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BBA Economic Digest: The Big Mistake


The Big Mistake

It is something that I see in economic development every day. Will it always be this way? Frankly, I'm not sure.

The Big Mistake is giving primacy to business attraction over business expansion and retention. I get why this is. There is a certain allure and excitement to the hunt, to recruit a new corporate player to the community. That is what garners headlines and attaboys from elected officials, who often want to partake in golden shovel ceremonies. Attraction is what economic development organization board members so often want and what economic developers are judged on. "Hey, Bob, Mary, insert name here, why don't you go out and get us one of those Amazon fulfillment centers? We all here on the board think that is a grand idea." Business attraction is why the Economic Development Partnership of Alabama sent me all over the world. And I loved it. But the not-so-sexy truth is that year after year in the vast majority of communities, it is the incumbent businesses that create the most new jobs. But it happens quiety. There usually are no headlines, no ceremonies. 

It's as if it didn't happen. And who gets credit for that?

Certainly, some site consultants (not all) encourage the belief that business attraction should be of primary importance with everything else following. The reason: It empowers them, with some economic developers falling over themselves to kiss their (the consultants') rings.

Long-time ED pro Marty Vanags recognizes this: "Yet how many clamor to buddy up to site location consultants and spend big money going to events where we are going to met them? Our communities and leaders demand it, because now we can claim we are 'doing attraction.' It's a losers game for most communities."

Right on, Marty. Right on.


What is Quality of Life? My economic development friends frequently use the term "quality of life." But what does that really mean? In most cases, it used as a discriptor of a place. It's largely about having resources and options -- you can go to our symphony, eat in our many restaurants or bike on our extensive trail system. But what really makes for good quality of life? Brookings Institution holds there are five core ingredients that are held in common: Money. A decent, steady flow of income helps families pay their bills and go about their daily lives. Some money put aside – wealth – can help them out in tough times, allow for some investments in their children’s future, and provide some peace of mind. Time. We need time for well-being, for rest, for relationships, and for the pursuit of our personal passions and interests. Relationships. Having good relationships is, for most people, the most important ingredient of a good quality of life. Health. The 2020 pandemic has been a vivid and even brutal reminder that health is an essential ingredient of a good quality of life. Respect. Respect is owed not just to people with whom we know, but to members of our community more broadly. I accept the notion that quality of life can be better in some places than others. But ultimately it is very personal definition.


Flexibility is the Future

Stick a fork in it. The traditional 9-to-5, five-days-a-week, in-office way of working is dead. But offices aren't dead, and neither are cities. "Since the onset of pandemic-induced telework, companies have oscillated between can't-wait-to-go-back and work-from-home-forever. Now, it's becoming increasingly clear that the future of work will land somewhere in the middle — a remote/in-person hybrid," writes Erica Pandey with Axios. Surveys conducted over the six past six months show that less than 10 percent of Americans actually want to work remotely all the time, according to a new Barclays analysis. The much more common desire is for flexibility: the option to come to the office a few days a week for meetings and face-to-face time with colleagues. Flexibility is what I heard this past week from a CEO in Oklahoma City in a conference call hosted by the Greater Oklahoma City Chamber.  Still, the longer-term impact of the coronavirus could reduce the need for office space by 10 to 20 percent, Barclays notes. That's a massive shift that will change the way cities and towns across the country look. During the conference call, I mentioned how the office market is going to be in flux until companies figure this all out. And they will.


Could Big Tech Come to the Rescue?

America’s “digital divide” has two problems. In rural areas, it doesn’t always make financial sense for internet providers to build service lines to people’s homes. And in cities, there are lower-income neighborhoods where internet access isn’t available, or if it is offered, it's often subpar and not affordable. 

Existing data shows that Black and Latino Americans are far less likely to have internet access and computers at home. They are also more likely than white Americans to have poor quality internet service. Apjit Walia, global head of technology strategy at Deutsche Bank, conducted the bottom-up societal study and concluded that if this “digital racial gap is not addressed, in one generation alone, digitization could render the country’s minorities into an unemployment abyss.”

Walia argues that if large companies commit $15 billion over the next five years– which equates to less than 1 percent of the $2 trillion increase in Big Tech 5’s market cap during Covid – there would be a meaningful shift in the racial digital divide.

“There are no guarantees in life or investing, but for Big Tech to come together and find a solution or a small step in the direction of the solution to one of the most egregious divides in our society could change the national discourse on these companies,” Walia said in the note. “And that would only boost their long term prospects and returns.”

Some of Walia's key findings:

Given the exponential growth of the digital economy, 76 percent of Blacks and 62 percent of Hispanics could get shut out from or be under-prepared for 86 percent of jobs in the US by 2045.

Blacks and Hispanics are 10 years behind Whites in levels of broadband access and almost 4 times more Blacks have poorer tech connectivity than Whites

While 83 percent of Whites own a personal computer, that rate drops to 60 percent for Blacks and 51 percent for Hispanics.


What Does the Customer Value?

All organizations have customers. They may not call them that, but that is in fact what they are.

Peter Drucker, the famed business consultant knownn as "the father of modern management," said an organization's primary customers are those whose lives are changed the most by an organization's actions.

For economic development organizations, that would mean the citizenry and the incumbent employers in a community. Secondary customers are all others, including outside companies looking in -- I'll call them the tirekickers. An EDO will want to serve their needs if at all possible.

They become a primary customers only if and when they chose to become a corporate citizen of the community.

Determining what the customer values is key to an organization's effectiveness and really the reason why it exists. Too often, economic development organizations attempt to answer this question for themselves without going to the source. How do you determine what the customer values? You ask them. It  forms the basis for a business retention and expansion program, a necessary ingredient to successful economic development.  Mind you, this is not a clipboard survey but rather a conversation based on trust, which is developed over time, seeking to reveal deficiencies and find solutions. I see it as a primary duty of economic developers.


Hand Me That Carrot

When I was the business editor of The Birmingham News many years ago, the newspaper would frequently get annual awards for best business news coverage in the state. There really was no space on the walls in the newsroom to hang these monstrosities -- substantial wooden plaques -- that proclaimed how great we supposedly were at what we did. I remember taking a few home and using them as cutting boards in my kitchen when I was a single man. When my future wife, a non journalist, saw me cutting vegetables on an Associated Press best of award plaque, she was taken aback. "What are you doing? You should have this hanging on a wall here," she decried. "We don't do what we do for awards," I replied. "Would you please hand me that carrot?" Perhaps one of those plaques is up in the attic. Maybe I'll come across it one day. It will have a lot of knife marks on it.

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