• The development of the traditional economy focused on large employers and advanced industrialists which made sense for the economy of expensive efforts.
• As “bits over atoms” have made experimentation more expensive and integration has increased, regions are about to become increasingly stressed – in the positive sense, of new firms trying things out quickly.
• Businesses have always been important but their value is increasing, so district leaders who want their districts to be successful should increase their importance.
When a contestant on reality TV says “businessman,” the sarcastic version is: they don’t care.
It’s something Rae’Mah Henderson, herself an avid business booster, jokes with friends. “If you don’t have a PitchBook page,” they say, “you don’t matter.”
“If you have an idea to make things better, you have a responsibility to try.”
Victor Hwang, right at First
Henderson, who recently worked at Innovate Alabama and is my Builders Live contributor, knows the American entrepreneurial climate well. For all the famous CEOs and parasocial relationships with the rich and famous, in our everyday life, the creation of a business is often associated with a faith-based start-up culture.
Perhaps not for long: An entire generation of community planners has taken up the cause of entrepreneurship as a recognized and valued part of national and local planning. This facilitated the rise of “entrepreneur ecosystem building” as a concept.
I am one of them. In my opinion, entrepreneurship has three main reasons: bringing ideas to market, creating new jobs and inspiring others to follow, all of which come with the reward of creating wealth.
If this is clear and increasingly supported in education, why was business not the center of economic development? And what does that answer tell us about our future?
Regions with more initiatives have more opportunities for success
Dell Gines, formerly of the Kansas City Federal Reserve Bank and a speaker at the Technical.ly Builders Conference last year, described the “four waves” of economic development. He recently explained this again with ecosystem podcaster Anika Horn:
- In the 1930s, industrialization created a field
- In the 1980s, small business development began
- In the 1990s, “cluster-based” strategies advanced
- It wasn’t until the 2010s that “entrepreneurial ecosystems” took root.
Now at the International Economic Development Council (IEDC), the leading trade group in the field, Gines is part of a group of leaders pushing the ecosystem line, which has its critics. Pro-entrepreneurship is not pro-business, after all.
“These waves correspond to the way the economy was doing at the time,” said Victor Hwang, co-producer of Builders Live and head of the economic advocacy group Right to Start. And now, he said, business is at the center again because “people are the new companies.”
To be good for economic development, its traditional behavior has changed due to logical reasons. When the economy is dominated by physical products – production equipment, offices full of filing cabinets and reams of paper – the effort is expensive. Large firms with a lot of capital can easily test a new production line (“scale production is known,” in the jargon). Transportation costs were high and delivery was slow. With predictable site selection, the growth of the line has created an industry of sustainable bean counters leading the industry.
All this has been changing for decades. The rise of bits over atoms in our economy – where even developers now rely on software and advanced analytics to run their businesses – means that a higher percentage of economic activity is cheaper to experiment with.
That raised the churn rate. A highly experimental, fast-moving community with many investment opportunities. As industry continues to consolidate in the United States, entrepreneurship becomes a necessity. The region’s growth, stability and political stability now depend on carrying out some of these experiments, moving the area quickly and investing in new entrants.
Traditional economic development organizations still spend a lot of money on consultants to reinterpret data and identify other NAICS codes to target in attracting business companies that are living in the past.
In the past few decades, researchers have documented the decline of US “business dynamism,” using indicators such as new company formation, job creation and destruction, and labor flows. Productivity growth depends in part on resources flowing from unproductive firms to more productive firms. Here then, local trade associations and industries that specialize in winning the values of existing businesses, rather than attracting new entrants, often weaken the local economy they claim to build.
Economic development was founded to grow existing industry, but the economy is starting over
Job creation is a traditional way economic promoters cannot get out of their way. The 50,000 jobs promised by Amazon HQ2 was the holy grail. But this was the end of the plot to die.
New firms are disproportionately important in creating jobs based on their size. A summary from the international policy forum of the OECD makes it clear: On average in all countries, young firms provide fewer jobs, but create a larger share of new jobs.
Entrepreneurship has long been a source of wealth, especially for marginalized groups, reminds investor Brian Brackeen, general partner at Lightship and third Builders Live co-host. The economic disadvantage of black Americans is often the result of being locked out of the housing market and small business ownership.
That disgusting fact is compounded by the economic fact that we are all made poorer if few of our citizens get their chance to start their own company.
“If you have an idea to make things better, you have a responsibility to try,” said Hwang, of Right to Start. “And as a society, we have a responsibility to ensure that the fight is fair.”
Entrepreneurship has always been important, and part of today’s story is only widely recognized thanks to decades of economic research.
But the most important change is structural: the possibility of attracting and retaining large firms has decreased as a shared means of growth, as the reward for stimulating new production of the company has increased. An economy that rewards rapid experimentation, more innovation, and more loading – and in an expanding economy, new entrants aren’t the nice-to-haves, they’re the challengers who make markets competitive.
Or, to put it back in Rae’Mah’s real-TV terms: the job title of “entrepreneur” has become commonplace and confusing. That’s why we need to really understand – not only about who “counts” as an entrepreneur, but about the type of economy we are building, and for whom. “A lot of people also feel like the American Dream is like the original MLM,” Henderson said, evoking another aspect of reality TV. “Someone has to do something about it.”
#business #central #economic #development
