Applying good governance concept to promote local economic development: contribution and challenge.

Abstract

This paper examines the application of good governance concept in the area of local economic development and focuses on contribution and challenge issues. The paper includes a review of major concepts of the good governance, the role of government, and the importance of public management reform. On the contribution issues, the paper emphasizes such concepts as the devolution and decentralization policy, the flexibility and choice principle, and the networking and partnership strategy. On the challenge issues, the paper identifies potential problems of the limitation of managerial capacity, the lack of accountability, and the inconsistence of leadership and policy. The implications of both contribution and challenge issues are summarized in the conclusion section.

Key words: good governance, economic development, public management and reform, and public policy.

Introduction

Local economic development has been one major public policy emphasized by many governments for the past several decades. In the United States, for example, local governments are interested in economic development policy because of the changing domestic and international political and economic environment. In the domestic environment, local governments have to find additional resources when they experienced such events as the economic recession, the rise of tax revolt, the federal budget deficit, and the cutback of federal aid. In the international environment, the globalization of the world economy, the increase of foreign investment, the end of Cold War, and the advancement of communication technologies have provided local governments good opportunities to seek new markets for the development. To support the goal of economic development, policymakers have to emphasize reform ideas to improve the operation of their local government systems.

Among various reform ideas, the good governance approach has become a popular reform model in recent years. Researchers have examined the application of governance concepts in various aspects of public administration. For example, Peter and Pierre (1998) study changes of governance to traditional public administration concepts and compare similarities and differences between the New Public Management and the governance model. Kettle (2000) explains the transformation of governances in the areas of globalization, devolution, and the role of government. Hague (2001) discusses the problem of demising publicness of public service under the mode of governance. Lynn, Heinrich, and Hill (2000) promote the theory-based governance research by addressing the need to review the literature of political economy.

To promote economic and social development, researchers have also studied the application of good governance concepts in many developed and developing countries. For example, OECD researchers explain that many governance concepts have been emphasized in various public management reforms of their member countries to support their social and economic development (OECD, 1995a; 1995b; Keating, 1998). In the process of development, Werline (2003) argues that the difference between poor countries and rich countries has to do with governance challenges rather than resource issues. Shepherd (2000) believes that good government may be necessary for economic development, but it is not enough for poverty reduction of social development. Kliksberg (2000) further argues a need to rebuild the state to create a "smart government" for social development. The smart government focuses on the state's strategic role in the society and in the development of an institutional design and managerial capacities to improve the effectiveness of the state performance.

The purpose of this paper is to examine the application of governance concepts in the field of local economic development. The paper consists of three sections: (1) summaries of literature review about the role of government in economic development and good governance concepts; (2) discussions of major contributions of good governance to local economic development; and (3) comments on potential challenges associated with the governance model. Implications and suggestions about the relationship between good governance and economic development are summarized in the conclusion section.

Governance Concept and Economic Development

A. Governance Concept

Since the 1990s, many international aid organizations (e.g., World Bank, 1989) have recognized governance problems in their efforts to promote economic and social development in many developing countries. The governance problems refer to two issues: (1) the abuse of public funds by local elite groups and (2) the ignorance of local political practices by the international donors. The donor organizations believe that good governance is necessary for economic development in these countries. They promote good governance concepts and emphasize the importance of governance reform in these countries.

While supporting the governance model, researchers have provided different explanations about good governance concepts. For example, World Bank researchers (1994) explain that governance refers to the exercise of the power of the state in managing a country's social and economic resources, as well as other related mechanisms for public accountability, rule of law, transparency, and citizen participation. Four specific elements of governance are: (1) accountability (i.e., officials being answerable for government behavior), (2) participation (i.e., the involvement of citizens in the development process), (3) predictability (i.e., legal environment being conducive to development), and (4) transparency (i.e., the availability of information to the public and the clarification of government rules, regulations, and decisions) (Asian Development Bank, n.d.).

