Assessment: the Rise of the States
Our Massachusetts case study of two gubernatorial administrations collectively spanned 1975 through 1991 was important for our purposes. The issue for us was not only the “what”, but also the “when”, and to some degree the “how and why”. Fosler (Fosler, 1988) asserts the role American states developed during this period is “not a departure” from the past. He sees continuity in state reactions to early industrialization when states created an economic climate supportive of innovation, and protected it from the onslaughts of foreign imperialism (Great Britain) and raids from other states. Attraction and business climate were chief strategies in those years. That may have been true then, but I am not so sure that Massachusetts once it industrialized has ever been attracted to business recruitment—and until the 1970’s never obsessed itself with its business climate. Our history provides ammunition that states were more reactive–driven by forces.
Fosler and I agree, however, on an essential and important point: variation. Variation, of course, will not be evident from our case study of one state. Massachusetts, followed an “ad hoc” path motivated by the “instincts” of state leaders—in our words the consequence of a policy-making struggle among conflicting actors over two decades. Fosler in his more exhaustive summary of seven states observes there was no single path, and no single end point common to the seven states at the end of this period. They were all bushwhacking through their own policy jungles. The similarity, which I agree, is they redefined state climate to foster economic growth and in so doing, forged new economic/community development state strategies such as seed and venture capital, gap financing, education and training, and removing regulatory barriers. In Massachusetts’ (and California) case, we ought to throw in tax cuts forced on them by their business communities and taxpayers.
Fosler differentiates an old-style “business climate” which dwells on the costs imposed by state (and local) government on business enterprise and entrepreneurism, and “economic climate” much more broadly defined to include quality of life, capital formation, sector innovation, environmental protection, and Eisinger’s demand side workforce and labor. The latter cuts across a number of policy areas not always included in ED’s traditional Venn diagram. Inevitably, this enlarged the economic development policy process to include universities for example. One similarity that does emerge is states in the post 1970 economic policy system, enlarge the scope of policy areas relevant to economic development. They do so because they also share a belief, as Fosler asserts” “that states can shape the economic future”. He comments that California believed it could “create or invent the future”. Indeed! There is nothing reactive about that.
Our history has attempted to incorporate our two approaches, one Privatist “mainstream” or “traditional” [Fosler labels them “core economic development programs] and Progressive evident in the dominant approaches to community development. The Massachusetts case study provides ample evidence, states tried both—and more often than not created hybrid policy systems. In any case, as years went by and administration’s rolled over the dam, community and mainstream development strategies, programs and EDOs accumulated, coexisted, and were often turned to suit the prevailing approach of the administration in power.
B: The Evolution of the State-Sub-State Economic Development System
Economic Development Enters the Modern World
The state sub-state economic development system (SSS) probably came together during the fifties and sixties, but, from our perspective, it reached adulthood during the seventies and eighties. There were several factors that seemingly played an important role in the maturing of the SSS and these included: the increase in competition among states for economic development growth and attraction/retention of industry; the rise of the governor and a corresponding reduced role for state legislature; an active federal government which dragged states into new policy areas and created a need to develop a revenue-tax system to pay the costs–AND–when the federal government stepped back in the seventies an increased role for states, especially in economic development; the plight of the central city became so severe the state could no longer continue its ambiguous, often stand-offish position, instead becoming more of a business partner, if not an electoral ally of the governor. In essence, the drivers of a maturing SSS were multiple and, in their way responsive to changes in politics, demography and the economy within the state.
An interesting change that had occurred during the seventies, and it was just beginning at this point, was the breaking asunder of the previous state-regional paradigm in which the Northeast-Midwest states (dare we say, the Union) dominated the nation economically and politically[1] and in both spheres their control was contested by a none-too-happy South (dare we say, the Confederacy). By the end of the seventies, however, the West had entered the contest and state governments in these states, while internally varied in its political-economic-cultural context, also shared different historical experiences from its Eastern, across the Mississippi, brethren. In some senses, these state governments had some catching up to do governmentally and they now had something important to protect-exploit: their economic and population growth, if not leadership. Creating an economic development SSS became an important element in their policy agendas, but given their different political-economic-cultural experiences, it could be expected these states would exercise some judgment and independence as they adopted–and adapted–past and future economic development legislation, strategies and tools. Accordingly, we should not expect Western states to exhibit a uniform approach to economic development; nor should we expect them to merely clone legislation and economic development strategies and tools pioneered by the Eastern states. Each Western state was now at the end of the seventies, its “own man” and a player in our national economic development system.
