Corporate subsidies a "doomed strategy"

Kevin Adams (whose article The Tulsa Time Blues you should read or re-read before you go to the polls) calls our attention to a couple of articles that question the economic development "strategy" which is guiding tomorrow's billion-dollar sales tax vote.

Here are the lead paragraphs from a story in today's New York Times (free registration required):

City Is Told to Abandon Its 'Doomed' Tactics of Encouraging Growth

By JANNY SCOTT

Arguing that the industries upon which New York City has depended for its economic well-being have been losing ground and are unlikely to generate many new jobs in future, a new study suggests that New York's longtime approach to economic development is obsolete and must be reconceived.

The study, financed by the Rockefeller Foundation and written by a nonprofit group called the Center for an Urban Future, says the city should abandon the "doomed strategy" of favoring a few industries like finance — an approach the study says has left the city increasingly vulnerable to economic shifts.

City resources should go instead to improving the climate for small businesses and entrepreneurs, tapping the immigrant population as well as academic and research institutions, and improving basic services so the middle class will not leave the city, according to the study, to be released today.

"Start small," the report urges. Large firms are decentralizing operations and adding new jobs elsewhere, and New York's future growth will depend on "whether it can restore its entrepreneurial vitality and create a better environment for smaller firms to grow and prosper."

The recommendations run counter to the city's practice of using tax abatements and real estate development subsidies to keep big companies in New York. That tactic became common in the 1990's as competition among the city, its suburbs and other places intensified....

As large firms everywhere have decentralized, cities like Los Angeles have benefited by the rise of small, home-grown businesses, the study says. But New York "has become one of the worst environments for entrepreneurs and growing firms," the report says, citing rankings by groups like the National Commission on Entrepreneurship and declines in venture capital investments.

One big problem for growing businesses is high real estate costs, which the study traces in part to the city's practice of subsidizing the real estate costs of large employers. The report says the practice has distorted the "real estate market in ways that actually inhibit the development of new businesses and the retention of lower-margin industries." ...

The study recommends that the city work harder to help growing businesses thrive, in part by addressing "the fundamental issues hampering business growth in the city, such as permitting, business taxes and policies that spur exorbitant real estate speculation."

The city should also do more to encourage the growth of immigrant and minority-owned businesses, the study says, perhaps by following the example of cities like Los Angeles and Houston. According to the report, those two cities rebuilt their economies in recent decades in part by diversifying, reducing regulatory hurdles and helping immigrant-run businesses to develop.

In addition, the city should extend its economic development efforts beyond large-scale commercial projects in Manhattan to include neighborhoods in all five boroughs, the study recommends. It notes that the Bloomberg administration is already working to develop viable and more affordable business districts in Downtown Brooklyn, as well as Long Island City and Flushing, Queens.

Finally, the report suggests that the city support policies that will help retain middle-class residents. It should follow through with plans to increase the housing stock. And it should use scarce city resources to maintain and improve basic services like law enforcement, sanitation, public transit, education, parks and the infrastructure.

The report states, "This vision should begin with the premise that blindly following the post-1950's strategy of ever-intensifying real estate speculation, over-concentration on selected sectors and `Capital of the World' rhetoric will erode the city's overall competitiveness even further, strain the city's financial resources and widen the gap between rich and poor."

I don't know if we subsidize real estate costs for large employers, but we do have zoning laws which discourage home business, and I understand that there is a severe shortage of small retail space, which would boost costs and provide another entry barrier. I don't see many new small spaces being built; mainly big boxes are being put up these days.

Notice the keys -- take care of the basics, reduce red tape and regulatory barriers, tap into the entreprenurial energy of new arrivals to our country, and don't focus exclusively on "downtown".

And here's Joel Kotkin, who visited Tulsa back in May 2002, writing in the Washington Post. Tulsa gets a little mention....

.... There is a dramatic shift afoot in urban fortunes, weakening the clout of the biggest cities while spreading power and influence to scores of smaller centers, nowhere more markedly than here in the United States.

Blame 9/11, technology or geographic shifts in the national economy -- or a combination of all three -- but the nation's urban hierarchy is flattening out. A host of smaller players are chopping off chunks of what was once the big boys' exclusive domain. What used to take place almost entirely in New York, Los Angeles, Chicago or San Francisco -- whether in high finance, advertising or marketing -- is now happening more and more in unlikely locales such as Omaha, Des Moines, Fargo, N.D., and Columbus, Ohio. "Technology now gives each town the same global footprint," says Rich Nespola, a native New Yorker and president of TMNG, a communications consulting firm headquartered in suburban Kansas City, Kan. "People can work where they are comfortable and where it's most profitable." ...

Extensive interviews with young professionals, corporate executives, human resource workers, post-graduate students and recent immigrants reveal that many are willing to exchange "the bright lights" of the global centers for affordable housing, a sense of community and economic opportunity. "It's gotten very easy to get workers to relocate here," notes Randy Schilling, founder and CEO of Quilogy, a St. Louis-area technology company. "You get a guy here from Chicago, New York and San Francisco, and even if he gets a pay cut, he and his family live better."

All these factors are stirring a renewal of cultural life in places in America's second-tier cities. Rather than in the mindless new stadiums and convention centers promoted in the past, this renaissance expresses itself at street level, in new restaurants, art galleries, loft developments. The hot real estate ticket in many of these cities is no longer the suburbs, but close-in, leafy urban areas near the historic core. Kansas City's Country Club Plaza, St. Louis's Central West End or Des Moines' Court Avenue may not be Soho. The denizens of the brew pubs and bars in these places appear to be older, less edgy, straighter and more family-oriented than lower Manhattanites or San Franciscans. But they are rekindling urban life where, for a long time, it seemed to be in irreversible decline. You can now hear decent music, or enjoy a good Italian meal, in Fargo and drink a more than passable cappuccino in virtually every second-tier city.

All this could augur a new future for American urbanism, one that recalls the dynamic era of the earliest 20th century, when second-tier cities enjoyed their own periods of vibrancy. This was the era of "Meet Me in St. Louis," when the city hosted the 1904 World's Fair, Kansas City was a jazz capital, and upstart oilmen turned downtown Tulsa into an art deco showcase. Today a resurgence in these places could bring a much-needed new diversity to our cultural life, now dominated by New York and Los Angeles.

There may also be some good news in these developments for the global cities. The current restructuring and declustering of urban activities offers a clear opportunity for Gotham and global-city wannabes to rethink their economic and political priorities. Perhaps the first thing would be to chuck the "capital of the world" pretensions and start focusing on the mundane things -- fostering family-oriented neighborhoods, middle-class jobs and efficient city services -- that made these cities great in the first place. A stronger commitment to the things that matter to ordinary people may be the best way for cities like New York to retain their importance, and carry their greatness deep into the new century.