Regional Objectives and Policies

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Regional Objectives and Policies

• Hoover, Chapter 12

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what directions of change are desirable or
desired

• the objectives of regional economic policy
• pathology of regional development
• prophylaxis and therapy aspects of regional
  development policy

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• few governments have ever followed any coherent
  policy in regard to location

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 More People Work in Offices and Provide Services

• the old economy was fundamentally organized
  around standardized mass production
• The New Economy is a high-tech, services, and
  office economy

(Atkinson, Robert and Randolph H. Court.2003. The
New Economy Index. The Technology Project,
(Progressive Policy Institute),
http//www.neweconomyindex.org/introduction.html
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High-Wage, High-Skill Jobs Have Grown, But So
Have Low-Wage, Low-Skill Jobs
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GLOBALIZATION Trade Is an Increasing Share
of the New Economy

• U.S. exports and imports have increased from 11
  percent of GDP in 1970 to 25 percent in 1997
• the United States is increasingly specializing in
  more complex, higher value-added goods and
  services, as reflected in the fact that the
  average weight of a dollar's worth of American
  exports is less than half of what it was in 1970.

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Foreign Direct Investment Is on The Rise
Around The World

• as a percentage of GDP, U.S. FDI inflows and
  outflows (the total of American firm investments
  abroad and foreign firm investments in the United
  States) are 32 percent greater than in Germany,
  and over 100 percent greater than in Japan.
• U.S. foreign direct investment activity has grown
  from an average of 45.3 billion in the 1970s to
  an average of 117.5 billion in the first half of
  the 1990s (in constant 1990 dollars), and from
  1.04 percent of our GDP to 1.64 percent.

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The Economy Is Spawning New, Fast-Growing
Entrepreneurial Companies

• Since 1993, the number of gazelles has grown 40
  percent, to over 355,000
• These companies are responsible for creating 70
  percent of the net new jobs added to the economy
  between 1993 and 1996.
• The small share of gazelles with over 100
  employees accounted for 46 percent of total job
  growth.
• Definition gazelles companies with sales
  growth of at least 20 percent per year for four
  straight years

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DYNAMISM AND COMPETITION

• Increased competition is being driven by many
  factors, including the emergence of a global
  marketplace, the increased number of firms, new
  technology that makes it easier for firms to
  enter new markets, and ever-increasing pressure
  from securities markets to raise shareholder
  value.

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Slow and steady growth in net total employment
masks a constant churning of job creation and
destruction

• Between 1994 and 1995, as the private sector
  added a total of 3.6 million new jobs, new
  establishments created 5.8 million jobs while
  dying establishments eliminated 4.5 million
  others.
• Expanding establishments created 10.6 million
  jobs while contracting ones lost 8.2 million
• The period saw a net growth of 108,000 additional
  business establishments-a product of 695,000
  births and 587,000 deaths (up from only 337,000
  births and deaths, combined, in 1975).
• 30 percent of all jobs are in flux (either being
  born or dying, expanding or contracting) every
  year.

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Consumer Choices Are Exploding

• The rise of production processes based on
  information technology has allowed companies to
  develop "flexible" factories and offices in which
  costs rise little when variety expands.
• The average number of products in grocery stores
  has increased from under 13,000 in 1980 to 30,000
  in 1998.
• the average number of magazines published has
  increased from 2,500 in 1987 to 4,400 in 1997.
• an estimated 50,000 new products are announced
  every year in America, up from only a few
  thousand annually in 1970

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Speed Is Becoming The Standard

• in 1990 new U.S. products took an average of 35.5
  months to complete, but by 1995 companies were
  introducing new products in an average of
  approximately 23 months
• Autos that took six years from concept to
  production in 1990 now take two years
• Thirty percent of manufacturing company 3M's
  revenues are from products less than four years
  old. Similarly, 77 percent of Hewlett Packard's
  revenues are from products less than two years
  old.

