12.1 THE GROWING CONCERN WITH REGIONAL DEVELOPMENT

In the previous chapter, we gained insight into processes of regional economic development involving the initiation and transmission of changes. We saw, also, that economic change within a region is determined partly by external forces beyond the influence of parties within the region itself and partly by decisions and actions that can be taken by such parties.

The present chapter will take up the question of what directions of change are desirable or desired: the objectives of regional economic policy. We shall look also into the pathology of regional development: what situations arise in which there is an urgent need for corrective action. Finally, we shall look into the prophylaxis and therapy aspects of regional development policy: what appropriate means exist for influencing development in desired directions and how they can be used most efficiently.¹

These questions are definitely in the spotlight today. Vast amounts of talk and action, and a substantial amount of thought, are directed at urgent problems of regional development (including but not limited to the special problems of urban life covered in Chapter 13).

Such concern is relatively recent. As late as 1948 it seemed fair to state that:

Although governments have a large stake in the results of locational development, great power to influence that development, and a correspondingly heavy responsibility for influencing it in a socially desirable direction, few governments have ever followed any coherent policy in regard to location.²

The "few governments" referred to certainly did not include the United States.

But a radical change in thinking was already brewing. In Britain even before World War II, it had become clear that the depressed economic position of the northern and Welsh industrial areas presented an intractable problem, and controversy was rife on which national policies might or might not work. Since the 1950s, we have been observing with some frustration that the so-called developing countries do not seem to catch up automatically with the more advanced ones, even with continued and massive international assistance of various types.

Moreover (as was noted in the previous chapter) economic statisticians and historians who had been investigating interregional disparities of income within the United States found reason to question the inevitability of convergence. One basis of concern and of desire for better understanding and policies has been a realization that regional stagnation that depression can be quite persistent.

Throughout much of the 1960s, attention was drawn to pockets of poverty in what otherwise was thought of as the "affluent society." Today, we are less apt to view regions with low levels of economic growth or even those experiencing absolute decline in economic activity as being anomalous. Structural changes in the U.S. economy, which are reflected by the population shifts described in Chapter 11, have given traditional concerns new weight. These shifts have meant expansion in the "sunbelt" states and relative or absolute decline in many "frostbelt" states. They ‘have also stimulated discussion of programs associated with "reindustrialization," a term that has come to mean recognizing that the economic base of vast regions of the United States is jeopardized by stiff competition and technological change. Indeed, some pundits now speak of the "rust-belt" as including much, if not all, of the nation’s old industrial heartland.

Important problems must be confronted in the face of such change. Transition can be difficult, whether it is accompanied by the expansion or the decline of local economic activity. Further, it is rarely easy to identify the cause or causes of change, and therefore coping with its consequences and planning for corrective action are also made more difficult.

There is a distinctly urban dimension to many of these regional problems. The process of urbanization accelerated earlier in this century because of the declining relative importance of agriculture. Unemployment in urban areas is more visible and more unsettling for both the individual and the community than is rural underemployment. Further, the rapid shift of black population from rural areas to urban slums³  intensified this change; and along with a complex of other problems of urban adjustment, it vastly increased the number of urban areas calling for external economic aid. Problems of traffic congestion and environmental pollution (particularly in and around urban areas) stimulated a search for more rational use of space and resources.

These problems developed during the 1950s and 1960s, when virtually every major metropolitan area was growing. Now that a number of larger metropolitan areas are experiencing population decline, additional problems have become apparent. At the same time, rapid metropolitan area growth in the South and West has meant new pockets of poverty and urban distress in these regions.

Fiscal pressures on local and state governments in the United States are part of the picture too. For expanding areas, with increased demands for all kinds of public services, the principal revenue sources of those jurisdictions (primarily the real property tax at the local level) often do not keep up with rapidly rising demands. States and local communities are rightly fearful that higher taxes will drive away or deter business investment.

The same fear persists in regions characterized by decline; the demand for services does not fall proportionately with population. Often, the least mobile persons—those left behind—are most in need of public services. This as well as the substantial resources required to maintain the existing infrastructure of roads, bridges, and sewer systems put upward pressure on tax rates that threatens to place areas hard hit by structural change at further disadvantage.

As a result of these forces, there has been increasing though sometimes reluctant reliance on the more ample and flexible taxing powers of the federal government to finance local programs (such as education, health, and highways), and still more broadly to provide unrestricted grants to the states for use at their discretion. This channeling of public money through the national treasury naturally brings to the fore rival regional claims on federally collected funds, and the competition may be intense as national policy makers are themselves forced to reconcile diverse pressures for increased expenditures with slow growth in revenues. Thus the problem of just and efficient allocation becomes one of the utmost concern.

Still another factor arousing interest in the policy problems of regional development is disillusionment with the effects and objectives of the more naive forms of local and regional self-promotion. As more localities participate in this competitive game, more of the total effort is recognized as simply canceling out (that is, each community is driven to promotional efforts in self-defense by the activity of rival areas). And more and more questions are raised about whether growth itself is a sensible standard of community interest and objective of public action at the local level.

Next, it appears that there has been a significant shift in the attitude of the general public, and of most economists, toward population growth on a local, regional, national, or world basis. In the 1920s and 1930s, the American credo of the beneficence of population growth was unquestioned, and leading economists and statesmen were pointing with alarm to the perils of economic stagnation that would beset us if we did not get busy breeding more young consumers. Malthus’s gloomy nineteenth-century warnings were dismissed as a discredited fantasy.⁴

This attitude has changed considerably. In part, the change came from the frustration of seeing hard-won output gains in so many of the underdeveloped countries canceled out by mushrooming population growth. Meanwhile at home the postwar baby boom, the all too evident pressures of population growth in urban and outdoor-recreation areas, the generally inflationary bent of the economy, and the relatively high fertility of people low on the economic and education ladder all helped to undermine the venerable New World tradition of the blessings of increased population. Today, thinking and policy are much more directed toward welfare objectives, such as fuller employment and higher per capita income, rather than to the misleading standard of aggregate growth.

Still another contributing factor in the shift toward more enlightened approaches to regional promotion is what might be called the dilution of provincialism. We now find it normal for individuals to make their home in several different communities and regions during their lifetime,⁵  and for them to travel often and widely. This more varied exposure is conducive to more objective feelings about programs that may benefit one region at the expense of another.

Finally, there have occurred (and are occurring) a number of important changes in the factors determining location choices of producers and consumers. These changes, arising mainly from changes in technology and increased income and leisure, really underlie many of the developments already mentioned and have certainly played a significant part in the rethinking on regional development. These changes in location determinants have been mentioned in previous chapters and can be briefly recapitulated as follows:

1. In terms of linkages among industries and their sources of materials and markets, the cost of physical transport of heavy and bulky goods is less important, and increased importance attaches to the speedy and flexible transportation of high-value goods and above all to communication—that is, the transmission of intangible services and information.

2. Access to markets has increased in importance for most industries compared to access to sources of raw materials and energy sources. This trend reflects the increased variety and complexity of products, which increases, in turn, the importance of shopper comparisons, sales promotion, and servicing, and thus makes proximity to market more desirable. Increased complexity of products has meant also more stages of processing between the primary extraction of natural raw materials and the final consumer, and thus a higher proportion of processes not directly using natural raw materials.

3. More and more importance is attached to amenity factors such as good climate, housing, and community facilities, and access to recreational and cultural opportunities. This change reflects rising standards of income and leisure, the increased importance of white-collar employment, and the fact that industries in a dynamic growth stage require a high proportion of well-trained and educated people, who are in short supply and so can afford to be choosy about where they will live and work.

4. For some industries, there has been an increasing degree of dependence on various services locally supplied by other industries, institutions, and public bodies. Thus we hear more about the external economies of a location well supplied with such services and facilities. We hear more of the importance of an adequate regional or community infrastructure—supplying such things as local utility services, police and fire protection, schools, hospitals, reference libraries, and the like—as a necessary basis for development of profitable enterprises producing goods and services for outside markets.

