Organizing for local economic development: local ...

Environment and Planning A, 1993, volume 25, pages 1649-1661

Organizing for local economic development: local economic development networks and prospecting for industry A W o o d IF Department of Geography, Ohio State University, Columbus, OH 43210-1361, USA Received 25 March 1993

Abstract. In this paper, the organization of activities designed to promote local economic development (LED) in the USA is explored. The emergence of local economic development networks (LEDNs) as critical mediators in attracting new business investment into metropolitan areas is addressed. These networks comprise private and state organizations with major institutionalized stakes in LED. Each organization has a distinct set of powers and responsibilities which generate a division of labor with respect to the attraction of investment into a locality. It is argued that LEDNs are a means of integrating the activities of the different agents into this division of labor. Also explored are the conditions that lead to the formation of networks mediated by relations of trust as a principal means of organizing for LED. LEDNs are seen to be characterized by various power asymmetries, and the implications of these asymmetries for the politics of LED are explored in the final section. Empirical material is drawn upon from extended interviews with representatives of seventy-eight economic development organizations in four major metropolitan areas in Ohio.

1 Introduction This paper concerns an issue that has of late dominated the US national political agenda—economic development. Arguably, the same issue has dominated the agenda of local governments in the USA for a decade or more. In this paper, I explore the organization of activities designed to promote local economic development (LED). More specifically, I address an important and recent change in the character of that organization: the emergence of local economic development networks (LEDNs) as critical mediators in attracting new business investment into metropolitan areas. With respect to the existing literature on the politics of LED, therefore, the paper represents a significant departure. Although the competition for new investment has been a major motif in that literature, the precise mechanisms through which investment ultimately comes to rest have received surprisingly little attention. I wish to show that an examination of these mechanisms sheds critical light on some of the received wisdom about this competition: in particular, it is far from clear that the assumption of local government dominance in recruiting new firms is justified. I draw upon empirical material from eighty-four extended interviews with representatives of seventy-eight economic development organizations (EDOs) in four major metropolitan areas in the State of Ohio—Cincinnati, Cleveland, Columbus, and Dayton. In each case, interviews were conducted with representatives of interests having major institutionalized stakes in LED. These include: business organizations; investor-owned gas and electric utilities; private commercial and industrial developers and realtors; county and city economic development departments; and local branches of the State of Ohio's Department of Development. Interviews were conducted between May 1992 and March 1993. Although the interviews covered a variety of activities undertaken by EDOs I confine this paper to a consideration of the strategy of business attraction as it applies to industrial firms. From the interviews there is reason to suspect, however, IF Now at University of Geography, University of Sheffield, Sheffield S10 2TN, England.

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that the observations presented in this paper apply similarly to the attraction of new office, warehouse, and commercial investments, although the roles of the various actors may be somewhat different. As far as the mediation of investment by social networks is concerned, therefore, the paper provides a generality that extends to a much wider field of LED practices. I shall argue that the activities of EDOs are integrated through LEDNs. In section 3 I examine the economic development interests that make up the LEDNs and the logic underlying their interest in LED. Each of these interests exhibits distinct powers and responsibilities, and these are explored in section 4. In turn, these powers and responsibilities generate a division of labor with respect to firm recruitment activities. This division of labor is harnessed through LEDNs, and these are explored in section 5. Power relationships within these networks are asymmetrical, however, and the particular asymmetry between state and private interests is explored in section 6. 2 The concept of a local economic development network The term 'local economic development network' is one that is commonly used and recognized by LED professionals in Ohio's metropolitan areas. Although practitioners define LEDNs in concrete terms, we can also view such networks as a means of integrating the LED activities of diverse private-sector and state-sector organizations with major institutionalized stakes in LED. These networks span a wide variety of LED activities, but in this paper I restrict my discussion to activities that are designed to attract new investment into a locality. Furthermore, and as referred to above, the discussion is focused specifically upon the attraction of industrial investments. Systematic efforts to attract industrial facilities have a lengthy history in the USA and originate in the attempts of railroads to generate captive freight traffic. Investorowned utilities joined the railroads in these recruitment efforts during the interwar period (see for example, CG&E, undated; Rile, 1958; Wright, 1957). The enactment of Mississippi's plan to 'balance agriculture with industry' in 1936 is seen to mark the entry of State(1) and local governments into this "prospecting for industry" (Hopkins, 1944). Until the 1960s, however, LED policy in the USA was largely restricted to programs of industrial promotion driven by interests in the Southern States (Cobb, 1982; Lepawsky, 1949). By the early 1970s, however, prospecting for industry, or 'smokestack chasing', had been generalized throughout the USA, and hundreds of local and State governments had established agencies dedicated to business attraction. Although business attraction was once hegemonic as an LED strategy it is now supplemented by a vast and expanding array of additional economic development activities (for a review of recent practices, see Eisinger, 1988). Currently, the field is enamored of the virtues of small businesses, and various policies have been instigated at virtually every level of government to promote the 'small business sector'. New business formation through incubators and the like, programs of export assistance, and attempts to harness industry and academia to commercialize innovative product and process technologies are further strategies that have emerged since the 1970s (Clarke, 1986; Fosler, 1988; Watkins, 1985). Nonetheless, the focus in this paper is on traditional attempts to promote economic development through the attraction of industrial investments. These strategies remain a primary (1) I shall use the term State to refer specifically to the State level of government in the USA. The term state refers to all levels of government. The term local government refers to all jurisdictions at the sub-State scale.

