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Thursday, March 7th, 2013

Do Cities Really Want Economic Development?

Ask any civic leader the number one thing they want for their town and “jobs,” economic development, is what they will likely tell you. Yet when you look at the incredibly poor economic development track record across America, despite various untold billions of public dollars pumped into projects ostensibly designed to produce it, it’s enough to prompt one to question whether or not economic development is actually really wanted at all.

Jane Jacobs once said that “Economic development, no matter when or where it occurs, is profoundly subversive of the status quo.” This, in a nutshell, is why policies and programs that might actually move the needle and generate economic development are not implemented. The politicians, power brokers, businessmen, non-profit executives, etc. all at some level benefit from the status quo. Anything that disrupts the status quo is a threat to them.

I previously noted how it generally takes a critical mass of outsiders, enough to create a constituency for change in its own right, to drive real disruptive change in a community. These are the people who aren’t invested in the status quo. Absent that, getting reform that works will be a difficult challenge.

Economists have a concept called “revealed preference” that suggests that consumers reveal their true preferences through the actual purchasing decisions they make. Applying this to public policy, it’s hard not to come to the conclusion that the real preference of the powers that be in most places is the maintenance of the status quo, not disruptive economic development. It probably also explains why every city obsesses over “talent” publicly, but almost none of them undertake actions that might actually attract it for real.

37 Comments


37 Responses to “Do Cities Really Want Economic Development?”

  1. Matthew Hall says:

    Too true, Aaron. Those who see change as a fate worse than death are now clearly in a minority in Cincinnati politics, but they are far from dead and continue to cause real damage. Quite frankly, it took many of them leaving for the exurbs to make room politically for change in cincinnati. The benefits of their departue are only now really starting to have a meaningful and sustained impact that will reinforce the new pragmatism.

    The financial collapse ironically helped too, by forcing people and city government to think much more directly about the costs and benefits of their actions.

  2. Sandy Maxey says:

    Incredibly insightful post. The powers that be- squelchers, as Jacobs called them (though I prefer the term “Cadre of Malfeasance”)- are too busy attempting to maintain their position in the power dynamic while also maintaining their revenue streams and relevance.

    I would take your point about the critical mass of outsiders one step further. The mass of outsiders must be somewhat protected early on- for the same reason that grass seed is covered with straw- in order for the roots of a parallel process/disruptive change to take hold, or else every effort at disruption will be squelched.

  3. Keith says:

    Part of the problem, I think, is that “economic development” has become one of the popular buzzwords that a politician knows will get a favorable response from constituents. But, working for a municipality, I find that very few policy-makers actually understand the term and understand what they are supporting by saying they support economic development. They think it is simply a synonym for “jobs,” without the other implications. Then, the anti-development voices can always find a way to oppose development by saying, “I’ve always been in favor of economic development, but not at the expense of impacts to traffic/neighborhoods/ environment/public infrastructure, etc,” and those arguments have traction with policy-makers who never considered that these impacts might be a part of what they saw as simply job creation. It’s the same as the politicians who say that they are for lowering property tax rates (to thunderous applause) but then can’t find any programs or services they want to cut to make lower taxes feasible. Again, it’s a result of not understanding what “economic development” means, and thinking that it just means “more jobs.”

  4. Sandy Maxey says:

    Keith: You are making excellent points. Too many in econ dev today are lacking the understanding of 21st century economic development, and also lack the skill sets to implement. For far too many regions, economic development is synonymous with “Industrial recruitment”- despite the decades of evidence that this is an ineffective means to develop regional economies. Anachronistic metrics and siloed efforts(and let us not forget the lack of transparency/accountability for the billions of econ dev dollars spent)perpetuate the inefficient and ineffective efforts. A shared understanding of how economies work plus the fundamentals of 21st century econ dev would be a sound start to building that critical mass of outsiders.

    That said, I feel the critical mass should be fomented at a scale that supersedes geo-political boundaries- at least 3-7 locales- in order to foil the squelchers.

  5. the urban politician says:

    Not sure I agree.

    Economic development need not necessarily disrupt the status quo. It may simply expand the balloon by which the powers that be (politicians, businesses, etc) extract whatever it is they are trying to extract from the system.

    For example, despite being very much in control in Chicago, I”m sure Rahm Emanuel really does want to see more companies and more talent flowing downtown, because that would expand his “balloon”. I’m sure that for the most part, the private sector sees that as a positive change as well.

  6. Brian Kelsey says:

    Interesting points. What would you all point to as examples of “disruptive” economic development? I’m always on the lookout for interesting new case studies for my class.

