Janus-Headed MED: External and Inward MED

It is time for us to switch our attention from history to concepts and the development of our S&L ED model. As we have asserted earlier, American ED has never been a single comprehensive unified, monolithic whole. At this juncture, as I attempt to place DTIS into a conceptual model, it is necessary to briefly re-introduce one core and fundamental division, that American S&L ED has always been a composite of two quite contrasting styles or approaches, what we have labeled as Mainstream (capitalist) ED or (MED), and Community (people-focused) Development (CD).

DTIS is a MED strategy, and so in this mini-series, we put CD aside, and focus exclusively on MED or Mainstream (capitalist) ED. We shall describe both Inward and External MED, and then shift to the role and function of External MED.

Mainstream economic development (MED), like CD to be later discussed, comes in two different flavors: Inward (within a jurisdictional policy system), or External (between and among competing/cooperative jurisdictional policy systems. DTIS, as we shall discover, is an External MED strategy–it connects the jurisdictional policy systems to each other–connecting the urban dots as we have referred thus far to it.

MED simply-put is Janus-headed. Janus-headed MED simultaneously confronts two opposing dynamic forces., two very distinct sets of problems, goals, and issues–although each admittedly can hugely affect the other.

Each Janus-headed MED face looks only in one direction to meet challenges and opportunities seen by that set of eyes and to tap into different segments and dimensions of the jurisdiction’s typical policy system. Policy actors participate unevenly in the policies of Inward and External MED. Some policy actors participate in one almost exclusively, and abandon the other to its fate. A different set of rules and processes apply to Inward and External MED; the goals may overlap but are not shared or prioritized identically. Choose External MED and the policy system closes, usually due to lack of interest or concern by several types of policy actors; choose an Inward MED strategy and everybody wants in on the discussion. That is only one example of why MED is Janus-headed.

While the policy system likely responds differently to each Janus face, our EDOs, strategies and programs do not always adjust to fit what each Janus-face sees. This has been a serious problem that has proved disruptive, not a positive disruption I may add, at important junctures in our history.  That is a major reason why this history “obsesses” on the schism between MED and CD, and now on the wings of CD, and Janus-headed MED. The idea that ED is “one thing”, constant and universal, is challenged by the MED-CD schism–and by the impact of political culture which sustains both. Now the reader is forced into confronting yet another disturbing possibility–that both MED and CD possess multiple personalities.

The two MED goals shift over time and geography. More importantly they are activated by changes in the external environment or changes within the jurisdiction’s economic base, demographics, age of infrastructure, or geographic dispersion/concentration. Both choices tap into different dimensions and values/beliefs of the jurisdiction’s political culture(s).

You might have already guessed what the two choices are? Either that or you read the module’s title. One focuses on the jurisdiction’s external world and how the jurisdiction is affected by the goings-on elsewhere. This choice involves dealing with what our Chapter One Model calls the competitive hierarchies (there are three: urban, metropolitan, and global). Some may think that choice is similar to a nation’s foreign policy. The other choice, logically enough, is to focus within the jurisdiction itself. Its physical dimension (CBD, neighborhoods, infrastructure), its changing demographics which include population migration and residential exit. The nature, composition and needs of its economic base is also a major element of an Inward MED. Underscoring the different realities that both Janus faces observe has long been a recognized aspect of our urban history, as expressed for example by Sam Bass Warner:

Our urban history is the history of conflicts and the possibilities wrought by growth of the nation, and the growth of the units [firms and businesses] of its organization. It is also a history of the increasing interconnectedness of these units which stems from the development of the economy and its cities …. one can speak of the structure of a city in terms of its land-use patterns [Janus-Inward], or of its transportation networks [Janus-External] …. general categories of the urban structure will be two: the national network of cities [our urban competitive hierarchy], and the patterns of land-use within cities [1]

In each of our Eras, one or the other Janus-Face will be dominant. Of course no matter what the Era both must be dealt with; but in hindsight one sees that one Janus-face frequently operates in the shadow of the other. This will be very evident in the first five themes (1790 through 1890). The External Face dominated the Early Republic/Antebellum Era (through the Civil War), and Inward-Face took precedence in the Gilded Age (1865) through about 1890, when the next set of themes on the Progressive Age start.