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goal of EDOs throughout the USA. Indeed, Levy's (1990) recent survey suggests that the majority of local public economic development agencies continue to identify 'publicizing the area and providing information' as their most important function and the activity to which they allot the most time. I define a LEDN as a linked structure of state and private EDOs with a common locality of interest, exhibiting different powers and responsibilities that are harnessed together for the purpose of business attraction. The concept of networks as an organizational form has recently received considerable attention in the literature on industrial organization (Powell, 1990; Sayer and Walker, 1992; Storper, 1992; Storper and Harrison, 1991). In this literature, networks are seen as one of several means of integrating the activities of the different agents to a division of labor. In contrast to other modes of organization, however, networks are chronically reliant upon relations of trust (Granovetter, 1985). This is in significant part because of the regularity of the transactions between the different agents. In the case of LEDNs, one set of critical transactions involves information about new business investment. Potential new business investments in an area are referred to as 'prospects'. Information about these prospects are referred to, in turn, as 'leads'. In the case of industrial investments, leads are generally derived from four major sources: direct inquiries from prospecting firms; inquiries from location consultants or realtors and developers contracted by firms to undertake a location search; referrals from the State's development agencies; and referrals from existing firms within the region, usually in relation to subsidiaries or suppliers. Quite crucially, however, most of these industrial leads enter LEDNs through the electric and gas utilities. 3 The composition of local economic development networks In each of the four metropolitan areas in which interviews were carried out a common set of interests with institutionalized stakes in LED was engaged in the attempt to attract business investment into the locality. In the next section I examine the various powers and responsibilities of these organizations with respect to business recruitment, but first I wish to explore the logic underlying their interest in LED per se. Four different organizations are integrated into economic development networks designed to attract industrial investment: investor-owned gas and electric utilities; chambers of commerce; real-estate developers; and local government economic development departments (2) . In each case, the interest of these organizations in LED stems from their local dependence, that is, the attachment to a locality "that results from the relative spatial immobility of some social relations, perhaps related to fixed investments in the built environment or to the particularization of social relations" (Cox and Mair, 1989, page 142). Utilities must amortize huge capital investments tied up in fixed infrastructures. In addition, they are limited in the market they can serve as the franchise gives them monopoly rights to a specific service area. Developers of real estate face a similar set of pressures through their attachment to fixed assets in land and to local reputations painstakingly built up with local builders and banks. (2) The State's Department of Development occupies an ambiguous position in relation to LEDNs within the State of Ohio. Although the State obtains leads directly from prospecting firms, the responsibility for location assistance is delegated to members of the Ohio Economic Development Council, a group of thirty-two private economic development agencies, including investor-owned utilities, metropolitan chambers of commerce, and the State's major railroads. The State may also participate in larger projects through the provision of funds for infrastructural improvements, job training, loans for project financing and construction, and tax credits of various sorts.

