I Worry About The Image of The Economic Development Profession

Ed BurghardYour true character is revealed by the clarity of your convictions, the choices you make, and the promises you keep. Hold strongly to your principles and refuse to follow the currents of convenience. What you say and do defines who you are. And who you are, you are forever.

Source: Successories

There Has Got To Be A Better Way

I have been talking with a number of economic development professionals across the country, so I know I am not alone in my concern. Two issues that have real potential to damage the image of the economic development profession – 1) Incentive packages are getting larger and 2) company attraction tactics are getting more aggressive.

The deal between Tesla and Nevada is a recent example of the magnitude incentive packages are reaching to close deals. The public sector is investing $1.2 billion to bring an estimated 6,500 jobs to Storey County (population 3,935 in 2012). The Reno Gazette-Journal published a good article detailing the specifics of the deal. As thorough as the article is, it fails to talk about the additional investments taxpayers in Storey County and the state will need to make to accommodate the facility and the increased population associated with it. The lives of current residents will be forever changed in the name of economic progress. So what is the true public cost of this deal? And what if Tesla ends up being a business failure? After all, it is not like established auto manufacturers aren’t entering the market (e.g. BMW i3). Is this ultimately a good deal? I don’t have the answer, but the residents of Storey County better hope it is and better hope Tesla is successful. And, as a profession we need to hope Tesla is successful otherwise we will collectively look like trading cash for magic beans is good economic development. At a minimum, economic development leaders in Storey County will need a disaster plan to handle the downside risk of a Tesla market failure.

On the second point, the tactics being used in Texas to “poach” companies from other states is concerning. I appreciate Texas has a historical appreciation for rustling. But, in Texas rustling used to be a crime and rustlers were hung from the nearest high tree branch for perpetrating it. Now the state is getting predatory in its company attraction efforts denigrating other states in the process. I don’t have any personal problem with aggressive competition, but I do have a concern when it involves bad mouthing the competition in order to make your state business climate appear better than it may actually be. I worry about the ethics of that approach and the potential negative impact it can have on the economic development profession. Getting ahead by bad mouthing the competition doesn’t sit well with my personal principles. Nor, do I believe should it with our collective professional principles.

In a prior blog post “Are Deal Incentives Killing The Economic Development Profession?”, I attempt to shine a light on how the above practices may be having a negative impact on the economic development profession image. I am genuinely concerned that if www continue on the current path the profession will pay a price. I believe it will be increasingly hard to encourage the best and brightest to enter and/or stay in economic development. Given the importance of the profession to our national economic prosperity, this should be a topic of interest to everybody involved.

I don’t profess to have answers.

But I am trying to highlight some of the right questions. It is a debate I encourage you to enter and share your thinking/experience. To be clear, in no way am I trying to make the case that incentives or aggressive competition will (or should) go away. I am suggesting though that there is an accountability to better enabling our residents to achieve their American Dream that needs to be considered in deal making and a set of ethics that should guide competition practice.

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11 Comments so far

  1. Linda DiMario

    November 21, 2014

    Hallelujah!! Finally, a sane, seasoned professional is willing to put these questions out there and challenge everyone to reflect a little. For years, even when I lived in Texas, I have been watching the poaching, followed by claims about thousands of new jobs. When in fact, the tax payers are picking up the tab for what the companies won’t be investing in their environment and the new jobs are largely relocated jobs that already existed.

    And the Tesla deal was almost tragic in its scope. It is akin to chasing the next shiny object rather than invest in cultivating and influencing a sustainable eco-system. It is easier to just throw money against the problem and say the job is done.

    But you and I both know that every time Texas lands a relocating company, the beer glasses are clinking! And in Nevada, the slot machines are flashing. These are sexy, big wins with apparently little, if any, long-term strategic planning for its implications. My guess is that the politics of these tactics are driven by ” I’ll be long gone” rather than legacy.

    We all know that the real work of economic development is hard work. Building a sustainable eco-system is hard work. But when you are engaged in THAT work it is very satisfying and easily justified to a great variety of constituencies. And it has long germ outcomes which we can be proud of.