Janus-Headed ED: the analytical, almost existential construct

Janus-headed MED is an analytical construct–which, in my opinion, taps into a real-life massive distinction in the purposes to which MED are tasked. A huge tax abatement to attract an Amazon-HQ is one thing; to use the same tax abatement for a sports arena or to convince an existing firm to stay and in so doing “right-size” is quite another. Try granting a Trump hotel that tax abatement. Ever try to revitalize a neighborhood and lose one’s job because of gentrification? The economic developer’s situation changes radically when one shifts focus from External MED to Inward MED.

The challenge imposed on states and local communities by the External Janus-face really bedevils American ED. Given our druthers, for most of us the default is Inward MED. For Inward MED the issues and problems, even if chronic and frustrating, are restricted to the boundaries of the policy system. We can see the faces of the leaders and adherents. We can walk by an empty, decaying factory. We get mugged in a declining neighborhood, or can’t find a grocery store. If we want to we can see and touch Inward MED. But not so the External world that the Janus-External face sees.

The burden of dealing with the External world has been left to MED. To External MED is left the daily problem of living in a world, of which no matter what the city size, the individual community is but a small piece of a very large pie. Even a state as huge as California has little impact the behavior of the global External MED. This is because the External world, whether it is capitalist in name, is capitalist in how it acts regarding its individual members. The External world’s tone is set by competition among nations; globalist NGOs operates within parameters/budgets set by nations. Competition is the name of the game in the External world, and competition can be capitalist, socialist, nationalist, regional, logistical. comparative advantage, or even product image and perceived quality. FDI, sanctions, trade and finance, the benefits and burdens of the US being the globe’s reserve currency, and the diffusion of innovation critically important to domestic industries, sectors and our economic bases are inputs to External MED. So too is immigration and non-resident visas for temporary employment. The rise of China in particular may well auger a long-term evolution of the global system, which when coupled with exhaustion in the post-WWII global system and the fall of communism.

In essence, the External world cannot be ignored, or simply brushed aside as greedy corporate behemoths with mobile capital. It ain’t that simple in the real, non-academic ideological world. So continue to throw all the CD bricks you want at the External Janus Face; they simply sink, with scarcely a ripple [2]. The underlying thrust within our history is that given state and local ED is inherently and inevitably “place-based”–with each “place” competing with other “places” any fight between CD and MED risks dividing the place in its efforts to withstand external pressures and weakens that place’s ability to seize opportunities. That said–it will be left to other themes and modules to figure out how that naive notion can be achieved.

The External world “Economically” is a world dominated by comparative advantage and logistics, and politically by the “developed” economies, and is savagely disrupted as these two dynamics change. That world, almost by definition, is filled with entities (both private and public) that can best be described as “large”, “big” or if you prefer, global or multi-national. If you like the “big pond, small pond” metaphor, the External World is decidedly the big pond. The sheer size of the key External world actors, ranging from the Common Market, the IMF, and huge corporations, empowers its autonomy, and makes it hard for any single company, community, or actor to have effect. Scale matters in External MED, and as we shall shortly discover, scale often results from being “the first”.

Discussion of the External world is included under MED because MED has the tools/strategies, and is committed philosophically to linking this so-called capitalist world to the betterment of the community. Good luck, I say; small fish do not usually fare well in big ponds when the big fish are hungry. But I must confess to the reader, that is the choice I made in my two-decade career as an active economic development CEO. Except during the Progressive Age, it has been left to MED to deal with the realities of the world external to the jurisdiction.

So how did Janus-Headed MED affect our history? What should the reader expect to find in the modules to follow?

External-MED’s Impact on MED Strategies

MED, it seems, has always incorporated the external world into its strategy perspective. Why? I believe it inevitably results from the rise of industrial capitalism, its formation of urban centers, and the individual corporation’s profit evolution from small contained market areas to larger ones. The latter is so obvious, but underappreciated: the 19th Century growth in MED is directly and profoundly tied to the expansion of corporate market areas into new markets.