Pierre and Peters (2000) maintain that governance is about government's changing role in society and its changing capacity to pursue collective interests under severe external and internal constraints. They identify four elements of governance: (1) the importance of networks (i.e., the use of networks to dominate public policy), (2) the change from control to influence (i.e., government's influence through a continual process of bargaining and persuasion), (3) the blending of public and private resources (i.e., the importance of network framework), and (4) the use of multiple instruments (in developing and implementing public policies) (Peters & Pierre, 1998).

Unlike previous researchers, Salamon (2002) has emphasized the tool and skill issues in the new governance model. On the tool issue, he explains that the unit of analysis in the governance approach is not the public agency or the individual program but the distinctive tools or instruments through which public purposes are pursued. On the skill issue, he explains that the new approach shifts the emphasis form management skills (i.e., the control of large bureaucratic organizations) to enablement skills (i.e., the skills required to engage partners in networks and to bring multiple stakeholders together for a common goal). To support public policy and action, Salamon introduces such governance tools as direct government involvement, social and economic regulation, contract and grant, direct loan and loan guarantee, insurance and tax expenditure, fees and charges, liability law, government corporations, and vouchers.

B. The Role of Government in Economic Development

One major issue regarding the application of governance concepts to economic development is the role of government in economic development. The neoclassical arguments of development emphasize the role of foreign trade and investment and the importance of a free market in stimulating competition during the development process (e.g., Galenson, 1985; Haggard, 1990; Wade, 1990, 1992). They explain that the problems of less developed countries result from extensive government intervention in promoting import-substitution policies that limit the scope of industrialization. They argue that one of the major factors contributing to the success of East Asia s newly industrialized countries is the adoption of export-oriented policies that encourage the process of technological adaptation and entrepreneurial maturation. They recognize the role of state in the process of development but emphasize a passive and limited role of government in such activities as maintaining stability and providing physical infrastructure.

The statist arguments of development indicate that the successful experience of newly industrialized countries is related not only to the operation of the free market but also to the active role of government in directing public and private resources to change the structure of their economy (Johnson, 1982; Ho, 1981; Wade, 1990) For example, many of the successful newly industrialized countries emphasize a general incentive policy to encourage the accumulation of production factors (tax measures, research and development) and an industrial targeting policy to promote the growth of particular industries (e.g., subsidizing credit or import protection).

Considering the market and state arguments, Aoki, Kim, and Fujiwara (1997) promote a market-enhancing view, which emphasizes the role of government policy to facilitate or complement private-sector coordination. They indicate that previous approaches viewed the market and government as the only alternative and as mutually exclusive substitutes. They argue that the market-enhancing approach stresses the mechanisms whereby government policy is directed at improving the ability of the private sector to solve coordination problems and overcome other market imperfections. One example of the mechanisms is the important role of government private-sector intermediaries (e.g., deliberation councils, national wages council) in facilitating information change to avoid possible market coordination failures.

A similar argument about the relationship between the market and the state has been emphasized by Kliksberg (2000). He points out that the societies which have made the most consistent progress in recent decades are those which have moved beyond the false state-versus-market dichotomy. He maintains that these societies have developed a model of cooperation among the main social actors and have actively integrated powerful latent forces of civil society into that model. To solve many development problems, he emphasizes the need to rebuild the state to focus on the state's strategic role in society and the development of an institutional design and managerial capacities to improve the effectiveness of the state performance.

C. The Importance of Public Management Reform

In addition to the government's role, researchers also emphasize the importance of public management reform to economic development. Researchers of economic development have considered public management reform as one of the major policy areas that are critical to the success of economic development (e.g., Haggard & Webb, 1993; Rondinelli & Montgomery, 1990; Summers & Thomas, 1993). The purpose of public management reform is to create and maintain an effective governmental structure and procedures to formulate and implement development policies and programs. Major activities emphasized in the reforms include, for example, adjusting governmental agencies, simplifying administrative procedures, providing education and training for public employees, improving the quality of delivering public services, regulating activities affecting public health and safety, protecting national security, and extending protection of laws to citizens. The challenge for many governments is to identify problems in their bureaucratic structures, attitudes, and behaviors that negatively affect economic development policies (Liou, 1998a).

