Tag / Policy

by Katie Bawden

CREATING VIBRANT TOWN CENTERS AND MAIN STREETS: Part 2

Photo credit: News Corp Australia

Part 2 – Action

Over the last few years, Western Australia’s (WA) main streets and town centres have suffered from economic downturns, capital works, investments in out-of-town precincts and outer suburbs developments. However, main streets and town centres play a big role in the social and economic development of places and in the lives of people who live there. WA needs to reconsider the role and function of its main streets and town centres in the way they shape and support the quality of life for the community. 

Main streets and town centres should reflect the character and persona of its residents, businesses and organisations; and be inviting to visitors and the wider community through a diverse and unique offering. They need to be re-envisioned as activity-based communities where people can gather and service their needs to support their communities wellbeing into the future.

This report is delivered in two parts using a combination of literature and observations to examine the perceived issues (Part 1) and possible actions (Part 2). The report is not intended to be comprehensive, and there will likely be much more that can be said on the topic. It also does not discuss the interventions that governments and communities have already supported, such as extended retail hours, alcohol licensing, community events and the town team movement that has already built substantial community vibrancy.

The following offers a list of potential action areas to support the development of vibrant town centres and main streets.

ACTION

1. Defining a sense of place and good growth

Town centres and main streets need to be curated and their regeneration planned in accordance with the broad principles and values that reflect the community’s sense of place, future aspirations and needs in an inclusive and sustainable way. This is good growth and it must include future-proofing and provide the necessary public facilities and services (for example technology, health and education facilities and public space) to support the functionality, connectivity and sustainability of a community into the future.

In addition, good growth must be shaped by a community’s local narrative. Narratives can be constructed from an examination of a community’s attachment (perception, attitudes, and values) to a place. This includes the community’s identity and belonging, social factors, relationship to the environment, sense of opportunity, function within the local catchment and how they want to be perceived by the rest of the world. 

2. Planning for the future

Technology is penetrating daily life more and more, reshaping the way people live. Planners must also recognise the impact that technology is having on town centres in areas such as retail, work, leisure, hospitality, health, social care, services and residential links (Rozek & Giles-Corti, 2017). Planners will only succeed if they understand, incorporate and plan for technology innovations in their work. This includes: 

  • the retail sector, the way customers purchase and business promote their products;
  • locational flexibility, office activities are now able to take place in a range of location such as at home and cafes;
  • a variety of travel substitutions, including video conferencing, rideshare, electronic bikes and electric cars;
  • restructure of organisations, away from corporate hierarchies to collaborations, co-working, and multi-use space and products; 
  • efficiency improvements, including smart city infrastructure such as GPS, real-time traffic updates, smart bins and watering system; 
  • community engagement, new platforms such as mobile technology to exploring solutions to urban issues and seek community involvement; and 
  • data-driven planning system, making proposals more transparent and outcomes more certain for all parties involved (Krakenbuerger, 2020; Rodrigue, Comtois & Slack, 2017).

3. Policy and rates

In order to deal with the many challenges faced by town centre and main streets, such as the expansion of online shopping and out of town developments, policies should be used to help achieve social, environmental and economic objectives. For example, town centre focused initiatives may include:

  • Incentivising investment in property: encourage businesses to invest in their property to support regeneration;
  • Buy local strategy: local procurement regulations, guides and campaigns;
  • Town centre first policy: to encourage development in the town centre over out-of-town developments;
  • Use class and permitted development rights: greater flexibility and support to change use classes to support business development, use and  innovation;
  • Parking: review parking restrictions to understand where traffic and consumption may flow to, what alternative travel is in place; and
  • local markets: support for new market traders starting up businesses and better promotion of local markets (Housing, Communities and Local Government Committee, 2019).

4. Engagement

Planning and large-scale structural change requires local engagement to create visionary strategies and empower change. Wide community consultation and collaboration is essential to high street and town centre regeneration and will require broad investment and effort.

