EDOS APPEAR AND MATURE: ONIONIZATION, SILOIZATION DOES ALSO
Glancing over the 1920s’ EDO landscape, much has changed since the 1880s. Chambers are still the dominant EDO and the jurisdictional lead agency, but the 1920s’ chamber is not the 1880s’ one. The closest to the 1880 chamber would be the 1920s’ Municipal Research Bureau. Chambers themselves have professionalized and developed a bureaucratic department, the industrial bureau, to handle day-to-day ED. State variation has already appeared: for example, Chapter 7’s mention of Texan chambers developing a relationship with municipal government to receive proceeds from ED-specific taxes that over time would lead to a development of a “Texan” redevelopment EDO. Tourist and convention and visitor bureaus have been spun off and now dot the jurisdictional landscape, probably housed in the new municipal City Beautiful civic center. State and federal trade associations are also commonplace. Real estate exchanges, now autonomous of chambers, have their own network and interests—and are augmented by newly forming CBD property owners’ associations
Privately owned industrial parks—many located around railroads, some even in suburbs—are common. Railroads, formerly centerpiece EDOs, have stepped out of the limelight, as have the HEDO utilities. Streetcars have been replaced by buses and subways, and are in the process of themselves being replaced by the automobile and plane. Port authorities were expanding to assume responsibility for planes, trains, buses and subways—and regional planning for good measure. State involvement in ED has generated few formal EDOs outside of tourism, natural resources and agriculture; but a number of departments are extending into ED-relevant activities, and the states themselves are beginning think strategically. Municipal governments now possess the capacity to take the lead in jurisdictional policy, and can make noises to show that implementation of policy is possible. Infrastructure, bonding and incentives are mainstays of their policy initiatives. Former semi-autonomous boards and commissions are now departments more or less controlled by mayors and councils, or managed by city managers. Still, if the mayor in a staff meeting were to require all economic developers to stand up, I’m not sure if anybody would. We’ve come a long way, but we’re not there yet.
In some ways community development seems more robust at this point. Settlement houses, reform movements, even City Beautiful Park Commissions, not to mention hundreds of neighborhood-level organizations populate city and periphery residential areas. During the twenties, community developers will city-build suburbs and startup regional planning commissions whose centerpiece plan focuses on economic growth and coordination as much as transportation and periphery expansion. Some cities are actively pursuing a municipal-level version of community development. Make no mistake, now-traditional mainstream ED is still dominant, but it has been subcontracted mostly to chambers, with government stepping up to infrastructure but not business assistance and concern for the jurisdictional economic base.
This, to me, is onionization and siloization at work (refer to Chapter 1 for definition and description). The 1920s’ ED and EDO landscape reflects onionization as new EDOs spring up to address certain problems and issues, develop tools and programs, stress certain strategies and develop distinctive constituencies, becoming over time embedded in the jurisdictional policy system. Onionization leads to siloization as ED and CD are sliced and diced into little component pieces with specialized careers, skills, expertise and a vertical professional hierarchy to nourish and protect silo members. A third dynamic, constituencies, sustain their autonomy and persistence. The twenties’ ED policy system is visibly more complex structurally and multi-strategy. Little policy “whirlpools”, autonomous policy-making and implementation, can be spotted in each Big City. That has certain implications.
Goal complexity is now real. Not everybody defines the same goal in the same way, with the same indicators—and EDOs serve different constituencies. It’s not just Progressivism and Privatism in operation. ED in the perceptions and minds of its various actors has narrowed and specialized, requiring relevant expertise, experience and a different toolbox to carry forward different strategies. Generally, each EDO operates in its special area; coordination is not yet a serious concern in the early twentieth century—what coordination is attempted is usually by a chamber, which remains the one place a “big picture” is likely to be found.
In the old days it was simple: ED was about growth and avoiding decline. Increase in population and expansion of the jurisdictional economic base were the chief indicators of success or failure. Of the two, population growth carried the greatest impact. That overall concern with growth (economic and population) remains in the twenties, but the various silos that have emerged are not responsible for it—just their little piece of the pie. In the place of simple growth, sub-indicators relevant to the EDO, its mission and constituency, assume prominence. All this, so evident in 2016, can be seen 100 years earlier. The critical issue then, as now, is who (if anyone) is responsible for the bottom-line growth and economic health of a jurisdiction in a modern capitalist economy?
