Partners for Growth: State and Local Relations in Economic Development
State government intervention in the market economy can be traced back to the beginning of the Republic, when in the first few post-Revolutionary decades Massachusetts and several other young states provided public subsidies to encourage the growth of glass-making, barrel production, and other infant industries. But this sort of active government economic role quickly fell out of fashion. For much of the nineteenth century until the Great Depression of the 1930s, state governments left decisions about how and where to invest capital almost entirely to private entrepreneurs. That the state and its localities should have a major and continuing responsibility for fostering and shaping their economies is really a late-twentieth-century notion. It is true that states in the depressed South began in the 1930s to use state money to lure industrial firms from more prosperous states, but it was not until the 1970s and 1980s that the state and local role in economic development became universal, complex, and intense.
The convergence of several different factors in these years impelled subnational governments to take a more active role in this policy domain. Economic development, understood as government efforts designed to encourage private business investment and the creation of jobs, became a major state and local function as a result of postwar interregional population and capital shifts, sharp changes in the system of federal assistance to state and local governments, and the emergence of the international market system.