1. society
2. work
3. unemployment

Appraising Regional
Development Policy
Prepared by:
Patrick Adler, UCLA Luskin School of Public Affairs
April 2015
REF. 2015-MPIWP-001
Working Paper Series
Martin Prosperity Research I.
From economic theory to theory about economic policy
Let’s be honest. This field paper is my ticket to work in a school of planning or public policy. Knowledge
of how markets function and how institutions modify that functioning will only take one so far in a
discipline that promises to inform how policy is constructed and implemented. On its website UCLA
Urban Planning crows that its department
…serves as a unique laboratory for faculty and students to study and solve urban issues and problems
(Emphasis added)
From this perspective, my preparation for expertise in this field is (as of the introduction to this paper)
dragging. The previous papers have said very little about urban problems might be approached by
policymakers, much less how they will be solved.
The first paper (FP1 hereafter) demonstrated that the laws of supply and demand are just as strong over
space as they are on the proverbial edge of the pin where most neoclassical theories reside. I showed that
economic activities are channeled in space to the areas where they will be most productive. In some case
this means the agglomeration of labor and capital near each other in space, at the regional and subregional levels; in others it means de-agglomeration to areas where transport and congestion costs can be
avoided.
FP2 was about how socio-political structure could serve as a constraint for how markets operate, which
might appear to be related to the governance decisions of local actors. Recall, however, that a key theme
there was that this institutional environment was not easily manipulated by human action. A nation may
not opt-in to the (economically beneficial) democratic system by overthrowing its autocrat or drafting its
constitution. If it was that easy we would be recognizing Haiti as one of the oldest, most prosperous
democracies, and we would be shaking our head over China’s inability to get over the democratic hump.
Similarly, a region cannot become Silicon Valley, by imitating its formal institutional structure, even if we
assume that formal institutions can explain The Bay’s privileged positon atop the US City System.
Desirable formal institutions may predict economic development but they are in turn the outcome of
informal institutions, development itself, market forces, and other formal institutions. The search for the
precise institutional mix that will open the regional development path up, has yielded insights that are
important but partial.
The goal of this paper is chronicle theories for how the urban problem of development might be solved.
My phrasing here is intentionally speculative. After my search through the field I have found nothing in
the way of the solutions implied by the Luskin School Website. I have found promising research that
might improve policy by reforming its objectives. I have also thought about how economic development
theory in its current form can be useful to policymakers outside of our unique laboratory.
Throughout this paper, I will adopt an intentionally straightforward view of economic development or
growth: the increase in wages per capita. Regional wages are not a perfect measure – they do not account
for distribution for instance- but they can better than any other measure account for a region’s ability to
meet the material needs of its residents.
2
II.
Markets and institutions as constraints on economic development governance
Before I begin to demonstrate my fitness as a policy expert, it is worth elaborating a little bit more about
markets and institutions. Contained within the previous field papers are arguments for why
policymakers are heavily constrained as they seek to shape economic development. I have distilled some
of these arguments into an uncomprehensive list of 4 constraints. Some of these themes will be taken up
in the main, as I seek to productively engage with policy theory. All suggest that markets and institutions
act in multiple ways (think headwinds, tailwinds and crosswinds) to affect what is in the policy choice set
and whether policy can achieve what it sets out to achieve.
Constraint 1 Policy is made by agents and not principals
My focus in this field is on how the decisions of public policymakers affect economic development
outcomes1. Public officials are “agents” who are tasked to represent the interests of a jurisdiction but who,
as sentient human beings, also have their own personal interests in mind. Even when policymakers reside
in the jurisdiction that they represent, the desire to profit individually can easily compromise the desire to
raise average income per capita for her neighbors. A chief concern of the New Institutional Economics
(c.f. Klein, 1999; Williamson, 2000) is in studying how the “rules” of policy-making might reduce the
distance between principal and agent. More monitoring, delayed compensation, performance bonuses
and other features can help in this regard but they can only go so far. Policymakers are supposed to be
experts in their fields relative to the public at large, and they can use information asymmetries to avoid
full accountability.
The mismatch in incentives means that policymakers may be “captured” by special interests who might
buy their way to desirable policy that is socially suboptimal. A campaign donation in exchange for an
industrial incentive, a promise of cooperation on a workforce training program in exchange for a tax
break, an outright bribe- development policy is not necessarily or completely an attempt to promote
jurisdictional interests.
Principal-agent problems might also be rooted in the principal’s lack of information. Think tanks have a
measure of influence over policymakers, because they provide expertise that is not usually available from
within the bureaucracy. Policymakers are themselves situated in highly competitive fields, where access
to additional expertise (from think tanks and similar groups) might help them to succeed (Bertelli and
Wenger, 2009) over their competitors.
The implications of principal-agent problems for economic development policy are two-fold. First, “rules
behind the rules” need to be included in normative policy discussions. The conditions under which
bureaucrats can be lobbied, might influence whether the choices considered by those bureaucrats will
advance development goals. Second, descriptive evaluations of policies- whether they succeed or failneed to consider the possibility of “agent effects” in addition to “policy effects”. If a factory tax-break is
found to have failed at generating an economic impact, then this could either reflect on the strategy or the
target- maybe there were better firms available to subsidize.
Constraint 2 Economic decisions are made by people, not utility functions
A related qualification reminds us that policymakers do not optimize in the way that the agents in classic
economic models do. As of this writing the unemployment rate in Mississippi (7.2%) was three times that
3
of North Dakota (2.8%). While there certainly are differences in the type labor demand in these two states,
these are not enough to explain why down-and-out workers in Mississippi do not relocate to pursue their
economic interests. A policymaker in the low unemployment rate might seek to attract new workers as a
way of growing the industry in her state and keeping wages in check, but this decision must encounter
the headwind that is attachment to space. Absent some attachment to space that is unrelated to a person’s
own pecuniary interests, we would observe more even employment rates across the US. We might also
consider economic policy to be a type of suboptimal economic decision. While policymakers do seek to
maximize efficiency, they are also concerned with equity, their own (‘agent-type’) interests, and the
ability to “sell” decisions to a public that mostly has no economic training at all.
Under a given set of parameters, the optimal decision(s)2 of economic actors do not change, but
consistency is a challenge for human actors who are always optimizing across non-complementary
dimensions. We can imagine that after a period of unemployment the move to North Dakota seems more
attractive, or that the economic base is more of a priority to policymakers after a large factory is
shuttered. The lack of consistency in economic decision making makes it harder to anticipate how agents
will respond to new policy. It also, from an empirical standpoint, complicates the identification of purely
economic policies.
Economic actors must also make decisions across competing time horizons. Neoclassical models usually3
account for this by assuming that actors discount future earnings by some constant (c.f. Samuelson, 1937)
but in practice there is wide variance in the extent to which future earnings are discounted over present
ones. A twenty-something in school and a twenty-something on a North Dakota oil rig, likely value their
future job prospects in different ways. Those who heavily discount future earnings are likely to be more
sensitive to short-term job-type policies and less sensitive to education policies. To the extent that there is
spatial regularity in discount rates, policymakers can try to anticipate these, but it’s highly likely that
such information will not be available to them.
Constraint 3 Policy can cause and be caused by development
It would be easier for policymakers and theorists if policy could exclusively be seen as exogenous to
development. This might be called the “treatment” potential of regional development policy, where less
prosperous regions can be imagined as “sick patients” and policy tools as the immunizations that will
make them healthy. The problem with this analogy is that even if policy does positively promote
development, this is often conditional on a certain level of development. The patient must have a certain
degree of health.
Over the course of an industry life cycle there are differences in a wide range of factors from (Klepper,
1992; Audretsch and Feldman, 1996), from market size to market structure to propensity to innovate. As
Rodrik (2004) argues, at early stages in the technological or industry lifecycle it is unclear to policymaker
whether the social benefits of supporting a particular technology or entrepreneur outweigh the social
costs. It is only at a certain level of maturity that the policy choices become clear. The contingency of
institutions on development is quite straightforward when we think about institutions as organizations
that provide resources. Venture capital funds and universities might each promote development by
lowering the costs to innovate, but they can only do so with funding from an existing fiscal base.
We have already seen how standard economic theory allows for multiple equilibria in our exposition of the core New
Econfmiomic Geography models.
3 See Becker and Mulligan, 1997 for a neoclassical model that endogenizes discount rates. Even in that discipline the standard
discount approach is problematized.
2
4
The institutional economics literature is generally concerned with how to ‘get institutions right’ (Rodrik
et al. 2004), but simply having the same dejure institutions of successful economies is not a recipe for
success. This is the point I made at the outset about Haiti. Formal rules by themselves are not sufficient to
generate development outcomes. A key theme emerging from FP2 is that behind rules that appear to
promote efficiency there are often a set of informal institutions like norms and values that ensure these
rules are followed, and these themselves might only present themselves at certain development levels. As
Rodrik (ibid) says
“…institutional quality is as endogenous to income levels as anything can possibly be. Our ability to
disentangle the web of causality between prosperity and institutions is seriously limited (p.2)
All of this complexity severely limits the scope for development policy. To the extent that good
institutions require improvements in development before they can succeed, they will not offer useful
policy channels for officials who are searching for development. If a jurisdiction does meet particular
development conditions (e.g. the resource base to provide venture capital, a respect for rule of law) then
institutional modifications are more viable.
Of course, institutional modifications are themselves quite difficult under most circumstances.
Constitutions are difficult to change and so are norms and conventions. Moreover, some of the
institutional arrangements of “successful regions” may not even be transplantable to another context. In
my previous paper I tried to argue against the notion that local institutions are so hopelessly embedded
that they will not travel at all, but successful institutions might be contingent on particular contexts in
ways that are hard for the policymaker to see- rendering them as good as embedded. This all suggests
that getting institutions can be constraints and policies- getting them “right” is often not an option.
Constraint 4 Economic policy is one of many dynamics
Economic policy is an attempt to reshape market incentives in an effort to achieve social goals.
Policymakers would have considerably more agency if the only dynamic in the economy was their own
policy change , but that is far from reality.
Immediately, we need to recognize that in an interconnected world, the policy decisions of officials in
foreign jurisdictions can affect “home” economies. Consider that officials in South Florida had no say in
whether the Cuban government released 125,000 migrants to Florida in 1980, or that OPEC’s output
decisions cascade down to America’s resource regions, altering employment and wages in ways that local
policy couldn’t dream of doing.
The normal functioning of markets acts as an even tighter constraint on regional policy. In FP1 I
described differences in regional economic outcomes as a byproduct of sorting and development
processes. Each of these dynamics can interfere with the ability of policy to achieve socially desirable
outcomes.
NNUE critiques of many dominant policies emphasize the unintended adjustment processes that they set
off (c.f. Chesire et al., 2014). I will reserve most of my discussion of these critiques for the following
sections. For now, one example should illustrate my point. A region successfully wins funding for a large
early childhood education program similar to the Perry Preschool Program. This program has been
celebrated for its transformative impacts on individual level earnings, among other outcomes
(Schweinhart,1993; Heckman, 2008), but will it translate into higher wages per-capita at the region-level?
