23 Lessons I’ve Learned About Economic Development

Readers of the urbanSCALE blog generally fall into two camps: those who know more urban planning and those who know more about economic development.  And some of you may be like me, with roughly equal interests in both of these fields.  One of my goals in creating urbanSCALE in the first place was to bridge the gap between the two fields.  Because I believe that, while urban planning and economic development are separate professions, they are highly interdependent.

One of the cool things about economic development as a professional field is that everyone seems to end up in it by accident. People come to economic development from all sorts of backgrounds: urban planning, real estate, finance, law, entrepreneurship, etc.  And there aren’t really any university degrees in economic development…though you can get a degree in related fields like economics, business, geography, etc.

All of this creates an environment where most people who work in economic development are in a constant learning mode.  That’s where I am right now.  I’m learning new things all the time.  And that’s the fun part.

I don’t believe these lessons are universal laws.  I share them as food for thought.  These are just some of the things I’ve observed and learned so far.  I hope they help.

1. Regionalism trumps localism and globalism.  You’ve heard the saying, “think globally, act locally”, right?  Well, in economic development the key is to think regionally and act regionally.  Too many regions suffer from internal competition.  One city fighting against another for a new retail center.  One county fighting against their neighbor to attract the next corporate facility.  When the individual communities within your metro area compete against each other, this not only wastes valuable resources, it also sends a bad message to the business world that your region is not a good place to operate a business.  Clearly defined roles for regional collaboration are necessary for a successful economic development program.
2. Your community’s image is your biggest asset (or liability).  This affects everything else.  It’s like Henry Ford once said, “Whether you think you can or you think you can’t, you’re right.”  The perceptions people have about your city matter…a lot.  Community perceptions are usually based in reality, but even when they aren’t, they still affect reality.  If your city is viewed as a vibrant community, then you won’t have much trouble attracting skilled workers, entrepreneurs, and businesses.  If, on the other hand, your city is viewed as a backwater, then it’ll be an uphill battle to attract new people…even if your city’s companies have jobs they need to fill.
3. If you claim to be targeting every industry, you’re actually not targeting anything.  One of the keys to successful economic development is to focus on a few important things – whether those things are public investments, marketing campaigns, or target industries – and ignore the rest.  If your community tries to be and do a little bit of everything, chances are you’ll accomplish a whole lot of nothing.  Herbert Bayard Swope, the first recipient of the Pulitzer Prize, once said, “I can’t give you a surefire formula for success, but I can give you a formula for failure: try to please everybody all the time.”
4. A diverse economy is not just a lofty goal, but a must-have for ongoing regional prosperity.  This might just be the most important lesson in this list.  And it’s a lesson that history has taught us over and over again: the ghost towns of the Mountain West that were abandoned when the mines shut down, the Rust Belt communities that lost their manufacturing base, the oil boomtowns that went bust when the oil stopped flowing.  Of course, some industries are more volatile than others.  But if your region is heavily dependent on one or two industries, or a handful of large employers, it’s time to aggressively target other opportunities for economic diversification.
5. Access to a skilled workforce is almost always the most important factor sited by businesses when making a decision on where to expand.  The same goes for communities.  This is usually number one on the list of challenges cited by communities in recruiting new businesses.  Without an available workforce with the right skills, companies can’t operate.  Which begs the question: how can a community ensure that it has an available workforce?  There are basically 2 ways: attract skilled workers from other cities or develop the talent locally.  To attract talent from outside your city, you need to have a good quality of life and plenty of job opportunities.  To develop the right talent within your community, you need to align your educational institutions with your employers and create a pipeline of future workers.
6. Blue-collar jobs are not seen as “sexy” by today’s young adults.  Tons of communities have seen job growth in manufacturing in recent years.  And yet, most of these communities (and the manufacturing companies within them) cite a shortage of labor as a huge problem.  A big reason for this is quite simply the less than desirable perception of blue-collar jobs that young people hold today.  Instead, the types of jobs seen as desirable by today’s young adults are either high-status or high-technology.
7. Economic development is a team sport.  At least in the cities that are doing it successfully.  The successful EDOs (economic development organizations) have lots of “friends” that play a key role in business attraction and business retention/expansion.  These friends include: CEOs of local companies, local elected officials, commercial real estate brokers, heads of local colleges/universities/school districts, small business owners/entrepreneurs, department heads of local government entities.  This also means that the best approach to economic development is the 3P (public-private partnership) model.  A regional economic development program must be supported by the region’s businesses and by the region’s cities, counties, and other government entities to be truly successful.
8. The best offense is a great defense.  Back in the early days of economic development (prior to 1980, give or take), the primary focus was on business attraction.  Today, there is a much stronger focus on business retention and expansion.  This is due to the realization by EDOs that the employers that already exist in your region are more valuable than the employers that may or may not choose your region in the future.
