I’m totally fired up that the Obama administration relaxed travel, trade, and diplomatic restrictions on Cuba last week.
Removing the US embargo will not raise up Cuban people’s lives as much as we hope without the Cuban regime, for its part, embracing more of a market system.
For over 50 years, the Castros took every public speaking opportunity to point their fingers North and blame all of their country’s ills on the US.
By lifting the US embargo, we at least remove the Cuban regime’s primary excuse for the past fifty years of horrific economic conditions of the Cuban people under the Castros.
It’s not the embargo, it’s their suppression of a market economy.
Markets vs. Cuban Socialism
I’ll be the first to declare that our markets-based system has tremendous failures.
Markets are unjust.
Markets – without a safety net – heartlessly leave children, the unemployed, and the elderly in poverty.
Unregulated markets commonly lead to the terrible treatment of consumers and the environment.
But to paraphrase Winston Churchill’s famous quip about Democracy, I would say free markets are the worst form of economy, except for all those other forms that have been tried from time to time.
Churchill had something pithy and brilliant to say about everything
One thing that made me a card-carrying Adam Smithian Wealth of Nations-thumping pro-markets guy was visiting Cuba under the Castros.
My wife and I visited twice in the 2000s. We’ve visited many resource-limited countries. But nothing compares to Cuba.
In Cuba, everything is illegal
In the absence of any legitimate way for ordinary Cubans to earn enough to get food to eat, corruption envelops every day life.
Everyday. corruption.
Not for anything special, or anything nice. Just to get enough calories in the body.
For us as tourists, simply securing a room in a private home for a few nights in Havana involved a cat-and-mouse game to fool the local police.
“Ok, I’ll arrange it all for you,” the man offered at our café, his eyes scanning for signs of government authorities.
“Follow me down this road. About two minutes after I go, walk to the end of the block, turn right, and I will meet you inside the third doorway. Make sure you do not follow me too closely, as the police are watching.“
Just spend one day in Cuba and you will become a card-carrying Capitalist
This was all standard procedure for renting a room. The homeowners – like thousands in Havana – desperately needed to earn dollars to buy bare necessities. The room cost us about $5 per night.
To further support that family we bought a home-cooked meal from them for another $2. I knew it was the best our host could do, and her eyes asked for a kind of understanding of their difficult situation as she laid the pigs-knuckles plate plaintively in front of us, murmuring “No es mucho peroesta hecho con mucho cariño” – “It’s not much but it is made with a lot of love.”
We wanted to cry.
Later, we slipped into an illegal restaurant –known as a paladar – run out of another private home that was desperate to earn dollars, despite them running the risk of breaking the law and being arrested.
Incidentally, you do not want to be arrested and go to a Cuban prison, as described in Reinaldo Arenas’ memoir Before Night Falls.
The Cuban health care system
On our second visit, my wife lived for six weeks working and researching in a Cuban hospital.
She arrived in Cuba ready to admire their health care system – free, universal, and reportedly successful. Long story, short: You do not want to get sick in Cuba.
The doctors are excellently trained, they have outstanding vaccination rates and access to prenatal care, but the facilities and access to medicines are awful.
When a woman who worked for her hospital needed specific antibiotics for a persistent infection, could she access the vaunted Cuban health care system?
Absolutely not! Appropriate antibiotics were unavailable to her, except through corruption. She ended up paying precious (and illegally obtained) dollars to the limousine driver of a Communist Party member, who had access to scarce antibiotics that ordinary Cubans do not.
With markets for nearly everything outlawed, everybody must cheat merely to gather life necessities.
Spying on everyone because everything is outlawed
Cubans are not allowed to move within the island to seek employment, without permission from authorities – which permission cannot be obtained without corrupt connections.
But hunger is a powerful motivator. People stay at friends’ houses illegally in Havana, for example, hopeful to earn dollars. They have to sneak in and out house, however, fearful all along that neighbors would report them.
The official Cuban Party propaganda since the 1960s has maintained that US sanctions primarily caused the degradation of the Cuban economy.
With US sanctions lifted, that lie at least will be exposed.
And by “much interest” I mean the story made me want to stab my own hand with a sharp pencil.
