What is Economic Development?
According to the International Economic Development Council (IEDC), “Economic Development can be defined as a program, group of policies, or set of activities that seeks to improve the economic well-being and quality of life for a community by creating and/or retaining jobs that facilitate growth and provide a stable tax base.”
The IEDC goes on to say that, “Economic development has many objectives. These are, most commonly, the creation of jobs, wealth, or assets and the improvement of the quality of life. Economic development can also be defined as a process that influences the growth and restructuring of an economy to enhance the economic well-being of a community. In recent years, economic diversification has become a primary role for economic developers who are actively working to leverage job-growth in new industries. In tough economic times, practitioners have learned to develop programs that are resilient in the face of budget cuts and reduced outlays.
In the broadest sense, economic development encompasses three major areas:
- Policies that governments undertake to meet broad economic objectives such as price stability, high employment, and sustainable growth. Such efforts include monetary and fiscal policies, regulation of financial institutions, trade and tax policies. These policies are national in scope and are referred to as macro-economic policies.
- Policies and programs to provide infrastructure and services such as building highways, managing parks, and providing medical access to the disadvantaged. Although the primary purpose of these programs is not economic development, they have implications for economic development.
- Policies and programs explicitly directed at improving the business climate through specific efforts in business finance, marketing, neighborhood development, small business development, business retention and expansion, technology transfer, and real estate redevelopment among others.
Economic development efforts typically entail the following:
Based on the received link between job creation and the overall health of the local economy, 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 stability and decent working conditions, and provide opportunity for advancement. This task can be extremely difficult in smaller communities where the creation of jobs is vital. Thus the practitioner should focus on creating quality 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.
Importantly, job creation should never occur in one community at the expense of another. Cities recruiting jobs from neighboring communities is very bad form. This may happen because local election cycles are based solely on job creation and an under-educated economic developer will stoop to unethical practices in order to appease his or her elected officials. However, there are programs such as “economic gardening” that creates jobs by helping small businesses expand locally. As we move forward in the knowledge-based economy, the practice of job creation should no longer be a zero-sum game.
Job Retention, also referred to as business and expansion, focuses economic development resources on maintaining the current employment levels in a community through outreach campaigns. Simply put, it’s a customer-service mechanism that provides constant feedback to community leaders and private sector growth and development. IEDC research has shown that most net new job creation will come from existing businesses within a community; therefore, existing businesses are a critical focus for local economic development efforts.
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 economic development organizations.
In addition to quality of life, many practitioners are focusing economic development resources on quality of place. For example, Richard Florida’s work on the “creative class” suggests that talented individuals may move to a specific location based on more than just a job-opening. Talented individuals are looking for places that are open to new ideas, encourage diversity among their residents and have abundant skills sets that are required to launch new businesses and even new industries.
As there is no universal definition for economic development, there is no single strategy, policy, or program for achieving successful economic development. Communities differ in their geographic and political strengths and weaknesses. Each community, therefore, will have a unique set of challenges for economic development. However, several factors can significantly affect the likelihood of success for economic development projects and programs, regardless of the community.
These factors include the following:
- An economic development strategic plan that has a widely accepted vision in addition to measurable indicators of success and failure
- A strong understanding of the local economy, its strengths, weaknesses, opportunities, and threats
- Programs that are built on local comparative advantages
- Local leadership that stimulates cooperation and collaboration among different actors in the community
- Sustained financing over a long period of time
- Management that strives for excellence in customer service”
What is local governments role in Economic Development?
According to the IEDC, “local governments are the primary initiator of economic development programs through their use of state and federal funds. They have taxing, zoning, and eminent domain authority and can provide infrastructure, support commercial revitalization, and promote small business development. These actions can be carried out by local governments through their economic development departments. They also can be implemented through private and public-private entities.”