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PA 315

Government Business Relations

Lecture 6

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Agenda

Government strategies with business

The Disney Case

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StrategiesHow does government promote economicdevelopment?

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3 Government Strategies with Business

Industrial recruitment

Governments subsidize businesses to lure more

investment in their jurisdictions.

Entrepreneurial strategy Governments adopt policies that promise to increase

public revenue, focusing on new firm and technology

development.

Privatization (especially through public-privatepartnership)

An increasingly important means of local economic

development

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Industrial Recruitment(competitive federalism)

Government often offers incentives to

lure business from other jurisdictions or to

prevent indigenous firms from leaving.

It is often understood as a product ofcompetitive federalism, which assumes

that the diversity of services offered by

state and local governments creates a

market for public goods.

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Tends to be case-by-case strategy

Example: the United Air Lines (Kantor & Savitch

1993)

93 cities competed for the United hub

Other examples: tourism, foreign trade,

recreational franchises, federal grants

Industrial Recruitment(competitive federalism)

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Pros democratic open to public scrutiny

Capitalistic principle: competition

Governments can be selective Cons

Erodes the tax base

Can lead to economic powerhouses

manipulating government Exacerbates inequities among jurisdictions

(winners and losers)

Industrial Recruitment(competitive federalism)

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Entrepreneurial Strategies Government adopts policies that promise to

increase public revenue, focusing on newfirm and technology development.

What drives state to use entrepreneurialstrategies? Necessity: environmental stress or pressure (i.e.

economic stagnation, high unemployment,poverty), fiscal stress

Resource availability (fiscal comfort): capacity foraction, surplus resources

Opportunity

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not case-by-case strategy (rather it is policy

driven)

What makes it work so well some times and fail

so miserably other times? Wisdom of idea

Implementation

Entrepreneurial Strategies

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Examples: State of Nevada: Gambling no state tax

States of Delaware, Nevada, Wyoming incorporation, taxlaws

Countries ofMalta, Cuba, Brazilgeneric pharmaceuticals CORPORATE CENTERS

Hong Kong: International Financial & Trade Center

Dubai: world business hub (innovative real estateprojects, hotels, and sports events)

Cayman Islands: International Financial Center Bahamas: tourism,a growing foreign corporate

centers

Do not hear of failures by definition but they are many too,especially when a jurisdiction cannot let go of a formerlysuccessful strategy

Entrepreneurial Strategies

http://www.malta-map.com/http://www.maltaenterprise.com/page.asp?p=8500&l=1http://www.youtube.com/watch?v=WWL4nO5pHoU&feature=relatedhttp://www.youtube.com/watch?v=zl0MbDpLhqkhttp://www.youtube.com/watch?v=zl0MbDpLhqkhttp://www.burj-al-arab.com/http://www.dubaisportscity.ae/http://www.caymanislands.ky/http://www.caymanchamber.ky/about/index.htmhttp://www.youtube.com/watch?v=AwDBPXEQ1ikhttp://www.bahamas.com/bahamas/about/jump.aspx?sectionid=1645http://www.bahamas.com/bahamas/about/jump.aspx?sectionid=1645http://www.bahamas.com/bahamas/about/jump.aspx?sectionid=1645http://www.bahamas.com/bahamas/about/jump.aspx?sectionid=1645http://www.youtube.com/watch?v=AwDBPXEQ1ikhttp://www.caymanchamber.ky/about/index.htmhttp://www.caymanislands.ky/http://www.dubaisportscity.ae/http://www.burj-al-arab.com/http://www.youtube.com/watch?v=zl0MbDpLhqkhttp://www.youtube.com/watch?v=zl0MbDpLhqkhttp://www.youtube.com/watch?v=WWL4nO5pHoU&feature=relatedhttp://www.maltaenterprise.com/page.asp?p=8500&l=1http://www.malta-map.com/

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Does the ideology of policy makers

make a difference in the strategy used?

Strategies affected by the dominant political

ideology. e.g.,

Liberal states should be more disposed

toward entrepreneurial strategies (policybased).

Conservative states should be more

disposed to industrial recruitment strategy

(case-by-case strategy).

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Findings by Saiz

Large and robust support for industrial

recruitment strategy.

Very modest support for entrepreneurial strategy

related to stress of unemployment.

Does NOT assert that entrepreneurial strategies

do not exist; just that they are not (consistently)

driven by fiscal comfort/discomfort.

Does NOT assert that ideological perspectives do

not affect economic development strategies at all;but does assert that it is not consistent and

therefore statistically insignificant

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Privatization

The practice of delegating public duties toprivate organizations (Dohanue 1989) Question: When does it make sense to delegate

which duties to which entities?

What types of public duties make sense?

