This article is from the archive of our partner National Journal

In the 1980s, the city of Denver, Colorado, was hardly a model for any type of economic development.

After the oil bust, the vacancy rate in Denver's downtown soared, with the city auctioning off office space for mere cents per foot, remembers Tom Clark, chief executive officer of the Metro Denver Economic Development Corporation. Residents cordoned themselves off in the nearby suburbs. And the state budget was in such dire circumstances that the government stopped funding prominent cultural institutions like the Denver Art Museum and Denver Botanic Gardens, write Bruce Katz and Jennifer Bradley in their book, The Metropolitan Revolution.

It's hard to square this portrait of Denver with the city today, which consistently ranks high on lists of the best places to live and work in the country. How did Denver go from an ailing city to a vibrant regional economy, connected by robust public transportation, thriving cultural institutions, and shared economic values? The city and its surrounding suburbs had to decide that working together was preferable to struggling separately. After some initial finger-pointing, localities joined forces in the mid-1980s to transform the Denver metropolitan area from a resource-based economy that was concentrated on oil to a vibrant, diverse one. The resulting collaboration has tackled everything from air quality to building a new train system. "It's a culture issue. It's the way they do business there," says Bradley, director of the Center for Urban Innovation at the Aspen Institute.

Denver's turnaround began with a regional agreement, signed in January 1987, which laid out the region's shared economic principles. The mayors of Denver and surrounding areas still gather once a month to meet on economic plans. And, even though the original regional agreement remains voluntary, people stick to the core ideas. "It's an approach to regionalism that's about creating a culture instead of a legal structure," Clark adds. "People want to behave at the highest level of ethics, provided the guy next door does, too."

The success of Denver shows the value of cities, suburbs, and rural areas banding together to tackle economic development. Yet despite the benefits of this model, regional collaboration remains rare. Far more common is the example of cities and towns vying to undercut one another for the next big economic project—be it through tax breaks, government subsidies, or changes to zoning regulations. "It really is still so hard for people to look beyond the one big deal in the pipeline," Bradley says. (Case in point: Kansas and Missouri are famous for their "economic border war," where the two states fight over companies headquartered in the Kansas City area.)

Landing that one big deal, after all, is what has consumed local economic-development officials for decades. Every city, suburb, and town wants to tout a major corporate headquarters or new stadium or plant to employ hundreds of residents. Increasingly, this line of thinking appears outdated. "People are moving from, 'Let's build an industrial park and hope that somebody locates here' to 'What are our true competitive advantages and assets and how do we leverage them?'" says Matthew Chase, executive director of the National Association of Counties.

In this increasingly global economy, cities, suburbs, and towns have to worry not just about competition from an adjacent city or state, but the competition from other countries with lower wages. That's why a handful of places, like Denver, have realized the benefits of regional work. "It's best to look at what makes sense to make the economy of the metropolitan region function effectively," says Christopher Jones, vice president for research at the Regional Plan Association, an independent urban-research and advocacy group focused on the New York, New Jersey, and Connecticut metro area. "If you're not doing that, you're just moving pieces across the table—they could just as easily move back in the other direction instead of creating lasting value and productivity."

That's why regions from Denver to New York City and its surrounding suburbs to even rural communities in Iowa, Nebraska, and Kentucky are working together. Instead of just offering up the best or highest tax breaks, these locals governments, planning officials, private-sector business people, and real-estate developers are trying to think through what makes each region unique and authentic. Then, they build up the local economy around those attributes.

In New York, that may mean working to bring more tech companies and engineering firepower to the city, which, in turn, will help the surrounding areas by creating jobs. In a county of 100,000 residents in Iowa, it means banding together with neighboring rural areas to bolster local agriculture. "People are going to push for regional approaches because the economy is regional," says Amy Liu, co-director of the Brookings Metropolitan Policy Program. "Even if you are a mayor in an urban core, your residents still need to find good-paying jobs wherever they are." That means traveling from one's home to an adjacent suburb, town, or county for work.

Part of the change, of course, has come about because many cities boast much brighter economic fortunes than they did throughout the 1970s and 1980s. New York, San Francisco, and Washington, D.C., now offer their own infrastructure, cultural attractions, jobs, and nightlife, while suburbs across the country have started to encounter their own share of traditionally urban problems, like poverty and vacant storefronts. "Cities started to come back, while the suburbs are a mixed bag," Bradley says. "Cities stopped looking like dead weight."

Cities may not be as bad off as they once were, yet the collaboration between the cities and suburbs remains one of the most challenging impediments to regional economic development. Just look at the tension in Ferguson, Missouri, which suffers from poor economic fortunes and racial discrimination, while other areas of St. Louis prosper. "The city versus the suburbs is a difficult barrier to overcome," Jones says.

This article is from the archive of our partner National Journal and part of our Next Economy coverage.