investing in metropolitan economies

April 22, 2010

Investing in Metropolitan EconomiesInvesting in Metropolitan Economies

Work-In-ProcessWork-In-Process

Why Metros?Why Metros?Why Metros?Why Metros?

Why Metros?Economic Geography and Place-Based Development Why Metros?Economic Geography and Place-Based Development

The Goal is Economic Growth

Goal is economic development - that is inclusive and sustainable. Metros are the means, not the ends


Economic Growth Flows from Market Activity

The outputs we care about – jobs, income, assets, sustainability – are primarily a function of the complex interaction of housing, labor, business and other market systems, enabled and shaped by government and civic sector activity

Goal is to improve performance of these systems




Major Market Systems Operate at the Metro Level

System performance is function of interactions of people and firms in context of characteristics of place – “on the ground.” (Vertical and horizontal integration)

Key geography of many of these systems and interactions is metropolitan region. (Metro includes, but is more than sum of, its neighborhoods. Best neighborhood development deploys people and assets into metro economy, improving both.)

Indeed, one of main reasons for very existence of cities is the agglomeration benefits of concentrating economic activity – an effect of place on market performance.





Improving Metro Economic Performance Entails Customized Analysis and Deliberate Activity

System and environmental characteristics, opportunities and challenges “on the ground” vary by place.

Particularly in the knowledge economy, increasing returns and imperfect competition are giving rise to specialization and divergence. It is more important than ever to be deliberate and strategic, as the economy no longer “takes care of itself.”





Improving Metro Economic Performance Entails Customized Analysis and Deliberate Activity

Economic growth entails strengthening metro economies, and that requires deliberate, ground-up, tailored activity.


A Framework for Investing in Metro EconomiesA Framework for Investing in Metro Economies• Purpose: shared understanding of how regional economies

work – a “theory of change” -- enables us to:− Focus on what matters − Understand how it causes economic growth− Determine how to improve performance

• There’s no one right answer… but there are a lot ofwrong answers

• Purpose: shared understanding of how regional economies work – a “theory of change” -- enables us to:− Focus on what matters − Understand how it causes economic growth− Determine how to improve performance

• There’s no one right answer… but there are a lot ofwrong answers

How Metro Economies GrowHow Metro Economies Grow

• Metro economy = total value of goods and services produced in the region

• Growth is inherently business sector growth (number, size and profitability of firms)

• Business sector grows through firm growth and location decisions (retention and attraction)

• Firm growth and location depend upon increases in efficiency and productivity (of firm and system, including product innovation)

• Metro economy = total value of goods and services produced in the region

• Growth is inherently business sector growth (number, size and profitability of firms)

• Business sector grows through firm growth and location decisions (retention and attraction)

• Firm growth and location depend upon increases in efficiency and productivity (of firm and system, including product innovation)

Core Question: What attributes of the region increase efficiency and productivity, leading to business sector growth?

Micro-FoundationsMicro-FoundationsMicro-FoundationsMicro-Foundations

What is it About Place that Affects Economic Performance? What is it About Place that Affects Economic Performance? “Cities exist to eliminate transport costs for people, goods and ideas” (Glaeser)

• Urbanization and Localization Economies: general and industry-specific benefits of concentration as workers and firms co-locate because of spillovers, synergies, shared labor and job pools, backward and forward linkages among firms, etc. – generating increased efficiency and productivity through flow of ideas and technologies, enhancements to human capital, economies of scale, reduced transaction and transport costs, and so forth. (Marshall, Krugman)

• New Growth Theory: location is becoming more important, and with different benefits, in the knowledge economy, as metros become increasingly centers of idea creation and transmission (through technology, human capital externalities, intellectual spillovers). Increasing returns to knowledge and imperfect competition lead to metro specialization and divergence. (Romer, Lucas)

