Posts Tagged ‘entreprenturism’

INNOVATIVE COMMUNITY…are you one?

August 8, 2016

Smart PlacesTHE SMARTEST PLACES ON EARTH   Why Rustbelts are the Emerging Hot Spots of Global Innovation 

Antoine van Agtmael and Fred Bakker

2016 Public Affairs Perseus Books Club, New York

It’s every Mayor’s goal…an innovative community that surpasses social and economic threats producing social and economic prosperity.

There are 100’s of books telling how to do this…describing public, and yes, private programs to achieve this.

One of the newer contemporary suggestions – innovation – put forth by Antoine van Agtmael and Fred Baker in their book “The Smartest Places on Earth” add to the wealth of ideas and techniques for socio-economic sustainability.

They proffer that “brainsharring” for the new economy, the “reinventing of local economies by developing new products, technologies that will eventually transform daily life, is the solution to economic repurposing of our rust belt impacted communities and surrounding regions”.

Through visitation and personal interview among a select group of economically reinvented former “rust belt” global communities, they identified “keys” to successful economic reinvention.

Here are a few “takeaways” from reading:

PAST HISTORY IS UNDERSTOOD AND FUTURE REOCCURRENCE IS PREVENTABLE
Successful “brainsharing reinvention” begins when communities acknowledge the historic economic malaise and generate a strong sense of action to prevent reoccurrence – the “communitywide recognition that economic improvement action is necessary”.

AN ECONOMIC PATHWAY IS PRESENT AND UNDERSTANDABLE
Coupled with the attitude ‘it won’t happen again” is the notion of a new direction – “a pathway to economic revitalization that repurposes the local economy producing a sustainable future”; one that is also easily understandable to a wide spectrum of constituents”.

MULTIPLISTIC SUPPORT MAGINFIES SUCCESS
Brainsharing across public and private entities is a must and typically arranged, facilitated and mentored by a “connector”, one, or more, individuals who bring together, normally separate interest groups to collaborate and then serve as their “shepherd” leading them to a specific goal.

NARROWISM SUCCEEDS
While there are many pathways, concerted effort on 1 or 2 reinvention strategies leads to greater chance of success compared to expending a “little bit of effort on a wide variety of strategies”.

For those interested in economic reinvention of local economies, this book will stimulate some interesting thoughts about the “new economy philosophy” of economic development and job creation.

Economic reinvention comes with destruction and replacement of current socially accepted community thinking.

Maybe more important for action is the “continued fear that a significant economic down turn event can happen again and we can’t let that happen”.

It also shows that reinvention must happen regardless of its hard work and realistically, is bigger than our community alone…calling on us to cooperate on a larger regional scale.

An innovative community is one which welcomes technological destruction, shows a willingness to sponsor “brainsharing” for the purposes of producing new businesses creating new economy jobs and investment.

NEED, GREED AND SPEED – NEW RULES OF INNOVATION TO PROPEL GREATNESS

November 13, 2012

In the coming decades, “the quest for environmental sustainability and the need to meet the health demands of a fatter, sicker and older population may prove to be the greatest engines of innovation and, therefore the greatest economic opportunity of our lifetimes” according to  Vijay V. Vaitheeswaran author of Need, Speed, And Greed, How the New Rules of Innovation Can transform Businesses, Propel Nations To Greatness, And Tame The World’s Most Wicked Problems and  the Global Correspondent for the Economist magazine.

The author sets about to challenge some of the widely held views about innovation, the role of government versus business, the supposed global crisis and the failure of the world economy.

His book seeks to build a case for rethinking of how the world approaches innovation.

He believes the world stands on a cusp of a post industrial revolution and new rules of innovation will reveal these new principles and practices which will reshape the world’s economy.

This innovation will bring to the market place fresh thinking that creates value for a company for its customers and for a society at large.

This innovation will result in entrepreneurial activity new investment and new jobs.

What motivates idea generators in the new age of innovation is not mere profit – it’s also inspired by the passionate pursuit of purpose, in part meeting societal goals.

The three great forces that drive these passions are – need, speed and greed – the need for the innovative goods or services, the ability for the innovator to receive monetary return for the innovation and the speed in which the goods or service can be made available to the consumer.

These three forces drive the fresh thinking that creates something of value.

Today these changes are undergoing as an unpresented demographic, economic and environmental transformation, as mankind becomes a primarily urban species for the first time in history.

This mass urbanization will both demand faster and deeper innovation and offer the means for getting it; including –

The need for more urban  infrastructure,

  • Responsive political systems, and
  • Higher degree of interpersonal civility.

According to Vaitheeswaran, “the road from [economic] stagnation to rejuvenation results from innovation.

He supports the notion that innovation will be aided by:

  • More STEM education,
  • More immigration,
  • Less restrictive government regulation,
  • Less government interaction, and
  • More accommodative government R & D spending tax policy.

According the Vaitheeswaran, greed is not only good but also does good – if, that is, there are clear incentives to tackle the wicked problems of society.

He believes that many of today’s efforts to support innovation are simply a sham, mostly being a throwback to the failed industrial policy tried in the 1930’s and 1980’s as remedy for a flailing economy.

He supports a more free market capitalist approach that uses need, speed and greed to maximum innovation opportunities.

GOVERNMENT POLICY AGAIN DIFFERENTIATES GROWTH VS. DECLINE

April 25, 2012

For the fifth year in a row, government policies differentiate growth in state economic performance.

Arthur Laffer and Stephen Moore, again in their American Legislative Exchange Council Rich States – Poor States Economic Competitive Index, document key government actions that encourage and restrict economic vitality.

 Policies for growth include –

  •     Lower personal income taxes
  •     Lower corporate income taxes
  •     Lower sales taxes
  •     Right–to-Work business cost advantages

According to Laffer and Moore, the opposite of these growth policies are the “growth killers” with death taxes being added to the “killer” list by them.

Laffer and Moore provide a strong argument that “low taxes, limited government and fiscal discipline are a recipe for job creation”, the benefits of supply-side economics.

They present a convincing argument for the conservative republican based economic platform being played-out in the election rhetoric and in the news media.

