Friday, December 5, 2008

What's Wrong With Local Competition?

Do regional economic development initiatives have plenty of gloss but little substance? That’s a question some are asking after a recent Journal Sentinel report that our own regional initiative, the M7, is shifting its strategic focus. The M7 commissioned a study to outline a strategy for recruiting some businesses that might like to relocate to the region. The study suggests that the M7 focus on recruiting from two industrial sectors: control and instruments technology and food processing.

While the report is a useful planning tool, it brings attention to the fact that M7 has yet to draw a major corporation to the area. We should commend the 5-year-old M7 for acknowledging that reality and announcing a new tactic. But, there’s a broader question here about regional cooperation as a strategy to attract new businesses. From a public policy perspective, are these sweeping regional cooperative efforts the best option?

Informal regional cooperation and governance initiatives similar to M7 became popular in the 1990s after a cycle of more formal regional governing institutions that sprang up during the 1960s and 70s, such as Unigov in Indianapolis and the federated tier system in Miami-Dade.

Unfortunately, there has been little empirical evidence linking regional cooperation initiatives or regional governing bodies with clear economic benefits. Local competition among municipalities appears to work just as well. In fact, there is much economic research, based on the “public choice” theory of Charles Tiebout, that argues that local competition is more efficient than regional cooperation.

More recent research shows that strong, tangible incentives from individual municipalities (along with state tax breaks) draw the first-class corporations, like Boeing moving to Chicago.

Regional efforts have more success in building regional infrastructure projects, which arguably have the largest economic benefits of all kinds of public spending. Regional cooperation in building specific infrastructure projects, such as public transit or intermodal freight stations, has been found consistently to raise local property values.

All this calls into question the appropriate goal for M7: should they continue to focus on business recruitment or should our regional efforts also concentrate on funneling local investments into larger regional projects?


Scott Davis said...

Your blog was interesting, and you comment about infrastructure was echoed in a recent study that conducted by the Center for Urban Initiatives and Research for the Spirit of Milwaukee about perceptions of regional and national business leaders about the M7 Region.

More than 150 business leaders from 37 states responded about their perceptions and opinions related to the Milwaukee 7 Region on issues which include business climate.

Infrastructure (roads, highway system) was the most frequently mentioned need for improvement in the M7 Region, similar to your comment.

In addition, these national business leaders reported the five most important factors for decisions about business location were (1) Business Climate; (2) Business Tax Climate; (3) Educated Talent; (4) Infrastructure; and (5) Experienced Talent.

However, when asked to rate these same factors in the Milwaukee Region, the ratings of Milwaukee fail to make the top ten with only one exception: Educated Talent. The rest are at the bottom half.

Anonymous said...

I agree that the M7 and other leaders should focus thier collaborative efforts on regional infrastructure improvements, rather than a promotional campaign that has little value in attracting businesses. How about having M7 focus on the critical need for a regional approach to transportation infrastructure and operation?

Dave Reid said...

@John Kovari I agree it seems to me that regionally the big thing we need to be working together on is large infrastructure projects.

John A. Connelly said...

One of the most pressing challenges facing MKE and the region is how we stay competitive in a global market.

This challenge will only be met if we come together and build a truly 21st century infrastructure system to attract new businesses and residents alike.

Anonymous said...

The M7 has claimed to be interested in education. All we see in the schools is allot of talk and going to meetings. This group needs new leaders that are in the field,not retired.

Tim Brown said...

Although M7 may have some shortcomings, let's consider the alternatives. Our collective regional governments are still mired in the thought that Milwaukee and the surrounding communities are second rate. I applaud M7 for at least stirring interest where local governments have only sat back and hoped companies would magically relocate to the area.