I hate this sort of thing.
Not because of straight up corruption
Let’s leave aside the obvious problem of ‘economic development’ schemes like this, in which public entities give targeted incentives to a specific, private company: You know, because private individuals who benefit may feel quite ‘grateful’ to their public sponsors. Public sponsors in turn – elected and appointed officials – may then have an incentive to direct public funds to private beneficiaries to keep the ‘gratefulness’ cycle going.
That’s all obviously just straight up corruption and not really what I’m aiming for here in my critique of city-directed ‘economic incentives’ for private companies. [1]
What I really hate about this is something quite different, having to do with three business concepts: selection bias, market efficiency, and the structural short-run conflict between entrepreneurial goals and public policy goals.
Taken together, they greatly reduce the odds that this type of economic development works out for the public good in the long run.
I’ll address these in order.
Selection bias
Would you like your city (or state, or county) to grow companies focused on wooing public investment and public ‘economic development’ incentives? Or would you like your city to grow companies that focus on profitability without a public subsidy or public investment? Because the way you attract companies to your city (or state, or county) introduces a real selection bias to the pool of companies you end up with.
In my experience, the kind of startup company that takes public money – with all the attendant scrutiny, ‘job creation’ requirements and ‘salary’ minimums – is a different sort of company than one that achieves sustainability without that public money.
Market Efficiency
Private investors constantly scour the market for small but growing companies that provide a reasonable chance at future profits.
Small but growing companies in turn often seek direct investments from private investors known as ‘angel’ or ‘venture’ capitalists.
It’s not a perfect system, and market inefficiencies occasionally arise.
But when a company turns to public funds like this, what that signals to me is that private capital sources – the professional angel and venture capitalists – have already declined to invest in the growth of this company. That’s typically because professional angel and venture capitalists do not find the risk/reward profile of that investment sufficiently compelling.
Now, professional investors may be wrong to have overlooked the growth and profitability potential of these medical device companies.
The angel investing market may be inefficient.
Who knows? Maybe the City of San Antonio Economic Development team may have a market-beating strategy for identifying a positive risk/reward formula that private investors have declined to take. I mean, it could happen, right?
But I doubt it. And I would never bet on it.
The short-run conflict between entrepreneurship and public policy goals.
Look, here’s the biggest problem.
Public officials want to be seen to create “jobs.” At “good salaries.” That’s fine.
But entrepreneurs don’t seek to create jobs. At any salary.
Entrepreneurs, at least the good ones, want to create the least number of jobs possible. I’m not saying this because entrepreneurs are inherently mean-spirited, but rather, because hiring people is expensive.
Successful small companies – and big ones too – have to constantly try to eliminate jobs to make a company financially sustainable. The market is too darned competitive to survive when you’re burdened with too many people on the payroll. If public officials get the chance to dictate the number of jobs, and the salary minimums of jobs, I guess I have my doubts about how that business is being run.
You show me an entrepreneur willing to be told by a city entity how many people to hire, when to hire them, and what to pay them, then I will show you an entrepreneur who isn’t going to make it in the long run.
Because that’s what Romney’s firm Bain Capital is good at. They buy a company, wring out expensive costs (all those “good salary” jobs!) and then resell. In the short run, the more jobs you eliminate, the better. I’m not saying this to besmirch Romney’s record. I’m sure he was a fantastic capitalist. Cutting costs is what capitalists, and entrepreneurs do, and often that means eliminating jobs. But Romney as “job creator?” Give me a break.
I mention this to illustrate the short-run differences in goals between entrepreneurs and public policy officials
Ok, now back to San Antonio.
I hope I’m wrong
I hope to be completely wrong about this $1.75 million direct investment. Despite my misgivings, I will be thrilled when these three startup medical device companies spur innovation, trigger job growth, add to the ‘entrepreneurial ecosystem’ and even generate a positive return on public capital.
It could happen! I hope it happens!
But I would never, ever, choose to bet on it with my own money. And I’m sorry when the city chooses this for me.