They conclude “no income tax states outperform their higher tax counterparts across a board in gross state product growth, population growth, job growth, and perhaps shockingly even in tax receipt growth”.

Using fifteen policy variables they have ranked each state economic outlook and encourage the reader “to read the evidence and learn about the proven principles, which lead to economic growth, job creation and higher standards of living”.

Of importance to us Midwesterner’s is how does Illinois, Indiana, Michigan and Ohio “stack-up” with other states; the 50-state ranking data for each –

 

                           2012     2011   2010    2009    2008

  • Illinois            48        44        47        44        43
  • Indiana           24        16       20         17        12
  • Michigan        17        25       26         34        47
  • Ohio              37        38       42         45        47

According to the 2012 rankings, Illinois would be noted as the worst with Michigan being the best; a result of Illinois increasing and Michigan lowering business taxes. 

Ohio while improving, remains behind Michigan and Indiana.

They note that Indiana’s ranking will likely improve in subsequent rankings due to the passage of Right-to-Work legislation not recognized in the current ranking.

It’s interesting to note that the best states are principally located in the south and western United States – Utah, South Dakota, Virginia, Wyoming, North Dakota, Idaho, Missouri, Colorado, Arizona, and Georgia, being the top ten states.

These states have –

  •   Population in-migration
  •   Lower tax burden
  •   Are Right-to-Work states
  •   Increasing their proportion of US GDP

I subscribe to this pro-growth low tax – less expense line of thinking.

After 30+-years as a community planner, economic developer and entrepreneur, it is evident to me that business and people “vote with there feet” and seek to live and work in communities that provide employment opportunities and lifestyles that meet or exceed their economic goals.

In this line of thinking, when all is equal, people will migrate to communities where personal economic benefits are greater.

Therefore, the notion that governmental policy that directly impact the personal or business “pocketbook” will influence where one chooses to locate influencing the economic vitality of the community.

FOSTERING ENTREPRENEURIALISM: THOUGHTS ABOUT ECONOMIC DEVELOPMENT GARDENING

March 9, 2012

Every community wants new businesses.  Not only do new businesses create jobs but they give a public demonstration of a growing prosperous community. 

Academic research provides strong evidence that small young businesses lead job creation when exiting a recession.  Local economic developers have taken note and many incorporate specific work tasks called “economic gardening” designed to assist new business formation as an element in the overall community economic development strategy.

However, community economic development work tasks that make a significant contribution to the formation of new businesses are a little more difficult to identify.

Here are ten thoughts to consider when forming your community based new business economic development “gardening” strategy:

1.  Recognize Individualism

The decision to start a business is a personal decision.  Whether the decision is made by an employee that says “I can do this better” and wants to create the next “Apple Computer”, the laid-off manager that begins offering consulting services,  or the housewife that begins to sell cosmetics, the final decision to go into business is an individual decision.

It’s easy to understand that a decision of this type will be stressful, effecting personal income and the family lifestyle.

Work program suggestion –

Provide access to personality assessment services that determine ability to accept risk and manage risk.

2. Help Surmount the Hurdles

Forming a business is much more than making a product or offering a service and collecting money. It gets involved with complex things as 1) what form of legal entity do I need, 2) what are my federal, state and county business identification obligations, 3) how to I complete my accounting to comply with tax obligations, 4) what licenses and permits are required, 5) what insurances coverage is needed, 6) how to get start-up funds, among other things.

Each poses a hurdle challenging the entrepreneur.

Work program suggestion –

Sponsor how to go into business for yourself programs, offered by local SBA sponsored Small Business Development Centers. Often local colleges and universities are available to assist with these challenges.

3. Make Entrepreneurialism Part of Junior and High School Education

Is entrepreneurialism a learned desire?  Some academics believe so.  Under this assumption, the role of entrepreneurialism as taught in the classroom is important to the early introduction that “going into business for yourself” can be a career providing great personal and financial reward.

Work program suggestion –

Make Junior Achievement and similar programs available in all schools.

4. Host Entrepreneurial Cafes

There is strong evidence that certain entrepreneurial camaraderie exists, especially among today’s “younger generation” computer based entrepreneurs. In fact a recent study found that over 50% of the Gen-Z’ers, Gen-X’ers and millennials plan to start their own business some time.

The older form of dedicated office space to many younger entrepreneurs is a “thing of the past” and the new office can be any location having internet connectivity. An entrepreneurial café, being a location where resources can be found and where entrepreneurs congregate can provide the necessary networking and social support structure sought after by those considering entrepreneurship.

Work program suggestion –

Create a café and virtual office providing a physical location for business and social needs of emerging entrepreneurs.

5. “Carve-Out” opportunities within the economic landscape.

There are numerous magazines touting the next great business opportunity.  However little research is completed on a communitywide scale to identify what businesses opportunities are likely destined for success based on the current and future projected local economy.

Most times identification of the business opportunity is left to the entrepreneur and made by “gut instinct” without a formal examination or market study.

There are resources, such as Nielsen-Claritas data that can help identify “opportunity gaps” in consumer purchasing patterns for retail and household goods which when used by  entrepreneurs can help identify certain small business opportunities.  Today, almost every university has some type of research assistance mechanism that can aid an entrepreneur in identifying market opportunities for more complex business ventures.

Work program suggestion –

Create, typically a university sponsored, entrepreneurial investigation research team to identify local community needs and opportunities that can be served by new businesses, including providing private sourced socio-economic data for use by entrepreneurs when needed.

6. Raise Capital Create a “Shark Tank”

One reason given for new businesses failure is the lack of capital.  This is especially true today where commercial lenders and the US Small Business Administration have reduced lending to small businesses.  Today, it’s a rare exception to find a commercial lender interested in financing a new business “start-up”.

The need for entrepreneurial financing has been popularized on television by “Shark Tank” a program where entrepreneurs “pitch” there new business idea to potential investors, in an effort to seek needed capital for business start-up and expansion.

Work program suggestion –

Community economic development strategies may require assembling social venture capitalists a new bread of investor typically organized in the form of an LC(3) – Low-profit Limited Liability Company to provide new business start-up financing.

