Episode 5: Time for Place? Episode 5: Time for Place?

Runtime: 17:47 — The blunt truth is this: Many communities that were struggling economically decades ago are still struggling now. Existing policies simply aren’t working. Is it time to think about “place?” Economists traditionally have focused on policies aimed at improving an individual’s prospects and been skeptical about policies that focus on helping particular places. But some say the time for "place" is now.

Overview Overview

A difficult truth is that many of the same communities who were struggling decades ago are still struggling today. Boston Fed President Eric Rosengren says this is an invitation to new thinking about how to solve these persistent problems. Specifically, he’s challenging policymakers to think about “place.”

Policies that focus on place try to improve economic outcomes by bringing opportunities to specific geographic locations. It’s different from policies that focus on helping “people” improve their individual prospects. Economists have favored focusing on people over places because people are mobile, so it’s logical to equip them to succeed anywhere. But even skeptics of place-based approaches are starting to reconsider.

In this episode of Six Hundred Atlantic, we talk to UC-Irvine professor David Neumark, who’s open to new thinking, but says policymakers really haven’t figured out how to make place-based policies work. We also hear more from Rosengren, who points to the Boston Fed’s own Working Places program as proof that a place-based approach can be effective. Is it time to do things differently? Or is a heavier emphasis on place-based approaches the wrong solution?

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Transcript Transcript

Last year, Federal Reserve Bank of Boston President Eric Rosengren stood before a room of economists at the Bank’s annual economic conference, and he asked them to consider a major change in thinking.

He’d just displayed a line chart showing 50 years of median family income levels in seven struggling Massachusetts cities. Places like Lawrence, New Bedford, and Fall River.

The chart showed a steady decline in incomes, compared to the rest of the country.

Rosengren told the audience that this was the story around the nation: Communities struggling decades ago are still struggling now.

He was blunt: “We need new policies,” he told the audience.

Then, he asked them to think about “place.”

In economics, policies that focus on “place” try to improve economic outcomes by bringing resources and opportunities to specific geographic locations. It could be a neighborhood, it could be an entire region.

It’s different from policies that focus on helping “people” improve their individual prospects – perhaps by enhancing their educational opportunities or job skills.

So, for example, say a city has lost a major employer, like a coal mine. A “place-based” policy would try to attract a new employer to that city through tax breaks, better infrastructure, or some other policy.

A “people-based” policy would focus on the people affected by the job losses – perhaps by offering job retraining.

Economists have long favored focusing on people over places because people are mobile, so it’s logical to equip them to succeed anywhere.

Rosengren explains:

Traditionally, economists have assumed that people would move to the best opportunity and that there wouldn't be large cost to doing that. So, if that's your focus, you pretty much want to think about how you give the individual skill to use no matter where they go.

But, as we discussed earlier this season, the assumption that people will move to better economic situations is shaky.

Geographic mobility has been declining for decades. People are staying put, even in places that are struggling.

Rosengren says that new reality is an invitation to new thinking.

I think the first thing is we have to assume that people aren't necessarily going to move even though their economic outcomes haven't been as good. And so we need to find ways to help people where they are and not just assume they're going to move to a different situation. Second, I do think that place-based policies can work. I think they're more difficult to implement, but I think they're the kind of programs that we actually need, given the persistence of problems that have occurred in smaller cities and more rural environments.

But there’s plenty of skepticism about “place-based” approaches. Some economists say there’s just not much evidence they work. Here’s economist László Kulcsár from Penn State.

Most of the policies I know about that were tried were failures.

Economist David Neumark from the University of California at Irvine has studied place-based approaches, including urban “enterprise zones.”

These aim to increase employment through government incentives to employers – such as tax credits for hiring local workers.

Neumark concluded they don’t really create jobs. He says that, overall, policymakers haven’t learned how to make effective place-based policies.

I think we really don’t know what works. We really don't know what's going to work. So I think someone proposing a large scale place-based policy to address joblessness in large, whether in poor urban areas or larger regions of states, they can speculate as to why it might work, but we don't have a basket of research evidence from which we can choose a well-established, effective policy. So that's, I think, the tension here.

This is 600 Atlantic, a podcast produced by the Boston Fed. I’m your host, Jay Lindsay.

This season we’ve taken a look at growing “geographic disparities” in the U.S., which was the topic of last year’s annual economic conference at the Boston Fed.

These disparities are differences between regions of the country in variables like income, health, and education.

The question we’re asking in this episode is whether “place-based” policies can close these disparities. Can a new approach help areas of the country that seem to be falling further behind?

