Dr. Ken Poole, CEO of the Center for Regional Economic Competitiveness
To compete effectively,
focus on core competencies and growth of existing businesses
A Civic Caucus
Focus on Competitiveness
Interview May 16, 2014
John Adams, David Broden
(vice-chair), Janis Clay, Pat Davies, Rick Dornfeld, Amir Gharbi, Paul
Gilgie, Randy Johnson, Sallie Kemper, Dan Loritz (chair), Clarence
In the current global
economy, the distribution of businesses and jobs has become more
competitive. In response, state and local policymakers often turn to
economic development incentives to attract and retain jobs. According
to Dr. Ken Poole at the Center for Regional Economic Competitiveness,
the current economic environment presents a number of challenges to
communities seeking to grow and attract good jobs.
Moving beyond the classic "tax rates versus
service quality" discussion, Poole highlighted issues such as
workforce development, rapid changes in the global economy, and new
infrastructure needs. Poole said these issues also are having an
impact on the ability of local and regional economies to grow. He
argues that policymakers should focus on fostering the growth of the
companies already located in their communities. Poole believes that
growing from within is far more effective in creating a large number
of jobs than trying to attract outside companies with incentives.
Dr. Ken Poole has managed
economic development research, analysis, and technical assistance
efforts for over 30 years. Poole co-founded Center for Regional
in January 2000 as an independent non-profit organization focused on
assisting policy-makers in using data to determine how state and
regional economies can compete effectively in the evolving,
Under Poole's leadership, the center has
successfully completed dozens of projects for federal, state,
regional, and local clients. For those projects, Poole has conducted
quantitative and qualitative analyses of economies and program
impacts, facilitated strategic leadership planning sessions, and
provided technical assistance on economic and workforce development
program design and strategy.
Poole received his PhD in Public
Administration, Regional Development Policy, from George Mason
What is Economic
Development? Poole suggests that economic development should be
defined as creating economic activity that adds value to a local
economy and increases the prosperity of the people who live there.
Poole also acknowledges that sometimes the people who live in a given
area may not have the skills necessary to benefit from increased
development. In those cases, companies tend to attract new in-migrants
to take those jobs, but it is generally the community's responsibility
to ensure that skilled talent is available.
Should Development Incentives be used?
This year, the Center for Regional Economic
Competitiveness launched a new initiative with Pew Charitable Trust to
The Center for Regional Economic
Competitiveness remains neutral on whether to use economic development
incentives. The political reality is that most states employ
incentives and are likely to continue doing so. Poole says their work
is designed to help policymakers be better stewards of public dollars.
If political leaders feel that incentives are important, then CREC
would like to help those leaders make the most effective investments
The Challenge for Economies.
Minnesota and other states are grappling with how to support growth
and job creation in a changing economic environment. As a result,
states are left trying to answer several critical questions:
What factors drive economic development and job creation?
What public policies present the best chance to support job
What resources are available to support economic development?
In this environment, Poole says states are
trying a variety of different initiatives in an attempt to spur
development. These efforts range from promoting entrepreneurship and
investing risk capital in new start-up businesses to providing tax
credits for job creation, investing in customized job training to meet
companies' workforce requirements and offering infrastructure programs
to help expand their facilities.
Barriers to Development
. Not all
job creation results in economic development for a state. Poole cites
the fact that no more than 25 to 30 percent of jobs in a regional
economy bring new money into the area; the remaining jobs tend to
"recycle" the region's existing wealth. Manufacturing and tourism are
two obvious examples of industries that bring dollars into a local or
regional economy. In comparison, the vast majority of jobs focus on
filling local needs, circulating current money around.
Problematically, these local service jobs have a smaller multiplier
effect, and more importantly, these jobs are much more likely to be
Distribution of Development.
suggests that there are a number of factors that affect where
development occurs, many of them outside of policymakers' control:
The aging of baby boomers and new
immigration patterns play a significant role in shaping economic and
Innovation and creativity are
becoming increasingly important for economic prosperity, while brawn
and geography have become less critical.
Product life cycles.
Product life cycles are becoming
shorter, which has a major impact on how industries operate and how
quickly things can change.
. In the past, large
conglomerates directly produced products and services themselves.
Today, these companies often organize and manage other businesses.
As a result, the value chain and the supply chain play a much larger
role in the economy.
Global supply chains mean that issues
in other countries can impact economic development in the United
States. For example, the 2011 tsunami in Japan had a huge impact on
the automotive supply chain around the world.
Principles for Policymakers.
these factors, Poole argues that policymakers should turn to
some basic principles to guide their work:
Encourage private markets
. Policymakers should allow
private markets to operate free from interference, except in the
case of market failures that preclude a level playing field or that
create barriers to entry that are too high.
Balance costs and services
. Policymakers can impact
corporate behavior. This means they should strive to keep taxes at
moderate levels, while maintaining the high-quality services that
the best paying companies (and their workers) demand.
Resource scarcity presents a significant
challenge for state and local governments, especially since the
recession. These limitations make it difficult for governments to make
desired investments while holding costs in check. Instead of making
direct expenditures, state and local policymakers have become much
more willing to implement development incentives through tax structure
changes because those expenditures were not monitored as traditional
budget line items.
For example, Minnesota now spends $9 in
so-called economic development tax expenditures (through breaks
offered in the tax code) for every $1 it spends through direct
economic development program expenditures. Other states have similar
patterns of economic development tax expenditures versus budgeted
program expenditures. Poole argues there is not anything inherently
wrong with using the tax code in this fashion, but when such
expenditures are left unbudgeted it is hard to determine how much is
invested or whether that investment provided a return. Further, if
left uncapped, tax expenditures have the potential to become too
expensive to be sustainable.
