Written Statement for the Record

Amy Glasmeier, Pennsylvania State University

E. Willard Miller Professor of Economic Geography and Planning

John D. Whisman Appalachian Scholar, Appalachian Regional Commission

Before the

House Transportation and Infrastructure Subcommittee on Economic
Development, Public Buildings and Emergency Management

Washington, DC

January 23, 2007

**Subcommittee on Economic Development, Public Buildings, and**\
**Emergency Management**\
**Committee on Transportation and Infrastructure**\
**U.S. House of Representatives**\
**110th Congress**

"The State of Economic Development" Hearing before the Subcommittee on
Economic Development, Public Buildings, and Emergency Management. (10:00
a.m., Room 2167, Rayburn House Office Building)

Good morning, Chairwoman Norton, members of the committee, and guests.
Thank you for the opportunity to address the Subcommittee on Economic
Development, Public Buildings, and Emergency Management. My name is Amy
Glasmeier and I am the E. Willard Miller Professor of Economic Geography
and Planning at the Pennsylvania State University. I am also the John D.
Whisman Appalachian Scholar of the Appalachian Regional Commission. I
have worked for both the Economic Development Administration and the
Appalachian Regional Commission on historical and contemporary studies
of economic conditions in the United States. My comments about the state
of economic development focus on four issues: the experience of Federal
efforts to reduce economic distress; the impact of reductions in Federal
funds for economic development over the last two decades; the challenges
facing economic development practice today; and finally, regional
development opportunities associated with the search for national energy
independence.

**Economic Development in Historical Perspective**

Since the mid-1950s, employment growth has been considered the antidote
to economic distress. Looking back to the Depression years, the cyclical
economic slowdown after World War II, and concern about structural mass
migration out of agriculture and into the nation's cities, we see a
search for ways to use idle resources in job creation, primarily though
not exclusively through the attraction of industry. From the beginning,
public sector investment in economic development has focused on
jobs[^1].

The record shows, however, that unemployment has always been only one of
the many causes of economic distress, particularly in rural areas. Since
the 1960s, statistics show that while the poor worked, like today the
jobs they held failed to pay a living wage[^2]. In the 1960s, economic
malaise reflected low wages, unstable, intermittent work, and a mismatch
between the location of job seekers and employers. At the same time,
distressed locations suffered from the effects of decrepit, antiquated,
and sometimes nonexistent infrastructure, poor transportation services,
low-quality schools and insufficient health care. The Federal policies
that led to both the Appalachian Regional Commission and the EDA sought
solutions to these problems through investments aimed at improving the
context for development while emphasizing the efficient targeting of
expenditures.[^3] The essence of economic development policy has focused
almost exclusively on promoting conditions that encourage job creation
through business attraction.

Job creation and "investments in place" made a difference in the first
decades of these two landmark programs. Economic conditions improved not
just in terms of job growth, but more importantly in terms of the
well-being of people living in these locations. High job growth reduced
the poverty levels of many distressed counties. Explaining this
development, Partridge and Rickman (forthcoming) argue that higher job
growth especially reduces poverty in high-poverty places, suggesting
that the poor do want work opportunities when they are available. [^4]

We can see this development in findings for a study we completed in 2003
that tracked the effects of EDA and ARC expenditures over the 1965--1997
period. Here I refer to only the EDA analysis results. The original
framework for the EDA-categorized counties was based on underlying
conditions associated with economic distress, as measured by one
percentage point or above the national average unemployment rate and/or
specific place-based characteristics including dependence on a declining
agriculture or economic base, a small population, a rural setting or a
combination of factors that led to economic distress.

When established, the EDA identified 912 counties or county equivalents
defined as economic distressed or at risk. A significant number of
counties were in the Appalachian Region. The EDA also designated a large
number of Redevelopment Areas in the Mississippi Delta Region. In
general, counties were distributed throughout much of the U.S., often in
clusters, and there were a significant number of such designations in
Indian Reservations in the Southwest, and Redevelopment Areas in the
central part of the country, including states such as Iowa, Kansas,
Nebraska, and South Dakota and the Upper Peninsula of Michigan.

