Despite our internet age, where a person lives and works matters more than ever before in the modern American economy. Between 2007 and 2017, 80 percent of U.S. counties experienced declines in their working-age demographic. The New York metropolitan area now accounts for over 10 percent of the nation’s output, yet only 6 percent of its population. America is still the land of opportunity, but in a way that has become increasingly concentrated in a shrinking number of locations.
The contemporary success of cities has an ominous flip side. Once-thriving regions across the United States are struggling with the collapse of industries and shrinking tax bases. Cities, on the other hand, have failed to properly absorb newcomers in search of opportunity, driving up rents and exacerbating local inequality. Policymakers often treat these two kinds of inequality — inter-regional and intra-regional — as separate. But what if they are two sides of the same coin?
It’s time to get serious about the regional nature of inequality, and push the frontier of research into the issues facing struggling communities, both rural and urban.
There’s clearly an appetite for fresh thinking in economic development policy. Consider the battle over Amazon’s HQ2, which pitted more than 230 cities and development authorities against one another, each offering more outlandish inducements than the last. In the end, Amazon settled on an affluent part of Northern Virginia, bringing the promise of major investments to one of the richest zip codes in the country.
This is sadly an all-to-common dynamic. Regions on the upswing have the revenue for tax incentives and quality public services, making the region all the more attractive. The resulting feedback loop can turn a local economy around, but it can also work in reverse. Regions that are doing poorly may have to raise taxes or cut programs to balance budgets, creating further reasons for businesses and residents to leave. When these virtuous and vicious cycles work in tandem, the gap between haves and have-nots pulls farther apart.
Rather than put blame on anyone in particular, we should see this dynamic for what it is: a massive coordination failure. Dozens of development programs are scattered throughout the federal government, from the Small Business Administration to the Department of Commerce.
Yet virtually nothing exists to help state and local authorities work together, pool their resources, and turn the tables on the HQ2s of the world. For struggling regions of the country, collaboration should replace competition, rather than spending scarce time, energy and resources in the usually fruitless struggle to land the few HQ2-like opportunities out there. Our initiative will identify how this new collaboration might be possible.
Fortunately, policymakers are starting to wake up to the need for greater coordination. Consider the Opportunity Zones program, established under the 2017 tax reform law. It allowed governors to nominate low-income census tracts that the Treasury Department then certified for deferred or reduced capital gains taxation on new investments made within the designated zones. Governors and mayors still get to cut ribbons and take credit for new investments, but in a way that preempts the usual wasteful arms race, and levels the playing field for poorer communities.
Opportunity Zones represents a promising new tool for channeling financial capital into low income communities, but this program is not without its problems. For our part, the Struggling Regions Initiative is committed to producing objective evaluations of their impact as data begin to accumulate.
Yet tax incentives can only do so much. From the best response to deindustrialization to the inclusive development of cities, we take a holistic approach to place-based policy. Reversing the growing chasm between have — and have-not regions is simply too important for the health of the nation — we cannot afford to approach it with a closed mind. Stay tuned as we chart a course to revive and diversify America’s economic potential, and work to build a new consensus.
Samuel Hammond is the director of poverty and welfare policy at the Niskanen Center. Follow him on Twitter: @hamandcheese. Michael Myers is the managing director of policy, global policy and advocacy at the Rockefeller Foundation.