1. Overview: What is Economic Development Planning? and is it more than simply smoke-stack chasing? Prof. Scott Campbell Urban Planning 539 University of Michigan http://www-personal.umich.edu/~sdcamp/up538/

2. Local economic development refers to the process in which local governments or community-based (neighborhood) organizations engage to stimulate or maintain business activity and/or employment. The principal goal of local economic development is to stimulate local employment opportunities in sectors that improve the community using existing human, natural, and institutional resources. Source: Blakely, Edward J and Ted K Bradshaw. 2002. Planning Local Economic Development Theory and Practice: Third Edition. Sage. Page xvi.

3. What is Economic Development? No single definition incorporates all of the different strands of economic development. Typically economic development can be described in terms of objectives. These are most commonly described as the creation of jobs and wealth, and the improvement of quality of life. Economic development can also be described as a process that influences growth and restructuring of an economy to enhance the economic well being of a community. In the broadest sense, economic development encompasses three major are as: Policies that government undertakes to meet broad economic objectives including inflation control, high employment and sustainable growth. Policies and programs to provide services including building highways, managing parks and providing medical access to the disadvantaged. Policies and programs explicitly directed at improving the business climate through specific efforts, business finance, marketing, neighborhood development, business retention and expansion, technology transfer, real estate development and others. The main goal of economic development is improving the economic well being of a community through efforts that entail job creation, job retention, tax base enhancements and quality of life. As there is no single definition for economic development, the re is no single strategy, policy or program for achieving successful economic development. Communities differ in their geographic and political strengths and weaknesses. Each community therefore, will have a unique set of challenges for economic development.

4. Defining Economic DevelopmentDefining Economic Development - from the Economic Development Administration (EDA), part of the US Dept. of Commerce Economic development is fundamentally about enhancing the factors of productive capacity - land, labor, capital, and technology - of a national, state or local economy. By using its resources and powers to reduce the risks and costs which could prohibit investment, the public sector often has been responsible for setting the stage for employment-generating investment by the private sector. The public sector generally seeks to increase incomes, the number of jobs, and the productivity of resources in regions, states, counties, cities, towns, and neighborhoods. Its tools and strategies have often been effective in enhancing a community's: labor force (workforce preparation, accessibility, cost); infrastructure (accessibility, capacity, and service of basic utilities, as well as transportation and telecommunications); business and community facilities (access, capacity, and service to business incubators, industrial/technology/science parks, schools/community colleges/universities, sports/tourist facilities); environment (physical, psychological, cultural, and entrepreneurial); economic structure (composition); and institutional capacity (leadership, knowledge, skills) to support economic development and growth.

5. Definitions That Address Equity and Sustainability Economic development policymakers and practitioners who are concerned about economically disadvantaged and depressed communities highlight some different issues when they define economic development. Community economic development or CED typically has five goals: Stimulating a self-sustaining process of economic development (the dynamic and rate of development); Creating jobs at acceptable wages, with appropriate benefits and career ladders for area residents (the distribution of development); Producing goods and services that meet social needs, like affordable housing, lowered energy costs, better health care, and accessible day care (the composition of development); Establishing greater community control, accountability, and participation in basic economic decisions such as hiring, investment, and location (the control of development); and Broadening business and asset ownership within poor and ethnic minority communities.

6. What is Economic Development Planning? Two themes: 1. understanding urban and regional economies (geography, history, economics, sociology, etc.) Why do some cities grow and others decline? Why is there persistent inequality across space (race, gender, class)? …despite all ideas to the contrary? 2. Intervention: How is it done? Why and how is intervention justified? (and when not?) What are the consequences? How can we evaluate it? (planning, policy, evaluation) In other words: 1.Why do some communities thrive why others struggle? 2.What can and should one do about it?

