To what extent has inward investment economic development policies been effective in addressing uneven development; and how important are inward investment attraction/after-care governance arrangements in this process?

  Established in 1999, RDAs were the New Labour Government’s proposed solution to this problem. Designed to coordinate economic development, their purpose was to improve the relative competitiveness of England’s regions, and reduce the imbalances that exist within and between them (Fothergill, 1998).

  The Welsh government policies of tackling uneven development, by attracting inward investment, began with the Welsh Development Agency (WDA). This agency was set up in 1976 and since then it has brought over £12 billion, into the country. The policies include financial aids such as grants for machinery and offers subsidies to companies for warehousing. New towns such as New Port were created to stimulate growth of industry. Socially, the government introduced the youth training scheme and adult retraining scheme to make sure that the labour in the area has the right skills for the hi-tech industries that are arriving into these regions. The government has also improved communication lines and accessibility by building the M4 corridor to link London and South Wales. Moreover, the Welsh government has also decentralised its government offices such as to reposition the Driving Vehicle Licensing Agency (DVLA) to Swansea to improve employment rate (Fuller, 2005).

  All of these actions implemented provide a general sense of confidence to potential investors, in perpetuating prosperity, because of the attractive attributes that these improved regions now present. The incentives offered by these areas coupled with the reduced level of ‘public goods,’ provide the catalyst for inward investment to occur. Broadly, as a result of these actions, South Wales has transformed into one of Europe’s leading development regions. (ibid)

  The area is founded on high technology industries such as electronics, automotive engineering, aerospace and are growing rapidly. Since 1991, there have been over £2 billion pounds of inward investment in IT from over forty companies. Major multinationals such as Sony and LG are now located in South Wales. The investment from LG alone has created more than 6000 jobs in the area. Wales become the second largest automotive engineering industry in the UK and are growing at a rate of 17% per annum. Ford Motor Company produces its engines and other components at its Bridged and Swansea plants. Finally, investment on Cardiff International airport by the British Airways Maintenance, a subsidiary of British Airways which valued at £100 million also help to stimulate the local economy and help attract other firms in a form of multiplier effect. However, despite the advantages associated with inward investment, as the above empirical evidence suggest, this issue is not a trivial one (Mohan, 1999).  

  Amid such positives, to state that attracting inward investment will lead to maximised benefits and minimal problems is far from becoming a cliché. There is occasionally little transfer of technology and skills, while there is a huge growth in exports, there are very limited local benefits. This is not surprising when the wages paid are often below subsistence level. Occasionally, incoming organisations seem to ‘offer jobs,’ for instance the six thousand jobs created by LG in South Wales as mentioned earlier. An attractive offer, but many of the top jobs are filled from outside. In the case of LG, many of the skilled jobs come from Korea with the firm (Pavlínek, 2004). Arguably, if the incoming firm is merely moving from another part of the United Kingdom (UK), then there is no net benefit, as the jobs ‘gained’ in one region are ‘lost’ in another. The problem is that though sometimes, local wages might increase there is a chance they drop as a result of inward investment. Wales has one of the lowest wage rate - £1.50 per hour is common, even thought It’s illegal. (ibid)

   While much of the evidence about multinationals is negative it has to be said that, in the main, multi-national corporations (MNCs) and their subsidiaries pay better wages, provide better conditions and have a better social security network than most of their domestic competitors. An MNC is ‘a corporation or enterprise that manages production or delivers services in more than one country ‘(Alcock, 2003:291). In reality such companies could have a very positive influence on the domestic scene. And because they often engage in somewhat more training than their domestic counterparts, in theory they should also be the catalyst of skills development. Unfortunately, this is far too often not the case. With globalisation viewed my many politicians and academics as part of the neo-liberal agenda, this has resulted in localities to act alone (Stephenson et al, 2001).

Globalisation

  In this section, there is an exploration of how the effects of globalisation have affected regional policy, in regards to the growth of Multi-national Enterprises (MNEs) and the neo-liberal agenda in particular, in order to attract investment.

