I’m a big believer in creating strategies at the state and local level that create new industries and new wealth. States and regions find it far easier to overcome the ideological warfare that cripples the federal government’s efforts in this regard. So I’m pleased to have collaborated with Rick Weddle, one of the economic development profession’s superstars, to offer these insights in Chief Executive magazine.
Economic-Impact
CEO Partnerships: The Next Great Leap in Economic Development
In the face of gridlock at the federal level in Washington, D.C., states and cities are turning to the economic development profession as never before for help in spurring their regional economies.
This affords the profession an opportunity to rapidly mature and assume its rightful place as the branch of economics that achieves tangible results, as opposed to macroeconomists who merely debate whether the Federal Reserve should raise or lower interest rates.
The success of Austin, Texas; San Diego, California; Research Triangle Park, North Carolina; and Orlando, Florida prove that what happened in Silicon Valley can be replicated elsewhere.
These newer technology clusters show that dynamic innovation ecosystems do not have to occur as an accident. But before the economic development field can reach its potential, it has some growing up to do. Here are four goals it must achieve:
“The key to reducing dependence on public sector funding is for economic development leaders to reach out to the CEOs in the private sector.”
1. POLITICAL SAVVY
Learn how to achieve greater independence from the political cycle. Genuine economic development cycles can be measured in decades. When Research Triangle Park was unveiled in North Carolina in 1959, many people laughed at it and equated it with Seward’s Folly, the 1867 purchase of Alaska. It wasn’t until IBM opened a facility in the Research Triangle in the 1960s that it gained credibility. Today, of course, it is a major hub of innovation and manufacturing, including in the life sciences field.
The reality is that political cycles of election and re-election are often just two to four years. When economic development organizations (EDOs) are captives of that cycle and have to deliver results so that the mayor or governor can get re-elected, it results in reactionary opportunism (i.e. seizing the next deal coming down the road) rather than focused and deliberate long-term strategies. It also raises the risk that a state or city will use large tax or financial incentives to lure in a major company or a casino or a sports franchise to get a quick win. That may not be in the best long-term interest of taxpayers.
The key to reducing dependence on public sector funding is for economic development leaders to reach out to the CEOs in the private sector, both to sit on the boards of EDOs and to fund a percentage of their budgets. The Orlando Economic Development Commission, for example, receives 70 percent of its budget from the private sector. The Greater Phoenix Economic Council is
supported politically by 22 mayors and five county supervisors, but it turns to local CEOs to sit on its board and provide 65 percent of its funding. Those agencies are able to take long-term views, but too many EDOs cannot do that because they haven’t been able to persuade CEOs to support them.
Jeff Finkle, president and CEO of the International Economic Development Council, the industry’s trade association, says that building relationships with CEOs is one of the most critical issues that developers face. “I think there is a real issue about whether our business leaders are committed to the communities where they have invested,” says Finkle, who is based in Washington, D.C. “They are not taking leadership roles at the EDOs as their predecessors traditionally did. The question is, how do we get their engagement?”
One answer, says Chris Comacho, new president and CEO of the Phoenix economic council, is to run a development agency on the basis of research, long-term strategic plans, annual reviews and audits of the agency’s effectiveness. CEOs, who often are frustrated by the opaque and cumbersome decision-making methods of nonprofits, understand and appreciate those business concepts.
“We’ve built an apolitical evidence-based organization,” says Comacho, who at 34 is one of the rising stars of the profession. “We do have a percentage of funding coming from public sector, but we run our company like a private sector business model. We’re one of the most metric-ed organizations across the country. We have bottom-line performance measures we must meet as an organization.” That formula has worked to draw about 10 C-level executives onto his board.
2 BRIDGING DIVIDES
Overcome the false divide between those who seek to lure companies to invest in their geographies (i.e. the “smokestack chasers”) and those who seek to develop indigenous technology-based clusters. The fact is, these strategies are complementary, not competitive. The ability of Texas to persuade so many companies to relocate to the Lone Star state is predicated on the existence of ecosystems in Texas that support those companies, not just on tax breaks and the governor’s Texas Enterprise Fund. The support of universities and community colleges in creating the right skill sets, for example, helps increase the “stickiness” of the state’s metropolitan regions, five of which now rank in the nation’s top 10 cities by population. Once settled in Austin or San Antonio or Dallas, companies are less likely to pull up stakes and leave when tax breaks expire. This is one reason why Texas consistently wins Chief Executive’s award for Best State for Business.
To create the ecosystems and infrastructure that companies must have, EDOs must understand the supply networks that companies in specific industries need. One example of that is what NorTech (Northeast Ohio Regional Non-Profit Technology) has done in the greater Cleveland-Akron area. It identified three emerging industries—advanced energy, water technology and flexible electronics. It then brought in seasoned private industry experts to become directors of “cluster acceleration” for each sector. It has been their job to find emerging technologies, whether from large or small companies or from university researchers, and help those players find new customers.
