6 Rules for Better, More Inclusive Economic Development in Cities

Until recently, there was a growing understanding among city-builders and economic developers that handing over taxpayer-funded incentives to large corporations is wasteful and ineffective. That is, until Amazon’s HQ2 search threw a wrench in that, bringing real pressure from business and political leaders to compete for the big prize. In more than three decades, I have never seen a setback for economic development like HQ2. I have heard from dozens of professionals in the field who feel the HQ2 debacle knocked it badly off course. What the backlash to the HQ2 process—and Amazon’s pullout from New York City in the wake of pressure from politicians and activists—show beyond a shadow of a doubt is that we need to put incentives behind us. But that’s just one of six steps we must take to get urban economic development back on track, outlined below. 1. Just say no to incentives Companies, especially large, data-driven ones like Amazon, know where they want to go to begin with. But they essentially set up fake competitions to game the process and extract incentives. Politicians play the game to the hilt, even when they know it’s bad policy, because they think vying for the trophy makes them look good and wins votes.

While HQ2 may be the most egregious example of this, it is far from the only one. Just look the economic nightmare of handouts to Foxconn in Wisconsin. The process is so insidious that despite what researchers and practitioners know, the total dollar value of incentives has soared to record highs, driven by mega-deals. Amazon’s withdrawal from New York could be a tipping point in the battle over incentives. It is high time for those engaged in economic development—especially the progressive mayors of this nation’s largest and most successful cities—to say enough is enough and begin to work together and cooperatively to limit the use of revenue-draining incentives. The past couple of decades have seen a veritable revolution in economic-development thinking and practice. Michael Porter and other researchers have documented the effectiveness of acting to build on local clusters and ecosystems. We have seen it play out not only in superstar cities like New York and tech hubs such as the Bay Area, but in (for example) Nashville, which has leveraged its music cluster, and Pittsburgh, which has revitalized around a series of high-tech clusters. The Knight Foundation has helped make Miami one of the 10 leading startup clusters in the United States. Doing this right means working hand in hand with local universities. Another big stride in economic development theory and practice has been the organizing and involvement of “anchor institutions” as key drivers of local clusters and ecosystems. This may have begun organically with the role of universities like Stanford in the rise of Silicon Valley. But other, later-developing regions have actively involved local research universities and medical centers in their development.

I was there to witness (and contribute to) Carnegie Mellon and the University of Pittsburgh fostering Pittsburgh’s high-tech revitalization. New York City has made substantial investments in a new high-tech research campus anchored by Cornell and the Technion–Israel Institute of Technology. One of the few positive things to arise from the HQ2 process was Virginia’s pledge to spend $1 billion to create a new campus for Virginia Tech in Northern Virginia. Cities are changing fast. Keep up with the CityLab Daily newsletter. The best way to follow issues you care about. In a growing number of cities across the country, anchor institutions have helped generate economic development by focusing on local purchasing, investing in local place-making, upgrading jobs, and seeking broad community improvement. Some cities have established anchor collaboratives that bring together their major universities, hospitals, and corporations as a unified force. 4.