By Julius Krein
Mr. Krein, the editor of American Affairs, has written extensively about politics and policy.
Last summer, when medical equipment was in short supply, a bipartisan group of governors from Illinois, Indiana, Kentucky, Michigan, Minnesota, Ohio and Wisconsin agreed to work in close coordination to share their resources in the fight against Covid-19 and to set standards for an economic reopening in the region. The idea was that if hospitals in Michigan lacked ventilators or personal protective equipment, they could borrow them from Illinois.
Were they being good neighbors? Perhaps. But they were also recognizing the power of collaboration — a model for a new kind of institution at the regional level.
After years of partisan gridlock, Washington has jumped back into exploring ambitious federal programs. But big programs help no one if they aren’t designed and carried out effectively. Unfortunately, the United States too often lacks the capacity to do exactly that.
Collaborative regional hubs aimed at economic development could connect Washington to local needs and capabilities across the country.
Other challenges — like the loss of strategic supply chains for medical equipment and regional inequalities — could be addressed by such collaborations. Experimentation should be encouraged: These could be permanent or temporary and range from state compacts or city clusters cooperating on infrastructure to federally funded regional development banks and innovation hubs. The key is that they have clearly defined missions and serve as needed intermediaries between federal and local actors.
In the near term, our emerging national industrial policy — government programs tailored to foster specific industries like semiconductor production — offers the most potential for regional collaboration. Industrial policy has gone from a fringe position to the mainstream, supported by Republicans and Democrats. (The Senate recently passed a $250 billion industrial-policy program, the U.S. Innovation and Competition Act, that would bolster semiconductor makers and emerging technologies to compete with China, as well as expand scientific research and development.)
Large-scale industrial policies should be funded at the national level, but they must be put into effect locally. Unfortunately, states have largely been excluded from these conversations. More often, with economic development, states are faced with a zero-sum competition — in a race to the bottom to attract, say, an Amazon location — rather than offered a role in larger national efforts.
The United States has experience with regional governance. The Tennessee Valley Authority, created in the New Deal era, involved seven states in the Southeast and helped plan and develop the building of dams for flood control, navigation and electrification of the valley.
There’s an important present-day example for America to learn from, too. One of the keys to China’s success has been its superior coordination between central and provincial authorities. Beijing sets strategic goals like the Made in China 2025 plan, but much of the execution is managed at the provincial level. Take uninterruptible power supply technology: Officials in Guangdong Province were tasked with making sure local suppliers were in place to make up to 90 percent of the technology’s components. They also facilitated purchases of advanced capital equipment for businesses and provided work force training and recruiting to match the needs of businesses. China has also pioneered new agencies (known as “city clusters”) in mega-urban regions to help bridge urban-rural divides.
Today, America faces development challenges that, on their own, state and federal governments have been unable to solve; regional collaboration could be critical to fixing that. The deindustrialization of Midwestern states is an obvious target. They have not benefited from much of the reshoring of manufacturing that has recently occurred for semiconductors (which has largely gone to Sun Belt states).
But the Midwestern states, with their automating companies, still have many capabilities that could make them attractive destinations for other industries. Imagine a regional collaboration — a Midwest industrial compact — among states like Michigan, Ohio, Indiana, Illinois and Wisconsin that identifies a sector that could be reshored. Officials in this collaboration could scour the states for suppliers of key components and engineering skills, move investments to businesses in the area, coordinate local government agencies and connect to federal “buy American” procurement efforts.
The Biden administration has prioritized transitioning to a greener economy, which would require major development projects — and could benefit from better coordination.
For example, there has been some discussion of mining lithium (for use in batteries) in some states in the Southeast. With assistance from Washington, a regional compact among states like Arkansas and North Carolina could support this project through funding geological studies and work force retraining as well as supporting the local development of processing facilities in these states. A mining site in North Carolina might be supported by a trucking company in Arkansas.
Another problem is the concentration of capital and economic activity in more populous states — and even within those states, typically leaving rural areas behind. One idea is to break up larger states. But what if instead we connected areas to their neighbors? A regional intermediary in, for example, the Upper Midwest could focus on businesses focused on new technologies for biobrewing active pharmaceutical ingredients, which could enable the migration of key parts of the pharmaceutical supply chain from China and India to U.S. rural areas. Firms in Detroit and Chicago could connect businesses in those areas to larger markets and financing sources. The regional intermediary could also coordinate infrastructure improvements across the area.
More experimentation with regional development finance would also help across the country. The U.S. Innovation and Competition Act would fund regional technology hubs. But the larger problem facing the United States is funding scale-ups — existing companies that wish to expand — not start-ups or research. America might take a lesson from Europe and form regional development banks, with the mandate to provide capital to certain sectors in a region. One proposal suggests using the Federal Reserve’s regional banks for this purpose.
In any country, a common criticism of any ambitious government policy is that it is too top-down. Regional intermediaries can help ensure that this is not the case.
States and local governments are often called America’s laboratories of democracy. With stronger regional coordination — and better integration into ambitious national development initiatives — they can also be engines of growth and innovation.
Julius Krein is the editor of American Affairs.
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