Transcript up539w09 intro lectu.. - personal homepage server for the University

Prof. Scott Campbell
Urban Planning 539
University of Michigan
http://www-personal.umich.edu/~sdcamp/up538/
Overview:
What is Economic
Development Planning?
and is it more than simply
smoke-stack chasing?
Source: Blakely, Edward J and Ted K Bradshaw. 2002. Planning Local Economic
Development Theory and Practice: Third Edition. Sage. Page xvi.
Local economic development refers to
the process in which local
governments or community-based
(neighborhood) organizations engage
to stimulate or maintain business
activity and/or employment. The
principal goal of local economic
development is to stimulate local
employment opportunities in sectors
that improve the community using
existing human, natural, and
institutional resources.
What is Economic Development?
No single definition incorporates all of the different strands of economic development. Typically
economic development can be described in terms of objectives. These are most commonly
described as the creation of jobs and wealth, and the improvement of quality of life. Economic
development can also be described as a process that influences growth and restructuring of an
economy to enhance the economic well being of a community. In the broadest sense, economic
development encompasses three major are as:
Policies that government undertakes to meet broad economic objectives including inflation
control, high employment and sustainable growth.
Policies and programs to provide services including building highways, managing parks and
providing medical access to the disadvantaged.
Policies and programs explicitly directed at improving the business climate through specific
efforts, business finance, marketing, neighborhood
development, business retention and expansion, technology transfer, real estate
development and others.
The main goal of economic development is improving the economic well being of a community
through efforts that entail job creation, job retention, tax base enhancements and quality of life. As
there is no single definition for economic development, the re is no single strategy, policy or
program for achieving successful economic development. Communities differ in their geographic
and political strengths and weaknesses. Each community therefore, will have a unique
set of challenges for economic development.
Defining Economic Development - from the Economic Development Administration (EDA), part of the
US Dept. of Commerce
Economic development is fundamentally about enhancing the factors of productive capacity - land,
labor, capital, and technology - of a national, state or local economy. By using its resources and powers
to reduce the risks and costs which could prohibit investment, the public sector often has been
responsible for setting the stage for employment-generating investment by the private sector.
The public sector generally seeks to increase incomes, the number of jobs, and the productivity of
resources in regions, states, counties, cities, towns, and neighborhoods. Its tools and strategies have
often been effective in enhancing a community's:
labor force (workforce preparation, accessibility, cost);
infrastructure (accessibility, capacity, and service of basic utilities, as well as transportation and
telecommunications);
business and community facilities (access, capacity, and service to business incubators,
industrial/technology/science parks,
schools/community colleges/universities, sports/tourist facilities);
environment (physical, psychological, cultural, and entrepreneurial);
economic structure (composition); and
institutional capacity (leadership, knowledge, skills) to support economic development and growth.
Definitions That Address Equity and Sustainability
Economic development policymakers and practitioners who are concerned about
economically disadvantaged and depressed communities highlight some different issues
when they define economic development. Community economic development or CED
typically has five goals:
•
Stimulating a self-sustaining process of economic development (the dynamic and
rate of development);
•
Creating jobs at acceptable wages, with appropriate benefits and career ladders for
area residents (the distribution of development);
•
Producing goods and services that meet social needs, like affordable housing,
lowered energy costs, better health care, and accessible day care (the composition of
development);
•
Establishing greater community control, accountability, and participation in basic
economic decisions such as hiring, investment, and location (the control of development);
and
•
Broadening business and asset ownership within poor and ethnic minority
communities.
What is Economic Development Planning?
Two themes:
1. understanding urban and regional economies (geography,
history, economics, sociology, etc.)
Why do some cities grow and others decline?
Why is there persistent inequality across space (race,
gender, class)? …despite all ideas to the contrary?
2. Intervention: How is it done? Why and how is
intervention justified? (and when not?) What are the
consequences? How can we evaluate it? (planning, policy,
evaluation)
In other words:
1.