On top of this, the simple import and export of products and services necessary for urban quality of life and economic prosperity reflects Donne’s adage adapted to our history: no community is an island entire of itself. The need for a state and community to deal with its external environment is instinctive to an economic development linked to a capitalist economy. What this means is that from the very start in 1789, in fact before, External MED can be observed as a vital part of the larger MED. The attraction of business, early industrial and finance businesses, can be observed in several American colonies previous to the the American Revolution–it came in the form of state/local tax abatement schemes. I have already introduced or asserted that the first formative paradigm in American ED was an External MED strategy, DTIS.

But MED’s core strategy, in my opinion, is infrastructure–and that strategy has been massively reshaped by having to deal with External MED competitive hierarchies. Without infrastructure (water, for example) there is no urban center. In the 18th/19th Centuries the imperative was to connect one’s urban center to other urban centers (I call that “connect-the-(urban) dots”). The only way to avoid a “ghost town” future was either to be conquered by a larger urban center, or to connect-the-dots so that other urban centers trade with you, and new residents to easily access your community, both of which provide capacity for your city to conquer other cities. The 19th century emerging urban competitive hierarchy imposed a “grow or die” reality to early American ED. Embedded in this brutal environment a jurisdiction/ policy system tasked MED and its EDOs to do what it could to grow the community and its economic base. This was the atmosphere surrounding American 19th Century city-building and the the formation of the its first urban competitive hierarchy. DTIS was the essential prerequisite for a successful young prospective policy system with ambitions. It was so critical that DTIS in the city-building context was the sine-qua-non of urban growth and successful MED.

Connect-the-dots infrastructure in 1800 meant linking Atlantic coastal cities, to newly-established cities in the American wilderness. Literally grow or die in that time period, a city had to install infrastructure that linked it to other cities, the more, the merrier. An infrastructure sub-strategy, I label developmental transportation infrastructure strategy (DTIS–which sounds like a disease and probably is) became easily a dominant strategy in American 19th Century MED. That sub-strategy will harass the reader throughout the entire of the five Themes in Part I. That sub-strategy exerted a huge effect on the evolution of American ED–and therefore our history.

DTIS was way beyond the capacity of any sized American city–or state in the Early Republic. Horribly expensive, incredibly complex, DTIS was irretrievably linked to subsequent urban and economic base growth in order to pay for itself. But in 1800-1900 DTIS was usually a speculative investment, at best. First, given the immense distances and topography between “the urban dots”, it was not evident that then-current technology would work.

When a new technology-gazelle appeared on the scene, railroads and the steam engine, railroad lines had to be installed first, to test the durability of locomotives. Railroads used a steam engine-powered locomotive that could produce power for five-hundred miles or more. It was as if a track had to be first constructed between the earth to the moon, if a rocket ship was to be tested. Innovation/technology and DTIS financing and installation were virtually concurrent and simultaneous.

If this were not enough, revenues to pay the debt incurred for installation came from future services to unknown populations and markets. The urban dot at the other end may be home to less than a thousand residents. As the system expanded further west, the urban dots were smaller yet. DTIS required substantial investment to construct its assets–which only after their installation could be considered collateral to securitize the debt. DTIS therefore relied entirely on what today we call equity/ownership or venture capital.

But how was the EDO to acquire the land on which to lay track and run indefinitely its routes. The land was mostly owned by the federal or state governments. If not owned by the government, private parties had to be attracted–or compelled–into making their land available. Extending into vast expansive, unsettled and unpopulated geographies with extreme topographies and sometimes harsh climate–and resentful Native Americans–the EDO had to construct costly intermediate settlements, construction camps, supply basins, and repair and assembly points. Above all it had to generate revenue-paying traffic. This was a business model that included so many moving parts, one could not count them. And the distances? When the Erie Canal opened in 1825, it was the second longest canal in the world. When the first leg (Cairo, through Chicago, to Galena Illinois) of the Illinois Central RR was competed in 1856, it was the longest railroad in the world.