The role of the state in its SSS is obviously central, but that does not necessarily require that the state itself be the leader and initiator across all economic development issues. States can retain for themselves the leadership and coordination role in economic development or they can decentralize it to their sub-state jurisdictions. States are required to pass legislation which empower and set the parameters for SSS structures, some tools and they can certainly prioritize resources, strategies and to some extent shape local economic development goals. Moreover, the newly crystallizing State-EDO (which itself can be a set of individual agencies) can be a player in itself. The relationship of sub-state EDOs to the state-EDO is seldom pre-determined and can be quite subtle and complex given the ambitions of the state governor, the representative function of its state legislators, the interpretations by the courts of its Constitution and legislation as well as other more traditional factors and dynamics. The entry of the state, its governor and state-EDO does in no way preclude a strong role and presence in economic development by its sub-state EDOs and jurisdictions. Indeed, in some states local autonomy and independent decision-making will be prized and in those states the state-EDO will be a partner (or a pain in the butt) with locally-determined economic development activities and initiatives.
As we have seen in our different topic areas, the seventies, excepting for regional change itself, was characterized by a pre-war arms race and then actual Second War Between the States. This more or less political-ideological-oft-times economic confrontation was waged in the context of a increasing perceived economic deindustrialization, shift to a service economic, serious population migration away from established centers of power (both Northeast-Midwest states and the central city) and a strongly emerging privatist-oriented New South (rising alongside its antecedent) and a fracturing Progressive-Communitarian coalition confronting a primary strategy obviously not sufficient to the tasks at hand. These were a lot of moving parts, and given the divergent political cultures within each region, and indeed within many states, the state SSS evolution, while sharing commonalities, was quite diverse. States with different constitutions and governmental patterns adopted economic development legislation defined in their own terms and at their own pace. For the most part, this diversity has been minimalized, often ignored by outside observers and is poorly appreciated to this day–within academia, Think Tanks, media and practicing professionals as well.
The long-standing lack of attention and its consequent poorly described and analyzed SSS belies its central and dominant role in sub-national economic development policy-making. By the end of the 1970’s we believe it is fair to say that our national economic development system was composed of the national government and fifty independent SSS. To truly understand any economic development strategy and tool in actual use, a practitioner or analyst would need to comprehend its fifty state variations in design, operation and goal-structure. Tax abatement and TIF, for instance, in their many SSS permutations, required bottom-up analyses. Most economic development structures and activities could only be understood in that perspective.
It will be no surprise that after the seventies, each state (and census regions as well) will (or had) evolve its own economic development policy-making infrastructure (research institutions, for instance), professional associations (state-based economic development associations). In the latter instance of professional associations their relationship with the three national trade associations (U.S. Chamber, AIDC-AEDC, and CUED) were complex and often “dotted line”–resulting frequently in divergent memberships by different state-based economic developers in different national associations. There was no longer a national only perspective and the role of the national associations in state EDOs/SSS was all-too-often “by invitation only”.
By the end of the seventies each state SSS could avail itself of the opportunity to incorporate a number of economic development programs, tools and de facto strategies-goals that had already evolved and mostly defused throughout the nation. With rare exceptions (Dallas, for instance) most central cities were experiencing full scale suburbanization and many, whatever region they inhabited, were relatively older and had embraced some form of urban renewal and CBD revitalization. The neighborhood movement had also spread throughout the nation and it uncomfortably coexisted with a privatist-vault-like or Progressive coalition. The variations, time lines, supporting coalitions (soon to be called “regimes”) and models practiced by the different central cities was quite diverse. Look at from the bottom up, urban renewal by the seventies was indeed a “many splendored thing”. As we have described, Northern-Midwestern and most Western central cities were confronting either infrastructure modernization or installation.