7. What is Economic Development Planning? Two themes: 1. understanding urban and regional economies (geography, history, economics, sociology, etc.) Why do some cities grow and others decline? Why is there persistent inequality across space (race, gender, class)? …despite all ideas to the contrary? 2. Intervention: How is it done? Why and how is intervention justified? (and when not?) What are the consequences? How can we evaluate it? (planning, policy, evaluation) In other words: 1.Why do some communities thrive why others struggle? 2.What can and should one do about it?

8. Finding the balance between the big picture of structural economic change and the idiosyncrasies and minutiae of ED programs. For the intellectual, Economic Development, if just limited to tax breaks and IRBs, etc. can be boring and tedious. But if broadly defined, can be quite exciting and rewarding and challenging. It deals with the history, the social movements, the environment, culture, etc.

9. Related: finding a balance between structure and agency -- between the extremes of belief: Structure: All local economies are simply the by- product of larger, global economic forces that local planners can hardly alter. Agency: Larger policies matter little: Who wins and who loses in local economies invariably comes down to individual initiative (human agency). Synthesis? Perhaps Anthony Giddens’ “structuration” [link]:[link]: The interaction between social structure and human action.

10. How is Local ED different from the traditional study of economics? »Don’t assume perfectly functioning markets (and their prerequisites) --that is, the parameters (starting assumptions) of economics are the variables of urban planning »Space is not reduced to transportation costs (“friction of distance”) »More local/place based E.g., local trade, local/regional product, etc. »More applied, hands-on, eclectic »More interventionist

11. The Role and Experience of Local Economic Development within the Field of Urban and Regional Planning 1.Understanding how economic development is both an integral part of urban planning but also deviates in certain areas, such as: Defining the public interest The relationship between the public and private sectors, and one’s willingness to work within the market, be entrepreneurial and/or pragmatic. Tools used Where one stands on the equity versus efficiency debate Where one stands on the policy intervention versus market incentive debate

12. The Role of Space (Place, Geography) Economies are not just aspatial (universal) systems that happen to operate in space, Instead, space is integral to the workings of economies. Therefore: “urban economics” is not simply the mapping of national economic processes onto the local level…

13. 2.Understanding this relationship through the history of urban planning as a profession The shift to the social sciences away from architecture The history of housing reform and social activism in planning The roots in the New Deal, and Depression-era priorities on job creation and poverty. The difficulty of helping the physical neighborhood without helping its economy. The shift away from government programs making economic development more entrepreneurial, more involved in public- private partnerships, in business-like tools, etc.

14. 3.the frustration of the field hard to know if serving the public interest, or just business -- is one giving away more than necessary to effect change? Limited resources to tackle massive, complex problems hard to just the impacts of the work inefficiencies of the programs often difficult to generalize (or clearly define reproducible “best practices”) Skepticism from some others in the field (e.g., environmentalists, community activists) (can it be otherwise? Can it be made more a science? Or because planners are but one player with limited tools in a complex, open-ended politicized effort, the process will invariably be more complex.)

15. 4. But also the rewards Creating jobs for people in need; Helping those who fall between the cracks of the market Stimulating other planning benefits: such as more resources for street projects, housing, etc. Often other planning tools (land use, urban design, transportation, etc.) can only work well if the economic development tools are in place Addressing the huge inequality that is place-based: city suburb, urban rural, north south, 1 st vs. 3 rd world.

16. Twenty Really Useful Concepts in Understanding Local Economic Development agglomeration economy cumulative causation vs. equilibrium models cyclical versus structural change deindustrialization equity vs. efficiency Externalities (both positive and negative) “leaky bucket” theory of money flows in local economies globalization growth vs. development innovation (process versus product) linkages (forward and backward) location theory market failure multiplier (and basic vs. non-basic employment) opportunity costs public-private partnerships spatial division of labor supply-side vs. demand-side approaches value added zero-sum game

19. historical evolution of the field from not part of planning, to one specialization, and for some even another step: as an integral part of planning or even as a new core of planning (though this likely a minority view). Recent roots: dealing with deindustrialization, the retreat by the government in traditional urban renewal funding; the need for partnerships and public-private entrepreneurship; persistent income inequalities; global competition and the great pressures on communities; a blurring of public and private roles (so that the public sector sees economic activity as more of its domain).