Federal expenditures made in the early years of EDA have made a
difference in designated counties. For example, counties designated as
Redevelopment Areas based upon high unemployment demonstrated
improvement in unemployment rates over time relative to the rest of the
U.S. Furthermore, EDA-designated counties fared better in terms of
employment than their non-designated counterparts in the same region
over time. Of note, although unemployment declined in these locations
changes were only mixed regarding income. Importantly, while this
research indicates improvement in EDA-designated areas over time,
nonetheless, the per capita incomes, unemployment, rates of educational
attainment, and other socioeconomic characteristics of these counties
are still deficient relative to much of the rest of the U.S. In 1965,
the EDA selected the worst counties in the country for assistance, and
many of these counties continue to face adverse circumstances. This
analysis demonstrates that policy can improve job conditions, but left
unattended, social characteristics do not necessarily change without
additional targeted investments in human and social capital. It is also
important to note that had it not been for Federal development efforts,
many of these counties may have been far worse off today relative to the
rest of the U.S. than they were in the 1960s.[^5]

**The Investment Gap of the 1980s**

The growth in the number of distressed areas after a period of relative
decline coincides with a significant retrenchment of Federal involvement
in economic development policy. As Lawrence Wood and Greg Bischak report
in a study of ARC expenditure history similar to our analysis of EDA
expenditure patterns:

> In the early 1980s the federal government began a considerable retreat
> from many of the social welfare programs it had established in the
> 1960s. Agencies such as the ARC and EDA began working with only a
> tenth, or even less, of the budgets that they had worked with in the
> 1960s and 1970s.[^6] As studies on EDA and ARC expenditures indicate,
> the federal government's allocations to the ARC, the EDA, and poverty
> programs more generally mirror patterns of growth and decline in
> economic distress over time. Whether by coincidence or not, as federal
> regional development and poverty expenditures were at their height in
> the 1960s and 1970s, the number of distressed counties declined in the
> U.S. during that same period of time. Then, when the federal
> government began allocating less to such programs in the 1980s, the
> number of distressed counties began to grow. This trend somewhat
> reversed itself between 1990 and 2000, a time when federal poverty and
> economic development spending similarly changed direction and began to
> rise. As suggested, however, federal allocations to the ARC, as well
> as to the EDA, are currently far from their historic highs of the
> 1960s and 1970s, and federal allocations to both of these agencies
> have remained relatively low for the past two decades.[^7]

The accompanying figure demonstrates a clear drop-off in EDA
expenditures in 1982. Since that time, the agency's expenditures have
remained relatively low (real dollars). Not including 1977, when EDA
expenditures dwarfed the agency's expenditures in all other years, from
1966 to 1981 the agency's annual real dollar expenditures averaged
\$972,908,308, or close to 1 billion dollars per year. In 1982, total
EDA expenditures dropped below \$500,000,000 for the first time in the
agency's existence. Between 1982 and 1997, average annual expenditures
were \$330,587,860, or approximately only a third of what they had been
prior to 1982.

Over the last 30 years, amendments to the agency's originating
legislation served to spread funding to more and more counties. Not only
was the absolute amount of funding static or declining, but the number
of potential recipient counties grew through time. Thus EDA's potential
impact must be seen in light of this trend.

Summing up, Federal efforts toward reducing economic distress have made
a difference. Dilution of effect occurred after 1980 when the agency's
budget was severely curtailed while additional recipients were added to
the pool of candidates. Taken together, the ARC and EDA experience
suggest that we have learned a great deal about what works and what
doesn't and that a regional approach can have positive impact on levels
of economic distress.

**The Day of Reckoning: Insufficient Investment in the Past Requires New
Vision**

The emphasis on jobs over the last 30 years has brought to rural areas
and distressed counties some degree of development. But, technological
change, corporate restructuring and global competition are now changing
the nature of work in rural America and causing serious problems of
displacement in many communities that were the beneficiaries of post-war
rural industrialization. Job losses are mounting in communities where
low-skill employment has dominated the economy. From 1997 through 2003,
over 1.5 million rural workers lost their jobs due to fundamental
changes in industries that have historically been the mainstay of the
rural economy.[^8] The rate of this job loss is increasing as firms seek
to lower their costs through automation and the contracting out of
supply needs to labor outside the U.S. In rural America, workers in
manufacturing are being hardest hit---from 2001 to 2003, one in ten
displaced workers were employed in manufacturing. Looking ahead, the
data show that workers with only a high school education, regardless of
the industry in which they work, are especially vulnerable.

