The Challenge of Defining Economic Development

There is a constant resonating buzz across the country on the topic of economic development. Politicians, business leaders, labour, anyone who has a vested interest in the field uses their own platform to announce the "best practice" to the economic development "problem". We are constantly inundated with a particular vision of what economic development is and how economic development can be achieved. The great rhetoric of industrial planing, business growth, business retention & expansion programs, place marketing, and job creation are the mantra. These are temporary programs and results of specific actions around business development, workforce programs, business programs, or business planning.

It is not surprising that many community leaders are challenged to determine the most appropriate path to pursue for their particular community’s best interest. The purpose of Integrated Economic Solutions’ discussion is to remove the rhetoric and emphasize the importance of why, how, and what frameworks integrate into the fabric of Canadian communities. This current exploration and challenge of defining economic development is a part of our commitment to supporting, educating, and creating greater awareness in the field of development for small, rural, and underserved municipalities, First Nation administrations, and economic organizations.
This article begins the first in a series of discussions on the topic relating to economic development within the broader development landscape of community adaptability.
Before we can explore more thoroughly the why, how, and what of economic development, it is imperative to remove the rhetoric from the discussion.  This first instalment of Integrated Economic Solutions’ discussion on development explores the challenges and misunderstandings of economic development.

Misunderstandings of Economic Development:

Existing economic development programs appear to be a broad range of tools that support a multitude of needs for a community to address economic development.  In general, however, the current approach to economic development focuses on a common core of marketing, investment attraction, business retention and expansion, and job creation. These approaches are based on external, imposed programs that are "done" to a community.

Economic development is not attracting new business and it’s not creating an investment ready profile or some other program designed to market the community to outside investors. It isn't developing a overarching industrial or economic growth strategy (euphemistically called an economic development strategy) with the intent to create a path that fills the gaps and gives rise to greater business growth, employment, training, or some other targeted and easily measurable metric. Economic development is NOT a competition with other communities; it is a challenge to enhance the qualities of YOUR local economy.

Economic Development Program: Something that is "DONE" to a community:

These traditional approaches to filing a business gap, solving joblessness, or some other overarching business development process is isolating and temporary: they focus on specific elements of a community with little or no consideration for the integrated impacts in the longer-term. They are more often than not based on the “next big trend” or are only a stop-gap measure that depends on the funding available for job creation, tax incentives, or other hidden subsidies to encourage outside investment.  In other words, these programs are short-term results that serve the immediate needs: they show temporary success that are easily measured. These approaches pander to the current quarter or yearly statistical result for reporting purposes.  These are approaches to roof top or smoke stack chasing.  They are programs designed to chase jobs for the sake of jobs—and not the quality of the employment. Filling in the gaps or deficiencies of economic development frame the backbone of these ideas and provide the answer to resolving the problem. Economic development is building on the qualities of YOUR community NOT filling the gaps or deficiencies.

Whether a community is chasing the next roof top, smoke stack, or low skill, low pay jobs for it’s residents, it is still not pursuing economic development.  Business growth and employment is not synonymous with economic development. If anything, this approach is based on business growth programs—but with little regard for the quality of growth.  There is a broader view of business growth that emphasizes economic growth (a topic for a future discussion). At present, it is important that business growth is a part of the cycle of community adaptability but it does not address the current development conditions of a community. Nor does it examine the economic growth opportunities.

The "Best Practice" Panacea:

The final element unpinning traditional models is the idea that communities should address the “gaps” and the “problem”of economic development through “best practices”.“Best practices” is inaccurate and inappropriate when applying solutions to opportunities for communities. If “best practices” can be mirrored in every community, why isn’t every community successful in implementing these practices? Why do they work in some communities and not others? These are important questions to address when considering “best practices”.  Best practices, by definition, are past practices and hindsight does not lead to foresight (Cynefin Framework, David Snowden). More than this, though,  “best practices” appear to proliferate through “mimicry” rather than an informed understanding of development.

