Transcript Economic Development - ExponentialImprovement.com

Economic Development
What to do Locally
Applying Systems Thinking
Bob Powell, Ph.D., MBA
Exponentialimprovement.com
So I thought: “I’ll figure out something really important!” Problems with Urban Growth
Yes, I know … it’s horrible
"Not easily accepted"
is an understatement!
What the … ???
The world is complex, but it’s not my fault …
Feedback is Everywhere
A Critical Structure to Understand:
The Attractiveness Principle
invest in
"Value
service
capacity
S
B7
service Service
Proposition"
O
capacity
Service
Quality
Burden
S
costs
S
demand
generating
S
activity
Net Revenue
(funds available
R1
to generate
O
Demand
demand)
S Generation
S
price
B8
Product
Quality
Burden
On website, see
"Create Strategic Focus"
S
Focus
S
service
demand
S
S
customer S
demand
B2
B5
O service
quality
Service Quality
Erosion
service
quality
standard
S
Overall
Product/Service O
Attractiveness
Product Quality
S
Erosion
product
S
development
product
B3
quality
product
quality
standard
O
B6
demand
S
product Product
O
development Focus
B4
S
Scarcity
capability invest in product
Premium
S
development
capability
It’s a Fact of Life:
"There is no utopia in social systems."
• No restaurant can be all things to all people.
• Can’t have all at once:
lowest price, best quality, best service
• The same is true for regions of the country
• A corollary: Given free migration, no place can
long remain more attractive than any other place
• Our only choice: how we'll become unattractive
… "strategic unattractiveness"
• It’s a "Gilda Radnor world" …
That’s a Reason Why
We Sometimes Feel:
What is Colorado Springs
Value Proposition?
Rocky Scott, former President of the Colorado
Springs EDC often used this in presentations.
Applying Systems Thinking to
Economic Development
Using a simple
Stock & Flow model
Rocky’s Model Expanded
Economic Development Arithmetic
If Total $ In - Total $ Out =
Positive = Growing Economy
Neutral = Stable Economy
Negative = Declining Economy
When an economy is failing,
what do you do?
Foster Export Companies: Increase Net $ Inflow
Foster Buy Local: Recirculate $ to Reduce $ Outflow
Don’t Foster Import Companies: Reduce Net $ Outflow
This is arithmetic, NOT rocket science
Little Did I Realize
What Was Happening
Beginning in 2001 … as of June 2010 in Colorado Springs
… it’s been a high-tech, primary-employer, job-loss bloodbath:
Mfg jobs down 53.6%
IT jobs down 53.8%
Standard Practice: Focus on
Competing for Primary Employers
• primary employer
– attraction
– retention and growth
– new primary employer creation
• Caveat:
– Competition among regions with subsidies does not
"create jobs“; it moves jobs from one region to another.
– It’s a zero sum game … only so much growth is allowed.
– It either steals existing jobs from another region or
it gets jobs that would have gone to another region,
if that region had larger subsidies.
– Result: infrastructure backlogs … nationwide!
– See The Growth Facts of Life.
How does growth affect the "change" in unemployment?
Here's comparing the change from 1998 to 1999
Focus on Primary Employer
Economic Clusters
• Economic Clusters: Sets of similar
companies, along with their customer
and suppliers.
• Reinforcing feedback causes them to
either grow or decline
• Regions should foster them.
Clusters are more efficient producers.
• They increase dollar circulation within
the local economy ... a double hit.
Economic Cluster Focus
• Of course: Attract companies with large economic
multipliers. Lost Manufacturing hurts because
manufacturing has above average multipliers.
• Focus on fostering clusters for industries that have
high transportation costs. …. Why would that be?
• It's counterintuitive: national clusters grow when
transportation costs are low … because it's more
efficient to build things in one place and ship them.
• Because fuel costs will increase, such national
clusters will shrink and regional clusters will grow.
• Foster regional food production … same reason.
Promote Positive
Economic Cluster Feedback
• On cluster feedback mechanisms and how to
foster them, see A Systems Thinking Perspective on
Manufacturing & Trade Policy, Section VIII.
• Develop economic clusters for which the region
has comparative advantage. There are analysis
tools to help determine this.
• See Minnesota IMPLAN Group and
Proposal in Response to RFP NO. 07-016:
Industry Cluster Analysis
(submitted ... no response ...
… the county hired an expert from afar).
Foster Local Service & Retail Companies
(including government & local non-profits)
• A region that provides incentives to attract new
companies …
• … should also provide incentives for companies
to buy locally.
• Local governments can institute "buy local".
Even if higher cost, it can boost the economy.
• To boost local spending and keep money
circulating within the community, many
Struggling US towns print their own currency.
"According to estimates, there are more than 75
local currency systems across the country."
Import Companies
• Export companies, those primary employers,
get much attention for their positive impact.
• Import companies are the polar opposite of
export companies (primary employers).
• Import companies get little attention
for their negative impact.
• They primarily import goods and export dollars.
• Import companies hurt the economy. [Big Box stores]
• It's illogical and destructive to encourage them
with incentives.
One of Rocky Scott's slides:
• "Without primary employers, we only
export our wealth, get poorer."
• This should be extended to say,
"With too many import companies,
we only export our wealth, get poorer."
• And that's exactly what's happening
... and we wonder what to do?
Incentive examples for Wal-Mart
$17 Million in Incentives Help Maine Land 400Worker Wal-Mart Distribution Center 2/1/02
SC offered Wal-Mart sweeter deal on incentives,
official says, 10/14/95
Wal-Mart's Tax On Us, 11/9/05
Carlos Guerra: Think-tank's study critical of WalMart's use of tax incentives, 10/10/07
The National Ocean
in which We Are Drowning
National Trade in Goods: Exports, Imports, Balance
$2.5
Millions of U.S. dollars,
nominal basis, Seas Adj'd
Goods Exports
$2.0
Goods Imports
Goods Balance
$1.5
Goods & Services Balance
$1.0
$0.5
$0.0
-$0.5
-$1.0
1989
1993
1997
2001
Year
2005
2009
2013
Nationally, We Need:
“Balanced Trade”, not "Free Trade"
• Warren Buffett proposed an Import Certificates
mechanism to create “balanced trade”
• To deal with "a shifting maze of punitive tariffs, export
subsidies, quotas, dollar-locked currencies, and the like."
• Buffett's Import Certificates mechanism: If a country
purchases products or services from the U.S., then it can
sell that amount back to the U.S. If it does not want to
sell to the U.S., it can sell its Import Certificates to
another country that does want to sell to the U.S.
• This market-based mechanism would produce
the desired outcome: balanced trade.
• Necessary: anything out of balance will be, WILL BE,
brought back into balance. The more out of balance it's
allowed to become, the more severe the correction.
Systems Thinking:
Not easy, but easier than this!
exponentialimprovement.com
Objections to
Opposing Import Companies
• That would violate "free market" ideology.
• But you can't do that. Let the 'free market' take
care of it. If people don't like having Wal-Marts
here, all they have to do is stop shopping there!
Everyone should act in their own self interest
and everything will work out for the best.
• Well, that's perfectly logical for individuals.
Unfortunately, it's collectively irrational; it's a
perfect example of the "fallacy of composition."
Objections to
Opposing Import Companies
• Another complaint: "We can't discriminate
against big-box stores, that would be interfering
in the 'free market' and unfair. That's “social
engineering.”
• The fact is we already discriminate by providing
incentives for some companies and not others ...
now that's social engineering, too.
• This is beside the point because what we must
care about is whether regions and the nation will
fail … or not.