Economic Revitalization

Cases and Strategies for City and Suburb

Joan Fitzgerald, Nancey G. Leigh

• Publisher: SAGE Publications, Inc
• Year: 2002
• ISBN:
  9781506320663
• Edition: 1
• Topic: Scienze biologiche
• Subtopic: Scienze ambientali

In Economic Revitalization: Cases and Strategies for City and Suburb Fitzgerald and Leigh answer the need for a text that incorporates social justice and sustainability into how we think about and practice economic development. It is one of the first to talk about how revitalization strategies are implemented in both cities and suburbs, particularly inner-ring suburbs that are experiencing decline previously associated only with inner-city neighborhoods. After setting the context with a brief history of economic development practice and its shortcomings, Fitzgerald and Leigh focus on six economic development strategies: sectoral strategies, Brownfield redevelopment, industrial retention, commercial revitalization, industrial and office property reuse, and workforce development.

1

Redefining the Field of Local Economic Development

As a profession and an academic field within urban planning, economic development is relatively young. We begin this chapter with a brief history of economic development practice and theory. Then, we identify key economic development issues in inner cities and inner-ring suburbs and discuss tools and practices aimed specifically at urban or inner-city revitalization. We conclude that there is a need to reconsider how economic development is defined. Without such a reconsideration, the practice of economic development will continue to be as hit-or-miss and inequitable as its critics assert. We make a case for a reorientation of economic development practice for central-city and inner-ring suburbs that works toward achieving a higher degree of social equity and sustainability.

A Brief History of Local Economic Development Practice

Historically, we can identify five broad trends or phases of economic development practice at the state and local levels.¹ These phases are both chronological and overlapping. In Phase 1, beginning in the 1930s, practitioners mainly sought to attract industry with relatively crude measures intended to reduce production costs via measures such as tax abatements, land assembly and write-down, and public infrastructure. Economic development was not yet a subject of academic inquiry. Beginning in the 1960s, in what we are calling Phase 2, serious political critiques of economic development practice emerged from both activist and scholarly critics. Advocacy planning emerged. In Phase 3, state and city economic development efforts added programs to stimulate export markets for locally produced goods, as well as labor market and research and development (R&D) enticements. As the practice became more sophisticated, so did political critiques of planning practice. Consequently, equity planning emerged. In Phase 4, starting in the 1980s, environmental sustainability as well as equity became a concern of critics and some practitioners. In Phase 5, the present, there is renewed concern about sprawl and interest in metropolitan or regional strategies, as well as an intensification of market-driven solutions. We suggest, however, that aspects of earlier trends still survive and are manifested in later phases.

Phase 1: State Industrial Recruitment

Phase 1 began with the efforts of individual states to attract industry in the 1930s. The evolving economic development practice attempted to create a good business climate through tax abatements, loan packaging, infrastructure, and land development, as well as other efforts to reduce the cost of production for firms. In essence, this marked the beginning of corporate welfare, through which public funds were directed to private sector firms to influence their location decisions. This approach reached its zenith in the late 1960s with a proliferation of predominantly suburban and rural industrial parks serving as locations for manufacturing firms.

The private sector practitioners in this period typically were real estate developers, chambers of commerce, and utility company location specialists.² In the public sector, they were mainly state government officials in nascent development agencies and extension agents from local universities. These practitioners sought legitimacy by joining professional associations such as the American Economic Development Council. Scholars in the disciplines of urban and regional planning, sociology, geography, and political science began documenting and analyzing the practice.

Two distinct perspectives emerged to explain and inform this early development practice: a regional and community development focus drawing on international development theories and experiences and an industrial location focus extrapolated from theories of firm behavior. What characterizes these two perspectives is their concentration on identifying the causes of regional growth and development and, to a lesser degree, the extent to which local efforts can alter development and its orientation. Within these perspectives, a community’s economic development potential was seen as merely a function of what it imports and exports.

The overarching principle underlying this phase of practice was that “greasing the skids” for business by offering tax abatements and other incentives is the appropriate focus of economic development. Marris (1982) suggests this view represents a corporatist paradigm in which “the primary task of government is to make the most of the land, labor, skills, raw materials, infrastructure and social amenities within its jurisdiction” (p. 30). Government’s role is to act in an entrepreneurial capacity to ensure the profitability of firms within its jurisdictions. In this view, social goals incompatible with competitive success are unrealistic and self-defeating and therefore do not warrant consideration (Marris, 1982). This perspective defines the “traditional” economic development activity still being practiced today.

