPs cause cancer and other negative health effects,but this is at concentrations much higher thantypically would be found in finished drinking water.Because of the uncertainty, knowledge gaps anddisagreements regarding the health effects of DBPs,more research is needed. 188


Research o f Dr ink ing Water in the New Mi l l enn ium

Arsenic is another chemical for which regulationsare proceeding without a complete scientificunderstanding of the compound and its effect onhuman health. Approximately 10% of all thedrinking water health effects research currentlybeing sponsored by the federal government dealswith the scientific uncertainties regarding the healtheffects of arsenic. The work being sponsoredincludes research on arsenic toxicology, riskcharacterisation, risk assessment and hazardidentification and dose-response. Several issuessurrounding arsenic are highly controversial.Perhaps the two most controversial are whetherdose-response is linear or non-linear and whetherresults of epidemiological studies conducted in othercountries (particularly the ones in Taiwan) are valid.

To help address the arsenic uncertainties, theFoundation has developed a co-operative researchprogramme with the USEPA. The joint effort,which includes both health effects and technologicalresearch, will not produce results, however, untilnew more stringent regulations have beenpromulgated under legislative mandate.

Pesticides are a general class of chemical compoundsthat are the topic of several research projects. Theissues surrounding this class of compounds which canbe addressed by research are:

• occurrence and levels of occurrence;• sources of contamination;• best means of control;• detection methodology; and• health risk of single compounds and/or mixtures

of compounds.

In the US, pesticides, herbicides and fungicides areapplied at a rate of more than 1.1 billion pounds peryear. The obvious concern is the potentialcontamination of the surface water and groundwaterfrom the pesticides and their degradation products.National occurrence studies conducted to date havedetected pesticides in drinking water but the levelsrarely (less than 1% of the samples) exceededdrinking water guidelines.

Volatile and semi-volatile organic contaminants,such as fuel-additives, solvents, degreasers and

plasticisers, are becoming more of a drinking waterissue; and an issue that must be addressed byresearch. A major research effort has begun onMTBE, the gasoline additive, because of itswidespread detection in both surface water andground water. Other sources of contamination ofthis class of compounds include leaking storagetanks, landfills and industrial discharges. Little iscurrently known about the health risk of thesecompounds and their effective control or treatment.

The AWWARF has spent a great deal of time andeffort researching the compounds in drinking waterthat produce objectionable taste and odours. Whilesuch compounds do not constitute a direct healthrisk, their presence contributes to customer

dissatisfaction and may reduce the consumer’sconfidence in the water quality. These compoundsare regulated under a set of secondary standardswhich relate to the aesthetic quality of the water.The sources of the taste and odour compounds arevaried and may include algae in the source water,leaching of material from, or biological activity in,the distribution system, the use of disinfectants andleaching from household plumbing. The causativeagent for taste and odour episodes are very difficultto identify and the events may be short-lived andlocalised.

I n f r a s t r u c t u r e R e s e a r c h

It has been estimated that 85% of a water utility’sassets are in infrastructure – the treatment plants,storage tanks, and distribution system. TheAmerican Water Works Association has recentlycompleted a needs survey and has concluded that thenear future rehabilitation and construction needs forthe water industry are in the neighbourhood ofUS$325 billion. It is also apparent that the waterquality at the consumers’ tap is strongly influencedby the utility’s infrastructure. With so much at stake,it is no surprise that this area is one of the primaryresearch topics for the AWWARF.

More than 75% of the Foundation’s recentinfrastructure research has been directed at waterpipe systems. This work has been divided roughlyequally between rehabilitation/replacement studies 189

It has been estimated that, over the next 20 years, the drinking

water community will experience change that will be five times

greater than it has experienced in past 100 years.

(pipe location, lead detection, structural integritytesting, cleaning and rehabilitation methods) andstudies related to distribution system water quality(internal corrosion, biological regrowth, cross-connections and water quality monitoring andmodelling). Other projects within theinfrastructure framework have addressed assessmentand maintenance of water treatment plants, storagefacilities and wells.

Mana g emen t S t u d i e s

The change in the management and organisationalphilosophy will be a major factor in shaping thefuture of the US water community. Water utilities arebeginning to adopt “best practice strategies” to makethemselves more efficient. Planned maintenance,workforce flexibility, employee empowerment,continuous improvement and customer interactionare only a few of the organisational concepts beingemployed in order to increase productivity andimprove customer confidence. The Foundation hasan active research agenda on several managementaspects of drinking water.

