So why economic development?
Because positive economic growth is one of the most important parts of people's life satisfaction, to their happiness (learn more).
Economics, first and foremost is about individual people, therefore he purpose of economic development is to empower people so they can fulfill their dreams, improve their lives; doing this requires a lot of hard work and risk. There will be times you'll fail, times you'll see people lose their jobs and dreams and this will make you feel horrible. My job in economic development was to work with entrepreneurs directly, people who had their children at their business with them because they had no money for daycare and were working fourteen or more hours a day, every day. So in order to spend time with their kids, they had them playing in their office. This means I befriended and watched entire families struggle.
These people had amazingly beautiful visions and were remarkable in their willingness to do what movies say we should do; put it all on the line for our dreams. Yet, all too often, dreams failed and ended in tears.
Starting a business is one of the hardest things a person can do. People give up their savings, their secure jobs, and work themselves to the bone – often for less money than they would have earned otherwise. I worked with one entrepreneur who was losing money, and watching his savings and dreams slip away. Yet he worried constantly that his employees weren't getting paid enough, and worried about their children. He was forced to sell off personal belongings to survive. He fretted over what he should do. Should he close up shop? What would happen to his employees if he did? Should he change strategies? Early on I wasn't prepared for this. I felt sick, anxious, stressed. People would ask for advice and it was always challenging to give it, so much was at stake, how could I possibly risk giving the wrong advice?
So developing an effective plan in economic development is important, and there are a number of possible methods which can be used to reach your goals.
1-Reducing Bureaucratic Obstacles
Governments have more power to hurt businesses than any other entity, so often times hurting businesses less, by making the system they have to exist in less burdensome, is the most important thing they can do to help the economies grow. Governmental burdens are especially damaging to plans which call for increasing small businesses. This is because while big businesses hire less employees because of regulations, they can usually deal with them. However, many small businesses are ready to start, or better yet expand, to hire more people “but they're stymied by permitting, inspections, fees, tax errors, and other challenges.” Regulations are often “outdated or poorly written or arbitrarily enforced,” and many are just arbitrary and meaningless all together as they don't directly address the concern they're meant to. Some city regulations even prevent such things as rooftop solar energy and greywater recycling; or prevent home businesses because they are so old they don't realize that a web designer can work from home while helping traffic by not commuting to work elsewhere (Brodwin, 2012).
2-Increasing Exports
No city can make everything as major cities can't grow food, mine for resources, etc. Further it's proven impossible to productively make everything in a single location, which means that every city will import. And they must export enough goods to offset the cost of doing this, or people's incomes will shrink or they'll have to move elsewhere. Hence economic plans often involve supporting companies which can export goods. It's important to bear in mind that exports come from more than just manufactured goods, as they can include a number of services. Indeed manufactured goods often account for very little of the overall economy. This is exemplified by the fact that, according to the U.S. Trade commission, the Detroit Region makes about four times as much money per person as Chicago does on exporting merchandise; yet, its poverty rate is nearly twice as high. In fact, many economists have pointed out that in “Mature Economies” services such as design, finance, information, tourism, restaurants etc., are more important than manufactured goods. Some of Salt Lake City’s biggest exports, for example, are financial and translation services, while New York firms make billions on advertising and financial services, and Boston makes a fortune from inventing pharmaceutical and chemicals research.
There are many ways a city can try to expand exports, though as most of these are mentioned as larger strategies later, I'll only briefly touch on them here.
Improving the downtown in hopes of encouraging local shopping and attracting more tourists to the city. This is also done in hopes of attracting the firms which prefer to locate downtown such as those engaged in marketing, financial services, and accounting; although there is some debate on whether this can actually attract businesses.
Attracting new business is one of the most common methods for trying to build an export industry, although this tactic is rarely ever effective given its costs.
Providing business subsidies, tax breaks and grants in order to incentivize and aid businesses in exporting goods. For example, Washington State’s sales tax isn't tied to sales made to other states, which means Amazon.com and similar companies didn't have to pay any local taxes on most of their sales for a long time.