7. Play the Numbers

Academic research documents nationally that 32 of 100,000 people will start-up a business, each month. Indiana and Michigan while being slightly lower than this ratio, still demonstrates a strong propensity for new business formation.

But a strong propensity does not automatically result in new businesses contributing jobs to the local economy; that being the goal of a community based economic development program. An economic development program that “mines the data” focusing on the population groups that have propensities to form new businesses is called for to help create these new businesses.

The key entrepreneurial characteristics include:

  • ·         One, or more, parents being entrepreneurs,
  • ·         Childhood small business experiences,
  • ·         Personality traits that accept risk,
  • ·         Personal predisposition to succeed in face of adversity.

Work program suggestion

Programs that create interest aimed at certain population groups, such as Gen-Z’ers,  Gen-X’ers and millennial’s  which have higher propensity to form new businesses should be part of the community economic development program.

8. Support Population Diversity

Entrepreneurial population studies document that certain demographic sectors have a greater propensity to from new businesses, especially Hispanics and recent immigrants. 

Work program suggestion –

Support program that celebrate population diversity embracing population groups that have a higher propensity to form new businesses.

9.  Create a “Match-Up” Market Place

Forming a business is a “team effort” needing different “skill sets” and talents, all which must be assembled by the entrepreneur.   

Work program suggestion –

Create a “wants and needs” bulletin board to match entrepreneur business needs with available support capacities.

10. Celebrate Success – Achieving Entrepreneurial Notoriety

Nothing breeds success more than success.  Being noted in state and national media as a community hosting new business formation not only demonstrates success but encourages others to consider “going into business themselves” or to take permanent residency in a location where new business formation is thriving.

Work program suggestion –

Create a media program announcing new business formations on a regular basis to create a statewide and national recognition as a geographic location for “new business start-up”.

Finale

Today, everyone talks about “economic gardening”, the notion that government sponsored local community economic development programs can cause people to start new businesses that eliminate unemployment and create community economic prosperity. 

Philosophically, the creation of an environment that embraces entrepreneurism should be a goal of every community economic development strategy.

However, it is still an individual decision whether someone actually starts a business.

Adding some or all these suggestions to your economic development strategy will “enrich the soil for planting the seeds of new businesses”.

 

Author note:  This was first prepared presentation at the Purdue University North Central “Topics in Regional Economic Development” class, Spring 2010.

POLITICAL MANUFACTURING ELECTIONEERING – WILL POLITICS HELP REBUILD THE MICHIGAN MANUFACTURING JOB BASE?

March 5, 2012

McKinsey Global Institute confirms the notion that the US manufacturing job force will not likely return to historic job counts, identifying the challenge facing those relying on an economic development strategy focused on replacing manufacturing jobs.

Can Michigan rebuild its auto dominated statewide manufacturing base and diversify into related manufacturing jobs to create jobs for Michigan residents?

 It’s the million dollar question………..

According to Susan Lund, director of research at McKinsey, “If job creation is your goal, manufacturing is probably not the sector you’d look at”.

She expounds – US manufacturers have added 400,000 jobs since 2011, after a loss of 5.8 million jobs from 2000 to 2009. Manufacturing employed more than a third of the nation’s nonfarm workforce in 1950 but now employs less that 9% (WSJ 3-2/3-2012).

It’s easy to understand, as Lund explains, advances in technology and management processes have allowed factories to boost their production, or output per hour of labor.  The result is less manufacturing jobs providing the same, or more, product and at the same time providing higher wages for these jobs.

Economic developers are charged with two goals:

  • Create new jobs that increase household income and wealth which ultimately is reflected in increased government revenue from income, sales and real estate taxes, and
  • Provide jobs for local residents.

For the economic developer, this creates a conundrum – less jobs & higher wages vs. the difficulty of replacing lost manufacturing jobs – when the economic developer is typically graded on a scale of “how many jobs they create”.

Maybe Washington will help.

Today, both President Obama and all GOP hopefuls offer their perspectives on how to reinvigorate US manufacturing employment.                                                                                   

While the electioneering rhetoric offers varied ideas such as employment training credits, reduced profit taxation, government supplied special financing and regulatory barriers/exemptions, many economists question the merits of “industrial policy” – government efforts to promote certain sectors by picking “winners and losers”.

They claim the recent “rise in manufacturing employment of the past two years is more of a blip than a trend” and that future mechanization and management improvements will continue to work against large gains in total manufacturing jobs.

On the other side, are claims that government manufacturing incentives will incentivize business decision making resulting in new manufacturing employment.

Regardless of your political perspective, the reality remains, that manufacturing employment will not return to the “1950’s good old days” or pre-recession levels.

So what’s this mean for the Michigan’s economic development practitioner?

Michigan’s economic development platform will still focus on manufacturing, both auto related and those compatible jobs skill that are transportable to similar jobs, but for different products.

  1. Michigan’s economic development platform will still focus on manufacturing, both auto related and those compatible jobs skill that are transportable to similar jobs, but for different products.
  2. Retraining of existing workforce and training of the “up and coming workforce” will strive to provide skill sets required for the continuation of the auto related labor force as well as for new manufacturing processes that are “targeted industries” chosen by state government.
  3. State and local incentives will be created and used (a Michigan tradition) to induce new business formation or new location of selected manufacturing businesses.
  4. There will be increased local competition for new manufacturing jobs between Michigan communities as they vie for the location of a lesser number of new businesses.
  5. Greater emphasis will be imposed on the success of the economic developer to “create new jobs” through location of new businesses.
  6. The current state emphasis on “core communities” will be challenged by smaller urban and smaller rural communities seeking their “fare share” of job creation attention by state government.
  7. Due to need for local job creation the role of the economic developer, especially in communities not cited on the states “favored list”, will focus more on  “economic gardening” the process of creation new jobs by forming new local-owned businesses.
  8. Greater attention will be given to removal of barriers to job creation, especially state regulatory, taxation and other rules that place Michigan in an uncompetitive position when compared to other states.
  9. As the complexity of local economic development programs increase, consolidated regional (multi-government) economic development organizations will become more common place in order to provide sufficient economic development funding for professional trained economic development staff functions.
  10. The educational and experience qualifications for leadership positions in Michigan’s economic development profession will require new, more advanced qualifications and experience, aimed more toward entrepreneurial skills rather that the traditional menu driven activities that currently underlies the Michigan economic development delivery system (that being offering new and existing business state and local incentives from a menu of options to create new jobs).

