Fundamental Economics: A Message to Economic Developers – Non Profit News

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“Two roads have diverged”, Theilr

Editor’s Note: As NPQ To covered, an entire “economic development” industry is engaged in what is euphemistically called “business attraction and retention,” a practice of offering tax breaks and other tax breaks that reward businesses and cost local and state governments between $ 45 billion and $ 90 billion. Recipient companies include Amazon, Walmart, and other large corporations. Ultimately, the damage falls on state and local services, including public schools, as economists like Thomas Bartik have shown. This article, which appeared earlier this month in an economic development bulletin, is a sign that at least some in this area, moved by our double pandemics of COVID-19 and racism, are seeking to change their practices.


The post-COVID-19 economic recovery appears to be in full swing, but, as many observers have noted, this is sort of a K-shaped recovery. Instead of a rising tide lifting all of them boats, instead we see two competing trends at work. Some sectors and communities are booming. Meanwhile, there is a long and growing list of those on the wrong side of the K-shaped recovery: this includes microenterprises, businesses in the main street and inner city neighborhoods, tourism and the ‘hotel industry, and [BIPOC]- businesses generally owned. Unfortunately, the challenges many of these people face are not driven by a K-shaped recovery. They were facing a K-shaped economy before COVID-19 hit.

Like many people, I hope we all do our best to fix this mess. We are rebuilding better, as we have heard from politicians. Building back better means many things: investing in infrastructure, building a stronger safety net, building more resilient communities, etc. I believe this also requires fresh thinking on the part of those of us who work in the area of ​​economic development. Our mission can no longer be limited to job creation. We must embrace a larger mission of community development.

A lot of promising things are already underway. COVID-19 has sparked great work on this front, so I’m optimistic. Groups like the International Development Council and others are revising their programs and practices to adopt new approaches and ideas. Meanwhile, the COVID-19 pandemic has spurred a host of innovations, especially in areas like small business financing, which are likely to inform current and future programs. And Washington is back in the game, making the necessary investments in critical federal programs.

Beyond the improved and expanded programs, we may also need to rethink or update some of our core ideas about what we do as business developers.

More specifically, consider the industry target for many economic development programs. For many of us, it is the business of the commercial sector. Businesses in the commercial sector are those that sell outside the local market, and thus bring new wealth. Along the way, they help build a bigger economic pie and create more prosperity.

That’s a very good thing, and that’s why many, if not most, economic development programs focus on the market sectors. But, at the same time, it also means that the local sector, those companies that only do business in the local market, don’t get much attention.

COVID-19 has shown that many of these main street businesses operate on tight margins and are at high risk during major shocks like a pandemic or an economic downturn. But COVID-19 has also shown that these businesses are important in terms of the economy, culture and well-being. Local service businesses may not grow quickly, but they are a strong and stable provider of jobs. At the same time, they anchor our communities and create a distinctive sense of belonging. Who among us would rather go to McDonald’s or Applebee’s when we could go to a good local restaurant or a watering hole? Finally, new evidence shows that busy main streets also benefit our mental and physical health. In his new book, Main Street: How the heart of a city connects us all, Mindy Thompson Fullilove shows how the neighborhoods on Main Street serve as spaces for community gathering and how they actually improve the health of local residents.

So if these local anchors offer so much, why are we ignoring them? I would say that our focus on the economic development of market sectors is a factor. I would like us to broaden this perspective to support both the market sectors and what some researchers call “basic economics”. Fundamental economics is a concept that has emerged in discussions about the development of the European community. It refers to the parts of our economy that provide basic goods and services, such as food, shelter, retail stores, doctors, dentists, auto repairs, etc. This mundane set of activities is obviously important in our daily life, but it also has big economic impacts, as it accounts for up to 40 percent of all jobs. In our current language, fundamental economics refers to those who are considered “essential workers”.

While these workers may be essential, they have not received much attention from those of us in the economic development profession. We have various programs for Small Business and Main Street, but mainstream business developers are focused on supporting business sectors, tech companies, or the next sexy cluster.

From an economic development perspective, basic economics matters in several ways. More importantly, these jobs and industries are non-cyclical. Thus, they provide jobs in good times as well as in bad times. As we have seen, even in the midst of a raging pandemic, these jobs provide a kind of economic buffer in times of economic crisis. Many basic economy companies are locally owned and therefore offer many of the benefits associated with local ownership. Finally, the goods and services provided by basic economy firms can have unique local attributes and thus help create distinctive and attractive places.

The role of the basic economy is probably the most important in helping to diversify the local economy, stabilize economies in crisis, provide local sources of employment and support the creation of local spaces. These “services” are needed in all regions.

Some European regions have adopted fundamental economic strategies. Programs are currently underway in Austria, Catalonia and Scandinavia, among others. Wales was one of the early adopters and therefore offers some advice on what fundamental economic strategies might look like. From 2019, Wales introduced a new set of foundational economic initiatives as part of a larger effort ‘to reverse deteriorating employment conditions, reduce money leakage from communities and tackle the environmental cost of extended supply chains ”. The centerpiece of the project was a fundamental economics challenge fund designed to make small investments in pilot projects to test new approaches. The Fund has supported dozens of ideas, such as childcare cooperatives, using local microenterprises to provide home care services and an online portal connecting tenants with repair contractors. Another set of strategies focus on using sourcing to support local businesses, much like the anchor settlement programs here in the United States.

It was a small grant program (about $ 6.5 million in total funds) and the pilots operated during the pandemic. So we can’t expect big impacts just yet. But the Welsh government was pleased and recently agreed to invest in an additional round of grants with funds totaling around $ 4 million. In addition, the discussions on a Fundamental Economy 2.0 strategy examine new ideas such as additional support for companies in the social care sector and increased support for the development of food systems. So, it is an experience worth watching.

We may not have called it a fundamental economic strategy, but much of our immediate economic response to COVID-19 certainly sounds like it. We have invested in restaurants, closed art places, struggling family businesses, etc. And these investments are paying off, not only in preventing business closures and saving jobs, but also in keeping the community vibrant and ensuring that essential services, like child care and transportation, are available even. in the event of a pandemic.

As we emerge from the COVID-19 crisis, do not view these programs as one-off responses to a pandemic. Let’s incorporate them into our daily economic and community development toolbox.

This discussion of fundamental economics is not intended as an argument to overlook market sectors or to no longer focus on industries that offer better paying jobs. However, I maintain that we can walk and chew gum at the same time. We can support business sectors and basic economy. In doing so, we are not only helping to create new jobs. We are also building better places that provide desirable goods and services and support better careers and lives for those working in the basic economy.

This article is reprinted with permission from Volume 18, Issue 1 of EntreWorks Insights.

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