Pursuing an approach based on “best practices” to address the “gaps” and “problem” of economic development is a formula for failure.  Building economic development from this vantage point is based on a position of weakness and does NOT create confidence, adaptability, or success. Emphasizing the gaps (however defined) implies that the deficiencies are the solution to the problem rather than the advantages as the solutions to the opportunities. Framing economic development from a problem paradigm fails to recognize the advantages and potential opportunities available that can be built on the current level of development.  Achieving a “seal of approval” for undertaking specific “best practice” prescriptions for economic development ensures no real development of the local in the economy.  In this approach, communities “assess the facts of the situation, categorize them, and then base their response on established practices” (Cynefin Framework, David Snowden).

The idea of “best practices” is characterized by oversimplification: decision makers are blinded to new ways of thinking (Cynefin Framework, David Snowden). Communities and economic development is a complex environment. Doing the same thing twice will give a different result. The simplicity of traditional approaches assumes the environment of each community is ordered in a similar way and, therefore, “best practices” can be across different communities and local economies. Communities and local economies are different and dynamic: traditional models do not recognize the complex and, sometimes chaos nature of individual communities. Traditional models do not recognize the connection and integration of unique solutions that are required for each community and local economy.  Traditional models are based on expected and anticipated results, using a standard model of implementation without realizing the need for an integrated process that extends beyond the short-term gains of temporary solutions.

Next Steps: Finding A Process for Success

We have just completed a brief overview of the current challenges to understanding economic development. We have outlined the short-comings, limits, and even, misunderstandings of what some in the field believe economic development means, the various programs for implementation, and the expected results. We have demonstrated that economic development is NOT something that is done to a community or local economy.  Most importantly, we have discussed that economic development is NOT a program, a “best practice”, filling in a gap, or fixing a problem.

Now that we have examined the limits of traditional models and approaches to economic development, the next discussion paper will begin to explore the various elements, components, influences, connections, processes, and other factors that define economic development. We will discuss the why, the how, and the what of the economic development process.

When Single-Industry Communities Lose Their Anchor Business

When single industry communities lose their anchor business, there is a kaleidoscope of reactions from other businesses, residents, and local government officials. Once the decision, finger-pointing, anger, and other immediate responses subside, inevitably, a laundry list of programs, project, and potential ideas is formulated. Unfortunately, providing a laundry list of potential ideas and opportunities does not address the inherent challenges addressing the local economy dynamics in the midst of a boom-bust cycle of single industry communities. Lists provide a opportunity to review ideas but small municipalities, in particular, do not have the financial flexibility, professional staff, and other key ingredients to be exploring, willy-nilly, a variety of potential projects for development. It is imperative for communities to place the next steps within an integrated framework of the broader developmental criteria to determine reasonable expectations and viability.

Although the impact of the shut-down of a major industry has devastating, impacts, there is good news. Communities can take the opportunity to create an integrated process of development that goes to the heart of identifying the potential direction for sustainability and adaptability: the why, how, and what of development. This is especially salient for small communities because development is an integrated process that involves the diverse elements of all sectors of the economy that have an economic impact. It’s NOT just businesses that contribute to the local economy.

The key to success in establishing a process of renewed development is for community decision-makers NOT to fall back upon traditional approaches and programs, demanding “fail-safe” economic development plans and defined outcomes. In other words, community decision makers need to resist the temptation of impatience to resolve the vacuum created by the shut-down of the communities anchor business

It is at this cross-roads that decision makers can become blinded to new ways of thinking. They tend to fall back onto traditional economic development approaches that are based on programs that have been applied across a broad spectrum of local economies that promise success but they don’t deliver. Community decision-makers need to pause and rethink their approach to addressing the problem. They need to shift from a problem focus to a solution based framework. They require a change in thinking: they need to consider an integrated framework that provides a path forward through a process of emergence that can produce creative solutions rather than imposed programs or projects.

The shut-down of a major industry in any community is a difficult pill to swallow. Addressing this void in the business community cannot be resolved with one quick project, program, or development. It is going to take the concerted efforts of the community to come together and identify a process that creates opportunities. But this will take time and a change in focus from problem to solution based resolutions.