Finale

Regardless of election outcomes, the role of Michigan’s economic development practitioner is positioned to change, and the future role will be different.

We can expect to see a bifurcation of economic development strategy, first, continuing the competitive effort to secure new businesses wishing to locate in Michigan and second, local efforts to create new businesses that increase local jobs.

In either case, the pressure upon Michigan’s economic developers to produce new jobs and investment will increase.

THE COMING GLOBAL JOB WARS – ARE YOU PREPARED?

February 16, 2012
  
Gallup pollster Jim Clifton shares some
interesting global facts:
 
7b people
3b want to work
1.2b formal jobs exist
1.8b jobs shortfall
50+% deficit of full-time jobs
 
Scary information – to say the least!

Jim Clifton (Chairman of Gallup), in his newly released book “The Coming Job Wars” states that globally, politics will focus on this dilemma ….how to double the number of globally available good full-time and part-time formal jobs defined as 30-hour weekly employment paying living wages.

In the future the United States will compete, along with every country, state and local territory for these new jobs.

Clifton opines, since 70% of US GDP (Gross Domestic Product) is based on consumer spending any solution to job creation “requires consumer spending and any solution to job creation requires a lot of consumer spending or the GDP falls leading to less spending and higher unemployment”.

He concludes the US GDP growth rate is most important to job growth and, in the future, US GDP growth will come from global customer demand.

What’s needed today to remedy US and global unemployment according to Clifton, is a “transformational event that will cause a sudden extra ordinary surge of entrepreneurship and innovation just like the introduction of new technologies 30-years ago that saved America from the 1970’s recession” a technology transformation which created new global customer demand.

He further states the US has an oversupply of innovation and an undersupply of entrepreneurship; “innovation is not rare in America, neither is creativity, rather there is mass shortage – a significant undersupply – of successful business models”.

According to Clifton, “America’s job creation needs to focus on the connection between innovation and entrepreneurism – the person – the entrepreneur”.  He states that entrepreneurs are rare – “lots of people have good ideas, but most new businesses fail.  It’s not for the will or passion, but the lack of customers “and business knowhow.

While most Americans believe the US is run by “big business” in reality America is dominated by small and medium sized businesses – those with less than 500 employees which represent 99% of the proximate 6 million businesses with at least 1 employee.

Clifton believes it is here, these small to medium sized businesses along with entrepreneur formed new businesses is where job creation is most likely to occur.

He further opines that US GDP must grow at a minimum of 5% in order to create sufficient jobs to remedy present unemployment…this being double the near-term best future growth rate offered by leading economists.

This is how we get there –

1. Make Entrepreneurism a #1 Public Priority

The goal of economic policy must embrace the notion that private sector employment is most important.  Clifton opines that “if the overwhelming majority of Americans are not working outside of government jobs, America will go broke”.  He further states that “when GDP falls so does the amount of money government’s share [used] to fund services” 

The solution is to create new businesses which will create “new jobs” thus increasing GDP.

2. Seek Early Identification of Individual Entrepreneurial Potential

Researchers have documented a number of characteristics of people that start businesses.  The most common entrepreneurial traits include 1) parents that are entrepreneurs, 2) early age business involvements, 3) ability to take risk and 4)  an individual stick-to-itiveness personality trait.

According to researchers, these traits can be identified in youngsters aged 8-12 years when early education and mentoring can be provided to encourage them to consider entrepreneurship and business ownership as a chosen career choice.

The solution is to test and identify entrepreneurship personality traits of young people, most likely, as part of current K-12 student education testing programs.

3. Introduce Entrepreneurship as a Career Choice in Early Education

Today’s education system is designed to prepare youth for many types of careers, but often does not provided encouragement nor specific training for entrepreneurial careers.

There are a number of educational program designed to remedy this deficiency, however educational programs seldom integrate these into the classroom experience.

The solution is to redesign current K-12 educational programs to integrate entrepreneurship course content as a career choice equal to the emphasis given to college preparation course content.  

 4. Provide Our Youth Entrepreneurial Opportunities

A 2010 Kaufmann Foundation sponsored study survey shows that “interest in starting a business is consistent among tweens (eight- to 12-year-olds – 39 percent), teens (13- to 17-year-olds – 39 percent), and young adults (18- to 24-year-olds – 41 percent). Males (45 percent) are more likely than females (35 percent) to be attracted to business ownership.

The research concluded that “youth who personally know another entrepreneur have the strongest interest in starting their own businesses. Among youth who know an entrepreneur, almost half (46 percent) would like to start, or already have started, businesses, compared to only one-third (31 percent) of the young people who do not know a business owner”. (Underline added)

The importance of business owner contact and actual business experience contact is critical to shaping the personal characteristics and propensity for young people to pursue entrepreneurship and as career choice.

The solution is to provide business owner contact and business experience for young people – more Junior Achievement programs – more child operated lemon aid stands please.

5. Reformulate Government Assistance Programs to Reduce New Venture Risk

Starting up a business is costly.  Start-up costs many times include attorney, accounting, monthly banking fees, plus computer software purchases that can easily add up to $1,000 in the first year, more if you have partners in your business requiring partnership agreements, filing incorporation paperwork, etc.

All of these require immediate cash payments, always coming from the entrepreneur’s pocket.

Young businesses need cash, typically more than planned.  Elimination or deferral of startup expenses may be the difference between success and failure in the first year of operation.

The solution to encourage new business formation is to remove these start-up costs or allow payment of them upon the first anniversary of the business formation.

6. Incent Commercial Lenders and Investors to Accept New Business Start-up Risk

Lenders and investors are, by their very nature, adverse to accepting risk. They are trained to identify how and why a business can fail and to install loss prevention programs for any investment they make in a business.

While business risk aversion is a good thing the amount of risk lenders and investors are willing to assume varies.  Risk is measured by commercial lender interest charged for use of funds or investor dividends paid and resultant increased value of their investment in the business.

