Progressive Economic Development Policies: A Square PED in a Round Hole

By Pierre Filion (University of Waterloo), Laura A. Reese (Michigan State University), and Gary Sands (Wayne State University)

The story of Amazon’s aborted attempt to locate part of its second headquarters in Long Island City, New York is well known. To briefly recap, in 2017, Amazon announced an open competition for the site of a second headquarters representing perhaps the largest single economic development opportunity in history. The company offered the winning city a $5 billion investment and the creation of up to 50,000 well-paid new jobs. Two locations were selected in November, 2018 – Long Island City and Northern Virginia. Each location would see half of the total promised investment and half of the jobs. New York’s incentive package, valued at $3 billion, included the cost of public improvements as well as performance-based grants. On February 14, 2019, however, Amazon announced that it was canceling plans for this major investment in New York City. The company indicated that they were unwilling to proceed with the project in the face of grass roots and political opposition.

While the abandonment of this site by Amazon has been hailed as an indicator of the reemergence of progressive ideals, our analysis suggests that it should be seen as a reminder of the dominance of neoliberalism in this aspect of public policy. Moreover, the specifics of the failed deal, which pitted Big Tech against the Big Apple, suggest to us that future economic development efforts will exacerbate inequalities both within and among cities.

Over the last 50 years, neoliberalism has increasingly become the dominant paradigm for North American governmental policies. At the national level a political and economic context has been created that promotes the discipline of the private market, particularly an unregulated one, as the best way to meet community needs. Senior levels of government have devolved responsibility downward. At the local level, public services have been reduced or privatized. The steadfast refusal by elected officials and voters to raise taxes makes reduction in public services inevitable.

Economic development, particularly at the local level, is one area where some modicum of government participation is often still considered appropriate. Economic development policies are justified as a way to overcome market failures. Attracting new business investment and jobs, especially to stagnant or declining areas, may necessitate offering a variety of incentives – tax abatements, relaxed regulations, investments in infrastructure and other favors to businesses – to make a particular location more attractive.

Cities compete with each other to offer a wide array of incentives to private capital interests using public revenues and tax expenditures.  And, because the competing cities do not know what others are offering and are unsure about what firms like Amazon really need or want, incentive packages are likely to be excessive and economically inefficient.  Even economic development policies that are considered to be progressive typically rely on the direct benefits to businesses and investors trickling down to provide indirect benefits to lower income individuals and other target groups. 

In our paper, we consider whether progressive economic development policies (PED) are possible in the present neoliberal context and whether they might result in more equitable and effective outcomes.  A progressive approach to economic development is concerned with increasing income equality (rather than merely increasing wealth) and establishing business regulations adequate to protect the public interest, based on transparent and broadly participatory government institutions.  Thus, a progressive approach has both policy and process implications.  PED adheres to the belief that the capitalist economy needs to be controlled and subject to compensatory measures to avoid steep social inequality, and the attendant marginalization of large shares of the population, abate its impacts on the environment, and assure its long-term survival by alleviating its economic crises and tendencies towards monopolization.

Along with globalization and deindustrialization, neoliberalism has helped to create an economic context characterized by increasing income and social inequalities. Where direct efforts to improve conditions in distressed neighborhoods results in gentrification, such policies are no more progressive than those that rely on “trickle down” effects. Many current neoliberal economic development strategies have been criticized as ineffective and “corporate welfare” because they:

  • Waste public resources, paying firms to do what they likely would have done absent the incentives
  • Have redistributive effects that are perverse, favoring the rich and increasing rather than decreasing inequality.
  • Encourage competition among jurisdictions, maximizing the value of the incentives that businesses are offered
  • Are most effective in prosperous communities, rather than ones that are most distressed.

Nevertheless, incentives remain popular, at least in part because there appear to be few viable alternatives to this approach. Is it possible to provide incentives for local economic development that will, in fact, be progressive? That is, can the focus of local economic development be shifted to reducing income inequality, particularly in economically distressed communities? We believe that, at best, this will be very difficult and will require a radical reconsideration of the meaning of “economic development” and the types of policies that might achieve it.

Read the UAR article here.

Photo by Bryan Angelo on Unsplash

Author Biographies

Pierre Filion is a professor at the School of Planning of the University of Waterloo. His areas of research include metropolitan-scale planning, downtown areas and suburban centers, and infrastructures. He is co-editor of Critical Perspectives on Suburban Infrastructures (University of Toronto Press), Cities at Risk (Routledge), and five editions of Canadian Cities in Transition (Oxford University Press).

Laura A. Reese is professor of Urban and Regional Planning and Political Science at Michigan State University. Her research and teaching areas are in urban politics and public policy, economic development, local governance, and animal welfare policy. She has conducted large-scale evaluations for the Economic Development Administration and sub-state economic development programs. She has written 12 books and over 100 articles and book chapters in these areas.

Gary Sands is professor emeritus of Urban Planning at Wayne State University. His research interests include the structure of local housing markets and how they are influenced by government development regulations, and the costs and benefits of economic development incentives and tools. Sands holds a master’s degree in urban planning from Wayne State University and a doctorate in housing and public policy from Cornell University in Ithaca, New York.