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Overview
A FRAMEWORK FOR POLICY
Powerful and deeply rooted structural changes in the national and in-
ternational economy are transforming urban areas and the economic func-
tions they perform. A new urban system is emerging, with a growing
polarization between the places where corporate headquarters and producer
services are concentrated and those that are more specialized in the pro-
duction of goods or in services for consumers.
Shifts in employment from manufacturing to services and toward more
white-collar jobs, combined with the increasing segmentation of the labor
market, confront urban areas of all types and in all regions of the country
with difficult problems of economic adjustment and adaptation.
The future of individual urban areas is closely tied to the growth and
decline of sectors of the economy that is, groups of related industries
and occupations. Policies that seek to improve or accelerate the adaptability
of urban areas to these changes should therefore be closely coordinated
with policies that affect the performance of sectors of the economy and
with general economic policies that strive to influence the overall rate and
direction of national economic growth.
This coordination requires a framework for national urban policy that
is simultaneously concerned with policies that accelerate and broaden the
mainstream of economic change and policies that address the problems
of adjustment for the people and places left behind by changes in the
economy.
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Rethinking Urban Policy
General mainstream policies should be primarily concerned with facil-
itating the transformation of the national economy and making it more
competitive in international markets. Such policies should concentrate on
capital and human investments that reinforce and build on structural changes.
The committee recommends five basic policies.
i. Sectoral policies or strategies that recognize the consequences of
macroeconomic policies for different sectors of the economy, policies that
encourage capital to flow to the development and modernization of those
sectors that promise to be strong competitors in international markets or
that are essential to the nation's defense and economic well-being.
2. Policies that promote the construction and maintenance of a system
of urban infrastructure—public facilities, energy and communications sys-
tems to support and serve the national interest in economic development
and conserve the nation's existing, useful urban capital stock.
3. Policies that encourage investment of private capital in activities that
accelerate transitions in local economies.
4. A national policy on labor mobility that facilitates the matching of
workers and jobs and reduces barriers to worker mobility.
5. Policies that promote investments in urban education systems to
improve the basic skills and work habits of new entrants to the labor force
and investments in continuing and higher education to develop and main-
tain a labor force that can adapt more readily to continuing structural
changes in the economy and to new ways of working.
Such policies, taken by themselves, however, could exacerbate the
distress and dislocation in some urban areas and regions of the country.
The policy framework, therefore, should also be concerned with stabilizing
those places during the transition period so that they can make a smoother
adjustment. For these places in transition, the committee recommends five
. . .
mayor po; .lcles.
1. Planning by firms and worker organizations, in cooperation with
federal, state, and local governments, to help workers in declining in-
dustries, occupations, and communities prepare for more rapid and smooth
transitions to other jobs, whether in their communities or elsewhere.
2. Particular attention to education and training for urban minorities
and the economically disadvantaged so that more of them can move into
the economic mainstream.
3. Gradual restructuring of fiscal transfers within the federal system to
equalize the fiscal capacities of states that is, their ability to finance a
minimum level of public services and facilities at effective tax rates set
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Overview
3
near the national average—and to encourage states to reduce urban-sub-
urban fiscal disparities.
4. Development of community-based centers that employ and train
minorities and other economically disadvantaged workers.
5. Selective use of public employment as part of a general strategy of
improving the quality of local labor forces and the quality of public services
in support of economic development.
Because every metropolitan area has some features that are unique in
its mix of occupations and industries, in its political and social culture,
and in its stage of urban and economic development, urban policy needs
to be sufficiently flexible that appropriate strategies can be tailored to
meet specific circumstances.
Particular attention should be given to fostering institutions at the
local level that have the capacity to manage the economic transition. These
institutions must include the private sector as well as nonprofit organi-
zations.
2. There is a particular need for an intelligence system in each urban
area to conduct research and provide information that helps local leaders
understand economic changes, assay resources, and formulate strategies
for local economic development.
3. A relatively stable local fiscal climate is needed to create a more
rational atmosphere for decision making.
4. Public-private development institutions and nonprofit institutions are
needed that can design and carry out long-term strategies.
Ultimately, urban policy should not be a discrete package of programs-
a shopping list of federal grants and loans but rather a long-term strategic
perspective on a wide range of public policies at each level of government.
Specific programs for housing, transportation, crime fighting, neighbor-
hood revitalization, and other matters can be built from that strategic base.
The policy options discussed in this report are therefore not proposed as
a program. Rather they are offered as illustrations of the direction that
urban policy might take. The speed with which it is possible to move
depends, of course, on budget priorities and resources at each level of the
federal system. The allocation of responsibility for various actions to
different levels of government and between the public and private sectors
should continue to be a matter for national debate. Our aim is to stimulate
that debate.