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collaborative dynamic of networks, partnerships,
and joint ventures is a main organizing principle
in the New Economy

• Social capital (networks, shared norms, and
  trust), as fostered in collaboration and
  alliances, may be as important as physical
  capital (plant, equipment, and technology), and
  human capital (intellect, character, education,
  and training) in driving innovation and growth.

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IMPACTS ON AMERICANS

• Productivity Growth is Lagging
• The Growth Of Earnings Inequality Has Slowed
• Fewer Workers Are Unemployed and Under-employed
• Higher levels of employment volatility have
  increased the anxiety of many American workers
• The share of workers receiving defined-benefit
  pension plans has fallen from approximately 30
  percent of the workforce in 1981 to 20 percent
  today, while the share of workers receiving
  pension plans of any type has fallen slightly
  since the mid-1980s.
• earners.

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IMPACTS ON AMERICANS

• the share of workers without health coverage has
  increased slightly from about 15 percent of the
  workforce in 1985 to 18 percent in 1995.
• Increasing the educational and skill levels of
  American workers will foster reduced wage
  inequality and faster economic growth. Since the
  mid-1970s, incomes have become more unequal, not
  only in the United States but in most developed
  nations.
• the main causes of this growing inequality. The
  dominant factors appear to be the increasing
  share of one-parent families and increasing
  incomes for wives of men who are high

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Transition can be difficult

• whether it is accompanied by the expansion or the
  decline of local economic activity
• it is rarely easy to identify the cause or causes
  of change
• coping with its consequences and planning for
  corrective action are also made more difficult.

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There is an urban dimension to many regional
problems

• The process of urbanization accelerated early in
  the twentieth century because of the declining
  relative importance of agriculture.
• Unemployment in urban areas is more visible and
  more unsettling for both the individual and the
  community than is rural underemployment
• the rapid shift of black population from rural
  areas to urban slums intensified this change and
  along with a complex of other problems of urban
  adjustment
• traffic congestion and environmental pollution in
  urban areas have stimulated a search for more
  rational use of space and resources

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Fiscal pressures on local and state governments

• Devolution of programs from the federal
  government without adequate transfer of funds
• Reduction in traditional transfer of wealth from
  rich to poor regions through federal government
• Continuous pressure from political right to cut
  taxes while increasing demand for services
• just and efficient allocation becomes one of the
  utmost concern.

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disillusionment with the effects and objectives
of the more naive forms of local and regional
self-promotion

• As more localities participate in this
  competitive game, more of the total effort is
  recognized as simply canceling out
• more people are asking whether growth itself
  should be the objective of local governments
• At the same time, the loss of federal
  representation in several states have brought a
  near panic response of seeking growth.
• Today, thinking and policy are much more directed
  toward welfare objectives, such as fuller
  employment and higher per capita income, rather
  than to the misleading standard of aggregate
  growth.

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dilution of provincialism

• another contributing factor in the shift toward
  more enlightened approaches to regional promotion
  
• normal for individuals to make their home in
  several different communities and regions during
  their lifetime, and for them to travel often and
  widely
• conducive to more objective feelings about
  programs that may benefit one region at the
  expense of another

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Reasons for changes in the factors determining
location choices

• changes in technology
• and increased income and leisure

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important changes in the factors determining
location choices (1)

• cost of physical transport of heavy and bulky
  goods is less important
• Increasingly the need is for speedy and flexible
  transportation of high-value goods
• Knowledge based industry is bringing more need
  for better communications.

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important changes in the factors determining
location choices (2)

• the increased variety and complexity of products,
  which increases, in turn, the importance of
  shopper comparisons, sales promotion, and
  servicing, and thus makes proximity to market
  more desirable
• Increased complexity of products has meant also
  more stages of processing between the primary
  extraction of natural raw materials and the final
  consumer, and thus a higher proportion of
  processes not directly using natural raw
  materials.

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important changes in the factors determining
location choices (3)

• more importance is attached to amenity factors
• rising standards of income and leisure
• increased importance of white-collar employment
• trained and educated people, who are in short
  supply, can afford to be choosy about where they
  will live and work.

