9 Industrial Recruitment

Case Scenario: ABC’s bargaining 255

Introduction 257

Cluster Theory 258

Political Context of Local Economic Development 262

Industrial Recruitment 271

The Factors Determining the Bargaining Positions of Business 271

How Government Should Protect the Public Interest 276

The Strategies that Business Can Use to Increase Its Success in Bargaining with Government 278

Analytical Case: Winter Park 279

Practical Skill: Investigate the bargaining used by your city or county 280

Summary and Conclusion 280

CHAPTER CONTENTS

CASE 9 SCENARIO

ABC’s bargaining Previously we learned that Zach’s father Zeddic, CEO of Acme Bottling (Chapter 2), was considering moving the company, a large operation of 800 employees. His profit margin was becoming too squeezed for things to remain as they were, and any technical improvements, including shedding some employees, would not be sufficient for the profitability he wanted to achieve. When he approached the city administration about getting a rent reduction, he was graciously brushed aside with the argument that his rent was already low, given the prime location and the upgrades the city had provided in the past. By negotiating with a city that was trying to lure his company, his financial analysis discovered that he could reduce production costs by an enormous amount—a figure approaching 20 percent. Zeddic knew the first logical step was to discuss the decision to move with the board, which was keen on increasing profitability.

Still, Zeddic had not anticipated the torrent of reactions that he had gotten in the press, ranging from anger in the community, to a sense of betrayal from his family, whom he had not yet consulted and who would also need to relocate. In hindsight, Zeddic now realizes his focus on financial matters had led him to ignore political and community realities. However, he is now trying to rectify the situation. Initially, everyone in Somewhere blamed Zeddic for threatening to abandon the city that they felt had nurtured and helped launch his successful company. Zeddic has his work cut out for him. He needs to change that perception to one in which Somewhere has, over time, come to neglect his company. And he needs to show that the neglect will have to change—and quickly—if the company is not to move.

Using talking points from a report he prepared, he points out the following issues:

• The rent the company pays in the city-owned industrial park has doubled. The company is now too large to be in that industrial park, and cannot afford to make changes to infrastructure on a property it does not own.

• The city has given three- to five-year tax abatements to most substantial start- ups. ABC has never gotten a tax abatement.

• Several new companies were sold city land at a price far below market value. The appearance is that his industry is no longer a priority for the city, and relocating the company to a more hospitable town only makes sense, as matters currently stand.

The Mayor set up a special meeting with Zeddic. His team suggests the rent can be reduced by 50 percent. Zeddic thanks the Mayor and his team, but points out that the company really needs the security of owning its land and that the other city’s offer is still financially more attractive. Meanwhile, Zeddic also meets with the people trying to recruit his company, and explains why there must be a delay in the negotiations. He is surprised when they offer to provide a 10-year lease-to-own contract at the same cost.

Going back to the City of Somewhere, Zeddic tells them he will only stay if the contract is converted to a lease-to-own. His city is initially shocked at the demand; however, the Mayor and all but one member of the council agree to change the contract to a five-year lease-to-own at the same lower rate. Knowing that Zeddic is serious, they also offer to provide a five-year tax abatement on the land after transfer, an extremely low tax rate after expiration of the tax abatement, and to make appropriate changes in the industrial park to make it self-sufficient. The city, it appears, does indeed want to keep the company right where it is, and understands the ramifications of losing a large employer.

Zeddic and his board agree to remain in the City of Somewhere. Zeddic calls his wife Zelda to tell her that she doesn’t have to worry about leaving her teaching job, or moving the kids to a new school district. Zelda is thrilled and calls Zach on his lunch break. Zach thinks about calling Zoey, but he has a better idea. He jumps in his car and drives over to Splurge Jewelry.

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Industrial Recruitment 257

Introduction

Macroeconomic theories such as classical economics (Ricardo 1817; Smith 1776)

and neoclassical economics (Friedman 1953; Veblen 1900) describe and prescribe

how overall global economies work. They do not describe how countries or regions should be successful, other than to be efficient in production and strategic

about comparative advantage. Early mercantile economics in sixteenth- and

seventeenth-century Europe, neo-mercantile economics (state corporatist economics

particularly prom inent in rapidly expanding Asian countries), and demand-side

economics (Keynes 1936) describe how countries can try to foster better conditions for their competitive advantage. Strategies here usually involve national-level tariff

policy, tax policies favoring specific industries, government acting as a counter-

cyclical economic stabili zer, governments insuring that the elements for comparative

and strategic advantage like transportation, infrastructure, and education are present,

and so on. Theory at this level provides insight into the pros and cons of using broad,

and rather blunt, instruments to reduce the radical spikes in the economic cycle or

to modestly adjust the competitive playing field while trying not to excessively

warp free market conditions to appease local special interests or cause international

retaliation.

Location theory, what is now commonly called cluster theory (Porter 1990), and municipal-level entrepreneurialism move that discussion of competitiveness to the

regional and local level. Cluster theory is the focus of this chapter; municipal entrepreneurialism is the focus of the next. See Exhibit 9.1 for an illustration of the

differing economic theoretical thrusts.

The focus of various economic theories

Level of Focus Economic Theories that Address the Focus

Global • Classical economics

• Neoclassical economics (supply side)

• Marxist economics

Country • Mercantile economics

• Neo-mercantile economics (state corporatism)

• Demand-side economics (Keynesian)

• Dependency theory economics

Regional • Cluster (location) economics

• Municipal entrepreneurism

EXHIBIT 9.1

Cluster Theory

As stated earlier, clusters are geographic concentrations of interconnected com - panies, specialized suppliers, firms in related industries, and associated institutions in a particular field that compete but also cooperate. Geographic concentration means that these clusters have physical proximity. Interconnected means that there is an important synergy among groups such that the whole is more than the parts. In clusters everyone cooperates, even those competing for the same customer base, because of the incentive to entice a greater market share for the region or area, and because resources are better when shared. Porter’s theory (1998) repre sented a new way of thinking about location, basing linkages and complementarities across industries and institutions, and escaping more rigid industrial or political classifi cation systems.

Clusters affect competition in three broad ways. First, clusters increase the productivity of companies in the area. They draw more customers to the area. People know that a street, neighborhood, city, or region has a concentration of good products at competitive prices. Four or five locally owned restaurants in a tourist town may do better than isolated restaurants because of the street’s reputation for food and choice. Clusters force companies to offer either high-quality, low-cost, or specialized products/services because of the compactness of competition. They must know their comparative advantage to other nearby companies or go out of business. Think of how new- and used-car dealers frequently co-locate, so that many people simply go the area, and visit two or more dealerships simultaneously.

