Bad Economy Slows Everything, Including Smart Growth and Impact Fees

After pulling on the reins to slow the building boom of the mid- to late 1990s, Cary NC leaders are wondering whether they yanked too hard.

Now, after touting the town as the smart-growth capital of the Triangle, a majority of the Town Council wants to take another look at the impact fees it installed under a promise to make development pay for itself.

Cary's water, sewer and transportation impact fees, which are charged to home builders, are about six times higher than Raleigh's, town figures show.

Much of the Triangle has begun to rebound from an economic slump that slowed construction, according to residential building permit figures tallied by Wake County. But in Cary, the building drought continues.

I would like to call attention to two underlying issues brought out by this article:

1. When the economy sours, people tend to ease up on environmental restrictions and related concerns. The bad economy over the past three years has deadened smart growth efforts across the country. Communities must always balance economic and environmental concerns--both in a slow and fast-growth economy.

2. The issue of how to pay for growth is a problem in a recession and a growth economy. Local governments are really struggling now with the issue of how to finance infrastructure and other public services. Impact fees are an established way to finance the incremental costs of growth in many states. Economic developers have never liked them, but they are important in many cases. We need to go to work on some new public finance innovations that deal with these concerns. Current answers are not providing enough help. One to consider is the tax-sharing agreement, which has helped nearby communities cooperate on financing growth.

I would urge balance by communities in dealing with these issues. They need to devise sustainable growth plans for the future and they need to adopt sensible strategies to finance growth. For most places at this moment, they need a dose of growth to jumpstart their economies and generate more revenues to finance public services.

Article link.

Robot Hall of Fame

Just when you think you have seen every type of museum possible, a new one comes along. How about a "Robots Hall of Fame?" That is exactly what Pittsburgh has in mind.

Created by Carnegie Mellon University's School of Computer Science and Robotics Institute in collaboration with the Carnegie Science Center and the Pennsylvania state tourism and economic development departments, the hall will honor noteworthy robots, both real and fictional, with interactive exhibits. Pittsburgh, already touted as the Detroit of robotics, thus could become the field's Cooperstown as well.

The hall will induct its first honorees this fall and initially will be housed at the university. But it may be included, along with a large robotics exhibit and arena, in a proposed expansion of the Carnegie Science Center.

Article link.

Samsung Expands Austin Chip Plant

The Austin area received some good economic development news yesterday. The Samsung Electronics Company said that it was spending $500 million to expand and upgrade its semiconductor plant in Austin, Tex., to make advanced computer memory chips. The plant will produce state-of-the-art nanotechnology semiconductors, including one-gigabit memory chips used in high-end servers. It already produces 128 and 256-MB chips.

Most of the investment, more than $400 million, will be used to upgrade chip-making equipment. The rest will be used to increase the size of the plant. 300 new workers will be added.

This is another sign that the economic skies are clearing enough for business investments to move forward.

Article link.

State Government's Role in Economic Development

The Mackinac Policy Center in Michigan has been banging away at the Michigan Economic Development Corporation (MEDC) for some time. The Center recently released its latest policy statement on the role of state government in economic development in Michigan. I believe you will find this article to be interesting reading. The Mackinac Center is a conservative policy center in Michigan.

The analysis raises questions about the efficacy of incentives, targeting industries and industry clusters and a host of other practices widely used across America and the world.

These attacks are not new and they have been leveled by many other policy shops, including the Cato Institute, the Heritage Foundation and others. The current stream of assaults coincides with the Bush Administration's effort to "put the market back in control" of the economic development process.

In talking with several economic developers and policy researchers across the country, this is what I hear people saying:

1. These attacks are a cyclical phenomenon. They re-appear every so many years.

2. The Conservatives are trying to capitalize on the Bush presidency to achieve their unfinished business.

3. Many people, including both Liberals and Conservatives, are not convinced that the current state and local government role in economic development makes any sense.

