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.
Even if incentives went away, there would always be a role for marketing an area and shepherding prospects around the industrial park. And their work in improving the local or regional business climate, regarding all the other factors that interest companies (e.g., infrastructure, workforce training, available sites, etc.) would still continue.
But now, I wish to shift away from praise to truth-telling and calling something by its real name.
I contend that incentives, in the vast majority of cases, do not create jobs. (I know that this is no real surprise for most of the economic development literate.) Unless they are correcting for some market imperfection, they are only "buying jobs." The jobs are already created - or almost so. They are on the drawing board and are only awaiting the final decision on location before they incrementally become visible. On the other hand, the non-financial activities of economic developers, such as preparing a site for a firm that is maxed out in its building and will go under unless it has room for the new machinery that would allow more economies of scale and tapping a bigger market, can foster genuine job creation.
America's Economic Development Auction
Why are substituting words, "buying jobs" so important?
Because it tells it like it is.
There is an auction going on across America. But it's an auction where bidders can't see or know what the bidders are bidding. And may be there are no bidders. Everybody now is expected to play the game. It appears you cannot opt out without being punished.
The sanctions are severe. No work for you and your neighbors. Moreover, no state or locality wins consistently in this game. New subsidies are copied quickly. The price of jobs only goes up. The footloose firms hold all the cards - only they know what the real score is, and they always win. After all, a city can pay too much for landing these jobs - foregoing other better uses for this money and going in the red, fiscally-speaking.
Get off the Train
But there is a light at the end of this tunnel and you can get off this train. Or, for most, depend less on the train and rely on other means of transit. The first step is the biggest: we only have to call this practice by its true label and say the words: "Buying jobs is not, fundamentally, economic development. If done wisely and cost-effectively, it can add some numbers to your income and employment columns. However, such programs may also discourage the search for more productive ways to use these resources and discourage a certain self reliance. And the projects, unless complemented with other efforts to leverage these deals, may not lead to the transformation that is required or a self-sustaining dynamic."
A homegrown economic development is required. Robert Partin, the Mayor of Scotland Neck, North Carolina (a town of 2,300) said it well recently: "Place-based development tends to originate within a particular community and focus on local economic assets."
Indeed, we need to take an entrepreneurial view of the process, which means all can play. Salesmen, secretaries, scientists, artists, contractors, lab technicians, big business execs, and welfare recipients have all risked their time and their own money to expand our overall capacity to produce, as they have discovered more ways to add value to our resources and new opportunities for consumers to eat, compose music, enjoy a movie, attend school, invest in social ventures, travel, and so forth.
Roger and Me: The Economic Gospel of the Wealth of States
Following my old buddy and economist Roger J. Vaughan, we say that "economic development is a wealth generation process." 1 Jobs are outcome of a dynamic economy.
It cannot be engineered or blue-printed but the conditions for its success can be cultivated.
Wealth creation is a function of discovering and implementing better ways of meeting our needs and wants. These include goods and services traded in the marketplace, but also intangible products - environmental quality, public security, arts and entertainment, and other contributors to a flourishing life.
Such opportunities for innovation are not known ahead of time. The process of wealth generation is driven by the initiative of entrepreneurial people - owners, managers, and employees - discovering new ways to add value, to invent, to be more productive.
This is not the "Gospel of Wealth" of the Gilded Age of yesterday and today: it is the vision of a property-owning democracy - the American Dream of economic opportunity and democracy and the power to say - "I'm doing it my way." It's an America of second and third chances, where the middle-class is strong and unthreatened and financial assets are broadly owned. This is a particular type of market economy, with a government that sees its job is to "free enterprise", where "free" is verb, not an adjective that denotes a situation that constitutes an already achieved, ideal state of being, that must be preserved by stacking the deck against the little guy. We do not want an American equivalent of the newly empowered Russian oligarchy running the show. (Sadly, we seem to redeveloping our very own plutocracy now.)
Freeing Enterprise
In a market economy, it requires taking risks to find those opportunities to create new goods and services, to lower costs, and to penetrate more promising markets with the aim of showing a profit.