9. Being a low-cost community not always the best strategy.  The higher the cost, the higher the perceived value.  Of course, for some industries, costs of a community are the most important factor…but these industries are the exceptions.  When it comes to a metro area’s operating costs, you often get what you pay for.  In most cases, that extra money will buy you a more skilled workforce, access to a larger pool of customers and suppliers, and a more sophisticated network of infrastructure (IT and fiber optics, international airports, passenger rail, etc.).
10. Entrepreneurs exist in every community, big and small.  Large urban regions get all the attention when it comes to innovation and creativity.  And for good reason.  Metro areas in the U.S. account for the vast majority of our nation’s economic output.  And many large urban areas are hotbeds of entrepreneurship and start-up activity.  But big cities are by no means the only places where entrepreneurs exist.  I’ve seen this first hand.  Some of the most creative, successful entrepreneurs I’ve met are from small towns and rural areas.  I’ve seen farmers and ranchers that also own manufacturing companies, operate seasonal tourism businesses, and invest in other local businesses.  I challenge you to go to any small town in the U.S. and spend some time getting to know the local business community.  I mean, really get to know the local business owners and entrepreneurs…their history, their companies, their plans for the future.  I’m willing to bet that, like me, you will also be impressed by the level of entrepreneurship and creativity that you find.
11. Comparing property tax rates among a handful of cities in different states is much harder than you’d expect.  You might think it would be fairly straightforward to compare the level of property tax you might pay in different states.  And it sure would be nice if it was this simple.  But it isn’t.  Property taxes are calculated in so many different ways, it would take far too long to list them all here…but here are a few of the big differences: Some states have different rates for residential real estate and commercial/industrial real estate, some don’t.  Some states use property values that reflect actual market prices, some don’t.  Some states use assessment ratios, some don’t.  Oh, and there are often differences within states…I won’t even attempt to describe these.
12. Here’s a simple rule of thumb to measure your community’s quality of life: If your region’s job growth over the last decade was significantly stronger than its population growth, your quality of life is lacking.  This means that even though your economy is creating lots of new jobs, this isn’t translating into lots of new residents because these workers would rather live someplace else, where they perceive the quality of life to be higher.  On the other hand, if your region experienced lots of population growth, but not as much job growth, your community has a high quality of life.  This means that lots of people are voting with their feet and choosing to live in your community even if they don’t have a job lined up.
13. Incentives do matter, but not in the way most people think.  Very few companies choose a community for an expansion or relocation primarily because of incentives.  This is despite the fact that some form of incentives (tax abatements, free land, workforce training, etc.) are a part of nearly every economic development deal.  Incentives are important as a tie-breaker.  Once a company has narrowed its search down to 2-4 locations that meet all of its must-have site selection requirements, then incentives come into play.  At this point in the game, the community with the most aggressive incentives has the best shot at landing the deal, all else equal.
14. Communities hold consultants and outside experts in high regard.  Elected officials and business leaders often pay more attention to the words of consultants than they do to their own community’s economic development officials.  This is one of the reasons why EDOs (economic development organizations) hire consultants to develop economic development strategic plans for their communities.  I can’t tell you how many times I’ve heard EDOs tell me some version of this statement after a public meeting “that’s exactly what we’ve been telling them for years, but they don’t listen to us.  They only believe it when you say it.”
15. It seems like every region is the “world’s capital” of something or other.  Or at least the number one place in the U.S. for a particular industry niche or activity.  Let me give you just a few examples from my home state of Texas (you can probably add many more from whichever state you reside in). In Austin, we’re the “Live Music Capital of the World”.  The Houston metro area is the “Energy Capital of the World”.  Lubbock is the “Cotton Capital of the World”.  Floydada, a small town 45 minutes from Lubbock, is the “Pumpkin Capital of the U.S.”.  And Bandera, a small town about 45 minutes from San Antonio, is the “Cowboy Capital of the World”.
16. Every community has potential for improvement.  This is perhaps my favorite thing about economic development.  No matter what the situation is in your community, there are untapped opportunities.  There are always multiple possibilities for improving your regional economy and enhancing the quality of life for your region’s citizens.  And as long as you believe this, you can find ways to improve your community.
17. Economic development is not a zero-sum game.  Some people believe that when one region enhances its economy, another region loses out somehow.  I don’t subscribe to this point of view.  Of course, economic development is a competitive activity…and there are certainly winners and losers, particularly when a business relocates from one city to another.  But, even in the case of relocations, this does not automatically lead to an even win-lose situation.  The city that gained the new business is an obvious winner.  The company that changed locations is a winner.  And the community that lost the company might also benefit in a number of ways: new marketable real estate assets, a larger available workforce for other companies within the same sector, a greater urgency among civic leaders to focus on community improvement and retention/expansion of existing employers.  True economic development starts with a more fundamental improvement within a community.  When you make your city more vibrant, it does not translate into a loss for other cities.  In fact, these other cities can learn from your success.