5. For other industries, the advent of technological advances in electronics and computer equipment has meant that production processes which had involved numerous mechanical parts, and therefore the close proximity of potential suppliers, have been replaced by new processes dependent only on the availability of one or several microcircuits. The producers using this new technology, as well as the suppliers of electronic components, are each relatively more free to choose among alternative locations, as compared with their counterparts using or supplying older mechanical parts.

Concern, controversy, and experience have brought into focus some basic issues of regional development objectives and policy, to which we now turn.

12.2 OBJECTIVES

12.2.1 Individual and Social Welfare Criteria

The ultimate objectives of regional economic policy run in terms of promotion of individual welfare, opportunity, equity, and social harmony. It would seem obvious, then, that economic policy in regard to a region should promote higher per capita real incomes,⁶  full employment, wide choice of kinds of work and styles of life for the individual, security of income, and not too much inequality among incomes. The relative importance of these goals is, of course, something that economics cannot tell us. Each of us has his or her own values and can try through the political process to influence the objectives of social policy so as to reflect those values.⁷

The aspect of equity raises some difficult questions in connection with the application of these criteria to programs and policies affecting such diverse groups of people as the inhabitants of a region. Any action— such as spending public funds for improved services, subsidizing the establishment of new industries in the region, or imposing restrictive controls on land uses—is sure to help some people more than others and may well help some at the expense of others. There is general agreement, however, on the guiding principle of the so-called Pareto optimum,⁸  which says that a change is desirable so long as it helps somebody without hurting anybody else. In practice, some of the benefits conferred on individuals by a change (for example, building a new highway) can be taxed away from these beneficiaries so as to compensate those who otherwise would suffer by the change; and the real question is whether the Pareto criterion is satisfied after feasible compensatory transfers of this sort have been made.

This guiding principle is much easier to propound than to apply. The very essence of a region is interdependence of activities and interests, and these interactions become particularly crucial in a high-density urban region within a city or neighborhood. Any change in one activity produces externalities and neighborhood effects on a variety of other activities, and these effects can be either helpful or harmful. Thus the building of a sports stadium can help the merchants of an area by bringing in more visitors and purchasing power, while at the same time it can spoil the surrounding residential neighborhood by creating traffic congestion, noise, and litter.

An important task for regional economists is to devise ways of "internalizing" the externalities involved in regional change. Take, for example, a chemical plant whose operations pollute a river. The pollution imposes a variety of injurious externalities on other residents of the area. Thus other industrial plants and water-supply systems downstream will have to incur extra costs for water treatment preparatory to use; businesses based on recreational use of the river, or fishing, will suffer diminished patronage, higher costs, or both; and there will be a still broader injury to the community in terms of loss of recreational opportunity and amenity, and possible health hazards. In principle, it might be possible to set a fee or tax on the chemical plant to reflect all these social costs, whereupon the costs of pollution would become internal costs of the chemical firm. These costs having been properly internalized, or placed where they belong (that is, imposed on the party that causes them), the chemical firm will have to reconsider its profit calculus. It can (1) choose a different location altogether; or (2) invest some money in effluent treatment to reduce or eliminate the pollutant, and thus get relief from the special tax; or (3) continue the pollution and pay the tax, whereupon the community gets the money to use for downstream water treatment or for compensating in some fashion the various parties injured by the pollution. Any one of these three outcomes is, of course, preferable to the original situation in which the chemical plant’s activities imposed social costs borne by other parties. This holds true regardless of whether the polluting firm absorbs or passes on to its customers the added costs imposed on it.

We can also speak of internalization in the opposite case, in which some individual activity yields external benefits to other parties but cannot feasibly collect directly from them in return. In such a case, the socially optimum scale of this activity is greater than the scale on which it will be led to operate on the basis of its costs and returns. Internalization of the social benefits will then be in the general interest. This is the rationale for the granting of various forms of subsidies, inducements, and exemptions to activities that are believed to have beneficial external effects. Thus a chamber of commerce or a neighborhood merchants’ association may raise money from its members to help build a convention hall, park, or other facility that they believe will eventually help their business; or a municipality or a state may use general tax funds to subsidize new industries, or give them tax exemptions, on the theory that such subsidy is a sound investment for the taxpayers as a group.

12.2.2 Regional Economic Growth as a Goal

What has been said above applies to economic objectives and policies for the welfare of a group of people. But a region is not, except at an instant in time, a definite group of people—it is an area populated by a changing group of people. In any region of consequence, every day sees some new arrivals (by birth or migration) and some departures.

This continual turnover of a region’s population complicates the question of policy goals. What is to be maximized over, say, the next ten years? The welfare of the present inhabitants of the region, regardless of where they may be in ten years’ time? The welfare of those who will be living in the region ten years hence, regardless of where they are now? Should it be counted as a regional gain if some people move in whose incomes are above the regional average, so that the average rises with their advent? If so, should one of the aims of regional policy be the out-migration of its poorer inhabitants? Is a region improved if its population and total income increase at equal rates, with per capita income unchanged?

Our preferred objective for a region’s development depends, of course, on where we sit. In addition to differences of interest among groups within a region, there is an important difference between the optimum for any single region and the optimum pattern of regional growth rates in relation to national welfare.

Is simple regional growth (in aggregate terms, without regard to per capita income or welfare levels) a sensible objective? On the face of it, such a criterion sounds quite irrelevant. Yet in practice we find that regional promoters and governments spend a great deal of money and effort in the avowed pursuit of a bigger regional economy—that goal is put forward without apology as something worth striving for.

How can this be explained? Partly, perhaps, by emotion and tradition. The idea that "bigger is better" has been a remarkably enduring component of American ideology, although it is no longer such a universal article of faith.

There is an even more basic explanation, however. A substantial part of the business and political interests in a region are, in locational terms, oriented to the local demand and thus have a direct stake in the overall population and income of the region. Department stores, newspapers, banks, utility companies, real-estate owners and speculators, and local political leaders have vested interests in aggregate growth. Their fortunes depend not so much on how well off the region’s people are as on the size and growth rate of the population. Net in-migration is good from their standpoint even when accompanied by a reduction in per capita income and other aspects of individual welfare; population losses are viewed with alarm.⁹

Quite logically in terms of their own interests, therefore, these groups are active promoters of and contributors to any programs and policies that promise to expand the regional economy in terms of aggregate income and employment. It is they who most zealously support chambers of commerce and local or regional booster associations. Firms primarily involved in export business have little or nothing to gain from such participation and, indeed, often stand to lose (through higher costs of labor, land, and some other local inputs) in a community or region experiencing rapid growth.

Here we have still another important contradiction to the widespread view, discussed in the previous chapter, that the primary sources of regional growth lie in the exporting sector. Local promotional efforts, at any rate, come mainly from the local market-serving or nonbasic sector.

What has just been said refers to regional growth in aggregate terms. In terms of individual economic welfare in the area (as roughly gauged by per capita real income), the interest groups play quite different roles— and it is in such terms that civic responsibility should really be judged. The local market servers, in their pursuit of the gains to be had from population growth and added business and housing development, too often assume that what is good for themselves must be good for the community, and then proceed to sacrifice quality of life for quantity. Since these interests include such powerful voices as those of utilities, banks, merchants, local public officials and union leaders, and (most important) the local news media, they can easily push an area into destructive overdevelopment. In one area where residents had been protesting for years the frantic and planless replacement of orchards and pleasant countryside by solid square miles of subdivisions and shopping centers, the leading newspaper publisher defended his advocacy of still more growth by the frank observation, "Trees don't read newspapers.

Finally, we note here still another mechanism by which regional or community change can become self-reinforcing and cumulative. Rapid growth confers increased income, prestige, and political influence on real-estate brokers and promoters, builders, and the other groups whose interests are served by local expansion as distinct from improvement of local well-being. This added power helps "growth-at-any-price" pressure groups to shape local planning and policies toward still further emphasis on continued growth and still less consideration of environmental and other welfare effects. Pure boosterism is truly narcotic, producing first euphoria, then addiction, and eventually decay.

