Economic Development Strategies

In the New Economy, the ticket to faster and broader income growth is innovation. The New Economy puts a premium on what the Nobel laureate in economics Douglas North calls "adaptive efficiency," which refers to the ability of institutions to innovate, continuously learn, and productively change. As markets fragment, technology accelerates, and competition comes from unexpected places, learning, creativity, and adaptation have become the principal sources of competitive advantage in many industries. Enabling constant innovation needs to become the goal of all organizations committed to prospering. Similarly, the goal for metropolitan areas must be to foster innovation and adaptation - in infrastructure, in institutions both public and private, and on the part of individuals.

These efforts need to be proactive and designed for the long term. Government, civic, and business leaders need to challenge all economic sectors and institutions, including their own institutions of government, to become cultures of innovation. The consequences for any metro area that does not respond to this challenge are low productivity, stagnant living standards, and reduced opportunity for its citizens.

Innovation and change mean uncertainty and disruption. But it is becoming increasingly clear that dynamism is critical to growth. (You can't have upward mobility if no one is on the move.) The more churning in a metro in terms of new business start-ups and existing business failures, the faster the metro's rate of economic growth. In fact, of all of the indicators in this report, churn is the most strongly correlated with employment and income growth. This means that metropolitan areas need to promote change and innovation, not retard it.

As regions achieve low levels of unemployment in an era of fairly strong economic growth, economic developers need to think more about quality than quantity; more about getting prosperous than simply getting bigger (e.g., more jobs and people). Most metro economies, even big ones, still see getting bigger as the main goal of economic development.

In the last 20 years, the transitional period between the old and the new economy, "getting big" made some sense because economic growth was slow and unemployment high. However, even when metro economies were weak, job growth was at best a means to two possible ends: raising the average standard of living in the metropolitan area, or helping reduce poverty by employing those at the fringes of the labor market. The first of these two goals is now more effectively achieved by focusing on income growth per se and not job growth as a means, particularly with the unemployment rate at around 4.2 percent.29 The second is now largely a matter of structural or social reform, such as job training, K-12 improvement, and solving the problem of spatial isolation in low-income, inner-city neighborhoods. It is difficult to see how programs aimed at undifferentiated job growth that are not focused on higher wages or higher-skill jobs can provide more opportunities for the poor than already exist in most metro economies, unless those areas are losing jobs or have high unemployment.

But focusing first and foremost on income growth makes sense for a second reason. Most large metropolitan areas face stultifying traffic congestion, poor air, urban sprawl, rising housing prices, and a shortage of skilled workers. Certainly complaints about sprawl can be heard even in areas that are growing slowly in population, like Cleveland. But these problems are worse and politically more urgent in metropolitan areas that are growing like wildfire, such as Las Vegas, Atlanta, and Seattle. Fast-growing places like Silicon Valley are choking on growth to the extent that it is making it difficult for companies to recruit employees and city governments to hire teachers, police, and fire fighters. This has resulted in cities there, such as Menlo Park, Redwood City, San Francisco, and San Mateo, passing limits or temporary bans on development.

Unfortunately, in most places it is hard to reverse the "go for growth" political juggernaut that remains on autopilot. A powerful growth coalition exists in most metro areas (e.g., real estate developers, Chambers of Commerce, newspapers and utilities, and economic development professionals) that advocates getting bigger, even if the new jobs pay little and the region is coping with the pains of growth. For example, economic developers in Northern Virginia still aggressively recruit new firms, even though traffic congestion is the worst in the nation, housing prices among the highest, and unemployment among the lowest.

As a result, the new goal for economic development, particularly in crowded and expensive metro areas, should be to raise average per capita incomes through higher-wage jobs, while working to reduce poverty and expand opportunity for economically disadvantaged residents, all the while boosting the region's quality of life. This does not mean that regions should oppose growth and erect regulations limiting it; it does mean that most large and mid-size metropolitan areas should not continue to pursue job creation for its own sake.

