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Module7Lecture.pptxChapter 9: Industrial Recruitment
Economic theories cluster theory
Political context perspectives on growth
When business and government bargains…
A Review of Various Economic Theories
| Level of Focus | Economic Theories that Address the Focus |
| Global | Classical economics Neo-classical economic (supply side) Marxist economics |
| Country | Mercantile economics Neo-mercantile economics (state corporatism) Demand-side economics (Keynesian) Dependency theory economics |
| Regional | Cluster (location) economics Municipal entrepreneurism |
Cluster Theory
Clusters are geographic concentrations of interconnected companies, specialized suppliers, firms in related industries, and associated institutions in a particular field that compete but also cooperate.
They draw more customers to the area.
Because of proximity in clusters, new ideas are quickly transferred (copied) and refined or reinvented, leading to further innovation.
Because of the reputation and vitality of clusters, they tend to draw in not only more customers, but also new businesses.
Wine Region Example
1. Wine
tastings
2. Wine
specialization
3. Improved
critical mass
Leads to
Higher wages
Economic
dynamism
Government’s role
remove obstacles, relax constraints;
support resources such as necessary infrastructure;
support human capital development such as education and training programs;
assist export promotion;
encourage local R & D efforts;
sponsor forums to bring cluster participants together;
encourage industrial parks;
sponsor independent testing or certification if it is useful.
Political Context of Local Economic Development
There is not a single perspective on growth.
Local preferences can vary significantly, and range from ‘any-growth-at-any-cost,’ all the way to ‘fighting-all growth-at-any-cost.’
We look at three perspectives.
Pro-Growth Model
A pro-growth model is a coalition interested in the development and re-development of land.
is interested in raising the aggregate value of land by increasing the overall development of land or the intensification of its use.
Land intensification means converting farm and open space to residential and commercial, or lower class housing to high rises or “high-class” commercial.
Economic growth may be focused on blight; when it is, it is called redevelopment.
Blight is
A concentration of buildings that are in serious decay or unsafe and that often have serious building code violations,
Poor real estate values, high vacancy rates, and numerous abandoned buildings and lots.
Land use patterns that reduce incentives for renovations or new development because of an excess of bars, liquor stores, or other businesses that cater exclusively to adults, and that tend to encourage public safety problems,
Absence of neighborhood grocery stores and businesses that support residents,
High crime rates, and/or
Residential overcrowding.
Role of government is generally especially
important when blight is the target of growth.
“Growth Machine”
When there is a powerful and successful pro-growth group that dominates the policy, administrative, and business agendas, it is often called a “growth machine.” A true growth machine includes:
large public entrepreneurs connected to the community who want to sponsor new development,
a generally supportive public of new development, and
a strong support base in government (especially the city council or board of supervisors).
Question: Which of the following cities demonstrated the strongest characteristics of a “growth machine” in the recent economic boom?
Claremont, built-out college town
San Marino, built-out city with beautiful homes
Redlands, a college town that prides itself on being a small city
Beverly Hills
Victorville, a high-desert city eager to expand
Range of Growth Within “Pro-Growth”
Balanced economic development model: focuses on following comprehensive plans, restraining zoning ordinances for all but the most well considered cases, and ensuring that infrastructure and other costs are fully included in the planning approval process.
“Boom model”: Rapid and relatively unrestrained growth, which leads to large economic swings of local investment. Weak regulation and planning.
A Slow and No Growth Model
The slow growth model is supported by coalitions interested in slowing or stopping various types of development because the effects of fast growth are considered too negative.
Slow/No growth advocates worry about sprawl, traffic congestion, environmental degradation, insufficient infrastructure, excessive cost shifting to current tax payers for development projects, and degradation of existing communities by downgrading current use, among others.
Close up look at one slow growth concern: Sprawl
Sprawl, in the narrower sense, refers to the lax use of land.
The National Trust for Historic Preservation calls sprawl “poorly planned, low-density, auto-oriented development that spreads out from the center communities.”