[1] That kind of obvious corruption is what the New York Times had in mind in pointing out in 2012 that Dallas-based tax consultant G. Brint Ryan worked to secure tax breaks for private corporations in Texas while personally donating $250,000 and $150,000 for the Governor and Lieutenant Governor respectively. I don’t mean all that, since it’s all too obvious how each group benefits there at the expense of the public good. I mean, who could deny it with a straight face?
But the thing I like best in the world** is a smart, contrarian argument that shows how I’ve not considered all sides of an issue. Like this TEDTalk for example.
We often easily dismiss the government’s role in innovation, myself included.
Watching this type of argument helps me think better.
The TEDTalk teaser for this video:
Why doesn’t the government just get out of the way and let the private sector — the “real revolutionaries” — innovate? It’s rhetoric you hear everywhere, and Mariana Mazzucato wants to dispel it. In an energetic talk, she shows how the state — which many see as a slow, hunkering behemoth — is really one of our most exciting risk-takers and market-shapers.
Which actor in the economy is most responsible for making radical innovation happen? Mariana Mazzucato comes up with a surprising answer: the state.
**Ok, there are a few things I like better in the world. Double Stuff Oreos come to mind. Red Sox World Series victories, as well.
Jane Jacobs begins her Cities And The Wealth Of Nations with a fundamental critique of mainstream economics. Cities – and not nations – she argues, are the fundamental wealth producers, and therefore cities – and not nations – should be the basic unit of analysis for economics and finance.
From this critique flow original ideas on rural development, currency regimes, and the decline of economic empires.
As in her better known classic The Death and Life of Great American Cities, Jacobs radically ignores, or leaves aside, the starting principles of her intellectual predecessors.
Jacobs isn’t held back by the fact that Adam Smith – and almost all subsequent macroeconomists – consider national economies the appropriate way to measure economic growth.
Nearly 30 years after this book was published, I am impressed at just how useful her analysis is for understanding current economic problems. Want to understand why China’s experiment in the 60s didn’t work but what is working today? Want to understand why the European Common Currency may really never work? Wan to understand what types of transfer payments may undermine our economy in the long run (and it’s not the ones you were thinking about).
Jacobs offers much in this book to help us understand these and other big questions.
Cities are the key units of measure, not nations
In economics we typically quote Gross National Product when measuring growth, but that measurement, Jacobs would argue, obscures the preponderance of economic activity which flows not from a nation as a whole but rather from its cities. It makes more sense, therefore to think of the economies of New York and LA as the keys to understanding development.
She points to the historical example of Italian city-states, and the modern examples of Singapore and Hong Kong, to illustrate the mechanism by which cities, not nations, drive trade, innovation, labor markets, and capital formation. The regions surrounding cities become ‘city-regions’ shaped entirely by the urban center. Regions outside of cities, including rural and less populated areas, either conform to the proximate city economy, or get left developmentally backward.
Rural Development
If cities, not nations, drive wealth creation, then our definition and perspective on economic under-development changes. Jacobs argues that less-developed economies typically suffer from a lack of successful cities, or an over-reliance on a single city.
“Show me a poor, underdeveloped country,” Jacobs seems to say, “and I will show you a country with very few or no successful cities.”
Among my do-gooder peers, “rural development” seems like one of those universally admired ideas, like Motherhood, Cross-Fit, and pro-biotic yoghurt.[1] A number of close friends have dedicated significant years of their impressive lives toward this admirable goal.
But viewed through a Jane Jacobs filter, rural development becomes an oxymoron. If innovation, technology adoption, specialization, job creation and capital formation all happen in cities, then attempts to drive rural development work against the natural order of economic life. To the extent rural and agricultural areas become shaped by and therefore satellites to vibrant cities, rural folks may make a living, for some time, albeit generally at a reduced standard of living compared to urban areas. For significant parts of a less developed country to embrace investing in rural development, however, Jacobs would call it madness.[2]
Currency Regimes
Jacobs goes to significant pains to illustrate the different pace of economic growth in urban and rural areas, and to explain how this difference interacts with national currencies.
Currencies, she reminds us, interact with economic growth as part of a natural economic feedback loop, and – when freely tradable -currencies act as a pressure valve for equalizing values through international trade.