Phase 2: Political Critiques of Local Economic Development Activity

The second theoretical perspective on local economic development emerged in the late 1960s, following a series of events that raised questions about the impacts of planning practice. Although industrial development activity still dominated practice, the combination of rapid urban decline with a wholesale exodus of manufacturing from urban areas, large-scale civil disturbances, and the failure of urban redevelopment efforts forced on the table a new set of questions about what economic development practice should try to achieve. The focus of economic development analysis shifted from examining how to implement various techniques and strategies to questions of who was paying for, and who was benefiting from, the practice. The actors in economic development were no longer seen as faceless firms or neutral “rational” planners but as political agents.

These analyses of the political economy of local development focused on who participates in the process and on their motives for doing so. Researchers observed local businesspeople in proactive roles, often in collusion with local government officials (see Walton, 1979). In an influential article, “The City as a Growth Machine,” Harvey Molotch (1976) suggests that economic development activity was led by local landholding elites interested in increasing the value of their property. Because local elites have fixed capital investments (real estate interests, utilities, capital-intensive manufacturing facilities), they participate in the development process to protect these investments.

Economic development planning, then, was justified in the name of job creation but practiced in the interests of wealth creation for these elites. Questioning one of the main justifications of local economic development practice—job creation—Molotch (1976) argued that the activities pervasive among practitioners did not create jobs but merely transferred them from one location to another. Other critics argued that tax abatements and other inducements offered to industry under the guise of economic development paid firms for what they would have done anyway. They pointed out that economic pressures emerging in the late 1970s—international competition and a sagging world economy—spurred an industrial restructuring that created a new spatial division of labor (Massey, 1984; Walker, 1984). Business attraction, the main activity of economic development, became referred to derisively as “smokestack chasing.” Evidence began to accumulate that the promised jobs often were not created and the tax abatements and other infrastructure improvements provided by cities and states nullified any tax revenue increases that might have been realized (see Harrison & Kanter, 1978; Goodman, 1979; Jacobs, 1979; Vaugh, 1979).

This perspective revealed a fundamental contradiction in local economic development practice between the interests of cities and the interests of businesses within them. While cities have as their primary objective stability of employment and the tax base, firms seek mobility to produce in the lowest cost or highest profit location. When these interests coincide, such as with the locally dependent elites defined previously, public-private partnerships are formed to protect the mutual interests of places and business. When they do not coincide, cities may take action to prevent firm mobility, but such cases are rare. The more likely scenario is for economic development practitioners to act in the interests of the business sector, often to the point that these actions become impossible to justify given their limited impact on job creation or increasing the tax base.

The use of public resources for promoting economic development has largely gone unaccounted for, but the relatively few studies that have attempted to evaluate the effectiveness of economic development activities (usually the more easily measured fiscal incentives) have not demonstrated strong results. Academics in the economic development field have been pointing this out for some time, with little impact on the practice. The issue was raised for a much broader audience in a late 1990s Time magazine cover series (Bartlett & Steele, 1998) on corporate welfare, defined as the indiscriminate use of public resources for private sector gain. One example presented was the 1997 incentives given by the City of Philadelphia and the state of Pennsylvania to a Norwegian company (Kvaerner ASA) to reopen a portion of the closed Philadelphia Naval Shipyard. The article highlights the fact that the investment will take more than 48 years to be earned back by the taxes its workers will subsequently pay. The company received $307 million in incentives, or $323,000 for each of the 950 jobs it is creating. Workers in these jobs will be paid around $50,000 a year. In the Time series, Bartlett and Steele (1998) concluded the following:

Two years after Congress reduced welfare for individuals and families, this other kind of welfare continues to expand, penetrating every corner of the American economy. It has turned politicians into bribery specialists, and smart business people into con artists. And most surprising of all, it has rarely created any new jobs. (p. 38)

In summing up this incentive-based economic development approach, Krumholz (1991) states: “In effect, the public economic development practitioner becomes an arm of the private developer, the success of the latter is a measure of the effectiveness of the former” (p. 293). Further, we add that the success has been measured in only the shortest of terms. What benefits the current private developer is all that is calculated. Whether, for example, the land use planning and design of a facility can be used easily by another business should the current business fail or move is seldom considered. Indeed, a major characteristic of postwar economic restructuring has been the shift to shorter and shorter business life cycles, as well as greater firm mobility. Public incentives and other efforts to facilitate private development go toward increasingly transient “successes.”

