A New Direction in Economic Development

Jim Claybaugh, MBA, EDFP

April 13, 2023

Overview

What is Economic Development?HistoryTheoriesCommon StrategiesInfrastructure – Capital – ResourcesThe “Knowledge Economy”

Economic Reasons Revenue from High Incomes/Biz Activity Savings From Reduced Govt Services

Social Reasons Affluence Lowers Crime, Drug Use, etc. Collective Confidence

Political Reasons

Why Do Economic Development?

What is Economic Development?

Depends who you ask… As to the answer received…

Economists Quantifiable economic growth

Businesses Barriers (taxes, regulations)

Environment Keep ecology & environment

Labor Groups Wages, training, benefits

Community leaders Strengthen local communities

Government Officials Tax Base, Revenues

“The enhancement of the factors of productive capacity – InfrastructureInfrastructure – for community well-being” Economic “Development” v. “Growth”

Must Be A LONG-TERM Commitment

What is Economic Development?

Should Be Consensus-drivenShould Be Market-based

Work with market forces “Economic development is not a

salad bar.”Should Be Sustainable

As in “Sustainable Development”Should Be “Bottom Up”

What is Economic Development?

Five Types Physical Organizational Social/Political Financial/Economic Human/Intellectual

What is “Infrastructure?”

What is “Infrastructure?”

Financial/E

conomic

Human/In

telle

ctual

Social/P

olitic

al

Physical

Org

aniza

tional

History

Three Waves First Wave: Industrial Recruitment

Started in South, 1930’s Second Wave: Retention & Expansion

Low ROI From Business Attraction Third Wave: New Economy ED

First Wave 1930’s-1990’s

Focus on Attracting: Manufacturing Outside Financial Investment

To achieve this cities used: Tax Incentives Grants & Subsidized Loans Subsidized Infrastructure Investment Expensive Marketing Techniques

Second Wave 80’s-00’s

Focus Moved Towards: The Retention/Expansion Of Business An Emphasis On Inward Investment Targeted To Specific Sectors/Clusters

To Achieve This Cities Provided: Technical Assistance To Businesses Financial Assistance/Loan Programs Infrastructure Investment Permit Streamlining

Third Wave 90’s - Now

Focus Shifted… From: Direct Financial Incentives To: Making Regions Competitive

Focus is placed on: Public/Private Partnerships Soft Infrastructure Investments Increased Competitive Advantages Leverage Public/Private Investments

Third Wave 90’s - Now

To Achieve This Cities/Regions Are: Developing Holistic Strategy Creating Competitive Business Climate Networking And Collaboration Supporting Cluster Development

Horizontal And Vertical Integration

Education/Workforce Training Targeting Investment To Clusters Quality Of Life Improvement

Theories of Economic Development

StapleSectorGrowth PoleProduct CycleEconomic BaseEntrepreneurshipInter-Regional TradeNeo-Classical GrowthFlexible Specialization

Common Strategies

Business CreationBusiness RetentionBusiness ExpansionBusiness AttractionOther Strategies/Capacity Building

Neighborhood/Downtown Revitalization Redevelopment

Business Creation

AKA Entrepreneurship Development Micro-Enterprise Development Economic Gardening Business Incubation

Programs to encourage start-ups Technical Assistance Financial Assistance

2nd Highest Job Creation ROI

Business Retention

Designed to Retain Existing BusinessesInformation Gathering

Surveys, Interviews Track Trends and ID Barriers

“Red Team” Visits to Troubled or Recruited Businesses

Energy Crisis, 2001 CA Forced to Focus on Retention

Business Expansion

Similar to Business RetentionAssists Local Businesses Expand

Location Assistance Financing Assistance Permitting Assistance Job Placement Assistance

Highest Job Creation ROI ~80% of New Jobs Created

Business Attraction

AKA Business Recruitment-Marketing “First Thought”

Promotion of Region, Sites, AmenitiesMost Common ApproachLowest ROI of All Approaches

“Playing the Lottery” Alabama Example

Involves Site Selection Process

Site Selection Factors

Area Development, Annual Survey Availability/cost of skilled labor Corporate tax rate State and Local incentives Tax exemptions Occupancy or construction costs Highway Accessibility Environmental regulations Low union profile Energy availability and costs

Conway Data, Inc. Work force, wages, productivity Market and demographic data Specific sites & Buildings Transportation Energy and utilities Materials, supplies, services Government programs Water and WW infrastructure Environmental impact, ecological factors Climate/Quality of Life factors

Site Selection Factors

Site Selection Factors

Labor Availability/Quality Education/Vocation Facilities Labor-Mgmt Relations Wage Levels Education Opportunities Utility Costs/Availability Real Estate Costs Taxes/CODB Highway Accessibility Market Location/Freight Transportation Services

Site Availability Public Safety Environmental Restrictions Local Views to Development Financial Incentives Housing Cost/Availability Shopping Facilities Hotel/Motel Availability Medical and Health Services Community Environment Recreational/Cultural Climate

Source: Fantus Co. - Chicago

Capacity Building

Infrastructure-Capital-Resources “Hard” v. “Soft” Infrastructure

Why Focus on Infrastructure? Economic Climate Conducive to Growth We can’t predict the next “Big Thing” Assists in All Econ Dev Strategies Ecosystem Analogy

Knowledge Economy

New Strategies and Objectives Infrastructure Investment

New Definition of “Infrastructure”New Partnerships

Includes Colleges & Universities

New Challenges Widening Wealth/Income Gaps Widening Education/Skills Gaps

Regional and HolisticSector/Cluster-BasedHuman Capital-Based

Linking Workforce DevelopmentInnovation-Based

The R&D – Jobs “Food Chain”Information-Based

Littleton, CO Example Use of Internet in Site Selection

Knowledge Economy

Conclusions (… Mine)

Econ Dev Does NOT Tackle Poverty Traditional Strategies Haven’t Helped

Southeast U.S. ExampleHuman/Intellectual Capital is MVP

P = Poverty-slayerBusiness Attraction = Negative ROIEconomic Development

Growth … Is NOT… … Can Lead To… … Should Focus On…

What Would I Do?

Innovation And Tech Commercialization Focus Attraction to Inquiry Responses Review/Update Planning DocumentsTighten Relationships With PartnersLand And Infrastructure InventoryDevelop CRA-type Industrial REITDevelop “Capital Index” Scorecard

What Would I Do?

Technology CommercializationExpansion of Industrial SectorsQuality WorkforceUse “Balanced Scorecard” ApproachInnovation CultureLand Zoned and Pre-PermittedAdvance Infrastructure

Appendix:Capital Index

Physical Capital Index Industrial and Commercial Land Ratios Ratio of Region with High Bandwidth Commercial-Industrial Vacancy Regional Water/Sewer Capacity Regional Traffic Capacity

Appendix:Capital Index

Human/Intellectual Capital Index High School Graduation Rates/Test Scores Ratio of Pre-School Participation College Degrees Per Capita Patents Per Capita Unemployment

Appendix:Capital Index

Social/Political Capital Index Local Government Permit Fee Structure Participation in School Business Teams

Virtual Enterprise, Junior Achievement

Local Efforts in Economic DevelopmentEDO’s, Local Governments, Chambers, etc.