  7. Matthew Hall says:

    Aaron’s point is that Emanuel will not actively pursue anything that doesn’t expand his ‘ballon’. Sometimes small differences in perception can tilt the balance toward a deal happening or not.

  8. John Morris says:

    I strongly agree with the general idea- which is IMHO, somewhat self evident. Be back with more thoughts.

    Term for the day is Public Choice Theory, which a main proponent described as politics without romance.

    http://en.wikipedia.org/wiki/Public_choice

  9. John Morris says:

    I strongly agree with the general idea- which is IMHO, somewhat self evident. Be back with more thoughts.

    Term for the day is Public Choice Theory, which a main proponent described as politics without romance.

    http://en.wikipedia.org/wiki/Public_choice

  10. John Morris says:

    @Brian Kelsey

    There are countless possible disruptive developments- new industries and business models mean new players, new people who might not donate to your campaign & the loss of old cozy relationships.

    One great example is that most politicians when faced with a declining population support plans to “keep our kids in town” (Google- Border Guard Bob) over policies to attract new residents, hoping that the kids will vote and think just like their parents did.

  11. Brian Kelsey, it’s hard to cite policy driven changes, but you could argue that the changes in Portland and Seattle (from industrial to successful or at least semi-successful post industrial knowledge economy) would count. Microsoft moving from Albuquerque to Seattle was certainly disruptive.

  12. Sandy Maxey says:

    I think the notion of what is “disruptive” is dependent upon the norm (which would see a different tack as being disruptive)- Given that the underlying assumption is based on the industrial age paradigm, based on competing on the basis of lower costs in land, labor and capital (gee, given the innumerable place-based industrial recruitment websites I’ve looked at today,all touting the business-friendly environment etc along with the fact that of the billions spent on econ dev, a disproportionate goes to recruitment incentives, I’d say just about anything might appear disruptive.

    I think a great example of disruptive econ dev, though it was done w/the incumbent leadership is Ord, NE http://www.dailyyonder.com/how-we-built-ords-economy/2011/11/14/3601

  13. Chris Barnett says:

    Brian Kelsey, Aaron has previously cited the sports-driven economic development strategy adopted by Indianapolis in the 1970′s. That was “policy-driven change”, and fairly successful. You may recall the capstone: Super Bowl 46 was hosted here to unanimous acclaim.

    Columbus, Indiana has made a multi-decade policy of recruiting manufacturing (particularly Japanese-owned factories) to reduce its long-time dependence on a handful of large manufacturing companies. It remains a successful small city, still with one Fortune 500 HQ (used to be two).

    The state of Indiana as a whole has doubled down on automotive-related manufacturing, offering significant incentives during the past three decades to Subaru (80′s), Toyota (90′s), and Honda (’00′s) to locate assembly plants here. There are clear spinoff effects as tier I and tier II parts makers locate nearby. While the statewide median income has dropped as older large industrial employers downsized (including the Detroit Three, Harvester/Navistar, US Steel and ex-Bethlehem Steel), it hasn’t dropped nearly as much as it would have without these industrial employers. Depending on your reading, that could be “sort of” successful change, or a reliance on status quo.

  14. Chris Barnett says:

    I should have been more clear. Recruiting Japanese “transplant” manufacturers to Indiana was considered extremely subversive change as late as the 1980′s.

    The state highway leading to Subaru was renamed “Bataan Memorial Highway”, a retaliatory effort led by disgruntled WW2-era Hoosiers.

  15. John Morris says:

    Every once in a while a really disruptive strategy is tried, but usually after the economy is so weak the strong opposition has gone.

    Anyone hear about the former mayor of Schenectady’s drive to attract Guyanese immigrants? (Which sort of worked!)

    http://www.nytimes.com/2002/07/26/nyregion/for-schenectady-guyanese-strategy-mayor-goes-all-encourage-wave-hardworking.html

    The urbanist push happening in Detroit today is very counter to so many preceding trends and history- but, it’s only come after decades of massive failure.

  16. James says:

    I disagree. Rather than some conspiracy or cabal the much more efficient answer is that development is difficult. A Herculean task that requires an assortment of factors, many of which are outside of the control of politicians, bureaucrats, and administrators. Can you hold a mayor to blame for a tornado ripping apart a city? Can you credit a mayor for the discovery of a lucrative oil well in the city?

    It makes much more sense to say that economic development is agreeable to the status quo since failure to produce jobs and growth usually leads to poor election results. The biggest exceptions are, sadly, with low information voters.