Planned maintenance has been shown to savemoney, up to a point. The data available from waterutilities in the US indicates that optimummaintenance is 70% to 80% planned with theremainder being reactive. Utilities are decreasingoperational costs by providing a base staff to do theplanned maintenance and importing staff to do thereactive maintenance. Total productive maintenancemeans that the entire staff is working on plannedmaintenance work and that specialists are importedonly when needed. Studies have shown thatcombining reactive and planned maintenanceimproved productivity over 50%.

Likewise, workforce flexibility reduces maintenancewaiting time, saves money and enhances moraleamong the employees. Operational costs are reduceddramatically when employees are trained to bemultifunctional. To accommodate this type offlexibility, it is essential that the utility utilises sometype of skill-based compensation.

It is evident that hierarchical organisational structuresare rigid and slow to change to meet new

responsibilities. New organisational strategies that focuson empowered employees, a team approach toproblems and opportunities and a streamlined structurecan increase the competitive stature of water utilities.

The Foundation’s management research includes adiverse range of topics that together help utilitiesimprove efficiency, obtain optimum water qualityand improve system reliability. A large amount ofresearch is devoted to treatment process developmentand management, including conventional processoptimisation, advanced process testing anddevelopment, and energy management. Another areaof significant study is process automation andoptimisation through the use of control systems andonline monitoring.

Cu s t ome r R e l a t i o n s

Because the ultimate judge of the success andapplicability of the Foundation’s research effort is theconsumer, a portion of the research agenda isdevoted to helping utilities interact with theircustomers. Projects in this area are designed to

provide the utility manager with tools necessary toidentify customer needs, encourage their consumers’participation in the decision processes operating inthe utility and communicating with the public aboutimportant issues.

Customer satisfaction is quickly becoming the keydriving force behind the modernisation of waterservices. Progressive water utilities have adoptedproactive customer relations to identify exactly whatconsumers want. Planning, development and utilitydirection are designed around those customer needs.This focus will lead to increasing customer confidence.

The primary research topics under this goal area are:

• customer perception, communication andeducation; and

• aesthetics issues (taste, odour and colour),including causes and control.

Work has also been completed on managing ratestructures and on the cost/benefit of supplementalservices and products offered by water utilities.192


The water community has become a global entity where

changes on one continent are felt on all of the other continents.

The reason why is crystal-clear. As the fastest

growing water company, Thames Water is offering

countries the world over its expertise in the

management and development of water systems.

In the UK, we serve London as well as the

Thames Valley. Our extensive

operational skills have been

achieved by running a

high-quality and cost-

effective service for

nearly twelve million

customers.

Additionally, we

manage a substantial

UK capital investment

programme of more than

US $600 million each and

every year.

Altogether, our biggest international

contracts world-wide are worth well in excess of

US $3 billion. Through these new contracts, we will

provide services to 12 million additional customers.

Working in partnership

Every country is totally different. That’s why we

have always adopted a flexible approach and

continue to work in partnership with public and

private-sector companies. We understand both

sectors. Until 1989, we were, in fact, publicly

owned. Thames Water operates world-wide, but

on every major project, we work alongside a

local partner and employ local people.

A world leader

No water project is beyond our

reach. At Izmit in Turkey, the

world’s largest privately

financed water supply

project is now up and

running. Athletes at

last year’s Pan-

Asian Games in

Bangkok benefited

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skills are at your disposal. To discuss your next

project, please call +44 118 959 3371, fax

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News of our success as an international water services

company is spreading

En v i r o nmen t a l I s s u e s

The water supply community is well aware of itsposition within the global environment. The futuresupply of dependable and safe drinking water is heavilydependent upon the quality of the watersheds and theoperation of water utilities must have a minimalimpact upon other uses of the environment. Researchinto watershed practices must proceed if optimal usageof this precious resource is going to be balancedamong the numerous demands. Likewise, the by-products of water utility operations must be handledand disposed of in such a manner that will maintain,or even enhance, current environmental uses.

Recent work has focused on source water qualitytreatability impacts and associated costs to utilities.The Foundation has sponsored an increasing amountof work in the past several years on wastewater reuseand reclamation. Recent studies have also beencompleted in the areas of residual management andminimisation, water conservation, demandmanagement and control of invasive biota such aszebra mussels and non-native plant species.

