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9 Rethinking Urban Policy National and urban interests in economic development do not always coincide. When growth rates are high, the tension between these interests is lower because there is more than enough to go around- almost every place can expect to grow a little. When growth rates are low or negative or when some parts of the economy are growing and others are declining, regional and urban interests can conflict sharply with each other as well as with overall national interests. States and urban areas pirate industries and jobs from each other and use their political power to resist shifts of capital and jobs away from them. Such shifts may well produce a net benefit to national accounts (although that is uncertain), but they can also deepen economic hardships for the areas on the losing side of the transfer. National economic development interests may be served best by encour- aging fairly rapid adjustments in economic structure. Rapid adjustments, however, can be profoundly destabilizing for the most adversely affected urban economies. One of the central, difficult tasks for urban policy is to help harmonize these national and urban interests so that they work less at cross-purposes, to help fashion a framework for urban economic development that balances two types of policies: (1) those that encourage acceleration of economic development and (2) those that provide a relatively stable environment for the places and people left behind, so that changes can occur with a minimum of hardship and resistance and so that they can develop new roles in the urban system. We offer no formula for achieving this goal. There is an inherent tension between the two policy realms because main- 171

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172 Rethinking Urban Policy stream policies are often market-reinforcing if not market-forcing, while policies for those left behind often seek to redirect the market or at least ameliorate its most adverse effects. In this report we have tried to suggest some directions policy might take to advance toward a better balance between the two realms. Here we summarize the major themes and recommendations of the report and offer some final observations about the process of using an urban perspective in making economic policy. We have not attempted to offer a detailed program. The policy options we have discussed are intended primarily as illustrations of how the major themes could be carried out. They are by no means the only approaches possible. The important issue has to do with the directions that policy should take and the recognition of urban policy as a worthy perspective in making general economic policy. A POLICY FRAMEWORK Neither a pure free market nor a central planning model of economic or urban policy holds much attraction in light of the economic and tech- nological transformation that is occurring. The most likely outcome of leaving the futures of America's urban areas entirely to the marketplace is an even sharper distinction between the command and control centers and the subordinate centers. The notion of a centrally planned economy is equally unappealing. A heavily planned economy tends to ignore the discipline of the market as a device for winnowing out those sectors that perform inefficiently. Moreover, the pluralism of the United States and the American antipathy toward a strong, centralized bureaucracy present strong barriers to a well-developed system of national planning. Instead, policies must be fashioned that are able to provide reasonable options for dealing with economic transformation. Urban policy should leave room for continuing debate and course corrections. Such an approach recognizes that public policy has a marginal influence on market forces but rarely controls the market, at least over a long period. Urban policy should therefore seek to understand and reinforce the market to train the tiger but not fully tame it. This view accepts much of the market's un- certainty in order to retain its energy, and it tries to channel some of that energy toward achieving limited policy objectives, to give a sense of direction but not a final destination. Making policy judgments of such sensitivity requires close consultation with the private sector and with state and urban leaders. It further requires abjuring quick-fix solutions in favor of a more incremental, long-term approach to strengthening economic institutions and governmental processes at all levels of the system. It is,

