Corporate Civic Investment Funds

Looking for some good ideas on how to gain greater corporate involvement and investment in major community and economic development projects. You may want to read a recent paper by Amy Hosier from ICF Consulting on this topic. Here is a sketch of what the paper has to say. Download it here.

Over the 1990s, community development finance was transformed from a purely community-based and government-driven process to a set of initiatives that incorporate private sector, profit-motivated efforts to alleviate poverty and revitalize distressed communities. This convergence between the social sector and private sector interests and efforts has resulted in an important union: the growth of corporate-led civic alliances that address community and economic development. While prominent corporate partnerships, such as San Francisco’s Bay Area Council, have operated for decades, the mission and strategies of these entities have shifted.

Early on, these alliances tended to focus their efforts on expanding business and marketing opportunities and improving the physical environment, including public infrastructure and facility provision. While these interests remain, today many corporate partnerships now look to the economic strengths and weaknesses within their defined boundaries and work to identify ways to promote neighborhood revitalization and the overall economic viability of the larger region. In focusing their attention on the economic development of their communities, these alliances engage the social sector as partners in a range of community development activities that benefit both sides of the equation.

The evolution of corporate civic alliances and the emergence of new economic development initiatives have been influenced by the emergence of several trends. First, there has been a significant increase over the last several years in socially responsible investing – from the advent of socially conscious mutual funds at many of the major brokerage houses to a significant increase in individual investments in these funds. Second, venture philanthropy has become an accepted, expanding phenomenon, as shown by the increase in grants and program related investments made by foundations to increase nonprofit capacities to obtain and manage funding. Third, corporations have also intensified their philanthropic efforts, particularly over the late 1990s when the economy was more robust, as evident in the fact that many Fortune 500 companies have created subsidiaries focused on providing management expertise to non-profit leaders as well as making monetary investments in these organizations.

Examples are reviewed from the Bay area, Pittsburgh, Cleveland, Kentucky Highlands, Cincinnati, New York and other places.

Small Communities Conference Planned by Fed

The Path to Stronger Communities: Expanding Economic Growth in Small Communities and Rural Areas
Ambassador Conference Center
Erie, Pennsylvania
Wednesday, October 8, 2003

Conference will provide community development practitioners, small business owners and operators, developers, financial institutions, nonprofit organizations, and government entities in rural areas and small communities with information and tools for creating and growing sustainable communities in New York, Ohio, and Pennsylvania. Please contact Dan Holland at daniel.holland@clev.frb.org or 412.261.7947 for additional information.

Another Balanced Perspective on China

The Federal Reserve Bank of Cleveland released a thoughtful analysis of the Chinese trade situation and its implications for U.S. economic growth.

Bottom line: China's growth cuts both ways in helping and hurting the U.S. economy. Many U.S. companies see China as a major market opportunity and therefore will benefit by getting involved there. We get hurt, especially in the low-skilled production area because China is capturing many of these investments, and yes, there is a job price to pay for these losses to American workers.

The Fed article urges a balanced overall perspective of China in the changing global economy. And the article echoes the view by Economy.com--the sky is not falling, Chicken Little.

Download the article here.

Thoughtful Perspective on the Chinese Competitive Threat

A recent article by Economy.com does a good job of arguing that we need to avoid "China-bashing" and blaming our economic problems on the growth of the new Asian tiger. There is some wisdom to be had in the article. Here are some of the major points it makes. The overall message is this: "Don't lay all the blame on the Chinese, other factors are at work here."

Perhaps it is the current cyclical environment—with the U.S. economy in the midst of a jobless recovery after a prolonged slump—that has "Chicken Little" economists coming out of the woodwork. The current global economy is now producing a throng of doomsday scenarios, the most prominent of which is the hollowing out of the U.S. at the hands of China.

According to Economy.com, as with previous obsessions, the China challenge appears to be more threatening than it really is because of a narrow, partial analysis that looks only to the negative dimensions of the issues without considering the holistic economic environment.

As in the past, the current log of doomsday soothsayers will ultimately be proven wrong. Unfortunately, their crusade is not entirely harmless, as it diverts attention and resources away from legitimate concerns, and motivates policy reactions that are even more harmful than the imagined crises.

That the U.S. economy is experiencing stresses, both foreign and domestic in origin, is not in dispute. On the international side, the most prominent issue is America’s growing trade deficit with China, and the implied job losses that coincide with that deficit. The debate is characterized by more myth than fact, however, because precise numbers, aside from the actual value of the bilateral trade deficit, are difficult to come by.

One then has to consider the employment effects from these differing trade patterns. Despite the fact that Ross Perot disparaged free trade with Mexico as a job-destroying accord, Canada is actually contributing a larger share of the total deterioration in the U.S. trade balance since Nafta went into effect. Canada’s contribution is elevated due to its exports of oil and gas, which possess small employment elasticities. Indeed, one could argue that a large part of Canada’s exports to the U.S. are employment-creating by lowering energy costs.

Elsewhere, the analysis is more complex. While there are job losses associated with our trade deficit, the losses are not uniform across trading partners. Imports from China are disproportionately comprised of low value added goods, such that U.S. job losses associated with China trade will be comparatively low-wage, low-skilled positions. Among all of the costs imposed on the U.S. economy due to international exchange, these are the most easily offset by the gains that accrue to the entire economy arising from less expensive Chinese-made goods.