OECD researchers have noticed two major elements of public management reforms in the recent transition in the governance model: (1) a focus on results of public management, in terms of efficiency, effectiveness, and quality of service and (2) the replacement of highly centralized hierarchical structures with decentralized management environments (OECD, 1995b). They further introduced key factors of the good governance approach, such as technical and managerial competence of civil servants; organizational capacity (e.g., organizational structure and managerial system); reliability, predictability and the rule of law; concerns of accountability, transparency and participation; quality of regulation, and the use of information technology.

Besides these basic concepts, Shepherd (2000) has pointed out the importance of other governance components that are valuable to economic and social development. The components are public expenditure patterns and revenue growth, local institutional development and rural local development, inclusiveness and access into sector reforms, the elimination of bad government, and the incorporation of civic society and non-government organizations. Similarly, Kliksberg (2000) has argued the need to create a smart government and emphasized the development of public management capacity to support economic and social development, including: the importance of coordination between economic and social policy, the improvement in intra-organizational coordination, the need for decentralization, the potential of participation, and the renewal of organizational structure.

It is clear that the new governance approach to economic development has changed the traditional dominant role of government intervention and operation. The new approach introduces innovative concepts and strategies to the public management system. These concepts and strategies, if applied appropriately, will make great contributions to economic development policies. On the other hand, the implementation of these concepts may encounter various challenge issues because of the nature of public management system and the characteristics of development communities.

Contribution to Local Economic Development

The governance model has emphasized new concepts and tools that are designed to reform the government system and to improve the performance of public management. In the area of local economic development, we are interested in three major concepts and their contribution: the devolution and decentralization policy, the flexibility and choice principle, and the networking and partnership strategy.

A. The Devolution and Decentralization Policy

The first major change in the good governance approach is the importance of decentralization policies emphasized in many developed and developing countries (Chemma & Rondinelli, 1983; Rondinelli, McCullough, & Johnson, 1989; Samoff, 1990). Decentralization has been explained as the transfer of responsibility for planning, management, and the raising and allocation of resources from the central government and its agencies to field units of government agencies; subordinate units or levels of government; semiautonomous public authorities or corporations; area-wide, regional, or functional authorities; or nongovernmental private or voluntary organizations (Rondinelli & Nellis, 1986). In the United States, decentralization policies have been emphasized as a result of the huge federal budget deficit, the cutback of federal aid, and the Reagan federalism philosophy. In many developing countries, decentralization policies have been adopted by policymakers because of the importance of structural adjustment policies emphasized by international assistance organizations (the World Bank and the International Monetary Fund). The structural adjustment policies call for, among other things, decentralization of national government administration and reduction of the central government s control over or intervention in the economy (Please, 1984; Nellis & Kikerri, 1989).

The implementation of decentralization policies has resulted in the important role of regional and local governments in the process of economic development. In the United States, local governments have expanded their efforts in economic development policies and programs to deal with fiscal problems and new challenges (Blakely, 1994; Eisinger, 1988; Levy, 1990; Luke, Ventriss, Reed, & Reed, 1988; McGowan & Ottensmeryer, 1993). On the one hand, local governments have experienced continuing fiscal difficulties and challenges, such as the increasing difficulties in raising adequate revenues (because of the impact of tax revolts) and the increasing demand for public services (because of the cutback of federal social programs). On the other hand, local officials have become actively involved in economic development promotion activities, because they recognize many business development opportunities resulting from changes in the advancement of communication technology and the globalization of the world economy. The technology change refers to the development of telecommunication systems and web-based Internet services, which significantly reduce the barriers of time and distance among business communities. The globalization change has to do with the end of the Cold War and the development of many post-socialist countries, which provides additional businesses and markets for local economy growth.

