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Title

A Different Theory of Economic Development

COVID may have provided an opening, if we're willing to take it.

September 22, 2020
 
 

One of the joys of using Twitter as a self-updating annotated bibliography is that sometimes articles written in very different contexts crash into each other and create something better. That happened this week with a piece by Clare McCann from New America, and a piece by Richard Florida in the Harvard Business Review.

McCann’s piece outlines the implications of new Census Bureau data on rates of college attendance in the wake of COVID. It’s well worth reading in its own right, but the short version is that a significant number of households with “expected students” put off college attendance this fall (which fits with the widespread enrollment declines my counterparts are reporting). That’s bad enough. But adding insult to injury, the report shows that the drop-off is larger among low-income households, people of color and the unemployed. If those trends continue for any meaningful amount of time, they’re likely to accelerate the trend toward income polarization. By historical and comparative standards, economic polarization in the U.S. is already catastrophically high; COVID stands to make a bad trend worse.

Florida’s piece is about the location of corporate headquarters. Florida’s recent work on the New Urban Crisis has looked at economic polarization through a geographic lens, noting that a few “superstar cities” are increasingly pulling away from the rest of the country in terms of wealth, power and even culture. The Seattles and New York Cities of the world -- apparently, now we’re supposed to call them “anarchist jurisdictions,” as anarchists are all about jurisdiction -- offer tremendous opportunity, but also astronomical housing costs. They attract talented young people, but they’re incredibly difficult places to raise families.

As COVID has spurred the acceptance of remote work and working from home, though, Florida suggests that some of the dynamics driving the geographic polarization of wealth may start to dissipate. If high-skilled people don’t necessarily need to be within commuting distance of the office most of the time, some of them may choose to live in areas with a better quality of life. It’s possible that over time, companies might spend less on flagship headquarters in major areas, and go to a more hub-and-spoke distribution of offices and people.

So, what’s the connection between the two pieces?

Let’s say you’re an economic development officer in a smaller city. The charade of Amazon’s HQ2 search has shown -- and academic research apparently backs this up -- that tax incentives are remarkably weak tools for recruiting companies. The presence of talent matters much more. That’s especially true in industries in which proximity to natural resources matters less than proximity to human talent. And now you learn that a hub-and-spoke model may start to catch on. What do you do?

You stop playing the giveaway game -- incentives for the wealthy, austerity for the rest -- and you start growing your talent pool. You invest in local education, from preschool on up. You stop trying to compete on cheapness -- there’s always someplace cheaper, and the internet makes finding those places easy -- and instead compete on quality of life and quality of workforce. Make it a place that people with options would choose to live, and the companies that want those people will follow, whether physically, virtually or in some mix of the two.

This is a playbook for the Syracuses and Toledos of the world. It involves looking at the public institutions that are already there -- K-12 schools, community colleges, state colleges -- not as cost items, but as assets. Over time, that would have positive effects both on the geographic polarization of wealth and on the economic polarization of wealth. Make the institutions robust enough to do their jobs well during tough times, and reap the gains when times are good.

For decades, smaller cities have been faced with a terrible headwind. That wind may be starting to shift. If leaders shift quickly enough too, they could create virtuous cycles in which nearly everybody -- except maybe for New York City real estate developers -- benefits.

There’s no shortage of talent out there. There’s a shortage of opportunity. COVID wasn’t the vehicle I would have chosen to shed new light on overlooked talent, but here it is. If states and cities can throw away the failed '90s policy playbook and look at what’s right in front of them, they could prosper. They just have to be willing to see it.

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