Decisionmaking translates into how the community goes about setting and implementing policies that a

1
Community Economics Decision-Making
Decision-making translates into how the community
goes about setting and implementing policies that
affect development. Underlying these policies or
programs are community values. When it comes to
economics, how are values translated into
decision-making? Does the community integrate
sound and objective analysis with community
perspectives and desires? Does the community
involve a broad spectrum of interests or just a
select few?
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Community Economics Decision-Making
Does the community really address the underlying
problem(s) or is it just treating the symptoms?
Indeed, can the community make a distinction
between the underlying problem and symptoms that
appear on the surface? What types of strategies
can a community implement to attain economic
growth? Why are some communities better equipped
for making economic decisions when conditions
change?
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Community Economics Decision-Making
The quality of local decision-making is strongly
influenced by community residents' ability to
distinguish between problems and symptoms, and to
build coherent responses to real issues. The
continued pursuit of solutions to symptoms rather
than real problems seldom results in community
satisfaction.
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Community Economics Decision-Making
There remains no real substitute for
well-informed local leadership. Successful
development requires local leaders with strong
analytical skills, and with access to the
information, data, tools, and techniques
necessary for the full redress of root problems.
Inadequate access to current and accurate
information is a serious stumbling block to local
decision-making.
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Community Economics Decision-Making
Widespread citizen participation and support is
critical to most decisions affecting a large
segment of the community. Local residents
control an array of resources that affect
community life. These are controlled either as
individual residents, businesses, or through
collective institutions including local
governments and citizen groups.
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Community Economics Decision-Making
What we are talking about in decision-making is
civic engagement derived through activities such
as community organizing, citizen participation,
and community-based decision-making.
Community-based organizations can bring residents
together to learn decision skills reflecting a
more entrepreneurial style that is conducive to
strategic planning for local economic
revitalization including social capital.
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Community Economics Decision-Making
The difference among communities in terms of
civic engagement is due largely to the level of
social capital. Social capital refers to
features of social organization such as networks,
norms, and social trust that facilitate
coordination and cooperation for mutual benefit.
Networks of civic engagement foster norms of
general reciprocity and encourage the emergence
of social trust. Social capital consists of the
social networks in a community, the level of
trust between community members, and local norms.
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Community Economics Decision-Making
First, the role of decision-making by individuals
and communities, and the capacity of the
community to make choices, is a primary
characteristic. This to a large extent depends
on the quality of information available and the
ability to decipher that information,
specifically the capacity to learn. Second is
the negotiation on process within the community
to determine the collective good, including the
capacity to work together.
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Community Economics Decision-Making
The Floras talk about entrepreneurial
infrastructure, rather than social capital, and
how that might relate to community economic
development. Essentially they offer up three
dimensions that defines entrepreneurial
infrastructure. The first is symbolic diversity
or the community level orientation towards
inclusiveness rather than exclusiveness. There is
an acceptance of controversy in the community so
that disagreements are not perceived as
conflicts. People accept controversy and deal
with it in a positive fashion. One way of
looking at this is to think in terms of win-win
outcomes versus win-lose outcomes. This is a
comprehensive means of thinking of civic
engagement.
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Community Economics Decision-Making
The depersonalization of politics means
disagreements are seen as honest differences to
alternative solutions, and those offering
alternatives are not seen as inherently evil.
What to do in this type of situation is to focus
on the process rather than winning. The community
also thinks in terms of a broad definition of who
should be involved in the decision and that there
are permeable boundaries as to whom should be
involved. In other words, you draw your
boundaries as inclusively as possible and reduce
the perception of we versus them.
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Community Economics Decision-Making
Second, resource mobilization is when the
community learns to rely on its own resources
first rather than looking elsewhere. Looking
elsewhere might include senior levels of
government, non-local businesses or foundations.
But again, sustainability of local policies
almost mandates that those policies be determined
by local dialogue and decisions.
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Community Economics Decision-Making
The final quality of entrepreneurial
infrastructure is quality of networks. This
includes such things as network diversity
including but not limited to ethnic, class and
gender. We worry about what the Floras call
horizontal networks because we learn best from
people like ourselves. But at the same time
there has to be an appreciation of vertical
networks because a community needs to be linked
to the world outside. For example, a rural
community may learn from the experiences of
similar near-by communities (horizontal), but at
the same time is willing to draw on the
experiences of larger and distant places
(vertical).
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Community Economics Decision-Making
We saw that a market economy, given some fairly
restrictive assumptions, will yield a Pareto
optimal allocation of resources a state of
affairs where no one can be made better off
without at the same time making at least one
other person worse off. Adam Smiths invisible
hand of market forces works. We also discussed
that the presence of externalities results in
market failures competitive markets may not
result in a Pareto efficient allocation. Also at
issue is that Pareto optimality says nothing
about the total welfare of that allocation.
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Community Economics Decision-Making
it possible to derive an aggregate measure of
social welfare so that alternative allocations
might be compared, including allocations that are
not comparable using the Pareto criterion? The
name of such an aggregate measure is called a
social welfare function. A social welfare
function is just some function of the individual
utility functions W(u1(x),,un(x))
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Community Economics Decision-Making
W(u1(x),,un(x))
Figure 12.1 Social welfare functions
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Community Economics Decision-Making
Utilitarianism. This alternative classical
economic philosophy relies on early concepts as
described by Jeremy Bentham in England during the
1700s. The classical utilitarian or Benthamite
welfare function is a simple the sum of the
individual utility functions W(u1,,un)
Si1nui. Or, a slightly more generalized form,
the weighted-sum-of-utilities social welfare