The economic development strategies emphasized by local governments vary depending on the environment of their communities and different goals of their economic development plan. In general, four types of development strategies have been adopted: 1) subsidizing traditional inputs such as capital (e.g., direct loans and loan guarantees, tax-example bond financing, development corporations), land (e.g., land banking, site development provision), and labor (e.g., low cost/mass production, and high quality/lean production); 2) lowering political costs of doing business, including tax abatements and incentives and limitations on the regulatory environment; 3) promoting entrepreneurial activities of market development (e.g., export promotion, research, and dissemination) and business services (e.g., policy planning, research and development support and consortia); and 4) developing attractive social amenities (e.g., arts, environment) and improving distressed areas (e.g., enterprise zones) (Clark & Montjoy, 1998). All of these strategies are directly or indirectly related to policy or managerial issues of the new governance approach (Liou, 1998b).

B. The Flexibility and Choice Principle

One major element of the good governance approach that is related to the change of government operation is the flexibility and choice principle. Peters and Pierre (1998) explain this principle in terms of the use of multiple instruments in developing and implementing public policies. Salamon (2002) has examined various tools that have been developed by government agencies to pursue public purposes. Among Salamon's tools, government regulation is closely related to economic development and will be examined as follows.

Government regulation refers to any attempt by the government to control the behavior of citizens, corporations, or sub-governments (Meier, 1985). Regulation may consist of such categories as economic regulation, social regulation and administrative regulation (OECD, 1998). Economic regulation focuses on the direct government intervention in corporations and market decisions such as pricing, competition, market entry or exit. Social regulation is related to government protection of citizen and social values such as health, safety, the environment and social cohesion. Administrative regulation has to do with government formalities and paperwork and includes laws, orders and rules issued by all levels of government. From the economic development perspective, it is clear that economic regulation has a direct and significant effect on economic growth, while social and administrative regulations are indirectly related to economic development through changes in the supporting environment.

The pervasive use of regulation (i.e., regulation inflation) and the growth of regulatory costs have resulted in the need of regulatory reforms (OECD, 1998). The purpose of regulatory reforms is to improve the quality of regulations in terms of enhancing performance, reducing costs, or finding alternative policy tools. The reform activities range from revision of a single regulation to the scrapping and rebuilding of an entire regulatory system (policies, processes, and institutions). Deregulation is a part of the overall regulatory reform, which refers to complete or partial eliminations of regulation in a sector to improve economic performance (OECD, 1998).

With regard to economic development, regulatory reforms are useful in promoting economic growth, firm competitiveness, and consumer welfare. Reforms of economic and social regulation focus on the removal of such barriers (or burdens) as rigidities, disincentives, and market distortions, and the promotion of competition, entrepreneurship, technological innovation, productivity, structural adjustment, and other market issues. Reforms of administrative regulation emphasize the increase of the transparency and the reduction of red tape and paper work. These changes are valuable to investors and ordinary citizens because of the time saved on information communication and collection (OECD, 1998). Good examples of the flexibility and choice principle for local economic development in the area of government regulation and reform include the establishment of one-stop business development center and the use of web-site technology. The former provides an integrated management service to support the business communities, while the latter connects all the related web sites to offer important local development data to the public and the business community.

C. The networking and Partnership Strategy

The networking and partnership strategy is based on the reduction of governmental intervention and the promotion of market-oriented policies in the good governance approach. This strategy calls for the participation of citizen groups and business organizations in the public policy making process and the coordination among government, business, and nongovernmental or nonprofit organizations. As Peters and Pierre (1998) explained, the good governance approach emphasizes the importance of network framework and the blending of public and private resources. One good example of the networking and partnership strategy is the increase and contribution of nongovernmental or nonprofit organizations (NGOs or NPOs) in the delivery of public goods and services. In many developing countries, policy makers have emphasized the development of these organizations as service providers because of their proximity to the persons served; their cost-effectiveness (using volunteers and relying on donations); and their flexibility, innovativeness, dedication, and responsiveness (Carroll, 1992; Clark, 1991; Fisher, 1998; Henderson & Dwivedi, 1999).

With regard to economic development, researchers have recognized the important contribution of NGOs or NPOs to economic growth and social development. For example, in the United States, Rubin (2000) has emphasized the importance of community-based development organizations (CBDOs) to local economic development. As neighborhood-based nonprofit organizations, CBDOs help many distressed communities to receive financial support, build affordable housing, provide job-related training activities, and create many employment opportunities. Similarly, Bhatt and Tang (1998) have examined the development of group-based microfinance to promote local economic development in many developing countries. Recognizing many financial problems in developing countries, they point out the contribution of group-based lending programs to help the poor generate income and employment opportunities as well as to encourage grassroots participation and empowerment in disadvantaged communities.