Successful cities spur trade, foster technological changes, create jobs, and create capital, all of which benefit from – and indeed require – an expansive monetary policy to accommodate faster growth. Rural areas, by contrast, typically plod along at a slower pace of change, for which an entirely different – and more restrictive monetary policy – may be appropriate.
The problem with many national currencies, she argues, is that different rates of growth within a single nation between the city and the countryside receive inappropriate signals from the currency.
People in rural areas tied to a monetary policy driven by the needs of high-growth cities will suddenly find everything in a city inordinately expensive, as inflation in some areas outpaces it in others. Urban-dwellers, by contrast, will find their economic life stunted if monetary policy makers favor the needs of rural producers, in essence holding back the faster city-driven growth.
Currency Regimes – the city-state advantage
Jacobs points to successfully developed city-states, such as Singapore, Taiwan, and Hong Kong – that thrived with their own currency – as evidence of her view. Far from representing a disadvantage – due to the costs of currency exchange – a unique tradable currency helps these small countries match economic growth to appropriate monetary policy.
Monetary policy closely matches the high-growth trajectory of the city states, unencumbered by rural areas.
Jacobs offers a memorable metaphor for why unique currencies can enhance growth, whereas national currencies frequently hinder growth:
“National currencies, then, are potent feedback but impotent at triggering appropriate corrections. To picture how such a thing can be, imagine a group of people who are all properly equipped with diaphragms and lungs, but who share only one single brainstem breathing center. In this goofy arrangement, the breathing center would receive consolidated feedback on the carbon-dioxide level of the whole group without discriminating among the individuals producing it. Everybody’s diaphragm would thus be triggered to contract at the same time. But suppose some of those people were sleeping, while others were playing tennis. Suppose some were reading about feedback controls, while others were chopping wood. Some would have to halt what they were doing and subside into a lower common denominator of activity. Worse yet, suppose some were swimming and diving, and for some reason, such as the breaking of the surf, had no control over the timing of their submersions. Imagine what would happen to them. In such an arrangement, feedback control would be working perfectly on its own terms but the results would be devastating because of a flaw designed right into the system.
I have had to propose a preposterous situation because systems as structurally flawed as this don’t exist in nature; they wouldn’t last. Nor do they exist in the machines we deliberately design to incorporate mechanical, chemical or electronic feedback controls; machines this badly conceived wouldn’t work. Nations, from this point of view, don’t work either, yet do exist.”
Currency Regimes – anticipating the EU problem
Jacobs published Cities And The Wealth Of Nations in 1985, prior to the launch of the European common currency, but it’s easy to anticipate how she would describe the European Union crisis of the past few years. Observing the culture and economic activity of Germany, shackled together with the culture and economic activity of Greece, we can imagine her horror.
A single monetary regime for the European Union may or may not ultimately survive the ongoing crisis that began in 2008, but the pain imposed by inflexible currencies could not be any clearer.
Countries like Spain and Greece right now – with high structural unemployment – receive disturbing monetary feedback from the restrictive German control on the European Central Bank. Even if smart Greek observers like this one claim that union remains essential, it comes at great cost. He says it’s worth it, but Jane Jacobs would say it’s not.
Seeds of Decline
Jacobs ends Cities And The Wealth of Nations on a downbeat note, arguing that the vast economic differences between urban and rural areas leads inevitably to the creation of vast, inefficient, subsidies from the former to the latter areas, made in the interest of national stability.
These subsidies come in a variety of forms[3], but Jacobs claims they contain within them the seeds of inevitable national economic decline.
Given the current political divides in the US, her commentary on the inefficiency of subsidies seems particularly ironic and notable.
Jacobs laments the inevitable and vast transfers of wealth from cities to rural areas, since this saps economic strength from wealth-producing cities and shifts it to lower-growth, under-developed rural areas.
I’m struck by the idea that the conventional wisdom of current political dialogue in the US assumes, unlike Jacobs, that our urban underclass receives an unfair share of government largesse, sapping the vitality produced by a theoretical US “heartland.”
And yet, our national legislative system – guaranteeing an over-representation of people in under-populated states via the Senate – practically guarantees that subsidies will flow from urban to rural areas, not the other way around, as is commonly supposed.