Con c l u s i o n s

Future water utilities will be shaped by severalinterdependent factors that will include, but certainly

will not be limited to, technology, regulation,competition, consolidation, customer demand,political pressures and consumer satisfaction. Therewill be drastic changes in how the industry treats thewater, delivers that water to the customer andmanages the resources, but there will also beremnants of the current infrastructure operating. Theinvestment in the current system is simply too greatto abandon, no matter how improved the nextgeneration of process may be. An active researchprogramme is essential to help plot the most effectiveand efficient path through the myriad of alternativesand to help integrate the current systems with thefuture technologies.

The exact result of all of these interconnectedforces cannot be accurately predicted, but what isapparent is that future changes will be global. Thewater community has become a global entitywhere changes on one continent are felt on all ofthe other continents. One of the Foundation’sprimary goals is to participate in an internationaleffort to globalise research strategies on a numberof common issues. Research agencies mustaggressively seek opportunities for co-operationand leveraging of resources. Partnerships not onlyextend limited resources but also serve to cross-pollinate different research cultures, technologiesand approaches. ■


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195

Direc tor y o f Contac t s

DIRECTORY OF CONTACTS

UNITED NATIONS CENTRE FOR

HUMAN SETTLEMENTS (HABITAT)

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Tel: (254 2) 623225

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INTERNATIONAL CITY/COUNTY

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INTERNATIONAL COUNCIL FOR

LOCAL ENVIRONMENTAL

INITIATIVES

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http://www.ovpm.org/ovpm/english/owhc.htmlINTERNATIONAL

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x_en.htm

EUROPEAN ASSOCIATION FOR

INFORMATION ON LOCAL

DEVELOPMENT

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Tel: (32 2) 736 4960

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EUROCITIES

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COUNCIL OF EUROPEAN

MUNICIPALITIES & REGIONS

14 Rue de Castiglione,

75000 Paris, France

Tel: (33 1) 44 50 59 59

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http://www.ccre.org

EUROPEAN INSTITUTE FOR

COMPARATIVE URBAN

RESEARCH

Woudestein Complex,

Burgemeester Oudlaan 50,

H-Building, 12th Floor, Room 27,

PO Box 1738, Room 12–27,

3000 DR Rotterdam,

The Netherlands

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EUROPEAN INSTITUTE FOR

URBAN AFFAIRS

Liverpool John Moores University,

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UK

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ate/res_dir/sections/eiua.htm

UNION OF BALTIC CITIES

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Tel/Fax: (48 58) 301 7637 /

301 0917 / 301 9123

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INTERNATIONAL UNION OF

LOCAL AUTHORITIES (LATIN

AMERICA)

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Australia

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8 Geils Court,

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Australia

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Austria

ASSOCIATION OF AUSTRIAN

CITIES AND TOWNS

Rathaus,

1082 Vienna,

Austria

http://staedtebund.wien.at

Brazil

BRAZILIAN INSTITUTE OF

MUNICIPAL MANAGEMENT

1 Humaitá – CEP: 22271-070,

Rio de Janeiro, Brazil

Tel: (55 21) 537 7595

Fax: (55 21) 537 1262

http://www.ibam.org.br

Canada

FEDERATION OF CANADIAN

MUNICIPALITIES

24 Clarence,

Ottawa, ON K1N 5P3,

Canada

Tel: (1 613) 241 5221

Fax: (1 613) 241 7440

http://www.fcm.ca

Czech Republic

UNION OF TOWNS AND

COMMUNITIES OF THE CZECH

REPUBLIC

Svaz mìst a obcí ÈR,

Pacovská 31,

140 00 Prague 4,

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Tel: (420 2) 6121 1424 / 6121 1300

Fax: (420 2) 6121 1318

http://www.mesta.cz

Denmark

DANISH ASSOCIATION OF

LOCAL AUTHORITIES

11, Gyldenløvesgade,

DK – 1600 Copenhagen V,

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Tel: (45) 33 12 27 88

El Salvador

CORPORATION OF

MUNICIPALITIES OF EL

SALVADOR

Calle Estadio Dos No. 33,

Colonia Flor Blanca,

San Salvador,

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Tel: (503) 279 3225 / 298 4286

