The Advantage of Regional Economic Development Alliances

By September 15, 2017Blog

By Tim Shea

Special Contributor

In the modern American economy, there are two ways to go about “creating” jobs. The first is to provide some good or service, the demand for which is so great that you are unable to handle it all yourself, and you therefore hire an additional person or persons to help you grow your business. The second is to get wooed by a lucrative incentives package, move your pre-existing business operation a couple of miles down the road to some cross city limit or state line so they can claim “jobs created”, and then kick back reap the benefits of said incentives while running exactly the same business you had before.

The difference between these two “techniques” is fairly obvious. The first is a net boost to the U.S. economy, an opportunity to provide goods or services where none existed before. It’s the classic win-win-win in which the business owner, the new employee, and the consumers are all better off than they were before. Yes, incentives might have still played a part in the job-creation process, but if so, those incentives stimulated genuine economic growth. The same cannot be said for the second scenario. In that instance, the business owners might be better off, but the jobs created are an illusion. There is no new economic activity. The entire transaction represents little more than dead-weight loss for the economy as a whole.

In fairness, it’s not as if economic development organizations and the businesses they poach aren’t acting rationally. To the contrary, a business owner accepting more generous incentives is a no-brainer, and the ED organizations are more or less acting in accordance with game theory. It’s a Prisoner’s Dilemma Situation; if they don’t counteract poaching with incentives of their own, they will be taken advantage of. What’s more is that the communities in question are actually benefiting from jobs that didn’t exist locally prior to the move. But that doesn’t change the fact valuable economic development resources are being used to lure businesses back and forth across borders when they could be utilized to spur, you know, real economic development at the macro level.

That’s why expanding economic development apparatuses into regional or even broader alliances is so important. By unifying interests across a wide geographic area, much of the ED poaching and infighting can be eliminated, thus enabling efforts to focus on more productive projects. Going back to the Prisoner’s Dilemma example, regional partnerships serve as a forcing function that requires both parties to “remain silent.” They eliminate the dead-weight loss from our second type of job creation and facilitate more of the win-win-win we see in the first.

To an extent, regional ED alliances are nothing new. They can be found in South Carolina, Alberta, and everywhere in between. It also bears noting that Regional EDOs are also not an automatic panacea for poaching woes. A lot of time, effort, and dedication has to go into ensuring the partnership is equitable and beneficial to all parties. And even a successful regional alliance doesn’t preclude inter-regional poaching. This is especially true when state lines come into play. The fact remains, however, that true economic development at any level should focus on growing the pie as a whole, not ensuring a bigger piece for yourself. Though imperfect, regional alliances are a great first step towards ensuring your ED funds go towards baking and not towards poaching.   

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