Students cheer at Kalamazoo Central High School graduation.
Students cheer at Kalamazoo Central High School graduation. In 2005, the city founded Kalamazoo Promise, the first college scholarship available to all four-year attendees of an entire school district. Larry Downing/Reuters

A new Upjohn Institute report documents four key pillars that can guide successful place-based economic development and local job growth.

The field of urban economic development is in the midst of a big and much-needed rethink. After decades of focusing on companies—either handing out incentives or building clusters of startups—economic development is finally dealing with people. There are two key reasons for this: First, the deepening backlash to handing over billions in incentives, of which Amazon’s HQ2 may have been the tipping point. The second is the growing divide between the haves and have-nots, both within and across places.

The new focus is on place-based policies and inclusive development. In the past, economists and economic policy emphasized so-called people-based policies. Invest in people, encourage their mobility, and good things will come. But the rise in spatial inequality—the growing inequality across regions and the political backlash it has engendered in the form of populism—has convinced many economists of the need to embrace place-based policies to bolster the economic conditions of declining places.

While the current generation of cluster-based and talent-oriented urban development strategies has been successful at helping to rebuild and revitalize many urban economics—not just established tech hubs but “rise of the rest” cities like Pittsburgh and Nashville—they have done little to mitigate the growing class divides in these places.

A new report from the W.E. Upjohn Institute lays out a guidebook for more effective place-based strategies aimed at inclusive economic development. It draws lessons from the Insitute’s Promise: Investing in Community initiative and reflects more than three decades of work by Upjohn researchers, notably the economist Timothy Bartik, one of the leading thinkers on business incentives, early childhood education, workforce development, and regional economic strategy.

Strategic Business Investment for Inclusive Prosperity

A key pillar of the strategy is to do away with wasteful incentive packages and replace them with more specialized investments. Most large-scale incentives are poorly designed, target large firms that do not need them, and hand out far too much money for the jobs they create. Not only do governments overpay for the jobs they get, only about 20 percent of the jobs created go to local residents, with the rest going to new residents who move cities for those jobs. Plus, most places have ineffective guidelines or lack ways to claw back provisions when companies fail to deliver on their promises.    

But, the report does not dismiss all incentives out of hand. Bartik suggests that communities target their incentives toward firms and industries with higher local job multipliers, or specifically for workforce development and job training. In this regard, Virginia's more strategic approach to Amazon’s HQ2 is much better than New York's ill-fated giveaways.

But better still are more locally-rooted programs that provide assistance to small and medium-size firms, create job training initiatives, help develop networks to deploy new technology, or invest in transit where needed. Another idea, more popular in Europe than in the United States, is what regional economists call “smart specialization”—initiatives that develop clusters and capabilities around unique local strengths.

Place-Based Workforce Development

A second pillar is to embed workforce development in place-making. In some cases, workforce programs are not tied to the needs of local firms and industries. If the local jobs are not there, workers that gain more skills have no other choice but to move where the jobs are.

Thus, workforce development programs can be better and more effectively tied to place. This can be done through the use of neighborhood employment hubs, which promote recruitment and training within existing community institutions. Unlike traditional employment centers, these hubs offer more individualized feedback, and primarily focus on addressing particular obstacles to stable work. Or it can be done through employer resource networks, where local firms share resources and partner with social service providers or other development agencies. This means that programs are more closely tied to local needs, giving workers more opportunity to find jobs locally, without relocating.

Talent Attraction Through Place-Based Investments

The third pillar is policies which attract talent to place. Nearly 150 communities have so-called Promise Initiatives, which seek to leverage talent and bolster economic development by offering college scholarships to community residents. One example is the Kalamazoo Promise program, a college scholarship available to all students who are four-year attendees and graduates of the Kalamazoo Public Schools district, to be utilized at one of 15 colleges in the region. The Upjohn Institute plays a lead role in research and evaluation surrounding the program. Another is Kansas City Scholars, which has provided roughly 1,500 scholarships to local students for one of 17 colleges in the region.

The scholarships do not force students to stay in the region after graduation, but the hope is that, if students are incentivized to go to college nearby, they will become embedded in the community, stay after college, and become part of the local talent base. The goal is not only making education accessible, but harnessing that education to uplift the community and stimulate broad-based economic development. The report notes that Upjohn’s own recent research finds that Promise programs serve as “catalysts for economic and educational improvements.”

Stakeholder Engagement for Inclusive Investments

The fourth pillar, inclusive economic development, does not happen by accident. It is a product of purposeful and intentional civic leadership. I saw it in Pittsburgh, where public-private partnerships emerged over time to leverage local technology and talent from Carnegie Mellon and the University of Pittsburgh and move the region from deindustrialization to high-tech re-industrialization.

The report also notes the experience of Kalamazoo, which instituted programs like the Kalamazoo Promise in response to its own industrial transition. After the loss of a large corporate pharmacy headquarters in the 1990s, Kalamazoo embarked on efforts to shift its economic base towards medical technology and broader health science industries. Other efforts to meet changing needs were made in nearby places like Battle Creek, where an old military installation was transformed into an industrial park and attracted a world-class cluster of automotive suppliers while offering virtually no incentives. Grand Rapids, also nearby, transformed its office furniture firms into a world-leading technology-enabled cluster.

The report rightly notes that virtually all communities can find ways to leverage their own unique assets. But that requires reimagining the past in novel ways to build new 21st century place-based and talent-driven economies.

The key to all of this turns on developing purposeful and intentional strategies that go beyond the typical economic development laundry-list of business attraction and job growth. Instead, explicit place-based strategies from which a broad section of the community can benefit are the key to inclusive prosperity.

As Bartik told me via email, “If you want to turn around communities, you need to focus on creating good jobs for all.”

CityLab editorial fellow Claire Tran contributed research and editorial assistance to this article.

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