  Globalisation is a term that came about in the mid eighties when it replaced terms such as internationalisation and transnationalisation as it was deemed to be more suitable for describing cross -border human interaction and trade. Globalisation covers many different concepts including social, political and economic and so therefore many people disagree in what its exact definition is and whether or not it is actually happening.  Paul Hirst, professor of social relations at Birbeck College, London University, and author of War and Power in the 21st Century has defined globalisation as ‘increasing flows of trade and investment between parts of the world and between countries’ (Amin et al, 1992:2).

  There has been pressure for the role of the state to change over time due to the continuing process of globalisation and the impacts this has had on the British economy both internally and externally. The crisis of Fordism, introduction of new technologies has resulted in changes in economic and political thought. Ultimately increasing pressure for change, the result has been a hollowing out of the nation state. With the rise of both the Scottish and Welsh Assemblies and emergence of supra national bodies such as the European Union. Both of which have had an increasing influence on regional policy within the UK. The question over whether the states role has become diminished with the emergence of this bodies, and as a consequence reduced or risen the ‘inward investment’ agenda (Scott-Cato, 2001).

  There is a strong argument regarding how globalisation has led to the ‘localism’ movement, in other words hollowing of the state. The proponents of such a mechanism advocate that the nation state has a lesser role in economic management and development, in the current climate. Localism involves devolved responsibility downwards by central government to localities and regions. This ideology is a logical one, providing power to the people, who are affected the most. It is a strong argument, and one that appears to have growing support among the public (Mohan, 1999).

  There is a definite need for spatial policy and the neo-liberal school of thought on market forces correcting regional disparities can be easily disproved. (Neo-liberals belief the solution in tackling market-failure is to respond with little or no state intervention). An example being the exacerbation of the uneven geography of development during the opening up of the UK economy to the free market during the Thatcher years. There were many problems present at the time, including deterred investment that had created unemployment and high labour market rigidities. It has been established that the state is a vital body, and has played a key if not defining role in regional policy. (Massey et al, 1988). Capitalist countries require a state and some sort of market boundaries if growth is to be sustained and more importantly balanced. Capitalism is ‘when wealth or the means in which wealth is produced is privately owned’ (Alcock, 2003: 298). This argument is made stronger, with the world recession that is taking place, which has originated from the financial crisis. The nature of state involvement varies hugely over time and with varying governments. State intervention is never unproblematic but some policies create more problems with regard to regional problems than they solve.

  Opponents believe that policy options available to the nation state are increasingly restricted and dictated by globalisation/ “To compete successfully in global markets, countries have to remove obstacles and barriers to entrepreneurship, capital, and technology” (Storper et al, 2003)). The role of the state will continue to undergo further change as globalisation proceeds; the dominance of government in economic affairs has been limited due to global markets, according to hyper-globalists. (ibid)    

      There is a major conflict on the extent and scope of globalisation. There are sceptical accounts which argue that globalisation is a political discourse rather than reality, and that home bases of corporations remain important.

This as well as changing economic and political thinking will have impact on the nature and role of the state and may lead to governing that is neither laissez-faire nor state-control (Christodolou, 1996). This illustrates a huge endogenous concern and begs the question, if globalisation and uncertain economic conditions have a stronger influence then policies at regional level, then perhaps wrestling with uneven development is a lost cause?

 On the contrary, globalisation can aid in reducing regional disparities, as local authorities are able to not only attract investment, but also endure many other associated benefits that’s been mentioned earlier, in this paper. The attraction of inward investment is vital to geographies of growth and battling against uneven development. In other words, a process of cumulative causation, which is pulling in investment and labour to these locations. Globalisation has without a doubt has strongly influenced the agenda of competition, not necessarily promoted it. As a consequence, this has concluded in rivalry between local authorities, a creation of ‘hostile brothers’ fighting for investment, resources and markets (Peck and Tickell, 1994). ‘70% of local authorities regard neighbouring councils as being competitors for inward investment.’‘ (Fuller et al, 2003: 19)

The After-care Service

Opportunities for local businesses are optimised through careful aftercare programmes. Young and Hood defines ‘after-care’ as

  ‘all potential services offered at the company level by government and its agencies designed to facilitate both the successful start up and the continuing development of a multinational affiliate.’ (Young and Hood, 1995: 51)

  This means that when a new investor is attracted to a community, every opportunity is taken to encourage the investor to source his/her supplies locally, enabling supply chains to be exploited. Such programmes are aimed at ensuring investors are happy and that they are given every opportunity to source their inputs from the local community. This services assists to embed these firms and link them with the local economy. For example, an ACS can take place in research and development. In this process, research and marketing activities are present to assist in innovation and new product development (Pavlínek, 2004).

