Note of comments made by Larry Hannah for closing session of LED Workshop
held on January 10, 2005
It’s not usually desirable to be asked to speak last but today I consider it a privilege.
It’s a privilege because the day has presented us with a coherent story that, in my opinion,
establishes the rationale and the mechanics to enhance Bank operations – Local
Economic Development (LED).
I would like to start by congratulating the organizers for designing such a well-structured
seminar. The speakers also deserve applause for offering such pertinent information and
This workshop demonstrates the truly cross-sectoral nature of LED. I understand that 83
participants are enrolled, from many networks and various sectors. This also reflected in
the panelists from across the Bank, IC, INF, DEC, PREM, etc. This type of turnout for an
internal workshop shows a high level of cross-network interest in this topic. I suppose it
is not surprising when we hear how OECD countries invest so heavily in local and
regional economic development, on improving their local investment climates, providing
hard and soft infrastructure, and enabling private sector development at the local as well
as national levels. These integrated and coherent efforts in OECD countries give models
for us to adapt with our clients.
So let me take a few final moments of your time today to report on my interpretation of
what we heard today and to make a few modest suggestions for how it might be used in
our work together.
The title of the first session says it all – what happens in urban areas is the main
determinant of economic outcomes for most countries. I think all of us are familiar with
the basic concepts of agglomeration economies and how cities capture many benefits of
the economic development process. What this session added, however, was a clear
approach to describing and measuring that process so that appropriate strategies can be
devised that can enable cities and city-regions to contribute further to national growth.
The examples mentioned from OECD countries give us confidence that the strategic LED
approach being proposed for World Bank clients is both true and tested.
The second session took one of the two pillars of our institution, improving the
investment climate (the other being poverty reduction or inclusion), and showed us how
regulations and their enforcement at the local level are important determinants of
economic development. Although the conclusions presented in this session now seem
obvious, I had not seen them presented so articulately until now.
What struck me in this session is how logical this agenda would be for the Urban group
in the Bank because of their long and successful experience in working with mayors and
local officials. If Urban was to take the information on local investment climate that we
heard about today, and operationalize it, I believe that the Bank could take advantage of a
major business development opportunity. Although Urban has, in my opinion, a
comparative advantage in leading this type of work, the results are truly crosscutting.
PSD, PREM, HD, ESSD, other INF units and probably others all have significant stakes
in the outcomes.
The third session on City Strategic Planning gave us confidence that these OECD
practices can be adapted for our clients; it gave us evidence of how this has been done.
After all, what is being proposed involves taking a tried and tested technique (strategic
planning) and applying it in support of a rather modern objective – increasing city
competitiveness. The presentations and the discussants remarks all recognized that
competitiveness is about the entire environment in which citizens and businesses operate
not some zero-net-gain transfer. This is why it is called the “enabling’ environment.
Another theme I heard today was that modern local government needs to be mindful of
the needs of its businesses and firms, as well as the preferences of individual citizens.
The Cities Alliance, representing clients and multiple donors alike, also has clearly
articulated both the need as well the demand for strategic planning and LED at the city
and city-region level. If we needed any more evidence, we only have to consider the
comments from the Latvian country manager. Clearly there is a taste for this at both the
national and local government level. Operationally, I see important implications for this
type of planning.
The fourth and final session provided some innovative ideas on how LED is being
incorporated into existing, or planned Bank operations. We know there are many other
operations that have LED elements, but it seems from discussions that we need to
undertake further analysis to identify exactly what these components are and in which
projects they are being tested.
The examples of existing operations applying LED concepts leads me to conclude that it
can be an inexpensive and effective way to address local growth and local business
enabling environment issues. However, the way forward still needs further “product
development” and leadership from your network to be truly effective. Let me offer my
own understanding of what the future menu of LED operational inputs might look like.
From what I have heard today, I think we can see the broad characteristics of what an
LED product line might look like. This, of course, assumes the necessary substance in
Before I mention the specific products, let me remind us that it is clear that LED is a
crosscutting theme. It is intimately connected to labor market policies, infrastructure,
governance, PSD issues, growth strategies, fiscal policy, decentralization and so on. This
means that LED is often going to be an organizing framework, an augmentation of how
we pursue our business, not necessarily a freestanding product. So I would suggest that
we are talking about LED-enhanced operations rather than LED loans per se. One
advantage of this approach is that it allows for cooperation and collaboration among
different units in the Bank which we have all learned at this workshop, is the natural way
this business has developed up to present. It also makes sense for our city clients, who
cannot deal with strategic issues on a sector-by-sector basis.
