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New Economy, New Roles: Economic Development Organizations and Jobs

May 2011

Daniel Davis: Welcome to the Federal Reserve Bank of Atlanta's Economic Development podcast series. I'm Daniel Davis with the Federal Reserve Bank of St. Louis.

The role of job creation at the local level is complicated, especially given the large macroeconomic context that often has a bigger impact than local efforts and policies. Yet, nearly every city in the country has an organization whose chief responsibility is to add to the quantity and quality of local jobs. Job-creation strategies are becoming increasingly differentiated among localities and are driven largely by local economic development organizations. As the budgets of these organizations are tightened because of fiscal austerity measures, there is now a greater focus on developing and executing job creation programs that provide both immediate and long-term impacts.

photo of Denny ColemanToday, we are speaking with Mr. Denny Coleman, president and CEO of the St. Louis County Economic Council. In his 21-year tenure at the helm of the Economic Council, Mr. Coleman has overseen a multitude of economic development initiatives that have earned St. Louis County national recognition for outstanding progress in community revitalization, business development, and job creation. Prior to the Economic Council, Mr. Coleman was director of development for the city of St. Louis and managed the city's neighborhood, housing, and economic development efforts. Mr. Coleman is the current chair of the International Economic Development Council.

Mr. Coleman, thank you for joining me today.

Denny Coleman: Well, it's a pleasure to be here, Daniel.

Davis: To get us started, maybe you could speak to us about what the history is of the local economic development organizations. How and why did they come about, and how do they vary in their structure and purpose in different jurisdictions?

Coleman: I guess the roots of economic development date back to the days when the railroads and the utilities were the primary organizations engaged in business attraction, primarily to expand their customer base. But in the, I'd say, mid-1920s, industrial developers began to emerge who had common interests and actually organized the American Industrial Development Council back in 1930. After the rural areas got organized, urban leaders and mayors started to realize the importance of addressing economic development directly. And in 1968, New York City hired a professional to run the city's economic development functions.

Today, the economic development profession covers a very wide range of those same rural interests where we began the profession, to urban interests, suburban interests, and really run the gamut of almost every facet of job attraction, retention, expansion, and creation.

Davis: Economic developers have traditionally focused on manufacturing and industry. But as America moves from an industrial economy to one where services make up a growing share, how has the role of the local economic developer changed?

Coleman: We are much more diverse in our scope. We deal with everything from the more traditional job-attraction types of activities that we talked about earlier, to workforce preparedness and talent development, so that the key industry clusters in our area have the kind of talent in order to continue to grow the workforce that they need.

Economic developers deal with entrepreneurship—everything from providing small business loans, incubators, mentoring services—to grow the entrepreneurs in our community, so that we grow from within. You'll find economic developers involved in international trade development, particularly where we have a business base that is interested in growing their business overseas. We're involved in technology commercialization—working with major universities and colleges and private research institutions—taking cutting-edge research and finding ways to commercialize that and, therefore, grow new businesses. And, of course, with that evolution I talked about earlier of outmigration of companies out to the suburbs and beyond, you have infill land redevelopment efforts, so therefore, land assemblage, resale, new infrastructure development, and many times, brown field development, which means that we have contaminated areas that must be cleaned up.

That really runs a very broad gamut, and it really needs to depend upon what the strengths and weaknesses of our own individual communities are that we have to address and deal with.

Davis: The literature on job creation has frequently found that most jobs are created from existing employers, yet many local economic development organizations continue to emphasize new-industry recruitment. What factors account for this allocation of resources, and what are successful economic development organizations doing to better balance these approaches?

Coleman: We found that 80 percent to 90 percent or more of our sustained job growth is brought about by our existing employers adding new jobs over time. So, working with those companies, having call programs established to know our base of our economy—the companies that we already have—knowing their needs, whether those needs are for expansion, workforce, for infrastructure improvements near their particular business. It's our job to understand what those needs are and see that they are met, because it is so much easier to keep a great company that we have and let it expand in place than it is to try to attract a new company that basically has put itself up on wheels and can move anywhere in the country.

Davis: Economic development strategies have generally proved that they're long-term and don't typically yield immediate results. In light of the current economy with high unemployment, how can economic developers adjust their strategies to respond to more immediate job creation needs?