Why do some communities thrive why others struggle?
2.
What can and should one do about it?
What is Economic Development Planning?
Two themes:
1. understanding urban and regional economies (geography,
history, economics, sociology, etc.)
Why do some cities grow and others decline?
Why is there persistent inequality across space (race,
gender, class)? …despite all ideas to the contrary?
2. Intervention: How is it done? Why and how is
intervention justified? (and when not?) What are the
consequences? How can we evaluate it? (planning, policy,
evaluation)
In other words:
1.
Why do some communities thrive why others struggle?
2.
What can and should one do about it?
Finding the balance between the big picture of
structural economic change and the idiosyncrasies
and minutiae of ED programs.
For the intellectual, Economic Development, if just
limited to tax breaks and IRBs, etc. can be boring and
tedious. But if broadly defined, can be quite exciting
and rewarding and challenging. It deals with the
history, the social movements, the environment,
culture, etc.
Related: finding a balance between structure and
agency -- between the extremes of belief:
Agency:
Structure:
All local economies
are simply the byproduct of larger,
global economic
forces that local
planners can hardly
alter.
Larger policies
matter little: Who
wins and who loses
in local economies
invariably comes
down to individual
initiative (human
agency).
Synthesis? Perhaps Anthony Giddens’
“structuration” [link]:
The interaction between social
structure and human action.
How is Local ED different from the traditional study of
economics?
»Don’t assume perfectly functioning markets (and their
prerequisites) --that is, the parameters (starting
assumptions) of economics are the variables of urban
planning
»Space is not reduced to
transportation costs (“friction
of distance”)
»More local/place based E.g.,
local trade, local/regional
product, etc.
»More applied, hands-on,
eclectic
»More interventionist
The Role and Experience of Local Economic Development
within the Field of Urban and Regional Planning
1.
Understanding how economic development is both an
integral part of urban planning but also deviates in certain
areas, such as:
•Defining the public interest
•The relationship between the public and private sectors, and
one’s willingness to work within the market, be entrepreneurial
and/or pragmatic.
•Tools used
•Where one stands on the equity versus efficiency debate
•Where one stands on the policy intervention versus market
incentive debate
The Role of Space (Place, Geography)
Economies are not just aspatial (universal) systems that
happen to operate in space,
Instead, space is integral to the workings of economies.
Therefore: “urban economics” is not simply the mapping
of national economic processes onto the local level…
2. Understanding this relationship through the history of
urban planning as a profession
•The shift to the social sciences away from architecture
•The history of housing reform and social activism in planning
•The roots in the New Deal, and Depression-era priorities on
job creation and poverty.
•The difficulty of helping the physical neighborhood without
helping its economy.
•The shift away from government programs making economic
development more entrepreneurial, more involved in publicprivate partnerships, in business-like tools, etc.
3.
the frustration of the field
•hard to know if serving the public interest, or just business
-- is one giving away more than necessary to effect
change?
•Limited resources to tackle massive, complex problems
•hard to just the impacts of the work
•inefficiencies of the programs
•often difficult to generalize (or clearly define reproducible
“best practices”)
•Skepticism from some others in the field (e.g.,
environmentalists, community activists)
(can it be otherwise? Can it be made more a science? Or because planners
are but one player with limited tools in a complex, open-ended politicized effort,
the process will invariably be more complex.)
4.
But also the rewards
•Creating jobs for people in need; Helping those who fall
between the cracks of the market
•Stimulating other planning benefits: such as more
resources for street projects, housing, etc.
•Often other planning tools (land use, urban design,
transportation, etc.) can only work well if the economic
development tools are in place
•Addressing the huge inequality that is place-based: city
suburb, urban rural, north south, 1st vs. 3rd world.
