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Press Release · December 18, 2000

New Perspective: Competition and Local Economic Development Policy

A new study is challenging the notion that California’s cities commonly implement extreme policies to lure high-revenue businesses away from their neighbors. The analysis by the Public Policy Institute of California (PPIC) instead finds that perceived competition between cities for business generally has little effect on the economic development policies these municipalities put into place.

In Local Economic Development in Southern California’s Suburbs: 1990-1997, authors Max Neiman, Gregory Andranovich, and Kenneth Fernandez surveyed officials from over 200 cities in Southern California and found that although 65 percent had examined the development policies of other cities, only 38 percent adopted specific policies in response to the planning choices of nearby localities. Furthermore, only one-third said competition influenced the number of incentives they offered to businesses.

“There is a common belief that cities in the same region vie relentlessly with one another for businesses at the expense of the public good,” says Max Neiman, a professor of political science at the University of California, Riverside. “While cities certainly compete, most of the cities we studied did not engage in excessive competition or offer undue incentives to lure business.” In fact, common types of local economic development policies are not expensive subsidies, but simply efforts to streamline local permitting and other regulations governing business development. More expensive local policies, such as those involving redevelopment agencies, seem unrelated to local perceptions of competition.

Other Key Findings

  • The most significant factors affecting the extent of local development policy are a city’s population size and the perceived influence of its local economic development staff and local business people.

  • Cities with a mayor/city council form of government tend to have higher levels of development policy activity than those with a city council/city manager form.

  • If competition between cities is not damaging, or even widespread, efforts to tighten state regulation of local economic development policy may be unhelpful.

Please contact Victoria Pike Bond at 415/291-4412 or Abby Cook at 415/291-4436 for further information or assistance. The Public Policy Institute of California is a private, nonprofit organization dedicated to objective, nonpartisan research on economic, social, and political issues that affect the lives of Californians. The Institute was established in 1994 with an endowment from William R. Hewlett.