By the seventies, what each state shared most commonly was some form of a state EDO which coordinated the state’s promotion and recruitment, data and information collateral material and tourist and specific industry-sector promotion. It was this aspect of the state SSS which was being pushed-pulled by the intensifying arms race and eventual Second War Between the States. Forgetting for the moment who was the aggressor, the net effect in most states was to develop the capacity to (1) resist the incursions of aggressor-state promotional campaigns and combat the still minimally understood mobility of capital underlying the transition to service economic and the deindustrialization of American manufacturing–this meant setting up some sort of business retention infrastructure; and, (2) to carry the war to the aggressor-states (and more frequently, to a state’s neighbors) with its own promotional and recruitment campaign. Right to work (RTW) legislation, started in 1946 became an important element of the southern state strategy and RTW permeated the policy debate on deindustrialization as well.
The individual state business retention programs were much more diverse in their structure and practice than the recruitment-promotion apparatus. In this period, encouraging in this context, Foreign Direct Investment (FDI) was also a common state program. The IDB and the CDC (old-style) and increasingly customized workforce training, often through state community colleges were becoming standard economic development infrastructure. Deal-making and tax abatement, controversial and media-magnets, were also standard fare both for recruitment, but more commonly in most states for business retention. As a generality, southern state SSS was more diversified and robust than that found in most Northern and Midwestern states. This is most true for workforce and community colleges, and the state-EDO local jurisdictional partnership in business recruitment-FDI has been dealt with elsewhere. The first true science research park, the Research Triangle, was up and running and in the seventies beginning to establish itself.
The SBA and its Small Business Development Centers were spreading across the nation. The impact of several federal “area-wide” development agencies, TVA and the ARC also created regionally distinctive EDO-footprints. CETA-funded workforce agencies-system existed in each state. As the seventies unfurled, CETA gave way to JTPA and EDA-HUD-UDAG became a much prized target of local grant applications. The foreign trade zone had up to 1979 not been especially active, but relatively passive FTZ districts were in existence throughout the nation.
During the seventies, the EDA expanded its toolkit and enlarged its local economic development offerings by funding the creation of revolving loan funds (HUD did also). RLFs were an effective tool in a manufacturing, small, and minority business strategy. Designed to fill the gaps or supplement private banking and SBA lending, EDA and HUD funded RLFs became an important program emphasis The establishment of revolving loan funds, however, did provide momentum to an expanded business retention strategy, business retention, whose initial purpose was to make available locally controlled public financing lending to complement and supplement local tax abatement programs designed at least partially ameliorate the high cost Northeast and Midwest and their efforts to avoid deindustrialization. EDA also deployed infrastructure-demolition-industrial park grants to facilitate local efforts to retain firms in the central cities.
All this was fuel to feed the fire of sub-state EDO formation. The birth of many new EDOs and their diffusion throughout metropolitan areas, while not recorded or described by commentators, no doubt occurred and picked up steam throughout the seventies. We suspect that EDO-creation rates among regions, states and political cultures differed considerably and certainly were impacted by the differing styles-variations of suburbanization and rural area displayed among the different regions. The snapshot provided by our EDO database with surety does not mirror 1980’s reality. Still, we do sense that by 1980 and certainly through the 1980’s, we will have captured a very high percentage of EDOs that are currently in operation. It is our unsupported belief that up to 80% of the current EDOs in operation existed in some form by the end of the 1980’s.