It also means that places suffering from the side effects of growth will need to work with their state governments to develop strategies to encourage companies that don't need to be in high-cost metros to relocate to lower-cost, smaller metropolitan or rural areas. Siphoning off some growth from large, congested, sprawling metros to smaller places will reduce sprawl in the former, and boost the economic prospects of the latter. (In this regard, the decision over the last decade to move some federal facilities out of the Washington, D.C. area to less densely populated West Virginia was good regional policy that helped both regions: It let higher-wage jobs grow in Washington, D.C., while providing opportunity for a depressed rural region that was losing jobs.) Boston, San Jose, and Washington, D.C. don't need more residents and jobs, but Springfield, Mass., Redding, Calif., and Hagerstown, Md., do, and could easily add more people, with positive impacts (e.g., more jobs, young people staying there instead of moving away). Erskine Bowles, chairman of the North Carolina Rural Prosperity Task Force, states it eloquently: "The challenges our urban centers face are significant. If we are smart, boosting rural growth can be a critical part of that solution."

This is not to say that the strategy should remain fixed. If, unlikely as it is, productivity growth rates slow significantly in the next decade and unemployment increases, the appropriate goals and strategies might change. But for now and the foreseeable future, economic strategy should focus on raising incomes rather than simply attracting jobs.

A new goal requires new means. In the old economy, places sought to get big by "getting cheap." In the New Economy, the key to success is to "get better." Policy makers used to believe that a low-cost environment was the key to success and that making investments to create a high-quality physical environment just raised costs and drove away business. That's why metropolitan areas focused on physical infrastructure, below market-rate financing and tax holidays for big industrial and commercial projects, and marketing and incentives to attract industry. The result was often low-wage jobs and companies that were just as likely to leave after a decade for even cheaper pastures. For example, almost half the jobs in companies in Minneapolis-St. Paul that got tax subsidies from the state or cities paid less than $8 per hour.31 In Ohio, local governments routinely give property tax abatements regardless of job, salary, or industry, because they see all jobs as good jobs. In Las Vegas, of some 382 jobs created by three companies that recently won local tax and training incentives, 75 percent pay less than the state average hourly wage of $13.37 (which for a family of four would qualify for the federal earned income tax credit). The state economic development official who defended such tax giveaways argued on their behalf because "there just aren't a lot of higher-paying jobs coming in." That may be true, but why focus on getting even bigger? More to the point, why not focus on boosting the skills and wages of workers already in Nevada?

In the New Economy, the path to raising wages and quality of life is in ensuring a technologically advanced infrastructure, boosting the skills of the region's workforce, creating fast and responsive government, ensuring a high quality of life - including a high-quality physical environment that is attractive to knowledge workers - and developing a responsive, efficient government. This is not to say that fiscal discipline should not be a cornerstone of government in the New Economy. But a low-cost environment with a poor quality of life is not the ticket to success.

In the New Economy, metropolitan areas need to shift their focus from providing tax breaks and other subsidies to investing in the skills of the workforce, a vibrant infrastructure for technological innovation, and a superb quality of life.

Rather than simply trying to cut costs or react to each new economic gyration, metropolitan areas should instead invest in the foundation areas for growth in the New Economy. A progressive, innovation-oriented metropolitan area policy framework for the New Economy should rest on seven pillars:

Crafting a metropolitan-wide economic strategy for the New Economy requires an acute understanding of the regional economy and, in particular, how its key industrial sectors compete in a global economy. It behooves all metro areas to do a careful analysis of their economies to identify and assess the competitive position of their key industry clusters. For example, high-tech is not one industry, it is many, and each have different requirements and locational patterns biotech is different from pre-packaged software, which is different from telecommunications equipment. As a result, it is not appropriate to have a "high-tech" policy. A region's strategy should grow out of its unique industrial structure, economic assets and limitations, and business culture. Therefore, a region should develop an in-depth and ongoing understanding of its economy, including how the major economic sectors work and what the region's economic strengths and weaknesses are. Too often decision makers think they already know what's going (e.g., "everyone knows that we are strong in venture capital") and skip this essential stage in the exuberance to "get on with it." But this is a critical mistake.

