Transforming Urban Economies : Policy Lessons from European and Asian Cities 9781134622160, 9780415830577

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Transforming Urban Economies

Cities house the majority of the world’s population and are the dynamic centres of twenty-first-century life, at the heart of economic, social and environmental change. They are still beset by difficult problems but often demonstrate resilience in the face of regional and national economic decline. Faced by the combined threats of globalisation and world recession, cities and their metropolitan regions have had to fight hard to maintain their global competitiveness and protect the quality of life of urban residents. Transforming Urban Economies: Policy lessons from European and Asian cities, the first in an ongoing series of research volumes by LSE Cities, provides insights in how cities can respond positively to these challenges. The fine-grained and authoritative analysis of how Barcelona, Turin, Munich and Seoul have been transformed in the last 20 years examines comparative patterns of decline, adaptation and recovery of cities that have successfully managed to transform their economies in the face of economic hardship. This in-depth and practical analysis is aimed at urban leaders, designers, planners, policymakers and scholars who want to understand the dynamics of economic resilience while cities are still suffering from the aftershocks of the 2008 recession. The book highlights the importance of aligned and multi-level governance, the need for strategic public investments and the role of the private sector, universities and foundations in leading and guiding complex processes of urban recovery in an increasingly uncertain age. Andrea Colantonio is Senior Researcher at LSE Cities, London School of Economics and Political Science (LSE). He is an urban geographer and an economist specialising in the investigation of complex linkages between urban growth, sustainability and geographies of development in developing and developed countries. Ricky Burdett is Professor of Urban Studies at the London School of Economics and Political Science (LSE) and director of LSE Cities and the Urban Age programme. He is Global Distinguished Professor at New York University and a council member of the Royal College of Art. Philipp Rode is Executive Director of LSE Cities and Senior Research Fellow at the London School of Economics and Political Science (LSE). He is Ove Arup Fellow with the LSE Cities Programme and Councillor with Green Growth Leaders (GGL), a global alliance of cities, regions, countries and corporations.

LSE Cities Series Editors: Ricky Burdett and Philipp Rode

If you would like to submit a book proposal for the series, please contact Ricky Burdett B urdett on [email protected] r.b u rd ett@ lse.ac.u k and Philipp Rode on [email protected] p .ro d e@ lse.ac.u k LSE Cities is an international centre at the London School of Economics and Political Science that carries out research, education and outreach. Its mission is to study how people and cities interact in a rapidly urbanizing world, focusing on how the design of cities impacts on society, culture and the environment. This is the first in a series of publications by Routledge that cover innovative research in the areas of the urban economy, health and well-being, as well as climate change and the environment. LSE Cities’ interdisciplinary approach is designed to widen our understanding of the complexities of the modern urban condition at a global level, providing practical solutions to urban policymakers and scholars who are engaged with understanding the challenges and opportunities of living in an increasingly urban age.

Published: Transforming Urban Economies Policy lessons from European and Asian cities Andrea Colantonio, Ricky Burdett and Philipp Rode

Transforming Urban Economies Policy lessons from European and Asian cities Andrea Colantonio, Ricky Burdett and Philipp Rode

First published 2014 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 711 Third Avenue, New York, NY 10017 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2014 Andrea Colantonio, Ricky Burdett and Philipp Rode The right of Andrea Colantonio, Ricky Burdett and Philipp Rode to be identified as authors of this work has been asserted by them in accordance with sections 77 and 78 of the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this book may be reprinted or reproduced or utilised in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. Trademark notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data Colantonio, Andrea. Transforming urban economies/Andrea Colantonio, Ricky Burdett and Philipp Rode. pages cm Includes bibliographical references and index. 1. Urban economics – Case studies. 2. Urbanization – Europe – Case studies. 3. Urbanization – Asia – Case studies. I. Burdett, Richard. II. Rode, Philipp. III. Title. HT321.C6145 2014 307.76 – dc23 2012044852 ISBN: 978-0-415-83057-7 (hbk) ISBN: 978-0-203-64027-2 (ebk) Typeset in Lyon and Gotham by Florence Production Ltd, Stoodleigh, Devon, UK

Contents

List of figures List of tables List of boxes Notes on authors Foreword by Craig Calhoun Acknowledgements

vii ix xi xii xv xvii

Part I Transforming urban economies

1

1

Introduction

2

2

Overview of main theoretical debates (Additional author: Eileen Herden)

8

Part II Twenty years of urban and economic transformation: learning from European and Asian cities

29

3

Barcelona: global repositioning of an emerging metropolis (Additional author: Myfanwy Taylor)

30

4

Turin: reclaiming and diversifying local economic strengths (Additional authors: Cristina Alaimo and Myfanwy Taylor)

78

5

Munich: staying ahead on innovation (Co-authors: Philipp Rode, Max Nathan, Anne von Streit, Peter Schwinger, Gesine Kippenberg)

6

Seoul: successful restructuring towards a knowledge-based economy (Chapter authors: Yong-Sook Lee, Dong-Wan Gimm and Eun-Jung Hwang)

124

164

CONTENTS

V

Part III Concluding perspectives 7

Policy lessons from EU and Asian cities (Additional author: Greg Clark)

203 204

Appendix: notes on the selection of case-study cities

212

Index

215

(All chapters authored by Andrea Colantonio, Ricky Burdett and Philipp Rode unless otherwise stated)

VI CONTENTS

Figures

3.1 3.2 3.3

Barcelona and its Metropolitan Region, Catalonia, Spain Barcelona in the context of the European macro-region Barcelona’s connectivity in the wider European and Mediterranean context 3.4 The Barcelona Economic Triangle 3.5 GVA growth rates (%) for Barcelona Province, Catalonia, and Spain, 1987–2007 3.6 Population growth rates (%) for Catalonia and Spain, 1986–2007 3.7 Employment rates (%) for Catalonia and Spain, 1991–2007 3.8 Unemployment rates (%) for Catalonia and Spain, 1986–2007 3.9 GVA per worker (in year 2000 €s) for Catalonia and Spain, 1986–2007 3.10 Total traffic through the Port of Barcelona, 1985–2009 (000s of tonnes) 3.11 Growth in traffic between 2003 and 2006 for Europe’s main ports: total traffic, general cargo and containers 3.12 Value of Catalonian industrial exports (millions of euros) by technological content, 1994–2007 3.13 The sizes of firms in Catalonia in 2007 3.14 R&D spending as a percentage of GDP for Catalonia, Spain and the EU27, 1998–2007 4.1 Turin and its Metropolitan Region, Piedmont, Italy 4.2 Detail of Turin’s masterplan, 1995 4.3 GVA growth rates (%) for Piedmont and Italy, 1981–2010 4.4 GVA per capita (in year 2000 €s) for Piedmont and Italy, 1980–2010 4.5 Unemployment rates (%) for Piedmont and Italy, 1980–2008 4.6 Employment rates (%) for Piedmont and Italy, 1991–2009 4.7 Population of Turin Province (in 000s), 1980–2008 4.8 Patents per million inhabitants in Piedmont and Italy, 1990–2007 4.9 Employment in science and technology, 1995–2009 4.10 Turin’s employment distribution in 1990 and 2008 4.11 Number of tourists visiting Turin Province, 2003–2009 4.12 Employment in hotels and restaurants in Turin Province, 1980–2008 4.13 The constituent parts of Piedmont’s aerospace sector 4.14 Exports of Turin Province, 1994–2008

FIGURES

37 43 43 51 61 62 63 63 63 64 65 68 68 69 86 90 106 107 107 107 108 109 109 110 111 111 113 114

VII

4.15 Turin’s exports by category, 2007 4.16 Dependency of automotive firms on revenues from the FIAT group in 2007 4.17 Industrial Production in Turin Province, 2004–2010 5.1 Munich and its Metropolitan Region, Bavaria, Germany 5.2 GVA per worker in euros, 1980–2010 5.3 Employment rates (%) for Munich Metropolitan Region and Germany, 1991–2009 5.4 Metropolitan Region’s share of German biotech patents (%), 1980–2010 5.5 Metropolitan Region’s share of German ICT patents (%), 1980–2007 5.6 Metropolitan Region’s share of German cleantech patents (%), 1980–2007 5.7 Start-ups per 1000 inhabitants, 2001–2008 5.8 Research and development spending, 1995–2007 5.9 Percentage of skilled science and technology workers, 1999–2009 6.1 Seoul and its Metropolitan Region, Gyeonggi Province and Incheon City, South Korea 6.2 Map of Seoul 6.3 Three-zone System in SMR, 2010 6.4 GRDPs of SMR and non-SMR, 1985–2009 6.5 GRDP per capita, 1985–2009 6.6 GVA per capita for Seoul, SMR and South Korea, 1993–2009 6.7 GVA growth rates (%) for Seoul, SMR and South Korea, 1986–2009 6.8 Employment rates (%) for Seoul, SMR and South Korea, 1989–2009 6.9 Unemployment rates (%) Seoul, SMR and South Korea, 1989–2009 6.10 Innovation inputs R&D spending shares of SMR, 1993–2006 6.11 SMR shares of national patenting, 1993–2008 6.12 R&D workers per 10,000 inhabitants, 1995–2005 6.13 Growth rate of SMR, 1986–2009

VIII

FIGURES

114 115 116 133 146 147 148 148 149 150 150 151 169 174 175 183 183 183 184 184 184 185 185 186 194

Tables

2.1 3.1 3.2 3.3 4.1 4.2 4.3 4.4 5.1 5.2 5.3 5.4 5.5 5.6 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9

Evolution of local economic development practice Barcelona’s economic performance – key indicators for 2007 Percentage of foreign companies operating in Spain that were operating in Catalonia in 2008 Recent economic performance for Barcelona Province, Catalonia and Spain, comparing 2007 to 2009 Turin Province’s economic performance in 2007 The automotive sector in the Piedmont Region compared to the rest of Italy in 2008 Development agencies set up as part of the Strategic Plan Innovation poles in Piedmont Munich’s economic performance headlines for 2007 Metropolitan Region’s share (%) of national ICT, biotech and cleantech patenting, 2007 Munich Metropolitan Region’s economic performance in the early 1990s Pillars of the high-tech initiative Key performance measures for Munich Metropolitan Region, 1991–2008 Munich Metropolitan Region’s shares of national patenting, 1980–2007 ‘Self reliance rate’ based on own-source tax revenues Permitted industries by zone Key performance measures for SMR, 1990–2008 South Korean national composition of primary, secondary and tertiary industries in terms of the percentage of employment Employment in primary, secondary and tertiary industries in the SMR SMR’s share of apparel, machinery and equipment, transport and electrical equipment in terms of the number of employment SMR’s share of technical and computer services expressed in terms of the number of establishments SMR’s composition of primary, secondary and tertiary industries in terms of the number of employment SMR’s share of tertiary industries in terms of employees

TABLES

17 36 66 70 84 84 92 101 130 130 135 142 146 147 170 175 182 187 188 188 188 189 190

IX

6.10 SMR’s share of manufacturing sector in terms of employees 6.11 SMR’s ratio of ICT-related manufacturing, service and wholesales and rentals to the national’s in terms of employees 6.12 SMR’s share of ICT-related manufacture and services expressed in terms of the number of establishments 6.13 Number of venture companies in Seoul 6.14 Samsung Digital Valley’s performance

X

TABLES

190 190 191 191 192

Boxes

4.1 5.1 5.2 5.3 6.1 6.2 6.3

From concept to car, Turin Campus Garching, Munich Campus Martinsried/Grosshadern, Munich Stadtwerke München Samsung Digital Valley: Samsung Digital City and Samsung Nano City, Gyeonggi, Seoul Paju LCD Cluster, Gyeonggi, Seoul Capital Region Management Act and Samsung semiconductor complexes, Seoul

BOXES

104 141 144 154 193 195 196

XI

Notes on authors

Cristina Alaimo is a PhD candidate at the Department of Management, Information Systems and Innovation Group at the London School of Economics and Political Science (LSE). She is currently investigating how information technologies are changing practices of communication and reshaping organisations in fashion industries. She has published extensively on creative industries, with particular focus on innovation and local development, cultural policy and international cultural cooperation. Ricky Burdett is Professor of Urban Studies at the London School of Economics and Political Science (LSE) and director of LSE Cities and the Urban Age programme. He is Global Distinguished Professor at New York University and a council member of the Royal College of Art. A former architectural adviser to the Mayor of London (2001–6), he was chief adviser on Architecture and Urbanism for the London 2012 Olympics and the Olympic Legacy Park Company. In addition to his academic and institutional work, he has co-edited The Endless City (2007) and Living in the Endless City (2011), directed the 2006 Architecture Biennale in Venice and curated the exhibition Global Cities (2007) at Tate Modern. Greg Clark is an advisor, mentor and commentator on city and regional development. He is Senior Fellow, ULI, EMEA/India; Chairman of the OECD Forum on Development Agencies and Investment Strategies; Advisor to World Bank Urbanisation Knowledge Platform; Global Fellow at Brookings Institution; Associate, LSE Cities, London School of Economics and Political Science (LSE); Visiting Professor at Cass Business School, London; and Member of Future of Cities Advisory Board at Oxford University. He has helped to develop numerous city and metropolitan strategic plans and served as Director of Strategy Development at Greater London Authority from 2000 to 2004. He has led and moderated more than a hundred conferences and strategic events for many city governments, EuroCities, OECD, EU Council, World Bank, European Investment Bank, MIPIM, LSE, Brookings Institution, and the Financial Times. Andrea Colantonio is Senior Researcher at LSE Cities, London School of Economics and Political Science (LSE). He is an urban geographer and an economist specialising in the investigation of complex linkages between urban growth, sustainability and geographies of development in developing and developed countries.

XII NOTES ON AUTHORS

He has worked on funded collaborative research projects with UK and overseas academics, on the areas of integrated urban development and institutional governance, with an emphasis on sustainability policy, planning and assessment methods, publishing as the main author of Urban Tourism and Development in the Socialist State: Havana during the Special Period (2006) and Urban Regeneration and Social Sustainability: Best Practice from European Cities (2010). With a PhD in Economic Geography, he has also undertaken a global survey of registered chartered surveyors and their engagement with the sustainability agenda. Dong-Wan Gimm is Postdoctoral Researcher at the Bartlett School of Planning, University College London, sponsored by the National Research Foundation (South Korea). He is a planning theorist and an urban historian specialising in the investigation of rescaling the state’s influence on discourses of geo-historical perspective and metropolitan governance in east Asia. He employed an in-depth case study analysis to examine the role of regionalism at different stages of this phenomenon towards the completion of his PhD in Urban Planning from Seoul National University in 2000. He has carried out further research on democratisation of urban development decisions. Eileen Herden is a research assistant at LSE Housing and Communities, London School of Economics and Political Science (LSE), where she concentrates on housing and neighbourhood policies using qualitative and geographic research methods. She holds an MSc in Social Policy from the LSE and received the Charles Moysten Lloyd Award for her dissertation on the private rented sector. Previously she worked in German and American state governments. At LSE Cities, Eileen contributed to research detailing the socioeconomic transformation and sustainability of European cities. Eun-Jung Hwang is a PhD candidate in Public Administration at Korea University. Her research focuses on the role of policy transfer in policy-making in areas including culture and art. As a research assistant, she has been involved in comparative analyses of historical and institutional constructions of cultural policies. Her work has been based on examining how global production networks of creative industries can be embedded into local and regional scales. The onus of the research is on the roles of specific agents that lead cultural events for local development, in the multi-scalar perspective. Yong-Sook Lee is Associate Professor at the Department of Public Administration, Korea University. She specialises in regional economic development, industrial policy, and urban and regional planning. Her research foci include the role of the state in the globalising cluster developments; global production networks in Asia; new urban developments in South Korea; and creative city policies in Asia. She has published papers in the journals Regional Studies, Urban Studies, Economic Geography, Environment and Planning A, Environment and Planning C, and Growth and Change. She has co-edited the books Second Tier Cities: Rapid Growth beyond the Metropolis (1999) and Globalisation and the Politics of Forgetting (2006).

NOTES ON AUTHORS

XIII

Max Nathan is a Research Fellow at the Spatial Economics Research Centre (SERC) and LSE Cities, London School of Economics and Political Science (LSE). His research covers the economics of innovation systems, immigration and diversity, and public policy for cities. Prior to this he worked in the UK Department of Communities and Local Government as an ESRC–DCLG Policy Adviser. He is also a co-founder of the Centre for Cities think tank, where he ran the research programme and an associate at the IPPR and the Centre for London. He blogs on urban policy at http://squareglasses.wordpress.com. Philipp Rode is Executive Director of LSE Cities and Senior Research Fellow at the London School of Economics and Political Science (LSE). He is Ove Arup Fellow with the LSE Cities Programme and Councillor with Green Growth Leaders (GGL), a global alliance of cities, regions, countries and corporations. As researcher and consultant he has been directing interdisciplinary projects comprising urban governance, transport, city planning and urban design over the last ten years. The focus of his current work is on green city strategies which included the coordination of the chapters on Green Cities and Green Buildings for the United Nations Environment Programme’s Green Economy Report. He organised Urban Age conferences in partnership with Deutsche Bank’s Alfred Herrhausen Society in ten world cities, bringing together political leaders, city mayors, urban practitioners, private-sector representatives and academic experts. Peter Schwinger is a transport economist who works as an independent consultant and has been a research fellow with LSE Cities at the London School of Economics and Political Science (LSE). He has been managing a broad range of projects in transport economics and policy across Europe, the Middle East and Asia. He has worked closely with local and central governments as well as the European Commission giving advice on how to prioritise public investment in transport infrastructure and on provision of public-transport services. His academic interest and focus are on transport policies in emerging economies. Myfanwy Taylor is a Research Officer at LSE Cities, London School of Economics and Political Science (LSE), and an MPhil/PhD Candidate at University College London’s Urban Laboratory, where she studies alternative economies in London. She joined LSE Cities in 2010 to work on the Barcelona case study for the Next Urban Economy project. More recently, she led a variety of research activities on urban health and well-being for the 2011 Urban Age conference in Hong Kong. Prior to entering academia, Myfanwy was a civil servant at the Department for Communities and Local Government and the Cabinet Office. Anne von Streit has been a researcher at the Department of Geography at Ludwig-Maximilians-University of Munich since 2001. While she has worked primarily on issues related to and in the fields of urban and regional geography, her research has crossed disciplinary boundaries to cover urban and regional development, economic geography and environmental geography. She has also been carrying out work on urban governance with a particular focus on the creative knowledge economy.

XIV NOTES ON AUTHORS

Foreword

The London School of Economics and Political Science (LSE) was founded over a century ago to advance new kinds of knowledge in order to understand new social conditions. London itself was among the astonishing new phenomena that called out for the creation of new fields of research, new projects of practical action. It had long been the world’s most global city, a centre at once of trade, finance and imperial power. It was rapidly becoming the world’s first megacity of the twentieth century, reaching a population of nearly ten million people. It depends on new kinds of architecture and design; transport and other infrastructural systems; the police force with its iconic ‘bobbies’. Almost unfathomable wealth was concentrated in London but side-by-side with neighbourhoods of poverty and disease. Demand for social workers grew as fast as demand for stockbrokers. Cities have kept growing ever since. They house the majority of the world’s population and even more of its wealth. They are the dynamic centres of twenty-firstcentury life, at the heart of economic, social and environmental change, and yet still beset by difficult problems. The research fields the LSE helped to pioneer are all vital to understanding cities. But joining understanding to practical action and public engagement was from the outset central to the LSE. It drew from its London location a vital openness to the world, both its problems and its opportunities. It created intellectual occasions when scholars would mix with politicians, businessmen, social activists and reformers. Its researchers put their skills to work informing both policy and the practical work of professionals. It embraced the project not just of observing the world but of making a better world. Today this approach is extended to a global scale, and on no topic more importantly than in relation to the world’s cities and metropolitan regions. These differ dramatically from London of a century ago, and from their own past forms. LSE Cities extends LSE’s century-old commitment to the understanding of urban society by investigating how complex urban systems are responding to the pressures of growth, change and globalisation, with new infrastructures of design and governance that both complement and threaten social and environmental equity. It brings together researchers from a range of fields, architects and urban planners. And it brings these into productive interaction with mayors, financiers, leaders of social movements and design professionals. The products of these conversations and shared explorations are exciting.

FOREWORD

XV

Transforming Urban Economies: Policy Lessons from European and Asian Cities is the first in an ongoing series of research volumes published by LSE Cities. Its theme is cities and the economy, and its contents reflect over two years of research and collaboration culminating in the Global Metro Summit: Delivering the Next Economy, a two-day conference held in Chicago in December 2010, organised in partnership with the Brookings Institution and Deutsche Bank’s Alfred Herrhausen Society. It is based on fine-grained historical research on Barcelona, Turin, Munich and Seoul, cities that have been transformed in the last 20 years as they restructured their economies to meet changing global forces. The resulting book is engaging and informative as it explores how metropolitan areas that intentionally remade themselves in the past have been able to influence their performance in the present, offering lessons for cities around the world which face similar pressures in the face of changing economic and political circumstances. Craig Calhoun Director, London School of Economics and Political Science

XVI FOREWORD

Acknowledgements

The authors would like to thank the following for their support and input: Alfred Herrhausen Society – The International Forum of Deutsche Bank The Brookings Institution Greg Clark All interviewees

Barcelona Professor Albert Carreras, Professor of History and Economic Institutions, Universitat Pompeu Fabra, Barcelona Guillermo Takano, Research Intern, LSE Cities Isabel Carreras-Baquer, Research Intern, LSE Cities William P. Bacon, Research Intern, LSE Cities

Turin Sergio Chiamparino, Mayor of Turin, 2001–11 Valentino Castellani, Mayor of Turin, 1993–2001 Gianfranco Carbonato, Chairman, Turin Union of Industrialists Professor Mario Calderini, CEO, Finpiemonte, and Professor of Strategy and Innovation Management, Politecnico di Torino Mauro Ferrari, Vice-President, ANFIA, Associazione Nazionale Fra Industrie Automobilistiche (National Association for the Automobile Industry) Associate Professor Carlo Salone, Politecnico di Torino, and l’Università di Torino Guido Cocco, Research Intern, LSE Cities Venere Stefania Sanna, Research Intern, LSE Cities

Munich Tobias Just, Deutsche Bank Research Julie Wagner, Fellow, Brookings Metropolitan Policy Programme, Washington, DC

ACKNOWLEDGEMENTS

XVII

Professor Dieter Läpple, Department of Urban Planning, HafenCity Universität Hamburg Reto Schemm-Gregory, Deutsche Bank Research Professor Alain Thierstein, Professor of Regional Development, Technische Universität München Anne Langer-Wiese, Institute for Urban Design, Urbanism and Landscape, Technische Universität München Sebastian Haag, Researcher, Technische Universität München Gesine Kippenberg, Researcher, LSE Cities Tanjev Schultz, Journalist, Research and Education Policy, Süddeutsche Zeitung

Seoul Jin Kim, Urban and Regional Planning, Seoul Development Institute Eun-Soon Park, Urban Data Analysis Team, Seoul Development Institute Mariane Jang, Project Manager, LSE Cities Dr Hyun-Bang Shin, Department of Geography and Environment, LSE

Production and editing Omer Cavusoglu, Editorial Assistant, Production Coordinator, LSE Cities Loukas Karentzos, Text Editor Adam Kaasa, Communications and Outreach Manager, LSE Cities Miranda Iossifidis, Graphic Designer, LSE Cities Nell Stevens, Communications and Outreach Coordinator, LSE Cities Gerrie van Noord, Copy-writer

Additional research Antoine Paccoud, Researcher, LSE Cities Jens Kandt, Researcher, LSE Cities

XVIII ACKNOWLEDGEMENTS

PART I

TRANSFORMING URBAN ECONOMIES

1 Introduction

Background and context The past twenty years have witnessed the comprehensive restructuring and transformation of cities worldwide from industrial centres to globalised, informationdriven metros (Castells, 1997, 1998). Economic geographers have tended to frame this transition in terms of a move from ‘Fordism’, which was centred around mass production and consumption, to more flexible and sophisticated forms of economic activity based on greater diversity and more flexible production structures (Harvey, 1990; Britton, 1991). Catalytic events such as the oil crisis of the 1970s, and the opening up of regional markets to global trade of the 1980s and 1990s, exerted a significant contribution towards this profound restructuring of local production systems that had driven economic and urban expansion for almost a century across the globe. As a result, cities that were the economic and political hubs of their respective regions and the drivers of their nation’s development faced a period of steep economic and social decline. While facing the deteriorating legacy of their ‘old economy’, these cities also had to confront a new set of challenges prompted by the unfolding of the ‘new economy’ characterised by rapid technological change, global competition and the emergence of high-tech, service and knowledge industries. In their own way, Barcelona, Turin, Munich and Seoul are living exemplars of this transition. The beginning of the 1990s provided European cities with a unique opportunity for economic renaissance. The creation of the European Single Market, the embryonic establishment of a supranational urban policy agenda at EU level (Commission of the European Communities, 1997), and the creation of the structural funds and annexed programmes such as URBAN I and II (Carpenter, 2010), allowed several cities across Europe to adopt comprehensive strategies to transform their urban fabric and revitalise their economic base. Similarly, the 1997 widespread financial crisis in Asia and competing regional interests led several countries, including Thailand, Indonesia and South Korea, to re-think their national development strategies and the role that cities should play in promoting growth and innovation. At the core of this policy shift is the recognition that cities play a pivotal role in generating prosperity and delivering effective national and supranational policies, particularly in relation to economic development, social cohesion and the environment, as well as employment and innovation.

Up until the mid-1990s, there was no explicit urban policy at EU level because this was considered to be the responsibility of national, regional and particularly local governments. However, since the late 1990s, urban and regional economic development climbed up the policy agenda in individual member states and the EU as a whole. Similar trends concerning the rising importance of the urban economic agenda at regional and national level can be observed in emerging global regions such as South-East Asia and Latin America. Nonetheless, the impact of the EU and its funding and institutional structures on the fortunes of many cities in European countries accounts for a very particular trajectory of ‘supra-national’ public investment that has shaped their economic development. Broadly speaking, the urban agenda over the past two decades has become incrementally embedded in a new narrative of economic development in which single-sector approaches to growth have been replaced by integrated approaches underpinned by strong leadership, strategic planning and long-term foresight. This shift has allowed a number of European and Asian cities faced with acute crises just twenty years ago to pioneer innovative development strategies and mobilise new tools for economic change in order to adapt, recover and diversify into new sectors. The four cities of Barcelona, Turin, Munich and Seoul stand out – among many others – as having demonstrated the ability to overcome challenging economic and social crises and have succeeded in breaking free from their historical dependencies, demonstrating significant progress in economic and urban development across their metropolitan regions. They are the subject of this book. Urban economists, planners and economic geographers have examined the economic transformations of local and regional economies through the development of influential and targeted approaches to urban economics. Some of these now established approaches – reviewed in detail in the following chapter – have deployed institutional theory alongside more traditional neo-classical and Keynesian economics, such as cluster-based development, regional institutional capacity, pathdependency and lock-in theory, the creative industries paradigm and regional innovation systems. However, it could be argued that from an empirical perspective much of the literature on these theories and policy approaches has been ‘limited’ in its thematic focus. For example, studies of urban economic transformation have focused on the investigation of a single economic sector, a specific city district or area, or a given aspect of the economy in order to test the main hypothesis and precepts of their originating theories. By contrast, this study attempts to cut across these ‘silo’ investigations of economic transformation with a multi-disciplinary, crosssectoral and international perspective that takes into account leadership, economic performance, urban policy and planning as well as the key institutions and actors that have led the successful transformation of a small number of cities in Europe and Asia. The present investigation, undertaken by LSE Cities (a research centre based at the London School of Economics and Political Science), examines comparative patterns of decline, adaptation and recovery of selected cities and their metropolitan regions that have successfully managed to transform their economies in the face of

4 COLANTONIO, BURDETT AND RODE

economic hardship. The study is intended as an in-depth and practical analysis of shifts towards new urban economies that is relevant to cities worldwide, especially those in the early stages of the urban transformation learning curve because it highlights the importance of aligned and multil-level governance, as well as the need of strategic public investments in response to market failures. The effects of the 2008 global crisis and its aftershocks have, in many ways, given this even greater resonance for urban scholars and city leaders who are concerned with an understanding of the dynamics of economic resilience in an uncertain age.

Case-study selection Following a sifting process of over fifty potential case studies, the three European cities of Barcelona, Turin and Munich and the Asian metropolis of Seoul were selected on the basis of four characteristics: 1 2 3 4

growth and economic development on the back of steep decline; common experience of showing resilience to economic crisis; creative and institutionally aligned recovery efforts; in part, the ability to innovate and promote the green economy.

In their own way, each of the four cities has had to deal with periods of profound economic decline or uncertainty – due to a range of economic and political factors – but have managed to respond to these challenges proactively and effectively. Barcelona, the capital of Spain’s most productive region of Catalonia, reinvented itself after nearly 40 years of General Franco’s dictatorship, strengthening its position in Europe and attracting foreign investment, international entrepreneurs and tourists. Turin, capital of the Italian region of Piedmont, has been one of Italy’s most effective industrial engines for decades but faced an acute crisis just twenty years ago. Home to car manufacturer FIAT, Italy’s ‘Detroit’ adapted and recovered, expanding into new sectors and markets, making the most of regional alliances and its local technical skills. The southern German city Munich, capital of the State of Bavaria, has been a leading centre for innovation but was negatively affected by Germany’s reunification and the 1993–94 recession. Yet, it came back to become one of the top performing cities in Germany. And Seoul, in the very different context of aggressive Asian economies, had to respond to a severe loss of its competitive edge through collaborative relationships between government and private sector becoming South Korea’s economic powerhouse. Today all these cities are faring differently in response to the continued effects of the 2008 world recession and the impacts on economic growth of regional and global developments, especially the negative effects of the prolonged Eurozone crisis on Italy and Spain. But Barcelona, Turin, Munich and Seoul offer a distinctive lens on how cities can overcome periods of crisis. None of them has been perfectly successful, but each has made decisive progress, out-performing their peers, and generating more opportunities for future growth, trade and job creation. Ultimately,

INTRODUCTION

5

their experiences shed some light on how cities and metropolitan regions – on their own and acting in unison – can make a difference, making the most of local assets, institutions and human capital.

Aims and methodology Accordingly, this volume focuses on the actual experience of transformation that has occurred in the four selected cities rather than the broader macro-economic context within which their decline and recovery occurred. It attempts to draw the policy lessons and extract examples of best practices from the interdisciplinary analysis based on a mix of qualitative and quantitative data examinations. The data gathering included academic evidence reviews, city and regional policy reviews, descriptive statistics and semi-structured interviews with key stakeholders and experts that took place during 2009–10. The study set out to understand the inter-relationships between local, regional and, to a lesser extent, national contexts that determined intentional change; the processes of change; and, as far as possible, what aspects of the subsequent transformation could be attributed to these changes. In each city, research teams followed the same methodology that included the following steps: •

•

•

exploration of the ‘problem statement’ or the ‘opportunity’ identified by leaders at the city, metropolitan, regional, or national level to prompt measurable change in the local economy; analysis of the ‘before’ and ‘after’ statistics concerning the transformation of the cities, and the identification of a ‘turning point’ in the transformation of each city, the latter being a specific event, a change in government leadership, an economic shock or a confluence of multiple challenges; examination of the measurable change experienced by the metropolitan area with the objective to provide a documented account of the transformation of local economy and a clear analysis of the impact of the policy interventions as far as possible.

The analysis of the transformation process concludes with the review of the impact of the current global economic crisis on the transition process of each city as it stands at this time, and the examination of how in some instances this has prompted local leaders to re-think or adjust their local development strategies.

Structure This book is divided into three main parts. Part I, comprising Chapters 1 and 2, addresses the context of the research and reviews the literature concerning urban transformation, its main policies and tools, and theoretical debates on local economic development which frames the analysis of the case study cities. Part II, comprising

6 COLANTONIO, BURDETT AND RODE

Chapters 3 to 6, go into significant detail in the four cases studies – Barcelona, Turin, Munich and Seoul – focussing on governance models, tools and policies underpinning economic change in each city. Part III, comprised of Chapter 7, summarises the key findings and draws the wider policy lessons from the selected case studies. Further to these parts, an appendix outlines the selection criteria and processes regarding the case studies.

References Britton, S. G. (1991). Tourism, capital and place: Towards a critical geography of tourism. Environment and Planning D: Society and Space, 9(4), 451–78. Carpenter, J. (2010). Integrated urban regeneration and sustainability: Approaches from the European Union. In A. Colantonio and T. Dixon (eds), Social sustainability and urban regeneration: best practice from European cities. Oxford: Blackwell. Castells, M. (1997). The information age: Economy, society and culture. Volume II: The power of identity. Malden, MA: Blackwell. –––– (1998). The information age: Economy, society and culture. Volume III: End of millennium. Malden, MA: Blackwell. Commission of the European Communities (1997). Employment in Europe, 1997: Analysis of key issues (Vol. 81450000). Commission of the European Communities. Harvey, D. (1990). The condition of postmodernity. Oxford: Blackwell.

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2 Overview of main theoretical debates

Introduction There is an extensive literature on the theory and policy of urban and local economic development, and the economic transformation of cities, focusing particularly on the adjustment strategies and transformation of organisations (Chapman et al., 2004; Todtling and Trippl, 2004) and regions (Birch et al., 2010; Hudson, 2005). Urban economists, planners and economic geographers have developed various approaches to urban economics, whose translation into practice has led many cities to implement de facto blueprint development models centred around the promotion of high-tech parks (Frenkle, 2001; Jenkins et al., 2006), creative industries (Bagwell, 2008; Evans, 2009; Musterd and Murie, 2010) and the leisure sector (Scott, 1999; Mommaas, 2004). For example, the creative industries paradigm, developed by Florida (2002, 2005), has catalysed policy shifts in several cities by switching the policy focus from inward investments to the attraction of talent, creativity and knowledge to the area. Furthermore, the economic cluster theory developed by Porter (1990) prompted several governments to invest in economic complexes in the hopes of attracting foreign direct investment and other ‘hard’ production factors. The focus of policy makers on cluster policies continues today, but has become more nuanced through ‘new’ attentions focused on creating conditions for ‘creative talent’ (Florida, 2005; Musterd and Murie, 2010). It could be argued, however, that much of the literature on these theories and policy approaches has been ‘limited’ in its thematic focus because, for example, studies of urban economic transformation have focused on the investigation of a single economic sector (Bathelt and Boggs, 2003), a specific city district or area (Knapp, 1998; Santisteban, 2006), or a given aspect of the economy (e.g. governance; Therkildsen et al., 2009) for the sake of testing the main hypothesis of their originating theories or defending the main arguments postulated by them. It is within this context that this book endeavours to overcome ‘silo’ investigations of economic transformation by focusing on the multi-disciplinary analysis in order to better understand the processes at work in the case studies examined in Part II.

This chapter aims to provide an overview of key elements and factors which have had different degrees of influence on urban transformation and development processes, spurring theoretical debates on urban change over the last twenty years. These can be broken down into the following categories: cities and globalisation; emerging urban-governance structures; approaches to local economic development; and quality of life and sustainability as key drivers for growth – which will be addressed in turn below.

Cities and globalisation According to certain commentators, global cities act as command points in the world economy, providing key locations and market places for leading industries. In addition, cities compete with each other for this kind of power and advantage and for global repositioning. Globalisation has thrust cities into representing more than just sub-units of their nation states (Sassen, 1991), shaping a new international hierarchy of cities at the pinnacle of which ‘global cities’ (Sassen, 1994) or ‘world cities’ (Friedmann, 1986) have strategic advantages in terms of housing international headquarters of large corporations and running vast logistics nodes and physical infrastructure that support the new economy (Sassen, 2001). Alderson and Beckfield argue that the power of world cities is inherently relational, as ‘cities have power to the extent that they function as command points and centres of planning and thus establish the framework in which other cities operate in the world economy’ (2007: 21). A study conducted by the same authors examines longitudinal data on the strategic location of multinational corporations and their headquarters and found that cities are growing increasingly unequal in terms of where firms tend to concentrate their headquarters. Thus, globalisation has exacerbated competition among cities vying for access to global markets and resources. Rivalry between cities and the perception that there are ‘winners and losers’ in the struggle for global jobs and investments (Hubbard, 2007) has led directly to the rise of entrepreneurial strategies, or what Harvey (1989) termed ‘urban entrepreneurialism’, according to which city governments increasingly operate under privatesector and free-market logics, pursuing risk taking, inventiveness and profit motivation. In addition, competitive and entrepreneurial cities aim to strengthen their asset bases, for example, by seeking new, location-specific advantage for producing goods and services, and by finding new sources of supply to enhance global competitiveness, such as by re-skilling or attracting new labour, as the examples given below in Turin, Barcelona and Munich illustrate. Along similar lines, it is also argued that globalisation has imposed a neoliberal ethos and modus operandi, especially on western cities. Global changes have forced governance and economies to move in the direction of market-oriented competitive survival (Moulaert et al., 2003). Thus, economic competitiveness and the growing role

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of the private sector have spearheaded and underpinned the rhetoric of urban transformation. The activity of public-sector actors, which has shifted from a redistributive role to the facilitation of business activity, has not only led to the decline of welfare provision, but it has also contributed to social polarisation and exclusion at the cost of large city landmark events and regeneration strategies (Hall, 1988; Oatley, 1998; Roberts and Sykes, 2000). It could be argued that whilst public authorities still remain leading actors in the city-making process, risks and support once balanced and provided by the state have increasingly been replaced by the rhetoric of market-led and privately funded investment (Marcuse and van Kempen, 2000) as many of the case-study initiatives suggest. New institutions, agencies and private-sector actors, whose presence has led to a significant redistribution of policy-making powers between private, public and NGO actors (Castells and Hall, 1994; Amin and Thrift, 2001) have emerged as a result of globalising forces. This complex range of public, semi-public and private actors prompted the emergence of novel governance networks in which policy and projects are continuously negotiated between the socio-political and economic spheres, or ‘rescaling’ of strategic decision-making systems as Sassen (2001) puts it or ‘the hollowed out’ state, characterised by little accountability or democratic control. As a result, governments have produced new legislative instruments to privatise and deregulate sectors of their economy and guarantee right and oversight of private contracts. Cities have also been increasingly conceptualised through the deployment of the ‘flow’ analysis. Castells (1996) first introduced the concept of space flows as motion occurring at three different levels – infrastructure, social relations and elite relations. According to this analysis cities are formed by the types and nature of flows running through them in terms of money, people, information, knowledge and culture, as opposed to their stocks or what is fixed within them (Taylor, 1999; Derudder et al., 2003). Taylor, for example, states that ‘cities operate in a contemporary space of flows that enable them to have a global reach when circumstances require such connections’ (2004: 42). Viewed from this particular angle, it would be reasonable to suggest that the level of importance of every city on a global scale can be determined through the use of data analysis similar to that concerning airline passenger flows passing through major urban areas and global hubs (Witlox and Derudder, 2007). The need to attract flows of people, investment and infrastructure in an environment of increased globalisation has led to the adoption of mega-events and iconic projects in urban areas as key instruments to increase visibility and local competitiveness. The development of mega-projects such as the Olympics and World Expos, or cultural projects like the Tate Modern in London and the Guggenheim in Bilbao, are viewed by some as a solid foundation for fostering growth and promoting an image of innovation. In fact, all four case-study cities have hosted winter or summer Olympics over the last decades. These types of projects are prime examples of the global–local restructuring process, in which global market forces become

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imprinted on the urban fabric with strong local impact (Moulaert et al., 2003). Kearns and Philo (1993) argue, however, that city imaging and city marketing have led to the commodification of the urban landscape for tourists, the creative class and business, which have become primary consumers of cities. Along similar lines, Swyngedouw (2002) contends that urban life has been transformed into the spectacle of commodity, especially in its propensity to attract people and assets through megaprojects, regeneration and infrastructure development.

Emerging urban-governance structures Since the 1990s, interactive governance and public participation in economic and urban planning have been regarded as fundamental elements of urban change and the policy delivery on local competitiveness, even though these themes need to be recognised as being of particular relevance to the advanced economies of the global North and Europe. As Rydin and Pennington (2000: 153) note, the emphasis on the inherent desirability of public involvement is part of a tradition which seeks to ‘open up’ planning processes to democratic scrutiny and to expand the scope of public involvement as an integral part of improvements in policy delivery. The importance of participation in urban and economic planning can be rationalised along three main arguments. The first maintains that participation allows for a wide variety of stakeholders to express their needs and aspirations, which subsequently feed through into policy making, delivering and monitoring processes. This representation of the communities of practice and interest groups also results in collaborative governance (i.e. the interactive process through which problems of governance are defined, interests constituted, policy agendas identified, and governance programmes followed through) (Healey, 1999). The second approach focuses on the democratic right to be involved in the public-policy process. This is seen as being an intrinsically ‘good’ characteristic of societies. The third argument is associated with the greater effectiveness of policy delivery when it is ‘more in tune with society’s values and preferences’ and could thereby result in ‘better’ policy delivery (Rydin and Pennington, 2000: 155). This efficiency argument is based on the assumption that a more democratic participation in public issues can raise awareness of the cultural and social qualities of localities at the policy-making stage, and therefore avoid conflicts that may emerge in policy implementation later. Participation in governance has also been conceptualised through institutional theory and has generated a debate on the differences between ‘traditional institutionalism’ and ‘new institutionalism’ (Healey, 1999). Indeed, traditional institutionalism envisages institutions in the orthodox way of a formal set of structures and procedures, advocating a traditional view of public administration. Within this approach, state, civil-society groups and the private sector are often seen as negotiating agents in the policy-making–implementing–monitoring process. Governance results from the position and power of the different participating agents, emphasising the importance of ‘partnership’ and ‘empowerment’ in the analysis (Phelps and

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Tewdwr-Jones, 2000). In the theory of new institutionalism, an institution is not understood as an organisation as such but as an established way of addressing certain issues (Healey, 1999). Here, the power redistribution exercise between institutions and civil society, and planners and individuals becomes merged into collaborative action and social communication, a process which is clearly reflected in the policy initiatives and institutions implemented across the case-study cities in the last decades. In the European context, the shift from government to governance has been concisely reviewed by Wollmann (2006) in his analysis of the rise and fall of localism. He argues that in the 1980s, the neo-liberal attack against the centralised and interventionist welfare-state policies of the 1960s and 1970s, which called for progressive market liberalisation and privatisation, has meant the re-emergence of local community as a focal point of political decision making and development processes. Indeed, it is at the community level that networks of actors from the private and public sector have re-converged and generated the shift towards the governance paradigm. As he suggests, while varying between the countries, local community space has seen the convergent development of two causally interrelated trends. On the one hand, local government has retreated from and abandoned the previous quasimonopoly-type delivery and production of traditional functions, while, on the other hand, the involvement of private economic enterprises and private as well as voluntary service providers has expanded and multiplied resulting in the ‘economic and social communities’ regaining ground. (Wollmann, 2006: 1431) According to this new governance paradigm, different types of communities have the task of releasing a wide array of political, societal and economic resources whilst the local government has the crucial mission of advocating the common good, transparency and political accountability. This perspective underpins the drive to encourage partnership working as well as vertical and horizontal institutional alignment to promote local change which features significantly in the European case studies discussed below. Carpenter (2010) contends that within the EU, the principle of partnership has been particularly influential in the operation of the Structural Funds, which are the European Commission’s financial instruments for regional policy. The concept of partnership within the Structural Funds was initially defined as ‘close consultations between the Commission, the Member State concerned and the competent authorities . . . at national, regional, local or other level, with each party acting as a partner in pursuit of a common goal’ (Council of European Communities, 1988: 5). However, since then, the notion has strengthened to include ‘the economic and social partners designated by the Member State’ within the competent bodies and authorities (Council of European Communities, 1993). In the European context, partnership now includes social, sectoral and territorial partners involved in the programme, including community and voluntary sector partners, local and regional authorities, and the private sector – a concept which helps explain the dynamics of

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change in the cities of Barcelona, Turin and Munich even though it is relevant to the Asian social and political context of Seoul. Carpenter (2010) also argues that the key drivers that lie behind this push for greater partnership working are varied. At a broad level, there has been a cultural shift across the EU that has encouraged organisations to work together, cutting across traditional divides and well-established boundaries. There are two main reasons for this shift. The first relates to the complexity of the socio-economic problems facing cities and regions, which are often beyond the remit of just one organisation working on their own (Carley et al., 2000). The second relates to the underlying belief that partnership working generates a number of positive benefits and produces better outcomes in terms of, for example, greater effectiveness, greater legitimacy and transparency, greater commitment and ownership, and opportunities for capacity building and learning across traditional divides (Tavistock Institute, 1999). Within the EU, it is also widely held that good governance and effective institutional structures are crucial for regional competitiveness and these are facilitated by cooperation and exchange of information between actors, including those in the public and private sectors (Council of European Communities, 2004: 58). This cooperation in turn stimulates collective learning and the creation, transfer and diffusion of knowledge, which are all critical for innovation (Simmie, 2001). A further spin-off from partnership working is the networks that are created, and which can contribute to social capital (Putnam, 1993) in a city or region, thus supporting sustainable development (Ekins and Medhurst, 2006). At a broader theoretical level, the key features of this new economic context are summarised by Amin (1999) who suggests ‘six axioms of economic governance’, including: • • • • •

strengthening networks of association, which prevail over actions focusing on individual actors; promotion of policy actions encouraging communication in order to secure strategic visions, learning and adaptation; mobilising a plurality of autonomous organisations since economic governance goes beyond the state and market institutions; building up broad based ‘institutional thickness’ that might include enterprise support systems, political institutions and social citizenship; establishing sensitivity to context-specificity and path dependency.

While many of these axioms can be seen to inform policy decisions taken by the key actors in Barcelona and Turin – and to a degree Seoul – the concept of ‘institutional thickness’ and its impact on local development takes on special significance in the case of Munich. One of the most tangible evidence of both the implementation of the partnership principle and the newly emergent participatory economic governance has been the

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creation of semi-autonomous, single-purpose agencies whose activities focus on the development potential of particular districts, sectors or projects in urban areas (Harding, 1997). In some instances consortia and ad-hoc agencies are also created to engage with a plethora of stakeholders to ensure the implementation of strategic plans, build investor confidence, foster local networks and collations, set targets and objectives, and provide transparency and accountability in order to promote local economic development. Many of the internationally focused promotion agencies established in Turin and Barcelona, for example, come under this category of semiautonomous institutions. In addition to these new agencies, the competitiveness of cities and regions increasingly rests on the public sector’s ability to mobilise soft resources linked to local social, cultural and knowledge economy characteristics. As Wood and Valler put it: In essence localities and regions are becoming more reliant on their social and cultural characteristics and on their knowledge base as a source of dynamic competitive advantage. It follows that those that have the capacity to respond more rapidly to changing circumstances become more competitive in a complex and uncertain global environment. (2004: 5) With this in mind, Jessop (2002, 2004) argues that local government institutions have sought their indigenous roots to give support to their economic future – harkening back to local artisan traditions and historic markets in order to develop niche specialist sectors in their region, as our studies found in the cases of Seoul, Munich and Turin. Further evidence of these developments in terms of new forms of governance is an intensification of city and regional government partnerships alliances (Brenner, 1998, 1999; Swyndegouw and Baeten, 2001). The close connections between Turin and the Piedmont region, Barcelona and Catalonia government, and Munich and the State of Bavaria are tangible examples of such instrumental alliances. Scott (2001) conceptualises the global city-region as the new territorial unit of economic production and consumption in a post-Fordist economy, in which the importance of nation states has gradually been replaced by an extensive archipelago of global cityregions. These encompass large metro areas – such as the Seoul Metropolitan Region – or contiguous metro areas and their surroundings; authors such as Henton (2001) argue that areas such as Silicon Valley can be considered global city-regions, even without the presence of a major city. The idea of the city as ‘centre’ is thus replaced by a network structure and periphery patterns that comprise the structure of global city-regions. In these newly formed partnerships between tiers of government, local efforts might focus on developing the supply base (skills, education, etc.) and the institutional base (development agencies) to develop local advantage, while regional policy orientation might focus on building clusters and local economies of association,

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encouraging adaptability and mobilising local social resources (Amin, 1999). The region has become particularly important in accessing funding and developing overarching regeneration strategies and setting economic priorities, as will be illustrated in the case studies of Turin and Munich.

Approaches to local economic development Over the last four decades, Local Economic Development (LED) has gained increased prominence in the economic development discourse. Broadly speaking, the purpose of LED is to build up the economic capacity of a local area to improve its economic future and the quality of life for all. It is a process by which public, business and non-governmental partners can work collectively to create better conditions for economic growth and employment generation (World Bank, 2011). Swinburn et al. (2006) note that the practice of LED started in the early 1970s as local governments recognised they had a role to play in enhancing the economic viability of their cities and regions and, as a result, sought to grow the economic and employment base by actively examining their economic base. This led to the identification of obstacles to growth and investment and the subsequent implementation of strategically planned programmes and projects to remove these obstacles and facilitate private-sector development. Table 2.1 illustrates the chronological evolution of both the LED focus areas and of the main tools deployed for its promotion. It becomes apparent that the LED aims have been broadened over the years, from grant making to selected industrial sectors or areas to the promotion of competitiveness, which include aspects relating to quality of life and sustainable growth characterised by communities continually improving their surroundings and investment climate. Hague et al. (2011) developed a different categorisation of LED policy and practice, independent of chronological development, that encapsulates the variety of city development strategies embarked upon by local authorities in recent years. These include: •

•

•

Pro-business competition: a strategy that is designed to attract inward investment. By marketing the city through mega-projects and incentives such as the availability of favourable fiscal regimes, cities attempt to lure companies and develop a culture of enterprise. Sector targeting and area regeneration: seeks out areas of the market in which performance can be enhanced or reach greater potential through efficiency gains. This is often accomplished through public backing of risky schemes and interventions in property markets. Clustering of strategic businesses in related sectors has also been a common policy instrument. Eco modernisation: a move to environmentally friendly technologies and the ‘greening’ of cities, investing in infrastructure and skills, which in turn generate economic, environmental and social benefits.

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Table 2.1 Evolution of Local Economic Development practice 1960s to early 1980s • Mobile manufacturing investment attraction from outside local area. • Big firm level subsidies. • Making hard infrastructure investments. (Public sector only)

• Large grants, tax breaks, subsidised loans for manufacturing investors. • Subsidised hard infrastructure investment. • Focus on lowering production costs through techniques such as recruitment of cheap labour.

1980s to mid 1990s • Retention and growing of existing local businesses. • Continued emphasis on inward investment attraction but usually more targeted to specific sectors or from certain geographic areas. (Public-sector driven)

• Direct payments to individual businesses. • Business incubators/workspace. • Technical advice, support and training for small-medium scale enterprises. • Business start-up support. • Hard and soft infrastructure investment.

Late 1990s onwards • Making whole business environments favourable. • ‘Soft’ infrastructure investments (e.g., human resource development, knowledge sharing, regulatory rationalisation). • Public/private partnerships. • Leveraging private sector investments for public good. • Improving quality of life and seurity for communities and potential investors. • Highly targeted inward investment attraction, building on local area comparative advantage. (Public-sector led, usually)

• Integrated strategy providing a facilitative local business enviornment. • Stimulating local firm growth. • Cross-community networking and collaboration. • Developing collaborative business relationships. • Workforce development and soft infrastructure provision. • Supporting quality of life improvements. • Focus on service sector as well as manufacturing. • Facilitating economically-linked business clusters. • Initiating regional and local economic development programs.

Source: Swinburn (2006)

•

Pro-poor economic development: involves strategies to mobilise local residents and businesses through local social enterprise and community-based development in order to generate employment, enhance livelihoods and improve local environments.