Second, clusters drive the direction and pace of innovation, which underpins future productive growth. In clusters, competitors are always looking for an edge that leads to innovation. Because of proximity in clusters, new ideas are quickly transferred (copied) and refined or reinvented, leading to further innovation. The fashion industry (e.g., Milan, New York, Paris, Rome, London, and Los Angeles) is known and notorious for this process, as witnessed by the “creative theft” from high-end couture to rack designers, and the evolving decision of a “season color” by the fashion elite.

Third, clusters stimulate the formation of new business, which expands and strengthens the cluster itself. Because of the reputation and vitality of clusters, they tend to draw in not only more customers, but also new businesses. Of course occasionally companies go out of business for various reasons (often including higher rents), but this merely opens up opportunities for new businesses. Some new businesses may not even be in competition with others in the current cluster because they bring new supplies into the area, or will bring a related but different product to the array than is currently offered.

Let’s use a wine-growing region as a specific example. Wineries tend to co-locate. Suppliers become local to provide equipment such as bottles, barrels, corks, labels, grape stock, and technology. Local governments and educational institutions tend to find ways to support the success of the cluster. Tourists flock to the area for wine tastings in relatively close proximity, bulk purchasers come to find vintages suit- able to their needs, and local restaurants flourish, specializing in wine selections.

258 Business–Government Relations in Economic Development

Industrial Recruitment 259

In California, there are five major regions, but the wine growers inevitably tend to co-locate their official wineries in specific cities or towns. Exhibit 9.2 shows us where these clusters generally occur.

So why do clusters work? There are any number of reasons, including:

• Clusters bring together a pool of resources—workers, suppliers, related services—that provide depth, security, and choices/diversity.

• Locality enhances cooperation, since most cluster participants are not direct competitors but rather serve different segments of industries.

• They provide local competition that gives fast feedback on innovations, trends, price, and quality.

• Ironically, entry into a cluster is initially easier because

– there is great demand for new workers and new ideas – clusters facilitate niche specialization that cannot normally be sustained

outside of clusters.

• Clusters bring together sophisticated local customers who know the state of the art and give tough feedback that provides the opportunity to become best- in-class.

Wine clusters in California

EXHIBIT 9.2

Grape stock

Fertilizer, pesticides, herbicides

Grape harvesting equipment

Irrigation technology

California agricultural cluster

Wine-making equipment

Barrels

Bottles

Caps and corks

Labels

Public relations and advertising

Specialized publications

Tourism cluster

Food and restaurant cluster

State government agencies

Educational, research, and trade

organizations

Growers and

vineyards

Wineries and

processing facilities

Source: Adapted from Porter 1998.

This means that clusters tend to be very valuable to the areas that have them. They

stimulate the economy with natural diversification. Clusters are not a single company

or industry but a group of organizations that have a synergy and a related set of

products. They provide renown. Clusters are very good at what they do and get

positive reputations. They provide local wealth, and with more local ownership,

more money stays in the community. Generally, clusters provide more high-paying

jobs. Because they tend to be at the productivity frontier and doing large volume,

clusters customarily can afford to pay for the best workers.

Based on these factors, economists have been able to determine clusters

mathematically (Mayer 2005), with average wages 10 percent higher than the

national average and a higher growth rate as well. The formation is:

• Location quotient > 1.25

ei /e LQ = –––

Ei /E

where

ei = local employment in industry i e = total local employment Ei = national employment in industry i E = total national employment (if the LQ > 1, the local share of employment

in a particular industry exceeds the national share of employment in the

same industry → locally the industry is more concentrated)

• Average wages at least 10 percent above national average

• Growth rate > national growth rate.

What is the role of the government in cluster development? A major role is

“facilitating cluster development and upgrading” because of the increases in

productivity and salary (Porter 1990). “Governments should reinforce and build

on established and emerging clusters rather than attempt to create entirely new ones.”

Government should help all firms, generally. However, government must not

attempt to set policies that help individual firms, distorting the market (in line with

macroeconomic principles). Therefore, government should promote competition

and invite distant/foreign partners. To do its part, government can:

• Remove obstacles, relax constraints

• Support resources such as necessary infrastructure

• Support human capital development such as education and training programs

• Assist export promotion

• Encourage local R&D efforts

• Sponsor forums to bring cluster participants together

• Encourage industrial parks

• Sponsor independent testing or certification if it is useful.

260 Business–Government Relations in Economic Development

Industrial Recruitment 261

So from a practical perspective, location does matter, both to external investors and local stakeholders. From the external perspective, investors want to consider the mix of factors as they consider the comparative advantages of different areas. From a local perspective, areas must ensure that they have enhanced local or regional factors if they want to be competitive. These factors include many in which govern - ment plays a huge role, from general and specialized educational programs, to infrastructure, quality of life, and so on. Those areas that are particularly successful

EXHIBIT 9.3

Silicon Valley and its roots in community and the government

The original Silicon Valley area is just south of San Francisco, encompassing the Santa Clara Valley and cities such as San Jose, Cupertino, Los Altos, Palo Alto, Santa Clara, and Sunnyvale. Today, Silicon Valley is considered to encompass San Francisco, Santa Cruz, and parts of Alameda, and it includes the highest concentration of billionaires in the world. The list of tech companies that have primary and secondary offices in this cluster reads like a who’s who: Adobe Systems, Apple, Cisco, eBay, Facebook, Google, Hewlett-Packard, Intel, National Semiconductor, NetApp, Netflix, Oracle, and Yahoo! Over 4,000 IT-related firms are found along Highway 101 from San Jose to San Francisco, and this number jumps considerably when neighboring counties are included. It accounts for one third of all the venture capital in the US. The cluster includes both hardware and software invention, Internet utilization research, semi - conductors, high-end IT manufacturing, and military research. A quarter million well-paid IT workers support this cluster. Innumerable specialized industries also support this area, such as legal firms, which are the best in the world at IT copyright, infringement, and licensing. This cluster has been so successful that its name—Silicon Valley—has become synonymous with the concept of a high-tech area.