Not necessarily, because in the regional system, barriers to mobility are low and the affected children
5
might relocate to areas where wages are already high as soon as they reach adulthood. The adjustment of
skilled labor to areas where it is put to a higher and better use might very well render ECE programs
counter-productive to low-wage regions, if their costs are not recouped locally. Adjustment means that
slam-dunk individual-level policies can be nightmares for place-based policymakers. Policymakers can,
and should anticipate adjustment but they will be unable to do so fully.
The economy develops over space just as it adjusts, and these processes are even harder to foresee. The
market frontier is forever being nudged forward towards new technologies, an even finer division of
labor within industries, and the creation of new sectors altogether. At the other side of the life cycle, there
are technologies and industries being consolidated or displaced altogether. An almost trite critique of
industrial policy suggests that it is very bad at “picking winners”- which industries will end up being
able to support regional policies and which won’t (Rodrik, 2004), but behind this critique is an undeniable
truth. If regional policymakers could have anticipated that a 140 character app would achieve $32 billion
in market capitalization, then they would have at least tried to lure the company to their regions on its
founding4 by providing venture funding. In fact no region did. Meanwhile, stories abound of local policy
chasing the ‘next’ great industry and ending up with the husks of once promising ideas.
I could easily spend a 50-pager paper chronicling the many times in which developers have backed the
wrong technology or industry. Because there are more interesting things to say I will limit myself to the
illustrative case study of Albuquerque’s Eclipse Aviation.
Eclipse Aviation was the leading producer of a so-called “Very Light Jet”, which promised to
revolutionize travel by lowering the costs of private air travel. It was supposed to offer small planes at the
$800,000 price point with a range of over 1,000 miles. This, theoretically, opened up private air travel to
small and medium-sized businesses and the merely rich. The firm was founded in Arizona, but thanks in
part to the pedigree of its founder (who was one of the first Microsoft employees5) it attracted attention
from local economic development officials who were interested in the high tech manufacturing and
corporate headquarters functions that Eclipse might provide. Ultimately the operation relocated to
Albuquerque in no small part due to the $635,000 provided by the state and city in the form of
infrastructure, loans, and tax rebates (Site Selection, 2013; KRQE, 2013). At its peak the company was able
to fulfill its promise of employing 100 manufacturing workers in its Albuquerque plant but by 2008,
citing lower demand during the recession, it filed for bankruptcy and closed its operations, leaving the
city owned Eclipse Hanger empty for a year until a new entity “Eclipse Aerospace” resumed operations
with 15 employees, and the more modest mission of servicing existing planes and developing a newer
model. In 2014, this iteration issued its own layoffs (Finfrock,2014). Once the face of the supposedly
insurgent micro-plane industry Eclipse is now considered to be a complete disasters, and its underlying
technological proposition is not considered to be viable. Writing for Flying magazine, an industry journal,
J. Mac McClellan (2009) says:
When Eclipse unveiled the 500 nearly 10 years ago I wrote that the airplane at the initial weight,
performance and price promises was simply not possible. Forgetting any aerodynamic or other
technical issue, it just isn't possible to build a twin-engine turbojet for less than half the price of a
turboprop single, and even less than that of the pressurized piston Piper Malibu Mirage, and be a
viable business.
Whether Twitter would have left the comfy environs of the IT cluster is a different issue.
As someone personally connected to the city, I will point out that Albuquerque contained the initial headquarters of Microsoft.
The city’s relationship with that company has been nothing short of tragic.
4
5
6
It is clear that Eclipse, from the present perspective, did not offer a winning outlet for public resources. It
also seems that, the underlying business model might have been lacking. What is not clear, at least to me,
is whether a firm is bound to fail simply because it promises to be a breakthrough technology. McClellan
continues:
It didn't take any genius on my part to make the prediction. In 32 years at the magazine I can't begin to
recount the number of "revolutionary" airplanes that have been introduced and never succeeded. And
I can't think of another airplane project that had such an aggressive price as the Eclipse, not to mention
impossibly short development cycle.
This logic approximates how industries tend to function on day-to-day basis. The technological
parameters of a given industry at a given period are outside of the control of economic agents, especially
in the short term. Innovators may try to change these and reap the associated rewards, but they strikeout
more often than they succeed, and a promise that they will revolutionize a business is no guarantee.
However from time to time there will be technologies (Storper, 2013) that do deliver on this promise. The
silicon semiconductor, the DC-9, the Model T, all breakthrough technologies in product form. A
reasonable policy official needs to recognize that the odds of backing the right technology are stacked
against her, but this by itself does not mean that she shouldn’t try to win the breakthrough sweepstakes6.
The places responsible for the production (in the full sense of that word) of DC-9s and Ipods do better in
real terms than the places who don’t get these technologies.
In general, policymakers who do try to pick winners are constrained by the same forces as New Mexico
officials. They do not, by themselves, possess enough knowledge of an industry or its technology to make
even an educated guess about its success. But even the J. McClellans of the world find it hard to pick
winners. As McClellan himself points out, the equities market lost more than $1 billion on its own Eclipse
bets, and early customers who forked over unsecured deposits lost hundreds of thousands each. Even
experts have a hard time picking winners.
Even if policymakers had the capability to assess a technology’s fitness, their investments would not
necessarily pay off because they cannot control dynamics in the wider economy. In the case of Eclipse the
headwinds (very sorry but I had to) of a global recession which lowered the demand for air travel, and
also competition from substitutes like budget airlines and telepresence providers. These forces might
have made the company’s technological proposition (however worthy) moot.
Toward an appraisal of policy
As I begin to engage with the policy literature, the preceding should serve as one giant qualification.
Local economies are prisoners of processes at the level of markets, institutions and the technological life
cycle. We will see that some policies, which seem like they will improve economic conditions fail (or fail
to succeed) because they don’t or can’t anticipate the constraints of policymaking.
The next section will argue that economic development policies either fail on their own terms, or cannot
be supported with available evidence The final section considers how policy and the goals of policy can
be adjusted as the field proceeds. In particular I argue that policy needs to be envisioned as but one
element of regional economic governance.
By the end of this paper, I will fully express whether I have concluded that such sweepstakes are worthwhile. For now, I just want
to do justice to the logic of these policies.
6
7
III. Empty Hall of Fame: regional policy’s poor development record
Delimiting Regional Development Policy
In this section, the main of the paper, I will assess Regional Development Policy (RDP). Before we begin,
it is useful to define this concept’s scope
Bartik (2012) meanwhile defines regional development policy7(RDP) as:
…all the policies that seek to affect the quantity or quality of local demand or supply of labor, and
thereby increase local per capita earnings. (p.547)
RDP is directed towards the region but can come from multiple scales. A Google search for RDP will
mostly yield examples of how mayors and governors seek to ultimately improve labor markets but as we
saw earlier policy decisions at higher scales can have significant local effects. Policy accounts for why
New Mexico has more Ph.Ds per capita than any other state, but not local industrial policy of an Eclipse
chasing sort. By placing two of its most important laboratories in the state, Los Alamos (Los Alamos) and
Sandia (Albuquerque), the Department of Energy programmed this important feature into two of the
state’s largest labor markets. Their reasons for doing this were partly strategic, partly historic and partly
political8, but they were mostly incidental to a desire to develop the local labor force. There is no question
that the Department of Energy has more to say about labor markets in New Mexico than any local
agency. An exploration of how RDP works and doesn’t work, will only be partial if it limits itself to
policies enacted locally. The DOE example also shows that policymakers who do not set out to change
labor market conditions manage to do just that. The intentions of policymakers are irrelevant to the
effects of policy.
The Empty RDP Hall of Fame
For fans of most sports, the discussion of which players belong in the Hall of Fame, is a compelling one.
Every sport has some players (e.g. Michael Jordan, Wayne Gretzky) whose performance is so
transcendent that their admission is guaranteed. Somewhere below transcendent, around “incredible” on
the performance continuum, the halls must erect a barrier; leaving some very deserving players out of
their club. This is not a problem in RDP9 because, quite frankly, there is very little excellence to go
around.
Merriam-Webster Online defines policy as a “high-level overall plan embracing the general goals and acceptable procedures
especially of a governmental body” and governance as he way that a city, company, etc., is controlled by the people who run
it”
8 Los Alamos was chosen as the site for the Manhattan Project because of its physical isolation and as the country’s nuclear
arsenal grew, so did the activities based there. It was decided that nuclear component work should be moved to a convenient
campus off-site. Albuquerque was chosen because it was close, and also because it housed an air-force base (Rosenthal, 1990).
It was named after the local mountain range. As the cold war concluded and the nuclear stockpile grew at a slower rate, the
state’s senior senate leadership won new research funding streams for the two laboratories. In this highly stylized story, only the
state’s senators had an interest in the benefits of the labs for local labor markets.
9 Others have pointed out ways in which the economic development field is unlike like sports. For instance, Kemeny and Storper
(2014) critique the proliferation of ‘league table’ performance rankings as though there are evenly spaced first, second and third
place regions in any domain, and as if the domains are even comparable. Las Vegas has a higher location quotient for
Entertainment than Los Angeles, but there is barely any overlap in the type of entertainment that the two cities trade in. The first
subsection here can be considered another exploration of how sports differs from RDP.
7
8
I propose that were such an institution to be erected for regional economic development10, and were the
selection committee to only award inclusion to excellent policies, it would be virtually empty. In spite of
considerable evolution in the field, in terms of theory and rhetoric and theoretical rhetoric, it has yet to
deliver the policy tools that can reliably improve a region’s wage- per-capita .We do not yet have off-theshelf type economic policies to “solve” the “problem” of urban underdevelopment.
The purpose of this section is to defend this intentionally provocative thesis. I will do so variously, first
by suggesting that the activities that are usually called “economic development”- attracting industrial
activities from other scales- probably do not deserve that name. Next I consider whether infrastructure
investments can reliably improve development outcomes. Next I consider policies that would attract
skilled workers through cultural investments. After that I consider the notion that knowledge should be
developed within regions. Finally, I zoom in on the places that would seem to have done policy right by
virtue of their development success, finding policy to be, at best, one of many proximate causes for their
success. Again, my focus here is on the actions of elected officials (RDP), because this is also the focus of
the research. I try, where possible, to assess the performance of governance regimes.
The problem(s) with development by sweepstakes
To most practitioners, economic development is synonymous with the recruitment and retention of firms
and industries through fiscal inducements: either regulatory savings or subsidies to normal business
expenses. Figure 2 is a reproduction of a table form Johnson and Neiman’s 2004 study of economic
development polices in California. It counts the number of municipalities (out of the 475 in all) who
pursued development under each heading11. It shows an emphasis on improving conditions on the labordemand side. What is less clear from this figure is that the focus of RDP tends to be on attracting labor
demand from without. Better evidence for this can be found in (Halkett-Currid et al., 201112) who find
that a clear plurality of economic development awards given by the International Economic Development
Council were for promotional initiatives13.
I call demand-sided, recruitment strategies “sweepstakes policies” to evoke their competitive, zero-sum
nature. When a firm is recruited to a place, it is simultaneously not recruited to another. “Winning” is
usually understood as getting a (re)location commitment, and losing is not. These policies all work on the
labor-demand side to improve regional wages per capita. Figure 1 shows a full typology of all RDP
policies, contrasting these demand-sided inducements with inducements on the supply side and general
The literature is clear that these policies, whether they involve brokering specific deals with favored
firms, general regulatory reform, or marginal regulatory reform, can successfully attract economic
activity, but this does not mean that this is a viable or sustainable development strategy. I will run
through the empirical record on these polices before critiquing them as development policies. It is equally
clear, that the sweepstakes game itself, is suboptimal from the standpoint of net and jurisdiction-specific
economic development.
