New Study Shows Influence of R&D Spending on
Firm Formation and Regional Economic Growth

Do investments by government and private in R&D at research universities pay measurable area economic growth dividends? According to a study by the National Commission on Entrepreneurship and the Kauffman Center for Entrepreneurial Leadership, they do.

The study findings "lend strength to the argument that government and private sector R&D expenditures made through research universities contribute to economic growth. Although this argument has traditionally been made with the expectation of long term lags in the R&D to growth relationship, our findings are that this lag is relatively small – as little as one year and the effect seems to decrease slowly, but steadily, after the first year but lasts for at least five years. University R&D spending is also associated with localities with higher levels of human capital, which also contributes substantially toward generating new firms., Thus, research universities and investment in R&D at these universities are major factors contributing to economic growth in the labor market areas in which the universities are situated."

For more, click here.

New North Carolina Entrepreneurial
Survey Results Released

The North Carolina Center for Entrepreneurial Development released the results of its new survey of NC entrepreneurs. Go here to read the summary.

Here are some important findings of the survey:

1. Survey respondents most frequently cited closing the new sale as a top challenge faced in running a company in the entrepreneurial sector today. Seeking new or alternative sales and marketing channels was cited second, and managing burn rate ranked third.

2. Approximately 40 percent of all survey respondents cited revenue financing as the most realistic financing alternative for high growth companies. Almost 50 percent of respondents (47.2 percent) noted that the time horizon necessary to close a round of funding was approximately 6 to 12 months.

3. 76 percent of respondents noted that the prospects for starting an entrepreneurial business in North Carolina today were fair or better than fair; however, 85 percent of respondents felt that the prospects for starting an entrepreneurial business in a state other than North Carolina were fair or better.

4. CED's survey also revealed perceived differences in financing alternatives for the biotech vs. the IT sector. Of the IT respondents, close to 50 percent cited revenue financing is the most viable option for the sector. In contrast, respondents in the life science sector were spread fairly evenly among partnerships, revenues and venture capital (VC) funding as the most realistic alternatives.

5. In terms of entrepreneurial perceptions of the business factors sought by investors, an experienced management team, sustainable business model, profitability and revenue growth all shared top honors almost equally. Also, 56% of respondents suggested these measurements had not changed in the last 12 months.

Are the States Preoccupied with
Scarcity and Survivalism?

Some wonderful advice was given by Rakesh Shankar at Economy.com in his January 30th article, "Self-Inflicted Pain". Here are a few clips from his article, which described how short-sighted thinking about budget balancing could create even greater longer term problems for state governments.

Fiscal prudence is a very good idea, but not at the expense of the health of a state economy. State houses should consider the merits of modifying their laws so that balanced budget requirements are annulled in periods when the state is experiencing little to no private economic growth. Such amendments would signal political commitment to long-term fiscal prudence, which should help assure credit agencies and bond markets, while also maintaining the ability for state governments to contribute to their economies during troubled times.

Curiously, there is very little debate about the need for this dogmatic pursuit for fiscal austerity. Make no mistake about it, balancing your budget annually is a sensible thing to do, and it brings its own benefits. Theoretical and empirical evidence certainly suggests that persistent budget deficits lead to higher interest rates longer term, particularly at the state level, which imposes its own costs on society. Specifically, political commitment to fiscal prudence helps maintain higher credit ratings for state bond issuances.

However, if there is ever a time that a government must be more engaged in society, it is when the governed are burdened with particular adversity, whether that be political, social or economic. Now is the time for real short-run economic stimulus, rather than doctrinaire obedience to accounting guidelines.

I go back to my original question: Are states preoccupied with scarcity and survivalism? I think they are. Most Governors and state legislatures hold the view that the "glass is half empty" in their state. Many state leaders see their job as helping the state to survive at this point. Who is thinking about "fiscal policy innovation?" Hopefully someone will give more attention to the issue.

No one doubts that state coffers are pretty dry and that some reductions are essential. Many of the state of the state addresses given by the Governors talk a good game in terms of economic development, but it does not appear that many will have the resources to walk their talk. As I see it, the most important economic development policy decision being made across states is a "defacto" decision to cut budgets and let the pieces fall where they may. True economic development in all fifty states will come about from sustained investment in education and infrastructure needed to advance people, businesses and communities.

What is one innovative thing that the states could do? How about if they pool their funds--at least on a multi-state regional basis--to fund educational and infrastructure collaborations and innovations? Maybe the heads of the state higher education boards in each region should sit down and talk about opportunities for shared programming in the future. Would it make sense for state transportation agencies in the same region to have the same type of pow-wow. Think about it.

Ok. One more innovative idea. Nearly every state has a focus on industry clusters. Why don't those states targeting the same clusters form working groups to identify ways they can work together, co-invest, leverage their investments, and contribute to each other's success. Duh. I look in the Midwest and see nearly every state ready to engage in a new type of "biological warfare" -- this type involves getting a bigger piece of the bioscience pie. What would happen if the Midwestern states formed a "regional bioscience investment fund?" Like the idea. Talk to your Governor and state legislature about the idea.

Yet Even More on Innovation

I want to share this wonder piece from Fastzone.com with you about the role of innovation in business.