• Institutional Economics: growth, and particularly innovation, take place in the context of an institutional infrastructure – research, professional and learning networks; universities and civic/business organizations; quasi- and governmental organizations and regulation – which can hamper or accelerate all of the other benefits of concentration. (Coase, Atkinson)

“Cities exist to eliminate transport costs for people, goods and ideas” (Glaeser)

• Urbanization and Localization Economies: general and industry-specific benefits of concentration as workers and firms co-locate because of spillovers, synergies, shared labor and job pools, backward and forward linkages among firms, etc. – generating increased efficiency and productivity through flow of ideas and technologies, enhancements to human capital, economies of scale, reduced transaction and transport costs, and so forth. (Marshall, Krugman)

• New Growth Theory: location is becoming more important, and with different benefits, in the knowledge economy, as metros become increasingly centers of idea creation and transmission (through technology, human capital externalities, intellectual spillovers). Increasing returns to knowledge and imperfect competition lead to metro specialization and divergence. (Romer, Lucas)

• Institutional Economics: growth, and particularly innovation, take place in the context of an institutional infrastructure – research, professional and learning networks; universities and civic/business organizations; quasi- and governmental organizations and regulation – which can hamper or accelerate all of the other benefits of concentration. (Coase, Atkinson)

Productivity and efficiency depend upon concentrations, interactions and synergies between economic activities Key Q:

Where are the leverage points to improve system performance?

Six Key Leverage Points Take Us from Theory to Practice Six Key Leverage Points Take Us from Theory to Practice • Enhance Regional Concentrations (and their performance):

Industries, Occupations and Functions• Deploy High Human Capital Aligned with Job Pools• Develop Innovation Enabling Infrastructure• Increase Spatial Efficiency

• Create Effective Public & Civic Culture & Institutions

• Develop and Deploy Information Resources

• Enhance Regional Concentrations (and their performance): Industries, Occupations and Functions

• Deploy High Human Capital Aligned with Job Pools• Develop Innovation Enabling Infrastructure• Increase Spatial Efficiency

• Create Effective Public & Civic Culture & Institutions

• Develop and Deploy Information Resources

These overlap, and themselves interact. This is work-in-process! Anticipate expanding and refining, especially in practice.

Enhance Regional Concentrations: Industries, Occupations and FunctionsEnhance Regional Concentrations: Industries, Occupations and Functions• What is it?

This leverage point has to do with “clustering,” recognizing that what is clustering may be shifting -- toward occupations and functions -- and the whole notion may need to be broadened, brought to ground, and complemented with other production-side strategies. It focuses on the optimal interaction between production components of an economy – the optimal mix and scale of industries, occupations, functions; multiple specializations; etc. Cultivating benefits of concentration requires understanding nuances of what and how specific types of concentrations create efficiencies and enhance productivity in your region.

• Aspects to consider include:− Current concentrations− High-growth potential areas− Geography of concentrations− Optimal mix and scale of industries, occupations, functions− What factors (locational, institutional, others) contribute to efficiency/productivity benefits

gained from concentration

• Strategies might include:− Provide co-location opportunities (e.g., Research Triangle)− Offer co-location incentives− Enhance access to capital for targeted concentrations− Strengthen institutional and network infrastructure− Strengthen “inputs” to concentration – from training/education to venture capital− Careful about limits of government in picking or causing genuine “clustering”!

Leverage Point 1Leverage Point 1Leverage Point 1Leverage Point 1

Deploy High Human Capital Alignedwith Job PoolsDeploy High Human Capital Alignedwith Job Pools• What is it?