The economic development hall of fame would naturally be awarded to a locality after an arduous selection process,
announced with much fanfare in the paper where it was erected, and bragged about in the promotional materials of that
jurisdiction’s economic development office.
11 One might quibble with the typology they use, but the preponderance of demand-sided strategies particularly of a
sweepstakes type is clear.
12 I designed and conducted the data study that is reported in this paper.
13 See also Glassmeier and Markusen, 2008
10
9
Development in the Eclipse Aviation fashion – through a highly customized suite of policies- is prone to
failure. While the field lacks a good broad study for how these highly customized projects tend to work14,
a few case studies highlight the problems with not simply “picking winner” industries but “winner
enterprises”. To the previous example we can add Solyndra, a solar panel manufacturer which is
notorious for attracting $25 million in tax rebates from the State of California and a $500 million dollar
loan guarantee from the federal government to support a scaling up of production. These policies can be
thought of as recruitment policies in reverse: their intent was to keep Solyndra from relocating its
manufacturing operations to China in the manner that so many maturing manufacturing industries
would do.
In a speech unlikely to be inscribed into the Obama Library, the president explained his rationale:
...and by the way, let me make one last point about this. I heard there was a Republican
member of Congress who’s engaging in oversight on this, and despite the fact that all of them in
the past have been supportive of this loan guarantee program, he concluded, you know what?
We can’t compete against China when it comes to solar energy (Annenberg, 2015).
The policy, then, sought to modify the demand conditions enough to reverse the tendency for
manufacturing activities to leave the Bay Area. Seen another way, it was an attempt to “beat” a country
far lower down the wage per capita ladder at economic development. Furthermore, the policy was
intended to extend the effects of a short-term Keynesean style demand stimulus (the American Recovery
and Reinvestment Act), into the medium and long term by developing specialization in cutting-edge
manufacturing. Whatever its motivation, the policy did not work, as Solyndra ceased operations in 2011,
amid intense competition from Chinese manufacturers (Wood, 2010).
If Eclipse, was an example of how easy it is to back the “wrong” technology, Solyndra shows that
government money alone cannot transform a place that is not productive for a certain activity into one
that is productive. From this standpoint, as soon as Solyndra was considering the offshoring of its
manufacturing, it was probably too late for a subsidy to work.
There are also problems with backing “winner” companies. Consider that at one time, the stock market
valued Yahoo! more than Google, and Myspace more than Facebook. If the markets themselves, cannot
always value companies correctly, then one can hardly expect for local policymakers to do. And of
course, as FP 1 makes quite clear, even Google and Facebook would not have achieved their current
levels of success from outside of their industrial district.
Having read about these cases, a smart policymaker might opt to not tie up so many development
resources in specific enterprises15, opting to spread resources over many firms in the hope that some of
these will succeed. In fact, most RDP practice is wider in scope, oriented towards particular kinds of
business or business in general. Tax breaks and subsidies for businesses and industries and clusters can
be considered the primary EDP lever. The evidence suggests that these have limited success.
Raw economic growth is the mechanical expression of increases in capital, labor or technological
capability at the local level. From the standpoint of increased growth, we can expect for all policies that
This is a serious hole in the literature, but coming up with an appropriate sampling strategy is very difficult.
While there is not enough time to pursue this line of thought, Leroy (2005) shows how the effects of failed subsidies can linger
well into the future in the form of debt obligations. His book is a colorful and polemical account of subsidies, written in a tone that
is usually eschewed by policy experts. It is replete with examples of one-off development deals.
14
15
10
lead to local increases in any of these to be successful and generating growth. When defending their
policies, officials are quick to cite estimates of job or revenue creation in raw terms. These do not tend to
take into account the money spent per job or compared to some opportunity cost16.
The academic literature tends to do a better job than public officials of capturing the net effects of
incentives and tax reform. Studies on the relationship between tax rates and value-added or local wages17
are case-in-point18. Helms (1985) provides the first widely-cited account of how elastic personal income is
in terms of total tax rate, finding an inelasticity coefficient. Similar work by others, most notably Bartik, (
Bartik, 2013; Funderburg et al. 2013;Wasylenko,1997; Hines, 1995; Bartik,1991) estimates a range of
coefficients between -.1 and -.6 (Bartik, 2013). As Bartik (ibid) points out, this range is enough to suggest
that high tax rates are, generally and significantly associated with lower employment outcomes, but it
does not provide enough precision to allow for policymakers to compare tax breaks with alternative
strategies. For instance one Michigan estimate (Bartik, 2011) suggests that ,under the -.1 elasticity
assumption, each created job will cost $43,000 in foregone revenue while at the -.6 assumption, this drops
to $7,000.
Another problem with these findings, is that they might still not imply that tax decreases cause
development. The authors employ a range of econometric tools to ensure that jurisdictions (usually states
in these studies) are comparable, but lurking missing variable bias might complicate attempts to growth
through tax reductions.
Moreover, the finding that there are employment effects to taxes does not preclude the finding that
increased social spending will also lead to growth. Indeed Orzag and Stiglitz(2001) demonstrate that
under a balanced budget constraint, spending increases are preferable to tax decreases from the
perspective of short-run growth. Ultimately this literature does not suggest that demand-sided tax reform
will improve wages per capita. On one hand, it is not precise enough to suggest how much taxes should
be reduced by, on the other it is not clearly preferable to competing (and opposite) policies which would
increase social spending through higher taxes.
Sectorally-targeted incentives exist in a middle-range between one-off deals and general tax reform.
There is evidence that these work better to generate positive development outcomes. Funderburg et al.
(2013) decompose the general effects of tax levels on value-added into industry-specific and general
components, finding that specific tax relief was twice as effective. As they point out, even under a
balanced-budget assumption, lowering tax burdens on an industry does not necessarily imply that
general social spending rates will decrease. This opens the possibility of lowering tax burdens for
“important” economic activities while also harnessing the economic benefits associated with social
spending (Stiglitz and Orzag, 2004). There is also some case-study evidence, cited in Bartik (2013) , that
customized job training and businesses service programs can generate more clear economic impacts than
their non-targeted cousins19. By subsidizing the upgrading of skills and capital among specific firms, the
hope is that they will be able to generate higher levels of productivity which will ultimately spill over in
the form of wages. These studies are of particular policies or particular policies in particular places and
See Site Selection, 2013 for an example of this kind of rhetoric
For the purposes of this review, we can consider these outcomes to be associated with each other. Feldstein 2008 finds that
between 1970 and 2006 wages and productivity grew in concert. This does not by itself demonstrate that labor always captures
productivity benefits, or even that it (as assumed by the competitive economic model) gets its marginal product. It is robust
suggest that an increase in one implies and increase in another.
18 Studies on general demand-sided incentives side are equally ambiguous. See for example Bartik, 2009. I will consider subsidies
more below, in my discussion of targeted investments.
19 See Holzer et al. 1993, Hoyt et al. 2008 and Hollenbeck, 2008 for case study support of customized job training. See for Jarmin
1999 for study a particular type of capital upgrade- manufacturing extension services.
16
17
11
do not even provide the sort of general if vague insights that we have in the taxation literature. They do,
however, leave open the possibility that targeted subsidies can be cost-effective.
Without having those results, we can still conclude that they do not offer feasible policy problematize
targeted tax breaks and incentives in the same way we problematized the one-off deals. In short, we
cannot assume that jurisdictions will be able to properly “target” their breaks at winner industries, or
even industries that are viable given the economic environment.
Let’s consider the Solyndra example again. There is reason to believe that Solyndra was the wrong
company to get unprecedented development support from the federal government. We could count the
subsequent investigation of the company for fraud to be an indication that it was not the best managed
company. Would the subsidy have been successful if it had been directed towards-say- Yingli, the largest
solar panel producer in the world with a full 15% of the global market? (PV Tech, 2013). The answer is
probably not, because Yinglu derives much of its competitive advantage over American competitors,
from the ability to pay lower wages. The manufacture of solar panels, quite simply, does not demand
access the America’s relatively higher skilled manufacturing workers, or physical proximity to its
markets. To the extent that these factors are important, they are considerably less important in terms of
overall productivity than wage costs. California and the United States, could theoretically, intervene to
cover the gap in labor costs for the production of solar panels, but this would be a highly inefficient way
of generating economic growth20.
Industrial policies must not only choose the right industry in terms of revenue growth and potential
spillover benefits, but they must subsidize the right functions within an industry; this means functions
that do not rely on permanent government transfers in order to survive. The US economy tolerates
permanent subsidies to the growing of crops and the manufacture of military equipment, even though
these functions would be more productively performed elsewhere, in the name of security21. It cannot do
so for the entire economy, however, lest it become one giant Ponzi scheme, where development is funded
by subsidies which are funded by development.
Moreover, it might not be possible for high-cost regions like San Francisco (where Solyndra was based) to
ever successfully target incentives and tax breaks. The rents in these places are so expensive that savings
on the marginal tax rate, on training or on specialized services might not be enough to attract and retain
the very enterprises that are sensitive to tax rates (see Storper et al., 2015; Cheshire et. al 2014; and
Moretti, 2012 for variations of this argument). Conversely, the tax rate for businesses in industrial districts
like Wall Street, Silicon Valley, or Route 128, would have to go well into the negative range, for firms to
consider relocating from these highly productive areas. In short, rent-producing regions are largely
precluded from development via inducement and rent producing activities are effectively impossible to
relocate out of their already expensive environments.
Enterprise zones (EZs) are policies that target subsidies and tax breaks at particular areas within the
region, particularly those with poor starting employment outcomes. To the extent that there are
neighborhood employment effects for residents within a metropolitan area (Kain,1968) policies like these
It would be less efficient, for instance, then issuing checks for displaced manufacturing workers to compensate them for the
effects of global offshoring. These transfer payments would at least make the beneficiaries available in other sectors of the
economy.
21 The efficacy of these subsidies from a social welfare perspective is contested. See Markusen 1991 for a critique of militaryindustrial subsidies and Ahearn et al. ,2005 for just one critique of American farm subsidies.
20
12
might improve access to jobs for those who are currently unemployed or underemployed. In addition
EZs might function like other incentive policies to generally increase the demand for labor within the
metropolitan area. The evidence is that these policies do not generate significant regional employment
effects (Neumark and Kolko, 2009; Peters and Fisher, 2002; Boarnet and Bogart, 1996). To the effect that
they generate any effects at all, it is at such low scales (i.e. from one side of the EZ boundary to the other)
so as to not generate strong neighborhood effects.
Recruitment and retention policies can also be critiqued for only rearranging economic activity and not
developing it. For the most part, these are policies that sorteconomic activities and do not create new
activities; they are distributional from the standpoint of the national economy. Consider the new Tesla
motors “Giga” battery factory, which was recently recruited to Nevada with some $1.25 billion in
development pledges to help defray $6 billion in construction costs (Thompson, 2014). The scale and size
of this factory was already set before the company shopped it around to policymakers in California,
Nevada and New Mexico to get the best incentive package. From the standpoint of the national economy,
the investment of $6 billion in Nevada will not be obviously superior to counter-factual investments,
however the investment by the losing states in courting Tesla would represent a deadweight loss.