Fax: (503) 223 1785

http://www.comures.org.sv

Estonia

ASSOCIATION OF ESTONIAN

CITIES

Vana-Viru 12,

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http://www.ell.ee

Finland

ASSOCIATION OF FINNISH

LOCAL AND REGIONAL

AUTHORITIES

The House of Municipalities,

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Germany

ASSOCIATION OF

MUNICIPALITIES OF GERMANY

Lindanellee 13/17,

50942 Cologne,

Germany

http://www.staedtetag.de/

Greece

HELLENIC AGENCY FOR

REGIONAL DEVELOPMENT AND

LOCAL GOVERNMENT

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10672 Athens,

Greece

http://eetaa.ath.forthnet.gr/

GREEK ASSOCIATION OF LOCAL

AUTHORITIES

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Tel: (30 1) 645 0712

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Italy

NATIONAL ASSOCIATION OF

LOCAL AUTHORITIES

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Japan

JAPAN INTERCULTURAL

ACADEMY OF MUNICIPALITIES

Japan Municipal Development

Corporation

2-13-1 Karasaki Otsu-shi,

Shiga-ken 520-0106,

Japan

Tel: (81 77) 578 5931

Fax: (81 77) 578 5905196


Direc tor y o f Contac t s

COUNCIL OF LOCAL

AUTHORITIES FOR

INTERNATIONAL RELATIONS

Tokyo, Japan

Tel: (81 3) 3591 5402

Fax: (813) 3591 5342

http://www.clair.nippon-net.ne.jp

Korea (South)

KOREA LOCAL AUTHORITIES

FOUNDATION FOR

INTERNATIONAL RELATIONS

Room 720, Royal Building,

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Seoul,

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Tel: (82 2) 730 2311

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http://www.klafir.or.kr

Latvia

UNION OF LOCAL SELF-

GOVERNMENTS OF LATVIA

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http://www.lps.lv

Lithuania

ASSOCIATION OF LOCAL

AUTHORITIES OF LITHUANIA

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Tel: (370 2) 61 60 63

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Mexico

MUNICIPALITIES ASSOCIATION

OF MEXICO

Georgia # 120 Interior 14B,

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http://ammac.org.mx

Portugal

NATIONAL ASSOCIATION OF

PORTUGUESE MUNICIPALITIES

Av. Marnoco e Sousa 52,

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Tel: (35 39) 404434

Fax: (35 39) 701760 / 701862

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Spain

SPANISH FEDERATION OF

MUNICIPALITIES AND

PROVINCES

Calle Nuncio, 8,

28005 Madrid,

Spain

ASSOCIATION OF BASQUE

MUNICIPALITIES

Fueros, 5-1&int,

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Sweden

SWEDISH ASSOCIATION OF

LOCAL AUTHORITIES

Hornsgatan 15,

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United Kingdom

LOCAL GOVERNMENT

ASSOCIATION

26 Chapter Street,

London SW1P 4ND,

UK

Tel: (44 171) 834 2222

Fax: (44 171) 664 3030

http://www.lga.gov.uk

CONVENTION OF SCOTTISH

LOCAL AUTHORITIES

Rosebery House,

9 Haymarket Terrace,

Edinburgh EH12 5XZ,

UK

Tel: (44 131) 474 9200

Fax: (44 131) 474 9292

ASSOCIATION OF LOCAL

AUTHORITIES OF NORTHERN

IRELAND

123 York Street,

BELFAST BT15 1AB,

UK

Tel: (44 1232) 249 286

Fax: (44 1232) 326 645

United States of America

NATIONAL LEAGUE OF CITIES

1301 Pennsylvania Avenue, NW,

Washington, D.C. 20004–1763,

US

Tel: (1 202) 626 3000

Fax: (1 202) 626 3043

http://www.nlc.org

NATIONAL ASSOCIATION

OF TOWNS AND

TOWNSHIPS

444 N. Capitol Street, NW,

Suite 208,

Washington, D.C. 20001–1202,

US

Tel: (1 202) 624 3550

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http://natat.org

NATIONAL CIVIC LEAGUE

1445 Market Street, #300,

Denver, CO 80202-1728,

US

Tel: (1 303) 571 4343

Fax: (1 303) 571 4404

http://www.ncl.org

COUNCIL OF URBAN

ECONOMIC DEVELOPMENT

1730 K Street, NW,


US

Tel: (1 202) 223 4735

Fax: (1 202) 223 4745

THE URBAN INSTITUTE

2100 M Street, NW,


US

Tel: (1 202) 833 7200

http://www.urban.org ■ 197

198

CHINA TELECOM

China Telecom is a monthly newsletter devoted to tracking the

latest developments in China’s telecommunications market. It is

intended for busy executives who need up-to-date information on

markets, competitors, changing policies and business conditions,

tenders and RFPs and, most importantly, information on how to

get their share of this explosive market.