  17. Sandy Maxey says:

    Chris-funny you mention Indiana. I’m doing some work there now. Indiana has also focused on Med devices and other products that rely on the basic historical competencies, though in less elastic markets. Plus, the DoD expenditures in primary and secondary mfg are interesting.

    That said, the fact that recruitment continues to be the underlying goal is flawed. As long as that is the focus, just about any other strategy could be considered “disruptive”- looking at Indiana today- a majority of the regional econ dev orgs are solely focused on recruitment.

  18. Sandy Maxey says:

    James- development is difficult and a long term proposition. Given the political pressures, econ dev has typically chosen the ribbon cutting/press conference route. It’s not sexy or politically expedient to do a ribbon cutting for 15 companies who add 5 jobs.

    That said, econ dev is made even more difficult (then it has to be) when the strategies employed are neither effective or efficient.

  19. Sandy Maxey says:

    James- yes, it is abject malfeasance when new strategies are squelched or worse, co-opted and then defiled, all in order to maintain relevance and revenue streams. I’ve seen this done over the years, but nothing as bad as I’ve seen since this last recession. Organizations with neither the skills nor the fiscal capacity have thwarted a great deal of progress, exactly when regional economies have most needed it.

  20. John Morris says:

    @Sandy Maxey said,

    “econ dev has typically chosen the ribbon cutting/press conference route.”

    That fits into the basic rule of public choice theory, that politicians are most often motivated by the need take credit for things.

    What stadiums, and large corporate relocations offer are chances for the politician to show they are working hard to bring home the bacon. In fact, doing anything else is usually pretty risky.

    Also, the idea that poor economic performance spells doom for politicians is overstated. FDR, by the numbers, hardly looks like a great president but nobody can doubt he was always doing something. An endless stream of politicians have built political dynasties in cities that are going down the tubes.

    Sadly, a really bad economy can make people desperate for more big projects or efforts to bail out failing local employers.

    DC’s political power structure now seems at risk because it’s now attracting lots of new voters.

  21. John Morris says:

    People can swim against the tide, but one should understand how these forces might push in one direction.

    Another big factor here is time. Real economic development takes time but politics is about the here and now. Often, the debt and problems these deals cause will be passed along to others. One of the biggest reasons, we need honest public accounting that tries to account for these liabilities.

  22. DaveOf Richmond says:

    Many good points here, James said something that I was going to say – Econ Development is hard, and most pols/planners have no idea how to do it. Aaron your example of Seattle benefiting from Microsoft’s move there, what econ development policy caused that? I don’t believe it was any policy or program. I think Bill Gates just wanted to go home, and home was Seattle.

    The point by Keith about the “jobs” hang up is another good one – contrary to popular opinion (on both right and left) the economy does not exist to produce “jobs”. It exists to produce goods and services that people need or want. The fact that these efforts require workers is somewhat beside the point, depressing though it may be. Modern cities/regions/nations need to produce talent that can best produce profit-generating goods and services, and if a bunch of jobs come along with that, great.

  23. A very perceptive article…my Australian experience of economic development strategies and initiatives is that they often seek to create the perception of control over job creation and location whilst at best exerting a minor influence. True strategy in this context needs to focus heavily on creating the structures and resources to take advantage of a multitude of opportunities as they arrise rather than trying to pick winners by predicting the future. It is a rare decision-maker who is willing to challenge the status quo in these areas.

  24. John Morris says:

    I disagree, policies of favoritism and crony capitalism have a big effect, by convincing small companies the game is rigged and distorting capital flows they discourage small business investment.

    In many countries the economy is divided between huge companies controlled by a connected elite, and tiny, micro- enterprises, with few small & medium sized companies. This trend now seems to happening here. Small business investment and confidence is very poor.

  25. Andy says:

    I think this is exactly why cities like New York City and San Francisco are always growing and moving forward. It seems, most people who live in NYC or SF aren’t actually from there, but are instead “transplants” – people who have relocated from other places. Of course there are other factors, but I don’t see folks flocking to Providence, Rhode Island or Detroit, Michigan.

  26. Sandy Maxey says:

    John- policies which favor incumbents- the crony capitalism- inherently skew not only capital flows, but also knowledge flows. Hence, the need for the parallel process of the critical mass, which creates collateral circulation of capital and ideas.

  27. Joe Medley says:

    I think you’re on to something, though I’d shy away from saying these are the only reasons for failed economic development. Here’s another contributing factor. (I can’t emphasis the word contributing enough.)