When incentives do not uniquely generate economic activities, they can create negative social costs
through what Markusen and Nesse (2007) liken to “prisoner’s dilemma” inefficiencies. In this analogy,
firm analogies are like rewards, and competing jurisdictions are like prisoners. In order to avoid
deadweight losses, then regions need to collude with each other in order to behave optimally, and try to
create a monopsony for industrial incentives. As these authors point out, there is a long tradition in the
academic literature of rejecting firm subsidies altogether because of their national-level costs22.
A related critique of subsidies is that they cannot always discriminate between the marginal activity (that
needs a subsidy in order to locate, relocate, or remain) and an activity that would remain in a jurisdiction
with or without a subsidy. A sales tax break for productions that film in Los Angeles (2014) would
subsidize shoots that already prefer to shoot here as well as those for whom the subsidy is decisive.
Subsidies for the former productions amount to deadweight losses, because they forego tax revenue that
would otherwise be realized.
Another critique is that, from a national perspective, regional policies which channel activities to places
that are less productive are inefficient. Imagine that absent a subsidy, Tesla would still build a
Gigafactory. This is not a stretch, when we consider that scale economies are necessary in order for their
electric cars to be accessible to most consumers. Now imagine that, absent subsidies, Tesla would do best
to locate its plant at the population-weighted geographic mean of the country because this would save on
shipping costs. A subsidy might effectively overcome the natural benefits of locating here, and from the
standpoint of Nevada this subsidy might be effective in the short term. However, from the standpoint of
national economic activity, the full amount of the subsidy is a deadweight loss, it did not need to be spent
in order for the country as a whole to realize the gigafactory’s economic benefits.
We can relax standard economic assumptions a little bit and still conclude that the subsidy is
inappropriate from the standpoint of national efficiency. We can assume instead that there are market
failures operating in this sectors, whereby a socially efficient scale of production would not be possible
without subsidies. In this case, there should still be subsidies, but to be economically optimized, these
should be provided at the geographic mean of the country. This way of looking at the field, suggests that
22
See Thomas, 2000; Guisinger, 1985; Cooper, 1972
13
,in order to maximize total output, industrial policy should be reserved for places that are already
“winners” in a given industry, and implies that a high degree of regional inequality is acceptable. If such
inequality is deemed undesirable, than subsidies might be justified as redistributive tools.
Markusen and Nesse (2007) attack the prisoner’s dilemma analogy from a different angle. First, they
rightfully point out, that when collusion is not possible certain actors in the prisoner’s dilemma can profit
relative to others. The prisoner who rats her colleagues out first wins, just as the region who offers the
best development package does. In a highly federalistic and variegated landscape, where collusion is
difficult, the incentives sweepstakes represents an individually rational and socially suboptimal strategy.
Furthermore, deadweight losses from incentive sweepstakes might be mitigated by political institutions
(Bassinger and Hallerberg, 2004) which create additional winners.
These critiques of the critique notwithstanding, sweepstakes policies do seem to generate economic
inefficiencies – particularly for loser regions. When we add to this concern, the concerns that one-off deals
tends to fail, that is it is difficult to target subsidies to the right activities, and that we do not know the
magnitude of tax changes on economic development outcomes, we cannot be confident that these are
viable economic development policies. As Bartik (2013) points out, we are very good at predicting how
given demand shocks will improve development but we are still unclear on how to generate such shocks
locally23.
Bridges to jobs or bridges to nowhere?
Investment in infrastructure regularly appears as an economic development strategy. So called
“megaprojects” like convention centers and stadia, as well as road infrastructure, housing, commercial
space are all supposed to add to the employment rate and ultimately to income per-capita. As discussed
before, any investment in the local economy will mechanically increase local income in the short term,
and these projects surely employ workers as they are constructed. They are justified, however, on the
grounds that they will, through various means create permanent economic activities in the local economy
or improve its functioning. I will now review these arguments as well as evidence for and against them in
light of some empirical evidence, concluding that it is imprudent to build one’s way to development.
Mega projects are particularly visible examples of development via infrastructure. The announcement
that a new stadium or convention center or airport will be completed in a region is usually just the first
line in the press release, the headline is almost always that these will create jobs. The best examples of
these are the most current. While I wrote this paper, the Inglewood City Council rushed to unanimously
approve a publicly-backed plan to build and NFL stadium in the neighborhood. While up-front public
money is promised to the $2 billion dollar stadium, up to $100 million dollars in tax revenue are expected
to be “recouped” by the developers over five years. This is supposed to be worth it, however, because of
the 10,000 jobs and tax revenues that the project is expected to “create” (ESPN, 2015).
Before consulting the empirical record, we can already problematize the idea that this project, or the still
planned NFL stadium in Downtown LA, or the NFL Stadium that San Diego is breaking its back to build,
will create jobs at the regional level. There are only so many NFL Stadia that Southern California
(currently with just one) can hope to fill. This raises the familiar issue of a zero-sum sweepstakes,
municipalities vying for economic activities that are already created, albeit at the sub-metropolitan scale.
The deadweight risks that we encountered earlier apply here, all the effort in term of time, money and
My discussion here has focused almost entirely on the courting of businesses and industries, and not people. The next sections
will address the perspective that the right type of people can be courted through policy.
23
14
political capital that is spent by jurisdictions that lose stadia, are lost by the economy as a whole.
Additionally, jurisdictions get worse deals when they are in competition with each other than if they
were somehow able to collude.
More importantly, we cannot expect for net job increases at the level of the region to be very large. Let’s
first assume that San Diego does not build its stadium, and its team (The San Diego Chargers) relocates to
Inglewood. We could imagine that this would shift some economic activity that is currently in San Diego
to Los Angeles, but only to the extent that the city trades externally in its football team (i.e. that former
San Diego Chargers fans make the pilgrimage up to see the Los Angeles Chargers). At the local level
increased spending on the NFL will not create new economic activity because NFL games are highly
substitutable. For the most part LA’s NFL fans will be spending less money on rival experiences:
professional sporting events, visits to sports bars, evenings out and the like. In a conclusive study of
similar NFL subsidies Baade (1996) concludes that these measures clearly benefit NFL stakeholders , but
not the public at large. He finds that they neither increase aggregate demand significantly, nor shift labor
demand to more labor-intensive sectors. Similar results are achieved in studies of other leagues and other
regions (Siegfried and Zimbalist, 2000; Noll And Zimbalist, 1997). In an interesting twist on this literature,
Alexander and colleagues (2000) find that there are also negligible consumer surplus benefits associated
with stadia, even though they are also justified as amenities.
Convention centers and airports are infrastructure related to the tourism industry, an industry that can
create jobs by attracting economic activities from beyond the region. While every region of a certain size
tends to have an airport, not every region’s airport could be a hub for long-haul flights or an air shipment
logistics center. Upon closer inspection, the strategy of building convention centers to “attract” the
tourism industry is similar to the strategy of lowering taxes or enacting subsidies to get other sectors. The
prisoner’s dilemma critique surely applies- there are way more jurisdictions building airports and
convention centers than there will be centers of conventions, air travel or logistics, but it is a lot harder to
“hit control-z” on large physical projects that do not work out. Storper et al. (2015) demonstrate that the
distribution of American convention activity is heavily concentrated (traded) in Las Vegas (LQ of 15) and
Washington DC (LQ of 2)24. Additionally we can note that airlines and air couriers are highly oligopolistic
industries, and that the number of hubs to go around is quite small. In the sweepstakes for high-prestige
tourism services, there will be a lot of losers.
We can place infrastructure-related urbanization benefits next to the potential localization benefits of
airports and convention centers. Bigger airports lower the travel costs for economic agents with local
access to them, this allows them to travel more and spend less doing so. Recent studies find that airport
capacity is indeed positively associated with regional productivity (Brueckner 2013; Tittle et al. 2012),
although this connection is not universal. In the Tittle et al. study, Boston and Orlando were shown to
increase GMP through airport expansion while Detroit and Cincinnati lost GMP and labor productivity
through their projects, apparently because economic activities that airport construction replaced were
more productive25.
Cheshire et al. (2014) help make sense of the finding that infrastructure effects vary across space. They
point out that infrastructure can either serve as a complement to human and physical capital by lowering
congestion costs, or that it can better connect regions together. In the former case, infrastructure will be
more useful in areas that have low rates of infrastructure provision (ie distance traveled per second in the
Economies of scale seem to be quite high in the convention sector, and the convention site itself is not sufficient
Similarly, in a useful cost-benefit analysis, Fenich (1994) found that the construction of the Javits convention center in New York,
was cost-effective on its own terms, but not so when lost income from the site’s previous use was factored in.
24
25
15
case of urban highways) than in places with relatively abundant infrastructure. Detroit does not have
shortage of infrastructure: be it housing , roads , commercial space or airport space. An increase of
infrastructure stock here will see diminished effects, when compared to higher-congestion cities. In the
second case, infrastructure might, by lowering transportation costs, set into motion agglomeration
processes that disadvantage peripheral regions. NEG accounts of infrastructure upgrades, suggest that
lowering transport costs between core and peripheral places can make it easier to provide goods and
services at a distance, just as it can increase market access to the periphery (Puga, 2002)26. The Paris-Lyon
high speed line was found to have led to increased business service concentration in Paris and the outmigration of less lucrative functions to the periphery (Vives, 2001). Together, these perspectives cast
doubt on the prediction that infrastructure upgrades will lead unambiguously to economic development.
It is much more probable that infrastructure will improve economic functioning in highly congested
areas. Anyone who has waited an hour to get from one side of the 405 to the other can understand that
travel congestion is a drag on economic opportunities. It creates costs to travel, lowers the ability fore
agents to connect in space and ultimately lowers the extent to which a city can harness the benefits of
localization. Moreover, because traffic cost are assessed on the region as a whole and not just particular
industries, they might encourage cities to specialize considerably by industry (Henderson,1974),
foregoing any possible benefits to diversification (Glaeser at al., 1991; Jacobs,1969). Investments in
transportation infrastructure in congested areas will increase the number of trips in the long-term,
increasing total economic and non-economic activity. It will not, likely, lower congestion itself without a
corresponding increase in pecuniary driving costs, because demand will increase with excess supply.
Transportation researchers call this the “induced” or “latent demand” effect27. Hence the recent finding
by a Seattle consulting company that Los Angeles’ recent 405 renovation did not reduce travel times (LA
Weekly, 2015).
If studies by Flyvbjerg (2007, 2005, 2003) are to be believed, then megaprojects will reliably carry
principal-agent costs stemming from information asymmetries between jurisdictions and builders, and
collusion between opportunistic officials and private interests. These costs can be manifest in cost
overruns and construction delays or outright bribery and promised benefits that are not delivered. To the
extent that these costs can be mitigated through alternative incentives structures, then infrastructure can
become more reliable development tools. It is unlikely that large-scale infrastructure development will
ever be a reliable development strategy due to the systemic problems outlined in this section.