Twenty Really Useful Concepts in Understanding Local
Economic Development
•agglomeration economy
•cumulative causation vs.
equilibrium models
•cyclical versus structural change
•deindustrialization
•equity vs. efficiency
•linkages (forward and backward)
•location theory
•market failure
•multiplier (and basic vs. non-basic
employment)
•opportunity costs
•Externalities (both positive and
negative)
•“leaky bucket” theory of money
flows in local economies
•globalization
•growth vs. development
•innovation (process versus
product)
•public-private partnerships
•spatial division of labor
•supply-side vs. demand-side
approaches
•value added
•zero-sum game
Com m o n c ri t i c ism s o f loc al e c ono mi c de v el op m e n t :
1. a wa st e o f m o ne y
2. a t b e s t a z er o s u m g a m e
3. d is t o rt s th e o p tim al o ut c o m e o f th e f ree ma rk e t ( subo p t in al
o ut c o m e s )
4. am ou nt s t o a f re e g ive aw a y to b usi nes s e s ; at b e s t , w e llin t e n ti o n e d ; at w o rs t , b rib e s a n d kic kb a c k s .
5. inef f i c i e nt ( es p. sm al l sc al e o p er a t i on s )
6. b e ne f i t s to fir m g re at e r th an b e n e f its to s o c i et y .
7. lead s t o e v e n m o re u n e q u al di s t ribu ti o n o f reso u rc e s .
8. w ron g o n pri n cip le: gov e rn m e n t sh oul d n o t g et inv o lv e d in
t he pr iv ate se c t o r.
9. b e ne f i t s h e lp o u t si d er s , n o t th e c o m mun i t y re si d e n t s
t h em s e lv e s .
PRO ECONOMIC DEVELOPMENT
PLANNING
CONTRA ECONOMIC
DEVELOPMENT PLANNING
Market f ailu res: public goods,
prisoners dile mma, risk and
uncertainty; lack of i nformation;
externalitie s.
Creates market inefficiencies
Market optimality ­ social
optimality.
[cite Fogelsong's property
contradiction; also: the need for
zoning.]
Inequitie s require intervention
Infringement on individual
freedoms (laissez-faire)
Public-private partnerships
(broadly defin ed) are needed in a
mixed social economy.
Creates opportunities for
corruption, exploita tion. Adds
an extra layer of c ost.
Citi es "compete" like firms, so
you either have to play the game
or lose out. [compare to Tiebout
idea]
One can't "pick winners"
As the economy becomes more
technologically and
organizationally complex, more
planning -- both public and
private -- is required.
The market is more
sophisticated and dynamic and
fast moving than any govt can
be; EXAMPLE: Sili con Valley
was not c reated by public
planners.
historical evolution of the field
from not part of planning, to one specialization, and for
some even another step: as an integral part of planning
or even as a new core of planning (though this likely a
minority view).
Recent roots: dealing with deindustrialization, the
retreat by the government in traditional urban renewal
funding; the need for partnerships and public-private
entrepreneurship; persistent income inequalities;
global competition and the great pressures on
communities; a blurring of public and private roles (so
that the public sector sees economic activity as more of
its domain).
THEMES by Era:
1930s Keynesian New Deal policies to stimulate demand and create jobs
1940s wartime mobilization and postwar adjustment, conversion of military
capacity; deconstruction of New Deal policy interventions
1950s industrial expansion; suburbanization; highway building; Cold War;
anti-communism taints planning; US dominant in the world market.
1960s beginning of the structural crisis; early days of deindustrialization;
white flight from cities;
1970s plant closures (and legislation); the rise of services.
1980s high tech, flexible specialization, post-Fordism; Sunbelt over
Frostbelt; public-private partnerships; post Great Society downsizing of
government.