New business start-ups being “more risky” imply greater risk requiring higher interest charges, higher dividend payments and higher business ownership valuation to secure business start-up funding.

Since interest, dividends and capital gain on the sale of business interests are all taxable – federal, state and, where applicable, locally – after tax return on investment becomes the final measurement of the investment in a new start-up business.

The solution to expanding the amount of capital dedicated for new business start-ups is to reduce or eliminate taxation for a period of time for funds loaned or invested in new start-up businesses.

Last Thoughts

Today job creation is caused by a “rare breed of people” those of a certain state of mind having a business plan of action, a totally consuming idea resulting in unstoppable determination and optimism, an unwavering confidence in their personal business skills plus understanding of what customers really want.

These rare soles understand that customer relationships “trump” all business challenges and leads to identification of new products and services desired by customers and when provided by the business assures success.

It’s these “rare soles” that ultimately produce additional GDP, by creating innovative products and services for which new jobs will be required to produce and deliver the products and services to the customer.

If Clifton is correct, and a new transformational innovation is required to fill the global job deficit, it will most likely come from a start-up business idea.

RIGHT-TO-WORK TO INTENSIFY MI-IN ECONOMIC DEVELOPMENT BORDER WAR

February 4, 2012

Indiana will be the only right-to-work state to be completely surrounded by non-right-to-work states ….I recently talked to my counterpart at the Michigan State Chamber of Commerce on the phone who said if we [Indiana] pass right-to-work you’r going to kill us in the economic development wars.

http://www.insideindianabusiness.com/video.asp?id=-1&v=1559

Effective today (February 1, 2012), Indiana’s new right-to-work law will intensify the age old Michigan vs. Indiana economic development war over new jobs and business investment.

For economic development practitioners it’s time to think about the impact of having the first Midwest right-to-work state at our border to Michigan’s competitive position for creating new jobs and business investment.

Lets first forget the pros and cons of right-to-work; it’s passed and now is part of the new landscape of economic development impacting Michigan.

As someone who has pursued a career in Michigan land use planning and economic development for well over 30-years, its obvious to me that economic development practitioners need to prepare.

Here’s how I expect Indiana’s right-to-work law will impact the practice of economic development in Michigan.

1. Right-to-Work will be a Major Economic Development Conversation Topic

Because Indiana will be the first Midwest State to fully embrace right-to-work, Michigan efforts to equalize this action will intensify

Union busting and deflation of wage rate claims will be countered with population growth and increased state gross income claims.  This rhetoric will result in political inaction increasing business economic uncertainty.

Expect Lansing right–to–work rhetoric to escalate resulting in suspension or, in some cases, compete halting of business decision making until certainty is restored.    

Expect to be questioned about uncertainty and probable outcomes of debate that may result in Michigan enacting right-to-work legislation.

 2.      Michigan will Mount a Legislative Rebuttal Seeking Right-to-Work

Forced by Indiana’s action and to mitigate the economic development imbalances that may result, the Michigan legislature will be forced to consider legislation authorizing right-to-work either on a permanent statewide basis or, at minimum, for experimental special purpose sub-state zones.

Expect the legislature to experiment, most likely with special districts where right-to-work can be tied to direct job creation by new businesses locating in the zone – this being Michigan’s historic means of “putting a toe into the water to test the economic and political temperature”.

  3. Recognize that Unionization is a Cost of Doing Business in Non Right-to-Work States.

Economic developers will need to acknowledge that unions impose a cost on business.

Even in the most harmonious business-union states, unionized businesses face added administrative expenses – accounting, legal and management time to attend to employer duties of a union shop.

Expect new businesses seeking to locate in Michigan to question the harmony between local business and local unions to identify the true employer cost burden of harmonious and other business-union relations.

 4. Right-to-Work to be a “Bargaining Chip” in New Business Site Selection

Let’s face the fact that Indiana’s right-to-work – whether we believe it aids business or not, will be used as a bargaining chip when a business negotiates location incentive packages from Michigan communities.

While claims can be made that right-to-work does not expressly grant a specific job advantage (See Wall Street Journal Article 1.27.2012 ), Michigan economic developers will need to prepare for the request for additional incentives to compensate for perceived or real economic differences between Indiana and other Midwest states.

Expect to be requested to provide additional incentives to over compensate for the “real or perceived” economic differences of a union vs. nonunion state economic environment.

 5. MI-IN Border War to Intensify

Indiana is known to take quick action of its economic development superiority as evidenced by the business solicitation billboard erected at the Illinois-Indiana border upon passage of a business tax increase in Illinois in 2011.

Expect to see an onslaught of advertisements and direct business solicitations extolling the virtues of right-to-work in Indiana as one more economic advantage Indiana has over Michigan.

Economic developers must prepared now to identify counter measures to disqualify or mitigate the real or perceived Indiana economic benefits as part of their economic development business retention and attraction strategy.

6.  Michigan Economic Development to Become Less Menu Driven and More Sensitive to Business Economics.

As a 35-year veteran in land use and economic development, I have been involved in Michigan economic development since its origination in the early 1970’s.

For the most part, a majority of Michigan economic development practitioners are “menu trained”, that being we are given a menu of state and federal programs and incentives and then told to offer these to new and existing businesses to create jobs and new investment.

Only limited business training is provided on business organization and management or understanding markets and customers businesses serve.

It’s uncommon for economic development practitioners to “drill down” and study markets and customers and to prepare actual business plans to identify cash flow, the vital life blood of any business.

Recently, I came across the phrase” jobs occur where customers appear” while reading The Coming Jobs War by Jim Clifton.  It’s a pretty simple message – without customers there is no need for the business and no need for employment.  The message in this statement for economic development practitioners is the need for understanding businesses economics and how to increase “customers” for local businesses – this will become part of the skills required of economic developers in the future.

Expect business economic strategies which improve customer counts to be critical ingredients of future economic development strategy.

 Last Thoughts……..

Undoubtedly Michigan’s economic development platform is poised for change and this change will be effect day-to-day economic development practices.

Michigan economic development practitioners must prepare today to react to these changes.

