Economic Development

Economic Development

by , / November 30, 1997
Koen S. Chi is director of the Center for State Trends and Innovations, the Council of State Governments. He is the author of The States and Business Incentives: An Inventory of Tax and Financial Incentive Programs (1989); "State Business Incentives: Options for the Future," State Trends and Forecasts (1994); and co-author of State Business Incentives: Trends and Options for the Future (1997).

Kim Devooght is the general manager, government services delivery, IBM Global Government Industry. Devooght joined IBM Canada as general manager, government service delivery for Canada, in February 1996 after a 22-year career in government at both the federal and provincial levels. In his last assignment with the provincial government, he was assistant deputy minister of safety and regulation for the Ontario Ministry of Transportation and registrar of Motor Vehicles for the province.

John M. Eger holds the Lionel Van Deerlin Endowed Chair of Communications and Public Policy at San Diego State University, is president of the World Foundation for Smart Communities and is the founding director of the California Institute for SmartCommunities. Eger formerly headed CBS Broadcast International, which he established, and was senior vice president of the CBS Broadcast Group. From 1974-1976 Eger served as Telecommunications Advisor to presidents Nixon and Ford and as director of White House Office of Telecommunications Policy.

Brian O'Neill of Philadelphia is first vice president of the National League of Cities and will serve as NLC president in 1998. O'Neill was elected to the Philadelphia City Council in 1979 and is now serving his fifth term. He also serves on the executive committee of the Philadelphia International Airport Advisory Board and chairs the Northeast Philadelphia Airport Advisory Board. O'Neill initiated a year-long study on Information Technology and Cities that will be presented as the 1997 NLC Futures Report this month.

Robert Pasinella is director of Economic Development for Rensselaer County in upstate New York and is responsible for marketing Rensselaer County. The office mission statement is to create a strong economic climate through quality job creation. He holds a B.S. in management information systems and a M.B.A. in finance and entrepreneurship from Rensselaer Polytechnic Institute. He sits on several boards, including a local business incubator.

Carol Whiteside is president of the Great Valley Center, an organization she founded in August of 1997 to promote the economic, social and environmental well-being of California's Central Valley. Whiteside served as mayor of Modesto, Calif., was the director of intergovernmental affairs for Gov. Pete Wilson, and was also assistant secretary at the California Resources Agency. She is also a director of the Lincoln Institute of Land Policy in Cambridge, Mass.



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QUESTIONS
Follow the questions for the panels responses.

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How can governments
justify spending tax dollars to attract and retain businesses while basic public services are struggling for support?


How would a tax-free
Internet affect economic development in state and local government?


What unexploited
opportunities for
economic development exist on the Internet?


What will a state, city or county need to do in order to participate in the evolving global economy?


Who is succeeding at economic development and how are they doing it?


December Table of Contents

QUESTION ONE:
How can governments justify spending tax dollars to attract and retain businesses while basic public services are struggling for support?

Koen S. Chi
Governments can justify spending tax dollars, in the form of either tax or financial incentives, to create, retain or expand jobs for small and medium-size businesses, especially in depressed areas in their jurisdictions. What governments cannot easily justify is engaging in bidding wars with other jurisdictions to lure big corporations with large customized monetary incentives. Most, if not all, studies indicate no evidence that such firm-specific, mega incentives have been cost-effective.

Kim Devooght
It is important for governments to find a balance between support for basic services such as education, public health or roads and bridges -- all of which clearly have a positive effect on economic development -- and more direct economic development activities. They should not be viewed as mutually exclusive. A well constructed and targeted economic development program will ultimately boost job creation and overall economic growth -- both of which are good news for tax collection and the provision of basic services.

John M. Eger
There is no alternative. We have reached an era of desirable wants bumping against limited means, and new tax-generating revenue schemes are no longer an option. Smart governments must invest in the new information infrastructures and information systems to attract the high-tech, information industries and knowledge workers, who in turn will broaden the tax base and thereby provide the wherewithal to both support, [and] improve, basic and vital public services.

Brian O'Neill
A healthy and vibrant economy is a fundamental part of assuring the overall well-being of any city or town. New businesses will be attracted, and current businesses will want to stay and grow in places with a good transportation network, strong markets, a skilled workforce, safe neighborhoods, and increasingly, a capacity for and utilization of information technology. Investments in these infrastructure assets will pay off in the long run. This is not just sugar to attract some ants but
a climate that fosters prosperity.