20. THEMES by Era: 1930sKeynesian New Deal policies to stimulate demand and create jobs 1940swartime mobilization and postwar adjustment, conversion of military capacity; deconstruction of New Deal policy interventions 1950sindustrial expansion; suburbanization; highway building; Cold War; anti-communism taints planning; US dominant in the world market. 1960sbeginning of the structural crisis; early days of deindustrialization; white flight from cities; 1970splant closures (and legislation); the rise of services. 1980shigh tech, flexible specialization, post-Fordism; Sunbelt over Frostbelt; public-private partnerships; post Great Society downsizing of government. 1990sglobalization; capacity building; entrepreneurship; boom in construction; high-tech expansion; biotech 2000sneo-liberalism; sustainability; rise of China; Internet commerce; financial crisis; housing crisis

21. ComponentFirst WaveSecond WaveThird Wave Location assetsDiscount them to attract outside business Reduce taxes and provide incentives to all businesses Build regional collaboration Business focusOutside firmsAssist all local firms Create context for better relations among firms Human resources Create jobs for local unemployed people Develop training programs Utilize workforce training to build businesses Community Base Physical resources Social and physical resources Leadership and development of quality environment Three Waves of Economic Development Source: Blakely, Edward J and Ted K Bradshaw. 2002. Planning Local Economic Development Theory and Practice: Third Edition. Sage. Page 45: Table 2.3

22. Another historical view…. Fitzgerald, Joan and Nancey Green Leigh. 2002. Economic Revitalization: Cases and Strategies for City and Suburb. Sage. pp. 10-26 PHASESelective characteristics 1. State Industrial Recruitment (starting in the 1930s) Create good business climate (taxes, loans, infrastructure, etc.) “greasing the skids” for business corporatist paradigm 2. Political Critiques of Local Economic Development Activity (starting in the late 1960s) Focus on who is paying and who benefits. ED actors as political agents political economic analysis critique of “smokestack chasing” recognition of tension between footloose capital and communities 3. Entrepreneurialism and Equity StrategiesTwo separate movements: Promoting high tech (mimic Silicon Valley) and pushing equity/redistribution (e.g., Mayor Harold Washington’s initiatives in Chicago, 1980s). 4. Sustainability with JusticeBalancing economic development, social justice and environmentalism. Brownfield development. 5. Privatization and InterdependenceMarket solutions (e.g., Michael Porter’s competitive inner cities) and regional/metropolitan strategies.

23. Multiple Strategies and... Boosterism, Place Marketing Investing in comparative advantages Human capital development Developing markets Creating clusters, agglomeration economies Infrastructure (physical, technical, social) Smokestack chasing, Business attraction: taxes, etc. Partnerships Multiple Goals Employment Higher wages Lower poverty Reduce inequality Increase human capital Increase living conditions Job attraction and retainment Capacity building Increase multipliers Sustainable growth

24. Susan E. Clarke Gary L. Gaile, The Next Wave: Postfederal Local Economic Development Strategies, in Blair and Reese, 1998. (originally in EDQ in 1992) Theme: the rise of the entreprenurial, risk-taking, partnership-making local state Changes: a shift away from state and federal funding a rhetoric of devolution, local control and local entrepreneurship. A blessing in disguise? More local funding means more local control. [166] This study: from 1978 to 1989: did federal cuts affect the level of local economic development efforts. and if funding sources shifted to localities, were the localities more risky or cautious?

28. So: initial data suggests that cities using these ED tools are faster growing, with lower taxes, fewer government employees and government expenditures. [NOTE: could this be a spurious relationship? That is, other factors are influencing both variables?]