How did this cluster evolve, in an area that was agricultural at the end of World War II? The single most important factor was the massive role played by Stanford University. First, Stanford’s leadership was aggressive in fostering its students to found companies such as Hewlett-Packard and Litton Industries in the 1940s and 1950s. The second step was Stanford’s industrial park, created in 1951, which housed the likes of Eastman Kodak, General Electric, Lockheed, Hewlett-Packard, and Varian Associates. Stanford University supplied world-class engineers as well as helped to solicit enormous amounts of venture capital as the area was beginning to take off. Government funding was tremendously important in the early years for the basic research that it subsidized. Government also promoted innovation by creating an almost complete ban on non-compete clauses in employment agreements, which helped foster start-ups.

will have one or more major regional cluster of industries that will provide a

competitive advantage leading to a good reputation, higher salaries, and economic

dynamism. Our final example in this respect is Silicon Valley in Exhibit 9.3.

Next, we need to consider two important aspects that business people must be

knowledgeable about when considering investing and expansion decisions. First,

what is the political context of local economic development, and second, what are

the concrete bargaining positions that are likely to have the most leverage?

Political Context of Local Economic Development

While growth is largely popular in the US, it is a mistake to think that types of

growth or interest in growth is unchanging; quite the contrary is true. Neighbor -

hoods, cities, and entire regions take on very different macro-level perceptions

about the nature of growth that is good. Local preferences can range from “any

growth at any cost,” all the way to “fighting all growth at any cost.” Even when

growth is considered desirable, the reasons may lead to very different variations.

This section looks at three models of growth. The first is the pro-growth model, which is strongly in favor of economic development. The second is the slow- and no-growth model. It emphasizes the problems associated with growth. The final model is the smart growth, which seeks to find a sensible balance between the pro- and anti-growth adherents through good planning, and awareness of community interests and environmental interests. While individuals within an area may have differing views, here we focus on the community consensus, which becomes

embedded in local codes, ordinances, economic development strategies, and

public relations.

Pro-Growth Model

Local economic development through growth (here thought of as land improve -

ments) has many benefits. It potentially brings an inflow of capital and resources,

job growth, quality-of-life improvements, and opportunities to build community

infrastructure. It can also be used to fight urban and rural decay or simply to bring

back areas to their former glory, aka gentrification.

A pro-growth model is a coalition interested in the development and re develop -

ment of land. Undeveloped (unused or raw) land in the pro-growth model

should be developed for highest present value, and land for redevelopment is

often brought together with government financial subsidies and, if necessary, power

(i.e., eminent domain). Pro-growth, therefore, is interested in raising the aggregate

value of land by increasing the overall development of land or the intensification

of its use. Land intensification means converting farm and open space to residential

and commercial, or lower-class-housing high rises or “high-class” commercial.

Growth can occur in many ways. In cities and towns it may be by in-fill projects

that have not previously been improved, adding suburban or exurban housing/

commercial areas at the edge of cities, or redeveloping land already in use for

residential, commercial, or manufacturing purposes. In rural areas, growth may

262 Business–Government Relations in Economic Development

be new tracts of housing, industrial complexes or parks, building up commerce

along major roads (arterials), or redeveloping rundown areas for new use.

A special but important class of cases related to pro-growth as redevelopment is

to reduce “blight.” There are many aspects to blight including:

• A concentration of buildings that are in serious decay or unsafe and that often

have serious building code violations

• Poor real estate values, high vacancy rates, and numerous abandoned buildings

and lots

• Land-use patterns that reduce incentives for renovations or new development

because of an excess of bars, liquor stores, or other businesses that cater

exclusively to adults, and that tend to encourage public safety problems

• Absence of neighborhood grocery stores and businesses that support residents

• High crime rates, and/or

• Residential overcrowding.

While the role of government is relatively important in economic development, in

the case of blighted areas, it is essential because of the need for community support,

land acquisition, subsidies, and zoning changes.

The composition of pro-growth adherents is usually made up of land developers,

investors, residents interested in increased land values for their homes or with

public flagship projects nearby, and local governments interested in greater property

and sales taxes. The underlying philosophy, therefore, is very much in line with

commercial capitalism. The power base of the growth model tends to be wealthy

developers and those with community connections, those underwriting political

candidates, and those with public visibility who speak of the future as growth

oriented.

When there is a powerful and successful pro-growth group that dominates the

policy, administrative, and business agendas, it is often called a “growth machine.”

A true growth machine includes:

• Large public entrepreneurs connected to the community

• A generally supportive public, and

• A strong support base in government (especially the city council or board of

supervisors).

For example, in a city, the growth machine may be a coalition of local businesses

wanting expanded population, land developers seeking business opportunities, and

a majority of the city council. Those players come together to pursue an agenda of

urban growth and intensification of land use. When cities are experiencing rapid

growth over a sustained period of time, especially during economic expansions, it

is inevitably because of the presence of a growth machine. In fact, as we shall discuss

in the next model, it is concern that the growth machine is focusing on short-term

profits and tax revenues, rather than sustainability or adequate planning for economic

slowdowns or recessions, that leads to substantial critique. Rapid and relatively

Industrial Recruitment 263

unrestrained growth is called the “boom model.” A balanced economic development model focuses on following comprehensive plans, restraining zoning ordinances for all but the most well-considered cases, and ensuring that infrastructure and other costs are fully included in the planning approval process. Indeed, in an ideal world, cities and counties would be counter-cyclical in their restrictions and fees, increasing them in the good times to restrain growth and relaxing them in bad times to encourage it. However, political and economic realities make this nearly impossible to achieve.

A Slow- and No-Growth Model

The slow-growth model is supported by coalitions of groups interested in slowing or stopping various types of development because the effects of fast growth are considered too negative. Negative effects of growth can include sprawl, traffic congestion, environmental degradation, insufficient infrastructure, excessive cost shifting to current taxpayers for development projects, and degradation of existing communities by downgrading current use, among others. The boom model of growth is particularly worrying to slow-growth advocates, who often believe in a “small is beautiful” philosophy and question unrestrained growth on ideological as well as pragmatic grounds (Schumacher 1973). At a local level, they are concerned that the growth frenzy of boom development will overwhelm government’s capacity to regulate and monitor bad effects, ruin quality of life because of loss of open space, and that local business will be squeezed out by corporate interests in the rush to develop. At a grander level, they argue that the limits of healthy growth in the world and the United States have already been exceeded (e.g., today in the US, there are about 310 million people, which is expected to increase to 440 million by 2050).

Sprawl, broadly defined, refers to the lax use of land. In this sense it is “the process in which the spread of development across the landscape far outpaces population growth” (Ewing, Pendall, and Chen 2002). The National Trust for Historic Preservation calls sprawl “poorly planned, low-density, auto-oriented development that spreads out from the center communities.” A more technical and operationalized definition is that sprawl creates a pattern of land use in an urban area that exhibits low levels of some combination of eight distinct dimensions of land use—density, continuity, concentration, clustering, centrality, nuclearity, mixed use, and proximity (Cutsinger and Galster 2006). Traditional urban sprawl, which spreads out from the city center, is one of the most common, but it is not the only type; there is also low-density sprawl, commercial strip sprawl, and scatter (aka leapfrog) sprawl, seen in Exhibit 9.4 below.