Robert Pasinella
Recently, [we] successfully retained a local manufacturer with an annual payroll of over $25 million. Without economic development incentives, the manufacturer would almost certainly have relocated to another state. A relatively small investment, $3 million, [retained] $25 million in consumer spending. It's an easy decision to make. In addition to preserving a paycheck for 800 families, we eliminated the possibility of some of those families utilizing the public services you mentioned in your question.

Carol Whiteside
There are only two ways to increase revenue for the support of services -- raising the tax rate or stimulating more tax-producing activity. When government uses tax dollars to create economic incentives for business retention and expansion, it is because we know that a robust economy generates tax dollars which support and expand basic services.

QUESTION TWO:
How would a tax-free Internet affect economic development in state and local government?

Koen S. Chi
Through a well-designed Internet program, policymakers can make more informed decisions concerning if or how tax money can be used for certain employers. Second, interested companies can make location decisions based on publicly available data (on the Internet). And third, the public can know more about how their tax money is being spent for economic development programs since they will have access. In sum, [the] Internet can be used for more rational decision-making and better communication.

Kim Devooght
IBM believes a moratorium on new taxes aimed at the Internet and electronic commerce is appropriate given the likelihood of conflicting tax treatment, both among states and ultimately internationally. Commerce carried out over the Internet is very much in its infancy, and now is the appropriate time for taxing authorities to pause and consider how to ensure that tax policies do not needlessly impede this promising new medium.

John M. Eger
Electronic commerce is a fundamental ingredient in success and survival in a global information economy. A tax-free Internet should encourage the development of Internet-based transactions, thus fostering economic development. State or local governments which choose otherwise would not only discourage such economic activity but are likely to force an out-migration of the high-tech, information-sensitive industries. Indeed, tax hungry policies by government could well result in cutting the region off from the mainstream of world economic development.

Brian O'Neill
The tax-free Internet legislation Congress considered this year was a flawed attempt to remedy a problem that really doesn't exist. Very few state or local government jurisdictions have imposed taxes that may specifically affect Internet providers or services, and, in fact, many more have decided specifically to create various exemptions for Internet commerce in order to promote its growth.

Robert Pasinella
A tax-free Internet would clearly lower the revenues collected by the state and local government agencies thus creating the potential for reducing the impact of available incentives we would have to offer. This would [also] allow businesses to grow and prosper virtually anywhere. In a perfect market, economic developers should go the way of the dodo bird and become extinct. The better we get at doing our job, the less we will be needed.

Carol Whiteside
In California especially, the Internet has been a huge economic boon, creating new start-up companies and providing jobs for thousands. Taxing the Internet now, especially when the industry is so young and robust, could put a chill on the innovation and growth which it has spawned. In this highly competitive world, IT companies can locate anywhere and can easily relocate to avoid non-competitive state and local taxes.
QUESTION THREE:
What unexploited opportunities for economic development exist on the Internet?

Koen S. Chi
Government jurisdictions can provide information on their regulatory practices, such as business-permit procedures, environmental impact requirements and Workers' Compensation policies. Governments offer information on tax and financial incentives through various publications and Web sites but not on those items. Another example is providing information on export trade for both potential exporters and importers.

Kim Devooght
No response.

John M. Eger
As privacy and security issues, or fears about these issues, are allayed, there is no reason why business and commerce as well as life and leisure in the 21st century could not be conducted on the Internet. The Internet is the modern day equivalent of the railroad, waterways and highways of an earlier time. The movement of information goods and services provides economic incentives to transform life and work, providing tremendous economies of size and scale and reach.

Brian O'Neill
Try the question again. What unexploited opportunities for economic development don't exist on Internet? The Internet is not the be-all and end-all for marketing a city or region, but it is certainly an important part of a good marketing mix that will enable cities to broaden their reach and impact exponentially.

Robert Pasinella
Having a fully integrated geographic information system contained within our countywide Web page. Once completed, the integration will allow browsers the ability to look up a land use planning map, wetlands delineation, infrastructure location, labor pool data, etc. This electronic brochure will allow the county the flexibility to discuss topics of interest with growing and expanding companies. Through this Web site, those companies can request information, allowing us the ability to e-mail customized presentations with sites matched to their specific needs.

Carol Whiteside
Banking and shopping ... direct marketing ... delivery of health care and home-based health diagnosis ... automobile diagnostics, tune-ups and repair could be done electronically. Education and virtual visiting with relatives ... individualized tour planning ... books on tape could become audio books over the Internet. The list is limited only by our imagination.

