X Close

The Bartlett Development Planning Unit

Home

Collective reflections about development practice and cities

Menu

How friendships and networks matter for urban economic development

Naji PMakarem23 June 2016

Why do some cities perform so much better than others? According to new research from, Naji P. Makarem, it’s not just down to their resources – both human and physical – but also how people and organisations interact and work together. In studying social relations in business communities, he finds that while San Francisco’s diverse and connected social structure has allowed the Bay Area to withstand new economic challenges, Los Angeles’ comparable regional network has not been able to maintain its connectivity, which has led to relatively poorer economic outcomes for the city. 

 

“If I’ve learned anything in the last seven years, it’s that ideas live

less in the minds of individuals than in the interaction of communities”

(Fred Turner, 2006-p.VII)

 

Economists attribute economic performance – growth in output, employment and wages – to initial factor endowments, such as educated workers, patented inventions, lucrative industries, good infrastructure, property rights and excellent public services. This makes sense to the extent that cities with higher levels of these factors are undoubtedly better equipped to grow their economies and incomes. But if we stop to think how these factor endowments produce economic growth and respond to technological, market and political shocks, challenges and opportunities, the picture becomes more complex, dynamic and social.

 

A closer look reveals the diversity of individual and organisational actors in economic development processes. Such a sociological perspective focusses on individuals and their ideas, knowledge, cultures, world views, interactions and social relations; firms and their practices, strategies, cultures, structures, technologies, capabilities, networks and social responsibility; financial institutions and their lending practices and risk strategies; formal institutions and their laws, regulations, policies, public services, bureaucracy, infrastructure investments, incentives and power relations; and civic organisations such as charities, community-benefit organizations, private foundations, unions and business associations.

 

A dynamic perspective reveals how individuals and organisations interact to combine and re-combine ideas, knowledge, capabilities, assets and resources into novel combinations in pursuit of lucrative opportunities. Such interaction and re-combination in response to market challenges and opportunities is enabled and constrained by two intrinsically-linked aspects of institutions: The social networks in which actors are embedded, and their formal and informal ‘rules of the game’. Entrepreneurship and investments in a region emerge from this interaction and re-combination in the face of challenges and opportunities, steering urban industrial structures down specific industrial pathways, with its consequent impact on employment, wages and public revenues.

 

In a new study, I focus on one of these two institutional aspects of urban economies: The structure of social relations in high-end business communities. The economic sociology literature investigates how entrepreneurial and innovative contexts are associated with more connected, diverse and central social structures. While this has been researched using network analysis techniques at the scale of sub-regional industrial clusters, entrepreneurial communities and small cities, it has never been tested at the scale of large metropolitan regions.

 

To fill this gap in the literature, directorate research was used as a proxy for the social structure of the business community in two large metropolitan regions, the Bay Area and Southern California, whose per capita incomes diverged significantly between 1980 and 2010 (Table 1). This case selection within the State of California to a great extent controls for differences in formal government institutions, broad-stroke cultural and linguistic attributes, climate and geographic location, infrastructure, amenities and distance from the technological frontier.

 

Table 1 – Per Capita Incomes in the LA and Bay Area CMSAs, 1980 and 2010

Picture1

Source: Author’s calculations using BRR data.

My analysis reveals that both networks were almost identical and highly connected back in 1982. Figure 1 below shows that the largest component (a fully connected network of nodes, whereby each node is linked to at least one other node) in both networks included over 50 percent of the 70 sampled firms.

 

Figure 1 – LA and SF networks of board interlocks, 1980.

Source: Author’s calculations using UCINET and NET-Draw.

Source: Author’s calculations using UCINET and NET-Draw.

 

Over the subsequent three decades of economic divergence however, their network structures also diverged. While the Bay Area’s maintained and even increased its level of connectivity, the LA region’s network fragmented by 2010, with a mere 20 percent of firms in its largest component (Figure 2).

 

Figure 2 – Percentage of sampled firms in largest component, by year, LA Vs SF

Source: Author‘s calculation, number of interlocked firms in each network‘s largest component as a percentage of all firms in the sample.

Source: Author‘s calculation, number of interlocked firms in each network‘s largest component as a percentage of all firms in the sample.

 

Figure 3 shows the two networks in 2010, clearly highlighting the connectivity in the Bay Area (SF) and the fragmentation in Southern California (LA).