While we will argue shortly that state EDO empowerment legislation is the single most important catalyst to sub-state EDO formation, such state legislation coexists with “locally grown EDOs”. Sub-state jurisdictions and communities can on their own volition create an EDO. Indeed, chambers of commerce are the prime and long-standing example of “locally grown EDOs). But local governments also can establish and EDO. Government EDOs were often set up to operate loan and tax abatement programs, provide staff to assist in responding to inquiries, as well as coordinate activities with other private and federal-state EDOs. In addition, incubator programs for small business startups, and sometimes larger, more sophisticated EDOs, in partnership with private developers, would construct industrial and later commercial business parks so to ensure “shovel-ready” sites and “spec” buildings to accommodate expansions of existing firms and attraction to the community of new firms. Business retention programs had been initiated and the reader should obviously, instinctively, recognize that business attraction programs were plentiful and vibrant at the sub-state level since (and before) the turn of the twentieth century.
By the seventies the larger cities in the nation had already created EDOs in some form. In the seventies and eighties, the smaller cities, small towns, suburbs, and rural areas are forming up–as are many counties. These “locally grown EDOs” range from a division within a planning or community development department, an office in the jurisdiction’s chief elected or administrative official, an independent department of economic development or a private spin off facilitated (or not) by the local chamber of commerce. Oftentimes several locally grown EDOs could emerge and our metropolitan areas became populated by a surprisingly large variety of EDOs and economic development programs. By the end of the seventies, the era of multi-strategy EDOs had certainly begun.
Observers can create any number of EDO typologies, but to us it is evident that (1) the sub-state EDO system was filling up with a variety of different types of EDO structures, and (2) each jurisdiction or certainly an economic-metropolitan area was developing a set of EDOs attempting to address specific constituencies or strategies and another set of EDOs which were more generalist in its strategies and which made a concerted effort to acquire a variety of tools and programs. Usually, the latter EDOs would assert, or acquire by default, the status of being the area’s or jurisdiction “lead agency”. The lead agency was the “go to” place which was held responsible for the economic development performance of the overall area. A critical element in any lead agency’s toolkit was its relationship with the areas political leadership, and secondarily its business leadership. In contrast, single strategy-narrow constituency EDOs did not assume these responsibilities and focused instead on their programs, strategy and constituency–often in relative obscurity.
In essence, we argue that by the late 1970’s a sub-state system was evolving in most states in which several EDO structural types were possible and in which each participating jurisdiction or “community area” witnessed simultaneously in operation EDOs which were either generalist, “multi-strategy” lead EDOs or narrow, single strategy “specialized” EDOs. In our following chapters we will focus, virtually exclusively, on the former category of EDOs, the multi-strategy lead EDOs. In this chapter, however, we need to discuss both categories. Accordingly, it is best that we flesh out what we mean by “specialized EDOs” and comment upon their role and participation in the state sub-state system.
Specialized EDOs by the simple fact there is a considerable number of potential specialties within the discipline, usually outnumber the multi-strategy lead EDOs. To some degree, numerical superiority is counterbalanced by the tendency of specialized EDOs to either operate at the sub-jurisdictional level (a downtown business improvement district for example) or at some multi-jurisdictional area-wide level (a CETA/JTPA workforce EDO). Previous to the 1980’s the principal composition of specialized EDOs was almost certainly the network of EDOs constructed to implement the several federal economic development programs. Examples of these federal government-linked, sub-state EDOs are: CETA/JTPA workforce EDOs, the SBA network of Small Business Counseling Centers, the infrequently found foreign trade zone district, the network of EDOs related to and dependent upon the TVA and ARC, and the “area-wide planning entities” utilized by HUD, EDA, Transportation and other federal agencies.
Perhaps the most common non-federal, locally grown specialized EDOs were Tourist and Convention Bureaus, industrial park and neighborhood-based EDOs. In the eighties, as we will discuss, many other types of specialized EDOs will be established. Some of these types, (downtown or CBD EDOs for example) are in existence previous to the eighties, but are more appropriately a post-1980 phenomenon. The 1980’s (and 1990’s) will witness a huge expansion in specialized EDOs and an explosion of multi-jurisdictional, “regional” EDOs. Suffice it to say, thru 1980, however, the network of specialized EDOs was either linked to implementation of federal programs or tourist/convention bureaus/authorities. Perhaps surprisingly, many of these programs were operated within chambers of commerce or universities-higher education institutions. JTPA, Area-Wide Planning and Transportation entities were often components of a state-administered delivery system. Perhaps without any of us realizing it, a very complex, multi-faceted system of sub-state EDOs had evolved as early as 1980.
