Symposium on Local Economic Development Financing: Issues and Findings
Liou, Kuotsai Tom, Journal of Public Budgeting, Accounting & Financial Management
Economic development has become one of the top public policies emphasized by many state and local governments in the United States for the last several decades. The increasing interest in economic development policy has to do with the changing domestic and international political and economic environment. On the one hand, the changes are related to the economic recession, the rise of tax revolt, the federal budget deficit, and the cutback of federal aid, which have forced local governments to find additional resources for their communities. On the other hand, the globalization of the world economy with the increasing of foreign investment, the end of Cold War, and the advancement of communication technologies have provided local governments many opportunities to seek new markets and enhance the development of their communities.
Policymakers, community leaders, and public managers are interested in identifying policies, programs, and strategies that can promote economic development activities in their communities. Emphasizing business relocations, traditional development strategies focused on policies or programs to lower the cost of capital and labor to attract business to a particular place. The traditional strategies, named "supplyside strategies," included tax reducing policies, debt financing, labor market deregulation policies, and pollution control incentives (Eisinger, 1988). Emphasizing new business formation and small business expansion, new development strategies promote home growth development and try to improve economic conditions from within. The new strategies, titled "demand-side strategies," consist of such entrepreneurial programs as venture capital funding, high technology development, export-promotion projects, market development planning, training, and technical assistance.
A major topic in both traditional and new development strategies is the issue of economic development financing (Bingham, Hill, and White, 1990). Economic development financing is a controversial policy issue because it refers to the use of public money, directly or indirectly, to support private businesses, targeted or general, for the purpose of promoting economic development in a community. The issue involves arguments about the role of government in the market economy from philosophical, political, and legal approaches. It further draws debates regarding the effectiveness, efficiency, and fairness of the implementation of many proposed financing programs and projects.
The purpose of this symposium is to address some policy and managerial issues related to local economic development financing. The symposium introduction paper consists of two sections: (1) an overview of the development of local economic development in general and financing economic development in particular; and (2) a summary of the major issues and findings emphasized in each symposium paper.
ISSUES IN LOCAL ECONOMIC DEVELOPMENT FINANCING
To understand the background of economic development financing, this section provides an overview of the literature related to local economic development. Four important issues are identified in the literature: (1) the role of local governments in economic development; (2) the evolution of local economic development policies and programs; (3) the type of economic development finance; and (4) the critics of financial incentives.
The Role of Local Government in Economic Development
First, the issue of local economic development has become increasingly important to many developed and developing countries for the past several decades (Liou, 1998). In the United States, for example, economic development has become one of the top public policies emphasized by state, county, and city governments because of the changes in both the domestic and international economic and political environments. Domestically, the turbulence of the U.S. economy in the 1970s, the recessions of the early 1980s, the rise of federal budget deficits, and the cutback of federal aid to the states and localities have forced state and local governments to broaden their efforts in economic development (e. …