No matter if a community is rich or poor, there are always some opportunities. Finding and exploiting these requires only a few basic elements: attentive and able entrepreneurs and co- investment by other private sector institutions. Competition must genuinely exist: it must be possible to enter existing product markets. But for everybody to have a decent chance to compete and flourish, it is necessary to even the playing field.
Government has a role to play here, especially aiding the economically disadvantaged - both people and places. Markets, after all, are embedded institutions - they are rooted in past history, the national or regional economic culture, and public conventions and laws. This is always true despite all the pictures of abstract supply and demand curves or whether we are discussing Sweden or the United States or Venezuela or Singapore.
Thank the Lord for this truth, because it gives us the freedom to have different kinds of capitalism. Japan, I admit has had its problems for a decade. But they demonstrate you can have a decent standard of living while still running a dual economy. Part of it, such as the auto industry, is the most productive in the world, while subsidizing through yen and regulation a less than world-class efficient construction, agriculture, and most of the service sectors. We don't have to be stamped out as literal clones of the Wall Street version of the American-Anglo model --low inflation, low interest rates, deregulation, and highly flexible labor markets.
Therefore, to have an entrepreneurial economy, with its own national spin, requires a public sector that sets clear rules, delivers quality services for the taxes paid, keeps the transaction costs of doing necessary public business within bounds, and looks after distributional issues. It also should upgrade workforce skills and education, address quality of life and safety issues with humanity and intelligence; and set the tone for a good civic culture.
Incentives for profit and loss must have clarity. But this imperative has to be balanced with the need for governmental actions to shape markets for the greater good and curb some of the market's negative effects - inequality, job loss, pollution, exploitation and concentrated political power in the business community. If signals for supply, demand, quality, and price become too distorted, we all pay in other ways. (But our democracy may decide to put up with those costs for some other ideal or value.)
All these factors make government objectives more complex, often in conflict or tension. Good government rules reduce flexibility at times. Necessary regulation, taxation, and safety net functions can unintentionally slow the growth and investment. Win-win solutions to these conundrums may be absent. Compromise between honoring both commitments may be the best you can get.
Public management faces unique challenges too, because feedback to public agencies is less pointed and strong than the private sector. And doing government's business now often entails crafting effective collaborations between the private, public, and nonprofit sectors. This ain't easy.
Lastly, capitalism is a world of conflict as well. Established industries fight their demise through drawing on political power and policy tools (e.g., tariffs). Some owners try to squeeze the maximum out of their workforce and have little commitment to their well-being, regarding job security, wages, and benefits. Ethnic, regional, racial, and gender conflict influence markets and the wealth generation dynamic as well - typically by hindering it.
Using Douglas McGregor's old terminology, some managers operate under Theory X - motivate by fear and reward. Others call on Theory Y, intrinsic motives for creativity, service, community, and a sense of accomplishment akin to Maslow's higher goals for self-expression and -realization.
Conclusion
To sum up, economic development is really synonymous with the process of socio-economic innovation - searching for better ways of drawing on all forms of our capital - from finance to human to physical to natural to social. This too is a shared role - both the public and private sectors are the essential investors.
The holistic nature of economic development calls for a holistic response. Support for entrepreneurial initiative and investment is not just the Department of Commerce role or a list of programs with economic development in their name. In most cases, the size and scale of funding and staffing is too small to make a real difference anyway (even if they are doing the right thing well). More critical in most respects are taxes, regulation, education, safety net programs, and law enforcement, as well as providing information, and building and maintaining world class infrastructure and technological assets.
Despite their omnipresence and beguiling logic, buying jobs and business attraction are less important in the scheme of things and are much more helpful to the large established business or branch plant than the innovating entrepreneur.
When will enough of us wake up to shift the center of gravity of economic development toward entrepreneurship, innovation, productivity, governmental and civic leadership, and the energy and skills of the average wage-earner and away from a fixation on the big deal and hottest prospect?
NOTE: Forthcoming articles will discuss some of the limits of the entrepreneurial approach and even of economic development.
1 Most of these ideas are drawn from Roger Vaughan, Robert Pollard, and Barbara Dyer, The Wealth of States (1984). The peculiar use of the term - free enterprise - is Jim Hightower's.