In the remainder of this section, two specific manifestations of onionization and siloization will occur in the twenties: the formation of the American Industrial Development Council and the appearance of states consciously participating in, sometimes leading, sub-state ED.
The American Industrial Development Council (AIDC)
In the midst of all these searching questions, economic development took a giant step forward. Late to the game (port authorities created a professional association in 1912), it established a national, professional association composed of its Privatist-leaning mainstream chamber-focused actors concerned with their prime strategy: attraction.
The US Chamber had much on its plate during the Wilson administration. It was instrumental in the passage of his Progressive agenda, including the Federal Reserve System. During the twenties, the chamber focused on domestic and chamber-related issues; sub-state economic development was a major concern. Prior to the Depression, subsidies and incentives were pervasive and utilized commonly in all regions by municipal governments.1 Prodded no doubt by goings-on associated with the textile war’s second phase, but also by increasingly much-criticized competition among Big Cities to attract firms with incentives, the chamber perceived a need to provide leadership and expertise to its members on how economic development could be pursued with the fewest negative side effects. Some municipal programs violated gift and loan clauses of their state constitution (Cobb, 1993, p. 5). Southern chambers, in particular, had already become a lightning rod for unfair methods. Southern attraction programs, few in number, were very aggressive during the twenties—Forward Atlanta in 1925 for example (Denn, 1961, pp. 9, 6).
Accordingly in 1926, instigated by its staff, the US Chamber contacted key individuals from the nearby Baltimore Association of Commerce—H. Findlay French and George C. Smith of Baltimore’s Canton Railroad Company—to organize a conference for chamber industrial bureaus and other relevant participants (Denn, 1961, p. 1). The subsequent conference in Baltimore formed a semi-formal “chamber subsidiary”, the American Industrial Development Council (AIDC), in 1926, staffed by F. Stuart Fitzpatrick. The AIDC is the first specifically national economic development professional association (from its inception Canadians were members).2 The formation of AIDC—sitting within the US Chamber, the host of state chamber associations and the Association for Chamber Executives—is a vivid testimony to both onionization and siloization at work.
With one exception, until the 1950s conferences and annual meetings were held in Washington and membership was limited to 125 males. This changed in 1957 when AIDC delinked from the US Chamber and became an open, national membership-based professional association. Despite its semi-informal nature, dependent staff and restricted membership, pre-1955 AIDC served as the profession’s chief professional association. For its opening 1926 conference New York sent five delegates; the 14-state South had seven; Iowa, Oklahoma, Missouri, Pennsylvania, Maryland, Illinois, Ohio (three), Indiana and Colorado were also represented. Former railroader George Smith was its first, and long-standing, chair. AIDC conferences encouraged networking and informal discussion and committee-based research reports; and invited speakers of relevance to chamber-style economic development was their usual fare for decades.
Several observations can be drawn from pre-1955 AIDC conferences and activities. First, through rotation of its board/leadership, the intention was to provide coherence to the chamber-based ED initiatives. AIDC set professional standards and confronted issues in ED practice. Despite its informality, AIDC educated and “regulated” its members to act in accordance with ethics and “best practices. It confronted the bonus/incentive issue squarely by developing quality/ethical standards for advertising and promotion, and it valiantly informed debate on how firms made relocation decisions—research remarkably congruent with today’s thinking. ADIC also developed recommendations on how to avoid “piracy.” It regularly surveyed its members. Rogue EDOs did appear, however, and AIDC had no powers to intervene. Importantly, it did not embrace legislative advocacy, lobbying or “developing” the federal “connection”. As AIDC evolves its changes will be considered in future chapters.
The State in Sub-State Economic Development
Up to this point, economic development as a policy area had been driven primarily by local jurisdictions. The state had been mostly reactionary—brought in because of Dillon’s Law, home rule or gift clause bypass legislation. During the twenties, a new actor (states), however, appeared on the economic development scene. In this decade “entrepreneurial states” can be found. In previous decades, states had established divisions and bureaus, especially tourism, “development” and agriculture/natural resource that overlapped into economic development. In the twenties, whatever their name, some states formed state-level “entities” and worked with sub-state jurisdictions in specific ED strategies. Others consciously adopted an attraction strategy that took advantage of the state’s so-called “climate” that favored and attracted certain groups of firms and people.