30. Trends a shift from traditional federal sources (e.g., UDAG, EDA) to public- private partnerships, revenues from redevelopment projects, TIF, revolving loan funds, one stop permit shopping, below market rate bonds, enterprise zones, trade missions abroad, etc. [see table 13.2, page 169] [see also Table 13.3, p.170] with the federal withdrawal, the local setting is more competitive, fragmented emphasis on entrepreneurial, market based strategies [167] a shift from wealth creation rather than subsidize locational decisions or employment strategies. Greater tolerance for risk: public capital used for its investment potential. A view of economic development projects as a "portfolio" (some are winners, some are losers). Shift to entrepreneurial interest in generating new businesses, not just retaining old ones.

31. More Trends More specialized, custom-tailored deals Use of linkages With the creation of all these new specialized (dedicated) funding tracks (e.g., TIFs, enterprise zones, etc.) the result is: funding stays within economic development, rather than getting put into general revenues. [171] A shift from social criteria to market feasibility [173] The reemergence of downtown as a locus of development Greater use of non-profits

32. AND YET: there are limits to the entrepreneurial potential of local governments. [174] The structure of local governments and politics not well matched with the entrepreneurial approach. Can local govts make the redistributional decisions that arise with this approach? ------------- CASE STUDY: New Brunswick, NJ Downtown orientation Dev Co and NB Tomorrow Partnership with J&J UDAG ------------- This is not just from local initiatives: many of the recent federal programs have encouraged this kind of local entrepreneurialism (e.g., National Development Council work)

33. Harold Wolman and David Spitzley, “The Politics of Local Economic Development” First distinction: growth (quantitative) vs. development (structural changes as well, both with institutions and technology) How to Measure ED: Though there is an acceptance of the complexity of it, writers often revert to a single measure, e.g., national income. Or more generally: economic well-being -- measured by employment and income. So: though we speak of development, we often really just mean growth. Why do ED planning? communities tied to place, and capital is not. (the differential mobility of factors of production, hence space matters). [esp. in a country without strong traditions of fiscal equalization grants, as compared to say Germany] Communities compete with one another Economic development may not be the direct interest of the city, but public finance is, which depends on local ED. ED provides political support for local officials Community responsibility Urban growth machine.

34. Why has ED activity increased? greater mobility of capital slower national growth after 1973 led to grater local pressures for local ED deindustrialization/globalization cutback in federal aid Outcomes Sought by local ED Income or employment? Land development? Tax revenues? Why do various local ED Efforts vary? Typologies: e.g., supply side vs. demand side innovative vs. traditional (some would say that supply side is traditional and demand side is innovative) [but I wouldn't.] Note: some confusion about what is supply side vs. demand side, hence the confusion about traditional vs. innovative. financial assistance vs. capacity building vs. revitalization

35. Wilbur R. Thompson, Policy-Based Analysis for Local Economic Development, in Blair and Reese, 1998. A shift from one to the other…. Relate to the debate over the supply vs. demand explanations of unemployment. Does this mean a shift from growth industries to growth occupations? Yes, in part, but also looking at where inside an industry there is promising growth (the spatial division of labor). "Local development managers have also become intellectually lazy and have come to depend too much on adroitly marketing a poorly crafted product." [4] A shift from targeting a whole industry to part of an industry (assuming the spatial division of labor. [5] US BLS Industry - occupation matrix

36. Diversification Not just product, but also process. Examples: Detroit is functionally diversified; Flint is not (it is both industrially and functionally specialized). So: towards a functional comparative advantage (not just an industrial advantage) The Political Geography of Local Economic Development The dilemma: metro areas make sense economically (the commute zone); but no metro government; So states become the implicit or default metro planning agency. View a state economy as "a federation of local economies." Compare to Jane Jacobs and cities and the wealth of nations: what is the right unit of analysis?