ASIA PACIFIC TELECOM

A monthly newsletter focused exclusively on the development of

the telecoms industry in the Asia-Pacific Region Asia Pacific

Telecom provides you with the latest breaking news and analysis

on the telecoms industry, backed up with statistical data and

incisive forecasts. For a complimentary sample issue or

subscription information contact:

Dr Hui Pan

Editor

China Telecom and

Asia Pacific Telecom

Information Gatekeepers, Inc.

214 Harvard Avenue

Boston, MA 02134-4651,

US

Tel: (1 617) 232 3111

Fax: (1 617) 734 8562


http://www.igigroup.com

ENERGY CENTRAL

Energy Central is a hub on the Internet for electric power

professionals searching for information, products and services

related to the energy industry. By teaming up with hundreds of

companies that service the energy industry, Energy Central

provides a broad base of information products – news, directories,

events, databases, books, periodicals and reports – all focused on

a single industry and all accessible from a single site on the

Internet. Energy Central is also an interactive e-mail system that

reaches 30,000 electric power professionals every business day.

Ms Anita Halcyon

Marketing Coordinator

Energy Central

CyberTech

2755 South Locust Street

Suite 100

Denver, CO 80222,

US

Tel: (1 303) 782 5510

Fax: (1 303) 782 5331


http://www.energycentral.com

EXPORT TODAY

This global business and technology magazine is aimed at key

executives in high-growth American companies that are

expanding their businesses outside the US and integrating their

global operations. The magazine focuses on geographical and

product markets worldwide and provides timely, practical “how

to” information for dealing abroad as well as covering logistics

to joint venturing and overseas operations. Regular subjects

include: marketing; finance; risk management; trans-

portation/logistics; ports and shipping; site selection; logistics

and telecommunications; technology, including software and

Internet applications; and cultural factors. Features are written

by staff editors.

Ms Julie Wallace

New Business Manager

Export Today Magazine

Trade Communications, Inc.

733 15th St., NW Suite 1100,

Washington, D.C. 20005, US

Tel: (1 202) 737 1060

Fax: (1 202) 783 5966

http://www.exporttoday.com

FINANCIAL TIMES

Mr Richard Varey

Marketing Director, The Americas

Financial Times

FT Publications Inc.

14 East 60th Street,

New York, NY 10022,

US

Tel: (1 212) 745 1355

Fax: (1 212) 355 9539


Ms Louise McRae

Senior Marketing Executive

FT Energy Publishing

FT Power in Europe

FT Asia Gas Report

Add i t iona l Resources

ADDITIONAL RESOURCES

Add i t iona l Resources

199

FT Energy Economist

FT Energy World

FT Global Private Power

FT Global Water Report

FT International Gas Report

FT Power in Asia

FT Power in Latin America

FT Power UK

FT UK Gas Report

Pearson Professional Ltd. Maple House

149 Tottenham Court Road,

London W1P 9LL,

UK

Tel: (+44 171) 896 2241

Fax: (+ 44 171) 896 2275


LATIN AMERICAN ENERGY ALERT

This is the leading source of specialised business intelligence on

the Latin American oil, natural gas and petrochemical industries,

including upstream and downstream sectors, pipelines, regional

markets and infrastructure development. There is special

emphasis on emerging business opportunities, policy changes

affecting foreign investment and financial issues. Coverage is also

provided on joint ventures, equity investments, procurement

contracts and activities of foreign companies in the region.

LATIN AMERICAN POWER WATCH

Latin American Power Watch covers participation in the Latin

American power business, including joint ventures and direct

investment. There is also coverage of generation, transmission and

distribution sectors, including coal-fired, gas-fired and hydroelectric

projects, as well as the development of national and regional

power markets. The primary focus centres on new business

opportunities, financial issues, government action affecting foreign

investment and activities of foreign companies in the region.

Mr Jason L Feer

Editor & Publisher

Latin American Energy Alert and

Latin American Power Watch

Target Research,

611 Pennsylvania Avenue, S.E.,

Suite 341,


US

Tel: (1 202) 543 5076

Fax: (1 202) 546 8929

LATIN TRADE

Latin Trade is the most comprehensive source for business news in

Latin America and the Caribbean, delivering original, visionary,

objective, factual, in-country, in-depth reporting month after month.

Enlightening key players worldwide who demand to be better

informed about Latin America, Latin Trade is the magazine for

business people in search of exceptional opportunities. In English or

in Spanish, no one covers the world of business, commerce and

investments like Latin Trade. Arm yourself and your company with

the tools necessary to compete in the new global marketplace.

