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Regional Objectives and Policies

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Title: Regional Objectives and Policies


1
Regional Objectives and Policies
  • Hoover, Chapter 12

2
what directions of change are desirable or
desired
  • the objectives of regional economic policy
  • pathology of regional development
  • prophylaxis and therapy aspects of regional
    development policy

3
  • few governments have ever followed any coherent
    policy in regard to location

4
 More People Work in Offices and Provide Services
  • the old economy was fundamentally organized
    around standardized mass production
  • The New Economy is a high-tech, services, and
    office economy

(Atkinson, Robert and Randolph H. Court.2003. The
New Economy Index. The Technology Project,
(Progressive Policy Institute),
http//www.neweconomyindex.org/introduction.html
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High-Wage, High-Skill Jobs Have Grown, But So
Have Low-Wage, Low-Skill Jobs
9
GLOBALIZATION Trade Is an Increasing Share
of the New Economy
  • U.S. exports and imports have increased from 11
    percent of GDP in 1970 to 25 percent in 1997
  • the United States is increasingly specializing in
    more complex, higher value-added goods and
    services, as reflected in the fact that the
    average weight of a dollar's worth of American
    exports is less than half of what it was in 1970.

10
Foreign Direct Investment Is on The Rise
Around The World
  • as a percentage of GDP, U.S. FDI inflows and
    outflows (the total of American firm investments
    abroad and foreign firm investments in the United
    States) are 32 percent greater than in Germany,
    and over 100 percent greater than in Japan.
  • U.S. foreign direct investment activity has grown
    from an average of 45.3 billion in the 1970s to
    an average of 117.5 billion in the first half of
    the 1990s (in constant 1990 dollars), and from
    1.04 percent of our GDP to 1.64 percent.

11
The Economy Is Spawning New, Fast-Growing
Entrepreneurial Companies
  • Since 1993, the number of gazelles has grown 40
    percent, to over 355,000
  • These companies are responsible for creating 70
    percent of the net new jobs added to the economy
    between 1993 and 1996.
  • The small share of gazelles with over 100
    employees accounted for 46 percent of total job
    growth.
  • Definition gazelles companies with sales
    growth of at least 20 percent per year for four
    straight years

12
DYNAMISM AND COMPETITION
  • Increased competition is being driven by many
    factors, including the emergence of a global
    marketplace, the increased number of firms, new
    technology that makes it easier for firms to
    enter new markets, and ever-increasing pressure
    from securities markets to raise shareholder
    value.

13
Slow and steady growth in net total employment
masks a constant churning of job creation and
destruction
  • Between 1994 and 1995, as the private sector
    added a total of 3.6 million new jobs, new
    establishments created 5.8 million jobs while
    dying establishments eliminated 4.5 million
    others.
  • Expanding establishments created 10.6 million
    jobs while contracting ones lost 8.2 million
  • The period saw a net growth of 108,000 additional
    business establishments-a product of 695,000
    births and 587,000 deaths (up from only 337,000
    births and deaths, combined, in 1975).
  • 30 percent of all jobs are in flux (either being
    born or dying, expanding or contracting) every
    year.

14
Consumer Choices Are Exploding
  • The rise of production processes based on
    information technology has allowed companies to
    develop "flexible" factories and offices in which
    costs rise little when variety expands.
  • The average number of products in grocery stores
    has increased from under 13,000 in 1980 to 30,000
    in 1998.
  • the average number of magazines published has
    increased from 2,500 in 1987 to 4,400 in 1997.
  • an estimated 50,000 new products are announced
    every year in America, up from only a few
    thousand annually in 1970

15
Speed Is Becoming The Standard
  • in 1990 new U.S. products took an average of 35.5
    months to complete, but by 1995 companies were
    introducing new products in an average of
    approximately 23 months
  • Autos that took six years from concept to
    production in 1990 now take two years
  • Thirty percent of manufacturing company 3M's
    revenues are from products less than four years
    old. Similarly, 77 percent of Hewlett Packard's
    revenues are from products less than two years
    old.