Trade with western Europe is a higher value added affair, however. The job losses associated with economic ties to that region are characterized by a higher educational attainment, higher wage levels, and would affect a larger cost to the U.S. economy—engineers who design commercial aircraft, for example.

Thus, the perspective that China is a uniquely destructive force for the U.S. economy does not stand up to scrutiny. While such sentiments may be popular with politicians, headline writers and protectionists, the truth is more complex. Certainly, whatever one says about China concerning the destructive effects of trade, one must also be willing to argue regarding western Europe. And yet calls for protectionism from our European trading partners are nonexistent, even as they savage our civilian aerospace industry.

What is problematic is the extent to which politically-motivated individuals are jumping on the bash-China bandwagon. Labor union leaders, business leaders, politicians, and even some economists are pushing for trade restrictions to stop the perceived bleeding of the American economy. Even at the highest levels, the Bush administration is pushing China to float the yuan, believing that a revaluation would stem the flow of Chinese imports.

Go here to read more if you subscribe to Economy.com.

Venture Capital Firms Shedding University Investors

It never ceases to amaze me how the world turns. Here is one you probably never thought of.

A prominent Silicon Valley venture capital firm has barred the University of California from investing in its latest fund, seeking to shield its closely guarded books from public scrutiny. Sequoia Capital, which has helped launch high-tech bellwethers Oracle Corp., Cisco Systems, Yahoo! Inc. and Google, notified the university of its decision Wednesday. The Menlo Park-based firm, which manages about $1.6 billion, also asked the university to sell its holdings in Sequioa's other funds.

Newspapers and other organizations have been suing publicly controlled institutions, such as universities, to obtain the results of their investments in privately held venture capital firms.

The curiosity has been sparked by the huge losses that venture capitalists have sustained during the high-tech downturn of the past three years.

Venture capitalists helped finance the mania that preceded the crash by pouring $182 billion into startups from 1998 through 2000. Much of that money was provided by universities, pension funds and other institutional investors.

With its move, Sequoia is ending a 22-year relationship with the University of California system, which had a $53.25 billion investment portfolio as of June 30. Just under $650 million of the university's assets - slightly more than 1 percent of the total portfolio - was held in venture capital funds.

The university's partnerships with Sequoia Capital have been extremely profitable.

The University of California has invested a total of $110 million in Sequoia partnerships that generated a $508 million return, according to a sworn declaration by Treasurer David Russ.

Here is my suggestion. If your community is looking for a big institutional investor in local venture projects, you might want to give the University of California system a call because they just might be looking for another place to invest their money.

Read more here.

Canadians Look to Their Job Future

Scotiabank has just released an interesting report on Canada's future job outlook. The observations are also useful in understanding the drivers for job creation in the U.S. and elsewhere around the world. It's a worthwhile read. The report says that as the Canadian workplace continues to change shape, demand for highly skilled workers and trades will remain strong despite a moderate slowdown in Canadian employment growth over the next five years.

In a special report entitled Canada's Evolving Jobs Market, Adrienne Warren, Senior Economist at Scotia Economics determines that, "Market forces - growth and profitability - ultimately will determine the direction and momentum of Canadian employment trends," added Warren. "Regardless, the shift to higher skilled positions demanding higher levels of education is bound to continue, a reflection of the growing international drive to improve competitiveness."

Significant job growth is expected to continue, in spite of a slower rate of growth in the Canadian economy over the next five years. "Canada has enjoyed a stellar job creation record in recent years, ranking as one of the best in the industrialized world. Between 1998 and 2002, domestic employment growth averaged 2.4 per cent annually, translating into more than 300,000 net new jobs per year," says Warren. "The expected rate of GDP growth over the next five years would be consistent with yearly job growth in the range of 1.5 per cent, or 200,000-250,000 net new jobs per year."

The report looks at the leading sectors of employment growth over the past five years - which have included business-oriented services, construction, arts and entertainment and information and culture - and identifies five driving forces that can shed some light on what industries offer the potential for better employment prospects in the 2003-07 period.

Economic factors: Structural adjustments related to growing import competition from low cost offshore producers, a stronger Canadian dollar and the continuing adoption of new technologies, may limit job prospects in some traditional areas such as manufacturing. However, many of these cost control efforts have positive employment implications for the growing business services industry.

Demographic factors: Slowing labor force growth will provide opportunities for new labour market entrants, but will also result in skill shortages in some areas, particularly those with older workforces or higher educational requirements. Occupations at risk of shortages include health care workers, university and college instructors, and skilled construction trades.

Fiscal factors: Recent large-scale funding commitments at both the federal and provincial levels point to somewhat better hiring prospects in health care and education, while stepped-up infrastructure outlays will support non-residential construction and related business services.

Regulatory factors: The implementation of the Kyoto Protocol will increase the need for workers with skills in environment-related fields, including technicians and analysts, while a resolution of current difficulties in the forestry, fishery and agricultural sector is crucial to industry prospects.

Technological factors: Demand for skilled workers who can adapt quickly to new technologies will remain strong, as will development and application related services such as software development and multi-media.