Supporting small businesses which account for about 30% of all merchandise exports. Cities can help these businesses to increase their exports by acting as a conduit for information so that small businesses have the information they need to facilitate their exports (The National League of Cities). Further exports can be increased by nurturing entrepreneurship (McFarland and Brooks, 2009). For example, cities can build incubation programs to help increase the number of exporters.
3-Increasing Local Demand
Some tactics try to keep more money in the city by expanding local businesses. This can be especially important in cities which have a lot of shoppers leaving to shop somewhere else. For example, a lot people from Philadelphia do their shopping in the suburbs and in New York. Small cities often suffer from similar problems, with people leaving to shop in much larger locations. Further, shopping at locally owned stores and buying locally made goods, increases the amount of money which remains in the community. And perhaps most importantly, according to Goetz, an economics professor at Penn State, helps to increase wages and jobs; as compared to non-local firms which can actually depress economies. This occurs because larger businesses send portions of their profits back to their corporate headquarters (Gotez, 2011). Different studies show that anywhere from 15% to 300% more money will stay in the city when it's spent at locally owned businesses. Thus a lot more money can be used to create jobs in a city if it's spent at local businesses.
Again, many of the tactics used in this strategy are mentioned later, so I will only touch on them briefly here:
Supporting local business in growing and starting up. Such plans could include commercial kitchens to help food carts, small enterprise bakers, jam and sauce makers, etc.
Buy local campaigns to increase local shopping as bringing even a small percentage more shoppers to local businesses can create a lot of jobs. The problem of course, is realizing these changes in shopping habits through a marketing campaign, as it's often difficult to gauge the impact of buy local campaigns on consumer behavior. In Iowa where buy local campaigns ballooned in popularity, for example, there is very little data to measure the program’s efficacy (Swenson, Dave). One study showed that book sellers in regions with a buy local campaign saw sales fall 3.2% while those in regions without such campaigns fell 5.6% (Tozzi, John). So buy local campaigns may have helped slow the decreasing sales of local book stores. However, these better sales might not be because of the buy local campaigns, but may be because the two cities with buy local campaigns in the study are considered among the most literate in America and so are unlikely to want to give up book buying.
Developing the downtown to include more shopping options is one way to help encourage local businesses, however, given the costs of premium space, downtowns in most cities are filled with large chain stores and attempts to curtail this with zoning or other regulatory laws could very well end with a worse economy and a declining downtown region.
Developing neighborhoods in efforts which resemble fairly closely small business support efforts, mixed with infrastructure and beatification efforts. The difference here is that these efforts can also work with neighborhood associations, community groups, and housing development organizations in order to try to improve life in the neighborhoods as well.
4-Improve Neighborhoods and Business Districts (Downtown Areas)
Some cities attempt to improve their economy by improving their various neighborhoods, commercial corridors and the downtown areas. While many cities perform all of these they often choose to focus their efforts on the downtown area which gets the vast majority of their development dollars. The advantage to this is that by focusing on a single district they can see vast improvements in that region, whereas by dividing their money between multiple neighborhoods the money is less effective in transforming any one community. Still, neighborhoods are the places where people live, the closest shopping centers to anyone are in their communities, so some cities utilize a hybrid strategy of focusing on commercial corridors which run through multiple neighborhoods in order to create multiple improved business districts. There are advantages to each of these focuses with the neighborhood and commercial corridor advantages including the assumptions that:
1-Improved neighborhoods will increase shopping at locally owned businesses.
2-Improved neighborhoods will improve people's quality of life and happiness.
3-Neighborhoods with more amenities will attract more skilled workers to either live or stay in the city. Further, better neighborhoods will help keep people from leaving the city for the suburbs.
4-Improved neighborhoods will help attract certain types of businesses. As previously mentioned certain types of businesses want to build in nice neighborhoods which lay on the periphery of high rises. Even in a small city like Prosser Washington (Population just over 5000) most new growth has occurred on the edges of the town rather than at its center.
Focusing spending on improving the Downtown is based on the assumptions that:
1-Having a large shopping center will attract people from outside the city and encourage people to travel downtown to do their shopping, rather than to malls which might exist outside the city.
