Posts Tagged ‘innovation’

Green smokestack chasing

Monday, May 11th, 2009

Smokestack chasing is the economic development policy of attracting existing firms from somewhere else, either to relocate to a particular area or to build new facilities there, using financial inducements and tax incentives.

There is little to no evidence that it works.

Despite this, economic development agencies continue to pursue this policy.  With the current emphasis on green jobs, some cities are  now green smokestack chasing -  the latest example being Orlando - as reported in today’s Orlando Sentinel “Incentives to lure jobs to Central Florida could hit $31M“.

What does work?  Entrepreneurship!  As the authors of the Kauffman Foundation report Entrepreneurship and Urban Success: Toward a Policy Consensus write

Likewise, policymakers at local and state levels increasingly recognize that entrepreneurship is the key to building and sustaining their economies’ growth. Although this is a seemingly obvious proposition, it represents something of a departure from past thinking about how local, state, or regional economies grow. Historically, state and local policymakers have put their energies into trying to attract existing firms from somewhere else, either to relocate to a particular area or to build new facilities there. Such “smokestack chasing”—or, in this cleaner era, simply “firm chasing”—often has degenerated into what is essentially a zero-sum game for the national economy. When one city or state offers tax breaks or other financial inducements to encourage firms to locate new plants or headquarters, and succeeds, some other city or state loses out in the process.

Local, state, and regional economic development centered on entrepreneurship, however, is a fundamentally different phenomenon. The formation and growth of new firms, especially those built around new products or ways of doing things, wherever this occurs, is clearly a positive sum game, not just for the locality, but for the nation as a whole. A brief look at the various “high-tech” or innovative clusters that have grown up around the country—from Silicon Valley to Austin, Research Triangle Park (N.C.), San Diego, Boise, Denver, Madison, Route 128 around Boston, and northern Virginia, to name just a few—demonstrates this. The U.S. economy as a whole clearly has benefited enormously from the innovative products and services the major companies from these various “hubs” or “clusters” have introduced to the country.

We can only hope that someday we might see this headline in the Orlando Sentinel: Incentives to form and grow new firms in Central Florida could hit $31M.