That said, one lesson I take away from our discussions today is that LED can easily be
used to enhance all of the standard Bank products. Let me try to suggest, in a rather
preliminary fashion, how that might work.
AAA work seems already to incorporate LED issues in many instances. However, the
LED aspects are rarely highlighted or presented in a sufficiently distinct way so as to
energize LED reforms and actions. Almost all of the IC/BE work touches on local issues
but, even where a local diagnostic is available, it may not have sufficient “traction” to
compete with national programs for attention. It wouldn’t be too difficult to conduct more
strategic LED studies, both free standing and within national exercises, that would create
the understanding and constituency for reform in the LED arena. From what I’ve learned
today, the TA that the Bank has been providing has incorporated best practice well. City
Strategic Plans focused on LED issues are good examples that could be built on. The
state of the cities work mentioned earlier is another promising business line, as a pre-
curser to integrated lending programs. I think more of these could serve as very effective
preparation for both investment loans and development policy lending.
Development Policy Lending (DPL is the new name for all types of adjustment loans)
will remain an important element in Bank relations with virtually all of our clients. The
pressure to make reforms in the business environment/investment climate will grow not
shrink. We have heard today that there is a local agenda in this respect. However, I know
that the local BE doesn’t gets the same attention as national IC issues, for several
reasons. One is that the issues themselves are not as dramatic (health inspector versus
national bankruptcy legislation). Two, the local issues don’t have their own champion
either in the Bank or with the client. Three, the local reforms seem difficult to implement
and monitor because they require actions by many parties on the borrowers side. Finally
it requires some imagination to see how those dispersed local actors can be motivated
under the DPL model.
So what should we do to make LED more effective as a policy theme in our adjustment
operations? My first suggestion is to develop a very specific local business environment
module that could be “plugged-in” to DPLs where BE/IC was a major theme. This
approach would be quite focused and accordingly would provide staff and clients, with
the confidence that worthwhile results could be achieved. I believe such a module could
be drawn together from existing BE/IC exercises and adjustment operations where BE is
a major theme.
Let me talk about APLs and SILs separately, even though the former is a subset of the
latter, because I think the LED enhancement should be slightly different in each case.
Since LED is a strategy with long-term goals and short, medium and long-term actions, it
is particularly well suited as a framework for the medium term policy matrix that is
required for every APL. The process of establishing and moving on the implementation
of an LED strategy could easily be structured around the triggers for each loan under an
APL. For example, a diagnostic and creation of an LED plan could be phase one,
implementation of the plan could be phase two and so on. LED is also attractive in that its
goals are truly outcomes – growth, increasing in employment, etc. - not public sector
inputs. Thus LED could be a powerful theme for the policy matrix/triggers under an APL,
the Yemen project gives us some pointers in this regard.
For SILs, LED could also be used to establish a clear justification for specific
investments, as we saw in the Romanian example. But I have a more ambitious task in
mind. If we are lending for, say infrastructure, then we need some way to understand how
priorities are set and competing investments vetted. Strategically planned LED offers, in
my opinion, a robust technique for doing this. Combined in some creative way with more
traditional cost-benefit work, the expected impact of the investments should be much
greater and more focused on what our clients tell us they want – jobs and economic
A specific example of how LED could enhance an existing product in our arsenal is to
use LED as the front-end in municipal lending programs, as is being discussed for
Georgia. An LED focus within the strategic planning exercise, as we heard described
today, would undoubtedly better prepare municipalities and cities to approach lenders,
the private sector and other donors. An LED screen seems to me to be more in tune with
the growing emphasis on market based solutions for public infrastructure and meets
requirements for good governance, transparency and participation, especially with the
vitally important business sector.
In conclusion, today I heard it reiterated that cities are a major source of growth that often
determines the overall performance of a country. We learned that cities perform
differently and that the way they approach local economic development issues may have
a significant affect on performance. LED was shown to be an amalgam of a positive local
business environment and the right investments in hard and soft infrastructure. I also
learned that good LED is underway both inside and outside the World Bank.
So today I believe we had a chance to look into the future of the Bank’s work – LED is
cross sectoral, it empowers our clients, comprises all stakeholders including the private
sector and is built upon the latest thinking about local government – the enabling role.