San José State University
Department of Economics
Thayer Watkins
Silicon Valley
& Tornado Alley

Regional Development Policies and
Programs of the U.S. Federal Government


The Federal Government in the nineteenth century had to have policies and programs to deal with the use of vast amounts of newly acquired territories such as the Louisiana Purchase, Florida, Alaska, the Southwest, and the Northwest. The U.S. government tried to bring about the economic development of these areas as rapidly as possible. To this end it gave away land to induce railroad building and settlement. It also provided protection from the indigenous people of these areas. But other than providing infrastructure the U.S. government did not take responsibility for maintaining full employment and prosperity or promoting growth in the rest of the country.

It was not until the New Deal of the Roosevelt Administration that Government consciously tried to affect economic conditions. The Public Works Administration carried out a building program not only to create infrastructure but also to provide employment nationwide. There was not at this time a policy of promoting economic development in backward regions, but such ideas were forming. The Tennessee Valley Authority (TVA) was the prime example of a project that solved major problems of a backward region. But even TVA did not get involved in programs to deal directly with the human problems of the region, such as illiteracy and lack of training.

After World War II there were some attempts at the state and federal levels to deal with the problems of depressed areas, but these faltered because of the fear that gains to one area would only be achieved at the expense of other areas. The Full Employment Act of 1946 established the principle that it was the responsibility of the Federal Government to maintain full employment. This obviously involved dealing with high unemployment areas. A key issue was equity (fairness) versus efficiency (effectiveness) in allocating the funds available. Some had greater needs than others but also some areas had a greater potential for growth than other areas.

During the recession of 1953-54 that followed the end of the Korean War, Senator Paul Douglas of Illinois, a well-known economist, promoted legislation to provide federal aid to old industrial areas. John Kennedy supported such programs in his campaign for the presidency in 1960. The outcome of this support was the creation of the Area Redevelopment Administration (ARA). The ARA legislation provided for:

About one third of the ARA funds were allocated for business loans, but there was a specific prohibition against loans to assist businesses moving from one area to another.

About one thousand counties were eligible for the $323 million allocated to ARA. This was only about $300,000 per county, an inadequate amount to achieve the goals of ARA. Decisions were made on a county-by-county basis with no consideration for intercounty economic dependence.

ARA's effectiveness was disputed and the General Accounting Office of the government accused the ARA of inflating its figures on job creation and unemployment reduction. There were also issues about federal versus state jurisdiction, planning versus market processes, and "place prosperity" versus "people prosperity."

During the 1960's under Lyndon Johnson's Great Society Era the need for governmental programs for depressed areas became generally accepted. There was an activist orientation of the country at that time. In 1965 the Economic Development Administration (EDA) and the Appalachian Regional Commission (ARC) were established.

EDA replaced ARA, but used some of the same methods. Some of the goals of EDA were:

Although there were similarities of EDA to ARA, EDA operated with a more comprehensive notion of planning areas (multicounty Economic Development Districts) and promoted greater local participation. Economic Development Districts (EDD's) included counties with healthy economies as well as those with depressed economies. Congress stipulated that there must be one redevelopment area per state.

An area requesting assistance under EDA was required to have an Overall Economic Development Plan (OEDP). EDA saw economic planning as a necessary ingredient to economic development. EDA tended to promote standardized approaches to economic problems, but the problems of different regions often required different policies. Benjamin Chinitz, a regional economist, identified seven different types of distressed areas:

EDA found that the greatest improvement was found in counties that just barely met the qualifying criteria for aid. Such improvement was obviously due to national economic growth and not due to EDA's programs. As a consequence of this observation EDA in 1967 formulated a policy of "worst first;" i.e. granting priority for aid to the cases of worst economic condition. Unfortunately the worst-case areas usually had very little potential for economic development.

There had by the late 1960's emerged a consensus of a need for geographically balanced growth. Between 1945 and 1960 all of the net gain in employment took place in the large urban centers. The gains in jobs in smaller cities were completely offset by losses in agriculture and mineral extraction in the rural areas. Many areas were experiencing population loss.

The urban riots of the late 1960's made people question how many more people the cities could absorb. Also surveys showed that many of the people living in large cities would prefer to live in smaller cities if jobs were available. The party platforms of both the Republican and Democratic Parties callled for programs to promote economic growth in rural areas. Even Richard Nixon called for a national regional growth policy.

The "worst first" policy of EDA had proved to be a failure and EDA began to give more attention to "growth centers." Each EDD was required to have a growth center. The growth center was to be the vehicle for pulling the depressed economies out of their economic quagmires.

The Appalachian Regional Commission

For centuries Appalachia consisted of isolated communities living by subsistence agriculture. When the market began to buy the timber and coal resources problems developed. Usually the market itself provides incentives for preserving the quality of land. Someone using land for agriculture has to consider the effects of the farming on the resale value of the land. This discourages severe misuse of land. But in the case of Appalachia the land had very little value for agriculture. This meant that once land was used for strip mining of coal it was not economical to return the land to its previous condition because the price of such land was so low. Companies bought land and harvested the timber or strip mined the coal and left it devastated. When this effect was combined with economic depression and high unemployment it gave the region a blighted character that seemingly only the Federal Government could remedy.

The program that resulted from the passage of the Appalachian Regional Development Act of 1965 was relatively cautious. Of the $1.1 billion authorized by Congress $800 million was spent on highways. The Appalachian Regional Commission did promote programs for health and training programs which enable the people of the region to compete for jobs "wherever they might choose to live." The legislation provided for the investment in the areas of greatest potential growth. This growth center strategy was, in part, founded upon the theories of regional economics such as Walter Christaller's central place theory and Francois Perroux's growth pole theory.