Today's economic conditions necessitate an integrative strategy that
focuses on both people and place in response to a renewed era of
industrial restructuring. The previous emphasis on jobs has often
hamstrung the EDA and other development agencies by limiting "what
counts" in terms of development outcomes. Even though economic
development received an early mandate to use policy tools such as
employment and training to help enhance local capacity, turf battles, a
lack of expertise and performance standards all served to focus the bulk
of EDA investments on infrastructure and other "job generating"
activities. Although mandated to work with other agencies, particularly
the Department of Labor, jurisdictional competition inhibited joint
problem solving. The tendency to justify expenditures almost solely in
terms of actual jobs created limited EDA's ability to make
capacity-building investments in the most distressed places where
results might be slow to materialize[^9].

After a long period of a mismatch between job growth and growing income
inequality, the emphasis can and must shift away from a sole emphasis on
jobs to one that recognizes not just the number of jobs but their
quality, durability, longevity, and developmental potential. There is
now widespread recognition around the country, including at the highest
policy levels, that the problem of growing inequality and stagnant wages
is serious. Federal Reserve Chairman Ben Bernanke, for instance, in
recent Congressional testimony acknowledged that lagging incomes and
growing inequality were a problem and warned "if people at the bottom
end are not sharing in the benefits of open markets and flexible
capitalism, they are going to react against it politically."[^10] Former
Secretaries of the Treasury Robert Rubin and Lawrence Summers have both
recently highlighted the problems of declining wages and growing
inequality as well.[^11] But while there is a growing consensus about
the problems of inequality, we are far from a consensus about what to do
about it.

In our global economy, economic growth is clearly tied at least in some
ways to developing innovative, regionally rooted and globally
competitive knowledge-based industries. Does promoting successful growth
in this new environment inevitably mean greater inequality? Is there a
way to support industries and clusters that create and support more
paths to the middle-class even in the face of international competition?
Are there ways to better identify industries with high-skill and
high-wage jobs accessible to more disadvantaged sectors of the
workforce? If so, how do we develop effective policies that can use that
as a criterion in determining which sectors to support and how to
support them? [^12]

**What Do We Do Now?**

Three areas form immediate targets of opportunity in revising and
augmenting the efforts of Federal development programs. The first is the
need to improve interagency cooperation. The second is to invest in
skills and skill delivery infrastructure. The third is to take seriously
the growth of the renewable energy industry and link national energy
security to regional economic development.

*Carrots and Sticks to Foster Cooperation and Coordination*

Federal economic development policy implementation occurs between any
number of agencies with long histories of unitary action and
non-cooperation even to the point of outright antagonism. Despite calls
for interagency cooperation, coordination has failed to materialize,
wasting time and resources. Incentives and penalties are required to
break down barriers, leading to a reconfiguration of economic
development, workforce, education, and infrastructure investment
practices along the lines of local-level workforce boards.

Especially in rural communities and communities recovering from natural
disasters, there is a need to clarify procedures and streamline the
approval process of most development programs. For instance, completing
a sewer or water project may require submitting applications to USDA
Rural Development, U.S. Dept. of Commerce Economic Development
Administration, and to the state or other administering entity for
Federal Community Development Block Grant funds (not to mention any
relevant state programs). At present there is no single repository of
information or a centralized approval process for projects. In general
these programs do not routinely communicate with one another.

An interagency team approach is needed to handle disasters. This
approach involves a single application submitted to a team consisting of
high-level staff from all involved Federal and state agencies. The team
then jointly reviews the project, determines its eligibility/viability,
negotiates an acceptable funding structure among participating agencies,
and provides a unified response to the applicant.

