Ideas in Development

All Americans recognize that China is a rising economic power. According to the Institute for International Economics, China became the third largest trading nation in the world in 2004. This rapid ascent is not only a function of its sheer size and high growth rates, but also its openness to trade and foreign investment. Its ratio of trade to Growth Domestic Product and its ratio of inward investment is already double Japan’s. Couple these facts with its currency manipulations and its low pay and overall production costs, China constitutes a serious threat to America’s remaining manufacturing base.

As part of the Rural Dislocated Worker Initiative, the Rural Center seeks to understand the many aspects of worker dislocation, from the numbers of people affected to the programs and policies designed to assist them.

The handwriting is on the wall. American manufacturing is only viable if it goes off-shore. We can't compete with Third World wages. If a firm's management cannot turn around their business, why do you think some government program or nonprofit can pull this off?

When I speak to audiences about the challenges facing North Carolina's traditional economic base and the opportunities to avoid many mass layoffs and shutdowns, this is what I hear.

NELP's economic dislocation initiative is focused on job losses flowing from the restructuring of the Midwest's auto industry. This page includes documents from experts regarding options for responding more effectively to economic dislocation.

A New Direction

North Carolina could explore other labor-intensive subsidy models, especially since job creation is a prime imperative in these counties. Indeed, one of the paradoxes of the field of business incentives is that most development subsidies are capital-based, yet they are supposed to create jobs. Such subsidies can create jobs, but they are less efficient than labor-targeted ones. Capital subsidies only generate employment as a byproduct of increased production; that is, employment increases are coincidental. However, this does not mean that capital subsidies are inherently good: It just means labor-targeted subsidies offer more direct and potentially cost-effective ways of creating jobs.

INTRODUCTION

Development Finance and Regional Economic Development (pdf format, 23 pages)

Increasingly, regions are emerging as the principal unit of economic competition and strategy in America. The real economy is not bounded by conventional government jurisdictions; production, consumption, communication and commerce flow across city, county and state lines. Healthy sub state regional economies trade with other economies beyond their boundaries, and city and county governance structures do not line up easily with regional concerns or the geography of sub state economies. State policymakers have the fiscal resources and often the right perspective on what's needed to make a difference, but state capitols are often too far from the action at the grassroots level to have the local economic intelligence needed to craft the best policy solutions. Regional and local development practitioners and institutions have an important role to play in framing the economic futures of their regions and ensuring that economic benefits are truly inclusive.

Typically, business incentive reformers win the intellectual arguments about the downsides of business incentives, but state and local policymakers refuse to stop providing incentives. The following imagined dialogue between a wonk reformer and a business recruiting buffalo hunter captures the back-and-forth of such a conversation. But there is one big difference: this conversation may offer a way out of the present impasse.

The Corporation for Enterprise Development has developed two new incentive alternatives to most of the Lee Tax Credits for the state. The Targeted Job Creation Grant Program is described in another short paper. (Firms must elect to participate in one program or the other, not both.): The NC policymakers should explore creating the following new program in place of all the Lee Act credits except for the R&D option. Here is the concept.

For The North Carolina Rural Economic Development Center

Introduction

That North Carolina has been hit hard during the recent recession is news to no one. The state has seen a record number of jobs lost, plants closed, and mass layoffs as its traditional manufacturing base restructures and moves abroad. More than a quarter of the state's manufacturing base disappeared (about 219,800 jobs) between 1990 to late 2003.1

Issues, Facts, and Alternatives A Literature Review

This working paper was developed for the Rural Dislocated Worker Summit (held on September 2, 2004) to provide an update of previous literature reviews addressing the issue of dislocated workers.

(Revised: January 2007)

Suzanne Berger and the MIT Industrial Performance Center, How We Compete. New York: Doubleday, 2005. ($27.50)

Richard K. Lester and Michael Piore, Innovation: the Missing Dimension. Cambridge: Harvard University Press: 2004. (Paperback 2006 edition).

Every few years, a cross discipline group of MIT scholars put on their walking shoes, go into the field, and see “what companies around the world are doing to make it in this global economy.” The Berger study is the latest – a five-year identification and analysis of 500 international companies. The effort aims to “discover which practices are succeeding,” “which are failing,” and “why.” Spurred by the “rising fear in America that no job is safe,” the researchers wished to explore whether these anxieties are justified. The Center visited facilities around the world, “asking questions about which parts of the manufacturing process are carried out in their own plants and which are outsourced, who their biggest competitors are, and how they plan to grow their businesses.” Are managers working to offshore jobs “Benedict Arnold” CEO’s? Or, is this just the latest phase in globalization, responding to the latest fall in the price of moving information and moving goods, where the benefits will markedly out-weigh the costs and pain caused by the inevitable dislocation that accompanies downsizing, relocations, and closings?

