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The Avenue

Why economic development matters

Amy Liu

In response to the uneven performance of the U.S. economy, the latest economic report to the president makes the case for inclusive growth. It calls for policies to increase productivity and the economic participation of the current and future labor force. It recognizes the role of early childhood education, criminal justice reform, and neighborhood desegregation, alongside curbs to rent-seeking behavior.

These sizeable challenges require federal action. But federal policies alone are insufficient. They work best when matched with smart economic strategies at the state and regional levels.

Harvard Business School professor Michael Porter has aptly described the United States economy as a network of metropolitan economies. Each metro economy is organized around a unique mix of industry specializations and labor and housing market characteristics that shape their economic and social fortunes. While macro policies and regulatory reforms set important conditions for growth and access to opportunity, it is ultimately the role of local and regional actors and institutions to address the unique market failures and opportunities in their community. For instance, federal policy can reward sector-based approaches to workforce programs. But success is dependent upon local leaders’ ability to effectively set goals, organize firms, and reach out to target populations in ways that result in a new job for a worker and a skilled hire for an employer.

This is why it’s imperative for regional leaders, with their state partners, to get economic development right. It’s time to expand the goals and vision of economic development—beyond one-time job creation schemes or siloed, one-off programs—to create better outcomes for people, firms, and communities.

In a new report, I reinforce what the goal of economic development should be, as summarized by decades of academic literature: to put a region on a path to higher growth by improving the productivity of firms and people in ways that leads to better incomes and living standards for all.

This is an approach that prioritizes the innovation, skills, and infrastructure needs of existing industries over efforts to recruit businesses from another state or municipality, which far too frequently generate few jobs at high taxpayer expense. This approach emphasizes creating value and income in the economy through increased productivity and trade, especially from our advanced industries, versus reducing the cost of a single transaction through inefficient tax giveaways. It makes the skills and education of workers and the role of opportunity-rich neighborhoods essential ingredients to economic competiveness, not simply a social agenda.

Fortunately, many public and private sector leaders in cities and metro areas are embracing this broader vision of economic development. They are setting long-term goals for broad-based prosperity, matched with near-term metrics and actions. They are bringing together incumbent firms with entrepreneurs to create and test new solutions and connecting leading sectors to the global economy. They are doing the complex work of knitting together stove-piped programs and systems to create a more seamless pipeline of talent prized by industries. And they get that economic inclusion includes connecting distressed neighborhoods and neighborhood-based entrepreneurs to the broader economy.

This kind of economic development is harder work. It involves high-level business and public engagement, co-designing efforts with partners across sectors, and tracking performance that is often invisible and difficult to measure. It requires engaging community leaders at the table of civic agenda setting and finding common language to build a shared future. The reward is more effective programs that can lead to transformative, long-term change, or as one civic leader called it, the end to “episodic excellence but systemic failure.”

Economic development remains a patchwork of innovation and legacy practices. We need to encourage more of the former in more regions if we are to make a dent on economic growth, prosperity, and inclusion.

A local leader once admitted privately that they thought they were working “on the margins” of the economy. On the contrary, this kind of economic development matters more than ever.

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