Michael Hicks is the George and Frances Ball Distinguished Professor of Economics and the director of the Center for Business and Economic Research at Ball State University. His column appears in Indiana newspapers.
Most Hoosiers don’t yet realize it, but much of the state is in the midst of a quiet revolution. Many elected leaders now recognize that the economic development efforts of the past half century have failed to deliver prosperity to their cities and towns. Sadly, in far too many communities, 50 years of "romancing the smokestack" left them in economic disarray. In these places, the revolutionary policy changes cannot come fast enough.
Since the 1960s, economic development in most of Indiana meant luring a business, sometimes any business, to town. The tools for these policies were cheap land, cheap labor, tax breaks and subsidies. That process cheapened our land, immiserated workers and starved local governments of much-needed revenues. You can still see hints of this policy at work, often in the most desperate and poor places where reform is most needed.
The policy revolution I refer to isn’t really that new. Indianapolis has been embracing it for decades, as have Carmel, Columbus, and more recently Kokomo, Fort Wayne and Evansville. Places like Goshen, Fishers, Westfield, Elkhart, South Bend, Yorktown, Winchester and Jasper have shifted to a more modern approach.
Leadership in these cities are transforming these places into communities that people wish to live in. Ironically, this is exactly the approach Midwest cities followed did a century ago when we were the economic marvels of the world.
State leadership is also changing its approach. The Regional Cities Initiative, the Stellar Communities program and a growing body of legislation is helping push communities toward self-improvement and away from the failed policies of the past. Sadly, bad habits die hard, and there are still too many communities chasing smokestacks with incentives and abatements.
The excesses of the old policies are too many to chronicle here. Over the past 15 years nearly every Indiana county has subsidized a new business that pays below-average wages, subsidized a big company that reneged on its hiring promises or constructed a still-empty shell building. It is easy to trace the popularity of these policies to those whom they benefit. It is clearly not the taxpayer nor future residents of Indiana.
I characterize these policy changes as revolutionary, but not because they are especially new or innovative, though many are. Rather, they are radical due to the fierce resistance of those who wish to continue the status quo. The vast array of tax subsidies, speculative government construction and municipal bonds for economic development projects handsomely benefits a very few who have been on the economic development gravy train for decades.
The push to change local economic development policy has come from a few courageous elected leaders and from a few university researchers offering provocative research results that challenged the status quo. While a growing number of economic developers and consultants recognize the need for change, the old guard remains steadfastly against any modifications. Their opposition to change has been shocking. Oddly, in some cities economic developers have actually worked to unseat elected leaders who’ve succeeded in changing course.
Likewise, an aggressive campaign to silence professors has struck at least three universities in Indiana. There’s a very large body of research reporting the poor results of tax incentives and abatements. Those of us in Indiana who’ve contributed to this research or talked about it publicly have become targets. Several consulting firms and local economic developers have lobbied to keep our work away from TV, radio and the newspapers. Some even urged the General Assembly to cut off funding for any economic development research in Indiana’s universities. Most strangely, over the past two years several economic developers penned letters to our universities asking that we be silenced. This final development reveals that at least a few local economic developers possess a no firmer grasp of the Constitution than they do economics.
The good news is that a growing share of economic developers and a majority of elected leaders are now embracing the notion that the state must attract people to grow. Most importantly, the success of this retro-modern approach to economic development will soon have everyone clamoring to make their city or town attractive for that all-important piece of a modern economy: people.