1990s globalization; capacity building; entrepreneurship; boom in
construction; high-tech expansion; biotech
2000s neo-liberalism; sustainability; rise of China; Internet commerce;
financial crisis; housing crisis
Three Waves of Economic Development
Source: Blakely, Edward J and Ted K Bradshaw. 2002. Planning Local Economic Development Theory
and Practice: Third Edition. Sage. Page 45: Table 2.3
Component
First Wave
Second Wave
Third Wave
Location assets
Discount them to
attract outside
business
Reduce taxes
and provide
incentives to all
businesses
Build regional
collaboration
Business focus
Outside firms
Assist all local
firms
Create context
for better
relations among
firms
Human
resources
Create jobs for
local
unemployed
people
Develop training
programs
Utilize workforce
training to build
businesses
Community
Base
Physical
resources
Social and
physical
resources
Leadership and
development of
quality
environment
Another historical view….
Fitzgerald, Joan and Nancey Green Leigh. 2002. Economic Revitalization: Cases
and Strategies for City and Suburb. Sage. pp. 10-26
PHASE
Selective characteristics
1. State Industrial Recruitment (starting in the
1930s)
Create good business climate (taxes, loans,
infrastructure, etc.) • “greasing the skids” for
business • corporatist paradigm
2. Political Critiques of Local Economic
Development Activity (starting in the late 1960s)
Focus on who is paying and who benefits. ED
actors as political agents • political economic
analysis • critique of “smokestack chasing” •
recognition of tension between footloose capital
and communities •
3. Entrepreneurialism and Equity Strategies
Two separate movements: Promoting high tech
(mimic Silicon Valley) and pushing
equity/redistribution (e.g., Mayor Harold
Washington’s initiatives in Chicago, 1980s).
4. Sustainability with Justice
Balancing economic development, social justice
and environmentalism. Brownfield development.
5. Privatization and Interdependence
Market solutions (e.g., Michael Porter’s
competitive inner cities) and regional/metropolitan
strategies.
Multiple Strategies and ...
Multiple Goals
Boosterism, Place Marketing
Investing in comparative advantages
Human capital development
Developing markets
Creating clusters, agglomeration
economies
Infrastructure (physical, technical,
social)
Smokestack chasing, Business
attraction: taxes, etc.
Partnerships
Employment
Higher wages
Lower poverty
Reduce inequality
Increase human capital
Increase living conditions
Job attraction and retainment
Capacity building
Increase multipliers
Sustainable growth
Susan E. Clarke Gary L. Gaile, The Next Wave: Postfederal Local Economic
Development Strategies, in Blair and Reese, 1998. (originally in EDQ in 1992)
Theme: the rise of the entreprenurial, risk-taking, partnership-making local state
Changes:
•a shift away from state and federal funding
•a rhetoric of devolution, local control and local entrepreneurship.
•A blessing in disguise? More local funding means more local control. [166]
This study: from 1978 to 1989: did federal cuts affect the level of local economic
development efforts. and if funding sources shifted to localities, were the
localities more risky or cautious?
So: initial data suggests that cities using these ED tools are faster
growing, with lower taxes, fewer government employees and
government expenditures.
[NOTE: could this be a spurious relationship? That is, other
factors are influencing both variables?]
Trends
•a shift from traditional federal sources (e.g., UDAG, EDA) to publicprivate partnerships, revenues from redevelopment projects, TIF,
revolving loan funds, one stop permit shopping, below market rate
bonds, enterprise zones, trade missions abroad, etc. [see table
13.2, page 169] [see also Table 13.3, p.170]
•with the federal withdrawal, the local setting is more competitive,
fragmented
•emphasis on entrepreneurial, market based strategies [167]
•a shift from wealth creation rather than subsidize locational
decisions or employment strategies.
•Greater tolerance for risk: public capital used for its investment
potential. A view of economic development projects as a "portfolio"
(some are winners, some are losers).
•Shift to entrepreneurial interest in generating new businesses,
not just retaining old ones.