At no time in my 35-years working in Michigan has there been the opening for such a wholesale change in the way economic development is practiced.

Regardless of your position on right-to-work, the practice of economic development in Michigan is set to change …and the changes will be significant and monumental.

In the future, economic development practitioners will be called upon and “graded” not only on the use of “menu driven” Michigan economic development tools but on the success in expanding and creating new businesses without use of incentives, but techniques that result in increased customers producing business cash flow.

THE INNOVATOR’S DNA AND THE PRACTICE OF ECONOMIC DEVELOPMENT

January 30, 2012

Innovation – like the” iPad”, you know it when you can hold in your hand but like “beauty”, don’t ask what it is or how to make it happen.

For economic developer practitioners and those who fancy themselves as entrepreneurship facilitators, innovation is important.  It’s economic gardening – the current government mantra for job creation as a means to reduce unemployment by creating high-wage jobs to improve household wealth.

Go to any bookstore business section and you will find more than a dozen titles, all telling their story on how you and your company or organization needs innovation to compete in the global economy and, by the way create jobs.

But more importantly, to the economic developer practitioner, is can we identify how to innovate and how do I get innovation to happen in my community.

This is where “THE INNOVATOR’S DNA – MASTERING THE FIVE SKILLS OF DISRUPTIVE INNOVATORS” will help.  Authors Jeff Dyer, Hal Gregersen and Claton M. Christensen explain skills that can cause innovation to happen.

With the notion that we can identify personal behavior skills that cause innovation, we can then apply them in a directed pathway increasing the opportunity to identify new products and services resulting in business investment and new jobs.

Let’s examine each of the skills and how economic developers may wish to apply them.

But first, we have to agree on a basic principal – innovators think differently and act differently….creating a curiosity that results in changed behaviors.

The good news, according to the authors, is if we change our behaviors we can improve our “creative curiosity” and creative impact.

Another words – CHANGED BEHAVIORS = MORE INNOVATION

Now that’s a powerful statement one that can be used to develop a community program to stimulate business innovation resulting in new business investment and jobs.

This is great news to economic developers seeking to create innovative communities.

If “two-thirds of our innovation skills come through learning – from first understanding the skill, then practicing it and ultimately gaining confidence in our ability to create”, than innovation can be taught on a communitywide basis leading to greater innovation and increased business investment resulting more and better paying jobs.

The behavioral traits –

 1. Questioning

Innovators are consummate questioners who show a passion for inquire frequently challenging the status quo.  They show a high Q/A ratio where questions (Q) out number answers (A) in a typical conversation.

 2. Observing

Innovators are intense observers – the world around them, customer behavior, new technologies, and new products and services.  These observations provide them insights into new ideas on how to do things.

 3. Networking

Innovators spend time testing ideas through a diverse network of individuals of varied backgrounds and perspectives.  They tend to seek out comments and reactions from a wide group of people that, at times, may have radically different viewpoints.

 4. Experimenting

Innovators are not just “thinkers” but actually try-out new ideas.  They test hypotheses and seek new information and continue to experiment to learn new things.  They hold that questioning, observing, networking and experimenting are discovery skills that together identify new ideas.

 5. Associational thinking

Innovators routinely see the essential features of an idea and make surprising connections across areas of knowledge – connecting the unconnected knowledge producing innovative business ideas.  Successful innovators are always “on the hunt” for new associations that will create combinations of diverse knowledge, experience and personal perspectives

 6. Challenge the status quo

Innovators believe in economist Joseph Schumpeter’s theory of “creative destruction” and thus actively challenge the status quo. Schumpeter popularized in the 1950, the theory of challenging the status quo reformulating conventional thinking by associating existing and new knowledge and technology thus creating economic innovation.  Innovators are unafraid or inhibited in rebuffing “the notion – because we did it that way in the past, we’ll do it that way in the future”.  They see “many things broken and want to fix them”.

 7. Taking risks

Innovators are “risk takers” unafraid of failure and actually promote failure a part of the process of experimenting to achieve success.  They feel personally responsible for “coming-up” with ideas and innovation solutions.

A Last Thought on Innovation and the Practice of Economic Development

Innovation begins with you.  You can change your behavior to become more innovative.

For the economic practitioner this is good news.

By asking yourself some simple questions such as, am I good at generating ideas, can I find  and “friend” innovative people, can I get myself and colleagues to “think outside the box” you too, can begin the process of being a better innovator.

If you find yourself struggling with “frank and honest “answers cheer-up, the authors state you can change your behavior and become more creative. 

This also holds true for economic development organizations which many economic development practitioners staff on a daily basis. 

As stated earlier, if two-thirds of innovation skills come through better understanding of behavioral traits that inspire innovation, this knowledge coupled with a program to incorporate change should result in new innovative ideas fostering economic development success.

The challenge before the economic development practitioner is not more business subsidies, tax forgiveness or other business aid but changing the communitywide behavior of individuals to become more innovative thus producing innovative business ideas resulting in new business investment and jobs.

TEN 2012 TRENDS THAT WILL IMPACT PLANNING & ECONOMIC

December 4, 2011

Introduction

Last December I posted 25 FUTURE TRENDS THAT WILL IMPACT ECONOMIC DEVELOPMENT. This was my attempt to identify key trends that would shape the daily concerns of planners and economic developers in 2011.

With the help of my colleague Craig Hullinger, we circulated the “write-up” to a wide audience of active and retired planners, economic development practitioners, city managers and academics.

We got a lot of feedback that began conversations leading to the conclusion that job creation and household wealth would be the major “drivers” of government inspired planning and economic development in 2011. 

I believe the wisdom of these folks were correct and as we close out 2011 the need for job growth and increasing household income remain a top priority for the successful future economic revitalization of the global, national and local economies.

Below are my thoughts on the leading trends that will impact planning and economic developers in 2012.

 1.  Land Use Plans to focus on abandoned land and buildings not “greenfields”.

With the change in consumer spending patterns – reduced disposable income and increased reliance on internet purchases – plus the backlog of vacant home and commercial properties in (or soon will be) subject to foreclosure, there will be a reduce demand for new construction directing planners and economic development attention on reuse of buildings.  It’s the same for vacant building sites currently serviced by municipal infrastructure.