The networking and partnership strategy is especially valuable for local governments in their design of development strategies and approaches. One of the recent approaches is the so-called the cluster industry development approach (Liou, 2001). Based on Michael Porter's study of competitive advantage (Porter, 1990), the cluster development approach emphasizes regional clusters of related industries, rather than individual firms or single industries, as the source of economic growth. The industry clusters are geographical concentrations of industries that share needs for common talent, technology, and infrastructure through collocations. It is common today for many local governments to promote their economic development clusters by establishing the networking and partnership relationship with local universities and colleges, major business and industry groups, as well as neighboring governments and communities.

Challenges to Local Economic Development

While recognizing their contributions, several researchers have questioned about the application of governance concepts in the areas of public management and economic development. In public management, for example, Haque (2001) argues that the market-driven mode of governance has created a serious challenge to the publicness or public quality of public service. For economic development, Grindle (2004) criticizes the long agenda of the good governance approach and the lack of guidance about the feasibility and sequential of these concepts to encourage development. This section introduces three challenge issues that are related to the application of good governance concepts. The three issues are the limitation of management capacity, the lack of accountability, and the inconsistence of leadership and reform policy.

A. The Limitation of Management Capacity

The good governance approach has introduced new ideas about the improvement of government operation system. While these ideas are sound in terms of business efficiency, there may be problems in applying them to the area of local economic development. For example, the result of the decentralization policy is the importance of local governments in providing public services and promoting economic development. But, researchers (e.g., Prudhomme, 1995) notice that decentralization policy may generate such problems as increasing disparities among regions, jeopardizing economic and social stability, and affecting administrative efficiency. These problems are related to the limitation of management capacity, including the lack of resources and information at the local level, the low administrative skills, training, and educations among local public employees, the lack of legal framework and transparency operation for local governments and officials. These management capacity problems are especially serious for local governments in developing countries.

To assure its successful, policymakers need to consider the implementation of decentralization policy from a comprehensive strategic planning process. The strategic planning process include important policy components, such as understanding political, social-economic, and institutional environments of central and local governments; analyzing constraints and opportunities of these governments; considering policy scope and nature; developing an action plan of decentralization; and focusing on capacity building and empowerment. The component of capacity building is especially important, as it refers to institutional, personnel, fiscal, and information capacity building.

The networking and partnership strategy emphasized in the good governance model also promotes the important role of nongovernmental or nonprofit organizations in the provision of public services and the process of economic development. Despite their popularity, many of these organizations have encountered similar managerial capacity problems. The capacity problems of these organizations include, for example, lacking managerial skills, facing uncertain financing and erratic regulation, encountering fragmentation without coordination, and falling short on standards of transparency and accountability.

To overcome the capacity problems, public administration schools in many countries have begun to offer courses in the area of nonprofit management for the purpose of providing professional trainings and curriculum to these organizations. Many international aid organizations have also strengthened their requirements and asked local funding agencies and organizations to assure their ability in the daily operation and services. To improve the service quality, several researchers (e.g., Rubin, 2000) have emphasized the importance of forming partnerships between public development agencies, nongovernmental organizations, and private voluntary organizations, and investing in the capacity and institution building of these organizations.

B. The Lack of Accountability

Accountability has always been one of the major criteria emphasized in the field of public administration. Public managers have to be accountable to various authorities, interest groups, and to the rule of law in general (Rainey, 2003). For public managers, accountability consists of different types with different sources and influences, including for example, hierarchical and legal accountability as well as professional and political accountability (Romzek & Dubnick, 1987). Hierarchical and legal accountability exert high degrees of control, while professional and political accountability involves lower direct control over individual administrators (Rainey, 2003). In the good governance approach, the value of accountability for results has been emphasized because of the outcome and performance based management.