2-Many large service businesses like to locate in downtown areas, so in order to attract and retain these businesses the city needs a nice downtown.
3-The downtown region represents the city to tourists, so by improving it the city increases tourism.
4-Big projects focused in a single area are more likely to have more positive results than lots of small projects spread out over a large area.
Some of the common tactics and projects used to improve neighborhoods and down town areas include;
Micro-business support to help businesses with fewer than ten employees start up and grow. Such businesses have unique needs which are largely unmet by traditional forms of financing such as loans from banks. And although the Federal government has a Microlending program to support them, this is too limited in scope to encourage the type of growth most neighborhoods need. So some places expand on these financial support programs with their own programs. In addition micro-business growth is supported by educational programs which include workshops, training programs, and or consulting programs. Though it can be extremely challenging to work with micro-businesses because:
-Entrepreneurs are often overworked and can't simply leave work for training as they are the ones keeping their books, running their store fronts, etc. Hence time is crucial to entrepreneurs so they can't wait months for bureaucracies to get through the process of approving a facade improvement grant worth only a few hundred dollars or tax returns worth even less. This means that many programs remain underutilized by those who most need them because they simply can't afford the time and delays necessary to take advantage of them.
-Similarly many business owners have become disillusioned, so while they might at first be excited about programs, most of the time these will let them down and they therefore will become unresponsive to additional programs in the future.
-Business owners may be distrustful of government organizations or those they perceive as having ties to the government, seeing these as the ones who swoop in and fine them arbitrarily for silly things such as having a sink that's half an inch too small. Others come from foreign countries which they left, in part because of problems with corruption.
-Others don't want to expand as they have enough customers to meet their needs and don't want to have a lot of employees to manage, more customers to bug them, a larger inventory to deal with, etc.
-Some are embarrassed that they need help and don't want people to know they are struggling. These are, after all, the kind of people who struck out on their own, so the notion of asking for help and admitting to difficulties is abhorrent, thus they will either shut down without saying a word or only seek help when they are already far into debt.
-Microbusiness owners often have poor or no credit and so don't have any real way to access even subsidized loans.
-Microbusinesses are always on the razors edge and many will go out of business even with support. One organization which provided assistance to three businesses in the form of web-design and accounting services saw all three fold, before the projects were even completed. Many of the businesses I worked with folded or moved to locations outside of the neighborhood I was hired to help support, thus negating my efforts (although in the latter case at least the jobs they created still exist, just somewhere else). There are, in essence, three options here. The first is that you can help those who need it the most and accept a lot of potential loss in order to save businesses. Second, you can choose to help stable businesses expand – but even these 'stable' businesses can still go under. Finally, you can make it so easy to start businesses that there will be a lot of attempts and some will be successful on their own. However, there's a good chance that not enough people will start businesses to pull a depressed area out of poverty. Regardless of what you do it's important to understand the precarious situation many micro-businesses are in when designing and implementing programs to support them. A single downturn, an illness, etc. can cause a seemingly stable business to go under. In order to deal with these problems you need to realize first and foremost that you can't help every business, there are far too many of them and the challenges and difficulties in helping some of them are far too great. Like any good investor, you need to build a cost effective portfolio of businesses which you help.
Supporting stable small and big businesses which often need less training that the city can provide (though some city programs hire consultants from major consultancies to work with these businesses). However, they are also in a better position to take advantage of incentives from tax programs, grants, government supported loans, and so forth.
Bureaucratic reduction is more obviously important here than at any other level as red tape, double taxing, and more, prevents micro-businesses from starting up and forces others out of business, which often leaves a lot of empty buildings in neighborhoods. To find out where the biggest snags are in opening and maintaining businesses you need to do research. Some of this research can be through surveys and perhaps experimentation in which you hire people to role play the process of opening a business, or through observation (which is often already done by employees of community development entities). Once these snags are discovered real effort needs to take place to try to smooth them out.
This is about more than simply helping business stay open, it's also about emotions. The friends of small business owners are the ones who are most likely to try opening businesses of their own. Yet, if small business owners are always emotional and annoyed train wrecks how many people who speak to them, or know them will want to try opening their own business?
