Yesterday was the kick-off meeting of the Regional Economic Strategy Technical Advisory Group…or, as I like to call them, the RESTAG (you already know from things like B-MOW and REDEW that I’m terrible at acronyms). For those of you who have been reading about our preparations to start developing a new Regional Economic Strategy, you’ll be happy to hear that we’ve moved from talking about doing it to actually starting!
And start, we did. With about 50 people packing the PSRC Boardroom, we introduced our consultants – TIP Strategies of Austin, TX – and got people thinking about the major issues that are going to frame our thinking about the strategy: things like the increasing divergence in economic opportunity between people with and without college education, the impacts of our aging workforce and trends (both positive and negative) with regard to manufacturing.
But what stood out the most from the TIP Strategies presentation wasn’t any of those, but rather a point so simple yet fundamental that it was almost revolutionary to hear. And, with full attribution to them, I wanted to share it with all of you: “the goal of business isn’t to create jobs.”
Jon Roberts, the principal of TIP, did one of my favorite theatrical tricks when he said that. He said, “The goal of business isn’t to create jobs.” Then he paused, walked over to his coffee, took a slow sip, walked back to where he was standing, and repeated that sentence. It was like the best episode of Law & Order ever. But he’s right, and it’s essential to understand this if we’re going to understand the fundamental role of economic development.
What’s economic development’s main goal? Easy: job creation. What’s business’ main goal? Profit and/or maximizing shareholder value. That’s what they’re set up to do, and how they measure success. So, how does maximizing profit relate to job creation? Inversely! That is, the more productivity per worker, the more profitable a company can be, since more productivity means less workers to accomplish the same task, and therefore lower labor costs. As Jon Roberts continued, “that means that businesses only hire when they absolutely have to…and reluctantly.”
Now, this is not a criticism in any way whatsoever of business. In fact, it’s quite a compliment. Business knows exactly what it is and what it needs to do to be successful and then it does that. And, to the extent that we as a society feel that business’ pursuit of its goals creates negative externalities for us, we regulate: limits on pollution, minimum wages, health and safety standards for workers and products. But unfortunately, the same (“knows exactly what it is and what it needs to do to be successful”) can’t be said always about economic development. Sometimes it feels like we’re running in circles, waving our arms around to look busy until the economy runs its natural course and job creation magically happens. Do we focus on clusters as the magic bullet solution, or are clusters irrelevant? Are incentives essential to attract and retain business, or are they a waste of money and a race to the bottom? Are we as efficient as possible or are there too many organizations trying to do overlapping things?
I don’t mean to start an existential crisis for the economic development community, but what I do want to do – thanks to TIP Strategies’ insight – is think long and hard about what our regional economic development strategy needs to be because of this simple fact that the goal of business is not to create jobs. Because what I think it means is that the role of economic development is to create the business climate…or as you might want to call it, “the innovation ecosystem”…that makes businesses want to create jobs not as a social service to help all the unemployed people out there, but because they’re being so successful that productivity gains can no longer meet the demand for their products and services.
I think that Amazon.com is a fantastic example of this entire concept. Here’s a company that doesn’t play at all in the economic development realm. They’re not members of enterpriseSeattle. They don’t have a community affairs division that sits on boards and sponsors local events. They know what they want to do and they focus entirely on that, no distractions. And yet, they’re one of the fastest expanding companies in the region, hiring thousands for its headquarters and hundreds for its new Sumner warehouse. And the only reason is that 1) business is good for them (Kindles and Clouds and online retail galore) and 2) they are finding that this region has what they need to be successful…a highly talented workforce, good enough infrastructure (both in South Lake Union for its HQ and in Bellevue and Sumner for its logistics and supply chain needs), and decent tax and policy environment (like it or not, Jeff Bezos always says that the only reason he started Amazon here was “no income tax.”)
And so it’s those things: Talent, Infrastructure* and Policy. That’s what economic development can do. And if we do that well, business will – reluctantly or not – create jobs. And then we all win. So, let’s focus on that, and I think we’ll have a pretty great new Regional Economic Strategy.
*Infrastructure can be not only just roads and ports, but also “innovation infrastructure” like incubators, commercialization centers or venture capital availability.