Everyone interested in state or local economic development should read “Remaking Economic Development: The Markets and Civics of Continuous Growth and Prosperity.” In it, the Brookings Institution’s Amy Liu neatly synthesizes important lessons from the field about how metropolitan centered economic strategies are vitally important not just to revitalizing city economies, but to national economic progress. The report outlines a cogent list of lessons and sound advice for implementing a successful metro strategy.
There’s so much this report gets right that it’s difficult to find fault. But on a few key issues—mostly having to do with emphasis, rather than fundamentals—more could be said. Here are a six further thoughts about what remaking economic development ought to include, based on my own observations and experience.
Talent is central to economic development
“Remaking Economic Development” gives a vigorous nod to talent development as an economic strategy, but in our view, it should be front and center. We know that the educational attainment level of the population is the single most important factor shaping regional economic success: we can explain fully 60 percent of the variation in per capita incomes among metropolitan areas simply by knowing what share of the adult population has a four year degree. This relationship has grown steadily stronger over the past few decades, and promises to become even more important in the decades ahead.
While the report acknowledges the importance of education and skills, talent is third on the Brookings list of action principles. It should be number one, because it is something that applies everywhere, and without it, no economic strategy is likely to succeed. Unless you have a plausible approach to bolstering talent, anything else is irrelevant.
Placemaking is a key to anchoring talent
The Brookings report speaks to connections within the community as a broad umbrella for thinking about everything from widespread inclusiveness to infrastructure. But increasingly, placemaking—especially building great urban spaces and tackling issues of livability and housing affordability—is vital to attracting and retaining talent and growing the economy.
Placemaking is important because talent is mobile. Talented workers have choices of where to live, and are increasingly exercising their choices, disproportionately choosing to live in places that build great urban communities. The number of college-educated young adults is increasing twice as fast in close-in urban neighborhoods as in the rest of metro areas. That’s driven by the growing demand for dense, diverse, interesting, transit-served, bikeable, walkable neighborhoods. Companies are increasingly moving to be close to the workers living in (or seeking) these neighborhoods. Placemaking is essential to attracting and anchoring talent in place.
Exporting goods is best viewed as an indicator of success, rather than a tactic.
Brookings has worked with a number of cities, including Portland, to promote export strategies. There’s little question that a strong and growing export base is a correlate of a healthy economy. But simply telling cities to promote exporting glosses some important steps. In general, US-based firms and regional industry clusters aren’t successful because they export, they export because they are successful. In a high-cost location, facing global competition, US firms can be successful in global markets generally only if they are have demonstrably better products, more efficient production, and more continuous innovation. Portland’s largest exporter is Intel, which exports not because Portland has a particularly good export strategy or infrastructure (full disclosure: I was a state government official charged with trade policy for a dozen years in the 1980s and 1990s), but because Intel is utterly world-class in its research and manufacturing processes—regularly getting more patents for its Oregon-based technologies than from the rest of its US operations combined. The upshot: rather than focusing on raising exports, strategies should ask what it will take for a region’s industry clusters to be world class (better skills, improved technology, more entrepreneurs & innovation); these will be the places where the region should act.
In addition, especially for smaller and medium-sized firms, exporting is neither the best nor most profitable means to exploit global markets. Exporting can be risky and uncertain: smaller firms face formidable barriers to dealing with global logistics, trade finance, currency fluctuations, product localization, and market development. In many cases they may be better off licensing intellectual property or pursuing joint ventures with international partners, rather than exporting directly themselves. Note that Nike, based in Oregon, barely registers in the state’s export totals (and is actually a big net importer): but it’s a formidable global player because Portland is the hub of its design, marketing and finance functions.
I’d edit Brookings third principle for economic strategies to stress working to improve the health of traded sector clusters (the traded sector consists of businesses that sell their goods or services in competition with firms from other states or nations, regardless of whether they export them from their state of origin or the nation). Expanding exports is just one measure of how clusters are performing.
It’s better to have fewer goals than too many.
Brookings calls for economic development plans to have clear, measurable goals. No doubt this is good advice. But if you have 50 goals, you really don’t have any goals. Goals ought to help decision-maker set priorities. In practice, a laundry list of goals means that there no clear basis for choosing any one alternative action over others. A few key goals, including raising per capita income and assuring that opportunities to learn and earn are widely and equally available to everyone in the community, are key.
Strategy is about choosing what not to do.
There are a wealth of tactics, best practices, and exemplary case studies of how to do economic development. Brookings and others do a good job of cataloging such success stories, and retelling them to other cities. But while this can be informative, every city has its own distinct opportunities and liabilities, and what worked for one city, with one set of industries and resources at one time, may be simply irrelevant or unavailable to another city. As Brookings and others have documented, much economic development practice is rife with fads: witness the profusion of cities pursuing—at great expense, and with no evident results—the development of biotechnology industry clusters. It’s tempting to pursue a “one of each” economic development effort that shows that whatever set of model policies anyone has cataloged, your city has at least a token effort that qualifies. The essence of strategy is choosing—ruling out inappropriate or low-return efforts and focusing on the things that matter.
None of this is likely to work if federal macroeconomic policy doesn’t facilitate robust growth.
While it’s laudable, as well as necessary, that communities pursue their own economic strategies, it’s also important to recognize—especially from the perspective of those working in DC—that these are unlikely to be collectively successful unless national economic growth continues, and indeed accelerates. The backdrop to this entire policy environment is still a demonstrably weak recovery from the worst economic downturn in eight decades. The relatively small size and quick withdrawal of fiscal stimulus, and more recently, the Federal Reserve’s renewed hawkishness about non-existent inflation, signal that the macroeconomic environment in the next few years will work against many of these local economic initiatives. The increasingly metropolitan locus of competitive advantage may mean that a few places continue to prosper while many American metros languish—simply because the national economy isn’t expanding faster enough to power growth in any but the most adept and advantaged places. In addition to providing advice to Mayors and metro residents, it would be helpful if Brookings also spoke truth to the powerful in the federal government that all of these local economic development efforts hinge on a more ambitious macroeconomic policy.
There’s a growing recognition that many of the most important economic opportunities and decisions will be realized at the metropolitan level. “Remaking Economic Development” explains how past practice is simply inadequate to capitalizing on these opportunities and lays out the steps that cities (and metropolitan regions) will need to take. In many respects these efforts are still in their infancy, and more learning and evolution is needed (and will occur).
Additional disclosure: I’ve written three research papers published by Brookings on industry clusters and regional development, and for several years was a non-resident Senior Fellow at Brookings.