Richard Florida's Creative Class: Why Creativity is the New Economy and What It Means for YOUR Community

Richard Florida’s idea of the “creative class” as the foundation for the “new economy” represents his raison d’être for the next economic age of development. Over the past 10-years or so, his idea of creativity has been the lightening rode for policy makers to make changes and for academics to critique and evaluate. Regardless of the position expressed by either the policy makers or academics, there is one thing that is clear: his idea of a “creative class” as the engine for economic development, growth, and diversity has given rise to a lively debate on where and how our living spaces, our communities, and our economies will evolve, unfold, and, potentially, prosper.

Before we continue, it’s important to understand the “creative class” concept. This concept provides the foundation for understanding the implications within the broader framework of social capital and, according to Florida, the rise of the creative economy. When we think of the “creative class”, we think of cultural industries, the arts, industries that we identify with as being “creative”. While these are a component of the “creative class”, the people make up a broader range of industries: 

• they are people whose economic function is to create new ideas, new technology, and new content; and 
• they are people in science, engineering, architecture and design, education, arts, music and the entertainment industry. 

The creative class also includes what Florida terms the “creative professionals”: those in business and finance, law, health care and related industries who are engaged in complex problem solving that requires a high degree of independent judgement and education. 

The creative class, as we have seen, is not a homogeneous group; they are a broad range of people from different industries and sectors. There is also another dynamic: according to Florida, tolerance of diversity in the area of ethnicity and sexual orientation is essential. Based on the description of the “creative class”, there is a wide range of professions and other social factors that determine membership. If we look deeper, though, it appears that there is common element to defining the “creative class”. Membership requires education, social diversity, cultural diversity, and, in the case of the industry classification, independent judgement and the ability to create new ideas, new technologies, and new content.

As you think about your own communities and the role that either the “creative class” plays out or other forms of human capacity provide direction for community public policy processes, it is important to evaluate Florida’s creativity hypothesis through a critical lens. If we understand the foundation of his hypothesis, the ideas he presents, and consider the claims and arguments, we can provide a more thorough assessment of where his idea fits within the broader human capital dimension. 

In order to understand the impact of the “creative class” on economic development, it is important to recognize the origins of  his ideas. The thesis of Florida’s work stems from an evaluation of what he calls “periods of crisis” and the subsequent “opening up of a new round of growth and prosperity” for societies. 

According to Florida, the 1880s, the 1930s, and the 1990s & early 2000s, represent significant “rounds of innovation” and “creation of new technologies”. During the 1870s, there was the first global depression, termed the “Great Depression”. The succeeding decade of the 1880s, was coined the Second Industrial Revolution because of increased technological advances in transportation that resulted in an economic boom for Western nations. The 1930s, as we know, was the 20th Century’s “Great Depression”, an age where manufacturing, agricultural, and financial markets saw significant decline. In the 1990s & early 2000s was a time of the “tech boom”, “the dot.com era”, the rise of the knowledge industries and area. These periods of history form the basis for the continuous evolution of economic development growth and prosperity. 

The common link with each period is with the notion of creativity, the “real source of economic wealth”. At each stage of creative evolution, Florida suggests that this growth and prosperity germinates within large urban areas and their adjoining suburbs, towns, and small municipalities to build new technologies, build new enterprises, to build new public goods, and to build new ways of living. He calls these “great conurbations”. The city, the “great conurbations” have evolved into the “social and economic organizing unit”: they are the new engines of the “creative age”. By linking each of these historical “periods of crisis” and their subsequent “rounds of innovation” and “creation of new technologies”, creativity is the new economy, our new economic epoch for the 21st Century. 

Florida’s ideas relating to the creative class are based on the connectivity with urban areas, “great conurbations” in cities. This connectivity exists because, urban populations are growing rapidly, comprising the majority of the world’s population, and according to Florida, employment in creative occupations has been growing considerably faster than the overall economy (Donald, Gertler, & Tyler, 1) . 