Also included in the report is a discussion of the major changes taking place in the Canadian workplace. "Today's work environment is being shaped by a number of evolving trends, including an aging of the workforce, rising educational requirements, the growing role of immigrants and women as a source of labour force growth, and the rapid rise in suburban employment gains vis-à-vis city centres," says Warren.

Download the report here.

Economy Speeds Up

Idling for months, the economy finally shifted into a higher gear in the second quarter as consumers and businesses bought more and the federal government ramped up military spending on the Iraq war. The improvement reinforced the belief that the economy will pick up speed through the rest of the year.

The broadest measure of the economy's performance, gross domestic product, grew at an annual rate of 3.1 percent in the April to June quarter, according to revised figures released Thursday by the Commerce Department.

"Despite the healthier economic outlook, the Achilles' heel of the economy is lack of jobs," said Sung Won Sohn, chief economist at Wells Fargo. The nation's unemployment rate, now at 6.2 percent, could hover in that range or creep higher in coming months, economists said. This is what is most troubling to local economic development officials. They want to know "When will the jobs come?" Why so few jobs being created? Increased productivity at businesses has allowed them to produce more with fewer workers. Businesses will want to feel more secure about the rebound before they go on a hiring spree, analysts said.

Businesses increased spending in the second quarter on equipment and software at an 8.2 percent pace, up from the 7.5 percent growth rate previously estimated, and a turnaround from the cut in such spending during the first quarter of this year.

And, after six straight quarters of cutting spending on plants and other structures, businesses increased such investment in the second quarter at a 7.1 percent rate, also stronger than the 4.8 percent growth rate first estimated for the quarter.

"Businesses had been starving a lot of development spending. To see that beginning to recover is a very good sign," said Carl Tannenbaum, chief economist at LaSalle Bank.

Read more here.

New ED Report for North Carolina

The Institute for Emerging Issues on the campus of North Carolina State University has issued a report aimed to develop a strategy for the state's new economy based on key points culled from its 2003 Emerging Issues Forum last spring.

The report says that: "North Carolina does not suffer from a lack of ideas in regards to economic development. What North Carolina lacks is a framework for shaping public debate and spurring action."

The report, titled "Jump Starting Innovation: 10 Principles to Guide North Carolina's New Economy" focuses on the following key points:

* State government needs the capacity for independent assessments of alternative economic development strategies.
* Private sector leaders from the new economy must help set priorities for the state.
* Universities can help job growth by bolstering collaboration between technology transfer and economic development efforts.
* Regional economic development can be strengthened by clearer niche strategy.
* Rural and inner city economic development can be enhanced by focusing on small, indigenous businesses.

Read more here.

Download the report here.

Retail in Underserved Markets: Some Sound Advice

If your community is struggling to develop retail-shopping in an under-served inner city or rural market, I have just the report for you.

Last year, the International Council of Shopping Centers and Business for Social Responsibility prepared a report on this topic, offering some answers on how to cope with barriers encountered.

Here are the key issues that the report says impair retail development in these markets:

1. Crime/perceived crime
2. Insufficient concentration of the retailer’s target customer
3. Lack of consumer purchasing power for the retailer’s product
4. Potential shrinkage
5. Rent
6. Build out/rehabilitation costs
7. Site identification
8. Inadequate parking
9. Higher operating costs
10. Construction and development costs
11. Lack of amenities to attract out-of-neighborhood employees

Specific recommendations are made on how to tackle each of these issues. Go here to download the report.

Companies Invest in Buckeye State

Finally some good business investment news in Ohio.

Givaudan Flavors Corp. and Think3 Inc. both have received tax incentive packages from the Ohio Tax Credit Authority. Givaudan, a Switzerland-based developer of flavors and fragrances used in everything from soup and sauces to ice cream and beverages, received a 60 percent tax credit over a 10-year term to expand local operations.

According to a news release from the Ohio Department of Development, Givaudan plans to expand its research and development capabilities and buy machinery and equipment. Ohio was in competition with Kentucky for the $15 million project, which is expected to create 29 jobs within the first three years of operation.

Think3 Inc., a Pleasanton, Calif.-based developer of product lifecycle management software, is moving its corporate headquarters to an 8,000-square-foot office in downtown Cincinnati. Think3 is receiving a 75 percent tax credit for a six-year term. Ohio was in competition with Illinois for the $365,000 project, which is expected to create 45 jobs within the first three years of operations.

Source: Business Courier, Aug. 26, 2003

What Do Site Location Consultants Really Bring to the Table?

Why should a company hire a site consultant? What "value" do they really provide? Here is what a recent Bizsites article has to say in response to this question:

1. Help putting the right incentives together.
2. Provide a second opinion on the company's strategic thinking.
3. Help the company find the right "cultural fit."
4. Better crystal ball-gazing.
5. Know what the local situation is all about and how a company will fit.
6. See the bigger political picture and how to navigate in political waters.
7. Save the company time and money.
8. Technical know-how, including engineering expertise.
9. Breadth of experience in dealing with communities and states.
10. Help managing the life cycle of the project.

Obviously, certain of these factors will be more important than others in a specific site location project.

I would add one more, and that is the site location consultant can help the company build an effective internal team (within the company) to get the project accomplished in an efficient and cost-effective manner.