*Workforce Implications Front and Center in Economic Development
Practice*

Investments in economic development must include thoughtful
consideration of workforce needs. Bricks and mortar projects/financing
schemes/tax abatements alone are not enough---there needs to be a more
holistic approach. Workforce is one of the fundamental building blocks
of economic development and yet all too often economic development
professionals are completely disconnected from the workforce development
function. If these two functions are not ultimately linked,
beggar-thy-neighbor practices of employee raiding will result.

Over the past two decades, what economists refer to as "returns to
skills" movement has increased dramatically. Few workers today can earn
a family-supporting income without post-secondary education or training
in market-relevant skills. Yet, according to the 2004 Current Population
Survey, 43% of working-age adults (ages 25--64 years) have completed at
most a high school education.[^13] Estimates of the number of adults who
never finish high school vary, but range from one-tenth to one-third of
the population. Even among adults who have graduated from high school or
obtained a GED, many are not academically prepared for college-level
work. For example, an estimated 55% of all community college students
must take courses in remedial mathematics or English prior to enrolling
in for-credit coursework.[^14] More and more adults lack the credentials
or skills to not only obtain employment that pays family-supporting
wages, but also to succeed in traditional venues for post-secondary
education or training in order to learn the requisite skills. Experts at
the Aspen Institute see three primary challenges:

> 1\. There is a growing gap between the rate of growth in the
> native-born workforce and the need for new labor market entrants. Over
> the last 20 years, the native-born workforce has grown by 44%. In the
> next decade the growth in the native-born workforce is projected to
> grow by 0%. All growth in the labor force will come from immigrants.
> This raises serious issues about the need for sources of remedial
> education and language programs to quickly incorporate immigrants into
> the future labor force.
>
> 2\. A huge supply crunch of educated and work -ready employees looms
> in the future. Increases in productivity have raised demand for
> skilled workers. Over the last 20 years the number of workers with
> post-secondary education grew by 19%. Over the next decade this same
> figure is expected to increase by only 4%. More creative and
> non-traditional means of encouraging post-secondary education uptake
> are required.
>
> 3\. Increasing wage inequality and the rising cost of education is
> damping both the incentive to and the ability of U.S. workers to
> invest in education.[^15]

Lack of education and skills-based qualifications limit many from
obtaining better jobs and higher wages. But this skills gap also means
that businesses are experiencing shortages in appropriately skilled
workers across a large and growing range of occupations. Globalization,
technology and demographic shifts impend to make skilled worker
shortages an increasing threat to U.S. business competitiveness. A
variety of innovations in the K--12 and postsecondary education systems
are being implemented on a large scale to attempt to prepare future
workers who are currently in school. But these solutions do not address
the needs of adults who are already in the workforce and who lack the
skills needed by employers in order to compete and needed by employees
to advance. Again, according to the Aspen Institute, the future
workforce for business is made up largely of people who are already in
the labor force. Roughly 60% of the projected 2020 labor force is
already working.[^16]

Combined, these developments underscore the critical need to link labor
market and economic development policies. The degree of variability in
the labor market due to population settlement patterns underscores the
importance of ensuring that all policies are adaptive and responsive
rather than based around a mind set of one-size-fits-all and invariant
across and insensitive to differences among locations.

*Energizing Regional Development: A Golden Opportunity*

The global demand for energy is increasing at a staggering level,
particularly as countries like India and China develop at a vast rate.
The composition of future energy supplies now dominates the
international energy debate as formative of economic security and
development. Increasing demand for energy is operating in tandem with
increasing global concerns about the impact of conventional energy on
our environment, particularly with regard to greenhouse gas emissions.
As this new paradigm continues to reveal itself, significant action is
underway to establish and grow new energy sources. Renewable energy
sources such as wind, solar and biomass power are growing in importance
as resources to address these two serious needs.