16
collaborative dynamic of networks, partnerships,
and joint ventures is a main organizing principle
in the New Economy
  • Social capital (networks, shared norms, and
    trust), as fostered in collaboration and
    alliances, may be as important as physical
    capital (plant, equipment, and technology), and
    human capital (intellect, character, education,
    and training) in driving innovation and growth.

17
IMPACTS ON AMERICANS
  • Productivity Growth is Lagging
  • The Growth Of Earnings Inequality Has Slowed
  • Fewer Workers Are Unemployed and Under-employed
  • Higher levels of employment volatility have
    increased the anxiety of many American workers
  • The share of workers receiving defined-benefit
    pension plans has fallen from approximately 30
    percent of the workforce in 1981 to 20 percent
    today, while the share of workers receiving
    pension plans of any type has fallen slightly
    since the mid-1980s.
  • earners.

18
IMPACTS ON AMERICANS
  • the share of workers without health coverage has
    increased slightly from about 15 percent of the
    workforce in 1985 to 18 percent in 1995.
  • Increasing the educational and skill levels of
    American workers will foster reduced wage
    inequality and faster economic growth. Since the
    mid-1970s, incomes have become more unequal, not
    only in the United States but in most developed
    nations.
  • the main causes of this growing inequality. The
    dominant factors appear to be the increasing
    share of one-parent families and increasing
    incomes for wives of men who are high

19
Transition can be difficult
  • whether it is accompanied by the expansion or the
    decline of local economic activity
  • it is rarely easy to identify the cause or causes
    of change
  • coping with its consequences and planning for
    corrective action are also made more difficult.

20
There is an urban dimension to many regional
problems
  • The process of urbanization accelerated early in
    the twentieth century because of the declining
    relative importance of agriculture.
  • Unemployment in urban areas is more visible and
    more unsettling for both the individual and the
    community than is rural underemployment
  • the rapid shift of black population from rural
    areas to urban slums intensified this change and
    along with a complex of other problems of urban
    adjustment
  • traffic congestion and environmental pollution in
    urban areas have stimulated a search for more
    rational use of space and resources

21
Fiscal pressures on local and state governments
  • Devolution of programs from the federal
    government without adequate transfer of funds
  • Reduction in traditional transfer of wealth from
    rich to poor regions through federal government
  • Continuous pressure from political right to cut
    taxes while increasing demand for services
  • just and efficient allocation becomes one of the
    utmost concern.

22
disillusionment with the effects and objectives
of the more naive forms of local and regional
self-promotion
  • As more localities participate in this
    competitive game, more of the total effort is
    recognized as simply canceling out
  • more people are asking whether growth itself
    should be the objective of local governments
  • At the same time, the loss of federal
    representation in several states have brought a
    near panic response of seeking growth.
  • Today, thinking and policy are much more directed
    toward welfare objectives, such as fuller
    employment and higher per capita income, rather
    than to the misleading standard of aggregate
    growth.

23
dilution of provincialism
  • another contributing factor in the shift toward
    more enlightened approaches to regional promotion
  • normal for individuals to make their home in
    several different communities and regions during
    their lifetime, and for them to travel often and
    widely
  • conducive to more objective feelings about
    programs that may benefit one region at the
    expense of another

24
Reasons for changes in the factors determining
location choices
  • changes in technology
  • and increased income and leisure

25
important changes in the factors determining
location choices (1)
  • cost of physical transport of heavy and bulky
    goods is less important
  • Increasingly the need is for speedy and flexible
    transportation of high-value goods
  • Knowledge based industry is bringing more need
    for better communications.

26
important changes in the factors determining
location choices (2)
  • the increased variety and complexity of products,
    which increases, in turn, the importance of
    shopper comparisons, sales promotion, and
    servicing, and thus makes proximity to market
    more desirable
  • Increased complexity of products has meant also
    more stages of processing between the primary
    extraction of natural raw materials and the final
    consumer, and thus a higher proportion of
    processes not directly using natural raw
    materials.

27
important changes in the factors determining
location choices (3)
  • more importance is attached to amenity factors
  • rising standards of income and leisure
  • increased importance of white-collar employment
  • trained and educated people, who are in short
    supply, can afford to be choosy about where they
    will live and work.

