Using City Government to Build Community Wealth

Posted by Steve Dubb on November 5, 2012

While the two major party presidential candidates have many differences, both agree on the primacy of free enterprise.  Mitt Romney in his speech six weeks ago to the Clinton Global Initiative said, “Free enterprise has done more to bless humanity than any other economic system.” For his part, President Obama, remarked in his closing statement at the second presidential debate, “I believe that the free enterprise system is the greatest engine of prosperity the world’s ever known.”

One minor problem: free enterprise does not exist. 

The term “free enterprise” was largely a creation of the National Association of Manufacturers in the 1930s. As historian Lawrence Glickman explains, the Great Depression of the 1930s made the term “capitalism” not so popular; free enterprise sounded better.

But if by “free enterprise,” we mean that business and government operate in separate spheres, with government setting the rules and regulations and business “freely” competing within that framework … well …

Reality is vastly different. Political scientist Kenneth Thomas estimates that “free enterprise” businesses receive $70 billion a year in state and local government subsidies. The nonprofit Good Jobs First maintains a listing, so you can identify who gets what where you live. By contrast, the annual budget of the Community Development Block Grant program is about one twentieth as much, or a little over $3 billion.

Naturally, business subsidies are rarely identified as such. Rather, they are called “incentives” or tax increment financing, among other labels. Whether the “deal” involves a factory, a stadium, or a commercial development, the money has to come from somewhere, typically at the expense of schools or other public services.

One can rail against such routine government largesse, of course. But since local and state governments are unlikely to forgo economic development activity, it is worth considering how to make those economic development tools work for community wealth building, instead of against it.  Community benefits agreements are one important tool, but these typically apply to private developments, rather than to state and local government activities directly.

However, city government and school districts could apply similar principles to their own operations, targeting local investment and procurement to support homegrown economic development.  In Cleveland, the Evergreen Cooperatives, in which the Democracy Collaborative has played a role, provides one example. As Tracey Nichols of Cleveland’s economic development department said to the producers of the film Shift Change, “We used to offer all kinds of tax abatements and other incentives to get businesses to move here, but then after a few years another city would offer other encouragements and many would move away. Now we are looking to support businesses that are a good fit with what we already have, to build a healthy economic environment that will endure.”

More broadly, a recent report, The 25% Shift, commissioned by the Cleveland Foundation, found that a focused effort to re-localize production of just 25 percent of one industry – food – could generate in northeast Ohio 27,664 new regional jobs, $4.2 billion in economic activity, and $126 million in new tax revenue, while increasing food security and reducing obesity and Type-II diabetes.  In the real world of community economic development, we need to move beyond old shibboleths of promoting free enterprise and instead develop effective partnerships that can build real jobs into real communities.

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Steve Dubb is research director at the Democracy Collaborative at the University of Maryland.

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