"Businesses, like people, need to exercise regularly. Otherwise, they become flabby and won't live long lives. Innovation is the exercise a business needs to do. People jog or run to lose weight; a business must do process innovation to streamline its operation and lose fat. Through revising office or plant processes, better customer service may result, or savings may be reflected in the bottom line or the customer's cost. This idea of making small changes in procedures began in manufacturing plants where quality circles of workers shared their wisdom with management. In Japan it is called Kaizen Teian, meaning continuous improvement process. The circles made Japan a great manufacturing nation. As all employees make little improvements continually, the cumulative effect is tremendous. A firm can lose a lot of weight."

Innovation can do the same for economic developers and ED organiztaions--help us continuously improve by doing lots of small things and help us lose the extra weight of old ideas that we carry around.

More on Economic Development Innovation

This article is a continuation of the series on economic development innovation. Here are some additional insights about how to bring about innovation:

1. Test the extremes: Nick deWolf, cofounder of Teradyne, had many informal rules for doing good engineering. One such rule was: "To select a component, size a product, architect a system or plan a new company, first test the extremes and then have the courage to resist what is popular and the wisdom to choose what is best". Similar important benefits occur in the sciences: Einstein developed the Theory of Relativity by thinking what happened at extreme speeds, when matter traveled near the speed of light. Other physicists performed thought experiments about what would happen at the limits of very small sizes and energies and discovered the laws of quantum mechanics.

2. Take a tip from nature: Philo Farnsworth had the inspiration which led to television while sitting on a hillside in Idaho. The neat rows in a nearby farm gave him the idea of creating picture on a cathode ray tube out of rows of light and dark dots. He was 14 at the time, the next year he presented the concept at a high-school science project, and demonstrated the first working model of a television set when he was 21. As the primary metaphor for our economy shifts back to the biological organism, looking to nature for ideas is likely to become more common.

3. Plan on serendipity: William Shockley described the process of inventing the transistor at Bell Labs as "creative failure methodology". A multi-discipline Bell Labs team was formed to invent the MOS transistor and ended up instead with the junction transistor and the new science of semiconductor physics. These developments eventually led to the MOS transistor and then to the integrated circuit and to new breakthroughs in electronics and computers. Richard Feynman, also a Nobel Laureate physicist, believed in getting his hands dirty and doing lots of experiments, saying "To develop working ideas efficiently, I try to fail as fast as I can".

4. Keep your eyes open: An extreme example of people keeping their eyes closed (literally and figuratively) was the simple experiment that led to the invention of the telescope and microscope. It took more than 300 years after eyeglasses were in common use before Hans Uppershey, in 1608, observed the joint magnifying action of two lenses, built a simple telescope and then took action to publish his findings! Shortly afterwards Galileo applied the telescope to the study of the planets and quickly discovered that the "facts" of classical philosophy were wrong. When he invited the scholars of the day to look through his telescope and see for themselves they refused!

Many people have literally described creativity and innovation as seeing what other see but thinking what no one else has thought and doing what no one else has dared. That is exactly what we need to do to reinvent economic development for the future.

I will close with a couple interesting quotes that should encourage you to start your own search for innovations related to your own career, organization and area.

This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value too us. Western Union internal memo 1876

Blessed are the flexible, for they shall not be bent out of shape. Anonymous

We are what we repeatedly do. Excellence, then, is not an act, but a habit. Aristotle

How many of you do your best thinking and get your most creative ideas at work? When we ask people in our groups this question, no one ever raises their hand. From Sacred Cows Make the Best Burgers. Robert Kriegel and David Brandt

Leap and the net will appear. Julia Cameron

Are Manufacturers Getting with
the e-Business Program?

The answer is yes. A recently released survey report by the National Association of Manufacturers and E&Y says that despite the economic downturn, e-business in the manufacturing sector is growing.

What is the major barrier to e-business applications in manufacturing? According to the report, the lack of customer e-business readiness, caused partly by the complexity of change and a lack of integration standards, was cited as the top barrier to developing and implementing e-commerce initiatives by nearly half (47%) of the survey respondents.

Other major findings of the report include:

1. The number of manufacturers selling 6 percent or more of their goods to consumers or other companies via Internet transactions quadrupled in the past year, to nearly one fourth of all respondents.

2. Overall investment in e-business initiatives continues to rise. In their current fiscal year, 33 percent of companies increased their spending, versus 10 percent that decreased it, with the remainder holding steady from the previous year. Part of that increase is likely due to a rebound from the post-Y2K drop in information technology costs, but at the same time a modest number of manufacturers are investing heavily: 6 percent reported increasing IT budgets by more than 15 percent this year.

3. Short-term drivers for investment are typically productivity increases and cost savings, within the sales/service chain as well as elsewhere in production systems.

4. Nearly 40 percent of manufacturers reported connecting with at least 16 percent of their industrial customers or individual consumers over the web. Nearly 40 percent are now able to provide Web-enabled customer order status.

5. The most impressive process improvements in e-business have been in the customer service arena; 36 percent of respondents said that the effectiveness of their order management process has increased.