  The need for after-care service is a highly political issue, because of the variety of results, when executing this service. This initiative so far has been like a stretch of the river marked by swirling currents and eddies than a river flowing strongly and consistently in one direction. ‘In a survey, there are major differences between countries in the use of public sector after services: in England only 27% but in Scotland and Wales all firms have used aftercare’ (Fuller et al, 2003: 21). Similarly, an examination of the satisfaction levels of ACS, illustrates dissatisfaction in English RDAs, whereas in Scotland and Wales have high satisfaction scores. This raises the question, as to why RDAs in England aren’t making use of this programme despite the ‘comparative disadvantage’ they have been viewed to have in comparison with Scotland, Wales and Northern Ireland. Not surprisingly therefore, the evidence necessitates local authorities particular in English regions to pursue an effective after-care service. (ibid)

  However, before we leap to the conclusion that promoting an after-care service is essential, we need to consider the counter-argument on this issue.      Many commentators raise serious issues regarding, how would RDAs and local authorities develop a framework for after-care service? A mechanism that is prudent combined with the attribute of making it commonplace quickly and minimal adjustments.  This is very difficult to achieve in reality. There is also an issue of how big or little responsibility; regional bodies and local authorities should have in after-care services. Although, joint action is the consensus, according to research findings by Fuller et al, carried out in 2003, with 55.4%. However, such arrangements are not flawless, and it can lead to conflict and duplication, between both parties, as a consequence (ibid).

  The precise need for after-care services, particular in relation to MNEs is very ambiguous. The role of this service is relatively significant in the electronics and software sector in Wales and Ireland, with regional bodies adopting ACS, 43.8% and 33.8% respectively of inward investment.  When considering adopting ACS, regional bodies and local authorities take into careful consideration of the costs and benefits of implementation. This action however has time and labour implications in which RDAs may struggle, especially if the level of inward investment is minimal. It all depends on the individual situation of a plant within its corporation and the nature of the market that dictate the need for the provision of an after-care service (ibid).

Inward Investment Strategies 

The strategies associated with inward investment are either pro-active or reactive. Re-active strategies tend to have the better rewards, however have a high level of risk attached to its schemes. For instance, the software sector in Ireland. Plants have moved from software packaging to software development, through entrepreneurial initiatives. This has led to plants becoming important affiliates with European corporate entities within the firm that has investment into the area, also known as the ‘parent company.’ Despite, the success of this strategic move, the plans embedded in Ireland, as a result become more vulnerable to parent company decision –making (Stephenson, 2001).

  There are challenges associated with inward investment strategies. For example, the term ‘zero-sum game’ describes how competitive spatial redistribution of business locations and that there is no net additionally to incomes or employment. This notion, that one area wins and another area loses. As a result, a country like England, has no real advantages as uneven development is likely to be sustained, as the current climate of local economic development policy demonstrates (ibid).  Strategy choice is critical to ensuring wide-ranging debate and exploration of issues. Should MNE’s invest in area XYZ or in an alternative? It’s difficult to state for certain, which one, in the majority of cases. What are the components of choice? Blakely (1994) defines the elements of an economic strategy as: goals, target scope and definition, methods of development and institutional or organisational form. However, this is very time-consuming combined with the high level of capital, in which may RDAs be strapped for cash. RDAs will not totally write off, this kind of strategy process but may skip some steps, in which decision makers deem are unimportant. This can lead to the challenges we currently face inward investment, as to whether or not a region is suited to attract a particular investment? There is also the issue of the scope of control and influence these RDAs and local authorities have on their areas. The conventional assumption is that Local Economic Development (LED) agencies have a high degree of influence in determining outcomes for their areas, which epitomises the localism ideology. However, evidence on the contrary has been observed in inward investment research (Scott-Cato, 2001).