But there is another key step: After it analyzes, a place must organize. An in-depth sector analysis can become the vehicle for organizing industry clusters and generating a regional dialogue about policy issues that affect clusters and the economy. Regions should see their economies as clusters of businesses and should communicate with them along the same lines.

In a knowledge economy, in which metropolitan areas increasingly specialize in high-skilled, knowledge-based production, the future prosperity of metro areas stems from how skilled their workforces are.

Metropolitan-area governments need to adopt policies to ensure that American companies have the skilled workers they need to be productive, while simultaneously ensuring that American workers have the skills they need to navigate, adapt, and prosper in the New Economy. This requires creating an excellent K-12 school system and a workforce development system that meets the needs of employers and employees in the area.

Lack of progress in education is cause for concern. Nationwide, K-12 performance has simply failed to keep up with the pressing need for a more skilled workforce - in spite of continued increases in spending.33 A strong K-12 system in an area is important not only because it produces better workers, but because it is a key amenity in drawing knowledge workers. It is impossible for a city or region to be a successful in the New Economy over the long run if its schools are failing or even mediocre. Governments need to do the following:

Hold all students to high standards. Standard-based K-12 reform is already bearing fruit in many metropolitan areas. School districts that have adopted rigorous standards and are assessing progress against them have seen significant increases in school performance, especially among underprivileged students. Particularly noteworthy are Chicago, Cincinnati, and Seattle, which have initiated a series of innovative reforms. In particular, school districts should adopt value-added assessment systems that control for demographic variables for students and evaluate individual teachers and schools on how much they teach the children over the course the year. Tennessee has implemented this model statewide. If implemented properly, high standards and meaningful assessments mean real accountability for school systems, administrators, teachers, and students.

Adopt sensible public-school choice policies and promote charter schools. Charter schools, inter-district public-school choice, and open enrollment are all tools that metropolitan areas are using to stimulate competition, give parents options, and raise the quality of public schools. There are charter-school laws on the books in 36 states and the District of Columbia, and more than 2,000 public charter schools are in operation nationwide.34 Public-school choice - with real and meaningful choices for parents - is critical to improving schools and increasing the supply of high-quality options for parents.

Use technology correctly. Technology can play a role in boosting educational achievement, but only if it's used correctly. The key to this is ensuring that teachers are well-trained in how to effectively use technology in the classroom and integrate it into their teaching. The goal of technology policy in education should be to enhance learning and leverage greater results, not simply increase the amount of computer hardware in classrooms and schools.

Pay for performance and weed out poor teachers. School districts must experiment with innovative ways to reward high-quality teachers to attract and retain the best teachers, especially in urban areas. Denver, Cincinnati, and Columbus are leaders in experimenting with new ways to reward teachers, help low-performing teachers improve, and weed out chronically under-performing teachers.

Create math and science charter high schools specifically focused on serving disadvantaged students. K-12 education needs to give students the math and science skills they need to succeed in the New Economy. In the last 15 years, math and science magnet high schools have been established in places like Alexandria, Va. (a suburb of Washington, D.C.), but for the most part these schools have not focused on disadvantaged students. If metropolitan areas are to encourage students that have not traditionally gone into science and engineering fields - including minority and low-income students - they need to target their efforts.