4. Targeting industries and clusters is "backdoor" industrial policy and it is a form of market-steering.

5. The Conservatives are increasing pressure in several areas, including economic development, as a strategy to gain support for the Bush tax cut plan. If they get what they want, they will leave economic development programs alone.

6. The Liberals have been against "corporate welfare" for many years. Now many Conservatives share this cause.

7. The Conservatives don't really want government out of economic development, they simply want to shift resources away from things like incentives and targeting to other types of business subsidies.

8. Most economic developers say they are all for market leadership in economic development, but they don't really trust the marketplace to make the right decisions.

9. Government has always been everyone's favorite "whipping boy." You are damned if you do, and you are damned if you don't.

10. Without Federal Government intervention, state and local government will continue to use current economic development practices. While some say they favor Federal intervention, most in fact do not trust Washington to make the right decisions at the local level.

What does Don Iannone think about the Mackinac Center's policy position?

First of all, this really is not "new" news. These arguments have been made by many others before.

Second, I think we do need to change the model underlying economic development because the current one encourages "zero-sum" behavior by communities, regions and states.

Third, we need to look seriously for alternatives to practices like incentives and industry targeting. I believe we need some "experiments" with new models and approaches to economic development. We need to think out of the box about these issues.

Fourth, before we dismantle the existing economic development system piece-by-piece, we need a clear understanding of the new system that will replace it.

Finally, there is no consistent voice within either the Republican or Democratic camp about what role government should play in economic development. I see several pockets of opinion out there. Developing broad-based consensus about what should be done will be very difficult and maybe impossible.

Article link.

Tax Cuts: Will They Help Local Economies?

Cleveland's very own Senator George Voinovich has the guts to question whether the Bush Administration's proposed tax cut plan is good for our economy. I have known and worked closely with Voinovich as Cleveland's mayor and Ohio's governor. He is a frugal man that believes government should be of 100% service to people and businesses, but it should also live within its means. I agree with Voinovich's direction. We need to be careful how much we compromise government's fiscal capacity to deliver services. It will hurt our competitiveness!

I have been doing some research on this tax cut issue and came up with two studies that reflect the "for" and "against" perspectives of the Bush Administration's proposed tax cut plan. For the "against" position, read the Committee for Economic Development's (CED's) position on the Federal deficit and what that has to say about tax cuts. For the "for" position, read the study report prepared by PricewaterhouseCoopers. Both reports reinforce what I said in earlier ED Futures articles about how economic development is really political economy.

Economic developers should be asking whether the proposed tax cut plan will increase the competitiveness of local economies. While many businesses may see tax cuts as a good thing in the short-term, what will they think when infrastructure, education and other public services have been cutback so severely that it erodes business competitiveness? I think this is an important perspective to bear in mind as we address ourselves to these issues.

Do opportunities exist to reduce government spending? Yes, but we need a plan to restructure service delivery before that happens. One worthwhile direction to think in is "regionalization" of public services. Many cities and counties can no longer afford to operate in the way they have been. Greater reliance on the Internet to provide more e-government services makes a lot of sense. Also, we should be increasing the use of distance education (Internet-supported education) on all educational levels. E-learning should play a greater role in educational service delivery.

We need to think about this tax cut issue and what it means to local economies. I see problems with giving back too much given our current economic situation, the rising debt caused by the War in Iraq and other factors.

Our national, regional and state economic development associations need to play a stronger role in shaping public policy on behalf of local economies. Where are they?

Business Confidence is Up

According to Economy.com's latest business confidence survey, business confidence jumped again during the week of April 25th. On a weekly basis, it is back to where it was at the start of the year, and on a 4-week moving average basis, it is now off only 10%. This is good news indeed.

Business confidence fell to its lowest level at the start of the Iraq War, the 4-week moving average was down more than 40%. Businesses are particularly upbeat regarding current business conditions, although their assessment regarding prospects six-months hence is also improving strongly.

Confidence has improved most in North America and is now the strongest among all nations. European business confidence is lagging, but it is showing steady improvement. Asian business confidence is very low.

