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Raphael Bar-El is an economist, Professor at Ben-Gurion University of the Negev and Chair of the Department of Public Policy and Administration. His main areas of interest are: economic growth, regional development, economic cooperation in the Middle East, small towns. In the last few years, he has worked with the State Government of Ceara (Brazil) on policy measures for the alleviation of poverty through economic regional development. He was the Director of the National Economic Planning Authority, at the Ministry of Economy and Planning. He was also a member of the Joint (Jordan–Israel–US) Steering Committee for the Integrated Development of the Jordan Rift Valley (JRV). He was in charge of the Economic Development Plan within the team of the long-term Master Plan for Israel. In 1996 and 1997, he was a member of the project headed by Michael Porter on Building Regional Competitive Advantage in the Middle East. Until 1993 he was a researcher and planner, the Director of Research, and finally the Director General of the Development Study Center (DSC), Rehovot, Israel. He has acquired extensive experience in regional development research and planning, in Israeli regions, as well as in regions in the developing world.

Peripheral areas generally have difficulties making the structural adjustments needed to accommodate national growth, and this in turn leads to growing unemployment rates, regional economic gaps, and continuous migration to metropolitan centers. SMEs located in rural areas or small towns are expected to play an important role in the process of economic development, absorbing excess labor force from agriculture, and leading the transition to non-farm employment (Leite, 1986). In practice, however, SMEs face substantial difficulties in their attempts to integrate into the national trends of economic growth. To a certain extent this can be attributed to the fact that management may possess inadequate skills and not have information at their disposal. In other cases, management may simply lack awareness of the importance of these fields.

We consider the well-known and painful problem of countries, mainly in the developing world, that suffer not only from low levels of economic development, but also from high levels of inequality and poverty. They struggle to solve their development problems by implementing various policies for economic growth (investing in infrastructures and education, providing incentives for capital investments, etc.), but in many cases it seems that economic growth, even when it is achieved, does not necessarily resolve the fundamental problems of poverty and unequal income distribution (Selowsky, 1981; Cardoso & Helwege, 1992).

A process of economic growth can certainly take place with insufficient diminution of poverty and with widening gaps in income distribution. In Ceara, as in many other states in Brazil and in the world, there are problems of poverty and of inequality, besides macroeconomic growth. Although measurement and definition questions may lead to different evaluations of its volume, it is clear that rural poverty is greater than urban poverty in Ceara, and much more than the urban poverty in the Metropolitan Region of Fortaleza. This picture is typical of most states in the process of economic development, and cannot be dismissed as a result of any specific conditions in this state.

The implementation of a new model for development with a focus on regional growth requires adaptation of the government administration to the new needs. A vital instrument for such an adaptation is the establishment of a new Secretariat in the government of Ceara, the Secretariat for Local and Regional Development (SDLR). Such a Secretariat was established by the newly elected government in 2003.

Economists and development experts around the world have recognized in the last decade that economic growth alone, as measured by the change of the gross domestic product, cannot be considered the main indicator for the level of development of a country. Probably more than anything else, the problems of persistent poverty and inequality in the process of economic growth has been major concerns.

The policy approach adopted by the State of Ceara relies basically on the fundamental evaluation revealed above that a major factor influencing poverty and inequality is the existence of a structural market failure in the process of economic development. This failure leads to a situation where structural changes in the economy, such as the diminution of the relative weight of agriculture, are not followed by appropriate adaptations of the society in terms of transition of the labor force to new types of employment, or in terms of urbanization and spatial restructuring. If this is actually a market failure, this implies that the “natural” free market action does not lead to an optimum in the state economy. The intervention of the State in this case is needed in order to achieve a better economic optimum. This means that the government policy that would lead to a reduction of poverty and of inequality would lead at the same time to a larger and more efficient macroeconomic growth.

A relatively high share of employment is in food processing (about 5% of total non-farm employment), indicative of the tendency for agricultural processing activities, both in the Northeast and Southeast. Most employment, however, is not related to the agricultural sector, for example, ceramics and wooden goods that represent mainly artisan production or textiles that may be related to cotton production. However, these are mostly justified by the existence of a low-cost labor force.