Business incentive costs continue to rise. States competing to land a prospect do not know what each is bidding, while the footloose enterprise is in the best position for egging on the multiple states to bid more than necessary to close the deal. When this occurs, it's called the "winner's curse", because the winner of the particular "auction" pays more than any of the other bidders believe it is worth, possibly more than the company's target, and may be more than the government can afford.

Individual development accounts, citizen-based trust funds, basic capital grants, broadened stock ownership, and other such ideas that are being refined, proposed, and discussed by today's asset building movement are not utterly unique creations. As the cliché puts it “There is nothing new under the sun."

A Progressive Economic Development Agenda for Shared Prosperity: Taking the High Road and Closing the Low (pdf format, 36 pages)

Elected officials and policymakers are under intense pressure to do almost anything that might create wealth and jobs. Their operating environment is characterized by corporate threats to relocate (or not come at all) unless they receive public subsidies, along with increased job, income, and production insecurity from globalization, outsourcing, and lower-cost imports. In this context, economic development is vitally important for America's state and local elected and appointed officials. Never has so much political and public financial capital been expended on its behalf. Despite tight state budgetary constraints, it rarely suffers cuts, and citizens now expect state policymakers to take some responsibility for the workings of their economy.

CFED Releases the 2006 North Carolina Action Kit on transforming economic development policy and practice in the states

Author Bill Schweke has just finished a series of economic development reform essays for policymakers and advocates in North Carolina, which are relevant to other states as well.

In an effort to assist states in promoting policies that encourage economic opportunity, CFED prepared a toolkit in March 2005 to educate the North Carolina General Assembly on the impact of economic development incentives on the state.

State Toolkit

Whenever you think that the debate over the merits and demerits of the Anglo-American economic model versus the Western European social democratic model has reached a consensus, it starts up again. The Future of Europe: Reform or Decline, by Alberto Alesina and Francesco Giavazzi, is the latest installment. It ends at a different place than the last book on the subject that I read, David Howell's Fighting Unemployment: The Limits of Free Market Orthodoxy. (Its conclusion was low unemployment can occur in wide variety of settings from the free markets of the US to the regulated markets of Scandinavia.) Instead, The Future of Europe argues that without comprehensive reform continental Europe's over-protected, over-regulated economies will continue to trail the US. This does not mean that all these or even any of these nations will become poor. Relative to developing countries, they will still be wealthy and relative to the United States, they will have a comfortable standard of living. But a slower rate of growth will definitely limit Europe's political influence. It might exacerbate European efforts to absorb their rising number of immigrants into their polity and society. And it raises large challenges in dealing with the pension liabilities and health care costs of an aging population in Western Europe.

Since its origins, it has been CFED gospel that any worthwhile reform of an anti-poverty policy, program, or project, on the federal, state, or local level, must not just lead to cuts in caseloads or transfer payments but should lead to lasting escapes from welfare or a dead-end, low-paying, benefit-less job. For a number of years, despite reductions in the size and shape of America's safety net, we seemed to be making progress.

About 14 years, ago the irreplaceable Rob Mier and the well-published Richard Bingham (both based at the University of Illinois at Chicago and Viet Nam vets) edited an interesting group of articles in a book entitled Theories of Economic Development: Perspectives From Across the Disciplines, that, in turn, described and applied most of the theories and models of economic development that existed at the time. These included: cost minimization models, cluster theories, agglomeration economies, central place theory, product cycle theory, stage/cycle/wave theories, export base theory, entrepreneurial theories, growth machine models, and many others.

There is a philosophy of government inherent in this blog's view. Markets fail, and often so does the public sector. Government can't go it alone, but neither can businesses. They and the nonprofit sector can achieve much more working together than apart. The functions that state governments can play in development are as broker, catalyst/leader, investor, service deliverer, and stabilizer. There are places where government should contract; there are others where it should expand. It is all about rethinking the mixed economy and re-imagining the idea of economic progress.

You would think that, with all the public funds being spent on state and local economic development, the controversy over incentives, and the ambiguous and often negative scholarly opinion regarding many popular programs, tough questions about economic development's theory, goals, and strategies would be commonplace.

