John O'Leary is a former GOVERNING contributor. He is co-author of "If We Can Put a Man on the Moon: Getting Big Things Done in Government."E-mail: email@example.com
In May, Los Angeles made headlines by landing the U.S. headquarters of BYD, a large Chinese manufacturer of electric cars, solar panels and battery storage devices. Gov. Arnold Schwarzenegger and Los Angeles Mayor Antonio Villaraigosa held a press conference on the steps of City Hall to welcome BYD's Chairman, Chanfu Wang.
Jobs -- and green jobs at that -- were coming to Southern California. While published stories tended to focus on that happy news, they missed possibly an even bigger story: Exactly how the city managed to attract this very desirable employer without spending a lot of money.
With an unemployment rate above 12 percent, Los Angeles hardly seems like the place to gain insight about economic development. But in this case, the city took an approach which others might emulate.
In January, Mayor Villaraigosa created the Office of Economic and Business Policy and appointed First Deputy Mayor Austin Beutner to head it up. Instead of romancing BYD with massive tax breaks and other costly lures, Los Angeles instead focused on service, making it easy for BYD to do business in the city. Instead of an isolated economic development group working out on an island, the city pulled together to prove to BYD that it was serious about making L.A. a great place to headquarter its U.S. operations.
"The most important aspect of this from a systemic standpoint is that we brought the resources of all the city departments to work together to make it possible," says Beutner. Without a lot of cash to throw around, Beutner managed to get the culture at City Hall to coordinate their activities. Some examples:
Taken together, these changes cost very little money but made a huge difference to BYD. Los Angeles did offer some enticements -- the Port of Los Angeles reduced the tariffs on zero-emission vehicles and the city agreed to purchase and evaluate a pilot group of 24 electric vehicles, for example. But these were also relatively low-cost attraction tools. "I think the service culture was much more important to BYD's decision than any economic incentives," says Beutner.
Los Angeles had recently lost longtime economic stalwart Northrop Grumman, and many businesses have left Southern California for greener pastures -- much of it in the form of hard cash incentives. The Washington Post reports that "Virginia is expected to give Northrop $12 million to $14 million in grants and cash incentives...."
The "service" approach stands in contrast to the "buying jobs" school of thought in economic development, which focuses on massive tax breaks and other incentives. "I don't think the race to the bottom is good policy," say Beutner. "Anyway, Los Angeles cannot compete in that arena. And frankly I think it is bad public policy to get caught up in a race to see who can give away the most money."
The Golden State's business exodus made the BYD deal big news. But challenges persist.
"We have a relative fragmentation of power in this city," says Beutner, noting that the overlapping areas of control of the city council and the mayor's office can make quick action difficult. He also thinks that there needs to be "much closer collaboration between the city, the county, and the state for us to succeed in these efforts." This problem isn't limited to Los Angeles and their counterparts in Sacramento. Coordinating state and local economic development requires a spirit of cooperation that is often lacking.
Will Los Angeles become a mecca for green jobs, as it hopes?
Time will tell. In a market economy, natural ecosystems tend to develop around clusters of talents that enhance competitive advantage. It is easier to start a high-tech firm in Silicon Valley due to the concentration of the human talents needed. That advantage can't be easily duplicated. The same is true for the film industry in Los Angeles.
Attempting to create this sort of competitive cluster around an industry isn't easy, however. Los Angeles isn't unique in its desire to be the leader in the emerging industry of green jobs, it does offer some distinct advantages. The warm California sun makes solar panels a natural fit, and California's stringent emissions law give electric vehicles a boost.
The lesson for other cities should be clear. Rather than throwing money at companies, encourage more business-friendly operations at City Hall, especially towards industries in which you have a natural advantage.
The name "BYD" stands for "Build Your Dreams." They may help Los Angeles reach its dream of regaining economic competitiveness.