Small-scale infrastructure and development: the culture as amenity thesis
There is a case to be made that neighborhood amenity upgrades (i.e. small scale upgrades at a hyper local
spatial scale) are efficient uses of economic development resources, because they make the region more
attractive to high-skilled and footloose workers (Clark et al., 2004; Florida, 2002). Arts investments in
particular are said to be important in the recruitment of highly mobile creatives. These policies are, as FP1
made clear, premised on the contested notion that human capital shapes regional development by
pursuing consumption-rich areas. Once we allow ourselves investigate this theory on its own terms, we
are probably disappointed about the state of affairs. Policymakers seem to have embraced this idea, but
well before we have evidence that corroborates these theories. Moreover, a consideration of how talent
tends to sort across space
In NEG models, the effect of lower transport costs on agglomeration depends on whether the economy is on the
agglomeration or spreading side of the multiple equilibrium range.
27 Taylor 2002, rightfully points out that induced demand should not rule out increased infrastructure. From an urban economics
perspective, we should be more concerned with metropolitan outputs than congestion costs in particular.
26
16
A survey of policymakers by Grodach and Loukaitou‐Sideris (2007) shows that the “amenities drive
urban growth” (Clark et al. 2004) perspective has caught on with municipal policymakers28. While a
plurality (26%) of those surveyed believe that “major cultural facilities ”(i.e. megaproject type
investments in operas and symphonies and major festivals) achieve the most benefits, the other 74% of
respondents selected one of the small-scale options. These include non-major “cultural events” ‘“public
art”, “cultural or arts districts”. It seems clear that economic development is used as a justification- either
a fig leaf or a Trojan horse depending on your perspective, to get cities to invest more into the arts. The
language of economic development in arts funding community is pervasive, even among arts
organizations with artists as their stakeholders. Consider the mission statement of Toronto’s Artscape,
which works to secure gallery and studio space through public-private-partnerships.
Our approach to development involves rallying artists, designers, urban planners, community activists,
environmentalists, government officials, as well as community, economic, and real estate developers
around projects where all parties benefit. This multi-stakeholder approach allows Artscape to design
projects that deliver a "quadruple bottom line" (cultural, economic, social and environmental). Artscape
initiatives often start with an exploration of what combination of art, culture, and creativity might add
value to a building, development site or neighbourhood. Then, we look at how the project can support
community and economic development and serve as the social heart of the neighbourhood. We always
work to ensure that our projects are economically and environmentally sustainable (Artscape Website,
2015).
One might think that the widespread adoption of these strategies is as good as robust empirical support.
Surely policymakers wouldn’t widely embrace the “drug” of arts-led development before it survived
“clinical trials” in the form of pilot programs? At the very least, the coincidence of these policies with
high wage levels per-capita, might provide evidence that they correlate with development.
Unfortunately, the field lacks much in the way of empirical studies on whether arts-led development
would lead to development. In Figure 3, I disentangle the amenities drive growth argument into its three
implied causal processes. I want now to assess the literature as it relates to each of these. There are serious
gaps in our knowledge at every step of the causal chain from neighborhood policy to regional
development.
First, policy must actually succeed at improving neighborhood amenities. This might seem facetious, but
we should not assume that spending money on something will necessarily improve it. There is a type of
the “picking winners” problem involved with cultural investment. Arts planners might replace a
perfectly fine wall with a mural so ugly that the drab structure was preferable. In addition, the
involvement of policymakers in culture, might introduce a level of top-down planning that is corrosive to
cultural products and services. This is the age-old tension between artists and managers, those who create
art and those who create ways to sell it, between the band and the A&R guy, the method actor, and the
agent who wants her client to take a broad role and so on. As Markusen (2006) points out, the political
and ideological perspectives of artists and the rest of the “creative class”, which would include
policymakers, are generally quite different. We cannot assume that the extra involvement of
These authors make a dubious distinction between what they call “entrepreneurial” strategies, and “creative class” strategies.
The former are said to be directed towards increased tourism and to involve building large-scale cultural facilities. The latter are
supposed to be directed towards talent-attraction and to involve neighborhood upgrading. However their results indicate that
both scales of intervention are justified on both tourist and talent-attraction grounds. I believe that the only meaningful division
would be between “entrepreneurial” arts strategies – which see the arts as a vehicle to more economic output per capita, and
what the authors call “Progressive’ strategies, which see arts as a way to improve quality of life for existing residents. The authors
do not effectively discriminate between “quality of life “ as a talent-attraction goal, and as a local public service.
28
17
policymakers in the cultural field will necessarily improve that field. However this is a necessary
condition of growing the economic base through cultural amenities.
These concerns notwithstanding we can assume that policy can work in a limited fashion to improve
cultural goods. It’s possible that, policymakers excel most when they stick to their knitting (land use
regulation, funding provision). For instance, Catungal et al. (2008) show that Artscape was able to secure
stocks of housing for artists in neighborhoods before they gentrified, thus allowing for the provision of
cultural services there, that might have been priced out. In neoclassical terms, cultural goods might be
underprovided because they are somewhat non-excludable, and non-rival. By stepping into provide these
goods,
Figure 3 How arts amenities would cause wage per capita increases through talent attraction
LOCAL (SORTING) EFFECTS Economic policy improves a cultural ac2vity through neighborhood interven2on, local demand for the ac2vity increases. REGIONAL AMENITY EFFECTS More a;rac2ve ameni2es and neighborhoods lead to the reloca2on of skilled workers. REGIONAL INCOME EFFECTS The reloca2on of skilled workers leads to an increase in regional wage rates. policymakers (public officials, PPS, NGOS) can improve them. However, these schemes do involve some
kind of filtering role for policymakers (choosing which artists live in subsidized units, choosing which art
is commissioned) and this brings back the risk of backing the wrong artist. Case studies of improvement
effects notwithstanding, we can expect for some cultural efforts to fail, even in the best scenario.
The econocentric / “entrepreneurial” metric for cultural amenity improvement is increased demand.
Economics does not allow for a service improvement that only increases foreign (ie non-local) demand in
the medium term. Because transport and relocation costs add to the final cost of a good, an improvement
in a service at a given price should be met by higher local demand than regional demand.
The effects of amenities on regional development might be hard to measure but initiatives that do not
increase local demand should not be expected to increase regional demand. Some cultural upgrades
might be more demand elastic in terms of cultural upgrades than others. LA’s opera is now directed by
Plácido Domingo, a famed figure but the market for opera is so particular that Domingo probably does
18
not mean as much more demand29. Opera is supported by its hardcore enthusiasts, the addition of a
Domingo won’t do much30. In these cases, non-local demand may ,be more elastic to Domingo than local
demand, but there should still be local effects. Local demand effects involve the sorting of some economic
activity (housing and arts consumption) and are by themselves not developmental but they should be
seen as necessary conditions in this overall process.
Evidence that arts interventions can rearrange economic activity is limited to isolated case studies, and
most of these do not have clear treatments to tes31. Smit (2011) finds that in the Netherlands, the sites with
some of the most aggressive cultural planning, have been the places with the location behavior of
“creative entrepreneurs” including artists, designers and architects. Of course, these are vulnerable to the
classic critiques of correlation and causation. Small-n studies do not even give researchers the
opportunity to control for confounding influences. Research that places the location decisions of creative
workers at the center of the analysis casts doubt on the prospects of sorting through arts development.
Lawton et al. (2013) show that the neighborhood preferences of creative are heterogeneous over the
lifecycle with uncool amenities like land quantity becoming more important as workers have children. As
Karsten (2007) shows in her Dutch study, even households with children who are symbolically attached
to the central city, report heightened sensitivity of the urban core, which tends to be where cultural
planning is centered.
The developmental (as opposed to just the intra-regional sorting) potential of cultural infrastructure
planning is tied to the relationship between better arts planning and talent attraction or retention.
Cultural interventions are justified on the basis that they will make an entire region more hospitable for
skilled workers. Is there evidence that policy can make regions more attractive to skilled workers? Again,
there is a paucity of support either way, because there are not cultural treatments of appropriate
magnitudes. However, Brown and Scott (2012) show through a study of Canadian migrants that they
prize thick labor markets above amenities. This finding is, of course, suggestive that consumption is
subservient to industrialization in the economic development process, but it also suggests that creativetypes value job amenities above consumption amenities. If this is generalizable, then it implies that
cultural planning policies would be most effective in places that already have thick labor markets in highskill work, and perhaps ineffectual in places with poor labor market conditions. Scott (2010) finds that
engineers are indifferent to most amenities, except for older workers who prefer warmer climates. More
research on this issue would be nice if it were available but it is unclear whether even a trial study could
be justified, given the resources necessary (think large scale community cultural interventions in a
number of places) to give this theory a full study.
The final necessary causal step is for the incoming (or retained) talent to improve wages per capita. A fair
analysis of this effect needs to weigh the wage benefits of talent that would otherwise be elsewhere
against the costs of making an area more hospitable. These costs are incurred ex ante to the migration as
well as ex post. Perhaps more important, however, is the measure the positive spillover benefits of
human capital to the local labor market. Reasonable estimates find that high skilled jobs do generate
wage multipliers (Moretti, 2012) but the addition of, for instance, a culturally-sensitive skilled worker
may bring different employment effects.
The same could be said of street art, a low-scale genre. Compared to a street art exhibit from an average aritist, only one by
Banksy, would be able to attract those who do not already have t
31 Quasi-experimental studies would demand enough of these small-scale interventions that could feasible create perceptible
demand effects, and that are implemented at roughly the same time.
30
19
As Bartik (2013) points out, our understanding of how skilled migration improves wage levels is still
immature- we might editorialize this as “pitifully immature” because policymakers regularly assume that
winning the skilled worker sweepstakes is necessarily beneficial. Indeed the most full-throated
arguments for these policies (see Currid 2007; Stolarick et al. 2005; Clark et al, 2004 as well as many
economic development brochures) are obviously still figuring the theory out, because they do not even
try to estimate the magnitude of these benefits. What type of boost does a substantial commitment to arts
infrastructure mean for a region’s economic base, and more importantly what costs are necessary to get
those boosts? This is the standard paradigm for valuing policies and one that well-intentioned advocates
of cultural planning need to take seriously if they want local policymakers to sustain their current interest
in this area. The faddishness of economic development policy is nice when the “cool” strategy is too new
to have failed, but as evidence of failures accumulates32, cool policies needs some hint of empirical
support in order to maintain their appeal.
In any eventual cost benefit analysis of these policies, the minimum allowable cost would be inflated
compared to in a purely economic accounting because investments in the art serve a non-productive
purpose. The consumer surplus potential, found to be nill for stadiums (Alexander et al., 2000), is higher
here and anyway, a commitment to arts might be justified on purely humanistic grounds. Unlike the likes
of Scott and Storper (2009) and Markusen (2006) who propose that the case for amenities be abstracted
from the production discussion, I think that there is some merit to a kind of “quadruple bottom line”
approach as long as the benefits of cultural investment (for its own sake) and cultural investment (for the
sake of human capital attraction) are priced in a defensible way. Indeed this sort of budgetary approach
might encourage the kind of interest coalition-building that Storper himself (2013) argues for. Perhaps
one of the biggest problems with how these policies have been implemented is that they have been
supported with economic logics alone and by entrepreneurial policymakers alone, when older, marketambivalent logics might have more robust appeal. As policymakers wait for evidence for the conditions
under which these programs work, they should do their very best to get back to the basics in their pitches
for arts funding.