Co-invest in industry-led regional skills alliances. With workforce shortages in a wide range of industries, an increasingly effective way to train workers is to help industry organize collaborative skills alliances. For example, as part of the Wisconsin Regional Training Partnership, a number of metal-working firms, in conjunction with the AFL-CIO, used an abandoned mill building in Milwaukee to set up a teaching factory to train workers in needed skills. In the Boston area, the Massachusetts Software Council has trained over 500 dislocated workers in software programming skills. In Washington, D.C., regional telecommunications firms donated telecommunications equipment and helped set up a program to train public high school students to be telecommunications technicians. Students who pass a standard certification exam are hired with salaries of from $25,000 to $30,000 a year. In order to jump-start these efforts and add to their scale, the Progressive Policy Institute proposed that the federal government provide matching funds for industry-led regional skills alliances (RSAs). The Department of Labor now administers such a program.35 Metropolitan areas should play active roles in the creation and co-funding of these alliances.

Fundamentally reorganize programs funded under the 1998 Workforce Investment Act (WIA).36 Cities should take advantage of the opportunities afforded by recent federal job-training legislation to ensure that their new Workforce Investment Boards (WIBs) are more than just bureaucratic programs operating on the margin of the labor market. Instead, cities should make their WIBs active partners with the private sector in creating a trained workforce for the region, and should turn their attention from the supply side of the labor market to the demand side. Best practices include in-depth labor market "audits" that identify broad business trends and specific skill needs; developing expertise in the needs of a specific industry sector and building long-term relationships and company and union training alliances within it; consolidation of employer outreach into a single "employer services" unit; partnerships with private employment and training organizations; and the development of tailored training programs.

Metro areas should avoid setting policy for WIA in isolation from the rest of their education and training programs. Local areas need a coherent vision for all their workforce programs. This means aligning the missions of all programs, including WIA and TANF (Temporary Assistance for Needy Families), creating a one-stop system, using information technologies to automate services and improve quality, providing training and re-employment vouchers to individuals in need of services, and developing "consumer report cards" to track the performance of training providers.

Create a metropolitan-wide workforce development system. In the old economy, most jobs were in the urban core. In the New Economy, the fastest job growth is occurring in the outer suburbs, while most disadvantaged workers continue to live in the central cities and inner suburbs. Under the old federal JTPA (Job Training Partnership Act) programs, the urban core and the inner and outer suburbs were often three distinct "service delivery areas," each governed by its own board. Because under the new WIA system cities with more than 200,000 people can create their own workforce investment boards, there is a risk of even more fragmentation of regional workforce governance. Metropolitan areas should build a system that matches the geography of the labor market by changing the boundaries of WIA service delivery areas or at minimum encouraging the development of regional cooperation and plans among WIBs.

Innovation drives productivity growth in the New Economy. As a result, if metropolitan areas want to boost the incomes of their residents, embracing technological innovation is the path. And technology jobs are not just in Silicon Valley. In fact, the fastest growing high-tech areas of the country are places like Lancaster, Pa., and Boise, Idaho.

Metropolitan areas can do several things to foster technological innovation, including:

Support research universities. To the extent that major research institutions with good science, engineering, and computer science programs and an entrepreneurial - as opposed to ivory tower - orientation are located in metropolitan areas (and most are), they offer advantages to high-tech firms. For example, a large number of biotech firms are spinoffs from research universities. These firms are likely to stay close to the university in order to have regular contact with faculty (sometimes the faculty members themselves are the entrepreneurs), and to have access to students and nearby clinical trials. For example, Cambridge, Mass., is home to a large number of biotech firms because of the world-class research universities and hospitals there. It is true that as biotech scales up for production, the manufacturing facilities often locate in suburban industrial parks, but much of the industry remains focused on research and development, which needs to be near research institutions. This model applies in varying degrees to other high-tech industries (albeit to a significantly lesser extent to information technology firms), with research universities not only creating high-tech entrepreneurial spinoffs, but also exerting a pull on the research and innovation-based functions of other high-tech firms. As a result, metropolitan areas should lobby state governments for financial support for research universities and other research institutions, and should structure zoning and other regulations to support their expansion.

