Cities and region have been valid unit measurement of an economy between and within the people in one area that limited in geographic space. Behrens and Thisse (2007) argue that the term of ‘region’ used regarding the similarity between places, which is can logically accept by the policymaker because the development of regional economics has been expected to facilitating similarities that may lead to agglomeration and positive externalities. Assuming success level of development is measured by attracting more value into the city, then policy should be a method that may bring sustainable development and it has to be regardless the structure of the city.
Giddings, Hopwood and O’Brien (2002) argue that to achieve sustainable development; the city needs an excellent approach and coordination between three main players: people, government, and policymaker. However, as an effect of time and the industrial life-cycle pattern, the economic system will always see achievements and problems regardless player’s performance to run the economy. The problem may turn into a severe one when it transformed into a ‘snowball’ and hit the systemic part of the economy itself: the supply and the demand.
There are several ways to promote economic development in the city such as creating business and develop infrastructure, while the real questions are about how to build those and what things will most affect the city development.
Generally speaking, it has been proven that cutting tax and adding incentives may bring greater business activities both in the metropolitan and suburban area (Bartik, 2005). Supporting the result explained above, Alan and Fisher (2007) argue that those things are likely to lead to greater economic growth. The incentive may easily attract people to start something or relocate their activities in terms to gain efficiency. Less time consumption is another part of effectiveness that people may gain after cost. More business in the city may produce a larger number of production and level of productivity, which later to be followed by increasing number of job creation and capital. Solow (1957) said productivity output also could be adjusted due to changes in its ability. Ability, which connected directly to the labor skills also may go better with a larger possibility of knowledge spillover.
However, the definition of incentive itself is equal to the definition of investment from the government side because they have to ‘invest’ some parts of their cash revenue to the development parties related. When it comes to attracting big company player to make factory inside the city, the incentive will come into the proposal to beat the offer from another town. From the supply-chain management perspective, producer’s decision to build a plant depends on the less total cost they will have to spent because the goal of supply-chain is achieving a profit (Chopra and Meindl, 2010). Assuming the geographical barriers regarding the generalized transport cost calculation, then the incentive is playing a prominent role in business level attractiveness.
When government and policymaker bring stimulus to an area, the regional goal of attracting producer and consumer might achieve when those parties are open their business. However, if those parties are only relocated their business, not expanding, it may hurt the economy of another region in the country, and this will be a Pareto efficiency condition if happens in the same country. Regrettably, most the USA areas believed that they are more into the same competition between one to another rather than collaboratively supportive for attracting new investment (Alan and Fisher, 2007). With this condition, blueprints from the national government are necessary to create a good relation and agglomeration between cities for better economy and win-win solution.
Besides the effort of increasing business level attractiveness, making a direct approach is also possible to create a better quality of life without forgetting the primary goal of city development. The particular problem through this is a distressed neighborhood in the major cities. Harkness and Newman (2002) explain this social issue as a severe condition which highly correlated with unemployment, poverty, and level of dependency to public assistance for several specific operationalizations. When a condition is not attractive to live in, plausibly people will have the vast ignorance to live within that particular area. Similar to the basic theory of attracting business, people also need the incentive to be directed for a particular reason.
There are several ‘incentive’ to minimize the effect of the distressed neighborhood, which mostly needs participation from the citizen itself, such as homeownership program. Based on their research, Megbolugbe and Linneman (1993) conclude that one of the reasons of promoting homeownership is the consumption and political value of home ownership: the longer a person stay in one neighborhood may enhance the safety feeling and create association within other individuals who live on the next door. Homeownership program has many impacts on the people, including community safety, satisfaction level (Brounen, Cox and Neuteboom, 2012) and development of children educational performance (Harkness and Newman, 2002; Brounen, Cox and Neuteboom, 2012). The significant relation to education has to be taken into account of economic development success level, because, possessing children as world’s future human capital, then it shows higher chances of greater production function in the future. On the other hand, a success movement in this program may force the government to expand the supply-side before later creating a job opportunity in infrastructure, especially for blue-collar labor.
Another familiar option to boost the regional development is by supporting sports facilities for a professional team that belongs to the city. There had been major paradigm shift between sport team owners and government over the last sixty years. Around 1950s most of the owners in the USA expect little involvement from the government, while now they have to make sure the government to invest and subsidize on their facilities (Swindell and Rosentraub, 2016). The fundamental reason of government participation in this project development is to enhance the quality of the venue to grab a higher level of customer (Siegfried and Zimbalist, 2000). This supported by the Say’s Law classical economics theory “Supply creates its own demand.” Furthermore, it is also a form of job-creation which may create a similar job as an infrastructure development in the housing program.
However, Swindell and Rosentraub (2016) found this option is not efficient in term of cost per creation because the leak of benefits gained. Incremental revenue from more seats sold and another complementary business is not always retained in the city. There are some main reasons behind these findings, which relates to which community will be benefited from it. Not every citizen in the city love the particular sports, while they have to pay tax for the same calculation with the one who more often comes to the stadium. Moreover, going to the stadium seems fit as part of substitution in leisure time and cost, which most of the citizen do not have big flexibility on their budget planning for those (Siegfried and Zimbalist, 2000). Even when the city is going to held mega-events, it still also “may only a substitute one type of visitor for another to a particular location” (Siegfried and Zimbalist, 2006).
To maximize the benefit of subsidizing facilities for a professional team, the city has to cope with the other aspect besides the sports team itself, such as the power of city branding and city marketing. Siegfried and Zimbalist (2006) also argue this as an option to ‘put the city on a map,’ which later may attract more international exposure of tourism and investigation in another sector of the city. For example, if the sports team is one of the best in the league, the city may get more economic value based on scale and intensity of professional matches, valuable sponsors, until growing media industry.
A city needs to have a specific-adaptable competitive advantage to make the economy grow sustainably. Because solid investment needs many planning and cost, both money and time, the government have to secure an adequate demand over time that may guarantee revenue in the long run.
Unfortunately, those development options in homeownership program and creating sports venue will also need a strong political willingness, which might not always cope with some level of people. When the event was driven from a business value perspective, then it is plausible to assume if the government will more quickly engage with the wealthy parties. Generally speaking, that option still creates economic growth, but only achieved some ‘targeted people,’ and may strengthen the impact of inequality1. On the other words, “topbottom approach” in policy-making will bring more benefits to top-flight business.
To solve the burden of incentives and benefits in the effort of creating better economic development, policymakers should start straight from “Who,” “Why,” and “How” respectively. The “Who” stands for parties which able to give an idea about incentives, parties who able to make the incentives, and parties which going to operate, use, and gain an advantage on it. Furthermore, “Why” is to define the specific reason for every single incentives established, while “How” is explain the process creation of the policy, what variables shpuld be taken into account, and media/way to explain it to the public, because vast differences in perspective among a lot of people may create turbulence on the economy and bring undesired adverse effect to happen. Without these, the economic development may only come in number, not quality.