The Deepest Trench: Distressed Communities that Refuse to Revitalize

By The Economic Development Curmudgeon

The Brookings Institution, the Hamilton Project: “An Economic Strategy to Renew American Communities”, Michael Greenstone and Adam Looney, October 2010

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As our initial review, I wanted to select a theme on which I was eminently qualified to speak. That issue has to be “decline”. I spent over eleven years as CEO of a major economic development organization in Erie County (Buffalo), New York. During my tenure, I presided over a decade of frustrating, solution defying population and job loss, and to make matters ever more pleasurable, was usually cited as an important cause of that decline. Accordingly, when I read the Hamilton Project report I was impressed that a prominent research think tank had called attention to a real but ignored, situation; a group of beleaguered communities no longer had to suffer in shame and isolation.

The Hamilton Project’s study offers a set of ideas relevant to many economic developers and most important it identifies chronically declining communities as being a deserving group for special thought, discussion and policy attention.

Economic developers do not take pride in presiding over a declining community. The glory and the prestige are accorded to growth. Yet many of us work in communities which have continued to decline, no matter what is done and no matter how good the national economy. There is no deeper trench in which an economic developer can labor than a community in chronic decline. Therefore, the Hamilton Project’s study offers a set of ideas which may be relevant to many economic developers and most important it identifies chronically declining communities such as Erie County as being a deserving group for special thought, discussion and policy attention.

Summary:

Using Buffalo, New York as a case example, the Hamilton Project clearly outlines and demonstrates the multiple negative consequences which arise from sustained job/population loss in a community which plummeted as early as the 1970’s and which was crushed in the 1980 and subsequent recessions. After forty years, communities such as Buffalo (Great Lakes communities for the most part, but far from exclusively) have stabilized but still exhibit below average rates or growth and are seemingly unable to enjoy the fruits of a substantial economic renaissance. “No city (insist the Hamilton Project authors!) should suffer the persistent distress that this city and others like it have endured-it should not take forty years for a city to recover”. They rightfully observe that the current Great Recession could easily launch a new set of communities for which decline never seems to end and sustained growth never again achieved.

The Hamilton Project sets three goals for itself:

1. To illustrate the consequences of chronic economic shock and how unrelenting disruption and decline affects its residents and the community as a whole;
2. To develop for such communities a national commitment reflected in targeted policy assistance from the federal government. They outline four rationales to defend the entry of the federal government into this policy context (a) Promoting Agglomeration Economies, (b) Avoid distress “tipping points” which magnify social/economic externalities and impose costs on the national polity, (c) Facilitating Skill Acquisition by Displaced Workers, and (d) Minimizing Displaced Worker Adjustment Costs in New Job Acquisition;
3. To develop an initial set of policy proposals which are meant to reverse this chronic distress.

Specifically, the Hamilton Project posits three policy/programs to address the needs of the chronically distressed community:

1. Attract New Business and Promote Agglomeration Economies. Clusters, they state, create more productive firms and workers and hence will deliver more bang for the buck in distressed communities. The Federal Government ought to develop policies which encourage greater clustering. Since tax abatements, they believe, are not effective, they encourage a combination of (a) tax cuts to improve the business climate and suggest the best vehicle for this favorable climate is an augmented structure resembling the 1990’s Federal Empowerment Zone, (b) infrastructure investment, and (c) expansion of key social services. To maximize the productivity and profitability of firms in the community, the MEP Program (Manufacturing Extension Partnership) should also be employed.
2. Aiding Displaced Workers. To ameliorate social and economic externalities associated with chronic decline, the authors’ advance a “wage insurance program” in which displaced workers who find lower paying positions would receive an insurance benefit which narrows the gap between the previous higher paying lost position and the presumably lower paying new job. In addition, a greater role for community colleges in job training and retraining should be developed and funded by the Federal Government. Job Training courses should be focused on courses which offer the highest return to workers and extra costs accruing to the community college for focusing on this high return, but expensive, course/programs (especially those in health care) would be subsidized to some degree. They advocate extending the Pell Grants to displaced workers who succeed in finding new positions and support a fundamental redesign of the financial aid program to encourage course completion and support federal design of standardized curriculum for these courses. Prospective students should also receive sufficient information to make an informed decision as to their future career.
3. Matching Displaced Workers to New Jobs. Lower skilled workers have more insurmountable obstacles to finding new jobs and the Federal Government should augment and improve the One Stop (WIA) and Career Centers (expand job search capacity, individual counseling, and focus workers to high return retraining courses). Most importantly, the job search process should be seriously extended to opportunities in other communities and regional/national labor markets (encouraging extensive national job bank). To facilitate movement of displaced workers to opportunities in other markets a, “Mobility Bank” would be created which would offer loans to individuals seeking to relocate or who have actually found employment elsewhere. Repayment would be adjusted to reflect income level of recipient once they had secured employment.

