To hear the Beltway intelligentsia tell it, we’ve reached a dire moment in our nation’s history. Shaken by the 2008 fiscal scare and afflicted by partisan gridlock, our federal government is shirking its responsibilities. These duties have been dumped by default on regions, states, and even cities. Shouldering new and unforeseen burdens, these lower and presumably inferior levels of government are being forced to tackle problems they’ve never faced before—and doing so with what the op-ed philosophes grudgingly concede to be surprising success. That, anyway, is the conventional wisdom.

But a number of more independent observers, some in academia, some within think tanks, are offering a more fundamentally encouraging perspective. For example, in If Mayors Ruled the World: Dysfunctional Nations, Rising Cities, Benjamin R. Barber of the City University of New York claims municipalities can in fact make policy on issues we are accustomed to think only national and even international ruling bodies can address, such as carbon emissions and immigration. Municipalities, Barber says, can actually deal more effectively with these matters.

Now David B. Audretsch, a professor of economics at Indiana University and director of the university’s Institute for Development Strategies, posits an even more cheering analysis. In Everything in its Place: Entrepreneurship and the Strategic Management of Cities, Regions, and States, Audretsch explores the possibility that the United States—and much of the Western world—has entered into a new, unplanned, and unanticipated period in its political and economic history in which cities function as they have always been capable of doing. Audretsch suspects that the inability of the centralized nation-state to handle the problems that beset any large and complex society is leading to a fresh appreciation of the role of local government—and might even represent a “Jeffersonian moment,” in which forgotten truths about organizing our collective lives are remembered.

I spoke to Professor Audretsch about his work.

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Alan Crawford: We’ve seen a burst of academic interest over the last five years or so in cities, states, and regions, their governance and their role in economic development. Political analysts have interpreted this as a response to polarization in Washington, D.C., and its resulting inability to take action that addresses serious problems—what is popularly referred to as “gridlock.” Is this accurate?

David Audretsch: There’s some truth to that interpretation, probably, but it does not account for other, more important factors. People like to say there is no “Republican” way to pick up the garbage and no “Democratic” way and that politics at the local level is less partisan and ideological. Often you don’t even know what party a City Council candidate belongs to. I don’t dispute all that. The problem with that reasoning is that it still assumes that policy should be set in Washington and that our elected officials at the national level are failing to do what we rightfully expect them to do. This reasoning assumes that if they were only doing their jobs, unimpeded by grubby party considerations and the like, they would be able to “solve” our problems.

AC: And that is not true?

DA: Let me put it this way. This thinking is the understandable carry-over from an earlier time in our history when this national policy approach did seem to make sense. There are two aspects to this. First, when we came out of the Great Depression and World War II and saw the postwar “economic miracle,” most of us naturally emerged from that experience with certain assumptions and expectations. We believed, correctly, that only Washington, leading a national effort, could defeat the Nazis; the state of Illinois wasn’t going to do it. That seems commonsensical.

With such assumptions in mind, we looked to the federal government to set broad policy and solve our problems. In an act of Congress—the Employment Act of 1946—we actually ceded to the federal government the responsibility for creating jobs and all the rest. This was a time, by the way, when we looked to large institutions to take care of us. This was when we believed that “what’s good for General Motors is good for the country.”

It is this thinking, which persists, that makes us think that if the federal government in Washington was doing its job, it would be taking care of us, down to the local level. But that’s only the first part of the problem.

AC: What’s the second part?

DA: It is the related assumption, which has become a kind of mantra in the West, that our economic challenges can be met through macroeconomic policy. We still like to quote John F. Kennedy saying “a rising tide lifts all boats,” when the evidence suggests this isn’t really true. A rising tide lifts some boats, certainly. But while it produces conspicuous winners, it also results—as we can see in places like Detroit, Cleveland, Baltimore, and Ferguson, Missouri—in conspicuous losers, presenting a problem that macroeconomic policy cannot fix. No matter how well the national economy does, there will still be millions of unemployed people.

This division between the employed and the unemployed, by the way, represents only one of the divisions that characterize our society these days. We see ideological divisions in Washington, as we’ve discussed, but there are others that cut through our society—the computer-literate and people who are not computer-literate, the educated and the uneducated. And when these divisions are joined to racial, ethnic, religious, and even gender divisions, they can become explosive.

AC: You write that a major difficulty with the macroeconomic approach is that it assumes a “passive” role on the part of leaders at the local level.

DA: That’s right. As long as we look to Washington to solve our problems, we encourage a passivity and even hopelessness on the part of so-called leaders.

