Bottom Up Bidenomics

For much of the past few months, President Joe Biden’s administration has been trying to drum up public enthusiasm around “Bidenomics”—an economic agenda formed around the logic of building the economy from the “bottom up and middle out,” a departure from decades of failed trickle-down economics. While the administration of policy is seldom dazzling enough to be accorded a rallying cry, “bottom up” might also be the mantra for the administrative apparatus undergirding the implementation of the programs that make up Bidenomics. Consider, for instance, the most recent Department of Energy announcement of seven Hydrogen Hubs across the country, selected from among 79 proposals. Each of these hubs is powered by a network of regional stakeholders taking a specific approach to produce and use clean hydrogen.

The majority of the commentary on industrial policy continues to follow an old-school framework of tax breaks and financial incentives, but this program and others, like the CHIPS and Science Act, the Inflation Reduction Act, and the Build Back Better Regional Challenge, represent an evolution in how industrial policy is conceived. They herald a departure from a top-down approach that assumes a single omniscient state and an over-reliance on handouts, to a bottom-up one.

To understand how the global economic ambitions of Bidenomics are going to play out, it is important to home in on its local dynamics. Earlier this year, I was in Columbus, Ohio, where Intel’s $20 billion investment, bolstered by the CHIPS Act, had generated a palpable enthusiasm among local players and business leaders. These local leaders didn’t just see themselves as “recipients” of federal largesse. Instead, the civic infrastructure of the region had played an active role in securing the investment and creating linkages with local stakeholders, including the Columbus County Community College and Ohio State University. These local organizations will continue to be critical in the coming years, “counted on to help Intel with training, recruiting talent, building infrastructure and integrating the company into the corporate and local community.”

This bottom-up approach is in line with my colleague Dani Rodrik’s recent paper, with Nathan Lane and Reka Juhasz, reviewing evidence around the structures that make industrial policies successful. From a governance perspective, they highlight two attributes that are necessary: the first is an “embedded autonomy” or regulation based on dynamic public-private dialogue and information exchange. The second is to reinforce that industrial policy is not merely about tax breaks and subsidies, but about the coordination of a range of public inputs.

Across the Inflation Reduction Act, CHIPS and Science Act, and the Build Back Better Regional Challenge, the new place-based industrial policies cover a whole gamut of public inputs. An initial analysis of the BBBRC by Brookings Metro, for instance, finds funding directed towards talent development, research and commercialization, infrastructure and placemaking, entrepreneurship and capital access, and governance. In terms of implementation, these programs both rely on and bolster a bedrock of local consortia.

In several parts of the country, such multistakeholder consortia have emerged organically over the past few decades. The origin stories for the organizations in such consortia differ, as do their sources of funding, but these regional ecosystems comprise a range of public, private, and hybrid organizations. These include implementers of specific programs, such as workforce development, R&D, entrepreneurship training, and industry-focused organizations. In addition, there is a set of organizations who play a coordination function. These could be chambers of commerce, CEO collectives, or economic development organizations (EDOs), but the role they play is of orchestrator, connective tissue, and convenor. The role of such economic development intermediaries ends up being critical.

As it turns out, a lot of these economic development intermediaries have been thinking of their roles in line with the paradigm that Lane, Juhasz, and Rodrik describe. Local economic development leaders describe their work as being much more than providing incentives to firms. As Rodrick Miller, who has led EDOs in Detroit, New Orleans, Puerto Rico, and Miami-Dade points out, firms “look at human capital, they look at the real estate environment, the strength of clusters in that market, how many ties there are to international communities,” while determining what markets they want to invest in. EDOs also increasingly define the majority of their work as supporting local and existing businesses, rather than business recruitment or attraction. All of this points to a coordinating function between the firm’s factor inputs, notably between workforce development and economic development.

It appears, then, that regional ecosystems have adapted to address local coordination and collective action failures by creating this organizational infrastructure, even as policymakers and economists have been slower to adapt their approaches to industrial policy. This civic infrastructure has been critical for successful regions. Columbus, Ohio’s Columbus Partnership, now a group of 80+ CEOs, was created in 2002 to address issues around economic prosperity and jobs. A sister organization, One Columbus, finds its roots in the economic crises following the Great Recession, to recalibrate the region’s approach to economic development. In its 2021 Comprehensive Economic Development Strategy (CEDS), the Columbus Region lists its “economic development leadership, led by One Columbus and Jobs Ohio,” and its public-private collaborations as its primary strengths. Its CEDS Strategy Committee lists a range of public and private organizations from across the region. The new place-based policies provide a fillip to such local organizational infrastructure, as they direct it towards a new set of economic and strategic priorities.

