Preliminary Memorandum on
Promoting Community Economic Stability in Massachusetts

Given the enormous increase in the mobility and potential mobility of conventional private firms, it is more important than ever for states and localities to seek ways to nurture those parts of the economy which are more place-based and less footloose. This is why it is so critically important that the legislature and governor join forces to establish a Massachusetts Jobs Creation Commission.: Such a Commission can play a critical part in helping mobilize different public, private, and civic actors in a sustained effort to bring lasting community stability to every community in the Commonwealth.

The notion that states are powerless to shape their local economic climate in this age of increasing globalization is a common misperception. In fact, many states and localities throughout the nation have taken a range of innovative steps to bolster long-term community stability and to increase the number of jobs which are truly anchored in their local economies. Indeed, Massachusetts itself has been a national leader in innovative efforts to support place-based, stable jobs, through programs such as the Economic Stabilization Trust, the Community Economic Development Assistance Corporation, and the Community Enterprise Economic Development program. A systemic evaluation of these programs' operations and effectiveness to date and a cataloguing of the lessons learned will be a requirement of future expansion, and also a sensible first step for any future Job Creation Commission.

In the long-term, the policy aim should be not simply maintaining a few programs which are able to help a few communities, a few firms, and a few neighborhoods, but developing a systemic capacity to assist economically threatened towns and neighborhoods, such that announcement of large-scale private layoffs do not signal a death knell for the affected neighborhoods or towns.

The rest of this memorandum is devoted to first, a brief discussion of conventional economic development strategies aimed at increasing the attractiveness and economic viability of communities and neighborhoods, and second, an incomplete but hopefully suggestive overview of more aggressive strategies a state like Massachusetts might use to directly stabilize jobs in communities.

Conventional Economic Development Approaches

Economic development experts like to speak of the four "fundamentals" of economic development: education (i.e. having a skilled workforce and good schools), infrastructure (especially transportation and communication), taxation (avoiding irrational taxation patterns), and regulation (making sure regulations are rational and effective). Massachusetts has historically been very strong in terms of education and having a skilled workforce in aggregate terms, but many pockets of the community have been left behind or are in danger of being left behind for lack of relevant skills. The following discussion briefly touches on innovative human capital strategies which Massachusetts should consider, then goes on to discuss several other "conventional" policies which may indirectly contribute to community economic security.

Traditional job training programs have often been criticized for being wasteful and ineffective. Nationwide, however, several community development groups have taken the lead in developing a new paradigm for job training, by directly linking with local firms. The goal is to line up jobs for trainees in a direct way and overcome the lack of solid employment "networks" - informal access to information about jobs - in disadvantaged communities. Good examples of this are the Center for Employment Training in San Jose and the Milwaukee Jobs Initiative. Some training programs have gone a step further by running their own small businesses, which are a source of employment for job trainees.

Another challenge Massachusetts faces in retaining skilled workers is the high price of housing, especially in the Boston area. Excessive housing costs fuel pressures on outward growth, creating the potential for more sprawl, longer commuting times, etc. Conventional solutions to this issue - stimulating housing construction by developers, public housing, and low-income subsidies... - should continue to be considered and when possible expanded in the future. However, equal or greater attention should go to long-term structural means of relieving housing cost pressures facing worker families: such as the formation of community land trusts, encouraging limited equity cooperative housing, and public encouragement of efforts by groups to create dedicated lower-middle class and middle class housing (such as the Nehemiah housing project proposed by the Greater Boston Interfaith Organization.)

Community land trusts involve placing property or properties containing multiple housing units into a trust, then issuing long-term leases to residents. By essentially taking these housing units out of the private market, affordable rents can be guaranteed to tenants; or residents can purchase the housing unit (but not the underlying property) and re-sell the property to the trust upon moving and realize equity gains (which are usually capped to a moderate yet substantial level.) Limited equity cooperatives operate on a similar principle of allowing residents to own individual housing units within a cooperative structure but capping the re-sale price to a set amount which both allows the resident to realize some equity gains but also keeps the housing unit affordable.