One common element of various analyses of LED is found in their convergence on the notion that all development strategies strive to forge and improve new forms of urban comparative advantage based on the ability to generate networks and foster interactive relationships between enterprise, research, training institutions and government. Stöhr (1990) writes that the traditional form of comparative advantage, based on locational access and local resources, has been replaced by organisational access to the control of capital and innovation. Along similar lines, van Doren (1995) contends that a rupture of the traditional techno-industrial paradigm has given

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advantage to actors who recognise and exploit innovation and knowledge-driven sectors, according to a logic in which the first movers gain huge advantages. There is also general agreement that, from a spatial perspective, LED policies are more effective when applied at regional level, as the European case studies suggest. According to Hackworth, (2007) this can be traced back to neoliberal ideology and its precepts that large-scale government bureaucracies are too removed and ossified to react to economic pressures with substantial vigour. Government interventions at the regional level where agencies can best identify growth areas and impediments to resource mobilization are considered to be more effective. In this context, the regional scale is believed to provide the platform for meaningful public–private network building, with the means of flexibly reacting to the markets through economic development. In practice, local economic development strategies include place promotion, land and property initiatives, lobbying for infrastructure funding, direct business subsidies, networking strategies, small-firm support, flagship development projects, tourism promotion and related instruments and policies. In particular, Landry (2000) argues that culture and creativity constitute an important base for economic development. This has led to the development of cultural clusters and leisure-led regeneration, with cities competing over international cultural events and the promotion of local cultural advantages. In a recent review of local development theories Goldstein (2009) contends that cluster theory, regional institution capacity, regional innovation system, path dependency and the creative-industries paradigm are the key elements that drive change. While they are not mutually exclusive (for example clusters of creative industries could be pursed within a regional innovation system) they are set out individually below to pave the way to the practical analysis of case study cities in Part II. Cluster theory – the local economic development theory developed by Porter (1990) – defines clusters as geographic concentrations of connected companies, specialised suppliers, service providers, firms in related industries and associated institutions such as universities and trade associations in a particular field that both compete and cooperate with each other. Clusters confer economic advantage through agglomeration economies, where proximity increases competition, fosters innovation, prompts greater entrepreneurial activity and enables easy access to a more diverse range of inputs (Porter, 1990, 1998, 2000; Glaeser and Kerr, 2009; Delgado et al., 2010). The implications of the cluster theory for local realities has meant that some policy makers – as illustrated by the Munich, Seoul and Turin case studies – have tended to focus on developing related industries in given city areas rather than supporting economic diversity. Regional innovation system: while this concept has no commonly accepted definition (Bracyzk et al., 1998) it is understood broadly as a set of interacting private

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and public interests within the region that develop specific types of capital emphasising local cultural factors, social relations and interactions with the community. The policy focus of regional innovation system revolves around ideas of developing localised learning processes to secure competitive advantage (Asheim and Gertler, 2004). The process of learning and innovation is systematised as three complementary approaches – learning by doing, learning by using and learning by interaction – and are incorporated into industrial culture. Regional institutional capacity: this theory focuses on institutional context of economic and societal activities, or what some authors (Amin, 1998; Phelps and Tewdwr-Jones, 2000) refer to as the ‘thickness’ of governance. An important element of the latter includes the dual role of government as both direct intervener through investment in physical infrastructure and R&D, for example, as well as government’s ‘soft role’ in building social capital, promoting collaborative efforts, encouraging participation and fostering information sharing between firms, universities, training institutions and government agencies (Goldstein, 2009). In addition, shared governance, such as government–business–higher-education policy networks, is an aspect that defines regional institutional capacity, as evidenced by the examples cited below in the European city case studies and Munich in particular. Path-dependency theory: at a fundamental level, this theory argues that how regional economies develop in the future is dependent on the historic path they have followed up to the present (David, 2000). The idea is derived from evolutionary economic theory, which argues that an event may have persistent long-term effects that are difficult to reverse (Nelson and Winter, 1982). This ‘lock-in’ effect – when a region is locked in to a particular technology that becomes inefficient or is no longer competitive – is argued to be a possible sub-optimal outcome of this process and is often described in terms of Detroit and its automotive industry. However, as Martin and Sunley (2006) point out, little is known about why some regional economies are able to break free of the development path and re-invent themselves through new paths or phases of development. Creative-industries paradigm: as developed by Florida (2002), this theory posits that ‘creativity . . . is now the decisive source of competitive advantage’ (Florida, 2002: 5) and that the attraction of the creative classes – defined as people involved in the sciences, computer programming, design and the arts – are essential as drivers of the knowledge economy and facilitate other industries and services (Hartley, 2005). The creative-industries paradigm has catalysed new policy that promotes a mix of public and private partnerships and the creation of an atmosphere that fosters what Florida (2002) refers to as the ‘three Ts’ – talent, tolerance and technology – to which the creative class is attracted and within which it flourishes. Cities failing to provide this environment become ‘the losers in the new economy’. It is worth noting that the creative-industries paradigm has had its critics, with Peck (2005) arguing that creative class policies actively subsidise urban consumption systems that encourage ‘gentrifiers’ who practice lack of commitment to an area and

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its community. Such policies thus publicly support an elite class with little spill-over effect on the rest of society. Nonetheless, the creative class paradigm has had a substantial impact in economic literature, highlighting the importance of soft factors such as quality of life as a key driver of local policy making to transform cities. This aspect and its inter-linkages with the broader sustainable urban development discourse will be examined in the next section.

Quality of life and sustainability as key drivers for growth Quality of life has become an important discursive device with which cities are identifying problems and formulating solutions to transform their urban fabric. There is an increasing number of studies that attempts to position the growing importance of quality of life, leisure and tourism within urban environments in order to understand the role that these ‘soft factors’ play in the promotion of local economic development. The Economist Intelligence Unit (2011) identifies jobs and cost of living, public transport and roads, safety and security, culture and nightlife as key factors contributing to the city’s quality of life and liveability, helping to strengthen its attractiveness for residents, workers and potential investors. Thus, according to this study: Mayors and civic leaders can occasionally be beguiled by the ‘softer’ aspects of liveability. Opera houses, parks and other assets associated with liveability are all important components of great cities’ brands, but getting the basics right first helps cities to compete globally on a more equal footing. (Economist Intelligence Unit, 2011: 6) In other words the notion of liveability has a number of both ‘hard’ and ‘soft’ components, which shape the type of challenge faced by an individual city to strengthen its attractiveness. An increasing number of scholars argue that the shift to post-Fordism has led to a re-interpretation of the cities’ dynamics primarily in terms of consumption rather than production (Page, 1995). From this perspective, cities are seen as becoming places of consumption, relaxation and leisure, acting as tourist destinations rather than centres of manufacturing (Mullins, 1991). But cities are essentially multifunctional entities which offer a variety of functions and environments that accommodate the varying demands of users and consumers as well as resources (Burtenshaw et al., 1991). According to this functionalist interpretation, the city is conceived as a manifold system, with several ‘cities within the city’, which include overlapping functions and customs, such as the ‘historic city’, the ‘cultural city’, the ‘night-life city’ and the ‘shopping city’, that combine to form the ‘tourist city’.

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Building on this functionalist notion, much of the literature on the performance of cities since the 1980s has highlighted the significant role that mega-events and tourism have played in the economic and socio-environmental regeneration of inner-city areas, as noted in the section on cities and globalisation above. Law (1992) argues that investments for tourism involve the development of facilities, physical environments and infrastructures which can have many benefits for local communities, including job creation and an improved environment, with new museums, concert halls, convention centres or stadia. These investments have not only benefitted the local economies but also have increased civic pride and sense of ownership among local communities (Law, 1992: 61). The role of tourism and leisure as a catalyst for socio-economic and environmental regeneration has been questioned by scholars. Shaw and Williams (1994) question the social distribution of the benefits generated by the development of cultural and tourist infrastructures, noting that private-sector investments have often had limited positive effects on the leisure needs of local people and rarely bring about lasting environmental improvements. The emphasis on cities as place of consumption and commodification has prompted an expanding body of literature that explores the growing competition amongst cities to attract flows of people and investments and the role played by the promotion of a new image and place marketing to attract these flows within a globalised context. Bradley et al. (2002) examine the impacts of place promotion and urban image enhancement on the locational decision-making processes of convention, exhibition and meeting organisers in the UK. The authors conclude that externally perceived images are a key determinant for investment locations and should be harnessed by local authorities engaged in the promotion of their localities. Intra-city competition at the geographical scale is often based on their role as strategic regional ‘hubs’ or gateways of communications systems and transport infrastructures, including international airports, sea-ports for goods and passengers, and railway stations. The case studies of Barcelona, Munich and Seoul will demonstrate how effective these cities have been in positioning themselves as key transport nodes. Ashworth and Turnbridge (1990) further argue that visits to these hub cities are often incidental rather than intentional, becoming important transit points for regional tourism. A key driver that is increasingly shaping urban policy is sustainable urban development (Satterthwaite, 1997). ‘Sustainable cities’ has become an important platform in the public debate on climate-change mitigation and prevention because of the undoubted potential of cities to be designed and managed to act as efficient green systems, that perform better than ‘non-urban’ systems (Burton, 2000; Bramley et al., 2006; Burdett and Rode, 2011). While cities consume a significant amount of world energy and contribute incommensurately to global C02 emissions, new models are emerging of efficient planning based on compact, well-connected and mixed-use environments which reduce energy footprints, promote social cohesion and aid the development of the green economy (Talen, 1999; Freeman, 2001).

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More recently, the sustainable cities debate has focused on the role of the green economy and its role in the promotion of smarter cities (Rode, 2013). There are a number of benefits greener and smarter cities can provide: they can assist in achieving significant effects on urban lifestyles through improving energy efficiency and reducing individual patterns of consumption and carbon footprint; provide opportunities in developing new technologies through innovative research and help diversify and improve skill-sets whilst making environments more equitable for their residents; help making urbanisation inclusive, pro-poor and responsive to threats posed by environmental degradation and global warming; as well as fostering greater community and social cohesion with effects in economic resilience and increased productivity. Many cities around the world have prioritised compact urban development, creating walkable urban neighbourhoods supported by accessible public transport systems (Burdett and Rode, 2011). The proximity between residential and work spaces for people who live in compact cities, and the possibilities of close interaction between these two functions can provide benefits in the form of exchanging ideas and opportunities. Concentration of diversified and specialised expertise in research institutions, firms and service providers make for opportunities in adding to the existing skill-sets. Within this context, empirical studies in developed countries find that doubling the employment density of an urban area typically raises its labour productivity by around 6 per cent. The same basic patterns are found in developing countries, with strong evidence that urbanisation boosts productive efficiency by lowering transport costs and widening trade networks (Burdett and Rode, 2011). Urban environments can also offer the essential labour-intensive and knowledge-based skills in order to install and service ‘green jobs’ activities, most of which are service-based and tend to cluster in urban areas where consumer markets are largest. While this and other improvements may help lowering per capita carbon emissions, added incentives are found through densification as a central green-city strategy which can enhance productivity, promote innovation, and reduce the capital and operating costs of infrastructure. Furthermore, cities’ basic offers of proximity, density and variety deliver productivity benefits for firms, and helps stimulate innovation and new job creation – in high-tech clusters, for example, as they are already emerging in urban regions like the Silicon Valley.

Conclusion The aim of this chapter has been to articulate a theoretical framework providing the background for the detailed examination of four major cities in Europe and Asia set out in the following sections of the book. The case studies themselves have informed the formulation of some of the theories and policies discussed above, and have, in turn, become the testing grounds for the application of some of these ideas on the ground in Barcelona, Turin, Munich and Seoul.

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Hague, C., Hague, E. and Breitbach, C. (2011). Regional and local economic development. New York: Palgrave Macmillan. Hall, P. (1988). Cities of tomorrow. Oxford: Blackwell. Harding, A. (1997). Urban regimes in a Europe of the cities? European Urban and Regional Studies, 4(4), 291–314. Hartley, J. (2005). Creative industries. Malden, MA: Blackwell Publishing. Harvey, D. (1989). From managerialism to entrepreneurialism: The transformation in urban governance in late capitalism. Geografiska Annaler. Series B, Human Geography, 71(1), 3–17. Healey, P. (1999). Institutionalist analysis, communicative planning, and shaping places. Journal of Planning Education and Research, 19(2), 111–21. Healey, P., Cameron, S., Davoudi, S., Graham, S. and Madani-Pour, A. (1995). Managing cities: The next urban context. Chichester: John Wiley & Sons. Henton, D. (2001). Lessons from Silicon Valley: Governance in a global city-region. In A. Scott (ed.), Global city-regions: Trends, theory, policy. Oxford: Oxford University Press. Hubbard, P. (2007). Positioning cities in the world: Towards a politics of flow. In P. Taylor, B. Derudder, P. Saey and F. Witlox (eds), Cities in globalization. New York: Routledge. Hudson, R. (2005). Rethinking change in old industrial regions: Reflecting on the experiences of North East England. Environment and Planning, 37, 581–96. Janssens, M., Pinelli, D., Reymen, D. and Wallman, S. (2009). Sustainable cities: Diversity, economic growth and social cohesion. Cheltenham: Edward Elgar. Jenkins, J., Leight, K. and Jaynes, A. (2006). Do high technology policies work? High technology industry employment growth in US metropolitan areas, 1988–98. Social Forces, 85(1), 267–96. Jessop, B. (1993). Towards a Schumpeterian workfare state? Preliminary remarks on post-Fordist political economy. Studies in Political Economy, 40, 7–39. –––– (1997). The entrepreneurial city: Re-imagining localities, redesigning economic governance, or restructuring capital? In N. Jewson and S. McGregor (eds), Transforming cities: Contested governance and new spatial vision. London: Routledge. –––– (2002). The future of the capitalist state. Cambridge: Policy Press. –––– (2004). Institutional re(turns) and the strategic-relational approach. In A. Wood and D. Valler (eds), Governing local and regional economies. Burlington, VT: Ashgate. Jonas, A. and Wilson, D. (1999). The urban growth machine. Albany, NY: State University of New York Press. Kazepov, Y. (2005). Cities of Europe: Changing contexts, local arrangements, and the challenge to urban cohesion. Oxford: Blackwell. Kearns, G. and Philo, C. (1993). Selling places: The city as culural capital, past and present. Oxford: Pergamon Press. Knapp, W. (1998). The Rhine–Ruhr area in transformation: Towards a European metropolitan region? European Planning Studies, 6(4), 379–91. Landry, C. (2000). The creative city: A toolkit for urban innovators. London: Earthscan. Law, C.M. (1992). Urban tourism and its contribution to economic regeneration. Urban Studies, 29(3/4), 599–618. Marcuse, P. and van Kempen, R. (2000). Globalizing cities: A new spatial order? Oxford: Blackwell.

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Martin, R. and Sunley, P. (2006). Path dependence and regional economic evolution. Journal of Economic Geography, 6, 395–437. Mommaas, H. (2004). Cultural clusters and the post-industrial city: Towards the remapping of urban cultural policy. Urban Studies 41(3), 507. Moulaert, F., Rodrigues, A. and Swyndgedouw, W. (2003). The globalized city: Economic restructuring and social polarization in European cities. Oxford: Oxford University Press. Mullins, P. (1991). Tourism urbanization. International Journal of Urban and Regional Research, 15(3), 326–42. Musterd, S. and Murie, A. (2010). Making competitive cities work. Oxford: Blackwell Publishing. Nelson, D. and Winter, S. (1982). An evolutionary theory of economic change. Cambridge, MA: Harvard University Press. Oatley, N. (ed.) (1998). Cities, economic competition and urban policy. London: Paul Chapman. Page, S. (1995). Urban tourism. London: Routledge. Phelps, N. A. and Twedwr-Jones, M. (2000). Scratching the surface of collaborative and associative governance: Identifying the diversity of social action in institutional capacity building. Environment and Planning, 32, 111–30. Piemonte Regional Government (2009). Effetto Europa: 1989–2009 – vent’anni di Fondi Europei per lo sviluppo del Piemonte (The Europe effect – Twenty years of European Development Funds in Piemonte). Turin: Regione Piemonte. Porter, M. (1990). The competitive advantage of nations. London: Collier Macmillan. –––– (1998). Clusters and competition: New agendas for companies, governments, and institutions. In M.E. Porter (ed.), On competition. Boston: Harvard Business School Press. –––– (2000). Location, competition, and economic development: Local clusters in a global economy. Economic Development Quarterly, 14, 15–35. Pratt, A.C. (2008). Creative cities: The cultural industries and the creative class. Geografiska Annaler. Series B, Human Geography, 90(2), 107–17. Putnam, R.D. (1993). The prosperous community. The American Prospect, 4(13), 35–42. Roberts, P. and Sykes, H. (2000). Urban regeneration: A handbook. London: Sage. Rode, P. (2013). Cities and the green economy. In R. Simpson and M. Zimmermann (eds), The Economy of Green Cities. London: Springer, pp. 79–98. Rydin Y. and Pennington, M. (2000). Public participation and local environmental planning: The collective action problem and the potential of social capital. Local Environment, 5(2), 153–69. Salet, W., Thornley, A. and Kreukels, A. (2003). Metropolitan governance and spatial planning. London: Spon Press. Santisteban, M. (2006). Business systems and cluster policies in the Basque country and Catalonia (1990–2004). European Urban and Regional Studies, 13(1), 25–39. Sassen, S. (1991). The global city. Princeton, NJ: Princeton University Press. –––– (1994). Cities in a world economy. Thousand Oaks, CA: Pine Forge Press. –––– (2001). Global networks, linked cities. New York: Routledge. Satterthwaite, D. (1997). Sustainable cities or cities that contribute to sustainable development? Urban Studies, 34(10), 1667–91. Scott, A. (1999). The cultural economy: Geography and the creative field. Media, Culture and Society, 21, 807–17.

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PART II

TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION Learning from European and Asian cities

3 Barcelona Global repositioning of an emerging metropolis

Introduction Barcelona is the capital and economic engine of the Autonomous Community of Catalonia. Over the last decades, Spain’s second city has established an international reputation for its dynamic and forward-looking governance that has attracted foreign investment, promoted entrepreneurship and tourism and put the city ‘on the map’. The ‘Barcelona model’ is built on the city’s history as a major Mediterranean port and centre of commerce, which – despite the recent recession and Eurozone crisis – is still alive today. This chapter identifies the major initiatives, interventions and policies that were put in place from the mid-1980s onwards that have transformed Barcelona’s economy into one of Europe’s most productive over a thirty-year period. Since the Spanish Civil War the city has experienced turbulent times and gone through many upheavals, suffering greatly at the hands of General Franco who left the city with a legacy of economic isolation and under-investment by the time of his death in 1975. The oil crisis and political uncertainty during the democratic transition compounded these problems; the city deindustrialised rapidly, driving unemployment up into double figures. Then, Spain’s entry to the European Community (EU) in 1986 and the creation of the European Single Market in 1993 presented Barcelona with an opportunity to secure the city’s economic renaissance. Together with the wider region of Catalonia, Barcelona achieved 104 per cent real growth between 1986 and 2007, compared with a European Union 27 average of 83.4 per cent (Eurostat). Its success in attracting visitors and trade is reflected in the fact that from just 700,000 visitors in 1981, Barcelona attracted over 6.7 million visitors in 2008, while Catalonia was home to 34 per cent of all foreign companies operating in Spain in 2008. This case study attempts to tell the story behind these statistics, illustrating how strong civic leadership, flexible and collaborative institutions, and a cohesive private sector have worked well together to bring about substantial change. Although recent economic events have had a measurable impact on Spain as a whole and on Barcelona in particular, and as a result the political alignments of the region have been reconfigured, the dynamics of urban change and leadership over the last decades of the twentieth and early twenty-first centuries provide insights on the effectiveness of aligned governance, strong leadership and partnerships across public and private sectors.

Barcelona has made the most of its location on the Mediterranean, taking advantage of its natural location, strong architectural image and improved connectivity through air, rail and sea routes which contributed to the economic growth of the region from the 1980s onwards Source: Shutterstock Images/Baevskiy Dmitry

Barcelona’s transformation The preparations for the 1992 Olympic Games provided a significant opportunity for Barcelona to kick-start the correction of its infrastructure deficiencies and to rebuild its international reputation. Effective city branding and promotion were used to attract inward investment, foreign entrepreneurs and tourism, and later to promote high-growth sectors, such as design, media, logistics and biotechnology. Major improvements were made to Barcelona’s port, airport, rail and road infrastructure over a twenty-year period, delivering significant increases in the city’s strategic importance in Europe and in the competitiveness of its firms. Investments in transport infrastructure were linked to the re-configuration of urban and metropolitan space for new knowledge-based and high-tech industries, creating an attractive environment for the new economy. New agencies and programmes were put in place to drive innovation and entrepreneurialism, and to help firms reposition themselves and develop their export capacities in rapidly changing international markets, building on the entrepreneurial skills of local and regional small and medium enterprises (SMEs). Despite the impacts of the recent recession, investment in connectivity infrastructure has continued, including a new high-speed rail station, metro line and airport terminal, which have contributed to increased accessibility to external markets and provided jobs. Notwithstanding these successes, Barcelona has recognised the need to reinforce wider metropolitan coordination at the governance level and in 2010 put in place a new metropolitan structure to provide a stronger framework through which to secure the next phase of transformation. A new strategic metropolitan plan, Barcelona Visió 2020, has been developed to guide future growth and development founded on an increased openness towards emerging markets.

Urban and metropolitan context Physical and political geography Geographically constrained on all sides – by the Mediterranean Sea to the south, by mountains to the north and west, and framed by two rivers – Barcelona has developed as a compact city with a tight network of narrow streets in the historic centre near the port and surrounded by a continuous grid of tree-lined streets and avenues stretching outwards towards the mountains and along the coast. Around 1.6 million people live in the municipal boundaries of City of Barcelona itself, an area of 102 square kilometres (63.4 square miles), with a population density of 16,000 inhabitants per square km (25,600 inhabitants per square mile), one of the densest in the EU (Idescat, 2009). The built-up urban area of Barcelona extends beyond the City of Barcelona (Ajuntament de Barcelona) and into the surrounding munici-

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palities of Baix Llobregat to the west, Vallès Occidental and Vallès Oriental to the north, and Maresme to the east as shown in Figure 3.1. This wider and interconnected urban area is the sixth largest urban area in Europe, comparable in population size to the Boston, Detroit or Phoenix metropolitan area in the United States (Demographia, 2010). In 2010 an important change was implemented on the metropolitan government structure level. The Catalan government redefined and formalised the boundaries of the Area Metropolitana de Barcelona (AMB, Barcelona Metropolitan Area), which includes growth nodes situated along major motorways, such as the cities of Mataró, Terrassa and Sabadell. The AMB encompasses an area of 3,240 square kilometres (2,010 square miles) with a population of 4,990,000 people (Idescat, 2009). The demarcation of the AMB is part of a new division of Catalonia into seven ‘vegueries’, rather than four larger ‘províncias’, one of which is the Province of Barcelona. The Province of Barcelona includes the Barcelona Metropolitan Area, but extends northwards to include most of the four central counties of Anoia, Bages, Osona and Berguedà. Given the relatively recent changes in metropolitan governance, comparatively few trend data are available at the level of either the metropolitan area or Metropolitan Region. In the remaining sections of this chapter, data are therefore presented at the regional, provincial or city (municipal) level, depending on the data available. Unless otherwise stated, data refer to the city level.

Economic history From 1980s onwards, Catalonia has been one of the most important economic regions in Spain, accounting for 18.7 per cent of Spanish gross value added (GVA) in 2007, slightly greater than Madrid’s contribution of 18.0 per cent. Productivity and employment rates in Catalonia were higher than national averages, and unemployment significantly lower. In turn, Barcelona Province remains the economic engine of Catalonia, accounting for 74.1 per cent of Catalonian GVA, but with a slightly higher unemployment rate and a slightly lower employment rate. Table 3.1 provides a summary of economic performance in 2007. Barcelona’s recent economic success is built on its historic location as a natural harbour and local industrial strength and resilience. The city has been a major Mediterranean port for over one thousand years and one of the first Spanish cities to industrialise, earning it the title of ‘Manchester of the South’, which drove economic development and population expansion throughout the nineteenth century. Building on this reputation, Barcelona hosted a series of major trade fairs in the early twentieth century, including the 1929 International Exhibition, which attracted manufacturers and wholesalers to Barcelona, promoting further economic growth and international trade.

BARCELONA

35

Table 3.1 Barcelona’s economic performance – key indicators for 2007 Barcelona Province

Catalonia

Spain

GVA (2000 prices)

€99,162 m (74.1% of Catalonia’s)

€133,775 m (18.7% of Spain’s)

€716,630 m

GVA per worker (2000 prices)

€36,244

€36,201

€34,742

Employment rate

74.2%

75.8 %

67.4 %

Unemployment rate

6.6%

6.5 %

8.3 %

Population

5.332 m (75.3% of Catalonia’s)

7.085 m (15.9% of Spain’s)

44.475 m

Source: Cambridge Econometrics (2010) and Idescat (online)

The city’s growth, however, was stunted by the Spanish Civil War of 1936–39, which deeply damaged its economic, political and social stability, and by the repressive rule of General Franco and his economic policies of self-sufficiency. The Spanish economy only returned to growth in the 1950s as a result of the new policies imposed on the regime as a result of the Second World War. After Spain opened up in 1959, Barcelona enjoyed fifteen years of strong growth, often referred to as the period of ‘economic miracle’. The city attracted inward migration from rural areas and industry expanded beyond the inner city. This growth was supported by little public investment or planning, as a result of Franco’s anti-urban (especially antiBarcelona) policies, putting pressure on the urban infrastructure and housing of Barcelona and its surroundings.

Problems and opportunities Although Franco’s death in 1975 brought an end to his dictatorship and marked the beginning of democracy in Spain, it also signalled the beginning of an economic crisis in Barcelona which compounded Franco’s legacy of economic isolation and underinvestment. The city deindustrialised rapidly, suffering from the effects of two oil crises and uncertainty caused by the political transition. Between 1970 and 1985, 25 per cent of jobs, mainly in industry and construction, were lost (Pareja-Eastway et al., 2008) and by 1986 unemployment had reached 21.4 per cent and many parts of the city became derelict, with a negative impact on local living standards and civic pride, contributing to the city’s poor international image (OECD, 2009). During the mid-1980s, as the Spanish economy opened up to Europe and the rest of the world, opportunities also became available for Barcelona to capitalise on its strategic geographical position in Europe and to secure its economic renaissance. Spain’s entry into the EU in 1986 and the creation of the European Single Market in 1993 represented critical moments for Barcelona, bringing increased opportunities for inward investment and internationalisation. The awarding of the 1992 Olympic

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Games to Barcelona in 1986 placed a spotlight on the city and provided an opportunity to kick-start its international re-emergence, building on initiatives to renew Barcelona’s public spaces in the early 1980s. In the aftermath of Franco’s dictatorship Barcelona benefited from a unique set of political conditions which provided an important base for its future transformations. First, there was a clear political mandate for change which constituted a rather unique level of ‘social capital’ (Garcia-Ramon and Albet, 2000: 1333). Second, Catalonia returned to political autonomy, bringing with it the freedom to develop its own economic plans and policies for the first time in decades, and the opportunity to correct the economic neglect of local productive capacity.

FRANCE Perpignan

high-speed rail link to France (planned)

CATALONIA

Vallès science and technology cluster

SPAIN Lleida

Sabadell Barcelona-Madrid high-speed rail link

Terrassa

Mataró

City of Barcelona 22@Barcelona innovation district

Reus Tarragona

Llobregat logistics cluster

50 km 100 km SWITZER-

regional boundary

FRANCE

LAND SW I TZ ERLAND

FRANCE

metropolitan boundary district boundary airport port

CATALONIA

Barcelona S PA I N PORTUGAL

motorways ALGERIA

intercity rail

Figure 3.1 Barcelona and its Metropolitan Region, Catalonia, Spain Source: European Environment Agency (online); EUROSTAT (online)

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ITALY ITALY

Policies, programmes and projects Approach Barcelona’s leaders recognised early on the problems and opportunities they faced, responding with a series of strategic plans which established economic development goals for the region. Developed during the 1990s and 2000s, these plans provided a wide range of actors with a common vision around which individual initiatives could be pursued, establishing an effective public–private consortium model that has become associated with Barcelona’s political and economic renaissance. A significant example of this approach is the way Barcelona’s infrastructure deficit was addressed through sustained investment in the port, airport, rail and road networks which have strategically strengthened its international competitiveness and connectivity, repositioning it in Europe and the rest of the world. The city’s international reputation was further consolidated by the 1992 Olympic Games and structural transformations which accompanied them – including a new ring-road, sports and residential facilities and an enhanced digital infrastructure network. This reputation has been effectively leveraged by new agencies to attract international investment, entrepreneurs and tourists, and more recently to promote priority growth sectors such as logistics, biomedicine and design. In addition, the urban and metropolitan fabric of Barcelona has been redeveloped to attract new high-tech and knowledge-intensive industries. The new land developments have been promoted through the Barcelona brand in an increasingly strategic and metropolitan way through the Barcelona Economic Triangle. New agencies, such as the city-development agency Barcelona Activa and the Catalan internationalisation agency COPCA (rebranded as the Catalan innovation and internationalisation agency ACC1Ó), as well as the independent representative body for Barcelona businesses, the Cambra de Comerç de Barcelona (Barcelona Chamber of Commerce), have developed programmes to support firms and entrepreneurs in setting up and growing their businesses and in increasing their operations internationally.

Institutional framework and governance We have had political leadership of high quality for many years. The generation which is between 60 and 70 [years old] today has been extraordinary. (Albert Carreras, Professor in Economic and Business History, Universitat Pompeu Fabra)

38 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

There is a culture of cooperation . . . there are many synergies linked to informal cooperation, in the strategic plan and other platforms of that sort. (Joan Trullén, Director, Barcelona Institute of Regional and Metropolitan Studies) The story of Barcelona’s transformation is one which has been determined by its mayors and the actions of the municipal authority. It was the first democratically elected Mayor of Barcelona in the post-Franco era, Narcís Serra, who took the decision to run for the 1992 Olympic Games, kick-starting Barcelona’s transformation and reconfiguring ideas about the city. In 1982, Serra became a Minister of the Spanish government, from where he played an important role in securing support for the Barcelona Olympic Games. His successor in the mayoral post, Pasqual Maragall, continued in the direction provided by Serra’s leadership by developing a vision of Barcelona as the capital of the Mediterranean. Maragall recognised the need for longterm planning as well as the need to realise individual projects, and initiated the first strategic planning process in Barcelona in 1988 in order to ensure the Olympic projects were linked to longer-term initiatives and goals. These processes were continued by the next Mayor, Joan Clos, who continued to implement Serra and Maragall’s vision and took it further by investing in Barcelona as a ‘City of Knowledge’. As noted above, although Barcelona extends beyond the municipal boundaries of the City of Barcelona, governance of the immediate urbanised area and the broader Metropolitan Region has been fragmented since 1987, when the Corporación Metropolitana de Barcelona (Barcelona Metropolitan Corporation, CMB) was abolished by the Government of Catalonia. This decision resulted from tensions between an increasingly powerful (socialist) Barcelona and (Catalan nationalist) Catalonia, which escalated in 1986 when the 1992 Olympic Games were awarded to Barcelona. Although new metropolitan bodies were created for transport, environment and urban services, each one had different boundaries and did not extend beyond the urbanised area of Barcelona into the wider Metropolitan Region, while responsibility for metropolitan planning was retained by the Government of Catalonia. In the absence of coherent metropolitan governance, the Government of Catalonia has played an important role in the transformation of the City of Barcelona. As well as developing territorial plans for the Metropolitan Region, the Government of Catalonia’s land development institute, Incasòl, has been a key actor in the transformation of land for new high-tech and knowledge-intensive clusters. The economic policies of the regional government have also been influential in Barcelona, especially in relation to internationalisation and innovation. How can Barcelona’s successful transformation be explained in the context of such fragmented metropolitan governance arrangements? The role played by its mayors and the city municipality has certainly been an important factor. A second factor has been the willingness and capacity of different state actors to work collaboratively on strategic projects, both vertically (by combining different levels of

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government – municipal, regional, national) and horizontally (by combining different departments or organisations within the same tier of government). This has been effective in bringing the relevant parts of municipal, regional and national government together in one body, resolving disagreements and avoiding problems of poor coordination. We sit down at a table, we create an agreement, we create an organisation and then, when it has matured, it becomes a consortium. (Mateu Hernández, CEO, Economic Promotion, City of Barcelona, and Vice President, Barcelona Activa) The consortium model referred to above has been used frequently in Barcelona, not only to bring the relevant public agencies together, but also to involve key private sector actors. The involvement of the private sector in Barcelona’s transformation was a critical achievement of the Olympic Games and the strategic planning process first initiated in the late 1980s (Santacana, 2000). This has been important in mobilising Barcelona’s entrepreneurial business community to drive the development of the city and broader region together with state actors. The Strategic Plan Association, formed in 1988, was made up of both public and private representatives, such as the Barcelona Chamber of Commerce, the Port of Barcelona Authority and the University of Barcelona, in addition to the municipal authorities which made up the Barcelona Metropolitan Area (Santacana, 2000). The Strategic Plan Association also engaged with Barcelona’s technical specialists and university professors, further broadening its reach. Many relevant people participated [in the first Strategic Plan], from many different political parties, organisations, universities . . . it was important that there was a strong base. (Francesc Santacana, General Coordinator, Barcelona Strategic Metropolitan Plan) The importance of the Plan was not the plan itself but the process of putting all the relevant actors and interests together. (Joan Trullén, Director, Barcelona Institute of Regional and Metropolitan Studies) Although the Strategic Plan Association remained non-statutory, its participatory and collaborative approach meant that it was still able to achieve results: four years after the first strategic plan had been approved in 1990, 70 per cent of the measures it had identified were in an advanced or intermediate stage of implementation (Santacana, 2000). The shared vision and the links developed through the strategic planning processes and the plans that arose from them in 1990, 1994, 1999, 2003, 2007, and most recently in November 2010 (with the new metropolitan strategic plan, Barcelona Visió 2020), enabled Barcelona’s transformation to be pursued through many different initiatives and by many different actors in an ambitious and experimental manner.

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The way in which the networked coordination underpinning Barcelona’s strategic planning processes has worked successfully is the case of the Port of Barcelona Authority: I form part of the Strategic Metropolitan Plan for Barcelona . . . I go to all the meetings, we are very active in the design of the strategy for the city and metropolitan area . . . We try to align as much as possible the strategies of the port with those of the city, and vice versa . . . Our activities in this area are very collaborative and participative. (Santiago Garcia–Milà Lloveras, Representative, Port of Barcelona Authority) The consortium model (in Catalan, Societats Anònimes, or SA) was re-introduced to Barcelona by Mayor Pasqual Maragall in order to deliver the ambitious infrastructure projects that accompanied the Olympic preparations. The SA model allowed the shortterm creation of specialist and talented teams (rather than a permanent and inflexible bureaucracy) and combined state control with private-sector flexibility and financial freedom (Rowe, 2006). While SAs tend to start out as publically owned municipal societies, as they attract private capital over time, they are able to become public– private partnerships (PPPs). This model therefore permits the public sector to retain control over planning and regulation in the early phases of the project, while still attracting private capital and benefiting from a more flexible model (Casellas, 2006). Collaboration between public and private sectors continued beyond the Olympic Games and strategic planning processes. The consortium model has been used effectively to deliver key programmes and projects at both the city and regional levels. Key agencies have included Barcelona Activa (the local development agency set up in 1986 by the City of Barcelona municipal authority), COPCA (the internationalisation agency set up in 1987 by the Government of Catalonia), as well as the many consortia set up to re-develop Barcelona’s metropolitan fabric for high-tech and knowledge-intensive industries, such as 22@Barcelona. By initiating these processes and governance arrangements, Maragall was able to transfer a sense of leadership and participation in the city’s transformation to a broad range of actors in ‘a major psychological transformation . . . an ambitious project in which everyone took part’ (Raventos, 2000: 10). Thus, while Barcelona’s strategic plans have been helpful in bringing actors together around a common vision for the future, in practice interventions have been pursued in an experimental and flexible fashion by a wide range of bodies in both private and public sectors.

Interventions An overarching vision for the future of Barcelona was developed through the strategic planning processes of the 1990s. Although the overarching objectives changed slightly over the years, they continued to emphasise the need for Barcelona to occupy

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Barcelona

Figure 3.2 Barcelona in the context of the European macro-region Source: Adapted from Ajuntament de Barcelona (1990: 38)

Hamburg

IRELAND UK

London

NETHERLANDS

POLAND

Rotterdam

BELGIUM GERMANY

AUSTRIA

SWITZERLAND

Toulouse Bilbao Madrid

Primary link Secondary link

CZECH REP.

LUX.

FRANCE

Intermodal and distribution centres

SLOVENIA CROATIA BOSNIA & HERZEGOVINA ITALY

Barcelona

PORTUGAL

Lisbon

SPAIN

Algiers

Atlantic Route

Casablanca

ALGERIA

Oriental Route

TUNISIA

MOROCCO

Figure 3.3 Barcelona’s Connectivity in the wider European and Mediterranean context Source: Adapted from Port de Barcelona (1998: 32)

a strong strategic role in the Mediterranean region of Europe (Figure 3.2 and Figure 3.3) and in the globalising economy. From the late 1990s, the idea of Barcelona as a ‘City of Knowledge’ emerged, and efforts were increasingly targeted towards developing Barcelona’s strength in knowledge-intensive industries such as media, design, logistics, biotechnology, aerospace and energy. These ideas remain prominent to this day, appearing as strong themes within the latest strategic plan, Barcelona Visió 2020, alongside an increasing emphasis on orientation towards the emerging economies that are likely to provide sources of growth in the future, especially those with which Barcelona has a geographic or cultural connection, including North Africa and Latin America. In order to better understand how Barcelona was able to transform its economy over a twenty-year period the chapter will now illustrate a number of initiatives,

42 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

undertaken at different levels of government in concert with the private sector in the last decade of the twentieth century and first decade of the twenty-first across many sectors, which fall into the following categories: • • • •

sustained and strategic investment in connectivity infrastructure; international promotion and branding to attract foreign investors, entrepreneurs and tourists; redevelopment of metropolitan and urban fabric for the knowledge economy; developing entrepreneurialism and exports through targeted programmes.

Sustained and strategic investment in connectivity infrastructure There has been a very important appreciation of the value of the port, airport, road infrastructure and rail infrastructure, which certainly gives a powerful base for the whole economy. (Joan Ramon Rovira Homs, Head of Economic Studies, Barcelona Chamber of Commerce) The development of connectivity infrastructure has been a fundamental part of Barcelona’s transformation since the late 1980s. Successive strategic plans have continually emphasised the importance of investing in the city’s port, airport, roads and rail network in order to increase the capacity of its firms to compete in international markets, and to secure Barcelona’s international position. This investment has been increasingly linked to the development of advanced economic services and industries in the Metropolitan Region, such as logistics and biomedicine. Many of the most significant investments date back to the Convention for Cooperation in Infrastructures and Environment in the Llobregat Delta (Plan Delta), which was approved by national, regional and local public authorities in 1994. The aim of Plan Delta was to develop Llobregat, to the west of the city centre, as the principal port and logistics hub of southern Europe, by expanding capacity, creating a logistical platform, and strengthening intermodal connections. Plan Delta was based on a 5km diversion of the Llobregat River in order to provide the space to extend the port and create separate areas for cruise ships, commercial cargo and logistics. When completed, the Plan Delta redevelopments will enable the Port of Barcelona to double in size to 1,300 hectares (5 square miles), with an estimated economic impact on the Catalan economy equivalent to 1.7 per cent of gross domestic product (GDP). The total income generated by the enlargement is estimated to be €1.724 billion (Port de Barcelona, 2008). The plan also envisages an expansion of the airport, including a new terminal, maintenance and cargo areas, services and facilities that will increase the annual capacity of Barcelona airport to 70 million passengers. Furthermore, there are plans for improved road and railway connections, including a new motorway and internal

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The Port of Barcelona Source: Port de Barcelona/Óscar Ferrer

rail terminals that will improve connectivity, a key factor in the success of Barcelona’s logistic cluster, now the largest in southern Europe. Llobregat is one of the three areas that make up the Barcelona Economic Triangle (see Figure 3.4) and since the 1994 Plan Delta has become the focus of aerospace, biotech, mobility, food sciences and optics industries. Further investments in infrastructure have also been pursued, notably in high-speed rail connections to Madrid and France, and a new metro line, which, when complete, will be one of the most extensive subterranean lines in Europe. Together, these investments have contributed to significant increases in the capacity and competitiveness of Barcelona’s connectivity infrastructure. The investment in Barcelona’s port, airport and high-speed rail connections are considered in more detail below.

The development of the Port of Barcelona The port enlargement envisaged by Plan Delta was started in 2001 and the diversion of the Llobragzt river was completed in 2004. The first new wharf is under construction, and the contract to operate its container port has been awarded. Phase

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One of the logistics area (ZAL, 66.5 hectares or 0.26 square miles) is now fully occupied by logistics and distribution firms, and will grow to 260 hectares (1 square mile). The upgrading of the Port of Barcelona has been financed through a combination of private sector investment, EU funding, and the Port of Barcelona Authority’s own resources. In relation to the 1997–2011 Port masterplan, 60 per cent of the total investment of €3.5 billion was funded by private investment with the remaining 30 per cent financed through public capital (Port de Barcelona, 2008). Non-incomegenerating infrastructure is financed through the European Cohesion Fund, which is financing 53 per cent of the sea defence works (up to a maximum of €277 million), and through the Port’s own annual cash flow and bank loans, including €250 million from the European Investment Bank. Commercial wharves are being financed through a mixture of private and public capital, with the private-sector operators receiving concessions in return for investing in new infrastructure. Given the strong links between Barcelona and Chinese markets, a major Hong Kong terminal operator has recently become a major new concessioner, investing heavily in the port’s infrastructure (Interview, Representative of the Port of Barcelona, 2010). During the 2000s, the Port of Barcelona Authority sought to strengthen its strategic position by building a network of inland maritime terminals in Spain, France and other parts of Europe and the Mediterranean (Figure 3.3). These terminals provide multimodal and integrated services to importers and exporters using the Port of Barcelona, in addition to the logistical services offered in Barcelona. Services are already operational in Zaragoza, Madrid, Toulouse (France), Perpignan (France) and Tanger-Med (a cargo port near Tangier, Morocco), with further terminals planned in Lyon, Bordeaux and southern Germany (Port de Barcelona, 2008). The aim of these investments is to provide advanced logistics and distribution services to Catalonia’s firms and businesses, allowing them to import and export goods more efficiently by using the services provided by the Port of Barcelona through their global routes and inland networks, significantly affecting their ability to compete internationally, especially with the better-established ports of northern Europe such as Rotterdam and Hamburg. Currently, only 24 per cent of goods coming from Asia through the Suez Canal to Europe arrive in southern Europe, even though it takes three days longer to sail to northern European ports. As the Port of Barcelona has already captured 35 per cent of traffic between Spain and Asia (38 per cent in the case of traffic between Spain and China), it is in a strong position to capture more of this market and become ‘the gateway into southern Europe for Asian traffic’ (Port de Barcelona, 2008: 3). Barcelona will, however, face competition from other Mediterranean ports as it seeks to expand its market share, and will need to continue to invest in infrastructure and remain competitive on cost if it is to stay ahead.

The expansion of the Barcelona El Prat airport Just three kilometres from the port, Barcelona El Prat airport plays an important role in connecting with the area’s distribution and logistics operations as well as

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promoting Barcelona’s attractiveness to tourists and businesses. In addition to the two new passenger terminals that had been delivered alongside the 1992 Olympics, a new air-freight facility began operations in 1996. Shortly afterwards, in 1999 the new El Prat masterplan was approved by the Spanish government, which proposed a new runway and further terminal expansions; these plans were subsequently realised throughout the 2000s. Most recently, a new terminal opened in 2009 with a capacity of 30 million passengers annually – broadly equivalent to the total number of passengers travelling through the other three airport terminals in the previous year (onVuelos.com, 2009). Together, these improvements have already increased the area of the airport from 8.45 km2 to 15.33 km2 (from 3.26 square miles to 5.92) and, when complete, will increase Barcelona’s annual capacity to 70 million passengers (airporttechnology.com). In 2009, El Prat airport was the tenth busiest airport in Europe, with 27.3 million passengers (Airports Council International, 2010). Barcelona’s ambition and confidence in its future can be seen by the decision of a group of public and private investors to purchase the Spanish airline Spanair. In 2008, the Scandinavian-owned Spanair was in a precarious financial position. When a planned merger with Iberia collapsed, it struggled to find alternative investors, until a group of Barcelona investors came forward and acquired a majority share in the company. This group included private investors (such as the venture-capital company Catalana d’Iniciatives, and entrepreneurs from the Catalonian hotel and tourism sector) as well as public–private investors (such as the Barcelona Tourism Consortium and Fira de Barcelona), which together formed a new company, IEASA (Aeronautic Business Initiatives) (Ajuntament de Barcelona, 2009a). For Jordi Hereu, Mayor of Barcelona from 2006 to 2011, the purchase of Spanair represented ‘a strategy for the airport’s future and the interests of Barcelona, the surrounding metropolitan area, and the whole of Catalonia and Spain’ (ibid.). The public sector was crucial in enabling this strategic investment to take place, demonstrating the flexibility and willingness of Barcelona’s public and private sectors to work together in innovative ways.

The introduction of high-speed rail Connecting in two and a half hours to Lyon and to Geneva is a tremendous attraction, which, added to the pleasant climate, environment and tourism of the city, makes Barcelona into a tremendously attractive city for talent, entrepreneurs and innovators. This is a strategy that we are promoting now, to be an attractive city for international talent – come here to create your company, to do your business, to do research, or to work for others. (Mateu Hernández, CEO, Economic Promotion, City of Barcelona, and Vice President, Barcelona Activa) High-speed rail is seen as a critical element in establishing Barcelona’s position as the capital of the Mediterranean and an internationally competitive economic centre.

46 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

The high-speed rail link to Madrid has been in operation since 2008, cutting travel time between the two cities to just 2 hours and 38 minutes. The forthcoming link to the French high-speed rail network will bring several south-western European cities within four hours of Barcelona, such as Lyon, Marseille and Bordeaux in France, Genoa in Italy and Geneva in Switzerland. The high-speed line between Madrid and Barcelona is one of Europe’s fastest long-distance trains in commercial operation, covering 621 km (386 miles) non-stop in 2 hours 38 minutes at speeds of up to 300 km per hour (190 miles per hour) (European Union Cohesion Policy). At least 10,000 people take this line every day (ibid.). A total of 2.3 million passengers used the high-speed train in its first year of operation (Ajuntament de Barcelona, 2009b). The total cost of delivering the line between Madrid, Barcelona and the French border is €10.5 billion, of which €3.5 billion was supplied by the EU, mainly via the EU Cohesion Fund (European Union Cohesion Policy). The cost of developing two new stations within Barcelona at Sant Andreu and La Sagrera is an estimated €2 billion (Barcelona Sagrera Alta Velocidad, 2009). A public trading company, Barcelona Sagrera Alta Velocidad (Barcelona Sagrera High Speed), was formed in 2003 by the Government of Catalonia (25 per cent share), the City of Barcelona municipal authority (25 per cent) and the Spanish train and network operators, ADIF (37.5 per cent) and RENFE (12.5 per cent), once again making effective use of the consortium model to integrate different levels of government and other critical actors (ibid.). The new multi-modal station, La Sagrera, is being built to the east of Barcelona to support a forecast annual traffic of over 100 million passengers. Here, the highspeed rail will connect with upgraded local train networks, metro and bus services, and with new road infrastructure. The accessibility and connectivity provided by La Sagrera and the high-speed rail links to the eastern part of the city will provide significant competitive advantages to Barcelona. These new connections are one of the major attractions of the new 22@Barcelona innovation district under development close to La Sagrera. By linking investment in high-speed rail to investment in metropolitan transport infrastructure, it is expected that the benefits of high-speed rail will be realised throughout the Metropolitan Region, as well as in the immediate area of the highspeed rail stations themselves. The Government of Catalonia is investing €6.5 billion in a new metro line (Line 9/10) for Barcelona, for example, which will be the largest subterranean line in Europe when completed, at 47.8 km with 43.7 km underground section (Generalitat de Catalunya). It will connect key strategic economic sites in Barcelona, such as the airport, port and La Sagrera station, providing extra capacity and frequency of service in densely populated central areas of Barcelona, as well as greater connectivity for less densely populated areas in the Metropolitan Region. Although the project will not be completed until 2014, stations are opening already, providing phased improvements in metropolitan transport to Barcelona.

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International promotion and branding For Barcelona, international promotion over the past twenty-five years has been about much more than tourism. Barcelona was one of the first cities to recognise the important association between an appealing international image and its economic future. In the aftermath of the Franco dictatorship, there was an urgent need to convince international investors that Barcelona was functioning effectively and represented an attractive and sound investment option. Hosting the 1992 Olympic Games provided the ideal opportunity to do so, and became the means through which much-needed private investment could be attracted into Barcelona. The transformation of Barcelona’s public spaces and the reclamation of its waterfront were particularly important in rebuilding its international reputation by visibly transforming the city. The urban development programme ‘Barcelona posa’t guapa!’ (Barcelona, look beautiful!) in the early 1980s was small scale but effective in visibly demonstrating change and building confidence. When someone makes themselves look beautiful, it’s because they have selfesteem. It was a collective exercise in self-esteem. (Maria Buhigas, Chief of the Urban Strategy Department, Barcelona Regional) A sense of empathy from citizens towards the administration was recovered, even though these interventions were really very small. This created tremendous leadership, a leadership that was consolidated with the Olympic project and Mayor Maragall, opening up a tremendously ambitious vision of the city. (Mateu Hernández, CEO, Economic Promotion, City of Barcelona, and Vice President, Barcelona Activa) The larger urban reconfigurations that followed this initial stage, pursued alongside the Olympic Games, enabled Barcelona’s architectural, historical and cultural assets to be reconnected with its natural assets, creating a more attractive city for residents and visitors. The regeneration of the waterfront and reclamation of 4.5 km of beach transformed Barcelona’s international profile and became a symbol of its new openness and dynamism. Public resources were targeted towards legacy projects that would benefit the city in the long term, minimising the short-term costs associated with hosting the Olympic Games themselves. In total, 68 per cent of Olympic funding went to longterm construction projects, compared to the 9.1 per cent that went to the construction of sports facilities (Brunet, 2005). The benefit of the Games was felt throughout the metropolitan area and region, as only 38.5 per cent of the total investment went to the City of Barcelona (Brunet, 2005). Public investment was used to attract further private investment, and was particularly successful in delivering housing, hotels and business centres. Overall, 36.8 per cent of the Olympic construction was funded by the private sector, one third of which was funded by foreign capital.

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This investment was not only enabled by the international promotional effect of the Olympic Games, but also magnified the longer-term promotional impact of the Games. Private investment provided new resources for Barcelona, which contributed to the reputational boost experienced by the city during the Games and enabled it to support further growth and transformation, through for example a 15 per cent increase in road infrastructure on 1986 levels; a 78 per cent increase in green areas and beaches on 1986 levels; and a 35 per cent increase in hotel beds between 1990 and 1992 (Duran, 2005; Brunet, 2005). A joint venture was set up between the Spanish Government and the City of Barcelona municipal authority called Barcelona Holding Olímpic S.A., which delivered the Olympic facilities, the Olympic village and the majority of the new road infrastructure (Brunet, 2005). This consortium model was effectively used throughout the 1990s and 2000s to bring different levels of government together with private-sector actors, building on the effective way in which it was used for the Olympic preparations. Various new consortia were created to promote Barcelona in different economic spheres. Each of these bodies developed their own strategies and delivered specific programmes of initiatives, linked to the overarching objectives of internationalisation and the development of a knowledge economy. These organisations have brought together international promotion and branding with concrete actions to support the development of their target sectors. The Barcelona Tourism consortium was created in 1993, bringing together the City of Barcelona municipal authority and the Chamber of Commerce to develop a promotional programme for the city. Over time, its role evolved from general tourism promotion to targeting different market segments and specific interest groups (Duran, 2005). Fira de Barcelona, a publicly owned trade-fair body with an autonomous management, boosted Barcelona’s profile as a business destination by expanding its activities and developing the city’s conference facilities and infrastructure. Strategic platforms have also been created to attract foreign entrepreneurs, researchers and investors, notably Invest in Catalonia, the international promotion body of the Government of Catalonia and ‘Do it in Barcelona’, the promotional platform of Barcelona Activa. Public–private consortia have been set up to use the Barcelona brand to promote strategic sectors within the knowledge economy internationally, as well as to engage in a range of other activities to support the development of the various sectors. For example: •

•

The Barcelona Aeronautics and Space consortium coordinates the presence of Catalan aerospace companies at the International Paris Air Show Le Bourget, represents Catalan aerospace companies in European and other forums, and collaborates with other European aerospace clusters. The Barcelona Logistics Centre attends and presents at major international trade fairs such as Transport Logistics-Munich, TEC Milan and SITLChina,

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•

•

promotes the interests of the Barcelona and Catalonia logistics centre in relation to transport infrastructure, including working to secure train gauge connections to continental Europe, and undertakes commercial missions together with other important actors such as COPCA and the City of Barcelona municipal authority. The Barcelona Medical Centre promotes and develops agreements with key emerging foreign markets for medical tourism, such as Russia, Egypt, the Persian Gulf and the Maghreb region, and facilitates access of international medical tourists to Barcelona’s medical services, for example through an online portal. The Barcelona Design Centre promotes Barcelona as the capital of design by participating in international events, and by hosting Barcelona Design Week (Ajuntament de Barcelona).