function W(u1,,un) Si1n aiui Here the
weights a1,, an are weights indicating how
important each individuals utility is to the
overall social welfare. The Benthamian concept
centers on the rightness or wrongness of actions
that are determined by the goodness or badness of
their consequences for society as a whole.
Utilitarians consider maximization of social
utility as the basic criterion of morality. In
essence, the phrase greatest good for the
greatest number in the long-run represents the
basic decision-making criteria as espoused by the
utilitarianist perspective.
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Community Economics Decision-Making
Libertarianism. This classical liberal
philosophy advocates an individuals entitlement
to freedom from the interference from others.i
With respect to just-ness of an economic
decision, libertarian thinking believes that
holding, using, and transferring resource
endowments is just if it is beneficial to an
individual and if it doesnt impinge on the
liberty of others. Thus, libertarians hold to
Pareto optimality as a key decision rule. i
Milton Friedman (1912 - ) a leading proponent
of the libertarian approach to economic
philosophy. Libertarianism is characterized by
much of the contemporary economic thought as
espoused by the Chicago School and rests on the
notion of Pareto optimality as a key decision
rule for just economic decisions.
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Community Economics Decision-Making
Contractarianism. This extension of
utilitiarianism rests on the assumption that
individuals are willing to accept constraints on
their actions because they agree that if everyone
accepts, all will benefit. It differs from
utilitarianism in that the greatest good for the
greatest number is often unjust because it comes
at the expense of the weakest. This contemporary
philosophy is often identified as Rawlsian named
after John Rawls, a Harvard philosopher who wrote
extensively on liberalism. Rawls forwarded a
philosophy of social justice based on two
principles. First, individuals have a right to
the most extensive system of basic liberties and
inequalities are based on differences in initial
endowments. Second, inequalities are prioritized
to provide the greatest benefit to the least
advantaged.
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Community Economics Decision-Making
Contractarianism. As a decision rule,
contractarianists rely on the maxi-mim criterion
which holds that decisions should attempt to
maximize the welfare of the minimum group in
society. This rule can be formalized
as W(u1,,un) minu1,, un At the local
level this philosophy emphasizes policies that
address people living in poverty first and
foremost.
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Community Economics Decision-Making
Arrows Impossibility Theorem. While in theory
the ability to design a social welfare function
to assess the alternative policy options is
appealing, can it be put into practice? The
classic work which addresses this question, and
upon which most of the literature is built, is by
Arrow (1951). Arrow set down certain properties
or value judgments that a social welfare function
should possess. These include Pareto
Principal if all individuals prefer one
allocation to another, society should do the
same. Unrestricted Domain the social welfare
function should allow all possible ordering of
individual preferences. In other words, the same
welfare function should apply regardless of the
particular preference orderings of
individuals. Independence of Irrelevant
Alternatives the social ordering of any two
allocations should not depend on the ordering of
any other two allocations. That is the social
welfare function reflects all possible pair-wise
comparisons.
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Community Economics Decision-Making
Arrows Impossibility Theorem. Arrow found that,
indeed, a social welfare function could be
constructed that satisfied these minimal
characteristics, but the only admissible one
would be an unattractive, specifically a
dictatorship all social rankings are the ranking
of one individual. Perhaps the most surprising
part of Arrows Impossibility Theorem is that
three plausible and desirable features of a
social decision mechanism are inconsistent with
democracy. The implication here is that there is
no perfect way to make social decisions. There
is no perfect way to aggregate individual
preferences to form social welfare function.
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Community Economics Decision-Making
Arrows Impossibility Theorem. For the community
economic development practitioner the
implications of the Impossibility Theorem is that
our ability to measures social welfare is far
short of our ability to theorize and think about
social welfare. In the end, these philosophies
are just that, ways to think about and approach
economic development.
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Community Economics Decision-Making
Jeep suggests there are four traps we must be
alert to in local decisions about community
economic development. First is failure to
develop vision that is shared with the larger
community, and failure to achieve consensus on
core values that are connected with that vision.
A misunderstanding by community leadership of
what form of leadership is required is a second
issue raised by Jeep. The leadership required is
not control, nor top-down, but best understood
and defined as group learning process in which no
single person has the answer, but all have
something to contribute. Third is the failure to
appreciate the process, not events, as an
important part of the substance (the ends does
not justify the means). Fourth is the failure to
go to the roots of a problem and address it.
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Community Economics Development Strategies
Any community economic development strategy
begins with a discussion of community economic
development goals (outcomes) and objectives
(output). Goals are general qualitative
statements that suggest some attempted
achievement that is largely immeasurable.
Community economic development goals are often
intangible, abstract, and definitely are value
laden. Such as making the downtown the heart of
the community from our example above. Objectives
are more specific statements that typically can
be quantified and measured, such as downtown
business profitability. Goals and objectives are
intimately related. Objectives are derived from
goals and are indicators of goal achievement.
Goals and objectives represent the juncture of
facts, values, and hierarchy of importance.
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Community Economics Development Strategies
Goals and objectives should possess the following
qualities 1. Goals and objectives should be
consistent with respect to expectations. 2.
Goals and objectives should be comprehensive and
include all major dimensions of the
problem(s). 3. Goals and objectives should be
precise to assure effective action and
response. 4. Goals and objectives should be
internally consistent and not redundant. 5.
Goals and objectives should recognize resource
constraints relative to any action program to be
initiated.
26
Community Economics Development Strategies
Implicit in the discussion of community economic
development goals and objectives is the belief
that once the goals and objectives are identified
and the relationships (links) among goals are
understood, there will be agreement on how to
achieve those goals and objectives. We have
presented three conceptual philosophies from an
economists perspective libertarianism,
utilitarianism, and contractarianism. Each of
these three philosophies can provide insights
into each of the following perspectives. There
are no right or wrong ways to answer the
questions raised by the different philosophies.
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Community Economics Development Strategies
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Community Economics Development Strategies