 

Figure 3 – LA and SF networks of board interlock, 2010

Source: Author’s calculations using UCINET and NET-Draw.

Source: Author’s calculations using UCINET and NET-Draw.

 

Turning to the degree of diversity, the two networks were found to be equally diverse in 1982, however by 2010 while the Bay Area network had maintained its high level of diversity, LA’s had declined substantially, despite having more industries represented in its 2010 network. While the Bay Area’s high-end corporate social structure maintained its high level of connectivity and diversity over the three decades of economic divergence, LA’s became less connected and less diverse.

 

The analysis of centrality of business-civic associations, whose role it is to represent the needs of the business community, is equally revealing. The results on a broadened network (which included the 50 largest Private Foundations in each region) shows the Bay Area Council in the Bay Area to be the most central organization in the network, with an nBetweeness score of 18 percent (i.e. The Bay Area Council lies on 18 percent of the shortest paths between all node pairs in the largest component). This is three times greater than the LA Chamber of Commerce, the most central business-civic organisation in the LA network with an nBetweeness score of 5.86 percent. The Bay Area Council arguably plays the role of an ‘anchor tenant’ within the region’s industrial social structure, connecting business leaders across industrial categories. No comparable business-civic organisation exists in LA.

 

The Bay Area’s connected and diverse social structure withstood the tumultuous challenges brought about by the New Economy, and successfully combined and re-combined its ideas, knowledge, capabilities, assets and resources in response to these challenges and opportunities. It successfully produced new firms and technologies that carved new industrial pathways in IT, biotechnology and supporting services such as venture capital and specialized legal services. The interactions behind such productive recombination were embedded in a connected, diverse and central high-end corporate social structure. LA’s comparable regional network on the other hand was unable to maintain its connectivity and diversity, and failed to productively combine and re-combine regional endowments in the face of a rapidly changing economic reality.

 

While my study sheds light on the network dimension of regional business institutions, our co-authored book investigates perceptions and world views of various public, private and civic actors, revealing further notable differences. Policy makers and business and civic leaders may draw from this research by focusing attention on the social architecture behind their industrial structures. Business-civic associations in particular may play a central role in bringing influential business leaders from across industries to interact and think about their regional economies and their collective challenges and opportunities.

 

This article is based on the paper, ‘Social networks and regional economic development: the Los Angeles and Bay Area metropolitan regions, 1980–2010’ in Environment and Planning C Government and Policy.

Disclaimer: This blog was also posted in USAPP (An LSE Blog)


 

Naji P. Makarem is co-director of the Msc. Urban Economic Development at the Bartlett School’s Development Planning Unit (DPU) at UCL, and a lecturer in Political Economy of Development.

Snapshots of the urban economy: Mekelle, Ethiopia

Matthew AWood-Hill11 May 2015

For the past 10 days I’ve been with staff and students of the MSc Urban Economic Development in Mekelle, Ethiopia. They have been making sense of economic development by exploring four broad topics, and assessing their contribution to the local economy:

  1. Mekelle University as a supporter of small enterprises
  2. Urban and peri-urban agriculture
  3. Co-operative organisations
  4. The airport as a catalyst for economic development

We have put together a series of images, which provide a snapshot of different parts of the urban economy in Mekelle.

Tradition has it that Mekelle University was first formed beneath the Momona Tree on its campus – the shadow of which served as its first office. Nowadays it retains an important social function as both a meeting point and a place of intrigue for visitors. The DPU has been partnering with Mekelle University for the past 5 years– we have been immensely grateful for the contributions of University staff. Image: Matthew Wood-Hill

Tradition has it that Mekelle University was first formed beneath the Momona Tree on its campus – the shadow of which served as its first office. Nowadays it retains an important social function as both a meeting point and a place of intrigue for visitors. The DPU has been partnering with Mekelle University for the past 5 years– we have been immensely grateful for the contributions of University staff. Image: Matthew Wood-Hill

Coffee culture is rife in Mekelle with numerous coffee-houses lining a series of tree-lined streets close to the centre. We asked a new business owner why she had chosen this area in the face of such established competition. She had opened her coffee-house just one month ago, but her reply highlighted the social and economic role the businesses play in this area. They serve as meeting points for local business-people through which they engage with and build their professional networks. Image: Matthew Wood-Hill

