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Cautionary Notes for Competitive Cities

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Introduction

Leaders of American cities seeking to foster economic growth often look to success
stories from other places to provide models and strategies they can adopt. Unfortunately,
many of the popular success stories tout benefits that are at best exaggerated and at worst
apocryphal. Moreover, context matters, and a strategy that is successful in one city may
not prove effective in another. This paper reviews some of the policies that city planners,
mayors, and civic groups consider promising for fueling economic growth. Although
each of them may have worked in particular circumstances, we explain why they are
typically not successful and why policymakers should be cautious in adopting them.

Conceptual Framework

While the term ‘economic development’ refers broadly to the “process of
improving the standard of living and well being of the population,” policymakers and the
public tend to use the word to refer more narrowly to increasing the number of jobs, the
number of businesses, and/or incomes in the city.1 This distinction is important and to
some extent, the narrower focus excludes important benefits (or costs) of economic
development policies. Consider for example, the renovation of Pike’s Place Marketplace
in Seattle. Regardless of any economic development benefits per se, there are many
residents in Seattle who were pleased to see this piece of the city’s history restored
(Frieden and Sagalyn 1989).

In this paper, we focus on the narrower definition of economic development and
look specifically at the impacts of public policies and investments on growth in jobs,
firms and incomes. Throughout, however, we will keep these ‘consumption benefits’ in
mind – benefits that may well justify the investment, despite disappointing effects on
economic growth.

We consider seven strategies: infrastructure investment; three types of tax policy
(lowering overall taxes; offering special tax deals to specific firms and enterprise zones);
government efforts to draw high-tech industry; and two forms of promoting tourism
(building stadiums and legalizing casino gambling).

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