Closely related to the previous capacity limitation, the issue of accountability has been anther challenge for local governments to use governance concepts to promote economic development. To promote development, governments have to make special arrangements in the areas of resources distribution, tax incentives, organizational arrangements, and legal requirements, to support the recruitment of new businesses and the retention or expansion of old businesses in their communities (or in specific areas of the community). In many cases, special arrangements have been offered to selected businesses or individuals based on considerations of different factors. In addition to the concern about legal and fiscal accountability, these arrangements may be questionable in terms of their efficiency (i.e., benefits exceed costs), equity (i.e., fairness among different groups), and the overall impact on community (i.e., quality of life).

To address accountability concerns, development evaluation becomes an important task for the management of economic development. Evaluation has been emphasized in planning and financing stages of the development process. For the development planning, evaluation activities include measurement of the development goals, selection of evaluation criteria, and assessment of the overall effect. For the development financing, performance evaluation methods have been required and implemented for periodically monitoring the costs and benefits of each tax incentive.

The accountability concern in economic development is to make sure that pubic interests have been protected and served. The challenges are in the process of making development decisions and the criteria being used to make such decisions. In many cases, development decisions have been challenged from different considerations, such as short term interests vs. long term interests, and economic benefits vs. social or environmental welfares. There are no easy and perfect answers to many of these questions. But, public managers have to pay attention to these controversial issues and to promote accountability in every aspect of the development process.

C. The Inconsistence of Leadership and Reform Policy

The final challenge issue in the good governance approach is the inconsistence of the reform policy and the leadership support. As explained previously, one of the elements in the good governance model is the reliability and the predictability principle to make sure that legal environment being conducive to the development (Asian Development Bank, n.d.). The predictability principle depends on the consistence of reform policy and leadership support. The challenge problem hers is that it is not easy to assure the consistence in both areas.

From the reform policy consideration, the good governance concepts, like previous administrative reforms, are developed because of the promotion of some economic or management theories by political leaders. The governance concepts have been emphasized by practitioners in the implementation of development policies and been studied by scholars in the evaluation of their effects. But, the field of public administration has experienced many reform ideas and movements. The good governance concepts emphasized today may be replaced by new ideas promoted in the next reform movement. The consistence of reform policy and the long-term support of political leaders will be important and necessary for the success of these new ideas.

In the area of economic development, policymakers play a major leadership role in shaping and implementing development policy and programs. These public officials have been very interested in economic development because of the benefits of increasing economic growth, diversifying economic structure, and creating value-added high quality jobs in their local communities. They have been actively involved in the planning of economic development goals and strategies and in the design of financial policies and incentives. They have made institutional arrangements or rearrangements to identify specific organizations to be responsible for economic development activities. Especially, they have tried to remove bureaucratic barriers and regulatory problems to improve the operational effectiveness for better business services.

The leadership support is especially needed in building community consensus and support to establish the pro-business attitude and climate. Communitywide political support is critical to the success of any economic development activity (e.g., recruiting, retention, expansion) as many policies and programs require the investment of public funds (e.g., tax and financial assistance). The business climate entails to both formal policy positions and assistance and informal attitudinal support of business development. Public officials want to make sure that their communities will approve a comprehensive business development package to address such issues as tax policies, financial assistance programs, regulatory policies and relief, infrastructure assistance, and availability of technical and training programs. When facing arguments about the use of public funds to support private business, public officials have to show their leadership and political skills to overcome opposing arguments and mobilize local resources to establish the pro-business policies and programs.

The challenge for the leadership support is not the lack of one particular leader in promoting some reform ideas. The problem is for the consistence of leadership over the long period of economic development. Economic development programs tent to take many years to see the result of performance, even with right strategies and strong resources support. In many cases, economic development policies and programs have to be stopped or altered due to the change of leadership and reform policy. The issue is very common for a democratic society like the US, which involves the election of a new leader every four years. The issue is even serious for some developing countries as these countries may not have stable and favorable political and social environment to support the consistence of development policies.

