No.

Okay, I know that’s probably not the answer any of you wanted to hear and it is probably a little too much “to the point” but the short answer is “no”, economic development can’t solve the current financial crisis.  Like many of you, I have watched the growing financial crisis over the past several months.  I have watched real-estate prices collapse.  I have watched the value of the US dollar fall.  I have watched as the “yo-yo” stock market lurches from down 700 points one day to up 900 points the next.  I have watched many of the largest global financial institutions fail and I have watched small businesses fail.  I have watched hard working small business owners lose everything and I have watched as even more teeter on the brink of ruin.

I decided to sit down tonight and write this blog amid this crisis largely because of an excellent op-ed piece I read in the Reno Gazette Journal back on October 5, written by Mr. Chuck Alvey, President and Chief Executive Office of the Economic Development Authority of Western Nevada (EDAWN).  Mr. Alvey wrote a magnificent op-ed piece that clearly outlines the role of economic development.  If you can, find it and take the time to read it!  As Mr. Alvey wrote, “economic development, as a practice, takes time”.  This is a breath of fresh air as politicians, pundits and everyone else scrambles to make promises they can’t keep and wild predictions based on little more than fear, panic and a smug sense of “knowing it all”.

Economic development does take time.  In fact, it takes generations and in the end, the job of economic development is NEVER done.  Many experts in the field of economic development, including Richard Florida, Edward Blakely, and Ted Bradshaw (all of whom have written extensively on the topic of local economic development and I strongly recommend them) argue that economic development is a constant, never ending process.  It is a tool used by communities to create jobs, enhance economic activity and provide long-term stable local economic growth to local communities.  I know that seems pretty vague and overly simplistic and I know that many people who are legitimately suffering right now want to hear specifics about how to get things back on the right track.  Unfortunately, we need to be honest.  Economic development is not overly specific.  Economic development is not a “cure all” for all that ails a local community.  Instead, economic development is a set of principals and strategies that are designed to encourage and stimulate the local and regional economy over time.

More “specifically”, economic development, as a set of strategies, is many things to many different people.  According to the International Economic Development Council (IEDC), economic development strategies could include technology led development (i.e. the support for the development of new technologies by research institutions and then marketed to private businesses for the use in new goods, services and methods of production).  These strategies also include small business and entrepreneurial development, workforce development, business retention and expansion, real estate development and reuse, and even neighborhood level economic development.  Still too vague?  Well, you wouldn’t be the first to think so.

There are a few things we can do to ensure that economic development is done “properly”.  The first is to think long-term.  The difficulty with government led economic development is that politicians and elected officials come and go.  They serve their elected term and ultimately and eventually, are replaced by “someone else”.  The policies and directions change.  Some politicians favor indirect support through cultivating a tax system which encourages new business development.  Some favor direct support through either cash subsidies or even the development of workforce training programs.  Some favor a mixture and some favor nothing.  In the end, government led economic development is ultimately short-term.  As one administration comes and goes, the policies and directions often change abruptly.  This ultimately means that it’s difficult to develop a long-term strategy the contributes to long-term, stable local economic growth.  Keep in mind the “stable” part of the statement.  For local long-term economic growth to be realized, the policies must be stable and predictable.

The second thing to do is to stop over-relying on marketing the local community to businesses and visitors in other communities.  Without a doubt, marketing a local community for economic development purposes is very important and should be part of any local economic development plan.  But, when it’s your only strategy, you’re much more likely to fail.  Remember, the other communities you’re marketing to will be marketing too!  They’re trying to get your businesses and residents to come to their communities and they aren’t going to give up on their own local businesses and residents that easily.  And remember, those other communities have a built-in advantage.  The businesses and residents in those other communities are already in those other communities.

This means that we should focus our efforts on growing our own, at-home businesses (small, medium and large) through a variety of business retention strategies while also encouraging new ones to grow.  Trust me.  As our own “at-home businesses” grow and as new ones are created, residents from other jurisdictions will be attracted to the local area naturally and existing residents will find greater opportunities for employment, entertainment and leisure.  Many researchers in the field of economic development have found that it typically costs 5 to 10 times more to recruit an existing business from another jurisdiction than it costs to grow and build upon local businesses and strengths.  In the end, you get more bang for your buck by investing locally!

Northern Nevada in particular has many local advantages.  But we also have many challenges to overcome.  Marketing and business recruitment will not, by themselves, overcome these challenges.  We need a much broader local economic development strategy that focuses on all aspects of economic development.  We shouldn’t give up entirely on marketing and business recruitment.  We just need to add to it.  This is going to take a long time to do and, quite frankly, it will never be completely done.  It will never be done because we live in a very dynamic world that is constantly changing and evolving.  Once we think we’ve gotten it right, I can promise to you that the “rules will change” and we’ll be forced to “reinvent the wheel” all over again.  As a free markets kind of guy, even I admit that markets are susceptible to failure.  I’m also a realist.  What goes up will eventually come down and sometimes we need immediate action.

But in these challenging times, economic development does have a very important role to play but it’s a long-term role.  It involves building upon local strengths through concrete and specific strategies.  Just listing a bunch of growth industries isn’t enough to contribute to long-term stable economic development.  In fact, it’s even a bad “first step”.  The first step should be simply identifying and appreciating our local advantages while recongnizing our disadvantages.  We have to commit resources to education, to the local development of new technologies, to the local expansion of small, medium and large businesses as well as to their retention.  We need to continue to support local real estate development and reuse.  Local economic development can’t prevent an economic downturn and certainly can’t prevent an economic recession.  Forty years ago many in Nevada thought that this state was “recession proof”.  We’ve been proved wrong before and will likely be proved wrong again.  When real estate prices soared in Nevada, no one thought the good times would end.  But they did.  And the role of economic development is to chart a long-term course that contributes to long-term, stable economic growth, building upon the local human and physical resources we already have in great abundance.

This entry was posted on Tuesday, October 14th, 2008 at 12:06 am and is filed under Economic Development. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a comment, or trackback from your own site.