In closing we should acknowledge that the relatively newer idea that cities should invest in the arts is
probably more benign than the older types of sweepstakes policies. Assume that your city is a
sweepstakes loser, you have either lost out on a basketball team, a high tech manufacturer or a significant
number of skilled migrants; which of the following is a better consolation prize? Option A is an expensive
basketball pyramid, that was built to attract an NBA team but wasn’t new enough by the time a team
relocated and was eventually turned into a Bass Pro Shop. Option B is an abandoned airline
manufacturing plant. Option C is a series of art galleries that cost a fraction of the previous and require
little to nothing in terms of maintenance. The cheap infrastructure/amenity schemes reviewed here,
represent a reform of sweepstakes policies because they are less expensive and more justifiable on nonproduction grounds.
Knowledge development in economic development
We now leave the easy target of sweepstakes/ sorting polices behind us, and consider an approach that
seeks to improve a factor of production that is already present within a local region. In this section I
consider policies that develop general knowledge skills, and not skills for a particular production firm
(e.g. manufacturing extension services which were reviewed previously). Knowledge can be embodied in
labor, or separated from labor in the form of intellectual property; it is thus a messy object to analyze
32
Given the constraints identified in Section II, we should expect for even the most logically sound policies to fail.
20
from a policy perspective. I will do my best to make sense of some of the literature on knowledge and
economic development.
Romer (1989) emphasizes the role of knowledge growth to economic growth. Knowledge, as a nonexcludable and non-rival good, is supposed to be subject to increasing returns in the growth process, and
is supposed to be underprovided by private firms who will not be able to capture knowledge rents33.
Capital on the other hand, is supposed to be better because it is excludable. This economic logic is
supposed to provide a powerful call for regional development officials to subsidize the acquisition of
knowledge, either of a general type or of a skills type. This logic is artfully articulated by Mathur (1999),
and would encourage the acquisition of knowledge either through attracting migrants, or developing it
locally. It might conceive of knowledge as either highly generalized (think of a liberal arts degree) or
skill-specific/function neutral policy (think of an Excel training course).
In a powerful review of available econometric evidence surrounding human capital improvement
policies, Heckman (2008) concludes that interventions made at the beginning of the lifecycle (i.e. early
childhood education, school lunches) have higher cost/benefit ratios than those made with adults. He
attributes this to the higher brain plasticity of children, which essentially allows them to experience
higher human capital improvements at lower costs than adults whose physical brains are less amenable
to new knowledge. Early Childhood Education programs have been a hobbyhorse for Heckman, because
as he argues in the article, they have been shown to develop the soft skills that predict positive
employment and life outcomes later on (see Bartik, 2011; Heckman et al. , 2008; Schweinhart et al., 2005).
As Heckman himself points out, many of the economic benefits of intervening in the early childhoods of
at-risk youth, come via social spending channels – fewer welfare benefits and lower prison spending- and
not necessarily via the creation of highly-skilled, or advance degree holding workers. For their part, job
training programs, convict rehabilitation programs, or efforts to lower the classroom size are said to not
be cost-effective, at least “as they are currently constituted”. Similarly, specific job training training
programs were not found to be important in two, top of the food chain, industrial districts in California:
Hollywood and Silicon Valley (Storper et al. 2015) or in the development of biotech clusters in the United
States (Powell at al., 2012).
At less lucrative parts of the supply chain in a more mature industry, the Regional Industry Cluster
Opportunity II Program, trains skills for the electric vehicle industry seems to be performing well and
deserving of more than its current $1.5 million funding level (Storper et al. 2015). More research is
necessary to determine if skills policies need to be more targeted (at the industry and not company?) if
they are to overcome the apparently rigid brain structures of adult students. However, training programs
that are relatively more specific encounter two problems. First , they require policymakers to be good at
choosing the right sectors and the right parts of sectors at which to target training programs. We have
already seen that these decisions are prone to peril.
Second, specific training might encounter fewer market failures to begin with, because it is more
excludable than specific job training. Manning’s (2003) main argument is that that labor markets tend to
be monopsonistic34. He argues that geographic distance configures labor markets as monopsonistic at
various scales, and not just in classic monopsonistic settings like “factory towns”. The argument that a
Aghion and Howitt (1990) add the reasoning that knowledge acquisition increase the probability that a firms knowledge will
become obsolete. This would seem to be another powerful force suppressing the incentive to develop knowledge.
34 As Manning points out, the traditional assumption of neoclassical models found in textbooks like Borjas (2008), is that job
training of all types will not be provided because there will not be the economic profits to support it. The presence of employerprovided job training is a suggestion that this model might not always be useful in making predictions about labor market
outcomes.
33
21
“friction of distance” makes even urban employers into monopsonists is very powerful, because it would
turn traditional thinking about minimum wage (at the political and disciplinary level) on its head, by
suggesting that an increase in the minimum wage could improve employment (See also Card and
Kruger,1994). It also suggests that monosponists may use their rents to invest in job training that their
workers might not otherwise invest in, but that the monospnists will be more likely to invest in skillspecific training.
What about more general knowledge investment beyond early childhood? Is there evidence that strong
local universities can influence regional development processes in their local areas, by increasing the
stock of knowledge? The so-called “linear” model of university led development (Lee, 1996; Stokes 1997)
suggests that universities add to the stock of knowledge, especially basic knowledge, that the economy
would not otherwise provide, and that this knowledge spills over more locally than it does globally. This
knowledge then, acts as a somewhat exclusive asset for local firms, workers and entrepreneurs, and
creates a regional competitive advantage. In this view of the university/development nexus, a formal
institutional reform such as “Bayh Dole” (See FP 2), might be all that is needed to unleash the
development potential of universities.
Studies by Jaffe et al. (1993) (Feldman and Audretsch , 1996) among many others, support the basic
Marshallian point that knowledge dissemination is highly localized. From this perspective, it seems like
universities will be able to generate rents from knowledge produced locally (especially in the mediumrun), even if this same knowledge is not completely excludable. This might suggest that university
investments are a key to generating innovation and ultimately economic development.
The model of basic knowledge as necessarily valuable or purely external to local production systems has
mostly been abandoned however (Florida, 1999; Wolfe, 2005 Bramwell and Wolfe, 2008). The university is
no longer only understood as an input into the production system, but also an intermediary between that
system and the wider economy, a broker for global pipelines of innovation, and possibly a magnet for
talent. For universities to generate development, they must do more than create the best knowledge- they
must also create the type of knowledge that can be used by local producers or useful to global markets,
and they must also make sure that embodied knowledge (in the form of university researchers) does not
“drain” away from the region, once it can no longer be put to use by the university itself. It is not simply
enough to do good science, and then wait for the wealth to accrue. If it was, then the region bordering the
University of Michigan (one of the great public universities in the world) would likely be wealthier than
it is, and Washington DC (without any truly elite research universities) would have a lower level of
innovation. In fact, Washington does more innovation than Northern Michigan, because it is able to gain
innovative actors, while Northern Michigan lose them.
The unfeasibility of the one-way knowledge view of development, brings back the “embededness”
discussion in FP 2. There I argued against hyper-relational accounts of regional economic systems which,
for instance, might propose that Stanford’s position as a world class university and The Bay’s position as
a world class production system are too interrelated to determine that one causes the other. I believe that
the presence of world-class , knowledge producing institutions in regions will always benefit those
regions (i.e. even northern Michigan is advantaged by the university in Ann Arbor), but that the
university’s ability to significantly improve local wages, depends on the local context of receptionincluding the demand for technology by entrepreneurs and the institutions to absorb it. This is Rodrik’s
point (2004), when he argues how industrial policy should encourage developing countries to adopt new
technologies.
22
Rodrik tries to model the demand for innovation by entrepreneurs. He argues that the demand for
innovation (basic or non-basic) is subject to two serious market failures. The first is an information failure.
An entrepreneur does not know before investing in an innovation that it will have market value- some
technologies win some lose and entrepreneurs (like governments) do not know which are which ex-ante.
Entrepreneurs can “discover” the market potential of a technology (Hausman and Rodrik, 2005), but
these entail costs that might never be recouped. However, once a technology is shown to be economically
profitable, nothing is to stop other entrepreneurs from stepping into to exploit this information. The
ability for an entrepreneur to capture rents from the technology that she first adopted depends on their
intellectual property rights for that technology and their ability to leverage first mover advantages. In
both cases rents from technology are quite fragile and tend to disappear over time. The second failure is
of a coordination type. Often an entrepreneur herself does not have the ability to trigger the adoption of a
technology, and relies on simultaneous adoption up and downstream35.
The unidirectional view of university knowledge would prize the creation of the best knowledge at the
local university (funds to university departments for example) and regimes that allow this technology to
generate rents (ie Bayh-Dole-type IP laws). A more complete policy approach would coordinate adoption
of certain technologies in the local production system and in distant markets, and intervene against
market failures in technology adoption. Two-way conceptions of the university in regional economic
development, are still being refined (Bramwell and Wolfe, 2005). In the meantime policymakers could,
especially in the brain drain areas, focus more on ensuring that local knowledge is absorbed by the local
production system.
When we think again about knowledge as embodied by labor (and not as separate to labor in the form of
intellectual property), we find the same concern. Bartik (2013) argues that, in general, we do not know
enough about how desirable shocks to labor supply affect the local demand for labor. This includes
policy-oriented shocks at every stage of the life cycle, from apparently efficient ECE interventions, to job
training. NNUE theorists such as Glaeser(2013) and Cheshire (et al. 2014) are quick to point out that the
place effects of education improvements can be mitigated by migration of the newly skilled to more
productive regions. Bartik himself argues that there are limits to this compensatory effect, citing evidence
that 60% of Americans will stay in the state where they spent their early childhood while 50% stay in the
metro area (area). Even if we allow that the most skilled workers are generally more mobile than the
average American, we can at least concede the point. The development of skilled workers in lessadvantaged regions is not ONLY a subsidy for advantaged regions, but it is somewhat As Bartik says, we
need more evidence if we are to decide how inert those trained by human capital policies are in space.
This is a key component if we are ever to fully understand the costs and benefits of human capital
generation policies.
Economic development history according to policymakers…
There has been one recurrent theme throughout my review of policy- no matter what kind of policy you
consider, there is not a sufficient amount of evidence about whether it works so that policy effects can be
predicted. Even the effects of industry-centered, sweepstakes type policies (e.g. tax reform) is unknown:
we know what an x% increase in labor demand will do for wages per capita, but we do not know how
policies can predictably achieve a given amount of change in labor demand. The lack of ample, quasi-
Imagine that video cassette technology is just being developed, and an entrepreneur has the opportunity to license the
distribution of Sony’s beta-technology, and have a monopoly on the manufacture of beta cartridges. Even if this is a superior
technology to VHS, there is no guarantee that motion picture distributors will make their content available in Beta, or that
consumers will by Beta decks and not VHS decks.
35
23
experimental evidence at the policy level, might prompt us to approach our question from a different
angle. Instead of asking if certain policies succeed at developing economies, we might ask if successful
economies share some of the same policy DNA. To do this, we can simply review how successful
economic development was supposed to have occurred, based on the accounts of policymakers
themselves. In policymaker histories of successful development, what role is carved out for policy itself?