Many times "internal politics" and "turf battles" can slow a project or even kill it. There are cases where the project would have been pulled apart and died, if the site location consultant was not there helping people work together within the company.

Now you know the rest of the story.

Foreign Direct Investment Alive and Well in New Mexico

Ireland's Glanbia is opening a new plant in eastern New Mexico. Teaming with the Dairy Farmers of America and Select Milk Producers on a 3,000-acre site, Glanbia is creating a $192-million, 300,000-sq.-ft. facility near Clovis, N.M., that will rank as North America's largest cheddar cheese plant.

The Clovis area beat out several west Texas sites in the final short-list competition, Glanbia officials said.

Glanbia Foods Executive Vice President Jeff Williams says 3 factors drove the site selection decision: incentives, site access to a very large milk supply and the permitting process.

Read more here.

William Hudnut on Urban Revitalization

This is a must read for all of you trying to sort out future direction on urban revitalization efforts, especially those focused on downtown areas, sports and convention facilities and other investments likely to put financial pressures on local government.

At the United States Conference of Mayors in June, Boston Mayor Thomas Menino said: “Cities are the economic engines that drive regions forward. But the state and federal governments want us to get there on an empty tank of gas.”

Things have not been good across America's cities, especially in the past three years. The combination of a relatively sudden drop in revenues coupled with increased security demands -- estimated nationally to be as high as $100 billion -- have certainly put the pinch on city budgets. In fact, states appear unable to compensate for funding shortfalls -- the National Governors Association reports that 45 states face deficits totaling about $40 billion for the current budget period -- and the federal government seems at best reluctant to directly address the needs of America’s inner cities.

In the name of fiscal restraint and improved security -- with little help from the federal level on that score -- city governments are apparently left little choice but to make cuts in infrastructure, education and social services. These elements, however, may be just the expenditures necessary to not just sustain, but also capitalize, on the back-to-the-city movement that seems on the verge of truly reversing decades of population and business flight, while at the same time stem the erosion of the core business district.

Although in today’s economic and political reality there seems to be little money to spare, if we are going to sustain the economic viability of our urban core, can we afford not to make these investments?

Reis’s Sam Truitt asks William Hudnut, a Senior Resident Fellow with the Urban Land Institute, to locate the importance of that question within his vision of the evolution of downtown districts, while also plumbing his take on what constitutes a successful urban revitalization plan. Go here to read the interview.

Economic Woes in Lone Star State

Just how bad did things get in Texas over the past three years. Here are a few highlights from a recent Texas Workforce Commission report:

* The Austin metro area lost 35,679 private industry jobs, nearly 6.7 percent of the region's total private work force, from the end of 2000 to the end of 2002. The total private industry wages paid in Travis, Caldwell, Hays, Williamson and Bastrop counties during the last quarter of 2002 were $772 million lower than in the final quarter of 2000, a 12.8 percent drop in the final 13 weeks of 2000 compared with the same period in 2002. (All dollar figures in this story have been adjusted for inflation to reflect their worth in the last quarter of 2002.)

* Dallas, the state's largest economy, lost 112,474 private industry jobs, a 6.4 percent decline, and $2.2 billion in private industry wages, a drop of 10.3 percent.

* Houston lost 3 percent of its private industry wages, a $616 million decline. San Antonio managed to tread water in terms of total private industry wages.

* In all cities, government employment offset some of the losses in the private sector, with gains mostly coming in the public schools. Still, even with large government job gains, Dallas and Austin lost both total wages and total jobs during 2000-2002.

* The Rio Grande Valley cities of McAllen and Brownsville gained jobs and total wages during the two-year period.

Go here to read more.

Can Better Design Help the Warehouse Market?

A recent Wall Street Journal real estate market article says that it can't hurt.

According to the article, now warehouse developers are thinking outside the plain brown, no-frills box.

Minimal attention had been paid to aesthetics on warehouses and industrial parks often located off the beaten path. But now creeping into some new warehouse projects are elements of high-end design -- glass curtain walls, precast concrete, skylights, ornamental awnings, elaborate canopies and tasteful earth tones.

Developers are hiring renowned, high-profile architects, such as Skidmore, Owings & Merrill. Industrial buildings are winning prizes for design. Earlier this year, the American Institute of Architects recognized a warehouse used to store airport snow removal equipment in Oklahoma City with an honor award for architecture. And there's even a new coffee-table book on cool-looking warehouses.

Reasons for the move toward fancier warehouses vary -- from tenant companies wanting buildings that reflect their brands or their image, to the shaking up of corporate architecture that was ushered in by dot-com companies in the 1990s, to restrictive zoning boards. Some of the trend also is related to the sluggish economy: To attract and retain tenants, owner-developers are willing to go the extra mile, letting tenants call the shots and dictate what they want and need their buildings to be.

Trying to Gauge the Industrial Real Estate Market?

Colliers International recently released its latest quarterly industrial market report that says 7 million square feet of industrial space was absorbed in the second quarter of 2003. This is a good sign. Not out of the woods just yet--that's the overall message for the industrial real estate market from the Colliers analysis, which examines trends in metro markets across the United States.

Go here to download the report.