Lots of different stakeholders all have a vested interest and therefore engagement should include a cross-segment of government, private sector, community organisations, service providers and residents. Local authorities should support frequent open dialogue to identify emerging issues before they become crises, resolve local businesses before businesses close or relocate, and to identify creative and strategic opportunities. Local community development networks and support organisations should be involved in identifying community stakeholders, their particular interests and needs and how best to engage with them (Community Places, 2014).  

5. Appropriate powers

To enable the community’s vision and support revitalisation, some places will need to activate large-scale structural change led by the local authority. Local authorities will need to understand their functional areas but also have the power to drive the vision. This may include: 

  • planning and compulsory purchase to support new housing, workspaces and public realm; 
  • investment in physical and digital infrastructure; 
  • improvements to transport access and  traffic flow; 
  • support business change of use and 
  • housing densification (Housing, Communities and Local Government Committee, 2019).

Local authorities must also consider their other levers such as policy, regulation and rates to promote regeneration and economic growth.

6. Density creates intensity

Over the last 15 years, most metropolitan governments have been on an infill agenda, however,  it is high-density that really makes main streets buzz. High density enables more affordable living, social equality, reduced commutes and improved health and environmental outcomes (HODYL, 2019). Density is achieved through a combination of well-designed mid-rise apartments (roughly six storeys) that are close to shops, services, public transport and places of employment. High density also requires the community to reconsider the role of the car and governments to understand what a functional and sustainable urban lifestyle requires (Croeser & Gunn, 2020).

7. Activity centres

While governments can plan for density, it also has to be likeable. Town centres and main streets play an important role in servicing the neighbourhoods that surround them, making them liveable and lively. Activity centres offer a mix of experience and offerings within short reach such as jobs, services, retail, food, recreational opportunities and nature. They range in size, from local neighbourhood shopping strips to centres that include universities and shopping centres (DELWP,2020).  

Activity centres support the “decentralisation of jobs, encourage better integration of transport and land use and ultimately aid the evaluation of a more compact, consolidation and connected” places (Moniruzzaman, Olaru, Biermann, 2017).  Thus, they require strong public transport connections that seek to develop the centre as a transport node. Governments should also look to identify or develop a community anchor or hub within main streets and town centres to centralise activity. To do this local governments may need to assess who is in their community, what their community requires and when, what the experience is like and how easy it is to access. 

8. Healthy and Green 

Communities work best when they support walking over driving and offer green spaces that are well designed, creatively delivered, accessible to all.  They become healthier communities through increased exercise, less pollution, climate cooling, and increased mental health outcomes. Bigger places may want to consider the concept of the 20-minute centre which suggests that all journeys (public, private, shared or active) in a catchment are completed in less than 20 minutes (Hansen & Stanley, 2020).

9. Supporting local business

Many local authorities are active in supporting their businesses as part of promoting local economic growth (LED). LED programs are designed to enhance and support retail and further a place’s long-term vision for the town centre and develop partnerships with local businesses. local authorities can do this by convening business groups or working with existing groups to consult in their strategic planning, seek input on initiatives and support and partnership to implement. Specific initiatives may include grants and business rates discounts for new or expanding businesses; business networking and forums; pop-ups to activate vacant space within the town centre; joint promotion and events; business mentoring; start-up capital, co-working, and advice; and support to promote digital entrepreneurship and develop e-business services (PWC, 2016). 

10. Landlords

Landlords are an important part of a town centre key stakeholders. Local authorities need to provide frequent information and host transparent conversations with landlords to help them to support landlords to understand local development goals, market trends and support them to take an active role in engaging with their tenants. Local authorities can also support landlords through regeneration incentives such as relief on capital developments and business/land rates; or supported to offer flexible tenancies, redevelopment and reconfiguring of property, and mixed-use applications. 