Nationwide, the vast majority of major corporate investment projects receive some form of government subsidy or tax incentive. Such assistance can prove costly in the event that the expected jobs and benefits do not materialize, or are only short-lived. Massachusetts should thus explore more aggressive use of "clawback" policies. Clawbacks place strict jobs creation and investment requirements on private firms which receive public subsidies (in the form of tax breaks, etc.) States and localities can also insist that recipients of subsidies pay a specified wage level. If these requirements are not met, the state can then recoup the value of the subsidy from the private firm. According to a 2000 study by the Washington thinktank Good Jobs First, Massachusetts is one of just 13 states without some sort of job quality standard requirement for recipients of development incentives.

Another tool Massachusetts can use to help stabilize local jobs is through trying to promote "import substitution" - that is, the extent to which money circulates and re-circulates within the state before exiting. One possible mechanism is the formation of buyer-supplier networks, in which a nonprofit or state agency conducts a survey of local firms and their supply needs, with the goal of connecting local firms with one another in buyer-supplier relationships.

Yet another mechanism states might use to promote local employment is economically targeted investments by state pension funds. Massachusetts' funds have an established track record with such investments, which involve using pension money to invest in job creation in Massachusetts. Such investments should be continued and expanded to the degree feasible. Again, a full assessment of Massachusetts' track record in this area is a prerequisite of more aggressive and more intelligent use of this tool.

More Direct Job Stabilizing Strategies

This section simply lists a range of possible activities the state might sponsor, promote, and encourage to directly stabilize jobs within the state.

• Small business incubators, which provide technical assistance and moral support to start-up businesses. Some states, including Massachusetts, have even gone so far as to establish state venture capital funds which make direct investments in start-up companies, achieving very impressive returns in several cases.
• Continued and expanded support for community development corporations which engage in significant economic development activity. Many CDCs nationwide have successfully owned and operated businesses in a range of sectors; others have taken equity stakes in local firms; others have helped start companies and then spun them off to a private owner. A key barrier facing CDCs wishing to engage in such activities is access to experience and expertise, a barrier aggressive state programs could help CDCs overcome even in the absence of tangible financial support.
• Much more aggressive support for worker ownership within the state, in the form of technical assistance to existing ESOP firms and in helping facilitate worker buyouts of failing firms or plants facing shutdowns. Massachusetts can look to the Ohio Employee Ownership Center (OEOC) as a model for what sustained, serious support of worker ownership looks like: the OEOC conducts feasbility studies for potential worker buy-out firms. By the end of 2000, the Center was credited with saving or stabilizing some 11,000 jobs, at a fraction of the cost of conventional development policies. There is no reason Massachusetts could not have a similar center at relatively low cost: the Ohio center has operated on budgets of less than half a million dollars in recent years.
• Encouragement of various forms of community-based finance, including community development credit unions, community development venture capital funds, revolving loan funds, microloans, and the like. One mechanism which a number of states have implemented are linked deposit programs, in which state funds are deposited in financial institutions which target lending to low and moderate-income communities. Another increasingly common tool, called "capital access programs," involves states making small contributions to loan loss reserve funds to banks which direct lending to local businesses or other targeted groups.

These proposals are intended simply as suggestions of the range of strategies the proposed Jobs Creation Commission ought to consider seriously in seeking to enhance community economic stability within Massachusetts. This is not intended as an exhaustive catalogue of possibilities; and as indicated, Massachusetts has already been active in several of these strategies.

A primary task of the Jobs Creation Commission should be to inventory the successes and failures the Commonwealth has had in the past in stimulating local job creation, as well as the experience of other states. Moreover, the Commission needs to think through how active job creation policies can be complemented with attention to the fundamental issues which shape the state's economic climate: education and skills, infrastructure and transportation, housing and health care.

There is a wealth of expertise both locally and nationally to draw on in constructing a coherent, long-term plan for promoting community-level full employment - a plan the people of Massachussetts sorely need. A short list of natural candidates in the local academic community to contribute to the work of the Commission include competitiveness experts Michael Porter and Rosabeth Moss Kanter at the Harvard Business School, economic development and urban poverty experts Ronald Ferguson and William Julius Wilson of the Kennedy School of Government, and labor economists Paul Osterman of MIT and Barry Bluestone of U Mass-Boston. A Commission which successfully brought together business, civic, labor, and academic leaders as well as representatives of community groups and the unemployed themselves would have an outstanding opportunity to tap into the latent know-how which exists within the state.

Massachusetts cannot afford simply to wish its way into a future of lasting economic security for individuals, families, and communities: sustained, creative efforts are necessary. The proposed Jobs Creation Commission would be an indispensable first step.