Fitzgerald and Leigh ( 2002:33 ) proposed that , “… economic development preserves and raises the community ’ s standard of living through a process of human and physical infrastructure development based on principles of equity and sustainability .”
Feldman and Hadjimichael et al ( 2015 ) offered a definition that identifies the role of economic development in local government as , “ Economic development is the expansion of capacities that contribute to the advancement of society through the realization of individual , firm and community potential . Economic Development is measured by a sustained increase in prosperity and quality of life through innovation , lowered transaction costs , and the utilization of capabilities towards the responsible production and diffusion of goods and services ”.
The ultimate vision of economic development for democratic governments is to increase the quality of life , including long-term prosperity .
To achieve this vision , local governments ’ role in economic development has broadened and evolved and is now seen as also being that of an ‘ agent ’ and ‘ conduit ’ between local government policy and compliance , and the entrepreneurial aspirations and commercial outcomes of private enterprises .
As an agent , local government is considered the principal for its citizens and the businesses within its boundaries . Local governments become the facilitators and enablers of growth and change by promoting the building of business capacity and capability and encouraging innovation and investment .
Local governments with a progressive mindset may take this one step further , taking on the role of advocate and champion in a system that is often times difficult to navigate . Partnering with industry to solve problems and find mutually equitable solutions is a change that has once again redefined the role of local government .
In proactively adopting this role , local governments can reduce the perceived gap between local government policy and governance , and private enterprise practices . This allows for more transactions to be realised , reducing transactional costs benefitting the broader local community by attracting investment and retaining local business activity .
Governments , including local governments , are the only entities that have the mandate to promote the wellbeing and prosperity of the community and have the economic clout to keep its economy on course . They are therefore considered best positioned to make and direct long term investments . This process can lead to a fundamental transformation of the local economy .
The emphasis in economic development policy has over the years been focused on traditional attraction and retention incentives and is often directed at specific businesses , which is often a zero-sum game with little or no broader effects for economic development . Local governments have tended to support the same policies , adding incremental changes to preexisting strategies , rather than a wholesale reconsideration of investment strategy .
As innovation serves as an integral catalyst in thrusting forward the trajectory of an economy and society , more recent emphasis of local government in practicing economic development functionality has shifted towards boutique , targeted policies providing a more focused approach to generating tangible and sustainable economic value add for local communities .
Collective action and at times largescale , long-term investment to address the fundamental conditions necessary for the microeconomic functioning of a local economy is a key ingredient in the process of building capability and capacity . This is increasingly acknowledged as a strategic focal point and motivator for local governments ’ increased involvement in economic development and investment attraction .
Viewed through a capacity building lens , this approach serves as a facilitator for the population at large , including the private sector . By promoting capacity , the public sector ’ s contribution extends beyond improving efficiency and equality , it bolsters the foundation upon which sustained long-term growth and development can be achieved .
Where the private sector does not find projects lucrative enough to warrant its own investment in the short term , local government can invest in those activities . Think Innovation Hubs , start-ups and grant programs – to build business capacity , capability and promote opportunities for sustainability and employment self-sufficiency .
In facilitating industrial upgrades and improving infrastructure , local government lowers transaction costs to expedite economic exchanges , in turn , lowering risk and supporting the utilisation of private sector capabilities . These changes could include altering the industrial structure , the educational and occupational characteristics of the population , including changing the entire social and institutional fabric within the community .
The notion behind greater prosperity and better quality of life is earned by working hard , realising their potential and becoming successful . This can only be achieved ideally where employers incentivise and reward innovativeness , paying higher wages . Feldman and Hadjimichael et al ( 2015 ) state that “ underlying this ideal is the reality that individuals are educated and prepared for gainful employment , and that high-quality jobs are available , with opportunities for advancement ”. They further state that “ Reaching this objective required the public and private sector work together for their mutual gain and the greater good of society ”.
Increased education requires complementary efforts to support a sophisticated economy that will provide jobs , especially where a knowledgebased economy is functioning . Focusing on education without supporting the development of industry creates a brain drain as skilled labour migrates to opportunities outside the local community , impacting adversely on local economies .
While growth is measured by putting more people to work within an existing economic framework , local government economic development is aimed at changing that framework so that people work more productively , and the economy shifts toward higher-value activities .
Social capital generally refers to “ the links , shared values and understandings in society that enable individuals and groups to trust each other and so work together ” ( OECD , 2007 , p . 102 ). This concept has been linked to improve mental and physical wellbeing as well as economic wellbeing ( Pierce et al ., 2002 ; Suseno & Pinnington , 2018 ).
As demand increases on business leaders to work with both their internal and external stakeholders to improve
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