Indiana Economic Development Corp. and Opinion and Economic Analysis and Government & Economic Development and Economic Development

Improving livability is economic development

March 16, 2009
I am often asked the seemingly simple question, "Just what is economic development?"

For those of us who study economic growth in developed countries, the answer is surprisingly clear. (As an aside, this research is viewed as a bit self-indulgent in some countries when considering that one in four of our fellow souls worldwide exists on less than a dollar a day.)

Growth in per-capita living standards is the classic definition of economic development. This is the simple ability to consume more goods and services. What these goods or services might be (Hummers, eco-tourism or publicly funded biodiversity) is beside the point.

But, in truth, most folks care about economic development as a verb, not a noun. It is how to do it that most people, economists included, struggle to understand.

We do two things in states and regions to spawn economic development. The most visible are our business-attraction and business-retention efforts. Indiana is, by all accounts, quite good at this. But here's the kicker: Attraction and retention efforts account for fewer than 5 percent of all jobs created in Indiana.

That said, job-attraction entities are important far beyond their numbers. The state-run Indiana Economic Development Corp. serves as a hugely critical information clearinghouse and, most important perhaps, it is a window into what we do both well and badly in the areas that truly matter to our economic well-being. And, in truth, Indiana spends very little on business attraction.

A far less visible, but far more important, part of economic development is the creation of places where people want to live. This is harder and more time-consuming, but far more fruitful and lasting than relying solely on business attraction. The folks in business attraction know this and work hard to get communities involved in self-improvement.

I like to say that, in the short run, workers follow jobs, but in the long run, jobs follow workers. This is to say that while individuals and families migrate to find the right job, businesses inevitably move to places where their single largest costs — people — want to live. It simply reduces their cost of doing business.

What type of communities do people like to live in? They need to be clean, safe, with good schools, functional local government and a whole suite of amenities from nice restaurants and grocery stores to sidewalks and walking trails. There is an extensive and highly scientific body of research on the matter. Communities that fail to focus on amenities fail.

There is an interesting irony to the issue of job attraction vs. amenities. The higher the costs of labor, the more likely firms are to be solicitous of worker interests. Human capital-intensive industries must locate in places where amenities are best. It is simply a matter of minimizing costs.
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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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