This is an intentionally simplistic way to approach things, as it is explicitly looks for correlates and not
causes, and as it focuses only on regions at the top of the economic order. It still, helps us understand
economic policy in way that policy evaluations do not, because it forces us to think about the big
processes of development (ie the localization of economic activity, the specialization in a lucrative sector)
and as opposed to wage per capita increases that may only be significant in relation to past growth. I find
no evidence that policies in Oklahoma city or San Francisco can account for their current enviable
positions atop the American economic order36.
OKLAHOMA CITY- In 2013 , Oklahoma City had the lowest unemployment rate among all regions with
more than 1 million people (Greater Oklahoma City, 2014), to go along with an annual wage growth rate
of 2%. The economic development officials, of course, there credit their own initiatives for this success.
On her election website, governor Mary Faillin says she was able “grow personal incomes by 8.1%) amd
create jobs , but she can’t explain to her supporters exactly how she was able to do this. Meanwhile the
economic development agency credits a sales tax schema called MAPS which they describe as..
…a one-cent sales tax to build nine projects, ranging from renovations to the city’s convention
center to the construction of a 15,000- seat ballpark for the city’s AAA club and a 20,000-seat
indoor sports] arena. […[it marked a significant change in mindset. Citizens recognized that
they could not rely on others to transform their community. They made a conscious choice to
start investing in themselves… (Greater Oklahoma City, 2014)
The policies that were supposed to create this outcome are, on the one hand, not explained by the
governor, and on the other hand were a series of infrastructure projects that were simultaneously
pursued in the rest of the country. This simply strains credulity. Absent a compelling policy explanation
for these fantastic outcomes, we might suggest that the growth of the American energy industry in the
post-recession period, driven by fracking technology, was responsible for improved area outcomes there.
Very recently, as energy prices have started to change, the American energy industry has seen lower
demand, and declining capital investment (Greater Oklahoma, 2015) and greater reliance on debt
financing (Ailworth et al., 2015), Any negative employment shocks stemming from these changes, should
be taken as further proof that policy did not really make Oklahoma City rich.
SAN FRANCISCO BAY- The San Francisco Bay area has the highest wages per capita in the country and
continues to rank high in terms of year-over-year wage growth. This position has not been attributed to
the growth machine-type polices cited by Oklahoma officials, but the presence of technology,
transportation, and a skilled workforce. In their own history of their economic development in the region,
the San Francisco Center for Economic Development channels Florida (2002) in attributing development
to a progressive cultural environment.
This is, again, supposed to be a suggestive, non-rigorous exercise. I understand if it does not succeed and will more than
happily delete it from the paper
36
24
After the explosive growth of the WWII era came another period of renewal and creativity that was to
lay the foundations of San Francisco’s massive talent and innovation-based economic growth to come.
The City—so famous for its energy and tolerance—attracted Beat Generation personalities such as Jack
Kerouac and gave rise to the beatnik and hippie movements, the 1967 “Summer of Love,” and the
flowering of cultural and scientific innovation at Bay Area colleges and universities that was to help
drive the world economy in decades to come. (SFCE, 2015).
Like the Faillin account, this one leaves policy out of the narrative. Even though it behooves the SFCE to
assert that policy has improved development ouctomes, they do not do so in their pitch to the business
community. We are not told how the regional milleau was supported by regional policy or governance.
For their part (Storper at al., 2015) cannot attribute San Francisco’s divergence away from Los Angeles in
terms of per capita income, to policy. They allow that policy helped to support IT industries once these
already became localized, and even that policy might have helped both LA and San Francisco do better
than they otherwise might have, but they cannot point to a policy smoking gun. Meanwhile Powell et al.
(2012) do not allow much role for RDP in the development of biotech –either in San Francisco or
elsewhere. If anything, governance decisions by actors in the industry itself were crucial to the
development of actor-networks that would ultimately allow Biotech to thrive in the Bay.
IV. Reframing the field: regional development policy within development governance
Section II demonstrated that the effects of deliberate action on development outcomes are heavily
moderated by institutions and markets. Section III showed that, in fact, RDP has a mixed track record, a
revelation that can at least partly be attributed to the limited agency of regional policymaking. Here I
propose that the field can cobble together some additional power by focusing on how policy fits within a
wider governance process.
Remember that Bartik (2012) defines regional development policy37(RDP) as:
…all the policies that seek to affect the quantity or quality of local demand or supply of labor, and
thereby increase local per capita earnings. (p.547)
We can define regional economic development governance (RDG) as:
all governance that affects the nature of labor market demand and supply, and desirable RDP as
governance actions that raise income per capita.
I argue that policy needs to be seen as a component of a larger governance process, if it is to fully
appreciate the ability of actors to modify regional development conditions.
Merriam-Webster Online defines policy as a “high-level overall plan embracing the general goals and acceptable procedures
especially of a governmental body” and governance as he way that a city, company, etc., is controlled by the people who run
it”
37
25
As way of arguing for my own definition, I will contrast the two scopes, before comparing my definition
to Bartik’s. I believe that this broader vision is appropriate because it maximizes the (limited) potential of
intentional human action to reform the institutions underlying development.
Development policy within development governance
If policy is strictly the domain of governments, then I emphasize that it is a part of wider governance
processes, wherein intentional human action by multiple actors modifies the institutional environment
for development. Like policymakers, non-governmental and quasi-governmental actors affect economic
development processes by modifying the institutional arrangements that govern economic activity. We
can express this by considering examples of bond rating agencies and development coalitions.
Bond agencies are private actors with governance powers, as Sinclair (1994) proposes, they are
“mechanisms of governance without government”(p.1). In other words, Moody’s and Standard and
Poor’s do not only offer a service when they rate a security. To the extent that their ratings are trusted,
they are also determining what is possible at the level of the local economy. A bad rating for a local
government’s bonds may constrict the choice set available to local policymakers (e.g. whether an
infrastructure project can be financed), just as a good rating improves it. A bad rating may lower the
incentives for private actors to invest in a particular labor market.
The bond agencies themselves might very well see themselves as impartial referees, who simply gather
market signals, relay them back to the market in the form of ratings. This premise was exposed as naïve
during the ‘Great Recession’ when each major credit-rater failed to perceive the risk in the US market for
mortgage-backed securities (Jenkinson, 2008). The very same governance problems that plague efficient
policy administration, plague mortgage-backed security. These include: the risk of capture by special
interests, principal-agent problems within agencies and between agencies and the general public,
difficulty weighing competing interests and so forth. To the extent that the market sends clear signals
(this can be debated), these are legible to everyone, not just the agencies. Moreover, ratings are not simply
the results of algorithms where the same inputs reliably create the same outputs. This is not reality.
The real function of Moody’s and S&P is to coordinate action among economic actors. Improvement in a
bond’s rating leads to increased investment in that bond and related assets. The investment itself is
carried out by autonomous actors, but they respond in similar ways to the same signal. The ratings,
therefore, are institutions in exactly the way that Bathelt and Glückler (2013) mean. They really do
“stabilize mutual expectations and correlated actions” (p.7). And unlike the inert institutions and market
forces that were cited in the previous section, bond ratings can be changed quite easily by human actorsas can the regime of using private ratings services to determine investment risk. A full appreciation for
the power of human action to shape the regional economic environment is not possible without
considering the governance of private and quasi-private actors.
Governance can also be administered by coalitions of actors like Growth Machines (Molotch, 1976). In FP
2, I discussed these as examples of regional actor networks that shape the development trajectories of the
places where they operate, and can be differentiated from anti-growth or slow-growth coalitions. These
are not particular private or public actors, but assemblages there thereof. They are said to include an
array of actors (e.g. the press, the construction industry, the city council) that have a vested increase in
population and income growth. Unlike an economic development office or even a credit-rater, the
Growth Machine does not have a mailing address or a list of members. Actions do not need to be
coordinated by an organization, or even a rule. Norms, attitudes, and even rhetoric might be sufficient to
create mutual expectations and correlated actions. Saxenian’s Argonauts (2008) were similarly dispersed
26
across many organizations and units, and were also geographically dispersed but she shows how a
coalition of IT workers, investors, and universities, were able to create the formal institutional conditions
(i.e robust venture capital systems) that allowed for some of Taiwan’s labor markets to scale the
technology ladder.
As I call for a focus on regional economic governance, I am fully aware of the implied empirical
challenges. Development coalitions are barely visible to regional analysts- and the extent to which they
exist at all can be debated. If we assume that they do, their precise boundaries, and inclusion criteria are
hard to determine38. This makes measurement difficult. Meanwhile analyses of government policy are
straightforward because you know what the policy is (whether it is a law an objective or a philosophy),
when it was implemented and what actors implement it. For these reasons, RDP analysis will likely
continue to be the focus of research for some time, while RDG research of a non-policy kind will likely be
limited and mostly of a case-study nature. This should not prevent us from having a full
conceptualization of the ways in which human actors can modify the economic environment in the short
and medium term.
The Scale of Governance and Development
I believe that Bartik’s definition of regional development policy is appropriate and that it should merely
be ‘scaled-up’ to the governance level. This is because it prizes the labor market, recognizes that as the
scale at which policy is enacted, and is neutral in terms of where it originates.
Both definitions center on the labor market. This might be surprising to those who understand the field as
the lobbying of large and medium-size enterprises by bureaucrats via industrial subsidies. If you look
closely at that process, however, you can find the assumption that it will improve outcomes in the labor
market by increasing labor demand. Likewise all recent campaigning to attract “talent” to local areas is
rooted in a concern with labor supply. By refocusing on the fundamental purpose of RDP, I believe that
we can avoid what seems to be a common pitfall in the field- where the companies and the “talent”
become the trophies, but not the underlying labor market conditions. This is the kind of thinking that
allows New Mexico policymakers to (without any sense of shame) crow about “landing” Eclipse Aviation
even though all this means in direct jobs terms is that there will be 100 manufacturing jobs, and that these
might be as imported into the local economy as the firm’s intellectual property and management are.
Bartik and I understand RDP as operating at the same scale. This is a natural outcome of seeing it as labor
market policy. Conceptually, the labor market is the physical area over which labor demand and labor
supply are matched. Political boundaries are irrelevant. Some regions have a lot of municipalities and
multiple states (e.g. Greater Chicago), others (e.g. Miami-Dade County) have a few but these are
comparable units from our perspective.
Operationalizing this concept entails fuzziness. In the US, the Metropolitan Statistical Area (MSA) and
the Combined Statistical Area (CSA) are both geographic units that represent commuting relationships,
but the latter is made up of multiple MSAs and describes interactions that are slightly less intense and
take place over larger areas (OMB, 2009). Different studies will demand different units, when possible it
is probably worthwhile to employ both. For these empirical caveats, the theoretical understanding of
“where” RDP is, is straightforward.
Framing RDP as multi-scalar might improve local policy outcomes in at least four ways.
We can say the same about the channels through which they operate, the features that make some more effective than
others and the ways that they evolve over time
38
27
First it emphasizes the need to coordinate development across multiple policy scales. As we saw in
Section II, local policy might be neutralized if it works at cross-purposes with policy enacted at other
scales. Ensuring that policies at each level of government are firing in the same direction is one way.
