Transcript 0501WORKFORCEADVISORSHILL (The Role of Leadership in

Nine Rules
for the
Practice of Economic
Development
Edward W. (Ned) Hill
Professor and Distinguished Scholar of Economic
Development
Center for the Study of Innovation
Levin College of Urban Affairs
Cleveland State University
Acknowledgements
The Center for the Study of Innovation
at Cleveland State University
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Six parts to the talk
1. Framework: Demand and supply in the factor
markets (factors of production)
2. Economic development attraction
3. Two structural failures in the practice of
economic development
4. Economic development practice and strategy
5. Nine Rules for the practice of economic
development
6. Questions to think about
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Framework:
Demand and supply in the factor
markets
Why practice economic development?
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Job creation
Better incomes
Improved tax base
Wealth creation
Less cyclicality in employment
Greater diversity of the economic base
Lesson: In economics desirable outcomes are frequently a
byproduct of market activities. The best route to those
outcomes is often indirect
Lesson: Employment is derived from product demand
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Two parts to the practice of economic
development
 Demand side of the factor markets (land, labor,
capital, and technology/knowledge).
 Dominates the short and medium terms of the market
place
 Purview of the Economic Development Department
 Supply side of those same factor markets in
terms of the quality, quantity, and flexibility of the
factors
 Dominates the long run development horizon
 Outside the purview of formal economic development
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Goals for regional economic development
Economic Development Goals
Growth: Generate demand for underused resources (Exogenous factor
demand)
Development: Implement production
efficiencies—squeeze middle lines of
cash statement (cost efficiency)
Development: Produce higher valued
products—grow the top line of the
cash statement (Endogenous factor
demand)
Economic Development
Outcomes
Increase Per Capita Income
Lesson: Practice economic
development through the firm’s
cash statement
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Improved distribution of income
Improved income stability
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Three Parts of Successful Economic
Development Practice
Development
Theory
Development
Practice
Local
Leadership
& Context
Economic Base
Resources
History/Culture
Economic Outcomes
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Supply-side Context: The building blocks of an
economy are on the supply side of the product markets
Elements of Context
General
Specific
History
Neighborhood structure
Existing economic base
Physical Environment Environmental constraints
Civil Society
Sources of
comparative
advantage
Land Markets
Labor
Capital
Operating Costs
Sources of
Competitive
Advantage
Comment
Status and inclusion vs. exclusion
Airshed capacity & quality
Watershed capacity & quality
Arrayed From
Hard to Easy to
Change
Amenity value
Risk taking
Business entrepreneurship
Style of civic leadership (collaborative vs. credit claiming)
Public (government) administration
Honesty
Efficiency
Bureaucratic predetermination (vs. privatization)
Social mobility or permeability
"Plug and play" social & economic structure?
Cultural-civic institutional structure
Civility/tolerance/inclusion vs. exclusion
Social Capital
Neighborhood & political
Negotiaitng style
Cooperative or confrontational
Factors of Production
Housing
Conversion (applies to both)
Business site locations
New construction (applies to both)
Occupational availability
Incumbent workers (applies to all)
Soft skills or work ethic
New entrants by age, sex, or ethnicity (applies to all)
Human capital (achievement not attainment) International and interregional migrants (applies to all)
Built environment
Finance
Plant and equipment
Infrastructure
Technology
Embedded in existing base
Research & development capacity
Business social capital
Relationship between product cycle, firm organization and
business weak and storng links
Tax abatement
Negotiated cost reductions
Reduced cost finance (subsidized finance)
Product: Competitive strategies, product cycle position,
and resources of regional establishments
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Five Parts of Formal Economic
Development Practice
Protecting
Endangered Species
Political crisis to save
existing job
(Lemon socialism)
The Buffalo Hunt
Trapping Foxes
Deepen the base of
export products
(Exogenous Growth)
Lower operating costs
Invest in resource base
(Squeezing the middle lines)
Searching for Gazelles
Breeding Rabbits
Search for fast-growth
firms
Product Development
Process Innovation
(Endogenous Growth)
Lesson: Five short run practices that operate on the demand side of the factor
markets that dominate practice. The supply side is not formally a part of the
practice of economic development.
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Endogenous Development: Breeding Rabbits
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Economic development attraction
The Great Buffalo Hunt and Helping the
Gazelles: The purview of the technician
The Demands of the Commercial and
Industrial Marketplace
 Exogenous
 Competitive benchmark
 Focuses on operating costs
Competitive Site Selection Process is Short:
90-120 Days
Define Client Search Criteria
Regions Selected for Initial Analysis
Information Compiled/Data Accessed:
Team NEO:
Needs to improve
quantity of deals that
make it past this phase.
Detailed & timely
baseline information is
key.
Talent/HR, Industry Profiles, Regional Demographics
Market Analysis: Infrastructure. Logistics, Competitive
Analysis, Financial Analysis, Site Development,
Livability
Lessons:
Regional Screening Against Musts & Wants
Regional Rankings Reviewed
Proposal Requests & Screening
Team NEO & Chamber Partners:
Comparative Assessment
Need to respond collaboratively
Negotiations: RE, Incentives
and seamlessly. Shorten cycle
and improve depth of information
content.