Coffee culture is rife in Mekelle with numerous coffee-houses lining a series of tree-lined streets close to the centre. We asked a new business owner why she had chosen this area in the face of such established competition. She had opened her coffee-house just one month ago, but her reply highlighted the social and economic role the businesses play in this area. They serve as meeting points for local business-people through which they engage with and build their professional networks.
Image: Matthew Wood-Hill

Messebo cement factory, the fifth largest in Ethiopia, dominates views towards the outskirts of the city. It is by far the largest business and employer in the region and a key contributor to the local construction sector. Slow-build developments are common in Mekelle – this is evidently not due to a lack of available resources, but more often than not a consequence of financial difficulties which delay progress. Image: Tsuyoshi

Messebo cement factory, the fifth largest in Ethiopia, dominates views towards the outskirts of the city. It is by far the largest business and employer in the region and a key contributor to the local construction sector. Slow-build developments are common in Mekelle – this is evidently not due to a lack of available resources, but more often than not a consequence of financial difficulties which delay progress.
Image: Tsuyoshi Aiki

Young boys roam the popular streets of Mekelle offering their services as shoe cleaners. While they often appear to be working independently, these boys actively contribute a small amount each day to an informal savings scheme in order to increase their financial capital. Image: Matthew Wood-Hill

Young boys roam the popular streets of Mekelle offering their services as shoe cleaners. While they often appear to be working independently, these boys actively contribute a small amount each day to an informal savings scheme in order to increase their financial capital.
Image: Matthew Wood-Hill

Farming within and on the outskirts of the city contributes to the security and affordability of food in Mekelle. The split between the two spaces is more than just spatial, however; it is also reflected in government attitudes. For example, peri-urban farmers are not able to obtain a license to sell their produce in the city centre – a restriction that others do not have to contend with. In spite of having more space to grow crops if greater quality in greater quantity, peri-urban farmer are therefore forced to sell to middle-men to reach consumers, which in turn has an impact on their income.  Image: Matthew Wood-Hill

Farming within and on the outskirts of the city contributes to the security and affordability of food in Mekelle. The split between the two spaces is more than just spatial, however; it is also reflected in government attitudes. For example, peri-urban farmers are not able to obtain a license to sell their produce in the city centre – a restriction that others do not have to contend with. In spite of having more space to grow crops of greater quality and in greater quantity, peri-urban farmers are therefore forced to sell to middle-men to reach consumers, which in turn has an impact on their income.
Image: Matthew Wood-Hill

Mekelle is a regional hub for business and part of the ‘Garaltar Triangle’, a popular tourist route. The local tourist board believes that 95% of visitors come through the airport for tourism, however initial research by MSc UED students, through a series of surveys at the airport, suggests that the majority of travellers arriving by air do so for business purposes.  Image: Matthew Wood-Hill

Mekelle is a regional hub for business and part of the ‘Garaltar Clusters’, a popular tourist route. The local authorities believe that 98% of visitors come through the airport for tourism, however initial research by MSc UED students, through a series of surveys at the airport, suggests that the majority of travellers arriving by air do so for business purposes.
Image: Matthew Wood-Hill

Towards the suburbs of the city an expanding manufacturing sector exists. One factory we visited produced honey for domestic consumption. The factory manager elaborated on the hope that they might be able to reach an international market. For the emerging manufacturing sector in Mekelle, and elsewhere, this challenge must be overcome if the sector is to become a key driver of national economic growth. Image: Matthew Wood-Hill

Towards the suburbs of the city an expanding manufacturing sector exists. One factory we visited produced honey for domestic consumption. The factory manager elaborated on the hope that they might be able to reach a wider international market. This challenge must be overcome if manufacturing is to make a greater contribution to national economic growth. Image: Matthew Wood-Hill

Urban Agriculture sites often exist where vital infrastructure services are not available, thus making it unattractive for commercial or residential development. Mekelle is not a densely populated city at present, so urbanisation tends to happen close to infrastructure and services. Urban farmers put these unoccupied spaces to productive use, but rely on motorised pumps to extract water from shallow wells to irrigate their crops. Image: Matthew Wood-Hill

Urban Agriculture sites often exist where vital infrastructure services are not available, thus making it unattractive for commercial or residential development. Urban farmers put these unoccupied spaces to productive use, but rely on motorised pumps to extract water from shallow wells to irrigate their crops.
Image: Matthew Wood-Hill


Matthew Wood-Hill is the Media & Communications Officer at the DPU. He has been in Mekelle, Ethiopia with the MSc UED programme for the past 11 days. The MSc Urban Economic Development has been working with Mekelle University for 5 years now, understanding urban economic development in practice.

