Measuring the impact of economic development

I know a lot of economic developers don’t like talking about direct measurement because they, rightly, say there are too many broader environmental issues that impact economic development and that broader environment will skew the results (up or down) of an economic development agency.

While I agree with that, in my opinion over a longer time horizon, the only measurements that matter for economic development are new business investment, new jobs and incremental tax revenue to government.  All of the rest of the activity should be feeder activity into those outcomes.

The Dept. of Transportation is measured by roads and potholes.  Health by health indicators.  Education by education indicators.  How do we measure economic development?  By the number of trade shows?  By the number of client visits?  By the number of brochures?  No.  Those are throughput.  We should measure output.  Think of the elegance of the IDA Ireland:

Annual Corporate Tax Payments of IDA Client Companies €3 billion (est)

That’s it.  Pure and simple.  Since the IDA began attracting companies to Ireland, they have tracked every year the corporate tax payments to government and it is up to 3 billion Euros every year.   By the way, they don’t mention personal tax or VAT which would be in the billions each year.

As a cherry on top they use this measurement as well:

They actually track the dollars (Euros) put in by government for every job created and sustained since the IDA’s inception.  This should – must be – the model everyone uses.  Because it tracks value.  It realized that the job created back in 1993 by IDA efforts still counts – as long as it is still in place.  That is why the annual survey of every company supported by the IDA matters.  It’s not a lot of work.

I worry that in New Brunswick there are many companies that get grants and loans every couple of years but a decade on they are no bigger than before all the public support.  I could point out a dozen examples – but I won’t because that would be in poor taste.

It’s not that hard, folks.  Economic development must be about growing the economic pie.  We can easily track the cost associated with government and local efforts to attract industry and grow local industry (both direct and incentives) and we can easily track how many of those jobs and at what tax levels on an annual basis.

But we don’t.

Here is a more technical approach to measurement of economic development.  In the end, however, if you read this presentation you will see it ends up with jobs, private investment and tax revenue as the three measurements.  It’s not complicated, folks.

I certainly would approve of other measurements – of a specific and strategic nature to New Brunswick such as measuring the growth in R&D activity but in the end, even R&D must be about jobs, investment and tax revenue.

I probably have written 40 or more blogs on this subject and half a dozen columns.  I have discussed it with anyone who would listen from the building janitor to Cabinet ministers but we are no closer to this type of measurement model than 10 years ago.

Too bad.

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One Response to Measuring the impact of economic development

  1. richard says:

    David, perhaps the question is why IDA Ireland produces this analysis? Is there a legislative mandate in Irish or EU law that forces these kind of analyses to be delivered? If that’s the case, then the lack of such analyses here in NB could be addressed thru legislative changes. We’d just have to know what legal mandates were in place in Ireland, then demand that our politicians do the same.

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