This is the second part of a two-part Q&A with economist Timothy Bartik. Read the first part here.
Earlier this week, we spoke with economist Tim Bartik of the W.E. Upjohn Institute for Employment Research about his new book on economic development incentives. In that conversation, we covered the dramatic growth in incentives, the reasons incentives are an ineffective economic development tool, and how we might reign them in. Today, in the second installment of our conversation, we talk about another of Bartik’s core interests—the use of place-based policies—a more effective tool for helping distressed communities and addressing regional inequality. Our conversation has been edited for length and clarity.
In addition to your research on incentives, you’ve been writing a lot on place-based policy. You seem to be arguing that economic development policy should shift away from trying to lure companies to a community by handing out incentives and toward investing to develop distressed parts of the country.
If you really want to deal with the employment problems of distressed areas, you need to address the underlying problems that are keeping job creation and employment rates down. What are the problems in a particular distressed area? If you have inadequate skills, you address that. If small businesses have trouble getting services, you address that. If there's an infrastructure issue, you address that. Throwing cash at a problem, for example, through business tax incentives, has limited utility.
What are the key things policymakers should do here?
Job creation is a valuable goal for policymakers to pursue. I'm certainly not advocating that state and local governments shouldn't worry about jobs. Any governor or mayor, any state legislature, any city councilperson, needs to think about job creation, particularly if you're in an area with low-employment rates and low wages. But you need policies that have a good bang for the buck.
Well-run customized services to small and medium-sized businesses can have much higher job creation effects per dollar than incentives. A good example is customized job training programs, where for example, a community college screens and trains workers for a company’s skill needs. Another example is manufacturing extension services. A program might help a manufacturing firm that was bending metal or molding plastic for autos to refocus on bending metal and molding plastic for medical instruments, which might be a better market. These kinds of services to small and medium-sized businesses have job creation effects per dollar that are five to ten times larger than business tax incentives.
I also think we can help local job creation with better policies to promote land development. There's some evidence that infrastructure or land redevelopment can be a more cost-effective way of boosting local jobs than simply handing out cash. Handing out cash is easy. That's part of the reason I think it's attractive to people. It's easy to do, and there's infinite demand for it. Whereas doing these services right is more complicated, but also much more effective.
Nearly half of all jobs in the United States are low-wage, precarious service work. What about extension-like or business-service programs focused explicitly on upgrading low-wage service jobs?
There are some experiments going on around the country in trying to work with businesses to upgrade and improve jobs for low-wage workers. I think there is great potential in expanding services for small and medium-sized service businesses, and focusing on issues like how to improve job retention, how to upgrade training and skill development, and how to create meaningful career ladders within the firm or across firms.
One thing that's never really fully happened in the U.S. is connecting our labor supply and labor demand policies. That connection is something we need to work hard on: how to get the local economic development and state economic development organizations, the local workforce development agencies, the local schools and community colleges, and the local business community all talking to each other and working together to develop programs that would not only promote business development, but would also promote better access to quality jobs by more disadvantaged groups in distressed places.
What do you think of the new Opportunity Zone program?
I don't think of the new Opportunity Zone program as really an economic development program. For one, it looks like most of the zones are pretty small areas, they're more neighborhoods than local labor markets. So, to the extent to which the program actually generates any job growth, the job growth would mostly be redistributing jobs within a local labor market. I think of economic development programs as being defined more at a local labor market level, such as a metro area or at least an entire county or an entire large city. Most people don’t work in the neighborhood they live in. If it doesn’t grow overall jobs in the local labor market, doesn’t significantly improve job opportunities.
Another issue is that the Opportunity Zone program provides a tax break for capital gains, so it doesn't particularly incentivize job creation. It's not clear to me exactly to what extent it will actually encourage job creation.
What should the federal government do to address the problems of distressed places and help mitigate the growing regional economic divide in this country?
What I would hope for, under a different federal government with different leadership, would be a serious federal effort to address regional inequality. A big problem in the U.S. is that there are a lot of distressed areas. Some of these distressed places are rural areas that are struggling with jobs and employment. Some are larger urban areas like Detroit, and some are smaller metro areas like Flint. The economy, even with the national unemployment rate being low, is still not performing well for these distressed places. I think that the 2016 election results helped to focus people's attention on these problems of regional inequality. There’s enough evidence to support a significant federal program to promote smart regional development in distressed areas.
What also seems to be missing from the debate over regional inequality and federal policy is the recognition that the federal government has successfully addressed regional inequality in the past. The Tennessee Valley Authority initiatives made a significant difference for the Tennessee Valley region, largely through providing infrastructure, and also through skills development and public health services. The Appalachian Regional Commission made some difference to the area, even if it did not solve all of Appalachia’s problems.
The federal program I envision is a broad block grant program for distressed areas of the country, supporting the kind of economic development programs and services for which we have good evidence that they work.
One of the things that drives me nuts is when people say we have no evidence that anything can work to solve these regional problems. I don't think that's true. There's evidence that things like customized job training can be quite effective, that manufacturing extension can be quite effective, that other business services can be quite effective. I think it's true that we don't have dozens of randomized control trials for these programs. We also don't have randomized control trials in many other areas of public policy. We have to rely more on good quasi-experimental evidence, from looking at the world and seeing the natural experiments that occur, and then trying to interpret the resulting evidence as best we can.
This federal block grant program would have requirements for places to participate. One would be that places are distressed. Another could be some kind of curbs on the use of tax incentives. That would be more politically viable than trying to outlaw incentives or impose extra federal taxes on incentives, without providing any assistance to deal with the very real job creation problems that some areas have. I think it's difficult to tell people "don't do this," without providing some alternative form of assistance.
In my view, there's enough evidence to support a significant block grant program for distressed areas, say on the order of $20 billion a year. The U.S. is certainly rich enough that it can afford this level of resources to address regional inequality issues. It’s less than half of what we spend right now on incentives. If the program was well-designed and well-organized, it could be evaluated over time. We could then learn more over time about what strategies are most effective, what strategies are less effective, and how the most effective strategies vary across diverse places.