Urban street trading: tailored thinking for the Global South

Lila ROriard Colin17 April 2015

On the 25th of March we ran a one-day seminar on street trading in the cities in the Global South. Prominent researchers from different parts of the world mixed with young PhDs to share their research and reflections on the topic.

During the reception after the seminar one of the speakers remarked: ‘I feel people in this room are talking on the same language and sharing similar questions; an exciting feeling’.

I really sympathised with that comment: to connect disconnected research and people was one of the key motivations behind the event. In fact, street trading as a tool to understand cities is currently disconnected from major debates, despite their widespread presence in cities in the Global South.

Street trading_web

The seminar looked at street trading on two levels: On a practical level about the difficulties encountered with regards to implementing city policies; and another more theoretical level using street trading as a conceptual tool to understand (and challenge understandings) of cities, and city-making processes.

The conceptual problem of street trading

The exercise really started long before the seminar, when we had to choose a title that accurately framed the subject and our objectives. I first proposed the title ‘Street traders and the cities in the Global South’.

This was quickly changed to specify ‘street trading’ as we acknowledged that the commercial system (traders, organisations, marketplaces, local and transnational commercial connections) is far more complex than only street traders, which only considers people and not wider spatial, political and economic contexts.

Looking for a more appealing title, Yves Cabannes and I proposed ‘Street trading: the privatisation of public space’.

However, we realised that that we were getting trapped by the very same conceptual-box that we were trying to escape and challenge: the modern paradigm of cities.

In fact, the definition of ‘public space’ and ‘privatisation’ fail to adequately explain how streets in the Global South work. In this context, the appropriation of the streets and open spaces by street traders, without formal permission from the municipality, is already a current, and to a certain extent, legitimate practice. In other words, to have informal street trading in the streets is normal.

Our discussion on the title illustrates a conceptual problem with street trading: as researchers, we lack theoretical frameworks that fit properly to explain how cities and streets work and the conditions that make them suitable places for street trading. After this discussion we settled on the title Street trading in the Global South: Practical and theoretical challenges.

Informality is never black and white

Among the different discussions held during the seminar, I have chosen three that show how the current theoretical frameworks fail to address street trading.

The first of these discussions was on the concept of informality. It was quickly agreed by participants that while this concept seems to propose a black and white understanding of the phenomenon, the reality that we observe is actually somewhere in-between – different shades of gray.

Is this concept useful to understand how street trading works? Are the street traders doing wrong by operating outside the law, or rather have cities been unable to offer them a dignified role in the city-making process?

Contested urban spaces and city-making

The second discussion related with the claims of vendors to urban space and the legal systems that regulate the activity. Traders have been facing evictions in many locations and some of them start mobilisations to protect their places on the streets. Most of these evictions occur when groups of the urban elite, supported by city authorities, ‘clean’ the streets to re-appropriate spaces used by them in the past such as the city centres.

The contestation of urban space is an interesting angle to see how the city is made and for who. This perspective shows that street traders are not often seen as having a voice in the making of their own cities.

Urban streets are more than mere thoroughfares

We also discussed the need to move to a new paradigm of space that integrates the richness of the streets as vibrant places where many things happen throughout the day. In the past, streets were conceptualised mainly as a ‘road’, a space of transit, where separation of uses and users was optimal to fulfill this function.

This idea still predominates in the way we think about a street and the way city authorities expect it to work. Street trading hardly finds a space in this functionalist conception of space.

Street trading can only find a proper space in the cities if we start thinking about the streets as a different kind of ‘object’, one that understands the vitality, dynamism, polyvalence that streets in the Global South have.

Lastly, I want to thanks to all the participants for making this seminar an exciting space for exchange, and specially to Yves for the enriching discussions we had.


Lila Oriard has recently completed her PhD at The Bartlett Development Planning Unit. Her doctorate explores street vending and its ability to produce space, through an examination of  the Tepito market in Mexico City downtown area.