   Many large firms know the realities of their markets and finance, through the amount of time endured in their particular sector, as a result are better equipped than LED agencies to impose strategies, which are effective. And because of the associated benefits of securing inward investment, and with the hope of consistent repeat investment. LED agencies attempt to place conditions on firms they support, yet because of the threat of withdrawal of an organisation, find it difficult in law and public relations to punish these firms. This is known as information asymmetry, a transaction cost for local agents.

  Wells and Wint, in 1990 identify three inward investment attraction activities that regions should undertake. Firstly, image building; this involves demonstrating the attractiveness of an area for investment. Secondly, investment generating, this is using promotional techniques used in identifying contacting decision-makers and encourage investment. Finally, utilising investment service techniques, this entails investment counselling as well as other associated duties.  These different types of activities encompass inward investment, and a combination of these activities is necessary to secure capital from firms. These activities are recognised with importance by many inward investment agencies, including Advantage West Midlands. Advantage West Midlands attempts to market attributes, that they feel will provide a competitive edge over competition, in order to attract investment (Turok, 1997). For example, there are major cost advantages in the West Midlands in comparison with London and the southeast. As a result, the firm will try to promote this feature  (Young et al, 1994b).

  In the latter respect, this focus on connecting FDI with local competitive advantages is a logical one. One common shortcoming of inward investment is that local authorities attract investment, but perhaps the costs overwhelm the benefits of securing investment. Thus, MNEs in hindsight would want to remove or re-locate plants into a more suitable region, which could maximise their needs. This has seen the rise of the ‘development targeting ‘movement, during the 1990s, instead of the previous’ one size fits all ideology, which meant RDAs and local authorities, would battle to secure investment with the assumption that it would reduce the glitches in economic development. This kind of thinking had no regard of the individual attributes of the region, which is now being transcended by this new paradigm (ibid).    

Conclusion

The changing nature of the state can be in all cases related to both internal and external causes, on of the biggest being globalisation. The profound changes in the role of the state and geography of the UK have been associated with Jessop’s idea of the tendency of Nation states to be ‘hollowed out’. Regional changes and changes in policy are both a product of and a condition for wider restructuring of the UK state and it relation to economy and society, within the UK and around the globe.

Inward Investment strategies have brought a mixture of results, when implementing theory into practise. Thus far, there has been no clear and concrete mechanism to judge not only whether or not a particular investment should be attracted but also, to evaluate and monitor the investment, to ensure that the perceived benefits on paper do in fact become a reality. One must, devise a coherent analytical framework in order to avoid a decision purely based on a descriptive account. Exploring the success of the after-care service in Scotland and Wales, with the exception of England, has led to the following conclusion: there is scope for an after-care service in England because broadly speaking regions outside England tend to attract a higher level of inward investment with the aid of this initiative in place. Whose responsibility is it to generate inward investment and tackle uneven development? Conclusively, a national effort must be made to combat traditional mentalities and structural obstacles in order to lend support and high motivation for inward investment. Only then can a nation maintain its competitive advantage by exploiting direct foreign investment opportunities while simultaneously encouraging inward investment. Furthermore, strategies and policies are themselves shaped by the interplay of political forces in government and in society in large.

Concerning uneven development, from the information gathered and investigated, in the end tackling uneven development is a lost cause. The reason why there is uneven development, is due to natural selection. It is life, some people are academically better then others, some people will make more money than others and in this case some areas are developed than others. In the final analysis; broadly, local economic development policy represents a theory about what is happening in the world today, not a set of firm conclusions. It is very difficult in reality to achieve a framework to tackle uneven development. Waiting to find out what the actual combination is, how the character of the government will change, and how this will affect the policies and the people of the future, is what makes the study of local economic development very unpredictable.

                                                                                                           

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