This leverage point addresses human capital in the context of economic performance: the goal is not just human capital, but linked, mutually reinforcing, human capital and job pools. Pools of workers and jobs/firms attract each other. Not just quality, but deployment, are key to productivity and efficiency gains. Entails a two-fold, iterative process:

− Growing supply of skilled workers to meet employer demands− Growing demand for skilled workers by cultivating appropriate jobs

• Aspects to consider include:− Concentrations and growth prospects (both skills and occupations)− Existing skills/education levels – obstacles and opportunities− Quality of education/training system− Attraction/retention factors

• Strategies might include:− Increase demand-side focus of workforce development− Increase access, reduce transaction costs to increase labor market efficiency and inclusiveness− Links to occupational concentration strategies (Leverage Point 1)− Production, attraction, retention strategies


Develop Innovation Enabling InfrastructureDevelop Innovation Enabling Infrastructure• What is it?*

Innovation inherently drives increasing productivity and efficiency, and is the source of all long-term growth. Used here broadly to encompass movement along various stages from idea to product to commercialization to entrepreneurship to “gazelles” (high growth firms). Institutional infrastructure and inputs – from R&D funding to open, risk-tolerant business culture – critically enables innovation.

• Aspects to consider include:− Cluster formation and dynamics− Public sector enablers/constraints− Nature of supporting institutions and networks− Flow of R&D and early-stage business funding− Rate/pattern of commercialization− Firm starts, growth, trajectories

• Strategies might include:− Build regional R&D capacity (education, facilities, funding)− Foster entrepreneurship & commercialization of knowledge− Institutional development: facilitate opportunities for interdisciplinary cross-

fertilization− Cluster formation, especially high human capital occupational concentrations

(Leverage Points 1 and 2)


*“…new products, new services, new technologies, new ways of organizing work, *“…new products, new services, new technologies, new ways of organizing work, and new business models….” (Brookings and new business models….” (Brookings Metro PolicyMetro Policy))

Increase Spatial EfficiencyIncrease Spatial Efficiency• What is it?

The location of firms and workers, producers, suppliers and consumers within the region determines transportation costs for people and businesses, and influences agglomeration benefits (such as shared inputs and knowledge spillovers). Generally, to increase efficiency and productivity of the metro economy, we want to:

− Minimize transportation costs− Reduce congestion− Maximize agglomeration benefits− Avoid segregation and concentration of poverty

• Aspects to consider include:− Public policies re: land use/zoning, infrastructure, etc.− Degree of housing-jobs mismatch− Access to transit− Spatial concentrations of firms, occupations, functions, etc.

• Strategies might include:− Transit-oriented and mixed-use/mixed-income development− Affordable housing programs (inclusionary zoning, etc.)− Fostering business co-location


Create Effective Public & Civic Culture & InstitutionsCreate Effective Public & Civic Culture & Institutions• What is it?

Government and civic sector activities hinder or enhance the productivity and efficiency of the economic systems – attracting entrepreneurs, enabling markets, lowering transaction costs, increasing deployment of assets, etc. A culture of trust and collaboration, as well as institutional flexibility and adaptability, are increasingly important (including particularly to leverage points 1 and 3).

• Aspects to consider include:− Degree of horizontal and vertical fragmentation− Areas and mechanisms for inter-jurisdictional coordination− Transparency, openness, responsiveness, engagement of citizens, private and civic

sectors− Private and Civic sector formal and informal institutional infrastructure

• Strategies might include:− Consolidation− Revenue sharing− Civic engagement (program specific)− E-government− Fast-tracking− Special purpose entities− Industry or occupation specific informal networks (e.g. “First Tuesday” )− Incenting consolidation and cross-sector collaboration in civic sector


Develop and Deploy Information ResourcesDevelop and Deploy Information Resources• What is it?

Rich information resources and networks increase market efficiencies by reducing finding, measurement and other transaction costs; facilitate knowledge spillovers and innovation; and enable continued business planning, monitoring and refinement.

• Aspects to consider include:− Collection, accessibility, dissemination of relevant info− Development and provision of analytic tools (not just data: answers)− Specific market inefficiencies, barriers, opportunities

• Strategies might include:− Data warehouse− Specific market driving information resources and tools− Cluster or strategy specific on-going shared info/analytics


Why “Metropolitan Business Planning”? Why “Metropolitan Business Planning”?

