Place Based Economic Policy
By Bernie Miller
Developing economic policy for a region has traditionally tended to follow political, jurisdictional boundaries. Therefore, there was always a Nova Scotia economic development policy – one size fits all. If positive GDP growth were achieved overall, it would be deemed a success. More frequently, if it resulted in low overall growth, a failure. To the extent other jurisdictional boundaries were considered, municipal boundaries (some 52 to 54 of them) were often used. In addition, the economy was sometimes envisioned as “the mainland” and Cape Breton Island.
But a single economic strategy won’t work for all regions.
A different way to consider Nova Scotia’s economy is as being made up of several Functional Economic Regions. A functional economic region results from the natural organization of social and economic relations. Its boundaries do not reflect geographical divisions or political boundaries, ridings, or municipal lines set in 1867. It is called functional because it reflects how people function on a day-to-day basis in an area: where they work, where they live, where they shop, where they socialize, how far they typically drive or travel.
These functional economic regions transcend formal boundaries, such as administrative regions (municipalities), political boundaries, or other static geographic divisions. They are geographic areas with high levels of economic and social integration among people and their enterprises.
The data most useful for defining functional economic regions is local labour market commuting patterns.
The concept of a functional economic region provides a way to examine the linkages and flows that create interdependence and community among people. Functional economic regions are geographic areas with a high level of economic integration among people, communities, and enterprises where at least 75% of a cluster of labour market both live and work. From a policy point of view, rather than one size fits all, what emerges is the opportunity for more customized place-based policy – one size fits one.
At the OECD, and among some of the U.S. Policy community, there is increasing interest in place-based policy.[1]
There is an emerging realization that globalization produced winners and losers on a regional basis. In the United States, for example, writing after the election of Donald J. Trump as former President, economists divided the country into the prosperous coasts, the eastern heartland, and the western heartland:
“The coasts have high incomes, but the western heartland also benefits from natural resources and high levels of historic education. Americans’ social problems, including non-employment, disability, opioid related deaths and rising mortality are concentrated in America’s eastern heartland . . . The income and employment gaps between the three regions are not converging, but instead seem to be hardening into semi-permanent examples of economic hysteresis.”[2]
Jobs for the Heartland: Place Based Policies in 21st Century America
It is noteworthy that in the 2020 election, the percentage of vote split was 51.4% for Biden and 46.9% for Trump but if the geographic areas of support were considered based on the percentage contribution to GDP the split was 72% Biden and 28% Trump (Source: Brookings Institute, November 10, 2020). Particularly since 2016 (Brexit/Trump), there has been increasing interest in the use of place-based policy in setting, enhancing, and forwarding policy objectives at the community level.
The rapid emergence of place-based policies – that is, policies that are multi-level in their governance and tailored with the engagement and impact of functional regions and communities based on their strengths and specific realities – is attributable to the perceived ineffectiveness of previous one-size-fits-all approaches aimed at achieving broad-based shared growth.
Place-based approaches are “collaborative means to address complex social-economic issues through [customized] interventions defined at a specific geographic scale.”[3]
Place-based policy development and implementation is particularly amenable to the Collective Impact Framework. A good example of a placed based program is the MIT Regional Entrepreneurship Acceleration Program.
Policy and Program Initiative: Fostering Innovation and High-Growth Businesses/Social Enterprises
In the past, economic development and job creation became intertwined objectives. The “short cut” approach was to attract companies to create jobs because that implied that growth had occurred.
In contrast, the importance of innovation – creating new to the world things that have value – is the foundation of most economic growth and social progress.[4] Joseph Schumpeter, an Austrian economist of note, describes the economy as an engine fueled by bursts of innovation.
Abundant evidence shows that young firms are the engines of job creation (i.e., most net new job creation) so our focus needs to be creating new opportunities for net new job creation with an emphasis on young high-growth firms.
Until 2015, Nova Scotia’s Economic Development Policy placed innovation on a much lower rung of importance for growth than, say, attracting manufacturing or jobs attracted through payroll rebates and “Foreign Direct Investment” (e.g., call centers, hedge fund back offices, etc.). The new focus should be at the system level and on the conditions needed for entrepreneurial acceleration.
Government can play a key role in collaborating with stakeholders to develop our ecosystem and advance cluster development policies resulting in higher rates of new firm, i.e., Innovation Driven Enterprises (“IDEs”), formation and success. Government doesn’t lead, it moves together with others. To the extent policy and program interventions are required, Government plays a limited and enabling role in developing and implementing such measures (e.g., venture capital programs, incubators and accelerators, work integrated learning opportunities for post-secondary students and post-doctoral fellows, Equity Tax Credit programs, MIT-REAP) and working through Crown Corporations in implementing effective, measurable programs aligned with strategy and government set objectives.
Government’s collaborative role in launching Volta 2.0, COVE, Ignite Labs, new venture capital funds, the Venture Capital Tax Credit, and social enterprise initiatives are each policy and program initiatives that are intended to support employment attachment goals.
As our historical review demonstrated, job creation should not be confused with economic development. Rather, sustained economic growth should create jobs or new opportunities for work because of foundational improvements of the conditions needed for growth in the economy. These programs should be designed to be inclusive from the outset.
[1] OECD Regional Outlook 2019, Leveraging Megatrends for Cities and Rural Areas, OECD Publishing: Paris, 2019 and The Framework for Policy Action on Inclusive Growth, OECD Publishing: Paris, 29 May 2018.
[2] Benjamin Austin, Edward Glaeser, Lawrence Summers. “Jobs for the Heartland: Place Based Policies in 21st Century America,” Brookings Papers on Economic Activity, vol 2008 (1), 3.
[3] Cantin, Bernard. “Integrated Place-Based Approaches for Sustainable Development,” Horizons, 10.4.2003, 7.
[4] Schumpeter, Joseph. The Theory of Economic Development, 1934.