Support technology commercialization programs. It is not enough to perform research; that research needs to be commercialized to have the full economic effect. Metro areas have instituted a number of programs to encourage innovation, including technology incubators, early-stage seed funds, research parks, technology-transfer programs, and technology sector networks. For example, the Chicago Technology Park is a 56-acre parcel nestled within the bounds of the Illinois Medical District. The Park is specifically designed to support advanced technology companies in an affordable, resource-rich environment.

But even more important than "bricks and mortar" efforts are the people-to-people commercialization programs. Building links between universities and local industry clusters, promoting externships for students and faculty, and creating other linkage programs are important policies. Developing a sector strategy with a substantial networking component, especially promoting contacts among people active in the industry and encouraging the formation of industry associations and "continuous improvement" user groups, can be highly effective in generating the kind of interaction that generates new companies and innovations. This also turns out to be an effective vehicle for building relationships between key institutions (university researchers, venture capitalists) and "wannabe" entrepreneurs.

Encourage a modern telecommunications infrastructure. Few knowledge- and information-based companies will locate in an area where they cannot get reasonably priced access to high-speed telecommunications. Metropolitan areas need to promote policies that encourage the provision of high-speed telecommunications access to both business and households. This includes having a zoning and planning regime that allows "data-hotels" (buildings containing telecommunications equipment); enabling telecommunications providers to lay fiber optic cable under the streets; and ensuring that wireless telecommunications receivers can be located where they need to be.

Expand access to the Internet. Anecdotal evidence suggests that IT companies like to locate in communities where the rate of Internet use is high. Local governments need to work with the private sector and state and federal governments to ensure schools, community centers, boys and girls clubs, libraries, and other public places provide free public Internet access. But to be effective, governments need to go beyond just making sure that organizations have the computers, software, and Internet services. Organizations need the training and support necessary to integrate these tools into their programs. In this regard, local governments should work with the private sector. For example, the Morino Institute in Northern Virginia has established a partnership with four community-based groups serving inner-city youth and their families in the District of Columbia. The goal of the program is to provide the expertise to develop the organizational capacity - people, systems, and know-how - to integrate the Internet into their learning and youth-related programs.37

Because in the New Economy a skilled workforce is the most important factor of production, the location of knowledge workers is a key factor determining a place's economic success. It used to be that workers moved to where companies were locating. In the New Economy, increasingly companies look to locate where knowledge workers live. Because they are in greater demand and have some ability to be picky about who they work for and where they work, knowledge workers can afford to choose locations that provide more than just a good job with a good income. There are numerous factors that go into making a region attractive to knowledge workers, and but one of the most important is quality of life. Most metropolitan areas face a number of challenges in creating a great quality of life, including amenities, crime, and transportation.

Metropolitan areas that will be successful in the New Economy will have dynamic, diverse cultures. Richard Florida of Carnegie Mellon University argues that in order to attract knowledge workers, particularly younger ones, the old urban cultural agendaproviding things like art galleries and opera houses - is not enough. These are good things, but knowledge workers usually want a more "experiential" culture. The new quality-of-life agenda has to go beyond "high culture" amenities to encompass outdoor recreation and "the new urbanism." This includes both active outdoor recreation (hiking trails, wind surfing, paved and unpaved bike trails, rock climbing, urban kayaking, etc.) and European-like urban amenities (e.g., outdoor dining, walking streets, geographically discrete neighborhoods, vibrant night life, good restaurants, river walks, impressive views, nightclubs, and a bustling street life).38 For example, Providence, Rhode Island's award-winning river walk, with its cafes, boating, and regular "River Fire" festivals, makes the Providence area more attractive to knowledge workers who value fun urban experiences.