According to the OECD, the Barcelona brand is ‘universally accepted and promoted by all the key organisations and is clearly a unifying message’ (2009: 40). Thus, as well as attracting tourists, businesses and investors, the Barcelona brand can be considered to have a mobilising effect within Barcelona itself. The Barcelona brand is what unifies all the municipalities, and they know it . . . The Government of Catalonia [thinks], ‘what sells more abroad, Catalonia or Barcelona?’. A more nationalistic Government would have put the emphasis on Catalonia . . . but now they are more rational and say, ‘Barcelona, the brand of Catalonia’. And now we have a new agency . . . ‘Barcelona World’, which is the brand for the whole metropolitan area. (Francesc Santacana, General Coordinator, Barcelona Strategic Metropolitan Plan) The unifying and mobilising effect of the Barcelona brand is beginning to be leveraged over a much larger geographical area, as competition between Barcelona and Catalonia is set aside in favour of the mutual benefits that stem from collaboration. The next section explores how the Barcelona brand is being used to develop and sell land throughout the Metropolitan Region under one banner, whether the developments stem from the Government of Catalonia or the City of Barcelona municipal authority. These governance developments provide a taste of the potential benefits to be realised by the AMB.

The redevelopment of metropolitan and urban fabric for the knowledge economy The redevelopment of Barcelona’s metropolitan and urban fabric has played a fundamental role in developing a knowledge-intensive economy in and around Barcelona. Building on small-scale projects that aimed to improve public space in the 1980s, the City of Barcelona municipal authority and the Government of Catalonia progressively increased the scale and ambition of transformation projects throughout the 1990s and 2000s.

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At the time of writing, some of the most significant projects were explicitly linked together and promoted through the platform Barcelona-Catalonia n.d.: the Mediterranean innovation hub (Figure 3.4). Together, these projects represent Barcelona’s ambitions to become an international centre for innovation, the leading Mediterranean logistics hub, and a European centre of excellence for science and technology. In total, the Barcelona Economic Triangle encompasses 7 million square metres (over 75 million square feet) of land for knowledge-intensive activities, with the potential to generate more than 200,000 new jobs (Barcelona-Catalonia n.d.). It is formed of three sets of clusters, each specialising in different aspects of the knowledge economy: •

•

Besòs: including the innovation cluster 22@Barcelona Innovation District, the new station connecting to the European high-speed rail network (La Sagrera), and the energy, water and mobility cluster (Diagonal-Besòs Campus). Llobregat: including Delta BCN, the development of the port, airport, rail and logistics hub, as well as four business parks focussing on aerospace, biotech, mobility, food sciences and optics.

Parc de l’Alba

22@ Barcelona

DeltaBCN

Figure 3.4 The Barcelona Economic Triangle Source: LSE Cities

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•

Vallès: a series of science and technology clusters, including the energy cluster Parc de l’Alba, centred around the ALBA Synchrotron Light Source, a newgeneration synchrotron (electron accelerator) inaugurated in 2010 that is the largest scientific installation in Spain.

The Barcelona Economic Triangle is used by the Government of Catalonia and individual municipalities to attract international investment and foreign entrepreneurs to these new cluster developments through a common brand and promotional platform. One marketing image is created, which unifies the activity of the regional government and local governments, as well as the relevant agencies, and which presents one product, the Barcelona Economic Triangle . . . in order to promote Catalonia through Barcelona. (Pere Picorelli, Regional Planner, Remodelaciones Urbanes S.A., subsidiary of Incasòl) Although these strategic cluster projects are now branded together, each has their own delivery mechanism – a consortium which brings together the relevant private and public actors. For example b_Tec, the consortium set up to design, organise and manage the energy, water and mobility cluster Diagonal-Besòs Campus, includes the University of Barcelona, the Technical University of Catalonia, the Barcelona Chamber of Commerce, and the municipalities of Barcelona and the neighbouring Sant Adrià de Besòs, among others, reflecting the cluster’s focus on innovation and knowledge transfer between universities, research centres and private enterprise. In addition, the Government of Catalonia’s land development institute, Incasòl, has been a key actor in industrial land development since its creation in 1980, increasingly focusing over the last ten to fifteen years on the initiation and delivery of high-tech and knowledge-intensive clusters. Its effectiveness stems from its close proximity to the regional government and its strategic objectives reflect the policies of the Government of Catalonia, to which it is accountable, including a commitment to innovation, knowledge and technological development and to territorially balanced growth. Incasòl is also able to promote quicker land re-classifications, whose profits it is then able to reinvest in public goods, such as public housing. This is a particularly powerful mechanism because Spanish law does not recognise the speculative value of land, just the current market value, in relation to land development projects linked to public interest requiring compulsory purchases of land. Incasòl, therefore, as any other public administration with land development powers, only has to reimburse the landholder for the actual value, not its expected change in value (interview with Pere Picorelli, Remodelaciones Urbanes S.A., 2010). This is important because it means that Incasòl can then take advantage of the full uplift in land values to fund public goods such as infrastructure improvements and public housing. Although all cluster projects within the Barcelona Economic Triangle warrant further attention, the chapter now focuses on the redevelopment of the former

52 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

industrial district of Poblenou in the east of Barcelona into the 22@Barcelona Innovation District as an exemplar of the city’s forward-looking planning policy which is beginning to pay dividends in relation to the local economy. Poblenou, an area to the east of the City of Barcelona and close to the sea, had been a thriving textile area since the eighteenth century, developing into a cargo break centre in the 1970s as factories began to move out of the area. In the 1980s, deindustrialisation and abandonment accelerated, and the area became cut off from the rest of the city by railway tracks. The possibility of reversing the process of decline emerged following the regeneration of the waterfront and beaches and the opening up of the city to the sea in the 1990s. The 22@BCN initiative was created in 2000 by the City of Barcelona municipal authorities to enable the process through a series of investments in infrastructure and a radical upgrading of its development potential. The plans made the most of Poblenou’s compact urban structure, allowing new residential and office/production facilities to be located side by side in a new, wellconnected neighbourhood that services the needs of the knowledge-based economy and proves attractive to investors and occupiers alike. The planned development of the nearby La Sagrera high-speed station was an added bonus for 22@Barcelona which, despite recent hiccoughs, is seen as an important stepping stone in Barcelona’s transformation towards a knowledge-intensive economy, based on five strategic sectors: ITC, media, biotechnology, energy and design. With 3.2 million square metres (1.24 million square miles) of land available for high-tech production facilities, 0.8 million square metres (0.31 million square miles) for housing, infrastructure and other uses and an estimated 150,000 new jobs to be created, 22@Barcelona has considerable potential not only as an innovation cluster and business incubator for knowledge-based industries, but also for its spillover effect on other industries and activities in the region. To achieve its goals, 22@Barcelona has pioneered new planning policies that allow greater density of development and a new range of permitted activities, which have been effectively leveraged to allow infrastructure improvements to be almost entirely privately financed. The new land-use classifications are 22@ (from which the district takes its name) and 7@. 22@ includes all those activities whose primary productive resource is knowledge (such as research, biological sciences, design, engineering, building, culture and media) and the 7@ includes all activities which support knowledge transmission and innovation (e.g. universities and research centres). Any development must include 20 per cent of 22@ activities and 10 per cent of the overall neighbourhood has been reserved for 7@ activities (Ajuntament de Barcelona, 2010). By allowing higher densities to be built, land values have risen significantly, incentivising development of new complexes geared towards knowledge-intensive uses. This mechanism has attracted significant private investment and, as a result, the city has been able to afford a €180 million infrastructure investment plan for new fibre-optic networks and a centralised heating system, effectively paid for from the private sector.

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The plan has made the land so attractive that private developers have bought the land, transformed it, and sold it as offices . . . For most of the district redevelopment, there hasn’t been a need for [public] expenditure in order to transform it block by block – in a few cases, yes, because some of the universities and public facilities have arrived, but many companies located themselves in 22@ district through the private sector, such as Mediapro, one of the major audiovisual companies in Spain, that developed its own HQ building in 22@. (Pere Picorelli, Regional Planner, Remodelaciones Urbanes S.A., subsidiary of Incasòl) As well as ensuring a mix of productive uses, housing and infrastructure networks, 22@Barcelona includes the following clusters and networks to support the development of its priority knowledge-based sectors: •

•

•

•

•

Clúster Media: includes a 60,000m2 (646,000 square feet) media park, a university campus specialising in communications (Universidad Pompeu Fabra), Centro de Innovación Barcelona Media, and the new buildings Media-TIC (bringing together media and information and communication technologies (ICT) firms) and Imagina (specialising in audio-visual production). Clúster TIC: includes the new ICT technology centre Centro Technológico TIC Barcelona Digital, the exhibition and experimentation space, la Casa de las TIC (the Home of ICT), specific spaces for SMEs in the ICT sector, and 22@ Living Lab (a network of ICT labs including London, Amsterdam, Helsinki, etc.). Clúster TecMed: includes office and laboratory space for new businesses, alongside new research and technology transfer, in collaboration with key organisations in the bio-medicine field in Barcelona and Catalonia. Clúster Energia: includes the European Fusion Agency, the Catalonian Institute for Energy Research, and the 60,000m2 (646,000 square feet) Barcelona Business and Technology Campus, including engineering campuses, business incubators and accommodation for students and researchers. Business services: includes an association for businesses in the 22@ district, (22@Network), a services for businesses seeking private finance (22@Capital), as well as conferences, visits and networking opportunities. (Ajuntament de Barcelona, 2010) Even during the economic crisis in 2009 and 2010, in 22@ employment is growing . . . Why? Because it has the capacity to attract, because they are knowledge-intensive activities, more resilient to the economic cycle, because of the environment, and because there is confidence in the future. Go to La Sagrera . . . that isn’t stopping for the crisis, it will take us to Paris, to Milan, by high-speed train to Lyon in three hours and Alicante in two hours, to Madrid in two and a half hours. And you have all that eight minutes from your place [in the 22@Barcelona Innovation District]. (Joan Trullén, Director, Barcelona Institute of Regional and Metropolitan Studies)

54 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

There are already a group of highly exporting firms located there [in 22@] which I believe are representative of a structural change in the Catalan economy. (Joan Ramon Rovira, Head of Economic Studies, Barcelona Chamber of Commerce) Although the 22@Barcelona project will not be completed until 2020, as of September 2007, 60 per cent of industrial land had already been redeveloped (Casellas and Montserrat, 2009) and, as of December 2009, some 1,502 businesses had located in 22@Barcelona, employing 44,600 workers. Despite the global financial crisis, the volume of business conducted in the innovation district increased by 5.4 per cent between 2008 and 2009, to around €6 billion during 2009 (Ajuntament de Barcelona, 2010). Although more time is needed before the extent of the economic transformation is clear, the proportion of economic activity within the area that can be classified as ‘22@ activities’ has been steadily growing year on year, as has the proportion of firms in the area that employ high-skilled individuals and undertake research and development (R&D) (Parellada Sabata and Viladecans Marsal, 2008).

Developing entrepreneurialism and exports through city and regional programmes One of the things we feel most proud of as a city is that we have placed a lot of importance on the theme of employment for many years . . . This is a city which has staked twenty something years on entrepreneurialism. (Mateu Hernández, CEO, Economic Promotion, City of Barcelona, and Vice President, Barcelona Activa) Thus far, this analysis has focused on interventions that aimed to transform Barcelona into an attractive and efficient environment for internationalisation and the development of a knowledge-based economy through international promotion, infrastructure investment and re-making of the metropolitan fabric. A central aspect of Barcelona’s strategy has been, however, the way in which these investments in its environment have been combined with institutions and interventions that directly target entrepreneurs and businesses. These interventions have generally been targeted at small firms and entrepreneurs, which play a particularly important role in the Catalan economy: in 2007, 93.1 per cent of firms had fewer than ten employees, and 98.6 per cent had fewer than fifty (Idescat). This dominance of SMEs and Catalonia’s high rate of entrepreneurship (8.4 per cent of the working-age population engaged in some form of business creation activity in 2007, compared with an average of 5.4 per cent across the European Union) are important sources of its flexibility and dynamism. By providing SMEs with services to help them innovate and internationalise, they are likely to be able to compete better with larger firms in internal and external markets. In what follows, several examples of these interventions are explored, including the role of the city-level local development agency Barcelona Activa, the role of the

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The innovation district of 22@Barcelona encompasses over 3.2 million square metres Source: El Pla Estratègic Metropolità de Barcelona

regional level internationalisation agency COPCA (now ACC1Ó) and the role of the independent membership organisation for Barcelona-based businesses Barcelona Chamber of Commerce.

Barcelona Activa – promoting entrepreneurship Barcelona Activa has played an important role in the story of Barcelona’s transformation over the past thirty years. Established in 1986 by the City of Barcelona municipal authority in the midst of rising unemployment and economic restructuring, and located in the heart of the 22@Barcelona innovation district, Barcelona Activa spearheaded a new approach to employment and economic development in Barcelona, positioning entrepreneurship and micro, small and medium enterprises at its heart. Barcelona Activa was pioneering from the start, initiating one of Spain’s first business incubators and seed capital funds, and has remained ahead of the curve, later developing Europe’s first virtual business incubator. It is now an international example of best practice for organisations such as UN HABITAT, the OECD and the World Bank (Ajuntament de Barcelona, n.d.c), and has provided assistance to other cities seeking to establish entrepreneurship centres, including Cape Town and Bogotà. According to the OECD, Barcelona Activa has been at ‘the cutting edge’ of local economic development since its creation, and ‘exemplifies a sense of what is possible under challenging circumstances’ (2009: 91).

56 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Although Barcelona Activa started out small, hosting just sixteen companies, it has grown in scale and ambition, particularly since the Spanish government devolved greater responsibility for employment policies to the autonomous regions (including Catalonia) in the late 1990s (Gentile, 2006). Barcelona Activa is a public limited company, whose president is, ex-officio, the Deputy Mayor of the City of Barcelona. According to the OECD, one of its key strengths is ‘its capacity to be close to the City Council . . . whilst also able to operate at arm’s length’ (2009: 26). For while Barcelona Activa falls under the jurisdiction of the city council’s Economic Promotion department, it also works collaboratively with a range of social and business organisations. It has signed more than 370 collaboration agreements thus far and has a strong commitment to forming public–private partnerships (OECD, 2009). Its partners include banking corporations such as Microbank–La Caixa, Caixa Catalunya, Banc de Sabadell, and BBVA, the IESE & ESADE Business Schools, Microsoft, Ernst & Young, the Barcelona Chamber of Commerce & Industry, the Catalan innovation and internationalisation agency, ACC1Ó and the Spanish Ministry of Industry, Trade & Tourism. Barcelona Activa’s responsibilities have ranged from the stimulation of innovation and entrepreneurship and the consolidation of new businesses, to the promotion and dissemination of new technologies, the creation of new employment and the adaption and development of skills for the new economy.1 A common approach runs through Barcelona Activa’s activities: a commitment to personalised, client-oriented and auto-access services, placing the entrepreneur in the driving seat and widening participation in its programmes, combined with the provision of both virtual and physical spaces for networking and collaboration. Its programmes include: •

•

• •

Glòries Business Incubator: provides sixty open-space modules, accessible to companies formed in the last twelve months, which also benefit from shared services and opportunities, such as weekly meetings with investors. Businesses must be innovative, have the potential to grow and create jobs and have a committed team in order to enter the incubator. In 2007, 42.3 per cent of the businesses in Glòries were in the ICT sector, 18.3 per cent in business services and 15.5 per cent in creative industries. Barcelona Nord Technology Park: a business park created in 1998 to enable young companies to expand, particularly internationally. Businesses can move from the Glòries incubator to the technology park after three years. It is currently home to thirty-six high-tech companies: in 2007, 28 per cent were in software design, 7 per cent in hardware design and development, 28 per cent in other ICT services, 14 per cent provided technical advisory services and 9 per cent were in engineering. 55 per cent of businesses in the technology park are active in international markets. BarcelonaNetActiva: Europe’s first virtual business incubator, launched in 1999, providing information and online tools. Barcelona Empren SCR: a venture capital fund launched by Barcelona Activa and the City of Barcelona municipal authority in 1999, which also includes nineteen private investors.

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•

•

• •

•

• •

Access to micro-credit: small loans, worth a total of €4 million a year on average, are available to entrepreneurs with feasible business projects, through cooperation agreements with Catalan banks. Tailor-made programmes for strategic sectors: coaching programmes for entrepreneurs in sectors such as biotechnology, clean-tech and the creative industries, in collaboration with other public and private organisations. Ready for Growth: a programme launched in 2002 to facilitate access to investment capital for entrepreneurs. Day of the Entrepreneur: a major conference, initiated in 2004, which aims to celebrate entrepreneurialism as well as to provide a platform for networking and learning. Business cooperation programmes: provide networking and partnership opportunities, e.g. Xarxactiva (Network Activa), a network that links up experienced business people with young entrepreneurs. Cibernarium: a centre for the dissemination and improvement of digital literacy, including ICT training. Barcelona Research and Innovation map: a web application that allows easy identification of all research and innovation centres, companies and institutions in the metropolitan area. (Barcelona Activa, 2007; OECD, 2009)

On balance, it can be said that the scale and scope of Barcelona Activa’s programmes have been significant. For example, during 2007, 140,000 people participated in its programmes; 700 companies were created (generating about 1,500 jobs); businesses based in Barcelona Activa’s incubators attracted €24 million private investment and €9 million public investment; and 75 per cent of businesses in the incubator and technology parks had commercial relationships among themselves, and 50 per cent were active in international markets (OECD, 2009). Though similar levels of investment and performance are unlikely to have been sustained during the recession, the range of initiatives of this agency played a critical role in establishing and consolidating Barcelona’s economic strength during the early part of the twentyfirst century.

COPCA (ACC1Ó) – supporting internationalisation As Barcelona worked to position itself as the capital of the Mediterranean, it sought to incentivise and support its firms to develop their international operations, capitalise on Barcelona’s emergence and respond to rapidly changing international markets. These initiatives have been pursued by a variety of actors in the public and private sectors, and at different levels of government, including the Barcelona Chamber of Commerce, the City of Barcelona municipal authority and the Government of Catalonia, through its internationalisation consortium, COPCA. In general, these interventions have tended to target SMEs, provide personalised services, and prioritise activities towards emerging economies and international growth sectors, working through a substantial network of inter-national offices.

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TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

COPCA, the Consortium for the Commercial Promotion of Catalonia, was created in 1987 by the Government of Catalonia. It is made up of around a hundred organisations, including chambers of commerce and sector-specific bodies, among others, and has been an important actor in the delivery of Catalonia’s internationalisation policies (Guri et al., 2007). It has subsequently merged with the Catalonian innovation consortium CIDEM, in recognition of the linkages between their two agendas, to form the Catalan innovation, internationalisation and foreign investment agency, ACC1Ó. ACC1Ó provides services tailored to firms at different stages of internationalisation, from the Microenterprise Programme to the New Exporters (NEX), NEX Phase II, Newly Internationalised Firm (NEI) and Landing Fields (targeting potential multinationals) programmes. These services are complemented by ACC1Ó’s international networks, sector-specific plans and foresight analysis, including: •

•

•

An international network of thirty-five business promotion centres and nineteen business platforms have a dual role: to attract foreign investment for production in Catalonia, and to provide services and opportunities to Catalan companies seeking to expand internationally. Services offered include market analysis, identifying contacts, logistical and practical support, and quick and inexpensive overseas office space. Since 2009, they have been working with ACC1Ó to promote the Barcelona brand through sixteen Consolats de Mar based in ACC1Ó’s business promotion centres under the banner, Barcelona/Mon (Barcelona/World). An international foresight centre, the Observatori de Mercats Exteriors (Foreign Market Observatory, OME), provides information and knowledge about emerging international sectors and markets, providing Catalan firms with the opportunity to take advantage of new developments. ACC1Ó is active in disseminating the results of its studies, providing a valuable service to SMEs. The development of detailed studies and plans for the internationalisation of priority growth sectors, such as automotive industry, health, ITC and wine. (ACC1Ó, 2008)

Barcelona Chamber of Commerce – developing exports The Barcelona Chamber of Commerce, more formally known as La Cámara Oficial de Comercio, Industria y Navegación de Barcelona (the Official Chamber of Commerce, Industry and Shipping), is the official independent membership organisation for businesses based in the Province of Barcelona with a continuous and active presence dating back to its foundation in 1886. Its membership totals 350,000, and its representatives are elected from this group. It works to promote economic activity and the sustainable development of the area by: • •

defending the interests of firms to public bodies; promoting the development of infrastructure related to economic and business progress;

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• • • • •

providing information and an independent voice; participating in the management and financing of organisations that promote economic activity; remaining in direct contact with economic and business organisations and associations; contributing to the development of human capital, the internationalisation of enterprises and the promotion of an information society; and providing support services to business.

One of the key roles of the Barcelona Chamber of Commerce is to support Barcelona businesses as they seek to enter global markets. The organisation has been active in building international relations through which local firms can benefit, and in providing personalised services for SMEs. Their activities have included planning for further sectoral diversification in exports, strategic support to sectors likely to be able to access international growth sectors and provision of support services to all businesses wishing to internationalise. Specific programmes include: •

•

•

•

•

•

• •

Barcelona Business Bridge: high-level contacts with the destination company are achieved through an embassy of institutions and companies convened by the Chamber of Commerce and the City of Barcelona municipal authority. Sectorial Business Bridges: plans to improve the international presence of Catalan firms in sectors such as technology, innovation, audio-visual and the environment, bringing Catalan firms into contact with some of the world’s leading companies. China Correspondent: Barcelona Chamber of Commerce technicians are placed in headquarters of key institutions in China and other emerging economies to help Catalan firms break into new economies that might otherwise be difficult for them to access. Plug and Play Tech Centre: Barcelona Chamber of Commerce has signed a collaboration agreement with Silicon Valley’s Plug and Play Tech Centre, which has nurtured and launched some of Silicon Valley’s important technology companies. Catalan companies are able to set themselves up for at least six months, free of charge, at the Plug and Play Tech Centre. MIT–Spain Programme: a project promoting the exchange of expertise between MIT and Catalan researchers, through symposiums, seminars, workshops and networking events. International Trade Fairs and Direct Missions: through these events Catalan business delegations travel to other countries to make contacts and win contracts, under the umbrella of the Chamber of Commerce. Public Recruitment Programme: support and training to enable Catalan firms to participate in international tender programmes. International Technology Entrepreneur Awards: to incentivise and support those who are best responding to the new demands and challenges of the technology sector. (Cambra de Comerç de Barcelona)

60 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Results of the transformation process While none of the initiatives or interventions described up to this point can claim to have solely been responsible for Barcelona’s relative successes, together they have combined to ensure that the economy of the region was able to transform itself, achieving steady growth and measurable improvements in employment, unemployment and productivity over the past twenty-five years. Over this period, competitiveness and capacity of Barcelona’s infrastructure has increased. The city and the region enjoy a well-established international reputation for investment, tourism and human capital, its exports have grown strongly and it has a high rate of business creation. This turnaround has been due both to the wider economic context in Spain, in particular the country’s increasing openness, and to the specific interventions pursued by civic and regional governments: investing to improve Barcelona’s strategic infrastructure, promoting and branding Barcelona internationally, transforming its urban fabric for new uses, and supporting entrepreneurs and businesses to internationalise and innovate. In this section Barcelona’s performance is reviewed, with a particular focus on internationalisation and entrepreneurialism.

Economic success at the city level Catalonia has grown faster than the European averages (104 per cent real growth between 1986 and 2007, from €65.6 billion to €133.8 billion, in Catalonia, compared with 83.4 per cent and 89.5 per cent in the European Union 27 and the Eurozone respectively (Eurostat online)). Catalonia has been a key driver of Spanish growth, especially during the late 1980s and mid-1990s (Figure 3.5). Barcelona, in turn, has been a major driver of Catalan growth. Barcelona Province, which includes the

8 in %

Barcelona Province Catalonia Spain

6

4

2

0 -2 1985

1990

1995

2000

2005

Figure 3.5 GVA growth rates (%) for Barcelona Province, Catalonia, and Spain, 1987–2007 Source: Eurostat (online)

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Metropolitan Region, accounted for three-quarters of the total growth in Catalan GVA over this period (Eurostat online). The strong growth of Catalonia reflects a major increase in employment. Between 1986 and 2007, employment increased by 82.3 per cent, compared with an increase of 67.8 per cent for Spain as a whole (Cambridge Econometrics, 2010). This is the result of improvements in the employment rate and rapid population increases during the last decade (Figure 3.6). Catalonia’s population expansion demonstrates its attraction to migrants. The percentage of foreigners in the Barcelona Metropolitan Region inhabitants rose from 2.6 to 14.9 per cent between 2000 and 2009 (Idescat online). That such a large population increase has been absorbed into the economy at the same time as employment and unemployment rates have improved is a marker of the strong growth of Catalonia over the past three decades. Although employment rates have been historically higher in Catalonia than in Spain as a whole, the gap widened further between 1991 and 2007: Catalonia’s employment rate increased by 15.5 per cent compared with 12 per cent in Spain (Figure 3.7). Catalonia’s unemployment rate has also been historically lower than Spain’s, although the gap has narrowed since 2000 (Figure 3.8). By 2007, unemployment in Catalonia had fallen to 6.5 per cent (8.3 per cent in Spain), comparing favourably with EU averages (7.1 per cent for the EU27 and 7.5 per cent for the Euro area) – a significant achievement given Catalonia’s starting point in the 1980s. The productivity of the Catalan economy grew rapidly during the 1980s and 1990s (Figure 3.9). In the 2000s, this growth levelled off and productivity in Catalonia grew less strongly than in Spain as a whole, consistent with the analysis above that the main driver of growth in the region was an expansion in employment rather than productivity.

2.5 in %

2

1

Catalonia Spain

0 1985

1990

1995

2000

2005

Figure 3.6 Population growth rates (%) for Catalonia and Spain, 1986–2007 Source: Cambridge Econometrics (2010)

62 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

80 in %

Catalonia Spain

70

60

50 1990

1995

2000

2005

Figure 3.7 Employment rates (%) for Catalonia and Spain, 1991–2007 Source: Eurostat (online) 20 in %

Catalonia Spain

15

10

5 1985

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2005

Figure 3.8 Unemployment rates (%) for Catalonia and Spain, 1986–2007 Source: Cambridge Econometrics (2010)

40000 in 2000 €s

Catalonia Spain

35000

30000

25000 1985

1990

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2000

2005

Figure 3.9 GVA per worker (in year 2000 €s) for Catalonia and Spain, 1986–2007 Source: Cambridge Econometrics (2010)

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Economic success in the next urban economy Capacity and competitiveness in strategic connectivity infrastructure The investment made in Barcelona’s strategic infrastructure has resulted in significant improvements in capacity and competitiveness. This has enabled Barcelona to secure an increasing share of European markets as they integrated through the 1990s, and of new economies as they have emerged. As additional investments come on stream, such as the further expansions of the Port and the new high-speed rail link to France, further improvements can be expected. The Port of Barcelona experienced high growth in traffic over the past twenty years (Figures 3.10 and 3.11). It is now the largest port in Spain in terms of value and volume of traffic, and is one of the fastest growing ports in Europe (Port de Barcelona, 2007). Its proximity to the Llobregat logistics cluster, the largest in the South of Europe and the Mediterranean, where 826 logistics and transport companies employ an estimated 86,500 workers, is a key element of this trend (ibid.). As a result of these strengths, the Port of Barcelona is well positioned to increase its market share of traffic from emerging economies, and become the gateway into southern Europe for Asian traffic (Port de Barcelona, 2008: 3). It has already captured 38 per cent of traffic between China and Spain (ibid.). The Port of Barcelona also developed a highly attractive and competitive service for tourism and cruise liners. It is now Europe’s top cruise destination, with passenger traffic increasing from 1 million in 1998 to 3.2 million in 2009 (Port de Barcelona n.d.). In a similar manner, the strategic investments in Barcelona’s El Prat airport, such as the addition of a second and third runway and a new terminal, secured its position

60000 in 000s of tonnes

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Figure 3.10 Total traffic through the Port of Barcelona, 1985–2009 (000s of tonnes) Source: Port de Barcelona (n.d.)

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TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

15 in % 15

Total traffic General cargo Containers

13

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11 10 9

9

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Barcelona Valencia Rotterdam Genova

Marseille Antwerp

Hamburg

Figure 3.11 Growth in traffic between 2003 and 2006 for Europe’s main ports: total traffic, general cargo and containers Source: Ajuntament de Barcelona

among Europe’s top ten airports. More than 30 million passengers passed through El Prat in 2008, an increase of 230 per cent on 1990 levels (9.2 million passengers) (AENA). While Iberia’s decision to move to a single hub system in 2005, dismantling its hub operations in Barcelona in favour of Madrid, negatively impacted its role as a European hub, it still offers strong connectivity to Catalonia. This connectivity results from El Prat’s strong links to major European hub airports, as well as from the modest increase in hubbing at Barcelona by the airline Spanair (Burghouwt, 2009). Spanair was purchased by a group of private and public investors in Barcelona in 2008, acting purposefully to take advantage of an opportunity to strengthen the position of El Prat airport (see above section ‘The expansion of the Barcelona El Prat airport’).

International reputation and attractiveness Barcelona now enjoys a strong international brand, being the third best-known city in Europe (European Cities Monitor, 2009) and the nineteenth best-known city in the world (Global Cities Attractiveness Survey, 2008). It ranks especially high in quality of life, in business (fourth in Europe (European Cities Monitor, 2009)), international investment (fourth in Europe (Ernst and Young Investment Monitor, 2008)) and international meetings (in the top five internationally (ICCA World Country and City Rankings, 2008; International Meeting Statistics, 2009)). Barcelona’s attractiveness stems from its natural and cultural assets, but also from the investments made in these assets in the 1980s and 1990s, and how they were leveraged in different economic sectors through marketing and branding. The city and wider region’s attractiveness to foreign investors, businesses and visitors has been a key source of growth over the past twenty-five years. By 1997, Catalonia had 25.6 per cent of the €5.8 billion of foreign direct investment (FDI) entering Spain, well above its population share of 15.5 per cent (Idescat online). This

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share declined during the late 1990s, as Spain experienced a boom, but then recovered through the mid-2000s (ibid.). In 2008, more than 3,100 foreign companies were operating in Catalonia, representing some 34 per cent of all foreign companies in Spain (Ajuntament de Barcelona and Generalitat de Catalunya, 2009a, 2009b). Catalonia’s share of foreign investors is even higher (Table 3.2). While most foreign companies invest in Catalonia in order to access the Spanish market, 49 per cent of foreign firms based in the metropolitan area of Barcelona are service centres and 21 per cent are decision-making centres for other group-owned centres outside of Spain. Surveys of foreign firms located in Barcelona suggest that most are satisfied with their decision. One survey of foreign firms in the metropolitan area found that 97 per cent were very satisfied, satisfied or considered their decision to set up in Barcelona to be adequate (Ajuntament de Barcelona and Generalitat de Catalunya, 2009b). Barcelona’s quality of life, geographical location and access to markets, competitive labour and production costs, high human capital and a good labour environment most influenced firms’ decisions to locate in the area. There are further improvements to be made with regards to the ease of starting a business and employing workers, and to the levels of regulation and taxation (see, for example, Ghemawat and Vives, 2009). Barcelona’s open and tolerant environment as well as its quality of life and natural and cultural assets make it an attractive place for foreign students and workers. The proportion of foreign residents in Barcelona has grown rapidly, from 3.5 per cent in 2000 to 17.3 per cent in 2008 (Ajuntament de Barcelona, 2008b), most of which have come from the Americas (45.5 per cent in 2007), followed by Europe (30.3 per cent) and Asia (16.8 per cent) (ibid). There are a number of young professionals who come to Barcelona, attracted, perhaps, by this environment, which is in some way connected with creativity and a certain quality of life . . . One of the most important sectors is the attraction of talent. (Joan Ramon Rovira, Head of Economic Studies, Barcelona Chamber of Commerce)

Table 3.2 Percentage of foreign companies operating in Spain that were operating in Catalonia in 2008 Country

Percentage

Japan

71

France

62

Germany

61

United States

60

Italy

55

Source: Ajuntament de Barcelona and Generalitat de Catalunya (2009b)

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Many of the factors that make Barcelona an attractive city to foreign investors and workers also underpin its attractiveness as a tourist destination, both for business visitors and holidaymakers. Attracting fewer than 700,000 tourists in 1981 and 1.8 million in 1992, in 2008 Barcelona attracted over 6.7 million visitors. Between 1990 and 2001, the number of tourists in Barcelona grew by more than 100 per cent, making Barcelona the European city with the highest tourism growth rate (Turisme de Barcelona). Catalonia is currently Spain’s primary tourist destination, receiving more than one quarter of all international tourists visiting Spain in 2006. Tourism makes a significant contribution to the economies of Barcelona and Catalonia – 13 and 11 per cent of GDP respectively in 2006. In addition to being a major tourism destination, Barcelona has also become a major destination for business visitors. The number of visitors participating in conferences, conventions and courses in Barcelona has grown rapidly, from 95,300 in 1989, to 218,000 in 1997, and 630,000 in 2007 (Idescat online). Much of this growth has been driven by increasing numbers of international visitors and by increasing numbers of trade shows hosted by the city, supported by the new conference facilities that have been created including the Centre Convensions International Barcelona (Barcelona International Convention Centre; CCIB), a 100,000 square metre (1,076,391 square feet) conference centre developed initially for the Universal Forum of Cultures 2004. Fira de Barcelona, the trade-fair body and a joint venture between the City of Barcelona municipal authority and private investors, has been a key player in securing Barcelona’s role as a destination for business visitors, hosting eighty trade shows and 658 events in 2008, attended by 40,000 companies (Fira de Barcelona, 2008). Overall, the estimated economic impact of Fira’s activities during 2008 was €2.5 billion. Barcelona now has a reputation as a major city for international congresses, ranking in the top five in two international comparisons (ICCA World Country and City Rankings 2008; International Meeting Statistics 2009).

Strength in exports In the past two decades, Catalonia’s exports have grown, making it Spain’s leading export region, accounting for 26.9 per cent of total Spanish exports in 2007 (€49.7 billion).2 In total, between 1994 and 2007 total exports in Catalonia increased by 241 per cent, growing at an average rate of 7.7 per cent per annum, compared to 216 per cent in total and 7.2 per cent per annum for Spain as a whole. Much of this growth has been driven by an increase in the technology content of Catalan exports (Figure 3.12). Medium-high technology exports have grown particularly strongly, joined more recently by high-tech exports, albeit from a low base. In 2007, high technology and medium-high technology exports made up a larger proportion of industrial exports in Catalonia by value than in Spain as a whole: 13.6 and 50.7 per cent in Catalonia respectively, compared to 10.3 and 45.2 per cent in Spain (Idescat online).

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67

25000 in millions of Euros

20000

High tech Med-high tech Med-low tech Low tech

15000

10000

5000 0 1995

2000

2005

Figure 3.12 Value of Catalonian industrial exports (millions of euros) by technological content, 1994–2007 Source: Idescat (online)

200 or more 50-199 10-49 1-9 0

by number of employees

5.6

41.1

1 0.4

52

Figure 3.13 Firms in Catalonia by employee numbers, 2007 Source: Idescat (online)

Catalonia’s strength in exports stems largely from the Province of Barcelona. In 2007, Barcelona Province was responsible for 79.5 per cent of total Catalonian exports, more than the other three provinces put together (Ajuntament de Barcelona, 2008b). The automotive sector is Barcelona’s leading export sector, responsible for the top three export products (cars, vehicle components and goods transport vehicles), which together make up 20.7 per cent of total exports (ibid.). TV and radio receptors and drugs are the next most significant export products, together making up a further 8.9 per cent of the province’s exports (ibid.). The EU has long been the main destination of Catalan exports, although its share of total exports decreased slightly from 74.8 to 72.4 per cent from 2001 to 2007 as

68 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

2 in %

1.5

1 Catalonia Spain EU (27 countries)

0.5 2000

2005

Figure 3.14 R&D spending as a percentage of GDP for Catalonia, Spain and the EU27, 1998–2007 Source: Eurostat (online)

exports have increased to other parts of Europe and the rest of the world (Idescat online). Particularly strong growth has been observed in exports to Switzerland (22.0 per cent growth rate per annum on average between 1995 and 2007), other European countries outside the EU (15.8 per cent) and China (18.2 per cent), compared with 10.2 per cent for exports to the EU27 (Idescat online).

Entrepreneurial Barcelona Over 18.6 per cent of Spanish businesses are located in Catalonia, a total of 621,000 in 2007 (Idescat). The region benefits from a high rate of business creation, with 26,007 companies created in 2007 (17.9 per cent of the Spanish total), down from a peak of 28,019 in 2006 (18.8 per cent) (Idescat online) over 50 per cent of companies have over 200 employees (Figure 3.13). Levels of innovation and R&D in Catalonia improved significantly over the past two decades (Figure 3.14) and investment in R&D as a percentage of GDP remains higher in Catalonia than Spain, reaching 1.47 and 1.27 per cent respectively in 2007 (Eurostat online). Even so, Catalonia and Spain remain significantly below EU averages, reflecting the low base from which improvements are being made.

The global economic crisis and the future Spain, Catalonia and Barcelona have each been hit hard by the recent global financial crisis. Between 2007 and 2009, the GVA growth rate declined from 3.3 per cent to –5.4 per cent in Barcelona Province, and from 3.5 per cent to –4.3 per cent in Catalonia (Cambridge Econometrics, 2010). Unemployment increased over the same period, from 6.6 per cent to 16.2 per cent in Barcelona Province (Idescat online). Exports and FDI declined sharply, from €49.7 billion to €41.2 billion, and from €2.61 billion to €1.35 billion in Catalonia between 2007 and 2009 respectively (Idescat online; see Table 3.3).

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Table 3.3 Recent economic performance for Barcelona Province, Catalonia and Spain, comparing 2007 to 2009 2007

2009

GVA growth rate (%) (Cambridge Econometrics)

Barcelona Catalonia Spain

3.3% 3.5% 3.9%

–5.4% –4.3% –3.7%

GVA per capita growth rate (%) (Cambridge Econometrics)

Barcelona Catalonia Spain

2.9% 1.3% 2.2%

–6.6% –6.2% –5.3%

Employment rate (%) (Eurostat)

Barcelona Catalonia Spain

74.2% 75.8% 67.4%

66.7% 67.8% 60.6%

Unemployment rate (%) (Idescat)

Barcelona Catalonia Spain

6.6% 6.5% 8.3%

16.2% 16.2% 18.0%

Exports (Idescat)

Barcelona Catalonia Spain

FDI (Idescat)

Barcelona Catalonia Spain

– €49.7 bn €185 bn – €2.61 bn €29.1 bn

– €41.2 bn €158 bn – €1.35 bn €12.1 bn

Source: Cambridge Econometrics (2010), Eurostat and Idescat (online)

Spain faces a large fiscal deficit and downgraded credit ratings. Spain’s dependence on internal demand and the construction industry as the source of recent growth has been identified as a key issue behind these trends. Catalonia, less reliant on construction for recent growth, is being particularly badly affected by the crisis. In turn, Barcelona Province appears to be experiencing a more negative impact than Catalonia as a whole. It is difficult at this point to determine the specific reasons for these variations. However, it is possible that Catalonia and Barcelona’s greater openness to international markets, including their comparatively high rates of inward foreign direct investment (FDI), exports and tourism, have made the city and its region more vulnerable to the crisis. Barcelona has reinvented itself once. The difficult thing is to keep reinventing, reinventing, reinventing . . . Improvisation and creativity, all this is put to the test in crisis situations. (Maria Buhigas, Chief of the Urban Strategy Department, Barcelona Regional)

The future for Barcelona – towards metropolitan governance It is too early to assess when and how Barcelona might emerge from the global economic and financial crisis of 2008 and the ongoing Eurozone problems that affect

70 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

the national economy. It will be important, as ever, to address weaknesses in the economy and to capitalise on its strengths in order to secure sustainable and longterm growth. While its strengths have been well rehearsed – adaptable and entrepreneurial SME sector, attractive quality of life, its openness and strength in logistics and trade, and its diverse industrial base – its weaknesses will need to be tackled. These include levels of innovation, R&D and education, which remain below EU averages despite considerable improvements over the past decades (Ghemawat and Vives, 2009). Developing and implementing coherent and effective policies to address these issues will be important if Barcelona is to secure a sustainable future growth path. Now, as in its past, Barcelona’s new leaders are thinking ahead, looking to make the most of present opportunities as well as to address the challenges they face. The return of metropolitan governance to Barcelona after two decades of fragmentation is an advantageous development at this stage. The new body will integrate the formerly fragmented bodies for the environment, transport and other services within the Barcelona metropolitan area and will also be responsible for promoting a metropolitan strategic plan. Thus, although the governance reforms do not go as far as to provide statutory status to the strategic plans developed by the Metropolitan Strategic Plan Association (PEMB), they do provide a firmer and more integrated metropolitan platform than has existed since the abolition of the Barcelona Metropolitan Corporation in 1987. A new strategic metropolitan plan, Barcelona Visió 2020 (Barcelona Vision 2020), developed by the existing Metropolitan Strategic Plan Association, was approved in November 2010. The plan gives new prominence to the need to build relationships and presence in the emerging economies that are likely to be future drivers of growth. The strategic plan not only targets Brazil, India and China, as would be expected, but also growing North African economies such as Egypt and Morocco that Barcelona is well positioned towards geographically, and Latin America, where Barcelona retains strong cultural and economic ties. Barcelona Visió 2020 is likely to be the first metropolitan strategic plan to be received by a statutory metropolitan body, the Barcelona Metropolitan Area, rather than an informal partnership, as has been the case in the past. At the same time as Barcelona looks to reposition itself in a changing world, it has continued to invest in major connectivity infrastructure throughout the financial crisis. These projects have provided an important boost to employment and confidence during the financial crisis, as well as improving the Metropolitan Region’s competitive assets for its future development.

Conclusions Barcelona has achieved substantial transformations in its urban landscape and its economy over the past twenty to thirty years. This was achieved through a mixture

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of careful and strategic planning, and multiple individual projects and initiatives. This mix was successful in large part because of the way in which Barcelona and Catalonia’s various public actors were able to develop a joint vision of the future, and work together in a flexible way with the private sector to deliver different elements of that vision. Barcelona and Catalonia have fine-tuned a delivery model which combines the strengths of both public and private sectors in municipal companies and consortia, making for agile and effective institutions. The energy and entrepreneurialism of Catalonia’s private sector has been a key mobilising force, working together with political leaders and public institutions. Barcelona’s partnership modes of governance have become best-practice examples internationally, and offer useful insights to other cities and cities seeking to build shared future visions and to deliver innovative public-private projects. These impressive results are, however, currently being undermined by the impact of the recent Eurozone crisis. Barcelona and Catalonia have both been severely affected, even more than Spain as a whole. Consequently, the city and its wider region are entering a period of new uncertainty and complexity as the challenges of the financial crisis call into question previously tried and tested approaches. As economic and political concerns intensify, the risk is that Barcelona becomes increasingly inward-looking, focusing on local issues at the expense of the international outlook that has been so important to its development thus far. The emphasis in the new metropolitan strategic plan, Barcelona Visió 2020, on the importance of building relationships with emerging economies is thus a positive step, as is the move towards more coherent statutory metropolitan governance. However, as in other occasions in Barcelona’s past, strong political leadership and the ability to build innovative institutions and coalitions for change are likely to be critical in ensuring that Barcelona remains focused on its future, while also addressing the problems the city currently faces.

List of interviewees Interviews conducted in Barcelona, July 2010 Maria Buhigas, Chief of the Urban Strategy Department, Barcelona Regional Albert Carreras, Professor in Economic and Business History, Economics and Business Department, Universitat Pompeu Fabra Mateu Hernández, Chief Executive Officer of Economic Promotion, City of Barcelona, and Vice President, Barcelona Activa Santiago Garcia-Milà Lloveras, Sub Director General, Port of Barcelona Oriol Nello, Secretario para la Planificación Territorial, Generalitat de Catalunya (Secretary of State for Territorial Planning, Government of Catalonia) Pere Picorelli, Regional Planner, Remodelaciones Urbanes S.A., subsidiary of Incasòl, the Catalan land development institute. Representative, Port of Barcelona Josep Roig, Director, Consorci Àrea Metropolitana de Barcelona (Metropolitan Area of Barcelona consortium)

72 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Joan Ramon Rovira Homs, Head of Economic Studies, Barcelona Chamber of Commerce Francesc Santacana, General Coordinator, Pla Estratègic Metropolitá de Barcelona (Barcelona Strategic Metropolitan Plan) Joan Trullén, Director, Instituto de Estudios Regionales y Metropolitanos de Barcelona (Barcelona Institute of Regional and Metropolitan Studies)

Notes 1

2

The government of Catalonia also plays an important role in these areas, being responsible for overall regional policy on innovation and R&D. Plans were produced throughout the 1990s and 2000s, and delivered through the innovation agency, CIDEM, created in 1985 by the Catalan government. A detailed consideration of regional innovation and R&D policies over this period is beyond the scope of this report; interested readers are referred to the recent OECD review (2010). The exports figures referred to in this section include consumption goods, capital goods and intermediate goods (agricultural, industrial and energy products). They do not include services. The figures are not adjusted for inflation.

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Fira Barcelona (2008). Fira de Barcelona: Memoria 2008. Available at: www. firabcn.es/downloadFile.do?idFile=70340&fileName=memoCAST-ANG.pdf Garcia-Ramon, M.D. and Albet, A. (2000). Commentary. Environment and Planning A, 32, 1331–34. Generalitat de Catalunya (2010). Pla territorial metropolitá de Barcelona. Barcelona: Generalitat de Catalunya. –––– (n.d.a). ACC1Ó: Competitiveness for Catalonia. Available at: www.acc10.cat/ ACC1O/cat/docs/webenglish.pdf. –––– (n.d.b). Qué es l’L9/L10? Available at: www.gencat.cat/L9/queEsL9.html. Gentile, A. (2006). Urban governance of employment activation: The case of Barcelona Activa (Spain). Paper presented at the ASPEN–ETUI Conference: Activation policies in the EU, Brussels, 20–21 October. Ghemawat, P. and Vives, X. (2009). Competitiveness in Catalonia: Selected topics. Reports of the Public–Private Sector Research Center, 2, IESE. Guri, D., Castellanos, A. and Badia, F. (2007). CIDEM y COPCA: Internationalization and innovation policies in Catalonia – Prospects in the Mediterranean. IEMed. Available at: www.cespi.it/RIM/RIM%20Catalunya%20regional%20system. pdf. Idescat. Official statistics website of Catalonia. Available at: www.idescat.cat/en. Marshall, T. (2004). Transforming Barcelona: The renewal of a European metropolis. London: Routledge. Monclús, F.J. (2003). The Barcelona model: An original formula? From ‘reconstruction’ to strategic urban projects (1979–2004). Planning Perspectives, 18(4), 399–421. Nobell, P. and Joseph, B. (2003). The Llobregat delta plan: The government of Catalonia. Electronic Catalogue for the Barcelona 2003 Biennial of Towns and Town Planners in Europe. Available at: www.acturban.org/biennial/Electronic Catalogue/Catalonia/generalitat_delta.htm. OECD (2009). Promoting entrepreneurship, employment and business competition: The experience of Barcelona. OECD LEED Programme: Local development agency review series. Available at: www.oecd.org/dataoecd/2/33/43505170.pdf. –––– (2010). OECD Reviews of Regional Innovation: Catalonia, Spain. onVuelos.com (2009) La nueva Terminal 1 (T1) del aeropuerto Barcelona-El Prat. Available at: http://onvuelos.com/noticias/la-nueva-terminal-1-t1-del-aeropuertobarcelona-el-prat. Parellada Sabata, M. and Viladecans Marsal, E. (2008). Study of Economic Activity in the 22@ Barcelona District [PowerPoint slides]. Available at: www. 22barcelona.com/documentacio/observatori_eng.pdf. Pareja-Eastaway, M. (2009). The Barcelona metropolitan region: From nonexistence to fame. Built Environment, 35(2), 212–19. Pareja-Eastaway, M., Turmo Garuz, J., Pradel i Miguel, M., García Ferrando, L. and Simó Solsona, M. (2007). The city of marvels? Multiple endeavours towards competitiveness in Barcelona: Pathways to creative and knowledge-based regions. ACRE report 2.2. Amsterdam: AMIDSt. Pareja-Eastaway, M., Turmo Garuz, J., García Ferrando, L., Pradel i Miguel, M. and Simó Solsona, M. (2008). Why in Barcelona? Understanding the attractiveness of the metropolitan region for creative knowledge workers. ACRE report 5.2. Amsterdam: AMIDSt. Pla Estratègic Metropolità de Barcelona (2010). Barcelona visió 2020. Available at: www.pemb.cat/wp-content/uploads/2011/07/PEMB-2020-angles-WEB.pdf.

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Port de Barcelona (2008). The logistics gateway of Southern Europe. Press Dossier, February 2008. Available at: www.portdebarcelona.es/cntmng/d/d/work space/SpacesStore/0b3d6493–95d82–84b9f-8bce-fafb8f8b4705/en.dossier. shortsea.pdf|en.dossier.shortsea.pdf. –––– (n.d.). The Port of Barcelona: A Mediterranean perspective (PowerPoint slides). Barcelona: Generalitat de Catalunya. Raventos, F. (2000). Public–private collaboration: Barcelona model. Management Booklets, 8. Barcelona: Aula Barcelona. Rowe, P. G. (2006). Building Barcelona: A second renaixença. Barcelona: Actar/ Barcelona Regional. Santacana, F. (2000). Strategic planning: Barcelona model. Management Booklets, 5. Barcelona: Aula Barcelona. SAS Group (2009). Definitive agreement regarding the sale of Spanair signed. Press Release, 30 January. Available at: http://se.yhp.waymaker.net/sasgroup/ release.asp?id=179309. Walker, A. and Porraz, B. (2003). The case of Barcelona, Spain. In UN HABITAT and UCL (eds), Understanding slums: Case studies for the global report on human settlements 2003.

