Beyond “Amazon Idol” toward a real regional growth strategy

Editor's note:

The embedded chart, entitled “Indexed Ratio of Average Income per Capita to Metro Median,” was updated on October 23, 2017 to correct an error.

Amazon’s request for proposals (RFP) for a second headquarters complex continues to rivet city lovers, economic development leaders, and the site selection crowd (and its critics). Like a reality TV show, millions are pulling for their favorite cities. And why not: winning the title could be life-changing for some lucky metro.

Yet there’s a problem here: while the fall’s “Amazon Idol” competition is garnering high ratings, the fact remains that it is a major distraction from the glaring need for the country to systematically think about a much larger development problem—the nation’s gaping regional prosperity divides.

At present, America possesses no strategy—let alone serious policies—for addressing the uneven allocation of growth across the nation’s 50 states and hundreds of metropolitan areas.

Instead, the nation seems largely helpless before city trends that are creating dangerous divides between a handful of fortunate favorites (often on the coasts) and scores of the drifting rest.

As a result, the nation is tolerating stark geographic disparities that are breeding resentment and dysfunction in the nation’s heartland while leaving too many places behind.

The gravity of the spatial crisis is well-known. Compelling analyses from Phillip Longman, Enrico Moretti, and Richard Florida have described how America’s bifurcating economic map—shaped by the spatial demands of digitalization—increasingly reflects stark differences between communities. Likewise, here at Brookings we have been adding to the story since the election by depicting the massive growth gaps, productivity gaps, output gaps, and technology gaps among cities that are now pulling the country apart. As Moretti has summarized, prosperity is now accumulating in a handful of cities with the “right” industries and pools of well-educated workers. By contrast, cities at the other extreme, the ones with the “wrong industries and a limited human capital base,” are stuck with dead-end jobs and low average wages. Moretti calls this divide the Great Divergence and it has now become an emergency. Here’s what that emergency looks like:

metro_2017_Mark Muro Amy Liu_Indexed Ratio of Avg Income Per Capita-01-01

And yet, what is the nation’s response to this emergency? Not much. President Trump has vowed to make better deals. Alternatively, the president has intermittently “jaw-boned” companies like Carrier and Ford to limit offshoring, and cheered the electronics manufacturer Foxconn’s selection of a Wisconsin site for flat-panel display screen factory, at a cost of $3 billion in state tax credits.

Beyond that, the Trump administration’s budget would actually gut many of the nation’s main programs for addressing regional disparities. These and other reductions will have the added negative effect of undercutting local problem-solving in lagging markets, including the ability to leverage private investment.

Against this backdrop, the Amazon competition—which will transform at least one metropolitan area, if a smaller mid-American city wins—points up the negligence of the nation’s lack of a strategy for addressing regional inequality. For one thing, one-off corporate beauty pageants and deal-making are simply too self-interested and random to add up to a viable U.S. spatial strategy. For another thing, one-off deals—as Tim Lee of Vox observed back in December—will always be too small and too few. With 150 million workers in the United States, city leaders around the Heartland would have to negotiate dozens of Amazon-sized deals every month to have a serious impact on the nation’s spatial disparities.

And then, finally, there remains the fact that the current focus on one corporate location decision diverts attention from the stubborn nature of the complex dynamics driving divergence. In this respect, while most regional development theories deem a degree of regionally imbalanced growth both inevitable and desirable, given the importance of city-by-city industrial clustering, fewer analysts now believe such trends set off automatically self-correcting processes of catch up. Instead, some researchers are coming to believe that regional disparities—left to themselves—may in fact intensify over time. In this vein, less evidence can be found that national growth naturally “pulls all regions up” or “trickles down” to all regions. In fact, new evidence suggests that the nation’s growth imbalances—which are way too large to be mitigated with a few corporate relocation deals—may now be constraining U.S. growth.

All of which underscores how badly the nation needs a set of policies, or at least a general strategy, aimed at mitigating (at least partially) the damage being done by the Great Divergence. So: what might such policies or a strategy look like?

To be sure, economists have as yet detailed few solutions for the nation’s spatial problems (though several of them, including Peter Ganong and Daniel Shoag at Harvard and Elisa Giannone of Princeton, have advanced the discussion by confirming that the tendency of states’ and cities’ income levels to converge has broken down). And it’s true that evaluations of many place-based policies offer mixed reviews. With that said, though, major precedents exist for strong action to reduce regional disparities. Over the 2014 to 2020 period, almost a third of the total European Union budget—EUR 353 b.—has been set aside for so-called “Cohesion Policy”—programs to help lagging regions catch up. And in the United Kingdom, the government—stung by the “Brexit” vote—earlier this year released a “modern industrial strategy” focused on delivering a “stronger economy and a fairer society where wealth and opportunity are spread across every community, not just the most prosperous places in London and the South East.” In the U.S., meanwhile, the Tennessee Valley Authority—one of the most ambitious regional development programs in U.S. history—has garnered praise for fostering a manufacturing cluster in the South—albeit one that reoriented benefits from other regions.

With 150 million workers in the United States, city leaders around the Heartland would have to negotiate dozens of Amazon-sized deals every month to have a serious impact on the nation’s spatial disparities.

In keeping with those precedents, then, it’s possible to hack together some basic outlines of what policymakers, especially the federal government, might do to push back against the nation’s geographical distress. Here are some watchwords:

Make spatially balanced growth a priority. The first priority is simple: governments—especially the federal one, which looks across all states and regions—should have a bias toward economic cohesion, and seek to promote it where they can. This isn’t to say government should unilaterally seek to reorder the growth map. However, it should seek to help less favored places catch up by providing them tools and support. A little “jawboning” in favor of regional balance would also be a help!

