(Note: these blog posts are adapted from writing I have done on behalf of my work at Servant Partners research economic development over the last few years, specifically revised recently as we rebuild from COVID. I have broken that article up into small bites, which I will post to stay under substack’s email limits. Links to Parts 2 and 3 are at the end of the post)
Towards a Process of Economic Transformation
The COVID-19 Pandemic has highlighted the imperative of Servant Partners staff to care about the economic well-being of our community. The pandemic has devastated our communities economically, and many have been in need. While some parts of the world are emerging out of the pandemic, the economic consequences will undoubtedly continue to show up for some time.
COVID has also illustrated the fine line in our work: on the one hand, we want our work to be grounded and centered in the specific communities where we work. On a theological level, we believe that God is already moving in our community and has been long before we have. So we should look for ways to move in concert with ongoing efforts in our neighborhood, rather than always starting new ones. This approach requires a level of humility, to not assume that we are called to “fix” or “solve” every problem we see.
At the same time, there is a call to “do something,” especially in the face of an urgent crisis like COVID-19. We are to look for ways we can be catalysts of transformation in our community so that our neighbors can better experience glimpses of God’s kingdom, as we see laid out in Micah 4:
In the last days
the mountain of the Lord’s temple will be established
as the highest of the mountains;
it will be exalted above the hills,
and peoples will stream to it.
Many nations will come and say,
“Come, let us go up to the mountain of the Lord,
to the temple of the God of Jacob.
He will teach us his ways,
so that we may walk in his paths.”
The law will go out from Zion,
the word of the Lord from Jerusalem.
He will judge between many peoples
and will settle disputes for strong nations far and wide.
They will beat their swords into plowshares
and their spears into pruning hooks.
Nation will not take up sword against nation,
nor will they train for war anymore.
Everyone will sit under their own vine
and under their own fig tree,
and no one will make them afraid,
for the Lord Almighty has spoken.
All the nations may walk
in the name of their gods,
but we will walk in the name of the Lord
our God forever and ever.
As we think about economic development, this calling is no different: we are called to do work, often in coalition with others, to bring “kingdom economics” into our neighborhoods. How do we do this well? This article will attempt to lay out a framework for doing so, including a 5-step process of economic transformation that balances these objectives:
Step 1 = Understand the Economy’s Big Picture
Step 2 = Listen to Community Needs
Step 3 = Identify Community Assets
Step 4 = Identify a Strategy to Prototype
Step 5 = Build a “container” that can sustain the work over a longer time frame.
Step 1: Understand the Economy
When talking about something as complex and emergent as an economy, it is essential to recognize that there is no silver bullet solution to rebuilding an economy. Instead, efforts that move the needle must be pursued on multiple levels: governments, businesses, community groups, and individuals all have their part to play. It is helpful to think of the economic system as an “ecosystem” full of moving and interdependent parts. In a natural ecosystem, we can see how a forest is interdependent with the sun, the trees, the soil, and animal life. In the same way, we can think of the economic well-being of a community as a kind of “human ecosystem,” where the relative health of a city depends on a variety of interdependent elements.
There are four critical elements of an economic ecosystem, and to create a thriving economic ecosystem, you need all of them to be working together:
All four need to be healthy for an economic ecosystem to be operating at total health. That said, ecosystems are resilient; weaknesses in one area can often be assisted by strengths elsewhere. Understanding how these four elements interrelate will help guide us to interventions that can help bring the whole ecosystem to better health in the long run. So we will examine each part of the ecosystem in turn.
1) Workforce
The workforce is a fancy way of saying that the people in our neighborhoods bring a host of specific skills, gifts, and talents, which they can use in the economic marketplace to create value for others. To improve an economic ecosystem, one of the first places you should look at is the relative health of the community’s workforce.
When you think about a workforce, you should first and foremost think about the workers’ skills. Traditionally, economists have done this by creating a spectrum of low-skilled workers (like working at an ice cream shop) to “high-skill” workers (like lawyers and doctors)
A common misunderstanding of this traditional scale is judging how valuable a job is to society. This moral judgment is not proper; many high-skilled jobs arguably are of minimal use to society (like a plastic surgeon who operates on celebrities), while many low-skilled jobs are vital (like home-healthcare workers). I have found it more helpful to think about skills being “scarce” or “abundant.” While many people would be able to perform the work of an ice cream shop employee with a short amount of training, under current US law, to become a doctor requires years of training. Whether that training is socially helpful or just a means of inflating doctor’s salaries is up for debate.1 But either way, we can presume that doctors will be a scarce labor commodity in the coming years. While this scarcity is a boon to doctors, their high wages and shortages are a net negative to the economic ecosystem as a whole. The local economy would be much better off training more doctors, thus allowing medical care to be more quickly and cheaply accessed (and more people to access the well-paid industry). Therefore good workforce development is primarily concerned with increasing the supply of “scarce” skills.