    Here’s the good news: from my seat in California, I will tell you thousands of start-ups, small business owners and companies are staying here, expanding and growing. Texas will continue doing what they are doing until thy can’t or the citizens decide to invest in their people rather than company P & L’s. Don’t see that happening anytime soon, so buckle up and just stay in close touch with your industry clusters and chief drivers of your economy.

    Because at the end of the day, regardless of what the “recorded” site selector mantra is, company owners choose to site their companies where they are comfortable, where their talent is located and where the logistics make sense. Those cities, states who invest for the long haul and consider the impacts of their decisions will survive the bursts of bravado and the big headlines.

  2. Rollie Cole

    November 21, 2014

    I work with smaller communities, where both the willingness and ability to pay “huge incentives” are missing. The communities, and I, also feel that anything they could do would not be enough — only state incentives would be big enough to make a difference.
    But that does NOT mean they must give up on economic development. We work with them on all sorts of activities that seek to create a “fertile ground” for home-grown firms and outsiders to thrive.
    So I suspect the “profession” of economic development to develop at least two tracks — one, among middle and bigger communities, that continues to use “incentives” as a primary tool; two, among some of those communities, but primarily among smaller communities, a track that assumes incentives are “off the table,” and proceeds to develop and implement other activities to help create “fertile ground.”
    Rollie Cole, PhD, JD
    Founder, Fertile Ground for Startups, Small Firms, and Nonprofits
    “Think Small to Grow Big”
    Author of WHOLESALE ECONOMIC DEVELOPMENT http://preview.tinyurl.com/wholesaleeconomics

  3. Chad Leggett

    November 23, 2014

    Beginning to employ “real” economic strategies to assist companies and citizens alike in ways that are important for companies to compete instead of giving away tax revenue would mitigate this concern.

    Economics in practice is a zero sum game. Robbing Peter to pay Paul is truly what this concept is.In the end it benefits companies to be located in strong communities. Those potential tax dollars being given away to create incentive today will ultimately weaken the very community the new company is a part of. After all those dollars would go along way towards creating and maintaining a first class school system that the company needs to compete in the future. After all we always here “the people” are our greatest asset. Isn’t about time we start acting like it?

    People often take the path of least resistance which is rarely the right path. Often times these roles are filled by political agenda, given to a friend of a friend, “the who you know”.

    Until it is the norm to fill Economic development postilions with people with a deeper academic understanding of Economics this cycle will continue. Do we not owe it to our communities to have Economic development folks with an Economic background?

  4. Edward

    November 24, 2014

    Chad – Excellent perspective!

  5. Fred D. Burkhardt

    November 25, 2014

    Ed, what you are describing has always been the case. Yes, it may be more aggressive now, but the bottom line is that companies will go to where there is the best deal.
    So is the aggressiveness and liberal use of incentives a selfish condition or is it driven by both the market and corporate/site selector driven strategies to gain the greatest return on their investment?
    After years of working on both sides of the desk, I am reluctant to fault companies for taking the best deal in what constitutes a bidding war.
    Business attraction is an expensive, complex game. Its not just the incentives, but also the cost of establishing and maintaining infrastructure, a well trained workforce, educational system, access to multiplatform logistic platforms, state/local tax structures, cost of utilities and doing business. I am sure I have missed many other factors and we have not gotten to the cost of establishing a recognized brand and marketing, media and advertising costs.
    Is there a simple, easily implemented answer? No. The market will shake out the garbage and companies will locate in communities where the essential aspects of their needs will be met. The incentives will tilt the playing field, but regardless of the incentives, a firm will not establish a presence where the workforce will not be present or they cannot they cannot get their raw material in and finished products out to market.
    Having waxed on with a personal point of view, the bottom line is that communities are just who they are. Despite high profile cases like Tesla, trying to be something else by throwing money at the problem has not worked and won’t work in the future.
    The vast majority of business retention and attraction strategies remain knowing who you are, what you have, making pragmatic decisions about how/where to market and having the political will to stay the course.

  6. Harland

    November 26, 2014

    Thanks! This is a timely and very important discussion. The problem is way too common now. Unless incentives are shared with the small, stable business communities the “big deals” are not sustainable.