Place-based policies may not be in vogue, but they have been around.

An example is the Tennessee Valley Authority, a federal initiative that began in 1933. The program targeted large infrastructure spending at a very specific place – the Tennessee Valley region.

That included construction of hydroelectric dams to generate local power and encourage manufacturers to locate in the region. Studies later showed the program raised productivity in the area. But it’s uncertain how long the benefits lasted.

The question about whether place-based policies have enduring impacts is critical. So is whether they help the people they actually intend to help.

By definition, place-based policies target areas, not people, so their benefits to individuals are delivered indirectly.

For instance, Neumark notes that even in areas of concentrated poverty, some people are doing fine financially. So a place-based policy focused on that area could end up helping people who don’t really need it.

The problem of who benefits is always a problem you have with place-based policies instead of people-based policies. If I create a program to induce job creation in, let's say Kentucky just to pick on Kentucky, and I'm doing it because I know joblessness is high, am I actually creating jobs for the people for whom joblessness has picked up and remained high, or am I potentially creating a program that is just going to end up subsidizing the jobs that would have gotten created anyways?

Boston Fed economist Chris Foote says it’s also difficult to determine exactly what improvements or incentives will make a real difference in a particular place.

It's really easy to go into a city and say okay, we're going to really improve the highway in the system, or we're going to build a people mover, or we're going to build better bridges. Or we're going to do something to the city to make it much more attractive. And you can spend a lot of money on infrastructure, and you can have not a lot to show for it. And that's because the decisions that firms make about where they want to locate, and the decisions that workers make when they decide where they want to move, often involve a lot more than how wide is the highway going into the city?

U-C Davis economist Kadee Russ said timing is an important issue. Some communities hit by trade shocks can conceivably be helped by placed-based policies – but only if they’re installed before a “tipping point” is reached in that community.

When we don't address big adverse shocks to communities, they can enter into a downward spiral. So, once the population starts to decline, then there may be a drain on the tax base that's used to support public services, like education, like infrastructure. This can lead to decline in property values, continued decline in the population. So, place-based policy we may find that it could be useful at certain tipping points in a community's lifetime.

Kulcsár says it’s difficult to know when a depressed community can truly be helped by place-based intervention.

He pointed to a program in Kansas that tried to counter population loss by offering free land to induce people to relocate there.

Now, that works again really great, except that those places did not have good educational structures or healthcare structures. I mean, who's the young family who would go to a place where you have to put your kid on a school bus for three hours a day? That's just not happening.

Economist Carol Graham from the Brookings Institution said some places are simply beyond the reach of place-based policies.

So a difficulty for policymakers who take that approach is figuring out when a place could benefit from intervention, and when it’s too late.

There's some places that just aren't viable economically anymore. And it's how you ease the pain or make the community better for the people who stay, and they're going to be older people, is something that we have some insights into and some lessons to learn from, but that's very different from places where you can say, ‘Okay, this place can turn around economically and thrive again.’

Neumark says with so many unknowns, any new place-based approaches that aim to close geographic disparities should be relatively modest.

I think taking good ideas and trying them at a small enough scale that we can learn about them without spending a lot of money, but a large enough scale that something happens that we might learn about is kind of the sweet spot that I think we should try, because the evidence says this is a new problem in these depressed areas people are not migrating out. So what do we do? And I'm not saying we should ignore the problem, I'm just saying massive spending without knowing what work seems misguided, especially because these policies don't have a great history, but experimentation with new ideas to figure out what will work also seems merited.

The Boston Fed’s Working Places program may not qualify as a new idea, as it’s been around for seven years.

But as a place-based effort, it’s certainly being watched. And because it’s had some positive early results, it’s offered hope for people looking for ways to tackle seemingly intractable community problems, like crime and poverty.

The initiative includes both the Working Cities Challenge and the Working Communities Challenge, and it’s active in four of the six New England states.

The initiative awards grant money to teams in specific cities and regions. Before receiving funding, these teams come up with detailed plans for tackling a tough local problem, and then they set measurable goals.

For instance, in Haverhill, Massachusetts, the Working Cities team is focused on building leadership and bringing amenities to a specific neighborhood with higher crime and lower income than the rest of the city.

The Working Cities model stresses continuous learning and adaptation, so good ideas can be developed, and bad ones quickly discarded.

It’s also built on collaboration between leaders of groups that wouldn’t organically interact – business and social service agencies, for instance.

Because the challenge is a grant competition, the Boston Fed can assess whether the communities have the raw material to come back before funds are distributed. These raw materials would include things like committed leadership and a functioning civic infrastructure.