“It didn’t matter where the idea came from,” says Rebecca Bagley, who just departed NorTech as president and CEO after six years. “It was all about moving new technologies and new products to market.” Doing the nitty gritty work of building supply chains and customer networks is one way to both nurture start-ups and draw in larger companies for the long run. Developers know that roads, bridges, airports and seaports are crucial pieces of infrastructure, but they need to look more broadly at what Willy Shih at Harvard Business School termed the “industrial commons,” the agglomeration of integrated suppliers and providers of human capital. That’s been one of the problems associated with persuading American companies to bring their manufacturing home from China—the supplier base has been wiped out and the skills sets that are necessary, like quality engineers, may not exist. As EDOs come of age as a profession, they’re learning that chasing smokestacks is more productive if they build the broad infrastructure to support them. That’s how a genuine cluster is developed. It’s not just a matter of flipping a switch by luring in one major transplant company.
3 CODIFYING BEST PRACTICES
Partly thanks to the research that the International Economic Development Council has funded, EDOs now have solid information about what works and what doesn’t work when it comes to technology transfer from universities, federal research labs, research institutes and other “idea factories.” Incubators require long-term funding and must have carefully calibrated motivations to encourage young companies to leave the nest and achieve scale.
We know a great deal about how to develop and attract angel investors and venture capitalists. We realize that large companies such as Intel and Johnson & Johnson can play key roles in these clusters by investing in smaller companies and taking seats on their boards. We’ve learned a great deal about workforce training and retraining, and also about export promotion, which is an essential ingredient for any technology cluster. We should ask ourselves, across all these areas, what are the structures that work? It is not possible to guarantee that innovation occurs, but we know, as in the art of cooking, what ingredients are essential to enable the desired outcomes. All this means that we take economic development out of any ideological or political context and concentrate on doing what is most pragmatic. If macroeconomists can argue that their field is a “science,” so can development experts.
To help develop further credibility, the profession needs to insist that governors and mayors hire developers who have genuine credentials and are not just political fundraisers or friends of the family. To that end, the IEDC has developed certifications for economic developers and conducts frequent conferences and seminars in its effort to codify best practices. There are competencies that can be defined.
One other best practice to stimulate a community’s learning is organizing visits to cities or regions that have demonstrated success. The Orlando EDC in 2012 took 100 business and political leaders, technologists and university experts from Orlando to Austin, Texas, to see how that city has become such a leader in advanced manufacturing. Now Orlando is organizing a similar trip to Phoenix, which has world-class leadership in aerospace and advanced electronics and is now trying to nurture what it sees as the next wave of growth in software, biomedicine and financial services clusters.
This type of shared peer-to-peer learning is essential in helping any state or region overcome its internal political and institutional rivalries to concentrate on the patterns of interaction among all the players that create wealth for an entire community or state. The lessons sink in and are absorbed.
4 BREAKING DOWN SILOS
All of the above sets the stage for the fourth and final goal—overcoming the silo effect. One of the major problems in many regions is that different players—universities, incubators, investors, start-ups, large companies, chambers of commerce, political leaders, and others—don’t truly communicate with each other. They speak different languages with different vocabularies. They don’t agree on metrics to evaluate success, or lack thereof.
That means economic development professionals must work to leave their own comfortable silos and facilitate the emergence of broad-based consensuses regarding regional development strategies. A piece of this is educating the different players about behaviors. One set of behaviors at the micro level may seem rational but seen in the broader context of cluster development strategy, they are irrational. Many universities, for example, still look at technology transfer offices as a way to avoid having technology “leak” from the university and create wealth for the private sector.
One of the worst-case scenarios for university leaders is how Gatorade escaped from the University of Florida’s football program in the 1960s without the university earning a nickel on it until it sued for a percentage of the sales. But rather than worrying about damage limitation, more universities should be gearing up to follow the lead of Stanford and Massachusetts Institute of Technology in actively promoting the commercialization of their technologies. Universities may fear a loss in the short term, but over the long run, successful technology commercialization creates huge wealth and prestige for a community and therefore for the universities.
It’s much the same message to CEOs. At the micro level, it may not seem rational to use shareholders’ money to support an economic development organization and it may seem unwise to spend precious time sitting on a board of directors, but if enough CEOs do that, it can have a hugely positive impact on a region’s growth and on every company’s bottom line results.
In short, economic developers must become genuine regional leaders who can communicate a clear set of policy choices to all other constituencies. That requires genuine thought leadership. “That is a dramatic shift in the economic development discipline,” says Phoenix’s Comacho. “We have to be the convening agent to have the discussions about creating the next economy.”
It won’t be easy to achieve all this because the generation of people who have created today’s economic development profession will be retiring in coming years. “We’re going to be looking at a scenario all around the country where the baby boomers are going to be stepping back from their positions,” says the IEDC’s Finkle. “Are there enough younger people who will be ready to rise into these leadership roles? Do they have right skills sets, the right attitude, the right political moxie?” Much work clearly remains to be done.
Key Takeaways
Engagement Matters Get involved locally—a healthy community means a healthier talent pool for businesses
A Seat at the Table Private sector CEOs can encourage development by serving on the boards of local EDOs
Foster Conversation Economic development professionals, educational institutions and business leaders must all work together
RICK L. WEDDLE is president and CEO of the Orlando Economic Development Commission and was CEO of Research Triangle Park in North Carolina from 2004 to 2011. WILLIAM J. HOLSTEIN has been writing about economic development issues since 1992 and is the author of The Next American Economy: Blueprint For A Real Recovery.