Title V Regional Economic Development Commissions

The legislation that created the EDA in 1965 authorized the creation of multistate regional commissions like the ARC. Eight such regional commissions were created that included most of the U.S. The amount of funding for these eight amounted to only $100 million compared with $1.3 billion for the Appalachian program. The relatively low funding led to low political interest and this precluded higher funding.

The Decline of Regional Economic Development Policy

Although Richard Nixon supported some regional policy, he opposed the Appalachian program. Congresss renewed ARC despite presidential opposition. The rate of population growth declined in this period and removed the justification of regional policy to create jobs in rural areas to relieve the migration pressions on the urban areas. The decline in economic growth in the 1970's made it hard to justify special programs to stimulate economic growth in particular regions. EDA had been renewed in 1971 prior to Nixon's election. The new legislation in 1971 provided for a Public Works Impact Program. A Jobs Opportunity Program with $500 million was added in 1974. In 1976 a Local Public Works program with $2 billion was added, and this was increased by $4 billion in 1977. In 1981 Ronald Reagan called for the phasing out of EDA on the grounds that it did not create "real" jobs and was insufficient for the problem. There was a growth of jobs in the Appalchian Region in the 1970's of 1.5 million but perhaps this was more due to changes in the national economy than the programs of the ARC. The net outmigration ceased and turned to a net inmigration of 1.1 million in the 1970's. Much of this was due to the rise in energy prices in athe 1970's which fueled a boom in the coal industry. The glut of petroleum in the 1980's led to a loss of jobs. There were some benefits of the billions spent for regional development policies but the creation of economic development generally was not one of them. Somethings were learned about which things are effective and which are not. Although ARC spent most of its approximately $6 billion on highways it did promote programs to improve the health, eduction and training of the residents of Appalachia to enable them to compete more effectively in the job market "wherever they chose to live." Jane Jacobs succinctly expressed the nature of the problem in her book Cities and the Wealth of Nation:

"Development cannot be given. It has to be done. It is a process, not a collection of capital goods."

The Tennessee Valley Authority (TVA)

The Tennessee River is the fourth largest river in the United States in terms of the volume of water flowing. It is 650 miles in length and its basin covers an area of 41,000 square miles. A large part of Tennessee is within its basin, as are small parts of Kentucky, Alabama, Georgia, Virginia, North Carolina, and Mississippi. Before TVA the Tennessee Valley was plagued with flooding and consequently there was severe problems of soil erosion and poverty.

In 1933 Congress created the Tennessee Valley Authority, a public corporation, "to improve the navigability and to provide for the flood control of the Tennessee River; to provide for reforestation and the proper use of marginal lands in the Ten nessee Valley; to provide for the agricultural and industrial development of said valley; to provide for the national defense by the creation of a corporation for the operation of Government properties at and near Muscle Shoals in the State of Alabama." Muscle Shoals was site on the Tennessee River where the Federal Government built a hydroelectric facility for producing nitrates during World War I. The nitrate production was used for producing explosives during the war, but could be used to make fertilizer during the peacetime. After the war some wanted to sell off the Muscle Shoals operation, whereas others wanted to use it for fertilizer production. There was strong support for a fertilizer plant among Democrats, particularly in the South. Senator George Norris of Nebraska was a strong advocate of this plan. Congress passed legislation to create such a plant at Muscle Shoals but the Republican presidents of the 1920's kept vetoing the measures. Nevertheless Norris and others kept pushing for the public development and operation of fertilizer production at Muscle Shoals. After his election in 1932 Franklin Roosevelt said, "It is clear that the Muscle Shoals development is but a small part of the potential public usefulness of of the entire Tennessee River...Such use, if envisioned in its entirety, transcends mere power development; it enters the wide fields of flood control, soil erosion, afforestation, elimination from agricultural use of marginal lands, and distribution and diversification of industry. In short, this power development of war days leads logically to national planning for a complete river watershed involving many States and the future lives and welfare of millions." In contrast to Norris, Roosevelt envisioned TVA as a national agency for regional planning. For Norris, TVA was to be merely an instrument for public ownership. In the early days of TVA there were substantial conflicts over what its exact nature was to be. A close advisor of Roosevelt, Rexford Tugwell, wrote in 1935 that TVA, if it succeeded might, "furnish a new pattern for civilization."

The Delaware River Basin Commission

In the 1950's New York City needed additional sources of water and began looking toward the development of the Delaware River within New York. Downstream on the Delaware River, Philadelphia and other cities wholly depended upon it for their water. These communities understandably became concerned that New York City might deplete their water supply. The State of Pennsylvania sued the State of New York over the issue and the Supreme Court decreed an allocation of the water of the Delaware River and appointed a river master to settle disputes. Neither New York nor Pennsylvania nor New Jersey and Delaware were satisfied with this arrangement so they formed the Delaware River Basin Commission to develop the river and settle their disputes. The Federal Government joined the group in 1961 making the Delaware River Basin Commission a unique Federal-State endeavor. Multistate compacts for allocating water had existed before and wholly Federal operations such as TVA had also existed, but this was the first time there was Federal and interstate cooperation on a river basin. The Delaware River is not large, but it is important because more than 20 million people depend upon it for drinking water. New York City alone uses 700 million gallons of Delaware River water each day.

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