Predictions are hard, but it doesn’t pay to underestimate Jane Jacobs.
Jacobs claims, somewhat dramatically, that the seeds of inevitable national economic decline stem from these unproductive flows of capital from urban to rural areas.[4]
In the hundred-year view, she argues, the United States began its decline in 1933 with the implementation of large scale rural subsidies, while Japan’s decline will date from their similar decision in 1977.
The last twenty-five years have been kind to her ideas in this book, just as her ideas from The Death and Life of Great American Cities seem as relevant as ever, fifty years on.
We ignore her ideas at our own great peril.
This completes my trilogy of Jane Jacobs book reviews.
[1] Universally un-admired ideas, for example, include chemical weapons, Humvees, and Alex Rodriguez.
[2] Interestingly, although Jacobs does not focus on this example – probably because she published her book in 1985 – China’s last fifty years is almost a perfect illustration of Jacobs’ idea. The catastrophe of China’s 1960s rural development, which set back an entire generation, has been replaced with furious urban development, and the greatest, fastest, boom in human wealth creation the world has ever seen. By a long shot.
[3] In the US, Jacobs points to the 1930s as the beginning of the era of decline in the US. Rural Farms bills in the US, we can infer, would be the kind of thing Jacobs deplores. In Japan, Jacobs points to 1977 as the year that subsidies to less productive rural areas began in earnest.
[4] Along with unproductive and excessive military spending.
I’m on Cape Cod for two weeks with my family. On the occasion of my re-entry to Red Sox Nation I thought I’d revisit this story of public investment in private enterprise – gone horribly wrong.
I love Curt Schilling.[1] And I love the Red Sox.[2] And (once upon a time) I loved video games.[3] So you might expect me to hold in my heart a deep well of forgiveness for Curt Schilling driving his tech startup, a video game business, into the ground last year.
But I don’t have such a deep well of forgiveness. In fact, the whole episode disgusts me.
Most importantly, it reminds me that government-directed ‘Economic Development’ is a stupid plan which usually ends in waste, corruption, influence-peddling, and tears.
Schilling’s 38 Studios
In 2009, the retired pitcher Curt Schilling founded a video game company to develop MMORPs (massively multiplayer online role playing games), apparently based on the premise that he loved playing video games.[4]
To pursue the dream, Schilling invested his own money from a successful baseball career, but he needed more capital to build the video game empire of his dreams.
Although Boston’s venture capital community turned him down, Schilling had other strengths, namely his stature as a New England hero and his reputation as an articulate, albeit partisan, spokesman.
Rhode Island’s then-governor Don Carcieri persuaded his state’s Economic Development Corporation to issue $75 million in municipal bonds to provide funding for 38 Studios if they located their office in Providence, RI. The idea seemed to be that an innovative software company could jump start Providence’s economy, especially in the dark economic times, post-2008 Crisis.
Schilling’s company promised Rhode Island strong starting salaries, a great health care plan, and the attraction of “knowledge workers.”
The bloody sock
What happened
When 38 Studios filed for bankruptcy in 2012, it left a giant question mark about whether the state of Rhode Island would make bond-holders whole on their losses.
With $150 million in debt and just $22 million in assets, Schilling fired hundreds of employees by email.
Schilling complained about $14 million in additional undelivered tax credits from the state, and accused the newly-elected Governor Chafee of publicly undermining his company.
Chafee, for his part, has directed lawsuits against not only Schilling and his partners, but also former state officials, banks and law firms involved in the deal.
In retrospect
In retrospect, the most insightful comment, before the state invested, came from the now-Rhode Island State Treasurer Gina Raimondo who said in July 2010:
“In general, I would proceed very carefully on this. [The company] is in the Boston area where there are 200 venture capital firms, and it is in a very hot area of gaming so if it were in fact a compelling investment I would have to think it would be well funded already by venture capitalists; the fact that many have looked at it and passed is a red flag.”
That pretty much sums it up. The state officials who signed off on putting $75 million into a gaming start-up essentially bet, without explicitly saying so, that all those smart venture capitalists were wrong – that the venture capitalists had missed something in Schilling’s 38 Studios, that they saw.