Sprawl is also used as the umbrella term for a wide number of negative effects related to poor planning and careless regulation. Some of those side effects are more cars, less public transit, more traffic fatalities, poor air quality, aesthetic ugliness and strip malls, duplication of infrastructure which leads to lack of sustainability, environmental degradation, and cost shifting of development to current taxpayers. In the United States, the search for the “American Dream” came to be defined in the 1950s as living in the suburbs. People would commute to the city for work, and drive to the grocery store, cleaners, department store, dentist, and schools in separate

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Industrial Recruitment 265

trips by car. However, soon the commute times became very long, pollution caused by cars became an enormous health and aesthetic problem, and the many inner suburbs deteriorated. Exhibit 9.5 illustrates some of the negative results of sprawl.

Sprawling development is extremely costly to maintain from a public sector perspective because of the extensive per person upkeep of roads, water, sewers, other utilities, and services requiring rapid response times (police, medical). Additionally, small and less affluent families may find the upkeep of sprawling suburban homes costly, beyond their means and energy.

The no-growth model is a specialized case which is created by a coalition interested in stopping all growth to the degree possible. No-growth models tend to be promulgated in fully built-out areas, especially when they are historical districts

EXHIBIT 9.4

Source: Wikimedia Commons.

Traditional urban sprawl: LA

Source: Wikimedia Commons.

Low-density sprawl

Source: Wikimedia Commons.

Commercial strip sprawl

Source: Wikimedia Commons.

Scattered sprawl

and areas undergoing gentrification, in which modern and mass structures are

not wanted. Although not common in the US, there is also tremendous interest in

preserving agricultural and open space in Europe and Japan where there is a greater

sense of the community’s right to preserve land use for future generations. While

fertile agricultural land in the US (Exhibit 9.6) has suffered enormous losses, the

preservation of land for uniqueness and open space through federal, state, and

municipal parks, monuments, forests, and wetlands has been extensive since started

by President Grant (with Yellowstone) and popularized by President Teddy

Roosevelt. The preservation has been far more extensive in the Midwest and

Western United States.

266 Business–Government Relations in Economic Development

EXHIBIT 9.5

Source: Wikimedia Commons.

Smog problem in Los Angeles

Source: Wikimedia Commons.

Example of modern traffic congestion

Source: Wikimedia Commons.

Ghettoization of inner suburbs

Industrial Recruitment 267

Loss of agricultural land over 25 years in the US: Dark grey = over 1 million acres lost

EXHIBIT 9.6

Source: Compiled by the Farmland Information Center using estimates from USDA NRCS, 2007 National Resources Inventory.

Example of Extensive Open Space Preservation in the Western US

California’s National and State Parks

• 118 state parks • 8 state forests • 9 state recreation areas • 11 state wildlife areas • 5 state historic sites • 1 state nature preserve • 11 state reserves • 9 state fish hatcheries • 9 national parks • 19 national forests • 3 national historic sites • 1 national seashore • 31 national wildlife refuges.

Every state lost agricultural land.

am .fagngndmmi land i i i i i i ~ ~ d to drwbprd b n d - 1

million m lesthan 2.9 milliii - I IDD,OO~ m lea than I million .,. ...... "

I(o,ooo m lsr thanloo,ooo " ~oo,ooo to lss than qo,ooo I ro.ooo to la$ than roo,ooa

I Education

The composition of slow-growth coalitions is made up of:

• Residents who fear that their area will be neglected, degraded, or are offended by the “ugliness factor” or excessive arterial commercial strip development

• Commercial interest groups who feel that the new growth will unfairly compete with local businesses, especially those worried about the vitality of town and small city centers

• Environmentalists who fear the loss of farmland, open spaces, wildlife preserves, natural ecosystems, and land-air-water degradation by profligate land use

• Taxpayers who feel that excessive or inefficient subsidies are being used to support development, or that public entities will bear excessive costs over time

• Local governments whose land is all largely in use and whose values are already relatively high.

The base for slow growth, then, becomes concerned voters/taxpayers, passionate rather than commercial leaders, and activist community associations (e.g., neigh - borhood associations). Zoning becomes highly restricted, building and renovation guidelines are detailed and demanding, community input into new development is upheld, and development fees are high. While this applies to a lot of upper-middle- class communities that are largely built out, it is nearly ubiquitous in exclusive cities like Beverly Hills, CA, Lake Forest, IL, Darien, CT, Saratoga, CA, Mercer Island, WA, Naples, FL, and Brookline, MA.

It should also be noted that the lines of pro growth, slow growth, and no growth are not always clear. For example, hypothetically, we can imagine an urban advocate who represents a poor neighborhood that needs jobs and wants to encourage businesses to relocate downtown and who generally takes a pro-growth position. However, when the advocate learns of a stadium project that would demolish part of the neighborhood, sporadically increase congestion, and bring few jobs, he might become vehemently slow growth. Or coming from the other end of the financial spectrum, a wealthy developer may spend an enormous amount of money and time getting land rezoned from open space to residential, and getting zoning variances to allow high rises and commercial exemptions downtown. However, when a high-rise condominium complex is proposed in his extremely affluent residential community, the developer may become outraged and personally appear at the planning board meeting (where he is well known) to oppose the development project.

Smart Growth: A Rational Compromise?

Smart growth is a public–private approach to managing growth, which emphasizes growth through careful planning. It promotes a balance among the profit of individuals, community goals, and social equity such as environmental concerns— as well as long-term sustainability. It emphasizes special growth patterns, including substantial amounts of high-density, mixed/integrated use, and transportation fluidity. A definition of smart growth is “an urban planning and transportation theory that concentrates growth in the center of a city to avoid urban sprawl; and advocates

268 Business–Government Relations in Economic Development

Industrial Recruitment 269

compact, transit-oriented, walkable, bicycle-friendly land use, including mixed-use development with a range of housing choices” (Daniels 2001) (Exhibit 9.6). It has been followed in Europe for many decades and is considered to have been largely, and often spectacularly, successful in that context (EU Commission 2010).

The record for smart growth in the US has been more mixed with the challenges of getting Americans to adopt smaller cars, adopt urban centers with greater density to support better public transit utilization, and use more bikes, among other measures.