The authors conclude by stressing the need for an evaluation mechanism for these and for other local economic development programs/policies. They observe the lack of such evaluation is a serious impediment to achieving maximum effectiveness of local economic development initiatives.

What takeaways seem to flow from this Brookings study?

Whatever their advantages, clusters are not invulnerable to dynamic forces of change and maturation and a community which places its bet on growth on developing one or another set of clusters always labors under the risk the deck of cards could be reshuffled.

• As an observer somewhat familiar with the chronic decline of Buffalo and the Great Lakes local economies, there appears some unfortunate irony in the study’s support for cluster-building job attraction. Certainly, as regards to Buffalo, its chronic decline arose from maturing and uncompetitive (dying) clusters (railroad, water transportation, steel and automotive clusters which dominated its post-WWII economy). The chronic effects of enjoying the rotten fruit of obsolete clusters should serve as a warning that cluster/agglomeration are not one way streets. Whatever their advantages, clusters are not invulnerable to dynamic forces of change and maturation and a community which places its bet on growth on developing one or another set of clusters always labors under the risk the deck of cards could be reshuffled.
• Some of the key Hamilton Project tools offered to implement the tri-pronged strategy (in particular, the Mobility Bank, wage insurance, Pell Grant expansion and community college involvement) may seem a bit out of step with the times, certainly after the recent elections. Leaving aside the program design issues which if done incorrectly could invite considerable abuse, or at least bureaucratic inefficiencies, the insertion of the federal government into hitherto private and local decisions and the costs associated with these programs would seem to invite considerable controversy locally as well as nationally. The authors are quite frank in stating that a key goal of this initiative is to inject the federal government in a responsible and productive manner into localities undergoing chronic distress so severe it creates national disruptions. The Hamilton Project agenda may not maximize local enthusiasm for its proposals because they leave little room for meaningful local input not only in the design, but amazingly in the implementation as well. Also, the Mobility Bank which would subsidize local folk leaving the distressed community could be expected to potentially raise the ire of both the winning and losing community and, in particular, could become a lightning rod for opposition and the forces of inertia. To a local economic developer, maybe even a state economic developer, the role of the federal government seems paramount and all knowing (national curriculum design). Local institutions and actors would largely seem to occupy a passive role, a grant receiver, more than a decision-maker or even implementer. Methinks I smell more federal than local in this initiative and that in itself is likely to raise a host of concerns.
• Several of the Hamilton Project tools seem not quite up to the task of revitalizing these chronically depressed communities. For instance, conducting a cluster-building attraction strategy without recourse to tax abatement in some form would seem a rather hopeless enterprise given the current dog eat dog inter and intra state competition. Instead of tax abatement, the Hamilton Projects authors’ call for what could be described as business climate incentives. The concern I offer is that such climate changes are mostly outside the jurisdictional powers of the community itself and such incentives require participation, if not actual legislation, from the states. As a generalization, communities have remarkably little control over most business climate factors (such as tax credits) and any one distressed community would probably be required to seek special legislation from the state, legislation which other communities would certainly label as unfair. Political passage at the state level might not be easily accomplished and it opens up the possibility of “spreading” the business climate incentives beyond the affected communities. In the case of Buffalo, I am confident that the issue of applying a Buffalo/Erie County tax credit/empowerment zone-like incentive package would be seized upon by the entire of Upstate New York which, for the most part, is pretty much in the same situation as Buffalo itself.
• Also, the centrality of the Empowerment Zone concept will be regarded by some as a weakness and not a strength. The track record of existing Federal Empowerment Zones is not without its blemishes and the empowerment zones twin focus of attacking both social and economic problems simultaneously creates many moving parts which will inhibit effective measurement convoluted local politics and ensure bureaucratic complexity. Also, an Empowerment Zone capable of attacking the problems of displaced workers in a metropolitan/micropolitan area would almost certainly require a regional, micro or metropolitan jurisdictional vehicle (EDO) and require expanded powers. Finally, addressing the disparate barriers to new and displaced workers job acquisition remains dauntingly complex and largely ignored.
• Finally, in its desire to find a role and justify a purpose for federal involvement for an obvious community and national problem, the authors’ for all intents ignore the private sector and any role it could play in addressing the issues. Having seriously minimized the local role, ignoring the private sector raises the specter of one handed clapping. It is one thing to desire a federal role, quite another to make it virtually exclusive.