12.2.3 Regional Objectives in a National Setting

Regions are not self-contained nor independent of one another. Accordingly, a true concern for human welfare calls for evaluating development and framing policy goals on a multiregional or national basis.

National High-Employment Policy and Regional Economic Adjustment. Experience has taught us that we cannot expect any satisfactory solution to the problem of regional unemployment or arrested development except in the context of a prosperous national economy. In a depression period, businesses are doing relatively little capacity expansion and have little difficulty in finding locally the necessary labor, services, and space for such expansion as they want to undertake. Their investment is more likely to take the form of cost-cutting improvements in existing plants, and this may well involve closing down some branch facilities at the more marginal locations. Moreover, in slack times, the surplus manpower in any area has literally nowhere to go and fewer resources to go anywhere; we cannot look to labor migration for any significantly useful adjustment.

We have found also that the national monetary and fiscal authorities have great powers to increase the nation’s money supply and disposable income, and thus to stimulate spending and investment in the aggregate. Such action helps to maintain the necessary buoyant climate in which constructive regional adjustments by people and industries can occur.

Efficiency, Equity, and Structural Unemployment. Some people feel that maintaining a high level of employment and demand in the economy is as much as the national government should do in regard to regional economies. There are, however, two distinct arguments for other, and more specifically region-oriented, national policies and programs.

The first argument invokes the criterion of efficiency, claiming that there are other ways besides fiscal and monetary policy for facilitating effective allocation of resources among regions and the necessary dynamic adjustments. The second argument is based on equity,claiming that the national government has a responsibility for helping disadvantaged regions as such.

The efficiency argument rests largely on the idea of "structural unemployment." This type of unemployment comes about because there are wide disparities in the employability of different groups in the labor force. There are poor matching between the kinds of labor that are in demand and those that are available, and there is insufficient mobility and interchangeability within the labor force. This makes shortages, rising costs, and consequently inflation inevitable, while millions of the less employable are still out of work. Obviously, any policies that will reduce these wide disparities and make manpower more mobile and interchangeable will have the good effect of shifting the inflationary brink closer to the ideal of full employment.

There is, then, a strong case for public programs involving education and worker training and retraining, and for more direct aids to spatial and occupational mobility: for example, improved information about job opportunities, assistance to migrants, and removal of racial and other discrimination in employment. It is also clear that such efforts ought to focus on upgrading the least advantaged types of workers and reducing their competitive handicaps. Such emphasis is, of course, in accord with equity objectives as well.

Helping Regions and Helping People. When it comes to translating this policy into geographical terms, we pass from consensus into controversy. It is tempting to argue that if public policy should specifically help the less-advantaged classes of people to find jobs, then it should by the same token seek to underwrite the prosperity and growth of all communities.

Such a view has been aptly characterized as substituting "place prosperity" for the more fundamental objective of "people prosperity."¹⁰  its more naive expressions, the place prosperity doctrine represents merely false analogy: an unreasoning assumption that whatever is true of individuals must also apply to areas. On a more rational level, it is possible to suggest place prosperity as a pragmatic proxy for the ultimate ideal of people prosperity—on the hypothesis that the best way to help a person is to promote the overall prosperity of the area in which he or she happens to live.

The place prosperity doctrine will figure importantly in later discussion in this chapter. For now, it is enough to indicate two of its shortcomings. The first lies in ignoring the fact that a region does not correspond, for any length of time, to a fixed set of people. Since people have some mobility, the best way to help disadvantaged people who are living in a particular region may be to encourage them to move. Migration can, in fact, serve both the objective of efficient use of resources and the objective of interpersonal equity and distribution of opportunity.

A second criticism of the place prosperity approach is that in practice it is wastefully nonselective in its assistance. In any community or region where there are unemployed and needy people, there are also employed and prosperous people. Increased employment and income for the area as a whole may help those who need it most; but a large part of its local benefits will come to those who do not need it. Those surest to benefit, as suggested earlier, are generally property owners and the operators of established locally oriented business, such as utilities, banks, and commercial and consumer service firms.¹¹ Growth of aggregate area income and employment does not automatically mean improvement in per capita income or the reduction of unemployment, and it generally injures some while helping others. Such considerations suggest that attacking human hardship and lack of opportunity solely through place prosperity might be like using a shotgun to kill flies.

Regional Rivalry and the National Interest. The benefits of growth in a region are directly and strongly felt by certain influential interest groups, while the costs are likely to be more diffused and less well perceived. Most regions, consequently, devote some effort to furthering their own economic growth by attracting additional activities.

Regional rivalry, like other forms of competitive promotion and warfare, can be in large part self-defeating, or a "zero-sum game," contributing nothing to the national welfare. One region’s gain is another’s loss. This is especially likely when the regions are small and when the primary weapons are persuasion and subsidy. Resources such as capital and labor that are drawn to one area cannot be used in production elsewhere, and from a national perspective there is no net gain, unless the productivity of those resources is higher in the receiving region. From this perspective, the nation’s rate of growth is analogous to a pie; a bigger slice for one region means a smaller slice for some other region.

However, regional growth may be generative rat her than competitive. In this more positive light, efficiency gains in each region may promote national prosperity. As Harry Richardson puts it:

It is possible for national growth to be increased by faster regional growth, and it is possible for regional growth performance to be improved without additional resource inputs. Agglomeration economies and spatial clustering of activities may induce more output than if production is dispersed. Growth-inducing innovation may be adopted by local entrepreneurs, even though they were first introduced outside the region. A change in settlement pattern (i.e., a more efficient regional urban hierarchy) or a reorganization of the intra-regional transportation system may improve productive efficiency and promote faster growth.¹²

Thus enlightened local efforts to enhance a region’s growth potential can result in significant net benefits. These efforts may take the form of upgrading the region’s human and natural resources and public services, protecting and improving amenities, stimulating entrepreneurship and innovation, fostering cooperation among various business, social, and political elements, and discovering the true comparative advantages of the region for further development. All these effects favor better utilization of resources and are clearly in both the national and the regional interest. A logical national policy with regard to regional development should include some effort to channel the growth urge of regions into these constructive paths.

But it is also true that regional rivalry in development can be something worse than a zero-sum game if it distorts the efficient allocation of resources. This danger is inherent in the use of local subsidies, and most of all with respect to the use or abuse of natural resources and the neglect of externalities.

Competitive regional and urban development are clearly suboptimal. They may involve regions in a competitive race to offer up for private exploitation their air and water quality. The resulting resource deterioration involves transfer of income from local residents to business firms. Competitive tax concessions to attract development may also result in relative weakening of the public sector. Competitive regional development may involve serious external diseconomies resulting from failure to treat environmental units, such as river basins, as planning units. The larger the planning region, the more adequately externalities can be assessed.¹³

We see, then, that national policy in terms of the development of specific regions can help to achieve more efficient use of natural resources as well as to reduce regional unemployment and broaden human opportunity.

12.3 REGIONAL PATHOLOGY: THE EMERGENCE OF "PROBLEM AREAS"

Regions, like people, want a doctor only when they are sick. When a region is enjoying growth-euphoria and reasonably full employment, there is no great disposition to examine its situation and prospects in detail and search for ways to gild its robust health. National attention is directed only to those regions that are in trouble, and there always are enough of them to worry about. We assume, in other words, that in healthy regions the workings of the market economy under existing constraints are relatively satisfactory.

To focus on regional pathology is both politically and economically rational. Our diagnostic and therapeutic resources are limited enough, and we are more likely to find something helpful to do for regions with obvious ailments than to improve comparably an already good situation. The only risk is that we may thus overlook opportunities to nip unwelcome developments in the bud.

Our main concern here is with situations where things have definitely gone awry. Regional economic growth is not a smooth, straightforward process. The persistence of efforts to explain development in terms of successive "stages" attests to the existence of important discontinuities. We do not by any means know what all these are, how to foresee them, or how to deal with them. But we do know that the development of a region, like that of a nation, encounters from time to time crucial situations in which its future course can be significantly influenced by major planning decisions and policies. Alternative paths appear; one of the alternatives may be a further growth along some new line, and the other may be stagnation, arrested development, or even regression.