Before proceeding on, several more comments concerning this complex, multi-faceted EDO seem warranted. The basic unit of the sub-state system is the autonomous EDO. Each EDO is governed and directed by its sovereign leadership body (the board of directors, chief elected / administrative officer of jurisdiction, or indirectly by federal-state directives). Secondly, one can already see the existence of various “silo-like” clusters of EDOs. Certainly, the federally-linked sub-state EDOs are vertically integrated into federal, federal-state administrative systems. These EDOs look upward, perhaps more than they glance at their communities. They are arguably more top-down purveyors of economic development; equally arguably TVA and ARC programs seemingly were able to achieve more of a balance and maybe that can be said for the SBA business counseling centers as well.
State empowered sub-state EDOs offer the potential to mirror the federal top-down orientation as well. As of 1979, state SSS is still evolving and so we do not have any answer to this question, but we must keep an eye in subsequent chapters to determine the extent to which the state can and does create its own vertical system. The discussion on this issue ought also to wonder whether vertical is bad or good, or both. Should local economic development be allowed to be local?
Finally, there is early on a separation of economic development planning from implementation. Worse in the seventies, if there is any real economic development planning at all in the SSS, it is conducted within the federal silo system and it likely travels poorly to destinations outside that nexus. Planning entities do not exercise any significant ability to enforce conformity to economic development plans upon autonomous EDOs. There is little evidence in this period that EDO-based planning exists. And if community-based economic development planning, even existed at all, it will likely be characterized by many as parochial and self-serving. In short, the issue of whether there is a “coordination” issue arises early in the development of the state SSS.
Already by the late 1970’s the SSS is growing and becoming more complex through twin processes of layering-siloization and locally growing EDOs. The SSS grows incrementally through “layering”, the addition of new approaches and strategies into the SSS on top of previous approaches and strategies. Layering invites siloization. Locally grown EDOs are another matter entirely. The inspiration and approval is determined by the community and its public policy process. It certainly is small “d” democratic, but is it effective? Is planning from above inevitably superior to decentralized community-based planning? Perhaps we can offer a gentle copping out answer at this point: it depends on whether one adheres to a Privatist-Anti Federal or Communitarian-Progressive orientation!
It is impossible for us to track the thousands of jurisdictional “growing your own EDO” decisions through our history. Of necessity, we therefore focus on EDOs created by state empowering legislation (for examples see below). Perhaps conveniently we believe state empowerment legislation is the key instigator of sub-state EDO formation. Our database does offer support to our assertion that sub-state EDO formation is strongly affected by the enactment of major state economic development legislation.
These state empowerment legislation usually allows for sub-state jurisdictions to create specifically crafted, usually Quasi EDOs, EDOs endowed with those powers, access to resource and program tools deemed helpful or necessary for a particular set of activities-strategies. Jurisdictions desiring or feeling compelled to “play the economic development game” will respond in subsequent years. Agreeing to enter into this state SSS, however, and creating a particular type and form of an EDO, does not inevitably mean that the local jurisdiction or community cannot add (even subtract) from the model authorized in its original legislation. It does not mean that the original form cannot be reshaped, or exceptions created, in subsequent legislation, court action, or informally. In other words, we raise the intriguing possibility that a hybrid EDO created utilizing state empowerment legislation cannot be adapted to local-jurisdictional wants and perceived needs and hence achieve a considerable measure of being “locally grown” as well as state empowered. The state SSS is after all a two way street.
The middle to late seventies are the formative years of many a jurisdiction’s local economic development policy system. Given the large number of states passing major economic development empowerment legislation after the commencement of the Second War Between the States, we believe that very many EDOs were created within the 1976-1988 period. Some examples of state empowering legislation created during the seventies are as follows:
- California had created its first TIF redevelopment agencies in 1953 but TIF itself had yet to diffuse nationally or become the major economic development tool it would shortly become. But after 1978, TIF and RDA formation exploded in California. This explosion occurred after the approval of Proposition 13 in 1978. Probably as many as two-thirds of California’s 400+ RDAs (as of 2011) were created post Prop 13. In California this RDA-TIF explosion allowed an aggressive use of TIF as a jurisdictional sales tax capture strategy and as a public development agency-planning agency alliance in which these local departments would partner with private development corporations in Greenfield construction of new office, housing, infrastructure and retail projects.
