Economic Development What to do Locally Applying Systems Thinking Bob Powell, Ph.D., MBA Exponentialimprovement.com

"Not easily accepted" is an understatement! So I thought: “I’ll figure out something really important!” - Problems with Urban Growth Yes, I know … it’s horrible "Not easily accepted" is an understatement! Many people recoil in horror when they see this causal loop diagram. It's even more complicated than it looks because each rectangular box has more causal loop structure inside. Even though this thoroughly explains the dynamics related to urban growth that we are experiencing (infrastructure backlogs, traffic congestion, loss of farmland, declining quality of life), it's so complicated that it's very difficult to get people to want to understand.

What the … ??? Though many people have never encountered causal loop or stock & flow diagrams, that doesn't mean they're not natural.

The world is complex, but it’s not my fault … In physics classes I often thought I understood the material … until I encountered the dreaded story problem. Causal loop diagrams are stories … often complex stories.

Feedback is Everywhere It's like the air we breathe, everywhere. We take it for granted and most often don't even take explicit notice of it.

A Critical Structure to Understand: The Attractiveness Principle "Value Proposition" We know that no business can be all things to all people. We must focus on some value proposition combination of price, service, and quality. We cannot have all 3 at once. We can be McDonalds with lower quality food, Outback with long lines, or the Broadmoor with high prices. See Making Strategic Choices at http://www.exponentialimprovement.com/cms/strategicfocus.shtml On website, see "Create Strategic Focus"

It’s a Fact of Life: "There is no utopia in social systems." No restaurant can be all things to all people. Can’t have all at once: lowest price, best quality, best service The same is true for regions of the country A corollary: Given free migration, no place can long remain more attractive than any other place Our only choice: how we'll become unattractive … "strategic unattractiveness" It’s a "Gilda Radnor world" … This same principle applies to regions. No region can be all things to all people. We must determine what we’re willing to give up to save what we most value in the region. We need to practice strategic unattractiveness. Described at Economic Development: What to do locally? http://www.exponentialimprovement.com/cms/econdevlocal.shtml

That’s a Reason Why We Sometimes Feel: Systems have “minds of their own” in that structure determines behavior … unless we change structure, we’re helpless to modify behavior over the long run.

What is Colorado Springs Value Proposition?

 Rocky Scott, former President of the Colorado Springs EDC often used this in presentations.

Applying Systems Thinking to Economic Development Using a simple Stock & Flow model Rocky’s Model Expanded

Economic Development Arithmetic Based on a slide shown by Rocky Scott, former President of the Economic Development Corporation. See: “Economic Development: What to do locally?” http://www.exponentialimprovement.com/cms/econdevlocal.shtml If Total $ In - Total $ Out = Positive = Growing Economy Neutral = Stable Economy Negative = Declining Economy

When an economy is failing, what do you do? This means fostering manufacturing and not subsidizing "big box" stores as we have at University Village on N Nevada. Foster Export Companies: Increase Net $ Inflow Foster Buy Local: Recirculate $ to Reduce $ Outflow Don’t Foster Import Companies: Reduce Net $ Outflow This is arithmetic, NOT rocket science

Little Did I Realize What Was Happening Beginning in 2001 … as of June 2010 in Colorado Springs … it’s been a high-tech, primary-employer, job-loss bloodbath: Mfg jobs down 53.6% IT jobs down 53.8% The organizations on which I'd hoped to focus were downsizing like crazy and did not need help to make themselves more efficient and effective. 

Standard Practice: Focus on Competing for Primary Employers attraction retention and growth new primary employer creation Caveat: Competition among regions with subsidies does not "create jobs“; it moves jobs from one region to another. It’s a zero sum game … only so much growth is allowed. It either steals existing jobs from another region or it gets jobs that would have gone to another region, if that region had larger subsidies. Result: infrastructure backlogs … nationwide! See The Growth Facts of Life.