The recommended practices of smart growth include:

• High-density, mixed land use • Strong use of planning with clustered development and protection of agricultural

and open space (such as the use of “urban growth boundaries”) • Full costing and implementation of infrastructure at beginning of construction • Integration of affordable housing and social equity concerns • Traffic grids allowing for alternative routes • More emphasis on non-automotive means including pedestrian walkways and

bike paths • Narrower streets.

About two thirds of the states either have legislation in place or have a strong coalition that encourages municipalities to adopt smart growth at their level. An example is California, which has sought to strengthen planning. First, in 1963, it

Typical bike garage in a downtown European city

EXHIBIT 9.7

Source: Wikimedia Commons.

created the Local Agency Formation Commission (LAFCO) to oversee city

incorporations, annexations, and creation of special districts. A part of this was the

requirement for comprehensive planning by established cities. The Cortese–Knox

Local Government Reorganization Act of 1985 consolidated three separate local

government statutes governing growth issues to rationalize and coordinate them.

This was strengthened in 2000 by the Cortese–Knox–Hertzberg Local Government

Reorganization Act which required counties to consult with affected cities prior to

approving any development or land-use change within a sphere of influence.

Currently, the State’s Commission for Local Governance for the 21st Century sets

out five principles for California’s growth, including:

• The requirement for regional perspectives

• The requirement for greater efficiency of land use

• Greater public investment

• Fiscal reform

• Adherence to equity considerations.

An example of an Eastern state that encourages smart growth is Maryland, which

in 1997 passed the Neighborhood Conservation and Smart Growth Act. The

principles of that Act were:

• To limit low density development and strip malls

• To encourage pedestrian and bike paths as well as transit ridership

• Stronger regional planning with state review

• A job creation tax credit for priority areas

• Subsidies for workers in older neighborhoods.

Smart growth is not without its critics. Smart growth as a strategy urges a compact

city and reduction of dependency on the automobile. Since Americans love their

space and cars, the immediate reaction has often been negative. At the extremes,

between large cities with massive sprawl and more compact cities, the more compact

cities have largely been proven to reduce travel distances, commute times, pollution,

and other negative effects, as well as provide more alternatives (Newman and

Kenworthy 1989). However, in the middle and smaller range, the data have been

less conclusive because public transit may be less practical and intensive. Critics

also argue that where space is available, as it is on a relative basis in the US

compared to Europe and eastern Asia, why not use it? Further, critics argue that

the market is a better regulator than planning experts. They also assert that the

argument that sprawl creates greater public expense in the long-term for munici -

palities is largely a myth (Cox and Utt 2004). Thus, while poor or absence of

planning certainly leads to problems within several decades, the formula for what

is good planning is far from exact. Smart growth has worked well in some American

settings, but not in all. However, it has provided a useful alternative to the “big is

beautiful” perspective, which has allowed for a more careful analysis of options,

rather than just building more freeways and noise walls.

270 Business–Government Relations in Economic Development

Industrial Recruitment

Industrial recruitment is a locational approach by which governments subsidize businesses to lure more investment into their jurisdictions or to prevent indigenous firms from leaving. This approach focuses on creating locational incentives for both existing and enteral enterprises by lowering their production factor costs. Under this approach, government uses various economic development tools, including tax and financial incentives as well as land use and public infrastructure improvement, to encourage private investment, expecting that public subsidies on the capital and operating costs of private firms will produce sufficient economic growth to offset the expenditures.

The strategy is often understood as a product of competitive federalism, which assumes that the diversity of services offered by state and local governments creates a market for public goods. The use of industrial recruitment always results in competition among state and local governments.

Industrial recruitment is generally a case-by-case approach, by which government negotiates with individual firms about the incentive programs in order to attract them from outside or to prevent them from leaving their jurisdictions. The programs offered by government may vary case by case, based on a series of economic, political, and institutional conditions. Both government and business can leverage their resources to enhance their bargaining position in a recruitment negotiation.

The Factors Determining the Bargaining Positions of Business

Government sets up standard business conditions through laws and ordinances and by implementing up taxing, zoning, and service provision procedures that apply across the board to all businesses. But what if business wants “special” conditions and has a lot to offer a governmental area? For example, what does a state, city, and/or county do if the issue is the location of a new headquarters (high-paying jobs), factory (jobs, taxes in future), stores (especially Big Box stores for sales tax revenue), or sports stadium (providing national recognition, tourism)? For prized commercial enterprises, business frequently sets up competition among state and/or local governments who, in turn, offer special packages. Let’s look at reasons why government may be interested in such opportunities.

Although government tries to deal with all business in the same general way, when larger commercial ventures arise, there are strong reasons to adjust local requirements. The standard reasons include: new jobs (of any kind), high-quality jobs, a broader tax base, a particular profile of business that fits into the community’s current or desired profile, and/or positive public relations.

For its part, what business hopes to achieve are one or more of the following goals:

• Free land or cheap land • Multi-year tax breaks • Various types of direct and indirect cash outlays, including governmental

investments, loan guarantees, subsidized loans, etc.

Industrial Recruitment 271

• Zoning variances (e.g., from height and architectural requirements)

• Assistance with land assembly

• Costly infrastructure improvements such as sewer and lighting to the curb or

building, road alterations (installation of stop lights, sidewalks, lighting,

landscaping), and special services provided, such as education.

Ultimately, there are three major factors that affect the bargaining relationship and

the amount of leverage that a business has: the market conditions, the political conditions, and the planning system (Kantor and Savitch 1993). Market conditions involve the circumstances or forces that make cities more or less appealing to private

investors in terms of demand for land, location, amenities, etc. The political

conditions are the party and citizen activism through which public sector decisions

affect development; that is, what is the ability of business to influence government

policy through political rather than economic means? Finally, there is the planning

system that determines the degree to which various governments work in concert

with one another when bargaining with business.

Market Conditions

A variety of factors give business a stronger hand in bargaining when market

conditions are right. One of the most important is the level of need, and sometimes

desperation, of the local government for the jobs and tax revenues of a potential

business enterprise. This may be because the area is attractive to the enterprise but

the jurisdiction is not economically diversified or that the area has liabilities due to

its location, workforce, or infrastructure. A second favorable factor for business is

when its capital and/or resources are moveable and flexible, and not tied to a

particular location. Finally, business also has an advantage when there are other

highly attractive locations for the business to consider. For example, a company

with a lot of jobs that is struggling in the market may have leverage because of the

fear of job loss to a city or location if the company has the profile that another

jurisdiction is looking for.