Metropolitan areas that pour hundreds of millions of dollars into subsidizing sports stadiums and other old economy infrastructure are looking backward, not forward. Instead they should develop and implement a region-wide outdoor recreation plan that includes things like water sports, hiking, biking, walking, and other activities. They should embrace the new urbanism and focus on urban design, including opening up and developing water front area (lakes, rivers, bays) as amenity areas. They should build identifiable, livable neighborhoods, including focusing on traffic calming and traffic reduction measures in residential neighborhoods. They should also place a renewed focus on urban design (facade improvement, outdoor amenities, festival marketplaces, renovated performing arts centers).

But while it's important to look to other places for models, the correct recipe for doing this is for each metro area to develop its own distinctive identity. For some this will be wind surfing and water sports, for others skiing and rock climbing, and for others still, a dense urban environment. Some may even tout their quiet, safe streets, good schools, and parks and ball fields. Different mixes of these amenities and consumption opportunities will appeal to different people.

Crime reduction is critical if knowledge workers and knowledge companies are once again to have confidence in cities. Luckily, the explosion of digital technologies offers local governments extraordinary opportunities to prevent and fight crime.With a few exceptions, police and probation officers and the courts are operating with 20-year-old technology. Cops often wait 20 minutes for basic information about a vehicle they've stopped while someone at headquarters looks it up and radios back. Days or weeks can pass before criminal warrants find their way into computers, leaving dangerous criminals on the street and police unaware they are wanted. Judges sentence offenders without seeing their criminal-history records.

As a result, metropolitan-area governments should increase funding for information technology systems (like wireless communications systems) to fight crime - for example, implementing state-of-the-art "crime information systems," as cities like Baltimore and New York have done.40

The use of advanced technologies not only requires that front-line law enforcement personnel become more technologically savvy, but also requires federal, state, and local government officials to eliminate the bureaucratic barriers to collaboration that have traditionally prevented the multidisciplinary cooperation essential to fighting crime.

While technology is important, it is not enough. Community policing and an additional 100,000 community police officers have laid a sound base for improving safety, and future solutions involve improved integration of different components of the criminal justice system (and indeed the entire government service delivery system). Effective crime prevention requires that streetlights be repaired, abandoned vehicles be removed, abandoned houses be condemned and razed so they cannot be used to facilitate prostitution and/or drug trafficking and use, and potholes be filled before they cause traffic conditions that require police to spend time directing traffic instead of catching criminals.

Finally, cities also need to be held accountable on crime. They should publish crime statistics by type of crime and neighborhood. They should measure residents' perceptions of whether communities are getting safer or not. For example, Portland periodically asks its residents for their perceptions of public safety and a series of other measures of quality of life.41

Road congestion has dramatically increased in the last 15 years and is expected to get worse in most metropolitan areas. Besides making life miserable for millions of commuters, road congestion severely reduces the economic attractiveness of a place. As a result, metros where people can easily get around have an advantage over those that do not.

In spite of the pressing nature of this problem, little has been done to solve it. Between 1987 and 1998, while vehicle miles traveled on freeways or principal arteries in urban areas increased by 42 percent, lane miles increased only 16 percent (with almost all coming from reclassifying rural areas as urban). No wonder congestion has worsened.

There are many reasons why policy makers have failed to solve the metropolitan mobility crisis, but high among them is the fact that environmentalists and other anti-growth interests have succeeded in convincing many decision makers that "sprawl" is principally responsible for traffic congestion, that "new roads just make things worse," that road pricing schemes are unfair, and that only demand reduction strategies (e.g., transit, carpooling, urban growth boundaries) can improve mobility. In fact, empirical evidence demonstrates that these claims are untrue or grossly exaggerated.

As a result, if metropolitan areas are serious about returning mobility to their residents, they will need to:

In the old economy, a good business climate meant low costs. In the New Economy, a good business climate means a climate conducive to innovation.

For example, in her book Regional Advantage, Anna-Lee Saxenian argued that Silicon Valley's more open, porous, and risk-taking environment helped it create and grow more technology-based companies and jobs than Boston in the 1980s and early 1990s, because the latter's more "buttoned down," hierarchical and insular corporate culture made it harder for firms to adapt and innovate.43 Contrast that with Research Triangle Park's branch plant institutional culture (even though the branch plants are technology plants), which at least in part explains the relative lack of new spinoffs in that metro.

