The London School of Economics and Political Science Community, society, and adaptation: assessing the institutional factors behind long-run growth in the local and regional economy Thomas Farole A thesis submitted to the Department of Geography & Environment of the London School of Economics and Political Science for the degree of Doctor of Philosophy, London, July 2009 UMI Number: U615489 All rights reserved INFORMATION TO ALL USERS The quality of this reproduction is dependent upon the quality of the copy submitted. In the unlikely event that the author did not send a complete manuscript and there are missing pages, these will be noted. Also, if material had to be removed, a note will indicate the deletion. Dissertation Publishing UMI U615489 Published by ProQuest LLC 2014. Copyright in the Dissertation held by the Author. Microform Edition © ProQuest LLC. All rights reserved. This work is protected against unauthorized copying under Title 17, United States Code. 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Box 1346 Ann Arbor, Ml 48106-1346 yof Pontica Table of Contents Table of contents i List of figures iii List of tables iv Declaration v Abstract vi Acknowledgements vii Chapter 1: Introduction 1 1.1 Background and justification 1 1.2 Aims, research questions, and hypotheses 4 1.3 Delimitations 6 1.4 Methodology 7 1.5 Outline of thesis 8 Chapter 2: Conceptual overview and review of related literature 9 2.1 Introduction 9 2.2 An overview of community and society 9 2.3 Related literature on institutions and economic development 16 2.4 Where does this leave us? 25 Chapter 3: Theoretical framework 27 3.1 Introduction 27 3.2 The framework of Rodriguez-Pose and Storper 27 3.3 How community and society shape economic action 29 3.4 Institutions as barriers to growth 39 3.5 The impacts on regional adaptation and long-run development paths 46 3.6 Concluding comments 54 Chapter 4: Quantitative investigation 55 4.1 Introduction 55 4.2 Empirical strategy and data 56 4.3 Results and interpretation 67 4.4 Discussion 86 Chapter 5: Case studies of regional adaptation - Sheffield and Leeds 90 5.1 Case study methodology 90 5.2 Introduction 92 5.3 The development paths of Sheffield and Leeds 95 5.4 Understanding community and society in Sheffield and Leeds 107 5.5 The consequences for dynamism and adjustment 129 Chapter 6: Case studies of regional adaptation - Montreal and Toronto 149 6.1 Introduction 149 6.2 The development paths of Montreal and Toronto 152 i 6.3 Understanding community and society in Montreal and Toronto 163 6.4 The consequences for dynamism and adjustment 180 Chapter 7: Discussion of findings from case studies 202 7.1 Introduction 202 7.2 Summary and broad findings 202 7.3 The structure of community and society 204 7.4 The impacts of community and society 208 7.5 Some final observations: on trust, paternalism, and civic leadership 218 Chapter 8: Conclusions and suggestions for future research 221 8.1 Introduction 221 8.2 Summary of main findings 221 8.3 Contributions and implications 227 8.4 Limitations and suggestions for future research 229 References 233 Appendices 253 1 Definition of variables 253 2 Countries covered in the sample 257 3 Correlation matrix 256 List of Figures Figure 3.1 Framework of how institutions shape growth paths 30 Figure 3.2 Potential regional development trajectories 49 Figure 3.3 Community - society balance and paths of adaptation 51 Figure 3.4 Modes of adaptation and impact on growth paths 52 Figure 5.1 GVA per capita trend: West Yorkshire v South Yorkshire (1975-2005) 100 Figure 5.2 Annual growth in GVA per capita: Leeds v Sheffield (1975-2005) 100 Figure 5.3 Index of output growth: Leeds v Sheffield (1986-2007) 101 Figure 5.4 Annual change in output growth: Leeds v Sheffield (1986-2007) 101 Figure 5.5 Number of voluntary, community, and faith sector groups per 10,000 115 residents: Leeds v Sheffield Figure 5.6 Sheffield First partnership structure 117 Figure 5.7 Distribution of community groups on a per capita basis: Putnam v 122 Olson type, in Leeds v Sheffield Figure 5.8 Share of population 16-74 years of age with highest qualification 143 attained 4/5: Leeds v Sheffield Figure 6.1 CMA population (1951-2006): Montreal v Toronto 156 Figure 6.2 Average annual growth in residential employment (1981-2005): 157 Montreal v Toronto Figure 6.3 Index of GDP growth (1987-2007): Montreal v Toronto 157 Figure 6.4 Annual change in GDP growth (1987-2007): Montreal v Toronto 158 Figure 6.5 Comparative measures of social capital: Montreal v Toronto 184 Figure 6.6 Share of population 25-54 years with a university degree: Montreal v 195 Toronto v Canada iii List of Tables Table 4.1 Principal components analysis results: community variables 62 Table 4.2 Principal components analysis results: society variables 64 Table 4.3 Summary of model specification 66 Table 4.4 Regression results: trust and confidence 