The contrary conditions are poor for business. When a jurisdiction is well off, it

has far less incentive to accommodate business. For example, communities that are

considered to be fashionable addresses are less likely to bargain. When companies

already have sunk costs into the area, they are less likely to be given new advantages,

unless the case for expansion or relocation is extremely strong. The threat to move

a manufacturing plant that is doing well is difficult to sustain. Finally, when a

business needs to be located in a certain jurisdiction to get to its customers, business

has considerably less latitude to negotiate or expect special considerations.

Political Conditions

Political conditions can have a large impact on the willingness of government to

bargain and the leverage of business to take advantage of such opportunities.

When voters are not paying attention, business has more opportunity to strike deals

272 Business–Government Relations in Economic Development

with politicians and administrators. This may lead to a healthy opportunity for

entrepreneurialism, or it may lead to reduced thoroughness or even graft, but the

result nonetheless gives business a smaller group to satisfy. Thus, low party

competition is good for business, no matter the party in power. Also, outright

citizen apathy leaves business freer to strike favorable deals. Sometimes voters are

more aware, but public opinion is strongly in favor of business inducements to

particular industries such as a sports stadium, or voters simply perceive the need

for jobs as paramount because of recessionary conditions.

Political conditions become negative when there is an active citizen base

that scrutinizes all government deals, even those deals that may seem advantageous

at first glance. Also, when there is a lot of political competition between parties,

or among local candidates, bargains with business may be heavily scrutinized for

competitive political advantage. Being on record as supporting a set of business

accommodations may come back to haunt a politician when the project stalls,

goes over budget, a scandal emerges, or the company fails. In other cases, politicians

and administrators may be hungry for the tax revenues that a business would bring

in, but may also be wary because the business is considered a low-wage provider

that sends its profits outside the community, ultimately hurting locally owned

businesses.

Planning System

A business’s leverage is much enhanced when government is not tightly organized.

In the US, which has a federal system, local governments have a good deal of

autonomy, and that creates considerable zoning variation as well as a lot of com -

petition among jurisdictions. In many cases, businesses can play local governments

off one another to increase their advantage. For example, if a developer has

two good locations for a new shopping center that are close to the border of two

adjacent cities, the developer will have enormous leverage in procuring tax

abatements, zoning variances, and the like. In Europe, where unitary states pre -

dominate, such leverage is minimal because laws and rules are national or

regional. Another important factor is the strength of the planning culture. Densely

populated and relatively affluent areas tend to have far more comprehensive and

strict zoning ordinances (strong planning cultures) than do loosely populated

and less affluent areas.

Under certain conditions, the planning system can be made more robust and

less advantageous to business for bargaining. When states pass statewide plan-

ning regulations, it reduces the maneuverability of business somewhat. When

cities incorp orate adjacent land and expand their borders, they have less likelihood

of small-scale competitive bidding. When responses to major site locations are

handled by a central body such as a regional council of government, the likelihood

of a rea soned bid is stronger. States can also pass anti-poaching laws, making it

more difficult for companies to locate close by primarily to gain governmental

concessions.

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Example of Bargaining Success

Riverside, CA is a city by the Santa Ana River that realized its initial fortune with the creation of the orange industry in the 1870s. During that time, a fine hotel was built and eventually renamed the Mission Inn in 1903, the same year President Theodore Roosevelt stayed there. Over the years, 10 presidents have stayed at the hotel, which was under nearly constant expansion from the turn of the century until the death of the original owner, Frank Miller, in 1935. The eccentric hotelier embedded a 500-year-old church into the building, vast thematic courtyards, one of the best bell collections in the world, and other world-class features including turrets, flying buttresses, Tiffany stained-glass windows, and catacombs. However, by the time of Miller’s death, the facility was already starting to see some decline as the Great Depression settled in. It was sold by the family in 1956.

To prevent its further decline, the hotel was purchased by the Riverside Redevelopment Agency in 1976, a time at which there was even talk of tearing down the building. It was converted to apartments and eventually student housing for a while. In 1985, the city worked with a developer to renovate-to-own the National Historic Property. The $30 million project bankrupted the developer when the bank refused to extend the loan, so the property stayed with the city and the bank. After a series of attempts, and additional renovations, the city sold the property to Duane Roberts in 1990 for little more than the cost of completing the renovations, already three quarters done. Although not a hotelier by training, Roberts was a wealthy local businessman who had a personal passion for saving the landmark that he had revered since his childhood.

On December 30, 1992, the Mission Inn reopened to the public. It became an immediate success, and helped revive the downtown area, which was ailing, as so many downtowns were at that time. Today, the hotel is booming and co-hosts with the city the Festival of Lights, seen in Exhibit 9.7, an annual holiday light display with over 4 million lights and 150,000 visitors during southern California’s enviably warm winter season.

The case of the Mission Inn illustrates the mutual challenges in bargaining. The city had to take over the historic property so that it would not be torn down, but that meant that the city was in a poor bargaining position if it wanted to sell it, since the rise of Las Vegas and Palm Springs had decimated its high-end clientele. Politically, the city initially held out for a good deal, and got one, but the company that offered the bid did not go through the process. When the second interim owner failed to complete the renovations and the sunk costs of the project became enormous, political opposition to any reasonable offer evaporated. The local control over the planning system meant the city could make whatever variances the business owner needed, and could even get historical landmark waivers. Ultimately, the new owner got a terrific deal on a world-class property, which he successfully manages to this day. Although the city struggled through a series of deals and subsidized the project over several decades, Riverside has ultimately done extremely well with the income from hotel taxes, visitor traffic to local businesses, and the events and widespread recognition that the hotel has provided in becoming a point of destination.

274 Business–Government Relations in Economic Development

Industrial Recruitment 275

Example of Bargaining Excess

A well-known case of successful bargaining by business occurred in 1989 when United Airlines announced that it was creating a new maintenance hub that would employ 7,000 people and would result in hundreds of millions in new investment. It was to be a 24-hour, state-of-the-art facility for complex “heavy” maintenance on single-aisle Boeing and Airbus jets (Kantor and Savitch 1993). Ninety localities investigated the option, with Denver offering $115 million in cash and incentives and Oklahoma City offering $120 million relatively early in the process. The competition was so fierce that United Airlines then made the bids secret and delayed the decision so the competition could play out. Ultimately, the lucky city was Indianapolis, a city eager to bring high-end mechanics jobs to the area. The full project finally cost $540 million, with the city and state putting up approximately $300 million, which was financed by bonds. In addition, United was never charged real estate taxes on the property, which is built on airport land (Adams 2003). The facility opened in 1994.

