Publicly supported economic development programs, investments, and subsidies should be evaluated on their long-term benefits and impacts on the whole community, not on short-term job or revenue increases. Public investments and subsidies should be equitable and targeted, support environmental and social goals, and prioritize infrastructure and supportive services that promote the vitality of all local enterprises, instead of individual firms.
AHWAHNEE PRINCIPLES FOR ECONOMIC DEVELOPMENT
A Look Back
By Edward Burghard
The practice of economic development is undergoing a significant change. The profession started in the mid-1920’s to support the need of the railroad and utility industries to expand their customer base. The American Industrial Development Council was established in 1930, and in 1968 New York City hired a professional to manage its economic development functions. The focus was on job attraction, retention and expansion. It was a time of post World War II economic expansion, beginning in 1945 and lasting until the early 1970’s.
With the shift from an industrial economy to a growing service economy, the practice of economic development increased in both scope and complexity. The focus broadened to include more of the community business climate (e.g. workforce preparedness, talent development, entrepreneurship, FDI, brown field development, infrastructure development, etc.).
And, then the financial crisis of 2007-2008 hit. A harsh spotlight was shone on the global interconnectivity of business and fundamentally changed the landscape for the successful practice of economic development. Communities experienced the impact of multi-national companies rationalizing their business operations on a global scale resulting in closures and layoffs to improve overall financial performance. It also fueled an increase in entrepreneurial activity. Data published by the US Census Bureau looking at the time period of 1990 to 2003 show 79.5% of net new jobs were created by small firms (less than 20 employees) compared to 7.3% by large firms (500 or more employees).
A Look Forward
I believe it is again time to reevaluate the role of economic development, and to align its mission with the reality of the global economic development landscape communities compete in.
Coming from the private sector, I have always found the profession’s focus on job attraction somewhat baffling. Denny Coleman, President and CEO of the St. Louis Economic Development Partnership, stated in an interview – “We found that 80 percent to 90 percent or more of our sustained job growth is brought about by our existing employers adding new jobs over time. So, working with those companies, having call programs established to know our base of our economy—the companies that we already have—knowing their needs, whether those needs are for expansion, workforce, for infrastructure improvements near their particular business. It’s our job to understand what those needs are and see that they are met, because it is so much easier to keep a great company that we have and let it expand in place than it is to try to attract a new company that basically has put itself up on wheels and can move anywhere in the country.”
Denny’s observation suggests clearly job retention and expansion within firms already doing business in a community offers a better ROI opportunity than job attraction.
Yet, most community EDOs ignore these data and do not invest disproportionately in meeting the needs of current employers. In a large part, this is because retention and expansion results do not provide the political capital (media coverage and optical perception of success) that a good old-fashioned ribbon cutting ceremony does. And, because better meeting the needs of existing companies is fairly ubiquitous making it a real challenge to demonstrate the value of the economic development profession. Which, in turn, makes it a challenge to secure operational funding.
As I talk across the country, I advocate the profession consider two changes that will better align its mission with the reality of the global economic development landscape communities compete in.
- Assume accountability for facilitating the community strategic plan design and deployment process. This puts the EDO as the center of every important decision made by community leaders that can impact global competitiveness for top talent and capital investment. To be clear, this does not mean the EDO unilaterally authors a strategic plan. Community leaders still need to play that role. But, it does mean that the EDO is accountable for ensuring a robust process is followed for both the authoring and execution of the plan. This role puts the EDO in a unique position as connector and convener of all organizations in the community with a role that impacts the success of economic development.
- Shift the focus from year-over-year job growth to better enabling residents to achieve their American Dream. Focusing on resident as boss ensures strategic choices produce sustainable results and are in the best interests of residents. In my talk, I demonstrate that focusing on jobs directly impacts the lives of roughly 3% – 8% of a typical community’s residents (research suggests only 40% of unemployed are employable to highly employable, 60% need retraining, multiply your unemployment rate by 40% to estimate the percent of residents who will be directly impacted by job attraction). Focusing on better enabling residents to achieve their American Dream impacts 100%. The Xavier University American Dream Composite Index powered by dunnhumby research provides a quantitative way to understand current performance and measure progress. My blog post entitled “Time to Change the Dialogue” provides more detail on how to use the data for strategic decision making in economic development.
If the economic development profession adopts the two changes suggested above, it will be in a better position to both demonstrate value to funders and meet the needs of current/future employers. Funders want to invest in Organizations that are key to the development and execution of strategic plans that can be demonstrated (via dashboard performance measures) to make it easier for them to be successful. And, focusing on better enabling residents to achieve their American Dream helps address the single biggest challenge most employers are facing – gaining access to and retaining top talent. Communities that do a better job enabling achievement of the American Dream will a) retain a higher percent of current residents (stable and reliable labor force), and b) reduce the barriers to attracting top talent which will dramatically help employers recruiting activities.
Simple Formula For Success
Step #1 – Facilitate community strategic plan design/deployment.
Step #2 – Adopt the paradigm of “resident is boss”.
Do the above and your community will be well positioned to not only compete, but thrive in the new globally competitive economy.
If you are in the private sector, encourage your local economic development organization to adopt the two recommended steps. With enough encouragement, the change can happen.
If you are an economic development professional, envision what it would be like to wake up and go to work every day knowing that you are focused on improving the lives of 100% of the residents in your community. And then encourage your management and/or Board of Directors to take the two recommended steps.