But if the proposal raises questions and issues, it also can be an important asset to practitioners of local economic development.

These communities do not suffer from a simple business recessionary cycle, nor can one explain their problems as the consequence of an adverse business climate. The issue centers on how one deals with the dying and death of formerly robust clusters and the reality that to create new clusters may well be impossible

• The authors’ quite rightly assert the need to evaluate their proposal, but also local economic development programs and initiatives in general. This is, in my opinion, absolutely on target. Evaluation of local economic development has frequently suffered from political electioneering, bureaucratic self-serving surveys and analyses, methodologically deficient evaluation techniques and reliance on individual, always successful “case studies”. Conversely, analysis from non practitioners has frequently been ideological, rationality-based, and sometimes simply anti-capitalistic. Evaluation suffers in some measure because the goals of local economic development itself remain a hotly contested point. Ultimately, what hope do any of us have, if we can’t reasonably measure what we seek to accomplish, and reach some consensus as to what it is we are trying to accomplish.
• The study can place the plight of chronically distressed communities on the agenda for debate and action. That there is something fundamentally wrong with the economies of these communities is obvious, but the complex and spin-off negative externalities caused by a chronically low growth in a declining community (which the authors’ describe in considerable detail) deserve special treatment and consideration. These communities do not suffer from a simple business recessionary cycle, nor can one explain their problems as the consequence of an adverse business climate (consider, for example comparing, until recent years, the plight of California with New York, Upstate New York compared to Downstate, and the growth in Massachusetts). To me the issue centers on how one deals with the dying and death of formerly robust clusters and the reality that to create new clusters may well be impossible and certainly would require radical changes over a fairly long period of time. Inability to recreate new clusters remains at the heart of the chronically distressed community’s problem. Calling for an Empowerment Zone type solution probably will not address this decline, but the authors’ decisively demonstrate that left to their own devices, these communities have probably lost the ability to revitalize themselves. The problems are simply too massive and the local resources too limited.

The authors’ should be commended for raising the “third rail” issue of population mobility as a solution to displaced workers. Geographic mobility of displaced (and more frequently, younger college educated workers) is a disruptive and highly visible data point which permeates the practice (and politics) of a chronically distressed community. Local economic developers in such communities are often measured and evaluated by statistics reflecting population and job changes, factors over which they have virtually little control. Until the Great Recession, displaced workers “enjoyed” more opportunity to move on their own initiative, many no longer can leave. This means the problem has grossly intensified. The Hamilton Project study recognizes the painful reality that these losses are part of the adjustment process but to expect local economic developers or political officials to admit that leaving town is the best solution for many displaced workers is out of the question. It would not be leadership; it would be stupidity for them to do so. External forces must take leadership of this issue and the Hamilton Project proposes ideas such as extensive national job searches and, yes, even the highly controversial Mobility Bank.