Business cultures are embedded in larger civic cultures. These civic cultures vary significantly between different parts of the country. People refer to open and friendly Midwesterners, entrepreneurial Yankees, and "open-to-anything" Californians. Cultures that do best in the New Economy have the following characteristics: People feel they are in it together; risk-taking is accepted and even encouraged; people are encouraged to cross institutional borders; business, government, and labor trust one another; and civic leaders feel a responsibility to be engaged in visible leadership roles.

While it is hard to quantify and, in some places, even to identify a region's civic culture, that does not mean it isn't real. For example, when Joint Venture Silicon Valley (a public-private civic economic development organization) was formed, one of its stated missions was to overcome a "culture of blame," one in which all parties blamed each other for problems rather than working together to solve them. One East Coast metro had identified a pattern where leaders who step up to propose new solutions are "shot down" or criticized. It is hard for governments to change a region's business and civic culture. But they can help the region identify its cultural strengths and weaknesses. Government can also recognize and celebrate public and private innovation and support the formation of high-tech business councils to encourage networking and learning.

There is one more traditional aspect of the business climate that deserves attention, and that is the land transfer and redevelopment process. In most cities, particularly older central cities, this is a major barrier to the redevelopment and adaptation of the old city. Cities need to reinvent and streamline their land processes if they are going to have a functioning real estate market. This is particularly critical if they are to compete for certain segments of the tech sector that require speed in their purchase and construction (or reconstruction) of properties.

In too many regions, local government remains rooted in old economy bureaucracies formed in the 1940s and 1950s, with strict civil service rules, inflexible and extensive regulations governing what it can and cannot do, and few incentives affecting performance.

Old, managerial, command-and-control models don't work anymore in business, and they don't work in government either.44 Developing customer-oriented government is important not just because it cuts costs, but also because it improves the quality of life.

Governments that succeed in the New Economy will be entrepreneurial and innovative; rely heavily on information technology and the Internet to accomplish their missions; break down the walls between government and its citizens; rely on performance standards and accountability; reform civil service; foster high-quality and timely delivery of public services; revise their actions based on regular feedback from citizens; and partner with a host of public and private organizations to accomplish their public mission. Accountability and leadership is the key, as demonstrated by Baltimore Mayor Martin O'Malley's efforts to hold agencies to performance standards. The Mayor established the CitiStat process (city agencies' service delivery performance is reviewed and senior officials are held accountable during weekly meetings).45 Without tearing down departmental "stovepipes" and installing meaningful agency accountability, the move to a reinvented and digital government will be a triumph of style over substance.

Metropolitan areas should be on the forefront of providing government services online. The motto "online, not in line" should guide local efforts to use digital technologies. Digital government efforts simultaneously cut costs and improve services. For example, Massachusetts residents receive a $5 rebate when they renew their drivers' licenses online, because of the cost savings for the state. A large share of local government functions can be conducted online, such as paying parking tickets, checking deeds, reviewing tax records, and getting information on school performance.

For example, a number of communities in Silicon Valley, including Sunnyvale, Milpitas, and Santa Clara, developed the "smart permit" initiative, which lets companies and developers submit one online permit application (including application forms, drawings, and payments) for buildings in any of the participating municipalities.

Creating region-wide digital government will require changes to public budget systems, so that agencies can make the up-front investments in technology (or partner with private-sector companies that are paid out of realized savings) needed to achieve the longer-term paybacks in the form of lower costs. Currently, most local government agencies have little opportunity or incentive to devise or implement cost-saving technologies, because it simply reduces their budgets.

