Regional Approaches to Economic Development

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Regional Approaches to Economic Development

• A Presentation by Citizens Research Council of
  Michigan

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Who We Are

• Founded in 1916
• Statewide
• Nonpartisan
• Private not-for-profit
• Promote sound policy for state and local
  governments through factual, objective research
• Rely on charitable contributions of Michigan
  businesses, foundations, and individuals

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All CRC reports are available online at
www.crcmich.org

• Survey of Economic Development Programs in
  Michigan, Report No. 347
• Regional Approaches to Economic Development,
  Report No. 345

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Goals of this Project

• To test the assertion that regions are a logical
  basis for economic development.
• To understand how regional players coalesce
  around economic development structures and
  strategies.
• To develop recommendations for improved
  approaches to economic development in Michigan.

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The New Reality Creative Destruction

• Globalization and the diffusion of knowledge,
  capital, and technology
• Technology based productivity
• Product specialization
• International uncertainty and volatile gasoline
  prices
• Delegation of responsibility for economic
  development to states and sub-state units
• Rise of site consultants who broker between firms
  and governments
• Preeminence of labor markets, not political
  boundaries

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The Other Reality

• Fragmented government (83 counties, 1,241
  townships,274 cities, 261 villages) and strong
  local control
• Few incentives for regional cooperation, very
  limited tax base sharing
• Competing definitions of economic development
• Expectations built on a 20th Century
  manufacturing model
• Michigans economy

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Michigans Economy in 2006

• GDP grew in every state except Michigan (-0.5
  compared to 3.4 for the U.S. as a whole).
• Michigan ranked 50th of 50 states in state
  personal income growth (3.1 compared to 6.3 for
  the U.S. as a whole).
• Michigan ranked 49th of 50 states in per capita
  personal income growth (3.2 compared to 5.2
  nationwide).
• Michigan ranked 48th out of 50 states in
  population growth (-0.1 compared to 1).
• Unemployment is 7.2...lowest number of people
  working in Mi since 1995

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The Threat of the Old Reality

• Institutional sclerosis (Mancur Olson)
• A term used to describe a process of regional
  decline in which places that prospered greatly in
  one era find it difficult or impossible to adopt
  new organizational and cultural patterns, no
  matter how beneficial they may be.
• Innovation and growth shift to new locations.

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The Importance of Regions

• Economic activity is defined by labor markets
  the cost and availability of different kinds of
  labor determines the attractiveness of the region
  for different kinds of businesses and different
  kinds of households.
• Regions that can attract talented residents and
  support innovative firms will prosper.

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Strategic Foundations of Economic Development
Are Not Defined by Political Boundaries

• Human capital
• Research and development institutions
• Financial capital
• Industrial base
• Physical infrastructure
• Entrepreneurial environment
• Legal and regulatory environment
• Quality of life

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A Paradox

• The major forces that constrain or stimulate
  development are regional (real estate and labor
  markets, transportation systems, business and
  union environment, natural resources, industry
  clusters).
• Most of the instruments of managing development
  are local (local tax structures, land use
  regulations, capital improvement programs).

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Problematic Outcomes

• In a review of nationwide results, Timothy Bartik
  found that 80 percent of net new jobs created by
  incentives go to non-residents rather than to
  residents.
• Redistribution of public expenditures and tax
  burden to favor business over residents.
• Incentive competition skews the mix of public
  services.
• Waste of public resources.

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Multiple Approaches Invest in People, or Place,
or Firms

• Retain and protect jobs through business
  retention
• Create better jobs by raising educational levels
• Create higher paying jobs through union
  contracts, living wage ordinances
• Increase tax base though business attraction
• Increase diversification through entrepreneurism,
  university tech transfer, venture capital
• Increase productivity through innovation and
  capital investment
• Increase profits by reducing tax rates
• Revitalize a geographic area through public
  investment in infrastructure
• Increase population by creating jobs
• Change the local context

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Organizational Structure of Economic Development
in MI

