The Latest in Economic Development

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This week’s blog highlights the recent success of New Jersey’s economic development incentives, explores the story of two rural North Carolina towns and how they dealt with losses of industry, mentions efforts in Seattle and Philadelphia to streamline their regulatory structures, and points out increasing foreign direct investment flows from China to the US.

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Economic development incentives can be a contentious issue, but New Jersey seems to have had some recent success in retaining big business. In a NJBIZ article, Joshua Bird explains that “the state’s arsenal of incentive programs has prevented firms from leaving the state.” Some of these firms include Goya Foods, Realogy Corp., Burlington Coat Factory, and Conair Corp. – all companies that employ more than 3,000 employees.

Incentive programs such as New Jersey’s tend to drive a wedge between taxpayers and the corporations receiving tax breaks and other incentives, since they are often perceived as a wealth transfer, or “corporate welfare,” from workers and small businesses to politically connected companies.  It has also been demonstrated on numerous occasions that the jobs promised as part of these deals rarely come to fruition. A Pew report conducted earlier this year highlighted this fact, and while they deemed New Jersey a state that is “leading the way” in its performance monitoring incentive programs, over half of US states (26) proved that they were not meeting any of the criteria for scope or quality of evaluation.

According to Kim Zeuli of the Federal Reserve Bank of Minneapolis, small town economic recoveries are largely determined by “community resilience.” Small towns usually don’t have the most diverse economies, which leaves them uncomfortably exposed to recessions that affect the industries they support. In a recent podcast (with transcript available), Zeuli tells the story of two North Carolina towns, Eden and Concord, and how they responded to the loss of their respective textile industries. While there are many determinants of community resilience, a couple factors stand out. One is fairly obvious; industry diversification is crucial to respond to external shocks. The other focuses on an important intangible: leadership. In the case of Eden and Concord, local leadership proved to be a big factor in their respective responses. Concord’s leaders had a little more foresight that the textile industry was losing steam, enabling the town to get out in front of the crisis. Podcast via Southern Compass News

Regulatory regimes can sometimes be stiflingly rigid, but Seattle’s new program shows that pragmatic flexibility can be a catalyst for productive projects. The Industrial Development Pilot Program is designed to help nudge industrial projects forward that are having trouble clearing certain hurdles by: 1) stretching the permitting process; 2) utilizing a low-interest federal loan program to help cover costs; and 3) training workers. The first program participant, Harley Marine Services, was able to build a four-story structure when the height restriction was two – a simple fix, but important nonetheless. Roque Deherrera of the Seattle Office of Economic Development says that “if someone has a project, and they can achieve their project except for an issue in (the) city of Seattle, we would take a lead in supporting that project.”

Staying with the regulatory theme, Philadelphia transitioned to a new zoning code last week, replacing an outdated regime that was “in use since 1962, when Philadelphia still saw itself primarily as a manufacturing center.” The simplifying move was a welcome sign for developers, who will save time and money by not having to appeal to the city every time they needed to go “off-code” (which was a lot) in the old system.

Chinese investors and companies are flush with cash, and recent foreign direct investment inflows from China to the US show that they desire Western assetsThere are a few reasons for this rising trend. First, the Chinese economy is naturally evolving; unskilled manufacturing margins are being squeezed by higher labor costs, requiring Chinese opportunists to look elsewhere for returns. Second, since asset prices are lower in developed countries due to the lingering effects of the financial crisis, there are many bargains to be had. Third, they are fulfilling strategic objectives, such as acquiring technology and marketing prowess, which is why the continuing trend makes some US officials squeamish. Especially with the Chinese scouring the globe to secure energy producing land and assets, inward FDI will most likely be a contentious issue in the near future. But as of now, China “accounts for only about 3% of foreign investment into the US” and is providing much needed cash to US companies, not to mention jobs.

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