A Primer for Economic Development

A Primer for Economic Development


One of the tasks of economic development is to correctly identify underlying structural problems in the economy and so to diagnose the more deep seated structural causes of the current downturn, and move the community beyond thinking about cyclical downturns to focus more on the things we can do locally and regionally to address structural problems in a way that will future-proof the economy against more of the same. And, of course, many of the immediate causes of the current problems are well and truly beyond the capacity of locals to influence, let alone control.

The drivers of local economic outcomes will always be a mix of locally driven factors and nationally/internationally driven factors. Another of our tasks will be to promote an understanding in the community and among businesses of these various drivers of economic development, so as to concentrate community AND research efforts in areas where we can collectively have the most impact.


First Prior Question: The core questions of regional development

Determining our role and core activities presupposes an understanding of what regional economic development is, and how research and a university-led collaboration can best support it.

The core questions of regional development, the things that determine how we begin thinking about the task, I take to be as follows:

How do we define / measure success (or, put another way, what is the "problem" we are trying to solve)?
Who is responsible for regional development?
What drives regional growth/decline (or, why are some regions successful, however defined, and others not)?
What works in terms of strategy (and how do we know that it/they "worked")?

There are many answers to the first question. For some people, it is all about jobs. For others, it is population growth. For others, wealth. For still others, it is all about liveability (however defined) or about "sustainability" in its various meanings.

Defining success is inherently controversial.

The long list of local and regional stakeholders noted above who "do" economic development in this region, or own part of the process, suggests that the second question is one worth asking.

Much of our work will probably be related to the third and perhaps most important and urgent question, for if we know what drives regional growth and economic development, we will be able to employ properly targeted strategies to achieve it. The problem is, there is no agreed, single, compelling theory that explains regional growth and decline. And resources are finite, so we cannot simply "try everything" to achieve better economic development outcomes. What is generally agreed is that regional development processes are inherently complex, perhaps becoming more so. Understanding them is therefore both difficult AND necessary.

The fourth question is one of enduring practical significance, and just about every conference on economic development tries to answer it.


Second Prior Question: What is Economic Development?

Economic development in a region is not the same as economic growth (expanding the size of the economy), though achieving economic growth might be one of the objectives of economic development.

(Much of the local discussion of the economy naturally revolves around the business cycle and in particular the current trough in economic activity, the downturn in the tourism industry, the slowdown in in-migration, the lack of work, and people leaving the region. As indicated above, while prevailing economic conditions are front-of-mind, we should be focused more on underlying structural problems in the economy – which of course are not unrelated to the current downturn – and how these might best be addressed by regional organisations and businesses.)

Economic development itself has been defined in a number of ways, but generally includes the notions of intervention, structural change in the local economy – it is not just a matter of "growth" – and desired outcomes such as increased community wealth measured in terms of income or jobs.

Some definitions:

"Economic development is a complex and diversified process that involves the purposeful intervention into an economy to create changes which will improve economic well being and community prosperity".
American Economic Development Council

"The process of creating wealth through the mobilization of human, financial, capital, physical and natural resources to generate marketable goods and services. The economic developer's role is to influence the process for the benefit of the community through expanding job opportunities and the tax base".
AEDC again

"Economic development is choice; it is willed from within an economy. Economic development occurs when local leaders choose to identify, invest in and develop their own set of comparative advantages to enable their workers, firms, farms and industries to better compete in regional, national and international markets"
Author unknown

"… a process of economic growth, accompanied by a structural shift, that is both long-term and irreversible. The results of this process include an increase in the relative productivity of a region's economy and thus a rise in the per capita income of its population".
Coffey and Polese

Following on from these definitions, with their focus on interventions that seek to change the economic structure of the region, the key task of economic development is to identify a region's assets (of every kind) and mobilise/leverage them into opportunities for increasing investment, jobs and wealth.

Some of a region's assets will be already visible and fully utilised. Others might be invisible or under-utilised. An important task (including for us) is, therefore, to find and focus on those assets that are either invisible or under-utilised. (Another way of thinking about economic development relates to the notion of competitive advantage, which [unlike the older economic geography notion of comparative advantage], CAN BE created).

The American economist (and probably the thinker who did most to kick off the now popular notion of the knowledge economy) Paul Romer has said that:

Economic growth occurs whenever people take resources and rearrange them in ways that are more valuable.

This fits perfectly with the above discussions of the nature and purposes of economic development and should be a guiding principle for our major work and its twin aims of identifying resources (assets) and understanding processes (drivers).

Romer's point leads on to the important task of uncovering the "drivers" of economic development in this region. These are the things that underpin regional growth or decline, and are NOT the same as the "engines" or "vehicles" through which economic development is achieved, though the terms are often used interchangeably. The engines of growth and development are essentially the region's industry sectors or activities.

In undertaking this task, the key question becomes:

What are the things (that affect economic development) that a region can influence or control?

The analysis of strategic choices below suggests that focusing on engines or industry sectors is BUT ONE strategy that economic developers might follow. There are several others.


Third Prior Question: Strategic Choices for Economic Development Leaders and Practitioners

Governments, local leaders and development practitioners face a number of important choices in formulating development strategies. Communities have finite resources at their disposal for economic development projects and some difficult choices to make in building a local strategy.

One of the important choices, perhaps THE most important choice, is whether to diversify the local economy or to build on existing competitive strengths. The former approach seeks to protect the community by broadening its economic base, thereby insulating the economy from external shocks. The latter strategy focuses on expanding indigenous enterprises, plugging gaps in "value chains" in the economy, adding value to existing production processes, and creating clusters within the locality's already strongly performed industries. While both approaches have obvious merits, they can only be pursued simultaneously to a limited degree due to a lack of resources.