Confidence is improving across all industries, including travel. Confidence has lagged a bit in the healthcare industry, perhaps reflecting SARS and mounting nationwide difficulties with surging medical malpractice premiums.

Businesses are more upbeat regarding everything from hiring to equipment investment. Sales remain soft, but businesses are reporting some recent improvement in demand as well.

Let's hope this trend continues.

Article link (if you subscribe to Economy.com).

Gates Foundation Invests in Biotech

A major gift from the Bill and Melinda Gates Foundation will boost the Puget Sound area's biotechnology industry and position the University of Washington as a world leader in human genetic research. The foundation awarded $70 million to the University of Washington, by far the largest donation ever made to a university in the Pacific Northwest.

How will the money be used? About $60 million of the Gates donation will help pay for a $150 million, 265,000-square-foot biotechnology research building to be started in August and opened in 2005. The facility will house the UW departments of genome sciences and bioengineering. The remaining $10 million will fund genomics research of diseases in the developing world.

The University of Washington, if you have not noticed, as been making some steady in-roads into the life sciences world. Two years ago, the university was granted $30 million by the National Institutes of Health to establish two of the nation's three "Centers of Excellence'' in genomics. The third is at Yale University. Months later, two UW scientists were among eight designated as the most influential leaders of the Human Genome Project, a worldwide effort to map the human genetic code. Last summer, the UW recruited a third scientist, Robert Waterston, from Washington University in St. Louis to head its new genomics department.

Article link.

Do Business Climate Issues Matter? Silly Question.

A recent Arizona Republic article describes how Greater Phoenix plans to step up its marketing efforts in California as more California companies grow dissatisfied with the state's business cost and regulatory environments. Do business climate issues matter? Yes, without a doubt they matter, and in the current economic environment they matter even more as businesses find themselves unable to absorb additional cost burdens.

Arizona and other Western border states have benefited significantly from California's business climate problems. These same issues have hobbled economic development in states like Ohio, Pennsylvania and Michigan. These are what I would call "advanced economy" problems. States with well-developed--and yes mature economies--are exceedingly complex "political economies." The future will bring even greater--not less--complexity to most states. State business climates will grow even more complex as most states seek to balance economic development against other public policy priorities.

Historically, chambers of commerce, manufacturing associations and business roundtable organizations have worked most consistently on shaping the public policy environment for economic development. In many cases, these organizations work to head-off new legislation that reduce business competitiveness. A perfect case in point are all the "half-baked" proposals for tax reform that state legislatures are trying to pass as add-ons to annual and biennial budget approvals.

There are no perfect business locations--only some that are better for some businesses than others. Trade-offs are a reality in any state business climate. Also, competitive advantage has a temporal dimension. All sources of advantage are only good for so long.

If I had to pick just two things that businesses will need to survive--and hopefully thrive--in the next three years, they would be:

* Ability to manage costs.

* Strategic flexibility.

We live in unstable times, which are unlikely to cool down for some time into the future. Economic development waters are likely to remain rough and unpredictable. Encourage your state legislators and local government officials to avoid the temptation to over-burden businesses with new costs and compliance requirements. Be careful not to kill the goose that lays the golden eggs.

Article link.

Economic Risk Management: The Economic Developer's Newest Job

Risk management will be even more important to our economic growth in the future. Historically, economic development organizations (EDO's) have been growth catalysts. They have worried relatively little about managing risks in local economies. EDO's will need to give increased attention to these issues in the future.

I recently conducted a seminar for the Greater Phoenix Economic Council (GPEC) on economic risk management. Click on the link below to download a copy of my Power Point slides, which describe the "Proactive Risk Management Model for Economic Development." I think you will find this to be quite interesting.

How does risk management relate to economic development? Here is one example. The previous article described the risk of major international trade disruptions and the impacts they could have on our future economic growth prospects. What role can local and state EDO's play in helping their customers (businesses) to mitigate anticipated future trade risks? Providing improved information and knowledge about future trade policy developments and their impacts on major industries and local economies is one way EDO's can help. Another is to help your local businesses maintain positive international relationships as we work through this difficult period.