Mr Damian Grass

Marketing/Circulation Coordinator

Latin Trade

200 S. Biscayne Blvd,

Suite 1150, Miami, FL 33131,

US

Tel: (1 800) 7834903

Tel: (1 305) 358 8373

Fax: (1 305) 579 9752


http://www.latintrade.com

PUBLIC POLICY FOR THE PRIVATE SECTOR

Public Policy for the Private Sector is a quarterly publication from

the World Bank. Private Sector provides policy advice and best

practice on such topics as designing concessions, competition and

regulatory frameworks for power, roads, rail, water, telecoms and

information infrastructure, project finance and guarantees, post-

privatisation performance and rule of law issues and investor

protection. Private Sector reaches an international audience of

4,000: corporates, infrastructure firms, investment banks and funds,

privatisation and regulatory agencies, legal firms and business

advisory services.

Ms Anna Riggio

Tel: (1 202) 458 5114

Ms Suzanne Smith

Editor

Public Policy for the Private Sector

The World Bank Group

1818 H Street N.W.,

Room F6P-186,

Washington, D.C. 20433, US

Tel: (1 202) 458 7281

Fax: (6 202) 522 2961


WORLDPOWER AND ENERGY

Worldpower and Energy’s editorial aim is to cut through the

industry hype by presenting out readers with expertly – and well-

researched editorial. Our crisp and concise style and analysis of

industry trends, strategy and working practices is designed to

broaden our readers’ overall knowledge of the industry and

individual markets. We aim to be the medium through which

power and energy executives, worldwide, learn about the

commercial realities, opportunities and challenges of doing

business in the rapidly converging global energy industry.

Mr Paul Miosga

Publisher

World Power and Energy

Thornton House, Thornton Road,

Wimbledon Village,

London SW19 4NG, UK

Tel: (+44 181) 544 0555

Fax: (+44 181) 544 0909


http://www.worldpower.co.uk ■

200

S n a p s h o t o f S u b - S a h a r a n A f r i c a

Regional Urban Statistics and Projections

Highlights of Population Surge in Urban Areas

(% Urban by Year)

2000 2020

Ghana 38 51

Kenya 33 48

Liberia 48 60

Mozambique 40 55

Nigeria 44 58

Sierra Leone 37 50

Swaziland 36 50

Tanzania 28 42

Doubling of Urban Populations (000)

1996 2020

West Africa 108,976 251,302

Central Africa 39,879 93,267

East Africa 52,858 130,269

Southern Africa 27,868 50,196

229,581 525,034

Rate of Urbanisation

1990–1995 2000–2005

Cameroon 5.2 4.2

Congo 3.9 3.7

Cote d'Ivoire 4.8 3.6

Ethiopia 4.0 5.7

Ghana 4.2 4.2

Kenya 6.1 5.0

Malawi 5.6 5.2

Mali 5.6 5.0

Mozambique 9.6 4.8

Niger 6.9 5.6

Nigeria 5.3 4.6

Somalia 4.1 4.8

South Africa 2.9 2.7

Sudan 4.5 4.6

Tanzania 6.3 5.2

Uganda 5.6 5.5

Zimbabwe 5.0 4.1

Snapshot of Urban Sub-Saharan Africa

• From 1975 to 1995, the average African country’surban population grew 5.2% per annum whileGDP declined 0.66% per year.

• No other world region has experienced such highrates of urbanisation with such low economic growth.

• Two thirds of urban dwellers live in informal settlements with inadequate water,sanitation, electricity, transport and healthservices.

• Fifty million people are expected to migrate tocities in West Africa alone in the next 10 years.

• By the year 2020, 63% of Sub-Saharan Africa’spopulation will live in cities.

Sources: World Bank and United Nations (UN) 1996 projections revised; World Development Indicators, 1999;World Resources Report 1998–1999; Enhancing theProductivity of Urban Africa, Hicks et al, ConferencePaper, July 1998.

