Transforming or Reforming Capitalism - Chapter 3 - Lamb "Towards an Economic Theory of Community Economic Development"

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The chapter present s theoretical underpinnings for economic aspects of CED , and proposes that micro-economic theories support linkage s of small scale econonmic organizations, linkage s in community development. Next two economic rationales for subsidization of CED is present ed. Next the fiscal impact of CED is analyzed, finally how individual community residents may or may not choose to participate in collective action.

Economic theory

There is no formal economic theory for CED , but there are aspects under two other theories. Regional economic s examines spatial disparities within countries under export base theory , location theory and attraction models theory , while economic development theory offers staple theory , big push theory and convergence theory .

Exportable commodities are the basis of export theory, where regional advantages in production and transportation are used, often bolstered through government or external capital subsidies in infrastructure , and the community strengths, such as marketing organizations, credit and transport facilities, are enhanced. Total economic activity is based on exports (basic), with a non-export (non-basic) local economy. Cyclical sensitivities are determined by the elasticity of staples (eg essentials vs luxuries). The community 's success is determined by the success of its exports, affected by fall in demand, exhaustion of a natural resource , uncompetitive resource costs or technological change. Transportation development or higher income may result in more (but uneven) export opportunities, bringing new capital .

Export base theory relates to CED in terms of external economies and the role of capital , and their complications. Export base theory is contrary to CED literature which advocate s inward-focused community or convergence approaches, where domestic production is oriented towards the needs of the community first.

Staple theory is around diversification of an export base. Its backward linkages measure dependencies in the region - a restaurant purchasing local food and labour . Forward linkages measure output sold to other regional sectors . Demand linkage is a measure of how much investment in regional industry produces goods for consumption, investment or government purhcase by the export sector . clarify Leakage measures income flows leaving a community , for example through migratory worker s, external input purchases, or externally owned enterprises. Linkages are multiplied by domestic production, and supply side expansion in labour , capital , entrepeneurship, and complementary input (eg technology).

Sustained growth depends on the ability to transform for market demands. A staple trap occurs with over dependences on export. Resource companies don't typically diversify and foreign investors with "export" their profits, resulting in an undiversified economy. Success results in growing past a staple economy. Staple theory is important to CED because of the concepts of maximizing linkage s and minimizing leakage.

Big push theory premises that linkage s between industrial projects increase productivity and decreases costs. It does not acknowledge foreign trade, required for larger markets, and has a reliance on large investments. It is relevant to CED through the ideas of planned development and created linkage s.

Location theory builds on intrinsic labour and energy costs, and availability of suppliers, comunications, education , training and quality of life and local goernment, eventually beyond natural attributes using technology. It relates to CED through the idea of enhancement.

Attraction models use incentive s and subsidies to industrial ists, entrepeneurs or particular socio-economic groups, emphasizing "civic entrepenerialism" to make communities more attractive for entrepenerial success . It may be countered when other communities use similar tactics. CED uses subsidies and incentive s, though it does not support changing the makeup of populations, though they may be enhanced.

Convergence theory uses planned local resource production and local demand. It values unpaid and part time labour inputs. Production that is not consumed locally may be exported. It avoids divergence from local goals, large scale production and transportation costs. Linkages are around industries producing basic goods. A divergence, or a lack of self sufficiency, is the opposite of convergence. Challenges are assumptions around commodity ownership and political assumptions.

Foundations for an Economic Theory of CED

Both CED and convergence theory have an inward focus and an emphasis on self-reliance and planned production. Convergence theory, staple theory and big push theory all emphasize linkage s. Linkages (forward, backward and final demand) cause economic growth and development. External economies improve the competitive cost and position of an economy through linkage s, and enhancement. CED calls for public subsidization for neccesary capital , to avoid external mandates and leakages.

A moderate transformation approach is proposed, which accepts private entrepeneurs.

Issues of scale

A theory is proposed that smaller scale production is environmental ly friendlier, and may be as effecient as large scale. Linkages, convergence and big push theories contribute to small scale efficiency, with gaps providing opportunities for entrepeneurship in planned production.

An input-output analysis provide s an economic tool for understanding linkage s and multipliers, predicting final demand. Multipliers illustrate the importance of forming linkage s.

Economic Rationale for Subsidization

To be price competitive, a CED must either increase scale and export or use subsidization by the public sector . Increased exports may result in a loss of self reliance, whereas subsidies benefit projects with backward and final demand linkage s. Subsidy benefits are enhanced when mulitple projects are subsidized.

Cost-Benefit Approach

A cost-benefit analysis illustrates that financial ly un-viable projects may be socially viable if the market does not consider the true costs and benefits, including employment at below market costs. Shadow prices are subsituted, as well as to land and unemployed capital .

Fiscal Impact Model

The net fiscal impact, designed for government and politicians, is calculated by taking the difference between additional tax revenue s and net changes in government expenditures. Local government s can justify subsidization up to the level of of a positive fiscal impact. Multipliers result in increased benefits, due to lower production costs, compared to units subdidized in isolation. An issue is that fiscal benefits are spread among government, but the government benefiting the most may not be able to provide subsidization .

A Model of Community Collective Action

Cohesiveness may not exist and may need to be created for collective action. An expectation exists that individuals respond to economic disadvantage by seeking gains through the political system. Those who have more to gain, such as job training or employment , are considered more likely to participate. Individuals weigh benefits of participating in collective actions against the costs of participation. Benefits include public and private benefits, personal satisfaction, actualization or entertainment, or concern for others.

Self interest may interfere with successful collective action, but can be aggregated as others join a community . A lack of community lead ers (who may already be employed), and more inclusive models of collective action that consider substinence and care, particularly from women , are final considerations.

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