These crucial situations present the biggest challenge to our insight into growth-determining factors. The stakes are highest and the rewards for correct decisions, in terms of economic progress, are at a maximum.

12.3.1 Backward Regions

A familiar case is that of underdeveloped nations poised on the threshold of industrialization and threatened by a genuine Malthusian peril of overpopulation. Much effort has gone into defining the conditions necessary for a successful surmounting of the threshold, the so-called "takeoff into self-sustaining growth" process.

Most if not all of the advanced countries also include one or more backward regions, which seem to be hung up at a threshold on the road of development and not to have kept pace with the structural changes and the rising income and opportunity levels of the more fortunate regions of the country. In the United States, Appalachia, a huge zone characterized by rural poverty, straddles the Eastern Highlands from New York State to Mississippi. Other large areas demanding special developmental attention have been identified also, and many smaller pockets of relative poverty and apparently arrested development exist in still other parts of the country. In Canada, the extreme eastern part of the country (the Maritime Provinces) is regarded as the chief area of concern of this type; in Italy, it is roughly the southern half of the country (Mezzogiorno); in Sweden, it is the far north.

12.3.2 Developed Regions in Recession

A second and quite different type of problem area is the mature industrialized urban region afflicted by stagnation. In Britain, the industrial areas of southern Scotland and Wales and northern England entered this phase in the 1920s. In the United States, at about the same time, migration of the textile industry to the South laid heavy blight on the industrialized region of southern New England, and real rejuvenation with new industries did not set in for more than twenty years. In the Pittsburgh region, slow growth or decline in the leading industries caused fears of stagnation and regression that gave rise to a major community effort to reverse the trend after World War II.¹⁴

Symptoms of this particular syndrome are easily recognizable. The ailing region’s rate of growth has been increasingly subnormal for many decades. Unemployment is high and chronic. Out-migration is heavy. The area appears to have somehow lost the dynamic growth character that had brought it to its peak importance in days gone by. There is a feeling that unless something really decisive happens, stagnation will prevail indefinitely.

Such a situation can arise in a region whose economy is heavily based on a few activities that have themselves ceased to grow or have begun to decline. They are the activities of yesterday and today, but not those of tomorrow. But arrested growth in a region may also mean simply that the factors of interregional competition, in specific activities, have taken a trend adverse to that particular region. The region’s difficulties are compounded if both of the above conditions apply, so that it finds itself with shrinking shares of declining activities.¹⁵  An excellent example of this is the "Steel Valley," which encompasses much of the upper Ohio River Basin and includes such cities as Youngstown, Wheeling, and Pittsburgh. The westward movement of the market for steel has left this region with old technology and a declining share of total U.S. steel production; all this in an industry that finds itself at an overall disadvantage when competing with foreign manufacturers.

But in diagnosing the ills of such a region, it is not enough to determine the extent to which it is losing ground to other areas in major activities, or the extent to which its activities are no longer of the growth-industry type. After all, we could hardly expect that every activity would continue to grow forever, or that any given region could forever retain or increase its relative position in its principal activities. A healthy regional economy can absorb losses in its stride and shift its resources into new fields, getting a share of the emerging new rapid-growth activities to balance the inevitable decline of other activities.

It is important to keep this in mind when trying to determine the proper role of federal and local policies in regional development. Change is a necessary aspect of growth, and it is as inevitable that some regions will prosper and others will not as it is that some individuals will fare better than others. Nevertheless, when change affects broad areas of the country—as is presently the case in the United States—large numbers of people are involved, and the political pressure for a response to related problems may become intense.

However, all affected regions are not equally in need. For some, the basis for rejuvenation may have been established well before decline becomes evident, and the proper role of policy may be limited to easing the transition. Other regions fail to make such adjustment successfully, and we must ask why. Perhaps it is simply because the degree of specialization in nongrowing activities was so intense. Perhaps it is because the loss of competitive advantage in some important activities has been so drastic. Or perhaps it is because the region has developed a sort of economic arthritis that inhibits its ability to adjust to rapidly changing conditions.

Whether regional analysts operate as full-fledged physicians ministering to the economic ills of sick regions, or more narrowly as diagnosticians, they have a special concern for cases in which the patient seems deficient in resistance to infection and in ability to recover. We have to look beyond the immediate symptoms to the less obvious organic difficulties.

12.3.3 Excessive Growth and Concentration

In both types of problem regions thus far mentioned, a basic symptom is that employment opportunities have not developed (in amount, in variety, or in both) fast enough to keep pace with the size and aptitudes of the labor force. Resources are underutilized. Somewhat the opposite situation prevails in regions that undergo extremely rapid growth involving massive inward migration. The growing pains of such regions are felt as impairment of the quality of services, destruction of local resources and amenities through overuse, a high rate of obsolescence of facilities, neighborhoods, and institutions, and a general deterioration of the quality of life. The forestalling or mitigation of these effects through analytical foresight and advance planning poses a major challenge to regional specialists.

The most widespread and obvious present-day examples of the perils of too rapid development appear in two types of areas. One is the suburban fringe of metropolitan areas, where many factors have combined to produce sudden and often unforeseen growth. The other type of area comprises zones of special recreational amenity such as beaches. The growth of population plus its increased mobility, leisure, and taste for outdoor pleasures add up to a formidable threat to our basically nonexpansible resources of open space, clean water, and privacy. This problem obviously involves much more than temporary "growing pains." As was suggested in section 12.2.2, the pressures of interest groups in a community or region lend themselves to overemphasis on growth per se, all too often at the expense of well-being.

Related to, but distinct from, the question of too rapid growth is the problem of excessive spatial concentration of development, specifically in gigantic metropolitan centers. Concern on this score is felt in nearly every country. In the less developed countries, the problem is seen as exclusive concentration of modern industrial development, business, and population in the chief city. In France and England, the concentration of growth in Paris and London has been officially deplored, and attempts have been made to combat associated problems for a generation or more.

The question whether our large metropolitan areas are "too big" defies any easy answer.¹⁶  Part of the difficulty lies in the variety of possible criteria. Large cities have been variously assailed as hotbeds of vice, breeders of psychological and political disorder, and hazards to health and safety; and they have been extolled for equally diverse virtues. With respect to economic criteria, it is often argued that the rising costs of housing, public services, and similar items make large cities uneconomical as places to produce or to live. These diseconomies of size are said to outweigh, in very large cities, the positive advantages of urban agglomeration that we discussed earlier.

A strong substantial body of empirical evidence suggests that there are strong net economies in the provision of infrastructure and public services of middle-sized cities as compared to small ones. The curve relating per capita expenditures on items in these categories to city size flattens out somewhere in the 100,000-to-500, 000 population bracket, with a possibly rising trend thereafter.¹⁷  On this limited basis, there is no "economic optimum size" of city, though we might refer loosely to a "minimum efficient size."

There are difficulties with this approach, however, in that expenditures reflect differences in the quantity and quality of services provided as well as costs. Thus persons in large cities (where, as mentioned in Chapter 10, we expect to find higher real income per capita) may have demands for public services that are different from those of persons in smaller cities, and this will affect per capita expenditures. John L. Gardner has undertaken an analysis of municipal expenditures that accounts for variation in income and wealth across cities.¹⁸  For a wide range of expenditure categories, he finds that costs per family increase with city size. However, Gardner also finds that costs typically decline as population density increases.¹⁹  Thus it may be misleading to concentrate on size alone; the efficiency of cities appears to depend on population size and density jointly.

In any event, costs of public services are only one element in the comparative economic advantages of different sizes of cities. A more accurate approach to this problem would recognize that the activity of cities includes the production and consumption of private as well as publicly provided goods and services. In order to make valid comparisons, one must account for the incremental benefits and costs associated with each as city size increases.

