Economic Development and Opposing Theories

¶ … Economic Development and Opposing Theories

In the United States, current economic crises have left many states, governments, and individuals worried about unemployment, retirement, and bankruptcy. While this is a federal program, it translates to the states. In many ways and for many reasons, states try to develop their economies. This is most obviously seen during years when the governor is up for election. With policies to decrease unemployment, encourage college attendance, and encourage firm development, governors and their state advisors attempt to increase economic development. For decades, politicians have been theorizing about state economic development, how it takes place, why it takes place, and how it can be classified, among other research questions. This study will examine four relevant studies in the field of state economic development, summarizing them, and then comparing and contrasting their theories regarding state economic development.

Summaries

While the subject of economic development is old, not all scholars agree that the theories in connection with the subject have been distinguished appropriately. In fact, this is the premise of James J. Wilson's (1999) article, "An institutionalist take on state activism in economic development: a theoretical framework." Wilson (1999) argues that all work prior to his article classified the topic of state activism in economic development too simply. Primarily, Wilson (1999) bases his argument on the claim that ad hoc classification systems, taxonomies, and conceptual frameworks are the only three categories that scholars have used to order types of state activism in economic development. He deals with these classifications from most general to most specific. For instance, ad hoc classification systems are sets of "arbitrary categories" designed to classify observations in state activism in economic development. Thus, this classification does not allow much room for research or study. Moving slightly more toward the use of research and study are the taxonomies. More specific than ad hoc classification systems, this category of classification is closely associated with the world of scholarship, offering complex definitions, but not explanations for observations in state activism in economic development. Finally, the most specific category in Wilson's (1999) categorization is the conceptual framework, as it offers "explanations and predictions for empirical observations" (Wilson 1999). However, because they do not offer these predictions and explanations in conjunction with taxonomies and because they do not allow for deductive reasoning, Wilson (1999) argues that conceptual frameworks are still inferior. Thus, Wilson (1999) argues that theoretical conceptualization models that do the complex subject justice. Instead of the above propositions, Wilson (1999) creates a theoretical framework based on growth theory, economic policy, and international constructs that he suggests is the best framework for viewing the subject thus far.

Following Wilson's (1999) suggestion, several theorists have put into practice specific models for describing state economic development. For instance, Paul Trogen's essay, "Which Economic Development Policies Work: Determinants of State Per Capita Income," argues that economic development policies only work if they offer incentives for firms. In other words, Trogen argues that these policies only "add to state economic effectiveness and welfare if they compensate manufacturing firms for the positive externalities they produce." Trogen goes on to explain that the controversy surrounding state involvement in economic aid is great. In fact, many proponents of competitive policies that offer incentives to companies for locating in their state suggest that these programs actually increase development, while their opponents argue that the state programs simply cancel each other out. Trogen weighs in by suggesting that no one can know the truth because no theoretical model currently exists to show the policies in comparison. In his model, Trogen argues that states can only succeed in economic development when they provide incentives up to the amount of positive results they will get from the companies in terms of economic development. Paying companies more than they pay the states, which is what the alternative really is, does not yield positive results.

Like Trogen's model, Robert Costello of the American Trucking Association and Allen Brierly, a professor of Political Science, suggest another model that states may choose to implement when trying to grow their economies in his essay, "Accounting for State Economic Performance: A Time-Series Cross-Sectional Analysis of the Limits of State Economic Policy." As Wilson (1999) suggests, Brierly and Costello's model is a specific recommendation for certain actions in growing a state economy. Like Trogen's model, Brierly and Cotello's argues that certain variables work when trying to encourage state economic growth, while others do not. In fact, Brierly and Costello bring into the argument the three variables commonly associated with industry growth -- labor, Capital, and Technology. Brierly and Costello used time series regression to test each of these variables in order to determine which made the largest impact on state economic growth, while holding the caveat that states should be careful when considering these variables as they do not have much control over them. Brierly and Costello's results suggested that increasing labor had larger impacts on state economic development than increases in the other two variables. This conclusion is correct only for the short-term, however. In fact, Brierly and Costello's reasoning for their findings that neither increases in labor or technology result in economic growth for states because their investments are typically more "long-term" (Brierly and Costello).

Instead of simply relying on capital, however, Richard C. Feiock argues that non-traditional methods can be beneficial for state economic development, in addition to traditional plans based on competition in his article, "Development Policy Competition and Positive Sum Growth: Incentive Competition and it's Alternatives." Freiock argues against those who suggest that competitive developmental policies are nullified by other policies by insisting that many developmental policies actually work. Instead of making sweeping statements that suggest development programs and competition do not work, Freiock suggests tat whether or not a policy works is based on the types of policies enacted and the economic environment, much like any other theory or policy. In addition to these traditional competition-based models, which can result in positive improvements in economic development in certain cases, the author continues to argue that developments in institutions, human capital, and social capital are worthy substitutions. In arguing for these alternative theories, Freicok suggests that states can boost their economies by carefully designing their affects on institutions and their rules and regulations, increasing human capital through education and training incentives, and cultivating social capital by structuring a community based on trust and civic duty. Thus, Freiock's suggestion differs from the others because of its unique suggestions, but, like Wilson (1999) suggests, the author imposes a specific plan for success.

Analysis and Conclusion