• MEDC and various state departments
• Counties, cities, villages, and townships
• DDAs and other special authorities
• Chambers of commerce
• Specialized membership organizations
• Councils of government and metropolitan planning
  organizations
• Workforce Development Boards
• Utility companies and banks
• Consultants and developers
• Education community
• Foundations
• Others

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The Importance of Foundations in Economic
Development

• Not constrained by political boundaries
• Not constrained by election cycles
• Can assemble all of the appropriate participants
• Can incentivize local officials to do what does
  not come naturally
• Can mediate competing goals and approaches
• Can change local context

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Nationwide Survey of Regional Organizations

• 50 useable responses
• Each type of organization has a perspective that
  reflects its constituents and influences its
  goals and programs.
• Most of the organizations have other
  responsibilities.

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Regional Economic Development Organization
Responses
Chamber 501(6) 501(3) COG
Michigan 2 1 2 2
Midwest 7 5 3 -
Northeast - 5 2 1
Southeast 1 5 2 1
West 1 6 3 1
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The Region Served

• Parts of 2 or more states 9
• Multiple counties in a single state
  27
• Multiple sub-county level governments 14
• Urban 11 Mid-sized city 9
• Large city 8 Small city 6
• Suburban 4 Rural 12

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The Service Area

• Voluntary agreement of member communities
• Adoption of federal or state designation (MSA)
• Actions of the founders
• Determination of the board of directors
• Interlocal contracts
• State designations

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Role of the Regional Organization

• Only 3 of 50 did not share the service area with
  other local or regional entities.
• Coordination with other entities included serving
  on each others committees and boards, forums and
  meetings, formal memorandums of understanding and
  contracts.
• Some regional organizations focus on
  international or national attraction, industrial
  and manufacturing, headquarters, or specific
  projects, while locals focus on retention and
  retail. Some provide data and issues analysis.
  Some perform all economic development for the
  region.

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Common Functions and Services

• Coordinating strategic approaches
• Creating E.D. plans
• Researching, reporting of E.D. data
• Business attraction
• Advice to local governments to improve
  competitiveness
• Inventory of available sites
• Involvement in mass transit and infrastructure
  issues
• Branding, image campaigns
• Assisting businesses with local government
  requirements

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Less Common Functions

• Advocacy and lobbying
• Business retention
• Trade missions
• Member services
• Involvement in quality of life issues
• Low interest loans, gap financing, equity
  investing, venture capital
• Workforce training
• Industrial park
• Site acquisition and preparation
• Export development
• Business-to-business trade shows

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Identified Strengths-All

• Skilled/productive workforce 31
• Industrial/business base 19
• Location/proximity to markets 17
• Knowledge/education assets 11
• Business climate 9
• Business costs 8
• Quality of life 8
• Transportation infrastructure 8

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Identified Strengths-Michigan

• Industrial/business base 6
• Skilled/productive workforce 5
• Business climate 4
• Knowledge/education assets 2

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Identified Problems-All

• Industrial decline or restructuring 14
• Lack skilled workforce, need retraining 12
• Lack transportation infrastructure 12
• Image 9
• Educational attainment or outcomes 7
• Infrastructure investment 7
• Loss of population or talent 7
• Limited land or buildings 6

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Identified Problems-Michigan

• Industrial decline/restructuring 7
• Image 3
• Loss of population or talent 2
• Union attitude/perception, high wages 2

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Targeted Industry Clusters

• Advanced manufacturing
• Advanced materials
• Alternative energy
• Automotive/transportation research and
  development
• Aviation and aerospace
• Business and financial services
• Chemicals
• Corporate headquarters
• Creative
• Distribution and logistics
• Engineering and management services
• Film and television

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Targeted Industry Clusters

• Finance and insurance
• Health care
• Information technology
• Life sciences/bioscience
• Machinery, metal, and instruments
• Medical and pharmaceutical
• Nanotechnology
• Printing and publishing
• Software
• Technology
• Warehouse operations
• Wholesale trade