A second key choice is whether to pursue outside investment and business relocations ("hunting") or indigenous investment and new local start-ups ("gardening"). The McKinsey report (1994) stated that up to 70% of new regional investment comes from existing local enterprises. While many economic development agencies recognise this, most still pursue outside industries in order to create new investment, even though the literature generally agrees that "hunting" is outdated, particularly as a stand-alone strategy.

There is unresolved debate over which policy instruments/strategies work best, a debate that is perhaps more the concern of regional bodies than central governments. Yet governments will want to be supporting winning strategies.

There are myriad tools, particularly assistance given directly to firms versus other interventions. There are multiple choices on the ground.

As I have said, strategic choices are important because resources are finite. Moreover, choices can be mutually exclusive, eg broadening versus deepening the economic base and
hunting (chasing outside firms) versus gardening (growing existing local enterprises).



The key choices are as follows:

Diversify the economy
Concentrate on existing strengths
"Hunting" (chasing outside firms/industries, investment)
"Gardening" (growing local firms and industries)
Support individual firms and industries
Build more broadly the region's overall capacity and business culture
Sectoral focus
Enterprise focus
Use of financial incentives (tax breaks etc)
Broader types of assistance
Build hard infrastructure to support development (this is an important focus of the Australian Government and of RDA)
Focus on "soft" infrastructure, eg networks, clusters, business culture, leadership, regional marketing
Support for "basic" industries (those that bring new wealth into the region from outside)
Support for non-basic industries (those circulate existing dollars in the community, serve local markets)
"Local" economic development
"Community" economic development
Attracting public sector resources to the region (eg government agencies)
Attracting private capital investment to the region
Operate at broad regional scale
Focus on individual localities
Identify and support industry clusters
Focus on individual firms only
Support new start up firms
Focus on existing firms of particular kinds, eg high growth firms





In addition to these either/or choices, there are more specific strategic decisions to be made within each choice, eg which industries to pursue if adopting a hunting approach, how precisely to pursue capacity building, etc.

There is no "right answer" to these questions for all regions, but for individual regions there will be better or worse strategies. Expectations of stakeholders are high, time frames for success may be pressured, and resources are finite yet shifting.

And the choices faced by regions are also choices for us.



Our Role and Opportunities

The above discussion suggests that our core role is:

To nurture a well informed understanding in the community of this region's assets and of its economic drivers;
To provide an evidence base in support of good decision making by those who drive strategies and make policy for economic development; and
To support the specific roles of partners in achieving good economic development in the region.

In order to achieve these larger objectives, potential tasks for us might include the following:

Undertake stand alone research on economic development;
Lead or contribute to research in collaboration with other researchers (both within USQ here and at other campuses and from other universities in Australia and internationally);
Provide thought leadership in the region in economic development;
Develop strategic partnerships and networks of collaboration around specific regional goals;
Leverage resources to support key local projects;
Bring university resources to bear in addressing regional economic development needs;
Provide a catalytic role in creating/building networks and partnerships;
Driving non research projects (is there room for non-research activities?);
Provide a research component to local economic development projects;
Contribute to regional lobbying efforts;
Provide technical assistance ("extension" style services) to practitioners.

Moving from these overarching questions of our role and directions, there are a number of issues specifically relating to research.


Key Research Issues

From the foregoing it is clear that there are many existing documents highlighting issues for economic development in the region. Some would no doubt argue there are more than enough. Here there are dangers of more studying rather than doing, and of paralysis by analysis.

Yet our is necessarily a research driven venture. The task is therefore to determine what else the region needs to know. The above discussion of the nature of economic development and of the complexity of its drivers also suggests that there IS still more research work to do. (Probably what there is already too much of is strategy, rather than research).

Not every issue of importance in the region needs research, OR is susceptible to the framing of appropriate research questions. I believe that the focus of research should be on those issues (or assets, or drivers) that regional actors can control or influence, and which readily translate into researchable questions.

Further, the question of what research should take place must be subject to the following selection criteria:

Do we have the research capacity to undertake the work?
Is this an issue of interest to us as researchers in economic development?
Is it a hot button regional issue?
Is it an important issue for key stakeholders?
Is it something for which we are likely to secure funding (and where from)?
What is the current state of knowledge/research on the issue (that is, what is there still left to find out)?
Does the issue transfer easily into a research question?
Will the research project yield valid and robust research outcomes?
Will the research question yield research outcomes that are useful to our partners and to the region?

Research projects undertaken will be those that tick as many of these boxes as possible. From a practical point of view, many of the projects that we will undertake must necessarily be funded externally.



Possible Initiatives - Some Big Ideas

What then might we realistically try to achieve? Specific activities should reflect overall objectives, the high expectations of stakeholders and of the region generally for short term progress and the limitations imposed by our initial lack of resources.

The following are some initial suggestions, in no particular order of priority:

quarterly newsletter;
Identification of local and regional data gaps (eg do we know who our innovative and high growth firms are?)
Smart State PhD scholarships;
Young entrepreneurs program;
themed business roundtables / brown paper bag themed lunches (innovation occurs at "intersections", that is where people from different sectors, or backgrounds, or cultures meet);
ED training for professionals and leaders in the region;
International conference on Entrepreneurship, Innovation and Economic Development;
Pursuit of a role in the proposed national regional policy centre;
Networks and innovation study;
New Startup Fraser Foundation (new philanthropic vehicle);
Study of the potential of people attraction/human capital strategies;
Adjunct appointments;
Visiting Scholars program

These might form the basis for further discussions among partners, in order to establish specific priorities.