How does growth affect the "change" in unemployment How does growth affect the "change" in unemployment? Here's comparing the change from 1998 to 1999 Essentially flat. Increased growth does not result in a reduction in unemployment one year later.

Focus on Primary Employer Economic Clusters Economic Clusters: Sets of similar companies, along with their customer and suppliers. Reinforcing feedback causes them to either grow or decline Regions should foster them. Clusters are more efficient producers. They increase dollar circulation within the local economy ... a double hit. 

Economic Cluster Focus Of course: Attract companies with large economic multipliers. Lost Manufacturing hurts because manufacturing has above average multipliers. Focus on fostering clusters for industries that have high transportation costs. …. Why would that be? It's counterintuitive: national clusters grow when transportation costs are low … because it's more efficient to build things in one place and ship them.  Because fuel costs will increase, such national clusters will shrink and regional clusters will grow. Foster regional food production … same reason.

Promote Positive Economic Cluster Feedback On cluster feedback mechanisms and how to foster them, see A Systems Thinking Perspective on Manufacturing & Trade Policy, Section VIII. Develop economic clusters for which the region has comparative advantage. There are analysis tools to help determine this. See Minnesota IMPLAN Group and  Proposal in Response to RFP NO. 07-016: Industry Cluster Analysis (submitted ... no response ... … the county hired an expert from afar).

Foster Local Service & Retail Companies (including government & local non-profits) A region that provides incentives to attract new companies … … should also provide incentives for companies to buy locally. Local governments can institute "buy local". Even if higher cost, it can boost the economy. To boost local spending and keep money circulating within the community, many Struggling US towns print their own currency. "According to estimates, there are more than 75 local currency systems across the country."

Import Companies Export companies, those primary employers, get much attention for their positive impact. Import companies are the polar opposite of export companies (primary employers). Import companies get little attention for their negative impact. They primarily import goods and export dollars. Import companies hurt the economy. [Big Box stores] It's illogical and destructive to encourage them with incentives.

One of Rocky Scott's slides: "Without primary employers, we only export our wealth, get poorer." This should be extended to say, "With too many import companies, we only export our wealth, get poorer." And that's exactly what's happening ... and we wonder what to do?

Incentive examples for Wal-Mart $17 Million in Incentives Help Maine Land 400- Worker Wal-Mart Distribution Center 2/1/02 SC offered Wal-Mart sweeter deal on incentives, official says, 10/14/95 Wal-Mart's Tax On Us, 11/9/05 Carlos Guerra: Think-tank's study critical of Wal- Mart's use of tax incentives, 10/10/07

The National Ocean in which We Are Drowning

Nationally, We Need: “Balanced Trade”, not "Free Trade" Warren Buffett proposed an Import Certificates mechanism to create “balanced trade” To deal with "a shifting maze of punitive tariffs, export subsidies, quotas, dollar-locked currencies, and the like." Buffett's Import Certificates mechanism: If a country purchases products or services from the U.S., then it can sell that amount back to the U.S. If it does not want to sell to the U.S., it can sell its Import Certificates to another country that does want to sell to the U.S. This market-based mechanism would produce  the desired outcome: balanced trade. Necessary: anything out of balance will be, WILL BE, brought back into balance. The more out of balance it's allowed to become, the more severe the correction.

Systems Thinking: Not easy, but easier than this! exponentialimprovement.com

Objections to Opposing Import Companies That would violate "free market" ideology. But you can't do that. Let the 'free market' take care of it. If people don't like having Wal-Marts here, all they have to do is stop shopping there! Everyone should act in their own self interest and everything will work out for the best. Well, that's perfectly logical for individuals. Unfortunately, it's collectively irrational; it's a perfect example of the "fallacy of composition."

Objections to Opposing Import Companies Another complaint: "We can't discriminate against big-box stores, that would be interfering in the 'free market' and unfair. That's “social engineering.” The fact is we already discriminate by providing incentives for some companies and not others ... now that's social engineering, too. This is beside the point because what we must care about is whether regions and the nation will fail … or not.