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Don Cunningham: The Rubik’s Cube of Federal Economic Policy

By Colin McEvoy on April 19, 2017

This column, written by LVEDC President and CEO Don Cunningham, originally appeared in The Morning Call and on the newspaper’s website on March 20, 2017. (Click here to read Cunningham’s previous columns.)

Don Cunningham

Don Cunningham

As I returned last week from two days of discussions and speeches in Washington, D.C., with economists, economic development leaders, and members of the Trump administration, my thoughts turned to the Rubik’s Cube.

Remember the Rubik’s Cube? It was equal parts entertaining, confusing, challenging, and frustrating, and usually unfinished.

Once a year the International Economic Development Council (IEDC) gathers states and large regional economic development organizations to review and discuss federal economic growth policies in Washington. President Trump sent the ranking leaders of his community and economic development team: Commerce Secretary Wilbur Ross, Housing and Urban Development Secretary Ben Carson, and Small Business Administration Administrator Linda McMahon.

They all pledged to work with states and regions to increase growth all across America.

Unfortunately, the gathering was preceded a few weeks by the release of the President’s budget that eliminates funding for a wide-range of community and economic development initiatives and local infrastructure support crucial to the work of many in the room.

Long-standing programs such as the Community Development Block Grants, the Economic Development Administration, the Manufacturing Extension Partnership, the Appalachian Regional Commission, and the Minority Business Development Agency are either completed eliminated or dramatically reduced in the president’s so-called “skinny” budget to make room for a $54 billion increase in defense spending in 2018 and the Mexican border wall.

IEDC President and CEO Jeff Finkle opened the forum by calling the Trump administration’s budget “one of the greatest attacks on economic development that we’ve ever seen. They call it the skinny budget, I call it the scary budget.”

The tension in the room would have been much higher if anyone actually believed that Trump’s budget as proposed would be enacted by Congress. In fact, to the contrary, there was a collective sense that the budget would be dead on arrival and rewritten by Congress.

And here is one of those puzzling turns of the Rubik’s Cube.

President Trump campaigned on returning manufacturing and jobs to every forgotten hamlet and town across the rural and industrial landscape of America. Why make one of your first moves the elimination of initiatives that do just that through building miles of water and wastewater lines, training workers, bringing utilities to rural areas, developing manufacturing support, and providing loans and incentives to grow business?

Neither of the cabinet secretaries or SBA Administrator McMahon addressed the budget cuts. They did win favor with a lot of people in the room, however, by making commitments to continue both Small Business Administration lending and Department of Commerce’s SelectUSA initiative, an Obama Administration creation, that works to recruit and attract international businesses to invest in America.

“Select USA will be an important part of this Administration’s work going forward,” said Commerce Secretary Ross.

McMahon followed by making clear that SBA is not going anywhere. “I want to give all of you the assurance that SBA wants to be your partner to help with the economic growth that you are part of, ”she said.

Secretary Ross reviewed the administration’s big picture approach to growth that will be at the forefront of upcoming battles in Congress: renegotiating trade agreements, corporate tax reform, and regulatory reduction. This agenda has widespread support in economic development circles as a growth and job creation strategy.

The challenge for Trump is that this agenda will not equally develop or redevelop communities across America. Across the board corporate tax reductions and regulation rollbacks will not pinpoint and target development into the difficult-to-do locations. That will take targeted economic development approaches that improve conditions and the desirability of neglected regions, which is the precise focus of all those initiatives that have been eliminated.

The free market leads companies to the areas with the competitive advantages of infrastructure, labor, and access to market. Frankly, areas like the Lehigh Valley. To pinpoint development into harder-to-do areas, however, you need to either improve competitive advantage or create an incentive. Allentown is a case in point. It was the state’s creation of the Neighborhood Improvement Zone (NIZ) that redirected development to the downtown.

Here is another twist and turn in the Rubik’s Cube.

Trump is far from a classic free market guy, and he understands development. His approach on trade is an example. He understands that to put America first in competition with the world, the marketplace of trade needs to be fair, not just free. Trade agreements do have to account for America’s higher standards of labor, safety, and health while combating other countries subsidies and currency manipulation. Other countries spend a lot of money to develop their economies and undercut world prices.

The same competitive disadvantages exist between states, counties, regions, and towns. If the goal is to spread economic growth into the hard-to-do areas, America will need to invest in those areas to make that happen.

“The link between place and opportunity has never been more profound,” said John Lettieri, co-founder and senior director for policy and strategy at Economic Innovation Group, Washington, D.C., during the forum. “It’s no longer a broadly distributed economy.”

Targeted programs and investments are needed to level the playing field to bring economic development to areas where it otherwise would not occur.

“We have neglected lagging regions for decades,” said Rob Atkinson, an economist and president at Information Technology and Innovation Foundation in D.C. “States and cities have robust economic development programs because market forces alone aren’t going to lead to prosperity in every geography. State and local leaders understand that every day their community is intense economic competition with each other and around the world. We need a similar federal strategy.”

So, just like in my real life experience, this Rubik’s Cube remains unsolved.

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