Want to build your city’s economy? Think transportation, not tax breaks

The local economic development field has had a rough go of it lately.

Charged with recruiting new businesses and supporting existing ones, economic development practitioners could only do so much in the face of a crippling pandemic. But their tactics have been under increasing scrutiny for years, especially in the wake of high-profile debacles like the Foxconn deal to bring a $10 billion tech manufacturer to Wisconsin and the multi-city bidding war over Amazon's "HQ2" hub, which ended with the company pulling out of New York City after furious local opposition. 

My own skepticism has been growing for a decade, ever since I worked in the Washington, D.C., mayor's office leading the city's business development efforts. One moment particularly stands out. Through months of negotiations, I had become friendly with a man who led the relocation process for his company's headquarters. Chatting after a meeting one afternoon, his face broke into an impish grin: "David, did you know there is a 100-page book about how to recruit a company?" I did not, so he continued. "The first 99 pages are blank, and the last page reads: 'Where does the CEO want to live?'" 

A few weeks later his company announced the location of its new headquarters: a Virginia community a few minutes' drive from where the CEO had bought a house. 

If that experience wasn't a strong enough hint (there are many similar stories), I soon realized that my painstaking efforts to craft incentive packages raised other policy problems as well. Relocation competitions are inherently zero sum, since one city's gain of an employer mirrors another's loss. And they're unfair, because small businesses generally lack the scale needed to arrange their own deal. 

Nevertheless, business attraction remains a linchpin of local economic development, a field whose emphasis on tax breaks, real estate development and job training can seem frozen in time. "I worry our economic development profession is rooted in a recipe book from the mid-20th century," says James Corless, who leads the Sacramento Area Council of Governments.

The Draw of Shorter Commutes

Now is an ideal time to shake things up. The pandemic-triggered rise of teleworking is making companies reassess location decisions, which will force economic developers to update their toolkits. That creates a golden opportunity to modernize their field by finally embracing the crucial role that transportation plays in fostering economic growth.

For years, leading academics have argued that any employer, big or small, stands to benefit from an improved transportation network that shortens commutes. After all, a CEO may situate her headquarters in a location convenient to her home, but her company's productivity — and its competitiveness — is largely determined by the quality of its workforce. And that workforce will be of a lower quality if arduous commutes deter a chunk of the local labor market from even considering jobs in a given location.

These arguments are surprisingly intuitive, but the economic development field has largely ignored them. That creates a blind spot right now, as many employers are rethinking their real estate needs. By encouraging businesses to concentrate in convenient locations — and by demanding that infrastructure investments reduce commute times — economic developers can position their regions for productivity gains that will lift employers and workers alike.

"Bad transportation is a tax on business productivity."

At the moment, transportation is little more than an economic development afterthought. The International Economic Development Council (IEDC), the discipline's trade association, offers a program for individuals to become a Certified Economic Developer (CEcD), a widely recognized credential. Kian Kamas, the chief of economic development for the city of Tulsa, Oklahoma, went through the CEcD program.

"Transportation was barely a part of it," she says. "There was maybe a section about the infrastructure around a real estate site, but there's no heavy focus on transit or transportation beyond that."

The CEcD curriculum seems to reflect the priorities of the field. "Transportation is almost never the focus of conversations I've had with economic development heads," says Jeff Finkle, the CEO of IEDC.

Don't Go Back to Stucktown

Academic experts believe such omissions reflect a gross underestimation of the influence transportation has on the trajectory of urban economies. Alain Bertaud is a senior fellow at New York University's Marron Institute of Urban Management, and the author of the book Order Without Design, which argues that market forces fundamentally shape cities. Born in France, Bertaud worked for decades on real estate projects around the world, including a stint as the principal urban planner at the World Bank. 

"Bad transportation is a tax on business productivity," Bertaud says. He offers himself as an example, noting that he lives in Glen Rock, New Jersey (population: 11,780). "If I had no transport, I would have to find a job in Glen Rock," he says. "But there is no job for an urbanist in Glen Rock. I would probably work in a supermarket. I would hate it, and my boss would think I am terrible."

Consider the following illustration, which draws from the arguments of Order Without Design. Imagine two big cities, Stucktown and Accessville, that are identical in population, housing cost and geography. The only difference between them is that Stucktown's network of roads, transit and bike lanes allows the average resident to access only 40% of regional jobs in under an hour. Accessville, by comparison, has a relatively efficient transportation system. A resident there can reach 80% of regional jobs in 60 minutes or less.

Employers and workers can find better matches in a region whose efficient transportation network offers a wider pool of candidates.  

Now imagine that Sarah, a jobseeker, moves into Stucktown, and that she wants to keep her commute under an hour. Only two out of five job openings in that city will be available to Sarah as she searches for the one that best aligns with her preferences. There might be other, better job openings for her in Stucktown — with higher compensation or greater odds for advancement — but since they are outside Sarah's one-hour commute range, they might as well be a thousand miles away.

If Sarah moves to Accessville instead, she'd be able to reach twice as many job opportunities, making it likely she will land a better job. And working in Accessville means she'll have a higher chance of finding a still better one at another employer, because many job openings will be within a feasible commute.