BOOK REVIEWS OF THE INVISIBLE SAFETY NET AND ONE NATION, UNDERPRIVILEGED

Once every decade, Charles Murray, self-described libertarian, throws another Molotov cocktail at the left, liberals, and other defenders of the welfare state. In Our Hands, his latest policy incendiary, proposes to replace the welfare state with cash grants to all American adults. Rather than trying to fix bureaucracies or reinvent safety net service delivery, Murray suggests abolishing the entire system of social insurance payments, in-kind support, housing subsidies, and so forth, and creating an annual $10,000 grant, with only two requirements - you must be an adult and you must use $3,000 to buy health insurance. This means Medicare, Social Security, Head Start, Medicaid, food stamps - everything - would be terminated.

THREE RECENT BOOKS ON ENTREPRENEURSHIP

Carl J. Schramm, The Entrepreneurial Imperative. New York: Harper Collins, 2006. ($24.95)

Michael H. Shuman, The Small-Mart Revolution. San Francisco: Berrett-Koehler Publishers: 2006. ($24.00)

Bo Burlingham, Small Giants. New York: Portfolio, 2006. ($24.95)

Entrepreneurship is a pretty hot topic right now in the United States. In our currently cynical country (with regards to big business, big government, politics, etc.), entrepreneurs and small business owners also receive widespread respect. Both are sold as cultural icons, living the good life, setting their own hours, renewing the economy, being their own boss, and pursuing the American Dream.

Economic development is in part a science, (a would-be applied science) drawing on theory and research in economics, geography, regional science, urban studies, rural sociology, public administration, the management sciences and more. Universities teach it. Trade associations offer credentials akin to other professions.

But when economic development policymakers and practitioners raise certain issues or take positions on them or lobby for bills, they explicitly project the interests of certain groups and look after their welfare. When developers hone and systemize their message and engage in debate about a preferred organization of society or economy, their words become a body of doctrine, known as an ideology.

E. F. Schumacher was a major pioneer of sustainable development - a new stage in the evolution of environmentalism, as the movement embraced a broader view of its mission. It sought a future for the earth that was more just, technologically progressive in the broadest sense and more environmentally protective and preventative. He formulated early versions of the precautionary principle and promoted a value-based economics.

Business incentive costs continue to rise. States competing to land a prospect do not know what each is bidding, while the footloose enterprise is in the best position for egging on the multiple states to bid more than necessary to close the deal. When this occurs, it's called the "winner's curse", because the winner of the particular "auction" pays more than any of the other bidders believe it is worth, possibly more than the company's target, and may be more than the government can afford.

I profess that I have a generally irritable disposition to books on leadership and management. Most start on a high note and some wonderful metaphor or story, which can successfully propel the book to the mid-point, where the reader finds the author repeating herself and offering advice, which is the equivalent of truisms, such as "buy low, and sell high", "find your ideal niche," and "those who truly lead empower."

The management bookshelf is also incredibly "fad-driven" and seeks to divert our attention and try to persuade us to taste "the flavor of the month".

Ronald Wright's A Short History of Progress is an easy, informative, delightfully frightening read. The Ottawa Citizen states it well: "If you read one book about impending doom this year, make it this one." Like I said - delightfully frightening.

Wright's past books have focused on the Mayan Empire in Central America and early Western colonization of the New World. After providing some background on the emergence of the idea of progress in the West during the past three hundred years, the author argues that "progress" is a myth. And as a myth, it helps our culture navigate through time, sometimes serving us well, other times not so well. It is thus much more akin to an ideological or religious narrative than a scientific one.

Martha Nussbaum is quite a unique figure in the field of development economics.Trained as a philosopher and classics scholar, she is an accomplished academic and writer, having written over a dozen books with a few more waiting to be published.She has won numerous awards for her scholarship, and has received honorary degrees from twenty-five universities throughout the US, Canada, Europe, and Asia.She has held professorships at Brown, Harvard, and now at the University of Chicago where she currently serves as the Ersnt Freund Distinguished Professor of Law and Ethics.She is a feminist, human rights advocate, philosopher, classicist, and much, much more. But instead of attempting to paint a picture of her whole career and body of work (which is immense), I will focus on one example of her written work and research – the role of women in Third World development and the theories she developed therein. ¹

Gunnar Myrdal was an economist and sociologist who, for most of his career, worked toward economic development reform, devising new ways to combat economic inequality and poverty in developing and developed countries, and to address the growing economic chasm between the two.  Many of Myrdal’s theories and concepts were well ahead of the conventional ideas of his contemporaries.  Here we will explore some of his work and ideas, including his work on values and objectivity, third-world development, his theory of “virtuous and vicious circles” in economic change, the “soft state”, and his study of African-Americans in the US since the Civil War. 