Growing Economies, Not Shuffling Them
argues that business incentives that simply relocate companies are
ineffective, unless it can be argued that new location is more
efficient or that the state has made a substantial strategic choice to
lure a new industry, not just a single enterprise. And on practical
level, companies that receive incentives to relocate are less likely
to remain permanent additions to the local or regional economy.
Instead, Poole suggests that local and state
governments should focus on helping their current businesses add jobs,
one or two at a time. In the long run, these businesses are likely to
create more jobs in total than the relocating businesses can add to a
local economy. Thus, Poole argues that policymakers need to think
about "growing the pie," instead of taking a slice from someone else.
Finding Competitive Advantages.
grow their economies, policymakers should consider what makes their
region unique. Do they have a talented workforce, a desired natural
resource, a great location, etc.? They also need to consider what
their gaps are. For many regions, Poole says, this gap frequently is
workforce talent; either a community has not invested in its talent or
its companies need a different type of talent.
To determine where these strengths and
weaknesses lie, Poole advocates examining a variety of factors. At the
Center for Regional Economic Competitiveness, they look at issues such
as the mix of industries or businesses found in a local economy and
the trends in that field. They also are interested in the types of
workers found in that region and the pipeline of future workers. For
high-skill positions, immigration patterns also are important because
"you don't just create a masters' degree in six months."
Poole cautions against relying on some
popular measures to assess regional economic competitiveness. He says
venture capital and patent statistics can be misleading. For example,
development typically occurs at the regional or local level. However,
the states typically control the financial resources and institutions
critical to economic development (such as tax incentives and land
grant universities). Poole says that to maintain a state-local
partnership, both sides need to find a "glue" that binds them
together. Support for this partnership can come from a variety of
sources: civic leaders, state economic development resources, or even
States such as Utah and North Carolina have
done good jobs supporting sustainable economic development. Utah has
used educational incentives to build from within, while maintaining
relatively low costs. Similarly, North Carolina has built a series of
economic development anchors that support their economy. These anchors
start with the research triangle (North Carolina State University, the
University of North Carolina, and Duke University) and more recently
some new developments in the greater Charlotte area. In both cases,
these states have triggered success in these areas without engaging in
the most expensive bidding wars for outside businesses. Instead, they
have used internal growth to sustain economic development and job
Skills Gap Real or Imagined? The
gap remains a major point of concern
for economic development policymakers across the United States. Poole
points out that economy is transforming rapidly, which creates
problems for both companies and communities, including:
Rapidly changing needs.
Right now, the needs of companies
are changing quickly, making it difficult to find employees that
match the needed skill set. This problem is compounded by a historic
underinvestment in training by corporations.
Companies are looking for employees with
more skills, but appear unwilling to pay more to get these
There is evidence that suggests
some people may not be investing in their own job skills and that an
aging workforce compounds this problem.
Poole says there are not many good solutions
to this issue. Many times, companies don't know what their needs will
be in six months, making it difficult to create job training programs
for specific occupations. Poole also suggests that most job creation
is happening at smaller companies (as opposed to larger employers),
which makes it difficult to develop customized job-training programs
for groups of individuals requiring the same skills at the same time,
the model that most community colleges use.
Poole cites the
in Pennsylvania as an exemplary workforce development initiative that
has tried to address some of these issues during the past decade. The
program brings together multiple businesses to identify common
workforce needs, and then it trains individuals to fill these
positions. This approach helps resolve the issue of trying to create
training programs for small companies that might only need one or two
newly trained employees. Many states have created their own version of
this initiative under the auspices of "sector partnership" programs;
some of these have been supported with funding from local workforce
According to Poole, another key component of
the skills gap discussion are "critical" jobs. For example, a small
manufacturing company might only need one welder or one machinist, but
if the firm is unable to fill the position they may find operating
smoothly very difficult. Thus, while the number of skilled workers
required may be small, this gap can have a significant impact on
Importance of Public Infrastructure. Communities
that lack access to high-quality, reliable, and affordable broadband
are put at serious economic disadvantage. In this context, Poole says
that internet accessibility and high speed broadband
telecommunications have become just as important as traditional
Poole also argues that as communities become
denser, they need to consider alternate transportation options.
Developing overlapping transportation systems creates redundancy,
which helps ensure that people have ways to get around even when a car
or bus breaks down or daily traffic congestion snarls access to work
Globalization and Regional Competitiveness. International
trade offices became popular during the 1990s and then declined when
states were forced to make budget cuts. The roles of state-based
international trade offices also vary. Some states use the offices to
attract foreign companies to their states, while others use them to
help their businesses go overseas.
The benefit for large corporations is
somewhat limited because they have the ability to enter foreign
markets without public help. However, for smaller businesses these
trade offices can be instrumental in providing the skills and market
intelligence required to help businesses enter new markets and develop
overseas business connections.
Poole concluded by noting that
since every region is unique, economic development policy must reflect
distinctive regional differences. He also suggested that if
policymakers opt for development incentives, they should consider how
to use them in a strategic way. Otherwise, he encourages regions to
focus on their core competencies to develop strategies aimed at
growing from within.
The Civic Caucus
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includes persons of varying political persuasions,
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S. Adams, David Broden, Audrey Clay, Janis Clay, Pat Davies, Bill
Frenzel, Paul Gilje (coordinator), Randy Johnson, Sallie Kemper, Ted
Kolderie, Dan Loritz (chair),
Tim McDonald, Bruce Mooty, John Mooty, Jim Olson, Paul Ostrow, Wayne
Popham, Dana Schroeder, Clarence Shallbetter, and Fred Zimmerman