Sprawl takes many forms
Traditional Urban Sprawl: Close-in LA Town homes, low apartment buildings, residential homes with small yards
Low Density Sprawl residential homes with large lots
Commercial Strip Sprawl businesses line streets and signage is prominent
Scattered Sprawl occasional homes and business scattered across open landscape
People drive more in sprawling communities, and have a heavier environmental set of issues to contend with
Sprawl is an expensive model to maintain well
No-growth variant
The no-growth model is a specialized case which is created by a coalition interested in stopping all growth to the degree possible. No-growth models tend to be promulgated in fully built-out areas, especially when they are historical districts, cities that are already highly desirable, and areas undergoing gentrification in which modern and mass structures are not wanted.
A no-growth model can still encourage replacement and upgrades, but do so very selectively.
Smart Growth: A Rational Compromise?
Smart Growth Is a public-private approach to managing growth that emphasizes growth through careful planning.
A definition of smart growth is “an urban planning and transportation theory that concentrates growth in the center of a city to avoid urban sprawl; and advocates compact, transit-oriented, walkable, bicycle-friendly land use, including mixed-use development with a range of housing choices” (Daniels 2001).
The recommended practices of smart growth include:
high density, mixed land use,
strong use of planning with clustered development and protection of agricultural and open space (such as the use of “urban growth boundaries”),
full costing and implementation of infrastructure at beginning of construction,
integration of affordable housing and social equity concerns,
traffic grids allowing for alternate routes,
more emphasis on non-automotive means including pedestrian walkways and bike paths,
narrower streets
California and Smart Growth
CA has sought to strengthen planning. First, in 1963, it created the Local Agency Formation Commission (LAFCO) to oversee city incorporations, annexations, and creation of special districts. A part of this was the requirement for comprehensive planning by established cities.
Currently, the State’s Commission for Local Governance for the 21st Century sets out five principles for California's growth, including:
the requirement for regional perspectives,
the requirement for greater efficiency of land use,
greater public investment,
fiscal reform, and
adherence to equity considerations.
But success by Smart Growth advocates has been partial because Californians love their cars and residential styles
Successes do include: higher standards for cars and gas in terms of pollution reduction, modest attempts to increase mass transit (with very modest results in most cases), increased use of planning and zoning to diminish sprawl somewhat, reinvestment in downtowns, promotion of infill projects to keep areas aesthetically pleasing and viable
Smart Growth in Pictures
Infill buildings and lamp posts added; street resurfaced
Street trees, light rail, bike lanes added
The Factors Determining the Bargaining Positions of Business
Government sets up standard business conditions that apply across-the-board to all businesses.
But what if business wants “special” conditions and has a lot to offer a governmental area?
Although government tries to deal with all business in the same general way, when larger commercial ventures arise, there are strong reasons to adjust local requirements.
Reasons for each sector to bargain
Public Sector
Public interest
Tax revenue (especially high-producing tax generating businesses)
Jobs (low and high end)
Low-income housing
High-end housing
Amenities
Environmental protection
Private Sector
Corporate interest
New business opportunities
Tax breaks
Guaranteed income streams (partnerships)
Assistance with infrastructure improvements
Special assistance…
Three major factors that affect the bargaining relationship and the amount of leverage that business and government each has:
market conditions: cyclical and local circumstances or forces that make cities more or less appealing to private investors for financial reasons
political conditions: the political process through which public sector decisions that can affect economic development
the planning system: relationships and methods used by government to regulate the marketplace and substantially affect bargaining power
Market Conditions
When a jurisdiction is poorly off in the long-run, or is experiencing a downturn, conditions are especially good for business to bargain.
On the other hand…
When a jurisdiction is well-off, it has far less incentive to accommodate business.
Political Conditions
When voters are not paying attention, business has more opportunity to strike favorable deals with politicians and administrators.
On the other hand…
Political conditions become negative for business when there is an active citizen base that scrutinizes all government deals, even those deals that may seem advantageous at first glance. Also, when there is a lot of political competition between parties, or among local candidates, bargains with business may be heavily scrutinized for competitive political advantage.
Planning System
The leverage that business has is much enhanced when government is not tightly organized. In the US, which has a federal system, local governments have a good deal of autonomy, and that creates both a lot of zoning variation as well as a lot of competition among jurisdictions.