    Economic development frequently means tax breaks for bringing some outside employer’s facility to town. There are more communities wanting facilities then there are companies looking to build. The law of supply and demand drives up what communities are willing to offer. The result is that fewer economic development projects break even (from the city’s point of view). Some of them may even constitute significant drags on a city’s budget.

  28. Sandy Maxey says:

    Joe- I agree with you. Economies are complex systems so there are numerous variables. That said, the paucity of recruitable companies is well-known. Before this recession, there were fewer than 200 recruitment opportunities which would employ >than 200 ppl (that’s not even including any parsing of the semantics around what those 200 jobs would entail.)- for the entire US. Too few buffalo to chase. Plus, the buffalo hunt is alive and well, yet it truly has become worse than a zero sum game- it is now a net loss game for regions. High opportunity costs to all those incentives. http://www.goodjobsfirst.org/shellgame

  29. John Morris says:

    We haven’t touched on eminent domain and other abuses. Often small organic businesses are not just damaged by the higher taxes- but literally forced out through eminent domain.

    How many of the stadiums are built in areas the government defines as “blighted”?

    Local governments like Pittsburgh’s often actively push out local stores and consolidate lots to attract large developers and national chains.

    Ironically, Obama’s You Didn’t build that speech was made in Roanoke, where the heart of a black community was removed in the 1980′s to make way for a coke bottling plant. (The kind of business that had to locate in the region anyway)

    http://super-blair.blogspot.com/2007/02/new-report-on-eminent-domain-and.html

  30. John Morris says:

    Sorry, there were once several more good articles online about urban renewal in Roanoke.

    This one tells the story better.

    http://ww2.roanoke.com//columnists/shareef/7017.html

    We see countless deals like this.

    The legacy, is battered and discouraged communities and small business people wary of investing where their property and rights are so insecure.

  31. Keith says:

    @ Joe Medley

    “Economic development frequently means tax breaks for bringing some outside employer’s facility to town.”

    I’m about to get all semantic up in here. I agree with your overall point, but I disagree with your word choice. This is NOT economic development. I think this is the dominant perception of what “economic development” does, but I resent it and fight that stigma every day. If my town here in Maine recruits a company from Massachusetts to relocate by offering tax breaks, then ultimately, we’ve “developed” nothing. We’ve just moved a means of economic production from state A to B. But this type of move (especially because tax breaks are only brought out for the large-scale companies and employers) are the ones that get the most attention for press and for politicians who love to get their picture taken at ribbon-cuttings. On the other hand, when I work with a few local farmers to create a community processing facility where their excess agriculture produce can be worked into value-added products, increasing revenue streams for the farms, and creating a new, community-centered food processing business, now THAT’S development. And you won’t read about it on the front, back or middle pages. *facepalm*

  32. Joe Medley says:

    Kieth,

    No argument. I didn’t call it economic development because that’s what I thought it was. Icalled it economic development because that’s what many call it. Just trying to be concise.

  33. Matthew Hall says:

    Right now, a handful of old timers are suing Cincinnati to prevent its economic development efforts. Ten years ago, they would have won. Now, they will lose, but they still prefer no economic growth at all to growth they lessens their control over Cincinnati government. They prefer 100% of nothing over 50% of something.

  34. John Morris says:

    Better to reign in hell than serve in heaven. A lot of politicians feel that way.

  35. George Mattei says:

    Interesting. I wonder if this isn’t one of Columbus’ biggest advantages over its Midwestern bretheren. Ohio State keeps bringing in outsiders, and enough of them have stayed over time to begin transforming the city from small Midwestern burg to a (relatively) more cosmopolitan environment. A lot of the internal workings of the City seem to have changed since I moved here 15 years ago.

  36. Rod Stevens says:

    “Disruptive” may be a misleading word in this debate, for it connotes something big coming to town and changing things overnight.

    Truly “disruptive” change is rarely obvious. It comes in slowly, like the microcomputer undermining corporate systems. Think fire weed growing up after a fire. The talent in a place is free to go elsewhere. This happened in Littleton, CO after Martin Marietta shut down. The engineers who stayed behind created new jobs and companies for themselves. Dconomic gardening fostered this re-growth.

    I don’t think there’s ever just one solution, one replacement. It takes time to establish new clusters, and those are almost always based on the redeployment of existing talent, as Rochester, NY has seen with the demise of Kodak.

  37. Dan Wolf says:

    Matthew Hall,Can you tell us what projects specifically did the Cincinnati old timers resist? And why do you think they resisted these projects? I am curious to know; and perhaps it would add to our insights re urban perspectives that are strongly held; held tightly enough to take a great city to court over urban rebirth projects. thank you Matthew.

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