Managing economic growth in rapidly developing U.S. localities

¶ … localities with strong economic growth? How should the state deal with these problems? Your answer should consider both the national and local levels of planning?

The current global economic crisis has stabilized GDP growth for much of the G20. Brazil, China, India, and Russia (BRIC) are the global darlings and continue to increase GDP growth, often at levels 2 to 3 times greater than more developed counterparts. For example, India's GDP real growth rate in 2009 was estimated at 7.4%, 9% in 2007; whereas the U.S.

in comparison was estimated at 2.6% in 2009 and 1.9% in 2007.

however has internal operations that differ from India and other world governments. Federalism is the separation of powers between state and federal government where states are obliged to handle their own affairs. Under federalism, the federal government extends money in the form of grants and direct funding to state and local governments. Federalism includes the inter-relationship between state and local government, subject to a similar framework of interaction between the federal and state government.

This critical difference has prevented the collapse of some locales in the U.S. whilst enabling other locales to experience unprecedented levels of growth. The relative importance of local governments has not been as paramount as it is in this era of global economics. The remaining focus of this paper is to clarify how localities within the U.S. that have experienced strong economic growth have handled issues associated with such growth and what states ought to do to assist with problems faced by local government.

National

In his presidency, George W. Bush often stated the small business market provides a large number of jobs in the U.S. economy. Foreign and domestic corporations often make decisions on office and factory locations based on the corporate tax, state and local government incentives and tax rates, and the ability of local human capital for employment. The relationship between local government and small business is often stronger and not properly represented by concrete methods.

According to Bell (2010), local governments have indicated that small business development planning is largely non-existent. Business planning activities that include a written business retention plan and establishing specialized technology districts had a somewhat better response however still relatively paltry in providing assistance. The technology district is essential toward attracting technology companies to develop a boisterous industry.

The success of small business does not appear to be a function of local government involvement, and in fact, many in business feel that government often impedes the growth of business. The benefits offered by government often remain either overlooked, unbeknown, or disbelieved by private business. For businesses, that need Small Business Association (SBA) assistance or other forms of federal, state, and local aid and incentives may or may not have operated within a local government jurisdiction that had written a small business development plan.

According to Bell, (2010) "the latest research in the United States shows that nearly all net job growth since 1977 has been created by start-ups in their first year of business.

" (Bell, 2010) These entrepreneurial start-up businesses take on a variety of forms. No longer is the primary local business a butcher or hair cutting shop. The new economy has produced the need for high-quality employees and strong management expertise.

State Assistance

State governments can assist localities by implementing policy that administers a lower income tax rate for the type of businesses in accordance to local or state proposed growth initiatives. Additional problems faced by local governments include infrastructural issues to support the establishment of businesses. According to a Michigan Public Policy Survey 2010, the most popular approach to economic development facilitated by local government to enable the growth of existing businesses include tax abatements, networking events, and providing infrastructure and technology for businesses to utilize.

The entrepreneurial growth model justifiably has support from many proponents of business and government collaborative growth strategy. Entrepreneurs are hungry, driven and resourceful individuals that can create jobs and grow companies based on a niche product or service. Startups are often neglected by local government in small towns and are not always supported by state initiatives toward the development of small business.

According to Bell, (2010) "What do startups need? Being new and fragile, they need access to management expertise and high-quality employees. They need credit and capital, and connections with potential customers, strategic partners and investors." (Bell, 2010) Certainly, the state through federalism can facilitate the strong economic growth of localities through extending capital under the auspice of the business development and improvement district outlined and enforced via contractual accountability.

State interference

In some localities, the state is more of a burden rather than a facilitator of strong local economies. In San Diego, California, the state of California has siphoned city tax revenue sources in an attempt to balance an underfunded state budget. According to the City Budget and Finance Committee (2006), proposition 1A is ill prepared to provide greater security for local revenues. However, the state continues to research alternatives to balance its budget on by siphoning funds from local government during an arduous economic climate.

The implication is San Diego had been prospering as a locality under their tax financing structure. The intergovernmental relationship with the state decreased revenue sources to the city and at least indirectly caused a decline in the state of the San Diego economy. Such cities rely on their revenue base as driven by tourism, a function of restaurants, and other service industry businesses. Often, these do include the mom and pop shops that remain the critical income generators for small locales in rural areas.

Conclusion

The main problems of contemporary localities experiencing strong economic growth vary on the geographic region however many share similar issues. As evidenced with San Diego, some localities face interference from an inept state government that seeks to redirect revenue streams into their coffers. Others remain hindered by a lack of human capital with either experience or tacit knowledge to provide startup or relocating firms a competitive advantage. Localities by-and-large face a multitude of issues that range from available human and technical capital constraints to infrastructure and land development constraints, inability to lower sales tax or corporate income tax, and many others. However, given the relative population spread across the U.S., the per capita distribution is largest near the water, notably the coasts of the continental U.S. And within the largest coastal cities, Boston, NYC. The strongest growth on a per capita basis has occurred in the Southwest, West, and Midwest. The issue of water is critical to the continued economic growth of localities throughout these regions, especially in states such as Arizona, Utah, Iowa, and California.

The state governments throughout the U.S. are facing a severe fiscal and economic crisis. Fiscal is at the budget level, economic is at the growth level. Programs that assist at-risk youth and families facing poverty are either at risk of being eliminated from the budget or have been removed. This hurts the low-wage labor pool, which is the function of large employers that able to pool many jobs under one roof rather than many jobs under many roofs. Small businesses suppliers are often eliminated due to state government dealings with big business. States can assist with these problems by only enabling such entities to operate away from the small businesses and only operate in areas where there are a small number of small businesses with very strong customer loyalty to where the businesses in that area enjoy an inelastic demand curve and fear losing no business to the outside.