All of us in business or government believe we know what economic development consists of: Bring new companies into our state or city and the economy will grow.
Indeed, chambers of commerce largely operate on the company attraction model. But stealing someone else’s company is largely a zero-sum game. And sometimes it is a net economic drain on a state that effectively pays for that company to be attracted into our communities. What is more, if a business consists of a locally traded service or product, it will not create net economic growth.
So what should we know about economic development?
The Economic Development Administration of the Department of Commerce recognized the many narrow, varied or outdated meanings and practices associated with the concept and commissioned a paper to help clarify the issues and better inform the practice.
In it, Maryann Feldman and colleagues point out that economic growth is not synonymous with economic development, with the former being “simply an increase in aggregate output …” and the latter being “… concerned with quality improvements, the introduction of new goods and services, risk mitigation and the dynamics of innovation and entrepreneurship.”
The paper furthers this distinction by providing the following definition:
“Economic development is the expansion of capacities that contribute to the advancement of society through the realization of individual, firm and community potential. Economic development is measured by a sustained increase in prosperity and quality of life through innovation, lowered transaction costs, and the utilization of capabilities towards the responsible production and diffusion of goods and services. Economic development requires effective institutions grounded in the norms of openness, tolerance for risk, appreciation for diversity, and confidence in the realization of mutual gain for the public and private sector. Economic development is essential to creating the conditions for economic growth and ensuring our economic future.”
Energize and innovate
Economic development is multifaceted — and is largely about capacity building that is resilient and innovative. And that means that we need to look and act more broadly than just attracting new companies.
It means that we look not only to developing the skills of those already in our communities, but that we think and act critically about talent attraction — talent that can energize our base and infuse new ideas that become the basis of new companies, products or services.
It is about seeking innovations, not just within single enterprises, but from wherever new, relevant technologies can be sourced, just as the concept of open innovation has proven possible. And it means recognizing that talent thrives in vibrant communities that have a rich mixture of cultural as well as economic resources.
In short, economic development depends on a much broader and complex set of coordinated, purposeful activities than are now generally considered. When we understand the full range of options, we will better know how to apply them to meet the economic challenges of each region, state or nation. We truly will know it when we see it. ●
Luis M. Proenza is the president emeritus at the University of Akron.