In this case, we see all the bargaining advantages being in the hands of the business, and we see business using them to its full advantage. The market conditions

Festival of Lights in Riverside, CA

EXHIBIT 9.8

Source: Wikimedia Commons.

were such that Midwestern cities were extremely eager to get high-end blue-collar jobs to replace old manufacturing and agricultural jobs. The company had the advantage that it could place the facility anywhere in the country, where financial conditions were opportune. The political conditions were favorable because there was consent among all parties and individuals that this was a good project to seek; the only question was how much to put on the bargaining table in order to win the bid. The fragmented planning system in the United States not only encouraged cities to try to undercut one another, but to get their respective states to add resources to their war chests in the battle to get the final contract. As can be seen here, the winning city had to pay the bulk of the project costs as well as provide a long-term subsidy in terms of full tax abatement and low rent.

Sadly, the plans did not work out as well for Indianapolis as it hoped. At its height, the facility employed fewer than 3,000, rather than the expected 7,500 employees. The rent of $700,000 was a fraction of the cost of the bond repayment at $14 million a year. When United Airlines declared Chapter 11 bankruptcy in 2002, it announced that it would be closing the facility of 1,400 in Indianapolis, and moving some maintenance to San Francisco and privatizing the rest. The facility officially closed in 2003, with United being able to renege on its bond obligations due to bankruptcy restructuring; the city, of course, could not. While the city and its airport now fully own the massive maintenance facility and they rent out parts of it, it will likely always be vastly underutilized, employing hundreds rather than thousands, and be a financial drain.

Although most cases of private–public bargaining result in win-win scenarios, as we saw in the Mission Inn case in Riverside, there are enough Indianapolis Maintenance Centers to make governments far more leery than they were in the heyday of big projects (from the 1970s to the early 2000s). The deals that many jurisdictions have made to get new manufacturing plants, sports stadiums, head - quarters, and other flagship commercial projects have often left them sorry to have won. While the Boeing case is the epitome of business cleverly using its leverage, it is a profound cautionary tale for government and its bargaining agents.

How Government Should Protect the Public Interest

As the example of the Riverside Mission Inn illustrates, government can provide enormous support for the community. In this chapter, we focus on the role of government when it steps in to prevent economic decline and foster economic revitalization. The next chapter will look at when cities and counties take proactive stances to reshape their futures in ways that seem more like the corporate expansion associated with blue-chip companies. We have also seen how governmental economic development can go awry, sometimes dreadfully so, if policy-makers and planners do not follow rational planning principles appropriate for the public sector. Some of the principles include:

1. Create a clear project plan. This is common sense, but is often overlooked in the heat of a sudden opportunity. As importantly, make sure that the project plan fits in with the long-term comprehensive plan. The City of Indianapolis

276 Business–Government Relations in Economic Development

ran after the gigantic maintenance hub operation, offering double the resources of most other reasonable offers. Like a gambler without a limit, they got sucked into the bargaining process further and further, only to find that their fate was tied to a single business that continued to maintain an alternative location for flexibility. When the time came, the business exploited that flexibility, but the city was stuck without good contingency options. While retail location decisions are often little affected by the city incentives they secure (Lewis and Barbour 1999), the subsidies can become substantial and cumulative for the cities that depend on them. Further, once tax breaks are made, other businesses apply pressure for the same treatment. What is a small gain for individual businesses can become a major “run on the bank” for local governments.

2. Reduce incentives for dysfunctional competition among governments. While the US federal system cannot reduce interstate competition, states can reduce local competition that provides unnecessary subsidies for highly profitable businesses that relocate in an effort to avoid basic taxes and to get government subsidies. Such tax manipulation requires residential taxes to be higher, and general government services—everything from street-sweeping to police protection to park maintenance—to be less financially supported (Williams 2007).

3. Allow regional authorities a larger share in major initiatives. When govern - ments in a region cooperate on major business opportunities, such as sharing tax revenues from new business close to each other’s borders, all can benefit. This takes a level of trust and cooperation that is difficult to achieve, but when successful, it means that businesses must provide their “fair share” of community support for the services they use and for the community from which they earn their profits.

4. Depoliticize the process when contracts and bidding are in motion. Political discussions and public debate are good during the comprehensive planning process, but can be dysfunctional during the bidding process, when focus and confidentiality are required.

5. Ensure administrative competence. First-class talent is necessary for success in any business venture, and the promotion and protection of civic economic development is no exception. A challenge is that for many large-scale projects, expertise is hard to come by without retaining external consultants. Poor administrators will either fail to attract business, or make poor deals that give away more than is necessary.

6. Know who you are dealing with. Companies and individuals have histories and reputations that provide less than a prediction but more than a hunch about what to expect. Do the people whom the government is dealing with have a reputation of high integrity or low trustworthiness, for being highly competent or sporadic, dependable or fair weather?

7. Eliminate and revise an outdated economic development policy. Economic conditions are dynamic, and so, too, should be one’s economic develop- ment policy. States and localities that fail to keep their economic development policies up to date may find that decades later these policies create many unintended consequences, such as building up enormous coalitions because a dysfunctional policy has aggressive supporters who benefit from it. Proposition

Industrial Recruitment 277

13 in California is a case in point. It was designed to force local governments to become leaner and more accountable, which it did for a time. In the long- term, it meant that long-time homeowners and most businesses paid a smaller and smaller portion of the tax base, starving local governments including schools, especially those located in older and poorer areas.

The Strategies that Business Can Use to Increase Its Success in Bargaining with Government

This chapter has highlighted the knowledge and skills that smart business people should be able to demonstrate:

• Know and appreciate the growth model of the targeted area. Has the area adopted policies that are pro growth, slow growth, or smart growth? How can that be integrated into a business plan usefully? How can that awareness be highlighted for local decision-makers?

• Know the local factors affecting business advantages and disadvantages in bargaining. What are the favorable and unfavorable market conditions, political factors, and planning factors? Are any of these factors likely to shift in the near or middle term, and if so, what will the effect be? For example, where in the business cycle is the project now, and what effect will the inevitable expansion or contraction have?

• Related to both the community philosophy and status of bargaining leverage, determine strategic trade-offs and win-win prospects. Know what benefits are possible, most useful, and what can be offered to the city because it is easy to do so, or less important for success. This helps you craft a plan sensitive to local preferences, while protecting your own business interests.