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4 Turin Reclaiming and diversifying local economic strengths

Introduction With a gross domestic product (GDP) of over €25 billion (Rur-Censis, 2004), Turin is one of the strongest and richest cities of Italy. The city has an illustrious industrial history, having been home to the production and corporate headquarters of FIAT (Fabbrica Italiana Automobili Torino) since the turn of the twentieth century. Together with Milan and Genoa, Turin forms the industrial triangle that provided the backbone of Italy’s economic miracle in the 1960s and 1970s. In the mid-1960s, Turin and the surrounding Piedmont region employed 149,000 workers in the automotive and related sector, comparable to the automotive sector in the US city of Detroit, which employed some 158,000 people in 2005 (Detroiter, 1 January 2007) and significantly larger than Cleveland’s car manufacturing sector, which employed 37,383 people at its peak in 1963 (Darwin, 1997). Even today, Turin and the surrounding Piedmont region account for around half of Italy’s jobs and over half the national revenues in the auto-related sector (Turin Chamber of Commerce, 2008). Turin’s present-day success and rich history mask the intense crisis it faced just two decades ago. The oil crisis of the mid-1970s and increasing global competition led FIAT to move its operations out of the city and restructure its supply chains, in common with many other automotive producers around the world, with devastating impact on Turin’s manufacturing-based economy. FIAT production in Turin reduced from 60 per cent in 1990 to 30 per cent in 2002, on top of approximately 100,000 manufacturing jobs that were lost in the city during the 1980s. These decades represented not just a crisis for FIAT, but a crisis for Turin: as FIAT declined, so too did its welfare and social provisions, which the municipal authorities were not able to provide at the time. Turin faced a leadership vacuum throughout the 1970s and 1980s, which culminated in the appointment of a city commissioner by the national government in 1992 – a clear indication of the city’s acute decline and paralysis. Having faced such a severe crisis just twenty years ago, Turin’s recovery is notable. FIAT and the wider Turin automotive sector have adapted and recovered, and the region has begun to diversify into design, aerospace, tourism, culture and quality food and wine. Turin is now capable of attracting international firms,

Turin and the surrounding region account for around half of Italy’s automotive jobs Source: Michele D’Ottavio

including General Motors, Volkswagen and the Chinese car giant JAC, and is home to significant international organisations, such as the International Labour Organization (ILO), European Training Foundation (ETF), the United Nations Interregional Crime and Justice Research Institute (UNICRI) and the United Nations System Staff College (UNSSC).

Turin’s transformation This chapter tells the story of how Turin’s economic resurgence and diversification were achieved, both within the automotive sector and beyond. Turin’s automotive and other manufacturing firms began to look beyond FIAT, to new products and new markets, in order to survive, displaying the adaptability and resilience typical of the region. Turin’s well established universities and bank foundations also adapted, for example by re-configuring courses, investing in start-ups and financing new institutions involving university, business and public-sector actors. Turin’s trade bodies, such as the Unione Industriali di Torino (Turin’s Industrial Union) and its subsidiaries (Associazioni di Categoria), played an important role in helping firms to adapt and promoting them in new markets and new sectors. Turin city government initiated several strategies and plans during the 1990s in order to support and spread these transformation processes, creating a climate that enabled the region’s innate entrepreneurial spirit to adapt to a changing global market. Mayor Valentino Castellani became Turin’s first directly elected mayor (as opposed to being appointed through the party system) in 1993. By working in partnership with the regional government of Piedmont, both city and region, regardless of sometime political differences, were successful in accessing significant amounts of European Union (EU) funding, which played a key role in accelerating processes of change and enabling key actors and institutions to take on new roles. Mayor Castellani remained in power until 2001, providing Turin with a stability that has been matched by the city’s second mayor, Sergio Chiamparino who served between 2001 and 2011. In addition to the adaptations and reconfigurations made by firms themselves and other private institutions, various city and regional policies have played a part in supporting Turin’s economic transformation. First, the outdated and decaying industrial areas in the city, including those vacated by FIAT, were regenerated and remodelled for the new economy and significant investment was made in infrastructure. Second, the Piedmont regional government, the Politecnico di Torino, various industrial federations and the Turin Chamber of Commerce, among others, played a role in encouraging the re-tooling of the automotive industry, as part of broader efforts to reposition Turin as a leading centre of industrial design innovation. Third, both city and region sought to transform the international image and reputation of Turin, by hosting major international events, attracting tourists and investing in infrastructure.

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Urban and metropolitan context Physical and political geography Turin is the capital of the Piedmont region in north-west Italy, occupying the flat expanse of the Po Valley as it reaches the foothills of the Alps to the north and to the west close to the borders of France and Switzerland (Figure 4.1). The city benefits from its natural setting, close to the mountains and well connected with respect to other major centres of northern Italy. It is within easy reach of Italy’s major economic hub of Milan and a hinterland of highly productive small and medium-sized cities that occupy the regions of Lombardy, Emilia Romagna and Piedmont, with good connections to the sea-ports of Genoa, Savona and La Spezia. The City of Turin (Cittá di Torino) itself is home to a population of 910,188 within an area of 130 km2 (50 square miles), resulting in a population density of approximately 7,000 inhabitants per km2 (or 0.76 square miles) (ISTAT, 2009). The Turin metropolitan area has not been formally defined or designated, but can be functionally taken to comprise the City of Turin and fifty-two surrounding municipalities: the first and second urban belts. The metropolitan area is home to a population of two million within an area of 1,976 km2, resulting in a population density of 1,010 inhabitants per km2 (Censis, 2007). By population, the Turin metropolitan area is comparable to the Cleveland, Austin and Indianapolis metropolitan areas in the United States. The region of Piedmont, which like other Italian regions have benefitted from significant levels of autonomy since the constitutional reforms of 2001, has a population of 4.4 million, and encompasses an area of 25,399 km2 (9,806 square miles) (2007). In this chapter, the Turin metropolitan area is approximated either by Turin City or by the Province of Turin (an area of 6,830 km2 [2,637 square miles] with a population of 2,277,686 in 2007), given the lack of data available at the metropolitan level. Unless otherwise stated, data refers to the Province of Turin.

Economic history For several years and up until the widespread global economic crisis of 2008, Turin has been one of the best performing cities in Italy (see Table 4.1) and the EU. GDP per capita in Turin Province is over 10 per cent higher than the national average (€28,800 compared to €26,000 in 2007) and 23 per cent higher than the European average. In 2010, the employment rate in Turin Province was 5 per cent higher than the national average (64 per cent compared with 58.7 per cent in 2007), and the unemployment rate was 1.4 per cent below the national average (4.7 per cent

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Table 4.1 Turin’s economic performance, 2007 Turin Province

Piedmont Region

Italy

GDP per capita (euros)

28,800

28,600

26,000

Employment rate (%)

64

64.9

58.7

Unemployment rate (%)

4.7

4.2

6.1

Population (000s)

2,248

4,352

59,131

Sources: Eurostat (online) and Istat (online)

compared with 6.1 per cent). In the same year, the performances of Turin Province and the Piedmont Region were very similar, but GDP per capita and unemployment are slightly lower in Piedmont (€28,600 and 4.2 per cent respectively), while employment is slightly higher (64.9 per cent). Turin is one of Italy’s major manufacturing regions: 24 per cent of the province of Turin’s gross value added (GVA) came from manufacturing in 2007, compared with 21.76 per cent for Italy as a whole. The automotive industry is at the core of Turin’s manufacturing economy, with almost half of Italy’s automotive sector employees being located in the Piedmont Region (101,780 in Piedmont compared with 103,133 in the rest of Italy in 2008; see Table 4.2). Turin’s manufacturing sector has also diversified towards a variety of other industries, including food, textiles, design and aeronautics. Turin and its region are home to a significant number of major Italian brands, several of which are also renowned internationally, such as Pininfarina and Giugiaro (automotive design), Alenia Aeronautica (aerospace), Lavazza (‘Italy’s favourite coffee’), Martini (the Italian spirit), Ferrero (the Italian confectioner, whose products include Ferrero Rocher, Kinder and Nutella), Robe di Kappa (the sportswear brand) and Invicta (outdoor accessories). The influential Slow Food movement was founded in Piedmont in 1986, and today boasts almost 100,000 members and a network of 2,000 food communities supporting sustainable production in 150 countries. The dominance of the automotive district in the Turin metropolitan area can be traced back to 1899 when FIAT was founded. The company expanded dramatically

Table 4.2 The automotive sector in the Piedmont Region compared to the rest of Italy in 2008 Piedmont Region

Rest of Italy

Total

Number of firms

880

1,316

2,196

Number of employees

101,780

103,133

204,913

Revenues (billions of euros)

25.50

24.09

49.59

Source: Turin Chamber of Commerce and Step Ricerche Srl (2008)

84 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

following the outbreak of the First World War, culminating with the construction of the famous avant-garde Lingotto factory complex in the 1920s. The automotive sector entered a second wave of growth in the post-Second World War period, heralding the beginning of a highly prosperous period for Turin. By the mid-1970s, Turin was a thriving industrial centre and one of Europe’s strongest automotive districts, competing with the German cities of Munich (home to BMW), Stuttgart (Daimler Benz) and Wolfsburg (Volkswagen), and the French towns of BoulogneBillancourt in the Parisian metropolitan area (Renault) and the Sochaux-Montbeliard agglomeration (Peugeot). Turin’s industrial expansion demanded major increases in labour, prompting an influx of unskilled and low-skilled workers from impoverished regions of southern Italy. As a result, Turin’s population grew from 700,000 inhabitants in 1949 to 1,202,846 by 1974 (Database Ufficio di Statistica del Comune di Torino, 2011), equivalent to an annual increase in population of approximately 21,000. Such rapid expansion put the city’s infrastructure and services under intense strain. It also promoted a reactionary approach to land-use planning which contributed to Turin’s subsequent economically and spatially monocentric form, centred around FIAT’s three main production factories: Lingotto, Mirafiori and Corso Dante. The oil crisis of the mid-1970s brought Turin’s economic and demographic growth to a standstill. FIAT began to shift production out of Turin into new factories in southern Italy, as the price of raw materials increased the workforce became increasingly unionised and national financial incentives made the southern Italian regions a more attractive investment prospect. FIAT decentralised its local production processes outside Turin, as did many other automotive manufacturers in other cities during this time. During the 1980s alone, approximately 100,000 jobs were lost in Turin.

The problem The crisis of FIAT was both a problem and an opportunity for Turin. The city looked at it primarily as an opportunity. (Roberto Tricarico, Deputy Mayor for the Environment, City of Turin) FIAT underwent further crises in the early 1990s and again in the early 2000s, in common with many automotive firms in industrialised countries. Competition increased from Asian producers and the automotive sector as a whole underwent supply-chain and global restructuring. FIAT dramatically reduced its suppliers, moving to a management model, which delegated more competencies to fewer suppliers in order to achieve a more efficient production process. Between 1990 and 2002, FIAT’s Turin-based production decreased from 60 per cent to 30 per cent of total FIAT production, and its Turin-based direct suppliers decreased from 1200 to 350. In 1993, FIAT’s losses amounted to 4.4 per cent of its total revenues.

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FIAT’s restructuring had a ripple effect on employment and GVA per capita in Turin. Between 1992 and 1993, GVA per capita decreased much more rapidly in Turin Province and the Piedmont Region than it did in Italy as a whole: a 3 per cent decrease compared with 1.5 per cent nationally (Cambridge Econometrics, 2010). A year later, in 1994, Turin Province experienced a 20 per cent increase in its unemployment rate, from 9 per cent to 10.8 per cent, compared to a 0.5 per cent decrease for the Piedmont Region and a 2.1 per cent increase for Italy (Cambridge Econometrics, 2010). The concentration of the unemployment increase in Turin Province reflects the concentration of FIAT plants found there. FIAT’s decline prompted a social as well as an economic crisis for Turin. For many years, FIAT had played a crucial economic and social role in Turin, providing

SWITZERLAND

Brescia

Milan

Turin-Milan high-speed rail link

Ivrea

TORINO PROVINCE

City of Torino

Verona

Politecnico of Torino Asti

FIAT Mirafiori plant

Piacenza Alessandria Parma

FIAT Lingotto plant

Modena

Reggio Emilia

PIEMONTE

ITALY Genoa

FRANCE

50 km 100 km UK

regional boundary

POLAND

NETHERLANDS

BELGIUM LUX . GERMANY CZECH REP.

metropolitan boundary FRANCE

district boundary

AU ST R I A

SW I TZ E R LAND

Torino PIEMONTE

airport SPAIN

motorways

intercity rail

Figure 4.1 Turin and its Metropolitan Region, Piedmont, Italy Sources: European Environment Agency (online); EUROSTAT (online)

86 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

SLOVENIA CROATIA

ITALY

a range of social benefits to its workers. As FIAT declined, so too did its social provisioning, which the municipal authorities were not equipped to take over and provide. The various centre-left coalitions that governed Turin during the 1970s and 1980s were unable to develop an integrated and effective strategy for tackling the city’s social and political problems. Turin suffered an unstable and ineffective cycle of four mayors in the seven years between 1985 and 1992. This failure of governance ultimately resulted in the Italian government appointing a special commissioner to run the city in 1992.

Policies, programmes and projects to transform the urban economy This section explores the various actors, processes and initiatives through which Turin’s adaptation to changing conditions in the automotive sector was progressed. It shows how firms led processes of change as they developed new products and accessed new markets. It describes how the research and training capacities built up by FIAT were kept alive and built upon by new institutions, such as the Politecnico di Torino, and were well linked to private enterprises through the investments made by bank foundations. It explores the ways in which city and regional governments played an important role by developing the climate and environment – and in some cases providing the financial resources – for the changes pursued by other economic actors to accelerate, flourish and spread. Finally, this section reviews some of the main interventions implemented by this new coalition of actors to reclaim the city’s local strengths and promote the growth of new economic sectors.

Approach The turning point for the transformation of Turin is often identified with 1993, with the election of a new mayor. Elisa Rosso, Torino Internazionale In 1993, a change in Italian law paved the way for Turin to directly elect its mayor for the first time. Until this point, Italian local authorities operated in a strongly centralised system, in which mayors were indirectly elected by a council of elected politicians. Thereafter, mayors could directly be elected by their own constituencies in all towns with more than 15,000 inhabitants. This reform played an important role in the economic and political transformation of Turin, as well as several other Italian cities. Valentino Castellani, a former professor at the Polytechnic University of Turin and leader of a civic alliance party, became Turin’s first directly and locally elected mayor in 1993. Castellani and Turin stood at a crossroads, facing a choice between focusing their energies on resuscitating FIAT or on developing a new and diversified economic future for the city, adapting to FIAT’s new reality.

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In order to assess whether to focus on resuscitating the ailing automotive sector or to diversify into other sectors, Turin’s city authorities undertook an assessment of the automotive sector, and began to consult with local social and economic leaders and organisations. They discovered that FIAT’s former automotive suppliers were displaying typical features of the Torinese approach to business: driven by necessity, as well as the presence of buying offices for major foreign auto manufacturers in Turin (including General Motors (GM), Volkswagen and Ford) they had already begun to innovate and internationalise (Antonelli, 1998; Whitford and Ernietti, 2005). FIAT’s former suppliers began to develop new products for other buyers within Italy and internationally, and for other sectors, such as aerospace and train transportation. Other firms continued to supply FIAT, but changed the nature of their businesses, ‘learning by doing’: as FIAT devolved first productive and then design capabilities to its suppliers, they adapted and built up their know-how (Whitford and Ernietti, 2005). Product and process innovation was able to spread among many firms, including through the ‘Crescita Guidata’ (Guided Growth) programme promoted mainly by FIAT, in which a group of small and medium enterprises (SMEs) were selected to pilot an intensive programme of process development and quality control, which they were then asked to pass on to their own suppliers. By the mid-1990s, a significant part of automotive suppliers were already working with international car manufacturers, especially in Germany (interview with Mario Calderini, CEO, Finpiemonte). Thus, although the restructuring processes initiated by FIAT were challenging for its suppliers, they were handled well by the industry and led to many former FIAT suppliers becoming more efficient and better able to compete internationally. Realising that these processes were already under way, Mayor Castellani chose to pursue a development path for Turin towards further economic diversification and internationalisation, within and beyond the automotive sector. The economic regeneration of Turin has been based on a lot of strategy and less market, while other cities such as Milan have had little strategy and a lot of market. (Elisa Rosso, Torino Internazionale) Having chosen his course, Castellani then began to develop a concerted and clear strategy for the economic renaissance of Turin, working closely with the region’s industrial actors and institutions. Mayor Castellani realised early on that the transformation of Turin would require the involvement of a wide range of social, economic, political and cultural actors in the city. He recognised the potential of the strategic planning processes undertaken by cities such as Barcelona, and called for an ‘internal mobilisation’ to inform a strategy for the economic revitalisation of Turin. Turin’s first strategic plan was approved in 2000, and a new masterplan was ratified in 1995. Both documents were highly influential in Turin’s subsequent development, helping to create a climate and environment that enabled the region’s innate entrepreneurial spirit to adapt to a changing global market.

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We developed the Strategic Plan through a real ‘bottom-up’ involvement of the whole city as a team and a gradual process of small steps. Valentino Castellani, Mayor of Turin, 1993 – 2001 In 1998, Castellani began a two-year consultation with the city’s most important actors to inform the strategic plan. Two draft plans were produced, before the final plan was signed by 57 public and private leaders in 2000, making Turin the first Italian city to produce a strategic plan. The plan took into account the changes already occurring among automotive suppliers, and sought to link them to a strategic vision for the future of Turin. The main aim of the strategic plan was to transform Turin from a Fordist ‘one company town’ to an innovative and international city with a diversified new economy based on innovation, creativity and tourism. The plan was important not just for the vision it produced but also for the way in which it engaged with a wide range of actors. It was highly participative, involving leaders from several public and private bodies and hundreds of residents, and informal in style, encouraging the involvement of bodies that might otherwise have resisted engagement (Winkler, 2007). For this reason, it has been considered possibly the city’s most important recovery tool (ibid.). The specific interventions that stemmed from the strategic plan will be discussed in the following section on Interventions (see p. 93). The 1995 masterplan, Turin’s first in fifty years, provided a basis from which Turin could be reconfigured to better support the economic diversification and reorientation that was beginning to occur, moving from a monocentric city that was centred around the FIAT factories, to a denser, better connected, polycentric metropolis. The ‘Spina Centrale’ (Central Backbone) provided a central axis for the physical transformation of Turin, and was envisioned as a strategic growth corridor. This area was formerly the city’s industrial artery, and included a major overground railway. The masterplan proposed to replace the railway line with a new 12km arterial road, under which a new railway line would run, and along which a series of brownfield industrial zones would be redeveloped into mixed-use neighbourhoods. Separate plans were developed in respect of each of these zones (Spina 1, 2, 3 and 4 in Figure 4.2), together making up an area of 1.4 million square metres (0.54 million square miles). Fifty-three per cent of the land was designated for residential use, 43 per cent for commercial activities and 4 per cent for public infrastructure. The four brownfield sites were also to be linked back to the urban fabric through new transport infrastructure, including Turin’s first metro line. Today, the former industrial areas designated in the 1995 plan are the sites of some of Turin’s most prestigious and successful firms and institutions, such as General Motors, Microsoft, JAC and the new Cittadella Politecnica.

Institutional framework and governance The transformation of Turin has been led by a coalition of public organisations and institutions, namely the City of Turin, Piedmont Region and Politecnico,

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Stura

Vitali area

SPINA 4 Dora

SPINA 3

Porta Susa SPINA 2 Porta Nuova SPINA 1

Politecnico

Zappata Mirafiori

Lingotto

Municipal boundary Spina Centrale Redevelopment area 1km 2km

Figure 4.2 Detail of Turin’s masterplan, 1995 Source: Geoportale del Comune di Torino (online)

which laid the foundations for a broad development platform involving local economic and social actors. (Giovanni Magnano, Head of Housing Department, City of Turin) The Castellani administration and the regional Piedmont government promoted the development of a new institutional and financial governance model for urban and economic development, which was critical to Turin’s subsequent transformation. This new model involved the creation of new local development agencies for innovation and internationalisation, including the influential Centro Estero Internazionalizzazione Piemonte (Piedmont Agency for Investments, Exports and Tourism, CEI), Finpiemonte (the regional development agency) and Finpiemonte Partecipazioni (Finpiemonte Equity Investments). It also supported new institutional collaboration between the city of Turin and the Piedmont region, which enabled Turin to share visions for local development and effectively access substantial EU funding with which to pursue its policies in turn. In addition, in 1997, the municipality of Turin developed an innovative programme called Progetto Speciale Periferie (Special Project for Peripheral Neighbourhoods), setting up a dedicated department within the Council, called the Neighbourhood Unit, whose exclusive aim was to address the social problems of degraded neighbourhoods across the city as part of the overall recovery effort.

90 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

This process was part of a broader institutional restructuring process initiated by the first Castellani administration, which streamlined roughly 17,000 municipal employees in 1993 to 12,800 municipal workers in 2004 (Rosso, 2004) and consolidated the eighty-seven departments into fewer administrative units. Turin’s transformation was not solely led by city and regional governments and the new agencies they created: industrial trade bodies, universities and private bank foundations also played a critical role, as well as, of course, firms and entrepreneurs themselves. Turin’s trade bodies, such as the Unione Industriali di Torino (Turin’s Industrial Union) and its subsidiaries (Associazioni di Categoria), helped firms to adapt and promoted them in new markets and new sectors. Turin’s bank foundations played a critical role in financing new agencies and start-ups, while the Politecnico di Torino adapted its courses and its interactions with the private sector to the changing economic reality. Together, these actors and institutions made an important contribution to retaining and re-shaping the skills and expertise built up by Turin in the automotive sector. How they did so will be discussed in detail in the ‘Interventions’ section below, after the governance changes initiated by the city and regional governments are introduced.

The creation of new local development agencies In order to respond to the new strategic plan, the governments of Turin city and the Piedmont region restructured previously existing agencies and created new ones. These number too many to consider in detail in this report, but an indication of the range and ambition of the new governance arrangements is provided by Table 4.3. In addition, it is relevant to highlight two of the most significant companies created CEI: Centro Estero Internazionalizzazione Piemonte (the Piedmont Agency for Investments, Exports and Tourism) and Finpiemonte Partecipazioni, before the actions taken by these companies are discussed in detail below. In 1997, several agencies, including Invest in Torino Piemonte and Turismo Torino, were created to attract investment and tourists to Turin and Piedmont through a more dynamic governance model. Later, in 2006, these agencies were merged with Centro Estero Camere Commercio Piemontesi (Foreign Service of Piedmont Chamber of Commerce, founded in 1976 to support local SMEs), to form CEI. This merger provided a more direct link to the strategic plan and reduced fragmentation. CEI’s main mission is to attract foreign investment and foreign enterprises to Turin and Piedmont more generally. Its programmes include promotion and support services to foreign investors, connecting local companies with foreign partners, and specifically promoting Piedmont’s food and wine and tourism sectors internationally. Finpiemonte, a regional development agency and the financial arm of the Piedmont region, was set up in the 1970s with the aim of facilitating the restructuring of the regional economy after the oil crisis. Finpiemonte has played an important role in Turin’s transformation, both by financing regional development projects and

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Table 4.3 Development agencies set up as part of the Strategic Plan Agency

Nature and Objective

Turismo Torino

A tourist agency to promote and welcome tourism in the Turin area

Invest in Torino Piemonte (ITP)

An agency to attract investments to Turin and Piedmont

Associazione Torino Internazionale An association to coordinate and monitor the delivery of the Strategic Plan comprising 120 representatives of economic, cultural and social institutions throughout the area Convention Bureau

An organisation to promote convention activity

Organising Committee of the 20th Winter Olympic Games

A non-profit private foundation; to organise the Turin 2006 Olympic and Paralympic Games

Film Commission

A commission to promote the film industry

Six Territorial Pacts

Agreement among neighbouring municipalities

Technological Parks (e.g. Environmental Park and Virtual Reality Multimedia Park)

Parks to attract investments in high added value new economy industries

Fondazione Torino Wireless

A foundation to promote investments in the information and communications technology sectors

Source: Adapted from Rosso (2004)

creating joint ventures and spin-offs in strategic sectors. It has acted as the holding company for regional science parks and business incubators, has provided an integrating platform for the actions of different agencies, and has re-shaped institutions for technology transfer. In 2007, Finpiemonte was split into two companies, Finpiemonte and Finpiemonte Partecipazioni, which have since carried out these roles. By 2010, Finpiemonte Partecipazioni had developed a portfolio of thirty-three joint ventures, including Torino Nuova Economia (Turin New Economy, TNE). TNE was set up as a result of an agreement between the Piedmont Region (40 per cent of equities), the City of Turin (40 per cent), FIAT (10 per cent) and the Province of Turin (10 per cent); the agreement was signed in 2005 to redevelop part of the FIAT Mirafiori plant. Importantly, TNE is responsible for the transformation of the area to promote new economy sectors, including a design centre linked to the Politecnico, which will offer courses in design for over 2,000 students.

Attracting investment through city–region collaboration To apply for EU structural funds the city of Turin and Piedmont region developed shared visions for the economic development of the region, which were then implemented through direct liaison with the European Commission. (Elisa Rosso, Torino Internazionale)

92 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Castellani realised early on in his leadership that it would be necessary to seek new sources of funding in light of the restructuring processes under way in FIAT. Substantial EU funding and investment were available for bids, but EU rules stated that proposals must be supported by both city and region in order to be successful. For the city of Turin and the region of Piedmont, this provided a strong incentive to work together more closely. In order to achieve better collaboration, civil servants within Turin city council and the Piedmont regional government began to rotate between the two organisations, facilitating the transfer of knowledge and developing the expertise of the workforce. This happened, for example, in the city and regional departmental offices for housing and urban planning (interview with Giovanni Magnano from the housing department, City of Turin). These efforts were successful: since 1989, the Piedmont region has received a total of over €2.5 billion funding for over 36,000 projects from the European Regional Development Fund and the European Social Fund (publicly co-funded locally). Piedmont was highly successful in accessing these funds, both within Italy and within Europe as a whole. Other than regions such as Sicily and Campania, which received higher amounts of regional funding in light of their poorer status, Piedmont was the most successful Italian region in accessing EU funding. Most of this money was invested in strengthening the industrial production system and the regeneration of former industrial areas, with significant amounts also spent on research, innovation and technology transfer and territorial assets (Regione Piemonte, 2010). Some of the most interesting and significant of these projects are discussed in the following section. Piedmont was also effective in accessing loans from the European Investment Bank, attracting over €3.3 billion between 1993 and 2010 together with local companies such as Merloni, FIAT and Zanussi (European Investment Bank website, 2010). Over €2 billion of this investment was directed towards industry, a further €1 billion towards transportation and over €100 million towards education (ibid.).

Interventions In addition to the adaptations and reconfigurations made by firms themselves, a range of interventions were pursued by Turin’s city and regional governments, new agencies, industrial unions, universities and bank foundations. Together, these played an important role in creating a climate that enabled the region’s innate entrepreneurial spirit to adapt to a changing global market. In this section, four of the most significant interventions are considered in turn: 1 2

reclaiming industrial areas for the new economy – the impact of the 1995 masterplan and effective public–private collaboration; bridging the gap between universities, businesses and private capital – the role of the bank foundations and the Politecnico di Torino;

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3 4

steering growth towards new economic sectors; and promoting firms into new sectors and new international markets – the role of trade unions, the Associazioni di Categoria and the Turin Chamber of Commerce.

Reclaiming industrial areas for the new economy As mentioned above, the 1995 masterplan provided a basis from which Turin could be reconfigured from a city centred around the FIAT factories, to a denser, better connected, polycentric metropolis. It proposed the redevelopment of the old industrial artery and railway running through the centre of Turin, re-using four major industrial sites (Spina 1, 2, 3 and 4) into mixed-use neighbourhoods reconnected with new transport infrastructure. Overall, €2.45 billion of public and private investment was invested in transport infrastructure, including Turin’s first metro line and a highspeed rail link with Milan. New public and green spaces were also created. Redevelopment works of the railway running through the centre began in 2000 and are now reaching completion. In total, they will increase the amount of Turin’s land available for development by 2 million square metres (21.5 million square feet). Some of the most emblematic redevelopments are described below, many of which have been driven forward by spin-off companies created by Finpiemonte (now Finpiemonte Partecipazioni), which are able to operate effectively within the private sector, while pursuing the transformation of Turin envisioned by the 1995 masterplan. Spina 3 was the site of FIAT-owned steelworks in the city centre until 1978, when they became part of the Teksid group (also owned by FIAT), before winding down in the late 1980s and being sold on. The steelworks remained abandoned until Sinatec, a company set up by Finpiemonte, began a project to transform the brownfield land in 2005. The steelworks today have been transformed into Vitali Park, a building designed to accommodate manufacturing activities with low environmental impact, craft laboratories and service activities for SMEs. It has a total floor space of 15,000 square metres (161,458 square feet). The transformed ex-industrial sites of FIAT’s Lingotto factory and nearby steelworks, are today a mixed-use university and commercial site. In the booming years FIAT was interested in liaising with national government but the crisis of the 1970s forced this large corporation to consider city authorities as new negotiating partner, especially in relation to the legacy of its territorial assets. (Roberto Tricarico, Deputy Mayor for the Environment, City of Turin) The economic crisis and changes to the national and international economic landscapes have also shaped a new, more collaborative working relationship between

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TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

FIAT and local authorities, especially in terms of the re-use of the outdated parts of FIAT’s economic infrastructure. An example of this can be seen in the transformation of Lingotto, FIAT’s historic production plant and a symbol of Turin’s industrial strength, which closed down in 1982 as FIAT began to reduce its operations in the city. The changes to Lingotto began in 1985 when it was adapted by internationally renowned architect Renzo Piano into a flexible and versatile space. Today, Lingotto is the site of an automotive engineering school at the Politecnico di Torino, created with the help of EU funding, as well as a congress and exhibition centre, auditorium, offices, hotels, a cinema, cafes and restaurants. Today, FIAT has returned to Lingotto: the converted plant is home to the firm’s headquarters, including the office of FIAT’s Chief Executive. More recently, Torino Nuova Economia (Turin New Economy, TNE), the aforementioned Finpiemonte Partecipazioni joint venture between the Piedmont region, Turin City, Turin Province and FIAT, purchased part of Mirafiori, the historic FIAT plant and the largest Italian industrial plant. TNE are currently developing this part of Mirafiori into a design centre that will bring together all of Politecnico di

FIAT’s avant-garde 1920s Lingotto production plant has been transformed into an engineering school for the Politecnico di Torino, as well as the city’s major new congress and exhibition centre with offices, hotels, a cinema and shops Source: Michele D’Ottavio

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Torino’s research and training activities on design in one place in the city. Construction began in 2007, and involves a total investment of €25 million, €4 million of which comes from the European Union structural funds. When completed, the design centre will provide 7,000 square metres (75,347 square feet) of floor space, including space for training 2,000 students.

Bridging the gap between universities, businesses and private capital The shrinking economic power of FIAT felt like a lid slowly removed from a boiling pot. It was only when the lid finally flipped that a series of new civic and social actors other than FIAT began to emerge in Turin. (Professor Giuseppe Dematteis, Politecnico di Torino) FIAT had traditionally invested in innovation, research and training, not only internally, but also across its supply chains. FIAT’s investment in these areas – in particular in the largest private research centre in Italy, the 850-strong Centro Ricerche FIAT (FIAT Research Centre) and the ISVOR training school, which re-trained automotive workers – thus benefited many Torinese firms. According to Whitford and Ernietti, such investments in ‘collective goods’, strengthened regional industries and generated capabilities that served firms well when the need came for institutional changes (2005). Thus, while FIAT increasingly focused its research and training activities on its own internal processes rather than on its wider suppliers as it underwent restructuring processes, firms were well placed to adapt to new conditions. Furthermore, FIAT’s ability to innovate in engine design continues to play an important role in Turin’s attraction to major international car manufacturers. Innovations such as the multi-jet engine, along with others developed by FIAT such as the Common Rail and ABS braking system, have been widely adopted in international automotive markets, and demonstrate the continuing innovative capacities of Turin. A new range of urban actors emerged from Turin’s dynamic and highly capable workforce and institutions, utilising and building on the skills and training resources developed by FIAT. The bank foundations and the Politecnico di Torino became increasingly important, as they shifted from their traditional roles towards much more active roles as intermediaries between researchers, the private sector and the government. Today these institutions attract new firms to Turin, providing finance, training and research capacities.

Politecnico di Torino The Politecnico is a good example of horizontal integration with GM operation. (Mario Calderini, CEO, Finpiemonte)

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The Politecnico di Torino has been a key player in Turin, successfully transforming itself from an institution that was set up to support the mass production industries in the inter-war period, to a key interface between business, research and policymaking realms. A critical step was the Politecnico’s decision to open a new university campus, the Cittadella Politecnica, in the centre of Turin in one of the former industrial areas. This was important in bringing the Politecnico closer to businesses and to the government, providing it with the ideal location from which to collaborate. Competition for spaces within the Cittadella Politecnica from private companies was intense: eighty-nine firms applied for seven spaces. Among the successful applicants were Microsoft and JAC. Today, the Cittadella is a recognised centre of research and expertise in automotive design and production. The Politecnico has worked closely with private enterprise, helping to accelerate new business formation through its business incubator and helping to attract major international companies to Turin, working together with other local actors such as FIAT and the city and regional government. For example, the business incubator I3P is a not-for-profit joint-stock consortium made up of the Politecnico, the Province of Turin, the Chamber of Commerce of Turin and the City of Turin. I3P has facilitated the start-up of 122 companies since 1999. This has helped to make Piedmont one of the top-performing Italian regions in terms of spin-offs from incubators, with a total of forty-nine (Ferrando, 2009c). General Motors (GM), the world’s largest car manufacturer, was initially attracted to Turin by FIAT’s expertise in engine design. In 2000, the two companies formed a cross-shareholding alliance, producing new highly efficient multi-jet engines. When this alliance ended in 2005, GM nonetheless chose to remain in Turin, forming an agreement with the Politecnico to locate its research and training facilities for the production of new diesel engines in the Cittadella Politecnica, employing more than 500 researchers. In 1997, the Politecnico and the city government together entered into negotiations with Motorola, the Chicago-based international communications firm, to create Motorola’s European research centre in Turin, as part of Mayor Castellani’s plans to develop Turin’s information and communication technologies (ICT) sector. Two years later, agreement was reached for a provisional investment from Motorola of around €85 million over five years and the creation of 500 jobs for technicians (Ferrando, 2009a). Between 1999 and 2008, Motorola developed 35 new mobilephone models, including the first camera phone and the first UMTS system (a thirdgeneration mobile telecommunications technology). Although the research centre closed in 2008 as a result of broader job losses at Motorola Europe due to the financial crisis, a local ICT firm hired all the engineers and former employees of Motorola in 2009, retaining their expertise within Turin. The research and training capacities of Turin today are a major draw to international firms. These capacities have their roots in FIAT’s great innovative history, which has been retained and further developed by other local firms and

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research institutions as well as by FIAT. Within this, the Politecnico has played an important role by adapting its training and research services and facilities for a changing market. The new courses and research capacities of the Politecnico are demonstrably important in firms’ decisions to locate themselves in Turin. The vicepresidents of GM Powertrain Europe and JAC, for example, have both attributed their decision to locate in Turin to the Politecnico – because of the shared knowledge developed with the Politecnico (in the case of GM) and the automotive engineering courses at the Politecnico (in the case of JAC). They agree that ‘after the separation from Fiat we decided to stay in Turin because of the shared knowledge we built on the diesel engines. This shared knowledge is an asset on which we want to invest’ (Roger Johansson, Vice President of GM Powertrain Europe, in Ferrando, 2009a: 99). ‘We chose Turin because it is a place which cultivates very high competences [in the automotive production], particularly due to the presence of the Politecnico courses in automotive engineering’ (Gongh Rehne, JAC Vice President, in Ferrando, 2009a: 116). Today, the Politecnico boasts more than 2,000 employees, six headquarters, over 250 courses, 25,000 ‘clients’ and an annual budget of €300 million. Its budget has increased by 116 per cent over the last ten years (Ferrando, 2009a: 94), enabling the Politecnico to expand and diversify its activities. It has attracted increasing numbers of foreign students, especially from China (the number of Chinese students grew from zero in 1990 and just four in 2005, to 338 in 2007), which has created strong bilateral business links between Turin and future export markets.

The bank foundations Foundations (not only bank foundations) play a critical role in generating local human capital. (Professor Alfredo Mela, Politecnico di Torino) In the early 2000s, Turin’s main bank foundations, which are some of the largest in Europe, shifted from traditional philanthropy to an intermediary role between Turin’s universities and the private sector. This development had an important impact on the Turin economy, facilitating personnel movement and knowledge transfer between firms and universities, and initiating developments in emerging sectors such as sustainable mobility and ICT. Between 2001 and 2005, the bank foundations invested a total of €380 million in Turin (Database Osservatorio Fondazioni), with Fondazione Cassa di Risparmio di Torino (Fondazione CRT) and Compagnia di San Paolo (CSP) playing particularly influential roles. Fondazione CRT finances over 1,500 projects in Turin annually, and plays an important role in the development of its human capital, investing in the development of young professionals and researchers. CSP is Europe’s fourth-biggest bank foundation with total assets of €7.75 billion, and has been a major funder of high-tech industrial development projects. Some of the significant projects funded by CSP have been:

98 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

•

•

•

•

The Institute Mario Boella was created by CSP and the Politecnico in 2000. Funded by CSP as well as its own consultancy works, it has an annual budget of €11.9 million and employs around 250 researchers in the fields of e-security and satellite navigation. The institute has worked with Motorola, SKF, STMicroelectronics and Telecom Italia as industrial associates, and has signed more than forty cooperation agreements with important global universities, including UCLA, Berkeley, and the University of Hokkaido. The Higher Institute on Territorial Systems for Innovation (SITI) was created in 2002, with €23 million funding from CSP. Its aim is to carry out research and training in logistics and transport, environmental heritage and urban redevelopment, and environmental protection, including studies on health and mobility in Piedmont, and how to improve the accessibility of a new hospital in Verbania through better private and public transport networks. Turin Wireless Foundation was created between 2001 and 2003, and was the first of Italy’s technological districts (a national policy). It is a good example of successful vertical integration of government, being created and funded by national, regional, provincial and municipal governments, as well as successful institutional partnership with the CSP and Institute Mario Boella. Its aim is to develop Turin’s ICT District as an international hub of technology and innovation, through enterprise acceleration, networking, and venture capital. It is considered by the OECD to be ‘an unqualified success’ (2009: 46). Real Collegio Carlo Alberto, an advanced research institute delivering an International Masters in Economics and other initiatives in social sciences.

Steering growth towards new economic sectors Since 1994, Piedmont regional government has promoted growth in new sectors, helping to create a climate in which the diversification and adaptation already under way within many firms would become more widespread, and to attract new international players to Turin and the wider Piedmont region. One of the first major initiatives in this area was the establishment of technology parks, such as the Environmental Park and Virtual Reality Multimedia Park in Turin, with the aim of promoting centres of excellence in new fields. However, the general consensus is that these parks did not produce the desired results, because, for example, they were ‘too far ahead’ of what Turin’s economic fabric could achieve at the time, they suffered from high debts linked to the investment in real estate and office spaces, and were not supported by adequate entrepreneurial promotion programmes or policies that connected the parks to the university system and local companies. Enabled by a national law that devolved power in relation to innovation policies to regional governments, the Piedmont region sought to turn the failing technology parks around by giving them a new role within twelve innovation poles. These innovation poles would form a new regional system of innovation, encompassing not only the troubled technology parks but also the new relationships being formed by

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the Politecnico and the bank foundations as well as by individual firms and industrial bodies. Each innovation pole focuses on a different economic sector, including for example biotechnology, design and ICT, and brings together SMEs with research centres and major firms in order to develop products or processes for new markets. The overall objective of the initiative is to increase local competitiveness at the national and international level, to increase inward investment from abroad and to increase the export capacity of local firms. This specific initiative can be seen as part of a broader shift from a centrally organised innovation system, centred around Turin, the historic location of FIAT and its network of suppliers, towards a more regionally balanced, polycentric regional innovation system (Salone, 2010). As Piedmont begins to develop agreements and protocols with other regions, importantly Lombardy (containing the city of Milan), a north-western macro region is showing the first signs of emergence within Italy (Salone, 2010; Salone and Besana, 2010). The innovation poles initiative has been developed by the Piedmont region and Finpiemonte, as well as through individual institutions responsible for each innovation pole (see Table 4.4). The project has attracted €90 million from the EU so far, of which €52 million has been assigned across all twelve poles: an average of €4.3 million per innovation pole (Regione Piemonte, n.d.). The first phase of the programme has been dedicated to attracting research centres, local SMEs and enterprises to the innovation poles, and developing joint projects for products, processes or new markets. The innovation poles are still at a very early stage of development, making them difficult to evaluate at this point. One of the experts interviewed as part of this study, for example, felt that resources were currently being stretched too thinly over too many sectors. However, so far nearly 600 firms have been involved, 70 per cent of which are SMEs, and nearly 400 research and development (R&D) projects have been developed, with an estimated total value of some €250 million over the next five years (Ferrando, 2009b). At least eight other Italian regions have now introduced a similar policy, reflecting the early success of the Piedmont experience. In addition to innovation poles, more traditional productive sectors such as textiles, clothing, food and wine have been re-discovered as important local cultural, environmental and economic assets and have been promoted as the region’s niche ‘excellences’. As part of the re-discovery of vernacular activities, cultural and creative industries such as publishing, food and wine, began to be promoted through the organisation of trade fairs, events, and co-branding campaigns. The emergence of important grassroots movements such as Slow Food, which was founded in Piedmont in 1986 to counter the rise of fast life and fast food, helped pave the way for the re-discovery of Piedmont’s culinary traditions. With supporters in 150 countries, 100,000 members and a network of 2,000 food communities which practise sustainable production, the Slow Food movement has become a global phenomenon

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TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Table 4.4 Innovation poles in Piedmont Managing Institution

Budget (millions euros)

Submitted projects

Agro-Food

Tecnogranda

5.1

31

Sustainable Architecture and Hydrogen

Polight (Environment Park)

6.2

25

Biotech

BiopMed (Bioindustry Park)

3.8

16

Sustainable Chemistry

Consorzio IBIS

3.5

4

Digital Creativity

Virtual Reality & Multimedia Park

2.0

9

Renewable Energy and biofuels

PST della Valle Scrivia

5.4

14

Energy & Mini Hydro

ENERMHY (Gesin)

5.3

19

ICT

Fondazione Torino Wireless

5.8

21

Equipments for renewable energy

Tecnoparco del Lago Maggiore

1.5

4

Meccatronica (Mechanics & Electronics)

Centro Servizi Industrie

7.4

15

New Materials

Consorzio Proplast

4.2

22

Textile

Città Studi

Total

1.8

7

52

187

Source: www.regione.piemonte.it/innovazione/poli-di-innovazione.html

and a Piedmont trademark. The movement holds major international fairs in Turin, including Salone del Gusto (Taste Fair) and Terra Madre (Mother Earth), bring consumers and producers together, and has been important in developing the sector in Piedmont. The most recent Salone del Gusto, held at Lingotto in October 2010, was attended by an estimated 200,000 visitors. The first world meeting of the international Terra Madre network in 2004 brought together 5,000 producers from 130 countries, with researchers, students and activists (www.terramadre.org).

Supporting firms into new sectors and new international markets In the first decade of the twenty-first century, the overall turnover of the automotive components sector and manufacturing industry increased significantly, contributing to a strong surplus for the local economy. (Mauro Ferrari, Vice-President ANFIA, Associazione Nazionale Fra Industrie Automobilistiche (National Association of the Automobile Industry)) After FIAT downsized and restructured its Turin production, SMEs in the automotive sector faced the challenge of competing internationally with much larger firms,

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a challenge also facing firms in sectors such as ICT and aerospace. Here, the actions of the Unione Industriali di Torino and its Associazioni di Categoria, the Turin Chamber of Commerce and Centro Estero Internazionalizzazione Piemonte (the Piedmont Agency for Investments, Exports and Tourism, CEI) have been important in enabling Turin’s SMEs to achieve an international profile and adapt to changing international conditions in their relative sectors. The Unione Industriali di Torino is a voluntary association of companies in Piedmont, made up of around 2,000 companies with a total of some 200,000 employees, with thirty subsidiaries in particular sectors (Associazioni di Categoria), for example automotive industry and steel manufacturing. The Unione Industriali dates back to 1906, is a member of the main organisation representing businesses in Italy, Confindustria, and has been an influential agent in Turin’s economic diversification and internationalisation. The aims of the Unione Industriali are: •

• • • •

• •

to promote, protect and defend the interests of industry, representing and advising companies in their dealings with the authorities, administrations and economic and trades union bodies; to inform public opinion regarding the perspective and performance of the business community; to promote the spread of business and market culture; to facilitate corporate growth and development by promoting internationalisation and modern management techniques; to provide opportunities for communication between businesses and with other actors and institutions, including key figures in political, economic and cultural worlds; to provide first-rate consultancy services and advice for companies; and to cooperate with other public and private organisations to encourage the economic and social development of the Province of Turin, safeguarding the role of local industry and business interests.

The specific activities of the Unione Industriali are too many to discuss in detail, but include various initiatives to facilitate internationalisation and to promote R&D. It has organised trade missions, enabling its mainly SME membership (85 per cent are small and 13 per cent are medium-sized) to access international markets and foreign investors. It has provided useful services to individual companies, for example disseminating studies and analysis of foreign markets and providing information to assist members in accessing regional, national and European research and investment opportunities. One of the Unione Industriali’s largest initiatives has been the Mechatronics (a multidisciplinary term combining mechanical, electronic, computer, control and systems design engineering) and Advanced Production Systems Innovation Pole (MESAP). MESAP aims to develop local mechatronics capabilities to operate in international research programmes and in international

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markets, by funding R&D projects and facilitating networking and collaboration between different mechatronics clusters. Finally, the Unione Industriali has also been an important lobbying body on behalf of Turin businesses. For example, recently, it helped Turin companies to withstand the global financial crisis by re-negotiating the terms of loans with the financial sector for a limited period. In addition to the Unione Industriali’s programmes and initiatives, CEI and the Turin Chamber of Commerce have also developed a range of capacity building and networking programmes, which have again helped firms to adapt and re-configure themselves for new markets. These include: •

•

•

From Concept to Car, a project initiated in 2003 to strengthen innovation among 152 selected local automotive suppliers, as well as their capacity to operate in foreign markets. From 2003 to 2009, €4.8 million was invested, generating €41.8 million in export sales. While the total turnover of new business generated is relatively modest, the initiative established a new culture in the industry that has had widespread benefits in securing new work (see Box 4.1). Think Up ICT, a project initiated in 2007 to promote Turin’s expertise in ICT abroad, involving approximately eighty ICT firms. Between 2007 and 2009, €1.6 million was invested, generating thirty-five international orders for €3.2 million. Torino Piemonte Aerospace, a project initiated in 2007 to promote the Aerospace district in an international context, involving approximately seventy aerospace firms. Between 2007 and 2009, €1.6 million was invested, generating eight international orders for a total of €11.2 million.

These initiatives were designed to help firms access international markets, and diversify into new sectors. Interviews conducted at the Turin Chamber of Commerce as part of this research suggested that some companies have participated in more than one programme, as they began to diversify from one sector to another, for example from automotive to aerospace. Firms seem to find these programmes useful in internationalising their business. As the export manager of Tubiflex, a medium-sized Torinese company that produces pipes and was involved in both From Concept to Car and Turin Piedmont Aerospace, put it: I believe that the most important contribution of programmes such as Torino Piemonte Aerospazio is to give visibility to SMEs that they would find hard to acquire by themselves otherwise. In my opinion, the fact that we present ourselves on the global stage under the form of a regional . . . industrial system, with a significant critical mass, helps all of us to reach a level of credibility much higher than what we could otherwise get individually. (TCC, 2008a: 73)

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Box 4.1 From Concept to Car, Turin Objectives 1. To strengthen the capacity of local automotive suppliers to operate in foreign markets and increase their turnover from international contracts. 2. To increase awareness in major strategic international markets that Turin is a centre with unique technical competence and expertise in the automotive industry. 3. To support collaboration between local companies at technical and commercial levels in order to facilitate business opportunities linked to the supply of complex systems. 4. To nurture the development of innovation within and between local companies.

5. To revive the image of Turin and the Piedmont region as a centre for international events.

Approach This is a project aimed at the entire automotive cluster, not just individual participants, by promoting a territorial system of industrial competence. Strong branding is used to provide coherence and visibility to the project. A hundred and fifty companies are selected annually, mainly SMEs, as well as the purchasing managers of prestigious foreign car manufacturers. The main activities implemented between 2002 and 2008 have included the following: • Nearly 1000 Business-toBusiness meetings have been arranged between local suppliers and

seventy international car manufacturers. • Eighteen international trade missions have taken place with participating companies. • A hundred and forty-five direct one-to-one assistance to local suppliers for their commercial contacts and negotiations with potential clients. • Forty-five international automotive buyers have been invited to Turin. Overall, €4.8 million was invested between 2003 and 2009.

Results Sixty-five international orders have been generated, worth a total of €41.8 million, representing nearly nine euros of generated sales for every one euro invested. Source: Turin Chamber of Commerce (2008b)

Promoting Turin’s international profile through mega-events In order to boost Turin’s international image and kick-start its internationalisation in new economic sectors, the city authorities decided to promote Turin as a location for mega-events, including international sporting events and sector-themed promotional events. The Winter Olympics were hosted in Turin in 2006, and had a catalytic impact on the city’s infrastructure investment and the development of new economic

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Turin’s established manufacturing industry has been modernised and diversified, meeting the needs of a wider global market Source; Michele D’Ottavio

sectors. It was a critical moment in the city’s transformation. Over €1 billion was invested in infrastructure improvements, including to Turin’s airport, roads and rail network (€434 million) (Vanolo, 2008; Dansero and Puttilli, 2010). The Olympic Games were a comprehensive project that catalysed efforts to transform Turin from a social, urban and environmental point of view. It helped us deliver several projects on time. (Deputy Mayor for the Environment, City of Turin) For two years before the Olympics, Turin was a giant building site. (Giovanni Magnano, Head of Housing Department, City of Turin) After the Olympics, Turin was awarded the title of World Capital of the Book (together with Rome) in 2006 and World Capital of Design in 2008. The city also hosted the World Fencing Championship and the Chess Olympics in 2007, as well as an international exhibition of the Turin Shroud, which attracted several hundred thousands of tourists in 2010. As described above, the Slow Food international fairs Salone di Gusto and Terra Madre have become major international attractions and play an important role in shaping Turin and Piedmont’s international reputation.

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Mega-event promotion has also been linked to the regeneration of brownfield sites. For example, the old railway workshops in the Spina 1 are being regenerated and transformed into a large exhibition space to celebrate the 150th anniversary of Italy’s Unification in 2011.

Results of the transformation process Economic success at the city level Turin and Piedmont’s actions over the past twenty years have helped the Metropolitan Region to improve its economic performance in a period characterised by FIAT’s acute crises in the early 1990s and early 2000s. Piedmont recovered from sharp

6 in %

Piedmont Italy

4

0

-4

-8 1980

1985

1990

1995

2000

2005

2010

Figure 4.3 GVA growth rates (%) for Piedmont and Italy, 1981–2010 Source: Cambridge Econometrics (2010)

25000 in 2000 €s

Piedmont Italy

20000

15000

10000 1980

1985

1990

1995

2000

2005

2010

Figure 4.4 GVA per capita (in year 2000 €s) for Piedmont and Italy, 1980–2010 Source: Cambridge Econometrics (2010)

106 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

decreases in its GVA in the early 1990s and 2000s, significantly greater than in Italy as a whole, returning to broadly similar growth rates after each crisis (Figure 4.3). GVA per capita fell slightly in both Italy and Piedmont in 1993, but then returned to growth, with Piedmont continuing to out-perform the rest of Italy, despite a narrowing of the gap in the 2000s (Figure 4.4). While unemployment rose in Italy from 10.5 per cent in 1990 to 11.4 per cent in 1999, in Piedmont it rose by only 0.1 percentage points, from 7.2 to 7.3 per cent, remaining significantly below Italian averages (Figure 4.5). Employment in Piedmont recovered more quickly than in Italy as a whole, in 1994 rather than 1996, and then increased its lead on Italy throughout the 1990s and 2000s (Figure 4.6). Piedmont GVA per capita remained higher than the Italian average, although the gap narrowed somewhat in the early 2000s.