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Rethinking Urban Policy _ _ _ ~ _1 1 173 quite canclcily, a compromise position and, like all compromises, subject to criticism of where the balance has been struck. This approach recognizes that each part of the economic and political system plays an important role in furthering economic development. How each public and private actor plays its role and becomes a more responsible partner in economic restructuring and development is the critical issue. RETHINKING THE ROLE OF GOVERNMENT While most economic activity and development is carried out by the private sector, government is a major direct participant in the. morlern economy. It is one of the largest of the service sectors and, although it IS crowing more slowiv then in the nest camp filrth~r Ruth I; ~ _ ~ ~ _ . , .. . . . .... .. . .. . . . ~ ~ ~ .._J ____., .., -.._ ~,.~.~ ~~- ~1~\ ~1VW[ll 1~111alll~ 1 ~ 1 ~ ~ . . . ~ . . likely. Local, state, and federal governments are major investors in defense industries, transportation systems, agriculture, and other sectors. Public procurements make a substantial contribution to a~re.s,~. rlem~nc1 UP_ ~ A _~ ~111011~ . I\~ search and development activity is heavily financed by government, as is most of the educational system. But this direct economic role of govern- ment is often virtually ignored in discussions of economic development. Public facilities and services are often thought of only as expenditures for which no return is expected. Rather, they should be seen as investments in economic sectors and in urban areas. As investments, some return should be expected, although it may come in the form of private invest- ments or improvements in the quality of the labor force. Public actions affect other economic interests, whether the particular consequences were intended or not. National economic policy should be more sensitive to its consequences for different sectors of the economy and for different types of urban areas. Substantively this requires that two basic types of policy acceleration strategies end phi 1 i Action ctrntPai-~_ be closely coordinated. At the national level, acceleration policy requires a conscious strategy of fashioning tax, credit, trade, monetary, and fiscal policies so that they ~ ~ ~ in_ ~ - ~ ~ ~., ~.4 ~.~e,10O , encourage capital to flow toward promising sectors and contribute to the transition to a more advanced economy. Such a strategy would include making a modest amount of capital available on a wholesale basis to leverage private investments in urban development efforts that promote economic transition. It also would include some mechanism, such as a national infrastructure bank, to provide leadership for institutional reforms and to undergird local and state capacities to finance and manage the urban public facilities needed to support and serve an advanced economy. Na- tional action is also needed to revise design or performance standards for infrastructure that are not cost-effective or even within the range of fiscal . ... .

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174 Rethinking Urban Policy possibility. These market-reinforcing policies could also be strengthened by establishing a national job information, retraining, and worker relo- cation system to help reduce barriers to the mobility of the labor force- particularly the structurally unemployed. Finally, because the future of the national economy will depend on the quality of the labor force, there is a substantial need for investments in education and training. Sectoral investments and labor mobility policies have important urban consequences, and they provide tools that are necessary for effective urban development strategy. If they work properly, they will accelerate a shift toward more modern and competitive industries and more productive jobs. This will strengthen the urban economies in which such industries and jobs are located. Policies designed to accelerate the restructuring of the economy can result in worsening the short- to mid-term economic conditions of many manufacturing and other subordinate centers as they strengthen the econ- omies of the command and control centers. Even in the latter, where much of the new growth in producer and corporate headquarters services will be located, there can be severe problems for the workers who are displaced from declining local industries and who do not find new jobs in the growing sectors of their local economies. Public policy must understand these impacts; it should be prepared to ameliorate them in the short run and reduce them in the longer run. To some extent, infrastructure investments have a double aspect. They help build a base for national economic expansion, and they can also provide an important tool for local economic development and employ- ment. Without indiscriminately supporting projects that have little long- term potential for sustaining local employment or making contributions to national growth, investments can be made in the quality of public facilities in ways that materially aid a community in stabilizing its own economy and in providing leverage to build the base required to transform itself. Financing programs can be structured, for example, to favor making full use of the existing capital stock instead of the abandonment of facilities that are still operational and their costly reproduction in new locations. Leverage capital can also be made available in a manner that encourages local initiative, flexibility, and growth in the institutional capacity needed for the long haul. The national government can make leverage capital, facilities, funds, and job training and mobility programs available, but strong local eco- nomic development institutions in individual urban areas are essential to tailor strategies to meet local conditions. In some cases, neighborhood revitalization or historic preservation may be a more salient investment than a large-scale new office complex or industrial park. In others, ren-