More Trends
•More specialized, custom-tailored deals
•Use of linkages
•With the creation of all these new specialized (dedicated) funding
tracks (e.g., TIFs, enterprise zones, etc.) the result is: funding
stays within economic development, rather than getting put into
general revenues. [171]
•A shift from social criteria to market feasibility [173]
•The reemergence of downtown as a locus of development
•Greater use of non-profits
AND YET:
there are limits to the entrepreneurial potential of local governments. [174]
The structure of local governments and politics not well matched with the
entrepreneurial approach. Can local govts make the redistributional decisions that
arise with this approach?
------------CASE STUDY:
New Brunswick, NJ
Downtown orientation
Dev Co and NB Tomorrow
Partnership with J&J
UDAG
------------This is not just from local initiatives: many of the recent federal programs have
encouraged this kind of local entrepreneurialism (e.g., National Development Council
work)
Harold Wolman and David Spitzley, “The Politics of Local Economic
Development”
First distinction:
growth (quantitative) vs. development (structural changes as well,
both with institutions and technology)
How to Measure ED:
Though there is an acceptance of the complexity of it,
writers often revert to a single measure, e.g., national
income.
Or more generally: economic well-being -- measured by
employment and income.
So: though we speak of development, we often really
just mean growth.
Why do ED planning?
communities tied to place, and capital is not.
(the differential mobility of factors of production, hence
space matters).
[esp. in a country without strong traditions of fiscal
equalization grants, as compared to say Germany]
Communities compete with one another
Economic development may not be the direct interest of the
city, but public finance is, which depends on local ED.
ED provides political support for local officials
Community responsibility
Urban growth machine.
Why has ED activity increased?
greater mobility of capital
slower national growth after 1973 led to grater local
pressures for local ED
deindustrialization/globalization
cutback in federal aid
Outcomes Sought by local ED
Income or employment?
Land development?
Tax revenues?
Why do various local ED Efforts vary?
Typologies:
e.g., supply side vs. demand side
innovative vs. traditional (some would say that supply side is
traditional and demand side is innovative) [but I wouldn't.]
Note: some confusion about what is supply side vs. demand
side, hence the confusion about traditional vs. innovative.
financial assistance vs. capacity building vs. revitalization
Wilbur R. Thompson, Policy-Based Analysis for Local Economic Development,
in Blair and Reese, 1998.
A shift from one to the other….
DEMAND
SUPPLY
US BLS
Product
Labor markets, skills, human
capital
Process, function
Industry occupation
matrix
Industry
Occupation
"What they make"
"what they do"
TO
products, markets
•Relate to the debate over the supply vs. demand explanations of unemployment.
•Does this mean a shift from growth industries to growth occupations? Yes, in part, but
also looking at where inside an industry there is promising growth (the spatial division of
labor).
•"Local development managers have also become intellectually lazy and have come to
depend too much on adroitly marketing a poorly crafted product." [4]
•A shift from targeting a whole industry to part of an industry (assuming the spatial
division of labor. [5]
Diversification
Not just product, but also process.
Examples: Detroit is functionally diversified; Flint is not (it is both
industrially and functionally specialized).
So: towards a functional comparative advantage (not just an industrial
advantage)
The Political Geography of Local Economic Development
The dilemma: metro areas make sense economically (the commute zone);
but no metro government;
So states become the implicit or default metro planning agency.
View a state economy as "a federation of local economies."
Compare to Jane Jacobs and cities and the wealth of nations: what is the
right unit of analysis?
Six Policy Foci
1.
Local Incomes Policy: From any job to good jobs (good skills,
transferable skills, learning, balance of male an female employment): the
creation of "occupational ladders"
The ambiguity of average hourly earnings:
Sometimes high wages mean high skills (marginal cost = marginal
productivity). E.g., Boeing workers. But sometimes high wages are in lower
skill jobs. Why? "high wages have been wrung from a combination of
oligopoly price power and union wage power." [NOTE: explained not by
microeconomics, but by institutional economics]
Also: this overpaid work makes economic development hard: high
expectations, low transferable (general) human capital, and "domestic
monopoly power is not what it used to be." [7]
2. Local Foreign Policy
foreign trade: can both win big and lose big. And: pay attention not just to
the balance of trade (goods), but also in terms of occupations.
