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Economic Development

In Defense of Economic Development

Never let a crisis go to waste, apparently, when it comes to taking potshots at economic developers:

“One silver lining to our COVID-19 response is a forced re-evaluation of the value of our economic development dollars and the organizations they support.”

Michael Hicks, Time to rethink economic development spending

Count me in support of clear-eyed evaluation and improvement–we could all do with less of this nonsense for example–but a silver lining?

Before we indict an entire profession, let’s maybe back up a bit and start by examining its purpose: What is economic development?

I am approaching twenty years in this field and it’s a question I never get tired of debating. When I was teaching at UT-Austin I would open every semester with it, and it’s the icebreaker I use for most workshops, board retreats, community meetings, and other engagements for clients. Pro tip: Watch the clock when you go all philosophical with an icebreaker. People have strong feelings and like to hear themselves talk engage, especially if you have multiple self-anointed experts consultants in the room.

Economists have been arguing about it for a few centuries now, but it’s one of those rare questions that can anchor a colloquium, a happy hour at an IEDC conference, and a family argument during the holidays in equal measure. Most people, like Dr. Hicks, seem to have strong feelings about what economic development means and what we can, or should, do to influence it. Or whether we have any influence over it at all.

For practitioners, I think the debate is partially fueled by the fact that we lack a canon. That’s not a dig at certification. It’s just the reality that most economic developers I know entered the field by accident, really. Very few major in economic development in college (if you can find it), get an entry-level job at a city or a chamber of commerce, earn their CEcD designation, and away they go. Most of us back into the economic development field from a different career path, such as real estate, politics, local banking, or marketing. Maybe you served on the board of an economic development organization and were asked to step in temporarily during a staff vacancy and then never left. That’s not uncommon.

For me, it was a detour in the form of a cross-country adventure on the way to what I thought would be a career in research or academia. I moved from North Carolina to California after college for a one-year fellowship in a county economic development office, fully–okay, mostly–intending to return to UNC-Chapel Hill for a PhD. But I enjoyed it so much that one year turned into two years, a PhD in economics turned into a master’s in public affairs, and here I am, twenty years later.

Take a poll at your next economic development conference and you’ll see what I mean. Extra credit: See how many consultants you can get to admit that they still intend to get that PhD, someday. Start with the ones who list “coursework toward a PhD” on their bios–they are easy targets.

I can tell you exactly when my fate was sealed, though I didn’t know it at the time of course. In college, I was enamored with Marxist development theory and the historical figures who had argued about it most forcefully–riding the long wave with your everyday household names like Kondratiev, Trotsky, Mandel. To be clear, I was not the guy in the Che t-shirt annoying you in your econ class. That guy annoyed me too. I was a double-major in economics and history, writing about Faulkner’s struggle with the “duality of the Southern Thing,” as Patterson Hood would put it. I got interested in Russian literature in high school–have I mentioned yet I didn’t date much?–so when it was time to pick a focus for my econ degree, Marxism seemed like an interesting counterpart. Also, the math was easier.

But then I read Development as Freedom by Nobel Prize-winning economist Amartya Sen while I was studying under the wing of Sandy Darity and it shifted my attention from theory to the applied world. Sen’s compelling arguments for seeing economic development through the lens of human capital and outcomes measured in political participation, empowerment, and quality of life appealed to my sensibilities. I also admired his points about the interdisciplinary nature of true, lasting economic development, emphasizing that no single metric could tell a complete story about the state of an economy. No silver bullets, in research or in practice.

Sen wasn’t the first to make the argument, but for whatever reason that book resonated with me more than others, presenting a clear, accessible rationale for economic development with a moral compass. It made the connection to public service for me, which, I know now, is why I was drawn to development economics in the first place. Even after all these years, Development as Freedom is still my favorite academic treatment of modern economic development.

At the risk of speaking on behalf of a very large group of professionals, I also think it’s what binds us together. We don’t have a canon and we come to the field through different gates. But for the local economic developers I know it’s public service that keeps them in it, whether or not they want to admit it or call it that. I’ve heard a cynical jab at economic developers, saying we go into the field because we can’t hack it in the business world. I’m sure that bothers some people, but it shouldn’t. Economic developers I know have the experience and the skills to excel in the for-profit world, but they choose economic development because it offers something most private sector jobs can’t: an opportunity to focus exclusively on a bottom line that is measured in community improvements.