Is this good or bad news for economic development? Good news if you look at the Internet and e-commerce as sources of innovation and productivity for manufacturers. This also suggests that having enough bandwidth and high-speed Internet access will be greater concerns in manufacturing business location decisions.

To get the report, click here.

Did U.S. Manufacturers Make Any Money Last Year?

According to the most recent Commerce Department report, seasonally adjusted after-tax profits of manufacturers were $45.3 billion in the third quarter 2002, up $3.6 (+/-1.4) billion from the $41.7 billion recorded the prior quarter. Year over year profits were up $33.5 (+/-1.7) billion from the $11.9 billion reported in the third quarter 2001. This is the third consecutive quarterly increase in profits after dropping to the $7.7 billion level in the fourth quarter 2001.

How did nondurable goods manufacturers fare? Seasonally adjusted after-tax profits recorded by nondurable goods manufacturers at $30.6 billion in the third quarter 2002 were about the same as the prior quarter, but up $3.8 (+/-0.6) billion from the $26.8 billion recorded in the third quarter 2001.

And what about durable goods manufacturers? Seasonally adjusted after-tax profits recorded by durable goods manufacturers were $14.8 billion in third quarter 2002, up $29.7 (+/-0.2) billion from a loss of $14.9 billion in third quarter 2001. Second quarter 2002 after-tax profits were $11.3 billion.

These figures suggest some improvement, but a far cry from celebration time. The investment outlook for U.S. manufacturers is expected to be weak until greater confidence can be created around world affairs.

Food Manufacturing Industry Study Released

Maybe this one slipped by you. Last August, the Economic Research Service of the U.S. Department of Agriculture released a global study of the food industry. Two sections of the report strike me as interesting from an economic development standpoint. The first is the chapter on food manufacturing and the second is the appendices section. Both contain useful data. The food manufacturing section talks about merger and acquisition, capital investment and other trends in the industry. It's a worthwhile read. Get it here.

How Did the U.S. Economy Perform in Q4 2002?

The official growth figures for the last quarter of 2002 are in. They say the U.S. economy grew by only 0.7 percent, creating an overall growth rate of 2.8 percent for last year. Consumer spending and business investment remained down, so what added to the growth bottomline for Q4 2002? The answer is government spending, which increased by 10.1 percent to support the U.S. military mobilization in the Middle East. Without the increased government spending, it is estimated that the economy would have shrunk by 0.2 percent in the final quarter of last year.

Neither consumer spending or business investment are expected to play much of a role in economic growth in the first quarter of 2003, and most economists do not see either returning until the Iraqi conflict is much better understood.

What are the implications of this news to local economic development? We should not expect much action out there at least through March and probably longer. As I've said before, this is a good time to plan and it is still very important to communicate with your business prospects--both existing and new--during this period of slow growth and uncertainty. Bottomline: don't abandon hope of some solid growth.

For more information on the economic siutuation, visit Economy.com, WEFA, or the U.S. Department of Commerce websites.

Tracking IPO's?

Looking for information about initial public offerings (IPO's) by industry sector? Try Hoover's IPO Central. Just click here.

What might you find there?

1. Listing of all IPO's since 1996.
2. Breakdown by major industry.
3. Latest announcements.
4. Links to company websites.
5. And more.

Check it out. Since more companies are growing through acquisitions, this could be helpful information in identifying likely companies that could be targets. Could be a good place to find future prospect investment leads as well.

Advice on Nurturing New Ideas: Continuation of the ED Innovation Series

Successful innovators know how to nurture their own and other people's ideas. We have been looking around and found some very useful advice offered from Robert Tucker, the author of Driving Growth Through Innovation: How Leading Firms Are Transforming Their Futures (Berrett-Koehler Publishing). Here is what Tucker suggests:

1. Give yourself periods of "dream space": Give yourself some time for reflection and thinking. Decisions are often made hastily, without considering alternatives. Incubate your ideas and be willing to dream. Watch out for the constant meeting trap, which is quite common in economic development.

2. Enhance your environment for maximum creativity. Surround yourself with people and things that stimulate your curiosity and creativity.Talk to people in other professions. Step outside economic development for a few minutes each day.

3. Seek out idea people. Most idea people get some of their ideas in interaction with other idea people. Ask people how they come up with creative ideas.

4. Audit your information intake. Which newspapers, magazines, newsletters, e-zines and trade publications do you read? Is your information diet broad enough? Broaden your idea sources beyond the economic development field.

5. Focus on the sources of ideas. Where do they come from? Who generates them? Who heralds new idea? Sometimes the people creating the idea are not always the people you will hear the idea from.

6. Look for ideas by studying problems. Ask questions that probe why something is problematic. If you want to keep and attract businesses in your area, find out what they need and find an innovative solution.

7. Devise a system to capture new ideas. If your mind is as busy as mine, you run the risk of losing a good idea or two because you don't write it down or capture it in some other way. Journals are great for this purpose. That's how I do it.

8. Talk to the skeptics. It's ok to talk with those that agree with you and like your ideas, but don't stop there. Sometimes we learn the most valuable lessons from those who are skeptical of our ideas.

Global Economic Competitiveness Report

Want to know which countries are expected to be most competitive for economic development this year? Of course you do. So click here and go to the World Economic Forum's (WEF) website. They just released their 2002/2003 competitiveness report.

