Some Soul Searching About Why Do We Do Economic Development

By N. David Milder

Jobs, Incentives and Huge New Expensive Projects

In the last few weeks I confronted an intellectual jolt that made me ask some very basic questions about economic development, the field I have been professionally active in for over 40 years. The causes of this jolt were the discussions in the traditional media and on LinkedIn about Amazon’s Long Island City 2HQ project and the opening of the huge $25 billion Hudson Yards project on the West Side of Manhattan’s Midtown CBD. The merits of both projects have been the subjects of significant debate – especially with Amazon reneging on the deal. The key concepts on these debates seemed to be:

  • JOBS. For the Amazon deal, jobs seemed to be the be all and end all of all of the pro-Amazon arguments.
  • THE DESIRABILITY OF HUGE NEW EXPENSIVE PROJECTS. For the advocates of both projects, the size and expense of both projects made them worthy, and the fact that they would attract the intellectually and financially blessed added greatly to their luster.
  • INCENTIVES. Criticisms of both projects were heavily cloaked in attacks of the large financial incentive packages given, both directly and indirectly to Amazon and Related, while proponents seemed to argue that direct incentives had no real cost – after all, no Brinks trucks were being driven up to the City’s treasury to take away  billions in cash.

What jolted me was that these discussions about big, important projects seemed to be vapid because they were missing so many really essential points. Indeed, this vapidity suggested that we, in the economic development field, had forgotten how to answer an elemental question and then use that answer in our professional activities. That key question is: Why do we do economic development? What is it supposed to achieve? I have been to countless professional conferences, but I don’t remember too much attention ever being given to that question.

Are Jobs a Means or an End? 

Jobs certainly are important. However, there are good jobs and bad jobs. Economic development should seek to maximize good jobs. Economic development should also try to provide good jobs for those who need them. All this would seem to be part of our field’s conventional wisdom. Amen.

Lots of Jobs Can Have Big Impacts That Can Be Good Or Bad, That Can Help Or Hinder Reaching Important Societal and Political Goals.  Unfortunately, not all jobs are good ones. The US, today, has an incredibly low unemployment rate. But, how many of those plentiful jobs pay a livable wage? How many people are holding several of those jobs because none of them alone pays enough to support their households?

Good jobs are also the means to many important socio-economic and political ends. They can enable system residents to have a better quality of life, enable a more equitable distribution of incomes, and reduce the extent and depth of socio-economic frictions. Unfortunately, what many people may consider good jobs, may also have bad impacts on such things as the environment, public health, housing demand and prices, commercial space demand and prices, stress on mass transit. It is precisely at this “system” level where the suasion of the arguments of the advocates for gobs of more jobs are most likely to fade or outright fail. It is also why such discussions are not likely to occur or be given import. It is also why questions such as this are almost never asked: how can 25,000 very high paying jobs in one relatively small area be absorbed without huge disruptions in the housing, market, labor market, public transportation, traffic congestion, etc.?

Jobs Are More Important to Some Economic Developers Than Others. The centrality of jobs to economic development practitioners varies. For those who are concerned about downtowns and Main Streets, jobs are not a key concern, save when they need to demonstrate the positive impacts of a new project. Job creation and development are much more salient to economic developers who are concerned about workforce growth and development, and those active in obtaining project approvals and funding from government agencies and foundations.

Jobs Have Become an Important Concern Because We Are Told We Can Accurately Estimate Them. Concern about jobs is also highly embedded in our politics and in our assessments of the economic impacts of large projects such as new buildings, stadiums and arenas, arts and entertainment venues, etc. This is facilitated by the ease with which input-output models can generate estimates about how many jobs such projects can generate.