• Five Basic Strategies
• (Glen Pulver)
• Attract new basic employers (Old Logic)
• Improve efficiency of existing firms
• Improve ability to capture dollars
• Encourage new business formation
• Increase aids/transfers received.

29
Community Economics Development Strategies

• The Shaffer approach
• Increasing the flow of dollars into the community
  
• Increasing the re-circulation of dollars in the
  community
• Increasing the amount of resources available
• Using existing resources differently
• Changing the rules
• Acting smarter

30
Community Economics Development Strategies

• Increasing the flow of dollars into the
  community
• means that the community is essentially injecting
  new money into the local economy by attracting
  new basic employers by existing basic employers
  increasing their sales outside the community by
  the community increasing its visitors or by the
  community increasing its inter-governmental aids.
  In each case the community is bringing more
  money into the community.

31
Community Economics Development Strategies
Increasing the flow of dollars into the
community 1. Develop local industrial sites,
public services, and potential employee
information. 2. Develop community and regional
facilities necessary to attract new employers.
a. Transportation (e.g., airports, railways,
highways) b. Recreational facilities (e.g.,
parks, hunting grounds, restaurants, hotels,
convention centers) c. Communications (e.g.,
newspaper, telephone) d. Business Services
(e.g., banking, computers, legal assistance,
accounting) 3. Expand purchases by nonlocal
people (e.g., tourists, neighboring citizens)
through appropriate advertising and
promotions. 4. Ensure that key public services
(e.g., fire and police, water and sewer, general
administration) are more than satisfactory. 5.
Recognizing the important role of transfers such
as retirement benefits, and unemployment
compensation as a flow of funds into the
community.
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Community Economics Development Strategies
Increasing the re-circulation of dollars in the
community.. means that the community is
plugging leakages of money out of the local
community's economy. In other words, the
community is actively seeking ways to get people
and businesses to spend more locally. It could be
altering store hours, encouraging new or
different store types, physically renovating down
towns or even talking to businesses about buying
inputs locally rather than from non-local
sources. The end result is that dollars
re-circulate at least one more time locally.
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Community Economics Development Strategies
Increasing the re-circulation of dollars in the
community.. 1.Identify market potential of
retail outlets through surveys of consumer needs
and buying habits. Improve share of retail market
captured through downtown analysis and renewal
through a. Use of consumer and merchant
surveys b. Providing convenient parking or
public transit c. Reviewing store hours and
merchandising 2. Aid businesses in developing
employee-training programs to improve quality of
service. 3. Through information programs,
encourage local citizens and businesses to buy
locally. 4. Encourage collective action through
the formation of organizations such as Chamber of
Commerce or Merchants Association.
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Community Economics Development Strategies
Increasing the amount of resources available..
simply means that the community has increased
the amount of labor and capital, including both
public and social capital, available for
producing output. This could be local financial
institutions making more loans available locally,
or an outside business making a local investment,
forming a credit union, or establishing a local
branch of a community college. It could be
people moving or commuting into the community, or
working more hours.
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Community Economics Development Strategies
Increasing the amount of resources available..
1. Organizing community capital resources to
assist new business formation or to assist in
attracting new business a. Encourage
investment of private funds locally through
formation of capital groups. b. Encourage the
use of secondary capital markets and public
financing programs. c. Encourage the use of
industrial revenue bonding, bank loans. 2.
Organize training programs for youth,
in-migrants, and resident population. 3.
Encourage population in-migration. 4. Provide
the same services to start-up businesses as
provided to businesses being sought from outside
the community. 5. Create an encouraging
community attitude towards entrepreneurship.
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Community Economics Development Strategies
Using existing resources differently. means
that you have applied new technologies. You have
found new ways to combine existing capital and
labor to produce greater output per worker. It
could also mean that you have used existing
capital and labor to produce a new good or
service that previously had not been produced
locally. It could also mean that you have now
have local jobs for workers who previously
commuted out for work. Or it could mean that
workers have received training and are now able
to do different tasks than before.
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Community Economics Development Strategies

