Towards A 21st Century Pa. Economic Development Strategy

Towards A 21st Century Pa. Economic Development Strategy

By STEPHEN HERZENBERG

Facing high joblessness and lagging state revenues, Pennsylvania’s lawmakers face the unenviable task of trying to boost the state economy on the cheap.

Yet, from another perspective, the need to do more with less provides an opportunity. The state and its next governor have a chance to step back from 50 years of incremental layering of new economic development programs on top of old, and to launch a 21st-century approach to stimulating Pennsylvania’s economy that delivers a more robust prosperity.

A new report from the Keystone Research Center provides a comprehensive overview of Pennsylvania’s current portfolio of programs to boost job growth, and a road map for moving forward.

The first—and easiest—step is for Pennsylvania to be more selective in its use of the oldest tool in the state’s toolkit for creating jobs: handing out checks to bring new businesses to Pennsylvania. Sometimes the right answer is “let’s not make a deal.”

When the state does gives out subsidies, the business recipient should pay decently, create jobs in places where they don’t reinforce sprawl, and be in industries in which Pennsylvania has a real chance to build a competitive cluster of companies.

Pennsylvania also needs to strengthen transparency and disclosure when companies get subsidies. This sunshine can help depoliticize handouts and subject them to ongoing scrutiny that reinforces more selective use.

Companion legislative proposals that would ensure business subsidy disclosure and accountability have just been introduced in the Pennsylvania Senate and House by Republican and Democratic chief sponsors. They should be pushed through by the end of the state budget process.

Beyond subsidy transparency and accountability, Pennsylvania also needs to build on the more cutting-edge elements of its approach to job creation. The unifying theme behind these approaches is that they seek to grow Pennsylvania’s own businesses rather than harvest existing businesses at the expense of another state.

Pennsylvania should focus its job creation efforts on “Growing-Our-Own” businesses because that is where most new jobs come from, according to a January report by Good Jobs First, 28 times more Pennsylvania technology jobs in recent years came from growing our own companies than came from job movement across state lines.

Pennsylvania has some of the most respected and pioneering Grow-Your-Own programs in the country. Philadelphia’s aptly-named Ben Franklin Technology Partnership, for example, is one of four centers across the state that Governor Richard Thornburgh established to accelerate the translation of innovative ideas into new products and expanding companies.

Over time, Ben Franklin has developed a gradually more nuanced understand of how to promote economically fruitful networking among companies and between business and University researchers. The Partnership has also learned more about the mix of seed funding, managerial support, and other technical assistance companies need to succeed and grow.

From 2002 to 2006, according to a recent evaluation by the Pennsylvania Economy League, the companies that Ben Franklin has assisted delivered 3.5 dollars in state tax revenue for each state dollar invested in the program.

Grow-Your-Own programs are not about “picking winners” but about creating a business eco-system and set of support systems hospitable to innovative companies. Another new part of this eco-system in Pennsylvania is an infrastructure of state-funded industry linked training partnerships.

The best industry partnerships don’t start from what the training provider wants to teach. They start, instead, from the question “What do businesses need?” What critical training and learning opportunities can help the biomedical industry, or the plastics industry, or the renewable energy industry—or any other competitive industry cluster—grow, increase its competitiveness, and create better jobs?

State legislation that has passed unanimously out of committee in the Pennsylvania state House would help institutionalize industry partnerships and make sure they are not a one-Governor fad.

Another set of promising economic development initiatives invest in communities to make them more attractive places to live and work. On this front, Montgomery County is charting promising new ground with a $105-million bond-financed economic development strategy that focuses heavily on revitalizing older communities, starting with Pottstown and Norristown.

Grow-Your-Own technology initiatives, industry partnerships, community investments have something in common: similar to traditional infrastructure and public education, and to modern technological infrastructure (broadband), these promising directions benefit multiple companies, not just one. They are “public goods” that one company can use—and then another and another.

The community structures and human capital that is enhanced by public investment in these initiatives is also not mobile. It will largely remain in Pennsylvania, not move to Georgia, or Mexico, or China.

And the market on its own cannot ensure adequate investment in these “public goods”—so they are a sensible and legitimate target for public funds.

Pennsylvania is at a crossroads when it comes to investing in economic development. We have an opportunity to create a 21st-century ecosystem that will foster innovative companies in a way that the market on its own cannot do. So, let’s do it. That would be a smart use of taxpayer dollars.

Stephen Herzenberg is an economist at the Keystone Research Center.

This op-ed originally appeared in the Philadelphia Bulletin on March 19, 2010.