Many regional economists see hidden disadvantages in very large cities, justifying a public policy of diverting growth from such cities to medium-sized ones. They argue that there are important external diseconomies (such as added costs of housing, congestion, and environmental spoilage) that do not enter into the calculations of the firms or individuals who contribute to city size by establishing themselves there—in other words, these costs should, but do not, work to limit urban growth. For example, an additional urban freeway commuter adds to congestion and causes losses to all the other commuters whom he slows up, but he does not have to pay for the added costs inflicted on the others and is not deterred from rising the freeway.

Such externalities are real enough, and we shall have occasion to consider them further in Chapter 13. But their existence does not necessarily imply a net bias toward excessive city size, as is frequently alleged. First, the usual argument assumes too readily that the external diseconomies of large city size outweigh the external economies; however, as we saw in Chapter 5, the economies associated with urbanization may be substantial. Further, it implicitly assumes that the adverse externalities fall on parties that have no recourse—that is, they are "locked in" and can neither leave the city nor raise the price of their services in order to compensate themselves for the injuries suffered.

By and large, this assumption is unwarranted. Individuals and firms subjected to such external diseconomies as air pollution, traffic delays, long commuting journeys, high taxes, expensive housing, or noise can (and do) decide that they will not stay in such an environment unless they are paid extra to do so. Urban populations are characteristically mobile, and pay rates do run higher in large metropolitan areas than elsewhere, as we saw in Chapter 10. This suggests that at least some of the disutilities that urban life imposes on the individual are being passed back to employers in the form of higher wage costs. The effect of the cost increases on prices is undoubtedly greater for local goods and services than for those traded between cities, since prices tend to be set in the national market for traded goods and services;²⁰  nevertheless location decisions will be affected.

The market forces set in motion by compensatory payments to labor for urban disamenities may not fully offset the tendency for cities to become "too big," but they certainly work to counteract that tendency.²¹  The extent of this offset will depend on the reaction of affected parties to externalities. If workers are immobile (or, more generally, if location-fixed resources are affected by externalities), they may not be compensated for urban disamenities. Similarly, if producers of traded goods lack mobility and also are limited in their ability to pass compensatory payments along to customers in the form of higher prices, the market adjustment to externalities will be incomplete. Thus the greater the mobility of workers and producers, the more we can expect that diseconomies will be internal to the city as a whole in that they fall on firms and households whose decisions affect city size.²²  This does not imply that we may dismiss concern about adverse externalities as such, or concern about the many serious problems attending urban growth, which do in fact tend to be most aggravated in very large cities.

The foregoing discussion suggests that the search for an "optimal" city size may be elusive. The task is made even more difficult by the failure of most researchers to account for the fact that each city is but one element in a central-place hierarchy. In Chapter 8, we found that cities specialize by function—ranging from the smallest hamlet to large wholesale-retail centers. This specialization was influenced by efficiency considerations: agglomeration economies encouraged some activities to locate in proximity to suppliers or potential customers. As a result, the mix of goods offered by trade centers varies, and large centers are characterized by a more complete set of activities. For persons residing in all but the largest urban area, some shopping in higher-order centers is dictated by the spatial organization of production. It follows that the most efficient size for a city depends on the array of goods and services provided elsewhere in the urban hierarchy and on the efficiency of transport and communications among cities.²³

12.3.4 Comparison of Characteristics of Problem Areas

Table 12-1 summarizes the results of a tabulation of American "problem areas" (mainly on a county-by-county basis) made by Benjamin Chinitz in 1967. The categories are along lines already suggested above, but for one striking difference. It is indicative of the dramatic change in our attitudes toward regional development that Chinitz’s category I (high income, fast growth) was as recently as 1967 considered a problem category on the basis of unemployment, with no mention of the environmental impact, destruction of amenities, and deterioration of the quality of living, which we now consider the major penalties of excessive growth. A substantial number of cases of fairly severe unemployment do occur from time to time in basically flourishing labor markets, such as San Diego in Chinitz’s sample. Often these are transitory situations reflecting cutbacks in federal defense-contract employment in the area, and in some cases the unemployment is mainly seasonal; but it may be more chronic in areas that attract large numbers of migrants by their amenities.

12.3.5 Regional Structure and Economic Health

Both a region’s growth and the quality of opportunity it offers depend not merely on external influences and location but also to a large extent on the mix of activities that the region has. Some of the relationships are simple and obvious, others less so.

As explained in some detail in Appendix 12-1, it is possible to separate statistically in any time interval the component of a region’s growth that reflects the activity-mix of the region from those components that reflect overall national growth rates and changes in the region’s competitive position. Other things being equal, a region will grow faster if it specializes in "growth industries," just as it will tend to have a low wage level if it specializes in low-wage activities, or a high skill level if it specializes in high-skill activities. But shift-share analysis does not really tell us much about why regions grow or improve. It says nothing about the important question of how a region’s ability to hold its share of existing activities or to attract new ones is affected by the region’s economic structure. Here we need to look into some less simple and obvious relationships.

Regional economic balance or, in somewhat more definite terms, diversification, has for a long time been viewed as a "healthy" structural feature worth striving for. The grounds for this view, however, have not been clearly articulated.

Thus it is sometimes assumed that a region with a diversified structure (many different kinds of activities and an absence of strong specialization) is necessarily less vulnerable to cyclical swings of general business conditions and demand. Actually, this is neither true nor logical, as was shown quite a long time ago by Glenn E. McLaughlin.²⁴  Diversification per se is roughly neutral in its effect on cyclical stability. What really makes a region especially vulnerable to cyclical swings is specialization in cyclically sensitive activities (mainly, durable goods industries and especially those making producers’ equipment and construction materials and components). Thus a specialized steel-making center such as Youngstown naturally has greater cyclical ups and downs of employment than either tobacco-processing centers such as Winston-Salem or Durham or a broadly diversified manufacturing center such as Philadelphia. Analogously, a community or region highly specialized in seasonal recreation (such as Virginia Beach or the coast of Maine) shows much more seasonal variation in employment than the average area, while a region specialized in some nonseasonal activity may be more seasonally stable than the average.

It is a different story, however, when we consider stability and other desirable attributes over a longer period. In time, any of a region’s activities will suffer arrested growth and perhaps decline or even extinction, either because the product itself becomes obsolete (as in the famous case of buggy whips, which sorely affected Westfield, Massachusetts, the principal whip-making center of the country) or because the region loses out competitively (as, for example, New England lost to the South in textile manufacturing, and Pittsburgh in the nineteenth century successively lost out as a leading producer of salt, wagons, cotton textiles, and refined petroleum products).

If a region is narrowly specialized, such a loss can be, at least temporarily, disastrous; in a diversified region, it is unlikely that a major proportion of the total activity will suffer at any one time. Equally significant is the fact that a narrowly specialized region is likely to show less resilience in recovering its stride by developing new activities to take the place of those lost.

This attribute of resilience is an extremely important aspect of regional economic health. It depends to a large extent on diversification, since diversity of employment develops a wide variety of skills and interests in the labor force and also among business entrepreneurs, bankers, and investors, and a wider array of supporting local business services and institutions. In such a setting, there is clearly a better chance for new kinds of business to get a start and to survive the hazardous years of infancy.

Diversity is not the only factor affecting resilience. The inhibiting effects of high specialization are compounded if the region is specialized in activities characterized by large producing units, large firms, and absentee ownership. Such large units are relatively self-sufficient with respect to most kinds of business services that smaller units tend to buy from others; consequently, a region heavily specialized in, say, steel making fails to develop a broad base of such supporting services. In addition, its business leaders and sources of local finance have a more restricted outlook and interest. The range of local external economies is underdeveloped, and the whole climate for new and small businesses and new lines of activity is much less favorable than it is likely to be in a region of similar size where the firms and production units are smaller, more numerous, and less self-contained.²⁵

Finally, a region’s resilience partly depends on the amount of overall growth momentum it has at the time the loss is experienced. If the rest of the region’s activities are growing vigorously, even a sizable loss may produce only a short spell of abnormal unemployment. Fluctuations from a sharply rising trend may not involve much absolute decline; distress is most meaningfully measured in terms of how long and how far the region’s employment is below the previous peak, rather than how long and how far it is below a trend line.