S n a p s h o t o f E a s t A s i a / P a c i f i c R e g i o n


Urbanisation Levels and Rate of Urban Growth

Average Rate

% 1996 (1990–1995)

Korea (South) 82 2.3

Philippines 55 4.2

Malaysia 54 4.0

Fiji Islands 44

Indonesia 36 4.6

China 31 3.7

Myanmar 26 3.2

Vietnam 19 2.0

Papua New Guinea 16 4.0

Urban Populations (millions)

1996 2020

China 377 712

Indonesia 72 146

Philippines 40 70

Korea (South) 40 48

Vietnam 15 28

Myanmar 12 26

Malaysia 11 20

Papua New Guinea 0.7 2

568 1,052

GDP from Urban Areas (% 1997)

Korea (South) 79

China 68

Myanmar 54

Philippines 53

Thailand 41

S ta t i s t i c s – Urban in the Reg ions

STATISTICS

S ta t i s t i c s – Urban in the Reg ions

Intra-regional Urbanisation Pattern (% 1996)

Japan/Korean Peninsula 78

South-east 37

China 30

Pacific Islands 19

Snapshot by 2015

• More than one billion in cities • Nine megacities > 10 million • Seventeen very large cities > five million • Sixty per cent urban population in secondary cities

Sources: World Bank and UN 1996 projections revised;World Development Report 1997; World Resources Report1998–1999.

S n a p s h o t o f E u r o p e a n d C e n t r a l A s i a

Population Living in Urban Areas (% 1998)

North Europe 84%

Western Europe 82%

Russia 75%

Eastern Europe 70%

Caucasus 68%

South Europe 64%

Central Asia 42%

Most Highly Urbanised Transitional Economies(% 1996)

Belarus 86.1

Russian Federation 76.3

Ukraine 70.7

Bulgaria 68.7

Czech Republic 65.6

Hungary 65.1

Poland 64.1

Kazakstan 60.0

Snapshot of Urbanised Countries by 2020

Urban Populations (000) %

Russian Federation 112,020 83

Ukraine 37,364 79

Belarus 8,004 82

Baltics 5,666 81

Lithuania 2,901 81

Hungary 6,661 75

Poland 29,268 73

National Projections Elderly Populations* (60 and above)

1996 2010

Belarus 18.1 19.0

Bulgaria 20.7 24.4

Czech Rep 17.4 22.6

Estonia 18.6 23.9

Georgia 16.7 18.7

Hungary 19.3 21.5

Latvia 19.1 23.3

Lithuania 17.6 20.0

Poland 15.8 18.2

Romania 17.4 19.2

Russian Federation 17.1 18.3

Slovenia 17.8 22.3

Ukraine 19.4 20.9

Yugoslavia (Federal Republic of) 18.0 19.1

* High percentage of urban elderly live in poverty.

Key Urban Features of the Region

• Highly urbanised, with low population growth • Large and rapidly increasing aged population • Urban poverty increasing, especially elderly and

families with dependents • Poor not spatially segregated • Low productivity use of central business district land • Services coverage good but over capacity and

condition and quality poor • Subsidies to housing and communal services 2%

to 4% of national GDP • Many cities potentially creditworthy but need

municipal and intergovernmental financial reforms• Socialist legacies: weak real estate and land markets

Sources: World Bank and UN 1996 projections revised.

S n a p s h o t o f L a t i n Ame r i c a &C a r i b b e a n

Population Living in Urban Areas (% 1995)

South America 77

Central America 66

Caribbean 62

Average Urban 1980– 1990–

Annual Growth 1990 1995

South America 3.1 2.7

Central America/Caribbean 3.2 3.4

Most Highly Urbanised Countries in Region by (% 1996)

Argentina 88.4

Venezuela 86.1

Chile 84.0

Brazil 78.9

Cuba 76.2

Mexico 73.6

Colombia 73.1

Peru 71.3

Snapshot by 2015

• Three hundred and sixty four million cities• Highest urbanised region globally • Four mega cities > 10 million • Twenty eight per cent total population in cities of

one million or more

Sources: UN 1996 projections revised and World Bank. 201

S n a p s h o t o f M i d d l e E a s t a n d N o r t h A f r i c a


Populations Living in Urban Areas

(% 1996)

Arab Emirates 84

Algeria 56

Egypt 45

Iran 60

Jordan 72

Lebanon 87

Libya 86

Morocco 49

Oman 73

Saudi Arabia 83

Syria 53

Tunisia 63

Yemen 34

10 of 13 countries > 50% urban

Size of Urban Populations, Year 1996

(millions)

Arab Emirates 2.1

Algeria 16.2

Egypt 26.6

Iran 37.2

Jordan 3.1

Lebanon 3.6

Libya 4.4

Morocco 14.2

Oman 3.2

Saudi Arabia 16.2

Syria 7.6

Tunisia 5.7

Yemen 5.4

145.5

GDP from Urban Areas (% 1996)

Algeria 54

Egypt 75

Iran 62

Morocco 70

Snapshot on Investment and Private Capital Flowsinto the Region

• On average, only a 3% of GDP put intoinfrastructure investments.