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important changes in the factors determining
location choices (3)

• increasing degree of dependence on various
  services locally supplied by other industries,
  institutions, and public bodies more linkages

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important changes in the factors determining
location choices (4)

• increasing degree of dependence on various
  services locally supplied by other industries,
  institutions, and public bodies more linkages

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important changes in the factors determining
location choices (5)

• the advent of technological advances in
  electronics and computer equipment has meant that
  production processes which had involved numerous
  mechanical parts, and therefore the close
  proximity of potential suppliers, have been
  replaced by new processes dependent only on the
  availability of one or several microcircuits
• cost of physical transport of heavy and bulky
  goods is less important

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OBJECTIVES

• Individual and Social Welfare Criteria
• Regional Economic Growth as a Goal
• Regional Objectives in a National Setting

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Individual and Social Welfare Criteria

• ultimate objectives of regional economic policy
  run in terms of promotion of individual welfare,
  opportunity, equity, and social harmony
• economic policy in regard to a region should
  promote higher per capita real incomes, full
  employment, wide choice of kinds of work and
  styles of life for the individual, security of
  income, and not too much inequality among incomes

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Equity versus efficiency

• . Any action such as spending public funds for
  improved services, subsidizing the establishment
  of new industries in the region, or imposing
  restrictive controls on land usesis sure to help
  some people more than others and may well help
  some at the expense of others
• guiding principle of the so-called Pareto
  optimum,  which says that a change is desirable
  so long as it helps somebody without hurting
  anybody else

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"internalizing" the externalities involved in
regional change

• Internalization the social costs (or social
  benefits) will be in the general interest
• Hoovers example of chemical plant
• (1) choose a different location altogether or
  (2) invest some money in effluent treatment to
  reduce or eliminate the pollutant, and thus get
  relief from the special tax or (3) continue the
  pollution and pay the tax, whereupon the
  community gets the money to use for downstream
  water treatment or for compensating in some
  fashion the various parties injured by the
  pollution

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Regional Economic Growth as a Goal

• Should it be?
• Why?
• When?
• a region is not, except at an instant in time, a
  definite group of people
• Should it be counted as a regional gain if some
  people move in whose incomes are above the
  regional average, so that the average rises with
  their advent?
• If so, should one of the aims of regional policy
  be the out-migration of its poorer inhabitants?

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Big is better-for who?

• Department stores, newspapers, banks, utility
  companies, real-estate owners and speculators,
  and local political leaders have vested interests
  in aggregate growth.
• Their fortunes depend not so much on how well off
  the regions people are as on the size and growth
  rate of the population.
• Rapid growth confers increased income, prestige,
  and political influence on real-estate brokers
  and promoters, builders, and the other groups
  whose interests are served by local expansion as
  distinct from improvement of local well-being

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Regional Objectives in a National Setting

• National High-Employment Policy and Regional
  Economic Adjustment
• Efficiency, Equity, and Structural Unemployment
• Helping Regions and Helping People
• Regional Rivalry and the National Interest

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Problem regions

• backward areas halted at the threshold of
  self-sustaining development
• already developed areas with arrested growth due
  to loss of competitive advantage in their basic
  activities or obsolescence in those activities as
  such, with accompanying loss of ability to
  substitute new kinds of activities
• areas of excessive growth or excessive
  concentration.

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Regional Pathology

• Depends on whether pursuing place prosperity or
  people prosperity
• should the focus be on those unable to help
  themselves- should regional assistance be
  charity or investment,
• should we focus assistance in growth centers as
  contrasted with wide dispersion
• All of this determines appropriate choice among
  available devices for influencing development.

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How public policy can influence regional
structure and development

• upgrading manpower quality
• factor mobility
• maintaining a high national employment
• subsidizing or restricting investment
• controlling transfer rates and services
• allocating public purchases and investments among
  regions
• supporting research and development
• assisting in the provision of local or regional
  infrastructure.

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The Shift-Share Analysis of Components of
Regional Activity Growth