Moreover, a region that has been growing rapidly has a number of characteristics favoring resilience. The labor force is relatively young because much of it has been recruited through recent migration, and young adults move the most readily. Thus the labor force is likely to be more occupationally mobile and adaptable, and less afflicted by seniority and tradition. The same applies to employers. Facilities are newer. A greater proportion of the population has had the broadening experience of living in other places. There is a more buoyant community climate of expectation of growth and favorable change.

Such considerations as these help to explain why Pittsburgh, for example, took in its stride the losses of such important specialties as textiles, vehicle manufacturing, and oil refining during its dynamic growth period in the nineteenth century, but was very slow to recover from losses of preeminence in such specialties as steel, glass, electrical equipment, and coal mining after about 1920.²⁶

12.4 THE AVAILABLE TOOLS

Mention has been made of some of the ways in which a region can influence its structure and development from within. Also, it was suggested earlier in this chapter that a national government can do a great many things to assist healthy regional adjustment and development, even without having to make any decisions as to which regions should be favored or why. In general, help of this sort involves the provision of information and the improvement of the quality and mobility of productive resources—including labor, capital, and land. Aid to education and vocational training, improvement of communications and money markets, preparation and distribution of statistical and technical information, improved labor market information and placement services, and a wide variety of other programs help to reduce the structural underutilization of labor and other resources in all regions. We also noted that maintenance of a high national level of demand makes it easier for labor and capital to find their most productive uses.

Many national governments nowadays take the important additional step of designating certain regions for special attention. In a few special cases (for example, Greater London, Paris, and some recreational areas such as the National Seashores in the United States), the purpose is to restrict further private development in an area judged to be overcrowded. Much more often, the immediate purpose is to increase employment and income in a backward or otherwise "distressed" area. Let us have a quick look at some of the means that can be used for such ends.

One line of action involves easing the supply of capital to encourage growth of employment in an area. Federal, state, and local funds are made available at low interest rates, generally on a matching basis, to establish or expand business facilities. A wide variety of tax exemptions and incentives (such as deferment of taxes, allowance of larger write-offs against income before taxation, and special low assessments on real property taxes) further encourage private investors. Public authorities (often working through local development associations) also encourage business expansion in certain areas by direct investment involving the purchase and assembly of land, clearing of sites, and construction and operation of "industrial parks" provided with all the necessary utilities and sometimes with buildings that can be adapted or leased by private firms.

In the contrasting case of areas in which development is to be restrained, public policy is implemented by imposing restrictions on further private investment or land use.

Another policy lever involves transport costs and services and the construction or licensing of new routes. In regulatory decisions on freight rates, the regional effects are given some weight, and the regions that stand to gain or lose by the decision often mobilize impressive and costly efforts to protect their interests. Both private and public leaders in the Pittsburgh region, for example, battled persistently and effectively against Buffalo and Youngstown in favor of adjustments in freight rates on flour-mill products and against the construction of a canal connecting the Ohio River with Lake Erie. Authorization for United States participation in building the St. Lawrence Seaway was preceded by decades of controversy, with different regional interests aligned pro and con. More recently, many cities along inland waterways have been involved in efforts to attract federal assistance for the rebuilding and upgrading of locks and dams. They have also fought hard to promote the continuation of pricing policies that shift the maintenance costs of these facilities to the general public by avoiding the imposition of user charges.

Another tool is the regional allocation of procurement contracts (particularly the defense contracts of the federal government).²⁷  The procurement agencies themselves are not particularly interested in conferring regional stimuli except as a way of pleasing influential congressmen; but they have, from time to time, been adjured to follow policies of greater decentralization, or of preference to areas of high unemployment. A region especially can sometimes effectively increase the demand for some of its products by sales promotion in outside markets or protective measures designed to restrict imports, and some states have been quite ingenious in setting up interstate trade barriers for certain commodities, such as milk.

A region can sometimes be effectively aided in development by subsidized technological progress or technical assistance leading to more efficient and profitable ways of using some special regional resource. Thus federally supported research on new uses for coal may play a significant part in improving the economic status of Appalachia. In such types of research and development efforts, the state governments, universities, and private foundations in the region are generally active as well.

A region’s development can also be guided along more effective lines through support of general analysis of the region’s economic situation and potentialities and through the formulation of integrated development plans. Modest but significant amounts of federal funds and technical assistance have been made available for planning activity and demonstration projects.

Allocation of federal funds to improve local public services and utilities has been a substantial element in regional assistance, particularly in Appalachia. This includes, in addition to schools, health services, and roads, the construction of water supply and sewerage facilities, libraries, and some kinds of recreation facilities. The Tennessee Valley Authority operation, instituted in 1933, represents one of the earliest large efforts to use federal funds systematically to develop a particular region; the project emphasized control of water resources and electric power but also embraced a wide variety of other forms of development assistance.

Finally, and probably most important, are programs to upgrade and mobilize human resources through education, vocational training and retraining, easing of ethnic discrimination and other kinds of restrictions on employment, and assistance in job finding and relocation in search of employment opportunity. Such programs were mentioned earlier as being in the national interest in all areas; but the need for them is obviously greater in regions where skills and mobility are particularly restricted and where there is a particularly poor match between labor supply and the demand for labor.

12.5 BASIC ISSUES OF REGIONAL DEVELOPMENT STRATEGY

As soon as a national government assumes responsibility for the geographical impact of its actions, it needs to decide which areas merit its favorable attention. The answer is inevitably determined in part by political pressures, but it is clearly in the national interest to formulate and apply some more objective social and economic rationale.

We note an interesting shift in the use of terms to describe areas to which national public development assistance programs are directed. In the 1920s and 1930s, the British used to refer to their "depressed areas." Later, these same objects of solicitude were rechristened under the curiously neutral term of "special areas." Still more recently, they have come to be referred to as "development areas." In the United States in the 1930s, we used to refer to "problem areas," or "stranded areas"; later, to "redevelopment areas"; and now to "development areas," and to "growth centers within them. As to our less fortunate brethren across the seas, we used to refer to them as simply "poor" or "backward," or "low-income" countries. Later they became "undeveloped" and then "underdeveloped." Nowadays, it is considered more tactful to speak of the "less developed" or, better still, the "developing" countries.

Does this curious trend reflect anything besides euphemism—that is, a growing squeamishness about offending the sensitivities of people in the areas in question? Not necessarily; but perhaps we can read into the new terms a growing emphasis on the positive, and a belief that any and every region can and should be made to develop faster. We may descry also a disquieting indication that the ideal of place prosperity is enlisting greater support.

12.5.1 The Four Issues

Actually, three more strategy issues come to light here in addition to place prosperity versus people prosperity. One is whether we consider aid to regions as charity or as investment. Should we select areas on the basis of the greatest degree of distress (what has aptly been called the "worst-first" rule of priority) or on the basis of how much additional income and employment opportunity can be generated per dollar of aid? A further issue involves the spatial focusing of aid to areas: that is, what size area is a proper "development unit," what is the role of urban focal points within such areas, and should aid be concentrated at a few points or widely spread? The final issue concerns the appropriate choice of means of assistance from among the large variety of available devices sketchily catalogued in the previous section of this chapter.

These four issues (place prosperity versus people prosperity, distress versus development potential, concentration versus diffusion, and the choice of means of assistance) will recur often in the discussion that follows. We shall find that they are closely interrelated, and that none of them can be resolved as categorically as the word "versus" might imply.

12.5.2 Should Jobs Move to People, or People to Jobs?

If manpower is scarce in some areas while jobs of similar types are scarce in other areas, the situation can presumably be improved either by moving some jobs or moving some people or both. Both kinds of adjustment do take place spontaneously, though not by any means to the extent that would be necessary to eliminate or equalize regional structural unemployment. Both can be assisted or impeded to some extent by public policies. The question of which policy should be emphasized is a perennial one and was debated with particular heat several decades ago when the British government was trying to decide what to do about certain depressed industrial areas. It is a crucial question today in every country that is seeking to improve regional adjustment, and it particularly involves the two issues of (1) people versus place prosperity and (2) need versus development potential.