Manufacturers Balk at Investments in Korea

According to recent reports from Korea, the U.S. is not alone in losing its industrial base. Once touted as an emerging world production leader, Korea is now suffering from many of the same economic development ailments as more established and developed economies.

I vividly remember working in South Korea on a series of automotive consulting projects during the 1980's. We feared at that time that Japanese and Western European auto manufacturers were going to topple the U.S. in building a production presence in Korea. Foreign direct investment grew markedly in Korea in the 1980's, leveled during the 1990's and now appears to be receding as more Korean manufacturers seek out production platforms on all continents, but especially North America, which remains the world's largest and most integrated industrial market.

Here is the current word from Korean officials. Unless the domestic manufacturing sector introduces innovation and solves its chronic labor woes, Korea's attractiveness as an investment destination will be rendered obsolete by other countries with lower labor costs, said a report by the Samsung Economic Research Institute (SERI) that will be published next week.

SERI notes that manufacturing companies, both domestic and foreign, are leaving the country at a fast rate in order to set up bases in neighboring countries with a cheaper workforce.

There were 1,800 cases of overseas investment by Korean manufacturing companies last year, nearly double the 1,000 instances seen in 1994, according to SERI. The increase in investment overseas is coming at the expense of domestic investment, said the research institute.

SERI estimated that the ratio of domestic to foreign investment by Korean companies in 2001 reached 10 percent, meaning of every 10 investments made, only 1 out of 10 was carried out in Korea, with the remainder going to other countries.

In addition, foreigners are also opting for other markets. Foreign direct investment declined sharply to $2.4 billion last year from a peak of $7.1 billion in 1999, said the report.

Read more here.

Helsinki Subscribes to Creative Economy Model

If cultural diversity is any measure of creative economic growth potential, then Helsinki is likely to be a future creative economy center in the future. That is the word from a recent meet-up in Helsinki, organized by SITRA (the Finnish National Fund for Research and Development) and the Center for Knowledge and Innovation Research of the Helsinki School of Economics.

I understand that Richard Florida, who was invited to speak, was a no-show for reasons not explained in the article I just read about the meeting.

Read more here.

Florida Takes Aim at New Statewide ED Strategy

A recent SW Florida economic development planning meeting to help devise a new ED strategy for Florida pointed to the following future priorities:

- Focus on the quality of education.

- Establish a consistent source of funding for economic diversification.

- Proactively encourage high-wage jobs by creating a better business climate and pushing more university research and entrepreneurship.

- Find innovative ways to pay for economic infrastructure, such as transportation and telecommunications.

- Come up with a system for more integrated growth planning.

Florida has experienced major economic growth over the past three decades, with more ahead from all indications. The good thing about the Florida planning process is its focus on building stronger and more competitive "regions" across Florida. I will always remember the profound words of Wilber Thompson, one of the great grandfathers of urban and regional economic development: "states are confederations of local economies. Regions are the real economies in any state." More states should heed Thompson's advice.

My advice to Florida officials is to focus on a regional investment strategy that builds the competitive advantages of the state's very diverse economic regions. That strategy should see the state's entire budget as a tool for development, including the state's annual investments in higher education, infrastructure, recreation and tourism and other things. An "Investing in Florida's Economic Future" makes most sense to me.

Read more about Florida's strategic planning process here.

Happiness: An Economic Perspective

People want to be happy. But do we know what makes them happy, and how society can be best organized to promote happiness? We know more than is generally realized. Recent lectures at Centre for Economic Performance in the U.K. reviews evidence from economics, psychology, sociology and neuroscience and draws conclusions about what priorities would serve us better in creating a happier society.

To read what Richard Layard, Co-Director of the Centre for Economic Performance in the U.K. has to say about happiness from an economic standpoint, click here.

This work reminds me that Tibet measures its economy from the standpoint of Gross National Happiness.

A special thank you to Mindy Lemoine from U.S. EPA for calling my attention to this very interesting piece of research.

More on Inter-Generational Leadership

I like what I'm hearing back from folks on the topic of inter-generational leadership. Here is another comment I received yesterday. This one comes from the Buckeye State (Ohio).

"You are right on with your comments about 'intergenerational leadership,' and the need for it in economic development. As a "thirty-something" in the business I can tell you that there are a handful of 'movers and shakers' who, for whatever reason, neglect the need to pull talent up to their level. This happens within organizations and within regional ED environments. (I'll add that we may need to coin a new phrase - "inter-GENDERATIONAL" - as I am always surprised by the lack of women at the table.)

We're going to be in bad shape in ten to fifteen years as today's leaders retire and take with them the knowledge and experience that has brought them to their positions. But the loss today is the fresh perspective and new ways of thinking that sits out there waiting to be tapped."

A Look at China's Foreign Investment Attraction Success

China is the country to keep your eye on. Here is the latest on foreign direct investment in the country. China’s scorecard for attracting foreign investment reads like this: Trying hard, doing well, but could do even better.

That is the assessment of a just-published OECD report, Investment Policy Review of China -- Progress and Reform Challenges. In 2002, China became the world’s largest recipient of total foreign direct investment (FDI), attracting nearly $53 billion. That performance comes thanks to China’s progress on structural reforms, its accession to the World Trade Organization, and efforts to bring regulations in line with international standards.