Westlund & Caledoni-Lundberg provide a list of factors related to the creative class and their links to urban areas. A region must have the following factors in order to be attractive to the creative class:

• a large, dense labour market that facilitates job mobility;
• a lifestyle with a broad supply of leisure activities;
• cafes and other meeting places for social interaction;
• diversity and tolerance of different ideas, lifestyles, cultures, and ethnicity;
• the region’s/places’ authenticity in the form of own culture; and 
• the region’s/place’s identity which have increased in importance when other forms of identity have decreased (Westlund & Calidoni-Lundberg, 11)

The factors of a city or region represent low social barriers, loose ties, and “validation of identity”, the cornerstone of Florida’s idea for “plug & play” communities. His notions of “plug & play communities” are based on the loose social capital that is required to create “bridging social connections rather than bonding social connections”. These diversified communities with loose networks and various lifestyles are what support the new economy, the creative economy. By valuing creativity, the creative class grows, formulating a “new class geography” with a common ethos that values creativity, individuality, difference, and merit . If a community or region possesses these conditions, the “creative class” will choice these locations, resulting in economic growth. And economic growth will occur in these locations because, as Florida emphasizes, the creative class is the main driver of the creative economy and as a predictor of urban fortunes. 

These ideas presented by Richard Florida’s creative class and creative economy have been praised and ridiculed, depending on the position and vantage point. At the heart of his approach is the validation of the connectivity between the creative class and economic growth and prosperity, and innovation and technology. Assessing the connectivity of these elements, the most obvious critique of Florida’s ideas relate to a comparison with Joseph Schumpeter’s creative destruction or “nature’s law” which says, “the rise and growth of one thing generates from the decline and decay of another”. Schumpeter’s notion of creative destruction is grounded in the idea that the “strategic element in entrepreneurial activity was “innovation”; that is the application of new ideas in technique and organization which would bring about changes in the production function” apply to the theory of economic development. 

Richard Florida’s idea of a creative class and creative economy appears to be a reframing of Joseph Schumpeter’s creative destruction.  Florida’s idea of the creative class is a destruction of industrial forms of labour production with the creative forms of labour innovation and ideas. The rise and growth of the creative class is a result of the decline and decay of the service and industrial labour force. In Florida’s words, “the distinguishing characteristic of the creative class is that its members engage in work whose function is to “create meaningful new forms” (Florida, 3). Adding to this comparison is Hoyman & Faricy’s position that Florida’s creative class theory is “woven together from seemingly unrelated past research on diversity, human capital, and cultural elements of economic growth” .  They further argue that the “theory rests on the presence and attributes of people—rather than businesses—as being the key to economic success”.

While Richard Florida’s “creative class” concept gives us ideas to consider, it is important to recognize that he has also resurrected old ideas on creative destruction, highlighted historical shifts in economic development during periods of crisis, and reinforced Adam Smith’s idea that labour activity remains the crucial factor of production in creating value. The difference between these ideas, events, and conceptual foundations and Florida’s “creative class” concept is that he sees the current “creative economy” as a shift from industrial production to creative production.

As you try and reconcile the most appropriate framework to address the social and human capital needs in your community, it is imperative to look from within to determine the level of human capital, the social bonds or bridging, and potential opportunities to build and sustain your economies. In other words, build from a position of strength and emphasize your advantages. Not every community is a Toronto, a New York, a Paris, or a London. But each community can build upon its own unique cultural, human, and social capital to increase it’s tolerance to diversity, improve the level of technology for the community, and enhance the human talent available for employment and economic opportunities. 

Cited Works:

• Donald. B., Gentler, M., and Tyler, P. 2013. Creatives After the Crash. Cambridge Journal of Regions, Economy, and Society 6, 3-21.
• Florida, R. 2002. The Rise of the Creative Class: Why cities without gays and rock bands are losing the economic development race. Washington Monthly, May 2002.
• Hoyman, M. & Faricy, C. 2008. It Takes a Village: A Test of the Creative Class, Social Capital, and Human Capital Theories. Urban Affairs Review 2009 44:311.