We can’t presume to know what the particular answers are for any given community—only actual residents can know that—but we can try to understand what questions people should be asking about why there is so little economic and even educational opportunity in some of these places that are not succeeding. They need to learn from the ones that are successful and take responsibility for their futures. thisarticleappears

Of course, we cannot expect them to “raise themselves up by their own bootstraps,” and we are all on some level responsible for helping them succeed. But by the same token, they cannot passively expect the federal government to rescue them, which is something we understand these days on the individual level. The time of the “organization man,” when we could expect our employer to provide security for us as individuals and as families is long gone. We now recognize that we have to chart our own course in our careers, save for our retirement and all the rest, and that there is no formula for that.

AC: You say that the empirical evidence is clear that centralized decision-making doesn’t work.

DA: I think that is fairly obvious by now. And what we are talking about here isn’t an American phenomenon; it’s true of the rest of the Western world. Where decision-making is decentralized, as in Germany, the economies are booming. Where it is still centralized, as in France, there is high unemployment with little or no economic growth. The decentralization of Germany, interestingly, was an attempt to prevent its rearmament after World War II and its re-emergence as a world power. But what was seen then as punitive turns out to have been an economic asset.

AC: In a time of globalization, isn’t it natural to look to big institutions to address global problems, working with national governments to set broad policy? In my childhood, we were taught to expect great things from the United Nations, for example. It would be able to sort out all the great international problems between nation-states, which none of its constituent members could do on their own.

DA: It’s understandable why we think along these lines. Again, it is a holdover from World War II thinking. It also assumes big issues require big institutions to address them, which seems logical, but it ignores what I call the “paradox of globalization.”

The paradox of globalization is that the more pervasive globalization becomes, the more important local assets are, and the less important national or international assets are. Similarly, as we become more interconnected through social media and the like, the more important real human relationships become. The kind of networks that social media makes possible are not real human relationships. But human relationships are what matters in creating successful communities. And by that I mean, economically healthy ones.

AC: It’s true, isn’t it, that American cities are entering into trade agreements with their counterparts in other countries—effectively bypassing the usual process in which these agreements are worked out by national governments?

DA: The way the question is framed is misleading. It reflects that postwar mentality that assumes trade agreements are what matters. In the book, I call this the “policy trap,” which is the belief that if broad policies are established from on high, prosperity will follow. But what is really going on is that mayors and delegations from cities, including business leaders, are developing human relationships with their counterparts in other countries, and these human relationships are what result in a business based in another country deciding, for example, to open a plant in one of our cities.

So when I am talking about human relationships, this isn’t just some warm, fuzzy feeling. And these connections, again, involve very specific, very local assets. I remember when Daimler, headquartered in Stuttgart, moved a Benz manufacturing plant to Charleston, South Carolina. The CEO of Daimler said they were impressed by Charleston’s infrastructure—specifically, its airport.

AC: Globalization has also resulted in some instability, right, and companies abandoning cities where for years they were important corporate citizens?

DA: Yes, certainly. In earlier decades, businesses were more capital-intensive. It was much more costly for a company to move its headquarters elsewhere or to relocate some of their operations. This, by the way, contributed to the sense we have today that we cannot look to big institutions to take care of us. Today it is much less costly for a company to move to India or China. All this raises serious questions. Back when a company was maybe the main employer in the town, it became a kind of monopoly, and monopolies grew sloppy and took for granted the place where they operated.

Today, they need to pay more attention, not less, to the places where they are located. Places have to woo businesses, and businesses have to woo the communities in which they operate. There is an ongoing courtship, which is healthy for everyone involved, just as it is for marriage. This is done to a much higher degree in Germany than it is in the U.S., by the way, under the general rubric of Standardpolitik.

AC: What is Standardpolitik?

DA: It involves the idea that each place, its city or state, has a responsibility to take care of itself and look after its own interests, regardless of what the national government might do. It is a kind of test applied to all the decisions local leaders make. I call it “the strategic management of place,” which should and will be increasingly important in the U.S., if we are to remain economically vibrant.

I was in Hamburg within the past few months, and it’s significant that all the other countries have their embassies there, but so do the German states, representing their interests before the federal government and looking out for themselves. And they have their offices in the U.S. as well. They aren’t leaving it to their federal government to represent them in that sense.

AC: Even though it is less costly today to relocate a business, you suggest that doing so can be costly in ways businesses don’t always take into consideration.

DA: That’s true, which is why businesses—the smart ones, anyway—are beginning to rethink these issues and to invest more in the places they already are. Moving takes a big toll on the workforce and its employees, on suppliers, and on the fabric of the community. And there is a growing recognition that a business might be able to relocate, but the place it abandons cannot. A company can leave Louisville, but Louisville can’t leave itself. The University of Louisville can’t move, either. So everyone has an interest in what kind of place it will be.