A BOOK REVIEW OF THE PLAN: BIG IDEAS FOR AMERICA

First impressions of The Plan: Big Ideas for America, co-authored by Clinton White House policy stalwarts Rahm Emanuel (now a Congressman) and Bruce Reed (now head honcho at the Democratic Leadership Council), are positive. It's a decent book with a decent policy agenda by decent people. In this day and age, you can never have too many books and articles by Democrats that combat the widely asserted notion that the Democratic Party is bereft of ideas. The writing is clear and concise. For the most part, the ideas and policy platform are sound.

Today, before writing this piece and while surfing the Web, I ran across a course guide on the topic of economic development that listed the required and recommended readings. At the end of the list was the statement - "Everything by Tim Bartik." Kind of says it all, doesn't it?

Ann Markusen's academic and research career is hard to summarize. She has done so much. She has been a Brooking Institute Economic Policy Fellow, a consultant to the Clinton Administration, the World Bank, Cleveland, Pittsburgh, Berkeley, and Chicago, and to the states of Michigan, Ohio, and California. In addition, she's an expert on the steel industry, defense conversion, and an author of at least 10 books. Most recently, she has been studying the role of the arts in the overall economy and in economic development, as well as the issue of "good jobs." Currently, Ann is a professor at the University of Minnesota, Humphrey School and has just finished editing a book about business incentive reform.

OR WHY IS IT SO HARD TO HELP OTHERS TO LEARN, SHOW INITIATIVE, AND CHANGE?

Pick a field of practice, a profession, a policy. It could be anything - education, physical therapy, couple's counseling. They are all the same: "You can lead the horse to the water but you can't make him drink." If this analogy doesn't work, think of your trying to get your son motivated to do his homework thoroughly and on schedule. Or, really think about the phrase - "teaching is not learning."

Amartya Sen is an economist, philosopher, and activist. Unlike most economics professors, Amartya Sen will forever be known as an economist who redefined limits of debate and scholarly work in the field of economics. One part philosopher and another part economist, Sen's background includes research and writings on Abstract Choice Theory, welfare, poverty, development, human rights, famine, and women's rights, studying the social, ethical, political and economic issues brought to bare by each.

There is no doubt in my mind that we are achieving an increasing consensus among both economic historians and economists, regarding the origins, logic, and essence of Western capitalist durability as an engine of growth.  Economist William Baumol, in his book, The Free Market Innovation Machine: Analyzing the Growth Miracle of Capitalism, states that “Free market” capitalism may not be the ideal system for promoting technological progress, but it does it more effectively than any other system.¹

Socialism. That’s a word and a movement and a vision that’s seeing some hard times—perhaps even extinction. Socialism never “took” in the United States as it did in much of the rest of the world for a host of reasons. The American Dream and reality functioned as an ideological alternative to socialist values of liberty, equality, and fraternity. The right to vote for a significant segment of the population kept the issues of democracy and workers’ rights from getting tangled and polarized, as they were in Western Europe. The frontier as a land of second chances and opportunity; the challenge of organizing the diversity of American ethnic and racial groups; the widely held value of equality as equal respect, not equal outcomes--these are just some of the reasons advanced for why socialism did not root itself in the American body politic.

Jane Jacobs, who passed away last year, was a bit of a natural force. This former housewife with only a high school degree helped to "take down" one of the most powerful men in New York City, Robert Moses, who was responsible for hundreds of acres of lively, viable, and historic communities to be bulldozed for his vision of progress. Furthermore, she wrote the single most important book in city planning of the last 50 years, The Death and Life of Great American Cities. The book celebrated the diversity and vital nature of cities, but was harsh in its criticism of the city planning of the day for its "sterile uniformity."

I actually admire business recruiters, despite my continued criticisms of the business incentives "arms race." Unlike me, they can claim that their work actually puts food into a baby's mouth. When they deliver the jobs, they deliver concrete employment opportunities and life support for their citizenry. (I, on the other hand, tend to deal more with abstractions - policy research, development and advocacy and lots of planning with communities and states. The ratio of words to action is rather skewed.)

They are also on-the-line. Either they deliver the goods or else they become an unemployment statistic. There is little ambiguity in their field, regarding success.

And it is understandable that they feel forced to play the incentive game, even if they are opposed to this strategy on principle. First, it can be regarded as a condition of their employment. Second, it is the way the contest is played.

Fair Exchange is the brainchild of Deborah Groban Olson, a well-respected attorney, specializing in Employee Stock Ownership Plans and labor law. The idea, in its essence, is simple: “If government provides a business subsidy (or incentive) in a form that basically constitutes equity capital, the public sector and the citizenry it represents become shareholders in the firm.” Or as she phrases it: “Fair Exchange equals providing citizens with equity managed by a community trust, in return for government subsidies or tax breaks to businesses.”