Ed Morrison · Some facts

April 15th, 2009

“It’s a long-term investment,” Waltermire says in a post-tour interview. “Obviously, we want the projects, but right now we are in the stage of building awareness.

“Once you get that, the projects will flow.”

  • Team NEO gives top site consultants a tour of Northeast Ohio’s assets

    • This article triggered some thoughts:

    For several years, the Edward Lowe Foundation has been supporting our work at I-Open and the Purdue Center for Regional Development to develop Open Source Economic Development.

    The Lowe Foundation also supports a closely aligned model, called Economic Gardening. (This approach focuses on supporting business growth with specialized and customized information to create a knowledge-rich environment in which companies can grow.)

    Both of these new models of economic development emphasize the importance of networks to support entrepreneurship and innovation.

    Lowe also supports a national network of entrepreneur support organizations (ESO’s). I-Open is part of this network, as is Kirk Nieswander’s initiative, Entrepreneurs EDGE.

    The Lowe Foundation has also pioneered the development of new data sources for economic analysis. These datasets provide helpful insights into how growth takes place in local and regional economies. You can explore these data at the Lowe Foundation web site: Your Economy.

    These data support the notion that if you want to grow your economy, focus on entrepreneurship and innovation. Recruitment of firms from outside a region plays a relatively small role in building prosperity.

    So, while we can applaud Team NEO for presenting a positive picture to site selectors, we should also recognize that the recruitment pipeline is drying up and that the focus on economic development is toward implementing strategies that grow a region from within.

    Some facts:

  • From 2005 to 2007 in the Cleveland metro, expansions of resident firms generated 25 times the jobs as nonresident firms moving into the area.
  • Over a longer period from 2000 to 2007, expansions by resident firms generated 22 times the number of jobs than nonresident firms moving into the area.

    • In light of these facts, how much of Team NEO’s resources should be devoted to entertaining site consultants?

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    5 Responses to “Some facts”

    1. John Polk Says:
      April 16th, 2009 at 12:54 am

      “Smokestack chasing” was a post-WWII-era economic development strategy, driven primarily by local utility companies in an era of greenfield suburban/exurban expansion.

      It sorta ran out of gas in the late 1960’s in Northeast Ohio, as our tax and regulatory structure and labor costs placed the region at a disadvantage not only to right-to-work states in the South and West, but also to Columbus, where Jim Rhodes used his power as Mayor and Governor to force a regional approach to development, leavened with plenty of incentives.

      It was the relative ineffectiveness of the old Greater Cleveland Growth Board at attracting new outside investment to the region which forced a merger between the Growth Board and the Cleveland Chamber of Commerce to create the Growth Association.

      In similar fashion, it was the relative ineffectiveness of GCGA (now GCP) and other Northeast Ohio Chambers at business attraction which led to the formation of TeamNEO. Because it is essentially a “collaborative” effort of a number of organizations which were themselves ineffective at their jobs, there was little evidence that one single organization could really do a better job.

      The real value of TeamNEO to local Chambers was that it became a convenient place to “outsource” regional attraction and retention efforts, leaving the Chambers free to pursue things it was easier to take credit for.

      There’s nothing wrong with a little smokestack chasing in context; somebody’s probably got to “handle it.” But it is a high-cost, low return strategy. And it’s sort of the economic development equivalent of my friend from college who’d go to a bar and ask 50 women to go home with him; 49 failures didn’t phase him as long as one said yes.

      TeamNEO is just one of many organizations in the region involved in might be considered display behavior…largely symbolic activity meant more to demonstrate that we have “a process in place” to “handle” various aspects of economic development. The success of these groups have much less to do with the results they achieve than with the fact that they’re doing…something.

      To expand a bit on Ed’s metaphor, there are two central paradigms for development: engineering and gardening.

      Engineers believe that economies can be developed via top-down centralized efforts to focus on big projects, “big bets,” and picking winners. The activities of these organizations tend to be very expensive relative to the concrete results of their efforts. Their mantra is a variation on trickle-down theory: that a lot of process surrounding big projects will somehow create subsidiary economic activity that will benefit more than the “winners” receive in the form of big incentives.

      Gardeners believe that economies develop, but they are not developed from the top down; rather, economic growth results through the efforts of many, many entrepreneurs doing their own thing.

      The efforts of gardening organizations tend to focus on enriching the environment for grass-roots entrepreneurship, and on reducing the barriers to entrepreneurial success. Gardening organizations will focus on meaningful efforts to reduce tax and regulatory barriers, reduce non-wage labor costs such as health care, workers compensation and other payroll taxes, to promote educational attainment, and workforce readiness, and to create an open environment in which entrepreneurs can receive the answers and help they need to make smart investment decisions.

      As Ed’s numbers imply, Northeast Ohio is top-heavy with engineering organizations, and almost devoid of gardening organizations. The relative value of gardening vs. engineering is quantitatively indisputable. And yet in Northeast Ohio, our leadership caste has boldly embraced the 1950’s-style model.

      Why?…Because symbolic behavior is fun. Big bets, big wins, and a concentration of economic activity which produces economic benefits for the engineers and the transaction processors who support them. And lots of process keeps everyone busy. If TeamNEO talks with 100 companies, and one decides to locate here, we don’t talk about the 99 who didn’t, or the companies which leave, we can “focus on the wins.”

