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Toward Inclusive Economic Development

How can cities grow their economies without alienating poorer residents?

A 2014 redevelopment project in San Francisco created mixed-income housing for Hunters Point residents. (Robert Galbraith / REUTERS)

U.S. cities and metro regions have long made jobs and financial competitiveness the center of their economic development strategies—usually by recruiting companies, building high-tech clusters, or attracting talent. Now a new report released Monday by the Brookings Metropolitan Policy Program calls for a paradigm shift in economic development thinking, away from competitiveness and growth, and toward a more inclusive prosperity.

While 95 percent of the largest metros in the U.S. have seen aggregate job growth since 2009, according to the report, over 40 percent of all metros have lost jobs in their advanced industries. More troubling, the growth of low-wage occupations has surpassed the growth of middle-skill and higher-wage jobs in the U.S. This has coincided with a troubling increase in concentrated poverty in both cities and suburbs.

Indeed, there’s mounting evidence that U.S. cities have for decades now been focused on the types of economic growth strategies that can increase inequality and leave the poor and less advantaged behind. The report finds, for example, that states and localities typically spend anywhere from $50 to $80 billion annually on tax breaks and economic incentives, despite evidence that these incentives yield only marginal gains. In the past, I have written about how the financing of sports stadiums and the decision to dole out hefty incentives packages in order to lure big-name corporations like General Electric are wastes of time and money. Indeed, the authors find that these kinds of incentives “pit jurisdictions against one another in ways that erode value in the economy and drain precious resources away from the people and assets that matter.”

Construction of the Levi’s Stadium in Santa Clara cost taxpayers an estimated $150 to $200 million in subsidies. (USA Today Sports / REUTERS)

In addition to tax breaks and incentives, the report finds that economic development strategies are often hindered by a lack of collaboration among leaders in economic, workforce, community, and transportation development. According to the study, this isolation between officials—and even entire regions—leads to economic strategies that are “highly fragmented and transaction-oriented, resulting in narrow short-term wins.”

This need not be the case. The report outlines five action principles for generating long-term job growth and economic prosperity for all residents—not just the wealthy few.

  • City leaders should set a mix of both long- and short-term goals. While the former ensures that cities are focused on more permanent economic growth, the latter helps cities to monitor their progress along the way.
  • Cities should set their sights on “growing from within” as opposed to recruiting firms from other locations. This can be done by identifying key industries and amplifying their effect on the local economy rather than trying to mimic another city’s economic strategy.  
  • Cities should focus on boosting their economies through trade.
  • Cities should prioritize investing in people and skills. Indeed, my research has shown that a talented workforce is the key to boosting innovation and subsequent economic advantage. This can be achieved by a combination of workforce training and encouraging firms to invest more in their lower-paid workers.
  • The report encourages mayors and city leaders to connect their local communities with regional markets for industry, labor, and housing. In Milwaukee, for instance, the city hopes to produce 22 new family-wage jobs per acre of industrial land by turning such land into hubs for key regional clusters. And over in the Twin Cities of Minneapolis-St. Paul, the “Corridors of Opportunity” initiative leveraged the construction of regional transit corridors to promote and invest in affordable housing and small businesses.

The report also touches briefly on the need for affordable housing. Housing costs have become a big problem in New York, San Francisco, and other tech hubs, hitting hardest at blue-collar and service workers. These cities suffer from a shortage of new development, in large part due to zoning and land use restrictions that constrain how much new housing is built. Such restrictions cost the U.S. economy upwards of $1.5 trillion in lost wages and productivity, according to a 2015 study.

From Mayor Bill de Blasio’s “tale of two cities” and focus on affordable housing to Bernie Sanders’s calls to reduce inequality by emulating Scandinavian social democracy, the discourse on economic policy in the United States is changing. At the local level, there’s a clear need to shift the most common suite of strategies and practices from “growth for growth’s sake” to a more nuanced model focused on shared and inclusive prosperity.

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