Training programs for micro-businesses are often the key to micro-business growth. According to Claudia Viek, when business owners receive training, consulting, and help creating business plans they have an 80% success rate and create an average of two jobs over five years. However, such success depends on the quality of your training programs. Often such programs are fairly easy to put together as local business owners will often volunteer to help and SCORE and Universities often have training programs in place. The biggest challenges you'll face then are figuring out what business owners actually need to learn in order to expand, getting business owners to attend these programs, and having business owners implement what they've learned.
Workshops
Given their short format workshops usually teach business very specific things such as accounting, social media, marketing, store design, etc. Generally workshops are easier to get attendance for than classes as they take less time, however, they impart far less knowledge and aren't necessarily specific to the needs of a business owner. To deal with these problems you can try working with SCORE or other entities in order to have a follow up consulting program in which the workshop’s purpose was to give businesses owners an introduction to the later consulting. Another function of the workshop can be to find people interested in taking part in economic development programs so that you can begin to work with them in other ways.
Classes
The SBA actually has a series of classes to train entrepreneurs which are available at many colleges and universities for almost no money. Entrepreneurs can learn more at these classes than at workshops, and can get to know each other and their teachers better and so begin to ask questions more comfortably. Finally, the repeated exposure to information can increase the likelihood that they will utilize it. But very few current business owners have the time to attend long term classes, so these will likely be primarily attended by people who want to start a business. This means that those attending classes may decide not to open a business where you want them to or at all.
Consulting
Consulting programs have the advantage of being able to give business owners highly relevant information, and there are many organizations such as SCORE which can provide these. SCORE, however, has limited time so it can be useful to expand on their resources with your own program as well. , The challenge with such programs is that although they can have better outcomes per businesses, consulting is more expensive than any other training method.
Webinars
There are many webinars for small business owners that already exist and which you can promote and expand upon by creating question and answer follow ups with your own consultants or online forums.
Access to information
One idea I've never seen implemented but think would be useful, would be the creation of a list of recommended books while also expanding your local library’s business book offerings.
Specific vs. non-specific training
In addition to general information, such as how to use social media, or how to use Quickbooks, training programs can also be designed to support specific business types such as micro-manufacturing, boutiques, restaurants, etc. While more people can attend non-specific training that doesn't mean they will. The best attended workshops I put together were targeted to specific businesses, because targeted marketing is often more effective than general marketing. Further, specific training can provide more relevant information to those attending.
Assistance programs can be developed to provide small businesses with direct support by hiring accountants, web designers, marketing planners etc. for them.
Lending programs can be used to support small businesses. Even when you don't have money to provide loans you can help business owners get loans. Such programs can involve calling banks to find out what their actual lending requirements are. Often times when you ask a bank what kinds of loans they make they will respond by saying that you should just send someone in, but if you ask specific questions like if they lend to restaurants or people with a specific credit score they will say no. Compiling a list of which banks will never lend to certain types of businesses can save business owners a lot of time. Further you can provide financial and credit consulting to help businesses obtain loans. Finally, you can set up your own lending programs, which for cities typically means searching for a trustworthy organization that can make the loans for them. Starting a lending program takes a lot of time and expertise and with the possibility of losses from the high risk of defaulted loans these can be very expensive.
Attracting large businesses is often the core of economic development programs, especially those focused on downtown areas. However, many researchers have found that such programs have little impact on economic growth despite the money poured into them. Many incentive programs used to try to attract businesses simply transfer taxes from the existing population to incoming businesses. Yet despite having no real economic analysis to support their use, these programs continue to be used because they are easy to enact (Liou, 2009). The actual relocation of a large business is very rare and is due to many factors which often have nothing to do with incentives (CEO's for Cities). This isn't to say business attraction plans never work, nor is it to say that a business relocation can't have a big impact. It could be argued, for example, that the biggest boost to Seattle was the relocation of Microsoft to Redmond. However, there was no program which made this happen. Further, Microsoft was small when it relocated so its growth was necessary for it to have an economic impact. There are, of course, cities which are above average, so in order to utilize this tactic you need to have some means of making your city more successful than average.
