How to Succeed in Economic Development: Create a Positive Business Climate

Anyone who still equates economic development with recruitment of manufacturing investment ought to read a new report by the Brookings Institution, “Responding to Manufacturing Job Less: What Can Economic Development Policy Do?”

The report takes a close-up look at eight metropolitan areas — Charlotte, Cleveland, Grand Rapids, Hartford, Indianapolis, Louisville, Rochester and Scranton — over the period of 1980 to 2005 to see what policies and strategies the regional leaderships adopted in the wake of manufacturing job loss. The conclusion is not terribly comforting. While some initiatives might have perked up investment in particular manufacturing sectors, few of the policies pursued appeared to change a region’s economic trajectory.

Louisville’s airport expansion in the 1980s and Indianapolis’ strategy to boost amateur athletics did shape economic growth in those two regions but the impact of most other initiatives was too limited to affect metropolitan regional economies. What seemed to have the most impact was (a) successful business strategies of major corporations and (b) basic economic characteristics of the region, such as access to transportation, quality of the labor force, state business regulations and the like.

A logical conclusion of the Brookings report is that regional civic and political leaders are better off focusing on economic fundamentals than pursuing the economic development chimera of the day, be it semiconductors (the 1990s), biotech (the 2000s) or green energy (the 2010s). Local leaders are not very good at predicting what hot company in their region will take off, creating a new ecosystem of vendors, partners and buyers in its orbit. Rather than picking winners and losers, they should create an all-around business climate in which a wide array of industries can succeed.

That happens to be something that Virginia is good at. In the latest CNBC ranking of the Top States for Business, the Old Dominion scored No. 1, edging out Texas, which had snagged the top spot last year. CNBC bases its rankings on the basis of cost of doing business, workforce, quality of life, infrastructure, economy, education, technology and innovation, business friendliness, access to capital and cost of living. Virginia moved up this year thanks to improvements in the tax burden, education and cost of doing business. (It lost ground in quality of life, due mainly to an increase in the percentage of uninsured.)

States CNBC: “Virginia did what it does best — and has done in each year of our study: It turned in a solid all-around performance, with top ten finishes in five categories.” Virginia’s metropolitan regions could benefit from the same philosophy.


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