The appropriate degree and level of government intervention in market
.
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4 Rethinking Urban Policy
choices is an issue that pervades this report. We offer no easy formula
for resolving that issue. We do not think that there can be a workable
doctrinaire response. Some of our specific suggestions will doubtless be
too interventionist for some; others will feel that we have shrunk from
proposing policies demanded by the logic of the conditions we describe.
We have sought a middle course precisely because we do not know all
that we would like about how events will unfold. We know only that
economic conditions are likely to differ substantially from those that urban
areas faced in the past. This lack of omniscience commends some caution
and the deliberate use of an incremental, experimental approach to national
urban policy. We have therefore sought to make the general directions
relatively clear and to offer specific recommendations more tentatively as
reasonable ideas to be tested by experience and to be perfected through
debate.
Historically, the relationship between urban policy and national eco-
nomic policy has not been close. Urban policy has often been viewed as
little more than a few measures designed to ameliorate the local adverse
effects of "natural" changes in the economy and the inadvertent conse-
quences of policies that advanced broader national interests, or as a po-
litical palliative for powerful interest groups, such as the housing industry,
minorities, or big-city mayors. National macroeconomic policy, for the
most part, has been concerned with aggregate levels of employment and
efficiency. In this sense it has been relatively indifferent to how it affected
particular places. Urban policy has seemed often to resist or offset national
trends and the effects of other policies on cities.
Urban policy is place oriented. But it has an important role to play as
an integral part of a national strategy for adjusting to the economic trans-
formation that is now well advanced. It is concerned with the pattern of
investment and income among the nation's regions and urban areas. In
this sense, urban policy can complement national tax, fiscal, employment,
monetary, and international trade policies, which are concerned primarily
with aggregate national economic performance, and sectoral policies, which
are concerned with the performance of clusters of related industries. Work-
ing together, these three branches of policy national, sectoral, and ur-
ban are concerned with how much is done, what is done, and where it
is done, as closely related aspects of the economy. All three are needed
in a time of widespread and rapid change in the economies of advanced
nations, although they may not involve explicit federal intervention.
The nation's urban areas supply most of the physical infrastructure and
social institutions on which the economy is built. Their economic and
fiscal health is not separable from that of the nation. Serious economic
hardship in a substantial number of urban areas operates as a drag on
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Overview
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aggregate performance of the economy. The perception of wide disparities
in urban and regional economic opportunities also creates a political brake
on policies that could advance other worthwhile objectives. In this context,
urban policy can operate to inform and modify national policy and to
support national policy objectives. It is time to reconsider its role in the
national political process.
The remainder of this chapter reviews the major themes of the report.
FLEXIBLE POLICIES FOR CHANGING CITIES
The New Urban System
Technological, institutional, and demographic forces are currently trans-
forming the national economy, bringing about changes in the location of
economic activities and affecting the size and density of urban areas. The
physical, social, and economic changes in urban areas reflect adjustments
to two fundamental and closely related structural shifts in the economy.
The first is the shift in employment from extractive and transformative
industries to service industries. The second is the shift from blue-collar
to white-collar occupations in almost all sectors of the economy.
These structural changes are contributing to the emergence of a new
urban system dominated by a set of "command and control" centers, in
which corporate and producer services banking, law, accounting, and
the media are concentrated. These metropolitan areas provide the most
important services for the rest of the system—the "subordinate centers,"
which are more specialized in consumer services, the production of goods,
or military or extractive industries.
Because of their greater diversity, the autonomy of their economic
institutions, and their strong existing base for development of a service-
oriented economy, the command and control centers have shown greater
capacity to adjust to the structural changes in their economies than have
the subordinate centers. The subordinate centers, particularly the tradi-
tional manufacturing cities, have been far less adaptive. For these cities,
structural change is not merely a transitional challenge; it is a long-term
problem. Continued decline, however, is not inevitable. A number of
areas have demonstrated that it is possible to perform new functions and
adapt to the requirements of an advanced economy.
Basic Concepts for Urban Economic Strategy
We suggest four basic concepts or criteria in examining strategies for
investing in urban physical and human capital, for stabilizing urban areas
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Rethinking Urban Policy
as they undergo economic transformation, and for developing local insti-
tutions and national policy processes that can facilitate the transition to
new national and urban economies.
1. Because each type of metropolitan area in this new urban system
has different problems in adjusting to structural change, no single, uniform
approach to urban policy will work equally well for all places. National
policy should therefore be flexible enough to allow for variations in ap-
proach that are tailored to the requirements of specific urban areas.