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Rethinking Urban Policy 175 ovation of old industrial plants or even closed public schools to provide incubator space for new businesses or to provide moderately priced housing may be the most appropriate strategy for developing a new and stable economic role. Leverage capital might be used to augment facilities and amenities and provide an attractive environment for private development, for investment as an equity partner in a project, or for acquiring a land bank for future growth. It is important that national urban policy recognize that the national interest is less in any one form of development than it is in making sure that funds and programs have high leverage and that those using them have a coherent and realistic strategy for strengthening the local economy rather than no plan beyond an isolated project or an effort to prop up an obsolete activity. A long-range commitment by the federal government and the states to equalize disparities in state and local fiscal capacity could be a most important means of smoothing the process of change. Fiscal equalization could do a great deal to reduce local and regional political resistance to economic change by making it possible for communities undergoing such changes to maintain the services they provide at reasonable levels, es- pecially at a time when their own taxable resources are in jeopardy. Such communities could then compete with others for new firms and jobs without devoting primary attention to self-aggravating processes of urban decline and to staving off municipal creditors. Fiscal equalization also furthers a national interest in promoting the decentralization of decision making and service delivery and recognizes that community integrity is an important value, deserving of consideration along with national eco- . . ^. . nomlc eirlclency. While a national job information, retraining, and relocation service can help accelerate economic transitions, many workers will choose not to move. Labor redundancy promises to be a major national problem and a crucial problem for many urban areas as the technological revolution spreads from factory floor to offices, distributive services, and even per- sonal services. A substantial cluster of national, state, and urban policies may be required: tax incentives to industries for retraining workers, leg- islation to require advance notice of major plant closings and to help support industry-employee-community councils to plan for the transition, and planning grants to communities to help them identify alternative sources of employment and to provide for adult, continuing, and vocational ed- ucation programs to retrain redundant workers. Advance warning of local structural unemployment could facilitate development of other local strat- egies, such as the creation of jobs clubs, efforts to attract other employers, and better use of transitional public employment programs. Redundancy

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176 Rethinking Urban Policy planning should reduce the period of unemployment for workers affected by structural change. It should also help the urban area prepare for the closing of an employment center and cushion the impact on the com- munities, residents, and businesses. Most of the actual investment in education and training will continue to come from state and local governments, with a growing share being provided by private employers in training and retraining their work forces. National leadership and leverage are important, however, if the quality of urban labor forces is to be improved. Identification of education and training needs, stimulation of better public education in science and math- ematics, and the development of computer skills are matters of grave national concern. Seeding local school budgets for the education of dis- advantaged children and minorities can affect the overall quality and re- silience of the labor force as it tries to adjust to change. The federal government should also continue direct responsibility for special national programs for the severely disadvantaged, such as the Job Corps. The federal government cannot create local institutions capable of man- aging transitions to new economic roles, but its policies can have consid- erable effect on the climate for them. Access to federal capital sources for infrastructure and private development, for example, can reasonably require substantial evidence of public-private cooperation in both long- term plans and specific projects without impairing local flexibility or responsibility in the design and execution of policies and strategies. RETHINKING HOW URBAN POLICY SHOULD BE MADE Federal Policy Processes The federal role can be critical without limiting local or private initiative and strategies. It should, in fact, assist and support them. If federal policy focuses on measures that accelerate economic change and growth and on selective strategies for stabilizing urban areas while they undergo change, it need not make local choices but simply set a clearer policy framework within which they can be made. Making urban policy an integral part of national economic policy is no easy task. No one bureaucratic formula can be guaranteed to work. Various techniques, in some combination, might be considered. One possibility would be for the President to direct the Council of Economic Advisers to explicitly consider urban and sectoral policies and the consequences of macroeconomic policies on sectors of the economy and on urban areas in their annual report. In addition, or as an alternative, the President's bien-