Attracting businesses to neighborhoods is typically about increasing the amount of amenities available in a community. For example, if a community doesn't have a grocery store, then efforts are made to attract one. If a community’s residents spend most of their money at restaurants outside the community, attempts are made to bring these in, etc. The hope is that these amenities will improve the lives of residents and make people more likely to want to live within the city. Thus these programs can reach out to specific entrepreneur psychographs, rather than large companies.
5-Growing Existing Businesses
Most economic growth in cities comes from local firms which grew into big businesses. Outside of Microsoft and a few others Seattle's largest firms (Boeing, The University of Washington, Amazon.com, Nordstrom, and Starbucks) were all founded there, and Microsoft was small when it moved to the area. Similarly, the San Francisco Bay Area, which had the largest increase in the number of large corporate headquarters, grew primarily because the firms which had been founded there were able to grow (CEO's for Cities). In order to help businesses expand you need:
1-The type of workforce, with the skills necessary to support the businesses growth.
2-A business environment that is friendly enough to allow the types of businesses you want to grow. Amazon.com, for example, likely couldn't have grown very many places other than Washington which allowed them to pay less taxes. Though taxes aren't everything; many businesses have grown in New York, Tokyo, and Silicon Valley which have high taxes. What's important is that you know the needs of the businesses you’re trying to support.
3-Capital assistance programs such as tax breaks, loan programs, etc. that help businesses grow.
4-Regulatory policies that make sense and don't prevent businesses from growing. For example, one of Hollywood and Silicon Valley's biggest advantages is that California doesn't allow many types of non-compete clauses. This allows talented individuals to move freely from one company to another, creating a better synergy of knowledge workers. What's more it allows knowledgeable and skilled people to found their own businesses at will, although cities are often beholden to state laws in this regard.
Small business markets such as Reading Terminal Market in Philadelphia and Pikes Place Market in Seattle are among the most famous places in those cities and are home to hundreds of micro-businesses. Pikes Place employs over 1500 people. Further, these places are natural incubators, which is why Pikes Place is home to the first Starbucks and Beecher's Cheese. Further, perhaps more than any other project, Pikes Place improves the emotional feel of the city, encouraging people to shop locally while drawing millions of tourist dollars. Typically, such programs are set up with a non-profit organization to manage them.
Infrastructure development projects within communities are primarily focused on making them more attractive places to live and shop. The challenge here is knowing which infrastructure improvements will actually have a positive impact and how large an impact this will be. After all some infrastructure improvements cost tens of millions or even billions of dollars and so may not have a large enough impact to defray their costs.
Educating the people within a community can be a good way to help them get better jobs and start businesses. According to Nowak, developing the economy requires an understanding of local labor needs. Understanding what skills businesses need and the barriers to employment, and then working to deal with these issues, enables people to be linked to jobs.
Buy local campaigns for neighborhoods tend to be very much like tourist campaigns, except that they are targeted locally, with a unique and effective brand for each neighborhood. However, such programs could cause money to leave some neighborhoods, as some communities will be more successful in their campaigns than others. The overall series of targeted efforts might be more effective than a general untargeted campaign could ever hope to be.
Crime reduction in high crime areas is perhaps the most important part of improving life and business in neighborhoods. Fear of being attacked prevents people from shopping and theft destroys businesses profit margins and prevents businesses from opening at all.
Business associations and networks are some of the common means by which various community development entities attempt to help businesses. However, while business associations may begin with a lot of optimism this is typically followed by a lack of accomplishment, which leads to a drop in attendance. Early on, the businesses typically strain to think of a purpose, or begin infighting among themselves, to the point that many stop coming altogether. This indicates that business associations should be formed with:
Local events are one of the most popular ways of raising 'awareness' about a community by drawing people to it or by getting community members to come and see shops they otherwise might not have realized where there. The hope being that, although events only last a short time, they will change people's perceptions about a community and promote local businesses. In order for this to be effective, events need to be tailored to each community’s brand and designed to make people more aware of local businesses.