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Shared Regional Vision and Plan
Have a Shared Plan Plan in Process No Plan
Chambers 8 1 2
Member Orgs. 14 4 4
501(c)(3) 6 3 3
COGs 3 1 1
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Operating Revenues
Av. Op. Budget Govt. Source Private Mmbrs Earned Income Found-ations
C of Cs 3.4m 12 74 12 2
Mmbr. Orgs. 1.9m 35 49 9 6
501c3 3.0m 41 26 11 17
COGs 3.8m 83 -- 7 1
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Average of Board Members from Various Sectors
Govt For -Profit Non - Profit Higher Ed C. C. or Wkfrc Union
CofC 3.8 25.2 4.6 1.4 0.4 0.2
Mmbr 6.6 27.5 3.3 1.7 0.7 0.3
501c3 9.7 17.2 4.9 1.3 0.7 0.3
COG 30.8 2.2 1.0 0.6 0.2 0.0
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Growth in the Past Five Years
Increased Stayed the Same Decreased
Michigan 3 2 2
Midwest (excl MI) 10 5 -
Northeast 4 2 2
Southeast 6 2 1
West 8 2 1
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The North Carolina Model

• 100 counties organized into 7 regional
  public-private partnerships to maximize
  collaboration
• Regional entities work with local and state
  economic development agencies, corporate allies,
  funders
• Purpose Enable regions to compete effectively
  for new investment and to devise effective
  economic develop-ment strategies based on
  regional opportunities and advantages
• Approach Develop integrated economic and
  workforce development strategy market the
  region provide data and information provide
  financial assistance, training and access to
  technology to counties create special purpose
  commissions and councils spearhead regional
  initiatives

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Lessons

• Economic development is being organized on
  regional bases in Michigan and in every part of
  the country.
• The process of identifying regional boundaries is
  generally ad hoc, imprecise, and variable, but
  North Carolina has assigned all counties into one
  of seven regions.
• Where there is a regional economic development
  entity, there is usually a regionally shared
  vision and plan.

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Lessons

• Organizations priorities and goals reflect their
  membership.
• Layering and overlapping of economic development
  efforts is the norm.
• Most regional organizations have increased in
  size over the past five years.
• States, regions, counties, cities, chambers of
  commerce, and other organizations are competing
  for a limited number of target industries.

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Lessons

• Success reflected the number of full-time staff
  devoted to economic development.

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Recommendations

• Consider expanding the use of regional
  public-private partnerships for reinforcing and
  resourcing economic development.
• Build on existing regional structures where
  possible, create new structures where necessary.
• Adopt strategic economic development goals for
  the state and regions and publish semiannual
  reports on progress toward meeting goals and on
  best practices.

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The Role of Regional Economic Development
Partnerships

• Bring together public and private actors foster
  business, government, education and foundation
  collaboration.
• Emphasize the diverse characteristics of
  Michigans regions and coordinate the development
  of a regional strategy based on regional goals
  and assets.
• Market the regions assets and sites and refer
  developers to county or local ED departments as
  appropriate.
• Assist economic development professionals in
  obtaining specialized training and technology as
  needed.
• Maintain a regional data base of available sites.
• Advocate for the region and lobby for statutory
  or regulatory changes.
• Raise public and private funds to support
  operations.
• Assess the success of various regional
  strategies.

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The State Role in a Regional Model

• Define logical regional boundaries that build on
  existing initiatives.
• Initiate and/or support a public-private
  partnership in each region.
• Support the development of regionally relevant ED
  strategies.
• Coordinate state ED efforts with regional plans.
• Provide data, share best practices.

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The County and Local Role in a Regional Model

• Participate in regional partnerships.
• Assist in defining a regional strategy based on
  regional assets and values.
• Support regional efforts.
• Align local strategies to support the regional
  plan.
• Share information and best practices.
• Follow up on referrals.

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Because Truth is Nonpartisan

• 14 million funding initiative
• 1 million Kresge Challenge We must raise
  6,050,776 by June 30, 2008
• Increasing Regional Philanthropy Endowment
  matching program at the Community Foundation for
  Southeast Michigan
• Your gift can help CRC meet its Kresge
• Challenge and campaign goals!!!

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Thank You!

• For information on donating to the
• Research Council and for copies of CRC
• publications, please visit
• www.crcmich.org
• Bettie Buss
  bbuss_at_crcmich.org