What Economic Development Is

By Dr. Frederick Steinmann

In my last blog, “The Need for a Comprehensive Economic Development Approach in California”, I argued that it’s high time that the State of California develops a comprehensive, statewide, economic development plan.  The need for a comprehensive economic development plan for the state of California stems from the failure of the State to encourage and create long-term, stable, economic growth as opposed to the day-in, day-out need to raise revenues that local governments face by constantly increasing locally generated and collected property tax revenues, sales tax revenues, business license tax revenues, hotel and transient lodging tax revenues, and other sources of local tax revenue.

I started out by providing a broad outline of what economic development is by using a definition of economic development developed by the International Economic Development Council (IEDC).  Economic development, as a set of public sector policies and programs, is just that – a set of public sector policies and programs designed to encourage and stimulate long-term, stable, economic activity and growth in the private sector.  If the “development” occurs in the private sector, it isn’t economic development – it’s just economic activity.

One set of public sector economic development policies and programs include a set of policies designed to encourage price stability, high employment, and sustainable economic growth over the long-run.

A second set of public sector economic development policies and programs include the provision and maintenance of infrastructure and services such as building highways, managing parks, and providing medical access to the disadvantaged in order to improve a community’s overall quality of life over the long-run.

A third set of public sector economic development polices and programs include economic development marketing and attraction strategies, neighborhood and community development efforts, small business and entrepreneurial development efforts, business retention and expansion efforts, technology transfer and technology-led economic development efforts, and real estate and land reuse development efforts.

Over the next several blogs, I’ll be focusing on the six specific public sector economic development policies and programs listed in the third set above beginning with small business and entrepreneurial development – with a few minor changes.  First, I’d like to combine small business and entrepreneurial development with business retention and expansion efforts.  In the end, these two efforts are so closely related that they really ought to be considered as one single effort.  Second, I’d like to add one important economic development effort that sadly gets ignored far too often – workforce development and training efforts.

The third set of public sector economic development policies and programs also tends to be the primary focus of economic development professionals working throughout the public sector and, at least according to the IEDC, is what we should consider to be “economic development”.  The first two categories or types of economic development policies and programs tend to be too big and too broad for any one comprehensive economic development plan to cover here.  These first two categories also tend to involve professionals and practitioners in fields such as engineering, transportation, health care, parks and recreation, and many others throughout both the public and private sectors and comprise only an indirect part of a community’s actual economic development efforts.

Across economic development marketing and attraction efforts, neighborhood and community development efforts, small business and entrepreneurial development efforts (including business retention and expansion efforts), workforce development and training efforts, technology transfer and technology-led economic development efforts, and real estate and land reuse development efforts, any economic development effortshould include consideration of each of the following goals, according to the IEDC:

  • Job Creation:  Job creation is the traditional objective of economic development.  It is important to note the difference between creating jobs and creating better jobs.  Job creation is a QUALITY issue, not merely a quantity issue.  Jobs “created” should support a desired standard of living, offer decent working conditions, and provide opportunity for advancement.  This task can be extremely difficult in smaller communities where the creation of new jobs is so vital.  Thus the focus should be on creating quality jobs that will support and sustain the community.  The goal of job creation is not the job per se; rather it is to boost local income.
  • Job Retention:  It is important to retain jobs as well as create jobs because a job lost means the loss of the economic advantages that resulted from that position.  Job retention and business assistance go hand-in-hand.  When businesses are assisted and encouraged to stay in the community, the existing job base remains intact.  Most net new job creation will come from existing businesses within a community and, they are therefore a critical focus for all local economic development efforts.
  • Tax Base Enhancement:  This enables communities to support local services and pursue other activities without having to raise taxes.  But like job creation, the goal here is not to create new sources of tax revenue or even enhance levels of existing tax sources per se; rather the goal is to enhance overall levels of economic activity thereby enhancing the community’s overall tax base.  Keep in mind this formula:  TAX REVENUE = the TAX BASE multiplied by the TAX RATE.  In this formula, a community’s tax base is directly derived from the community’s overall level of economic activity so an increase in a community’s overall level of economic activity, because of a well-developed and executed comprehensive economic development plan, will naturally increase the community’s tax base and the amount of tax revenue collected within the community.
  • Quality of Life:  Quality of life is represented by many factors including safety, education quality and opportunity, poverty reduction, environmental quality, and cultural and recreational amenities.  It is what makes living, working, and conducting business in a community worthwhile.  Conversely, detractors from the quality of life in a place –  crime for example, often deserve attention by economic development organizations.  Quality of life is a very difficult factor to measure but can be the difference between failure and success for a community’s economic development efforts.

As a set or series of interdependent public sector policies and programs, “economic development” as the discussion provided here hopefully shows, is a “big” field that encompasses many different strategies and efforts.  But in California, for generations now, we haven’t done a good enough job in grasping the complexity of economic development and what a truly comprehensive and successful statewide economic development plan should look like.  Over the past fifty or so years, we have substituted true economic development for the “quick fixes” of tourism development or retail development – efforts that might better be called “revenue development” rather than “economic development”.  It is these non-economic development development efforts that I’ll focus on in my next entry.

Editor’s Note: Dr. Steinmann’s next article will be posted on October 25, 2010.

Dr. Frederick Steinmann is currently the Managing Principal of his own firm, EDSolutions, LLC.  Dr. Steinmann began his professional economic development career with the Reno Redevelopment Agency in the City of Reno, Nevada.  Since then, Dr. Steinmann has worked for the Nevada Small Business Development Center, Bureau of Business and Economic Research (NSBDC-BBER), and as an intern for the Carson Economic Development Department in the City of Carson, California.  Frederick has also worked as an independent contractor for David Rosen Associates, one of the elite consulting firms in California specializing in redevelopment and affordable housing development.

Dr. Steinmann recently earned his Doctorate in Policy, Planning and Development from the University of Southern California.  Frederick completed and defended his dissertation, titled “The Twilight of the Local Redevelopment Era:  The Past, Present, and Future of Urban Revitalization and Urban Economic Development in Nevada and California”, in December, 2009.  Frederick is also a current and active member of the International Economic Development Council (IEDC) and the American Planning Association (APA).  Frederick also holds a Bachelors of Science (2002) and Masters of Science (2004) in Economics from the University of Nevada, Reno.

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One response to “What Economic Development Is

  1. Pingback: What Economic Development Isn’t « Plan On! Trojans·

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