DTIS infrastructure, therefore, required the involvement of both private and public sectors in a sustained  partnership. Capitalist resources and expertise had to be linked with public powers if DTIS infrastructure were to happen. Usually private expertise was needed to address market demands, and to maintain and market use of the DTIS infrastructure. Public powers and resources were needed to install the infrastructure in the first place.

DTIS infrastructure, once installed, required ongoing, some say never-ending, cooperation between public and private, and after installation to offer transportation services to business and households, and to maintain and periodically modernize the infrastructure over time and innovation. These robust needs impose strenuous, on-going, and complex obligations upon the organizational structure(s) that are used in DTIS. That they involve sustained public-private interaction, if not formal partnership, I believe is also obvious. These difficult demand will give triggered an ED quest to fabricate the EDO, the economic structure, most suitable for such purposes. At this point, however, one more “moving part, yet another concept/strategy must be added to our emerging External MED nexus. We need to link DTIS to an even more vital MED strategy that did dominate the American 19th Century: city (town, state)-building.

In urban history books, it seems like cities simply grew like weeds–a sort of natural by-product of capitalism and industrialization. Were it that easy. City-building is a MED strategy, a primeval one because without a city, there is no MED–and no, they do not grow naturally, or analytically from burning concepts in an academic classroom Bunsen-burner theory. Women and men build cities; they entrepreneur them, usually from scratch or close to it. Such entrepreneurs are the city founders, its first economic developers. DTIS is an essential core-strategy of city-building, without which city-building will certainly fail. DTIS is the “flip side” of the city-building coin. So we have yet another reason why the first five Themes are saturated with DTIS and its needs, problems and EDOs.

Which is my best way to segue way a change in topic to External MED’s impact of MED EDOs.

Impact of External MED on EDO Formation

Simply, American MED inherited a late-medieval-colonial EDO that quickly served as the backbone of DTIS. Called the state-chartered corporation, this EDO is the most prominent, most common EDO in the Early Republic Antebellum period. It will surprise the reader to know that early manufacturing firms were among the first examples of the state-chartered corporation, as were banks, insurance companies, and even (toll) roads and bridges. The earliest American ports were state-chartered as well.

If the reader ever wondered why cities are legally defined as “municipal corporations”, we hearken back to to the medieval legal underpinnings of American sub-state governance. The state-chartered corporation, a publicly-approved private corporation, was actually the mainstay of medieval governance. When medieval cities acquired autonomy from the king, it was necessary to create a second type of corporation to handle municipal governance: the municipal corporation. Not to compound confusion, or add too much complexity, the colonies themselves, for example the Jamestown colony legally took the form of an English private state-chartered corporation [3].

The modern “private” corporation is a relatively late addition to our history–arising in the 1850’s pioneered by the railroad corporation. The joined-at-the-hip relationship of DTIS with the evolution of the modern corporation only reinforces our need to alert the reader how the simple transference of late medieval/early modern English legal forms and theory into American governance “bent the twig” of American economic development–setting us apart from the get-go from Continental governance, and today’s “development economics”. It also alerts the reader that American economic development “EDOs” are legal entities, be they public or private, and that our discussion of ED strategies, tools and programs, such as DTIS, cannot be entirely separated from their legal foundations and legal precedent. DTIS is heavily-infused with meaning resulting from the transference of law from the United Kingdom and its legal heritage to the United States and its federal Republic.

We should also add into this equation that the American Constitution is a “federal” republic, with sovereign states–but the English Constitution (unwritten, of course) is a “unitary” system (as it is today), with no sovereign states. English cities are (mostly) governed by the British Parliament, and British city “home rule” is defined by Parliament–as is its annual budget/taxes. Accordingly, the variation found in the structure and use of American state-chartered corporations and the subsequent varied definition of legal sub-state public-private partnerships (not to mention tax abatement, tax-exempt bond-issuance, and eminent domain) results from federalism. In these matters, the states are sovereign and exercise principal legal jurisdiction which our federal courts have been historically unwilling to trespass or intrude–hence Kelo v. City of New London (a legal “creature” of the state of Connecticut).