12 in % Piedmont Italy

10

8

6

4 1980

1985

1990

1995

2000

2005

Figure 4.5 Unemployment rates (%) for Piedmont and Italy, 1980–2008 Source: Cambridge Econometrics (2010)

80 in % Piedmont Italy

70

60

50 1990

1995

2000

2005

2009

Figure 4.6 Employment rates (%) for Piedmont and Italy, 1991–2009 Source: Eurostat (online)

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2500 in 000s Turin Province

2000 1980

1985

1990

1995

2000

2005

2008

Figure 4.7 Population of Turin Province (in 000s), 1980–2008 Source: Cambridge Econometrics (2010)

As Turin’s economic performance improved, the population loss that characterised it prior to 2000 reversed (Figure 4.7). Between 2000 and 2008, the population of the province of Turin increased from 2.18 million to 2.28 million, finally returning to 1990 levels (2.26 million).

Economic success in the next urban economy Turin’s adaptation and recovery from FIAT’s restructuring processes has been driven by an improving performance in innovation; the growth of a diverse range of new economic sectors, including tourism, design and aerospace, and increasing internationalisation. In each of these areas, change has been achieved through a combination of innovation and resilience of individual firms, consolidating actions taken by industrial unions and the chamber of commerce, the important roles taken up by the bank foundations and the Politecnico, and by the strategies of the city and regional governments. While it is difficult to assess the relative contributions made by each set of actors, it is clear that public actors have at least played a role in developing the climate and environment – and in some cases providing the financial resources – for the changes pursued by other economic actors to accelerate, flourish and spread.

Innovation Turin’s performance in innovation is demonstrated by the strong increase in its patents per million inhabitants. After a significant decline in the early 1990s, coinciding with the major FIAT crisis that led the company to pull back from its important research activities, the Piedmont region quickly turned itself around and has outperformed Italy throughout the 2000s (Figure 4.8). The number of patents per

108 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

150 per million of inhabitants

120

90

60 Piedmont Italy

30 1990

1995

2000

2005

Figure 4.8 Patents per million inhabitants in Piedmont and Italy, 1990–2007 Source: Eurostat (online)

million inhabitants dropped from 76.287 in 1992 to 65.561 in 1993, however, they rose sharply again by almost 40 per cent from 102.755 in 2000 to 144.166 in 2004. Employment in science and technology has also increased over the past decades, and in recent years Piedmont has started to pull away from Italy, coinciding with the major expansion in the research capacity and capability of the Politecnico (Figure 4.9). From 2005 to 2009, the percentage of workers in science and technology in Piedmont rose from 18.8 per cent to 21.2 per cent, showing an increase of nearly 14 per cent, which is above the 9 per cent national increase.

25 % of total population

20

15

Piedmont Italy

10 1995

2000

2005

2009

Figure 4.9 Employment in science and technology, 1995–2009 Source: Eurostat (online)

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Diversification into new economic sectors, including tourism, design and aerospace As manufacturing declined in Turin, services grew strongly, driving the city’s economic recovery. Between 1990 and 2008, Turin’s share of employment in services increased by 37 per cent, compared with manufacturing losses of around 38 per cent (Figure 4.10). Tourism has been a strongly growing sector, linked to Turin’s increasing international profile, and the design sector shows signs of being a strong spin-off from Turin’s traditional strengths in manufacturing.

Attraction of tourists and foreign students Tourism in Turin has grown from being virtually non-existent twenty to thirty years ago, to attracting some 1.9 million visitors in 2009. The number of international tourists increased rapidly during the mid-2000s, connected to the promotional effect of the 2006 Winter Olympics in Turin and the associated investments in Turin’s infrastructure, although this has since tailed off somewhat (Figure 4.11). Despite this, employment in hotels and restaurants has continued its steady increase (Figure 4.12), buoyed by the rapid increase in the number of Italian tourists visiting Turin since 2006. The number of tourists has also been complemented by an increasing number of foreign students, who have begun attending courses in the rejuvenated local university system. Overall, the Politecnico has doubled its registered student number in the last five years (more than 38 per cent in the Faculty of Architecture and over 63 per cent in the Faculty of Engineering). In terms of foreign students hosted by the Politecnico, this increased from less than 100 in 1999/2000 to 2,533 students in 2008/2009 (10.2 per cent of the total student body) (Ferrando, 2009a). It is also relevant to note that the number of Chinese students grew from zero in 1990 and in %

Agriculture, forestry and fish Mining and energy supply Manufacturing

1.8 0.7

21.1

2008

Construction 1.4 1.7 36.4

1980

5.8

55.2

70.7

Services

5.4

Figure 4.10 Turin’s employment distribution in 1990 and 2008 Source: Cambridge Econometrics (2010)

110 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

2000 in 000s

National Foreign

1500

1000

500

0 2003

2004

2005

2006

2007

2008

2009

Figure 4.11 Number of tourists visiting Turin Province, 2003–2009 Source: Turin Chamber of Commerce (2010)

p y 50 in 000s

40

30

Turin Province

20 1980

1985

1990

1995

2000

2005

Figure 4.12 Employment in hotels and restaurants in Turin Province, 1980–2008 Source: Cambridge Econometrics (2010)

just four in 2005, to 338 in 2007, the year after the agreement was made between the Chinese firm JAC and the Politecnico in 2006. The increase in foreign students has been important in creating strong bilateral business links between Turin and future export markets.

From the auto sector to transport, advanced machinery and environmental services As FIAT declined, many of its former suppliers began to enter new markets and new sectors, aided by the Turin Chamber of Commerce and CEI, whose programmes supported numerous firms to adapt to new conditions. Firms began operating in new sectors such as rail transport, aerospace, design and environmental services.

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For example, Simpro, an automotive supplier set up in 1986, took part in From Concept to Car (FCTC) in 2006 and now operates in the railway and tyre-recycling sectors. Tubiflex SPA, another automotive firm, started operating in the aerospace sector in 2006 after taking part in Turin Piedmont Aerospace initiative. OMPECO, a company traditionally operating in the machinery sector has now also entered the hospital waste treatment business. Golden Car, which traditionally operated in the mechanic sector, now also produces recycling bins. Sicme Motori, an enterprise traditionally operating in the automotive and mechanic sectors, has recently started production of mini wind-power machinery. It is difficult to assess the size and the full modalities of the transition of Turin’s industries and provide a comprehensive account of the re-tooling story of the Turin’s economy. However, there is clear evidence of the re-orientation of local industries towards emerging sectors.

Design The design sector in particular is beginning to emerge as a strong spin-off from Turin’s traditional auto strengths. Some design companies such as Pininfarina, Giugiaro, Bertone and De Tomaso were successful in building their reputations in niche markets in the 1990s by working with auto firms such as Ferrari, Maserati, FIAT and GM, and by offering consulting services to other firms. More recently, these firms and activities have declined in importance and their core skills have been either absorbed or are no longer required by the international auto market. However, core design skills have remained alive within Turin’s strong manufacturing culture, which cuts across different industries. A recent report by the Turin Chamber of Commerce detected 770 companies and entrepreneurs operating in the design-oriented economy in Piedmont, generating a total annual income of about €12 billion and employing some 50,000 employees ( Turin Chamber of Commerce, 2008a: 8). Based on a sample of 416 firms, the main design application fields are: industrial design (43.3 per cent), automotive design (6.7 per cent), graphic design and communication (11.9 per cent); interior design (8.3 per cent), fashion design (6.4 per cent), and cultural and territorial design (4.0 per cent), although it is worth noting that a relatively high proportion of data was not available (19.4 per cent) (Turin Chamber of Commerce 2008a: 26). The design-oriented economy in Piedmont is now an established economic sector, including both producers and users or design content and services, directly acquired or from third parties (business to business, B2B). The Chamber of Commerce survey suggested that of the companies based in Turin Province (half of the 770 detected), operations were equally distributed between B2B and B2C (business to consumer), with the latter group generating a higher income.

112 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Turin now has substantial expertise in design training and research. It has established an educational cluster in design, which includes the IAAD (Institute of Applied Arts and Design) and the IED (European Institute of Design); the Politecnico of Torino has also developed new courses in design-oriented disciplines. The new design centre to be developed in FIAT’s Mirafiori factory will boost this strength, having the potential to host some 2,000 students. Thanks to the efforts of the city of Turin and the region of Piedmont governments, Turin hosts the offices of ICSID (the World Industrial Design Association) and ICOGRADA (the World Graphic Design Association), and was chosen as World Capital of Design in 2008.

Aerospace and defence As part of its new post-FIAT economic identity, Turin and Piedmont identified the local aerospace and defence cluster as a sector of new growth. Although FIAT had already founded FIAT Aviazione–Avio (1,803 employees in 2007), an aerospace subsidiary in 1908, it was only in 1990 that the sector was boosted when Alenia Aeronautica (3,729 employees in 2007) was established (Avio and Alenia Aeronautica websites). More recently, Piedmont’s aerospace sector has grown strongly and today employs a total of 12,500 people and has an annual turnover of €2.6 billion, with the majority of the cluster being located in the Turin area (Turin Chamber of Commerce, 2009: 43). Figure 4.13 shows how the strengths of the cluster come from the existence of five large companies, over 400 SMEs (employing 3,000 people and with an annual turnover of €500 million), a strong research system including three universities, and initiatives such as Turin Piedmont Aerospace. These include Thales Alenia Space, a world leader in satellite systems; Alenia Aeronautica, a specialist in aeronautics for the civil and military sector; Avio Group, a specialist in civilian and military vehicle engines; Selex Galileo, the leading Italian company in the design and integration of aviation systems; and Microtecnica, a producer of equipment and electrical components.

Piedmont Large Companies

The SME Fabric

The Research Institutional System Initiatives

Alenia Aeronautica

Over 400 companies

3 Universities INRIM

Avio ISMB Galileo Avionica Microtecnica Thales Alenia Space

Astronomical Observatory of Turin

Aerospace District Promoting Committee Galileo Programme Promoting Committee Turin Time Consortium TPA (Torino Piemonte Aerospace)

Figure 4.13 The constituent parts of Piedmont’s aerospace sector

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Exports and internationalisation As shown in Figure 4.14, the total value of exports of Turin grew sharply from 1994 to 1995 and from 2005 onwards. It is difficult to pinpoint exact reasons for these increases but it can be argued that the devaluation of the Italian Lira boosted exports in the early 1990s, while the second sharp increase in the mid-2000s is linked to both the Winter Olympic Games and the programmes promoted by actors such as the Associazioni di Categoria, the Turin Chamber of Commerce and CEI. The transport sector is Turin’s main export sector, responsible for 37 per cent of exports by value in 2007 (Figure 4.15). As FIAT reduced its production in Turin, and restructured its supply chains, Turin’s highly entrepreneurial SMEs began to trade with foreign companies, supported in part through the activities of Turin Chamber

20000 in millions of Euros

Turin Province

15000

10000 1994

1996

1998

2000

2002

2004

2006

2008

Figure 4.14 Exports of Turin Province, 1994–2008 Source: Turin Chamber of Commerce (2010)

By %

Food and tobacco Textiles 2 Leather 0.4 Paper 2.5

Other

3.3 2.9

Chemical products Gum and plastics Non-metallic minerals 1.3 Metals and metallic products

Electronic machinery

10.3

Mechanical machinery

3.6 4.8 20.7 8

39.8

Transport

Figure 4.15 Turin’s exports by category, 2007 Source: Turin Chamber of Commerce (2010)

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TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Distribution of firms by degree of dependence of total revenues on FIAT Group by %

10.8 10.8

47.7 12.7

between 76 and 100% between 51 and 75% between 26 and 50% less than 25% 0%

18.1

Figure 4.16 Dependency of automotive firms on revenues from the FIAT group in 2007 Source: Turin Chamber of Commerce and STEP research (2008)

of Commerce and CEI described above. Today, over 40 per cent of firms in the automotive sector are not dependent on the FIAT Group for any of their revenues (Figure 4.16), while around 40 per cent of firms are reliant on exports for more than 25 per cent of their revenues.

The global economic crisis and the future Like other metropolitan regions Turin and Piedmont have been hit hard by the global economic crisis that started in 2008 and is having an impact on local and national economies worldwide. The gross domestic product (GDP) of Piedmont, which totalled €126.9 million in 2008, decreased by almost 6 per cent in 2009. The output of manufacturing sector activities has dropped by 1.1 per cent through 2009. Unemployment in Turin rose from 5.6 per cent in 2008 to 8.3 per cent in 2009, a sharper increase than the Piedmont Region and Italy as a whole, leaving 86,000 people unemployed. The growth rate of new firms in the Province of Turin is consistently lower than in other Italian provinces. Bail-outs during the first three months of 2010 were up by 51.9 per cent on 2009 levels. After years of public investment in urban regeneration and economic development, Turin has the highest debt per capita of any Italian city – approximately €3,000 per capita or €3.1 billion in total. So far, Turin has suffered more than other Italian regions because of its industrial base and its close ties to European economies, which have also been badly affected by the financial crisis. A drop in domestic and European demand, in particular from France, Germany and Poland, was a key factor in the contraction in Torinese industrial production and trade. However, as the European outlook began to improve, industrial production and exports have shown signs of recovery in 2010 (Turin’s industrial production in the first quarter of 2010 grew by 10.3 per cent and

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exports by 13.7 per cent in the same period in 2009 (Figure 4.17)). Turin’s recovery will ultimately be highly dependent on the general European economic performance, given that most of its exports are currently directed towards EU countries. Turin’s future depends in part on the extent to which it is able to continue to internationalise and diversify its economic base. Although only a very small proportion of Turin’s exports are directed towards emerging economies, this has recently been growing at a fast rate. For example, exports to China and Brazil in the first quarter of 2010 were up 52.9 per cent and 78.7 per cent on the same period in 2009, albeit from a low base of 2.6 per cent and 3.1 per cent respectively. The recent acquisition of Chrysler in the US and the success of the FIAT Cinquecento – a bestseller in the low-carbon market – may have consequences for the future internationalisation of Turin’s automotive sector. Efforts are under way to increase connections between Turin and Piedmont automotive suppliers and major US producers: a delegation of local authorities, and the workforce from Detroit and Michigan, met Turin and Piedmont auto suppliers in 2010, in order to attract them to Detroit (Chicago Tribune, 27 September 2010). Through initiatives such as this, Turin’s automotive suppliers can gain access to large producers outside of Europe, diminishing their dependence on FIAT further by accessing rapidly growing international markets. Similar meetings and agreements could be led in other regions, such as China, India and Brazil, if appropriate policies and interventions were put in place by local and national authorities. In addition, the government of Piedmont has developed two specific plans providing €890 million in response to the financial crisis: the Piano Straordinario per l’Occupazione (Special Employment Plan) and the Piano Pluriennale Competitivita (Multi-Year Competitiveness Plan).

15 % variation on the same quarter in the previous year

0

-15

Piedmont

-30 1st Quarter 2004

1st Quarter 1st Quarter 2005 2006

1st Quarter 1st Quarter 1st Quarter 1st Quarter 2007 2009 2010 2008

Figure 4.17 Industrial production in Turin Province, 2004–2010 Source: Turin Chamber of Commerce (2010)

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Special Employment Plan and the Multi-Year Competitiveness Plan The Special Employment Plan is focused on employment, competitiveness, bureaucratic simplification and access to credit. Specifically it supports joint Masters or PhDs between universities and the private sector; grants for start-up costs, managerial and investment expenses of new firms; funding of entrepreneurial activities; €10 million financing of high-potential/high-risk high-tech firms; €120 million funding for firms that aim to be more efficient, competitive and enter new markets; €1.1 million to fund Centri di Assistenza Tecnica (Centres for Technical Assistance) to support SMEs dealing with bureaucracies; an amendment to the law to speed up the realisation of public infrastructure contracts linked to FDI; and access to regional financing and a guarantee fund for large firms. The Multi-Year Competitiveness Plan is a five-year plan introducing measures to foster economic competitiveness in the regional economy, including a new financial instrument, Piemontech, aimed at small high-tech start-ups in early-stage development and in connection with university business incubators; Portale Piemonte Open Innovation, a regional ‘innovation gateway’, gathering the intellectual property assets of SMEs and making them visible in international markets; Open Laboratories: research centres where the private sector, universities and customers gather to develop new applications, technologies or services, some of which the regional government will select for further investment; a creativity voucher financing young creative people to develop new design or services; a fund to enable Piedmont SMEs to challenge international breaches in intellectual property rights, by paying up to 75 per cent of the legal expenses; new funding for joint-innovation projects between firms; a reindustrialisation fund: to buy outdated physical assets from manufacturing firms to provide them with liquidity to restructure their production; financing the acquisition of specialised machinery for research centres; and a private equity fund for firms that, despite having good future potential, are in a difficult financial situation because of the financial crisis.

Conclusions Turin’s performance over the past twenty years provides important lessons for urban sustainability. The city and the region survived FIAT’s restructuring processes and emerged with a more diverse economic basis from which to continue its transformation. It remains one of Europe’s top automotive cities, and has begun to diversify successfully towards high-value production and services, including specialised auto services, design, aerospace, and quality food and drink. Turin’s adaptation has been driven by a wide range of public and private actors, displaying the entrepreneurial and enterprising spirit typical of the region. Although the restructuring processes initiated by FIAT were challenging for its suppliers, they were handled well by the industry and led to many former FIAT suppliers becoming

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more efficient and better able to compete internationally. Industrial unions helped firms adapt to new conditions and enter new markets. As FIAT concentrated its research and training activities internally, other institutions took on new roles, helping to ensure that the expertise built up was not lost and that Turin remained an attractive location for international industry. The bank foundations invested in new sectors, accelerating innovation and R&D, and in new institutions which brought business, research and public authorities together. The Politecnico di Torino reshaped and expanded its courses, took up a new place in the city centre and worked effectively with other public and private actors to bring major international firms and research centres to Turin. Thanks to these efforts, Turin’s research and training capacities and skills have been retained and adapted, forming one of the city’s key assets. Public actors have played an important role in these processes, developing the climate and environment, and in some cases providing the financial resources, for the changes pursued by other economic actors to accelerate, flourish and spread. By working effectively together, the governments of Turin City and the Piedmont region attracted significant amounts of funding from the European Union, enabling institutions to expand and take on new roles, and driving forward numerous initiatives. They created new, dynamic agencies that played a role in supporting the region’s internationalisation and diversification, for example by investing in new companies and promoting the region internationally. They developed a new masterplan for the city that provided the basis for the transformation of outdated industrial land in the city centre for new economic uses, as well as Turin’s first strategic plan, which provided a vision for the future of Turin and involved a wide range of city actors. More recently, Piedmont regional government has developed a series of twelve innovation poles, to develop the regional innovation system further, linking private businesses, research centres and universities, that show early signs of success. Through hosting international mega-events such as the 2006 Winter Olympics and Salone del Gusto, Turin’s internationalisation has been enhanced and its economic diversification further developed. Turin has experienced fifteen years of economic growth, rising incomes and employment, and falling unemployment. It has out-performed Italy in all these areas: a major achievement given the shocks that have hit it. Turin’s real strength is in its increasing innovation capacities: patents are rising strongly, as is employment in science and technology. In the last few years, however, Turin has been affected by the 2008 global recession, its debt levels rising to the highest level of any Italian city, and its industrial and export-based economy feeling the force of falling international demand. Turin’s future is currently tied up with that of Europe – still the main destination of its exports – but the city and wider region are starting to look beyond, to the United States, to China and to Brazil, as well as developing a series of measures to respond and adapt to the financial crisis. As Turin seeks to overcome the challenges it is facing, its adaptive and entrepreneurial industrial sector and substantial research and innovation capacities provide the city and wider region with valuable assets for the future.

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List of interviewees Interviews conducted in Turin, July 2010 Alessandro Battaglino, Director, Environment Park Franco Becchis, Director, Fondazione per l’Ambiente Andrea Bocco, Associate Professor, Politecnico di Torino Mario Calderini, Director, Finpiemonte, Regione Piemonte Marco DeMarie, Director of Research, Compagnia di San Paolo Prof. Giuseppe Dematteis, EU-Polis, Politecnico of Torino Mauro Ferrari, Vice-President, ANFIA, Associazione Nazionale Fra Industrie Automobilistiche Marta Levi, Assessore – Deputy Mayor – Area Metropolitana, City of Torino Giovanni Magnano, Head of Housing Department, City of Torino Giampiero Masera and Barbara Barazza, Turin Chamber of Commerce Prof. Alfredo Mela, Politecnico of Torino Gianfranco Presutti, Head of Labour and Economic Development Division, City of Torino Elisa Rosso, Head of Torino Internazionale Carlo Salone, Eu-Polis, Politecnico e Università di Torino Roberto Tricarico, Deputy Mayor – Environment, City of Torino Mario Viano, Assessore – Deputy Mayor – Urban Planning, City of Torino

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5 Munich Staying ahead on innovation

Introduction We are aiming at nothing less than the transformation of industrial society. (Hep Monatzeder, Deputy Mayor, City of Munich) We know each other’s problems. And that results in a willingness to agree on shared goals or even several goals. (Professor Christiane Thalgott, Head of Department of Urban Planning 1992–2007, City of Munich)

Munich is a leading German metropolitan region for high-tech activity, with a powerful innovation sector. It is, arguably, Germany’s Silicon Valley – with dominant positions in electronics and advanced manufacturing.1 Munich’s economy grew rapidly in the post-Second World War period, hosting a wide range of company sectors and sizes – the so called ‘Munich Mix’, with some world-leading technology firms such as BMW, Siemens, MAN and Knorr-Bremse as well as global insurance companies Allianz and Munich Re headquartered in the city. Munich also had several world-class universities, and a number of partly Federal Government-funded public research institutes, notably the headquarters of the Max Planck Society and of the FraunhoferGesellschaft, Europe’s largest applied research organisation. During the early 1990s the Metropolitan Region’s competitive position came under threat as German reunification, off-shoring and the 1993–1994 recessions took their toll on the region’s leading position. Gross value added (GVA) per capita and patenting rates in the Metropolitan Region both fell during this period. Munich’s challenge was to stay ahead on innovation, and to diversify the urban and metropolitan economy in the process. State government led the process of enhancing innovative capacity following the low point of the early 1990s. Exploiting strong public institutions and public– private networks, State and Metropolitan Region leaders developed a powerful, twenty-year innovation strategy. This was delivered through overlapping initiatives to spark idea flows, grow high-tech firms, invest in education and infrastructure, and green the economy of the Metropolitan Region. In 2008, the Metropolitan Region had

The Silicon Valley of Germany, Munich’s Metropolitan Region has gradually evolved into an innovative high-tech centre over several decades Source: Getty Images/Allan Baxter

Germany’s highest number of research and development (R&D) workers with about 55,000 full-time equivalent positions, and in 2007 had the country’s highest share of information and communication technologies (ICT) patents, a position held for over two decades (OECD, 2010; Prognos, 2010; von Streit et al., 2010). The following pages recount the role that state and private actors operating within a resilient networking system had in creating initiatives and conditions tailored to the potential of regional entrepreneurial character, helping Munich achieve once more its potential and regain its prominence. The last two decades, following the series of historical and economic changes in the early 1990s that beckoned the political and business establishment to provide answers to the structural challenges they were faced with, brought about a quiet adjustment as a response. Munich relied on a mix of traditionally strong and developed elements of the economy, while also following new and ground-breaking trajectories; this combination has enabled it to retain its leading role in Germany and the world.

Munich’s transformation The shifting dynamics of Europe at the end of the 1980s and the beginning of the 1990s obliged Munich to fundamentally question the continued efficacy of the vectors that engineered its growth and prosperity for most of the twentieth century and, as a result, realign its points of focus and objectives. The fall of the Iron Curtain and the reunification of Germany had a remarkable impact on national and regional economies. Munich was particularly affected as the new, enlarged Germany attempted to integrate its regional economies into a cohesive structure that would redress the imbalance between the East and the West. As a result, Munich strengthened its presence in science and advanced manufacturing while diversifying into new industries, notably biotech and, increasingly, ‘cleantech’ activities such as green energy and low-carbon vehicles. Innovative activity in the Metropolitan Region rose markedly during the 1990s, especially in ICT, biotech and green industries. Economic output per capita and employment rates have recovered, and are now comfortably above Bavarian and national averages. Three key programmes by the State of Bavaria – the Future Bavaria Initiative in the 1990s, the High-Tech Initiative in the early 2000s and the 2006 Cluster Programme – helped push Munich forward. More broadly, three key factors contributed to Munich’s recovery and growth: the existence of economic diversity and world-class firms which have provided economic resilience and helped spark new ideas; critical public investments, primarily in human capital, through the public education system, and infrastructure (especially the new airport); and, lastly, deep connections between public, private and third sector actors – ‘institutional thickness’ – that have produced a clear sense of common purpose and long-term, focused policy interventions. Behind this third factor, Germany’s ‘active state’ approach has allowed Federal, State and city public agencies to make and shape new markets, especially in the green economy.

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While this case study focuses on Munich’s ‘innovation story’, it does not explore the important parallel stories of urban change, land management and the built environment, as well as the key role played by the creative industries in regenerating and sustaining the city’s economy.

Urban and metropolitan context Geography Munich is located in south-east Germany, sitting on an elevated plain north of the Bavarian Alps and with the river Isar flowing through the city. It is the capital of the State of Bavaria and the third most populous city in Germany. Of Bavaria’s 12 million inhabitants, almost half (5.5 million) live in the European Metropolitan Region of Munich (EMM), while 1.31 million people live in Munich itself. Table 5.1 compares statistical data from the city of Munich, the surrounding Metropolitan Region (excluding Munich) and Germany. Unlike some American metropolitan statistical areas (MSAs), German Metropolitan Regions include several urban cores – in this case, not only Munich but also the cities of Augsburg, Ingolstadt, Landshut and Rosenheim with a population ranging from 60,000 to 260,000 people. Munich, however, dominates the Metropolitan Region both in terms of population and economic strength. It accounts for approximately 2 per cent of the land area, but around 30 per cent of the population and 40 per cent of employment (Prognos, 2010).2

Economic history Economically, Munich is one of the strongest performing cities in Germany. Productivity (measured in terms of gross value added (GVA) per worker) and employment rates are well above the national average (Table 5.1). Munich generates one third of Bavaria’s total output (von Streit et al., 2010), yet the city performs less well than the Metropolitan Region on unemployment, which nonetheless outperforms the national average. Munich’s economy is driven by a strong innovation sector. In 2007, the Metropolitan Region had Germany’s third-largest share of patenting activity (just behind Stuttgart and the Rhein-Main Metropolitan Region). More significantly, Munich is well ahead on critical high-tech innovation such as biotech, ICT and cleantech activities (Table 5.2). Various factors underpin the accomplishments of this sector which relate to the high level of human capital in the region, which has an above-average share of graduates and over 88,000 students in thirteen universities. In fact, two of Munich’s nine elite universities have been awarded Germany’s University of Excellence standard.

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129

Table 5.1 Munich’s economic performance: headlines for 2007 Munich City

Munich Metropolitan Region

Germany

GVA per worker (€)

70,030

64,875

51,530

Employment rate (%)

–

83.9

74.0

Unemployment rate (%)

6.2

4.3

8.6

% with tertiary education

23.6

30.8

24.3

Population (000s)

1,312

4,313

82,218

Sources: Cambridge Econometrics (2010); Eurostat (online); Statistisches Bundesamt (online); Bayerisches Landesamt für Statistik.

This is certainly an important contribution to the success of this location – the academic potential here. LMU Munich University, Technical University of Munich, Max Planck Institutes of Biochemistry and Neurobiology, also the Max Planck Institute of Psychiatry in the city centre, and the Helmholtz Zentrum München. It really is this science base, if you like. (Dr Mathias Lamparter, Cluster Manager, Bavarian Biotech Cluster) There is also a critical mass of public research activity taking place not only in universities but in public research institutes. Apart from hosting the Fraunhofer Gesellschaft, Europe’s largest applied research organisation, Munich also houses the Max Planck Society and three institutes which specialise in biochemistry, neurobiology and psychiatry, as well as the Helmholtz Zentrum München (German Research Centre for Environmental Health) and a key branch of the German Aerospace Centre. Around 33,000 people are employed in these agencies, giving the Metropolitan Region Germany’s highest number of R&D employees (Prognos AG, 2009). Finally, the Metropolitan Region has a very diverse industrial structure. The ‘Munich Mix’ covers a range of sectors, global players and small and medium enterprises (SMEs), with identifiable clusters in high-tech manufacturing (automotive, space and aerospace, ICT and biotech), knowledge-intensive services (finance and insurance) and the creative sector (media, software and internet publishing)

Table 5.2 Metropolitan Region's share of national ICT, biotech and cleantech patenting, 2007 (%)

ICT

Munich

Stuttgart

Rhein-Main

Hamburg

18.5

12.9

10.8

2.6

Biotech

20.4

2.3

19.0

3.7

Cleantech

15.4

12.8

7.2

6.0

Source: OECD.Stat. (online) Notes: 1) Patents to EPO, by inventor region of residence. 2) Patents by priority year. 3) Spatial units are German Metropolitan Regions, proxied using best-fit Spatial Planning Regions. 4) Table gives a sample of the 11 Regions, so shares will not sum to 100 5) ‘Cleantech’ is defined as renewable energy, electric and hybrid vehicles, energy efficiency in buildings and lighting.

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(Thierstein et al., 2007). Collectively these innovation sector factors constitute an ‘institutional thickness’ (Amin and Thrift, 2001), a combination of strong public agencies, powerful public–private networks and collaborative relationships that will be further explored in the following section. Munich’s industrial structure also needs to be understood as the product of two bigger, related forces. Unlike Anglo-Saxon countries, Germany has always maintained a strong element of manufacturing, and has resisted deindustrialisation and outsourcing. The results are visible on the ground in Munich and in many other German regions. Besides this, the country’s development dynamics are centrally based on interacting knowledge-intense services and advanced, knowledge-intense industries, which in turn have created a service and manufacturing nexus at regional levels (Läpple, 2008). Munich’s economic achievements have given its firms international presence without detracting from their strong local links. As Alain Thierstein and colleagues point out, the Munich metro is an emerging ‘megacity region’, with multinational players and strong ties to global markets. But at the same time, it exhibits strongly clustered relationships between local firms (Lüthi et al., 2010). Much like Silicon Valley, the Munich Metropolitan Region evolved rapidly from agrarian to high-tech economy in the decades following the Second World War. The city was the regional capital of Bavaria from the early sixteenth century. In the nineteenth century it industrialised less than other German cities, and remained in large part a centre of craft industries within an agrarian state until the late 1930s. Nevertheless, it was the site of some key technological developments; for example, Munich was one of the first cities to have a train line and street lighting. Post-Second World War restructuring laid the foundations for an effective process of regeneration and underpinning of the economy. As part of the American sector, close to Eastern Europe, the city received an influx of skilled refugees, and benefitted from the location of headquarter offices of federal research agencies and large firms from Berlin and eastern Germany. As a result, the arrival of large technology firms like Siemens helped Munich build technological capacity and shape, together with more established regions of advanced manufacturing, Germany’s distinctive service–manufacturing–nexus. A significant number of manufacturing and service-sector companies such as Allianz relocated to Munich because they expected having to pay less in [war] reparations in the American Sector. (Dr Detlef Sträter, Fellow, Munich Institute for Social and Sustainability Research) Certain aspects of policy formulation and implementation had a favourable impact as well. In the immediate post-war period, research policy was a state-level function. The Fraunhofer Gesellschaft, a key German public research agency, was founded in

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Bavaria with the heavy involvement of the Bavarian Ministry of Trade and was dominated by Bavarian players in its early years – the board and senate being made up entirely of representatives from Bavarian science and industry (Trischler and vom Bruch, 1999; Schlemmer and Woller, 2004). Also, as with Silicon Valley, a great deal of Federal defence spending was directed towards the Munich Metropolitan Region in subsequent decades, laying the foundations for the microelectronics industry. This was largely due to the influence of Franz Josef Strauss, who was a Federal Minister between 1953 and 1969 and Prime Minister of Bavaria from 1978 until 1988. From 1961 to 1978, Strauss was also leader of the conservative CSU Party, and as such the ‘lobbyist-in-chief’ for Bavarian science and industry. He helped rebuild Munich’s universities, and secured the long-term presence of key public research institutes. At city level, 1960s Mayor Hans-Jochen Vogel developed the city’s compact urban form, and helped with a successful Olympic bid. The 1972 Games triggered significant physical development: It’s clear that Munich experienced an enormous infrastructure development because of the 1972 Olympics, as on the one hand infrastructure was being improved, and on the other the city gained a lot of prestige . . . (Rudolf Escheu, Head of the Department of Economic Policy, Ministry of Economic Affairs, State of Bavaria) From the early 1970s, the metropolitan economy rapidly expanded from these foundations. Continued Federal funding helped the university base to grow. Rising land costs in the urban core led to a ‘metropolitanisation’ of development; among others, the German Aerospace Centre Oberpfaffenhofen and Society for Radiology both expanded into suburban neighbourhoods. Over the years, a new urban and regional rail system (opened in 1971, in time for the Olympic Games of 1972) and an expanded, relocated airport (which opened in 1992), promoting the establishment of a new hub for Eastern Europe and the Metropolitan Region’s outward push.

Problems and opportunities By the start of the 1990s, the Munich Metropolitan Region was hit by a series of shocks that ushered an air of uncertainty about what lay in the future: the end of the Cold War, reunification, recession and new global competition. City leaders feared that Munich’s growth era might have ended: ‘The city really had to grapple with the new economic conditions after reunification – we all did – and that led to a very realist perception [of the city], and [to seeking] the support of those perceived as reliable . . . ’ (Professor Christiane Thalgott, Head of Department of Urban Planning 1992 –2007, City of Munich) The pessimism felt by Munich’s leaders during this time is borne out in the statistics. Table 5.3 shows economic output per capita diminishing from 1991 to 1993, with labour-

132 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Prague

BAVARIA

CZECH REPUBLIC

Nuremberg

GERMANY MunichNuremburg high-speed link

Regensburg Stuttgart

Ingolstadt

Ulm

Passau

Landshut Garching campus

Augsburg

Linz

City of Munich German Aerospace centre Martinsried/ Großhadern campus

BMW headquarters & plant Rosenheim

Salzburg

AUSTRIA Innsbruck

50 km 100 km

regional boundary metropolitan boundary

UK

NETHERLANDS BELGIUM

district boundary airport motorways

GERMANY

LUX.

BAVARIACZECH REP.

Munich FRANCE

intercity rail

SWITZERLAND ITALY

Figure 5.1 Munich and its Metropolitan Region, Bavaria, Germany Sources: European Environment Agency (online); EUROSTAT (online)

market indicators following shortly after. State and city leaders had a number of specific worries. They feared that after reunification, industries and organisations that had moved from Berlin post-Second World War might return to the new capital. They further worried that Germany’s axis of development might shift from North–South to East–West, from Berlin to the Ruhr, bypassing Bavaria entirely. Another concern was the fact that during the Cold War period Bavaria invested heavily in developing defence and aerospace industries, many of which were concentrated in and around Munich. After 1989, these industries experienced a severe drop in demand (later adjusting to take advantage of the peace dividend). These apprehensions were further compounded by the economic downturn of 1993 – 94, which handed a further heavy blow to the export-orientated industries at the heart of the Bavarian economy: the automotive industry, and electronic and mechanical engineering (Berger, 2002).

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AUSTRIA SLOVENIA CROATIA

As Table 5.3 shows, there was a measurable increase in unemployment during these years. Finally, and in a broader sense, there were fears around globalisation. Civic leaders worried that Munich’s leading firms might offshore production or relocate entirely; at the same time, competitor firms in other countries were moving up the value chain in automotive and electronic sectors. The Munich Metropolitan Region’s challenge was, therefore, to ‘stay ahead’ on innovation. One of the outcomes of this period of introspection was the opportunity for the innovation ecosystem to play a vital role in supporting economic restructuring and securing long-term growth. State actors had been developing ideas for a smarter, greener economy for some time; as far back as 1985, the Bavarian Ministry of Economy and Transport had highlighted life sciences, information technology and green technologies, among others, as key sectors for future economic development (BayStMWIVT, 1985 in Berger, 2002). The events of the early 1990s provided the necessary tipping point.

The installation of a new turbine for a hydro-electric plant in the heart of the city demonstrates Munich’s public-utility company’s heavy investment in local renewable energy Source: SWM/Scharnagl

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TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Table 5.3 Munich Metropolitan Region economic performance in the early 1990s 1991

1992

1993

1994

GVA per capita

MMR* Germany

57,444 49,020

56,179 48,949

53,545 47,155

54,290 48,529

Employment rate

MMR Germany

74.1 64.0

75.8 64.3

73.0 62.8

71.5 62.0

Unemployment rate (%)

MMR Germany

4.8 8.8

4.5 9.5

4.7 9.7

5.0 9.6

Sources: Cambridge Econometrics (2010), Eurostat (online); Statistisches Bundesamt (online). *Note: Munich Metropolitan Region (MMR) is approximated by Oberbayern NUTS2 area

Policies, programmes and projects to transform the urban economy Approach Both the Future Bavaria Initiative and the High-Tech Initiative should be seen as the result of reflections on what to do to avoid being left behind economically. (Rudolf Escheu, Head of the Department of Economic Policy, Ministry of Economic Affairs, State of Bavaria) Leaders and key stakeholders decided on a path that sought to sustain Munich’s economic trajectory and to secure the competitive position of the Metropolitan Region’s existing firms. Munich’s challenges were also perceived as opportunities to refresh the Metropolitan Region’s economic basis and engage with emerging ideas and technologies. As the previous section suggests, the Metropolitan Region has a long history of looking forward. One of our interviewees summarised the civic leaders’ approach as: There is a conviction that economic policy requires an explicit commitment to future technologies, even if on occasion this does not appear [politically] expedient. That is in my view the core element of the Bavarian political creed. (Dr Gerd Gruppe, Head of the Department of Innovation, Research and Technology, Ministry of Economic Affairs, State of Bavaria) Von Streit et al. (2010) characterise Bavaria’s enduring economic development strategy as ‘top down approaches which focus . . . on innovation, knowledge and hightech sectors’. In the early 1990s, this meant that innovation was to be promoted in order to achieve economic growth by identifying and promoting ‘future winners’ operating within a new, greener economy. This environment would actively encourage advancements and breakthroughs in green goods and services, which would in turn

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aid the development of markets at Metropolitan Region level at first and, as a consequence of the size and impact of the institutions and firms already on ground, on a global scale.

Institutional framework and governance Actors Unlike many other city-regions, Munich does not have formal metropolitan-level leadership or institutions. Rather, the powerful metropolitan economy is coordinated from above at state government level and below at city-government level. Despite this institutional gap, political and business leaders have been extraordinarily successful at collaborating to articulate a clear vision and programmes. State governments in Germany are leading actors in economic development, controlling budgets for education, R&D, culture and media. Bavaria has been no exception, leading the process of promoting innovation and stimulating long-term growth in a context where state economic development activity has disproportionately affected Munich because of the spatial clustering of high-value activity in the metropolitan area. Within this area, the city of Munich has a number of important functions – in particular, those relating to land management and planning, support for start-ups and providing business space, city marketing and branding. The city’s public utilities company, the Stadtwerke München (SWM) has also played a critical role in developing green infrastructure, and in stimulating demand for innovation in green goods and services. The Federal government and the EU have also played important, albeit indirect, roles. Both provide direct funding to individual scientists and research institutions. The national government also provides critical investment in kind through the wider public education system. And both the national government and the European agencies help shape markets through regulation, which shapes industrial norms and encourages upgrading, and fiscal policy. Germany’s feed-in tariffs system, which is explored further below, has significantly helped grow green industries both in Munich and across the country.

Moving forward Metropolitan Region leaders put their vision into practice by exploiting Munich’s ‘institutional thickness’. This term, coined by economic geographers Ash Amin and Nigel Thrift, refers to the ‘ensemble of local social and cultural conditions conducive to economic growth’ (Amin and Thrift, 2001). The key elements are strong institutions, high levels of interaction, a sense of common purpose and coordinating activities. At the time of crisis, Munich already had all of these elements in place, and could additionally profit from Bavaria’s overall interconnectedness of interests. As one of our interviewees put it:

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One of the important aspects that keeps playing a role in Bavaria is the close link between business, politics, finance and other service providers, be that lawyers or others. Some tend to call it sleaze, which doesn’t hit the nail. One can also look at it as a good thing in terms of effective and active networking. (Enno Spillner, Chief Financial Officer, Pharmaceutical Company 4SC) As Dieter Läpple points out, in the right circumstances ‘institutional thickness’ can be extremely helpful to a metropolitan area’s economic development. In other German regions, the Rhein–Ruhr region for example, ‘institutional thickness’ has been seen as obstructing innovation. In Munich, several key ingredients highlighted below have made a positive contribution. The existing political stability has been of significant value. The conservative CSU party has led Bavaria for many decades, while Munich has been dominated by the centre-left SPD, which provided all but one of the city’s mayors since 1948. For the past two decades Munich has had a continuous red–green coalition, the longest in any large German city. This means that: . . . both are rather stable systems. On the one hand the red-green [coalition] in the City of Munich and on the other hand the Conservatives at the State level. This way one naturally knows one another for a long time. (Bernhard Eller, Economist, Department of Labour and Economic Development, City of Munich) In this system, state and city can and do act differently. For example, Munich kept its utilities in public ownership, while Bavaria sold off its share holdings. However, as the above quote makes clear, stability leads to certainty. And the ideological divide between what some described as a more ‘neo-liberal, technology-oriented’ state government and a ‘social-democratic, public-service-oriented’ city government often translates into a positive process of learning and correction. Munich has benefited from a cadre of technically educated personnel in public agencies, especially in Bavarian State Ministries. Both Munich and the Bavarian state have strong interventionist traditions, and an equally strong focus on technology-led development that relies on the input of public servants that can identify the merit of state policies and help the formulation of efficient and effective processes. This ‘forward orientation’ has helped Metropolitan Region leaders avoid complacency and encouraged economic change. One department head put it dramatically: We have 50 true believers here, with the capacity to make informed judgements. There are chemists and biologists and all sorts . . . they are convinced of their cause. They are convinced that technological progress is a decisive element of business competitiveness. (Dr Gerd Gruppe, Head of the Department of Innovation, Research and Technology, Ministry of Economic Affairs, State of Bavaria)

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As illustrated above, Munich has a rich mix of high-value economic activity, highquality universities and a network of public research intermediaries, focused on both blue-skies and applied research; these areas communicate and collaborate through a network of ‘connected elites’. Broadly described, there are multiple connections between heads of the business, university and public research communities. Business world representatives sit on University Councils that set their strategic direction, and repeatedly use their influence to promote Munich’s wider standing. Several national public research institutes have been headed by Bavarian academics, and numerous wealthy entrepreneurs have provided financial support for educational institutions. The combination of these key ingredients helped build a powerful policy-making machine with four clearly identifiable main characteristics. First of all, there are strong and stable public institutions with competent administrators and good public services. These in turn foster productive public–private relationships, promoting formal and informal ideas exchange and collaboration. All contributors to these schemes show a commitment to technology by making long-term public investments, even at times when this is politically unpopular. To achieve their goals, these groups can rely on common purpose and flexibility, or the ability to set out and stand by overall strategies and fine-tune initiatives quickly when conditions change. As is normal with multi-layer governance systems, coordination of these systems in Munich is not perfect. Our interviewees had strikingly divergent views on the success of day to day operations. A more optimistic view was that: Collaboration is excellent on the technical level and on the political level there is the attempt to make it work somehow. And that pretty much always works. (Professor Christiane Thalgott, Head of Department of Urban Planning 1992 – 2007, City of Munich) Others pointed out that differences in political outlook, different aims and interests, and the lack of specific coordinating mechanisms have all limited Munich’s governance capacity in the past. Some have even suggested, as mentioned above, that friction between state and city layers of government might lead to ‘creative learning’ at the metropolitan region level. Whatever the day-to-day dynamics, the fact remains that a body of decision-makers from divergent backgrounds and political convictions, representing various interests, were been able to form a participatory system of governance which identified common goals and delivered measures of mutual benefit against these targets.

Interventions State, metropolitan and other actors developed a series of overlapping interventions to respond to the crisis of confidence that was instigated by the early 1990s events. Public and private actors shared a strong vision which gave them the confidence to roll out a series of flexible initiatives:

138 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

It really worked according to the principle of trial and error. There were no role models, one simply tried something and then saw if it worked. If it didn’t work, then we simply suspended it. (Dr Gerd Gruppe, Head of the Department of Innovation, Research and Technology, Ministry of Economic Affairs, State of Bavaria) Or, as another interviewee put it: We rarely pick a single measure. In the area of innovation politics we are looking at a specific succession of programmes or projects, in order to reassess and reschedule as required. The Future Bavaria Initiative and High-Tech Initiative were very similar. (Rudolf Escheu, Head of the Department of Economic Policy, Ministry of Economic Affairs, State of Bavaria) We now turn to three main policy initiatives, led by the State of Bavaria, which played a key role in bolstering the local economy: the Future Bavaria Initiative (Offensive Zukunft Bayern), 1994–1999; the High-Tech Initiative, 1999–2006; and the Cluster Initiative, established in 2006. While federal support has also become increasingly important in recent times, these initiatives became important drivers for growth and change.

The Future Bavaria Initiative (1994–99) The Offensive Zukunft Bayern (OZB) was launched in 1994 by newly elected Bavarian Prime Minister Edmund Stoiber. The overall aim was to maintain Bavaria’s innovation advantage, both by supporting existing activities and through developing new high-value activity. The initiative combined highly interventionist industrial policies with a high degree of market activity in the form of privatisation and liberalisation: We can see here the attempt, more than in other German States, to advance the economy and to invest in the future – even selling some of the family silver in the process. (Enno Spillner, CFO, Pharmaceutical Company 4SC) By employing a distinctive financing mechanism – the sale of government-owned shares in a range of enterprises – the initiative raised around €2.9 billion. At the time, no other German state had this kind of investment budget at their disposal. The majority was spent on technology and innovation infrastructure (Berger, 2002), allowing the metropolitan region to benefit significantly from these state-wide programmes. Funding for eighty-two individual projects was distributed in three ways. First, through investment in physical knowledge infrastructure including the upgrading of university facilities, construction of eight new polytechnic colleges,

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installation of super-computers and new broadband infrastructure, plus €25 million on R&D. In addition, all twenty-five university locations in Bavaria were connected with each other via a broadband science network in 1996. High-speed broadband connecting Munich and Berlin predated a country-wide network. The Leibniz Computer Centre of the Bavarian Science Academy and the Munich Universities received about €30 million to upgrade its facilities and set up a high-capacity computer. Nearly €250 million was also invested in University facilities at Garching (see Box 5.1). Second, through knowledge transfer and public venture capital, a set of new institutions was established, in particular Bayern Innovativ and Bayern Kapital. Bayern Innovativ was established in 1995 with €50 million from OZB funds. It is the main communication platform for all state-sponsored high-tech initiatives, and is jointly operated by public, private and intermediary research agencies. It aims to promote technology transfer, both for researchers and businesses, especially SMEs. It runs a series of collaborative projects, as well as ten professional networks. It also collaborates with the 1990-founded Bavarian Research Foundation. Bayern Kapital was set up with State support of €75 million. An innovative public finance instrument in the German context at the time, it was copied shortly after by several other German states. A 100 per cent subsidiary of LfA Foerderbank Bayern, the Bavarian State Bank, it provides venture capital for start-ups, especially in the risky high-tech sectors. It thus aims to bridge the development stage between the traditionally academic basic research and products close to market-entry stage that are able to attract private venture capital. A third vehicle of funding distribution came through the formation of high-tech firms and the Bavarian Technology Development Programme which supported innovative and risky technologies to prototype stages, through a mix of subsidies and low-interest loans.

Fostering the internationalisation of the Bavarian economy Within this framework steps were taken to foster the internationalisation of the Bavarian economy. Three agencies were set up to coordinate a range of relevant activities – the International Technology Forum Bavaria was founded in 1995 to foster exchange between science and industry, Bayern International focuses on supporting SMEs as they increase their exports or expand internationally, and Invest in Bavaria promotes Bavaria as a location for foreign investment. To this end it built up a network of twenty-two Bavarian foreign representatives around the world and facilitates international trade-fair participation for SMEs.

The High-Tech Initiative (1999–2006) The High-Tech Initiative (HTI) began as the third phase of the OZB but, by being almost exclusively focused on technology development, it was increasingly seen as a distinctive economic development policy of its own. It concentrated its support on

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TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Box 5.1 Campus Garching 5,000 scientists, 10,000 students Garching is a small town of about 15,000 inhabitants to the north-east of Munich, a few kilometres from Munich Airport. It houses one of the most prominent universities and research campuses in Germany, home to the country’s first nuclear reactor, the headquarters of the European Southern Observatory (ESO), Munich Technical University’s (TUM) faculties of Physics, Chemistry, Electrical Engineering and Information Technology, among others, as well as a range of high-profile research institutions such as the Max Planck Institute for Plasma Physics and the Leibniz Computer Centre. As well as extensive public research, private businessled research is conducted here, with General Electric’s only European research centre based in Garching.

History of cluster development In 1957 Germany’s first nuclear research reactor was opened in Garching. This is commonly perceived as the catalyst of Garching’s perceived status as a desirable science and research location. It laid the foundation for the internationally recognised neutron research conducted in the town under the guidance of TUM

scientists. This tradition continues with the highly contested opening of FRMII in 2004, a new research reactor and one of the world’s most powerful neutron accelerators, supported by €225 million from the Future Bavaria Initiative. This research is applied, among others, to the field of medical technology and helps secure Garching’s position in the international science community by attracting high-profile researchers from around the world. According to Dr Gerd Gruppe, Head of the Department of Innovation, Research and Technology at the Bavarian Ministry of Economic Affairs, realising this project despite significant political resistance at the Federal level required ‘unity among politicians and administration . . . , you need people who are convinced of what they are doing’. In the late 1990s the University relocated its key science faculties to Garching and opened a state-of-the-art Mechanical Engineering faculty here. As part of the State of Bavaria’s High-Tech Initiative, the Garching Technology and Entrepreneur Centre (GATE) was opened on campus in 2003. It aims to provide support for young

high-tech companies, particularly in the ICT sector, and to strengthen the Science Cluster Garching. Stakeholders from Munich and Garching public administration, Bavarian State Banks as well as the engine manufacturer MTU are shareholders in this venture. Garching was further strengthened by the opening of the Leibniz Computer Centre, which operates a national supercomputer funded by HTI and is open to research for all German universities. In 2006 the underground line was extended to the campus, providing a direct connection to the centre of Munich in less than half an hour.

Drivers of cluster development Undoubtedly, the development of the Science Cluster Garching is the result of a combination of state and Federal policies, the location of Max Planck Institutes being determined at the Federal level, whereas higher education issues are dealt with by the regional government. At the same time, the City of Munich contributed to the attractiveness of the location by connecting it to its fast and reliable public transport system, operated by its Municipal Utility Company.

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Table 5.4 Pillars of the high-tech initiative Programme elements

€m

Pillar 1: expansion of world-class high-tech centres

663.6

Pillar 2: ‘technology concepts’ for all regions

179.0

Pillar 3: state-wide programme of start-up promotion and technological infrastructure

267.4

Pillar 4: internationalisation of high-tech industries

65.4

Additional Infrastructure programme

175.4

Total

1,350.8

Source: Bavarian State Chancellery (2006)

various key technologies including, among others, life sciences, ICT, environmental technology and mechatronics. While focusing on high-tech sectors it can be seen as a continuation of policies aiming to avoid substantial structural shocks (Berger, 2002). It was designed by the Bavarian State Chancellery and implemented through the State Ministry for Economic Affairs, Infrastructure, Transport and Technology. Also funded through the sale of government-owned shares, HTI raised €1.35 billion and was built on four ‘pillars’ alongside a complementary infrastructure programme (Table 5.4). The overall programme aims were to further develop technology fields and help firms build an international presence. Around half the total funds (€663 million) were spent on accelerating the development of spatial clusters – in particular, a high-tech manufacturing centre in the suburb of Garching, north-east of Munich near the technical university, which had already benefited from the Future Bavaria Initiative. Two biotech-orientated centres were also funded in the suburbs of Freising and Martinsried. Two ‘pillars’ were of particular importance and received most funding. Pillar 1 aimed to foster globally recognised high-tech centres in new scientific fields, with a budget of €663.6 million (of which €358.4 million went into Life Sciences, €129 million on ICT, €114 million into new materials, €24.4 million in green technology, and €38 million on nanotech) while Pillar 3, with a budget of €267.4 million, aimed to promote start-ups and technological infrastructure as well as qualification. Under these two banners, a number of projects received substantial funding, including: •

New university buildings: Provision of new buildings enabled relocation of university departments (Mechanical Engineering, IT and Mathematics) of the Technical University out of the city centre to Garching, to the north of the city (Box 5.1), and the creation of a biotechnology cluster in Martinsried to the southwest of Munich (Box 5.2). In Martinsried, Bavaria financed the construction of new Chemistry and Pharmacy departments of the University of Munich (LMU).