When I hear about government officials these days investing in or subsidizing everything from electric cars, to solar panel manufacturers, to incentivizing companies to relocate through tax breaks, I worry. Why do you think the private markets turned down this idea? If you give away public money now, what do you think you’re going to really get?
Not a Democratic or Republican thing
I also want to clarify that this isn’t an ideological, Democrat or Republican issue, or a Left vs. Right issue.
The city where I live now is dominated by Democrats (pretty hard-core ones, too), while the State where I live is dominated by Republicans (very hard-core ones). Public officials on both sides of the aisle and at the city and state levels love subsidizing specific private enterprises in the name of economic development.[5] Sure, it’s often natural gas drillers on the Republican side and renewable energy companies on the Democrat side, but they’re both wrong. All kinds of political stripes in government are convinced they can help incubate or grow businesses or business sectors.
As a rule, they can’t, although they can help themselves in the process. By that I mean they can capture public goods – such as tax-breaks or outright grants – and direct them to private individuals and companies. Which same private individuals and companies in turn, out of the pure goodness of their hearts, know who to support in the next election.
Another way to explain the problem of governments getting in the economic development business
Beyond the obvious opportunities for influence peddling, however, I recently re-read a book which helps explain why governments are just plain bad at kick-starting economic development.
In Jane Jacobs’ Systems of Survival she lists the attitudes and precepts which guide the function of government, and then compares them to the attitudes and precepts that guide successful commercial enterprises. More often than not, the government precepts directly contradict the commercial precepts.
Re-reading the Guardian Syndrome (for governments) I’m struck by how Curt Schilling seems to personify many of these Jane Jacobs-enumerated traits:
Exert Prowess
Be obedient and disciplined
Adhere to tradition
Respect hierarchy
Be loyal
Take vengeance
Dispense largesse
Be exclusive
Show fortitude
Be fatalistic
Treasure honor.
If those aren’t a great description of Curt Schilling leading the Red Sox to victory in Game 6 over the hated Yankees in the 2004 ALCS – in a bloody freaking Red Sock no less! – then I don’t know what is.
And yet, these same traits can be death in an entrepreneurial venture, where many of the following opposite characteristics lead to success. From Jane Jacobs’ list of the Commercial Syndrome (for successful companies):
Come to voluntary agreements
Collaborate easily with strangers and aliens
Compete
Use initiative and surprise
Be open to inventiveness and novelty
Be efficient
Dissent for the sake of the task
Be thrifty
When I reread Jacobs’ book, I thought of Curt Schilling, and the fact that he’s a natural ‘Guardian’-type trying to do a ‘Commercial’-type activity. Probably it never was going to work. He should have just run for office.
What is to be done about economic development?
So what should government officials of either the right or left do when they want to promote jobs, economic opportunity, prosperity, and upward financial mobility in a given area?
The best answers are long-term, and the benefits diffuse, and therefore difficult to attract the attention of elected and appointed public officials, who tend to need short-term and identifiable results, in order to gain election and re-election.
But, despite the barriers, what should an elected or appointed economic development official try to do?
I would like my public officials to focus on projects with wide-ranging, inter-generational impact.
Such as improving public education, and access to higher education.
Such as reducing crime and enforcing regulations.
Such as creating and maintaining transportation infrastructure with a view to lowering inter-generational costs.
Such as beautifying public spaces like parks but also virtually any high-traffic pedestrian area.
Such as encouraging art and creativity in public spaces.
Such as lowering barriers to private enterprise by removing layers of bureaucracy at the city and state level. Anyone who has tried to start a small business, or re-develop a building inside a city, or open a restaurant, has found themselves crushed by innumerable codes, fees, inspections, permits, and signage requirements. Some of this is well-intended, or was once useful, but now much of this is the accumulated detritus of years of ‘good policy.’
Our governments already do all of these things, and often very successfully. Importantly, they all lead to economic development. Just as importantly they can benefit the largest portion of the public, rather than narrow groups. I’m really objecting to the tendency of public officials to get impatient and try to channel the public purse to particular private projects or narrowly defined interests.
What kinds of thing do we often get instead, which I hate?
We give targeted tax breaks for a particular favored industry.