Second, it forces stakeholders in desirable regional outcomes to search high and low (scale wise) as they
search for the policy tools that will give their labor markets the best chance to improve. An expanded
frame is one way to maximize the limited agency that human beings (as opposed to just policymakers)
have over development processes.
Third, it might improve the ability of deliberate actors to “pick” the economic functions that a jurisdiction
will aim to specialize in. Throughout my review of the literature, I emphasized that policymakers have
difficult with technological discovery- the process of choosing winning technologies and sectors, and of
assessing their economic potential. If, as Rodrik (2004) argues, industry actors are better positioned to
understand where to place bets, then policymakers might be more successful in a broker role, between
government and industry, than in a direct venture capitalist role. As Kemeny and Storper (2014) point
out, regional science has been unsuccessful at determining the specialization “sweet spot” between
relatedness and variety and prevailing approaches (see Frenken et al. 2007) are still too reliant on
somewhat arbitrary industrial classification schemas. Outsourcing industrial targeting to industry might
be prudent until research has progressed.
Fourth, a focus on governance which encourages policymakers to take more of a coordination role, is less
resources intensive than dominant approaches which demand large outlays to industry, construction
companies and creatives. With officials as coordinators and organizers, it is possible to try more
initiatives, and it is easier to move on from failed ones. Given policy’s failed track record, the best policies
might well be the ones that have anticipated their own failures.
28
Bibliography
Aghion, Philippe, and Peter Howitt. A Model of Growth through Creative Destruction. National Bureau of
Economic Research, 1990.
Audretsch, David B., and Maryann P. Feldman. “Chapter 61 Knowledge Spillovers and the Geography of
Innovation.” In Handbook of Regional and Urban Economics, 4:2713–39. Elsevier, 2004.
http://linkinghub.elsevier.com/retrieve/pii/S157400800480018X.
Bartik, Timothy J. “Including Jobs in Benefit-Cost Analysis.” Annual Review of Resource Economics,
Forthcoming, 2011.
———. Investing in Kids: Early Childhood Programs and Local Economic Development. WE Upjohn Institute,
2011.
Bramwell, Allison, and David A. Wolfe. “Universities and Regional Economic Development: The
Entrepreneurial University of Waterloo.” Research Policy 37, no. 8 (2008): 1175–87.
Brown, W. Mark, and Darren M. Scott. “HUMAN CAPITAL LOCATION CHOICE: ACCOUNTING FOR
AMENITIES AND THICK LABOR MARKETS*.” Journal of Regional Science 52, no. 5 (2012): 787–808.
Catungal, John Paul, Deborah Leslie, and Yvonne Hii. “Geographies of Displacement in the Creative City:
The Case of Liberty Village, Toronto.” Urban Studies 46, no. 5–6 (2009): 1095–1114.
Cheshire, Paul C., Max Nathan, and Henry G. Overman. Urban Economics and Urban Policy: Challenging
Conventional Policy Wisdom. Edward Elgar Publishing, 2014.
Clark, Terry Nichols, Richard Lloyd, Kenneth K. Wong, and Pushpam Jain. “Amenities Drive Urban
Growth.” Journal of Urban Affairs 24, no. 5 (December 2002): 493–515. doi:10.1111/1467-9906.00134.
Currid, Elizabeth. “Art, Culture, and New York City, from The Warhol Economy: How Fashion, Art, and
Music Drive New York City,” 2007.
Currid-Halkett, Elizabeth, and Kevin Stolarick. “The Great Divide: Economic Development Theory
versus Practice-a Survey of the Current Landscape.” Economic Development Quarterly 25, no. 2 (2011): 143–
57.
Fenich, George G. “An Assessment of Whether the Convention Center in New York Is Successful as a
Tool for Economic Development.” Economic Development Quarterly 8, no. 3 (1994): 245–55.
Florida, Richard. “The Role of the University: Leveraging Talent, Not Technology.” Issues in Science and
Technology 15 (1999): 67–73.
Florida, Richard L. The Rise of the Creative Class: And How It’s Transforming Work, Leisure, Community and
Everyday Life. Basic books, 2002.
Flyvbjerg, Bent. “From Nobel Prize to Project Management: Getting Risks Right.” Project Management
Journal 37, no. 3 (2006): 5–15.
———. “Public Planning of Mega-Projects: Overestimation of Demand and Underestimation of Costs.”
Decision-Making on Mega-Projects: Cost-Benefit Analysis, Planning and Innovation, 2008, 120–44.
Flyvbjerg, Bent, Nils Bruzelius, and Werner Rothengatter. Megaprojects and Risk: An Anatomy of Ambition.
Cambridge University Press, 2003.
Flyvbjerg, Bent, Mette K. Skamris Holm, and Søren L. Buhl. “What Causes Cost Overrun in Transport
Infrastructure Projects?” Transport Reviews 24, no. 1 (2004): 3–18.
Funderburg, Richard, Timothy J. Bartik, Alan H. Peters, and Peter S. Fisher. “THE IMPACT OF
MARGINAL BUSINESS TAXES ON STATE MANUFACTURING: IMPACT OF TAXES.” Journal of
Regional Science, June 2013, n/a – n/a. doi:10.1111/jors.12031.
Grodach, Carl, and Anastasia Loukaitou‐Sideris. “Cultural Development Strategies and Urban
Revitalization: A Survey of US Cities.” International Journal of Cultural Policy 13, no. 4 (2007): 349–70.
Heckman, James J. “Schools, Skills, and Synapses.” Economic Inquiry 46, no. 3 (2008): 289–324.
Heckman, James J., Rodrigo Pinto, and Peter A. Savelyev. Understanding the Mechanisms through Which an
Influential Early Childhood Program Boosted Adult Outcomes. National Bureau of Economic Research, 2012.
29
Helms, L. Jay. “The Effect of State and Local Taxes on Economic Growth: A Time Series--Cross Section
Approach.” The Review of Economics and Statistics, 1985, 574–82.
Hines Jr, James R. “Lessons from Behavioral Responses to International Taxation.” National Tax Journal,
1999, 305–22.
Holzer, Harry J., Richard N. Block, Marcus Cheatham, and Jack H. Knott. “Are Training Subsidies for
Firms Effective? The Michigan Experience.” Industrial & Labor Relations Review 46, no. 4 (1993): 625–36.
Hoyt, William H., Christopher Jepsen, and Kenneth R. Troske. “Business Incentives and Employment:
What Incentives Work and Where?” Institute for Federalism & Intergovernmental Relations Working Paper,
no. 2009–02 (2008).
Jacobs, Jane. “The Economy of Cities.” The Economy of Cities., 1970.
Jaffe, Adam B., Manuel Trajtenberg, and Rebecca Henderson. Geographic Localization of Knowledge
Spillovers as Evidenced by Patent Citations. National Bureau of Economic Research, 1992.
Jarmin, Ronald S. “Evaluating the Impact of Manufacturing Extension on Productivity Growth.” Journal of
Policy Analysis and Management 18, no. 1 (1999): 99–119.
Karsten, Lia. “From a Top-down to a Bottom-up Urban Discourse:(re) Constructing the City in a FamilyInclusive Way.” Journal of Housing and the Built Environment 24, no. 3 (2009): 317–29.
Klepper, S. “Industry Life Cycles.” Industrial and Corporate Change 6, no. 1 (January 1, 1997): 145–82.
doi:10.1093/icc/6.1.145.
Markusen, Ann. “Urban Development and the Politics of a Creative Class: Evidence from a Study of
Artists.” Environment and Planning A 38, no. 10 (2006): 1921.
Mathur, Vijay K. “Human Capital-Based Strategy for Regional Economic Development.” Economic
Development Quarterly 13, no. 3 (1999): 203–16.
———. “Human Capital-Based Strategy for Regional Economic Development.” Economic Development
Quarterly 13, no. 3 (1999): 203–16.
Ménard, Claude, and Mary M. Shirley. Handbook of New Institutional Economics. Vol. 9. Springer, 2005.
http://link.springer.com/content/pdf/10.1007/b106770.pdf.
Moretti, Enrico. The New Geography of Jobs. Houghton Mifflin Harcourt, 2012.
Orszag, Peter. “Biting the Budget Bullet: Why Raising Taxes Is the Least Painful Way out of the State’s
Fiscal Crisis,” 2003.
Powell, Walter W., Kelley Packalen, and Kjersten Whittington. “Organizational and Institutional
Genesis.” The Emergence of Organizations and Markets, 2012, 434.
Rodrik, Dani. “Industrial Policy for the Twenty-First Century,” 2004.
Rodrik, Dani, Arvind Subramanian, and Francesco Trebbi. “Institutions Rule: The Primacy of Institutions
over Geography and Integration in Economic Development.” Journal of Economic Growth 9, no. 2 (2004):
131–65.
Romer, Paul. Endogenous Technological Change. National Bureau of Economic Research, 1989.
———. Endogenous Technological Change. National Bureau of Economic Research, 1989.
Samuelson, Paul A. “A Note on Measurement of Utility.” The Review of Economic Studies 4, no. 2 (February
1, 1937): 155–61. doi:10.2307/2967612.
Scott, Allen J. “Jobs or Amenities? Destination Choices of Migrant Engineers in the USA*.” Papers in
Regional Science 89, no. 1 (2010): 43–63.
Smit, Annet Jantien. “The Influence of District Visual Quality on Location Decisions of Creative
Entrepreneurs.” Journal of the American Planning Association 77, no. 2 (2011): 167–84.
Stolarick, Kevin, Richard Florida, and Louis Musante. “Montreal’s Capacity for Creative Connectivity:
Outlook & Opportunities.” Montreal, QC: Catalytix, 2005.
———. “Montreal’s Capacity for Creative Connectivity: Outlook & Opportunities.” Montreal, QC:
Catalytix, 2005.
30
Storper, Michael. Keys to the City: How Economics, Institutions, Social Interaction, and Politics Shape
Development. Princeton University Press, 2013.
https://books.google.com/books?hl=en&lr=&id=9LvUweRd4KEC&oi=fnd&pg=PP2&dq=storper+2013
&ots=G5fuo11cHe&sig=UNWONbsec46JUlXSV-Q2SotCsps.
Wasylenko, Michael. “Taxation and Economic Development: The State of the Economic Literature.”
Public Administration and Public Policy 72 (1999): 309–28.
Williamson, Oliver E. “The New Institutional Economics: Taking Stock, Looking Ahead.” Journal of
Economic Literature, 2000, 595–613.
31
Figure 2 The most popular economic development policies for California municipalities
From (Johnson and Neiman 2004:132) 32
Author Bio
Patrick Adler is a UCLA Luskin School of Public Affairs Ph.D. student in Urban
Planning, focusing on economic development, patrickadler@ucla.edu.
Working Paper Series
The MPI is dedicated to producing research that engages individuals,
organizations and governments. We strive to make as much research as possible
publicly available.
Our research focuses on developing data and new insight about the underlying
forces that power economic prosperity. It is oriented around three main themes:
economic performance, place, and creativity.
Disclaimer
The views represented in this paper are those of the author and may not
necessarily reflect the views of the Martin Prosperity Institute, its affiliates or
its funding partners.
Any omissions or errors remain the sole responsibility of the author. Any
comments or questions regarding the content of this report may be directed
to the author. 33