• Using existing resources differently.
• Strengthen management capacities of existing
  firms through educational programs (e.g.,
  personnel, finance, organization).
• 2. Encourage business growth through
  identification of equity and loan capital
  sources.
• 3. Develop training programs for workers using
  new and different technology.
• 4. Increase knowledge of new technology through
  educational programs in science and engineering.
• 5. Aid employers in improving work force quality
  through educational programs, employment
  counseling, and social services (e.g., day care,
  health services).
• 6. Develop community and regional facilities that
  improve local business efficiency and access to
  nonlocal markets (e.g., transportation, services,
  communications).

38
Community Economics Development Strategies
Changing the rules.. means that the community
seeks a change in rules that would benefit the
community or seeks a change in interpretation of
rules. For example, a land use plan might
encourage further development on some land by
ensuring that incompatible uses do not occur next
door. On the other hand changes into some land
use regulation can impose major costs on some
firms. Or maybe the community gets the state to
re-interpret eligibility rules on some type of
manpower training fund. Thus making some
community residents eligible. Remember that
rules are societal constraints that govern how we
either use resources or exploit markets.
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Community Economics Development Strategies
Changing the rules.. 1.Ensuring correct use of
public assistance programs for the elderly,
handicapped, and others who cannot
work. 2.Supporting political activities to
ensure fair treatment of community concerns by
broader governmental units. 3. Review how
retirees and handicapped people might find
services, access, housing, volunteer
organizations, and community attitudes. 4.
Minimize contradictory regulations and regulatory
barriers, including uncertainty.
40
Community Economics Development Strategies
Acting smarter. translates into how the
community goes about making decisions and sets up
and implements strategies. Does it involve a
broad spectrum of interests or just a select few?
Does the community really get at the problems or
treat just symptoms? Does the community
integrate sound analysis with community
perspectives and desires? This is what it means
when a community is acting smarter, almost in an
entrepreneurial manner.
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Community Economics Development Strategies
Acting smarter. 1. Identify market potential
for new retail, wholesale, and input-providing
businesses. 2. Organize to provide individual
counsel and intensive education for those
interested in forming a new business. 3.
Utilizing aids from broader government whenever
possible (e.g., streets, parks, lake
improvements, emergency employment) through
active monitoring and support of the activities
of local officials. 4. Identify specific public
programs, projects, offices, and/or services that
could be located in the community and organize
politically to secure them.
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Community Economics Development Strategies
Acting smarter. 5. Encourage collective action
through formation of organizations such as
economic/industrial development corporations.
6. Ensure that quality and access and
appropriateness of local school systems,
including vocational-technical. 7. Identify
through research the most desired type of basic
employer with greatest potential. 8. Organize
business-networking forums. 9. Sponsor business
appreciation events. 10. Create organizations
(including high school programs) to stimulate
entrepreneurial thinking and action.
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Community Economics Development Strategies
Getting lucky. may seem like an unusual item,
but think about it for a second. A small rural
community could be located within the commuting
shed of a growing metro area or fifty years ago
could have been the birthplace of a budding
entrepreneur. While we like to think more than
luck is involved, and it is, it also explains a
lot of current economic activity. A community
could 1. Examine old high school yearbooks for
previous graduates who might like to return to
the community. 2. Promote to outside visitors
locally available natural resources and
amenities. 3. Design vacant residential sites for
development.