If you are involved with industry clusters, or thinking about it, you need to keep the national economic context in mind as you develop strategies. There are huge differences in how industry clusters develop globally. The WEF report can help you understand these differences.

Great Universities, Great Cities

Tomorrow Case Western Reserve University (CWRU) will install its 23rd president, Dr. Edward M. Hundert. To commemorate the event, CWRU and the City of Cleveland will host a colloquium, "Great Universities and their Cities," for the national and local academic and civic communities.

What will occur at the meeting? According to a joint editorial by Cleveland Mayor Jane Campbell and incoming CWRU President Hundert, "We will bring together university presidents, mayors and other leaders working in highly effective partnerships in Chicago, New Haven, Conn., Baltimore, St. Louis, Toronto, Richmond, Va., Rochester, N.Y. and Nashville. These leaders will explain models that make a difference in the economies, health, life sciences, K-12 education, housing, work force readiness, arts and culture, technology and race relations in their cities. The discussion will expand our thinking and help us launch initiatives that will make the Cleveland-CWRU connection one of the most exemplary "town-gown" programs in the nation."

These leaders will describe models that they believe are making a difference in their local economies, health care, life sciences, K-12 education, housing, workforce development, the arts and culture, technology and race relations. The discussion is designed to expand thinking and help identify new initiatives that will make the Cleveland-CWRU partnership one of the best "town-gown" programs nationally.

Best practices will be discussed along with discussions on how Cleveland and its leading research university can hasten economic progress for the city and larger surrounding region. Participants include university presidents, mayors and other leaders working in highly effective partnerships in Chicago, New Haven, Conn., Baltimore, St. Louis, Toronto, Richmond, Va., Rochester, N.Y. and Nashville.

My take? Very good move! Cleveland and Northeast Ohio need to take advantage of some of the good ideas out there that are working elsewhere. As they say, there is no need to reinvent the wheel.

I would offer just one bit of advice--take a good hard look at our cultural values, especially values that: 1) encourage us to see "innovation" as a component of everyday jobs--we must constantly work on reinventing ourselves; 2) urge us to work more collaboratively within NE Ohio, nationally and globally--be willing to transcend political geography; and 3) push us to challenge and test the assumptions we make about ourselves and others--our self-limiting beliefs are perhaps our worst enemies.

If we can achieve this culture change, Cleveland and Northeast Ohio will be ready to use any and all new ideas about how to achieve greatness. It will be ready for innovation.

President Bush's State of the Union: Some Immediate Reactions

How did President Bush do last night?

An instant reaction poll of speech watchers last night by CNN/USA Today/Gallup found President George W. Bush received high marks for his State of the Union address, although considerably lower than last year. The speech appears to have persuaded many viewers about the need for an invasion of Iraq, but viewers seem dubious about the impact of Bush's economic program. When asked which issue was more important to them in the president's speech, respondents chose terrorism and Iraq over the economy by a 56% to 31% margin.

According to the Washington Post, "Although not all the issues were new, the speech's emphasis on conservative social causes represented a departure from Bush's first State of the Union address a year ago. Back then, he did not mention his desire to ban all forms of cloning -- including for biomedical research -- or his opposition to a procedure that critics call "partial birth" abortion. Along with a new $450 million initiative that would provide mentors to disadvantaged junior high school students and the children of prisoners, Bush called those policies part of "a culture that values every life."

The New York Times editorial staff was less than impressed by the State of the Union address: "At a moment when Americans were hungry for reassurance that the monomaniacal focus on Iraq makes sense when the economy is sputtering, Mr. Bush offered a rousing closing argument for war, but no convincing bill of particulars."

From Newsday: "But the bar he has to hurdle is appropriately high. This nation does not want to go to war unless it has no choice. Bush made the case last night that Hussein is an evil man who has done evil things and has accumulated weapons of mass destruction. The question is still: Why does that war have to be fought now? Why can't Hussein be disarmed through inspections? Why can't he be deterred as other evil actors have been in the past?"

Here is a clip from Canada's Globe and Mail regarding the war with Iraq: "Yes, but there remains reason to be wary. A war of the magnitude that the President now contemplates has to be approached with great care. And he should bring international opinion along with him."

An editorial in the International Herald Tribune urged Europeans to seek support from the American people to slowdown the Bush Administration's push for an Iraqi war: "If the Europeans hope to be able to limit America’s ability to act unilaterally without concern for the world’s good opinion, they will need allies in America itself. The obvious choice would be the American people, since, as survey after survey over a period of decades has demonstrated, Americans’ beliefs about international issues are much closer to those being articulated in Brussels than in Washington.

In closing, the lead story in the Indianapolis Star had this to say: "His poll numbers, while still strong by historic standards, have steadily dropped during the past few months. Consumer confidence is down. The stock markets are sluggish. Support for his handling of foreign affairs is down. And the economy only seems to get more skittish the firmer Bush gets toward Iraq. About the only numbers going up are the numbers of the unemployed and the size of the national deficit."

Wouldn't it be great for once if a President used the words "economic development" in his state of union address? How do we accomplish this simple objective? Maybe some of us should simply ask the White House what it would take. I think that is a goal worth shooting for. Don't you?