2. An effective urban economic strategy must operate at both local and
national levels. Traditional economic policy has been concerned primarily
with the formation of capital in the aggregate. The role for both sectoral
and urban policies is to focus national concern on the allocation of capital
to economic activities, places, and people in a manner that not only
contributes to overall economic efficiency and wealth but also provides
for broad distribution of opportunity and avoids unnecessary waste of
human and physical resources.
3. In making policies and strategies for urban adjustment to structural
change, the transitional period is particularly sensitive. The problem is
often the delicate one of simultaneously stabilizing the community while
accelerating and smoothing out the process of change.
4. Given the power of the economic forces at work, attempts to shore
up declining industries and vanishing occupations are unlikely to succeed,
especially in the long run. Thus, it is vital to focus on activities that can
broaden economic growth and thereby include more of the places and
people who otherwise would be left behind.
Investing Private and Public Capital in the Urban Future
Since broad national economic policy is not and probably cannot be
neutral in its effects on sectors and places, it is important that it be designed
with these consequences in mind. A sectoral perspective on economic
policy, which looks at how policies affect clusters of related industries
and occupations, should help ensure that capital is available to modernize
a number of important industries and stimulate promising, competitive
sectors by facilitating the shift of capital and workers to them from de-
clining sectors. It could both reinforce market choices and provide a better
system of advance warning of economic trouble spots. A clearer national
sectoral strategy could also help urban areas identify the parts of their
local economies that have more potential for growth in market shares and
jobs.
Sectoral policy alone, however, does not address many complex urban
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Overview
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development issues, and it could in fact exacerbate the economic problems
of some urban areas. A complementary place-oriented perspective is there-
fore needed, but with a shift in the focus of such policies from distress
to opportunity. Leverage capital for urban economic development is often
needed to equalize return to investors, especially in higher-risk investments
in emerging industries and in older sections of cities. The committee
suggests consolidating various federal capital leverage programs into a
single urban economic development fund or bank from which local public-
private development institutions could draw to carry out economic de-
velopment strategies formulated to address local conditions.
Because public capital investments are important aspects of economic
development, there is a national interest in ensuring that urban public
facilities such as transportation and sanitary systems are in place to support
economic growth and that they are maintained in good working order.
While the bulk of new investments in urban public facilities (or infra-
structure) will come from state and local treasuries, acceptable levels of
. .
service In many urban areas are not likely to be achieved without some
federal support. A system of national and state infrastructure banks could
help raise capital for public investment and provide a more flexible form
of financial assistance than traditional federal capital grant programs have
provided.
Basic elements of urban economic development strategy include lever-
aging available resources, improving capital and operating budgeting,
using joint development techniques, using regulations more effectively,
improving urban design, and avoiding ineffective incentives, such as in-
discriminate tax breaks.
Investing in the Future of the Urban Labor Force
improving the quality of urban labor forces is a critical element in a
strategy for adjustment to structural change. The recessions of the mid-
1970s and early 1980s have accelerated the decline of weaker industries;
when the current recession ends, urban areas in which these industries are
located can expect to continue to experience long-term unemployment.
Labor markets for skilled and unskilled workers who are displaced by
structural change are more localized than markets for professional workers.
A national labor information system is therefore recommended. It would
involve a computerized job information system linked to worker retraining
and interview and relocation assistance, which would facilitate the move-
ment of structurally dislocated workers to communities where there are
jobs they can fill.
An even more serious problem is posed by the economically and ed-
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Rethinking Urban Policy
ucationally disadvantaged young people just entering the labor force, who
are not prepared for work in an advanced economy. If employed at all,
they will be confined to low-level service occupations with low wages,
high turnover, and poor benefits. They present a long-term challenge to
the quality and resilience of the local labor force and the ability of urban
areas to compete for economic growth and to adjust to structural change.
The urban education system is the foundation for labor market strategy,
both national and local. While the principal burden for providing basic ed-
ucation and training is likely to continue to fall on public education systems,
the private sector can be productively engaged in the education process
through a variety of programs. It may also be useful to experiment with such
alternatives to traditional approaches to providing educational services as
vouchers for postsecondary training and contracts with private firms.
In the years ahead, workers may need to be retrained frequently or
continue their education in order to keep abreast of the knowledge and
skills necessary to do their jobs and to be eligible for career advancement.
Thus, redundancy planning the anticipation of changes in the economy,
markets, and technology and how they affect patterns of employment,
together with the development of retraining and relocation programs-
should become common practice. Joint programs in which federal, state,
and local governments cooperate with unions and employers could help
both workers and communities adjust more readily to changes that cannot
be avoided.