11. Capital & revitalisation works

At some point, all places will require capital works and revitalisation. Both of which can have a massive impact on both the financial and mental health of local businesses. To ensure limited negative effects on businesses, a strategic, consultative and empathetic process is required. For example:

  • Planning – different levels of government need to contribute to the planning and development of capital upgrades to identify if multiple works can occur at the same time. In addition, works should be scheduled for the ‘off-season’ and ensure access for customers when work is underway.
  • Communication – is central both before and during periods of works. Governments should develop multi-stakeholder communication plans that inform businesses, landlords, customers and residents. Key messages and consultation points should include the program of works and impact, the anticipated positive impact, promotion opportunities, information to the local community that shops are still trading, and key messages for landlords. Communication should occur, through project newsletters, emails, website information, apps and face-to-face.
  • Incentivising and mitigations – Develop local incentives to support businesses to make the most of the situation or to support ongoing business. Activities may include supporting businesses to shift and promote business on online platforms, collaborate to develop promotion opportunities, apply for pop-ups in non affected parts of town or at markets, and negotiate line of credit and payment schedule with suppliers and landlords. While governments can help to provide signage, grants to businesses to support remodel/refurbish during the construction period, and encourage people to continue to visit the area such as temporary markets, information booths murals or artwork display, specials for construction workers and customers and kids activities.
by Katie Bawden

Understanding Job Creation: Part 1 Place

Introduction

This four-part literature review examines how jobs are created to identify consistent themes, dynamics and determinants that government can apply to develop meaningful policy and initiatives. Part 1 which examines how places create and destroy jobs. It finds that agglomeration is a driving force behind structural change, economies of scale and how places grow and create jobs. Part 2 examines new research into the specific role of industry in job creation, noting that the traded industries bring wealth into an economy that flows through to increase local demand and create new jobs. This effect is known as the job multiplier and the more skilled a traded industry is, the higher the multiplier will be. Part 3 examines the age and size of different business segments to determine which firms have the greatest impact on job creation. It finds that small and young businesses, disproportionality create new jobs. Finally, Part 4 identifies the consistent themes emerging from literature and presents a framework to support government policy and initiatives.

Dynamics and determinants:

Dynamics and determinants (2)

 

PART 1: Place

Geography Matters

Geography matters for the future of job creation, as jobs are becoming increasingly concentrated in certain places (OECD, 2018). In particular, small and rural towns are distinctly shrinking as residents relocate to more prosperous areas such as cities.

As nations become more developed, the economy shifts from agricultural to industrial to service-oriented and to technology automation. With new ways of production focused on the generation of ideas (rather than goods) and economies of scale, fewer workers are required in rural areas where traditional production remained concentrated (World Bank, 2009; OECD 2018). This dynamic is known as structural change and it leads to structural unemployment – the worst type of unemployment. Over time, displaced workers typically shift to labour markets where there are more job opportunities, higher wages and access to retraining (Bivens, 2018). Places that are not able to adapt to changing technology and create new jobs, will begin to decline as they often lack the skill profile to transition their economy (OECD, 2018).

Structural unemployment is a “longer lasting form of unemployment that is caused by fundamental shifts” in an economy caused by factors such as technology, competition and government policy (Kenton, 2018). Due to this shift, workers lack the right skills demanded by their current employer or the local labour market and live too far from other regions where jobs are available (Bivens, 2018; Kenton, 2018).

However, structural change can also be desirable as it can enable an economy to transition from low skill to high-skilled, high-value production. Structural change can facilitate a wave of “creative destruction” which supports productivity improvements at the firm level and drives long-term economic growth and job creation at a macro level. However, early recognition of the opportunities and risks is required to develop a range of innovative initiatives that build economic capacity to respond and restructure (Henry & Medhurst, 2011). Foray (2015) suggests that it is important to look at the aggregation of production in a region to identify where industry and government can work together to shape new opportunities or support the restructuring of industry through new ‘entrepreneurial discoveries’.

Creative destruction “refers to the incessant product and process innovation mechanism by which new production units replace out-dated ones. This restructuring process permeates major aspects of macroeconomic performance, not only long-run growth but also economic fluctuations, structural adjustment and the functioning of factor markets (Caballero, N.D)”.