Point of contact to follow up and
stay engaged. Marketing gets more
localized and site specific.
Risk Analysis
Site Visits
Site Decision
In economic
development external
investment typically
follows internal
investment.
Competing for exogenous
investment serves as a
benchmark.
Source: TeamNeo
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Requirements of Today’s Decision Makers
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Speed - Faster Time to Market
 Shorter decision cycles - added time pressures
 Strong commitment to improvements in logistics infrastructure
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Greater Market Flexibility and Responsiveness; Access to Networks
 Ability to gain access
 Conduct business with both the public and private sectors on the customer’s schedule - any
time, any where
 Going global - instead of a singular focus on domestic markets, look globally and multidimensionally
 Linkages within their industries and across communities
 Opportunities for New Partnership
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Innovation
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Collaborate
Faster idea transformation to commercialization
People/research connectivity
Not just technology transformation
Access to New Knowledge
 Tacit versus learned
 Heightened requirement for management talent
Source: TeamNeo
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Changing trends in location factors
There is new pressure on regions to address location issues quite
differently than in the past. These location factors should be the region’s
priorities for attracting, growing and retaining companies. Do not fall
prey to the new panacea’s.
Milken Institute’s list of “new business needs”
Traditional Business Costs
 Tax Structure
 Compensation Costs
 Space Costs
 Capital Costs
 Business Climate Alone
Today’s Business Needs
 Proximity to excellent research
Institutions
 Access to venture capital
 Educated, skilled workforce
 Networks of industrial groups &
suppliers
 Business climate and quality of
life
Lesson: The list is limited and biased toward a specific set of industries. What is critical: (1)
build from strengths; (2) address weaknesses; and (3) act through cash statement
Source - Milken Institute: America’s High Tech Economy Report 1999
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Two structural failures in the
practice of economic
development:
The opening for leadership
Mismatched federalisms
Mismatched time frames
Economic development is complicated
Must respond to the two failures
Mismatched federal structures
 Governmental federalism
 Economic federalism
Federal Structure
Political
Economic
Globe
Globe
Nation
Nation
State
Region
Special District
Municipality
Neighborhood
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Edward W. (Ned) Hill
Lesson: State’s need
to recognize that the
real economy is
regionally based. The
State is an
administrative and
political geography;
not an economic
geography.
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Economic development is complicated
Must respond to the two failures
Mismatched time frames
 Business time — the length of the deal cycle
 Economic time — the length of the business cycle
 Political time — the length of the election cycle
 Economic development time — the length of the
investment cycle (time to change the product mix)
Lesson: Importance of converting political time to economic development time
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Economic development practice
and strategy
What is Context and APPLE ?
 Competitive strategies of local establishments.
 Position of their products in the product cycle.
 Political and business cultures (Apple)
 Attitudes toward risk-taking,
 Personalities and motives of those who maintain the
civic agenda (leadership styles).
 Public sector efficiency & effectiveness
 Labor management relations (formal and informal)
 Elastic civil society—strength, flexibility, and
permeability of social structure. Are you plug and play?
Lesson: Half of a successful economic development strategy is driven by context.
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Tactics: Have FAITH
 Focus on economic development fundamentals
 Act opportunistically within a loose strategic
framework
 Take advantage of crisis
 Be deal or project oriented
 Invest in your assets—all types of capital
depreciates
 Think in portfolio terms
 Harness financial, political, and community catalysts
who participate based on self-interest (economic,
political, ethical)
If you want to find out if there is demand for a milk in Tibet do not start with
a market study; start with a cow.
Jeremy Nowak, The Reinvestment Fund, 2004
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The contradiction of good economic development
practice: A widely shared vision coupled with transparent
practices while maintaining client confidentiality
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Nine rules for the practice of
economic development
The practice of economic development
Nine rules
1.
Economic development is about products; Not jobs
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2.
Employment is derived from product demand
The Product Cycle is real and affects strategy and
implementation
Economic development is practiced through the
cash statement of the business
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Top line
Middle lines
Or else either inertia or the value of CEO real estate and social
capital binds the company to the region
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The practice of economic development
Nine rules
3. Economic development is a generative; Not
redistributive
 Asset-based; not need-based
 Build economies from areas of strength while
intentionally addressing weaknesses
 Encourages community development, but is not
community development
 Short term economic development policy works on
the demand side of asset market
 Long term economic development policy works best
on the supply side of the asset markets
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The practice of economic development
Nine rules
4.
The economy is regional
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5.
The region is the labor market
Most regions have effective
competitors;
All municipalities have effective
competitors
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Are the rules
 Necessary
 Efficient
 Predictable
 Transparent
 Practice the habits of growth, rather than manage decline
 Markets will beat politics into submission over time, regions will either work
effectively or the economy (investment) will vote with its feet
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The practice of economic development
Nine rules
6. Productivity is the basis of sustained
higher incomes
 The measure of economic development success is
change in per capita income.
 Increases in earnings come from increases in
productivity
 Government must be concerned with the distribution
of income and social mobility
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The practice of economic development
Nine rules
7.