The steps to analyzing and improving a regional economy lend themselves to the proven discipline of business planning.

ECONOMIC DEVELOPMENT PLANNING TRADITIONAL BUSINESS PLANNING

Vision for the Regional Economy Business Mission & Vision

Status of Economy: Assets,Opportunities, Challenges Market Analysis

Goal-Setting & Strategy Identification Analysis of Strategic Alternatives & Risks

Identification of Policies, Programs, Products & Interventions Development of Products & Services

Operational Planning for Implementation Operational & Management Planning

Identification of Funding Needsand Sources Forecasting & Financial Planning

Definition of Outcome Measures & Targets Target-Setting & Performance Tracking

Elements of the Business PlanElements of the Business PlanElements of the Business PlanElements of the Business Plan

MEASURABLE OUTPUTS/IMPACTS

Wage Growth, Reduction in Unemployment,Reduction in CO2 Emissions,Neighborhood Revitalization

MISSION/VISIONCompetitiveness

(Wages, GRP, Innovation)Sustainability

(VMT, Energy Efficiency)Inclusion

(Participation in Employment, Business and Market Growth)

PRODUCTS AND INTERVENTIONS

WIRED Program,Regional Inclusionary Zoning,

Green Impact Zones,

INSTITUTIONAL AND FINANCIAL IMPLICATIONS

• Regional Information Infrastructure• Regional Coordination• Specific Institutions/Implementation

Capacity• Financials Investment “Prospectus”

Tied to Outcome Measures

MARKET SCANStatus, Systems, Dynamics

(Spatial efficiency, Human capital trends matched to

business growth,Business clusters/performance….)

GOALS/STRATEGIESTransit-Oriented Development

Coordinated Workforce and Occupational Clusters

Inner-City Retail Development

Metro Development Baseline/Overview (MDBO)

Mission/Vision↓

Market Scan/Environmental Analysis↓

Goals↓

Strategies↓

Detailed Development Initiative (DDI)

Products, Policies, Programs, Interventions

↓

Organizational & Operational Implications

↓

Financial Implications↓

Performance Metrics

Pilot MBPs Will Lay the GroundworkPilot MBPs Will Lay the Groundwork

FutureDDI

Metropolitan Investment Prospectus

FutureDDI

Metro Development Baseline/Overview (MDBO)

Mission/Vision: Sustainable communities…dense nodes…efficiently linked people & businesses ↓

Market Scan Results: Emerging specialization in alternative energy businesses and occupations↓

Goals: Increase number of establishments, employment and total payroll in the alternative energy field↓

Strategies: (a) Co-location incentives; (b) Targeted, demand-driven workforce devel.; (c) Links to students↓

Detailed Development Initiative (DDI)

Intervention: Cluster-Focused Industrial Park that:•Facilitates business co-location•Houses on-site “training academy” that

− Provides skill devel. for key occs./functions− Utilizes demand-driven curriculum− Offers internship, co-op & mentorship opportunities to local students

↓

Operational Plan↓

Financial Sources & Uses↓

Metrics: new jobs, new cos., $payroll, $GMP, etc.

What Might a Pilot MBP Look Like?What Might a Pilot MBP Look Like?

Metropolitan Investment Prospectus

Implications for Federal PolicyImplications for Federal Policy• The federal government should strategically invest in

regional prosperity as a priority for national economic growth.

• The federal government should incent and support comprehensive, integrated regional business planning, as it will enable more effective and efficient federal investment.

• Since regional performance depends upon local, specialized system interactions, the federal response needs to be cross-program, flexible and performance-driven.

• The federal government should strategically invest in regional prosperity as a priority for national economic growth.

• The federal government should incent and support comprehensive, integrated regional business planning, as it will enable more effective and efficient federal investment.

• Since regional performance depends upon local, specialized system interactions, the federal response needs to be cross-program, flexible and performance-driven.

Federal policy should be driven ground-up by regional development plans (reversing the current dynamic).