Here’s Rosengren:

We're trying to find cities that can be successful and part of the process, and why we went to a competition model, was the understanding that these cities, for the most part, haven't been successful for 40 years. So, something has to change now that hadn't occurred over the last 40 years. And that something has to be and to help that city galvanize under the right leadership and the right vision to make that change. But you are asking the city to make a change. You're not asking the city to do the same thing they've always done and hope they get a better outcome.

Rosengren acknowledges that investing in place-based efforts can be more uncertain.

But he said that though it may be easier to measure and devise policies that focus on people, that can’t be a reason to stick with approaches that haven’t worked.

It may be an easier lift, but if you're giving skills that people can't use, it doesn't help them very much. So thinking about how you can get the communities to be much more vibrant is more difficult. That is not an easy thing to do and it probably requires leadership skills in that community. And leadership skills can be pretty scarce. So unlike thinking about basic skills that you're training somebody with, the leadership skills are a little harder to find, particularly in a community that may have suffered from population declines for 30 or 40 years. So it becomes really important to galvanize the right kind of leadership and get the community behind that leadership to try to make a change for that community.

So. I agree it's quite difficult. Just because it's difficult doesn't mean it's not the best policy to do, though.”

As listeners of this debut season of 600 Atlantic know, we focused on “geographic disparities” because they were the topic of the Boston Fed’s most recent annual economic conference.

And they were discussed there because our economists saw how critical the subject was – not just for our economy – but our nation.

This is a time when the divisions in the United States are on bright display, and unity seems both elusive and more important than ever.

To Chris Foote, who organized the conference, tackling these geographic disparities isn’t just an economic problem to solve. It’s a way to ease our country’s internal divisions.

Here’s Chris:

I don't think it's crazy to think that to the extent that people believe that there are some areas of the country that are more favored than other parts of the country, that's going to make a lot of things worse in the country, that's going to make politics harder.

It's going to make agreement about the challenges that we face, whether it's about how to do monetary policy, how to do fiscal policy, how do we set up our retirement center or our retirement programs, how do we sort of do all the things that we need to do politically, all those things I think become harder if we don't have a sense that the country is moving in the same direction and that opportunities are shared, broadly, equally across geographical lines.

We finish with a quote from 19th century statesman and orator Daniel Webster. Foote recalled this quote during his interview for this podcast.

The quote came during a two-day speech by Webster in 1830, and he said it in response to a fellow senator who had alluded to burgeoning divisions between the North and South.

Webster argued the U.S. was more than just a collection of sovereign states. It was one Union.

He proclaimed, “Liberty and Union, now and forever, one and inseparable!”

I think that was true in the 19th century and I think it's true in the 21st century, liberty and union, the things that we value about this country are one and inseparable, in the sense that we really can't be as free as we want to be as a people if we're not united, if we allow geographical disparities to get worse, and if policymakers don't pay attention to those disparities, I think we risk losing a lot of the character and characteristics that make living in the United States such a good thing.

Thanks for listening to Six Hundred Atlantic, and please check out the rest of our debut season, which includes five episodes and a bonus episode. Learn more and subscribe to our mailing list at bostonfed.org/six-hundred-atlantic. Listen and subscribe to Six Hundred Atlantic on Apple Podcasts, Spotify, Stitcher, and TuneIn.

Most of the interviews and reporting for this season of Six Hundred Atlantic were done prior to the onset of the COVID-19 pandemic. But the trends discussed are decades in the making and are particularly relevant during a time of economic upheaval. The pandemic’s impact on these trends are the focus of a special bonus episode of Six Hundred Atlantic, which features a discussion with urbanist Richard Florida and Harvard economist Ed Glaeser. We invite you to listen.

The producers would like to thank our expert contributors for lending their time and insights. They are Christopher Foote, Carol Graham, László Kulcsár, Christopher Mayer, David Neumark, Jonathan Skinner, Eric Rosengren, Katheryn Russ, and Abby Wozniak.

Six Hundred Atlantic is a Federal Reserve Bank of Boston podcast hosted by Jay Lindsay. Produced by Jay Lindsay, Allison Chase, and Peter Davis. Executive producers are Lucy Warsh and Heidi Furse. Recording by Steve Osemwenkhae. Engineering by Steve Osemwenkhae and Alex Cronin. Project manager is Allison Chase. The chief consultant is Christopher Foote. The podcast is written by Jay Lindsay and edited by Christopher Foote, Allison Chase, and Nicolas Brancaleone. Graphics and website design by Meghan Smith and Stephen Greenstein. Production consultants are David West and Thomas Stranberg.