I will leave at that for now.

What's Happening With Business Costs?

Business costs are important determinants of where firms invest in expanded or new facilities. They don't tell the whole story, but remain vitally important to economic development success.

According to a recent study by Economy.com, business costs account for 35 percent of the differences in employment growth across all states over the past 15 years. Business costs are dynamic and therefore change over time. Research by Economy.com indicates that those states that have either maintained lower costs of doing business or posted the biggest declines in business costs are the states experiencing the biggest employment gains. The study cites Arizona, New Mexico and Utah as examples of states that have held the line on business costs relative to the nation and also seen major job gains in the past decade.

Which states have have seen the greatest relative business cost gains and declines in the last decade?

Biggest Business Cost Gains:

1. Hawaii.
2. Washington.
3. Louisiana.
4. Delaware.
5. Vermont.
6. Kansas.
7. Montana.
8. Washington DC.
9. Maine.
10. Iowa

Which have posted the biggest relative cost declines?

Biggest Relative Cost Declines:

1. New Mexico.
2. Rhode Island.
3. Arizona.
4. Utah.
5. Nebraska.
6. Georgia.
7. Pennsylvania.
8. Alaska.
9. Oregon.
10. New York.

Here is the overall conclusion of the Economy.com study: "It is true that costs are not the only factor driving growth, and that their impact is much more measurable over longer time spans such as decades, rather than years. Nonetheless, the long-term significance of business costs makes them an important metric to keep track of. This is particularly true in times of economic uncertainty such as today. As the typical drivers of short-term growth falter and cash-strapped firms grope for ways to widen margins and regain profitability, relative business costs loom very large in both downsizing and relocation plans."

If you subscribe to Economy.com, you can find the article here.

What is our opinion? Business costs have always been important to economic development and they will continue to play a major role in the future. However, as we look at the knowledge economy, we see "net value creation" as the leading indicator for tracking business and industry competitiveness. As they say, cost is only one side of value.

Five Pitfalls Hindering Innovation

What are some of the things that could stand in our way of innovating in the economic development field?

Here are a few tips from innovation specialists Charles Prather and Lisa Gundry:

1. Identifying the wrong problem. (No wonder we get the wrong answer.)

2. Judging ideas too quickly. (Be open to ideas that are not yours.)

3. Stopping with the first good idea. (You will need lots of good ideas.)

4. Failing to get the "bandit on the train." (Who could derail you internally?)

5. Obeying rules that don't exist. (And sometimes following dumb rules that do exist.)

Economic Development Innovations: New Series Start

This is the start of a new series of articles on how to bring about greater innovation in the economic development field. This article discusses innovation and what it means to economic development. This article points to some of the leading areas where innovations are needed in economic development.

Economic development is how and where people, businesses and institutions create wealth for themselves and others. Wealth creation is essential for economies to grow. Wealth creation is not greed, contrary to what some may believe. Wealth serves both an individual and social purpose. Greed serves only selfish individual needs.

Wealth creation, and therefore economic development, has been a central concern throughout history and across continents. As history shows, innovation has been central to the ability of places, industries and classes and groups of people to successfully create wealth. We need more innovation in economic development.

What is innovation? Innovation is defined as the process of introducing something new. This can be a new principle, concept, practice, program or policy in economic development. By contrast, invention is about creating a new idea, process or or activity. Invention and innovation go hand in hand.

Economic developers concerned about increasing wealth in their communities, regions and states must confront major problems and obstacles to wealth creation. What are some of them? Money. Financial resources are needed to build existing and new programs. Competition. Economic development competition is now global and it is growing stronger. Information and knowledge. To succeed, improved information and knowledge are needed. Consensus. Leadership and citizens must agree on what need to be done. Teamwork. People must agree to work together as a team. Networks and connections. Successful programs are plugged into the right networks locally, nationally and globally to access resources needed to do the job.

Where could some innovations really help in economic development? While economic development organizations (EDO's) have made some headway in establishing global economic connections, they are still at the starting blocks in this regard. More EDO's should work together nationally and internationally to extend their reach, expand access to resources and increase their impact. Their opportunities for collaboration far exceed the instances in which they compete.

Technology is a second innovation challenge. While most EDO's have websites, they have only begun to exploit the advantages of the Internet in their work. Technology is a central challenge on all levels, including how we organize to do our work and the technological infrastructure that supports and connects us. The "agile global EDO" is needed.

Collaboration is a third challenge. Regional collaboration has increased in many metro areas and rural regions across the U.S. and abroad. Because of our traditional "silo mentality," there is still distrust of collaborative strategies in many circles. Why? Because individuals and organizations are afraid of losing power. Much work remains in truly creating "collaborative advantage" for economic development.

Human potential is a fourth innovation challenge. Yes, there is a lot of talk about workforce development and educational improvement, but most of these efforts fail to see people holistically. We greatly under-estimate and under-employ human potential in many industries, organizations and jobs. People are not just their job. They are far more. We need to recognize this larger and evolving potential and organize our world to embrace it.