New Economy governance means more than simply fixing the internal processes of governing. It also means changing governance. Government in the New Economy cannot govern alone - it needs to form strategic visioning and managing partnerships with all the key players in a region (private sector, universities, labor, community organizations), and these partnerships need to cross local government boundaries. Since metropolitan areas are now the fundamental competitive units of the New Economy, it no longer makes sense for municipalities in a region to fight each other for economic advantage. The historic tension between city and suburb are an obstacle that retards success. As one influential policy report put it, we are "all in it together."46 And that is true whether your primary concern is inner-city poverty, regional amenities, or business competitiveness. The evidence suggests that all of these problems are related at the regional scale: Solving one can have an impact on all the others.47

Supporting regional governance does not necessarily mean unified consolidated regional governments along the Toronto line, or tax-sharing schemes. But it does mean much higher levels of collaboration.

Saying that the public, private, and nonprofit sectors and all local governments in a metropolitan area must work together is, of course, easier than doing it. It helps to have a crisis, a long tradition of collaboration, or a new model of civic leadership that excites and motivates key stakeholders. It also helps to have key corporate leaders, particularly in the high-tech sector, do more than just pay lip service to helping solve pressing regional problems.

The Chicago Metropolis 2020 plan integrates economic, amenity, and social goals for that region under the leadership of a private sector organization, the Commercial Club of Chicago. Chicago has a long history of regional thinking, stemming from its turn-of-the-last-century planning tradition associated with Daniel Burnham.

Joint Venture Silicon Valley is formally structured as a "network of civic entrepreneurs from business, government, education and the community."49 Co-chaired by the mayor of San Jose and a corporate CEO, the organization seeks to create "a sustainable community collaborating to compete globally."

Born in economic crisis, the large-company-CEO organization Cleveland Tomorrow continues to set the standard for private sector-led initiatives in center city development and technology transfer on a metropolitan scale.

The Carolinas Partnership minimizes local infighting by combining 15 counties in two states into a single marketing and economic development consortium. Sixty percent of its funding comes from the private sector and 40 percent from the public sector.

Reeling from a cutoff in federal transportation funds due to air quality problems, Georgia took the bold step of creating a new state agency with unusually strong powers over regional transportation and commercial development that would guide growth in the 13-county metro Atlanta area. The Georgia Regional Transportation Authority recently approved a three-year plan - the first phase of a 25-year plan - that gave an ultimatum to local governments: Get your land-use policies in line with regional transportation strategy or face the loss of some of your state and federal road money.

The Central Indiana Corporate Partnership is a regional group of CEOs who have banded together to bring consensus and direction to issues affecting the growth and vitality of central Indiana. CICP works collaboratively with and through various stakeholders, such as industry associations, Chambers of Commerce, elected officials, educational institutions, and others to identify and accomplish its goals.

In the New Economy, successful metropolitan areas and regions will create collaborative networks that craft and implement innovative solutions to policy problems, placing the public interest above a narrow interest in maintaining the status quo.

Metropolitan areas should form economic policy councils that bring together key leaders in business, government, labor, civic groups, and higher education to provide in-depth analysis of the economy, develop creative economic strategies, and build widespread consensus for action.

The New Economy is here to stay - there's no going back. It brings enormous potential to boost the well-being of the residents of metropolitan areas, but also introduces challenges. If metropolitan areas do not invest in a knowledge infrastructure - world-class education, training, and technology - companies will not have the skilled workers and cutting-edge tools needed to create higher-paying jobs. If they do not solve pressing quality-of-life issues, they will not be attractive to knowledge workers. And if Industrial Age local governments do not transform themselves into Information Age governments, they will impede, rather than advance, growth. Simply put, metropolitan areas that meet the challenges of the New Economy - focusing on innovation, learning, and constant adaptation - will be the ones that succeed and see the incomes of their residents grow the most.

The Progressive Policy Institute (PPI)
Technology, Innovation, and New Economy Project
600 Pennsylvania Ave., S.E., Suite 400, Washington DC 20003
Phone: (202) 547-0001
www.ppionline.org

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