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The Rise of the Entrepreneurial State: State and Local Economic Development Policy in the United States.

The Rise of the Entrepreneurial State: State and Local Economic Development Policy in the United States Peter Eisinger analyzes the historical evolution of economic development policies of subnational (local and state) governments in the United States. The major thesis is that such policies have shifted recently from a supply to a demand orientation. A supply orientation is one that emphasizes the role of government in reducing the costs of business production. Here governments seek to attract existing firms to an area by policies such as tax abatement, interest rate subsidization, and the provision of infrastructure. Guided by a demand orientation, the state's role is to promote the reorganization of existing firms or the entry of new firms within a region for purposes of seizing opportunities generated by emerging or expanding markets. The task is not one of attracting already existing companies from outside the region by offering lower cost incentives but one of serving as a catalyst for upgrading and reorienting existing companies in rapidly evolving markets.

The two approaches to subnational economic development policy are grounded in competing economic perspectives, namely neoclassical and Schumpeterian. The analytical anchor of promoting economic growth by reducing resource costs is location theory, a variant of the theory of comparative advantage. Joseph Schumpeter's dynamic focus on business organization and strategies geared to new products, processes, and markets evinces arguments for the demand orientation of the "entrepreneurial state." The three main policy activities of the entrepreneurial state examined by Eisinger are those of public venture capitalist, promoting high technology firms as a means of anticipating and creating new markets, and export promotion for searching out new markets.

Eisinger argues that the shift from supply to demand economic development activities of subnational governments over the past two decades has been propelled by three forces: the shift in population to the South and West, which posed a challenge of economic decline to governments in the Northeast and Midwest; the decline in federal assistance to subnational governments beginning in the late 1970s; and the decline in manufacturing competitiveness in international markets. The traditional tax reduction lures to firms resulted mainly in a competitive decline in tax revenues. As a consensus has emerged over the ineffectiveness of supply orientation activities, state governments have built up economic development departments that have tentatively embraced entrepreneurial state activities.

The book is a treasure trove of local and state government economic development activities and of changing federal government policies toward subnational governments. It provides a conceptual framework for a public debate over an issue of economic policy that currently is constrained by an economic discourse dominated by the macroeconomic concepts of fiscal and monetary policies pursued by national governments. Further, the book has relevance to the transitional economics of Eastern Europe, as subnational governments seek a degree of autonomy in economic policy-making.

For courses in the public economy, Eisinger's book offers a counterweight to the traditional tripartite categorization of the public economy into allocation, stabilization, and distribution branches. Such courses, like economic policymakers, could ignore the idea of a strategic industrial policy when American production reigned supreme in the world economy. But as issues of declining competitiveness of American industry move toward center stage in American politics, the economic development activities of state and local governments in America and elsewhere will reveal this book to be the first of its kind and a substantial contribution. Industrial policy researchers will find that the book provides a useful categorization of subnational activities with which to make international comparisons. It also lays down the gauntlet to scholars of business organization to study more carefully the dialectics between competitive businesses and strategic industrial policy at the subnational level.

Michael H. Best is professor of economics at the University of Massachusetts, Amherst, and the author of The New Competition: Institutions of Industrial Restructuring (1990). In the 1980s he was involved in strategic industrial policy initiatives for the metropolitan government of London and for the national government of Cyprus. Since then he has been on the board of the Massachusetts Product Development Corporation, a state-supported, privately run corporation that makes royalty-based product development investments in traditional manufacturing enterprises.
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Author:Best, Michael H.
Publication:Business History Review
Article Type:Book Review
Date:Mar 22, 1990
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