A fifth challenge is moving beyond our obsession with today. Seeing the future is far from easy. It is even more difficult in the current world environment, which is plagued with risk and uncertainty. Nevertheless, economic development needs to center more of its attention on longer term concerns. We need to concern ourselves with the challenge of sustainable growth in a global context.

A sixth challenge, which also relates to the first five, is "change" itself, and how we anticipate and cope with it. Our information and knowledge base must constantly be renewed to tell us where we are and where we are headed. We must be willing to re-organize ourselves when the situation requires it. Change management must be a larger part of our economic development jobs in the future.

We need to introduce new ideas, ways of thinking, and approaches to our work to solve these six and other challenges facing economic development. Awareness is step one. This article hopes to expand awareness of how innovation can help. Don't be afraid to experiment and try new things. There is a world full of useful ideas, technologies and tools that can be readily applied to economic development. We need to use them.

Can Science Classes Be Offered Online?

A few years ago, distance educators saw no way to offer hard-science lab courses online. Now a handful of institutions, including at least two community colleges, are experimenting with the idea. Good for them! If your local community college or university is wrestling with this issue, here is where they might look for some new ideas. Our work with community colleges indicates that an increasing number will be providing Web-based education and training in the future.

Solving the Aging Workforce Problem

The Urban Institute released a very informative report last November on the legal and institutional barriers to phased retirement and efforts to extend the worklife of older workers. This is a crucial issue for economic developers.

The report says, "within ten years, baby boomers will begin retiring in large numbers. The United States will lose the services of millions of highly skilled, experienced workers. Because of the baby dearth that followed the baby boom, there will not be many new workers to replace them even as the senior adult population grows significantly. Labor force growth is expected to fall from 1.1 percent per year in the 1990s to 0.36 percent per year in the period 2010 to 2020."

The Urban Institute report finds that the problem affects some industries and occupations more than others. It says there will be a particularly severe shortage of nurses and teachers while the supply of blue collar workers will be much less affected. I am not disputing the major report conclusions, but I would argue with some of its findings. For example, I find that the supply of blue collar workers is an issue in many states and communities where we have prepared economic development strategies.

The researchers state that the situation could be improved if older workers could be induced to work longer. I agree. Is this possible? They say it is if right incentives are provided. They say that the attractiveness of working longer could be enhanced if older workers were allowed more flexible work arrangements involving shorter hours and longer vacations.

The report cites a large number of legal and institutional barriers to more flexible employment arrangements for older workers. These were not seen to be a problem when there was a positive desire to move people out of the labor force early in order to make room for the hoard of baby boomers working their way up the career ladder. "It will take a 180-degree shift in traditional benefits thinking to reform a decades-old legal and regulatory system in which employers have looked for benefits tools to ease older workers out of the workforce. Nevertheless, very significant social and economic benefits would result from converting it into a system that encourages longer work."

How can economic developers help? For one, they can stimulate dialogue in their communities about this issue and options to address it. Second, they can aid the hunt for new solutions. The next generation of employment relationships is needed. We are still working out of a model that is decades old. Third, craft new strategies aimed at dealing with seniors industries. Yesterday's EDF article on the aging work population underscores not on the importance of this issue, but it suggests the need for increased collaboration nationally and internationally to find better solutions.

You can download the Urban Institute report here.

America's Latest Economic Ratings Continue to Sink

According to a new Gallup poll released last week, Americans are now rating economic conditions more negatively than at any point over the last 9 years, while their expectations about the immediate future continue to get more negative. Americans also expect unemployment, interest rates, and inflation to get worse in the next six months, although they are surprisingly somewhat positive about overall economic growth and the stock market.

The poll, conducted January 13-16, finds only 22% of Americans rate the economy as excellent or good. Another 50% rate the economy as "only fair," while 28% say "poor." The 22% excellent/good to 28% poor ratio is the worst rating that Gallup has measured since November 1993.

The over-shadowing issue facing nations worldwide is the potential war with Iraq and its resulting impact on the U.S. and global economies. Discussion last week at the Global Economic Summit were dominated by "war talk." We can expect the same in the President's State of the Union address.

According to Dennis Jacobe, the Gallup Organization's Chief Economist, "the world's economic leaders will make a big mistake if they decide to take a wait-and-see approach to the economy during the coming weeks. Instead, they should do everything they can to stimulate economic growth now and hope that any anticipated rally effect will simply add to the economic momentum their efforts create."

Latest on America's Global Role

A new Gallup poll says that Americans are increasingly unsure about the U.S. role in world affairs.

Americans' satisfaction with the U.S. role in world affairs has declined substantially in the past year. According to a January 2003 Gallup Poll, just over half of Americans (55%) claim to be satisfied with the U.S. role, which is down from 66% who felt this way at this time last year, and 61% in 2001. Why the growing uneasiness? It's attributed in part to America's war on terrorism being overshadowed by more complex foreign policy issues, namely the threat of confrontation with Iraq and, to a lesser degree, North Korea. In other words, we don't feel that we are making enough headway in solving these problems.

Where does this leave us in terms of support for an Iraqi war effort? Only a slight majority of Americans (52%) are still in favor of sending ground troops to Iraq to remove Saddam Hussein from power, other poll results indicate Americans' general confidence in the country's role in world affairs is weakening as the threat of war looms larger. It will be interesting to see if a new rally effect will emerge should the United States actually go to war with Iraq.