Why Do People Move?

Larger and denser settlements such as cities offer more diverse and higher paid jobs; and talented people are more able to move to take up opportunities (Florida, 2008). The more educated you are the more able you are to move for work, with 1 in 4 university graduates doing so. While there are personal drawdowns from relocation such as family relationships, most people will earn higher wages, access new networks and other opportunities (Florida, 2008).

In addition, people who move, such as immigrants tend to be more entrepreneurial and are natural risk takers, born out of either choice or need. They are more open to new opportunities, resilient and importantly, they bring their unique perspectives and experience – a winning combination for innovation and venture creation. Wines (2018) notes that “over 40 per cent of firms in the United States (US). Fortune 500 list were founded by immigrants or children of immigrants.” While a United Kingdom (UK) study found that “immigrants are twice as likely to be entrepreneurs” and that “one in five UK tech start-ups is founded by immigrants (Wines, 2018).”

Thus cities become a mixing pot of entrepreneurs, designers and creative people, engineers, financiers, industry professionals and academics – all highly skilled and motivated to share ideas (Florida, 2008). And it is these entrepreneurial people, who create jobs twice as fast as established firms (Wines, 2018).  In combination with the productive advantage that cities offer through production and distribution economies of scale, they are primed to become a “hub for innovation” and an “engine of prosperity” (Duranton, 2012; Moretti, 2012).

The Agglomeration of Jobs

Places that are able to build an economic advantage based on high-value industries become a hotbed for job creation because of the benefits gained from workforce capacity and industry co-location and proximity to markets. These benefits include concentrated and varied infrastructure, strong networks to support market access, increased venture creation, higher wages and an attractive lifestyle and culture through diversity of service offerings (Moretti, 2012). These dynamics form what is known as agglomeration and agglomeration is strongly linked to job growth, high productivity and innovation (Clarke & Xu, 2013; Goswami, Mevedev & Olafsen, 2018; Moretti, 2012).

Agglomeration is derived from the benefits that are gained from co-location and proximity and include:

  • localization – being near other producers of the same commodity or service;
  • urbanization –  being close to producers of a wide range of commodities and services; and
  • capacity – the size of the local market, the national market, access to international markets  (Clarke & Xu, 2013; Glaeser, 2010; World Bank, 2009).

The World Bank’s Comprehensive Worldwide Business Survey found that agglomeration forces were more important to job growth than the overall business environment (Clarke and Xu, 2013). This is not to dismiss the business environment, as elements such as labour regulation, access to finance and local skill levels were also found to be important to business expansion and employment.

Agglomeration is a reinforcing dynamic that generates ‘increasing returns’ through increased concentration of activity, skills and infrastructure. As workers and entrepreneurs are attracted to places because of job opportunities, higher wages, networks and market access, it builds the economic capacity of a place though diversity of skills, increased resources and services, knowledge spillovers and economies of scale (Duranton, 2012). These positive externalities lead to the economy as a whole becoming more productive, innovative and driving up wages. Thereby, continuing to attract more people and increase firm and job creation.

However, agglomeration does not happen automatically and jobs need to be continuously created to address creative destruction, import competition and compensate for the natural the turnover of firm entries and exits (Foray, 2015). Thus, the dynamics of firm and job creation is also shaped by places functionality (Duranton, 2012). According to Polèse (2009) there are seven determinants of agglomeration, these include:

  1. Economies of scale in production and production processes – concentration of production facilities and firms close to their workers and suppliers;
  2. Economies in scale for trade, transportation and distribution facilities – infrastructure that supports more accessible networks and lower unit costs;
  3. Proximity to markets and opportunities to access new market – to enable firm expansion and market growth;
  4. Industrial clusters – benefits that firms receive by being located close to other firms in similar or interconnected industries such as labour pools, specialisations, branding, spillovers;
  5. Diversity – to enable reliance, spillovers and spinoffs;
  6. Centrality – creating a centre and density for trade, collaboration and networking; and
  7. Creativity and culture – innovation and sense of place that draws people to each other.