The roles of these resources have evolved over the last three decades
since their emergence to ones of technological maturity rife with
economic growth opportunities. The nature of the U.S. position regarding
the manufacturing of the technology for wind, solar and biomass,
however, is of immediate interest and concern. A leader in innovation
and manufacturing early in the renewable energy era, the U.S. has been
overtaken by international interests in the last decade. Wind energy is
primarily dominated by European companies, with only one of the top ten
manufacturers based in the U.S. India is already a significant global
player in the wind industry and China is positioned to enter into this
industry in force over the next few years. Solar energy, where it is
less consolidated than the wind industry, is demonstrating similar
trends to wind in that the U.S. is now a net importer of solar
photovoltaic (PV) modules.

What the evolving nature of manufacturing within these industries
reveals is that the U.S. is allowing itself to be shut out of one of the
fasted growing industries in the world. As a nation with increasing
annual energy demands itself, it may well be reestablishing its future
energy dependence on the manufacturing of energy equipment from beyond
its own borders. Alternatively, it is possible to follow a strategy that
simultaneously supports regional development while taking advantage of
the growth of the renewable energy sector along the way, making stronger
links between labor market and economic development goals and policies.
Research commissioned by the Appalachian Regional Commission clearly
demonstrates there is significant job generation potential accompanying
renewable industry growth. These industries are currently growing by at
least 25 percent per year, have done so for the past five years, and are
expected to grow at this rate or higher for the foreseeable future.

I appreciate the opportunity to address this subcommittee, and thank its
members and chairwoman for their time and interest.

Figure 1: EDA Expenditures 1966 -- 1997 (In Real Dollars). Figure
Excludes 1977

![](media/image1.wmf){width="7.6618055555555555in"
height="5.238888888888889in"}Data Source: Economic Development
Administration

[^1]: Lake, Robert, Robin Leichenko, Amy Glasmeier, Lawrence Wood and
    Tracey Farrigan. 2004*. EDA and Economic Distress 1960-2004*.
    Washington D.C. EDA.

[^2]: Glasmeier, Amy. 2007. Economic Opportunity in America: One Nation
    Pulling Apart. Allied Social Science Association. Chicago, Illinois.
    January 5.

[^3]: Glasmeier, Amy and Kurt Fuellhart. 1999. *Learning From Past
    Experience*. *Distressed County Analysis*. Appalachian Regional
    Commission. Washington D.C.

[^4]: Partridge, Mark D. and Dan S. Rickman. 2007. "Persistent Pockets
    of Extreme American Poverty and Job Growth: Is There a Place-Based
    Policy Role?" Forthcoming. *Journal of Agriculture and Natural
    Resources Economics.*

[^5]: Ibid, no 1.

[^6]: Wood, Lawrence and Amy Glasmeier. 2003. *EDA Expenditures
    Analysis. Preliminary Findings.* Penn State.

[^7]: Lawrence Wood and Greg Bischak. *Trends in National and Regional
    Economic Distress* 1960-2000. p. 7. ARC 2005.

[^8]: Glasmeier, Amy and Priscilla Salant. 2006. *Low-Skill Workers in
    Rural America Face Permanent Job Loss.* The Carsey Institute Policy
    Notes 2. Spring 2006.

[^9]: op cit, no 1.

[^10]: <http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=OBR&Date=20060720&ID=5883664>

[^11]: http://news.moneycentral.msn.com/provider/providerarticle.asp?feed=FT&Date=20060724&ID=5889856

[^12]: Benner, Chris. Personal communication. Penn State. January 2007.

[^13]: Jenkins, Davis. "Career Pathways: Aligning Public Resources to
    Support Individual and Regional Economic Advancement in the
    Knowledge Economy". Workforce Strategy Center, August 2006.

[^14]: Haveman, Robert and Timothy Smeeding. "The Role of Higher
    Education in Social Mobility", *Future of Children* 16:2, Fall 2006,
    www.futureofchildren.org.

[^15]: Grow Faster Together or Grow Slowly Apart: How Will America Work
    in the 21st Century. A report authored by David Ellwood and based on
    the work and discussions of the Domestic Strategy Group, a
    bi-partisan group of leaders from the realms of academia,
    journalism, business, labor and government.

[^16]: Calculation based on data from the Bureau of Labor Statistics.
    <ftp://ftp.bls.gov/pub/special.requests/ep/labor.force/clfa1050.txt>