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Rethinking Urban Policy 177 nial report on urban policy might regularly be used as a vehicle for co- ordinating macroeconomic, sectoral, and urban policy. A more informal approach might also be effective, broadening the executive policy process to involve business, labor, regional, state, and urban perspectives. Other informal devices, such as the National Governors Conference and local government associations, could also be more fruitfully used. We could learn some lessons from other federal systems, such as that of West Germany, where a standing conference of state ministers provides a con- tinuous consultative mechanism with national ministries and the Bundestag for discussion of important economic policies with regional impacts. What- ever devices are used, the objective is to ensure feedback between national economic policy makers and those involved in the development of eco- nomic sectors and urban areas. Urban policy should not continue to be made in a virtual vacuum, but should be seen as the spatial component of broader economic strategy. State and Local Government and Private Sector Processes Just as the process of making urban policy at the national level must be rethought and adjusted to the new economic realities, so must that of the states, local government, the private sector, and nonprofit institutions. On the supply side, all are involved to some extent in capital investments, the quality of the labor force, and local capability for research, devel- opment, and innovation. On the demand side, they purchase products and services produced in the local economy and other areas, and their wages fuel local consumer demand. Together they also create and maintain the public environment, including the quality of services, the physical and social infrastructure, amenities, and the regulatory system. One of the first tasks of urban area strategists is to develop an intelligence function capable of systematically using information to obtain and keep a grip on local and national economic reality. Independent and reliable information, professional research capability, and linkages to similar in- stitutions in other areas are almost prerequisites for sound planning, nec- essary course corrections, and effective action. As the economy becomes more advanced, the comparative advantages of particular urban areas flow less from natural location and resources than from man-made (or enhanced) factors. This gives many urban areas more latitude than they had in the past to create their own comparative advantages. For headquarters and producer services, these advantages include cultural, recreational, and educational opportunities and the quality of public services. For almost all sectors, the quality of the local labor

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178 Rethinking Urban Policy force is a vital consideration. This again suggests a major concentration of local effort on improving education and training systems. Access to national and international transportation systems is also important to many firms, although this advantage may decline in importance as communi- cations technology advances. State participation in urban strategy is of growing significance. Only states can provide localities with the authority they need to carry out major programs of investment and development in cooperation with the private sector. States are the source of land use and acquisition powers, tax powers, and regulatory policy. They are often the principal source for financing facilities, housing, and other programs. Education, particularly higher education, is a major state responsibility. The time has come for more states to pursue aggressive urban policies, a role that only a few have thus far taken. Several initiatives seem es- pecially ripe for major state contributions. Perhaps the most obvious and important is to equalize the fiscal capacities of local units of government, whether through the reallocation of functions, revenue sharing, boundary changes, more rational tax structures, or other means. A second major state initiative could be to establish statewide infrastructure banks that could be related to a national infrastructure bank. A third role for the states might be to oversee, provide technical assistance to, and occasionally reconcile conflicts among local economic strategies to avoid unproductive interjurisdictional rivalry. State government can play a special role in smaller urban areas that lack the resources to develop their own intelligence systems and development institutions. In such cases the state may need to become directly involved in providing analysis, technical support, and capital for development. State leadership could be particularly helpful in those subordinate cen- ters in which the managers of local firms and branch headquarters lack the autonomy to provide effective leadership within the private sector. The state may be able to convince home office executives from other cities in the state to empower their branch managers to play larger roles in community affairs and may also be able to buttress the leadership of local public officials. State involvement is also necessary before there will be broad improvements in public education; the state could provide the resources needed by postsecondary community colleges, training centers, and urban universities to play more effective roles as urban institutions. The states and the federal government together can provide many of the powers and resources employed in the development process. The heaviest burden for producing specific strategies and carrying them out, however, falls on local government and other local leadership institutions in the private and independent sectors.

