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LOCAL ECONOMIC DEVELOPMENT PROGRAMS
At the local level there is intense interest in economic development. Of the more than 15,000 organizations in the United States devoted to economic development, the vast majority operate at the local level—city, county, town, or neighborhood.
Communities have several motives for pursuing economic development. One is employment. Increasing the size of the local economy seems like an obvious way to reduce unemployment. In fact, economic development often decreases local unemployment by considerably less than one might expect. One major reason is that new jobs encourage inmigration and so many of the jobs are taken by new residents. This has been well known among regional economists for more than half a century but is often lost sight of in the political process.5
Another major motivation at the local level is property tax relief. The property tax is by far the largest source of locally raised revenue for substate levels of government. It is also by far the largest locally raised source of revenues for school districts. Most local governments and school districts find themselves under pressure on the subject of property taxes because they are caught between citizens' resistance to tax increases and demands for services. One obvious way out of the dilemma is to expand the tax base so that a given tax rate produces more revenue. In many localities the property tax motivation is actually more important than the employment motivation. For one thing, essentially all citizens pay property taxes, whereas at any given time only a minority of citizens are unemployed.6 Then, too, there is no ambiguity about who captures the tax benefits. If a facility is built within the city or county or town or school district lines, that body receives the tax payments. On the other hand, the labor market and business stimulation effects are likely to spread far beyond the municipal boundaries. Small communities within metropolitan areas often sense that they are part of the metropolitan labor market and are too small to affect it very much. However, it is possible for them to calculate quite clearly how much a new project will add to their tax rolls.
There are other motivations as well. Economic growth is likely to be good for various sectors of the business community. Real estate brokers will benefit from an increased number of transactions. Property owners will benefit from increased demand for land and structures. Retailers will benefit from increased sales resulting from increased personal income. Construction firms—and their workers—will benefit from increased construction activity. In short, there is a great deal of general support from business and labor for local economic development efforts.
Several decades ago the prime focus of many, if not most, economic development agencies was manufacturing, and in fact the field of economic development was sometimes casually referred to as "smokestack chasing." In the early post-World War II period manufacturing accounted for close to one-third of total U.S. employment, and it was believed that much of it was relatively "footloose" in the sense that a manufacturer selling to a regional or national market had a potentially large choice of locations. Therefore it seemed logical for it to be the first target for many economic development agencies. But manufacturing's predominance did not last.
For several decades manufacturing employment in the United States held more or less steady in absolute numbers but declined as a percentage of total employment as the U.S. economy grew. Since about the year 2000, manufacturing employment in the United States began to decline in absolute numbers as well. It currently accounts for somewhat less than 9 percent of total U.S. employment. Thus today one is more likely to find municipalities and their economic development agencies pursuing retailing, business and personal services, office, recreation, and other categories where there is significant employment growth.
A number of municipalities, states, and regional agencies have developed research parks to attract high-tech firms. These firms may do high-tech work like software development or scientific research and some may do, on a small scale, cutting-edge manufacturing, where technical prowess and the ability to attract small numbers of very highly trained and qualified personnel is more important than low labor costs. For most such parks the core resource is the presence of a major university with strength in science and engineering. For example, Virginia Tech in Blacksburg, Virginia is associated with a very successful facility called the Corporate Research Center. The Center is located about a mile from the center of the campus. Its employees can pursue degrees at the university (a powerful recruiting tool) and have access to the university's library and computer facilities. The location facilitates consulting arrangements with the school's faculty and provides a convenient venue for faculty members who may work for or be principals in firms at the park. Finally, putting a large number of high-tech firms together where they use a variety of common facilities provides a venue for the casual exchange of useful ideas and information.
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