Outsourcing of Economic Development to Private Sector

Why would a city outsource its economic development function to the private sector? In a nutshell, to reduce political swabbling about development projects. That is what some Canadian cities are beginning to do.

Two cases in point are London, Ontario and Halifax, Nova Scotia. John Kime from London shares his thoughts. "The reason for London's success in attracting industrial development, Mr. Kime suggests, is a new model that essentially takes the role of economic development out of the hands of politicians and the political process and lets private sector investors deal with a private sector agency." About 2,000 kilometers away, Halifax has developed a similar private sector model of economic development that it is using to sustain and develop its life sciences, energy, and information technology and communications industries.

In the London model, LEDC operates as an independent, not-for-profit company that has a contract with the city to provide economic development services on its behalf. LEDC is strictly focused on attracting new investment and jobs to the city and helping existing London businesses grow. It determines the customers' needs, provides detailed information to assist in their investment analysis, and then shows them all available property that meets their needs. It is not involved in the sale of land. The customer purchases the land directly from the owner, whether it be the city, a private owner or a developer.

Mr. Kime says this model eliminates the inherent conflict of interest that can occur if city-run economic development departments attract investors but then show or sell them only land that is owned by the city.

What are the barriers for cities to move in this direction. One is the political benefit that elected officials get from running the ED show. The second is how to achieve accountability without direct control. Both are legitimate reasons--the second is the more important of the two.

We have a lot to learn yet about making economic development more performance-based and accountable. Many cities, counties, regions and states across the world are working on the problem. Stay tuned for more insights into this area in future articles.

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