The Future of Economic Development
Traditional economic development was about chasing smokestacks and pipe dreams. Government officials, economic development corporations and chambers of commerce believed that the best way to build prosperity was to attract businesses from other regions to their community, often using economic incentives.
The Basics of Incentives
Typically, incentives take money from a government entity, and either spend the money on improvements that will help an incoming company, or give the money directly to a particular company in return for job creation and investment in the community.
Incentives can take many forms. Sometimes the community builds infrastructure that makes it easier for the new business to get started. An example of this might be building or enhancing an intersection that will improve access for the new business. Incentives can include donations of land or tax abatements. Although it varies by state, a range of government agencies can give incentives, from state, city and county governments to school districts, community colleges and health districts.
Drawing a straight line from the incentive to the granting agency’s benefit can be difficult. This is problematic because government agencies, by law, are not allowed to give benefits without fair compensation in return. Another potential issue with incentives is that a government may give tax revenue generated from one or more local businesses that are already located in the community, to a competing business that is relocating to the community.
The fairness of incentives, the question of whether companies would relocate without them and the actual effectiveness of incentives in creating long term jobs and wealth in the community have come into question in recent years. A new model is needed.
The Future of Economic Development
The future of economic development is different; it is about where you live and how you connect. It is about building on existing assets. It is about attracting the talent that will grow the businesses you already have and encourage people start new ones. If you have a great place to live with abundant opportunities to connect, along with educated and talented people, the jobs will come. The future is build it and they will come, not throw money at them and they will come.
The future of economic development changes the financial arrangement. Instead of giving money directly to companies, local governments will need to invest in infrastructure and services that will attract the talent that will fill jobs and encourage new businesses.
Action Item #1 - Build Great Communities that Will Attract Talent
What is important in economic development today? Quality of place. People want to be mobile, connected, live in quality housing in great neighborhoods, and have access to public spaces including parks, plazas and recreation centers. They want affordability. They want clean and green. They want it all. And there are many cities that offer it all. Talent today can live anywhere. What does your community have to offer?
The American Planning Association conducted a national poll in March of 2014 to better understand what people want from their local communities. The report from this poll, Investing in Place, provides insight on the future of great places. Regarding economic development, “2/3 of all respondents and 74% of Millennials believe investing in schools, transportation choices, and walkable areas is a better way to grow the economy than traditional approaches of recruiting companies” (P. 14).
They are also highly mobile, with most Millennials and 44% of all respondents saying that they were at least somewhat likely to move in the next five years. So, what do they want in their next community? This graphic breaks it down (P. 29):
Action Item #2 - Create a Community Where Businesses Can Start and Thrive
Most importantly, 80% of the jobs created in your community in any given year are from existing companies expanding (Birch 1983*). If you want more jobs, remove corporate barriers to growth and employment will surge.
For the right kind of job growth, target your existing companies by those that will create the best jobs. Ask them what they need to expand in your community. For decades, economic developers have been targeting companies that they want to attract from other communities. Grow your own.
Target the communities in your area that you want to grow.
Identify existing and emerging industry clusters. What are their barriers to growth?
Find out if (and how) these barriers can be reduced or removed?
Learn why these businesses are in your community.
Find out if they are planning to stay.
If you spend time helping retain and expand existing businesses, not only will you help them create jobs, you may end up attracting additional companies in the same industry as the word gets out about how proactive you are.
Partner with the businesses you want and need in your community. How much less per job created will it cost you to help an existing business expand verses attracting a new one?
Find out what existing businesses need to grow. Maybe they need training dollars that existing workforce programs or community colleges can provide, maybe they need a traffic light adjusted. These things are relatively easy to accomplish.
They may have labor, construction or operational issues. Bring together partners in the community to find solutions. Treat them the way you would treat a company moving into your community, or better.
Make it easy to start and grow businesses in your community. Streamline processes, speed plan review and inspection turn-around times, and provide great customer service. Do what you can to create an environment where entrepreneurs can thrive.
The future means creating jobs by helping existing companies and fostering entrepreneurship. The reputation your community develops by doing this will bring in other companies. Corporate attraction becomes a byproduct of successful economic development – not a goal.
Synergy
These two action items work together, if you don’t have a place where people want to live this type of economic development is substantially more difficult. On the flip side, quality communities benefit existing residents as well as those you want to attract. The future of economic development builds on these two mutually reinforcing action items to create a high quality, more prosperous community.
*Birch, D. 1987. Job Creation in America. New York, NY: Free Press/MacMillan Publishing Company