We get tax breaks to incentivize a particular company to move to the city, encouraging a race-to-the-bottom mentality between competing cities in a zero sum game of beggar-thy-neighbor.
We give tax breaks to companies to ‘create certain #s of jobs’ hoping people don’t notice, or don’t understand, that business owners are – rightly so – not in the ‘job creating’ business, but rather the ‘profit increasing’ business. As soon as possible, or as soon as the tax incentives expire, business owners will try to eliminate jobs, because that’s what they’re supposed to do. That’s what helps keep businesses sustainable. To think otherwise is to fundamentally misunderstand business.
We give subsidies both direct and indirect to favored real estate developers and favored real estate developments and then justify it with the idea that we’re ‘increasing the long-term tax base.’
Curt Schilling’s 38 Studios catastrophe is the kind of monstrous hybrid Jane Jacobs predicted would be the result of bringing a Guardian (government) mindset to a Commercial (for profit) enterprise. I think that’s an inherent danger for economic development folks who work in government.
In the meantime, this could be the year. Go Sawx.
[1] I mean, let me clarify. I hate his stupid politics. But Shilling was a key figure – and played a bloody martyrdom role – basically the consecrated Jesus figure – in the 2004 Mother of all Sports Championships. So that’s how I’ll always love Curt Shilling.
[2] I’m wearing my grimy blue, autographed, “Rick ‘Rooster’ Burleson” cap as I write this. He was my favorite player from the earliest years when I fell for the Sox, which included boyhood heroes Freddy Lynn, Jim Rice, Carl Yastremski, and Dwight Evans. I chatted with Burleson at a Las Vegas convention for debt-buyers a few years ago. At that time he coached a minor-league team in the Indians’ farm system. But that’s an entirely different story, and not the point here at all.
[3] We had the Atari 2600 pretty early on, among the neighborhood kids. Hours upon hours of Space Invaders and Missile Command.
[4] We all know from Tony Robbins that we should just pursue our passions and the money will flow.
In the past I have complained (and I plan to complain in the future!) about the way in which state and local governments typically encourage local economic growth using tax give-aways (incentives!) for businesses.
I appreciated this TEDx talk’s research-driven approach to arguing for a different model, based on investing in Pre-Kindergarten education.Since my city just went through this issue last year at the ballot box, I took notes.
Economic Benefits of Pre-K
Timothy Bartik’s argument is as follows:
1. A major determinant of local wages is the level of education, measured (by proxy) using the % of college graduates in a given metropolitan area.[1]
2. More interestingly, however, is that the direct benefits to the individual of a college education – $725K more earnings per person over a lifetime – are bested by the indirect benefits of a college education on the earnings potential of other people in the area – $998K over a lifetime.[See minute 7:35 of the video.]
3. In other words, the herd – or to be more anthropologic, the metropolitan area – benefits more than the individual, from an educated workforce.
4. People are not as mobile in the United States as we think.60% of Americans stay within the state they were born. [See minute 10:30 in the video.] That means that investments by state and local governments actually do get enjoyed by the state and local residents.Hence, he argues, we’re not overpaying on educating kids, only to suffer brain drain.
What about costs?
Bartik acknowledges that costs will always be an issue.
Among the hardest parts about investing in Pre-K as an economic development plan is the giant lag time between Pre-K implementation and higher education outcomes, leading to higher wages over a couple of decades.
The time horizon far outweighs any political leader’s calculus for holding office, as well as most taxpayers’ willingness to invest in a wealthier future.
But boy does it seem affordable to me.
Bartik puts a $30 Billion number on instituting universal Pre-K in the United States.That seems to me like a shockingly low number to invest nationally on economic development.
Maybe he’s way low on that estimate.It’s hard to say.
Or maybe we overpaid by about $1 Trillion to depose Saddam Hussein, occupy and rebuild Iraq over 10 years.It’s hard to say.
Seems like we could spend 3% of the cost of an optional Iraq War to actually, you know, occupy and rebuild America.
[1] It seems relevant to mention here that the public school district where my 7 year-old attends 2nd grade has a graduation rate of between 3% and 7% ‘college readiness,’ as defined by minimum scores on a standardized test. I will now light myself on fire.