Skills, Spillovers and Scrabble Theory

While agglomeration draws workers and entrepreneurs together to support productivity, innovation, and firm creation, workers need to have the essential skills and capabilities in the first place to respond to opportunities. Although this relationship has been well understood for a long time, there are many dynamics involved.

The more educated a city is, the more able it is to adapt to structural changes and identify new opportunities (Cortright, 2017). This is because the more educated workers are, the more productive, knowledgeable and adaptive they are. In addition, skilled workers are able to command a high wage premium as they are critical to a firm’s competitiveness. Thus at a place level, the more skilled jobs a place has, the larger the employment multipliers are (derived from high wages) and innovation spillovers (derived from knowledge and learning) that flow on to other industry sectors to support job creation (Gonzalez-Pampillon, 2019; Muro, 2012).

Hausmann et al (2007) have likened this dynamic to a game of scrabble. They note that a place’s economy is made up of different letters (skills) and the more letters you have the more words you can make (products). Some letters (skills) are also worth more (higher skilled) and therefore are more valuable as they help make more words (products) and more complex words (higher value products). As a result, the more diverse and higher skilled a place becomes, the more that place is able to drive innovation, job creation and offer high wages.

by Katie Bawden

Commodity Traps and Super-Cycles

For nations that heavily produce and export commodities such as food, oil and other minerals, those rents it receives are important source of national income. More importantly, if invested wisely, commodity rents can be a basis for future growth and prosperity.

Economic rent “is an excess payment made to or for a factor of production over the amount required by the property owner to proceed with the deal (Investopedia; N.D.)”.

However, over dependence on the commodity sector and miss-use of commodity rents can lead to worse economic outcomes – this is known as the paradox of plenty.  This is because production capacity (capital, labour)  is diverted into the industry leading the growth cycle, while its associated rents are not reinvested in a way that strengthens the economy more broadly (Natural Resource Charter, ND).

Paradox of plenty “refers to the idea that resource-rich counties often have less economic growth compare with countries which have fewer natural resources (Natural Resource Charter, ND).

Collier (2007) even finds that commodity rents are also “particularly unsuited” to democratic situations with autocracies out performing their democratic counter parts. This is for several reasons including, that:

  1. democratic governments are pressured by election cycles leading to short sighted investments;
  2. democratic governments use rents as ‘slush funds’ to influence election outcomes; and
  3. tax payers appear to be less concerned with the way revenues are spent because they have not been ‘earned.’

That is, governments and tax payers treat the revenues more like the winnings from a night at the casino!

More specifically, Giugale (2014) notes that there are five main problems associated with commodity growth cycles and include:

  1. Dutch Disease – where non-commodity exports become less competitive as the all the majority of economic production becomes focused on the resource sector due to high income and revenue associated with the sector. As this happens, the resource sector sucks in workers and production capacity from other sectors driving up prices;
  2. price volatility – complicating investments decisions often leading to short-term outcomes;
  3. over borrowing – lenders are more likely to provide greater debt access to governments that are expect to raise large amounts of revenue;
  4. sustainability – the amount of natural wealth to preserve for future generations; and
  5. corruption – the larger the rent, the ‘greedier’ a government and business can become leading to immoral and poor decisions.

While Collier (2007) adds that in developing nations two other problems include:

  1. a reduction in the implementation of democratic institutions – as government want to hold on to their power and wealth; and
  2. an increase in the likelihood of conflict – as a combination of the other problems destabilises growth, the government and society more generally.

The paradox of plenty is relevant to both developed and developing nations.  Academics (Collier, 2007; Giugale, 2014) agree that resource rich societies must have good policies, institutions and governance to ensure strong economic outcomes. These include those that protect budgetary checks and balances, transparency of spending, and accountability mechanisms to ensure impacts that enhance citizen welfare (World Bank, 2016).  An example is Norway’s Sovereign Wealth Fund, the world’s largest equity fund, set up to provide an autonomous investment mechanism to reinvest the surplus wealth produced by petroleum sector to provide alternative revenue streams that can be reinvested diversify the economy (McCarthy, 2017).