QUESTION FOUR:
What will a state, city or county need to do in order to participate in the evolving global economy?

Koen S. Chi
A state can consider several things. Each state can increase its export trade by assisting small- and medium-sized businesses by providing more innovative technical and financial assistance programs. Many states don't have specific international trade programs specifically to help smaller companies. States can be more aggressive in exploring foreign markets. Three, states can establish regional networks for technology transfer to produce items that can be exported to other countries much more efficiently.

Kim Devooght
Participating in a global economy requires a global perspective. Governments must also have a strong sense of purpose and begin to recognize the value of their core competencies and appreciate the existence of competition -- competition which does not necessarily come from the jurisdiction next door but from around the world.

John M. Eger
This basic shift in the structure of the economy, as Stuart Brad, author of Media Lab put it, is like a steamroller in which one is offered a choice between being part of the steamroller or part of the road. Communities must participate in this new economy, renewing and re-birthing themselves for a digital democracy, arming themselves and their citizens with the tools of the new age and commencing a process of transformation.

Brian O'Neill
Cities and regions need to assess and capitalize on their assets and focus on their long-term potential, rather than engage in short-sighted bidding wars, giveaways, fads and scattershot approaches. And they must constantly engage with and learn from the worldwide array of information resources, scanning the horizon for new ideas and opportunities. As one observer put it, "Even when you're on the right track, you're going to get run over if you just sit there."

Robert Pasinella
The county executive and I attended the world's largest industrial trade show in Hannover, Germany. Doing business overseas is vastly different than here in the U.S. Relationship building with companies outside U.S. mainland is essential. We are currently developing several (nearly 80) promising leads. In addition, an Internet presence is a must. As the proliferation of the Internet occurs worldwide, the traditional barriers that existed between differing continents will slowly erode, and a true global economy will emerge.

Carol Whiteside
Government must insure that the necessary information technology infrastructure is ready for new business sectors and for those which already exist. Government -- especially at the state, city and county levels -- should strategically remove barriers and structure government operations to be more responsive in a rapidly changing world. It should be a facilitator of transactions and a supporter of electronic commerce.
QUESTION FIVE:
Who is succeeding at economic development and how are they doing it?

Koen S. Chi
This question is too broad to answer. In general, however, it is safe to assume that states with long-term strategic planning tend to have a better chance to succeed in creating jobs on a long-term basis. In the past 10 years, some states have launched various strategic initiatives to invest more in infrastructure improvement, overall business climate improvement and job training. The best investment in economic development activities is one that can be beneficial to the entire state.

Kim Devooght
Manitoba, Canada's Open Bidding System [and] Service First Initiative -- an electronic network that will be used as the primary channel for the dissemination of information and services. Maryland ... implemented the Maryland Electronic Capital, the Annual Maryland Technology Showcase, NetWeekend, etc. SmartUTAH is designed to facilitate government-to-business electronic commerce applications.

John M. Eger
Singapore, Seattle, San Diego and Stockholm are but a few cities and city-states worldwide that are fast becoming "smart communities," aggressively using information technology to transform significant parts of their region. A smart community is ... a community which has made a conscious decision to transform their entire region. The important starting point is a vision and a plan that recognizes the importance of information and knowledge as the new wealth and information technology as tools of wealth creation.

Brian O'Neill
Success can be measured on different scales and in different ways. Just as our workforce, our cities and our nation are transitioning to a knowledge-based economy, the scope of opportunities is allowing creative leaders to shake off the shackles of geographical boundaries, traditional patterns and conventional thinking -- to become what Rosabeth Moss Kanter [Harvard Business School professor and author] describes as "world class" in their chosen fields of effort.

Robert Pasinella
We must understand the strengths and weaknesses of the product we are selling, i.e. taxes, land value, local university initiatives, labor pool, infrastructure, local politics, existing businesses, etc. Once identified, we should try to eliminate as many anti-business barriers we can. The next step is to develop a marketing plan that addresses retention of existing businesses and acquisition of new businesses. In my experience, too much emphasis is placed on the acquisition of new business.

Carol Whiteside
San Diego has been focusing on its strategic role in a global economy for more than 20 years, since Pete Wilson was mayor. A bi-national economic region encompasses multiple cities within the county and includes the manufacturing sector in Tijuana and Baja, Calif. Sacramento has been working for years to maintain a healthy economy and a healthy downtown, avoiding some urban decay that has all too often become the hallmark of the nation's aging metropolises.