  7. Edward

    November 26, 2014

    The problem isn’t in offering incentives, the problem is not fully assessing the ROI of the deal. Important costs are often not considered in the calculation and future tax revenue is not risk adjusted. Some economic development professionals argue estimating the actual cost of a deal is too complex so only evident direct costs are included. Unfortunately, this argument falls short when you stop to consider the private sector does a good job estimating and including indirect costs of very complex business transactions in ROI calculations. It is a skill the public sector needs to work on.

  8. Nathan Mick

    November 30, 2014

    FYI: interesting story on the Tesla deal: http://fortune.com/inside-elon-musks-billion-dollar-gigafactory/

  9. Jim Claybaugh

    December 31, 2014

    A great piece, and great comments. While there are a growing number of alternative strategies in Economic Development – Chris Gibbons and the Economic Gardening effort come first to mind – the reality is attraction an incentives are the key tools utilized, and in my view that is unfortunate and the reverse of what we as professionals should be advocating.

    The driver of this trend, from my perspective, is the reality that the field of Economic Development is driven by politics and politicians, not economists and community development experts. The big deals with the big incentives get the big headlines, which feed the careers of the elected officials who want to be in the pictures of the ground-breakings and ribbon-cuttings.

    I have made the case, quietly and on the side, to colleagues that we need to travel a new path, and to some degree I have been successful advocating that view in my current position, but I still am pushed on attracting new businesses by many.

    The viewpoint I advocate takes almost the opposite stance, stop trying to do the big deal, and focus on all the little businesses in the area. Focus on business climate and develop the site selection factors that Area Development Magazine and Business Xpansion Journal discuss. Build on those, and it helps existing businesses while making the area attractive to new companies, while also helping generate new firm creation.

    Conduct thorough business retention interviews with the businesses with 10 or fewer employees – in my region that size of company comprises almost 90% of the total number of firms. The answers to those questions identify the key business climate issues to address – both the barriers to mitigate and the drivers to enhance. I call it a Barrier-Driver Analysis, my version of the SWOT.

    It’s not sexy, and it’s not newsworthy. But all the data available shows that it is what works the best, and is the most cost-efficient. Imagine the headline: “City Program Helps Local Businesses Add Jobs.” Then compare it to: “Google, Facebook Coming to Rural Iowa.” We know which gets more column inches and bigger font size.

    It doesn’t have to be a zero-sum game. My study of Economics shows me that there is unlimited wealth and growth potential in our economy if we make the right investments. First, though, we need to find a way to take the politics out of, and put the economics back into, Economic Development.

  10. Edward

    December 31, 2014

    Jim – I believe your perspective is the right one. I think the way to get there from here is for the profession to establish its mission as better enabling residents to achieve their American Dream. The activities you describe are tactics we’d employ to fulfill that mission. But, we should also take on accountability for facilitating our community’s strategic plan design and deployment process. That way we can help coordinate other organization activities (eg community development, talent development) to focus on the same mission. The big paradigm shift is acknowledging residents as our true “boss” and local business success as a means to an end. Happy New Year!

  11. Dick Heupel

    July 13, 2015

    Hard times apparently call for hard measures.

    The business of business attraction is becoming increasingly more difficult: not because of excessive incentives alone: due much more to the changing economic landscape.

    In 1969, 23% of the U.S. workforce was employed in manufacturing. Today, it’s 7% and declining (BEA data). It’s not due to offshoring, it’s due mostly to technology. We have seen this trend before: one hundred years ago, 40% of the workforce was engaged in direct agricultural production. Today, it’s 4%. There is simply no reason to believe manufacturing won’t follow the same employment and output paths.

    While manufacturing employment continues its 70-year decline, output continues to reach new highs nearly every year, slowed only occasionally by recessions. (U.S. Federal Reserve data).

    So yes, it’s getting harder to recruit manufacturers. Much harder. And that trend is very likely to continue for the foreseeable future.
    Even the U.S. Chamber of Commerce’s 1984 study “What 100 manufacturing jobs means to a community” is nowhere to be found on their website today. Rightly so.

    Today, ALL NET JOB GROWTH IS IN SERVICES. Manufacturing continues to produce higher quality products with fewer and fewer people.

    I had some fun with an Op-Ed last year comparing 1984 economic development with 2014 using a “Back to the Future” theme: bit.ly/1Ep1lWX . In spite of the economic trend data, the approaches of the past are just much more comfortable.

    Unless, of course, you’re Biff Tannen.

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