142 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

•

•

•

•

Start-up centres: The Bavarian State financed three start-up centres in the Munich region, offering a variety of forms of start-up support as well as technology transfer points which encouraged intensive networking of science and industry. Their role is to assist in the search for suitable cooperation partners, make contacts with holders of expertise, give patenting and financing advice and engage in active knowledge transfer. One of them is Garchinger Technologie und Transfer Zentrum (GATE), a centre for start-ups established in 2002, situated in Garching. It is located near Munich Technical University, which offered young high-tech enterprises the right conditions to successfully start a new business, especially in ICT. Promotion of innovative networks: The €55 million Software Initiative supported research, development and training in information and communication technologies, stimulating high-growth start-ups in the software industry, making Bavaria a top location for dynamic young businesses in the information and communications sectors. Förderprogramm zum leichteren Übergang in eine Gründerexistenz (FLUGGE): The Bavarian Support Scheme for Facilitating Start-Up Transition aims to increase the numbers of spin-offs from universities, and it supports, for example, the Technology Transfer Centre at the University of Munich; Münchener Business Plan Wettbewerb (MBPW): The Munich Business Plan Competition, modelled after an original scheme at MIT, awards prizes to exceptional business plans and has been held since 1995. The awards have already helped many technology-oriented firms to become successful. This programme is also supported by the City of Munich. Prize funds have helped found and finance around 480 new enterprises in the last ten years.

According to a recent study on biotechnology policy in Bavaria and BadenWürttemberg (Liecke, 2009) the largest impact on the financing and founding of new (biotech) enterprises came from Bayern Kapital and the BioM Biotech Cluster Development Group. Other relevant tools had been the business plan competition, the start-up centres and to a lesser extent the Bavarian Research Foundation. However, unions as well as some business representatives have criticised the exclusive focus on high-tech in technology transfer, arguing for the inclusion of basic technologies to meet the needs of local firms (Berger, 2002).

The Cluster Initiative The Bavarian State Government initiated its cluster campaign in 2006. The focus of the programme is very broad and only partially aligned with the academic understanding of clusters: Nineteen clusters have been identified, among them biotechnology, energy and environmental technologies, and three types of clusters: production-orientated, high-tech and cross-sector (Gutgesell and Maier, 2007). The programme works by setting up so-called cluster platforms: management teams that support state-wide networking and collaboration between firms, researchers and venture capital. The management teams also work to promote specific spatial clusters around Munich, such as Garching and Martinsried.

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Box 5.2 Campus Martinsried/ Grosshadern Europe’s secondhighest concentration of biotech firms: over 190 firms with 13,000 employees Munich’s biotechnology sector is concentrated in Martinsried, a neighbouring rural community where more than 190 biotechnology companies and several high-profile research institutes are located (BioM AG, 2007). High-profile organisations include the Max Planck Institutes for Biochemistry and Neurobiology as well as the Gene Centre of Ludwig Maximilians University Munich (LMU) in adjacent Grosshadern. The LMU has also recently relocated its faculties of Chemistry, Pharmacy and Biology to Martinsried, establishing a life-sciences campus with about 6,000 scientists from various departments. Currently the cluster has Europe’s second-highest concentration of biotech companies, exceeded only by London.

History of cluster development The establishment of the Max Planck Institute of Biochemistry (1973) and the LMU Gene Centre (1984) formed the basis for the development of the Biotechnology Cluster Martinsried. The campus was first established in the 1970s when the Max Planck Society, in search of a location for its new Institute of Biochemistry, chose Martinsried due to the availability of space in the vicinity of Munich and

of the new Clinical Centre of the LMU. More recent German Federal and Bavarian State policy to promote the commercialisation of scientific research led to significant funding to improve physical as well as networking infrastructure. The Federal Government’s BioRegio Competition is regarded as a milestone in German technology policy in its approach to encourage regional collaboration of various stakeholders. Initiated in 1995, it was designed to support regions with the greatest existing potential and density of research institutions. Interdisciplinary teams from universities and other research institutes, regional government, private enterprise and venture capital firms were encouraged to develop business plans for their region. Out of seventeen entries the Biotech Region Munich/Martinsried was chosen as one of three winners and awarded €12.5 million in funding. Possibly the greater effect of this competition has been strengthened collaboration between key players in the region. Two major players have since become the foundation of new developments in Martinsried. First, the Innovation and Start-up Centre Martinsried (IZB) which was established in 1995 and provides state-ofthe-art office and laboratory facilities to biotech start-ups on campus, thus facilitating

knowledge transfer and networking between budding entrepreneurs and the research institutes. Its main shareholder is the Bavarian Ministry of Finance. Second, the central agent promoting the Munich Biotech Cluster and acting as a broker between start-ups and venture capitalists is BioMAG. Founded in 1997, again in the context of the BioRegio Initiative, it raises seed capital for start-ups, advises on public grants, business planning, patenting and licensing issues and promotes networking activities. The OZB of the Bavarian State provided significant funding.

The role of venture capital The commercial success of the biotech sector, more than of most others, depends in no small part on the availability of venture capital. While changes in Federal legislation in the 1990s and the growth of the venture capital market in Munich due to the region’s wider economic prosperity provided great impetus to the growth of the biotech sector in the late 1990s, the availability of seed capital has dried up significantly in the last years. Tighter public budgets make it increasingly harder for the Bavarian State to fill in where the private market fails. This may be one of the greatest challenges the Biotech Cluster Martinsried will have to face in the future.

As this description suggests, the Cluster Initiative is both smaller than, and differently configured from, the previous two initiatives. As von Streit et al. point out (2010), ‘in several respects, the technology policy of Bavaria has reached a turning point [with the cluster initiative]’. In part this reflects a genuine desire to shift the focus onto helping maturing clusters develop further; it also reflects the reality that funds from share sales have been exhausted, requiring a shift towards lower-key project support, dialogue and mobilising private resources (ibid.).

Federal support Federal funding plays important indirect roles for Munich, not least through support for R&D. In 2006, the Federal Government launched Germany’s first national innovation strategy – the High-Tech Strategy – which provided €14.6 billion between 2006 and 2009 aimed at funding high-technology R&D, forging research–industry links, and supporting SMEs and cluster development. Under this scheme, the Metropolitan Region has already received significant funding boosts. Munich’s biotech cluster was awarded €100 million between 2006 and 2011, with Munich’s two best universities – Ludwig Maximilians University and Technical University Munich – receiving €110 million each of R&D funding. More broadly, the Federal government’s series of feed-in tariff laws have helped to promote demand for green energy, which has significantly benefited cleantech firms in Munich and other Metropolitan Regions. The Renewable Energy Law (EEG) was introduced in 2000, and allows homeowners and businesses to sell back renewable energy to the national grid at a fixed price legally guaranteed for twenty years. This provides a powerful incentive to install solar panels, wind turbines and other forms of green energy. Green energy firms in Munich have benefited both from the EEG and its recent amendments, and from complementary measures implemented at city level: The Renewable Energy Law was a giant step . . . and has had impacts on all levels. We as a municipality, however, have also developed a range of programmes. As an example, our Energy Promotion Programmes are generating a ten-to fifteenfold return of what we put in. (Hep Monatzeder, Deputy Mayor, City of Munich) Surveys of green-industry firms in Munich and internationally suggest these policy push factors are a critical catalyst for innovation and development (Triebswetter and Wackenbauer, 2008; Chapple and Lester, 2009).

Results of the transformation process The initiatives and policies that helped Munich overcome the difficulties of the 1980s and 1990s have been built on the consolidation of local strengths that have stabilized and reinvigorated the economic system. The willingness of all key parties

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to collaborate at various levels was critical to the city and the region’s ability to rebound quickly, investing in its tradition of innovation. The positive results of these investments are covered in the following section.

Economic success at the city level I believe it is really this mix of tradition and progress which makes us successful. (Professor Christiane Thalgott, Head of Department of Urban Planning 1992 – 2007, City of Munich) The Munich strategy seems to have paid off. Civic leaders’ ‘active state’ approach has enhanced the Metropolitan Region’s capacity for innovation, and successfully strengthened the innovation ecosystem. Partially as a result, overall economic performance has also improved (Table 5.5).

Table 5.5 Key performance measures for Munich Metropolitan Region, 1991–2008 1991

1995

2000

2005

2008

GVA per worker

MMR Germany

32,078 30,436

55,043 48,191

58,976 47,421

61,944 49,823

64,625 51,522

Employment rate

MMR Germany

74.1 64.0

71.3 62.1

81.6 70.0

81.5 70.4

83.9 74.0

% unemployed

MMR Germany

4.8 8.8

5.0 9.4

3.0 8.0

5.8 11.1

3.3 7.5

Population (‘000s)

MMR Germany

3,801 79,753

3,959 81,539

4,034 82,163

4,211 82,501

4,313 82,218

Sources: Cambridge Econometrics (2010); Eurostat (online) *Note: Munich Metropolitan Region (MMR) is approximated by Oberbayern NUTS2 area

40000 in Euros

Munich Metro Germany

30000

20000

10000 1980

1985

1990

1995

2000

2005

2010

Figure 5.2 GVA per worker in euros, 1980–2010 Sources: Cambridge Econometrics (2010); Eurostat (online) Note: Munich Metro is approximated by Oberbayern NUTS2 area

146 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

100 in % Munich Metro Germany

80

60 1990 S

C

b id

1995 E

i

2000 (2010) E

(

2005 li

2010

)

Figure 5.3 Employment rates (%) for Munich Metropolitan Region and Germany, 1991–2009 Sources: Cambridge Econometrics (2010); Eurostat (online) Note: Munich Metro is approximated by Oberbayern NUTS2 area

Table 5.6 Metropolitan shares of national patenting, 1980–2007 Munich

Rhein-Main

Hamburg

7.42

20.21

2.52

11.52

9.11

17.27

2.86

10.90

12.20

17.25

2.76

1995

12.32

12.44

17.53

3.25

2000

13.92

13.68

13.69

3.30

2005

12.04

13.54

13.39

3.60

2007

12.82

13.17

12.88

3.25

1980

11.60

1985 1990

Stuttgart

Source: OECD.Stat. (online) Notes: 1) Patents to EPO, by inventor region of residence. 2) Patents by priority year. 3) Spatial units are German Metropolitan Regions, proxied using best-fi t Spatial Planning Regions. 4) Table gives a sample of the 11 Regions, so shares will not sum to 100

Figures 5.2 and 5.3 develop these in more detail. Figure 5.2 shows metropolitanlevel productivity since 1980; there is a clear upward spike in the early 1990s and an accelerating away from the German average. Figure 5.3 shows an increasing metropolitan–national gap in employment rates from the mid-1990s, although the trend is not as pronounced as the shift in productivity. More efficient businesses need not be so labour-intensive. Behind the figures, shifts in the innovation system also suggest successful technological upgrading. Table 5.6 shows Munich Metropolitan Region’s shares of national patenting, compared to some other leading Metropolitan Regions.3 We can see Munich losing patent share during the 1980s, then reversing this from 1990 onwards, overtaking Stuttgart and Rhein-Main Metropolitan Regions by the 2000s. All regions lost patent share during 2000–2005, but Munich turned this around by 2007.

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Figures 5.4, 5.5 and 5.6 break down Munich’s innovation performance across the target sectors of the innovation strategy. There is a very strong performance in ICT and cleantech patents, and good performance in biotech patenting. Munich’s historic strengths in electronic engineering helped its firms stay ahead on ICT patents; biotech shares grew strongly from the early 2000s, and total patenting also rose; Munich firms developed a substantial advantage in cleantech activity from this period too.

35 in %

Munich Rhein-Main Hamburg Stuttgart

30

20

10

0 1980

1985

1990

1995

2000

2005

2010

Figure 5.4 Metropolitan Region’s share of German biotech patents (%), 1980–2010 Sources: Statistisches Bundesamt (online); OECD.Stat (online) Notes: 1) Patents to EPO, by inventor region of residence. 2) Patents by priority year. 3) Spatial units are German Metropolitan Regions, proxied using best-fit Spatial Planning Regions. 4) Sample of metros, so shares will not sum to 100

35 in %

Munich Rhein-Main Hamburg Stuttgart

30

20

10

0 1980

1985

1990

1995

2000

2005

2010

Figure 5.5 Metropolitan Region’s share of German ICT patents (%), 1980–2007 Sources: Statistisches Bundesamt (online); OECD.Stat (online) Notes: 1) Patents to EPO, by inventor region of residence. 2) Patents by priority year. 3) Spatial units are German Metropolitan Regions, proxied using best-fit Spatial Planning Regions. 4) Sample of metros, so shares will not sum to 100

148 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Innovative activity is also reflected in entrepreneurship, as new ideas are spun out into new firms. Figure 5.7 gives some recent data for start-ups. It shows clearly that at city level, Munich’s ‘start-up rate’ has been above the Bavarian and national average for some years now.

35 in %

Munich Rhein-Main Hamburg Stuttgart

30

20

10

0 1980

1985

1990

1995

2000

2005

2010

Figure 5.6 Metropolitan Region’s share of German cleantech patents (%), 1980–2007 Sources: Statistisches Bundesamt (online), OECD.Stat (online) Notes: 1) Patents to EPO, by inventor region of residence. 2) Patents by priority year. 3) Spatial units are German Metropolitan Regions, proxied using best-fit Spatial Planning Regions. 4) Sample of metros, so shares will not sum to 100. 5) ‘Cleantech’ is defined as renewable energy, electric and hybrid vehicles, energy efficiency in buildings and lighting

15 per thousand inhabitants

12

9 Munich City EMM Bavaria Germany

6 2000

2005

2010

Figure 5.7 Start-ups per 1000 inhabitants, 2001–2008 Sources: Statistisches Bundesamt (online); OECD.Stat (online) Notes: 1) Patents to EPO, by inventor region of residence. 2) Patents by priority year. 3) Spatial units are German Metropolitan Regions, proxied using best-fit Spatial Planning Regions. 4) Sample of metros, so shares will not sum to 100

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Figures 5.8 and 5.9 explore two other dimensions to the innovation story. Figure 5.8 looks at R&D spending, expressed here as a share of GDP. R&D is an important ‘innovation input’. Munich Metropolitan Region’s R&D share is much higher than the state or national average, but has stayed stable since the mid-1990s. Since ‘innovation outputs’ (e.g. patenting) improved during the same period, this suggests public programmes may have helped to improve the performance of the innovation sector in the Metropolitan Region.

5 % of GDP

4

3

Munich Metro Bayern Germany

2 1995

2000

2005

2010

Figure 5.8 Research and development spending, 1995–2007 Source: Eurostat (online) Notes: 1) GERD measures total public and private sector R&D spend. 2) GERD is expressed as a share of GDP

Munich Metro Bayern Germany

20 in %

15

10

5 2000

2005

2010

Figure 5.9 Percentage of skilled science and technology workers, 1999–2009 Source: Eurostat (online) Note: Eurostat defines ‘core HRST’ as workers who a) are educated to degree level or above, and b) are employed in a science and technology occupation as Professionals’ or ‘Technicians and associate professionals’

150 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Figure 5.9 explores another critical input: human capital. Munich’s share of highskilled science and technology workers is also higher than regional or national comparators, and the disparity has grown since 2002. However, Munich has been more seriously affected by the recent economic downturn than Bavaria or Germany regarding its technology workforce.

Economic success in the next urban economy The international evidence suggests that the development of high-tech regions is at least partly a matter of opportunities, luck and time (Bresnahan and Gambardella, 2004). Like Silicon Valley, the Munich Metropolitan Region has gradually evolved into a high-tech centre, an innovation-building process lasting several decades. The evidence suggests two types of success factors for Munich: • •

hard factors – economic diversity and strong firms, plus investments in infrastructure and human capital; soft factors – an effective ‘active state’ and the right kind of institutional thickness, especially at State and Metropolitan Region level.

These factors are summed up in an interview comment: I see it as an ongoing contradiction. On the one hand we’re promoting a freemarket economy with a social touch. But under the surface, as it were, we’re pursuing a massively interventionist industrial and structural policy agenda. (Dr Detlef Sträter, Fellow, Munich Institute for Social and Sustainability Research) What follows is an exploration of each of the success factors in more detail.

Economic diversity and high-value firms The ‘Munich Mix’ is at the heart of the Metropolitan Region’s continuing success. Economic diversity is important for a number of reasons. As Jane Jacobs explains, it provides cities with long-term economic resilience (Jacobs, 1970). Economically diverse urban cores also act as ‘nursery cities’, promoting idea flows and allowing new ideas to emerge out of the old (Duranton and Puga, 2001). Munich’s broad industrial mix, with deep clusters across several sectors, is an excellent example of these dynamics in action – most recently in the development of green industries in the Metropolitan Region: Innovation, I believe, was an expressed goal. Green Economy, I believe, was more of a by-product. (Dr Detlef Sträter, Fellow, Munich Institute for Social and Sustainability Research)

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[Green industries] probably came about due to the traditional strengths of the Bavarian economy. Green technologies did not develop out of thin air, but most likely out of the strong mechanical engineering base. (Rudolf Escheu, Head of the Department of Economic Policy, Ministry of Economic Affairs, State of Bavaria) Munich’s large firms play important roles in the innovation process. Many are worldclass with significant in-house research and development facilities; they are also embedded in the Metropolitan Region’s spatial clusters, and evidence shows they have an important ‘halo effect’ on local SMEs – via supply-chain relationships and wider collaboration (Sternberg and Tamásy, 1999; Sternberg and Arndt, 2001; Lüthi et al., 2010). Inter-firm collaboration within the Metropolitan Region has been important in the development of both knowledge-intensive business services (Koch and Stahlecker, 2006) and biotech (Zeller, 2001; Kaiser, 2003). By retaining advanced manufacturing, Munich has also been able to retain a large share of relatively well-paid jobs, and provided employment for lower-skilled workers. This helps both economic resilience and social cohesion.

Critical public investments State and Metropolitan Region leaders have supported Munich’s firms by investing in the assets that matter the most to supporting innovation, strong firms and longterm economic growth – human capital and strategic infrastructure. First, Munich has fed its innovation system from a large pool of skilled labour. This comes in part from excellent higher-education institutions but also its strong state-school system – 40 per cent of students qualify for university entry, almost double the Bavarian average. More broadly, the availability of a skilled workforce stems from the German cultural emphasis on vocational education, exemplified in Munich’s training programmes. Academic and vocational education are organised as a ‘dual system’, provided jointly by the state, the city and by private enterprises offering practical training: ‘Many [firms] did try and relocate to cheaper production locations, but BMW for instance came back when they couldn’t find the technical know-how’ (Professor Christiane Thalgott, Head of Department of Urban Planning 1992–2007, City of Munich). This strong education system – Munich is the only German municipality that runs its own schools4 – thus creates a number of feedback loops, helping attract and retain talented workers and their families – and the firms they work in. Second, investment in physical infrastructure has been important in supporting economic activity. Connectivity is critical within the Metropolitan Region, which consists not just of Munich and its periphery, but several other second-tier cities within a 60 to 80 km distance. As such, Metropolitan Region leaders have not only needed to connect Munich to its hinterland, but also to connect all firms in the Metropolitan

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Region to international markets, and to support the gradual densification of the Metropolitan Region outwards from the core. A number of investments have been significant: the 1971 urban rail system, upgraded rail lines linking Munich via Augsburg and Ingolstadt to Germany’s highspeed rail network, a series of high-capacity motorways and, most notably, Munich’s new airport.

Strong and agile institutions As explained in the previous section, state and Metropolitan Region leaders have exploited Bavaria’s historic ‘institutional thickness’ to move the Metropolitan Region forward. At the same time, they have carved out distinctive ‘active state’ roles. When you’re a three-man business, you’ve just started out, you don’t have any bookkeeping yet, you have no purchasing department, you have nothing. Then you call your colleague over at a nearby institute or company and say ‘hey, we need a bit of nitrogen’. And he says, ‘sure, just come over’. (Enno Spillner, Chief Financial Officer, Pharmaceutical Company 4SC) By ‘institutional thickness’ in this context we mean four things: 1) close networks between private and public sectors; 2) strong and stable public institutions; 3) political leaders committed to investing in technology and innovative capacity; and 4) the clear sense of common purpose and desire for innovation that results from all this. For example, the City of Munich (led by a red–green coalition) and the State of Bavaria (run by the conservative CSU and the liberal party) have governments of different political complexions, but have focused on common interests that cross party lines. This enabled state agencies to bring key people together, bonding them through shared economic development activities. And as the quote above suggests, cooperation extends from the highest-level strategy through to the business of everyday life. The Bavarian sense of common purpose includes a strong emphasis on the ‘active state’. As Dieter Läpple suggests, at different times government has been happy to take on ‘problem-solving’ functions (for example, the Bavarian State government bought company shares in the 1970s to prevent job losses), as well as ‘proactive’ and ‘enabling’ functions (such as developing the Future Bavaria vision, and selling off shares to fund it). The ‘active state’ also expresses itself through the technological orientation of public officials, especially the ‘geeks in government’ at city and state level. More broadly, it includes strategic state actors like Stadtwerke München (SWM), the city’s integrated public utilities company and the seventh largest energy company in Germany (see Box 5.3). SWM’s ownership structure allows it to consider very long-term time horizons – and so it is able to both make long-term, future-facing investments, and to actively shape demand in emerging energy sectors, such as lowcarbon and renewable sources.

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Box 5.3 Stadtwerke München 7,500 employees, €4.9 billion annual turnover .

Stadtwerke München (SWM) is Munich’s utility company and Germany’s seventh largest energy company in turnover terms. Its portfolio includes the city’s gas, electricity and water supply, the operation of district heating systems as well as public transport and public swimming pools. It recently expanded into the Internet and communications sector.

Company structure Unlike most other cities in Germany, Munich did not privatise its utility company, instead opting to keep it in public ownership while running it as a private enterprise, transforming it from a loss-making public enterprise to a profitable firm with double its previous sales volume. The city now benefits from SWM’s critical role in delivering strategic policy objectives. Financial benefits amount to approximately €400 million annually, made up in equal shares of SWM’s dividends, local trade tax, a commission fee as well as the operation of the city’s public transport and swimming pools. SWM’s broader contribution lies in pursuing strategic goals set by its board, chaired by the

154

Mayor of Munich and staffed by city officials. As Dr Florian Bieberbach, CFO of SWM, puts it, ‘The city’s backing makes it possible for us to invest massively in future infrastructure today with much longer payback periods than most private companies could sustain.’ To further shield against inefficiencies, external supervision by technical experts will be introduced.

Fibre Optic Initiative The so-called Fibre Optic Initiative demonstrates the strategic possibilities of a municipal utilities company. SWM is investing more than €200 million to set up highspeed Internet connection to every household within the denser urban core – some 60 to 70 per cent of households. This will provide individuals and SMEs with an infrastructure usually available to major companies only, of particular advantage to the media sector. As one of the few cities able to implement such a policy Munich gains a real competitive edge.

Renewable energy supply/ Internationalisation SWM’s move into renewable energies is being driven wholly by political targets to produce the

equivalent amount of Munich’s energy consumption using renewable sources by 2025. The side-effect of this policy is the company’s internationalisation. Committed to producing energy where it is most efficient, it has set up subsidiaries in various countries to exploit local sources of renewable energy, such as offshore wind farms in the Irish Sea (UK) and North Sea (Germany), onshore wind parks in Germany and solar-thermal energy in Andalusia (Spain). By 2025 SWM will have invested some €9 billion in renewables. Furthermore, the company is moving into gas exploration in the Norwegian, Danish and British North Sea, providing the income necessary for Munich’s own supply thus guarding against the financial risk associated with Gazprom’s factual monopoly in Europe. SWM continues to innovate in its own field of expertise such as district heating and combined heat and power generation. Overall, SWM demonstrates an impressive level of innovation as a company moving into new sectors and countries, based on a sound appraisal of its own strengths and weaknesses.

TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Another important tool in the city’s box is ownership and control of land. The city has an activist planning regime, aiming to be ‘compact, urban and green’, in the words of Munich’s planning department. The cheap purchase of ex-military sites in the early 1990s, part of the peace dividend, provided it with an important strategic land portfolio during the implementation of the innovation initiatives discussed above. As the city government recognises the value of maintaining a mix of uses, including small craft and manufacturing businesses, which are regarded as the basis for advanced manufacturing, it seeks to provide spaces for such uses to avoid a monofunctional city centre. To this end it devised a strategic land-management tool in 2000, the so-called ‘industrial and commercial land development programme’. It is based on two main approaches: by specifying a range of commercial land typologies in the preparatory land-use plan to help preserve existing uses, and by developing inner-city land for commercial use as replacement for losses incurred. This strategy extends to areas for ‘new economy’ uses – ITC, media, biotech, and so on – and may involve mixing zones for traditional and ‘new’ industry to allow for synergies between the two. One such example is the Messestadt Riem (trade fair city Riem) where two commercial zones were developed: one for traditional commercial, one for ‘new economy’ uses. Overall, developing a long-term strategic urban planning vision for industrial and commercial uses provides an important source of information for businesses’ location strategies.

Wider issues A number of other ‘soft factors’ have also helped retain skilled people and businesses in the metropolitan area, even if the evidence suggests they have not actively driven forward economic development. The very high quality of life in the city of Munich – public space and cultural life in particular – and the city’s surroundings are obvious pulls: The natural beauty of Lake Starnberg and Mount Zugspitze right on your doorstep naturally makes it very attractive to live here and to stay here. (Dr Johann Niggl, Executive Director, Invest in Bavaria, Ministry of Economic Affairs, State of Bavaria) Conversely, the metropolitan’s economic success has raised the local cost of living, particularly for housing. The city’s population has been rising continuously since the year 2000, raising competition for space. The suburbanisation of key firms and business clusters during the past decade is partly a response to these ongoing challenges. Those that came here, that were poor, that had potential but were not so visible at first glance, were very much always taken care of here. What I mean is that Munich has a very stable social basis. (Professor Christiane Thalgott, Head of Department of Urban Planning 1992–2007, City of Munich)

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The Munich government’s policy has promoted investment in green technologies including projects like this solar thermal power station in Andalusía Source: SWM/Langrock/Solar Millennium

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TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

A number of interviewees have also mentioned the importance of social cohesion and inclusion in Munich, a kind of ‘Munich mindset’ that informs a range of public policies (including public education, social housing and social care programmes). This progressive attitude reflects and reinforces the city’s long history of leftof-centre politics; more broadly, it reflects Munich’s historical development as a ‘Millionendorf’, a city with a village outlook, until relatively recently, an artisanal centre in a rural region.

The global economic crisis and the future The recent global recession has had a significant impact on Munich’s tradable sectors, and the city now faces a different set of challenges to those of the previous crash in the 1990s which followed the end of the Cold War, reunification, recession and fierce new global competition. Both BMW and Audi have been hit hard by a significant increase in oil prices and a decline in the number of orders, although it should be noted that demand from Asia has been steadily picking up since 2008. In terms of finance, it was only possible to rescue Munich’s Hypo Real Estate from financial disaster by state guarantees to the value of €140 billion, and the company failed the European Central Bank’s recent Europe-wide ‘stress-testing’ exercise (Reuters, 2010). The economic downturn also had a severe impact on Bayerische Landesbank, a publicly owned bank, and the cost of its misfortunes are now exerting a considerable financial strain on the state’s budget. However, there has been a more positive outcome for insurance firms Allianz and Munich Re, which have both weathered the crisis successfully. Looking to the future, city leaders are now focused on two main fields of development for Munich, which they hope will lift the city out of its current economic crisis. The first development field is ‘e-mobility’ – a cluster of activities that includes low-carbon and electric vehicles, electric car grids and the next generation of highspeed rail. The second field is ‘future infrastructure’ – the city has made it a political target to produce the equivalent amount of Munich’s energy consumption using renewable sources by 2025, and in light of this target the SWM is developing an ultrafast fibre-optic network in anticipation of future commercial and household demand. The economic benefit for Munich will come short term but for us as a company the fibreglass infrastructure as well as the investments in renewable energy won’t pay back before fifteen years’ time or longer. Infrastructure is a business that requires long-term investors. Our advantage is that we as a city-owned company can think very long term, unlike most private companies who are driven by shortterm objectives. Our experience has shown, however, that very long-term investments can be highly profitable – not only for the Munich Metro but also for us as a company. (Dr Florian Bieberbach, Chief Financial Officer, Stadtwerke München)

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Coordination at the level of the Munich Metropolitan Region is also improving. The Munich Metropolitan Region is relatively young, as it was only formally established in 2001, and in the years to come it is likely to prove helpful in improving strategic coordination across the wider Metropolitan Region, as it moves into the next phase of its economic evolution.

Conclusions The ‘Munich Story’ is particularly strong on innovation and it features the region’s strength in advancing its edge even at times when it was challenged by external shocks. But the more recent success also needs to be put in context of a longer-term trajectory of Munich’s economy, which in itself is the result of a particular history and historical accidents, path dependence, the continuous seizing of opportunities and strong political leadership. These factors have developed a set of conditions which have been vital to the accomplishments of Munich’s innovation sector. The high human capital available, with an above average share of graduates, was drawn upon to conduct the critical mass of public research activity in universities and numerous other public research institutes. The beneficiary of the research results has been the ‘Munich Mix’, a diverse industrial structure covering a range of sectors, global players, and SMEs. Munich’s economic success and capacity to innovate has further been linked to a particularly strong ‘service-manufacturing-nexus’ – a key characteristic of Germany’s economy which is centrally based on interacting knowledge-intense services and advanced, knowledge-intense industries. Our analysis further focused on the region’s innovation strategy, which was put in place over the last twenty years mainly by the Bavarian State government. Exploiting strong public institutions and public–private networks, the various initiatives have certainly had an effect. Munich has strengthened its presence in science and advanced manufacturing – while diversifying into new activities, notably biotech and, increasingly, cleantech activities such as green energy and low-carbon vehicles. And while direct causality between desired outcomes and policy is always difficult to pin down, all interviewees agreed that in this case policy has played a strong role. Besides the overall context outlined above, there were other critical factors that facilitated effective government intervention. These factors helped produce what we call ‘institutional thickness’, which in addition to a critical mass with a rich mix of high-value economic activity, high-quality universities and a network of public research intermediaries includes: • •

political stability at both the state and city government level; strong interventionist traditions and a cadre of technically-educated personnel in public agencies;

158 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

•

connected elites with multiple connections between heads of the business, university and public research communities.

Combined, these factors have helped build a powerful policy-making machine, based on the combination of the four key characteristics: strong and stable public institutions (with competent administrators and good public services); productive public–private relationships (promoting formal and informal idea exchange and collaboration); a commitment to technology – making long-term public investments, even when this is politically unpopular; and a common purpose and flexibility – the ability to set out and stand by overall strategies, and to fine-tune initiatives quickly when conditions change. Unlike many other city-regions, Munich does not have formal metropolitan-level leadership or institutions. Despite this institutional gap, political and business leaders have been extraordinarily successful at articulating a clear vision and programmes. Behind this, Germany’s ‘active state’ approach has allowed Federal, State and city public agencies to make and shape new markets, especially in the green economy. Certainly, the broader success factors behind Munich’s continued high performance go beyond specific economic development programmes. These include the above-mentioned economic diversity and strong firms, but also investments in infrastructure and human capital. It is the region’s continuous commitment to its education system, which includes inclusive schooling and vocational training as well as competitive higher education, an efficient urban transport system, its international airport and intercity rail as well as land-management that allow the Munich Mix to flourish. But it is also on these broader issues that state and city government ultimately have a common agenda.

List of interviewees Interviews conducted in Munich, July and August 2010 Florian Bieberbach, Chief Financial Officer, Stadtwerke München (Munich Public Utility Company) Bernhard Eller, Economist, Department of Labour and Economic Development, City of Munich Rudolf Escheu, Head of the Department of Economic Policy, Ministry of Economic Affairs, State of Bavaria Dr. Gerd Gruppe, Head of the Department of Innovation, Research and Technology, Ministry of Economic Affairs, State of Bavaria Dr. Mathias Lamparter, Cluster Manager, Bavarian Biotech Cluster Hep Monatzeder, Munich Deputy Mayor, City of Munich Johann Niggl, Executive Director, Invest in Bavaria, Bavarian Ministry of Economic Affairs, Infrastructure, Transport and Technology Enno Spillner, Chief Financial Officer, Pharmaceutical Company 4SC

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Dr. Detlef Sträter, Fellow, Munich Institute for Social and Sustainability Research Markus Strangmüller, Head of Internal Stakeholder Engagement, Corporate Sustainability, Siemens AG Prof. Christiane Thalgott, Head of Department of Urban Planning 1992–2007, City of Munich

Participants in Munich Workshop, July 2010, in partnership with Faculty for Architecture at Technical University Munich Gunther Bös, Leiter Standortprojekte, Audi AG, Ingolstadt Sebastian Haag, Researcher, Technische Universität München Klaus Illigmann, Department of Labour and Economic Development City of Munich Tobias Just, Head of Sector and Real Estate Research, DB Research, Deutsche Bank Bruce Katz, Director of the Brookings Metropolitan Policy Program, Washington DC Mark Michaeli, Visting Professor for Urban Design and Urban Development, Technische Universität München Rita Müller-Roider, Department of Labour and Economic Development, City of Munich Sylvia Pintarits, Department of Labour and Economic Development City of Munich Philipp Rode, Executive Director, LSE Cities and Urban Age, London School of Economics and Political Science Tanjev Schultz, Journalist, Research and Education Policy, Süddeutsche Zeitung, Munich Peter Schwinger, Urban Age Programme, London School of Economics and Political Science Anne von Streit, Researcher and Lecturer, Ludwig Maximilians Universität, München Alain Thierstein, Professor for Spatial Development, Technische Universität München Julie Wagner, Fellow, Brookings Metropolitan Policy Programme, Washington DC Ute Weiland, Deputy Director, Alfred Herrhausen Society, Deutsche Bank Anja Wilde, Director, European Metropolitan Region Munich Society Sophie Wolfrum, Professor for Urban and Regional Planning, Technische Universität München

Notes 1 2

3

4

A point first made by Castells and Hall (1994). When we talk about ‘the city’ we mean the Munich urban core (the administrative city). ‘The metro’ or Metropolitan Region means the European Metropolitan Region Munich (EMM). Data for the EMM is not straightforward to assemble. Due to practical constraints, we generally use the Oberbayern NUTS2 area as best-fit for EMM. For patent statistics we construct a more precise best-fit using Spatial Planning Regions. Munich is the home of the European Patent Office as well as the German national patent office – both relocated after the Second World War. Munich has nearly 25 per cent of Germany’s patent-law practices, and around 70 per cent of the country’s patent lawyers. Hamburg and Berlin have their own schools as part of their status as Federal States.

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References Amin, A. and Thrift, N. (2001). Living in the global: Globalization, institutions, and regional development in Europe. Oxford: Oxford University Press. Bavarian State Chancellery (2006). Information available on: www.bayern.de/ English-.594/index.htm. Bayerisches Landesamt für Statistik and Datenverarbeitung (2010). Fortschreiben des Bevölkerungsstandes Kreisfreie Stadt München. Available at: www.statistik. bayern.de/. Berger, C. (2002). Technologie und Innovationspolitik in Bayern. Working paper. WSI-Discussionspapier, 105. Available at: http://hdl.handle.net/10419/50456. BioM AG (2007). Biotechnology in Bavaria: Biotechnologie cluster annual report 2007. Martinsried: BioM AG. Bresnahan, T. and Gambardella, A. (2004). Building High-Tech Clusters: Silicon Valley and Beyond. Cambridge: Cambridge University Press. Cambridge Econometrics (2010). European regional prospects. Database. Available at: www.camecon.com/Home.aspx. Castells, M. and Hall, P. (1994). Technopoles of the world. London: Routledge. Chapple, K. and Lester, T. W. (2009). Resilience in the green economy: Innovation and adaption to climate change in California Regions. Berkeley, CA: University of California Press. Duranton, G. and Puga, D. (2001). Nursery cities: Urban diversity, process innovation, and the life cycle of products. American Economic Review, 91(5), 1454–77. European Environment Agency. Land-use data available at: www.eea.europa.eu/ themes/landuse. European Metropolitan Region Munich Association (2010). The economic location Munich Metropolitan Region. Munich: Europäische Metropolregion München e. V. Eurostat. Regional statistics available at: http://epp.eurostat.ec.europa.eu/portal/ page/portal/region_cities/regional_statistics/data/database. Gutgesell, M. and Maier, J. (2007). Industrielle Cluster in Ländlichen Räumen? Zeitschrift für Angewandte Geographie, 31, 130–32. Jacobs, J. (1970). The economy of cities. New York: Vintage. Kaiser, R. (2003). Multi-level science policy and regional innovation: The case of the Munich cluster for pharmaceutical biotechnology. European Planning Studies, 11(7), 841–57. Koch, A. and Stahlecker, T. (2006). Regional innovation systems and the foundation of knowledge intensive business services: A comparative study in Bremen, Munich, and Stuttgart, Germany. European Planning Studies, 14(2), 123–46. Läpple, D. (2008). The German system. In R. Burdett and D. Sudjic (eds), The Endless City. London: Phaidon Press. Liecke, M. (2009). Subnationale Clusterpolitik: Die Biotechnologiepolitik deutscher Länder im Vergleich. Dissertation, Faculty of Social Sciences, LMU München. Lüthi, S., Thierstein, A. and Goebel, V. (2010). Intra-firm and extra-firm linkages in the knowledge economy: The case of the emerging mega-city region of Munich. Global Networks, 10(1), 114–37. Organisation for Economic Co-operation and Development (OECD) Stat Extracts. Statistics available at: http://stats.oecd.org/Index.aspx.

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Prognos, A.G. (2010). Impact-Analyse des Wissenschaftsstandortes Europäische Metropolregion München (EMM). Available at: www.metropolregion-muenchen.eu/ fileadmin/user_upload/pdf/Wissen_EMM_Studie_Langfassung.pdf. Reuters (2010). UPDATE 1-Hypo Real Estate seen failing stress test – source, 19 July. Available at: www.reuters.com/article/2010/07/19/hyporealestate-idUSLDE 66I20V20100719. Schlemmer, T. and Woller, H. (2004). Politik und Kultur im föderativen Staat, 1949 bis 1973. Munich: Oldenbourg Verlag. Statistisches Bundesamt Deutschland. Statistics available at: www.destatis.de/ jetspeed/portal/cms. Sternberg, R. and Arndt, O. (2001). The firm or the region: What determines the innovation behavior of European firms? Economic Geography, 77(4), 364–82. Sternberg, R. and Tamásy, C. (1999). Munich as Germany’s no. 1 high technology region: Empirical evidence, theoretical explanations and the role of small firm/large firm relationships. Regional Studies, 33(4), 367–77. Thierstein, A., Goebel, V. and Lüthi, S. (2007). Standortverflechtungen der Metropolregion München: Über Konnektivität in der Wissensökonomie. Unpublished report submitted to TU München, Munich, 18 December. Triebswetter, U. and Wackerbauer, J. (2008). Integrated environmental product innovation in the region of Munich and its impact on company competitiveness. Journal of Cleaner Production, 16, 1484–93. Trischler, H. and vom Bruch, R. (1999). Forschung für den Markt: Geschichte der Fraunhofer-Gesellschaft. Munich: CH Beck. von Streit, A., Montanari, G., Popp, M., Hafner, S., Heinritz, G. and Miosga, M. (2010). Policies and strategies for the creative knowledge economy in the region of Munich. ACRE report 10.7. Amsterdam: AISSR. Zeller, C. (2001). Clustering biotech: A recipe for success? Spatial patterns of growth of biotechnology in Munich, Rhineland and Hamburg. Small Business Economics, 17, 123–41. Zeller, C. and Oßenbrügge, J. (2000). The biotech region of Munich and the spatial organisation of its innovation networks. In L. Schätzl and J. Revilla Diez (eds), Technological change and regional development in Europe. Heidelberg: Springer Verlag.

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6 Seoul Successful restructuring towards a knowledgebased economy Yong-Sook Lee, Dong-Wan Gimm and Eun-Jung Hwang

Introduction South Korea was heralded the ‘Miracle on the Han River’ for its rapid economic and industrial growth from the 1970s onwards. The powerhouse of this thriving national economy is the Seoul Metropolitan Region (SMR), which comprises Seoul Capital City (서울특별시), Incheon City (인천광역시) and Gyeonggi Province (경기도). This economic region (SMR), also known as the Seoul National Capital Area, is home to approximately 24.2 million people, making it the second largest urban agglomeration in the world. Its gross domestic product (GDP) is approximately US$291 billion, ranking it amongst the top performing major metropolitan areas in the world (PWC, 2009). In national terms, the SMR constitutes approximately half the total population (45 per cent), GDP (48 per cent), total firms (46 per cent) and employment (50 per cent) of South Korea. Korea’s booming economic growth during the latter half of the twentieth century, in the aftermath of the Korean War, was driven by state-led development, specifically driving the industrial growth of the country through support of home-grown chaebols (large conglomerates with multiple enterprises). Since the 1960s, this state-led economic growth was focused on nurturing low-value, exportdriven manufacturing industries of textiles and apparel which were concentrated in the SMR. In the 1970s, the national government intervened with policy tools and instruments, to maintain the competitiveness of the national, and thereby regional, economy. The 1980s proved a critical turning point for the economic and territorial development of the SMR.

Seoul’s transformation Today the SMR has developed a robust economy driven by a dynamic, high-tech sector and related business and professional services. It also continues to flourish as the national hub for political, economic, social and cultural activities. As of 2003, the SMR accounted for 55 per cent of all manufacturing firms, 73 per cent of total (R&D) institutions, 77 per cent of Korea’s venture companies and 88 per cent of all Korean headquarters of major enterprises. The SMR has particular strengths in the information and communication technologies (ICT) industry with world-leading electronics firms such as Samsung and LG, and globally competitive clusters of R&D and other high-tech activity. As a result of the interventions, world-leading ICT, R&D and manufacturing clusters such as the Samsung Digital Valley in Suwon, and the LG Paju LCD cluster have emerged, and others in Seoul continue to be developed. In 2005, the SMR housed 59.6 per cent of the national R&D workforce and produced 79.3 per cent of intellectual property rights. It has also enjoyed continuous economic growth since the 1980s, except during the Asian financial crisis in 1997.

Urban and metropolitan context Geography The SMR lies 40 kilometres south of the border between North and South Korea. Nationals often describe the Korean peninsula as being shaped like a rabbit and the SMR would be located at its figurative ‘heart’. The SMR consists of three administratively independent entities: Seoul City, Incheon City and Gyeonggi Province (Figure 6.1). The SMR also represents approximately half of the national population, with a total of 24.4 million residents out of the national total of 49.8 million. Of this, Seoul City has 10.5 million, Incheon has 2.7 million and Gyeonggi Province has approximately 11.3 million residents. In terms of land take, the SMR covers only 11.8 per cent of the total land area of South Korea. It comprises Seoul City, with an area of 605 km2 (233 square miles, 0.06 per cent of the national land area); Incheon City, with an area of 986.45 km2 (380 square miles, 0.98 per cent); and Gyeonggi Province, covering an area of 10,131 km2 (3,911 square miles, 10.2 per cent). Administratively, Seoul City has one city mayor, and 25 district mayors. Incheon City has one city mayor, eight district mayors and two county mayors. Gyeonggi Province has one governor, twenty-seven city mayors and four county mayors. The governor and mayors in all cities, districts and counties have been elected positions since the Local Government Act of 1989 introduced the first local elections in 1995, which attempted to decentralise some political power from the national government.1

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Seoul has been the capital city for over 600 years: 500 years during the Chosun dynasty, throughout the Japanese occupation and then following the creation of the Republic of Korea in 1948. It is the hub of political, cultural, social and economic activity, with the headquarters of the nation’s biggest firms, banks and businesses, and the preferred location for the headquarters of international firms in South Korea. The top three national universities, Korea University, Seoul National University and Yonsei University, are all located in Seoul, alongside world-class theatres, galleries and an extensive underground metro system serving 5.6 million passengers daily through its 291 stations. Incheon City is South Korea’s third largest city (alongside Daegu), with an increasingly strong transport and logistics role. It hosts the country’s largest port on the west coast and the main international airport. More recently, it has benefited from the economic growth of Seoul and the deregulation of foreign investment (Incheon’s Special Economic Zone), and is implementing a vision of itself as a global business hub centred around the high-tech Songdo International City, home to Korea’s largest building, the Northeast Asia Trade Tower. Gyeonggi Province is the largest province in Korea in terms of population, comprising twenty-seven cities and four counties. The provincial government, led by the governor, is based in Suwon City. Gyeonggi is known for its mountainous landscape surrounding the northern part of the Han River. Its economy consists of mainly heavy and light industries, with some agriculture and increasingly more hightech industries.

Economic history The Korean Peninsula was liberated from Japanese occupation in 1945 and, following the division of the nation into two independent countries, subsequently experienced the Korean War (1950–53). South Korea’s first phase of development took place in the 1950s, as the result of international funding and US military spending (Douglass, 2000). Seoul, as the capital city where US troops were mainly based, played a critical role in the aid economy during the 1950s and 1960s, during which time almost 50 per cent of national GDP was made up of international assistance. In parallel, the Korean government definitively pursued a policy of export-oriented industrialisation to promote economic growth, developing its first five-year economic development plan in 1962. The five-year plan successfully supported the expansion of labour-intensive, textile and apparel industries (Park, 1993) which grew to become leading national industrial sectors. The city of Seoul particularly benefited from this phenomenon as industrial complexes and districts emerged, such as Youngdeungpo and Guro industrial districts (Markusen, 1999).

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The problem In the 1970s, as these labour-intensive industries faced severe competition from international markets, and from the aligned growth and economic development of other Asian countries, the national government began to seek other competitive sectors, and chose to facilitate the heavy-chemical industrial drive (HCI) through petrochemicals, steel, shipbuilding and transportation equipment. In promoting these heavier industries, the government actively pursued a policy of growth poles for the purpose of alleviating the excessive concentration of economic and industrial activity in the SMR. The government encouraged the growth of heavy industries away from the SMR in the cities of Busan, Daegu, Pohang and Ulsan in the south-eastern regions of Korea. The growth pole policy was, however, only partly successful in slowing down the construction of factories and facilities in the SMR in the 1970s and 1980s. The number of headquarters and R&D facilities based in the SMR continued to grow (Lee, 2009). By the 1980s, the SMR economy’s trajectory was firmly directed towards growth of high-tech industries. The light manufacturing sector continued to decline in Seoul City, but sectors that were considered ‘high-tech’ or ‘high value add’ flourished, such as apparel, machinery and transport equipment. Simultaneously, mining and manufacturing activities in Gyeonggi and Incheon grew significantly, creating space for the SMR to specialise almost exclusively on developing the high-tech sector, especially of semiconductors and electronics. Seoul’s ‘miracle economy’ blossomed as double-digit growth rates during the 1970s and 1980s continued for most of the 1990s. By the late 1990s, ICT emerged as a new growth sector in the SMR. The firms in the ICT-related service sector grew rapidly in Seoul, while ICT-related manufacturing industries were concentrated in Gyeonggi and Incheon. Despite the growth of its ICT sector, South Korea still fell victim to the Asian financial crisis in late 1997, and the SMR unprecedentedly experienced a minus growth rate in 1998. None the less, the SMR achieved recovery in 1999 and successfully sustained stable economic growth rates from the late 1990s onwards, which will be explored in the remainder of this chapter.

Policies, programmes and projects to transform the urban economy Approach South Korea has a long-standing tradition of top-down implementation of policies, the residual effects of which linger in the political system today. The first military coup in 1960, after the creation of the Republic of Korea in 1948, led to the repeal of national legislation to promote local autonomy, including local mayoral and gubernatorial

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NORTH KOREA

Paju LCD cluster

Chuncheon

GYEONGGI PROVINCE Goyang Namyang

Seoul

INCHEON CITY

SEOUL CITY Bucheon Seongnam Incheon Anyang Teheran Valley Ansan Yongian Samsung Suwon Nano City Hwaseong Samsung Nano City

SOUTH KOREA

Samsung Digital City

Cheonan Seoul-Busan high-speed rail link

Cheongju

Daejeon lakes

50 km 100 km

regional boundary metropolitan boundary

RUSSIA CHINA

NORTH KOREA

district boundary airport

Seoul SOUTH KOREA

motorways

JAPAN

intercity rail Source: Global Administrative Areas (online)

Figure 6.1 Seoul and its Metropolitan Region, Gyeonggi Province and Incheon City, South Korea Source: Global Administrative Areas (online)

elections. In this context, the centralisation of political, administrative and economic structures became even more entrenched (Kwon, 2003). Following several decades of political instability, the late 1980s saw the public demands for democratisation and civil-rights protection eventually met by the president, Roh Taewoo. Under President Roh, the National Assembly passed the Local Autonomy Act of 1989, reviving local assembly elections in 1991, and local mayoral elections in 1995. However, the devolution of substantial financial and political powers has been restricted (Park, 2005).

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In the case of financial deregulation, the national government recently devolved limited powers to local governments to determine and collect local tax rates for residential, automobile, city planning and regional development. However, the national government assesses and collects most other forms of tax including income, corporate, property and construction. Despite the very narrow designation of local taxes, which renders most local governments dependent on financial support from the national government, the municipalities of the SMR have a higher ratio of own-source tax revenue compared to total local revenue (this is referred to as the ‘self-reliance rate’). The average national ‘self-reliance rate’ is 52.2 per cent (2010), while Seoul is at 85.8 per cent, Gyeonggi at 72.7 per cent and Incheon at 70.4 per cent (Table 6.1). On the basis of their high self-reliance rate, the governor and mayors of the SMR have begun to oppose all of the national regulations pertaining to investment and development in the region. They argue for further deregulation on investments, particularly foreign investments, in order to protect the competitiveness of their regions. However, legislative structures and tools remain highly centralised, and there is limited opportunity for local leaders to enact local policies without the explicit support of national government.2 The SMR has also been subject to a specific national political agenda, to contain urban and industrial growth in the region, although there are signs that this may be slowly changing. As a result of the focal role of Seoul as the capital city for over 600 years, many path dependencies and residual structures remain today, which tend to concentrate economic activities and opportunities in Seoul. Leaders of other municipalities view these centripetal tendencies as prohibiting balanced growth throughout the country (Park, 2005). Initially, the government took a land-use management approach, restricting construction in the SMR. Subsequently, responding to other local leaders, national government promoted a strategy of ‘balanced regional development’ throughout the 1980s and 1990s, as population and wealth continued to converge in Seoul. However, more recently, under President Lee Myung-Bak, there has been a turn in the policy discourse towards the notion of growth and competitiveness of regions, favouring financial and political deregulation.

