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The Best
States To Invest In
Continued
AMERICAN
GRAFFITI |
Washington D.C.
September 5-13, 1997
There is something about America's rip-roaring economy that makes me wonder if
India can ever replicate its prosperity--even partly. To expect India to match America's
dynamism is to expect us to overcome significant differences in history, culture, and
geography. While that may be asking for too much, there are some lessons that the
post-industrialised economy of the US holds for the pre-industrialised economy of India.
One pertains to the design of backward area development schemes, a standard feature of
industrial policy in the Indian states. In the US, the Federal Government has devised a
scheme of Empowered Zones to aid the redevelopment of erstwhile industrial hubs. A
brainchild of the Bill Clinton Administration, this scheme designated six cities as Urban
Empowerment Zones (UEZs) in 1994: Atlanta, Baltimore, Chicago, Detroit, New York, and a
region that includes Philadelphia and Camden. Instead of just doling out funds to the six
UEZs to create government jobs and housing complexes, the Federal Government is providing
them with a double-strength prescription: a 10-year package of tax incentives to help lure
business. And $100 million in cash-grants to prepare these zones for new business
opportunities. Unlike India, where the award of backward area benefits are as much a
function of political as of economic factors, the six cities in the US that won the UEZ
status did so after an open competition among 500 cities across the country. What
distinguished the winners from the losers was the quality of their applications; for
instance, Detroit edged out Los Angeles only because of this. During the ceremony to
congratulate the six victors, President Bill Clinton called Detroit's mayor, Dennis W.
Archer, and praised the city's application for including one element that no other had: $2
billion in private spending commitments from the banks, the Big Three auto-makers, and
other local companies. Not only had Detroit worked hard to win, it had also prepared an
advance plan in collaboration with private industry on how best to make use of the status.
There is a lesson for the central government too. The Housing & Urban Development
Department of the Federal Government regularly monitors the progress of the UEZs. In its
last report released in July, 1997, Detroit and Baltimore were rated as the
best-performing UEZs. But when squabbles among local officials stalled progress in New
York and Camden, Federal officials threatened to boot both out from the programme. Now,
New York is back on track, but Camden may be dropped.
Moral: states that do not make good use of grants do not deserve
them. |
Minneapolis
October 1, 1997
Jerry Pitzl, a professor of geography at the Saint Paul-based Macalester College,
enlightened me on yet another dimension of America's continuous cycle of construction and
destruction; this time, on the regional scale. The US has three large areas of urban
concentration, which together account for nearly one-third of the country's population. In
keeping with the American penchant for acronyms, these megalopolises have been dubbed
Boswash (the area between Boston and Washington D.C.), Chipitts (the area between Chicago
and Pittsburgh), and Sansan (the area between San Francisco and San Diego). My
whistle-stop tour of 27 states of this 50-state, five time-zone country has given me a
fair idea of the economic and social dynamics of different regions. But some of the
consequences of the changes foretold by Pitzl are startling in their scope. A population
study done in 1970 had estimated that, at the turn of the millennium, Boswash, Chipitts,
and Sansan will have 25, 12, and 6.25 per cent of the total population, respectively. But
the 1995 census estimates present a different picture: Boswash has 19 per cent of the US
population, Chipitts, 9 per cent, and Sansan, 11 per cent. Clearly, the growing glitter of
the western states is concurrent with the fading attraction of the eastern and the central
states. State-level data exhibits a more pronounced version of the same trend. By 2025,
the population of California, Texas, and Washington (state, not D.C.) will be higher by
56, 45, and 44 per cent, respectively, from their present levels. Whereas New Jersey,
Washington D.C., and Michigan will lose 20, 18, and 6 per cent, respectively, of their
population. This exodus will mean a loss of tax-dollars and intellectual capital for the
north-eastern states. Already, California, Texas, and Florida--collectively referred to as
the Sun Belt--account for 25 per cent of the gross domestic product of the US. I cannot
think of a parallel demographic shift in India, with such a seismic impact on the fortunes
of the states involved. After all, the southern and the western states have always been
industry's favourites. But the American experience does hold out some hope for
industrially-underdeveloped states in India. Despite the huge historical disadvantage that
these states suffer from, there are ways by which they can grow thriving industries. The
key is not to run after big businesses, but to nurture small and new enterprises. Small
entrepreneurs are responsible for much of Colorado's economic renaissance. And Silicon
Valley in California did not come in the way of Seattle boasting of the headquarters of
the world's largest software company, Microsoft. Moral: identify, and encourage, small
business. And incentivise them to grow bigger. |
San
Francisco and Dallas
August 10-15, 1997
One state that exemplifies the American-style creative destruction of relentless
reinvention is Colorado and, more specifically, its capital, Denver. The
recently-concluded meeting of the G-7 there generated so many reports on that state that
even in sunny and self-absorbed California, I could hear and read about the state as much
I would have if I were actually there. Colorado's economy plunged into crisis when oil
prices crashed a decade ago. And its oil companies either shut down, or left the state. In
two years, Denver rose again, not by preserving old foundations, but by building new ones.