Community colleges and urban universities, particularly those that are
state- and city-supported, can play important roles in urban labor market
strategies. Making special efforts in higher education for urban minorities,
improving primary and secondary education in the urban school systems
from which higher education institutions draw most of their students, and
developing continuing education programs for the retraining and advance-
ment of professionals, managers, and technicians are all appropriate func-
tions for urban higher education institutions.
Effective urban development strategies will require major new investments
by individuals, hums, and federal, state, and local governments in the quality
of all parts of the education and training system. A city's investments in its
education and training systems will be more important to its long-term eco-
nomic prospects than its infrastructure and industrial parks.
Stabilizing Metropolitan Economies
As structural transition occurs, many people cannot or will not move
to new jobs in the local economy or in other areas. While voting with
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Overview
9
one's feet may in theory be an attractive response to unemployment,
moving is not without cost for workers and their communities. And the
sense of community is an important public value that warrants consid-
eration along with economic efficiency. Since there are no immutable
economic laws or forces dictating that most capital must locate in par-
ticular urban areas, in many cases it is easier for capital to move to an
available work force than it is for workers to migrate, following capital.
The retention and creation of local jobs in basically sound businesses
are important parts of stabilization strategy. Notwithstanding the wide-
spread use of new technology, many manual and low-skilled jobs will
still exist. They can be important sources of employment and of entry
into the labor force for poorly trained workers, particularly if there is
a community strategy for and a commitment by firms to worker edu-
cation and upward mobility. If the public provides assistance to such
firms, then there is every reason to expect a return on that public
investment in the form of such things as first-source employment of
local disadvantaged workers and cooperation in worker education and
training programs.
Because any jurisdiction facing fiscal crises or default has little ca-
pacity for strategic thinking, intergovernmental fiscal transfers should
be redesigned to equalize the abilities of states and local governments
to pay for an adequate level of services, so that the level of services
in different places does not vary so widely. Fiscal equalization, com-
bined with the reallocation of certain functions of government, such as
the federalization of welfare, could substantially assist states and local
governments in their ability to devise and carry out long-term economic
development strategies.
In some urban areas, expanding public employment may be both a
necessary and a desirable way to approach local economic development
and labor market problems. Such jobs can help the urban poor and dis-
located workers who do not find work with private employers. Even more
important, however, public employment programs should be carefully
designed primarily to provide basic urban services and facilities. This
concentration on adequate good-quality services and facilities can increase
the attractiveness of an area to private business, thereby aiding economic
development. In addition, one proper function of public employment is
to train workers so they can compete for nongovernment as well as better
public jobs. Public employment can also be used to avoid the most serious
consequences for dislocated workers who otherwise are likely to face
extended unemployment and for others who have no other realistic way
of entering the work force.
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Rethinking Urban Policy
Fostering Local Institutions to Manage the Transition
Sustained public-private leadership at the local level is necessary for
economic development and job creation. Considerable emphasis should
be placed on establishing a strong capacity for research and information,
so that an urban area can get a better understanding of its assets, its
comparative advantages, its vulnerabilities, and the opportunities that are
likely to be within reach. A national network of such intelligence systems
could help provide a constant infusion of new ideas and reliable infor-
mation. The federal government could contribute by improving the quality
of its regional and urban statistical reporting and in continuing to support
research on urban indicators and the urban development process.
The growth of public-private cooperation is a promising development.
Several models for such cooperation are available. The cities classified
as command and control centers appear to have advantages over other
places in developing effective partnerships, because of the greater auton-
omy and resources of the corporate officers headquartered there and the
greater sophistication of political leaders and public officials. Where local
leadership potential is weak, state involvement may be necessary to mo-
bilize public resources and to induce private business leaders to join in a
common development effort. Particular attention should be given to non-
profit organizations as sources of seed capital for experimental, high-risk
urban development and service programs, as catalysts for cooperation and
program management, and as sources of support in developing and main-
taining such urban institutions as libraries, theaters, museums, health
facilities, and cultural centers.
RETHINKING URBAN POLICY
In light of these considerations, this report urges that a major effort be
made to harmonize national interests and those of individual urban areas
in economic development. This will involve introducing both sectoral and
urban perspectives into national and local economic policy-making pro-
cesses, which will require closer cooperation between governments at all
levels and between the public and private sectors.
Urban policy need not be a zero-sum game, in which some cities are
able to win only if others lose. Where there are serious disparities among
the urban economies of the country, the winners will continue to pay for
the losers. Just as local interests are advanced by a strong and growing
national economy, the national interest is advanced by strong local econ-
om~es.
Representative terms from entire chapter:
labor force