The answer depends on our judgments about the footlooseness of people on the one hand and that of investment and employment opportunity on the other. If we believe that people are reluctant to move, that we should not try to induce them to do so, and that practically any populated area can be made attractive to new employers, then it follows that the proper policy is to induce more employers to move to regions where unemployment is high. Consistent with this view is an emphasis on degree of distress as the criterion for allocation of assistance to regions, since it is assumed that people have to be helped in situ and that every region has adequate development potential. By this approach, place prosperity is equivalent to people prosperity. Finally, this view would imply that assistance should be given to individual small areas and should be widely diffused, since people are assumed to be tied to their labor market areas. To sum up, the elements of this position are: place prosperity, allocation on the basis of need to a large number of quite small areas, and inducements to employers as the principal means of assistance other than straight charity.

If on the other hand we judge that people can reasonably be induced to move, and that some backward regions lack the potential for eventually self-sustaining growth in employment or that some developed but distressed regions must inevitably shrink in size in order to adjust to new economic conditions, the strategy implications are the opposite of those just described. We conclude that many of the unemployed people will best be served by moving to some area with better opportunities, and we draw a sharp distinction between their welfare (people prosperity) and place prosperity. Assistance logically takes the form of improving the employability and mobility of the people affected, facilitating their relocation, and promoting employment opportunities in the areas of greatest potential. Thus the elements of this position are people prosperity, stimulation of development on the basis of growth potential, and stress on the upgrading of human resources. Job creation does not have to be stimulated on a diffused basis in a large number of individual areas, since people are prepared to move to one of a smaller number of growth centers.

Which of the foregoing two positions is the more correct? Clearly, neither is wholly right or wrong, since both people and employment activities are partially footloose. A few observations are in order, however.

First, certain emotions and prejudices seem, on balance, to impart bias toward the view first mentioned (namely, that jobs must move to people). Because of local pride as well as vested interest in their community or region, most regional spokesmen are reluctant to admit that their region lacks development potential or to see its population decline. As we noted earlier, most of the active and articulate spokesmen and leaders in regional development are those who do have a vested economic interest there in the form of large property ownership, a business depending on local markets, or a political position whose importance and perquisites depend to some extent on the region’s size and growth. Quite naturally, they are ready to invoke ethical and cultural arguments in support of their economic interests and loyalties.

It is an article of faith among many that people should not have to move in order to better themselves, any more than they should have to change their religion, political affiliation, or skin color. A presidential advisory commission in 1967 endorsed "a national policy designed to give residents of rural America equal opportunity with all other citizens. This must include access to jobs, medical care, housing, education, welfare, and all other public services, without regard to race, religion, or place of residence." ²⁸

Reinforcing this bias is a general tendency to overrate the footlooseness of activities with which one is not directly familiar. In particular, the complex and subtle economies of agglomeration that favor major urban areas as locations are not well understood. Moreover, the consideration of efficient interregional allocation of resources and output, from the standpoint of national welfare, has few spokespersons. That faceless individual, the consumer and taxpayer, is here again the forgotten person.

In view of this considerable bias, it is not surprising that official policies and public statements have generally soft-pedaled migration as an instrument of regional policy, have paid a great deal of deference to the place prosperity strategy and the criterion of need, and have favored spreading assistance among an increasingly large number of claimant areas rather than concentrating it.

How mobile are people in areas of high unemployment, and can their mobility be expected to increase? A number of excellent studies have addressed themselves to these questions.²⁹  First, it appears that unemployed people (regardless of area) are more likely to want to migrate than are employed people of the same occupational or age group. But these desires tend to be frustrated in the case of the less educated, the less skilled, and the black. John Lansing and Eva Mueller conclude that:

unemployment constitutes a "push" which leads people to move if they are young, well-educated and trained, or live in a small town. In the absence of such characteristics, unemployment is highly unlikely to overcome the reluctance to move, unless the unemployment is prolonged, the income loss substantial, and the family has no alternative local source of support.³⁰

Thus the labor force groups most prone to unemployment are also the least mobile (quite naturally, because they’ have the least to offer in relation to labor demands and the least likelihood of finding a job if they do move). Out-migration is highly selective in favor of the better trained and more educated. This has two serious implications. First, even assuming continuous prosperity, we cannot presently count on migration alone to solve all the problems of distressed areas by draining away their unemployed. Second, such migration from distressed areas as does occur results in a lowered "quality mix" of the labor supply of those areas, which may further handicap them in any competition for new employers.

But if migration is inadequate, the remedy is not to discourage it, as some would propose. It is quite possible and certainly more appropriate to upgrade the less productive and less mobile groups so that they will be better able to migrate and also will be more attractive to potential employers wherever they are. One of the great virtues of a strategy of human resources development, improved job information, and placement services is this double-action impact. It helps people move to jobs and helps jobs move to people. The danger in practice is that part of the benefit may be thrown away by misguided efforts to restrict migration— for example, by training people only for the kinds of jobs existing in their home areas, or by pension plans, union restrictions, and relief eligibility rules³¹  that discriminate against newcomers in areas of in-migration.

The long-term prospects—or at least the possibilities—seem good for some continued increase in the mobility of the disadvantaged groups in labor surplus areas; this should diminish migration selectivity and allow migration to contribute more effectively to regional adjustment.

The mobility of employment locations is the other important aspect relating to the issue of bringing jobs to people or the reverse. It is commonly said that manufacturing industries have become much freer in their choice of locations than they were in the age of coal and steam, and this is almost certainly true as among regions. It is not at all obvious, however, that employers are becoming increasingly indifferent about where they locate. There have been substantial population shifts in the last decade or so, and these have been mirrored to some extent by changing patterns of growth in employment.³²  For many companies, smaller cities, towns, and unincorporated places are becoming increasingly attractive location alternatives. For others, the nation’s large metropolitan areas continue to offer important advantages. In either case, the decision to locate is not a matter of whim and fancy but is guided by economic incentives.

In any event, there seems to be ample evidence that an attempt to solve problems of regional employment by bringing new industry to every community or labor market area would be wasteful and futile. Henry Ford I in the 1920s, and many others before and after, have thought it possible and desirable that industrial employment be diffused to every small town and village, and the first Indian Five-Year Plans after independence put substantial reliance on developing small-scale village industries. In no country, however, has such an attempt really succeeded.

On the contrary, shifts of population and employment to major urban areas and out of small towns and the countryside reflect in part the growing importance of tertiary activities, the declining importance of agriculture, the improvement of long-distance communication and people transport,³³  larger-scale production and management units, demand for urban-type amenities, and proliferation of the external economies of agglomeration and urbanization.

Counter movements to smaller communities are similarly selective. Manufacturing activity may respond to the existence of a skilled work force that is particularly well suited to the production of high-technology components, and service industry growth may follow the population movements of retired persons to amenity-rich rural areas, but not all places—metropolitan or nonmetropolitan—share these characteristics equally. For example, David L. Brown reports that some 20 percent of all nonmetropolitan counties continue to experience out-migration and population decline in the face of the population turnaround of the 1970s.³⁴

12.5.3 Some Conclusions

Where does all this leave us in terms of the basic strategy issues for regional development assistance? The points raised thus far suggest these conclusions:

1. Migration can, does, and should play a substantial role in effecting desirable regional adjustments. Its effectiveness tends to grow and can be greatly enhanced by programs of education, training, retraining, equal opportunity, open entry,³⁵  job information, and placement services especially directed at the least employable and least mobile manpower groups in areas of labor surplus. Programs more explicitly directed at the encouragement of migration can also play a substantial role.³⁶

2. Employment is not fully footloose: There are important differences in the development possibilities of different areas. It would not be feasible to bring employment (except of the work relief type) to each and every labor market area.

3. Accordingly, place prosperity is an inadequate and misleading goal; development assistance should be allocated on the basis of the needs of people and the development potential of areas; such assistance should be at least to some extent focused on particularly promising locations; and human resources programs of the type outlined in (1) above should play a major role.

