Growing the Economy From the Bottom Up

Bruce Katz

In the absence of federal leadership on the economy, a new wave of innovation in economic development is emerging at the state and regional scale. New York State, under the leadership of Governor Andrew Cuomo, is at the vanguard of this encouraging movement. 

For the past four months, 10 regional councils in New York — public-private partnerships of corporate, civic, university, labor, environmental and political leaders — crafted strategic plans for their regions to compete for $200 million in state funding.  I participated on a 5-member Strategic Plan Review Committee to provide an independent assessment of each plan according to a series of published and well publicized criteria (located on page 37 of the state’s Resource Guidebook). Last week, the state concluded this intensive competition by selecting four “best in class” plans. Additional resources for particular projects in other regions were also allocated via a consolidated funding application.

The New York Regional Economic Development Council initiative has serious implications for a state that has traditionally had prescriptive, fragmented and rigid economic development policy and practice.

First, the focus on bottom-up economy-shaping honors and respects the profound differences across regional economies:

New York State, like all states, is a political artifice, not a natural market. Its regions form the true economic geography, and each community and its component parts — cities and metropolitan areas, municipalities and towns — have distinctive competitive assets and advantages because of the vagaries of history, location and policy.

As Governor Cuomo said (video starts at 27:30) at last week’s announcement in Albany, “The state can set the stage, but there is no single New York State economy: there’s a Long Island economy, a Western New York economy, a North Country economy. They’re all on the same framework because they’re all within the state’s boundaries, so state policies affect all regions. But the growth is going to come from a regional development strategy.”

The distinctive strengths of disparate regions came through in every Regional Plan.

The North Country, a “best plan” award winner, extolled its position as part of a seamless regional economy with Canada with regular exchange of people, capital, and interlocking supply chains on advanced manufacturing. Garry Douglas, the head of the North Country Chamber of Commerce, went so far as to call Plattsburgh a suburb of Montreal.

Long Island, another “best plan,” embraced its heritage as America’s first suburb, blessed by close proximity and transit accessibility to New York City but also burdened by an aging infrastructure, increasing poverty and decades of low density development.

The Southern Tier, ravaged by floods earlier in the year, revealed itself as a center of advanced transport manufacturing and an innovation zone anchored by the global powerhouse of Cornell University. 

The unifying theme of “know your distinctive strengths and build on them” is particularly relevant in the aftermath of the recession, as the United States seeks not only to create jobs but to retool and restructure its economy.

The prior consumption-led economy embraced and extended uniformity of form and function. A new housing subdivision in exurban Buffalo looks almost identical to one outside Albany. Shopping malls and centers sport the same restaurant and retail chains. A Wal-Mart is a Wal-Mart is a Wal-Mart, offering the same goods and services no matter the location.

Yet the real, tradable, wealth-producing economy is highly differentiated across regions. Rochester has a different advanced manufacturing and export profile than Long Island. Syracuse has a different innovation ecosystem and entrepreneurial potential than that in Westchester County. And it’s the tradable sector that drives the consumption sector, not the other way around. 

If America is going to restructure its macro economy for the long haul, it will happen as metro and regional economies build on their own strengths and leverage their distinctive assets and advantages. 

Second, a “regions first” strategy provides a vehicle for streamlining legacy state systems and enhancing state impact and leverage.

State governments, like the federal government more broadly, are populated by specialized agencies overseeing dozens of compartmentalized policies and programs. This endemic fragmentation stands in sharp contrast to the integrated, organic, multi-dimensional nature of regional economies.  For regions and companies, land and infrastructure, labor and capital are inextricably linked. 

The Regional Economic Development Plan process flips the traditional silo-driven, project-obsessed focus of economic development on its head. Local leaders have the responsibility for identifying investment priorities that further the distinctive opportunities of their places and then the states are tasked with getting behind local strategies by cutting across rule bound bureaucracies and indecipherable programs.

The promise of this system is clear: state investments in local economies that, taken together, are catalytic and transformative, rather than merely a random collection of projects and transactions.

Finally, the Regional Economic Development Plans embody the galvanizing force of competitive collaboration.

In most parts of the U.S., economic development is still a zero-sum competition. Suburbs lure businesses with tax breaks from cities; cities do the same with their suburbs.  And competition between and among states is legendary. 

In a world of fiscal constraints, such internecine warfare is fiscally wasteful. In a rapidly-urbanizing world, where the real competition for US metros and regions is with megacities in countries like China, such internal competition is a recipe for economic suicide.

The Regional Council competition revealed the potential of a new modus operandi. Plan after plan showed the liberating effect of collaboration across jurisdictions, across sectors, across institutions that were either unaware of each other or locked in debilitating conflict.

Collaboration is, in many respects, the essence of regional innovation and competitiveness. As Steven Johnson wrote in his last book “Where Good Ideas Come From,” the mash-up of disparate sectors and clusters, institutions and entrepreneurs, creates the potential for breakthrough ideas and synergistic growth.

So what comes next?

First and foremost, the regional plans need to deliver. Success ultimately lies in implementing strategies rather than designing them.

Encouragingly, the criteria for evaluation focused intensely on ability to execute and measure performance, which was a major focus of our deliberation.

Secondly, New York State experiment is not a one shot deal. Governor Cuomo has already announced his intent, publicly encouraged by the state legislative leadership, to seek a second round of funding and hold a second competition. 

Replicating this process could drive further innovation: Will the second round expand the universe of programs and resources implicated by Regional Plans, including major economy-shaping infrastructure funds? Will the state set a broader platform for growth for key sectors and issues — advanced manufacturing, export led growth, the commercialization of innovation — that cut across the Plans?

Beyond New York, this innovation is also directly and immediately relevant to other states that are similarly experimenting with bottom-up approaches to shaping the post-recession economy. In Nevada, a new state economic development entity is actively seeking to regionalize state strategy and implementation. In Colorado and Tennessee, Governors John Hickenlooper and Bill Haslam, respectively, have both made bottom-up economic development a central tenet of their growth. 

In the final analysis, the New York innovation presents the sharpest challenge to the federal government. Despite some small and promising innovations in cross agency collaboration, the federal government remains a body of balkanized silos and hardened stovepipes. It is a legacy government that largely fails to galvanize the talents and energies of our powerful (and different) states and regional economies.

The New York Regional Economic Development Council process presents a call not only for reinventing government but for remaking federalism.