Table 6.1 ‘Self-reliance rate’ based on own-source tax revenues (%) 2000

2005

2010

National average

64.2

56.2

52.2

Seoul

95.3

96.1

85.8

Gyeonggi

76.1

76.2

72.7

Incheon

79.3

70.0

70.4

Source: Ministry of Public Administration and Security (2000, 2005, 2010)

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Institutional framework and governance National industrial policy Semiconductor industry promotion policy in the 1970s South Korea has become an important global player in the semiconductor industry, which is substantially based in the SMR. Illustrative of this is Samsung’s success in the semiconductor market. In the late 1980s, Samsung had success producing Metal Oxide Semiconductor (MOS) memory chips, which quickly led the way for further market growth in Korea. In 1993, Samsung became the seventh biggest chip producer of the world, and the world market leader in MOS memory chips and their Dynamic Random Access Memory (DRAM) segment.3 Samsung’s market share in memory chips was virtually zero in 1984, but rapidly increased to 10.2 per cent in 1993 (Bae, 1995). This rapid growth was closely related to the government’s long-term plan to promote the semiconductor sector, which took shape in the 1970s (Mathews and Cho, 2000). There were three major interventions by the Korean government in promoting the semiconductor industry. The first was the Electronics Industry Promotion Law enacted by the Ministry of Commerce and Industry (MCI) in 1969. Under this law, the MCI drew up an eightyear plan for the promotion of the electronics industry (Lee, 2006). The focus of this plan was to attract Korean domestic investments into the semiconductor and electronics industries. Several chaebols were encouraged to be involved in the electronics sector in alignment with national government strategic direction. Second, the government promoted the semiconductor industry through a supportive institutional set-up. The government enabled the creation of the Korea Institute of Electronics Technology (KIET) in 1976 in Seoul, which conducted advanced research into semiconductor design, processes and systems.4 At the head of each of KIET’s three research divisions was a Korean with research experience in the US semiconductor industry (Bloom, 1992). In a joint venture with a Silicon Valley chipmaker, KIET established Korea’s first VLSI (Very Large Scale Integration) pilot wafer-fabrication plant in 1978 in Seoul, and by 1979 had launched a fully operational 16K DRAM fabrication site in the region (Mathews and Cho, 2000). Another important institutional set-up was the Electronics and Telecommunications Research Institute (ETRI) based in Daejeon. It was the largest government-funded research institute specialising in ICT. The ETRI was established in 1985 as the result of the consolidation of KIET and the Korea Electric Telecommunication Research Institute (KETRI) based in Gyeonggi. Since its inception the ETRI has developed the Electronic Telephone Switch (TDX), 4M/16M/64M DRAM, the Digital Mobile Telecommunication Systems (CDMA), Digital Multimedia Broadcasting (terrestrial DMB) technology and WiBro technology (Electronics and Telecommunications Research Institute webpage).

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Third, the government spearheaded the VLSI research consortium in the mid1980s when the overlapping investments of three major semiconductor producers were reinforcing inefficiency in the sector (Mathews and Cho, 2000). At the time, the global semiconductor industry was witnessing a frantic race to produce the next generation 1M DRAMs. The challenge for Samsung and Hyundai was to produce 1M DRAMs without the benefit of any licensing of product or process technology from abroad. The plan for a national 1M DRAM development consortium was coordinated by the ETRI. The plan was swiftly acted on, with the government outlining a modest development budget to be matched by contributions from participating chaebols, including Samsung, Goldstar and Hyundai. This was to prove a timely initiative, resulting in a basic product design being speedily fashioned in the companies’ laboratories by 1987. It was then handed over to the participating firms for scaling up to pilot operation and then mass production. The consortium was subsequently extended to spearhead the development of 4M DRAMs, which ultimately put Korea in the position of world market leader in DRAM production by 1994. However, the chaebols were becoming less involved in joint research initiatives, resulting in the ETRI shifting its direction from the development of product technology to the development of basic technology for DRAM production. The Ministry of Science and Technology (MoST), together with the Ministry of Industry and Energy (MoIE) and the Ministry of Information and Communication (MoIC), developed this research between 1993 and 1996. Thirty-six institutions and forty-eight companies participated in this project, and the government provided US$ 179 million (194.6 billion won)5 of match funding (Cho et al, 2005). As a result of this project, the advanced 256M DRAM was successfully developed. After the development of 256M DRAMs, the government shifted its policy towards the development of integrated circuits (microchips). MoST and MoIE pursued the Integrated Circuits 2010 Project, which has three stages. The government funded the project at a value of US$128 million (139 billion won) in the first stage between 1998 and 2002 (MoIE, 1999), and is now pursuing the third and final stage. In parallel, MoIE pursued four industrial technology development projects and four industrial base-technology creating projects, and MoST pursued the Terra-level Nanodevices Development (TND) project, for the same purpose (Cho et al., 2005).

TFT–LCD (Thin Film Transistor–Liquid Crystal Display) industrypromotion policy in the 1990s The government also played a role in promoting the TFT–LCD industry, although its role was less significant than in promoting the semiconductor industry. In 1991, the Ministry of Trade, Industry and Energy (MoTIE) launched a US$6.4 million programme for the development of notebook display modules. This led to the creation of a ten-inch module in 1994. By the mid-1990s, Korean firms overwhelmingly relied on Japanese manufacturing equipment. To reduce this dependency, the government took two important actions (Linden et al., 1997).

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First, the government pursued the G-7 HAN Project in 1992, a national project to advance science and technology through massive investments in R&D.6 The project was an inter-ministerial initiative to acquire both product and basic technologies and provide inter-ministerial coordination. The MoST, the MoIE, the MoIC, the Ministry of Health and Welfare, and the Office of Rural Development participated in this project (Lee and Markusen, 2003). For this project, the government provided 85 billion won of funds between 1995 and 2002, and included the participation of twenty-six institutions in the industry, universities, research institutes, as well as thirty-five companies (Cho et al., 2005). The MoIE led the project and the MoST was a significant partner. This project later became the principal funding source for nurturing the Korean display industry. Second, the government selected thirty strategic industries for government support. Leading export industries, small and medium enterprises (SMEs) in high value-added businesses, and emerging industries were included. One of the emerging sectors was flat-panel displays. The funding for promoting the display sector was managed by a single organisation, the Electronic Display Industry Research Association of Korea (EDIRAK). It had been founded in 1990 for the purpose of developing and upgrading the technology of cathode ray tubes (CRTs) by encouraging a public–private partnership. In 1995, funding for the flat-panel display portion of the G-7 HAN Project totalled US$10 million, out of a planned expenditure of US$220 million (240 billion won) over five years. Funding during 1996 consisted of US$4 million (4.35 billion won) from MoST, US$3.8 million (4.1 billion won) from MoTIE and US$8.8 million (9.6 billion won) from EDIRAK members (Linden et al., 1997). For the period of six years from 1995 to 2000, it is estimated that about US$166 million (180 billion won) was spent, of which the government provided 45 per cent of the funding (Suh, 2004). Total funding in 1997 increased up to US$71.6 million (77.8 billion won). As a result of this TFT–LCD industry promotion policy, LG was able to develop the Paju LCD cluster and Samsung invested in the Asan-Tanjung LCD cluster, both within the SMR.

ICT-related venture business promotion policy in the 2000s As the 1997 Asian financial crisis hit the economy of the SMR, the Korean government took actions to promote venture businesses. That same year, the government passed the Act on Special Measure for the Promotion of Venture Business allowing it to launch its own venture capital funds, and establish a programme to provide match-funding for corporates. In 1998, the national government also lifted restrictions on foreign investment in Korean venture capital partnerships and adopted various measures to increase tax benefits for venture capital. The increased financial support and the easing of financial restrictions disproportionately benefited the SMR, which had, and continues to have, the highest concentration of headquarters of foreign firms in the country. In parallel, the government also passed the Information and Communications Technology Industry Promotion Act, whereby the government helped ICT firms set

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their goals and strategy for mid- to long-term plans and directly established R&D centres to benefit these firms. The implementation of these two pieces of legislation contributed to the growth of venture businesses in the ICT industry. In addition, the relaxation of the Industrial Placement and Factory Construction Act, which limited construction within the SMR, permitted the construction of apartment-type firms for venture business in SMR (Kenney et al., 2004). As a result of this venture promotion policy, Teheran Valley, located in Gangnam (the richest area of Seoul City), emerged as a centre of collective learning for the ICT sector in South Korea (Figure 6.2). Newly established venture firms concentrated in Teheran Valley can thus benefit from its intensive formal and informal networks and the creation and transfer of tacit knowledge.

National spatial policy The Capital Region Management policy implemented by the Korean government contributed to the restructuring of the SMR economy, developing a specialisation in ICT and related industries. The Capital Region Management policy has a long history because of Seoul’s ongoing centripetal tendencies. To alleviate regional disparity and tackle over-concentration, the national government vigorously pursued growth control policies for the capital region from the 1970s onwards.7 Legislation was passed, including 1) the Industrial Placement Act of 1977, and 2) the Capital Region Management Planning Act of 1982. These acts also indirectly functioned to promote high-tech industries in the SMR by filtering off non-high-tech or non-ICT sectors from the SMR.

Industrial Placement Act (Ministry of Government Legislation, 2010a) Through the legislation of the Industrial Placement Act, the central government rigidly restricted industrial establishments within the SMR. This Act was passed in

Gangbuk Gangnam Other regions Teheran Valley Han River

Songpa-gu Gangam-gu Soeocho-gu

Figure 6.2 Map of Seoul Source: Dr YS Lee, Korea University

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1977, and then enacted in 1979 in order to compulsorily relocate manufacturing industries away from Seoul. Central to the legislation was the designation of three types of development zones: the restricted population zone, the growth management zone and the environmental conservation zone. Through the Act, the Korean government was able to regulate the location of factory construction projects depending on the sector and size of each individual plant. In the environmental conservation zone, only the construction of plants housing non-polluting activities was permitted. In the restricted population zone, solely those firms considered suitable for urban environments were permitted. In the growth management zone, industrial development for the high-tech sector was permitted (Table 6.2, Figure 6.3). Yet, the definition of high-tech firms has been arbitrary and often broadly overlapping with ‘technological development’. This has led to inconsistent regulation on industrial activities in the SMR. In particular, the semiconductor and TFT-LCD industries, considered polluting but also high-tech, were able to exploit the vague definition of high-tech to establish themselves in the SMR. In 1990 the Industrial Placement Act was merged with the Industrial Complex Management Act (1975). The new combined legislation, the Industrial Placement and

Table 6.2 Permitted industries by zone Zone

Permitted industries

Restricted population zone

‘Urban sectors’ (facilities suitable for urban environments)

Growth management zone

Mostly high-tech sectors (most flexible and strategic)

Environmental conservation zone

Several non-polluting industries

Source: Korea Land Portal

restricted population zone environmental conservation zone growth management zone

Figure 6.3 Three-zone System in SMR, 2010 Source: Korea Land Portal (online)

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Factory Construction Act, was enacted to simplify the regulation of industrial location. In 2003, this Act was again revised into the Industrial Cluster Development and Factory Establishment Act. Through these latest revisions, regulations on the growth management zone were relaxed, and the chaebols investing in the SMR benefited the most. At times, legislation regulating construction of factories seems to have had the same effect as industrial policies, rather than spatial policies against over-concentration in the SMR (Seo, 2007).

Capital Region Management Planning Act (Ministry of Government Legislation, 2010b) The Korean government made a range of efforts to improve the over-concentration in Seoul and ensure balanced national development through the 1964 enactment of Special Measures for the Restriction of Population Growth in Seoul. The efforts included ‘the relocation of government offices outside Seoul, the relocation of university branches outside Seoul, financial incentives to relocate firms, and regulations on the expansion of industrial establishments and academic institutions (OECD, 2009: 92)’. As not all of these efforts were successful, the government devised a more comprehensive and strict measure, the promulgation of the Capital Region Management Act in 1982 (OECD, 2005). While the Industrial Placement Act mentioned above legislates the regulation of industrial location, the Capital Region Management Act legally defined industrial districts and the regulation of construction of industrial establishments (mainly chaebols) under the jurisdiction of the Ministry of Construction. This legislation has restricted the construction of relatively large industrial establishments, as any plans for construction can only be approved by the Capital Region Growth Management Deliberation Committee. Like the Industrial Placement Act, this law also categorises three zones: the restricted population zone, growth management zone and environmental conservation zone. Depending on the category, the Korean government ‘prohibits or controls the construction of new factories and buildings, levies over-concentration taxes, and approves or sanctions the creation of new universities except for smaller and vocational colleges’ (OECD, 2009: 92). In addition, the registration tax it levies in Seoul is five times higher than in the rest of the country (ibid.). Through the 1994 amendment, the reformed act could cap the number of construction projects via Article 18. According to this article, the Ministry of Land, Transport and Maritime Affairs can cap a total permissible quantity of installations and extensions, and restrict any installation or extension which exceeds the cap. This regulation measure is aimed to prevent over-concentration of factories, schools and other population-concentrating facilities as prescribed by the Presidential Decree in the SMR. Despite this strong regulation measure, there was room to ease the regulation because any exceptional cases could also be prescribed by Presidential Decree.

176 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

With the move towards local autonomy since 1995, the elected governors and mayors in the SMR began to raise their voices against this total quantity regulation, while local politicians in the non-capital regions strongly argued for it as a symbol of balanced development.

Balanced National Development policy The government’s Balanced National Development policy is also a crucial factor in framing the economy of the SMR and its spatial development process. Under President Roh Moo-hyun’s participatory government, a Balanced National Development strategy was pursued to alleviate the excessive dominance of Seoul. The concentration of growth in Seoul has been exacerbated since the 1990s due to the relaxed planning controls on the SMR. As of 2003, the capital region accounted for more than half of all manufacturing firms, the total of R&D institutions and venture companies, and headquarters of major large enterprises (Korea Herald, 2003). Faced with these uneven economic and social trends, local leaders in non-capital regions raised concerns about the increasing dominance of Seoul and organised political campaigns to argue for a more decentralised regulatory system (Lee, 2009). In response to the political pressure from non-capital regions, the government reinforced its stance on Balanced National Development based on an ‘innovationdriven balanced model’. In order to achieve balanced development, the government established the Presidential Committee on Balanced National Development (PCBND). The aims of the Committee were to disperse population away from the SMR, and decentralise power to local government. To this end it pursued five specific policies including innovation, regional equity, industrial, spatial and Seoul metropolitan management (Lee, 2009). Through the innovation policy, the government attempted to establish Regional Innovation Systems (RIS). The PCBND set up fourteen Regional Innovation Councils with 725 commissioners across the country, outside the SMR, in order to encourage local initiatives in planning and implementation of regional policy. A policy to promote regional equity was also designed to build a framework of self-reliance for under-developed regions that were experiencing depopulation. Specifically, sixty-five regionally specialised development districts were designated to realise regional equity. In terms of industrial policy, the PCBND pursued two specific policies including the Innovative Cluster Policy and Regional Strategic Industry Policy. Eight innovative clusters and the Daedeok R&D cluster were designated. The PCBND also designated four regional strategic industries in sixteen large cities and provinces. Through spatial policy, the government attempted to disperse the population of Seoul to the rest of country. The Special City Administrative law was passed under President Roh to relocate administrative national organisations based in Seoul. Twelve of eighteen government ministries and thirty other state-run organisations were to be relocated, resulting in a move of 10,000 central government officials from Seoul to other cities and regions. The PCBND also pursued the planning of new innovative cities to accommodate relocated public institutes from the SMR to other cities and provinces.

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PTskI sbs

Digital Complex, Complex, New enterprises have transformed old industrial complexes in the Guro Digital creating over 100,000 jobs over the last decades in the fashion and IT IT sectors Source: Philipp Rode

178 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

The governments of Seoul City and Gyeonggi Province have been highly critical of the Balanced National Development strategy, not least because it involves the relocation of people and resources away from the SMR. They argue that the competitiveness of the SMR would be put at risk and cause the loss of capital to other foreign cities and Metropolitan Regions. In response to this criticism, the PCBND designed the Seoul Metropolitan Management policy as a new vision and strategy specifically for the SMR. Through this management policy, the government plans to develop Seoul into a ‘global city’,8 Incheon into a ‘logistics hub’,9 and Gyeonggi province into a ‘high-tech district’.10 Through these plans, the government has attempted to pursue a win–win strategy to co-develop the SMR by lifting the restriction of construction and investments in the SMR according to the designated vision for each area. Based on the Seoul Metropolitan Management policy, the government has temporarily allowed the establishment of new factories by large businesses in eight high-tech sectors in Gyeonggi province, also contributing to the emergence of LG’s Paju LCD cluster in Gyeonggi province (Lee, 2009).

Interventions Seoul Mayor Oh Se-hoon’s Creative City Policy in the 2000s At the local level, Mayor Oh, who became the 32nd mayor (the fourth elected mayor by popular vote) of the city of Seoul on July 2006, has actively pursued a Creative City Policy to set new systemic and institutional agendas. He strongly believed that Seoul should be transformed into a creative city to address the problem of higher unemployment, create its own brand and enhance its international competitiveness. Seoul’s Creative City Policy can be categorised into two programmes: 1) promoting creative industries and 2) creating and implementing a programme of Creative City Administration (Lee and Hwang, 2012). Through the Creative Industry Promotion programme, Mayor Oh has pursued an industrial policy that supports creative industries, which are seen as the new industrial engines of growth in Seoul’s knowledge-based economy. In 2007, the city government announced that it would focus on developing and promoting six creative industries: tourism; design and fashion; digital content; conventions, research and R&D; ICT, nanotechnology (NT), biotechnology (BT), and financial and business services. As part of this effort new industrial clusters and projects have been defined, putting Seoul on the international stage. Projects include joint-hosting of the 2002 World Cup and construction of new stadiums; Zaha Hadid’s masterplan for a Dongdaemun Fashion Cluster (the current site of a wholesale apparel and textiles market); Daniel Liebskind’s masterplan for Yongsan International Financial District; and plans to create more parks and green spaces within the city.

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Through the Creative City Administration Programme, the city government has attempted to introduce a new system to promote innovation in public administration, personnel management and the civil service. The mayor defines it as an innovative approach to public administration, which attempts to embed creativity and innovation in the system, leading to improved administrative services and real improvements in the lives of Seoul’s residents. The government believes that through implementing a programme of Creative City Administration, it can enhance its international competitiveness and upgrade the quality of life of its citizens (Lee and Hwang, 2012). Through this Creative City Policy, Seoul wanted to gain recognition around the world in two ways. First, a Global Cities survey conducted by the Chinese Academy of Social Sciences placed Seoul in the top ten, ranking its competitiveness in the ninth place in 2010 (Oh, 2010). Second, the city government has won several international awards and thus enhanced its brand value. Seoul was designated World Design Capital 2010 by the International Council of Societies of Industrial Design (ICSID). During Mayor Oh’s first four-year term, five of Seoul’s programmes won UN Public Administration Awards given by the UN Department of Economics and Social Affairs (UNDESA) (Mayor Oh’s blog, 2010). Among these five programmes, two programmes were related to the Creative City Policy agenda. Furthermore, the Creative City Administration programmes contributed to increasing idea generation from staff members in the Seoul City government, delivering services more quickly and reportedly improving citizens’ satisfaction (Berman and Chan-gon, 2010). Despite these achievements, Seoul’s Creative City programmes have faced criticism from civil groups and opposing political parties (Lee and Hwang, 2012). Critics argue that Mayor Oh’s creative programmes promoting creative industries are not novel, nor are they creative, because they simply boost tourism and physical construction. They argue that the Creative City Administration programmes are merely a disguise for new public management, which pursues greater cost-efficiency for governments by downsizing government organisations and personnel. They also criticise the Creative City programmes as the main cause for Seoul’s increasing debts. The debt was US$1 billion (1.15 trillion won) in 2006 but increased to US$3 billion (3.25 trillion won) in 2009 (Yonghap News Agency, 2010).

Gyeonggi Governor, Kim Moon-Soo’s deregulation policy in the 2000s Governor Kim was elected Governor of Gyeonggi Province by popular vote for two consecutive terms. Under his leadership, the Gyeonggi provincial government developed a vision to grow into an economic hub of North-East Asia and a goal to improve the international competitiveness of Gyeonggi province. It then pursued a deregulation policy to realise its vision and goal. It has made concerted efforts to eliminate regulations in the SMR because the governor strongly believes that deregulation is the best way to attract more foreign businesses and reinforce the

180

TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

competitiveness of local SMEs.11 More specifically, the government argued for the relaxation of restrictive regulations on the growth management zone, restricted population zone, environmental conservation zone, water conservation zones, military facilities protection zone and green-belt area within the SMR (Gyeonggi Development Institute, 2010; Kim, 2010a). Besides the deregulation policy, the provincial government built a public transportation system that expanded to Seoul and Incheon to attract foreign investors. The provincial government also pursued innovative strategies in the administration of the province to provide custom-made public services for foreign corporations. As a result, Governor Kim won the Forbes Korea Excellence Award in the category of Public Service Innovation in 2007. To foster new businesses in Gyeonggi, the provincial government also boosted tourism in the Demilitarised Zone (DMZ) at the South Korean border between North and South Korea, promoted agricultural village tours, and opened large-scale exhibitions such as the Ceramic Biennale, the International Sky Leisure EXPO and the Korea International Boat Show. To improve the quality of life for Gyeonggi residents, the government has made diverse efforts including the development of a more convenient mass-transportation system which stretches across Seoul, Incheon and Gyeonggi, the improvement of welfare for seniors and the disabled, childcare support for double-income families, the improvement of educational competitiveness, the fostering of culture and arts and the renovation of provincial parks. In his second term, Governor Kim strongly advocated a high-speed train system led by the national Ministry of Construction, the GTX project, which will increase connections between Gyeonggi Province and Seoul City. The governor actively promoted the GTX in line with his vision for a green transportation revolution in the region (Kim, 2010b). As with Mayor Oh, Governor Kim’s critics are numerous and based in regions outside the SMR. Labour-union groups, concerned for the well-being of employees, are critical towards Kim’s pro-business policy. The Gyeonggi provincial government has also seen increasing debts during Governor Kim’s term. In 2005, before his term, the debt was US$708 million (0.77 trillion won), increasing by 80.4 per cent up to US$1.2 billion (1.29 trillion won) in 2007 (Yonghap News Agency, 2008).

Results of the transformation process Over the past thirty years, the state-led restructuring of the SMR economy has led to several, highly successful outcomes, including the rapid growth of a globally competitive ICT industry largely based outside of the SMR, and investments into ICT clusters such as Teheran Valley (Seoul), Samsung Digital Valley in Suwon (Gyeonggi) and LG Paju LCD Cluster (Gyeonggi).

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Economic success at the city level The SMR has led the aggregate growth of the South Korean economy and has provided firm ground for this growth (Table 6.3). The SMR accounts for approximately 48.8 per cent of the national population with around 24.2 million people. In addition, most of South Korea’s economic activity is concentrated in this region, which produces almost half of South Korea’s GDP (48.7 per cent), firms (46.8 per cent) and employment (50.9 per cent) as of 2008 (Statistics Korea, KOSIS). The SMR’s economy is a microcosm of South Korea’s economy, and it shows very similar trends and patterns to national data in terms of GDP, GVA per worker, GVA growth rate, employment rate, and unemployment rates. Figure 6.4 confirms the SMR’s significant share of GDP between 1985 and 2008. In terms of GDP per capita, Seoul City ranks the highest, and the SMR scores slightly higher than the national average (Figure 6.5). In terms of the GVA growth rate (Figures 6.6 and 6.7) and employment and unemployment rates (Figures 6.8 and 6.9), the SMR generally shows slightly better figures than in Seoul and nationally. The outstanding performance of the SMR economy comes from its R&D activities and its role as the preferred base for the headquarters of internationally

Table 6.3 Key performance measures for SMR, 1990–2008 1990

1995

2000

2005

2008

Seoul City

110,771

158,596

177,860

203,977

228,569

Seoul Metro

182,527

274,329

322,161

408,750

471,491

South Korea

380,288

559,991

675,176

848,823

968,312

Seoul City

57.9

61.0

58.2

60.3

59.6

Seoul Metro

58.8

61.4

58.8

60.0

58.6

South Korea

58.6

60.6

58.5

59.7

58.6

Seoul City

4.0

2.6

4.8

4.7

3.9

Seoul Metro

3.4

2.2

4.4

4.2

3.4

South Korea

2.4

2.1

4.1

3.5

3.0

Seoul City

10,603

10,217

9,854

9,763

10,201

Seoul Metro

18,574

20,159

21,258

22,621

24,186

South Korea

43,390

44,554

45,985

47,041

49,540

GDP (million US$)

Employment rate (%)

Unemployment rate (%)

Population (thousand persons)

Source: Kosis, various years

182 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

50000 in US$ million

40000

30000

20000 SMR Non-SMR

10000 1985

1990

1995

2000

2005

2009

Figure 6.4 GRDPs of SMR and non-SMR, 1985–2009 Source: Compiled from the Gross Regional Domestic Product (KOSIS, various years)

25000 in US$

20000

15000

10000 Seoul SMR South Korea

5000 1985

1990

1995

2000

2005

2009

Figure 6.5 GRDP per capita, 1985–2009 Source: Compiled from the Gross Regional Domestic Product (KOSIS, various years)

Seoul SMR South Korea

60000 in US$

50000

40000

30000 1993

1995

1997

1999

2001

2003

2005

2007

2009

Figure 6.6 GVA per capita for Seoul, SMR and South Korea, 1993–2009 Source: Compiled from gross value added (GVA) (KOSIS, various years)

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15

Seoul SMR South Korea

12 9 6 3 0 -3 -6 -9 -12 1985

1990

1995

2000

2005

2010

Figure 6.7 GVA growth rates (%) for Seoul, SMR and South Korea, 1986–2009 Source: Compiled from gross value added (GVA) (KOSIS, various years)

63 in %

Seoul SMR South Korea

62 61 60 59 58 57 56 55 54

1990

1995

2000

2005

2010

Figure 6.8 Employment rates (%) for Seoul, SMR and South Korea, 1989–2009 Source: Compiled from the Census of Economic Activities (KOSIS, various years)

10 in %

Seoul SMR South Korea

8

6

4

2 0 1990

1995

2000

2005

2010

Figure 6.9 Unemployment rates (%) for Seoul, SMR and South Korea, 1989–2009 Source: Compiled from the Census of Economic Activities (KOSIS, various years)

184

TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

competitive Korean conglomerates such as Samsung, LG and Hyundai. The region was home to 59.6 per cent of the national R&D workforce and 79.3 per cent of intellectual-property rights (patents registered in Korea) in 2005. Figure 6.10 depicts the proportion of R&D expenditure of each SMR city. In this region, Gyeonggi Province has generally invested the most in R&D. Figures 6.11 and 6.12 illustrate the innovation-related performance of the SMR. This region has produced more than 70 per cent of national patents, and has more R&D workers than any other region. The well-educated labour force and high R&D capacity constitute potential assets that continue to be translated into innovation in production and contribute to the economic growth of the SMR.

80

Seoul SMR Gyeonggi Incheon

60

40

20

0 1995

2000

2005

Figure 6.10 Innovation inputs R&D spending shares of SMR, 1993–2006 Source: Compiled from Census on Basic Characteristics of Establishment, Business Enterprise (KOSIS, various years)

100

Seoul SMR Gyeonggi Incheon

80

60

40

20 0 1993

1995

2000

2005

2008

Figure 6.11 SMR shares of national patenting, 1993–2008 Source: Compiled from Census on Basic Characteristics of Establishment, Business Enterprise (KOSIS, various years)

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1000

800

600

400 SMR Non-SMR

200 1995

2000

2005

Figure 6.12 R&D workers per 10,000 inhabitants, 1995–2005 Source: Compiled from Census on Basic Characteristics of Establishment, Business Enterprise (KOSIS, various years)

This current economic success of the SMR is due to the successful restructuring of the SMR economy to high-tech manufacturing in the 1980s, and the smooth shift towards a service-oriented economy with ICT specialisation by the national government, local government and large conglomerates in the 1990s.

Economic success in the next urban economy Restructuring towards high-tech manufacturing in the 1980s South Korea experienced rapid economic growth as a result of state-led industrialisation in the 1980s. For ten years, from 1980 to 1990, the share of mining and manufacturing in terms of the total number of employed people increased from 22.1 per cent to 27.8 per cent, whereas the share of agriculture, forestry and fishery sharply decreased from 37.8 per cent to 20.8 per cent. The share of the service sector in terms of the number of administrative and managerial workers also increased from 13.3 per cent in 1980 to 18.9 per cent in 1990 (Table 6.4). The 1980s was a turning point in the SMR’s economic trajectory, shifting it towards high-tech manufacturing. As a result of the confluence of the Semiconductor Industry Promotion Policy (1969) promoting high-tech industries, and the Industrial Placement Act (1977) regulating factory construction in the SMR, employment in the manufacturing sector decreased in Seoul throughout the 1980s. In parallel, manufacturing sector employment increased in Incheon City and Gyeonggi Province in the same period. During the 1980s, employment in mining and manufacturing also decreased from 32.5 per cent to 29.8 per cent in Seoul, while

186 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Table 6.4 South Korean national composition of primary, secondary and tertiary industries in terms of the percentage of employment (%/000s persons) 1960

1970

1980

1990

2000

2005

Primary industries

65.9

50.8

37.8

20.8

13.1

10.9

Agriculture, forestry and fishing

65.9

50.8

37.8

20.8

13.1

10.9

Secondary industries

7.5

15.2

22.8

27.8

21.4

19.8

Mining and quarrying

0.7

1.0

0.7

0.4

0.1

0.1

Manufacturing

6.8

14.3

22.1

27.4

21.3

19.7

Tertiary industries

25.8

33.7

39.4

50.9

65.5

69.0

Electricity, gas, steam and water supply

0.2

0.3

0.3

0.4

0.5

0.4

Construction

1.7

4.6

5.2

7.1

7.3

7.5

Wholesale and retail trade & Accommodation

8.3

12.6

16.2

19.3

23.2

22.8

Transportation and communications

2.1

3.2

4.3

5.2

6.0

5.8

13.4

13.0

13.3

18.9

28.6

32.5

0.9

0.3

0.5

0.0

0.3

Public administration and personal services Others* Total

100 100 (70,278) (10,153)

0.0

100 100 (12,682) (15,751)

100 100 (18,456) (19,277)

Source: Compiled from Census Population in Korea (KOSIS, various years) Note: * ‘Others’ includes industries which are not classifiable

employment in these industries in Gyeonggi Province and Incheon City increased from 32.3 per cent to 40.1 per cent (Table 6.5). Due to the rapid process of industrial decentralisation from Seoul to its suburban areas, Gyeonggi and Incheon experienced a continuous concentration of the manufacturing sector in their cities. In particular, the employment in electrical equipment such as domestic appliances significantly increased from 36.4 per cent to 46.0 per cent in Gyeonggi and Incheon (Table 6.6). Although Seoul’s manufacturing sectors showed an overall decrease in 1990, Seoul retained and developed some high-tech manufacturing industries. Apparel, machinery and transport equipment, which were considered more high-tech or highvalue-added, significantly increased due to the government’s Industrial Placement Act (1990), which permitted the location of high-tech industries in Seoul (Table 6.6). Although apparel is not a high-tech industry, the development of high-value-added segments in small-scale labour-intensive manufacturing of apparel increased manufacturing activity from 44.4 per cent to 64.3 per cent in Seoul in the 1980s. This concentration of apparel industries in Seoul made it possible for the sector to avoid the government’s industrial decentralisation policy due to the small physical scale of its facilities. In addition, Seoul’s share of machinery and transport equipment rose

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Table 6.5 Employment in primary, secondary and tertiary industries in SMR (%) 1980 Seoul

Primary industries

Gyeonggi & Incheon

SMR

1990 Seoul

Gyeonggi & Incheon

SMR

0.9

29.1

11.9

0.5

11.4

5.3

Secondary industries

32.5

32.3

32.4

29.8

40.1

34.4

Tertiary industries

66.5

38.6

55.7

69.7

48.5

60.3

Source: Compiled from Census Population in Korea (KOSIS, various years)

Table 6.6 SMR’s share of apparel, machinery and equipment, transport and electrical equipment in terms of the number of employment (%) 1981 Seoul

1991 Seoul

Gyeonggi SMR & Incheon

Gyeonggi SMR & Incheon

Manufacture of wearing apparel

44.4

15.0

59.4

64.3

10.3

74.6

Manufacture of machinery and equipment

22.7

25.1

47.8

34.4

28.6

63.0

Manufacture of transport equipment

11.5

18.2

29.7

26.9

21.6

48.5

Manufacture of electrical equipment

32.5

36.4

68.9

18.4

46.0

64.4

Source: Compiled from Census on Basic Characteristics of Establishment, Business Enterprise (KOSIS, 1881, 1991)

Table 6.7 SMR’s share of technical and computer services expressed in terms of the number of establishments (%) Region

1978

Seoul

35

Incheon & Gyeonggi

1

1981 (61.4) (1.8)

109 2

1986 (77.3) (1.4)

300

1989 (83.6)

595

(84.9)

14

(3.9)

27

(3.9)

SMR

36

(63.2)

111

(78.7)

314

(87.5)

622

(88.8)

National total

57

(100)

141

(100)

359

(100)

701

(100)

Source: Park (1993: 90)

from 22.7 per cent to 34.4 per cent and from 11.5 per cent to 26.9 per cent respectively during the 1980s. Another significant change in Seoul in the 1980s was the growth of business services closely related to high-tech manufacturing. In particular, technical and computer services, among the business services, were overwhelmingly concentrated in Seoul. As of 1989, 84.9 per cent of total national technical and computer services were concentrated in Seoul (Table 6.7).

188 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

All in all, the SMR had an overwhelming share of high-tech industries in the 1980s. This has been the result of focussed spatial planning, financial support from the government, and the location advantages offered by the SMR for high-tech industries, including a sophisticated technical labour pool, access to R&D centres and access to technological information.

Shift towards service-oriented economy and ICT specialisation in the 1990s The transformation of the SMR economy in the 1990s shows the smooth shift of the metropolitan economy towards a service-oriented economy without losing specialised manufacturing. Since the early 1990s, Seoul’s service sector has surpassed the size of the manufacturing sector, increasing 13.8 per cent from 69.7 per cent to 83.5 per cent in 2005. Conversely, the mining and manufacturing sector has decreased by almost half (from 29.8 per cent to 15.3 per cent) (Table 6.8). The burgeoning services industries included advanced producer services such as legal and financial services, management consulting, ICT services and others (Table 6.9). These industries were supported, or at the very least not restricted, by the Industrial Placement Act and subsequent Capital Region Management Planning Act, which allowed the growth of non-polluting sectors and activities. Simultaneously, those manufacturing industries that were restricted from locating in designated planning zones within the SMR relocated to the permitted growth zones in Gyeonggi and Incheon (Table 6.10). The result is a spatial division of labour between Seoul City and Gyeonggi and Incheon. Over time, Seoul developed specialised advanced knowledge-based services, while Gyeonggi and Incheon developed high-tech manufacturing. Within the ICT sector, there is a clear spatial division of labour between Seoul and Gyeonggi and Incheon (Table 6.11). There are three kinds of ICT-related firms: manufacturing, service and wholesale and rentals. Firms in the ICT-related service

Table 6.8 SMR’s composition of primary, secondary, and tertiary industries in terms of the number of employment (%/thousand persons) 1990 Seoul

2000 Gyeonggi SMR

Seoul

& Incheon

Primary industries

0.5

2005 Gyeonggi SMR

Seoul

& Incheon

Gyeonggi SMR & Incheon

11.4

5.3

0.2

5.4

3.0

0.3

4.2

2.5

Secondary industries 29.8

40.1

34.4

19.7

28.3

24.3

15.3

24.8

20.7

Tertiary industries

69.7

48.5

60.3

80.1

66.3

72.7

83.5

70.6

76.2

Total

100 100 100 100 100 100 100 100 100 (3,690) (2,942) (6,632) (3,948) (4,538) (8,481) (4,003) (5,216) (9,219)

Source: Compiled from Census Population in Korea (KOSIS, 1990, 2000, 2005)

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Table 6.9 SMR’s composition of tertiary industries in terms of employees (%/thousand persons) 1990 Seoul

2000 Gyeonggi SMR

Seoul

& Incheon

2005 Gyeonggi SMR

Seoul

& Incheon

Gyeonggi SMR & Incheon

Tertiary industries

69.5

48.0

60.0

80.1

66.3

72.7

83.5

70.6

76.2

Electricity, Gas, & Water supply

0.4

0.3

0.3

0.4

0.4

0.4

0.4

0.4

0.4

Construction

9.3

7.7

8.6

8.2

7.9

8.0

7.5

8.1

7.8

Wholesale and Retail Trade & Accommodation

27.7

17.8

23.3

28.0

22.4

25.0

27.9

22.6

24.9

Transportation, Information & communications

6.0

4.8

5.4

7.3

6.0

6.6

6.4

6.2

6.3

Producer Service

9.5

5.3

7.6

19.1

14.7

16.7

22.2

16.5

19.0

Personal Service

16.6

12.2

14.6

17.2

14.8

15.9

19.1

16.8

17.8

total

100 100 100 100 100 100 100 100 100 (3,690) (2,942) (6,632) (3,948) (4,538) (8,481) (4,003) (5,216) (9,219)

Source: compiled from Census Population in Korea (KOSIS, various years)

Table 6.10 SMR’s share of manufacturing sector in terms of employees (%/thousand persons) National total

Seoul

Gyeonggi & Incheon

SMR

1990

100.0 (4,382,947)

25.0

26.7

51.7

2000

100.0 (3,948,054)

19.7

32.5

52.2

2005

100.0 (3,824,431)

16.1

33.9

49.9

Source: compiled from Census Population in Korea (Statistics Korea, KOSIS, various years)

Table 6.11 SMR’s ratio of ICT-related manufacturing, service and wholesales and rentals to the nationals in terms of employees (%) 1995 Seoul

Gyeonggi & Incheon SMR

2005 Seoul

Gyeonggi SMR & Incheon

ICT Manufacturing

33.1

45.3

78.4

20.6

55.7

76.3

ICT service

64.0

8.1

72.1

65.2

11.2

76.5

ICT wholesale and rentals

30.1

16.6

46.7

25.4

21.8

47.3

Source: Compiled from Census on Basic Characteristics of Establishment, Business Enterprise (KOSIS, 1995, 2005)

190 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

sector were far more concentrated in Seoul than those in manufacturing and wholesale and rentals. From 1995 to 2005 the number of ICT-related service firms in Seoul increased by 162.6 per cent, while the number of ICT-related manufacturing firms in Seoul decreased by 4.7 per cent (Table 6.12). The number of ICT manufacturing firms in Seoul decreased from 33.1 per cent of the national total in 1995 to 20.6 per cent in 2005, but Seoul’s ICT-related services increased for the same period of time (Table 6.12). This indicates the evolving spatial division of labour between Seoul (the concentration of the ICT-related service industry) and Gyeonggi and Incheon (the dispersion of ICT-related manufacturing industries). After the financial crisis in 1997, many new start-ups in the technology-intensive sectors and newly emerging venture businesses emerged in Seoul as a result of the government’s Venture Business Promotion Policy. From 1998 to 2001 the number of venture companies in Seoul increased more than sevenfold. In 2001, Seoul’s share of venture business accounted for almost a half of the national total. Even though the number of venture firms in Seoul saw an absolute decrease after 2001, its relative share kept above 40 per cent of the national total (Table 6.13). Within Seoul, the Gangnam area, especially Teheran Valley, became a hub for venture firms. More than 20 per cent of Seoul’s venture businesses were concentrated in Teheran Valley in the early 2000s (Lee et al., 2003). More recently, projects such as the Guro Digital Complex, a redevelopment of an old industrial complex and Sangam Digital Media City project in downtown Seoul have become new sites for many enterprises, creating over 100,000 jobs in the last few years.12

Table 6.12 SMR’s share of ICT-related manufacture and services expressed in terms of the number of establishments (%) ICT-related manufacturing firms 1995 2005 Growth rate

ICT-related service firms 1995 2005 Growth rate

Seoul

1,970

2,062

4.7%

3,077

8,079

162.6%

Gyeonggi & Incheon

3,582

5,571

55.5%

1,597

2,502

56.7%

SMR

5,552

7,633

37.5%

4,674

10,581

126.4%

National total

7,149

10,006

40.0%

10,738

18,091

68.5%

Source: Compiled from Census on Basic Characteristics of Establishment, Business Enterprise (KOSIS, 1995, 2005)

Table 6.13 Number of venture companies (%) 1998

1999

2000

2001

2002

2003

Seoul

719

1,858

2,068

5,345

3,802

3,503

Seoul’s share

(35.2)

(37.7)

(23.5)

(46.9)

(43.3)

(42.6)

National total

2,042

4,934

8,798

11,392

8,778

8,228

Source: Lee et al. (2003)

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Globally competitive, high-tech R&D and manufacturing clusters Two established examples of successful clusters are the Samsung Digital Valley and the Paju LG LCD cluster, both based in Gyeonggi (see Boxes 6.1 and 6.2, and Table 6.14). They are successful cases in the SMR because these clusters contributed to enhancing innovation, boosting growth and creating jobs. However, the emergence of these ICT clusters in the SMR has caused controversy in South Korea. This is because the successful emergence of the ICT clusters would not have been possible without the government’s deregulation policy, which lifted the restriction of factory construction and investments in the capital region. This deregulation in the SMR was highly favourable to chaebols such as Samsung and LG and put the non-capital regions at a disadvantage. Leaders and politicians in non-capital regions criticised this deregulation policy, arguing that it would result in worsening regional disparities between the SMR and the rest of country.

The crisis and the future Figures show that the SMR overcame the 1997 Asian financial crisis and generally sustained stable economic growth, however, its growth rates have not been doubledigit since 2003 (Figure 6.13). In addition, the recent worldwide economic crisis hit the SMR economy significantly, resulting in low growth rates as well as the growth of unemployment. In particular, increasing unemployment rates since 2003 imply that Seoul City’s increase in unemployment is serious. Unfortunately the national statistics do not capture the rise of unemployment, as many young people have voluntarily or involuntarily dropped out of the labour market. The intensified international competition among the global metro regions has also made the SMR’s competitive position vulnerable. As the global recent financial crisis hit South Korea, the SMR experienced a setback in 2009 but rapidly overcame the global recession and continues to perform well. South Korea’s GDP growth rate was posted at 0.2 per cent in 2009, the third highest in the OECD. Verifiable economic indicators representing South Korea’s or

Table 6.14 Samsung Digital Valley’s performance (000s, US$ million) Plants

Products

Production Volume

Sales

Suwon

CRT TV Monitor

1,026 194

N/A N/A

Giheung/Hwasung

Memory LSI

37,425,000 3,963,000

10,781 2,977

Source: Samsung Electronics (2009)

192 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Box 6.1 Samsung Digital Valley: Samsung Digital City and Samsung Nano City, Gyeonggi, Seoul Samsung Digital Valley, which comprises Samsung’s R&D and hightech manufacturing complexes located in Gyeonggi’s Suwon, Yongin and Hwasung cities, is often cited as a demonstration of the successful economic transition of the SMR. Suwon, Yongin and Hwasung are separate cities administratively, but they are geographically proximate and functionally integrated into Samsung’s IT cluster. This cluster emerged as a result of the Korean government’s Semiconductor Promotion Policy, LCD Industry Promotion Policy, Venture Business Promotion Policy and Capital Region Management Policy. Through Samsung Digital City projects, Samsung Electronics Corporation (SEC) is pursuing an industrial cluster strategy. SEC first renamed its complexes located in Suwon as the Samsung Digital City in October 2009. It is also pursuing the creation of a Samsung Nano City for its semiconductor complexes in Yongin and Hwasung.

Samsung Digital City: Samsung electronics complex in Suwon Samsung Digital City is the creative nexus of Samsung’s IT industry, in particular, product and process innovation. Its Suwon complex produces about 1 million high-end TV sets such as 3D AMOLED (active matrix OLED) TV, CRT (cathode ray tube) TV and very thin monitors. Samsung Digital City has made huge impacts on the national economy as well as the SMR. SEC has become one of the most successful global companies in terms of total assets, annual sales and profits, with fourteen manufacturing plants in twelve countries. At the same time, Samsung Digital City’s contribution to the SMR economy is critical. SEC employs around 21,000 workers in the Suwon complex, one third of whom are R&D workers. Its first- and second-tier suppliers in Suwon also provide more than 10,000 jobs (Nam, 2009). Samsung Nano City: Semiconductor production in Yongin and Hwasung

Samsung Nano City refers to the Giheung semiconductor complex located in Yongin City, and the Hwasung semiconductor complex. These two semiconductor complexes are located within 2 km distance of each other, and 4 km from Suwon. DRAM production in the Giheung semiconductor complex marked a quantum leap forward in South Korea’s semiconductor industry in 1984. Recently, Samsung made plans to create Samsung Nano City in order to renovate and upgrade its Giheung and Hwasung semiconductor complexes. The word nano comes from Samsung’s nano-scale semiconductors that are remarkably precise. Through the Nano City project, Samsung attempts to beautify the buildings of its chip production lines with various colours and graphics and give new names to buildings and roads at the complexes. Based on this plan, the Nano City is scheduled to be completed in 2011. As a result of the presence of Samsung’s

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Box 6.1 continued manufacturing complexes, Yongin’s location quotient (LQ) of semiconductors was 6.28, and Hwasung’s LQ was 1.47 in 2005. The number of employees in semiconductor manufacturing in Yongin was estimated at 22,502, and the number employed in Hwasung was about 9,926 (Moon, 2007). This shows the significant share of semiconductor employment and the high concentration of semiconductor workers in Yongin and Hwasung.

Although Samsung Digital Valley was only recently defined as an industrial cluster with a unique identity, its emergence is associated with the Korean government’s industrial policies to promote the high-tech sector. As a result of the Electronic Industry Promotion Act, the government created the Electronic Industry Promotion Fund and firms had preferential access to this fund in the form of loans in the late 1960s. Influenced by this

30

Electronic Industry Promotion Policy, Samsung Group entered the electronics industry by establishing SEC in Suwon in January 1969. This initial move proved to be the first building block for the Samsung Digital and Nano cities. It is noteworthy that the growth and expansion of Samsung semiconductor complexes were not possible without the government’s help in relaxing the Capital Region Management Act.

Seoul SMR Gyeonngi and Incheon

25 20 15 10 5 0 -5 1985

1990

1995

2000

2005

2010

Figure 6.13 Growth rate of SMR, 1986–2009 Source: Compiled from Gross Regional Domestic Product, (KOSIS, various years)

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TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

Box 6.2 Paju LCD Cluster, Gyeonggi, Seoul Another successful IT cluster in South Korea is the Paju LCD Cluster, which is located in the northern part of Gyeonggi Province. The creation of this cluster started in 2002 as the result of strategic cooperation between the national government, Gyeonggi provincial government and global LCD firms (including Philips, LG and other global firms). The focal firm in the Paju LCD cluster is LG Display, formerly LG Philips LCD. LG’s eighth-generation LCD manufacturing plant is currently operating in this cluster. There are now more than 100 LCD-related firms located in the Paju LCD Cluster. Of these, LG Display ranked first in 2005 in the large-sized LCD panel market in terms of market share and ranked second in July 2008 (DongA Daily, 2008, 2009). After the creation of the Paju cluster, the population of Paju grew rapidly from direct employment growth. The population of Paju increased from 240,000 in 2003 to 300,000 in early

2008. The GRDP also increased up to seven trillion won in 2007, an increase of three billion won in five years. The formation of the Paju cluster was initiated by a negotiation between the Gyeonggi provincial government and LG Philips. LG Philips faced a shortage of factory sites in Gumi, which is a south-eastern city, in the late 1990s. To solve this shortage problem, LG Philips asked the Gyeonggi provincial government about the availability of appropriate sites for LCD production. In response the provincial government was very keen to encourage LG Philips to move their LCD production facilities; however, they realised that they lacked the policy tools to make the move attractive. This is because any new investment and new construction was prohibited within the SMR due to the regulations for balanced national development. Gyeonggi provincial government thus lobbied national government to amend the regulations. National

government also recognised that the creation of an LCD cluster in the Paju area would be good for boosting the national economy through the operation of a largescale high-tech cluster. Thus, national government eased regulations and allowed large domestic firms to build their factories in the SMR and to form joint ventures with foreign firms, if they produced one of eight high-tech products that the government had made allowances for. The Paju LCD cluster successfully emerged as the result of strategic cooperation of global firms, national government, and local governments (Lee and Huh, 2009). The strategic needs of transnational corporations (such as LG Philips), which aim to extend their production sites and increase their business markets, the national government’s interest in enhancing national competitiveness, and the local government’s interest in boosting regional economy have led to strategic cooperation between them.

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Box 6.3 Capital Region Management Act and Samsung semiconductor complexes Giheung Semiconductor Plant Construction, Gyeonggi Province, 1984 In 1983, Samsung Electronics Corporation (SEC) purchased 936,000 m2 of land in Giheung city, with the intention of building semiconductor plants. SEC began to construct the first semiconductor plant, covering 305,000 m2, on the site in 1983, and soon afterwards wanted to build a second plant. However, the site for the second plant (the remaining twothirds of the Giheung plot) was within the government designated ‘environment conservation zone’. Based on the Capital Region Management Act, the Ministry of Construction could not permit SEC to build on the designated ‘environmental conservation zone’. However, the Ministry of

Commerce and Industry entirely supported Samsung’s construction plan, and as a result, the construction of the second plant was allowed in 1984.

Giheung Semiconductor Plant Expansion, 1996 SEC faced difficulties in expanding its Giheung plant in 1996 due to zoning regulations based on the Capital Region Management. However, the central government allowed an exception to this regulation and rezoned Samsung’s sites as an industrial area, approving SEC’s further expansion plan.

Hwasung Plant Construction, Gyeonggi Province, 1997 In 1997, SEC successfully built a manufacturing plant in a local industrial complex located in Hwasung City. This new construction was

possible due to the change in the Capital Region Management Act in 1996. Before the revision a new construction in Hwasung was not possible because Hwasung was designated a ‘growth management zone’ which meant that the government planned to restrict population growth in the zone. However, relaxing of restrictions in the Capital Region Management Act meant that large businesses could now build large high-tech plants in the SMR. SEC utilised this change in policy to invest US$1.8 billion in site development and factory construction in Hwasung.

Hwasung Plant Extension, 2005 In 2005, SEC began to construct new manufacturing lines in Hwasung and planned to invest about US$30 billion for the next seven years.

the SMR’s economic conditions after the crisis are not available yet. However, international media have commended South Korea’s economic performance after the crisis. Le Figaro reported that South Korea showed signs of a quick recovery, recording a 2.9 per cent economic growth in the third quarter of 2009. Newsweek, citing a report by Morgan Stanley, reported that South Korea’s rapid recovery is due to good performance in phone handsets, LCD TVs and cars. Actualidad Economica, a Spanish

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TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

economics magazine, stated that South Korea was quick to overcome the economic crisis, and reflected on the lessons learnt from the Asian economic downturn in 1998. It reported that the Korean economy has shown a v-shaped recovery (Korea TradeInvestment Promotion Agency, 2009).