Coleman: When the financial crisis hit a couple of years ago, projects that we thought were in the “win” column—where a company had committed—we could no longer count as being a done deal. We had to go back and look at every project that was still in the works to make sure that those projects really did come to fruition. And in most cases, they did, but it took, in a couple of those instances, some Herculean efforts to make up for collapsed financial commitments, for the changing environment within industries.

On entrepreneurship, companies who were shedding jobs provide us with an opportunity to capture the interest of laid-off people interested in starting their own companies. We did some substantial research back in the early '90s with the significant number of defense layoffs that occurred in St. Louis and found that up to 10 percent of those people were trying to start their own companies. And with that data in hand, we have prepared a number of different programs to help train as many people into entrepreneurship as possible. We try to paint a picture of difficulties, the challenges that have to be addressed, but also provide some training and some mentoring on how to achieve success.

Davis: Traditionally, local economic development organizations are evaluated by their boards or elected officials based on the number of jobs created and new dollars invested in the jurisdiction. Are there other metrics beyond these traditional criteria that can also be used to evaluate economic development success?

Coleman: Well, I think there are. Again, it depends upon the types of services that are being provided by the individual organizations. For example, if we have small business loan programs, we can measure the number of loans that were closed, the health of those loans, the loan losses that have occurred. If an organization has membership, obviously membership numbers are a key. If you're involved in small business incubators or any other kind of land leasing, the occupancy rates and the success of the incubator tenants is another way to measure success. We like to also look at the ROI, relative to whatever amount of public support we get. So, for every dollar of public support, what do we return in terms of jobs, in terms of investment, but also in terms of cash-on-cash return? What taxes are generated by the projects that we help close?

I think there is value to understanding that in extraordinarily difficult economic times, you may have your very best efforts ever in your economic development programs, but by the numbers, you may not have the results that you had hoped for. So, I think, some understanding of the times that you're in and the circumstances that the local community is in are very important as well.

Davis: In other podcasts that we've done in this series, we've heard about the changing role of technical and vocational colleges and universities in workforce development. Local economic development organizations have long worked with these entities to help provide the skilled workers required by employers. With the ever-quickening pace of change in business and industry, and evolving skill set needs, are technical and vocational colleges sufficient for providing the workforce training required, and how else can local economic development organizations address workforce development needs? Are there new partners that should be considered?

Coleman: Well, it's a great question, and clearly there are. Recent research—I believe by the Minneapolis Fed and others—has indicated that even investments in prekindergarten produce huge ROIs down the line in terms of wealth creation and talent in individuals. And so investment in education on a broad spectrum is very important. Some of that is clearly outside the scope of economic development, but I think we can bring attention to it so that others can understand that dollars spent in education really is economic development. The more traditional work with the vocational colleges and technical colleges is still very critical. We still have demand for those jobs, clearly. We still make a lot of things in this country. A lot of the innovation that we pride ourselves on can't come about unless we're actually making the widgets and the gadgets here, so we know what innovation is required. That will continue to be a major focus, I hope, on talent development.

But retaining talent at all levels is important, too. The cities and the communities that are blessed with great colleges and universities, how do you retain those higher levels of well-educated people in your community? Whether they go to work for your companies or whether they go to start their own companies and become entrepreneurs is very important. And then there is the area of technology and commercialization that I touched on earlier. If you have got great research institutions at the very highest levels of educational attainment, with the masters and the PhDs in your community, how do you leverage that talent, and to the greatest amount of commercial development within your community so that that wealth creation is sprinkled throughout the entire community not just at the higher levels?

All of those are, or should be, within the realm of the local economic developers to bring attention to just how important that is to the quality of life in your community.

Davis: Mr. Coleman, thank you for joining us today.

Coleman: Well, it's been my pleasure. Thank you very much for your interest.

Davis: This concludes our podcast. We've been speaking with Mr. Denny Coleman, president and CEO of the St. Louis County Economic Council.

For more podcasts on this topic and others, please visit the Atlanta Fed's website at www.frbatlanta.org. If you have any comments or questions, please e-mail podcast@frbatlanta.org. Thanks for listening.