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Rethinking Urban Policy 179 Except in the relatively few places where the problem is largely to prevent the destruction of the area's environment and original advantages by the waste products of runaway growth, the would-be local development strategist starts from behind. Pockets of decline or abandonment already exist. In some cases the decline of traditional manufacturing firms may be pervasive. There is already a large number of redundant workers as well as a population of virtually unemployable young people. Substantial parts of the public facilities system have deteriorated. Fiscal resources are scarce and the revenue base is static or in decline due to economic con- ditions and prior political decisions. Existing patterns of law, behavior, and thought have considerable inertia, creating a civic culture (and some- times a civic vacuum) that must be changed. There is a need in every community, to use James Rouse's phrase, for an "entrepreneur in the public interest," a person or group who can visualize a more satisfying future and who serves as a catalyst for mo- bilizing resources to achieve it. This function can occasionally be per- formed by an individual, but it needs an institutional base so that a strategy of constructive change can be pursued for a long time. No formula exists for creating and sustaining this role. Persistent, stable, and active official leadership or cooperation is a critical ingredient. Extensive cooperation by corporate and community leaders is also necessary. But leadership cannot be empty of resources; mere boosterism will not suffice when an economy must be transformed in an environment of heightened compe- tition from other places. Effective leadership, then, requires clear understanding of the back- ground forces at work in the economy. It needs to know how local firms fit into their parent corporations, their industries, and regional, national, and international markets. The leadership needs to know how the area functions in the urban system, its hierarchical relationship to other areas, the reasons for existing relationships, and who its competitors for specific kinds of development may be. Urban strategists must be enabled to think globally so they can act locally. The information and ideas that shape their thinking must then be packaged and disseminated in forms that their constituents and clientele can understand in order to build a new consensus on which to base policy. Finally, the strategic information system should contain a feedback loop that monitors and evaluates the effects of decisions that have been made so that a timely basis for course corrections exists. Intelligence is not strategy; it is a precondition for it. A mechanism or process is needed for setting goals and priorities and defining the means of achieving them. Whatever form the mechanism takes, the private sector, nonprofit institutions, community groups, and universities should, at a minimum, be part of it. Strategy making involves power, consent, and

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180 Rethinking Urban Policy ideas, and it is a means of building a strong underlying consensus for any plan of action. This makes it easier to mobilize the necessary public and private resources. Private financial institutions are particularly essential in mobilizing pri- vate capital for investment to expand existing businesses and to finance new enterprises. Major industries must be involved in any system of redundancy planning, both in training dislocated workers and as part of the relocation process. Nonprofit institutions can often be used as bridges between the public and private sectors, as a means of financing or man- aging activities, such as community revitalization efforts, education, and service programs, and as development instruments. Local philanthropy may provide the financial glue needed to maintain an effective strategy- making process. As to the content of strategies, many urban areas will need to rethink their economic functions in the urban system and identify the functions they might realistically expect to perform in a restructured national econ- omy. This may lead to substantial redesign and rebuilding of some parts of the urban area so that it can attract or accommodate different activities. Design changes may improve access to jobs, services, and cultural or recreational opportunities and may help create centers of interest and activity that in themselves foster economic and social development. Not all urban areas can or should have single dominant, strong centers. Some functions may be performed better in a polynuclear form. The critical quality in this process is to avoid stereotyped thinking about what an urban area must be and instead to survey the assets and opportunities that are there and build on them. Nothing that we have discussed is more important to the resilience of an urban area than preparing and maintaining a trained labor force for an increasingly knowledge-centered economy. This demands a heavy con- centration of local resources and leadership attention on many aspects of education and training: public schools, technical and vocational training institutions, the transition from school to work, the role of public em- ployment as part of the labor force strategy, retraining programs, the system of higher education available in the area, and the relationship of the higher-education system to the labor force, research, development, . . . and Innovation. CONCENTRATING RESOURCES The Strongest Sectors At both the national level and in urban areas, it makes sense to build an economic development strategy around the strongest sectors of the

