“It is a difficult life these days,” complained Euturn Wright, the eminent economic development authority. “No one wants to spend money on economic development, not that they did readily in the past. But now they have such wonderful excuses for doing nothing.”
“Surely the need is evident,” I said, as we waited for a waiter to wait on us.
“Evident?” he responded. “Imperative! Many communities cannot continue as before. However, the recession has enabled many firms and governments to plead poverty. They won’t invest a dime today in economic development unless there is a tangible return before the next annual report or election.
“Economic development, however, is a long-term proposition with uncertain benefits at a distant date. It is not just opening a plant or expanding an existing one. Real economic development involves shaping and reshaping the structure of commerce in a community.”
“Many people are in serious economic distress; can you blame them for being cautious?” I asked, looking about for a waiter with water.
“Yes, I can,” Euturn answered with his usual frankness.
“But, the economy … ” I said.
“True,” he interrupted, “but the numbers in distress are far fewer than the many millions of comfortable people who, nonetheless, have closed their purses because their seats were singed when the stock market fell. Others moan, despite steady income, because the market values of their homes—that they don’t intend to sell—have fallen.
“Few firms understand that the development of other companies often yields a direct benefit; few individuals are eager to advance the prospects of another. Local government officials in Indiana are particularly in need of spectacle to attract votes.”
“Waiter,” I called, to a youth who made eye contact but failed to see me.
“Why don’t businesses and governments understand that aggressive investment programs pay off?” he asked.
“That’s easy,” I answered. “Aggression is discouraged. Don’t take the extra base. Go for the field goal rather than the touchdown. Caution and calculation rule the day. Everyone calculates the present discounted value of a future stream of net revenue. Answer the question: What is this project worth today when its payoff in the future is unknown?”
“A delightful exercise for the wizards of Wall Street,” Euturn said. “However, while that works for most private activities, its difficulty is compounded when there are consequences for other people—those not party to the transaction. A new shopping center may offer consumer opportunities along with increased congestion and competition for existing tradesmen. Today, there are linkages we never had before; today, we enjoy and suffer from increased interdependence.
“Clearly, as we have learned, we are joined together by global financial and environmental factors. Nonetheless, too many people hang onto concepts and practices that are out of date.”
“Like what?” I asked.
“Like annual budgeting,” he said, “a practice that makes commitments meaningless. Policies are revocable by merely changing the officers of a company or a panel of elected officials. That’s how we get underfunded pension programs, abandonment of health insurance commitments, and no sustained resources for long-term projects. Schools and factories, libraries and bridges, art museums and grocery stores don’t exist in the moment. They are the foundations of community for families and businesses. Yet, we budget for them as if they can disappear in the night.”
He went on as I tried in vain to get service at our table. “Business success and the development of cities are not short-term activities but ongoing efforts with long time horizons.”
“Let’s get out of here,” I said. “Our time horizon isn’t long enough for us to wait any longer for service.”•
Marcus taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center. His column appears weekly. He can be reached at email@example.com.