Alas, the use of these I-O models often reminds me of a story the famous French sociologist Raymond Aron once told a seminar at Cornell about the former president of France, Valery Giscard d’Estaing. When taking a university exam and asked where the Seine was deepest as it courses through Paris, d’Estaing’s reply was something like: “Under which bridge? I am sure I can make a convincing argument for each one.” Similarly, these I-O models seem to have never met a project for which they cannot find huge positive benefits.  I would argue that the importance given to new jobs in many project assessments is, to an important degree, a result of the ability of I-O models to churn out positive employment impacts. I have come to treat the indirect and induced estimates of the I-O models with considerable wariness and skepticism. Reviewing them I keep in mind the axiom Garbage In, Garbage Out.

The Incentives Tie-In. Across the nation, scads of financial incentives have been given away for more new jobs, usually at an $XX/job rate . That was, indeed, at the heart of all of Amazon’s 2HQ deals. But, experience, has shown that far too often those jobs don’t show up or quickly disappear or are not the type pf jobs promised. For example, Amazon’s hoopla that 2HQ jobs will have a median salary of $150,000 seems to be very far from true for its new Nashville location.

Deal-Making.  In my years in the field I have met an awful lot of people for whom economic development is about making deals. These deals usually involve using public financial incentives to produce projects. A promised primary benefit of most of these projects is lots of more jobs.  Too often the content of the deal and its probable impacts are not as important as the making of the deal. 

Suggested Take Away. Jobs are undeniably important, but also a means to larger and more important economic development ends. We must not lose sight of those ends. Moreover, jobs, even those considered “good” ones, can have impacts beyond those on the job-holders that are beneficial or harmful. Those impacts are important to know and assess, though too often never looked into.

Jobs are often presented as the means by which the larger community benefits from a major project. Just knowing the number of jobs or even their pay ranges are really insufficient to assess a project’s real impacts on the larger community.

Are “More”, “Bigger” and “More Expensive” Always Better?  

Also embedded in the argument for the Amazon and Hudson Yards projects were that they are big or in some way the biggest, or the most expensive. Lots more workers, pedestrians, and residents, were taken as being desirable. BUT in the real world, you have to know a lot more about those jobs, pedestrians and residents. There can be too many of them that produce congested trains, buses, and auto traffic, that make sidewalks almost impossible to walk on comfortably, that provide more but lower paying jobs, that create a housing shortage and huge increases in housing costs. Do we really want every neighborhood to be like Manhattan or San Francisco or Seattle where those who can’t afford $1 million for a condo are hard pressed to find decent housing, where either midget apartments or shared housing –  the types of residential experiences the affluent definitely do not seek – are lauded as acceptable alternatives?

Walkability and high levels of pedestrian activity understandably have become almost religious mantras among downtown leaders, but many places in Manhattan have become almost unwalkable because of the density of pedestrians, and many tourist attractions in Europe are being overrun and ruined by attracting too many tourists. Often, as I walk through them, I think that Times Square and parts of Fifth Ave should have olive oil misters to lubricate pedestrian traffic.

If our downtowns are being changed into places that only can be used by people who can afford $1 million apartments, $500 per person meals and $500 theater tickets, will they still be everyone’s neighborhoods?

The fact that the Hudson Yards project is the biggest and most expensive urban project certainly does not in any way make it a “good” project for the community, for the city, for all of those who are neither its developer/landlord nor tenants, but who are paying $ billions for the project to happen. Compared to Rockefeller Center it is an outright gated community failure.

Just because a project might produce huge increases of something, be it jobs, housing units, money invested, etc., are poor reasons by themselves for doing the project. Why do we keep falling for the “more is better” types of arguments?

The Critical Density Issue

For a significant number of economic developers, particularly those with a partiality for urban areas, greater agglomeration and development density have long been seen as desirable community goals. Valid conventional wisdom recognizes that often there can be too much of a good thing, e.g., rain, food, fire, etc. Can there also be too much development density? One might argue that traffic congestion, growing pedestrian congestion, growing air pollution and garbage production might all reach the “too much” stage. A recent study has also shown that once our large cities reach a certain population level, their economic growth slows appreciably.   

Today, we can no longer assume that greater density will always be good. It is unfortunate that we are just beginning to look at where those cut off points might be.

Where Are Concerns and Discussions About Community, Equity, Justice and the Common Good?