The notion of incentivizing new development will be discouraged in favor of planning and economic development strategies that focus on reuse and redeployment of vacant land and buildings.

 2.  Financial support for planning to be reduced.

Federal and State budget reductions are inevitable.  With planning and economic development activities being discretionary “non-mandated” government activities, planning and economic development program support will be targeted for budget reduction, probably to a greater extend that mandated government programs.

Planners and economic developers will be asked to “do more with less” and to seek non-governmental funding support from private contributions, foundations and fees for services provided. The planner and economic developer job description will now include a new component titled “fund raising”.

 3.  Economic feasibility will be required of all new initiatives.

Since the early 1970’s with Florida’s comprehensive state/local growth management act, planners were expected to include a degree of economic feasibility into the planning process, especially when implementation of plans included reliance upon federal and state funding sources.  However, rarely has economic feasibility or benefit/cost analysis been applied consistently and in non-technical easily understood meaningful ways.

With heightened demand for sparse governmental funds, plans and economic development strategies requiring funding commitments, especially those by local governments, will be subject to intense scrutiny and most likely only funded upon sound economic benefit/cost analysis.

The era of planning and economic development strategies that “sound good” but rely upon undocumented funding sources is unacceptable today to citizens and elected officials alike.

Planners and economic developers will be expected to fully justify funding requests by easily communicated economic analyses relying on projected benefits for use of government funds.

 4.  Job creation “tops” all other concerns.

Gallup pollster Jim Clifton (see The Coming Jobs War) calculates that global unemployment is over 50% and globally there is a 1.8 billion job shortfall. He opines that jobs……jobs……and jobs will be the most important government mission in the future. 

He further opines the US must have a 7% GDP growth rate to retain its global presence and decrease US unemployment; almost doubling the most generous US GDP growth rate being discussed in the media today.

For planners and economic developers, this is unhappy news drawing attention to heightened future demand for state and local action to create jobs.

For planners and economic developers, the increased global competition for jobs, pulse a likely anemic US GDP growth rate in 2012 will create intense pressure for programs and action that create new jobs.

 5.  Service area geographic sizing to become the major planning criteria.

In the Midwest, our local government geographic sizing was created by the Northwest treaties in the late 1800’s when the principal means of communication was a horseback ride to personally speak with someone.  With internet and wireless communications today, we almost instantaneously communicate “with anyone – anywhere”.  We have the ability to instantaneously bundle-up work assignments and ship them anywhere around the world to be completed and returned.

However, many government services remain modeled on the notion they must be provided on the basis of “a one-day horse ride” from home.

While all states allow governments to share services and even consolidate for greater financial efficiencies, it’s a rare occurrence.

Historic political isolationism based on the loss of political control permeates the inability to explore changes to service area geography that may reduce financial operating costs for services provided.

As governmental revenues become more strained and where taxpayers will not increase government revenue, planners and economic developers will be called upon to engage in municipal service consolidation conversations to exact efficiencies that stabilize or reduce government service costs.

 6.  Utility maintenance “trumps” new expansions.

While at the state and national level we call for more infrastructure funding for “big project” roads and bridges, back home at the local level most communities maintain underutilized water, sewer, storm drain and subdivision streets built with the notion that new development, most often new residential home owners, would pay user fees and local taxes to operate and maintain the local infrastructure. 

In the absence of new construction requiring new utility connections plus the abundance of demolitions of no-longer needed homes and commercial buildings, in some communities the actual number of utility “paying” connections is being reduced or “at best” remaining stable.  Most utilities were originally sized to service more users anticipated by 10-20 years of future growth but in actuality, now and maybe for considerable time into the future, will remain underutilized.  

The cost of operations and long-term maintenance in almost all cases was based on revenues obtained from anticipated future new connections.  With operation and maintenance cost increasing and revenue possibly decreasing, or at best stable, local government budgets in the future will focus on maintenance of the existing infrastructure rather than funding new expansion.                            

Planners and economic developers will be pressured by budget constraints to seek development projects that increase the number of utility connections allowing the amortization of operation and maintenance cost over a larger number of utility bill payers.

 7.  Tax payers demanded greater efficiencies to guide new growth.

I think everyone will agree that tax payers are overwhelmingly against tax increases and expect greater efficiencies from government to “hold the line” on cost increases resulting in the need for additional tax revenue.

With this in mind, it will be more difficult to undertake new programs requiring additional tax revenue from tax payers.  Likewise, tax abatements or deferral of tax revenues as economic development incentives will also be subject to questioning and higher degree scrutiny.

Planners and economic developers will be discouraged from advocating projects that require forgiveness of tax revenues and encouraged to seek projects that have short-termed positive tax revenue income, especially for local governments that rely upon real estate taxes and/or local captured sales taxes to fund local government operations.

 8.  Federal and State paralysis over local funding freezes local government decision making.

The “we can’t do that now, because we don’t know what’s going to happen” governmental decision making paralysis will continue into 2012.  Government funding uncertainty, due to uncertain federal, state budgets, coupled with uncertainty about local real estate and sales tax revenue has already become the mantra of government decision making today.

Many economists forecast several more years of this uncertainty, making the budget making job most difficult for elected officials.  This uncertainty already results in postponement and cancellation of projects that in “better times” would contribute to an economic development stimulus to the local economy.

Recognizing that uncertainty will continue into 2012, planners and economic developers will find slim support for projects that require funding beyond approved budgets and greater pressure from elected and appointed officials to seek external project funding sources.

 9.  Local municipal insolvency and bankruptcy strikes fear deciding long-term funding.

Over the past 3-years there have been 49 municipal bankruptcies, according to the nationally leading municipal bankruptcy law firm of Chapman & Cutler.  The most publicized being Jefferson County Alabama’s $3 billion revenue bond sewer fund driven bankruptcy – the largest in history.   Media reports predict the potential for other bankruptcies is having a major impact on the $2.9 trillion municipal bond investment market, where 2/3 are revenue bonds – those viewed as “safe investments” by investors because they are “backed” by a utility revenue stream that is likely to continue even in the worst of economic times. 