      Gardening is harder. It requires hard work, patience and persistence. It doesn’t make corporate oligarchs rich; instead effective gardening helps the company with 6 employees add a seventh, then multiplies that sort of grass roots job creation by the thousands.

      I may be mistaken, but I believe Cleveland is the highest-tax city in the highest-tax county in one of the top five highest-taxed states in America. Yet a key element of the community’s economic development strategy is to RAISE taxes to finance big projects whose benefits might somehow trickle down through the rest of the economy.

      I don’t get it…Then again, maybe I do…

    2. Carla Says:
      April 16th, 2009 at 8:24 am

      Sounds to me as if E4S is a “gardening” effort…can we develop a list of these? Perhaps the proposed Citizen Dashboard might become another.

    3. Ed Morrison Says:
      April 16th, 2009 at 5:58 pm

      John:

      Wonderful comments, and again very helpful. I think you have outlined well the insular dynamics operating in Northeast Ohio.

      There’s another element of the engineering approach which is evident in other regions in which I’ve worked.

      The staff people who design and guide the engineering strategy invariably get paid well (despite ample evidence that these strategies do not work).

      Traditional economic development, I have sometimes thought, provides a plush lifestyle to people who could never replicate that lifestyle elsewhere.

      As a consequence, these staffers are loathe to be objective at all about their performance or mistakes. They are prone to the “salesman’s puff”, and they are quick to dismiss or ignore criticism. The impulse is to bury mistakes, not learn from them.

      As a consequence, they are slow to adjust.

      That’s a dangerous place to be in an economy going through fundamental transformation. In February, Toyota’s incoming president, Akio Toyoda, called the current economy “unprecedented, the likes of which haven’t been seen in 100 years.”

      He’s right.

    4. Ed Morrison Says:
      April 16th, 2009 at 6:07 pm

      Carla:

      The Economic Gardening Google group has over 600 people engaged around the world. It’s one alternative to a traditional economic development practice that has been slow to change. I encourage you to join.

      We will be having an economic gardening gathering in South Dakota in June. Please consider joining us. These are wonderful events with people from around the country joining in.

      You can download a good review of economic gardening from the SBA here:

      http://www.sba.gov/advo/research/sbe_06_ch06.pdf

      And, yes, you are right E4S is a “gardening effort”. Here’s what’s striking.

      I travel around the country and have been very active in the economic gardening movement. Few people reach the level of understanding and skill of Holly Harlan.

      Yet, oddly, her organization is left to scurry around finding small bits of funding here and there.

      The Fund invests $8 million to $9 million a year in the GCP’s superstructure. The fact that they cannot find themselves open to investing aggressively in E4S — in the range of $300,000 to $500,000 a year — is, well, just plain odd.

    5. John Polk Says:
      April 16th, 2009 at 11:05 pm

      Think about the paradigm from the point of view of the typical Cleveland corporate CEO.

      Most likely, you’re a multi-millionaire several times over. All your friends are millionaires, too, and in your company there are a few key guys whom you’ve also made millionaires, mostly for the job of re-inforcing the divinity of the CEO. So it might be worth paying a guy a half a mill to “handle” corporate leadership and economic development for you.

      You’re in your job most likely for 5-7 years. Last time Richard Shatten counted heads,Cleveland Tomorrow turned over 1/3 of its members every year. You serve on the Chamber Board, and on Cleveland Tomorrow, and on the Greater Cleveland Roundtable not because you are passionate about economic development or community affairs, but because, you know, you’re the CEO, and it’s a CEO thing to do.

      So a guy comes along who shows you how we can merge these groups, and then instead of having to go to three meetings a month, you only have to go to one. And instead of three sets of dues and corporate sponsorships, you only have to do one big one.

      And the days of “going around the table” to fund certain activities is no longer necessary, because you’re sitting on an organization with $20 million-plus per year to spend, and the ability to elicit sognificant foundation support.

      The staff has done you a bunch of favors. AND the new management philosophy is this: you come to the meetings, return our calls, and say nice things about us, and you leave the staff alone to run the business. So I go to fewer meetings, I only write one check, I needn’t get involved in a bunch of nonsense, and I probably won’t get publicly embarrassed.

      This leaves a daunting amount of power in a staff which is, in effect, a permanent bureaucracy, working with a small number of deeply entrenched corporate leaders, and with relatively little oversight. If you look at the Executive Committee of GCP, you’ll see no more than a single degree of separation between that small group and much of the institutional and political mischief we’re all too familiar with.

      There are more than a few really good people in civic leadership positions who are uneasy, not to say deeply concerned, about the direction of the community, of the nature of the civic dialogue, and the plain old double-talk and lack of results being achieved by their central organization.

      But who on earth wants to wade into that quagmire in the name of “reform?” It’d be nothing but trouble, it’d take a lot of time, there’s a risk of publicity, and the lads at The Country Club might stop talking when you walk into the locker room.

      So the staff, whose principal concern is their own position and that sweet compensation package, say what they have to say to get through the meetings, express no opinions, take no initiative, and just facilitate activity and process transactions. And they spend a TON of money…