Why states should care about their largest cities

by Ryan Streeter on January 20, 2014. Follow Ryan on Twitter.

I’m a little late posting this very good Aaron Renn piece on “metro-centric” state economic development. It challenges some core assumptions behind how most states approach their own economic development. He uses Indiana as a case study and offers readers a lot to think about.

He argues:

[The] right strategy [for state economic development policy] would be metro-centric, focusing on building on the competitively advantaged areas of the state – what Drew Klacik has called place-based cluster – and competitively advantaged middle class or better paying industries.

This type of thinking serves as an antidote to the preoccupation policymakers can develop with a “subsistence economy,” which is devoted to attracting “ultra low-wage employers.”

In the most provocative section of the post, he discusses how to align incentives and redistribution policy, which he says are currently focused too much on subsistence economy thinking:

[The] focus should instead be on creating the best wage economy possible, one that offers upward mobility, for the most people possible, and using redistribution for the chronically unemployed. You may say this is welfare – and you’re right. But I would submit to you that the state is already in effect a gigantic welfare engine. In addition to direct benefits, the taxation and education systems are redistributionist, and the state’s entire economic policy, transport policy, etc. are targeted at left-behind areas (i.e., welfare).

Renn believes that a smarter approach to state economic development involves recognizing that metro areas are driving growth these days because of economic realities out of the state’s control. For instance, Indianapolis looks like this compared to to the rest of Indiana:

Screen Shot 2014-01-20 at 10.33.45 AM

You could show a similar table for major cities in many other states. The brain drain you see in the state average in the table above isn’t necessarily “brains leaving the state, it’s people with degrees moving from outstate Indiana to Indianapolis. From 2000-2010 a net of about 51,000 moved from elsewhere in Indiana to metro Indianapolis.”

It’s not just about the capital city, though:

Bloomington, Lafayette, and Columbus (sort of small satellite metros to Indy) have also done very well. In fact, all three actually outperformed Indy on STEM job growth.

Additionally, three other large, competitively advantaged metro areas take in Indiana territory: Chicago, Cincinnati, and Louisville. These are all, like Indy, places with the scale and talent concentrations to win.

There’s a lot to think through in the post. Renn talks about intra-regional commuting and the interdependence of smaller cities and larger cities. He offers maps, too, that challenge how we think about concentrating on our economic development strategies. Read the whole thing here.