The history of economic geography proves the point that not all locations are created equal. The economic landscape is bumpy as communities and regions grow and prosper while others struggle. Within this context the practice of economic development emerged. The mission was to attract private investment and economic growth.
Contingency theory posits a linkage between an organization’s competitive environment and adopted strategies. Unless an organization operates in an environment of stasis, organizations need to modify or change their competitive strategies in response to emerging opportunities, threats, strengths, and weaknesses. In the contemporary economic environment of volatility, systemic risk, and globalization, it is logical to assume a concurrent need to fundamentally transform the practice of economic development. Is that happening?
In research I published (Gibbs, 2019), the question of whether the practice of economic development was changing was investigated. Although findings indicated an awareness of the need to change and the importance of regional collaboration, the data indicated a continuation of the practice of using incentives to entice private investment. The findings affirmed isomorphism of practice among surveyed economic development organizations.
I addressed the question of incentives in the previous blog post and the purpose is not to categorically criticize the use of enticements. Nevertheless, the news is ripe with stories of deals that fail to live up to expectations. Some research estimates that the fiscal return on public monies used to entice private investment is paltry, if not negative. Research also indicates compressing lifecycles among businesses and industries with the average survival rate of less than 10 years. Given the constant disruptions and churn in the economy and the questionable efficacy of incentives, it is fair to question the validity of this practice. These findings should lead economic developers and political leaders – if they are critical thinkers - to take a step back to rethink what they are doing.
There is a growing group of advocates for an asset-driven economic development strategy. This strategy raises as many questions as it portends to answer unless your default position is penned by Richard Florida. I am an advocate of this new approach; however, my focus is different than building cool neighborhoods. The focus I suggest is a focus on the human asset. I suggest that resilient economic health is built on the prevalence of human capital. I suggest that adopted economic development strategies should have a laser focus on building this asset.
Not all business incentives are created equal and there are times that a well-crafted incentive can advance economic health. But I suggest the same or greater amount of effort be spent on discussing, designing, and funding strategies to build the most important asset our communities and state have to offer, its people. Issues such as housing, education, effective job training services, public safety, public transportation, and recreation resources must become part of the economic development lexicon. The goal is to retain and grow a happy, healthy, and employable population. Yes, we must continually strive to manage our business environment including its costs and regulatory environment. Nevertheless, a hyper focus on the traditional, low cost attributes of a competitive business environment may not translate to an economically prosperous population.
An open, engaged, data-driven, and civil conversation is needed to rethink what we do collectively to advance economic health in Rhode Island. I hope we can rise to the occasion.