The Three-Legged Stool of Economic Development

Urbanist gadfly Richard Florida recently attempted to tip the sacred cow of “eds and meds” (universities and hospitals) economic development by arguing that cities with a high percentage of employment in those sectors tended to do worse on other economic development measures. Florida is always good for stirring the pot, but as Steve Dubb of the Democracy Collaborative wrote when I invited him to respond on Rooflines (the blog of the magazine I edit as my day job), in this case, Florida’s statistical comparisons are a straw man: they have the causality backwards.

Eds and meds are known as “anchor institutions” because they are less likely to pick up and move, so they are likely to be a greater percentage of employment in an area that has experienced a loss of other jobs. That’s the not the universities’ and hospitals’ fault.

But I do think Florida’s willingness to explore the question is a great prompt for thinking through exactly what we do and don’t expect from our eds and meds—and from any other economic development strategy or investment.

One of the most powerful ways that anchor institutions’ economic power can be harnessed is turning the existing spending of these institutions into engines of community strength through local hiring, local contracting, and local purchasing. This is an import-substitution strategy, to use the economic term. This means keeping money recirculating in the community longer before it leaks away by subsituting a local purchase for one that used to send money out of town. It’s the same strategy as “buy local” movements on the consumer side: redirect money to businesses where the profit stays local instead of winging away to a corporate headquarters across the country (and ideally with a business where the business model involves more of the money going to workers and local suppliers and less to distant suppliers also), for a multiplier effect. This recirculation is more likely to lead to money being respent to benefit other local businesses and workers. It’s a very powerful tool, and one that has vastly more potential to be tapped.

But given that cities and even regions are not self-sufficient, import substitution does need to be paired with an export strategy—something that brings new money into the region from the outside to replace the amount that still heads out through trade with non local actors. There are “export” properties to both eds and meds too: Top university centers consider themselves exporters of highly educated professionals. Many hospitals have specialized departments that attract patients from a multistate area. But Florida’s right that not every city will be able to use those as their sole exports.

For policymakers, I think it’s important to distinguish between export and import substitution in making economic development decisions in order to think about the balance between them, make sure both are happening, and identify success measures appropriately.

Also, when you have to identify whether a particular investment is an export strategy or an import-substitution strategy, it highlights the fact that that race-to-the-bottom subsidized company stealing and “subsidize us so we can pay our workers poverty wages and you can cover their food stamps and Medicaid” Wal-mart type development are neither: they don’t actually result in a net increase of resources circulating in a community, and are therefore in fact long-run economic anti-development.

The actual third leg of the economic development stool is investment that creates an enabling environment for both export and import-substitution strategies to thrive—infrastructure improvements, quality of life and sustainability improvements that make people want to live there, investments in resiliency against coming climate disruption, equity investments that ensure a region’s whole workforce can contribute, real support for local business development and growth, etc. These investments too should be thought of with an eye to their own import-substitution potential (local hiring, for example). But most importantly, they are big-picture, with a goal of supporting the whole region’s resilient economy, and they must not be superseded by the short-term, short-sighted desires of any one institution or business.

Albany has just sworn in a new mayor. Mayor Sheehan will face many questions about how we approach economic development in this city, including conflicts over the Albany Medical Center expansions in Park South. I hope that she, the council, and her administration take every planning, economic development, and subsidy decision on its long-term merits, without being bullied by assertions like “this parking garage has to be the size we want it or we’ll take our toys and go home,” as was essentially threatened at a recent Park South Neighborhood Association meeting.

This doesn’t mean the answers will always be easy, but I’m hopeful that with a fresh start we can at least be focusing on the right questions.

(This column was originally published in Metroland, the Capital Region of New York’s former alt-weekly, on Jan. 2, 2014.)

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