A New Approach: Putting "Smokestack Chasing" Behind Us
A New Economy
Across the nation, shifting economic forces have altered economic development growth strategies. For decades, economic developers focused primarily on attracting businesses from other regions to relocate to their market. Known as “smokestack chasing,” the common practice was to travel to other markets and convince large firms that they would benefit from incentives, location, and talent if they moved to this alternate location. Data shows that today, business relocations only account for a very small percentage of job growth, while new and expanding businesses are responsible for the majority. To respond to these evolving needs, economic development organizations have had to shift their focus.
The business relocations that were once the lifeblood of an economic development organization now account for less than two percent of the job growth for the average region, says Marek Gootman, a fellow and director of strategic partnerships and global initiatives at the Brookings Institution. More than half of all job creation comes from new business openings (56.3%), while the remainder comes from firm expansions (41.8%). Fostering this growth is another area where economic developers are shifting their attention. But where is their focus most likely to yield results?
One key driver of regional competitiveness is in traded sectors, according to Gootman. These are businesses that exchange their value outside their region and bring money in, driving high-quality economic growth. These businesses are typically in “advanced industries” that are critical segments of the US economy, such as pharmaceuticals, aerospace, and telecommunications. And not only do these businesses create more local jobs, the jobs are both higher paying and accessible to many workers. One out of every two advanced industry jobs require less than a four-year degree.
Exports and foreign direct investment (FDI) have also become major drivers of regional growth. As an ever-growing portion of middle class consumers exist outside the country, connecting regional businesses with international markets presents great opportunity. Foreign companies also find opportunity to expand or synergize with existing US firms. On average, the firms that are acquired by foreign parent companies outperform domestically-held firms. Economic developers can encourage FDI by developing a strong global identity for the region.
Another area of focus for economic developers is inclusive growth, which creates opportunities for all segments of the population.
The US economy has regained jobs since the great recession, but household incomes haven’t fully recovered, and overall, middle wage jobs are shrinking as a share of the labor market. For Jeffrey A. Finkle, president and CEO of the International Economic Development Council (IEDC), equity can best be addressed by “bringing back middle-class jobs.”
For his part, Marek Gootman sees a need to identify the sectors that produce middle income and middle skill jobs that pay a sufficient wage for 30-35 hours a week, offer health benefits, and aren’t seasonal.
Both approaches require addressing infrastructural issues, such as public transportation, which allow many people to participate in the economy. Every year, the IDEC conducts a nationwide survey among economic development organizations, and it’s no surprise that the most recent one identified inadequate infrastructure as the third greatest challenge economic developers said they faced in 2017.
For Jeff Finkle, another major issue economic developers must contend with today is workforce development. In IDEC’s survey, lack of skilled labor was identified as one of the industry’s three greatest challenges. The percentage of respondents identifying it as an issue has escalated rapidly, from 14% in 2010 to 55% in 2017.
Changing U.S. demographics and the new economy are major contributors to the increasing need for skilled labor. Baby boomers are retiring in significant numbers, in many cases leaving a leadership gap, but workers across all fields are facing what Marek Gootman calls “the digitization of occupations.” He adds, “workforce requirements are very different than they were 15 years ago.”
For an upcoming report, the Brookings Institution looked at 150 occupations and the technological skills needed for them. From 2004-2014, the overall need for high digital skills had climbed from 5% to 20%, but, notes Gootman, “even a comparatively low-tech occupation like truck driving has gone from a low-to medium-need skill level.”
With so much change to contend with, how are regions across the country adapting to the new reality that has replaced smokestack chasing?
In San Diego, Gootman describes an “eco-system, connecting firms and educational institutions.” A recent article in Blueprint has this to say about San Diego: “Thanks to a combination of top-notch universities, world-renowned research institutes and a somewhat lackluster downtown, a slow and methodical tech growth has taken place over the past two decades and shaped the city into the booming innovation center it is today.”
Minneapolis St. Paul, says Finkle, “is at the top of their game in many ways. They have specific individual industry clusters and they work them hard. Unemployment overall is very low.”
Another city Finkle considers worthy of note is Cleveland, which, he says, is often linked with Baltimore. “The Cleveland Foundation and private organizations fund economic development in a big way.” The “funding stream” also involves Dan Gilbert, Quicken Loans founder and majority owner of the Cleveland Cavaliers, who Finkle comments, “sees a significant upside in investing in downtown real estate.”
Gootman also has Kansas City on his radar. Its “Kansas City Rising” campaign is a long-term vision for the greater Kansas City region. “They’re looking at big goals, strategies, trade, ideas and people, and prioritizing core industries,” he says.
What these disparate locations have in common, note both Gootman and Finkle, is that all economic actors are united around a big idea and working together on a comprehensive effort to drive economic growth in their regions. Strategy, collaboration, and consistent messaging about the market are imperative to success.
According to Thomas Friedman, the New York Times columnist and author, “The national government…is way too big to keep up with the pace of change.” It’s cities and regions that will drive economic growth and prosperity.
Greater Baltimore, in spite of its many assets, has been stagnant post-recession, while peer markets advance. Establishing a clear vision for economic growth in a global marketplace will require all economic actors within the region to think bigger, bolder, and differently.
There’s no time to waste.