Public policy makers should give up using tax incentives to re-create the past in communities that exploding land prices and high-tech entrepreneurs left behind.

Gary, Ind., is a prime example of what not to do to bring economic development, and what might be done instead.

Gary’s population went from 175,000 in 1970 to, at best, 77,000 now. At least a fifth of homes in the city and half of the commercial properties are vacant.

Trying to re-create the economic conditions that built it in the first place, impoverished Gary is providing tax breaks to the inefficient, non-competitive U.S. Steel Corp., trying to hold onto the kind of employment workers there have always known.

The real opportunities for Gary and cities like it are in its contraction, not its growth. With creative definitions of infrastructure spending, public money could help people leave behind the isolated house in vacant suburbs or the one or two inhabited homes in a desolated city block. They could be helped to fill in vacancies, especially near commercial property.

Economic recruiters could be hired by the city to identify entrepreneurs with skills needed by employers willing and able to support distribution networks and remote production spaces. Fledgling businesses could be supported in reaching distant markets, rather than hoping they will somehow find their own ways.

What if people in Gary who know how to sew were gathered into a small company supplying custom tailoring to outlets in Chicago? Solutions like that require business acumen, branding, marketing and distribution, not expensive tax breaks.

Instead of trying to entice steel mills that have already moved overseas to move back, tax dollars should be spent cleaning up the waterfront that the steel mills once occupied. Waterfront properties and beachfront recreation spaces with lake views would command premium prices paid by those making money in nearby dense, urban Chicago.

Instead of making steel, residents would be harvesting second-home-owner credit cards. Smaller but economically viable Gary could become the kind of livable small city that populates so much of American nostalgia. Instead, public officials are penalizing Gary’s remaining residents to try to stave off what may be an irreversible decline.

Communities do not have to be New York City or Silicon Valley to thrive. They simply have to be places where residents can find ways to earn a decent living and enjoy a stable life.

Tax incentives have not proven to be able to do that. More creative spending of tax dollars might.

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