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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.