Do we need to continue advocating for smarter decisions about economic development incentives, or at the very least a cost-benefit analysis before a decision is made? You bet.

Are economic developers a bit melodramatic at times? No doubt.

“You’re either growing, or you’re Detroit.”

Source: At least one speaker at every economic development conference

Is there a lot more work to do over the next twenty years to justify public investment in “groups who add nothing to the national economy,” as Dr. Hicks put it? If you agree that economic development, by virtue of being funded by taxpayer money in most cases, is a public intervention into the market and therefore should target a market failure and have clear public benefits, then we have to confront where we are falling short, especially when it comes to achieving outcomes for existing residents.

To illustrate, consider the anemic growth in median household income in many of the fastest growing county economies over the last twenty years. Of the 250 largest counties ranked by population, here are the top twenty ranked by gross domestic product (GDP) growth:

Source: BEA (GDP), Census (MHI)

Austin’s economy–economic development’s sweetheart–has more than doubled in value since 2000 while median household income has increased by only two points, after adjusting for inflation. In more than half of those counties real incomes at the median have actually declined.

Same thing here except we’ll use jobs, the preferred metric for most state and local economic development organizations, instead of GDP:

Source: BEA (Emp), Census (MHI)

While my economic development friends in Texas might be proud of the clean sweep of the top five, it’s largely the same story. Further, very few fast-growing counties have closed earnings gaps, fueling displacement in communities with increasing housing costs. For example, average earnings for Black workers in Travis County (Austin) were 60% of White earnings in 2000. By 2019, the gap had only closed by three points. In Nashville, where I live now, that gap has widened by five points.

Increasingly, economic developers are shifting the conversation from the traditional focus on short-term measures–jobs, capital investment, tax base–to longer-term considerations of sustainability, equity, and human capital. Entrepreneurship, too. But the politicians and board members they report to will have to embrace a new way of thinking as well, or we will continue to provide fodder for critics of the field.

Many economic developers across the country are working tirelessly right now on behalf of local businesses and workers to figure out a way forward when we can safely reopen for business.

It’s wrong to denigrate them, especially now.

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Economic Development

What can economic developers really do about low wages?

The latest economic development news out of Michigan is a pledge to do something about lagging real wages, or, rather, ask state officials if they will do something about it.

Many of the state’s leading economic development organizations and private foundations have banded together under Rising Income For All to request that state policy makers adopt United Way’s ALICE (Asset Limited, Income Constrained, Employed) statistic for estimating cost-burdened households as the “universal measure of success in meeting the goal of an economy that as it grows, benefits all.”

ALICE, like predecessors such as MIT’s Living Wage Calculator, EPI’s Family Budget Estimator, and the Family Budgets tool by Texas-based Center for Public Policy Priorities, shows quantitatively why traditional metrics–unemployment rate, poverty rate, even per capita income–can provide only incomplete pictures of what economic distress looks like today to the growing ranks of cost-burdened households, especially if regional cost of living differences and inflation are ignored. According to the latest available ALICE data from United Way, 43% of Michigan households are unable to cover basic household necessities.

First, let’s give credit where credit is due. It’s been about ten years since “traditional” economic development advocacy groups started saying, at least publicly, that “not all jobs are good jobs.” Now some economic development leaders in Michigan appear ready to take another step in that direction, which, to my knowledge, is the first coordinated statewide effort among local economic developers to do so, publicly. I can’t recall anything similar in other states, but please let me know via email if you are aware of something that should be mentioned.

What gets measured gets done, as I’m sure some of the people on the Rising Income For All roster might say, so I’d call this a good sign for the future of economic development in Michigan. As an instructor, I would also give them high marks for compelling calls to action:

“For the first time ever Michigan is a low-prosperity state with a strong domestic auto industry.”

