Issues and Analyses: Are Amenities Frivolous Or Essential For Successful Economic Development?

Policy is easy when everyone wins, but politics enters when there are trade-offs. The latest economic analysis suggests that even while raising the cost to some businesses and real-estate interests, zoning and other regulatory policies that directly improve the quality of life of residents produce such large benefits that they outweigh the costs and improve the net benefits to the community and businesses as well.

This conclusion might surprise some in the Amherst government who have argued that we need to reduce business regulations to create a more “business friendly” environment.  One former Amherst Council member complained that while affluent residents might favor attractive buildings, regulating the appearance of new construction discourages businesses and raises residential tax bills. In this view, we cannot have prosperous businesses and an attractive town because we need to let businesses build what they want.

This view is flatly contradicted by a recent study (“Improving the Quality of Life — Not Just Business — Is the Best Path to Midwestern Rejuvenation”) out of the Brookings Institution that finds that the most effective economic development strategy emphasizes improving the quality of life, rather than favoring business development.  This study explores policy and growth in 542 small and midsize (“micropolitan”) communities throughout the American Midwest and concludes that these communities “receive more robust returns by focusing on improving the quality of life in their towns rather than narrowly focusing on improving quality of the business environment, which has been the dominant refrain of economic development specialists for several decades.” 

Rather than cutting business taxes and easing regulations, towns and cities will experience faster economic growth if they invest in quality of life amenities, including artistic and cultural facilities, conservation lands, and public schools, because such amenities attract the residents and commercial traffic that make for successful economies.

How to explain this seemingly paradoxical finding, contradicting popular ideas? 

The answer may be in the nature of economic growth in a modern affluent society. As we have argued elsewhere, towns like Amherst do not prosper by competing to do what other places do. There is no benefit in trying to lure national chain stores or mass-production.  Instead, their prosperity comes from finding and developing niches, creative businesses created by those attracted to interesting locales filled by residents and businesses who, like them, are drawn to towns with interesting architecture, good schools, and outdoor amenities. Here is the route to our prosperity: fostering creative work and attracting creative residents.

By contrast, concerns about high rents and business regulations are misguided.  Aren’t the most successful economies in places (such as Hollywood, Greenwich Village, Silicon Valley) with the highest rents and strictest regulations? Instead of worrying about the cost of doing business in Amherst, we should focus on ways to help entrepreneurs develop new businesses able to cover these costs by focusing on keeping Amherst as an attractive location for artists, entrepreneurs, and shoppers.  As the Brookings study suggests, let us focus on ways that we can make our town even more beautiful, more interesting, more exciting.  Let’s build on what is already a valuable brand.

We are already fortunate with a distinctive character and attractive amenities: Amethyst Brook, the Emily Dickinson Museum, the sunset view from Iduna Drive. We already have character that attracts residents and entrepreneurs. But these advantages always need to be reinforced. Our outdoor recreation depends on conservation lands and hiking trails that need constant maintenance; our museums need parking and transit access; and our distinctive New England downtown can easily be destroyed with ugly and unregulated commercial construction. Economic policy should focus on how we can maintain and even foster an atmosphere that will build a vibrant local economy. 

The Brookings study finds that quality of life initiatives, investing in local amenities and local schools, is associated with faster economic growth with narrower income differentials. This is because not everyone “wins” when we make our town more attractive by regulating business — and restricting the actions of real-estate interests. 

Here we return to the political problem. The community gains from business regulation, but some special interests lose. In Amherst, we have a choice: invest in ourselves or give our town over to financial interests in the hope that they will pass a little along to the rest of us. Our town, our choice.

Gerald Friedman is Professor of Economics at the University of Massachusetts. He graduated from Columbia College in 1977 and earned a Ph.D. in economics from Harvard University in 1986. His most recent book, The Case for Medicare for All, appeared in March 2020 with Polity Press. Follow him on twitter at @gfriedma.