Get the report here, if you are a Gallup subscriber.

Looking for Foundation Money?

Look no further. Check out the Council on Foundations on the Web. Great information on what is happening in the foundation world, the latest trends and useful links to their members' websites. Go here.

Many of the foundations listed provide funding for innovative economic development projects. Many have an appetite for bioscience projects since this area is hot. The catch is that many foundations are geographic area-specific so the project must be in their service area. Many of the national foundations give grants to any community. They judge the project in terms of its alignment with their giving objectives.

Get on the learning curve about foundations during these tight economic times.

Will the Internet Bring Greater Democracy?

That was one of Al Gore's promises when he created the Internet some years ago.

In all seriousness, in today's networked and globalized world, many presume that the Internet will pose a grave threat to authoritarian regimes. Such has been the power of this conventional wisdom that it remains for the most part unchallenged, and largely unexamined.

A new book, Open Networks, Closed Regimes, offers a comprehensive and thought-provoking analysis of this subject. Authors Shanthi Kalathil and Taylor C. Boas trace Internet use in eight authoritarian and semi-authoritarian countries: China, Cuba, Singapore, Vietnam, Burma, the United Arab Emirates, Saudi Arabia, and Egypt.

The authors discover that authoritarian governments, far from fearing the information age, have chosen to direct Internet development in ways that bolster the state. At the same time, many regimes are struggling to cope with the potent challenges posed by new technologies. The authors encourage policy makers in the U.S. and other industrialized democracies to promote specific Internet-based initiatives that foster political liberalization, rather than perpetuating the myth of the Internet as an unstoppable "virus of freedom."

Want to know more? Stop by Amazon.com and get the book.

Is Fat the Next Tobacco?

Given the growing concern about obesity in America, is fat likely to become the next tobacco? That is the question raised in a recent Fortune Magazine article. The article cites recent lawsuits by over-weight people against McDonald's and other fast-food companies.

Just as state coffers are thinning, including their Tobacco Settlement funds, maybe a new Fat Settlement Fund could fatten up those coffers again.

Expect stepped up efforts to find the perfect "anti-fat" pill. Will Weight Watchers and other diet companies see a surge in growth in coming years? Will the demand for fitness and exercise services continue to grow? How will the mix of restaurants change in your community over the next 5 years? Will communities create "fat zones" to contain the number of high-fat businesses in the community? We already know that some airlines are charging over-weight passengers for two seats. Will the dairy industry see a decline in sales due to pressures to reduce obesity in America? This could be a worry to Tulare County, California and several communities in Wisconsin.

What will happen to the market for high-fat snack foods? Could this alter the mix of food-processing industries lured by areas for facility investments? What does the future hold for companies like Cadbury-Sweppes, Hershey Foods, Jelly Belly Candy, PEZ Candy, Nestle, Russell Stovers and a hoard of others?

If human nature prevails, people will continue to fight the battle of the bulge in the future. Should the Bush Administration launch a "War Against Fat?" Fat chance given the amount of beef produced in Texas.

There is a serious side to this story. The obesity problem in America is real and efforts to create a more healthy populace will continue to cause a major shift in demand away from fatty food and toward more healthy chow. This will impact the mix of businesses that economic developers lure to their areas. Maybe not tomorrow, but expect to see some changes over time.

The World is Getting Older

The number of people in the world who are 65 years of age or older is growing at the rate of 800,000 per month. As people across the world live longer and the birth rate continues to decline, the average age of the global citizen is increasing. By the year 2050, the number of people who are 65 or older will exceed the number of people under 15 years of age. This is a first in the human race. The aging of the population will be most pronounced in developed countries, especially Western Europe.

Currently, just over 7 percent of the world population is 65+ years old. By 2030, this percentage is expected to grow to 12 percent of the total world population. Currently, 12.6 percent of the U.S. population is 65+ years old. The forecast is that 20 percent of the U.S. population will be 65+ years old by 2030.

What accounts for this increased longevity? Many things, including medical and health breakthroughs and service. The credit goes to the converging influences of medicine, business, the family, and government.

This trend has many implications for economic development. Here are a few to consider:

1. People will work longer because they must and also because they want to. Fewer will retire at 65.
2. The demand for senior services will grow in most communities, giving rise to new business opportunities.
3. Housing demand will change in communities as new senior housing alternatives are demanded.
4. Seniors will increase their political say, shaping public policy.
5. Active retirement communities will grow in popularity as seniors live more active lifestyles.
6. Transportation services will change, perhaps contributing to the growth of better public transportation, including light commuter rail services, in many communities.
7. Demand for innovative senior medical and wellness services will grow.
8. We may see shortages of younger workers globally, increasing competition for younger talent.
9. Government on all levels will need to better integrate its senior services to respond to growing demand.
10. Personal income growth will be impacted by the aging population. Retirement locations attracting wealthy retirees will be more prosperous and those with high concentrations of low-income seniors will struggle financially.

These are just a few trends to look for.

Does it make sense to follow Arizona's lead and create a "Senior Living Industry Cluster?" I think it does make sense to move in this direction, even though for state budget reasons, Arizona's Office of Senior Industries was recently closed. Read more about this action. This is unfortunate. Hopefully the private sector can be motivated to provide some initiative in this area. Let's face it, their markets depend upon it.

