Regional Economic Development

Attracting and Retaining capital

Capitalism is motivated by the demand for ever higher returns to the owners of capital, and those returns are generally sought through increasing the technical and social division of labor—across larger scales—by establishing divisions among social groups (e.g., women, minorities, immigrants), so that ever newer groups can be exploited as they are given elements of production, to move some operations to places where labor is cheaper, or by taking over (or making [Page 2381]more use of) other firms or other sectors. Capitalist accumulation requires some displacement of costs outside what we might call the formal accounting system: to geographic spaces outside the system (e.g., other countries), to members of the family (generally women and children) as unpaid labor, to parts of the natural world that have not been valorized (e.g., the creation of value from little-known species or from human genes), to particular social groups, or to future generations.

Under the neoliberalism that has taken hold over much of the world, regions attract capital based on the following:

• 1.
  New frontiers for exploitation are present—unlimited land, labor, or resources and the government subsidy of capital investment and corporate operations. For example, the rapid growth of investment in many Chinese cities, which have become the center for the world's consumer goods manufacturing, is motivated in part by the influx of workers from inland, rural areas, and the returns are earned in part from externalizing the costs onto the physical environment at a dizzying rate.
• 2.
  The premium paid for local availability of scarce resources, such as extracted natural resources, an excellent harbor, or highly specialized labor, reduces the mobility of capital to be invested to gain a return from those resources.
• 3.
  More subtly, capital investment is attracted toward the regular creation of new ideas and ways of operating that are unique to the local region. This local knowledge creates new (and therefore monopolized) products or that which uniquely increases the returns to operating in that region.

One can name other sources of capital attraction. Some, such as the investment in booming retirement communities in warm, coastal areas of the United States, can be traced to (1) above: available land, attractive climate, and government subsidy in the form of low taxes and limited public support for infrastructure such as schools. Rapidly growing regions can then benefit from a deepening division of labor, through which specialized services are established to increase the profitability of capital investment in enterprises that can avail themselves of these services. Finally, in some contexts, capital is invested by government fiat. In the United States, military bases exemplify this limited government deployment of capital resources.

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