Government functions

Government services

Government facilities

Not: inherently government, especially policy

Private organizations?Profit-seeking firms

Nonprofit corporations

Voluntary service organizations

Religious and neighborhood organizations

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Forms of Privatization (GAO 1997) Asset Sale: the transfer of ownership of government assets,

commercial-type enterprises, or functions to the private sector. i.e. GovSales

Contracting Out:the hiring of private-sector firms or nonprofit

organizations to provide goods or services for the government. i.e. Defense contracts

Deregulation: the process by which governments remove, reduce, orsimplify restrictions on business and individuals in order to (in theory)encourage the efficient operation of markets.

i.e. Ma Bell system; California energy system

Franchises: a concession or privilege government grants to a privateorganization to conduct business in a particular market or geographical area i.e. Highway 91 Express Lanes; Cable franchise

http://www.govsales.gov/html/index.htmhttp://www.governmentcontractswon.com/http://www.governmentcontractswon.com/http://www.govsales.gov/html/index.htmhttp://www.govsales.gov/html/index.htm

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Government Corporations: separate legal entities that are createdby Congress, generally with the intent of conducting revenue-producingcommercial-type activities, and that are generally free from certaingovernment restrictions related to personnel and procurement. i.e. Community Development Financial Institutions Fund; Overseas Private

Investment Corporation (OPIC); Federal Deposit Insurance Corporation (FDIC);Amtrak

Grants (or subsidies): a sum of money (or a privilege or rights)government gives to private organizations to encourage their involvement inaccomplishing public purposes i.e.: the funding of low-income housing, or tax subsidies, R&D grants or tax

credits.

Lease:the arrangement of government granting the temporarypossession or use of (lands, facilities, etc.) to private organizations, usuallyfor compensation at a fixed rate and with service and profit restrictions. i.e.: lease of airport

Forms of Privatization (GAO 1997)

http://www.ustreas.gov/cdfi/http://www.opic.gov/http://www.opic.gov/http://www.fdic.gov/http://www.amtrak.com/http://www.amtrak.com/http://www.fdic.gov/http://www.opic.gov/http://www.opic.gov/http://www.ustreas.gov/cdfi/

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Voluntarism:activities conducted through either a formal agencyvolunteer program or a private nonprofit service organization.

Vouchers:government financial subsidies given to individuals for thepurchase of specific goods or services from the private or public sector.

i.e.: Food stamps, housing vouchers

Forms of Privatization (GAO 1997)

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Forms of Privatization

Public-Private Partnership

A contractual arrangement formed between public-

and private-sector partners that can include a variety

of activities that involve the private sector in the

development, financing, ownership, and operation of

a public facility or service.

An increasingly important means of local economic

development

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Public-Private Partnerships

Five-point characterization (Peters 1998):

Involve two or more actors, at least one of which is a

public entity

Each of the participating actors can bargain on itsown behalf

The partnership involves a long-term, enduring

relationship

Each actor must be able to bring either material orsymbolic goods to the relationship

All actors have a shared responsibility for the

outcomes

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Advantages of PPP

Low-cost solutions to urgent problems

Leveraging increasingly scarce public sector

resources with those of the private and nonprofit

sectors

Transcending ideological divide

A form of governance that reflects the prevailing

political and cultural ideology (that gives higher

standing to the private sector) Bridging mechanisms

A greater diversity of voices from three sectors

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Reasons for Privatization

Market failure

Government failure: inefficiency, corruption, red tape

Cost, quality, proximity to client, innovation &

expertise, responsiveness Competition & choice (range of alternatives

among service providers)

Devolution and decentralization Political ideology

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Reasons for Privatization

Business Sectors Strengths

Responsiveness to rapid change

Innovation

Success replicability Abandonment of obsolete

Risk tolerant

Capital generation

Professional expertise

Economies of scale

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Challenges and threats in privatization

Market does not work properly

Too small

Easily manipulated

Market abandoned by private sector but society wants service

accomplished Needs yardstick competition for benchmarks

Public prefers higher safety in service quality or equity

that comes for the public sector

Ultimately, privatization is one of many policypossibilities that may make more or less sense on a

case by case basis

Quality of implementation of privatization as important as

policy itself!

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Question

Look at the local municipal level. Do you see

evidence of these strategies in local cities or

counties?

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Case Study: Disney Land

Questions: What are the requirements of eminent domain by the Fifth

Amendment? Do you think eminent domain is necessary for

economic development? Why or why not?

Why do the Riverside City laws make it difficult to use eminentdomain to acquire an owner-occupied house? Do you think it is

fair that the agency settles the cases by paying the property

owner more than the appraisal?

What do you think are the potential costs and benefits of the

expanded Disney Theme Park to the City of Anaheim (WestcotAdventureland)? Do you think the City made a right decision?

Why or why not?

Do you think the Disney Theme Park case satisfies the

requirements of the Fifth Amendment? Why or why not?