2. The framework of economic development policy
As he outlined in Chapter 1, this chapter:
summarizes the rise of economic development as a policy issues and discusses the framework principles of operation ... of this policy domain. (p. 12-13)
Most of the elements are stable, but some are changing, and it is the change that is producing the shift to demand-side policies.
The rise of economic development as a policy issue
Economic development policy can be traced back to a public-private partnership between Alexander Hamilton and the state of New Jersey in 1791, which, among other things, resulted in the nation's first industrial park (p. 15).
He makes several statements about the modern development of economic development as a policy domain:
There is a quantitative difference in pre- and post-1970s policy, i.e. the shift to more demand-side measures.
It's not a function limited to the industrially underdeveloped states in New England and the South, but a universal public function.
It's marked by an increasing degree of institutionalization and policy elaboration.
It's moved from a relatively marginal item on state and local political agendas to a central, or even pivotal, one.
Universaliation and institutionalization
1923-27: Alabama, North Carolina, Florida, and Maine establish agencies to encourage ecooniic development and attract investment.
Depression era: nearly every state forms state comprehensive planning agencies as condition of receiving federal public works funds. After the federal program ends in 1943, so do most of the state agencies.
1930s: Some southern states maintain some sort of industrial development boards as part of industrial development program. (See Cobb, 1984 for details.)
Widespread establishment of state economic development agencies is a relatively recent development:
of the 44 states responding to a ... survey in 1982, 13 reported that they had established economic development agencies as recently as the 1970s, and 8 said that they had formed such units only in th 1980s ... (p. 16)
Policy elaboration and intensification
He provides stats showing that over time there is a greater total number of programs and that each state increases the number of programs that it uses. He develops a policy penetration metric and shows that it is increasing over time.
The growing number of policies in use is accompanied by increasing intensity of their use. He cites increases in total value of bonds issued, taxes abated, etc.
Finally, economic development has over time become more central to state and local political agendas, not just as a discrete issue, but also as a "framework issue" that comes to bear on all other issues, such as taxes, transportation, education, etc.
Framework elements of economic development policy
Public-private partnership
Not complete socialism, not complete laissez-faire, but rather private-sector market activity supported in some way by government action.
He says government support is justified by the fact that unless there is government stimulus private investment will occur in insufficient quantities or will miss ventures likely to provide the most collective economic benefit.
[He's talking about market failure justifications, especially perhaps agglomeration economies, but really provides no theoretical justification for some pretty bald statements.]
Historically, government efforts have been supply-side subsidies intended to lower costs of operation to induce investment. These efforts have been ultra-competitive and unfocused. Demand-side efforts rest on the same justification, but are more focused and allow government to take on some of the risk and be more actively involved.
Decentralization
Economic development policy has been developed and practiced almost exclusively by state and local governments, along with many private and quasi-public organizations.
Federal involvement has been fairly limited, compared to state and local efforts.
He suggests a couple of drawbacks to a mostly state and local effort:
It doesn't allow full use of the superior resources available to the nationa government, and
In a federal system, regional inequalities affect the ability to fashion policy, so it tends to reinforce regional inequalities.
Two more consequences worth noting:
Decentralization also contributes to policy variety and interjurisdictional competition.
States copy policies of other states, consequently over time, almost every state implements almost every policy ever implemented by any state.
Furthermore, as states copy each others policies, they are stimulated to create new policies in order to stand out from the others. And so on, ad infinitum.
He notes, wothout saying so directly, that supply-side competition for footloose industries is often driven as much or more by political benefits of success than by economic benefits.
Demand-side policies provide an opportunity to develop home-grwon capital rather than competing for mobile capital.
Absence of planning
He notes that initial economic devlopment efforts pursued "targets of opportunity," i.e. whatever firms expressed interest in relocating. Even gubernatorial "raiding parties" sought footloose firms.
Development goals have been no more complex than just attracting more jobs.
The lack of systematic planning effort stems at least partially for American suspicion of central planning and comfort with liberty and disorder in markets.
He sees an increase in planned efforts. At the mild end are efforts to identify broad sectors at which to target promtional efforts. At the more vigorous end are state-led efforts at strategic economic development planning. A crucial aspect of such planning is the "identification of certain industries likely both to provide high economic development benefits and to flourish in that particular state's environment." (p. 27)
He claims that this increase in planning effort is a genuine change in a structural element of the policy domain, which he says has arisen from the need to better focus resources.
The primacy of capital
Supply-side policies predominantly subsidize capital. Employment is affected through an indirect (he says "trickle-down") process.
Other than the occaisonal wage subsidy, we don't really address employment directly.
Some supply-side efforts actually have an anti-labor element. (See Cobb, 1993)
Eisinger says that demand-side policies reject the notion that low wages are a competitive advantage. High wages aid the development of local markets, by increasing disposable income.
Pragmatism
He notes that neither ideology nor theory has constrained state and local economic policy development. Officials have been willing to experiment to try to find what works. This, he says, has advantages and disadvantages:
Advantages
it permits flexibility and encourages innovation,
allows policy to be tailored to the locale,
offers the possibility of integrating a learning process into policy-making
Disadvantages
interjurisdictional competition accelerates the pace of policy development ot the point that policy evaluation is difficult,
pragmatism contributes to a reluctance to use theory in policy design,
it may lock jurisdictions into policies for which there is no theoretical justification.
Conclusions
He marks the beginning of the rise of economic development as a public policy issue from the start of BAWI.
The invention and elaboration of policy has been shaped mainly by two fixed structural features: federalism and cultural commitment to an economic order featuring market mechanisms and private enterprise.
These features have produced an environment in which states and local governments compete for private investment.
Environmental changes in the 1970s (which he will address later) have produced a shift away from supply-side and toward demand-side polcies.
Eisinger, P.K. (1988). The Rise of the Entrepreneurial State: State and Local Economic Development Policy in the United States. Madison, WI: University of Wisconsin Press.
Posted by Chip on July 13, 2004 at 05:13 AM | TrackBack