While there must be the right mechanisms, it is also imperative that there is greater awareness of the traps and mindfulness regarding the need to reinvest rents in long term initiatives that build capability and future growth potential. Otherwise, the alternative is that commodity rents can actually lead to a reduction in growth and development.

Super-cycles

Until recently, the concept of commodity super-cycles had been widely discussed but never proven.  In 2012 the UN (2012) claimed to have found evidence of commodity super-cycles which has now lead to wider agreement on their existence (Guigale, 2014).

Commodity super-cycles are defined as “periods of about forty years when commodity prices steadily climb for a decade or two, only to fall slowly back to where they were” (Guigale, 2014).

Super-cycles differ from business-cycles which are typically short-run and typically have micro-economic impacts. Super-cycles differ due to two main features, being:

  1. the presence of a “long wave” of growth of at least 10-35 years and the whole cycle taking 20-70 years; and
  2. the impact can be observed in a number of commodities across the economy (UN; 2012).

The key driver of a super-cycle is the “sudden rise in demand, often caused by technological innovation” and can lead to periods of increases in urbanisation and population. Increased demand associated with these factors drives long periods of growth in both prices and output before tapering and returning to pre-growth levels. Super-cycles also suffer from “acute capacity constraints” despite increased in production output and technology development (Guigale, 2014; (DeRooij, 2014). Whilst, tapering off within a cycle is driven from a number of factors including diminishing returns from technology, or, urbanisation and population growth steadying and the economy readjusting as a result.

Evidence suggests that in the last 150 years  the world economy has experience at least three super-cycles, each over a period of four decades, each driving up commodity prices “20 and 40 percent” before returning to previous levels. Examples include Britain’s industrial revolution where prices for coal, cotton, sugar and tea increase as well as production (DeRooij, 2014).

From a government’s perspective, recognition of super-cycles is of “critical importance” to ensure the right decisions are made in regards to inflation, currency, balance of payments, and re-investment of rents. Businesses also need to identify super-cycles to ensure capital investments are used to fund long term production expansion and not be distracted by short-term price fluctuations (DeRooij, 2014).

We can now see that we are in a super-cycle or perhaps, we have just hit tipping point. This cycle was largely driven by China and India’s appetite for commodities.  However, there may still be opportunities, as many people in South East Asia and other developing nations are still to transition to a more urbanised economy (DeRooij, 2014).

Thus, the question therefore is, are we to sit back and ride the wave out? Or do we ensure we maximise our future growth potential and extend the ride before through high impact re-investment?

Collier, P. (2007) The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About. Oxford University Press: New York.

Giugale, M. (2014) Economic Development: What Everyone Needs to Know. Oxford University Press: New York.

 

by Katie Bawden

Institutions and Incentives: A Guide for Policy Practitioners

Have you ever thought what stops some places from developing? Why is it hard for some places to implement progressive policy? What stops people from being more entrepreneurial? Well it can often be the institutions, the “legal and administrative organizations” that underpin society and they predict the ability of a place to prosper (World Economic Forum, 2015).

Institutions are a “consistent and organized pattern of behaviour or activities (established by law or custom) that is self-regulating in accordance with generally accepted norms” (Business Dictionary, ND).

Institutions “are the rules of the game in a society, […] the humanly devised constraints that shape human interaction. […] They structure incentives in human exchange, whether political, social or economic” (North, 1990, p. 4).

Why are institutions important?

Institutions are important because they form what is called the ‘enabling environment’ (World Economic Forum, 2015). Institutions move beyond the concept of an organisation to encompass social structures that guide “human interaction and activity” and include formal and informal rules. Institutions are important social structure as they “create stable expectations for the behaviour of others,” and create the incentives for economic and political development (Hodgson, 2006). Institutions therefore provide a framework for social cohesion and long term prosperity Bakir, 2009).