But there’s more to the story. At $30 per capita, China receives less FDI than other major developing countries, such as Brazil with $195 per capita. Moreover, in the 25 years since China opened the door to foreign investment, much of the spending has been concentrated in low-technology, labour-intensive manufacturing projects. A relatively low share of FDI has come from the world’s most prolific investors, historically OECD member countries.

China’s challenge now is to develop a more transparent business environment with a clear legal and regulatory framework. That should help attract higher-quality investments that are focused on long-term, high-technology, capital-intensive projects.

Are U.S. Companies Really Making Any Money?

According to a recent report by Economy.com, they are not. The news from second quarter earnings is generally positive, with profits showing significant improvement, and in many cases beating expectations. To a certain extent, the improvement is real, as previous cost cutting efforts, the weaker dollar, low interest rates and improved pricing power have all combined to improve profitability. However, there is evidence that companies are up to their old chicanery, and as such, the recent gains in the stock market may be premature.

It has been more than a year since company CEOs and CFOs were required to sign off on their books, but it appears that the quality of earnings has not improved much in the intervening period. Operating profits, which are those reported before extraordinary items, and are the ones that are generally highlighted by companies in their quarterly reports, are diverging again from corporate profits as reported in the national accounts. This is a disturbing déjà vu of what occurred in the late 1990s.

Companies are continuing on with their aggressive accounting tactics in the hopes that analysts and investors will overlook them in their desire for a return to strong growth in equity prices. To date, this strategy seems to be working. However, it also runs the risk of generating another crisis of confidence in accounting standards, such as what occurred following the Enron crisis and the other sundry bankruptcies that occurred over the past two years. Thus, it now appears that the Financial Accounting Standards Board, the organization responsible for setting accounting standards, will now need to enforce more conservative accounting standards if another loss of confidence is to be avoided.

Read more here, if you subscribe to Economy.com.

Machine Tool Spending Trends

One good indication whether businesses are investing is spending on machine tools. The picture is not real rosy at this juncture, but it is improving, according to news from the industry's associations. China, say industry representatives, is the looming threat to U.S. tool builders.

U.S. machine tools orders spiked higher in June then retreated for the remainder of summer, yet hopes are growing that capital investment purse strings should begin to loosen by the fourth quarter, machine tool executives say.

Working in favor of the industry is a weaker dollar against the euro, which is compelling some foreign manufacturers to transfer operations into the United States, but the dollar isn't budging against the Chinese yuan, where it would truly make a difference for U.S. manufacturers, they say.

Many believe pent-up demand and a cautious build-up in capital investment should give rise to a better outlook in the fourth quarter, although they also remind that similar projections in the past set the stage for subsequent disappointment.

Yet another driver is tax breaks aimed at re-energizing capital investment, which may have contributed to the June spike in orders.

June U.S. machine tool consumption rose by 67% over May, and 3% over the prior June, the first instance of year-over-year growth since November 2000, according to data released by the American Machine Tool Distributors' Association (AMTDA) and The Association For Manufacturing Technology (AMT).

Go here to read more, if you subscribe to Economy.com.

Heat on in Tampa to Collect Bed Taxes

Local governments everywhere are cash-strapped and most are looking at ways to bring in whatever taxes they can at this point to make ends meet. That is exactly what Hillsborough County, Fl is proposing relative to hotels collection of bed tax receipts from visitors and conference and meeting sponsors.

Go here to read more.

Portland Readies Bid for Expos

Portland, Ore., became a player in the race to nab the Montreal Expos earlier this week with the passage of a jobs bill in the State Legislature that would set aside $150 million for a new ballpark. The Oregon House, which had passed the bill twice already, ratified an amended version.

The City of Portland now must identify how it will pay for its piece of the ballpark financial puzzle. The project could cost anywhere from $300 million to $350 million, depending on where in the city the open-air ballpark is built. There are seven sites, and the public vetting of each site is expected to begin almost immediately, said David Kahn, the leader of the Oregon Stadium Campaign.

Portland now must not only figure out a way to pay its share of the ballpark project, it must retire the approximately $22 million in debt outstanding on PGE Park, the minor-league facility that was renovated three years ago for the financially ailing Triple-A Beavers. That stadium would act as an interim stop for the Expos before the new ballpark is ready in 2007.

To pay for the new ballpark, the city is eyeing a tax or surcharge on baseball tickets, plus a "modest" charter seat license program at the new stadium as the main funding vehicles, Kahn said. Under any charter seat program, season ticket holders would pay a set price up front for their seats with the right to perpetually purchase tickets in the same location every year.

If I were the folks in Portland, I would be asking myself: "Can we really afford this deal?" Maybe the Portland stadium should be one of the properties rolled into the REIT I described earlier for Cleveland's proposed convention center. Does anyone know if the Portland folks have considered a private financing strategy for the proposal ballpark?

Read more here.

What Cleveland Can Teach Pittsburgh About Coping with City Fiscal Crisis

Pittsburgh's City Hall is on the brink of disaster--a situation similar to that faced by the City of Cleveland in 1978. Financial problems are common among local government nationwide, following the rough economic waters everyone has had to tread in the past 3 years. Pittsburgh has had to take some drastic steps to stem the tide in recent months. Some ask whether "hitting bottom" can be a good thing for getting community leaders to deal with the root causes of these problems.

