Deeper dive need: Growth from within

At the Greater Moncton Economic Summit a number of speakers reiterated the now well worn refrain about “growth from within”.  “Eighty percent of all new jobs come from within and not by attracting industry”.  This or some variance is widely cited these days.

It’s a bit annoying because they too turn it into an ‘either/or’ kind of issue.  If, as the argument goes, 80% of growth comes from within shouldn’t you put all your time into the 80% and ignore the 20%?

At something like the Summit, this is fodder as all of the participants – 95% – are local business and community people – and not the big multinationals.

But the point does stand.  80% of new jobs do come from existing organizations in your community expanding.

The problem is how this gets translated into policy and economic development programming.  You still need to further segment the 80% to understand where you put your effort.

Let’s break it into four components:

1. Expansions based on local market growth – i.e. there are 5,000 more people living in community x so we need three more restaurants, 10 more doctors, 2 more pharmacies, etc.

2. Expansions leading to import substitutions – i.e. community x is importing all its packaged food and a group of local firms step up to compete with the imports and steal market share.

3. Expansions of firms that are primarily exporters – i.e. they are not dependent on local markets.

4. A general capital investment category.

 

Even though category 1 is likely the bulk of all new job creation in a community, we shouldn’t spend much time and money trying to encourage this activity.  Spending taxpayer dollars to encourage 10 more restaurants to set up in community x (with no category 2 or 3 implications) may get us a little category 4 spending but not much else.  In fact, this is actually creating an un-level playing field.   This is complicated when we are talking about immigrant investors but that issue we can save for another day.

Efforts to attract investment and entrepreneurship in category 2 is fair game as long as you are not creating economic inefficiencies in the name of jobs and economic development.  As theoretical issue, ceteris paribus, if the jobs and value add is occurring locally it is better for the economy and taxation compared to if the jobs and value add occur elsewhere.  However, we have to be careful not to hurt productivity, distort demand, etc.

Category 3 is the sweet spot for economic development.  Exporters – services or products -are bringing money into an economy.  When Cabela’s sets up in Moncton, the anticipate two million customers per year – folks are expected to travel to Moncton from all across the Maritimes to buy their premium outdoor goods.  That is a ‘export’ the same as a manufactured good.  The jobs and value added occurs here, the end markets are elsewhere.  This is why you will hear economic developers talk about ‘traded’ sectors.  That is the same as exports.

Category 4 is a little more tricky. You want your building stock to turn over on a reasonable basis and that capital investment generates a lot of jobs in construction and services.  In a weak economy, firms will not make needed capital investments in technology, equipment or physical plant and the community gets hurt on two fronts – 1) it tamps down economic activity and 2) the firms are eroding their competitiveness, profitability and ultimately survivability in the local community.  This applies to highly sophisticated manufacturers as well as small local firms. One of my favourite restaurants in Moncton is getting more run down by the day and it seems to be losing customers as a result – eventually it will close.  Business owners and leaders need to keep refreshing investment in their technology, equipment and physical plant (not to mention training) and it is ‘economic development’ to encourage this.

So, to summarize, economic development is doing things together that lead to stronger industries making investments here and creating jobs.

Policy and economic development needs to be clearly focused on efforts to lead to these outcomes.

 

 

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