When thinking about labor market skills, it can be helpful to think about two distinct kinds of skills: Baseline Skills and Technical Skills: Baseline skills are work skills that are generalist in nature: they can apply to many different jobs and industries: communication, timeliness, research, and writing. A powerful communicator will find that while this skill set will take some time to cultivate, it will also serve them well in various jobs contexts for the rest of their career.2 They often take years of cultivation to build up (one does not become a skilled writer overnight), which is one reason these baseline skills are usually cultivated in traditional K-12 and college education. That said, one should not discount that many of them can also be taught on the job in specific contexts, which can be especially helpful for workers who struggle to engage in school.3
On the other hand, technical skills are specialized and context-dependent: electrical wiring outlets, coding a website or cleaning teeth. Technical skills can be taught more quickly (though mastered over a more extended period) but are often more prone to economic change and disruption.4 Thus, it is essential to structure technical skills training to plan for frequent re-training/up-skilling, whether through on-the-job training or community-based programs. It is also important to identify skills that can be quickly learned and built upon to springboard workers into better career paths down the line.5
Both Baseline and Technical skills exist along a spectrum, where some are more or less scarce. Of course, these can vary depending on the economic context, but there are specific trends of scarcity or abundance that are universal:
So when creating a typology of jobs, it is helpful to segment skills into four distinct types, depending on whether they require higher or lower amounts of baseline or technical skills.
Ultimately, the highest paying careers both ask workers to learn scarce technical skills AND scarce baseline skills so that robust workforce development will include lots of funding for traditional educational institutions AND more technical and vocational programs. One of the most important ways to do this is to align existing programs with the needs of local industries. For example, North Carolina has successfully created a community college-centered vocational training program that customizes job training to individual employers' needs.6
Its also important not to discount the expected skills, both baseline and technical. Research repeatedly shows real long-term harms to being out of the labor force for extended periods,7 especially for men, who, unlike women, do not tend to become active caregivers when they exit the labor force and see their life outcomes deteriorate.8 Thus, it is also essential to ensure that as many men as possible are prepared by K-12 education to have the baseline skills necessary to stay engaged in the labor force.
2) Business
Businesses exist to create value for consumers in the form of goods or services. Producing these goods and services allows them to hire skilled workers to ensure the business can create value. A healthy and entrepreneurial business sector creates opportunities for those workers. In contrast, a lack of healthy and robust business activity often leads to a “brain drain” where talented workers leave in search of greener pastures.
It is essential to understand that not all businesses play the same role in an economy. There are two distinctions worth considering: The first is the spectrum between “traded” vs. “non-traded” goods and services.9 The distinction is based on the reach of a business. While traded goods are exported into other communities, non-traded goods are consumed primarily within the community of origin. For instance, Apple’s iPhone is a “traded good” because while it is designed at Apple’s headquarters in Cupertino, California, the end product is sold worldwide. A disproportionate amount of this revenue brought in by these phones ends up getting re-invested in Cupertino in the form of high wages for workers with relatively scarce skills in software and design.
Conversely, a restaurant is almost always on the other side of the spectrum as a “non-traded” good. While an exceptionally famous restaurant may draw in some visitors from different parts of a metro area, the vast majority of its clientele on any given day will be people who live in the immediate neighborhood around the restaurant. The same goes for doctors, lawyers, and teachers: primarily jobs heavily dependent on local geography instead of global trade. Thus on a regional level, while the health of the non-traded sectors is essential, their success is often reliant on the traded sectors. It is no accident that cities with healthy traded sectors tend to have higher wages for local workers in non-traded sectors like restaurants, medical, and education: the wealth created by the traded businesses gets redistributed to all workers in the region.
In the modern global world, one evident trend in the last 30 years is traded promising sectors “clustering” in fewer and fewer regions. The most iconic example of that is the tech sector. Even while it has become even more global in its reach, it has concentrated more of its traded goods tends to cluster a higher and higher percentage of the leading companies in the San Francisco Bay area. Industry clustering can often be explained downstream from historical luck: once a cluster starts to form, it can create a virtuous cycle that is hard to end. New companies are attracted to a region because of the skilled workforce, financial sector, and infrastructure that have already been built up around an existing cluster. The new companies presence then just further builds up the economic ecosystem until a significant disruption changes course.10 We can also see clustering on a metro level: many of the lucrative “traded” jobs will cluster in specific segments of a city (like a financial district or creative district). Some neighborhoods will thus have better geographic access to well-paid jobs downstream from those sectors, while others will be disadvantaged.
To try to create “clusters,” many localities (whether on a metro level or neighborhood level) go to great lengths to attract and “incubate” business activity in their region, trying to accelerate this process of creating jobs. These incentives serve as a form of unequal corporate welfare, and these efforts are met with mixed to negative success.11 This is often because a lot of time and money (through tax breaks or subsidies) can be spent on attracting jobs, without a precise long-run analysis for how those jobs created will offset the money spent on attracting those companies. The types of companies who are likely to respond to a tax incentive to relocate are likely the same sorts of companies who will leave once another locality offers a better tax incentive.