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The interest of local chambers of commerce in economic development, on the other hand, is more complex given the wide range of business interests that claim chamber representation. Although chambers themselves have a direct interest in economic development as a means of generating additional members, their interest is more properly seen as a reflection of the interests of selected chamber members. Principal among these concerns are those of the aforementioned developers and investor-owned utilities. There are a range of additional business interests supportive of chamber initiatives in economic development, however, and these include: local financial institutions and legal and accounting firms; hospitals; local newspapers; and a variety of firms directly connected to property development, including architectural firms, realtors, and construction interests. The fortunes of each of these interests are to a significant extent hinged on the growth of the local economy (Cox and Mair, 1988; Logan and Molotch, 1987). The stake of local governments in economic development is largely related to tax-base concerns. Given the highly decentralized structure to the generation and spending of state revenues in the USA, local governments must strive to protect and enhance the local tax base. These tax-base concerns may have intensified through the 1980s as a result of the general decline in intergovernmental revenue sharing. The interest of local governments in economic growth may be more than simply one of property taxes, moreover. In a number of States, local governments are capable of levying additional income and sales taxes to capture revenue. 4 The division of labor within the local economic development network The evidence from extended interviews with economic development practitioners points to a common pattern in the concrete tasks undertaken by different organizations in relation to business attraction. In this section these roles and the various powers and responsibilities that underlie them are documented. 4.1 Utilities There are a number of aspects to investor-owned gas and electric utilities that give them very substantial power within LEDNs. Each of the gas and electric utilities examined as part of this project maintains a professionally staffed division dedicated to economic development. Most of these divisions trace their origins to the interwar years. Subsequently, the utilities have developed substantial expertise in facilitating the location, within respective service territories, of new industrial plants. This expertise includes the construction and maintenance of detailed inventories of available site locations within their respective areas. The utilities also maintain extensive additional information on general community characteristics, including demographics, labor-market data, and other pertinent information. As one utility official claimed, "I can give you wage surveys, I can give you demographics, I can give you a site inventory of all the sites and the buildings, for example. I can give you a list of every union vote that was taken in this seven-county area for the last fourteen years" (utility official, July 1992). This expertise in site-selection assistance is particularly well developed in the case of sites for industrial prospects where the demands for gas and electricity are heavier. Through their long-established role in assisting industry, the economic development arms of investor-owned utilities have managed to construct a sound reputation as intermediaries between prospecting firms and other LED interests. As one developer of industrial sites noted, "when they [the local utility] bring a company in you're usually talking about a very strong company. The utility companies work with good solid prospects [and] that's desirable" (industrial developer, July 1992). By the same token, the utilities can capitalize upon their established reputation: "we have

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credibility with the communities, so when we come in ... and say 'I have a client, can't tell you who it is, want to bring 'em tomorrow, we're looking at buildings ... Could you get the mayor there we'd like to have lunch with the mayor?' Well I'm not telling 'em who it is but they've got credibility in us ... it's gotta be somebody worth their time and they'll arrange it ... It takes a long time to develop those relationships" (utility official, November 1992). In addition to their long-standing expertise in site assistance and their credibility both with prospects and with LED interests the utilities are further privileged as a result of their multicounty jurisdictions. In the case of industrial projects of significant size, prospecting firms are liable to search for sites over a relatively wide area. Faced with the alternative of contacting myriad local agencies, prospects tend instead to gravitate to investor-owned utilities. 4.2 Chambers of commerce Chambers of commerce in metropolitan areas varied very considerably in their promotion of LED. Nevertheless, the specifically metropolitan-wide chambers in all four metropolitan areas—the Columbus Area Chamber of Commerce, the Dayton Development Council(3), the Greater Cincinnati Chamber of Commerce, and the Greater Cleveland Growth Association—were extremely active. On the other hand, their capabilities did not extend to detailed inventories of available sites within respective membership areas. In each instance the metropolitan chambers relied upon local utilities for site information relevant to industrial prospects. A major contribution of the chambers—both metropolitan and nonmetropolitan— to the LED effort, however, is an ability to capitalize upon their access to particular member firms. Prospective enterprises commonly need to meet existing local employers in order to discuss issues related to work-force attributes such as absenteeism rates, wage and benefit scales, the availability of skilled workers, and the propensity for worker unionization. Chambers of commerce are uniquely situated to mediate between these parties. In one town historically dominated by a single unionized employer, the chamber director noted his ability to soothe prospect concerns about unionization: "if somebody comes in and says '[company x] is union, these paper companies are union, how am I gonna run a non-union shop?' We've got five or six members that very effectively run between 50 to 150 people in a nonunion setting, so we'll call up [X] over at [company x] and say '[X] ... let this guy come out and talk to your employees'. So that is very important ... you know Ohio ... it's known for its union-mind mentality and people wanna be reassured" (chamber official, February 1993). Chambers are also important in mediating between prospects and local state officials. Chambers of commerce are widely recognized as the legitimate representatives of local business interests and, accordingly, they are well positioned to negotiate with local and State governments on behalf of prospects and/or landowners or developers over tax abatements, financing, zoning concerns, permitting, infrastructural needs, and other matters. This project-specific lobbying may well be complemented by a more general lobbying of elected representatives and state officials concerning the local policy and regulatory regime for economic development. In addition, and through repeated interaction with local site-owners and different local government agencies, chamber economic development staff are capable of constructing an intricate local knowledge that can be tapped by prospects and more widely operating EDOs. As one chamber executive noted, "I know that it is not within my ability to deliver to a prospect a site in or near suburb X because they