Maintain (don’t cut) existing policies that enhance U.S. competitiveness—and support regional development. In addition to having a preference for balanced growth, the federal government should do things. In many cases, important programs focused on the national good are potential drivers of ancillary regional “catch up.” Such programs should not be cut and in fact should be expanded, as follows:

  • Federal R&D: With 150 million workers in the United States, city leaders around the Heartland would have to negotiate dozens of Amazon-sized deals every month to have a serious impact on the nation’s spatial disparities. Generous flows of federal R&D money are critical for the nation’s overall competitiveness, but they also provide critical investments in a widely distributed set of universities that are focal points of regional progress. They should be maintained.

  • Manufacturing USA: President Trump is not wrong with his instinct that fostering manufacturing would help many regions now being left behind. Already the auto revival has helped in some communities. Given that, it is important that the National Network of Manufacturing Innovation institutes—now rebranded as Manufacturing USA—continues to grow as it includes a strong measure of regionalism in its mission. These distributed hubs—pursuing applied translational development through business, academic, and national-lab consortia—may well be able to help boost U.S. competitiveness while achieving useful regional spillovers.

  • Firm competitiveness: Programs like the Manufacturing Extension Partnership (MEP), which provides advice and consulting to small and medium-sized manufacturing businesses, are not perfect, but have been shown to improve employment and productivity in distressed areas. Especially relevant is the fact that MEP is a distributed system, with state-based hubs all across the country, including in struggling regions. Strengthening, rather than cutting, this network will be important.

  • National labs: These place-based research and innovation centers represent another distributed source of potential regional growth spillovers. The problem is, they have not been tasked with an economic development mission until very recently, as one of us noted here and here about the energy labs. That there are hundreds of federal labs of all sorts scattered all across the nation means that there is a significant opportunity to better leverage an existing national network for regional catch-up.

  • Regional programs: Explicit regional catch-up programs like the Appalachian Regional Commission and Economic Development Administration are also imperfect, but have been helpful particularly in the Rust Belt. At minimum, these programs set a precedent for special attention to address regions left behind. They should be preserved.

Craft new initiatives that will boost lagging regions even as they enhance the nation’s growth. In like fashion, federal policy should do more to bring jobs to people by targeting job creation in economically distressed areas. Here are a few priorities:

  • Digital transition. Going forward, high-value services will be the main driver of regional prosperity. So maybe the U.S. needs a MEP network to help smaller local firms in regions left behind adopt leading-edge tech. Or maybe the nation needs a modestly scaled challenge grant program to encourage the convergence of local Makers and advanced industry firms in such regions, , whether for product development or skills training. Either way, the new efforts could help foment catch-up by helping high-potential firms and entrepreneurs go digital.

  • Work-based learning / training. To his credit, President Trump accepted Salesforce CEO Marc Benioff’s “moonshot” challenge to create 5 million apprenticeships over five years. That’s good. Now, let’s get on with it. And let’s go farther by boosting workplace-based education and training in general. One idea comes from economist Tim Bartik of the W.E. Upjohn Institute for Employment Research, who has shown that state programs that provide tailored, firm-specific job training support to small and medium-sized businesses can induce new business activity and make a difference. Based on a careful review, Bartik thinks that the federal government should expand its support for state programs that provide such training as a way to help distressed regions catch up.

  • Community college investments: Expanded investments in the nation’s community colleges—which exist in every lagging region—will also be essential. New support should be contingent on strong industry engagement in the development and delivery of curricula.

  • Technical universities: In the late 19th century, the federal government gave land to states that they could sell to launch “land-grant universities” that helped open up new regions for prosperity. Why not find a parallel way to transform regions through knowledge institutions? In 2013, for instance, Stephen Ezell and Rob Atkinson recommended the creation of a network of manufacturing universities within existing institutions to provide industry-relevant, hard-core training to engineers. Let’s do that. But maybe the government should go farther and work with industry to launch new institutes in drifting regions focused on other commercial topics—including digital ones.

Do something bold! Finally, here are a few more ideas—in the spirit of shaking up a dangerously immobile status quo:

  • Move federal assets: Late last year, Vox editor Matt Yglesias surveyed the nation’s spatial imbalances and suggested that the federal government should take the lead in rebalancing America’s allocation of population and growth by “taking a good hard look at whether so much federal activity needs to be concentrated in Washington, D.C., and its suburbs.” More pointedly, he suggested that the federal government should move a number of agencies out of the D.C. area to the Midwest, where their employees (and taxpayers) might enjoy lower costs while Midwestern communities would profit from new population, tax base, and economic activity. It’s an idea worth considering.

  • Organize Heartland relocations: Or maybe President Trump should think bigger than lecturing individual CEOs about retaining a few hundred jobs here and there and “jawbone” Big Tech as a whole to consider moving whole units into the Heartland. And by the same token, why shouldn’t the government or a few states work to help a dozen Heartland communities open up one or more economic development offices in Silicon Valley to make Heartland cities more visible and pitch their assets?

  • Amazon Prime! Or how about this? What if the federal government offered a competitive grant opportunity of its own aimed at challenging heartland metros to make themselves more “investable” for coastal Big Tech. Along these lines, it’d be squarely in the national interest for the government to help inland metros upgrade themselves to fit the locational needs of potentially mobile knowledge and tech firms. In this fashion, matching grants might help winning cities accomplish worthwhile things like scaling up their digital talent pipelines or preparing land for re-investment.

In sum, there is something amiss about a phase of America’s history in which the greatest nation on earth seems content, as Matt Yglesias has put it, to leave its long-term development trajectory to the locational whims of a few high-tech CEOs. Obviously, the powerful benefits of clustering will continue. Still, the spatial arrangement of the nation should be shaped by something other than the latest episode of “Amazon Idol.”