• Spend the time necessary to meet and get to know the local players. Those players include political and administrative leaders, other business leaders, and even critics such as competitors, slow-growth cynics, or NIMBY (i.e., not-in- my-back-yard) activists. As was pointed out in Chapter 7, lobbying is to business–government relations what marketing is to the mass customer base. Yet in this chapter we also focus on the fact that many of these contracts rely on long-term cooperation, so that personal knowledge of local players and politics is also an advantage in business execution and operations later.

• Integrate a CRS perspective into the planning process as both an ethical necessity and pragmatic advantage. As stated in Chapter 6, corporate responsibility is the right thing to practice for not only ethical reasons, but for pragmatic ones as well. Identify the possible ethical issues and conundrums. Think through how to prevent appropriate cleverness and strong-willed negoti - ation from becoming deviousness, manipulation, or bullying that may later have negative consequences. Decide what possible community contributions might add to the business plan, while providing positive public relations.

• Be prepared to adapt the plan. Almost all projects, large and small, have numerous adjustments along the way. Good project managers will know this and be ready to adapt to changing conditions.

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ANALYTICAL CASE: WINTER PARK

In a quest for private capital, cities often compete with one another for sports franchises, tourism, transportation hubs, federal grants, and foreign trade. In order to realize mutual benefits, achieve common goals, and reach agreement, government must engage in exchange relationships—bargaining—with business. Three factors tend to make a difference:

1. Market conditions, which are the circumstances or forces that make the local jurisdiction more or less appealing to private investors. Such conditions include both the innate features of the locality and the position of the locality as reflected in larger economic fluctuations (e.g., housing market down-turns). Cities with strong market positions have more influence over the capital investment process.

2. Political context, which refers to the political process through which public sector decisions can affect economic development. It includes the scope of public participation, the extent to which participation is organized, and the ability of the system to ensure the accountability of the process.

3. The planning context, which refers to the relationships and methods used by government to regulate the marketplace. The two factors most critical here are the incentives that governments can offer and the coordinating powers that governments have to reduce interjurisdictional rivalry. A government with centralized power, non-particularistic policies, and financial support has more influence over investment and is better able to regulate economic development.

The Case of Winter Park, Florida

Winter Park is one of 17 cities in Orange County, Florida, and has a population of 28,000. It is a very well-off, land-locked city with extremely little available land. The city has to rely on the county to acquire and ensemble land for a large economic development project, if there is any. Land in the county is available but no longer abundant. Cities within or outside the county are competing for businesses and development.

Winter Park is an old and well-known resort town in Central Florida (along with Orlando), founded as a seasonal destination by wealthy New England industrialists before the turn of the twentieth century. Winter Park is considered both a historical and fashionable address, uncommon to many parts of Central Florida. The city draws thousands of visitors to annual festivals, including the Bach Festival, the nationally ranked Sidewalk Art Festival, and the Winter Park Concours d’Elegance. Due to its heavy emphasis on the arts and its scenic charm, Winter Park has traditionally attracted an eclectic mix of residents—wealthy Northerners, patrons of the arts, Old Florida families, artists, students, vacationers, and idealists. The citizens in Winter Park are extremely active in managing the activities of the city. For example, displeased with the local electric utility, in a referendum election of September 9, 2003, the citizens voted overwhelmingly to exercise the buy-out option in the city’s franchise agreement with Progress Energy Florida (a private utility company) and to have the city own and operate its own utility.

Industrial Recruitment 279

Questions for Discussion and Analysis

Using the three factors identified in this chapter, analyze the case of Winter Park. Mark how the bargaining condition is favorable to business or government and discuss why.

280 Business–Government Relations in Economic Development

Factors Favorable to Business Favorable to Government

Market conditions

Political context

Planning context

SUMMARY AND CONCLUSION

1. Whereas macroeconomic theories describe and prescribe how overall global economies work, location theory (i.e., cluster theory) discusses competitions at the regional and local level.

2. Clusters affect competition in three broad ways: they increase the productivity of companies in the area, encourage drive and direction and pace of innovation, and stimulate the formation of new business. Government plays a critical role in facilitating cluster development and upgrading existing clusters.

3. Local preferences of economic development range from “any growth at any cost” to “fighting all growth at any cost.” The pro-growth model is strongly in favor of economic development. The slow- and no-growth models emphasize the prob - lems associated with growth. The smart-growth model seeks to find a sensible balance between the two through good planning, and awareness of community interests and environmental interests.

PRACTICAL SKILL

Investigate the bargaining used by your city or county

Bargaining positions of cities and counties vary greatly, as do the types of incentive that they offer when they do bargain. Investigate your city to find out:

• the amount of bargaining that occurs • who is empowered to do the bargaining for the city • the types of situations that trigger bargaining • the types of incentives that tend to be offered.

4. Industrial recruitment is a locational approach of economic development. The use of industrial recruitment always results in competition among state and local government.

5. Both government and business can leverage their resources to enhance their bargaining position in a recruitment negotiation. Three major factors affect the bargaining relationship and the amount of leverage that a business has: the market conditions, the political conditions, and the planning system.

6. Policy-makers and planners should follow rational planning principles, which include creating a clear project plan, reducing incentives for dysfunctional competition among governments, allowing regional authorities a larger share in major initiatives, depoliticizing the contracting process, ensuring administrative competence, knowing who you are dealing with, and eliminating and revising an outdated economic development policy.

7. Smart business people should know and appreciate the growth model of the targeted area, understand the local factors affecting business’s bargaining position, be able to determine strategic trade-offs and win-win prospects, and be willing to spend the time necessary to meet and get to know the local players.

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Classical economics Cluster theory Demand-side

economics Industrial recruitment Marketing conditions

for bargaining Mercantile

economics Neoclassical

economics

No-growth model of economic development

Planning system conditions for bargaining

Political conditions for bargaining

Pro-growth model of economic development

Slow-growth model of economic development

Smart-growth model of economic development

Sprawl

KEY TERMS

STUDY QUESTIONS

1. Different economic theories have different areas on which they focus. Explain how neoclassical economics, Keynesian economics, and cluster theory have different perspectives on what they seek to explain and the prescriptions that they tend to provide.

2. How do clusters work? Provide an example.

3. What are the typical models of growth that cities and other communities tend to adopt in their ordinances and zoning policies?

4. What are the factors that enhance or restrict the ability of business to bargain with cities, counties, and even state governments?

5. What are some of the things that a local government should do to protect the public interest?

6. What are some of the things that a business should do to enhance its bargaining position while retaining long-term options and reputation?

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