3.
Local Stabilization Policy
countercyclical policies. However, there is also the need to specialize.
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4. State Higher Education and Research Policy as Implicit Regional
planning
should states concentrate their research activity (e.g., research universities)
in one place (e.g., Chapel Hill, or distribute them throughout the state?
California is more like the latter.
Thompson argues for "careful decentralization" [10]
5. Local Fiscal Policy and the Location of Industry
what are the differences in various industries' contributions to local fiscal
health? (fiscal impact of industrial development)
some sectors are more sensitive to tax changes (in their locational moves)
than others. E.g., standardized, cost pressured firms more sensitive; R&D
an headquarters have less cost pressures and are more willing to pay higher
taxes for more public services and amenities (e.g., good schools).
6. Urban Policy: Tracing Regional Development Paths into Intraurban
Space [more speculative]
matching urban land use patterns and zoning to the type of economy. E.g.,
multimodal edge city driving for manufacturing workers; and Manhattan
style hub and spoke for service work. [but this is not an obvious, inherent
connection]
------
Timothy J. Bartik, The Market Failure Approach to Regional Economic
Development Policy, in Blair and Reese, 1998.
Goal: to increase the wealth of a metro area or state
Means: direct assistance to business
two approaches
traditional: job growth as the unifying goal: through increased exports
(export base) export-oriented branch plants of large corporations. [14]
new wave: emphasis on economic innovation; small business startups;
tech development, business modernization.
WHY MARKET FAILURE APPROACH?
As a step in distinguishing between costs and benefits of the various
projects.
Market failure is the failure to reach economic efficiency: so policy is to
address this.
So: when are regional economic development policies justified? When
they are efficient. That is, if the value of these nonmarket benefits exceed
program costs.
Discussion of Market Failures
Unemployment
A failure if employees offering their labor power at their marginal productivity
(actually, at the prevailing wage) and yet not employed. Thus, this is
involuntary unemployment.
Solution: employment benefit from government to employee to make up the
difference between their wage demand and the offered wage from the
employer.
NOTE: also tied to sticky wages, and to imperfections in the labor market, or
the social aspects of labor as a factor of production (not a flexible cost)
Underemployment
Wage differences do not always reflect skill differences. (again, institutional
economics can explain this better).
Involuntary underemployment: one is not able to find a higher paying job
that fits one's skill level.
Solution: shifting a local economy to a higher skill set of employees.
Fiscal Benefits
Ideal system: user fee. Thus, taxes equal the marginal cost of providing
services. [17]
But, in reality this is not true: equity issues, power issues. (e.g.,
manufacturers often pay less; families with many children as well). [17]
agglomeration economies
theory is sound, but hard to quantify the actual benefits. [18]
The market failure link -- "A firm making a location or expansion decision
fails to recognize that decision's agglomeration economy benefits for other
firms. The goal of increasing nonmarket agglomeration benefits may provide
a rationale for regional development assistance to particular firms." [18]
Human Capital
Market failure: underinvestment in human capital. Why? Too high a
discount rate (that is, hard to appreciate the payoffs); lack of financing, lack
of educational opportunities; externality benefits of HC investment not
appreciated.
Solution; govt investment in education
Research and innovation spillovers
Risk and uncertainty.
Externalities of research.
Other Imperfections in Information Markets
So government steps in to provide info. E.g., census data.
Imperfect Capital Markets
e.g., lending practices.
(think about student loans, etc.)
Conclusion
Two virtues of market failure model:
FOCUSING ON WHAT MARKETS CAN'T DO WELL
CREATES GOALS THAT ARE MEASUREABLE WITH DOLLAR AMOUNTS
(CBA)
3 limitations
lack of precise information (hard to measure MF levels)
DISTRIBUTIONAL EFFECTS NOT EXPLICITLY DEALT WITH
Does not deal with impacts on other regions.