While the tally of mining and oil industry jobs is half of what it was a decade ago, that
loss has been more than offset by the 1,000-plus technology firms that have started up and
moved in since 1992. About 150,000 people have shifted to Colorado from California, once
the magnet for restive fortune-seekers. The government plays an important role in ensuring
the state's economic boom, more by providing the foundations for growth than by managing
things in the classic Indian mode. Colorado has a highly- educated workforce thanks to
heavy public spending on universities. The University of Colorado's biology and chemistry
departments have generated a thriving biotechnology industry. And governor Roy Romer is
easily accessible to business. When TeleTech's founder, Kenneth D. Techman, grew
frustrated with California's business climate, he relocated to Colorado in 1993. And he is
particularly happy about the easier access to the governor's office in Colorado--a clear
indication of how effective the personal involvement of a state's executive head in
business promotion could be. I wonder if the personal commitment of Andhra Pradesh's chief
minister, Chandra Babu Naidu, will see industry moving into that state. Texas has that
same hum, the same sense of vibrancy that has galvanised Colorado. As I walk past the
Sixth Floor Museum in downtown Dallas, from which vantage point Oswald is supposed to have
shot JFK, I am amazed at how this state has managed to emerge as one of the hot spots for
new business. It has the second-highest crime rate, the lowest per capita state
expenditure, and ranks last on medi-care benefits in that country. Yet, its cities like
Dallas, Houston, and Austin are attracting hundreds of firms, both big and small. In 1995,
oil major Exxon shifted its headquarters from New York city to Dallas. Cosmetics firms
like Mary Kay, and dozens of software and hardware companies have propelled the rate of
growth of Texas' state domestic product to 27.87 per cent between 1990 and 1994. What
attracts industry to the state is the responsive state administration and cheaper, and
good, living.
Moral: the death of an industry does not spell the end of
industrialisation in a state. Nor does social backwardness. |
Detroit.
July 28-August 3, 1997
The gritty reality of Detroit destroyed the pleasant images I had nursed of
America's Motown. In fact, Michigan exhibits the classic symptoms of post-industrial
sickness. The auto industry--America's fastest-growing industry for the first 30 years of
the 20th Century--was based in this state, and Detroit was then the nation's
fastest-growing area after Los Angeles. But with the collapse of the US auto industry
after the oil shocks of 1973 and 1980, Michigan suffered an abrupt, and complete, reversal
of fortunes. Detroit bore the brunt of the collapse. By the end of World War II, the city
used to roll out 50 per cent of the world's cars. By 1996, that had shrivelled to 1 per
cent. The impact has been resounding as this is not a city that had a variety of
businesses to cushion the shock. Between the 1950s and the 1980s, Detroit, Cleveland, and
Pittsburgh formed the Rust Belt of industrial decay in the US. While Cleveland and
Pittsburgh have healed themselves, Detroit still remains the poster child of the Rust
Belt. In many ways, the city reminds me of Kanpur--the erstwhile Manchester of Asia--which
met with a similar fate when competition from modern textile mills and the relocation of
blue-collar jobs set off a still-descending economic spiral in the city. Larry Ledebur, an
expert on urban renewal whom I met, describes what goes wrong with cities afflicted by
industrial decay: "The historical functions of a city as a place where ideas can be
efficiently transformed into products, services, and jobs can no longer be said to
characterise cities like Detroit." Since 1994, this symbol of urban decay is seeing
some signs of revival, courtesy the US Federal Government's Urban Empowerment Zone (UEZ)
Programme and Mayor Dennis W. Archer's relentless efforts. Since its designation as a UEZ,
29 companies have announced plans to spend $3.80 billion in starting, expanding, and
relocating their operations to Detroit. And the UEZ designation has worked as a catalyst
since it herds representatives of business, community groups, banks, and local government
into the same room to plan the city's redevelopment. The process is more important than
the $100 million in Federal grants, and an estimated $250 million in tax-breaks that
Detroit will get. Companies get a $3,000-per-worker tax-break for hiring workers living in
the zone, but Archer told us that "businesses are coming up not because of the
tax-breaks, but because they are finding it a good place to do business in." To
supplement the government's efforts, Michigan designated an area overlapping the UEZ as a
Renaissance Zone in 1995, offering additional incentives. And America keenly awaits the
economic revival of Detroit, which, in 1994, was termed its first real "former
city."
Moral: development--or redevelopment--cannot be handed down by the
central government. Local initiatives are just as important. |
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