Micro-manufacturing and service businesses can be vital to a neighborhoods growth as many neighborhoods were once built on manufacturing. While such manufacturing is going away there are still many opportunities to help small manufacturers grow. In fact there are some 250,000 small businesses that manufacture products in the US. The opening and support of such businesses within a community can help to create more jobs. Other small businesses which can be supported to grow a community could include those engaged in services such as web-design, consulting, accounting, etc. The Inc. 500 list of the fastest growing businesses in America, for example, lists a number of small marketing firms.
Arts districts are typically used as a strategy in revitalizing declining urban regions. The idea is that the arts and cultural events can help to enhance an area, bringing new people into it that otherwise wouldn't come (Americans for the Arts).
6-Education
Successful urban plans need to focus on helping everyone in the city learn and not just traditional students – “an error commonly made in today’s over emphasized reliance on “creatives” – to take up the possibility of innovating and making new companies that meet unforeseen demands in world markets beyond the city” (Schramm, 2013). Because poverty can only be reduced through high growth businesses, cities need people with the skills that companies need to grow (Schramm, 2013). Education for specific jobs is important because in many cases the most in demand jobs often didn't exist a few years ago. Further, the biggest challenge facing most high growth businesses, is a lack of workers who have the skills they need. Educational programs have three strategic purposes with regard to economic development:
1-To improve employee productivity so that they can earn more money.
2-To give businesses the skills they need to grow.
3-To attract businesses to your region.
7-Encouraging Entrepreneurship & Business Expansion
Goetz and Flemming found that while many communities try to bring in outside firms these tend to only encourage short term gains, not long term growth the way startups do. They go on to state that "We can't look outside of the community for our economic salvation." Goetz points out that the best strategy is to help people start new businesses, and to help local businesses grow. Much of this book has already discussed methods for trying to build entrepreneurship in your city which include: education programs to build the skills necessary for businesses to start and grow, supporting businesses with training programs and financial support, and breaking down the governmental barriers to growth. Further programs can be designed to create a culture of entrepreneurship by celebrating successful entrepreneurs and bringing the option of success through self-employment and the opening a business to the forefront of people's minds. This includes making a culture that forgives and accepts failure, realizing that those trying to do something great will often fail once or twice. Entrepreneurship is important to the larger economy because economies grow through new ideas and wane as ideas stagnate. This theory known as “Kondratiev Waves” states that new ideas and inventions spur economic growth by increasing demand and productivity, but as an idea loses popularity the economy contracts until the next idea comes along. Thus the primary force behind economic growth comes from innovation, which is often created by start-ups. Further, one shouldn't forget the simple importance of self-employment which is growing more important as more people need to create their own jobs, and which was one of the best predictors of city growth over the past few decades (Kotkin, 2012) (Cox, 2013).
According to John Sutton economic growth comes primarily from a gradual build-up of companies’ capabilities, which raises the wages throughout the economy. As a result capital begins to accumulate which in turn further raises wages, and makes it possible for companies to increase their capabilities even more. To start this process he makes the point that “no country has become rich without explicit government interventions that amount to industrial policy in different shapes and forms. Obtaining the capital costs necessary to make these interventions is one of the biggest challenges to starting this process, as is the fact that people must learn new processes for this to work (Felipe, Kumar, and Abdon., 2013).
8 - Clustering and Diversification
The idea behind business clustering is simple enough, companies are more likely to grow and start near similar companies. This is because people's knowledge plays off of each other, entrepreneurs often come out of larger companies taking their knowledge with them, and companies need to be near similar companies to continually attract new employees. Google and Amazon for example, have to be in tech clusters because they have a high turnover rate and have to hire thousands of new workers every year, which they can only do in an area with thousands of tech workers looking for jobs. Because of the importance of having similar businesses close together, clustering tactics are geared toward building up specific industries in hopes that by focusing on a few industries, economic development efforts will be more effective. Hence all cluster strategies should begin by determining which industries the city has already started to develop clusters in, which industries are likely to allow for the most growth in jobs and employee incomes, which industries you are most likely to be able to build up, and which ones are likely to be stable over time, so that you can focus on growing these. While certain industries have become popular for clustering strategies, such as tech industries and “green industries,” each of these has so many competing cities trying to grow and expand their industry, that in order to do so you must compete with other cities. A few tactics for building clusters include:
Business attraction efforts by most cities fail to bear fruit. Further such efforts, especially in popular industries can become expensive as each city tries to steal businesses from the others.