18. There is never a “wrong” time for bold economic development initiatives.  If your regional economy is in a major recession, now is the time to take a risk and try out a new strategy that could kick-start your economy.  If your community’s largest employer just announced a mass layoff, now is the time to aggressively pursue new companies while strengthening the support for your existing businesses.  On the other hand, if your economy is booming, now is the time to vigorously market your city to build on the positive momentum.  If your region is growing rapidly, now is the time to diversify your economy by throwing lots of support behind one or two small, but potentially high-growth emerging industries.
19. There really is a strong Midwestern work ethic.  I’ve put this stereotype to the test and it’s true.  In my previous role as an economic development consultant, I’ve analyzed the results of thousands of confidential online surveys of business owners and managers in communities across the U.S.  And the workforce in Midwestern states is consistently rated as having a much higher work ethic than the rest of the country.
20. Every city seems to have an onerous, red-tape-filled, real estate development review process.  I’ve yet to meet someone in the private sector who is completely satisfied with their community’s development review process.  Business executives in virtually every city complain about how difficult it is or how long it takes to build a new facility or expand an existing facility.  So, what’s the lesson here?  Is it really that bad everywhere?  The lesson is that a local government can never go too far in attempting to streamline its development review process.  There appears to be an unlimited potential (and desire) for improvement.  The recent proliferation of certified shovel-ready sites is a good indicator of this.
21. Cities and urban regions are more important than ever before.  Lots of so-called “experts” predicted that the rise of the internet would lead to the demise of cities.  They said that geography no longer matters because people, companies, and investment dollars are more mobile than ever before because of the new global high-tech economy.  They were wrong.  Urban areas have continued to grow, not in spite of the high-tech economy, but largely because of it.  In fact, the last couple decades have even seen a major shift of venture capital firms, start-ups, and technology firms moving into downtown areas and inner-city locations.  And today’s entrepreneurs, skilled workers, and young people strongly favor urban living environments instead of suburban or rural locations.
22. The “multiplier effect” does exist in the real world.  The multiplier effect simply states that a new project – let’s say a new corporate headquarters with 500 new jobs for example – will create direct, indirect, and induced economic benefits.  The direct benefits are the 500 new jobs.  These direct benefits create indirect benefits, which are the jobs that are somehow related to the corporate facility like accounting firms, marketing services, security personnel, and so on.  And lastly, the direct and indirect benefits will lead to induced benefits that come from additional dollars spent on goods and services in the regional economy as a result of the new by direct and indirect jobs.  And economic impact studies are a valid way of measuring the impact of a new capital investment or business expansion…if of course, they are conducted after the fact.  However, in most cases, economic impact studies are conducted before a new project is built (a corporate relocation, an expansion of an existing company, a new public facility, etc.).  And these “before-the-fact” studies rely on assumptions about the anticipated effects of the new project.  So, it’s always advisable to take a close look at just how realistic these assumptions are, and even then, to take the results of the economic impact study with a grain of salt.
23. Traffic congestion is actually a good thing for your metro area.  I’ve written much more about this here, but for this list, I’ll keep it short and simple.  Lots of politicians and community leaders in major metro areas make statements like “if we don’t fix our traffic problem, our economy is going to start tanking.”  Sadly, these “experts” don’t realize the flawed logic inherent in their argument.  The conventional wisdom about traffic congestion is embodied in one of Yogi Berra’s famous paradoxical quotes: “Nobody goes there anymore because it’s too crowded.”  In reality, the traffic problem is a direct result of a growing, robust regional economy and the only way to completely get rid of traffic congestion is to kill your economy.  The notion that your region’s economy will decline because of traffic congestion, and that economic growth will only take hold if you get rid of the traffic is simply not true.

And here’s one last lesson that I’ve yet to figure out:  Why is it that when economists make inaccurate predictions, they are still respected…yet, when meteorologists make incorrect forecasts, they receive hate mail and death threats?  Maybe you can help me figure this one out.  In any case, it makes me glad I ended up with a career in economic development instead of meteorology.  (Side note- I actually was on track to enter college for meteorology before I really began learning about geography and urban planning.  From age 6 to about 16, I planned to be the weather guy on the local news or to work at The Weather Channel.)

But most importantly, I know I’ve missed some stuff on this list.  What are your favorite lessons about economic development?

John Karras (32 Posts)

John Karras believes that all communities have the potential to become more vibrant. John’s professional passions are aligned at the three-way intersection of urban planning, economic development and transportation policy. John founded urbanSCALE.com to empower urban planning and economic development professionals with the knowledge and tools needed to make their communities more vibrant. John is also the creator of the urbanSCALE Rating System, the first comprehensive measure of how urban a city is on a scale of 1 to 10.