However, as is often the case with implementation capacity, we should resist the urge to assume that a set of bright spots might apply to the whole country. For all the local leaders I talk to who have described this moment of competitive bids for federal funds as “the economic development Olympics,” there are also those who have more pessimistically characterized this as the “hunger games.” 

Institutional capacity to plan, strategize, and apply for federal funding varies significantly across the country. The Build Back Better Regional Challenge sought to offset this by making $500,000 for technical assistance and other strategic support available to 60 finalists from among the 529 applications it received in the first round. But to be meaningful such strategic and analytical support must be more than episodic. These capacity constraints are only likely to pose deeper challenges for the CHIPS and Science Act’s Recompete Pilot Program, which targets the most distressed regions.

Federal funding norms also pose other challenges to the effective functioning of local consortia. Bruce Katz and Jennifer Bradley have called this the “perpendicular problem” of policymaking – while local ecosystems are organized in a “horizontal or networked” approach, the federal government continues to operate in a siloed manner. The new place-based policies circumvent this by allocating funds across a range of public inputs. But they don’t recalibrate federal institutional arrangements. Ultimately, federal siloes – particularly between economic development and workforce development – permeate through the system. Local agencies that receive public funding continue to operate with different incentives, which affect their ability to collaborate in a more systemic manner. Unsurprisingly, a lot of place-based economic development organizations will tell you that they prefer philanthropic or foundation funding to government grants – it consumes less time to apply for funds and allows them to be flexible and agile. Place-based foundations, in particular, play a critical role in responding to a wide range of local needs.

Place-based economic development intermediaries will also be tested on their ability to create and manage effective relationships across all levels of government, as they attract new investments to their regions. Our preliminary analyses of the Good Jobs First subsidy tracker reveal that for the past two decades, the majority of subsidies are dispersed by the federal and state government, versus local governments. The new policies will require these intermediaries to orchestrate incentives across levels of government – for instance, the Tech Hubs Program in the CHIPS and Science Act requires consortia to secure additional financial incentives and support, including state or local incentives.

A challenge with the framing that metros and local ecosystems are organized horizontally is the assumption that local stakeholders are naturally inclined to collaborate. The upshot from research by Llewellyn Thomas, et al around ecosystem emergence and legitimization is that it is often a “collective discovery and negotiation process,” that involves creating a collective value proposition and individual value offerings, determining mechanisms of collective governance, identifying funding and resourcing of the organizational collective, and contextual embedding. Most pertinently, the authors note, “Ecosystems need to establish themselves as legitimate collectives in the eyes of both envisioned participants and broader society.”

As these new place-based policies attempt to leverage—and create—such consortia across the country, it would be critical to remind ourselves that this is inherently a bottom-up process. The effectiveness of such local collaboration is steeped in a region’s unique codes and cultures, and closely intertwined with its social capital. To revisit the success of the Columbus region: a 2012 article in The Columbus Dispatch described cooperation and collaboration as the “Columbus Way,” adding that “it’s one reason this city has thrived as others struggle.” Since then, the Columbus Way has become the clarion call for business leaders and economic development organizations in the region.

In terms of their design, these new policies are very much aligned with some of the latest research on industrial policy. From an institutional perspective, they also formalize a new triangular relationship between the state, firms, and these meso players. But, in terms of implementation, much of their success will be predicated on the ability of the federal government to walk the tightrope between top-down policy direction and bottom-up system emergence and collective action. Moving forward, there’s a real need to learn from these experiences in real time and create a rigorous body of evidence on the evolution of local institutional arrangements, and the interrelationships and governance structures that allow them to be successful.

A recent article called for Bidenomics to be informed by more economics. As true as this is, economists—with the aid of other disciplines—must also pay more attention to such local experimentation, and help policy navigate how to take advantage of these. Ignoring this would mean disregarding the essential governance and coordination elements of industrial policy and characterizing this approach as being discontinuous with what’s already happening on the ground. The failure to appreciate these administrative aspects will also prevent us from fully grappling with why or how these policies may have disproportionate experiences across the country.

The U.S. has inspired several other countries to think similarly—but apart from being an example for how the right sectors can be given a fillip, if done right, the U.S.’s experiments with place-based policies can also serve as a model for a decentralized approach to governing industrial policy.