The United Regions of America

The Obama administration wants to change the way politicians fight for jobs by encouraging regions-instead of individual states and cities-to compete for economic development projects.

Accomplishing this sea change in economic thinking will be difficult. The current system of states and cities battling for companies, often outbidding each other with ever-higher tax breaks, is pretty ingrained.

President Obama’s hand-picked chairman of the Democratic National Committee, former Virginia Governor Tim Kaine, was one of the best practitioners; Virginia topped Forbes magazine’s “best states for business” every year of his term.

But the administration believes that economic recovery will be led by a collection of regions around the U.S., not necessarily individual states. America’s regions will battle those in other countries for supremacy in the global economy.

To use one example, northern Ohio and southern Michigan have been walloped by the decline in the U.S. auto industry. So Obama wants the governors of those states and local officials in those regions to forget they are Buckeyes and Wolverines and work together to reinvent a common regional economy straddling state lines. The federal government will reward regions with financial incentives if they team up; the president recently gave $25 million to a plant in Elyria, Ohio, west of Cleveland, that is producing batteries for electric vehicles built in Michigan. Federal officials say that the northern Ohio-southern Michigan region is poised to repackage itself as a clean-energy center.

Heading the administration’s regional economic development strategy is John Fernandez, assistant secretary of commerce and the former mayor of Bloomington, Indiana. At a recent talk with a group of state legislators in Washington, Fernandez argued that the old ways of state and local governments chasing traditional smokestack industries is obsolete. “We need a different framework that is more sustainable,” he says. “At the core of this framework is innovation.”

The catch-phrase circulating around the development community is ” regional innovation clusters .” The term was thought up by Michael Porter of the Harvard Business School, an expert on competitive strategy, and refers to groups of businesses, universities, cities, counties and states joining to create a single job-generating unit. The Raleigh-Durham area of North Carolina knots together communications equipment, information technology and education. Metropolitan Wichita, Kansas, clusters aviation, heavy machinery and oil and gas. The Seattle-Bellevue-Everett area in Washington State unites aviation, defense, fishing products and analytical instruments.”They aren’t towns or cities,” says Fernandez. “They’re regions. They work together because they are stronger that way.”

Obama did not invent regionalism, but he is trying to revive it. Bruce Katz of the Brookings Institution, among others, has been preaching for more than 15 years about the need for robust “metropolitan economies” characterized by collaboration instead of competition. The president launched an Office of Urban Affairs which is working with Fernandez’s agency to develop a national policy to strengthen cities. “Strong cities are the building blocks of strong regions and strong regions are essential for a strong America,” Obama told the nation’s mayors last year.

Stateline asked Fernandez how hard it will be to persuade states, which are used to competing against each other, to think in terms of collaborating regions even when those regions cross state lines. He was realistic about the difficulty of changing the culture, both at his appearance before the group of legislators April 9 in Washington and in a   speech in Chicago in January.

“It’s a new way to keep score,” he says. “In the past, there was only one metric that mattered: the number of jobs created in my town [or state]. If you created a job, it had to be in your backyard to score points.”

“We need a new way to measure success,” he says. “If the city next door creates 1,000 jobs, it doesn’t mean you lost-it means the region won.  Jobs are not the only number. We need to rate our elected officials not just by the jobs they bring in today but by the jobs they make possible tomorrow.”

Maryland Governor Martin O’Malley, Virginia Governor Robert McDonnell and Washington, D.C. Mayor Adrian Fenty are keeping score the old way. The leaders of a region that overlaps three jurisdictions are demonstrating right in Obama’s backyard the difficulty of changing the one metric that matters, especially in an election year: job creation.

Northrop Grumman, the giant defense contractor, is planning to move its corporate headquarters from Los Angeles to the Washington area, and that has touched off a brawl among O’Malley and Fenty, both Democrats, and McDonnell, a Republican. Each jurisdiction wants Northrop Grumman’s high-paying jobs, and has offered the company millions of dollars in tax breaks so executives will choose them. O’Malley and Fenty are seeking re-election later this year; McDonnell was elected in November on a job-creation platform. (According to the Washington Post , Northrop Grumman has eliminated D.C. from contention.)

If the elected officials were truly thinking regionally, they would declare the Washington area the winner of the defense derby and split the costs of incentives. They would offer a site for Northrop Grumman’s 150 employees in a part of the region near public transportation and in a place targeted for redevelopment. Local planners worry that picking a location in the congested Virginia or Maryland suburbs would exacerbate sprawl, the very thing that Obama’s urban affairs office is working against. But old habits die hard.

“We can’t make people collaborate,” Fernandez says. “We can shine a light on it as a framework that works. We can provide incentives. It’s going to be up to the civic leadership at the state and local level. We need help from states to support the idea of regionalism because not everyone does.”