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Mayors and Governors who want their cities to be prosperous appoint economic development officials and tell them to look for ways to create and retain jobs. Traditionally, these economic development officials make deals with companies to come to a city (or promise not to leave) in return for tax breaks.
These deals sometimes involve municipal financing of large buildings, changing zoning laws and using eminent domain to clear space for new building. The deals may be criticized at the time by independent analysis and often enough a subsequent consensus emerges that these deals were misguided, that the jobs were not created or retained as planned or that the costs were higher than expected. Some commercial bankers have decided that use of eminent domain for commercial projects is improper.[1]
This Monty Hall approach - "Let’s Make a Deal” - to luring or retaining firms provides an activity for economic development officials, may do some good and provides an ongoing illusion that the economy is being responsive to the wishes of government. But this is not the only way, and may not be the best way, for a city to pursue community prosperity. Economists looking for better understanding of what is really happening have been investigating why some cities grow, while others do not (some citations are provided in the next part of this series). They have been focusing on the importance of “agglomeration” to cities’ economies, and argue that a city gets bigger because it provides economically valuable skills. "Density Is Destiny” is a way of summarizing this work.
These economists have argued that the average wage of workers in a city is a good measure of prosperity, as it is a key determinant of a city’s overall economy (its “gross city product”). The average wage of workers is in turn linked to population density or employment density and especially skill density, commonly defined crudely as the share of the population with a college degree. The work of these economists implies that the main effort of government officials seeking prosperity for their communities should be to attract, train and keep skilled workers.
[1] John Allison, Chairman and CEO of BB&T Corporation in Charlotte, N.C., said: “The idea that a citizen’s property can be taken by the government solely for private use is extremely misguided, in fact it’s just plain wrong." Paul Nowell, AP, "Bans Loans to Builders if Eminent Domain Used," The New York Sun, Jan 26, 2006, 8.
Next: Agglomeration Theory (Density Is Destiny 2).
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