• Only 1% of total private capital flows gone intothis region.

• During coming decade, estimated 350 billion (5%GDP) needed to meet basic service coverage gaps,70% in urban areas.

Sources: World Bank and UN 1996 projections revised;World Development Indicators, 1998; world resources Report1998–1999.

S n a p s h o t o f S o u t h A s i a


Population Living in Urban Areas (%)1998 2025

Afghanistan 19 40Bangladesh 21 40Bhutan 7 19India 26 45Maldives 31 --Nepal 14 34Pakistan 35 57

Megacities in Region by 2015 (>10 million population)India Bangladesh PakistanBombay Dhaka KarachiCalcutta LahoreDelhiHyderabad

Doubling of Urban Populations (000)1996 2020

Afghanistan 4,000 13,642Bangladesh 23,000 58,317Bhutan 49 442India 256,300 498,777Maldives 62 –Nepal 2,600 7,740Pakistan 45,500 123,489Sri Lanka 4,100 8,148

335,611 710,555**Region’s urban pop>doubles

Rate of Urbanisation1990–1995 2000–2005

Afghanistan 4.6 4.9Bangladesh* 4.9 4.5Bhutan 4.8 5.9India 2.9 2.9Maldives 3.5 --Nepal** 7.3 5.2Pakistan 4.6 4.2Sri Lanka 2.0 2.9

*Bangladesh rate was 10.6%/year for 1974–1981, 5.4%/year for 1982–1990**Nepal at 7% for 20 years

Snapshot on India’s Urban Poverty

• Slums and shanty towns grow at twice the rate ofall urban areas

• More than 60% of Madras and Calcutta’spopulations live in slums or are homeless

• In Mumbai (Bombay), slum dwellers and homelessare 50% of residents and occupy 6% of city’s land

• Fifty per cent of all urban residents in India will beliving in slums and squatter settlements by 2000

Sources: World Bank and UN 1996 projections revised;World Development Indicators 1998; World ResourcesReport 1998–1999. ■202


203

Territorial Competition: Some Lessons for Policyby P au l C h e s h i r e London School of Economics and I a n G o r d o n The University of Reading

Cities in Competition; Articulating the Gains from Integrationby P au l C h e s h i r e London School of Economics

A Mayor and Assembly for London Department of the Environment, Transport and the Regions

Governing Cities – Facing up to the Challenge of Poverty and Globalisationby Om P r a k a s h Ma t h u r National Institute of Public Finance and Policy.

The Implications of Interurban Income and Unemployment Divergencesby P au l C h e s h i r e London School of Economics

Cultural Entrepreneurs and the City: Risk, Learning and the Competitive Cityby J u s t i n O ’ C o n n o r , A n d y L o v a t t and Ma r k B a n k s Manchester Institute for Popular Culture,

Manchester Metropolitan University; and C a r l o R a f f o Victoria University Manchester

The Smart Revolution in Britain’s High Streets by Ke v i n E l l a r d Marketing Manager, Touch

Tomsk and Vladivostok: A Comparative Study in Historical Urban Developmentby J o h n W N e i l l Oxford Brookes University

Zoetermeer, Public and Private Partnership and Urban Developmentby P r o f e s s o r D r L v a n L e e uwen Mayor of Zoetermeer

A Case Study in Privatisationby L a r r y G i g e r i c h Executive Director, President, Indianapolis Economic Development Corporation

Funding Civil Society Asia: Philanthropy and Public-Private Partnershipsby Ba r n e t t F B a r o n The Asia Foundation

Seize the Opportunity, Unite as One and Fight Together, Build a Modern Capital Cityby F e n g S h i l i a n g Mayor of Huhhot

Qingdao – The Opening City of Charms by D r Wan g J i a r u i Mayor of Qingdao

General Introduction of Yingkou by Meng J im i n Yingkou

Zhengzhou – The Capital City of Henan Province by Ch e n Y i c h u Mayor of Zhengzhou

Local Governance in China: An Assessment of Urban Residents Committees and Municipal Community Development by A l l e n C C h o a t e The Asia Foundation

There are also various papers from the World Bank, the United Nations Centre for Human Settlements and the Commission of the European Communities.

CHINESE PERSPECTIVE

ASIAN PERSPECTIVE



FINANCE & MARKETING

GOVERNANCE

POLICY & STRATEGY

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