Public Policy Forum Blog

What's Wrong With Local Competition?

Do regional economic development initiatives have plenty of gloss but little substance? That’s a question some are asking after a recent Journal Sentinel report that our own regional initiative, the M7, is shifting its strategic focus. The M7 commissioned a study to outline a strategy for recruiting some businesses that might like to relocate to the region. The study suggests that the M7 focus on recruiting from two industrial sectors: control and instruments technology and food processing.

While the report is a useful planning tool, it brings attention to the fact that M7 has yet to draw a major corporation to the area. We should commend the 5-year-old M7 for acknowledging that reality and announcing a new tactic. But, there’s a broader question here about regional cooperation as a strategy to attract new businesses. From a public policy perspective, are these sweeping regional cooperative efforts the best option?

Informal regional cooperation and governance initiatives similar to M7 became popular in the 1990s after a cycle of more formal regional governing institutions that sprang up during the 1960s and 70s, such as Unigov in Indianapolis and the federated tier system in Miami-Dade.

Unfortunately, there has been little empirical evidence linking regional cooperation initiatives or regional governing bodies with clear economic benefits. Local competition among municipalities appears to work just as well. In fact, there is much economic research, based on the “public choice” theory of Charles Tiebout, that argues that local competition is more efficient than regional cooperation.

More recent research shows that strong, tangible incentives from individual municipalities (along with state tax breaks) draw the first-class corporations, like Boeing moving to Chicago.

Regional efforts have more success in building regional infrastructure projects, which arguably have the largest economic benefits of all kinds of public spending. Regional cooperation in building specific infrastructure projects, such as public transit or intermodal freight stations, has been found consistently to raise local property values.

All this calls into question the appropriate goal for M7: should they continue to focus on business recruitment or should our regional efforts also concentrate on funneling local investments into larger regional projects?