“In every county in Michigan, 30% or more of families can’t afford basic necessities.”

https://risingincomeforall.org/

There will undoubtedly be detractors. It’s not too difficult to be cynical about economic development. As the media coverage points out, as of yet the Rising Income For All supporters have not offered any specific proposals to achieve their stated objective, beyond state recognition of ALICE. They should probably be ready to explain why their advocacy for better math doesn’t appear to extend to the minimum wage.

Further, according to data from Good Jobs First, companies investing in Michigan have received state and local subsidies totaling nearly $16 billion, ranking third among states. How would Rising Income For All supporters characterize the return on investment for those projects in the interest of fighting wage stagnation?

How far are economic developers on board with the initiative prepared to go? Will they advocate for changes to the state’s tax credit programs to ensure that only companies committed to real wage increases receive subsidies? Will local economic developers encourage their boards and elected officials to make changes to tax abatement policies? Are they willing to sign an economic development non-compete agreement to improve their collective negotiating position with companies in the pursuit of Rising Income For All’s vision for inclusive prosperity?

What gets measured gets done. We shall see.

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Economic Development

Memphis: Stop Comparing Yourself to Nashville

From the clips this morning: New data shows more people moving from Nashville to Memphis. The story is likely gated so here’s the portion that got my attention:

I get it, Memphis has its challenges. I don’t want to diminish them or in any way discourage data mining in service of better understanding your city or local economy. I can even forgive burying the lede in that story on the margin of error. It’s frustrating when new data is available on a topic of general interest but you can’t say anything for sure about year-to-year changes because of the margin of error.

But there’s no reason to stretch that far for talking points that can tell a more complete story about the local economy. Here are a few:

  • Nearly one out of five dollars in state gross domestic product (GDP) is generated in Shelby County.
  • Real (inflation-adjusted) GDP growth in Shelby County is averaging about 1% per year–nothing to crow about but certainly not declining.
  • Nearly 40% of the state’s transportation and warehousing industry is found in Shelby County.
  • Real value of durable goods manufacturing in Shelby County is up by more than 40% since 2010.
  • Total employment in Shelby County is growing by an average of more than 7,000 jobs per year.
  • Population growth is a challenge, as mentioned in the story, but Memphis isn’t exactly hemorrhaging residents. According to the Census Bureau’s annual population estimates, Memphis was one of 165 cities or towns in Tennessee with fewer residents in 2018 compared to 2010. But Memphis is only losing one resident per day, on average–not exactly an exodus. By contrast, the county is gaining about three per day.

From an economic development standpoint, the local economy is also very competitive in several industry clusters. According to the Institute for Strategy and Competitiveness at Harvard Business School, Shelby County ranks in the top twenty counties for medical devices (#6) and transportation and logistics (#19):

There is no question Memphis faces challenges and the city has work to do to achieve inclusive economic development for its residents. But so does Nashville, and every other fast-growing community across this country. Indeed, growth can often make that challenge more daunting. We see this in places like San Antonio, too, where community leaders are quick to compare the city to Austin. But why? The two places are very different–demographically, economically, and culturally. Perhaps they also have different goals for the future of their communities and what they can offer to residents of today, and tomorrow.

So, Memphis, by all means continue to track your performance on the metrics that speak to you. And make sure the people telling that story reflect the diversity of your wonderful city. Nashville has very little to offer to that story.

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Economic Development

Nashville: We need a common set of facts about equity and inclusive economic development

Equity is having a moment in Nashville. David Plazas is calling on business leaders to make a commitment to more inclusive growth and prosperity. Metro Council is passing symbolic resolutions. Mayor Cooper is promising a Nashville that works for everyone. How all of that goes from rhetoric to meaningful action remains to be seen, but declarative statements are a start. Two lines, in particular, caught my attention in Plazas’s piece:

“The prosperity of recent years has disproportionately benefited people with higher incomes, who own property, and who have technical or higher-level skills.”

“Meanwhile, wages have stagnated or fallen for long-term lower-skilled workers who have struggled to keep up, especially people of color.”

I’ve heard different versions of those points made many times since I arrived in Nashville two years ago. Anecdotal evidence abounds about where the benefits of “New Nashville” are accruing, and how growth is exacerbating the gaps between newcomers and existing residents, the “haves” and the “have nots.” But what does the data say? Are those claims accurate? And do they tell the entire story?