These are the kind of concerns that I think best justify economic development activities and projects. It is amazing to me how often they are never raised when economic development projects, programs and policies are being discussed or how little attention is paid to them when they are. For example, one would be hard pressed to find them in the discussions about the NYC Amazon 2HQ or the Hudson Yards projects. While housing affordability was raised in the fight against the 2HQ project, incentives and jobs seemed to consume most of the oxygen in that debate.

For decades, downtown revitalization advocates argued that downtowns should be everyone’s neighborhoods. Can that aspiration be achieved when downtowns are increasingly being turned into places that even solid middle income households cannot afford to live or play in?

These concepts are fundamentally about values and often hard to quantify. They are also often very political. Discussions that involve them can be highly emotionally charged, even combative. Consequently, public officials may be inclined to want to avoid them. However, that avoidance does not diminish the importance of these concepts – or the incompetence and turpitude of too many of those public officials.

Who’s in Charge of Development?

Amazon’s 2HQ national effort initially drew a lot of my interest, but I slowly grew uneasy about it. The reason for my unease did not become clear until Amazon reneged on the NYC-LIC deal: Amazon and its needs and plans were driving things, not the needs and well-thought out plans and strategies of the responding communities.  Amazon was taking charge of the economic development processes in all of these communities so hungry for more jobs and huge investments in real estate. The cities were responding like giddy, compliant lackeys, anxious to give away anything to get such a prestigious corporation with all its promised jobs and investment dollars.

Amazon early on plainly established by its actions that they had an “our way or the highway” policy, but political leaders — many of whom claim to be powerful politicians — just accepted Amazon’s lead. Amazon reneged in NYC when it became clear it would have to engage in some real negotiations. They were never prepared to be a true development partner. They were/are more of a potential imperial development partner.  Cities do not need such imperious corporations –- they care mostly about themselves, little about the communities in which they are located.

Some More Specifics About Small Town Entrepreneurial Environments (STEEs)

By N. David Milder

Introduction

Back in October of 2017, DANTH, Inc posted my white paper “Toward an Effective Economic Development Strategy for Smaller Communities (under 35,000)”(1).  A central concept in that strategic approach was the STEEs (Small Town Entrepreneurial Environments). I then stated that: “Though I strongly suspect that such environments exist today somewhere in the USA, to date, I have not encountered one.”  I then proceeded to outline what I then thought the major components of s viable and effective STEE might be. Since then, I have done additional research and visited and worked in a number of smaller communities and learned a good deal more about possible STEE components. The objective of this article is to detail those recent findings.

Viewing STEEs as Informal Business Incubators.

For a number of years now, I have been arguing that small town downtowns could be informal business incubators. My recent work made me realize that STEEs function much like informal business incubators. They are informal in the sense that all the elements of a business incubator are not in one building operated by an organization tasked to do incubation. Instead, they are dispersed within a downtown in different locations, and each may have a separate management organization. An interesting blog post by Jim Metcalf on the SCORE blog argues that incubator functions may be  spread beyond the downtown and be found in the whole small town (2).

Formal business incubators have long been a fairly widely adopted economic development tool. I would argue that they will always have a vital  role to play for firms that have substantial growth aspirations, that yearn to be big in terms of revenues, profits and employees, that want to be the next Apple, Facebook or Amazon. However, that usually means that the formal incubator will nurture a relatively small percentage of the businesses in a smaller community. For example,  the well regarded Wyoming Technology Business Center operates incubators in the cities of Laramie,Sheridan and Casper and:

TABLE 1

  • In Laramie ,the incubator has 8 clients and there are 657 residents who are self-employed, but have unincorporated businesses in the city (see Table 1).
  • In Sheridan, the incubator also has 8 client sand there are 340 people who are self-employed, but have unincorporated businesses in the city.
  • In Casper, the incubator has 12 clients and there are 1,567 people who are self-employed, but have unincorporated businesses in the city.