Conclusion

This paper examines the relationship between good governance and local economic development. The paper provides a review of good governance concepts and analyzes several contribution and challenge issues in the application of good governance to promote local economic development. Major governance concepts reviewed include the role of government and the importance of public management to economic development. Major contributions introduced are the devolution and decentralization policy, the flexibility and choice principle, and the networking and partnership strategy. Potential challenges identified consist of the limitation of management capacity, the lack of accountability, and the inconsistence of leadership and reform policy.

For many years, researchers of public management and economic development have emphasized the importance of public management and reform to economic development. At the national and international levels, researchers (Keating, 1998; Liou, 2000) believe that good governance is critical to economic and social development, especially for developing and economic-transition countries. Previous administrative reform ideas focused on the improvement of the operational efficiency and effectiveness of public organizations, including changing rules, procedures, and implementation methods. The new governance reform expands the traditional concern with operational efficiency to the broader issues of good governance. The governance reform covers both structural and cultural changes in the public sector. The structural changes refer to policies of decentralization and devolution, privatization, and contracting out, as well as regulatory improvement and deregulation. The cultural changes include the spirit of competition and choice, the respect toward clients and citizens, and the value of accountability for results.

The arguments of good governance are also valuable to local economic development (Liou, 2001). Local officials have to pay attention to both management and policy issues in their efforts to promote economic development. On the management activities, they need to adopt a proactive approach to establish a strategic plan for economic development, to prepare for a long-term goal of growth and diversity, to emphasize a public-private partnership approach, to arrange various networks and institutions to be responsible for the implementation of economic development policies, and to use new ideas and modern techniques to improve operational issues for better customer services. On the policy issues, public officials need to mobilize limited local resources to provide financial assistance programs for business development. They have to develop specific criteria and procedures for the application of financial assistance in order to maximize the effectiveness and efficiency of development programs. Especially, they have to prevent political misuse of public funds to assure the accountability principles.

Despite their contributions, the good governance approach may have problems in addressing some challenge issues that are related to the nature of public management and the characteristics of development policy. On the one hand, the market-based governance concepts are able to introduce new strategies to change the operation of public management. The success of these strategies, however, may be limited because of the nature of public goods and services. For example, it is not easy to assure the criteria of easy access and good quality of public services with the implementation of deregulation and privatization policies. When problems and crises happened (e.g., the shortage of electricity or the corruption of state enterprises), both national and local governments have to be involved in the provision of possible solutions.

On the other hand, economic development policies tend to be influenced by political factors and considerations. The good governance ideas are valuable and reasonable from economic considerations. The ideas, however, will not change the political nature of economic development and will be ignored by policymakers if the concepts do not support their political wishes and plans. For example, local governments are usually involved in a competition war on the issue of recruiting business investments and locations. They have to use limited resources to compete with similar or neighboring governments for the investment of same businesses and clients. While competition is good in a free market economy and emphasized in the new governance approach, this type of competition has resulted in the inefficient use of public resources, without concrete results or gains (Bartik, 1991). To promote the development, local officials may be more concerned about short-term political gains than long-term economic costs.

In conclusion, this paper has examined critical issues that are related to the application of good governance concepts in local economic development. The author believes that the experience of good governance reform will be similar to results of previous administrative reforms. Some new concepts or strategies will be adopted and others may be ignored because of political and practical considerations. Future researchers may want to consider special case analysis of individual country, region or city to examine advantages or disadvantages of implementing theses good governance concepts.

Note:

The author thanks the suggestions and comments from Dr. Jack Rabin and reviewers. Some of the ideas of this article were presented in the International Conference on Government Management Innovation, (June 3-6, 2005) in Guangdong, China.

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Biographical Sketch

Dr. Kuotsai Tom Liou is a professor of public administration at the University of Central Florida. His research areas are economic development and administrative reform. He has published 5 books and more than 40 refereed journal articles. Dr. Liou has served as a member of the editorial board for 7 public administration journals and as a consultant for governments on issues related to economic development and administrative reform.

Dr. Kuotsai Tom Liou, Professor

Department of Public Administration

University of Central Florida, HPA II, Room 238

Orlando, FL 32816, [e-mail]