To be clear, I hope that Plazas and advocates continue to push our elected leaders to keep equity front and center of debate about economic development in Nashville. When Metro and its various stakeholder groups decide they are ready to have a serious policy, and not just tinker around the edges, I hope that equity will be its cornerstone. There are many good examples from other cities to draw from, including what we adopted in Austin.

But if and when that day comes we’ll need more than testimonials and anecdotal evidence. Clearly articulating goals, developing strategies, and evaluating progress will require data and a serious commitment to open dialogue, transparency, and accountability. As with any public endeavor, everybody gets a say; all experiences are valid. But Very Serious People should not go unchallenged publicly because of what I’ve heard described as “Nashville Nice” or some distorted view of defining “politics” as one’s inalienable right to dissemble when facts are readily accessible. This was part of our motivation behind launching the resident survey and publishing the data on Metro’s open data portal. I hope the Cooper administration and new Metro Council continue down that path.

So, in that spirit, let’s take a look at Plazas’s points. We’ll combine them here since they are somewhat related and restate the issue as follows: Are the benefits of Nashville’s economic growth disproportionately accruing to people equipped with the tools (i.e. education, skills, etc.) to take advantage of it? And, if so, is that exacerbating inequality? I can’t say for sure how Plazas would define or measure “benefit[ed],” but since he used terms such as income and skills it’s probably safe to assume that he was thinking, at least in part, about workers. Which means the question becomes: Have wages “stagnated or fallen” for workers with lower levels of educational attainment compared to those with higher levels?

Here’s a table showing growth in inflation-adjusted (real) average earnings for workers age 25+ in Davidson County by educational attainment and race/ethnicity for 2011-18. The data is from the Census Bureau’s Longitudinal Employer-Household Dynamics program.

Average earnings for workers in Davidson County with no postsecondary education grew faster than any other cohort during that time period. In fact, average earnings for workers with no high school diploma or GED grew about three times faster than average earnings for workers with a bachelor’s or advanced degree, according to Census estimates. Clearly, Nashville’s recent period of economic growth has produced gains for workers across the spectrum of education and skills, not just at the top of it.

But I don’t think that’s what Plazas was really trying to say. I think his point was directed more toward issues of equity and affordability–and, in that context, he’s absolutely right. Housing experts tell us that we should spend no more than 30% of earnings on housing costs to be considered affordable. Do that calculation using the 2018 figures in the table above and Plazas’s argument comes into focus. For example, average earnings for Black workers in Davidson County are equivalent to about $1,000 in total monthly affordable housing costs. The average rent in Nashville now exceeds $1,400 per month.

It’s the same story for Hispanic workers in Davidson County, as well as workers with no completed postsecondary education, on average. And the gaps are growing. Inflation-adjusted average rent in Nashville increased by 40% in 2011-18, compared to average earnings growth of only 5% for Black workers in Davidson County.

This is where the debate about inclusive economic development in Nashville, or any fast-growing city for that matter, should start. What combination of policies and strategies are going to effectively address these challenges resulting from economic success? In fact, we had a similar conversation in Austin this week with a group from Grand Rapids.

As any of my former students can attest, I feel very strongly–and very likely annoyingly so–about the importance of a call to action when developing a strategy. It’s an often overlooked feature in practice. But if you don’t have a compelling call to action it can be really difficult to get people engaged and participating in a serious way.

I’ll offer this for Plazas’s next one:

In 1998, when Nashville was a much different place, Black workers in Davidson County earned, on average, about 66% that of White workers. Today, despite twenty years of economic growth and opportunity, it’s 59%.

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Economic Development

Everything really is bigger in Texas, including the BS on “free markets”

There is a long history of Very Serious politicians in Texas who love the free market. Former Governor Perry was a fan. Ken Paxton, the state’s current attorney general and a tea party Republican, is too, according to this Statesman story on the Google investigation:

“There is nothing wrong with a business becoming the biggest game in town if it does so through free market competition,” Paxton said.

Since Paxton took office in 2015 Texas officials have granted more than $200 million in subsidies to companies for economic development and participated in a $460 million “megadeal” awarded to Exxon in 2017, according to data compiled by Good Jobs First.

That’s quite an embrace.