37. Six Policy Foci 1.Local Incomes Policy: From any job to good jobs (good skills, transferable skills, learning, balance of male an female employment): the creation of "occupational ladders" The ambiguity of average hourly earnings: Sometimes high wages mean high skills (marginal cost = marginal productivity). E.g., Boeing workers. But sometimes high wages are in lower skill jobs. Why? "high wages have been wrung from a combination of oligopoly price power and union wage power." [NOTE: explained not by microeconomics, but by institutional economics] Also: this overpaid work makes economic development hard: high expectations, low transferable (general) human capital, and "domestic monopoly power is not what it used to be." [7]

38. 2.Local Foreign Policy foreign trade: can both win big and lose big. And: pay attention not just to the balance of trade (goods), but also in terms of occupations. 3.Local Stabilization Policy countercyclical policies. However, there is also the need to specialize. 4.State Higher Education and Research Policy as Implicit Regional planning should states concentrate their research activity (e.g., research universities) in one place (e.g., Chapel Hill, or distribute them throughout the state? California is more like the latter. Thompson argues for "careful decentralization" [10]

39. 5.Local Fiscal Policy and the Location of Industry what are the differences in various industries' contributions to local fiscal health? (fiscal impact of industrial development) some sectors are more sensitive to tax changes (in their locational moves) than others. E.g., standardized, cost pressured firms more sensitive; R&D an headquarters have less cost pressures and are more willing to pay higher taxes for more public services and amenities (e.g., good schools). 6.Urban Policy: Tracing Regional Development Paths into Intraurban Space [more speculative] matching urban land use patterns and zoning to the type of economy. E.g., multimodal edge city driving for manufacturing workers; and Manhattan style hub and spoke for service work. [but this is not an obvious, inherent connection] ------

40. Timothy J. Bartik, The Market Failure Approach to Regional Economic Development Policy, in Blair and Reese, 1998. Goal: to increase the wealth of a metro area or state Means: direct assistance to business two approaches traditional: job growth as the unifying goal: through increased exports (export base) export-oriented branch plants of large corporations. [14] new wave: emphasis on economic innovation; small business startups; tech development, business modernization. WHY MARKET FAILURE APPROACH? As a step in distinguishing between costs and benefits of the various projects. Market failure is the failure to reach economic efficiency: so policy is to address this. So: when are regional economic development policies justified? When they are efficient. That is, if the value of these nonmarket benefits exceed program costs.

41. Discussion of Market Failures Unemployment A failure if employees offering their labor power at their marginal productivity (actually, at the prevailing wage) and yet not employed. Thus, this is involuntary unemployment. Solution: employment benefit from government to employee to make up the difference between their wage demand and the offered wage from the employer. NOTE: also tied to sticky wages, and to imperfections in the labor market, or the social aspects of labor as a factor of production (not a flexible cost) Underemployment Wage differences do not always reflect skill differences. (again, institutional economics can explain this better). Involuntary underemployment: one is not able to find a higher paying job that fits one's skill level. Solution: shifting a local economy to a higher skill set of employees.

42. Fiscal Benefits Ideal system: user fee. Thus, taxes equal the marginal cost of providing services. [17] But, in reality this is not true: equity issues, power issues. (e.g., manufacturers often pay less; families with many children as well). [17] agglomeration economies theory is sound, but hard to quantify the actual benefits. [18] The market failure link -- "A firm making a location or expansion decision fails to recognize that decision's agglomeration economy benefits for other firms. The goal of increasing nonmarket agglomeration benefits may provide a rationale for regional development assistance to particular firms." [18]

43. Human Capital Market failure: underinvestment in human capital. Why? Too high a discount rate (that is, hard to appreciate the payoffs); lack of financing, lack of educational opportunities; externality benefits of HC investment not appreciated. Solution; govt investment in education Research and innovation spillovers Risk and uncertainty. Externalities of research. Other Imperfections in Information Markets So government steps in to provide info. E.g., census data. Imperfect Capital Markets e.g., lending practices. (think about student loans, etc.)

44. Conclusion Two virtues of market failure model: FOCUSING ON WHAT MARKETS CAN'T DO WELL CREATES GOALS THAT ARE MEASUREABLE WITH DOLLAR AMOUNTS (CBA) 3 limitations lack of precise information (hard to measure MF levels) DISTRIBUTIONAL EFFECTS NOT EXPLICITLY DEALT WITH Does not deal with impacts on other regions.