Tax and other Financial Incentives Geared Toward Specific Industries
Targeted Education and Skill Training
The passage of laws to support the industry. For example, in order to grow its wine cluster which is now worth billions, Washington State, reduced regulations on the industry with regardto trade and sales in grocery stores.
Marketing to support an industry is often utilized in agriculture or tourism; however, government agencies could potentially support many industries through such efforts. San Jose made a move to have an education cluster when it offered $40,000 to help the best teachers buy homes. Any city could offer similar support to the most skilled people from any industry, or they could give rewards to the best performing workers in their city in the chosen industry.
Creating a good environment for specific business is often the best strategy for clustering so that businesses can begin to develop their own competitive advantages. Along with this you should work to take advantage of industries that have formed naturally. In Philadelphia, for example, a restaurant cluster began to grow despite the difficulties inherent in starting a business in the city. This is largely because the cost of buying buildings was cheap after urban blight and years of business failures. A few years ago, many of the restaurants on the list of the “Best of Philly” were in communities which had collapsed creating a lot of vacant low cost buildings. This made these communities natural incubators for young chefs opening restaurants on a low budget. Restaurants such as Standard Tap and Las Cazeualas in North Philadelphia can be given a lot of credit for beginning the transformation of their neighborhood and luring more people to relocate into or stay in Philadelphia, and ultimately attracting billions of dollars in investment in other restaurants, so that now most of the top restaurants are in the more expensive downtown area. As with so many clusters this wasn't planned, it happened on its own because of the low cost of properties. Still, despite the fact that the restaurant industry has grown over 40% in the last few years while the rest of the city’s industries have remained fairly unchanged, according to Philadelphia Magazine, its growth has been hindered by the city’s bureaucracies which include, “Byzantine licensing and permitting regime that causes some would-be new business owners to burn through their seed money before they even open their doors” (Smith, S. 2013). I've seen firsthand how many restaurants never open, have had their growth slowed, or shut down because of the costs associated with regulations. In many parts of the city, getting a sidewalk cafe requires a city council vote. This is the reason that the Brookings Institute recommends creating the conditions necessary for clusters to grow naturally, only stepping in to help them after they've appeared (Cortright, 2006). In fact, there have been very few clusters which have been manufactured by government programs using any methods (Wadhwa, 2010). There are some, of course, in Taiwan and Singapore, for example. Yet when playing for specific clusters, as opposed to expanding clusters which are growing naturally, a city is competing for a limited resource and so may suffer from the Resource Curse, in which cities as a whole end up spending more money over all to win the lottery of business attraction than it pays out.
Beautification and arts projects, while I love these, I have to agree with Moretti that arts have not brought the creative class to cities, because if being artistically cool, and having amazing amenities were the most important part of having tech industry growth, New York, Paris, Berlin, and Chicago would be the tech centers not Seattle, San Jose, Salt Lake City, etc. Instead the existence of tech clusters supports the arts.
Business Diversification
There is some evidence that cities with more diversified economies perform better, especially in the long term as industries can rise and fall. The most dramatic examples of this being cities like Detroit where clustering in the auto industry caused it to rise rapidly but also made it fall when that industry ran into trouble. Though it's also interesting to note that transformation economies, those growing quickly, tend to be more diversified than G7 economies which have stabilized (Shediac, Richard; Abouchakra, Rabih; et al). According to this same study, a lack of economic diversity creates lower levels of productivity and demand. Meanwhile, a Levy Institute report states that the countries which have succeeded in escaping poverty are those that “managed to change the productive structure of the economy, and have been able to produce and export a more diversified and sophisticated product basket.”
