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A Few Friendly Questions Concerning Economic Development Practices (after three decades of location consulting experience)

Take a look at how and where economic development incentives are being spent, and two trends suggest that a more balanced approach would be beneficial.

Q2 2019
Area Development discussed economic development best practices with Les Cranmer, Senior Managing Director, Savills Studley, following his presentation “A Few Friendly Questions Concerning Economic Development Practices” at our Miami Consultants Forum. Interview conducted by Margy Sweeney, Founder and CEO, Akrete, Inc. and Area Development Editorial Board member.
As much as $90 billion is awarded in economic development incentives each year, according to the Brookings Institute. Is that money being spent wisely? That depends. Take a look at how and where economic development incentives are being spent, and two trends suggest that a more balanced approach would be beneficial.

One place to start is to consider what “economic development” actually means. The conventional perception is that the primary task of an economic development organization (EDO) is to help secure new capital investment and job growth. However, you could also argue that EDOs have a responsibility to taxpayers to protect businesses and jobs at all levels in their communities, and to foster economic growth in general.

Have you seen your EDO lately?
A typical site selection consultant regularly meets with EDOs across the country in the course of representing clients. It’s not unusual for a location consultant to meet with an EDO that is keenly focused on attracting new employers to the community—and is unaware that that the consultant is confidentially working with a local company looking to grow elsewhere.

In the drive to bring in new employers, EDOs tend to overlook the ones they already have. Very few make it a priority to engage with locally based companies to help them grow in the community, and to keep them from leaving.

Yet, about 90% of economic growth comes from the businesses already operating in a community. Ideally, an EDO would spend one-third to one-half of its annual operating budget on business retention. A few EDOs do spend at that level or even more, hosting networking events and visiting companies to understand what is happening in the local economy.
One of the things that we see is a cooperative spirit between corporations and location advisors and economic development groups. I think there's a better understanding of what a win-win situation looks like
The typical EDO mindset
While an EDO may be in a position to help a local business grow, other considerations can get in the way. Typically, EDOs are focused on target industries and incentives designed for that industry, creating another reason to overlook local business growth opportunities.

That mindset leads to what one could call “disparity by design,” in which EDOs only want to offer incentives and support to companies that fit the target profile. And, they may compete for a corporate relocation even if the workforce isn’t a good fit.

Also, they may be seeking to keep out industrial companies that create pollution or unappealing odors. Sometimes that makes sense, but, in other instances, the community may lose an opportunity to provide employment for people who need jobs. Even a substantial project sponsor may be told that, while they are welcome to come to the community, the EDO won’t be providing any assistance.

It’s natural for EDOs to want to bring in companies in a particular sector that will provide a high average wage for skilled workers. While that kind of company will provide jobs for some workers, a community may still have a population that needs lower-skilled, lower-paying jobs. The reality is that most communities will always need job stratification, in which the economy has higher-paying, higher-skilled jobs along with lower-skill, lower-paying jobs.

Of course, in some markets you’ll find a shortage of talent for the highest-paying jobs coupled with some unemployment among lower-skilled workers. In those markets, ideally, the EDO would look to create a balanced economy that provides opportunities for as many people as possible.

What can your local EDO do for you?
What EDOs could do is get back to the basics and look beyond their strategic plans. Also, if your company is looking to grow locally or expand into another market—but you don’t fit the target profile—the EDO may be a potential source of assistance nonetheless.

If you operate a business that is growing or needs assistance to address a changing marketplace, it’s worth asking your EDO to see what they might be willing to do to keep your company in the community. Or, if you’re seeking to expand in a new market and learn that your company doesn’t fit the desired target profile, you can make an argument for the economic impact your business will bring. Even lower-paying jobs have a multiplier effect, creating demand for retail products and services.

Economic development is, after all, about developing the economy. Whether an EDO is operating at the state, regional or local level, you may be able to make a business case for assistance that gets their attention.

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