With questions about the future of federal, state and local revenues, today most government officials are a bit leery of committing to long-term projects, especially those that comingle sources of funds from multiple government programs and revenue sources based on new growth.

In 2012, planners and economic developers will be saddled with questions about municipal solvency both in efforts to package financing for necessary municipal infrastructure investments and to assure new businesses desiring to locate that the community is solvent and resistant to “surprise” tax increases that might occur due to unrecognized financial needs.

 10.   Municipal financing will become more expensive cancelling certain projects.

Because of government bankruptcy, unfunded state and local government obligations, reduced federal/state/local revenue, nonexpendable operating budgets, and increased operating expenses, investors are looking at municipal financing risk a bit differently today and will continue to do so in the future.  Where real or perceived investment risk increases so does the price, the amount of interest government must pay.  Even purchasing insurance that guarantees  payment in case of default gives little comfort to the investor, as leading insurers are being called into question about their ability to fund required payments in case of an economic crisis of substantial proportion.

All in all, this new uncertainty means that cost to borrow funds by states and local governments will be more closely evaluated and cost more.

For the planner and economic developer in 2012, the ability of governments, especially local governments to raise capital for projects will be more difficult and lessen the aggressiveness towards undertaking long-term financed projects.

 Last Thoughts

As we closeout 2011, we give thanks – thanks that we made it through.   It was a difficult year where many economic changes reshaped the role planners and economic developers play at the federal, state and local government levels.

The “crystal ball” today is no different….cloudy at best!

Again in 2012, the economy and jobs will be subject of every conversation. 

Being an election year it will be on every newscast.

Our challenges as planners and economic developers focus on shaping the future. 

Our charge today is – What can we do in 2012, with the resources at hand to invest in the future?

25 FUTURE TRENDS THAT WILL IMPACT ECONOMIC DEVELOPMENT IN 2011

December 7, 2010

Looking ahead to the New Year renews faith and optimism – faith in the ability of business to create jobs and faith in government to guide economic and social policy for the betterment of us all. Or it can bring further fear – will our economy and nation decline?

The start of every year brings challenges – existing ones and new ones. As we close out 2010, the challenge of economic growth and sustainability is of concern to everyone.

As we gaze over the landscape of social, economic and political trends shaping 2011 we find them many and varied – too many for one person to comprehend. We look into our crystal ball and offer our assessment of the top 25 tends that will shape planning and economic development actions by business and political leaders in 2011.

Trend is not destiny. The trends we describe below will certainly change over time. But they depict current trends likely to continue for some years.

  

  POPULATION

1. US immigration will increase and grow proportionally larger within the overall growth of total US population.

2. Older “baby boomers” will tend to “age in place” due to decreased retirement wealth lessening retirement mobility.

3. The proportion of the Hispanic US population will increase – the Hispanic fertility rate will continue to be higher then other ethnic groups.

4. Household migration to lower taxed states in the south and west will subside, as a result of lost retirement wealth and lack of employment opportunities.

5. US immigration policy will remain a global concern as well educated entrepreneurial foreign nationals seek to migrate to the US for employment or to establish new businesses.

6. Future median US household income growth will lessen and in some communities decline as workers accept lower paying jobs absent available job opportunities.

7. The median US household saving rate will increase lessening the average amount of household spending on goods and services.

 

COMMUNICATIONS

8. Every electronic communication will be recorded – George Orwell’s HAL is here!

9. Twitter will be result in instantaneous “transparency” and provide worldwide communication ahead of traditional news networks.

10. Constant instantaneous commutations will become a normal part of daily life.

  

 COMMUNITY GROWTH

11. Population will group into geographic urban concentrations due to increased journey to work trip costs and lack of efficient cost effective mass transportation for journey to work trips.

12. Locational requirements for site dependent businesses requiring large numbers of employees will favor more urban locations as population growth concentrates in a more urban clustered pattern of development.

13. Some rural and small town communities will lose population as the number of employment opportunities vanish and journey to work trip costs increase, decreasing available workforce.

14. Poverty, historically concentrated in central cities will export to exurban and suburban locations.

15. “Baby boomer” ex urban and suburban communities will forgo intergenerational family replacement decreasing school-age population within the community resulting in a different demand for community services, weakening housing demand resulting in lower housing values and greater tendency to defer housing maintenance.

 

WORKLIFE

16. The daily work schedule will shorten available for time leisure and family activities.

17. Alternative work arrangements will be sought by workers to control their personal daily schedule – nontraditional work schedules, working from home and telecommuting.

18. Highly skilled employees will be viewed more as subcontractors by employers who will

assemble employees into work teams that will be disbanded upon completion of assignments and reorganized/reassembled for other assignments.

19. Individual “job hopping” or progressive “job sourcing” will become an individual directed

personal long-term strategy for career advancement.

20. Entrepreneurial tendencies, especially individuals in the 30-40 year age cohort will increase; especially persons highly educated having some job task assignment experience within large firms.

21. Globally small business will create the largest number of new jobs.

 

GOVERNMENT HEALTH AND PERSONAL SECURITY SAFETY NET

22. Health care and poverty subsistence efforts will increase with goal of reducing poverty and homelessness while providing health care for all.

  

GOBALIZATION

23. Economic globalization will be generally accepted as a way of life with recognition that no US business can exist without servicing the global marketplace, including economies that do not fully embrace “fee market” policies.

24. Fierce competition among the world’s nations will continue with China, India, Russia, and Brazil increasing their share of the world GDP.

25. National industrial policies, especially those of governmental controlled economies will influence the cost of business input including labor and natural resource commodities and provide, global business sector advantages and disadvantages.

END NOTE

2011 portends to be a year of changes – changes that will shape the future.   Our perspective is that changes will hasten the economic recovery during 2011 forming the basis for economic sustainability in 2012.

Predicting is always difficult – our crystal ball could be wrong . And there are no doubt trends that we have missed.

 But the 2011 path to economic recovery will be challenging.

 Clearly our identified future trends will influence the outcome of both business and political decision-making.

  

This was prepared with assistance of my colleague Craig Hullinger (AICP) and posted to his web site http://economicdevelopmentnews.blogspot.com/ January 6, 2011