Informal incubation functions can help the micro and very small businesses that are usually fairly numerous  even in smaller towns, as is evidenced in Table1. Their operators very often have more modest aspirations, mainly focused on how to have more stable and/or higher annual personal incomes and the steps that might help them to achieve those goals.

Many of these micro business operators work from their homes.  Back in the 1990s,  these home-based operators were not deemed of interest by many economic development experts, because it was thought that their numbers were few and that they seldom if ever hired any employees. More recent research, however, suggests that their numbers are far from insignificant and, at least in some instances, can be very significant (3). As Dave Carlson, the administrator of Lancaster. WI, has noted, these micro businesses, in aggregate, can equal the number of jobs provided by his town’s largest employer. Also, recent research indicates that these home-based entrepreneurs may indeed hire some employees (4).  

My recent work in a few smaller communities in Upstate NY confirms Metcalf’s view – the towns had many incubator components, and many were frequently being performed in the town, but not in the downtown. The downtown obviously will be stronger if it’s the location where the vast majority of these functions are performed.

STEEs Do More Than Micro and Very Small Business Incubation

STEEs are very much related to the nurturing of creative endeavors within our smaller communities. However, they can also be a huge asset in the retention of a town’s current creatives and the attraction of more of them from other towns and cities. Those in large central cities within a 2.5to 3.0 hour drive are where the best prospects now live and work.

As I have demonstrated in several other articles and as noted in a recent article in the New York Times, a significant number of big city creatives are being drawn to rural local communities either as second homeowners or in complete, year round relocations (5). These relocations are being motivated primarily by quality of life considerations. While many create new jobs in their new towns, others bring their old jobs with them or create new jobs because the local broadband pipe allows them to telecommute. More affordable housing , a lower cost of living, family, great scenery, and a stronger sense of community are other Q of L lures.

Table 2, below, presents 12 STEE functions that are in bold and underlined type. The more of them that are present in a town, the stronger will be the town’s ability to attract and retain creative enterprises. The more of them that are in the downtown, the stronger it will be economically. Under each function are “tools” that can be used to perform that function. Here, the question is not how many can be used, but the strength with which they perform. Better to have one thing that really works than several of marginal utility. Yes, it’s better still to have several that really work well.

TABLE 2

Many town and downtown STEE assets are not recognized or properly appreciated by local leaders. This matrix can be used by downtown leaders to assess their STEE assets.  This should help them to then determine:

  • The elements they may want to think seriously about adding.
  • How the existing elements can be organized so that they are better known and more easily utilized.
  • How these STEE assets can be marketed to attract more creatives to move and do business in the community and the downtown.

The matrix includes such typical incubator functions as providing a work space, technical assistance for business operations (e.g., marketing, bookkeeping, human resource management, etc.), networking opportunities, and help with financing. It also includes such things as affordable housing, accessible broadband, and an existing cluster of creatives – important factors in recruiting creatives. Additional elements listed are the presence of an organization tasked to maintain and grow the STEE and someone to manage the provision of technical assistance. Downtown EDOs have typically avoided like the plague the latter two types of endeavors, but one may reasonably argue that, under the new normal, cultivating a strong, vibrant STEE will need to be a growing part of their missions.

Some Observations About Specific Types of STEE Components

While in the past few years I have come across some co-worker spaces and a few incubators that are located in in small towns, they were not the STEE components that impressed me the most. Here are some that impressed me as being far more important.

Libraries. In more and more small towns, the public library has become – or is becoming – an anchor component for its STEE.Libraries are changing big time. As one blog has described it, many libraries are now  “in the process of transitioning from a content collection-only facility to a content creation-inspired makerspace” (6). Not only do they provide spaces where “makers,” a term that is often broadly defined, can meet, learn from each other, and network, but they also provide a wide range of equipment the makers can use in the library. A few are even assembling an inventory of maker “kits” that are loaned out to makers for their use off site. Some librarians are arguing that libraries need to become “creative spaces.”