I remember when Eli Lilly, the pharmaceutical company, was thinking of leaving Indianapolis and relocating to the Research Triangle to be part of a larger biomedical “cluster,” as these groupings of likeminded businesses and research centers and universities are now called. Back then Indianapolis was known as “the Crossroads of America.” It was known as a transportation hub. But now Lilly, having decided to stay, is working with the city to rebrand itself on the strength of its very real leadership in the life sciences.

AC: And you write that an M.B.A. is not necessarily the best preparation for making the kind of decisions that places must make to succeed.

DA: I write that it is not the only preparation. I am not against M.B.A.’s. But we need to bear in mind that in business school, you study what works for firms and even for nonprofit institutions. But what works for a firm doesn’t necessarily work for a place. I am reminded of what America does best, which is shift our emphasis quickly in response to the needs of a given time. So there is a great emphasis these days on technical skills, on the STEM curriculum—on science, technology, engineering, and math. All the politicians talk about the importance of investing in it. But we need to remember that this is done at the expense of “humane learning” and the social sciences, which also are important disciplines for making good decisions. If our ability to shift emphasis is our strength, maintaining balance is our great weakness.

The European cities that are doing well these days have maintained balance. They look to the long term better than we tend to do. An inability to maintain balance was the downfall of Detroit, which put all its eggs into building automobiles and defied the law of diminishing returns. Sometimes I think American cities, eager to be the “next Silicon Valley,” have put too much emphasis on high-tech. There are costs to this overemphasis, clearly, and we are only beginning to understand some of these costs.

AC: For example?

DA: I grew up in Poughkeepsie, New York. My father worked for IBM, which was a huge presence there as an employer. The CIA did a study of Poughkeepsie and determined that one-sixth of “the smartest people” in America worked there for IBM.

IBM’s workforce was an early example of what Richard Florida identified as “the creative class.” But you know what? IBM, for all its high-tech leadership, missed out on the holy trinity of innovation—on the personal computer, the semiconductor, and the laptop. That’s why IBM today is a service provider. The problem seems to be that there was only this one company operating there in that [high-tech] field, so there was little cross-pollination and therefore very little genuine creativity and innovation.

The creative class is important, but what you do with it, as a city, is important too. It is tempting sometimes to scoff at a city that spends public money on events that are designed to develop the “spirit” of the place, but these efforts can work.

AC: How so?

DA: When the creative class seems to be everywhere, I can understand why such an investment of public money might seem frivolous. But something I have noticed that is really encouraging is the integration of commerce and the arts in cities where the creative class is flourishing and the kind of silos that prevented IBM from being truly innovative are being broken down. Austin hosts an event [South by Southwest—ed.] that points to this and is very successful. You can’t tell, attending this event, whether it is a rock festival or a trade show. But the idea is to create an environment in which all these creative young people can make connections with one another. It has elements of a rock music festival and a trade show both, and it is designed to showcase the creative energy of the place and for networking opportunities. It’s impressive.

AC: You sound very optimistic about places.

DA: I am, in many ways. When I was in college, a great deal of the creative energy of young people went into music. Two-thirds of the guys in my dorm played in garage bands. A few years ago, while the interest in music continued, we also saw a lot of that kind of creative energy going into techie stuff and social media. But today what is remarkable is the extent to which bright and educated young people—many of them with backgrounds in the liberal arts—are putting their creative energies into small businesses and retail. They are starting food trucks, bicycle-repair shops, vinyl-record stores, microbreweries, graphic-design firms, vintage-clothing stores, even tattoo parlors—all that kind of thing we associate with “hipster” culture.

It would be easy to dismiss this as nothing more than a response to a tough job market, but I think that’s too facile. I see a genuine interest in these younger people in entrepreneurship. They also seem to have a serious commitment to improving the places where they start their businesses.

AC: Is it possible that this interest in the importance of places we are seeing is in fact a belated recognition that the best decisions have always been made at the local level?

DA: Yes, that is probably the case, and if so—without putting too fine a point on it—it might represent a kind of “Jeffersonian moment,” reflecting Thomas Jefferson’s healthy recognition of the problem of scale. Jefferson proposed that most governmental decisions should be made by neighbors meeting together to address local concerns, in what he called “wards” no larger than five or six square miles.

Jefferson recognized that decision-making is always problematic when the people making the decisions are so remote from the concerns they are trying to address. It seems that we’ve come to recognize this in the world of business. Twenty years ago, everyone was talking—correctly—about how small business was the real jobs creator, how small business was the future, how real ideas and innovation were going to come from small businesses, not large bureaucratic corporations.

Today we’re beginning to realize something comparable about governance and government. Even official Washington has begun to talk about how good decisions have to take into account local character and local assets. How well they can act on that of course remains to be seen. But, yes, this is not merely a response to the inability of the federal government to solve local problems; it is a good and healthy development in itself. 

Alan Pell Crawford is the author of Twilight at Monticello: The Final Years of Thomas Jefferson.