Critically for economic development, employers likewise benefit from locating in Accessville instead of Stucktown. Open positions in Accessville can reach twice as many job candidates, helping employers net candidates who more closely fit their need. Over time, Accessville employers will develop a competitive edge over those in Stucktown.

Matching Labor Supply With Demand

In the real world, downtown business districts have long capitalized on this kind of strategic advantage. A central location maximizes the share of the regional labor force that can commute within a reasonable amount of time. For instance, more residents of Northern New Jersey would willingly travel to a job located in Manhattan than one on Long Island. (This pull of employers toward the central business district suggests limitations of the trendy 15-minute city concept.)

"Each metro area is its own labor market," says Berkeley labor economist Enrico Moretti, whose book The New Geography of Jobs describes how regions gain competitive advantage. "Efficient transportation across cities lets you merge labor demand with supply." Moretti compares the local labor market to dating: Employers and workers can find better matches in a region whose efficient transportation network offers a wider pool of candidates. 

Moretti sees transit systems as particularly important determinants of regional economic competitiveness worldwide: "When I look at Tokyo and London, one of the big advantages is that someone can live far outside the city and still commute within an hour on rail." Populous American regions like the Bay Area (where Moretti lives) fare poorly on that metric. "The transit system here is not as developed, and it's a big shortcoming," he says. "It limits the availability to employers to match with workers, and vice versa." 

The ideas of Moretti and Bertaud carry major implications for economic development. Infrastructure investments that reduce average commute times can boost productivity, benefitting both workers and employers and paving the way for higher profits and wages (as well as job creation, the ultimate prize in economic development). And that doesn't take into account the leisure time that residents gain from shorter commutes, or the advantages of quicker personal trips to a store or doctor's office that are likely to be shorter as well. 

Transportation as an Economic Catalyst

Evaluated through this lens, projects like a new bus rapid transit line or an office complex placed atop a rail station will be economic development catalysts if they can reduce the region's commute burdens. Conversely, a business park or residential community situated on the urban periphery, far from transit and major highways, will lengthen average commutes and take a toll on employers' competitiveness. 

In today's post-pandemic world, such an analysis suggests that regional productivity may decline in places where residents have shifted from central locations to the suburbs during the pandemic. On the positive side, local employers and workers could see potentially powerful gains from expanding peak-only commuter rail service to all-day regional rail, as SEPTA is considering in the Philadelphia area.

These kinds of accessibility assessments are gaining popularity among transportation and transit planners, but they seldom factor into the thinking of American economic development officials. "Labor markets are generally not a top-five issue in the United States," says Moretti. "I hear about it a lot in Europe, but it's a missed and costly opportunity here."

There are exceptions. In Tulsa, the city is building its first bus rapid transit lines, with a goal of providing better accessibility to jobs for lower-income workers. "You think about transit riders who have unstable transit access," says Kamas, the city's economic development chief,  "and how it hurts their ability to work their shift or stay in their shift." 

NYU's Bertaud agrees about the importance of providing accessibility for urban residents with limited incomes. "Every city has a low-income area and a high-income area," he says. "From those low-income areas, how many jobs can you access, and how quickly?" It's unclear how many economic development directors can answer that question.

A Long-Term Commitment

Misaligned incentives present an obstacle to elevating the role of transportation in local economic development. Building a denser downtown or a more efficient transit network takes years, by which time the mayor and other elected officials could be out of office. Even if they aren't, productivity gains from shorter commutes may not be apparent to workers or employers when they head to the voting booth. Many mayors running for reelection would prefer to step up to a podium to declare "I recruited this company here," than announce "I reduced average commute times from 36 minutes to 33 minutes, making companies in this city more competitive and workers better off."

And so we continue to see high-profile and expensive corporate recruitment campaigns, of which Amazon's HQ2 search may be the most infamous. In his new book Amazon Unbound, Bloomberg News journalist Brad Stone reports that Jeff Bezos and his senior colleagues overruled the company's proposed finalist slate of Chicago, Philadelphia and Raleigh, choosing sites in New York City and the Washington, D.C., region instead. Stone writes that Amazon's HQ2 team was frustrated by the "arbitrary personal preferences of senior executives," which seemed to trump all other considerations (such as incoming CEO Andy Jassy's apparent dislike of the Philadelphia Eagles football team). 

Amazon's New York City pick soon imploded and was ultimately rescinded, partly due to pushback against a $2.6 billion taxpayer incentive package. Meanwhile, a study published at around the same time as Amazon's retreat from Queens found that New York City's average commute time had grown to 43 minutes each way (53 minutes for those using transit), the longest in the U.S.

The website of the New York City Economic Development Corporation offers a trove of information about real estate projects and incentives — but nothing about worker commute times. 

David Zipper is a Visiting Fellow at the Harvard Kennedy School's Taubman Center for State and Local Government, where he examines the interplay between urban policy and new mobility technologies. 

Disclaimer: This opinion first appeared on Bloomberg, and is published by special syndication arrangement.