How Regional Development and Economic Incentives Are Changing

Posted May 10, 2018

The book, Transitions in Regional Economic Development, discusses “the uncertainties associated with the stalling of hyper-globalization and asks whether this creates opportunities for resurgent regional economies driven by local capabilities, resource efficiencies, and domestic production.”

In the book, the editors of Regional Studies — a leading international journal — and authors from universities around the world explore the shift in global power toward economies in the East, the impact of immigration on economies, and the consequences of urbanization. The book celebrates the 50th anniversary of Regional Studies, for which Jennifer Clark is an editor.

In an interview with IPaT, Clark reflects on the evolution of the field, and how the bid for Amazon’s new headquarters highlights an important economic development policy question for cities.

Editor’s note: This interview is lightly edited.

IPaT: What are some of the changes occurring in the development of cities and regions that the book outlines?

Jennifer Clark: The book highlights some of the big questions in regional policy and regional economic development like industrial transformation. The shift from manufacturing economies into service-based economies. What does that mean for jobs? What does that mean for wages and income? What does that mean for policy? How do you create economic development policies that support the ability of communities to support themselves? What kind of industries do you invest in?

If you think about something like the competition for the new Amazon headquarters, that sort of policy question is central here. Do you create subsidies to attract firms, or do you invest in place? For academics in regional economic development, all of the evidence that we have empirically shows that subsidies do not pay off.

IPaT: Why is that?

JC: The cities and regions which are creating economic development packages pay too high a price to firms in terms of concessions. It’s also because cities undercut each other, which is part of what’s going on with the Amazon bid right now. You get into a bidding war rather than an empirical analysis of what the cost-benefit analysis would be for what you’re trying to attract. But it’s also because firms often don’t do what they say they’re going to do, and there is no policy mechanism to hold them to it. So when firms say they’ll bring 5,000 jobs, what ends up happening is they bring 2,500 jobs in the end. There are policy proposals, and there are people, including some of my colleagues, who advocate for things like clawback policies so that you get your subsidy back if the firm doesn’t meet the promises that they make.

One of the most significant debates in economic development policy is the question of, would you be better off if you took that, say, $500 million and invested it in your schools, your K-12 system, in your transportation system? What if you just take $500 million, and instead of putting in a tax subsidy to an individual firm you put it into your universities for more Hope Scholarships? Wouldn’t the companies still come because they want the talent? And what you did is you invested in your people as the attraction. So more and more what we’re seeing is that investments in human capital pay off more than the investments in individual firms.

IPaT: The book also examines immigration from a European perspective and whether, according to the book’s description, immigrants “displace local workers and depress wages, or bring benefits in the form of know-how, new technology, and investment.”

JC: Just like in the U.S., in the broader debate about cities and regions, immigration is a huge hot-button issue. In the U.K. there’s Brexit, in addition to the recession and what that means for the industrial composition of cities and regions. The question of who’s doing the work, who’s living in the cities and regions is a big question, as well as how you think about immigration policy from an economic perspective rather than a social, hot-button issue perspective.

In our research here in the U.S., we are consistently finding that 25 percent of the economy is people who are working in the formal economy and are working in jobs that don’t have specific certifications and degrees. It’s cooks; it's janitors, it’s people who are part of what we are calling “the essential economy.” Those are the kinds of jobs that people who are immigrants and migrants often get, certainly when they first come because they usually don’t have certifications, or whatever certifications they have are not recognized. If you do the economic analysis, it’s a labor supply, labor demand question. If you decrease the labor supply by having more restrictive immigration policies, you have to be interested in paying a lot more for the work performed in that 25 percent in the essential economy as well as in specialized high-skilled occupations where immigrants are well represented.  This is what businesses and consumers are already experiencing in the U.K.

IPaT: How has the field of regional studies evolved over the past 50 years?

JC: Regional studies is an interdisciplinary field that includes economic geographers, urban planners, business, and management fields. We also have some people from economics and sociology, so it’s a really broad field. The distinction, I think, is the focus on space; the idea that space is a variable in the analysis of economic activity and in the development of industrial strategies and public policy. The field is very prominent internationally because it is an interdisciplinary approach to understanding place and the economy. It’s very policy-influential because a lot of policymakers and politicians want to know, how is it that we’re going to create jobs, create innovation? How do we move technology into the marketplace? The way I explain it is that economic geographers study the spatial distribution of the economy. Simply put, we know where money is made and where to make money.

Source: Alyson Powell, Institute for People and Technology (IPaT).