Cleveland can confidently say "been there, done that" when it comes to dealing with fiscal default and other serious financial problems. A recent news tory in the Pittsburgh Post-Gazette makes this exact point.

In Cleveland, for example, a debate still rages about a 1978 fiscal crisis that forced the city to default on $15.5 million in loans, thus becoming the first U.S. city to renege on its obligations since the Depression.

In the wake of the crisis, which received national attention, the city's business leaders promoted George Voinovich -- who's now a U.S. senator -- as a replacement for then-Cleveland Mayor Dennis Kucinich -- who's now in the U.S. House -- and they spurred action on a number of development projects meant to turn the city around while improving its image nationally.

Bill Bryant, president of the Greater Cleveland Growth Association, said at the time: "There is nothing like a hanging to clear a person's mind." Asked about that comment now, Bryant stuck to it.

"It did clear a lot of minds," he said. He listed the new roads, stadiums and Rock 'n' Roll Hall of Fame that resulted from the crisis's aftermath, not to mention an image makeover that inspired a nickname: "The Comeback City." The city that used to be the "brunt of bad jokes" became a city to study and learn from, he said, hailed in national newspaper articles for crawling out of its hole and rebuilding its Downtown.

"The crisis urged that on," he said. "It more than nudged it on; it grabbed it by the seat of the pants and made it a reality."

Having worked at the Growth Association during those turbulent years, I can say firsthand that the crisis was the just the "kick in the pants" that Cleveland needed. My comment about this situation is that "pain too is a teacher, and we learned a lot from the community's pain at that time."

Is Cleveland out of the woods today? Far from it in my estimation. Many city governments are teetering as I look at the numbers from the Government Finance Officers Association (GFOA) and other groups. From what I can tell, there are no long-term fixes for the fiscal and economic problems facing America's cities. We have to work at managing these issues all the time. There is never a day when we can relax and not do something that deals with our fiscal and economic health. in other words, don't expect miracles and end the search for silver bullets--there simply are none to be found. Closer monitoring of financial conditions, coupled with stronger economic devleopment initiatives that bring in new tax revenues, are needed to help our cities stay a steady course in the future.

Read more here.

Lawrence County, PA Focuses on Site Readiness

A leading cause of manufacturing relocation away from developed areas to newly developing ones is the lack of competitive sites to support existing industry expansion. We find this issue time and time again in our work across the country. We are currently working with an "in-town" industrial development group, called WIRE-Net, on Cleveland's Westside, which is working to address this very issue.

Creating new real estate capacity is not a simple decision for areas suffering from at least a couple generations of economic decline. For one, these areas lack clean developable land to convert into industrial sites. Brownfields, as they contaminated and under-utilized land and buildings, are a way of life for most urban areas and many rural areas.

Here is an example of how one development is working to tackle this problem. Lawrence County, Pennsylvania is working to reverse its cycle of decline by creating Millennium Park, a proposed 1,200-acre high technology industrial park conveniently located between Pennsylvania Route 60 and the winding Shenango Creek in the center of Lawrence County near New Castle. Currently, there are 158 acres designated as a Keystone Opportunity Expansion Zone within the park and an additional 200 acres to be designated later this year. KOEZ zones provide a variety of economic development incentives to businesses, including special tax abatements.

Millennium Park is one of several key projects identified by Gov. Edward Rendell as a top priority of the state's economic development plan to have several large commerce park sites within the Commonwealth of Pennsylvania prepared to meet the demands of our new global economy. The state has committed $15 million to the project, which will be matched by local sources including $7.2 million that has already been dedicated to the project by five of Lawrence County's municipalities. The County of Lawrence has pledged an additional $3.5 million.

According to the Pittsburgh Regional Alliance (PRA), creating this type of industrial capacity is imperative if areas like Lawrence County are going to grow in the future. PRA works closely with Lawrence County development officials. The PRA approach to regional economic development is a sensible one. But as Ronnie Bryant, PRA's President, recently told me during a visit to Cleveland, "regionalism is something that most places talk about, but few actually do it successfully. You have to work your way into a regional approach to economic development." This is sound advice for areas hoping to advance regionalism for economic development.

Read more here.

Creativity Gets Attention in Syracuse

Community leaders in Syracuse have decided to strengthen their arts as a move toward becoming a more vibrant community and a more economically prosperous place. This is a step we see more communities taking across the country as they work to strengthen themselves.

Last summer, Citistates, a group of consultants, told local leaders that one mark of a successful city is attracting young artistic people to bring in new ideas and energy.

In April, the area's Metropolitan Development Association (MDA) hired Catalytix, a consultant company founded by Richard Florida, to help revise its plan for the area's economic growth - Vision 2010. The consultant recently met with members of local arts groups and plans to issue a report this fall.

Go here to read more.

Still Committed to Manufacturing In Tennessee

Do you think the Sun Belt states have given up on manufacturing? If you do, think again. Here is a story about manufacturing in Lewisburg, TN--a small town with a big heart for manufacturing.

Although manufacturing in Tennessee still hasn't recovered from the longest economic slowdown since the Great Depression, the sector remains an important part of the state's economy.