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Rethinking Urban Policy 181 economy, those that seem likely to provide growth in employment and income in the years ahead because of their ability to compete effectively in national and worldwide markets. To be sure, there will be good reasons to support some other activities because of their intrinsic value or their importance to national defense. But in an economy with scarce amounts of private and public capital to invest, the prudent course is to encourage investments to flow toward economic sectors that have some reasonable promise of a strong future. In this sense, national and local interests converge. Such investments include support of the industrial seedbeds of research and development, new business incubation, and the development of technology and processes that can be expected to generate new products and services or to increase productivity, the quality of goods and services, and the quality of working life. It also means a major investment in the training and education system, because most of these new and promising activities are more knowledge- intensive than traditional industries and occupations have been. Keeping ahead of the competition, developing new products or ways of making them, and servicing an economy dependent on knowledge requires an education system capable of exploiting the nation's intellectual capital. There seems good reason to suppose that increasing the level of knowl- edge among the labor force can be part of a self-generating growth curve, because a more competent labor force demands more interesting work and invents more things that require more knowledge to produce. With the revolution in office and factory technology, most gains in value added in products and services will be through their knowledge content rather than the final stages of their manufacture or delivery to ultimate consumers. The value of an organ transplant is not in the number of hours it takes the physician to perform the operation or in the materials used but in the knowledge represented by the technology and training that makes the operation possible. In manufacturing, there is every prospect that the direct costs of production will decline sharply as a result of using industrial robots, but the products themselves may become more valuable because of the knowledge represented in their design and the design of the systems used to make them. Given all the trends in technology, economic organization, and de- mography that we have considered, it appears that the growth of the nation's economy and the economic future of American cities and urban areas rest on accelerating the restructuring of the economy and in em- bracing a role of leadership of an advanced economy. It is in the national interest for our cities to be dominant centers of international corporations and services. Therefore, policies that promote industries, as such, need to be complemented by policies that help produce the urban environments in which the activities of an advanced economy can flourish.

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182 Rethinking Urban Policy The Least Resilient Areas This refocusing of urban development and national economic growth strategy on opportunities for market leadership does not in itself solve the problems of the urban areas that are caught in the backwash of this massive structural transformation. It is clear that pockets of severe economic dis- tress can exist in a generally prosperous nation. It is also clear that the complex social, cultural, and economic problems of the urban disadvan- taged cannot be overcome in a short time or with few resources. We have therefore suggested that resources also be concentrated on the least resilient urban areas in an effort to improve their capacities for adjustment and to accelerate their progress into the mainstream of an advanced economy. Those areas that are already considerably advanced and have begun to demonstrate that their growth is somewhat self-propelling already have a head start. In many cases, capital is available to them to help bring about their own transformation. There is less need for public leverage, and its impact is more marginal. They also need less external assistance. Within their own strategies, however, they too should divide their attention be- tween those sectors that are strongest and on which they must build their future economies and the workers and neighborhoods that are least resilient in making the adjustment. Particularly in the older manufacturing cities, there is a need for external support to help develop a higher degree of economic autonomy, institu- tional capacity for managing the transition, and bargaining power for investment capital. It is here that redundancy planning is most needed because the economies tend to be so narrowly based. Making it possible for some communities to reduce their size, close down some underused infrastructure, and reorient their resources requires more than exhortation and goodwill. Ultimately, labor forces must be retrained, education sys- tems vastly improved, parts of the capital stock replaced, and sections of the city rebuilt or renovated to perform new functions. The purpose of concentrating resources on such cities is to make the transition they must undergo smoother and to empower them and their residents to have more choice about their future. CONCLUSION As powerful as the forces reshaping the economy are, their results for specific urban areas are not predetermined. It is impossible to freeze our urban areas in time, to preserve them as they were, but there is considerable latitude for transforming them into livable places that perform important functions. While natural forces still limit economic choices to some extent,

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Rethinking Urban Policy the same forces that have made capital so mobile and have increased the importance of human resources also make it possible for cities to have greater choice in what kinds of places they will become. Local and national economies are inextricably linked to each other. Consequently, national policy must be much more cognizant of its geo- graphic consequences and national urban policy must be integrated into national economic policy so that it can provide a perspective that is now largely missing. As the service occupations increasingly dominate em- ployment and as the changing nature of work demands that more people be trained better than ever before, the nation can ill afford urban areas that lag far behind others. The idea that one area can benefit only if others suffer should be rejected as a basis for public policy. Such a zero-sum policy contemplates a long period of waste for human and physical re- sources in competition that does little to support overall national growth. 183