Opinion and Government & Economic Development and Economic Development

HICKS: Civic perceptions and economic development

January 9, 2010

A question I frequently hear goes something like this: “What role does community perception play in its economic development?” It is a difficult question, but sadly not one that has been convincingly answered by folks who seriously study these sorts of things.

The difficulties in fully understanding the role the perception of a community plays in economic development is twofold. The problem is simply that of measurement. Even if you could effectively measure what both community residents and outsiders think of a place, you’d have to perform a very expensive survey to obtain enough data to perform a convincing study. There are already plenty of small, unconvincing studies lying about.

The second problem is one we economists call the “endogeneity” issue. Lesser mortals refer to it as the chicken-and-egg problem. You see, if a community is doing well, opinion about the city should be high. The reverse is true for communities that languish economically. So, it is hard to know what came first, the reality or the perception. (By the way, endogeneity is a superb Scrabble word.)

What we can say with some surety is that individually we are more likely to buy a house or open a business in a community we feel good about. That’s what we economists call investment.

Despite the absence of the sort of full-scale studies that should prove convincing, there is certainly plenty of anecdotal evidence that what folks believe about a community matters for its economic fortunes.

For example, here in Delaware County, a leaked e-mail from a bank official to a local leader described in clear prose why the county would not be receiving a loan. Among the reasons offered were media reports about the state of city and county finances, as well as unguarded comments of impending collapse uttered by local elected leaders. Perception, not reality, drove that decision (though there might not be too much difference in this case).

Muncie is in the midst of community and economic development planning. The consultant recently offered some preliminary findings from an extensive community-engagement effort. The local media reported, without the slightest hint of irony, that among the chief criticisms from 600 community attendees was “bad press” about the city.

So what to make from this? I think it is clear many people feel perceptions of their city matter. As a result, I think we ought to individually approach the problem as a sort of Pascal’s Wager. We don’t know for certain that good perceptions matter, but it is smart to live as if they do. So, clear-eyed optimism would seem to be the right approach.

I am no Pollyanna, so I wouldn’t counsel dodging problems or hiding unpleasant truths. The most effective people I know are aware of their weaknesses. It is likely true of communities as well. The key for creating a positive perception of a community lies in crafting the expectations that even big problems can and will be solved.•

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.

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