CLEVELAND Initial Content (illustrative, from pre-existing work)

Mission/Vision

• “Northeast Ohio is a diverse, united region made up of individuals fully engaged in creating a vibrant regional economy home to growing, innovative employers, connected core communities and valued natural spaces. All residents participate fully in educational and economic opportunities and engaged citizens promote collaborative local governments that support sustainable growth.”

• 6 core cultural principles• 4 future characteristics

Market Scan

Dashboard of Economic Indicators:• 4 top-line economic growth measures – % change in employment, income, productivity and output• 9 indicators: (1) Skilled Workforce and R&D , (2) Legacy of Place, (3) Urban Assimilation, (4) Racial Inclusion

and Income Equality, (5) Locational Amenities, (6) Technology Commercialization, (7) Urban/Metro Structure, (8) Individual Entrepreneurship, (9) Business Dynamics

• 36 supporting variables arrayed under the 9 indicators

Goals

• Top-level goals:Per capita income > national averageJob growth > national averageCore city poverty < 20%• Area-specific goals and quantitative targets re: Business Growth, Talent Development, Racial and Economic

Inclusion, Government Collaboration and Efficiency

Strategies

• Entrepreneurship: maximize available capital and provide needed consulting/services• Innovation/Research: attract more state $ in key industries, align efforts re: federal R&D/commercialization $,

attract high-growth cos., assist transition of existing cos.• Inclusion: network to support sales growth in minority businesses• Talent Development: align stakeholders to increase attainment and create life-long learning culture• Government: educate, engage and empower citizens to advance key initiatives

Detailed Development Initiative

Integrate and increase flexibility of a variety of existing manufacturing extension, Small Business Administration, workforce and other programs to assist a growing portfolio of high-potential but challenged manufacturing companies and their employees transition into high-technology/advanced manufacturing clusters that show strong growth potential

CLEVELAND DDI!!CLEVELAND DDI!!

April 22, 2010

Investing in Metropolitan EconomiesInvesting in Metropolitan Economies

Work-In-ProcessWork-In-Process

Current Economy’s Meta-Drivers AlsoShape Strategic InterventionsCurrent Economy’s Meta-Drivers AlsoShape Strategic Interventions•Innovation-led •Export-oriented•Low-carbon •Opportunity-rich

•Innovation-led •Export-oriented•Low-carbon •Opportunity-rich

Huh???

What?!!

Eureka!

Levers / Interventions

Strategies & Implementation

Prosperity

Export-oriented Low-carbon Innovation-driven Opportunity richMetro-led

Fundamental Drivers of ProsperityInnovation Infrastructure Human Capital Quality Places

Governance

Developand DeployInformationResources

DevelopInnovation-

EnablingInfrastructure

Create EffectivePublic & Civic

Culture & Institutions

DeployHuman CapitalAligned with

Job Pools

EnhanceRegional

Concentrations

Increase Spatial

Efficiency

Key Systems (Market processes – housing, labor, etc.; production dynamics – clusters, value chains, etc.; innovation dynamics - knowledge creation, networks, commercialization, etc.)

Local (Regional) Enabling Environment(Government regulation, tax and public goods, including

particularly infrastructure and education; civic institutions; qualities of place, including the natural environment; etc.)

Local (Regional) Enabling Environment(Government regulation, tax and public goods, including

particularly infrastructure and education; civic institutions; qualities of place, including the natural environment; etc.)

Inputs to Production(Human capital; real estate; capital; natural and knowledge resources; etc.)

Economic Outputs(Businesses – gross regional product, profits; households – wages, other income, etc.)

Macro/Global Context & TrendsMacro/Global Context & Trends

What Drives Inclusive and SustainableEconomic Growth?What Drives Inclusive and SustainableEconomic Growth?

investing in metropolitan economies

Documents

economic development

economic geography

economic performance

placebased development

effect of place

economic activity

economic growthdetermine

processwhy metros