Conclusion The Seoul Metropolitan Region, especially Seoul City and Gyeonggi Province, has been at the centre of national social and economic life for centuries, and played a pivotal role in national economic growth since the industrialisation of Korea in the 1950s. The SMR prospered throughout the last half of the twentieth century, and despite two financial crises, the SMR economy has remained robust. In terms of the main actors, the state has played a critical role in influencing the industrial and economic growth of the country, and subsequently the region. In the post-Korean War period, the government’s aim was to lift the nation out of poverty, which led to structural reformations such as the rapid state-led industrialisation in export-driven manufacturing activities, such as textiles, apparel and footwear. When neighbouring low-cost labour countries proved a threat to Korean light manufacturing, the national government looked to new industries to create growth and jobs: heavy and chemical industries (which were located outside the SMR) and semiconductors. Through industrial policies including the Semiconductor Promotion Policy, and those targeting specific technologies, the government funnelled large amounts of investment towards establishing R&D institutes and consortiums, providing funds for the large conglomerates (chaebols) to enter the semiconductor and electronics market competitively. However, the government had a conflicting role with regard to economic growth in the SMR. From the 1980s onwards, responding to national political concerns about the dominance of the SMR in the domestic economy, the government implemented legislation and legal restrictions to constrain industrial growth in the region, and distribute growth more widely through regional growth poles. This confluence of supportive industrial policies and restricting spatial policies led to a unique type of growth in the SMR and northern and southern Gyeonggi. Designated ‘growth management zones’ were allowed to build high-tech manufacturing facilities, and saw the emergence of many ICT-related manufacturing clusters, including Samsung Digital Valley and the Paju LCD cluster, which created many direct and indirect jobs in the region. Seoul and Incheon, located within the ‘restricted population zone’, could only host non-polluting, small-scale R&D facilities. This has led to the recent redevelopment of Guro Industrial Complex into a Digital Complex, and the creation of several new ICT clusters such as Sangam Digital Media City, both in Seoul City. From the 1980s, as the SMR economy has transformed from a manufacturing to a knowledge-based economy, the role of the local government began to expand. While

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the history of local autonomy is weak, locally elected leaders are none the less becoming increasingly vocal and proactive, rather than agents of national government. The governments in the SMR have indicated their relatively high levels of fiscal autonomy from the state as a justification for demanding more deregulation of the SMR. In addition, they hoped to leave a legacy of a globally competitive SMR through investments in regional public transport and tourism-boosting infrastructure, deregulation of foreign investments, and support for a number of industries and sectors that they consider to have potential. They have called for more deregulation of their region, and more control over policy-making tools. In the case of South Korea, state-led economic performance of the SMR has been exceptional, although that picture is now starting to shift. While the successes of the SMR can be largely attributed to national stimulus and the particular characteristics of the region, the future of the SMR is clearly not just in the hands of national government but increasingly of local government, who will be responsible for maintaining the competitiveness of the SMR as a global city of the future.

Notes 1

2

3 4

5 6

7

8

9

South Korea has seven metropolitan cities and nine provinces administratively. Nine metropolitan cities include Seoul (Capital City), Busan, Daejeon, Daegu, Ulsan, Gwangju, and Incheon. Although the official name of these cities is the metropolitan city, each metropolitan city is just a city. The SMR includes Seoul Metropolitan City, the Incheon Metropolitan City, and Gyeonggi Province. Interview with a director and two research fellows in Seoul Development Institute on 15 August 2010; Interview with a director and three research fellows in Gyeonggi Research Institute on 1 September 2010. A type of random access memory that stores each bit of data in a separate capacitor within an integrated circuit. KIET was a spin-off institute from the Korea Institute of Science and Technology (KIST). The central government established the KIST to achieve technical development in 1966. The KIST provided advanced technical training and contributed to the build-up of the country’s ‘absorptive capacity’ for advanced technologies (Mathews and Cho, 2000). US$1 = 1,087 South Korean Won. 2011 average exchange rate. Display technology was not explicitly identified in a HAN project at the first stage; but a new project on next-generation display was introduced when the second stage started in 1995 (Suh, 2004). The central government’s growth strategies in the 1960s resulted in regional disparity. Based on the Export Industrial Complex Development Law, the central government established two export-oriented industrial complexes in Seoul and Incheon. This policy resulted in regional unevenness that imposed a heavy burden on the government politically. This global city strategy was not substantialised under the Roh government. Instead, the government pursued the temporal deregulation policy to make Seoul a competitive global city. Seoul Mayor Oh Se-hoon pursued a global creative city strategy. The Incheon City government also pursued a strategy to be an international gateway by creating a Free Economic Zone (FEZ), which can function as a financial

198 TWENTY YEARS OF URBAN AND ECONOMIC TRANSFORMATION

and logistical hub of North-East Asia. However, this FEZ project was not led by the city government but by the central government. Incheon recently faced financial difficulties because of the increasing debts. The skyrocketed debt brought Incheon City to the brink of economic collapse. The debt was expected to increase by up to 2.38 trillion won in 2009. If the debt of Incheon Development Corporation was included, the total debt of Incheon City would be more than 5 trillion won in 2009 (The Hankyoreh, 2009). 10 Gyeonggi Province’s plan for a high technology district was aggressively attempted by Gyeonggi Governor, Kim Moon Soo later. 11 Interview with a director and three research fellows in Gyeonggi Research Institute on 1 September 2010. 12 Report by SDI (2010) Guro Digital Complex & Sangam Digital Media City.

References Bae, Y. H. (1995). Technology absorption and R&D development in the Korean semiconductor industry: The case of Samsung. PhD dissertation submitted to Seoul National University. Berman, M. E., & Chan-gon, K. (2010). Creativity management in public organizations. Public Performance & Management Review, 33(4), 619–52. Bloom, M. (1992). Technological Change in the Korean Electronics Industry. Development Centre Studies. Paris: OECD. Cho, H. et al. (2005) Studies on policy of technological innovation, STEPI (Science and Technology Policy Institute). DongA daily (2008, December 17). Korean LCD panel companies hit almost 60 percent market share while world’s shipment has been sharply decreased. DongA daily. Available at: http://www.donga.com/fbin/output?n=200812170133. –––– (2009). World ranking five, Qimonda sells off holdings-Is chicken game in Semiconductor market going to end? DongA daily. Available at: http://www.donga. com/fbin/output?n=200901280 135. Douglass, M. (2000). Turning points in the Korean space-economy: From the developmental state to intercity competition, 1953–2000. Asia/ Pacific Research Center Discussion Paper, Stanford University, Palo Alto, California. Available at: http://iis-db.stanford.edu/pubs/10042/Douglass2000.pdf. Electronics and Telecommunications Research Institute (ETRI) (online). Information available at: http://www.etri.re.kr/eng. Fouser, R. J. (2010, November 22). Seoul as a global city. The Korea Times. Available at: http://www.koreatimes.co.kr/www/news/opinon/2011/02/314_76771.html. Global Administrative Areas (online): Data available at: http://www.gadm.org/ rss.xml. Gyeonggi Development Institute (2010). Internal document. Kenney, M., Han, K., & Tanaka, S. (2004). Venture capital industries. In Yusuf, S., Altaf, M. A., & Nabeshima, K. (Eds.). Global change and East Asian policy initiatives. Oxford: Oxford University Press. Kim, M. (2010a). Kim Moon-Soo – Governor of Gyeonggi Province. Available at: http://eng.gg.go.kr/entry/Kim-Moon-Soo-Governor-of-Gyeonggi-Province? category=3. –––– (2010b). New Year’s greetings, Gyeonggi Province, 12 million respected Gyeonggi citizens and 43,000 public officers of the Province! Available at: http://eng.gg.go.kr/archive/201001?page=5#entry_1256.

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Korea Herald (2003, March 10). Decentralization, integration key to land development. Lee Won-sup, Korea Herald. Available at: http://forum.krihs.re.kr/ english/news/news_read.asp?cate=en_press&gubun=&shstartdate=&shenddate= &search=&str=&orderbyf=&orderby=&gotopage=78&b_idx=47&pageNum=&sub Num=. Korea Land Portal (online). Information available at: http://www.land.go.kr/ py211.do. Korea Trade-Investment Promotion Agency (2009). Foreign presses were surprised by how South Korea overcame the global crisis. Available at: http://www. investkorea.org/InvestKoreaWar/work/ik/eng/bo/print_added.jsp?bno= 0032 60047&sort_num = 15565. KOSIS (Statistics Korea, Korean Bureau of Statistics) (online). Available at: http://www.kosis.kr. Kwon, O. (2003). The effects of fiscal decentralization on public spending: The Korean case. Public Budgeting & Finance, 24(3), 1–20. Lee, C. (2006). Electronics industry promotion law. National Archives and Records Services. Available at: http://contents.archives.go.kr/next/content/listSubject Description.do?id=001656. Lee, K., Hong, I., & Choi, B. D. (2003). The new urbanization process and changing spatial structure of Seoul. Journal of the Economic Geographical Society of Korea, 6(2), 443–70. Lee, Y. S. (2009). Balanced development in globalizing regional development? Unpacking the new regional policy of South Korea. Regional Studies, 43(3), 353–67. Lee, Y. S., & Huh, I. H. (2009). Globalizing liquid crystal display (LCD) clusters in South Korea. Paper presented to 105th annual meeting of the Association of American Geographers, March 22–28, 2009, Las Vegas, NV. Lee, Y.S., & and Hwang, E.J. (2012). Global urban frontiers through policy transfer? Unpacking Seoul’s creative city programmes. Urban Studies, 49(13), 2817–37. Lee, Y. S., & Markusen, A. (2003). The South Korean defense industry in the postCold War era. In Markusen, A. R., DiGiovanna, S., & Leary, M. C. (Eds.). From defense to development? International perspectives on realizing the peace dividend. London and New York, NY: Routledge. Linden, G., Hart, J., & Lenway, S. (1997). Advanced displays in Korea and Taiwan. Working paper submitted to Industry & Innovation, December 1997, BRIE, University of California, Berkeley. Markusen, A. (1999). National contexts and the emergence of second tier cities. In A. R. Markusen, Y. S. Lee, & S. DiGiovanna (Eds.). Second tier cities: Rapid growth beyond the metropolis. Morris, MN: University of Minnesota Press. Mathews, J. A., & Cho, T. (2000). Tiger technology: The creation of a semiconductor industry in East Asia. Cambridge, UK, New York, NY: Cambridge University Press. Mayor Oh’s blog (2010, May 12). Seoul city government wins five UN Public Service Awards. Available at: http://www.ohsehoon.kr/blog/565. Ministry of Government Legislation (2010a). Industrial Placement Act. Information available at: http://www.moleg.go.kr/english/korLawEng. –––– (2010b). Capital Region Management Planning Act. Information available at: http://www.moleg.go.kr/english/korLawEng. Ministry of Industry and Energy (MOIE) (1999). The 2nd year plan for system integration circuit development project.

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Ministry of Public Administration and Security (2000, 2005, 2010). Annual local fiscal report. Ministry of Science and Technology (MOST) (2000). A study on socio-economic effects of the Highly Advanced National (HAN) projects in Korea. Moon, M. S. (2007). A study on the characteristics of industrial agglomeration in the Capital Region of Korea. Suwon: Gyeonggi Research Institute. Available at: http://www.dbpia.co.kr/view/ar_view.asp?arid = 1439565. Nam, K. M. (2009). Spatial integration of corporate R&D and mass production activities in high tech manufacturing: A case of Samsung Electronics. National Land Studies, 62, 125–45. OECD (2005). OECD territorial review of Seoul. Paris: OECD Publishing. –––– (2009). Regions Matter: Economic Recovery, Innovation, and Sustainable Growth. Paris: OECD Publishing. Oh, S. (2010). Inaugural address. Park, B. G. (2005). Spatially selective liberalization and graduated sovereignty: Politics of neo-liberalism and ‘special economic zones’ in South Korea. Political Geography, 24(7), 850–73. Park, S. O. (1993). Industrial restructuring and the spatial division of labor: The case of the Seoul metropolitan region, the Republic of Korea. Environment and Planning A, 25, 81–93. –––– (2010). Evolution of new spatial division of labour and spatial dynamics in Korea. Regional Science Policy & Practice, 2(1), 21–39. PricewaterhouseCooper (2009). Economic Outlook, London. Samsung Electronic Corporation (2009). 2009 Samsung Electronics Annual Report. Seo, M. C. (2007). A regulationist interpretation on the changes of the regional inequality between Seoul Metropolitan Area (SMA) and Non-SMA after 1981. Korean Economic Geography, 42(1), 41–62. Seoul Economy Daily (2010, July 19). Seoul city’s debt. Suh, J. (2004). The industrial competitiveness of Korea’s IT industry. Presented at Joint Conference of AKES, RCIE and KDI, Sunkyunkwan University, Seoul, Korea. The Hankyoreh (2009, June 8). Civic groups start campaign to restore freedom of assembly at Seoul Plaza on June 10. The Hankyoreh. Available at: http:// english.hani.co.kr/arti/english_edition/e_national/359198.html. Yonhap News (2008, October 14). Gyeonggi’s debt has been increased sevenfold during four years. Yonhap News. Available at: http://news.naver.com/main/ read.nhn?mode=LSD&mid=sec&sid1=100&oid=001&aid=0002313782.

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PART III

CONCLUDING PERSPECTIVES

7 Policy lessons from European and Asian cities

Introduction The examination of three European cities and one Asian city discussed in the previous chapters contributes some insights to a shared body of knowledge on which to base effective and efficient urban transformations in cities in other parts of the world. Broadly categorized, these fall under five distinct headings: 1 2 3 4 5

active, aligned and intentional government with private-sector and institutional partnership; internationalisation, global positioning and trade; knowledge economy, innovation-based entrepreneurship and modernisation of manufacturing; strong links between human capital and building attractive, distinctive cities; green economy, resource efficiency and low carbon.

The following sections define these elements, which appear to be both common to the experience in the case-study cities, and, at the same time, appear to add additional dimensions to the common economic development practices worldwide.

Active, aligned and intentional government with private-sector and institutional partnership Each of the cities explored demonstrates the essential role of local and regional government (the tier between municipal and national levels) in sustaining and, at times, leading economic development. Whilst not all cities have shared agendas and policy platforms, they have each adopted a number of approaches to deliver multitiered active, aligned and intentional government including: • • • • • •

setting up metropolitan and regional coalitions of public, private and civic organisations; achieving vertical and horizontal institutional integration; delivering integrated strategic planning to deliver economic diversification; creating effective intermediary bodies, including public–private partnerships; establishing innovative public-finance vehicles for the city and its region; introducing effective metropolitan-level government.

The overall impact of this form of effective governance has prompted increased attention to and knowledge of the external environment and markets among public officials and other actors; a clear and consistent story about the future; increased investment from multiple governmental sources and public financial intermediaries; enhanced coordination to improve the business climate despite fragmented jurisdiction; and longer-term thinking and sustained action through political cycles and between different tiers of government. A further policy lesson relates to the character of private-sector and institutional partnerships developed in each context. Aligned and intentional government has been more effective at leveraging partnerships with businesses and institutions. In all cases the business leadership of organisations within the region have played a critical role in acting as guardians of an ambitious future vision and as key informers of the contents of strategy.

Internationalisation, global positioning and trade Seoul, Munich, Barcelona and Turin have all undertaken programmes of accelerated internationalisation of their economies over the past thirty years. To address global opportunities these cities have developed a number of specific activities: • • • •

global re-positioning towards emerging markets; trade and export promotion through public-sector-led programmes; attracting foreign investment and international institutions; using international events to spur new international interest;

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• • •

supporting internationalisation programmes among key metropolitan organisations and institutions; encouraging international tourism to create jobs and build identity; celebrating cultural and linguistic diversity to be visible as an open and ‘international city’.

The overall impact of these approaches has been that these cities have all seen substantial increases in the numbers of foreign tourists, students and convention visitors, the numbers of high- and medium-skilled immigrants arriving, and the numbers of foreign-owned companies locating within the metros. As well as these ‘inward investment’ effects, the four cities have also seen international markets for their products grow and exports increase, and in addition their roles as ports, gateways and hubs (at varying geographical scales) emerging and increasing. Equally, most have engaged in international R&D and innovationoriented collaborations. Export growth has been an important aspect of how these cities have internationalised but has not been the sole factor: the combined effect of the different elements has been mutually reinforcing. Encouraged by continental economic integration, the case-study cities have orientated their strategies to be attractive for international firms, talent and investors. They have become more global in their orientation, multi-lingual, and open to flows of people, capital, goods and ideas. All have seen the need to be attractive and competitive, in order to win shares on international markets, recognising their underlying assets and opportunities. They have succeeded in building distinctive images and offerings, designed to appeal to multiple global audiences, rather than remaining stuck in historical positions within national urban systems and hierarchies.

Knowledge economy, innovation-based entrepreneurship and modernisation of manufacturing The framework for economic development in the EU and Asia has emphasised the transition to a knowledge-based or knowledge-led economy for over a decade now. This has focussed on the modernisation of traditional industries with innovation in processes and products, as well as the growth of new knowledge-intensive sectors and firms. In each of the four cities we can identify a number of specific and ongoing programmes that stimulate and support the delivery of knowledge-based services, entrepreneurship and the modernisation of manufacturing: • • •

delivering a knowledge-led economy through strategic planning; fostering innovation; promoting entrepreneurship through business incubators and seed capital funds;

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• • •

modernising manufacturing industries and diversifying supply-chain activities; promoting investment into cutting-edge science and technology facilities and infrastructures; re-using industrial land for new economy purposes.

The overall impact of these initiatives has been that these four cities have all been able to lead the process of partial transition to the next economy by both stimulating new enterprises and jobs in entirely new sectors, and by modernising existing industries to increase productivity and diversify markets. This is in sharp contrast, for example, to many of the de-industrialising, rust-belt cities in the US which are struggling to establish cohesive regional coordination that can bring about lasting economic and social regeneration. As the case studies reveal, the cities of Barcelona, Turin, Munich and Seoul have forged important relationships between business, government and higher education, with particular attention paid to economic diversification and entrepreneurship. In the process, much industrial land has been cleaned up and converted for new uses and infrastructure investment in new modes of production has been substantial. Through such initiatives, new jobs and enterprises have been created, and the cities have become part of the high-competitive value chains of both new sectors and more established industries. Although these cities have been shaken by the global economic crisis in varying ways, they have all shown to be more resilient than they would have been with less diversified economies.

Strong links between human capital and building attractive, distinctive cities In all four cities the human capital, quality of life and quality of place agendas have merged with the knowledge-economy agenda. Competitive cities in a knowledge-led economy must also be places that produce human capital, and are attractive to mobile people and talent. Part of that attraction has been the quality of life provided by compact cities that offer a mixture of uses and lifestyle choices. To deliver human-capital systems that both produce and attract skilled people from elsewhere, the cities have been: • • • • •

building and developing human capital; developing better quality of life and creating new amenities; delivering urban regeneration and revitalising city centres; branding initiatives and metropolitan identity building; supporting talent attraction and retention.

Each of the four metropolitan areas has a strong and effective core city within it, and in all cases the core city is the anchor of the Metropolitan Region. From a human-

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capital perspective, although there is some diffusion of institutions across the metro area, the core city hosts most of the universities, specialist colleges and institutes and is the hub of human capital system in each city. The universities and other institutes are becoming increasingly internationalised and specialised. They are attracting international talent and are increasingly engaged with business at multiple levels. These human-capital systems serve to both produce skilled people and to attract from outside. They are underpinned by deepening labour markets and high quality of life which provide the combination of both employment and quality of life choices that mobile talent workers seek. In turn these stronger labour markets have spurred and encouraged city-centre living and urban regeneration, contributing further to quality of life and further reinforcing the human-capital and talent-attraction strategies of the metros. These strategies have also been reinforced by the growth of urban tourism, which has further supported investment in culture, amenity and quality of leisure and lifestyle choices. Through their various initiatives to link human capital to attractive, distinctive cities, the four metropolitan areas now possess a more competitive and better-skilled workforce, with a core set of competencies in both traditional and emerging productions and services. An improved quality of life has in all cases acted as a magnet for attracting international talent and innovative companies.

Green economy, resource efficiency and low carbon Even though the study did not delve into this aspect in great detail, it appears that the four case-study cities have understood the unique opportunity of shifting towards a green economy and combining environmental sustainability with new business opportunities, job creation and a more resilient metropolitan economy. The initiatives taken by these cities and their regional and national governments to advance the green economy include: • • • • •

creating national renewable energy policies which are adopted and implemented locally; promoting green-economy approaches to sustain economic growth and job creation; investing long term in highly profitable green-energy solutions; expanding green-transport infrastructure; committing to strategic spatial planning to advance compact city development and the integration of land use, urban design and transport.

By increasing their energy efficiency and their capacity to generate cleaner energy, the cities have strengthened their resilience in an increasingly volatile global (energy) market. While data on the impact of green-economy policies on economic

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performance and job creation is just starting to emerge, these cities suggest that taking action on a range of green and low-carbon initiatives can help sustain employment, grow new markets for business, and improve quality of life and identity of the cities themselves.

Conclusions As cities around the world approach the next urban economy, European and Asian cities have developed practices of their own that can add to the global knowledge on how to fully realise the potential of the metropolitan platform to achieve economic progress and meet other important goals. The cities analysed in this study have pursued different initiatives through an integrated approach to economic transformation. From their predominantly industrial past, the economies of the four cities have undergone dramatic transformations, successfully developing a long-term plan for economic diversification and the promotion of knowledge-intensive and high value-added industries. The experiences of Barcelona, Turin, Munich and Seoul over the last thirty years offer important insights into cities worldwide seeking to transform their urban economies. The findings suggest that cities that develop active, aligned and integrated approaches – strengthening their international position, fostering economic diversification and re-orientation, investing in quality of life and place to produce and attract human capital, and shifting towards a green economy – will be rewarded in the future. All cities have demonstrated their ability to look inwards in order to embed their economic transition in their strengths and their past. Crises provided a rationale to tackle city weaknesses consistently across electoral cycles and among economic and social communities. The establishment of the enabling role of local governments as coordinators of resources and facilitators of expertise has been crucial in the recovery of the selected cities. By establishing partnerships and supportive governance frameworks, coalitions of local authorities, private-sector actors and civil-society organisations have used economic adversity and social hardship as opportunity and catalyst to promote economic, social and physical regeneration. However, the financial crisis that hit global and local economies in the last years of the first decade of the twenty-first century, combined with the climate-change imperative, are challenging some tried and tested approaches to urban transformation, prompting an economic paradigm shift characterised by increasing uncertainty and complexity, global–local interconnectedness and resource constraints. As a result, the recent recession is likely to change current economic practices, funding mechanisms and delivery vehicles over the next few years across Europe and, to a lesser extent, Asia.

210 COLANTONIO, BURDETT, RODE AND CLARK

Shrinking local budgets and reduced financial resources allocated nationally will have an impact on the effective approaches to economic transformation examined in this volume. Government-imposed cuts will force local authorities to reposition the way in which they enable economic transformation. The organisation of mega-events for example may not be a viable solution for several authorities any longer because of the long-term debt implications that are associated with them. More economic rigour, sound management of public finance and efficiency in terms of publicservices delivery will be required. This can be achieved through collaboration in streamlining public functions, avoiding bureaucracy and duplication of tasks, and promoting a more proactive engagement of the private sectors and civil society that can infuse local and national authorities’ policies with both financial know-how and social awareness. In light of the current global economic crisis, there can be little doubt that only those cities that will continue to innovate to shape new directions in local economic development and experimental approaches to change will be able to stay ahead of their peers. In addition, local governments and private-sector actors that will continue to recognise an opportunity and a competitive advantage in the need to accommodate the climate-change agenda rather than approach it as a problem are likely to be rewarded in the future. The research conducted showed that the green economy has a great potential but perhaps is still at an embryonic stage of development. Investments and policies in this sector can allow cities to lead the way on pursuing a greener future, becoming pioneers in the field of carbon emissions reduction, energy-saving technology and more sustainable urban lifestyles.

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Appendix Notes on the selection of case-study cities The selection process of the case-study cities was based on the following mix of quantitative and qualitative criteria that were applied in three separate stages:

Stage 1: Application of quantitative criteria The quantitative performance assessment of EU and Asian cities focused essentially on measuring prosperity, employment and ability to increase productivity generated by the cities according to the following criteria: • • • •

gross value added (GVA); jobs created; job losses; productivity as expressed by the GVA / Employment ratio.

The research team looked primarily at the economic performance spanning the period between 1990 and 2008. 1990 was chosen because of its economic and political significance as it coincides with the reunification of Germany and the beginning of the cohesion policy and the Structural Funds across Europe. 2008 was selected as the cut-off year because the trajectories of economic transformation and recovery efforts of several local and national economies were severely impacted upon by the global financial crisis of the last years of the first decade of the twenty-first century.

Stage 2: Application of qualitative criteria A qualitative evaluation of top performing cities that emerged from the analysis above was carried out with the objective of identifying innovative recovery features, which allowed cities to build their ‘new economy’. The following criteria were taken into account: • • •

promotion of innovation; fostering of internationalisation and exports; promotion of human capital and highly skilled education;

212 NOTES ON THE SELECTION OF CASE-STUDY CITIES

• • •

evidence of intentional city–regional and national government policies; infrastructure development; support for the green economy.

Stage 3: Validation of prospective cities through interviews with experts and final selection Once the qualitative and quantitative analysis was completed, a shortlist of prospective cities was drawn up. Several interviews and roundtable discussion with urban experts and economists were conducted to identify the most compelling examples of economic transformation which lent themselves to detailed study. The conclusions of the above process led to the final shortlist of Barcelona (Spain), Turin (Italy), Munich (Germany) and Seoul (South Korea).

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Index

Page references in italics indicate a figure and those in bold a table. ACC1Ó (Catalan innovation and internationalisation agency) 38, 41, 58–9 aerospace industry: Munich 133; Torino Piemonte Aerospace 103; Turin 79, 84, 88, 102, 108, 113, 113 agencies, development 15, 90, 91–2, 92, 118 airports, El Prat, Barcelona 43, 45–6, 65–6 Alderson, A.S and Beckfield, J. 10 Amin, A. 14 apparel industries, Seoul Metropolitan Region 165, 167, 168, 179, 187–8 Area Metropolitana de Barcelona (AMB) see Barcelona Metropolitan Region (AMB) Asia: maritime traffic into Europe 45, 64; regional influences 3; see also China automotive industry: diversification into new areas 88, 96, 97, 101–3, 111–12; Munich 133; Piedmont region 79, 84; research and development (R&D) 98; Turin 79, 82, 84–5, 84, 88, 114–15, 115; see also FIAT autonomous organisations 14 bank foundations (Turin) 91, 96, 98–9, 118 Barcelona: ACC1Ó (Catalan innovation and internationalisation agency) 38, 41, 58–9; brand development 48–50, 65; business incubators 56, 57–8; casestudy selection 5–6; cityscape 32–3; cluster developments 50–2, 54; consortium model 38, 40, 41, 47, 52; COPCA (Catalan internationalisation

agency) 38, 41, 58–60; economic growth 36, 61–2, 61, 62–3, 70; economic history 35–6; El Prat airport 43, 45–6, 65–6; entrepreneurial strategies 55–8, 69, 69; European Union funding 45, 47; exports 59–60, 67–9, 68, 70; foreign direct investment 65–7, 66, 70; high-tech industries 34, 38; history 31, 34, 36–7; ICT industries 54, 57, 58; international promotion 41, 48–50, 58–60, 64, 65–7, 387; internationalisation 36–8, 46, 48–50, 55–6, 58–60; knowledge-based economy 34, 38, 39, 39, 41, 42, 50–5; as logistics centre 37, 38, 43–4, 49–50, 51, 64; mayors 39; physical geography 34–5; 1992 Olympic Games 34, 36–7, 48–9; Plan Delta 43–4; political geography 34–5, 36–7, 37; Port of Barcelona 35, 41, 43, 44–5, 44, 65, 65–6; public space renewals 48; publicprivate partnerships 38, 40–1, 45, 49–50, 57, 72; quality of life 48–9, 66; rail infrastructure 43–4, 46–7; research and development (R&D) 54, 55, 58, 60; Strategic Plan Association 40; tourism 49, 67; transformation opportunities 34, 36–7, 50–1, 61; transport infrastructure 34, 38, 41–2, 42, 43–4, 64–5, 71; 22@Barcelona Innovation District 37, 38, 47, 51, 51, 53–5, 56; urban planning 50–5; see also Barcelona Metropolitan Region (AMB); Catalonia Barcelona Activa 38, 41, 49, 56–8 Barcelona Chamber of Commerce 38, 59–60

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Barcelona Design Centre 50 Barcelona Economic Triangle 38, 44, 51–2, 51 Barcelona Holding Olímpic S.A. 49 Barcelona Medical Centre 50 Barcelona Metropolitan Region (AMB): connectivity infrastructure 43–7, 64–5; economic growth 62; geography 35, 37; governance 39, 50, 70–1; metropolitan coordination 34, 35; Metropolitan Strategic Plan Association (PEMB) 71 Barcelona Sagrera Alta Velocidad (Barcelona Sagrera High Speed) 47, 54 Barcelona Tourism 49 Barcelona Visió 2020 34, 40, 41, 71, 72 Bavaria, State of: Cluster Initiative 143–5; connection with Munich 15; Future Bavaria Initiative 128, 139–40; governance 136, 137; strategic initiatives 128–9 Bayern Innovativ 140 Bayern Kapital 140, 143 Bieberbach, Dr Florian 154, 157 BioRegio Competition 144 biotech industries, Munich 128, 129,, 130, 130, 133, 144–5, 148 brand development: Barcelona 48–50, 65; Seoul City 180 Buhigas, Maria 48, 70 Calderini, Mario 96 Cambra de Comerç de Barcelona (Barcelona Chamber of Commerce) 38, 59–60 Campus Martinsried/Grosshadern 133, 144 Carpenter, J. 14 Carreras, Albert 38 case-study selection 5–6 Castellani, Valentino 82, 87–8, 88–9, 92, 93 Castells, M. 11 Catalonia: connection with Barcelona 15, 50; economic growth 61–2, 61, 62–3, 770; 0 political autonomy 37 CEI: Centro Estero Internazionalizzazione Piemonte (the Piedmont Agency for Investments, Exports and Tourism) 90, 91, 103–4, 111

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chaebols 165, 171, 172, 197 Chiamparino, Sergio 82 China: commerce with Barcelona 60, 69; imports from Turin 116, 118; maritime traffic into Europe 45, 64; students studying overseas 98, 110–11 Citadella Politecnica 97 cities: economic influences 3; globalisation 10–12; intra-city competition 10–11, 15, 21; and regional alliances 15; role of 15–16, 20–1 City of Knowledge (Barcelona) 39, 42 cleantech industries 129, 130, 130 145, 149 Clos, Joan 39 cluster developments: Barcelona 50–2, 54; Campus Martinsried/Grosshadern 133, 144; Cluster Initiative, State of Bavaria 143–5; Garching, Germany 141; LG Paju LCD cluster 166, 169, 173, 179, 195; Samsung Asan-Janjung LCD cluster 173; Samsung Digital Valley 192, 192 193–4; Seoul Metropolitan Region 166, 177 cluster theory 9, 18 CMB (Corporacíon Metropolitana de Barcelona) 39 Compagnia di San Paolo (CSP) 98–9 comparative advantage, Local Economic Development (LED) 17–18 competition: intra-city 10–11, 15, 21; probusiness competition 16; regional 14, 15 consortium model, Barcelona 38, 40, 41, 47, 52 Convention for Cooperation in Infrastructure and Environment in the Llobregat Delta (Plan Delta) 43–4 COPCA (Catalan internationalisation agency) 38, 41, 58–9 Corporacíon Metropolitana de Barcelona (Barcelona Metropolitan Corporation, CMB) 39 corporations, multinational, headquarters 10, 60, 125, 167, 182, 185 Council of European Communities (1988) 13 creative industries: as basis for economic development 18, 19–20; Munich 130; Seoul Creative City Policy 179–80; see also design industries

creative-industries paradigm 9, 19–20 Crescita Guidata (Guided Growth) 88 culture, as basis for economic development 18, 19 data gathering 6 Dematteis, Professor Giuseppe 96 design industries: automotive 88, 96, 97; diversification into 79, 82, 84, 100, 108, 112–13; Seoul City 180; training 92, 95–6, 105, 113; see also creative industries development agencies 15, 90, 91–2, 92, 92 118 Dynamic Random Access Memory (DRAM) 171, 172 economic development: economic governance 14; intra-city competitiveness 10–11, 15, 21; role of local government 16–20; and urban agendas 4–5; urban transformation 210–11; see also transformation, economic Economist Intelligence Unit (2011) 20 El Prat airport, Barcelona 43, 45–6, 65–6 Electronics and Telecommunications Research Institute (ETRI) 171, 172 Electronics Industry Promotion Law 171, 194 Eller, Bernhard 137 employment rates: Catalonia & Spain 36 36,, 62, 63, 70; hotels and restaurants (Turin region) 111; Metropolitan Region, Munich1 146, 146 147, 147; Munich 129, 130, 130, 135; 135 Piedmont region 107, 107, 109; Seoul Metropolitan Region 184; Turin 83, 86, 111 entrepreneurial strategies: Barcelona 55–8, 69, 69; of cities 10; Munich 149; Turin 82, 92–3; see also start-ups Escheu, Rudolf 132, 135, 139, 152 European Union: partnership principle 13–14; urban influences 3, 4 European Union funding: Barcelona 45, 47; in Europe 4; Munich 136; Structural Funds 13; Turin 82, 90, 92, 93, 96, 118 Eurozone crisis 72 exports: Barcelona 59–60, 67–9, 68, 70; Turin 114, 114, 116, 118

Ferrari, Mauro 101 FIAT (Fabbrica Italiana Automobili Torino): automotive industry dependency upon 115; crisis in Turin 85–8, 117–18; history in Turin 79, 84–5; innovation investment 96; Lingotto plant 85, 86, 90, 95, 95; Mirafiori plant 85, 86, 90, 92, 95–6, 113; post crisis 87–8; redevelopment of industrial areas 94–5, 95 Fibre Optic Initiative (SWM) Munich 154, 157 Finpiemonte (Piedmont regional development agency) 90, 91–2, 94, 100 Finpiemonte Partecipazioni (Finpiemonte Equity Investments) 90, 91, 92, 94, 95 Fira de Barcelona 49, 67 flow analysis 11 Fondazione Cassa di Risparmio di Torino (Fondazione CRT) 98 Fordism 3, 15, 20 foreign direct investment (FDI): Barcelona 65–7, 66, 70; Seoul Metropolitan Region 173; Turin 91, 99–100 Fraunhofer Gesellschaft, Munich 130, 132 From Concept to Car (project) 103, 104 Future Bavaria Initiative 128, 139–40 G-7 HAN project 173 Garcia-Milà Lloveras, Santiago 41 General Motors (GM) 97, 98 Germany 131, 145 Giheung Semiconductor Plant 196 global city-regions 10, 15–16, 179, 180 global economic crisis: impact on Barcelona/Catalonia 69–71, 72; impact on economic transformation 210–11; impact on Munich 157–8; impact on Seoul Metropolitan Area 192, 196–7; impact on Turin and Piedmont 115–16 Goldstar 172 governance: metropolitan governance, Barcelona 35, 39, 50, 70–1; Munich 136–7, 153–4; participatory economic governance 13–15; pro-active and aligned 206; role of local government

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15, 16–18; Seoul Metropolitan Region 168–70, 197–8; Turin 87, 90–1; urban, general 11, 12 Government of Catalonia 35, 39, 47, 52, 73 n.1 green economy: cleantech industries 129, 130, 130 145, 149; importance of 209–10, 211; Local Economic Development (LED) 16; Munich 125, 128, 133, 133, 135–6, 145, 151–2; renewable energy 154, 156, 157; Renewable Energy Law (EEG), Germany 145; sustainable cities 14, 21–2, 175 gross domestic product (GDP): Seoul Metropolitan Region 165, 182; Turin 79, 115 gross regional domestic product (GRDP), Seoul Metropolitan Region 183 gross value added (GVA): Barcelona 36, 36 61–2, 61, 63, 69, 70; Catalonia 35; Munich 125, 129, 130, 135; 135; Munich Metropolitan RegionI 146, 146, 146; Piedmont region 106–7, 106; Seoul Metropolitan Region 183, 184; Turin 86 Grosshadern, Martinsried Campus 133, 144 Gruppe, Dr. Gerd 135, 137, 139, 141 Gyeonggi Province: deregulation policy 180–1; geography 166, 167, 169; Giheung Semiconductor Plant 196; high-tech industries 179; Hwasung Plant Construction 196; manufacturing 168, 186–7; quality of life 181; tourism 181; transport infrastructure 181 Hague, C. et al (2011) 16–17 Helmholtz Zentrum München 130 Hereu, Jordi 46 Hernández, Mateu 40, 46, 48, 55 Higher Institute on Territorial Systems for Innovation (SITI) 99 high-tech industries: Barcelona 34, 38; diversification into, Seoul Metropolitan Region 186–9; funding, Munich 139–40; Gyeonggi Province 179; High-Tech Initiative, Munich 128, 140–3, 142; 142; LG Paju LCD cluster 166, 169, 173, 179, 195; Munich 125, 130, 135, 139–40, 151–2; Samsung 169, 172, 173,

218 INDEX

192, 192 193–4; semiconductor industry, Korea 171–2, 175, 186, 193–4, 196, 197; Seoul Metropolitan Region 165, 175, 186–9,, 188; 188; TFT-LCD industry 172–3, 175; VLSI wafer-fabrication 171, 172 human capital: importance of 208–9; research and development (R&D) workers, Seoul Metropolitan Area 186; science and technology workers 109, 109, 150, 151; Seoul Metropolitan Region 166; skilled labour, Munich 152, 158 Hwasung Plant Construction 196 Hyundai 172, 185 I3P 97 ICT industries (information and communication industries): Barcelona 54, 57, 58; Electronics and Telecommunications Research Institute (ETRI) 171; Munich 128, 129, 130, 148; Seoul Metropolitan Region 166, 168, 189–91, 190, 19 0 , 191; 191; Think Up ICT 103; Venture Business Promotion Policy, Seoul Metropolitan Region 173–4, 193 Incasòl 39, 52 Incheon City 166, 167, 168, 169, 179, 186–7, 197 industries: inter-related development of 18; national industrial policies, Seoul Metropolitan Region 171–4; reclamation of industrial areas 82, 89, 94–5, 95, 178; see also individual industries infrastructure 105, 132, 152–3; see also transport infrastructure innovation sector: FIAT 96; Munich 128–9, 134–5, 139–40, 145–6, 148–50; regional innovation systems 18–19; Seoul Metropolitan Region 177; Turin 88, 96, 99–103, 101, 101 108–9, 118 Institute Mario Boella 99 institutional theory 12–13 institutional thickness: Munich 128, 130–1, 136–8, 153, 158–9; theories of 14, 19 intellectual property rights: Seoul Metropolitan Region 166, 185; see also patents

internationalisation: Barcelona 36–8, 46, 48–50, 55–6, 58–60, 65–7; importance of 206–7; Munich 140–3; Stadtwerke München (SWM) 154; Turin 79, 82, 88, 90, 101–4, 114–15; universities and institutes 209 JAC 82, 89, 97, 98, 111 Kim, Moon-Soo 180–1 knowledge economies: Barcelona 34, 38, 39, 41, 50–5; importance of 15, 18, 19, 22, 207–8; Munich 130, 139–40; Seoul Metropolitan Region 189, 190, 190 197–8 Korea Institute of Electronics Technology (KIET) 171 Lamparter, Dr Mathias 130 Lee, President Myung-Bak 170 leisure, in urban growth 21 LG Paju LCD cluster 166, 169, 173, 179, 195, 197 Lingotto plant (FIAT) 85, 86, 90, 95, 95 liveability, notion of 20; see also quality of life Local Economic Development (LED) 16–20 local government: governance role 13–15; in Local Economic Development 16–20 LSE Cities (research centre) 4–5 Magnano, Giovanni 89–90, 105 manufacturing industries: diversification 105, 207–8; Germany 131; Gyeonggi Province 168, 186–7; Seoul Metropolitan Region 165, 166, 168, 175, 186–7, 190; 190; Turin 84 Maragall, Pasqual 39, 41 masterplan, 1995, Turin 88, 89, 90 Max Planck Society 130, 141, 144 mayors: Barcelona 39; Munich 132, 137; Seoul Metropolitan Region 166, 170, 179–80; Turin 82, 87–9, 92, 93, 94, 105 mega-events: 2002 World Cup (Seoul) 179; role in urban growth 11–12, 21; Turin 104–6, 118; see also Olympic Games Mela, Professor Alfredo 98 MESAP (Advanced Production Systems Innovation Pole) 102–3

methodologies, LSE Cities (research centre) 6 Metropolitan Regions see individual city regions Mirafiori plant (FIAT) 85, 86, 90, 92, 95–6, 113 Monatzeder, Hep 125, 145 Motorola 97 multinational corporations, headquarters 10, 60, 125, 167, 182, 185 Munich: 1972 Munich Games 132; aeronautical industry 133; automotive industry 133; biotech industries 128, 130 , 133, 144–5, 148; case-study 129, 130, selection 5–6; cityscape 126–7; creative industries 130; economic growth 146–57; economic history 129–32; education system 152, 159; employment rates 129, 130, 1 30 , 1135; 35; entrepreneurial strategies 149; European Union funding 136; funding 140, 145; geography 129, 133; governance 136–7, 153–4; green economy 128, 133, 133, 135–6; gross value added (GVA) 129,>130, 1 30 , 135; 135 hightech industries 125, 130, 135, 139–40, 151–2; High-Tech Initiative 128, 140–3, 130 142; ICT industries 128, 129,, 130; infrastructure 132, 152–3; innovation sector 34–135, 128–9, 139–40, 145–6, 148–50, 158; institutional thickness 128, 130–1, 136–8, 153, 158–9; internationalisation 140–3; key performance measures5146; 146; knowledge-based economy 130, 139–40; mayors 132, 137; ‘Munich Mix’ 125, 130, 151–2, 158; patents 128, 129, 130, 130, 147–8, 147–8, 149; political stability 137, 153, 159; population 130 130; quality of life 155–7; reunification, impact of 128, 132–3; Stadtwerke München (SWM) 136, 153–4; transformation opportunities 135–6, 138–9, 145–6; unemployment rates 130 130, 135; 135; urban planning 155; see also Bavaria, State of Munich Metropolitan Region: economic performance 131, 135; 135; employment rates; 146, 146 , 147, 147; geography 129, 133; gross value added (GVA)i 146, 146 146;

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innovation sector 125, 133; population increases 146 146;; unemployment rates 133,, 146 146 neoliberalism 10–11 Offensive Zukunft Bayern (OZB) 128, 139–40 Oh, Se-hoon 179–80 Olympic Games: 1972 Summer Olympic Games (Munich) 132; 1992 Summer Olympic Games (Barcelona) 34, 36–7, 48–9; 2006 Winter Games (Turin) 104–5; role in urban growth 11 participatory economic governance 13–15 partnership principle: public-private partnerships 18, 19; state collaboration, Barcelona 39–40; urban governance 13–15 patents: Munich 128, 129,' 130, 130 147–8, 147–8, 149; Piedmont region 108–9, 109; Seoul Metropolitan Region 185, 185; see also intellectual property rights path-dependency theory 19 Piano Pluriennale Competitivita (MultiYear Competitiveness Plan) 116–17 Piano Straordinario per l’Occupazione (Special Employment Plan) 116–17 Picorelli, Pere 52, 54 Piedmont region: automotive industry 79, 84; 84 ; connection with Turin 15, 90, 92–3; economic history 84, 84; 84 ; employment rates 107, 107, 109; Finpiemonte 90, 91–2, 94, 100; patents 108–9, 109; political geography 83; regional government 82; unemployment rates 107, 107; see also Turin place promotion 21 Plan Delta 43–4 policies: communication of 14; sustainable urban development 21–2 Politecnico di Torino 82, 95–8, 95, 109, 110–11, 113, 118 population levels: Catalonia & Spain 62, 62; Metropolitan Region, Munich 146 146;; Munich 130 130;; Turin 85, 108, 108 Port of Barcelona 35, 41, 43, 44–5, 44, 65, 65–6

220 INDEX

Presidential Committee on Balanced National Development (PCBND) 177 private sector 11; see also public-private partnerships Progetto Speciale Periferie (Special Project for Peripheral Neighbourhoods), 90–1 pro-poor economic development 17 public-private partnerships: Barcelona 38, 40–1, 45, 49–50, 57, 72; growth of 11, 13–16, 18, 19, 206; Spanair purchase 46, 65; Turin 89–90; see also consortium model, Barcelona quality of life: Barcelona 48–9, 66; as driver for growth 20–1, 208–9; Gyeonggi Province 181; liveability, notion of 20; Munich 155–7 rail infrastructure 43–4, 46–7 Real Collegio Carlo Alberto 99 regeneration, industrial areas: Seoul Metropolitan Area 178; Turin 82, 89, 94–5, 95; urban 16, 208 regional: and city alliances 15; Local Economic Development (LED) 18; regional institutional capacity 19 regional innovation systems 18–19 research and development (R&D): automotive industry 98, 102–3; Barcelona 54, 55, 58, 60; Campus Garching 133, 141; importance of 207; Munich 128, 130, 145, 150, 150, 152; Seoul Metropolitan Region 166, 172, 173, 185; spending, Catalonia and Spain 69; Turin 87, 96–7, 99, 118 road infrastructure 43–4 Roh, President Taewoo 169 Rosso, Elisa 87, 88, 92 Rovira Homs, Joan Ramon 43, 55, 66 Samsung Asan-Janjung LCD cluster 173 Samsung Digital City 169, 193 Samsung Digital Valley’ 192 192, 193, 197 Samsung Electronics Corporation 172, 185, 196 Samsung Nano City 169, 193 Santacana, Farancesc 50 Seoul Capital City: balanced national development policy 177–9; brand

,

development 180; centripetal effect 170, 174, 176; Creative City Policy 179–80; geography 166, 167, 169, 174, 174; as a global city 179; mega-events 179 Seoul Metropolitan Region (SMR): apparel industries 165, 167, 168, 179, 187–8; balanced national development policy 177–9, 195; Capital Region Management Planning Act 176–7, 193; case-study selection 5–6; chaebols 165, 171, 172, 197; economic growth 182–97; economic history 167; employment rates 184; foreign direct investment 173; geography 166, 169; governance 168–70, 197–8; gross domestic product (GDP) 182; gross regional domestic product (GRDP) 183; gross value added (GVA) 183, 184; growth rate• 194 194; growth-pole policy 168; heavychemical industrial drive 168; hightech industries 165, 175, 186–9, 188; 188 human capital 166; ICT industries 166, 168, 189–91, 190, 19 0 , 191; 191; industrial diversification 168, 177, 186–7, 197; industrial make-up 187, 188, 189 189; Industrial Placement Act 174–6, 186, 187; intellectual property rights 166, 185; key performance measures 182; knowledge-based economy 189,i, 190, 19 0, 197–8; manufacturing industries 165, 166, 168, 186–7, 190; 19 0 mayors 166, 170, 179–80; national spatial policy 174–9; patents 185, 185; regeneration of industrial areas 178; research and development (R&D) 166, 172, 173, 185; semiconductor industry 171–2, 175, 186, 193–4, 196, 197; state-led development 165, 168–70, 197–8; taxation system 170, 170; 170 ; TFT-LCD industry policy 172–3, 175, 193; three-zone systems 175, 175, 175, 1175, 176; tourism 198; transformation opportunities 168–70, 181; transport infrastructure 198; unemployment rates 184, 192; urban planning 174–9, 187–8; Venture Business Promotion Policy 166, 173–4, 191, 193 191, Serra, Narcís 39 silo effect 4, 9

Slow Food 100–1, 105 small and medium enterprises (SEMs): Barcelona 34, 55–8, 68; Munich 130; Seoul Metropolitan Region 173; Turin 88, 100, 101–3 Societats Anònimes (SA) 41 70 Spain 61–2, 61, 70 Spanair 46, 65 Spillner, Enno 137, 139, 153 Spina Centrale (Central Backbone) 89 Stadtwerke München (SWM) 136, 153–4, 156 start-ups: business incubators, Barcelona 56, 57–8; Munich 143, 149; Seoul Metropolitan Region 191; Venture Business Promotion Policy, Seoul Metropolitan Region 166, 173–4, 191, 19 1 193; see also entrepreneurial strategies state, the, role of 11 Strategic Plan Association (Barcelona) 40 strategic planning, Barcelona 41–2, 42, 71 Sträter, Dr Detlef 131, 151 Struss, Franz Josef 132 sustainable urban development 14, 21–2, 175; see also green economy Swinburn, G. et al (2006) 16,, 16 16 Taylor, P.J. 11 TFT-LCD (Thin Film Transistor-Liquid Crystal Display) industry policy 172–3, 175, 193 Thalgott, Professor Christiane 125, 132, 138, 146, 152 Torino Nuova Economia (Turin New Economy, TNE) 92, 95–6 tourism: Barcelona 49, 67; to cities 20–1, 207; Gyeonggi Province 181; Seoul Metropolitan Region 198; Turin 91, 92 92,, 105, 108, 110, 111 traditional institutionalism 12–13 transformation, economic: Barcelona 34, 36–7, 50–1, 61; future approaches 210–11; Munich 135–6, 138–9, 145–6; Seoul Metropolitan Region 168–70, 181; Turin 82, 93–4 transport infrastructure: Barcelona 34, 38, 41–2, 42, 43–7, 64–5, 71; El Prat airport, Barcelona 43, 45–6, 65–6; Gyeonggi Province 181; high speed rail,

INDEX

221

Barcelona 43–4, 46–7, 54; Port of Barcelona 35, 41, 43, 44–5, 44, 65, 65–6; Seoul Metropolitan Region 198; strategic hubs 21; Turin 94 Tricario, Roberto 94 Trullén, Joan 39, 54 Turin: aeronautical industry 79, 84, 88, 102, 103, 108; automotive industry 79, 82, 84–5,, 84, 8 4 : 88; case-study selection 5–6; cityscape 80–1; economic growth 84, 84 , 106–8, 106, 107; economic history 83–5; employment distribution 110; employment rates 83, 86, 111; entrepreneurial strategies 82, 92–3; European Union funding 82, 90, 92, 93, 96, 118; exports 114, 114, 116, 118; food and wine 84, 91, 100–1; foreign direct investment 91, 99–100; governance 87, 90–1; gross domestic product (GDP) 79; industrial diversification 101–4, 111–12, 117–18; industrial history 79; infrastructure 105; innovation sector 88, 96, 99–103, 101, 10 1, 108–9, 118; institutional restructuring 90–1; internationalisation 79, 82, 88, 90, 101–4, 114–15; local development agencies 90, 91–2, 92, 92 , 118; manufacturing 84; masterplan, 1995 88, 89, 90, 94; mayors 82, 87–9, 92, 93, 94, 105; mega-events 104–6, 118; physical geography 83, 86; political geography 83; population increases 108, 108; public-private participation 89–90; regeneration of industrial areas 82, 89, 94–5, 95, 106; research and development (R&D) 87, 96–7, 97–8, 99, 118; Slow Food 84, 100–1, 105; social provisioning 86–7; Spina Centrale (Central Backbone) 89; strategic planning 82, 88–9; technology parks 99–100; tourism 91, 92, 92 105, 108, 110, 111; trade bodies 82; transformation opportunities 82, 93–4; transport infrastructure 94; unemployment rates 83–4, 86, 115; see also design industries; FIAT; Piedmont region

,

222 INDEX

Turin Chamber of Commerce 82, 102–3, 111, 112 Turin Metropolitan Region 83, 86; see also Piedmont region; Turin Turin Wireless Foundation 99 22@ Barcelona Innovation District 37, 38, 47, 51, 51, 53–5, 56 unemployment rates: Catalonia & SpainI 36, 70 Munich 130, 36, 62, 63, 70; 130 , 135; 1 35; Munich Metropolitan Region 133, 146; 146; Piedmont region 107, 107; Seoul Metropolitan Region 184, 192; Turin 83–4, 86, 115 Unione Industriali di Torino (Turin’s Industrial Union) 82, 91, 102–3 universities and institutes: Campus Garching 133, 141; Campus Martinsried/Grosshadern 133, 144; Citadella Politecnica 97; Electronics and Telecommunications Research Institute (ETRI) 171, 172; Higher Institute on Territorial Systems for Innovation (SITI) 99; Institute Mario Boella 99; internationalisation 209; Korea Institute of Electronics Technology (KIET) 171; Munich 125, 129, 139–40, 142, 145; Politecnico di Torino 82, 95–8, 95, 109, 110–11, 113, 118; Real Collegio Carlo Alberto 99; Seoul City 167; Turin 96 urban economics, theories of 9–10 urban planning: Barcelona 50–5; Munich 155; public involvement 12; Seoul Metropolitan Region 174–9, 187–8; sustainable cities 21–2 Venture Business Promotion Policy, Seoul Metropolitan Region 166, 173–4, 191, 191 , 193 Vogel, Hans-Jochen 132 von Streit, A. et al (2010) 135, 145 Wollmann, H. 13 Wood, A. and Valler, D. 15