Economic Development and Economic Freedom: What Can They Offer Each Other?

This article discusses whether the economic freedom idea and economic development have anything to offer each other. As an initial point of departure, it discusses the 2002 North American Economic Freedom Index report prepared by the National Center for Policy Research (US) and the Fraser Institute (Canada), which rates U.S. states and Canadian provinces in terms of their support of economic freedom.

Politics plays a huge role in shaping our thinking and beliefs about economic development. In this sense, economic development is really "political economy." As we look at the current failure of politics (public policy) around the world to improve the dismal state of our national and global economies, it is fitting to revisit some of the political and economic ideas and concepts shaping our economic development thinking. Whether you are a liberal, moderate or conservative, everyone needs to understand the "political biases" in their thinking about economic development.

Last week I wrote an article about the Heritage Foundation's Global Economic Freedom Index. I wrote the article because of the growing feeling that military conflict and terrorism, including the serious threat of a very complex war with Iraq, around the world are seriously impairing everyone's economic freedom. Simply, we are not as free to pursue our economic interests at this time.

The economic freedom concept has its roots in conservative economic and political thought. It is controversial in the eyes of progressives and liberals, who argue that economic freedom favors the rich and does little to improve the lot of the poor. While no such thing as a perfectly "free" market exists, the economic freedom idea builds on the belief that the economy works best for the most people when it is subjected to minimal interference and influence by government on all levels. Less government regulation, fewer taxes, and less constraint on private property use are considered to be favorable conditions for economic growth. In my judgment, this is far easier said than done.

It's impossible to keep government out of the economy. Why? Because the economy has two basic components: one private and one public. Government is the steward of the public economy we have. Moreover, our public and private economies are closely intertwined. Try separating the two. You can't. Also, can we trust private individuals to always act in an ethical and legal manner? Last year's corporate financial reporting fiasco is one indication that we cannot.

What is economic freedom? According to the the NCPR and FI report, "individuals have economic freedom when: 1) property they acquire without the use of force, fraud, or theft is protected from physical invasions by others; and 2) they are free to use,exchange or give their property as long as their actions do not violate the identical rights of others. Thus, an index of economic freedom should measure the extent to which rightly acquired property is protected and individuals are engaged in voluntary transactions."

Is economic freedom a relevant issue for state and local economic development? I believe it is, but it may take some getting used to, and maybe some re-working if it is have value to economic developers. Economic freedom is not a concept given much direct attention by economic developers, and yet many of the issues that relate to government's role in the economy are given considerable attention. For example, business taxation is an ongoing concern in most states--both those with conservative and liberal political regimes. Private property rights is a big issue, especially for conservative Western states. For this reason, growth management and urban sprawl management have seemingly struggled in politically conservative states.

Which U.S. states received the highest economic freedom according to the NCPR and FI report? The top ten are:

1. Delaware
2. Colorado
3. Nevada
4. Indiana
5. Georgia
6. Massachusetts
7. New Hampshire
8. Tennessee
9. Arizona
10. Connecticut

Where did Ohio rank? It was ranked 31st of the 50 states.

Where do the 9 Canadian provinces rank? Dead last following the 50 U.S. states. (Note: It is important to recognize that different governmental systems, culture, and history account for this differential performance.)

Want to read more about the North American Economic Freedom Index. Go here.

On a closing note, do economic development programs help or hinder economic freedom? The Cato Institute and other neo-conservative policy think tanks have adamantly argued against economic development incentives, calling them nothing more than wasteful "corporate welfare." I suspect that many of the policy wonks advocating economic freedom would find considerable flaws in many state and local economic development policies. For one, many from the conservative camp would take issue with industry targeting and industry cluster development policies and strategies, arguing that these policies lead to government favoritism of certain industries over others. And yet, many conservative policy analysts find nothing wrong with government policies that encourage and assist defense-related and agricultural industries.

We live in a age of measurement. Economic development is working to improve the yardsticks it uses to measure the performance of local and state economies and how economic development programs shape area economic performance. The Economic Freedom Index assesses the extent to which government policies impair the freedom of private individuals. It may be worthwhile for the economic development community to sit down and talk with the economic freedom folks and see if they can build a crosswalk between the two camps. Maybe they can help each other as each works to improve prosperity and economic vitality. Maybe working together they can come to some better answers about the role of government in the economy.

What can we conclude from this discussion? Economic development and economic freedom share some common interests and goals, but they follow quite different paths to get to these goals. Economic freedom favors a very low-profile role of government in the economy. The Economic Freedom Index favors states that "get out of the way" of individuals and businesses. Economic development, depending upon the flavor you choose, encourages varying levels of involvement by government.

Do the two have anything to offer each other? I think they do in so far as both economic development and economic freedom aim to define how public policy should affect the economy, especially how public sector resources are used to stimulate private wealth creation and preservation. In the short term, economic freedom and economic development probably have more to offer each other in conservative states favoring less government intervention in private economic affairs. Because both are concerned about wealth creation and increasing prosperity, they should get better acquainted with each other.