Thus the second distinction that is important to make: how invested is a business in a local community? While no company can be expected to be 100% wedded to a particular locale, a good indicator of their willingness to stay long-term is the amount of investment they are willing to put into a community. Both capital investment (for instance, building a factory) and relational investment (in the form of a business creating a network of dependent relationships with other companies and institutions) can be good indicators of whether they are long-run.12 In its early years in business, Microsoft relocated to Seattle, Washington, primarily because the founders (Bill Gates and Paul Allen) had family ties there. One can make a case that Microsoft’s location was instrumental in the city’s resulting economic turnaround and catalyzing a local tech cluster. But it was impossible to see this coming at the time. This is a good case for broadly incubating early-stage businesses with growth potential (especially in that are willing to invest locally, not knowing which particular company may or may not succeed. Therefore, one can make a good case that cities and states should base their economic development programs on broadly incentivize businesses that invest ly invested, rather than traditional tax incentives.13 One of the best strategies is to cultivate new startups with high growth potential in traded sectors. It is best if these startups have local roots but develops local investment in their early years.
Thus we have our typology for different types of businesses:
Economic Development Efforts can and should invest in all four business types, but knowing the role that each has to play:
Local Startups: Like early Microsoft in Seattle, local startups in the traded sectors should be broadly cultivated, knowing that they will often fail because a small number of successes can drive long-term economic health. Their local investment will likely pay off long-term.
Relocating Industries: Like Amazon’s HQ2, these businesses are existing companies looking to expand or relocate their operations. They should be sought out, but attracting them is often very competitive. Their local investment can be minimal, so it is vital to pay attention to the costs and benefits of attracting them.
Franchises/Chains: Like Starbucks, these businesses are limited in the impact they can make in a community job-wise because they are both non-traded and not as locally invested. That said, they are an essential part of the local business ecosystem as they do create valuable jobs. Because they are based on a proven model, they are easier to get up and running and generally less prone to failure. Thus, a city seldom has to worry much about attract chains; the market often does a good job ensuring they will appear profitable for them.
Niche Local Business: Like the local Diner your Grandma visits, niche businesses also play an essential role in the local business ecosystem. Their local investment and knowledge often help them create business models off the ground, serving local customers and niches that otherwise would get ignored by the large outsider businesses. The biggest hindrance these businesses often run into is red tape: their proprietors cannot often overcome a series of obstacles thrown up by local governments. There is a wonderfully frustrating scene in the lauded HBO tv show “The Wire” that illustrates this plight:
But before you, this scene is merely a fictional exaggeration; look no further than the horror story of when an Ice Cream entrepreneur had to spend $200,000 trying (and failing) to get a shop opened in San Fransisco. Many cities have not internalized the full impact that over-regulated local business can have on local niche businesses!
To see an argument against the economic usefulness of licensing doctors, see https://www.niskanencenter.org/u-s-health-care-licensing-pervasive-expensive-and-restrictive/.
See Burning Glass’ report, The Human Factor, for more on baseline skills: https://www.burning-glass.com/wp-content/uploads/Human_Factor_Baseline_Skills_FINAL.pdf
Year Up is one program that has successfully taught baseline skills to marginalized teenagers in a work/job training context, though it is unclear how much the program can scale. See https://wisfamilyimpact.org/wp-content/uploads/2015/11/Barnow.pdf
See Burning Glass Report, New Foundation Skills: https://www.burning-glass.com/wp-content/uploads/New_Foundational_Skills.pdf
See the full report, When Is a Job just a Job – and When Can It Launch a Career?
To read more, see Timothy Bartik chapter of Wisconsin’s 2009 Growing the State Economy Report http://wisfamilyimpact.org/wp-content/uploads/2014/09/s_wifis27report.pdf
See https://www.urban.org/sites/default/files/publication/23921/412887-Consequences-of-Long-Term-Unemployment.PDF
See Nicolas Eberstadt: https://www.nationalaffairs.com/publications/detail/education-and-men-without-work
See Enrico Moretti’s “New Geography of Jobs” for a fuller discussion of this phenomenon
We may be seeing such a disruption in the Bay Area tech ecosystem right now, as both the extreme housing crisis in California may be combining with COVID’s normalization remote work may be destroying the Bay area’s stranglehold on the tech sector
https://hbr.org/2009/03/when-economic-incentives-backfire
Irene Sun, in her book The Next Factory of the World, has a good discussion of the importance of capital-intensive investment in determining whether Chinese factories in Africa will stay put in the long-run
See Tim Bartik’s article in Brookings: https://www.brookings.edu/blog/the-avenue/2019/11/01/most-business-incentives-dont-work-heres-how-to-fix-them/.