The Phillips Free Library in Homer, NY (pop 6,200) is a good example. It has two writers clubs, a film making club and a significant Makerspace, filled with a lot of equipment (see Table 3).

TABLE 3

Arts Coops. In many of these small towns there are a fair number of artists and artisans. Few are likely to get all their incomes from their artistic endeavors, so many will need additional employment. As one artist in Small Town X told me, and several of his artist friends then concurred: “Small Town X is a great place for artists – except for those who want to earn a living.”

Most lack business related skills and want help in marketing and getting exposure. Unfortunately, it is often difficult to get these small town artists and artisans the technical assistance they need and often want because the assistance  simply does not exist and/or the artists’ great need for independence, that they share with other small businesspeople, makes them resistant consumers.

In these small towns, getting say 20 artists and artisans the technical assistance they need may be a daunting and resource burning task.For that reason, coops are an appealing concept. When they are functional, they substantially diminish the needs of the participating artists for technical assistance. The coop can handle a lot of an artist/artisan’s marketing and bookkeeping needs, while creating a social network among the coop members.  

However, coops are often unstable and short-lived. In recent months I have found one that closed, another that was reorganized and a third that appears to have some long-term stability. Even the venerable Torpedo Factory in Alexandria, VA, had a recent organizational and financial crisis. Someone, who was involved there on the management side, noted that managing artists was like trying to herd cats. Coop leaders very likely to face a similar challenge.

The questions that comes to my mind are:

  • Can the management of a coop be improved more easily, efficiently and effectively than improving the business-related skills of their 15 to 30 artist/artisan members? Getting them to individually attend an eight-to-ten month course comprised of four 10-hour workshops and up to six two-hour interim sessions, as a highly regarded program in Montana does, requires a significant amount of commitment from the artists/artisans.
  • The Montana program is indeed interesting and useful, as well as a model for similar efforts in other states. In Montana, it has improved the entrepreneurial skills of 400+ artists over 5 years, resulting in impressive increased net sales of 397% with a 44% increase in out-of-state sales, on average, since participating in the program. Nevertheless, I still find myself asking: could the development of a program aimed at making coops more successful be a cheaper and more productive way of meeting the technical assistance needs of artists and artisans (7)?    

I do not know of anyone who has addressed the question of how to make arts coops more stable and successful. Someone perhaps should take a stab at it.

 Vendor Marts. I have long been familiar with antiques malls, but somehow vendor malls, their kin, had not been on my radar until I recently came across one in a smaller community in Upstate NY.  However, I had seen one in a downtown in NJ a few years ago that was being pitched as a retail incubator in the owners attempt to win support from the downtown’s EDO and city officials.

Indeed, my recently aroused interest in vender malls is precisely because of their incubation and STEE  capabilities:

  • They provide small, maybe about 150 SF,  and comparatively affordable spaces, maybe about $2,700/yr,  for aspiring retailers, artists and artisans.
  • The vendors must “mind the store” and be behind the cash register for at least a few days a month, so they can get some retail experience. For many artists and artisans, whose primary concern is creating, not selling, this can be a very attractive feature.
  • Vendors that do well then can “graduate” and lease a regular storefront elsewhere in the downtown or town. The vendor mall I recently visited in Upstate NY had just had such a graduate.

Any competent downtown EDO should be able to set up a vendor mart in an empty storefront. It could increase the incubation capabilities of the vendor mart by helping the vendors learn about available technical assistance providers and then helping the vendors to connect with the TA providers. Of course, if the downtown already has a vendor mall, it could similarly increase their incubation capabilities.  

Project Generated Local Investment Groups. A few years ago, in the twin cities of Scottsbluff and Gering in Nebraska, I came across informal investment groups that were formed within the local business community. One such group, for example, has helped the development of a new hotel in downtown Gering. I recently heard of similar type group being formedt o help fund the significant expansion of a local craft brewery in a smaller community also located in Upstate NY. The town may well have lost the craft brewery had not the local investment group emerged and taken action.

These groups usually are formed in response to a public need that has been identified by local officials or by well-known private sector needs.   

