Is 'Going Local' the Secret to Economic Development?

Newark, N.J., Mayor Ras Baraka hopes so. Right now, the major employers there mostly hire people and buy business supplies and services outside city limits.
by | September 13, 2017
Newark, N.J., Mayor Ras Baraka, left, at the grand opening ceremony of a Whole Foods supermarket in the city. (AP/Julio Cortez)

In Newark, N.J., where the unemployment rate is well above the state and national average, less than 20 percent of the jobs are filled by Newark residents. In Baltimore, a third of residents have jobs in the city where they live. In New Orleans, it’s 46 percent.

Among the city's 20 biggest employers -- colleges, hospitals and corporate headquarters -- only three percent of the money they spend on buying goods and services goes to vendors in Newark.

This helps to explain why one in three Newark residents live below the poverty line and why the city lost population for decades. But Newark Mayor Ras Baraka wants to turn those numbers around. His solution -- an initiative called Hire. Buy. Live. -- could provide other local governments with a playbook, some say, for spurring economic development in a way that prioritizes the welfare of residents.

“We think this could take off in lots of different communities," says Ted Howard, president of the Democracy Collaborative, a national nonprofit focused on economic development in urban areas. “We’re going to be promoting it."

The idea of "going local" isn't new. The introduction of big-box stores and online shopping drove it into popularity, and governments have adopted the concept in various forms throughout the years. But Baraka hopes his initiative is more likely to make a difference.

Baraka has convened a new coalition of public, nonprofit and private employers with the goals of hiring 2,020 local residents by 2020 and increasing the percentage of goods and services that local employers buy from local businesses to 10 percent. Colleges, hospitals and several national companies headquartered in Newark -- including Prudential Financial, Audible and Panasonic -- have committed to the initiative.

"We need some kind of local strategy to fight unemployment and poverty in a very systemic way," Baraka says, "and I think this is a step for us to get that done."

Convincing businesses to buy locally not only keeps sales tax revenue in the community, it also has the potential to recirculate money in the community as local businesses win contracts and then spend that money on other local businesses, resulting in a "multiplier effect."  In some instances, it may even save companies money.

“We commonly think that [national firms] are lower priced, but it’s not always the case," says Stacy Mitchell, co-director of the Institute for Local Self-Reliance.

In the past, cities have often sought to boost the local economy through tax incentives to developers, contracting requirements and rules about where some city employees can live. But each of these strategies have faced some setbacks in recent years.

The Obama administration, for example, had proposed a rule that would have allowed state and local governments receiving federal transportation dollars to apply local hiring preferences to some contracts. In August, the Trump administration withdrew the proposal.

Meanwhile, Cleveland has been stuck in litigation over a local hiring requirement for public infrastructure projects. Critics say such local hiring requirements discriminate against qualified job applicants in other parts of the state.

However, Cleveland has seen some success going local. Under Mayor Frank Jackson, the city saw a 10 percent increase in contracts in four years to businesses that were either local and small, or local and minority- or female-owned.

The city already had policies that gave those types of businesses a leg up in the bidding process, but for them to be effective, the city needed to identify and engage businesses beforehand -- much like Baraka is doing, says Mitchell.

“A lot of times when a city adopts a policy, it just sits on a shelf,” she says. “You have to actively embrace it for it to make a difference.”

Baraka hopes his plan will be a national model. It remains to be seen, however, whether the initiative will have a significant impact. It was officially announced in June, and some of its details are still being worked out. But so far, Baraka’s main policy lever is the bully pulpit. He has convinced large employers that it’s in their interest to prioritize local hiring and business contracts. The coalition will track and publicize employers' progress, but Baraka isn't penalizing employers if they don't make good on their promises.

Some local employers, though, are already taking steps to meet the initiative's goals. In March, Audible, an international company with hundreds of employees in its Newark office, announced that it would subsidize a year of rent for any employees who move to, or live in, Newark. The company also gave local employees a prepaid debit card to use at Newark restaurants. At least two other employers are planning rent subsidy programs next year, according to the Newark mayor's office.

The city has some existing policies on the books that might help as well. Earlier in the year, the city council approved a payroll tax cut to companies that employ at least 50 percent local residents. For years, Newark has also required that contractors doing business with the city make an effort to hire local residents. But the so-called "local-source" law has drawn criticism for being ineffective and not holding companies accountable when they don't comply.

Despite its issues, Newark is experiencing a renaissance in some parts of the city. In his State of the City address this year, Baraka called attention to a new Whole Foods, a 22-acre public park on the way and more than $2 billion in construction happening or in the pipeline. After decades of population decline, the city saw a gain of roughly 5,000 residents between 2000 and 2010 -- and appears to be on track for another gain in the next decennial census.

While Baraka celebrates those developments, his goal is "to make sure that the benefits of new development and investment are shared by all of our residents," he said in the annual speech.

Though the immediate goal is to hit Baraka's benchmarks, Demelza Baer, senior counsel with the New Jersey Institute for Social Justice and a member of Newark's coalition, says the broader objective is a culture change among the city's employers that makes local hiring and procurement a permanent part of their mission.

"What we really want to see," she says, "is that an initiative like this isn’t necessary anymore."