Download my presentation here: ManagingRisk_3-10-03.pdf

Please tell us what you think about this new idea.

Trade Fireworks in the Aftermath of the War in Iraq

We knew it was coming--we just didn't know what specific form it would take. Anti-American sentiment in the wake of the war in Iraq, fused with the harsh winds of strained international relations, is pounding the once-ambitious global-trade agenda.

Recently, the U.S. government indicated its displeasure with Chile's anti-war stance by delaying the planned April signing ceremony of a U.S.-Chile trade agreement. Even the bright spots have clouds--U.S. trade officials say negotiations for a Central American Free Trade Agreement is on target to be wrapped up by the end of the year, but, two weeks ago, trade negotiators meeting in San Salvador were greeted by protesters shredding the American flag and waving Iraqi and Salvadoran banners

Trade is the heart and soul of our economy. The U.S. economy will suffer a huge blow if we are unable to get international trade activities in motion quickly. These disruptions should be calculated as part of the costs of the War in Iraq. This price tag could make the Iraq rebuilding costs look like chump change.

Business supply chains are already being impacted by broken links in our world trade system. Consumers will suffer higher prices if we are forced to reply on strictly domestic producers. These impacts will weaken both the productive and consumption sides of the economy.

Article link.

Managing the Economic Value Chain

What is the most important issue in economic development today? It's how geographic areas manage and growth their "economic value chain."

Haven't heard of that issue? It is a new concept that I have been working on over the past several months as I watch a number of EDO's bite the dust as a result of budget cuts and reorganization.

The central issue for all EDO's today is to demonstrate the "value" they add through their services and other activities to businesses and communities. Yes, job development remains important, but building the economic value chain of communities, regions and states takes precedence over jobs. This is the core issue underlying industry cluster development strategies, technological innovation initiatives, education/workforce development programs and other strategies employed by state and local EDO's.

This is one you will need to think about. My keynote speech at the California Association for Local Economic Development (CALED) two weeks ago discusses this new concept, how to think about it and how to rebuild your organization to contribute more to your area's value chain. It was well-received by CALED members. I think you will like it as well.

This is a must read. Download my Power Point slides here: iannone_caled_3-16-03.pdf

Send me an email or call me if you'd like to discuss this issue.

Email: dtia@ix.netcom.com
Phone: 440.449.0753

Manufacturing in the Knowledge Economy

Perhaps like a lot of other people, you are stumped about how to think about the role of manufacturing in the new economy. If so, you will find this article to be of interest.

A couple months ago, Brad Whitehead from the Cleveland Foundation, Steve Gage from CAMP, Inc. and I had a meeting to discuss the role of manufacturing in the various industry clusters seen as Northeast Ohio's best future growth prospects. We left the meeting puzzled by our inability to clearly articulate how manufacturing fits into the "new economy." We decided that if we were struggling with this issue, then probably many other people were as well. Steve and I decided to give the issue some serious thought.

In February, with funding from CAMP, Inc., I researched and produced a white paper entitled, Manufacturing's Role in Northeast Ohio's Future Knowledge Economy. The paper identifies how to view the manufacturing sector as an integrated aspect of the knowledge economy. The paper describes a new concept called "Manufacturing in the Knowledge Economy," or M@KE. The M@KE concept overcomes many of the analytical and planning problems associated with the over-used and harmful "old economy/new economy" dichotomy. The framework provides a positive way to think about the role of manufacturing in technology and knowledge-based clusters.

Over the past two months, Steve Gage and I have been meeting and discussing M@KE with all who will listen. Most find the concept to be helpful, providing an improved way to think about the role of manufacturing in our changing economy. We would like to share the paper with a broader audience. Your comments are most welcome.

Download the paper here: CAMP_Mfg_Paper_2-24-03.pdf