Ten (now Fifteen) Myths of Economic Development, or, “Stop Doing Stupid Things”

Adjunct Professor Paul Collits

University of the Sunshine Coast and Gosford City Council

Myths• Delusions, poor thinking, mistaken assumptions, wrong conclusions, barking up wrong trees, doing stupid things

• Myths are surprisingly persistent• Myths are surprisingly widespread among bright, well meaning people

• Myths are continued to be believed despite having been proven wrong

• There are different myths in different kinds of regions

• Government ED capacity hubris• Econ Dev 101 still needs to be taught (alas)

The top 15• Obsession with the “region”; spatial fetishism (Kevin Morgan) and ignorance of the lessons of mobility

• Regional development is about “voice” (Windsorism, McGowanism)

• Only think in sectors; or, confuse “drivers” with “engines”

• Focus on the wrong sectors; ignore the traded economy• Having a university will solve your problems• Obsession about regional league tables, and not paying attention to why your region scores as it does

• Only local jobs are worth pursuing; commuting is bad and we must get rid of it

The Top 15 (continued)• Planning creep – plan it and they will come• Let’s chase outside firms (yes, people do really still do/believe this)

• Economic development is mainly about generating “confidence”

• Population growth equals economic growth and development

• Let’s expend resources addressing things we can’t control

• You can’t replicate Silicon Valley – of course you can, if you learn the right lessons

• We must have a strategy• Building strategy around cliches like “game changer”

Sources• Mario Polese, “Urban Development Legends – Grand Theories Do Little to Revive Cities”, in City Journal, 2011

• Josh Lerner, The Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital have Failed, and What to Do About It

• Josh Lerner, same title, LSE Growth Commission, Institute for Government

• Ed Morrison, Scott Hutcheson et al – anything from Purdue University on strategic doing

• Brian Arthur, “Increasing Returns and the Two Worlds of Business”, Harvard Business Review, 1996

• Antoinette Shoar, “The Divide between Subsistence and Transformational Entrepreneurship”, NBER 2009

• Federal Reserve Bank of Boston, Lessons from Resurgent Cities, 2009

Another Good Source

Charles Mackay, Extraordinary Popular

Delusions and the Madness of Crowds

(1841)

Charles Mackay"Men, it has been well

said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."

Mario Polese on Econ Dev Fads

• Tax breaks to lure strategic industries

• Hi tech industrial parks• Clusters• Community economic development• Branding• People attraction/culture/the arts/quality of life

Global scale mythsJosh Lerner on the global response to the GFC:

“But one question has been lost in the discussion. If theseExtraordinary times call for massive public funds to be used for economic interventions, should they be entirely devoted to propping

up troubled entities, or at least partially devoted to promoting new

enterprises?In some sense, 2008 saw the initiation of a massive global experiment

in the government as venture capitalist, but as a very peculiar type of

venture capitalist: one that focuses on the most troubled and poorly managed firms in the economy, some of which may be beyondsalvation.”

And now to the local…

Region Fetishism• Source Kevin Morgan• New regionalism – Ohmae, Morgan, Storper, Katz• “We live our lives regionally”• Not any more – immediate local and global• Porous borders • Nodes and linkages defeat boundaries• Three new drivers interacting – globalisation 3.0; knowledge economy; anywhere work (aka distributed work)

• Gen Y does not think about boundaries (Ed Morrison)• See Collits and Rowe (forthcoming 2015) in Local Economy• Policy and strategy fallacy – you can contain drivers and players within regions

Regional “voice”• McGowanism, Windsorism• Born of rural Australia and divides, fair share thinking and lost people,

services, resources• Cargo cult, competition for largesse• Rural “lossism” has transferred to all “regions”• The “Game”; getting stuff• Make electorates marginal• Mayor of Wyong: “We have to look to Canberra, because that’s where the money is”• This is a category error• Regional development is mostly about private sector investment flows, not

political spatial favours• Regional policy as regional politics and regional “voice” is not just a

distraction• It crowds out good thinking and focus on things that matter• Mendicant behaviour highlights the negative, puts off investors, stifles

innovation• It leads directly to another problem – grant troughing, “funding funding funding”• Endless funding application writing; doing things just because there is a grant

available• Then…. Grants drive strategy, not the other way around

Sector Fetishism; Mistaking Engines for Drivers

• Drivers of economic development are not engines• Engines – sectors• Drivers – entrepreneurship, skills, innovation, competencies, networks, location, connectivity and linkages

• Sectors easy, visible, tangible, drivers less so• Drivers seen to be hard to influence, outcomes more distant

• Sectors sooooo 20th century• Drivers cross sectoral boundaries• The trap of league tablism (see separate slide)• New business models, new value chain “segments”• More complex inter-industry flows• Manufacturing = service provision now

Get a University• Misunderstands both youth and the university sector

• University business model has changed• Bureaucratic constraints, lock-ins• Young people want to leave for bigger ponds• Satellite campuses will always be half pregnant• Lack of scalability in situ• Benefits are real but overstated• Linkages with industry are fraught in practice• Universities are not really sources of innovation• Universities do not necessarily lift local educational standards (see under league tables)

Picking the Wrong Sectors (or not Thinking Through the Choices)

• What kind of activities should we grow?• Higros? Value adds? Competitive advantage? The biggest employers? Sectors growing nationally? Young industries? Industries with low disruption risk? Old favourites? Trade exposed sectors? Sectors with the most startups (born globals)? Sectors attractive to young people? Sectors that employ young people (eg hospitality)? New sectors (in order to diversify)? Complementary sectors? Sectors with big multipliers?