It is hard to ignore a sad reality that for most of the nineteenth century the states were arguably the most corrupt and incapable level of government in the United States. Most state legislatures and state election districts adjusted poorly to the rise of their urban areas. The lack of “redistricting” meant that rural, often blatantly anti-urban/ immigrant interests prevailed in state legislatures and obstructed urban economic development. The late nineteenth-/early twentieth-century state legislative shutdown of Big City suburban annexation is one example—gift and loan clauses yet another. The situation of western territories/early state governments and southern state governments during, and even after, Reconstruction has also been noted. States could not hope to avoid ED issues, but they preferred to deal with them through sub-state jurisdictions. State-level participation in sub-state ED policy-making has always been confused by Dillon’s Law. The state as sovereign parent of sub-state jurisdictions is intimately involved in authorizing/empowering local structures, electoral and governance systems, bureaucratic activities and functions, programs and policy decision-making. Passage of authorizing/empowerment legislation, however, especially during the nineteenth century, does not support the existence of any coherent, conscious ED strategy or goal.
The principal exceptions are transportation infrastructure and ED tools of tax abatement/eminent domain. When times were tough, however, states jettisoned ED transportation infrastructure back to sub-state jurisdictions through gift and loan clauses. States were active in tax abatement since 1790—and eminent domain for state purposes had always been used as well. States actively provided services to agriculture a century previous. Pre-1920 economic development programs were often located in state Departments of Agriculture or, in western states, Departments of Mining or Natural Resources. Usually, such programs focused on attraction or promotion and were residues of earlier homesteading and early city-building. The reality is that these early state EDOs were embryonic, sometimes single-industry dominated and creatures of interest groups such as the railroads and mining companies. Frequently located in departments of agriculture, but sometimes set apart in an office of its own was tourism. Tourism, also promotional by nature, suggests that many states had developed experience, and probably some capacity previous to 1920.
Until the 1920s no state had established a department-level agency devoted substantially to a “modern urban-municipal” economic development strategy, excepting tourism. There are no semi-reliable surveys until H. McKinley Conway’s in 1966. James Cobb traces the first state-level EDO to Alabama in 1923: Alabama’s Department of Commerce and Industries targeted to agriculture and manufacturing (Cobb, 1993, p. 64). Florida’s 1925 Department of Immigration attracted tourists, new immigrants and business investment. In 1927 Alabama split manufacturing into a separate department, the Industrial Development Board. A few other states (Virginia, South Carolina and North Carolina) also created state EDOs in the 1920s (Eisinger, 1988, p. 16). North Carolina’s Department of Conservation and Development acted “in the nature of a state chamber of commerce”. Virginia’s and South Carolina’s centered on promotion and advertising (Cobb, 1993, p. 64). If Cobb and also Eisinger (1998) are correct, the first “modern” state-level EDOs were from the South.3
The second phase of the New England textile wars (discussed below) led to the 1928 formation of a Massachusetts state-level promotional EDO. Frankly, we would not be surprised to find other northern states with small, nondescript promotional programs in these years. Although slightly past the time period of this present discussion, both Pennsylvania (1939) and New York (1944) created state-level multi-function lead EDOs (Departments of Commerce) previous to the end of World War II. Northern states were not far behind their southern counterparts.
Conway’s study asserts that the professionalism evident in state-EDOs of the sixties was the result of “trial and error” learning over the course of many years:
In their early days state development agencies were, in fact, generally characterized by a lack of efficiency. Personnel were selected on a political basis; functions were planned for political effect; administrative practices were poor; and programs were unprofessional. As a consequence results were poor. (Conway, 1966, p. 29)
He later labels these state-level economic developers as “wine ‘em and dine ‘em pretenders” (p. 30). If Conway is correct, and I believe he is, early state-level programmatic effects were minimal—and focused on state-level attraction of tourists and business.