The four key sectors where institutions play the most effective role in promoting growth are “finance, education, justice, and public administration” and as a result, Institutions need to be a consideration for in policy and program design in both the developed and developing world (Paul, 2017).

In particular, strong institutions support economic development by:

  • reducing the costs of economic activity by lowering transaction costs such as search and information costs, bargaining and decision costs, policing and enforcement costs;
  • promoting a return on investment through common legal frameworks (e.g. contract terms and contract enforcement, commercial norms and rules);
  • reducing oppression, corruption and encouraging trust by providing policing and justice systems; and
  • Encouraging collaboration between public-private sectors to increase social capital (Bakir, 2009; Ferrini, 2012; World Economic Forum, 2015).

More specifically, institutions affect the level of production, adoption of new technologies, entrepreneurship and venture creation, environmental protection, ability to attract investment, property ownership, law enforcement, and levels of bureaucracy and red tape. Thus, institutions need to be a key consideration when designing policy and programs.

Depositphotos_9467051_original

Institutions and Policy

Often when transformational policy is required, consideration of the institutional framework is paramount. There are four different types of influences on institutions that practitioners should be aware, these include:

  1. Rational choice: where intuitions are influenced through ‘feedback’ that reinforces the decisions and actions to become norms. For example increasing returns on investments is a positive feedback that reinforces the norm;
  2. Organisational the adoption of common practices (i.e. imitation) and norm from other successful organisations and leaders;
  3. Discursive institutionalism is when self-interests and cognitive ideas are pushed until adopted as norms; and
  4. Historical institutionalism is a mix of the above three where logic and idea have amalgamated over time to become norms (Bakir, 2009).

Practitioners should examine the changes they wish to achieve against identifiable institutions.  Incentives or more specifically, pigouvian penalties can then be designed to help shift behaviours and actions in line policy positions.

Incentive: a moral, coercive or remunerative motive behind an individual’s particular course of action (Johnson, 2005). Incentives do not have to provide positive motivations.

 Pigouvian penalties: is a tax to deter or counterbalance market activities that generate negative externalities (the Economist, 1017).

 Examples:

  • Public transport: Policies to promote public or physical transport uptake may only become effective when society recognises that cars have a negative impact on the environment and are willing to change their behaviour to protect the environment. Policy practitioners may needs to consider the individual rational choice, self-interests and historic institutions that support people to drive cars. For example, if parking was increased in the CBD to support institutional change around driving, does it just push people in to suburban areas where driving is still more cost-efficient? Is advertising to change values and perspectives (self-interests) on driving required? Are additional services or upgrades required to change the efficiency of public transport in addition to car and parking taxes?
  • Welfare: Income welfare that supports disadvantaged people can be relatively ineffective in enabling long term dependents to transition into the mainstream economy when the alternative is low skilled and repetitive work. Thereby dis-incentivising people to transition to employment. Policy practitioners may need to consider if the community, formally or informally, agrees that welfare is a right? If individuals have intergenerational dependency and therefore share similar aspirations? And what are the real incentives that encourage employment and discourage unemployment? Otherwise actions that just consider capabilities will have limited impact.
  • Innovation and technology adoption: for societies wishing to promote innovation and technology adoption, it is also important to look at existing intuitions that may disincentive action. For example what are the red tape barriers (costs) to setting up a business and commercialising ideas? Are there any Government Trading Enterprises that crowd-out the private sector innovations? Are technology rebates and R&D subsidies promoted widely and easily accessed? Does the government have a consistent view and is their machinery (departments and agencies) progressive in their policies?

Finally, strong institutions may not ensure robust growth in the short term but in the long term, a society cannot expect to prosper without them. Thus the policy practitioners need to consider institutional environment when designing interventions.

North, D. C., 1990. Institutions, Institutional Change and Economic Performance, New York, Cambridge University Press.