70 Table 4.5 Regression results: conflict resolution 72 Table 4.6 Regression results: microeconomic participation 75 Table 4.7 Regression results: entrepreneurship and innovation 78 Table 4.8 Regression results: social policy 81 Table 4.9 Regression results: economic outcomes 84 Table 4.10 Summary of results 86 Table 5.1 Indicators of economic outcomes: Leeds v Sheffield 100 Table 5.2 Summary of community and society: Leeds v Sheffield 105 Table 6.1 Indicators of economic outcomes: Montreal v Toronto 159 Table 6.2 Employment in key manufacturing sectors (1971-2001): Montreal v 163 Toronto Table 6.3 Summary of community and society: Montreal v Toronto 164 iv Declaration I certify that the thesis I have presented for examination for the MPhil/PhD degree of the London School of Economics and Political Science is solely my own work other than where I have clearly indicated that it is the work of others (in which case the extent of any work carried out jointly by me and any other person is clearly identified in it). The copyright of this thesis rests with the author. Quotation from it is permitted, provided that full acknowledgement is made. This thesis may not be reproduced without the prior written consent of the author. I warrant that this authorization does not, to the best of my belief, infringe the rights of any third party. Thomas Farole 17 July 2009 Abstract The purpose of this thesis is to develop and test a framework on the role and dynamic interaction of group life (community) and societal rules ( society) as one of the factors shaping patterns of economic growth and adaptation. Cross-country regression analysis is undertaken to determine the significance of the relationships between community and society (individually and jointly) and various institutional factors. Following this, two pairs of comparative city-region case studies explore how these dynamics play out in specific geographical and institutional contexts. The findings confirm the importance of the interaction between community and society in shaping individual incentives and territorial responses to change. In general, 'bridging' forms of community and strong societal rules facilitate positive outcomes, whilst 'bonding' forms of community have broadly negative impacts on growth and adaptation. Critically, the significance and impact of community appears to be dependent on the societal environment in which it operates. Community matters most when society is weakest, but community is not simply a substitute for rules; indeed community and society appear to potentiate positive outcomes in important cases, for example near the technology frontier. Diversity - of sectors, groups, and institutions - appears to be particularly important in facilitating positive forms of community and society interaction, and in promoting adaptive economies. Overall, there is strong recursivity in the relationships, suggesting path dependency (lock-in or evolution) may be the norm. The study contributes to understanding the 'black box' of institutions, particularly within the context of regional economies, and underlines the importance of the role of community- level forces and political economy in processes of economic growth and adjustment. It suggests there is value in pursuing the role of institutions still further, and exploring in more detail the agenda of an evolutionary economic geography. Acknowledgements First, I would like to express my sincere gratitude to my supervisors, Andres Rodriguez-Pose and Michael Storper. Your leading edge thinking gave me a powerful topic to explore, your inputs helped clarify my thinking and strengthen my arguments, your pragmatism saved me from taking many wrong turns, and your guidance, support, and friendship kept me moving forward throughout the process. I would also like to give special thanks to the many people - current and former members of government, civil servants, businesspeople, community leaders, academics, and others - who took the time to meet with me in Montreal, Toronto, Leeds, and Sheffield. Your inputs were extremely valuable in helping me to understand the complexity and richness of the social, political, and economic environments which shape these cities. Any misinterpretations in my rendering of your stories are my fault alone. To my long-time colleague and friend Rupert Barnard. Thank you for giving me the time and space to pursue these mad plans of a PhD and for always knowing where to draw the line between business and life. To my father and mother. You sacrificed much to give me the opportunities that brought me here. I am forever grateful. To Monica. This thesis is heavy with foregone holidays, evenings, conversations. I can never thank you enough for the sacrifices you have made over the years. Your steadiness, your constant companionship, and your enduring love (even in the depths) kept me, and keeps me, going.