State Business Climate
So it seems, given the above “history,” that states, to the extent they involved themselves in ED, primarily pursued some form of attraction strategy. Tax abatement for manufacturing firms was probably the first and was fairly commonplace even in colonial times. The first “manufacturer’s tax exemption” my research uncovered was in Massachusetts in 1785 (Seligman, 1895, p. 231). In those days, sector tax abatement was less an attraction than a startup incentive, and, as used in the nineteenth century, probably contained equal parts of startup, retention and attraction. The idea of using state law beyond tax abatement to favor, promote or attract people, firms and revenues in a systematic, sustained and conscious program initiative—what we today describe as “climate”—is another matter.
Business climate is an ED strategy, mostly, but not exclusively, associated with states. Climate refers to the combined impact on businesses and individuals of public policies, laws, judicial rulings, natural endowments and other assets that positively or negatively affect political, economic, mobility, behavior, quality of life, profitability and economic growth of individuals, firms and industry sectors.4 Our broad definition allows for people, firm, sector and capital mobility. The opening salvo of a planned state-led climate strategy was probably fired by both Delaware and New Jersey.
Delaware recognized early that several unique features of its original state constitution provided favorable treatment to incorporate businesses (and tax them).5 By the end of the nineteenth century Delaware was already a leader in attracting the incorporation of business, especially industrial firms, using its laws,6 court system and tax codes to garner revenues and professional jobs for the state. The surprise is that, by the turn of the twentieth century, it was New Jersey that actually led in this attraction of business incorporation. Other states were competing as well (Maine, South Dakota, West Virginia and the Territory of Arizona).7 In 1913, however, reforms passed earlier by New Jersey Governor Woodrow Wilson came into effect, taking New Jersey out of the incorporation business. Delaware took the lead in business incorporation after 1913.
Nevada had attempted to compete with Delaware in corporate incorporation, and repealed its inheritance tax to compete in that area as well (the only state in the Union to do so). Consequently, by the mid-1930s Nevada was the most common official residence of millionaires. But its chief state-induced climate initiative was the divorce trade “As of 1928 the state was producing more than twenty-five hundred divorces annually, earning millions of dollars for the state’s lawyers and for the hotels and dude ranches that housed divorce-seekers for the requisite three months” (Teaford, 2002, p. 139). In 1931 the state doubled its annual number of divorces and, also in 1931, Idaho and Arkansas entered into the divorce competition. Nevada responded with new legislation lowering the residence period to six weeks, maintaining its lead. In that same year, however, Nevada upped the ante by approving the nation’s first gambling laws.
The Depression provided the desperation needed for public approval, but the gambling initiative had been on the table during the 1920s. Why gambling? Nevada in 1930 only had 91,000 residents—half that of the next least populated state, Wyoming. Nevada “was largely a desert wasteland” (Teaford, 2002, pp. 139). One advocate, Las Vegas “entrepreneur” Thomas Carroll, ran newspaper advertisements stating that gambling and horse racing would increase tourism and make gambling “the biggest industry in the state.” In November 1930 the Las Vegas Chamber surveyed its membership and uncovered two to one support of legalized gambling. So in 1931 state legislators were persuaded to approve gambling legalization.
Faced with a history of economic failure and the onset of hard times nationwide, Nevada opted to profit from the wages of sin. This was an economic strategy that was already paying off in the 1930s and after 1945 sin would prove a mother lode far more lucrative than the state’s legendary Comstock Lode. (Teaford, 2002, p. 141)
A longstanding and incredibly divisive climate-based controversy—the low tax, nonunion, little regulated Southern business climate—was both consciously designed and the seemingly inevitable consequence of what the South was at certain historical periods. It was both planned and natural. Right to work laws in the 1940s were clearly conscious initiatives with serious ED implications; but turn of the nineteenth century low-wage, non-union, low-tax (because mills were outside city limits) Carolina textile mills, in our opinion, reflected the surplus labor and Redeemer political culture of the era. That climate was not purposely created to attract outside investment—in fact many Redeemers did not want industrialization. Climate can be unplanned, as California business incorporation law that favored Silicon Valley startup technology.
Ron W. Coan 