- TIF in Illinois has a different history. Authorized in 1977, the key words in its empowerment legislation included “blight, conservation areas and redevelopment”. TIF in Illinois did not function in Greenfield development but was an innovative mutation of the goals, structures and purposes embraced earlier by urban renewal, but by now were under serious attack in Chicago (Saul Alinsky style –Acorn led). At the same time, Illinois TIF could be used by suburban jurisdictions …
to retain and attract new business and manufacturing operations, as well as a highly qualified labor force, Illinois communities must enhance their competitive positions in the marketplace, rebuild their aging infrastructure, and upgrade older commercial centers, industrial properties and residential neighborhoods…. Given the decline in assistance available from the Federal and State governments, TIF is the only locally controlled economic development tool available to Illinois communities[2]
Since 1977 an estimated 250 Illinois jurisdictions have created at least one TIF district and over 1000 TIF districts were eventually established.
- Michigan in 1978, approved Public Act 255 which “encourages the replacement, restoration and new construction of commercial property by abating the property taxes generated from new investment for a period up to 12 years”[3]
- If you have never heard of “urban growth boundaries” (UGB) than you have to read about the Portland model. Strictly speaking, the Portland Model is urban planning, but is such a radical departure from American land use that its overtones toward economic development have to be mentioned.
- ======================================================================== See Megadeals, Good Jobs First, Phillip Mattera and Kasia Tarczynska, June 2013; ALSO see, The Council of State Governments, Trends in Western State Business Incentives 2012, Jennifer Burnett and Cheryl Duvaucchelle; and Massachusetts Business Incentives by Center ============================
1979 The Establishment of LISC
Through this selected series of examples, we can suggest that key, trend-setting states made a relatively early, pre-1975, entry into economic development. Setting up and empowering a local and county, in some cases (Alabama) regional Quasi EDOs system empowered with resources and authority to issue financing, tax abatement, property management and frankly engage in inter-jurisdictional incentive bidding wars and aggressive business retention programs.
Judd reader p405 and planning article from recent planning
Given the wide scale passage of state economic development legislation during the last years of the 1970’s, the issue or question regarding how such legislation “diffused” across the states does. The state SSS we suspect can be likened to a sponge; it simply absorbs whatever is going on elsewhere. At its core, policy diffusion is political–it must be sanctioned, in this instance, by adoption in a state public policy process.
We contend that given its fundamental political context, the default for state policy-makers is simply to copy what somebody else is already doing or what is being read on the NY Times Best Seller list. Economic development tools and strategies are often conceptualized by politicians as merely “arrows in a quiver” available if needed, or if not, just left untouched in the quiver. Approve anything floating around out in the environment and that way no one can accuse you of neglecting the state’s public economic good. Better still, approve the new policy-strategy and don’t fund it. Indeed, those policy entrepreneurs have a new plank on their future electoral platform without a budgetary impact. What’s to lose? Is this approach to policy diffusion-innovation simplistic or what?
Academics try to conceptualize all this with fairly sophisticated concepts and theories. Our anti-intellectual position is simply to urge our reader not to over think policy diffusion. We don’t need bigger words or unfathomable theoretical constructs to explain herd behavior in a political context.
[1] Consider for example, that until 1964, the last President elected from the South was Zachary Taylor in 1848. After 1964 and until 2009, the South and California (the left coast) exclusively elected Presidents. Obama, of course, combines a Hawaiian upbringing with an Illinois political career.
[2] Jacobs and Klein LTD, www.tfillinois.com).
[3] Michigan Economic Development Corporation: Commercial Redevelopment Act, www.Michiganadvantage.org
Ron W. Coan 