28
important changes in the factors determining
location choices (3)
  • increasing degree of dependence on various
    services locally supplied by other industries,
    institutions, and public bodies more linkages

29
important changes in the factors determining
location choices (4)
  • increasing degree of dependence on various
    services locally supplied by other industries,
    institutions, and public bodies more linkages

30
important changes in the factors determining
location choices (5)
  • the advent of technological advances in
    electronics and computer equipment has meant that
    production processes which had involved numerous
    mechanical parts, and therefore the close
    proximity of potential suppliers, have been
    replaced by new processes dependent only on the
    availability of one or several microcircuits
  • cost of physical transport of heavy and bulky
    goods is less important

31
OBJECTIVES
  • Individual and Social Welfare Criteria
  • Regional Economic Growth as a Goal
  • Regional Objectives in a National Setting

32
Individual and Social Welfare Criteria
  • ultimate objectives of regional economic policy
    run in terms of promotion of individual welfare,
    opportunity, equity, and social harmony
  • economic policy in regard to a region should
    promote higher per capita real incomes, full
    employment, wide choice of kinds of work and
    styles of life for the individual, security of
    income, and not too much inequality among incomes

33
Equity versus efficiency
  • . Any action such as spending public funds for
    improved services, subsidizing the establishment
    of new industries in the region, or imposing
    restrictive controls on land usesis sure to help
    some people more than others and may well help
    some at the expense of others
  • guiding principle of the so-called Pareto
    optimum,  which says that a change is desirable
    so long as it helps somebody without hurting
    anybody else

34
"internalizing" the externalities involved in
regional change
  • Internalization the social costs (or social
    benefits) will be in the general interest
  • Hoovers example of chemical plant
  • (1) choose a different location altogether or
    (2) invest some money in effluent treatment to
    reduce or eliminate the pollutant, and thus get
    relief from the special tax or (3) continue the
    pollution and pay the tax, whereupon the
    community gets the money to use for downstream
    water treatment or for compensating in some
    fashion the various parties injured by the
    pollution

35
Regional Economic Growth as a Goal
  • Should it be?
  • Why?
  • When?
  • a region is not, except at an instant in time, a
    definite group of people
  • Should it be counted as a regional gain if some
    people move in whose incomes are above the
    regional average, so that the average rises with
    their advent?
  • If so, should one of the aims of regional policy
    be the out-migration of its poorer inhabitants?

36
Big is better-for who?
  • Department stores, newspapers, banks, utility
    companies, real-estate owners and speculators,
    and local political leaders have vested interests
    in aggregate growth.
  • Their fortunes depend not so much on how well off
    the regions people are as on the size and growth
    rate of the population.
  • Rapid growth confers increased income, prestige,
    and political influence on real-estate brokers
    and promoters, builders, and the other groups
    whose interests are served by local expansion as
    distinct from improvement of local well-being

37
Regional Objectives in a National Setting
  • National High-Employment Policy and Regional
    Economic Adjustment
  • Efficiency, Equity, and Structural Unemployment
  • Helping Regions and Helping People
  • Regional Rivalry and the National Interest

38
Problem regions
  • backward areas halted at the threshold of
    self-sustaining development
  • already developed areas with arrested growth due
    to loss of competitive advantage in their basic
    activities or obsolescence in those activities as
    such, with accompanying loss of ability to
    substitute new kinds of activities
  • areas of excessive growth or excessive
    concentration.

39
Regional Pathology
  • Depends on whether pursuing place prosperity or
    people prosperity
  • should the focus be on those unable to help
    themselves- should regional assistance be
    charity or investment,
  • should we focus assistance in growth centers as
    contrasted with wide dispersion
  • All of this determines appropriate choice among
    available devices for influencing development.

40
How public policy can influence regional
structure and development
  • upgrading manpower quality
  • factor mobility
  • maintaining a high national employment
  • subsidizing or restricting investment
  • controlling transfer rates and services
  • allocating public purchases and investments among
    regions
  • supporting research and development
  • assisting in the provision of local or regional
    infrastructure.

41
The Shift-Share Analysis of Components of
Regional Activity Growth
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