9 - Safe and Beautiful
Crime Reduction
Crime reduction can be an important part of improving the economy. Take, for example, the case of Yakima and the Tri-Cities, two mid-sized metro regions in Eastern Washington surrounded by a number of tiny cities. Twenty years ago Yakima's economy benefited greatly from an influx of retail shoppers coming to its malls and other stores. As gangs began to move into the region the Tri-Cities took a strong stance, while Yakima delayed. The cost of this delay forced many businesses under, especially local businesses which couldn't afford security and other anti-theft measures. In addition Yakima's stores lost sales as people from smaller cities were afraid to shop there. Since that time the Tri-Cities has had an economic boom, fueled by retail growth and growth in winery tourism from Seattle and Portland. Yet despite the fact that Yakima has a similar growing region for wine and is more than an hour’s drive closer to Seattle, fewer tourists visit them. People don't want to work, visit, or live in high crime areas and retailers can't afford to stay open in them. Similarly a large part of the reason New York City's economy has been growing is its success in reducing crime (CEO's for Cities).
Creating a more beautiful city
In business, more than 70-90% of large mergers fail, yet these are one of the most popular strategies for CEO's looking to grow their company because they increase prestige. In fact, despite their failure rate, nearly 2 trillion dollars per year is spent on business acquisitions (Christensen, Alton, Rising, and Weldeck). I would venture to guess that beautification and infrastructure projects are like mergers. They usually don't do what they claim to and end up costing more than expected, yet everyone keeps doing them anyway. However, it's difficult to make sweeping statements about infrastructure improvements, as there are almost no measures in place to determine their exact impact. Still sports stadiums, one of the major beautification/infrastructure programs that are supposed to benefit communities, usually end up costing more money than they generate. There are exceptions to this, but the point is that if most stadiums can't attract enough people to shop in a city it's difficult to imagine very many beautification projects could. To determine if such a project will be financially successful, you need to ask yourself if it could ever possibly attract the dollars put into it, given that projects need to generate more money than their costs, because most money spent at businesses will be used by the businesses to purchase merchandise which is made outside of the city. Further, most cities have to buy bonds which means they have to pay interest over the project’s costs. This means that for every dollar you spend on a project it may need to encourage about $4 worth of local spending that would not have otherwise existed just to break even.
Ultimately the emotional impact of beautification projects, are likely a far better argument for them than any economic impact. Nancy Wells, an Environmental Psychologist, from Cornell University, has a number of research projects which show that community design can help people live healthier and happier lives, finding, for example, that parks reduce stress (Cornell). And since the purpose of the economy is to increase people's quality of life, beautification can be an important way of achieving this ultimate goal. However, there have not been many studies on the emotional impact of different projects, so it's hard to say which projects would be the best or how much they would help. In addition, each place is culturally different, which means that what makes one place happy wouldn't necessarily have the same effect on another place, and even then you have to ask yourself: ‘Will this project make people happier than any other project would?’ For example, instead of spending $30 million on new lights you could choose to not take on bond debt and spend 1.5 million to hire 10 additional police officers for the next 30 years. You could also do something unique, such as paint 3000 murals at $10,000 each. Or open 10 Galleries / Mini-Art Museums to show off the history of local art.
Of course with all of that said, much of the money for infrastructure comes from the Federal Government, which means that it's 'added' to your local economy. Therefore you can develop infrastructure plans, not to have a positive impact, but simply to get as many government grants as possible so that you can make money off Federal spending (Mason, 2011) (Deakin University, 2008) (Baade, Vail, Matheson, and House) (Smart, 2012).
As with all tactics and projects, beautification efforts need research backing them with the ultimate question being: What kind of neighborhood do people want to live in? Finally I have yet to hear of a city that uses the actual emotional impact of art in their decision making process. The Philadelphia Mural Arts Program comes closest by involving neighborhoods in the murals they plan to paint. To do this they:
1 – have an application process for communities to sign up to have a mural painted on one of their walls.
2 – They meet with residents in the community repeatedly in order to design the painting, in fact artists are chosen for the program by their ability to work with community members.