• Complex, difficult, but has to be done• The construction jobs myth

The League Table Obsession

• Let’s benchmark! (spatially and temporally)• “Evidence based policy”• “How are we travelling (as a region)?”• Borne of the competitive regionalism fetish• Has led to the rise of the economic profiling consultancy firm

• Regions are not firms; “advantage” far slipperier• Our place on the ladder is (wrongly) driving strategy

• The regional education standards example highlights the complexity and pitfalls

• Linked to regionalist fetishism

It must be “local” jobs• “The only good job is a local job”• A Central Coast and Blue Mountains obsession• Borne of high commutes/dormitory syndrome• Ignores increasing and increasingly complex mobility• People do it for good reasons• It isn’t all bad, certainly not economically• Knowledge spillovers, higher incomes, drives local service improvement

• Little we can do about it• Congestion obsession• Having more time need not led to more volunteering• Local sandwich shops• “Jobs” themselves are changing, not spatially confined

Planning Creep• Focus on land use planning, confusing this with economic development

• Regional strategies and their limits• Planners’ reach growing beyond land use to spatial policy

• “Plan it/zone it and they will come”• Population projections and “we will have to create x jobs by 2031….”

• This is not how local economies work

We need to attract a big firm (or a Government department)

• This myth is astonishingly persistent• The appeal of “jobs, jobs, jobs”• Quick fixes• The appearance of “doing something”• Saving the tedium of understanding local economic development

• Big firms are so yesterday• They are shedding jobs – everywhere• They will move on when things change• “Decentralisation” now takes the form of distributed work, not decentralised organisations

• This myth is giving a fish to a villager, not teaching him how to fish

We Just Need to Generate “Confidence”

• This is the focus on the business cycle, getting from our current trough to the next peak

• Confuses economic “growth” with economic “development”

• Confidence is not nothing, but confidence in a “region” is often about “development” (residential, construction, buildings, land sales), not econ dev

• It does not drill down to drivers, mistakes engines for drivers

Population growth brings economic growth

• This is a hugely popular myth• Also part of the migration debate• The relationship is positive but complex• “all other things being equal”• Yes, people need services and goods and often source them

locally – not building the traded sector• Economic development can occur without population growth• Population growth can occur without economic development• It all depends on who comes and what they do – the human

capital/Richard Florida theory• eg, are they entrepreneurs? Big spenders? Local spenders?

(the fifo/Busselton example)• Retirees and welfare migrants don’t spend big• Vibe and reputation are important – there may be flight from

uncool places built on influxes of certain kinds of in-migrant• Population growth that is too rapid can cause new problems• Population attraction strategy may breed complacency and a

focus on the not traded sectors

Wasting time on things we cannot control

• Economic development is relatively simple, though its drivers are complex

• ED = identifying and activating assets to create new investment

• The game is to identify the things that we can control and which will make a difference

• Locally, we control little• But we do not attend to things we can control

You can’t replicate Silicon Valley

• Well, yes you can• If you know what you are trying to replicate• Most regions don’t• They think it is about hi tech• It is not. This is the Silicon Valley engine, not its driver

• What Silicon Valley does is build an ecosystem• Collaborative, open, networked, accessible• Has everything a start up needs• Nothing should stop other regions doing this

We have to have a strategy

• The typical sequence – government funding available, hire a consultant, publish a document, feel the job is done

• The Australian disease – dozens of strategies gathering dust on shelves, done for noble motives, or not…

• None ever implemented• Horizons too far into the future• They don’t ask the right questions• No link between grand vision and the “to do” list• Every pet shop galah in the region does one• Five years on, let’s do another• Little alignment between “strategy” and on-the-ground development (Roger Epps)

• Because no bias towards implementation, regional collaboration an unnatural act between non consenting adults

• Strategic doing the solution

Addiction to “game changers”

• Beware cliches – like “game changer”• Most aren’t• Most econ dev is mundane, tending the garden, working the relationships, easing investment flows, connecting

• Classic game changers that don’t do much for LED – stadiums, big infrastructure in situ, government jobs, residential towers

• Game changers that do have big impacts – these are generally external to the region and often their impacts are only known post hoc – the GFC, new mobile and smart technology, international airports

One for the Road - The Jobs Metric and its Limits

• Jobs, jobs, jobs• But….• What about investment?• What sort of jobs?• Do they pay well?• Do they offer careers locally?• Are there entry level opportunities for young people?

• Are the jobs in growth industries?• Are they 21st century jobs?

So… What does GOOD Strategy Look Like?

• Good dollars, neutral dollars, bad dollars• Stop doing stupid things• Understand the basics of economic development• Identify what we can control or influence• Ask the right questions• Data without analysis achieve nothing• Collaborate• Understand mobility• Forget Canberra• Don’t be obsessed by “the local”• Understand the ecosystem and its gaps• Most of this seems very very obvious• Why doesn’t it happen?

And finally…

There is a book in this…