Changing the practice is not easy. Good Jobs First, a project of the Institute on Taxation and Economic Policy (ITEP),³ serves as a watchdog on corporate welfare. They estimate that since 1987, New York City has spent over $2 billion on retention or attraction incentives provided to 66 corporations. In 1994, Greg LeRoy, the founder of Good Jobs First, documented the proliferation of state incentives in No More Candy Store and described efforts of several states to develop alternatives, or at least to build in mechanisms for compensation (referred to as clawbacks) for companies that do not honor commitments made as part of these deals. An update to the report, Minding the Candy Store (Hinkley, Hsu, LeRoy, & Tallman, 2000), documents the continued proliferation of subsidies and the lack of accountability in documenting that they meet employment goals.

Although several states have entered into noncompetition agreements, these are easily broken when a firm dangles an offer of jobs in front of state officials (Burstein & Rolnick, 1994). For example, Governor James Florio of New Jersey broke a 1991 New York, New Jersey, and Connecticut “nonaggression” pact within months of signing (Mahtesian, 1994). This state of affairs is like a prisoner’s dilemma, in that a city or state that stops using incentives is at a distinct disadvantage to those who continue (Bucholz, 1998). While incentive-based economic development practice still dominates, an alternative practice emerged, which is chronicled in the next section.

Phase 3: Entrepreneurial and Equity Strategies

As the promise of the traditional economic development strategies faded among practitioners, two separate movements emerged, marking the shift into the third phase of theory and practice of local economic development. The first was a shift from the supply-side industrial attraction focus to a more entrepreneurial focus, which occurred in both state and local economic development practice (Eisinger, 1988, 1995). These “second wave” strategies shifted the emphasis of economic development to promoting the development of new businesses and industries, particularly in high-tech sectors. The approach was still definable within the corporatist approach, with the public practitioner still viewed primarily as the agent of the private sector. The second movement advocated a set of alternative place-based strategies that focused on issues of equity and redistribution. This movement would later become known as equity planning.

Following the success of Silicon Valley, many states began programs in which university-based research was to be used to promote high-tech development (see Luger & Goldstein, 1993; Osborne & Gaebler, 1993). This approach is best summarized by Saxenian (1985):

In 1983, thirty-three U.S. states spent over $250 million on R&D facilities to speed the growth of high-technology industries within their borders, while thousands of local governments schemed to devise the optimal package of tax breaks, incentives, and regulatory relief in order to lure entrepreneurs and innovative firms to their turf. Attracting high tech is the economic development strategy of the 1980s. (pp. 125–126)

States and cities also began initiatives such as international trade promotion, venture capital funds, small business development, and other programs to promote entrepreneurialism (see Eisinger, 1995).

Arising within this more entrepreneurial approach were efforts to be more discriminating about when to offer subsidies. The City of Chicago pioneered in efforts to analyze when to offer subsidies by using a cost-benefit methodology developed at the UIC Center for Urban Economic Development (see Wiewel, Persky, & Felsenstein, 1994). Further, some cities became more aggressive in responding to companies not honoring their hiring or other commitments, demanding “clawbacks” and even filing lawsuits (Mier & Giloth, 1993; LeRoy, 1994). In 1984, the City of Chicago filed a suit against Hasbro-Bradley for breach of contract when the company announced it was closing its Playskool plant that employed 1,200 workers. The company had expanded its Chicago facility in the late 1970s with $7 million in state low-interest loans and additional city funds. A settlement was reached in 1985 in which 100 workers were retained to operate a job-placement program. Inducements of $500 were offered to employers who hired the workers. Further, the company agreed to a $2.3 million severance package negotiated by union and nonunion workers. Such efforts were, and are, the exception rather than the rule.

Although this new wave of economic development strategies allows states and cities to be more proactive and strategic in shaping the type of development that takes place, their dominant focus is still promoting economic growth. Beginning in the late 1970s and early 1980s, a growing number of practitioners and academics in policy and planning began urging the profession to confront issues of socioeconomic inequality and to become advocates for those left out of the development process—in both participation and outcome. A motivating force behind the emergence of this equity planning perspective was the realization that the economic and political coalitions that drove urban economic development planning in most cities had changed.

In the 1980s, progressive regimes in several cities promoted strategies in economic development, housing, and community development to better serve the interests of low-income residents (see Clavel, 1986). In the early 1990s, this approach became known as equity planning, defined by Metzger (1996) as

A framework in which urban planners working within government use their research, analytical, and organizing skills to influence opinion, mobilize underrepresented constituencies, and advance and perhaps implement policies and programs that redistribute public and private resources to the poor and working class. (p. 113)

This approach introduces redistribution of wealth into the goals of planning. Academic planners who identified with the equity perspective conducted studies of urban development focusing on the extent to which development policy was worked out through broad p...