4. Strong political pressure is to be expected in the direction of the use of local distress as a priority guide, the discouragement of emigration, and the diffusion of assistance to more and more areas.

12.6 THE ROLE OF GROWTH CENTERS

One of the four basic issues of regional development assistance strategy concerns the focusing of such assistance upon a relatively small number of selected growth centers,³⁷  at which there exist or can easily be created the necessary conditions for expanding employment opportunity and, especially, the public infrastructure and the external economies that most activities require. Such growth centers are then expected to attract commuters and migrants from surrounding areas of labor surplus, and at the same time to stimulate secondary growth of employment in some of those areas.

12.6.1 Applicability of the Growth-Center Strategy to Different Types of Problem Areas

The problem of choosing growth centers arises only in certain of the problem areas characterized in section 12.3. There has been a tendency, in assistance programs, to lump together indiscriminately the backward areas and the developed but distressed areas.

The two types of areas do share, of course, certain symptoms of maladjustment. Both suffer essentially from obsolescence of the bases for their former economic viability; both need help in making a structural shift to a new base in response to changes that have occurred in demand, resources availability, and competition from other areas. For both, a successful transition calls for modernizing human and capital resources and infrastructure (including institutions and attitudes) so that they can effectively grasp new opportunities provided by technological and economic change and thus become more resilient, self-reliant, and generative.

But at this point the similarity ends. With respect to needs for education, the two kinds of areas are likely to differ substantially. The population of a distressed developed area may show no particular deficiencies in all-round literacy and capability for productive industrial or tertiary employment. Internal and external transport and communication facilities in such an area are also likely to be adequate or more than adequate. There are substantial local resources of capital and at least some relevant industrial know-how. The basic elements of growth centers are already there, and the problem is essentially one of modernization—reorienting the local labor force, business community, infrastructure, and public sector toward the opportunities of today and tomorrow.

By contrast, for truly backward areas with little industrialization or urbanization, the necessity of finding or creating specific growth centers is of major concern. It is primarily to this kind of region that we refer here.

12.6.2 Justification for Focusing Employment Stimulus in Growth Centers

The next question that concerns us is the role the growth center is supposed to play vis-à-vis the surrounding area. On both economic and political grounds, it is vital to have an acceptable answer to this question, if only to justify the denying of direct aid to places that are not growth centers. Justification is needed because these other places cannot be expected to like being left out of the distribution of largess, and because the growth centers are likely to be relatively well-off and growing places and thus apparently the least in need of any help. "Unto every one which hath shall be given" is scarcely a policy to evoke the enthusiastic support of a "hath-not" area.

Two elements appear in the case usually made for the growth-center strategy. The first argument stresses availability of infrastructure and the external economies of urban size as prerequisites for competitive survival in a modern economy. Concentration of public investment at growth centers is justified on the ground that those are the only locations where adequate public services can be provided at reasonable cost and where there is a prospect that prosperity and growth can eventually be self-sustaining without permanent subsidy.

This basis of strategy was clearly involved, for example, in a project proposed by the Québec provincial government in late 1969 for the Gaspé Peninsula, where eleven backwoods villages were slated to be wiped off the map. The residents would be given cash incentives to relocate in larger coastal towns where schools, hospitals, and vocational training centers could be made available. The project was described as merely the initial experimental stage in a larger development program for the backward rural areas of the province.³⁸

Were this the only rationale for the growth-center approach, it would imply that the peripheral backward areas outside of the centers have no prospects of survival except as charity cases, and that they should be vacated as fast as is humanely possible. But there is a second argument in this case; namely, that some of the effects of economic improvement initiated in growth centers will spread out to their less developed hinterlands or zones of influence. This implies that the best way to help these hinterland areas may be not by either uprooting or direct assistance but indirectly through promoting the progress of accessible growth centers. Let us see how this spread effect may be expected to work.

There was mention in Chapter 11 (see Section 11.7) of the manifold ways in which an urban center can provide a focal point of leadership in the development of its region. All the considerations mentioned are relevant to the growth-center strategy, but we still do not know a great deal about how to measure or control the effects in question. Most of our quantitative knowledge is in terms of the two familiar frameworks of central-place and input-output analysis. Each of these approaches is helpful only to a limited extent in articulating the impact of a growth center on its zone of influence.

The central-place model is designed, in fact, to describe essentially the inverse relationship; namely, the dependence of the urban center on demand in its tributary area. Central-place analysis is concerned only with a limited set of consumer-serving activities that are stringently market-oriented. The spatial distribution of consumer demand is taken as given, and it determines the extent to which various orders of central places can develop appropriate ranges of consumer-serving activities.

Despite the fact that the roles of the central place and growth center are so different, the analysis of a region’s system of central places may be important. First, the central-place analysis will indicate something about minimum size constraints. It can establish that cities or towns below some specified population are unlikely to contain certain trade and service activities that may play an essential role in the operations of a growth center. Second, the tributary trading area of a central place, being based largely on the feasible range of frequent travel, may be a rough indicator of the zone of influence that place would have as a growth center. Third, the central-place hierarchy can serve as a mechanism by which innovations are transmitted interregionally, and growth centers may be important links in that network.³⁹

The structure of the central-place hierarchy in a country can also affect the success of growth-center strategies. Typically, less developed nations lack an integrated system of cities; as mentioned previously, they are characterized by a chief (or primal) city and many small villages, but cities of intermediate size are underrepresented in the urban hierarchy. The locational influence of agglomeration economies in the dominant city may be difficult to overcome under these circumstances. It would be necessary to concentrate the resources available for development programs in a very small number of designated centers if producers in these places were to compete effectively in the national market. In this context, growth centers would also serve to bring much needed public and private services to backward regions, reducing the attractiveness of the primal city for rural residents.⁴⁰

The relations described by the input-output model are more directly relevant to the role of a growth center, particularly if we think of a model embracing as separate subregions the growth center and the zone of influence. In its usual application, the input-output model traces direct, indirect, and induced impacts of some initial change via backward linkage, and this is of course one of the mechanisms by which a growth center can stimulate its tributary zone. For example, manufacturing and other exporting activities in the growth center will purchase local materials and services, some of them from the zone of influence. A food-processing plant illustrates the direct effect. By its presence in the growth center, it provides a market for farmers in a surrounding agricultural area. In Chapter 11 we explored the nature and measurement of the subsequent indirect effects (through local purchases by business firms) and induced effects (through local purchases by households). For as much of the zone of influence as constitutes the commuting field of the growth center, the most obvious impact of growth at the center on the surrounding area is likely to be the direct, indirect, and induced demand for labor.⁴¹

In principle, as was suggested in Chapter 11, input-output analysis can provide insights relevant to the evaluation of forward linkages. But input-output analysis is severely constrained in the extent to which it can express the role of growth centers because, for operational reasons, it ignores the scale economies and the external economies of agglomeration that are basic to the whole growth-center strategy. Nor does the input-output approach, as developed so far, take into account growth-initiating factors—such as the supply of capital, enterprise, and specific public services, or the progressive improvement of productivity through education, health, training, and informational services.

It is clear that growth centers exert their influence in many ways that elude the usual quantitative models and systems of accounts. In particular, there is a recognized need for more adequate techniques for dealing with those growth-center effects that operate through supply rather than through demand.

It is difficult in principle to make a meaningful distinction between the forward-linkage effects and the external-economies effects of growth-center development; in both cases an activity initially established in the center provides cheaper and more accessible inputs that make possible the nearby establishment or expansion of other activities dependent on access to such inputs. Generally, we seem to prefer to speak of external economies when the initially established activity is of a so-called threshold type, normally associated (because of scale economies) with a certain minimum size of urban or industrial concentration, and when it provides products or service inputs to a wide variety of other activities in the same locality. We are more likely to refer simply to a forward linkage when those conditions do not hold and when the initially established activity supplies inputs to just one or a few activities locationally oriented to sources of that input. But both cases involve a similar principle of input orientation or forward linkage. Finally, terms such as "infrastructure" or "social overhead" generally denote services supplied by the public sector or by public utilities—such as schools, hospitals, water supply, and communications.

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