Opportunity Zones (OZs). Recent congressional action has significantly increased the capital investment incentives that can be offered in OZs.  While many in the economic development community are waiting to see how those incentives are used and the positive impacts they produce, there now is a hopeful optimism that those incentives can be powerful.

I have come across a number of downtowns that are entirely or partially covered by OZs, but do not tout them very much. Perhaps their new incentives are just too new for local leaders to figure out how they can be used. It also may be that the incentives go to Qualified Opportunity Zone Funds:

“A Qualified Opportunity Zone Fund is any investment vehicle which is organized as a corporation or a partnership for the purpose of investing in qualified opportunity zone property (other than another qualified opportunity fund) that holds at least 90 percent of its assets in qualified opportunity zone property (8).”

Many REITs and other commercial real estate investment funds are making OZ investments. For smaller towns to attract these big time investors, they will have to market the opportunities offered in the OZs  and compete for the available investment dollars.

Might it be better to have the local residents and businesspeople who participate in the informal investment groups form their own QualifiedOpportunity Zone Fund?  

Some Final Comments

Since I published the white paper I have been repeatedly impressed by what I have found in the smaller towns I have visited and read about. (See especially: “Our Towns: A 100,000-Mile Journey Into the Heart ofAmerica” by Deborah Fallows and James Fallows). I certainly recognized that they have significant challenges, but I also found a large number of capable and inventive people and capable organizations. Together, they are often building communities rich in their quality of life, if so far not in household incomes and corporate profits. There are often substantial human, organizational and economic resources in these communities that go unnoticed by outsiders and locals alike. Rather than disappearing, I expect that within the next 10 years or so our smaller communities, especially those within a three-hour drive of a major city, will become “hot” and attract many new residents and jobs. And that’s the view of a dyed in the wool New Yorker, who may like to visit smaller towns, but would never live fulltime in one – unless he has to.  

Endnotes

1) See: https://www.dropbox.com/s/tnwdomfzwrkv5i1/White-Paper-Toward-an-Effective-Economic-Development-Strategy-for-Smaller-Communities-1.pdf?dl=0

2) Jim Metcalf. “Small Towns as Business Incubators.” SCORE Blog, March 29, 2018. https://www.score.org/blog/small-towns-business-incubators

3) “According to the 2012 GlobalEntrepreneurship Monitor (GEM) Report, 69 percent of all businesses are started from home and 59 percent are still operating from their homes three years later. Additionally, ‘only one-fourth of the entrepreneurs surveyed stated they had no employees working for their businesses. Given the high prevalence of entrepreneurs operating at home (two-thirds of Total Entrepreneurial Activity),this finding suggests that many actually had employees in their home-based businesses.’” Melissa Davidson. “FOCUSING ON HOME-BASED BUSINESSES: The Forgotten Sector. IEDC EconomicDevelopment Journal,  Volume 17 / Number 1/ Winter 2018, pp.11-18, p 11.

4) Ibid.

5). N, David Milder,  “Quality-of-Life Based Retail Recruitment: CommunitiesWith Populations Under 35,000,” IEDC Economic Development Journal,  Volume 16 / Number 3 / Summer 2017. Seealso:  Brooke Lea Foster. “Forget theSuburbs, It’s Country or Bust  “ New York Times, Dec. 14, 2018    https://www.nytimes.com/2018/12/14/realestate/forget-the-suburbs-its-country-or-bust.html

6) There’s even a librarian guide to makerspaces. See: https://oedb.org/ilibrarian/a-librarians-guide-to-makerspaces/

7) For the Montana program see: https://art.mt.gov/map. “Artists in the program (2009-2014) report increased net sales of 397% with a44% increase in out-of-state sales on average since participating in the program, proving that the program works. The Montana Artrepreneur Program has earned national acclaim and has impacted nearly 400 artists across Montana.” “FY2019Activities

8) See:  https://www.wellsfargo.com/the-private-bank/insights/planning/wpu-qualified-opportunity-zones/