Just ask the people here. Despite suffering a major economic blow when International Comfort Products closed its heating and air-conditioning plant in December, officials continue to search for more manufacturers to locate here.

Manufacturing accounted for 55% of the jobs in Marshall County before the plant closed in December, eliminating more than 2,000 jobs in a county with a work force of 12,700 people.

''That's what we do best,'' Larry McKnight, the city's economic development director, said of the city's manufacturing sector.

The city would like to diversify its economy better, but manufacturing remains an important part of the mix and the focus of intense economic development efforts by state and local officials.

''We have 2,000 workers that have been trained in Kaizen (a manufacturing productivity and quality improvement method) and just-in-time manufacturing,'' McKnight said. ''We have an immediate need. We've got to get these people back to work.''

There are literally hundreds, and maybe thousands, of towns just like Lewisburg that are looking for new ways to help their manufacturers survive and grow. For Lewsiburg, it's the story of losing the branch plants that opened there during the 'Southern Manufacturing Rush' of the 1960's and 1970's. I proposed a new joint federal-state tax credit to secure manufacturing jobs in American communities a couple weeks ago. We need to do it. This powerful credit, coupled with other tools, can help. Don't roll over to China yet.

Read more here about Tennessee manufacturing.

See my article on 'How to Deal with Your Foreign Competition' on August 16 here.

New Mexico Governor Wants "Results!"

What did I say at the end of my previous post about Oklahoma? I said the states are pushing harder for results. Here is what a recent article in the Albuquerque Business Journal had to say: "It's nice to talk about economic development, but Gov. Bill Richardson and his economic development team want results."

And so, Richardson's upcoming economic development summit, to be held in Santa Fe Sept. 9 through 11 will aim at getting results. New Mexico Economic Development Department Secretary Rick Homans says he hopes the conference will help the state's economic development officials do a better job of helping existing companies and recruiting new ones.

The Land of Enchantment has a great deal to offer for economic development, and just plain living. I am looking forward to my upcoming work with the Next Generation Economy group in Albuquerque, which starts in October. I have been hearing a lot from New Mexico economic developers in recent news, and it's sensible and innovative stuff that I think can make a difference in the quality of economics across the state.

New ED Team in Oklahoma

Oklahoma Governor Brad Henry says a group of Oklahomans will develop a plan of action to improve the state's economy. Henry calls the program "Oklahoma's EDGE'' and says the group will develop an economic action plan for the state by December. The governor says the plan will be ready for consideration during the next legislative session.

The program includes a steering committee to oversee the work of 23 groups of business leaders, university professors and experts in various fields. Each group will decide what action is needed to develop the economy in areas such as aerospace, biotechnology and health care.

Lots of re-thinking of ED strategies by the states right now. Count on the fact that they were be pressing harder for "results," since there have been so few anywhere in the past three years.

Source: KOTV

Small Business Investment Trends

If your area is working to spark more investment by smaller companies, then the results of this recent National Federation of Independent Business survey will be of interest. Here are the main findings

• Forty-seven (47) percent of small-business owners made the largest share of their business investments over the last 12 months in replacement and maintenance. However, 23 percent made theirs primarily to expand into another business area while 21 percent made theirs primarily to extend existing products or services. Four percent directed most of their business investments to safety or environmental improvement. While relatively few businesses grow substantially, investment patterns suggest that many owners are trying to make them do so.

• Thirty-five (35) percent of small businessmen and women report that they invested in a technology or process in the last 12 months that was new to their business.

• Eleven (11) percent invested in another, privately-held business in the last year. About two-thirds of those invested in a business in which they were the principal and about one-third were “business angels.”

• Small-business owners are over three times as likely to replace business equipment as needed than to replace it on a schedule. The ratio is somewhat smaller for the procurement of business vehicles among the 74 percent who report owning one. The vast majority prefer to procure new equipment and vehicles rather than used ones.

• Overwhelming majorities believe that purchasing is usually a better option when procuring business equipment and vehicles than leasing. Those preferring to purchase most frequently cite lower overall cost (36%), the ability to alter or treat an asset as the owner wills (29%), and the ability to hold and use an asset for an extended period (23%) as the
primary reason for their view. Those who prefer to lease most frequently cite improved cash flow (38%), tax advantages (25%), and the ability to have the most up-to-date assets (21%) as their primary reasons.

• The sophistication of methods used to assess the financial viability of a potential investment varies enormously. The most frequently used technique is the rate-of-return (32%). The second most frequently used is “gut feel” (25%).

• Almost 70 percent make cash flow projections prior to making a major business investment. But only 31 percent have a written business plan projecting near-term major capital expenditures.

• There are tax implications when reinvesting. Fifty-nine (59) percent say that they “consider” the implications prior to making a major investment while 17 percent actually “calculate” them. Twenty-one (21) percent “ignore” tax implications.

• Many small-business owners approach investing in their business very cautiously. About one in five (22%) say that it is not appropriate to borrow to make a business investment. Almost twice that number would postpone making a profitable business investment if they did not have the cash on hand to make it.

• The most significant long-term concern about business investment is neither over-investment (23%) nor under-investment (19%). Rather, it is investment in the wrong things (42%). Thirteen (13) percent have no long-term concerns with their reinvestment.

Download the report here.