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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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