BBA Economic Digest: He Asked

August 2, 2020

He Asked

 

An accomplished economic developer, one whom I respect, asked for my take on whether he should consider taking a job as a site selection consultant.

He also asked about the biggest changes facing businesses with site selection in a post-COVID world.

Note that I do not identify myself as a site consultant, but more of an economic development consultant. But he asked, and so I responded with a rather blunt assemement.

"By and large, I see the site selection process as being corrupt. It will remain that way so long as consultants base their fees on a percentage of the incentives awarded and/or accessed. That represents a clear conflict of interest as the consultant is in the position of not putting the client's interest first, but rather their own."

On the second point:

"Post-COVID means an acceleration of the fourth industrial revolution with more automation and AI. Communities with digital talent will win. Those without it will lose."

 

His response: "I appreciate your honest opinions -- that's why I asked. I'll be sure to ask what their revenue model is. I wonder/hope it's different."

 

And my response back to him: "Please know that I am not saying that all site consultants are corrupt. But the systems in place for many show no fiduciary responsibility to the clients. Good luck to you."

 

So What is New?

 

Question: Is there anything particularly new about capital investment projects happening outside of a central business district? (The suburbs are, after all, where most people live.)

Is there anything particularly new about capital investments taking place in midsize communities, the overwhelming majority of which are located in metro areas? That's been commonplace as well because of less costly real estate, the Dallas-Fort Worth area being a prime example.

I'm only asking, as some consultants seem to be suggesting that this is something altogether new. 

 

Taking Care of Business

 

Every day I hear from economic development organizations telling me about their available buildings and sites. That's all well and good.

But what really cranks my tractor is when they tell me what they are doing to help their incumbent businesses and entrepreneurs. That tells me that they know who their primary customer is.

Kudos to the South Bend - Elkhart Regional Partnership for finishing a business bootcamp aimed at providing support and assistance to minority and women entrepreneurs across the five-county region.

The virtual 12-session program called HustleSBE Cohort is dedicated to interactive learning and one-on-one coaching on topics including capital, certifications, financial management, and human resources to minority and women-owned businesses.

 

Bunk

 

Keep in mind that some site consultants -- "the stonemasons" -- contend that an EDO's primary customer should be business prospects to be recruited, to which I say "bunk."

Famed business consultant Peter Drucker reminds us that the primary customer is the person (or organization) whose life is changed most through our work. There are other customers to be sure, but they are secondary or supporting customers. For EDOs, "tire kickers" from outside the community would fall in this category.

So why do some consultants suggest otherwise? Answer: To empower themselves. They want to be viewed as the essential primary customer. 

Don't get me wrong, business attraction is a valid function of ED work, but taking care of your own will reap the greatest rewards over the long haul in terms of job creation.

 

 

In Praise of Shortlines

 

For large areas of rural America, shortline railroads play a vital role in providing the connection between farmers, manufacturers and ultimately the consumer.

The nation’s 603 shortlines provide service for one in five cars moving each year over 47,500 route miles.

Shortlines generally exist to link two industries requiring rail freight together; to interchange revenue traffic with usually larger (Class 1) railroads; or to operate a tourist passenger train service.

Shortline railroads often provide first or last mile service for a longer journey. They serve a broad mix of industries, and nearly 10,000 customers and employ about 17,800 railroaders nationwide.

Many shortlines were established when larger railroad companies sold off or abandoned low-profit portions of their trackage. Shortline operators are often able to operate profitable lines that lost money for their original owners.

Because of their small size, most shortline railroads are classified by the Association of American Railroads as Class III, with an annual operating revenue of less than $28 million.

Many shortlines are owned by holding companies. Genesee & Wyoming, the largest, operates 120 shortlines over 16,000 miles of track globally.

 

 

America's Mittelstand

 

Manufacturing may have slid, but they still do more of it in the Midwest than any other region of the country. In Indiana, it makes up 29 percent of gross state product and employs 17 percent of workers. It's 19 percent in Michigan, and 14 percent of jobs.

Many economic developers in the Midwest hope that rising economic nationalism, confrontation with China and pandemic-induced anxiety over supply chains could nudge some manufacturing back to the region.

 

My take is that any recovery needs to be centered on vocational skills taught simultaneously by companies and commuunity colleges.

Birgit Klohs, a German transplant who heads the Right Place, an economic development organization based in Grand Rapids, Mich., seeks foreign ideas. She has lead forays to Germany to study “Industry 4.0," which is essentially the digitization of  manufacturing processes.

“We’re still a manufacturing center, like the Mittelstand. The bulk of our success is in advanced manufacturing, in family-owned, mid-sized firms in their third or fourth generation of ownership, just like in Germany,” Klohs told The Economist.

 

Mittelstand commonly refers to small and medium-sized enterprises in German-speaking countries, especially in Germany, Austria and Switzerland.

There are 136 foreign companies, including 50 from Germany in the Grand Rapids metro area, which seen a population increase to more than 1 million residents today, up from 740,000 in 2000.

 

Beyond Degrees

 

If you don’t have a college degree, that in itself will not hold you back from working for Tesla, according to CEO Elon Musk.

What’s more, to work in Tesla’s artificial intelligence department does not require a specific degree.


“A PhD is definitely not required,” Tesla boss Elon Musk said on Twitter on Feb. 2. "I don’t care if you even graduated high school.” 

Musk said he is instead looking for those with a “deep understanding” of artificial intelligence. And while, ”[e]ducational background is irrelevant,” all candidates “must pass hardcore coding test.” 

My take: There is some evidence that more and more companies are looking beyond academic credentials and are instead hiring people based on their skills. In the past few years, Apple, Google, IBM and other high-profile companies have stripped the bachelor’s degree requirement from many of their positions.

 

If this movement continues to gather steam, it could aid not only individual job seekers but also the U.S. economy by helping businesses hold onto talent.

 

On June 27, the White House signed an Executive Order that directs the federal government to overhaul its long standing hiring practice of selecting applicants for certain jobs based  on possession of a college degree over only holding the applicable skills.

 

This shift in hiring will increase the opportunities of applicants, especially veterans, whose skills come from on-the-job training, military training, or vocational/trade school learning environments.

 

An estimated 71 million Americans have the skills to work in higher wage jobs, but currently lack a college degree or credentials required to get hired into these positions.

 

 

What We're Reading and Watching

 

Why Historic Preservation Needs a New Approach  CityLab

 

How To Dismantle Racism In The Workplace: It Starts At The Top  Forbes

 

The Gig Economy Is Failing. Say Hello to the Hustle Economy  OneZero

 

How to Outrun a Dinosaur  Wired

 

Visualizing vulnerable jobs across America  Brookings

 

Steam Machine  Wake Up Susan (Music video)

 

 

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