On the other hand…
In unitary states (e.g., Europe, Japan, Singapore), or where a strong land planning culture predominates, business advantage is generally far less in bargaining.
Question: Winter Park A very high-end retailer wants to locate in the greater Orlando area (Orange County, Florida. How favorable are the market conditions, political conditions, and planning system for the retailer to locate in the City of Winter Park?
Market conditions: There are many locations in the region in which to locate businesses in general, and thus a lot of competition. Winter Park is a particularly “fashionable” address and there is, in general, a great demand to locate in this particular city by high-end businesses. Orlando’s reputation as an address has improved over the years, and Winter Park is not as well known as other high-end cities across the country.
Political conditions: The citizens of this wealthy community are extremely engaged in civic affairs. Because the citizens were displeased with the local power company, they recently used an option to purchase it.
Planning system: As with most American urban areas, Orange County, Florida, allows its cities to compete with relatively little intervention. In fact, sometimes the County quietly competes with the cities, too, for low cost and cost-intensive businesses.
| Mark along the spectrum how favorable or unfavorable the bargaining position is for a retailer who wants to locate in Winter Park in this scenario? | ||
| Favorable to the retailer | Unfavorable to the retailer | |
| Market conditions | ||
| Political conditions | ||
| Planning system conditions |
| Mark along the spectrum how favorable or unfavorable the bargaining position is for a retailer who wants to locate in Winter Park in this scenario? | ||
| Favorable to the retailer | Unfavorable to the retailer | |
| Market conditions | ||
| Political conditions | ||
| Planning system conditions |
Example of Bargaining Success: The Mission Inn—The 1880s to 1930s (the good years)
Hard times set in…
Great Depression
It was sold by the family in 1956.
Rise of Las Vegas
Bought by City in 1976 to save building
Used for a variety of purposes including student housing!
Major effort to redevelop the property starting 1985
Developer 1 with city: $30 million was not enough!
Developer 2 and 3: failed attempts
Developer 4: Duane Roberts and success; reopened in 1992
Recent return to success looks like…
Example of Bargaining Excess: Indianapolis and the United Airlines Maintenance Hub
in 1989 when United Air Lines announced that it was creating a new maintenance hub that would employ 7,000 people and would result in hundreds of millions in new investment.
Ninety localities investigated the option
The competition was so fierce that United Airlines then made the bids secret and delayed the decision so the competition could play out.
Ultimately, the lucky city was Indianapolis, a city eager to bring high-end mechanics jobs to the area. Hurrah!
Good bargaining conditions for UA.
Market: Indianapolis desperate and business could be flexible in locale
Political conditions: Citizens wanted and politicians inexperienced
Planning system: 90 cities competing, driving up the required government investment
(The city and state put $300 million into the deal.)
At its height, the facility employed less than 3,000, rather than the expected 7,500 employees.
The rent of $700,000 was a fraction of the cost of the bond repayment at $14,000,000 a year.
United Airlines declared Chapter 11 bankruptcy in 2002, and soon announced that it would be closing the facility
United was able to renege on its bond obligations due to bankruptcy restructuring
The city, which had co-signed because the investment was on city land, could not.
While the city and its airport now fully own the massive maintenance facility and they rent out parts of it, it will likely always be vastly underutilized, employing hundreds rather than thousands, and financially act a drain.
Moral of the story: Like all business ventures, economic development is subject to failure as much as success. Quality of ideas, practical planning, and good implementation are critical success. From the government perspective, not all economic development is necessarily good or appropriate.
How Government Should Be Protecting the Public Interest
Create a clear project plan
Reduce incentives for dysfunctional competition among governments
Allow regional authorities a larger share in major initiatives
Depoliticize the process when contracts and bidding are in motion
Ensure administrative competence
Know who you are dealing with
Eliminate and revise an outdated economic development policy
The Strategies that Business Can Use to Increase Its Success in Bargaining with Government
Know the local factors affecting business advantages and disadvantages in bargaining.
Determine strategic trade-offs and win-win prospects, related to both the community philosophy and status of bargaining leverage.
Spend the time necessary to meet and get to know the local players.
Integrate a CRS perspective into the planning process as both an ethical necessity and pragmatic advantage.
Be prepared to adapt the plan.