Since the state chartered corporation was utilized by the earliest of American policy systems, it identified with the first American political party: Washington and Hamilton’s Federalist Party. Federalists, committed to a “connect-the-dots” DTIS strategy unconsciously encouraged a partisan association with this EDO-type. Over time, a second political party, Jefferson/Madison/Clinton Democratic-Republican Party, responsive to constituencies different than the Federalists, had other ideas, and another EDO in mind.

The Panic of 1837 exposed the inherent weaknesses of the state-chartered corporation and engendered a decade-long reaction which led to its demise, or more precisely its restructuring. That reaction and the subsequent EDO restructuring dramatically reconfigured the structure/implementation of not only DTIS, but nearly every public-private economic development partnership-with legacies lasting to this very day. Gift and loan state constitutional clauses restructured private-public economic development dramatically, and soon extended in some form to every state in the union. In so doing, they unintentionally created a fifty-state/sub-state economic development system, with each state forging its own distinct path into public-private partnerships and economic development policy implementation.

What followed, beginning around 1850 was the Age of Railroads. The private railroad corporation, the first “corporation” in the modern corporate sense, was delegated by both the federal and state governments with public powers, the central tools of ED (eminent domain, tax abatement, tax-exemption bond issuance/guarantee, and land-use powers to effectively “zone” and develop settlements/proto-cities) and industrial districts (today we call them “industrial parks”). They also were provided massive land grants, and initial “venture” financing thru government-issued bonds.

The mid-19th Century railroad corporation was a radically-empowered state chartered corporation, privately controlled and managed, but assembling a panoply of government powers to promote DTIS, city-building, and economic development. In one sense, that new EDO-type did not fare well–that is amply conveyed in our current history texts–and it engendered huge political reaction, but in another sense it was a spectacular success. The publicly-empowered railroad corporation, the nation’s primary External MED EDO during the mid-19th Century, founded literally hundreds of American cities, including some of our very largest (Las Angeles), and established a continental transportation system that sustained the world’s largest and most productive industrial economic base. The American urban competitive system as of 1900 was largely created and sustained by railroad corporations acting as External MED EDOs.

The reaction against the railroad corporation, and its eventual de-empowerment as an EDO, and transformation into (in effect) a regulated “utility”, started (plus or minus) around 1880. The monopolistic power accumulated by that point, however, led to several decades of political and class struggle which created an image of anti-populist robber barons, union strikes and the like which today obscures and confuses their considerable critical role as state and local economic developer. But it is to the mid-19th Century publicly-empowered EDO railroad corporation that the foundations of key contemporary era ED strategies owe their existence: (business attraction, venture capital, tourism and people/immigrant attraction, FDI, industrial parks–and city-building). Ironically, in an effort to free themselves from the tyranny/monopoly of this EDO, today’s modern form of public-private EDO was innovated in the first decade of the 20th Century. But we get ahead of ourselves.

Footnotes

[1] Sam Bass Warner, the Urban Wilderness (Harper & Row, 1972), p. 57.

[2] I did not even mention the perceived reality that much of CD is financed/supported, directly and indirectly, by these corporate behemoths through an amazing concept called philanthropy–which also sustains much of our higher education system. For these corporate behemoths, excepting those that deal in carbon-producing substances and in some way enslave their workforces, there is no conflict-of-interests, just good, old-fashioned Yankee stewardship. Ah, but I digress–which is why it is a footnote.

[3] These legal structures were transplanted to the American colonies and simply incorporated into American legal sub-state governance. How the municipal corporation and the private state chartered corporation carried over from medieval urban governance to the American constitution is best presented by Gerald Frug, City-Making: Building Communities Without Building Walls (Princeton University Press, 2001); see also Richard Briffault’s critique, Our Localism: Part II: Localism and Legal Theory, Columbia Law Review, Vol 90, No. 2, pp. 346-54.