Avoid rubeaphobia; Think for yourself; Avoid silver
bullet thinking
 Successful economies are constructed from strength
and achievement; not conjured from weakness,
entitlement, desire, embarrassment, jealousy, envy,
or stupidity (seven deadly economic development
sins)
 Skepticism is good. Do not assume or assert
competitive strengths
 Avoid the public sector version of not-invented-here
syndrome
 Think of technology and product development as a
portfolio
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The practice of economic development
Nine rules
8. Economic development investment
requires a long term strategy
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Widely shared transformative vision
Responds to near term political-economic crisis (the catalyst)
Flexible so that respond to opportunity
Answers the question: Who maintains the long-term civic
economic development investment agenda?
Visible, bricks and mortar, transactions so you have visible
successes and do not forget the habits of growth
9. Do the hard stuff; Focus on the basics
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Innovation is the key to long term prosperity
Education is at the foundation of economic success
Invest do not spend
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The Economic Development Formula
 Productivity is the basis of economic
development:
Increases in earnings come from increases in
productivity through the sale of goods and
services
 Formula to economic success maximizes
regional value added
 Produce highly valued products
 With a great deal of capital
 Mix in technologically sophisticated occupations with
scarce knowledge-based regional resources that
make the economy “sticky”
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Silicon Island
Silicon Rain Forest
Everyone wants high-tech operations…
Silicon Sandbar
Dot Commonwealth
Silicon Mountain
Silicon Orchard
Silicon Glacier
Silicon Forest
Silicon Vineyard
Silicon Village
Silicon Gulch
Silicon Valley
Multimedia Gulch
Silicon Island
Silicon Beach
Digital Coast
Silicon Valley
Silicon Plains
Silicon Mountain
Silicon Snowbank
Silicon City
Silicon Hill
Silicon Island
Silicon Alley
Telecom Valley
Silicon Valley Forge
Philicon Valley
Silicon Holler
Silicon River
Silicon Mesa
Silicon Seaboard
Silicon Prairie
Silicon Hollow
Silicon Desert
Cyberchella Valley
Biotech Beach
Silicon Necklace
Silicon Mountain
Automation Alley
Media Del Rey
Silicon Freeway
Silicon Tundra/
Silicon Valley North
WebPort Cyber District
E-Coast
Silicon Dominion/
Silicon Triangle Silicon Plantation
Telecom Corridor
Silicon Gulch/
Silicon Hills
Silicon Swamp
Silicon Bayou
Silicon Seaboard/
Internet Coast
Silicon Beach
… fight the allure of economic development fads;
do not lose sight of true competitive advantage
Source: Deloitte Fantus
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“One person’s pork barrel project is another person’s
wise investment in the local infrastructure.”
-- Thomas Foley, Speaker of the US House of Representatives, 1989
Town sees salvation in huge lava lamp
Build a giant lava lamp and they will come?
After all, look what the Eiffel Tower did for Paris
and the Space Needle for Seattle.
"Whether it will ever be finalized, I don't know, but
a lot of people are interested in it," Mayor Ken Lee
told Reuters by telephone. "I'm for anything that
will bring tourism back into our city."
Tuesday, January 14, 2003 Posted: 10:05 AM EST (1505 GMT)
CNN.com
”There is a market for the unusual and unique,"
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Questions to think about
Questions about the long-term investment
agenda
 Can you describe the region’s long-term economic
development investment agenda?
 Are there any key catalytic people or organizations who
can make civic activities take place or cause economic
development investments to be made?
 Differences in leadership styles
 Private sector leaders think that they have control over their
organization; when it is really their customers who control through
investment decisions. They hate process.
 Public sector there is no immediate, or visible, customer to act as
a check on the leader and their investment decisions. After all,
who’s money is it? They survive by process.
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Questions about the long-term investment
agenda
 Who, or what institutions, can maintain the long-term
civic economic development investment agenda?
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How catalytic are they?
What is their institutional legitimacy?
Are they check writers, check takers, revenue generators?
What is their expected tenure?
What is their institutional capacity?
No one would remember the Good Samaritan if he only had good intensions.
He had money as well.
Margaret Thatcher, Prime Minister, United Kingdom, 1980
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Questions about the long-term investment
agenda
 Does the economic development investment
agenda confront basics of economic
performance, or is it a fad-driven exercise in
thinking by either copy machine or economic
development policy peddler?
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Questions about the fundamentals
 Are there any barriers to effective action in addressing
the region’s economic development success?
 How does the local political culture influence economic
development activity? Are there any particular cultural
strengths or weaknesses?
 Are the economic fundamentals in place to make the
agenda feasible? If not, can they be put into place?
There is nothing fundamentally wrong with America’s cities that money
can’t cure. Carl B. Stokes, Mayor of Cleveland, January 1971
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Questions
 Is the decision making: Politically based? Focused on
greatest need? or, Responsive to opportunity?
 Are there any key investments that can leverage
economic development, as measured by increased
average regional income?
 Are there any civic or cultural activities that might help
encourage economic development?
 How broad is the support for the economic development
agenda? Who supports the agenda?
Every time you do a favor for a constituent you make nine enemies and
one ingrate. John Michael Curley
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