What is Economic Development?

Gears that drive economic development

Without competition, we become stagnant.

Without Rafael Nadal, Roger Federer could never be crowned the best tennis player in the world. If Simone Biles didn’t train next to Olympic athletes and won seven medals, she wouldn’t be considered the best gymnast ever. Apple competes with Microsoft. Kellogg’s created competition over their very own cereals. All of this to say, behind the scenes and under the hood, growth requires competition.

Economic Development – The development of goods and services in an area, creating increased population, business and tourism

Being able to draw in big businesses to create jobs, or entice residents to continue to live in the area has been a top priority for municipalities since the Great Depression. During the time, businesses grew within the community, but they weren’t coming in from other places, causing state and local governments to incentivize new development.

The responsibility of economic development became something delegated by each state and privatized. This created an environment for businesses to work together to produce a good or service for the area. Common practices and ideas are shared among these businesses because their industries align; some in agriculture, tourism, and/or technology.

How much should it cost to create a thriving economy? How can state and local government municipalities continue to fuel the competition for that growth?

This article will answer those questions and more.

Current types of Economic Development Strategies

As opposed to the old way of economic development by manufacturing, the new strategies consist of a global perspective. There are four main sections that most states focus on when developing economic development plans and strategies: arts, sports, tourism/travel, and trade.

Arts: Opera, Dances, Orchestras, and Theater are becoming focal points in economic development. Not only does it establish a sense of culture for the people living in the area, but it also brings in folks from surrounding areas (including the suburbs of dense cities) and creates revenue from spending at hotels, restaurants, parking garages, and shops. Businesses also tend to relocate to areas with a strong sense of art and culture.

Sports: Although there is a lot of controversy around hosting professional-level sports within a city, it remains an incredible source of revenue for state and local governments. Every smaller city with a minor-league team strives to host a major-league sports team, whether basketball, football, hockey, or soccer. Subsidies are used to entice owners of teams to move to a specific region, which is why there is so much controversy. Though, monies brought in via the events are significant; not as significant as applying those funds elsewhere for the economy. Hosting the Olympics is considered the “World’s largest economic development opportunity.”

Tourism and Travel: “Pure Michigan” is a slogan and marketing campaign that uses over $25 million per year in order to attract tourists. Continuously searching for new landmarks and attractions such as mountains, parts, coasts, casinos, etc. is the name of the game when looking to draw new eyes and ears to the area. These new eyes and ears generate considerable accommodation taxes, which help fuel the tax base as a whole.

International Trade: Products of the state are exported and capital from international investors is imported in this strategy for economic development.

Wisconsin was one of the first states to work on newer strategies; job retention in the area, job creation in the area, and rebranding. Missouri created a plan to educate and develop skills for their workforce to be efficient in this day and age, enhance infrastructure, work on foreign-trade policy, establish a more diverse and accepting culture, create an environment for businesses to expand, optimize state taxes, and increase international marketing for the state.

Economic Development is a competitive game

The Information Technology & Innovation Foundation (ITIF) measured the economy of each state and gave them a rating on how much they were in compliance with the new economic policies. Washington, California, Utah, Colorado, Minnesota, Illinois, Virginia, Delaware, Maryland, New Jersey, New York, Connecticut, and Massachusetts all ranked in the top percent. Montana, North Dakota, South Dakota, Wyoming, Oklahoma, Arkansas, Louisiana, Mississippi, Alabama, Kentucky, and West Virginia all ranked in the bottom percentile.

Obviously, politics plays a big part in economic development. Democrats vs Republicans, discrepancy among members of congress, and where each municipality’s border ends are a couple of the dividing factors. On top of that, many people compete to decide if states should oversee economic development or if that duty should be handled by more private institutions.

Competing businesses within a state seemingly have more authority and provide a much greater risk than having the state run the development of the economy. One major corporation, bringing in lots of revenue for the state and creating jobs, could threaten to leave and hurt the economy.

Instead of having all of this competition surrounding one of, if not the most important policies, some industries and universities are partnering up. Creating collaboration through research and incubators has increased production for some states.

How much should developing a thriving economy really cost?

Are you in the category of people who think state and local governments spend too much on developing the economy? Incentives to bring new business to an area can be costly. The overlying questions remain in return on investment for state and local governments.

One industry that may have people raising their eyebrows is the automobile industry. Tax breaks for companies like Toyota and Mercedes have been extensive and, at some points, deteriorating to the economy. The film industry is another one that folks have worries about.

The good news is that clawbacks have been created to hold companies accountable. If the entity doesn’t fulfill its promises to the state or local region, it must repay the majority or all of the subsidy provided.

Economic Development in a nutshell

So, what is economic development?

Some things to keep in mind with developing the economy: training and education are essential for a successful economy; technology and telecommunications are being built as the foundation for the future; Borders are breaking and everyone is working together; the resources needed for a thriving economy aren’t just in the states and regions next-door, but the entire world; Sustainable practices are going to make it as efficient as possible.

A study by the Pew Center concludes that only around 25% of states work on a comprehensive assessment of how their incentives impact the economy. They encourage government organizations to incorporate assessments in budgets, use reliable data, create a regular schedule for review, and make sure the goals of each incentive are clear.

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