Mass Urban

The history of local economic development is a story of academic fads. The 1960s, when I was a student at the University of Pennsylvania, were the heyday of growth poles and multipliers, of econometrics and mathematical modeling made possible by powerful mainframe computers. For a city, the key to generating jobs and income was to lure strategic industries by offering them tax breaks, loans at favorable rates, promises of infrastructure development that would benefit them, and so on. This approach would propel the entire local economy forward, the theory held, so long as the city picked the right industries. On a corridor wall in Penn’s Wharton School building was plastered a huge input-output table of the Philadelphia economy, which would help planners make the right choices. The direct and indirect employment effects of any investment could be precisely predicted. It was all very scientific.

The unfortunate results of that optimistic epoch were large industrial complexes, often in petrochemicals or steel, which created jobs but little subsequent growth. It turned out that input-output models were essentially static, limited to one-shot income and employment effects. Over the long term, in fact, investing in supposedly strategic industries frequently had anegative effect on growth; for example, those large plants tended to be unionized, which pushed up local labor costs and drove employers away. Take the Canadian province I hail from, Quebec, which in the 1960s proudly inaugurated a large steel complex in the city of Sorel, near Montreal. The story of Sorel since then has not been a happy one; employment there has long been stuck below the province’s average rate.

The next fad was high-tech industrial parks. Every city wanted its research park, equipped with all the latest frills and a billboard declaring it the high-tech capital of the region, the nation, the world. Accompanying the parks were goodies that cities offered firms to induce them to come. Some parks, such as North Carolina’s Research Triangle, were highly successful, but just as many weren’t. Many other conditions had to be in place for the approach to work, such as competitive costs, a propitious location, and the presence of major research universities.

In the 1980s, “clusters” came along, thanks in no small part to the marketing skills of Harvard Business School professor Michael Porter. Porter noted that related industries tended to bunch together. The key to success, then, was identifying a cluster—say, health or fashion or aerospace—in which a city purportedly held a competitive advantage and then building on it with targeted public investments. Though cluster-based strategies remain popular among economic-development strategists, they contain an inherent flaw: today’s winning clusters may be tomorrow’s losing clusters. Building an entire development strategy on one cluster is as risky as assembling an investment portfolio concentrated in one or two stocks. And history shows clearly that politicians are even worse at picking winners than investment bankers are, which these days is saying a lot.”