| Source: Continuous Improvement Associates http://www.exponentialimprovement.com/cms/econdevlocal.shtml Social Issues This article uses an expanded economic development model based on what the Economic Development Corporation used for years to describe what can be done locally to respond to massive regional manufacturing and IT job losses. The same principles apply to the U.S. economy. Links to sections of this article following the Introduction: Note 5/18/11: Made some edits, including updating some jobs & trade statistics. Introduction In response to Jobs & 'Trade' Data Update Mar09 (the latest as of Sept 2010 is Jobs & 'Trade' Data Update Jun10), I received the following question: Good data - Would be interested in your thoughts on what we can do locally in response to these chilling job losses? Don't think that EDC or the City will be in a position to impact US trade or the stimulus policy. My first thought was, "Well, they should at least try to impact 'trade' policy." I put "trade" in quotes, because trade is the "exchange of one thing for another," not the "transfer of the factors of production", which is the great majority of what's going on. And after recently reading a letter to the editor of the Colorado Springs Independent on "primary jobs," I decided to write an economic development primer to simplify the issues and describe what should be done. The question above and the letter just below prompt me to do so in what might also be called a "politically incorrect guide to economic development." Here are excerpts from the letter in the Apr 2 - 8, 2009 edition of the Independent to which I respond here: Forgive me. I am voting for 1A (Jobs Now), and it is flawed. There isn't a plan in place on how to spend $3.5 million a year for 15 years. It's also one of those "blank checks to government and trust us to spend your money well" initiatives. Then there are those darn words "primary jobs" in the initiative. Does that mean jobs whose money is sent elsewhere, or jobs where the money stays here? ... Yes, 1A would have been better had Council taken time to craft it. But defining "primary jobs" and revisiting a shorter sunset can be worked out. The growing lack of jobs can't. There is a time to distrust local government and a time to trust. Now is the time to trust. I'm willing to invest $15 a year if it means thousands of new long-lasting, decent-paying jobs. ... Richard Skorman Richard Skorman wonders what those "darn words," "primary jobs," mean? He asks, "Does that mean jobs whose money is sent elsewhere, or jobs where the money stays here?" Frankly, it's shocking that this question comes from a former member of the Colorado Springs City Council and from a person formerly on Senator Ken Salazar's staff here in Colorado Springs. That said, let me be charitable and guess that this was simply a rhetorical device to reflect the general public's lack of understanding of what "primary jobs" are ... and chalk it up to a missed opportunity to explain what they really are. The answer is: It's neither "jobs whose money is sent elsewhere" nor "jobs where the money stays here." It's "jobs at companies that bring substantial net dollars into the region" ... typically dollars-out is 50% of dollars-in. That is, primary jobs are jobs at "primary employers." This definition from the Longmont Area Economic Development Council in What Are Primary Employers? is as good as any. Primary employers are those companies that sell the majority of their goods and services outside the Boulder County region. They represent the foundation of our local economic base because they bring new money into the local economy. Economic Development Overview & Model Below is a diagram that Rocky Scott, former President of the Colorado Springs Economic Development Corporation, often used in his presentations. It illustrates the flow of dollars into, through, and out of the region.
When more dollars come in than go out, a region experiences economic growth. When there's balance, the economy is stable. If more dollars out than in, there's economic decline; in extreme cases where dollars stop coming in, a town becomes ... a ghost town (Colorado has them and sections of Colorado Springs look like them). What applies to a region is pretty much the same as for a family. When more money comes in than goes out, a family prospers financially. When the opposite, it's debt and financial hardship. When a family can pay junior to mow the lawn, that helps by circulating dollars within the family. I created the diagram below to illustrate what happens in more detail to help draw economic development policy recommendations. The diagram shows three kinds of companies. There are:
In practice, none of the companies in these categories are "pure" types. For example, export companies (primary employers) do spend dollars outside the region; it's just that export companies (primary employers) have substantial net dollars coming in. Powerpoint Presentation Slides: Economic Development - What to Do Locally [4.42M].
In general, what should be done? Figuring out what should be accomplished is not rocket science. It's more like basic arithmetic. [Disclosure: I'm not an economist, though I do have an MBA, my Ph.D. is only in physics, not economics. Judge for yourself whether any of this makes sense.] So there are three things to work on:
What do you think is the case in Colorado Springs? More dollars coming in than out? Or more dollars out than in? What's the trend? Here's a clue from Jobs & 'Trade' Data Update Apr09: Colorado Springs has experienced a devastating loss of manufacturing jobs ... these are your primary employers!
Holy cow! Colorado Springs has lost 52% (12,700) of its manufacturing jobs since 2001 as of March 2011? And that trend is accelerating downward? Holy cow! These are typically those coveted "primary employers", the "export companies" needed to create a stable or growing economy. And Colorado Springs has also lost 52% (7,500) of it's Information Technology jobs since 2001 as of March 2011. This should be no surprise, either, because many IT jobs are in support of manufacturing, which we're losing (e.g. Intel in India). What a bummer for those who retrained in IT as the wave of the future when they lost their manufacturing jobs.
Note that this article cites the corporate-backed ITAA figure of "2 percent of the 10 million computer-related jobs have been sent abroad". But as my chart shows, 830,000 jobs (22.3%) have already been lost as of Apr 09, as opposed the Forrester's "473,000 IT jobs by 2015." Talk about low projections. And by Jan 06 the nation had already lost 664,000 jobs; it appears that Forrester Research is either incompetent or lying. Did you know the magnitude of these job losses? Does the corporate media inform or does it cheerlead for current "free trade" policies that led to the loss of those jobs? You know the answer. (See Denver Post 'Trade' Deception, 3/3/08.) So it's obvious that Colorado Springs has more dollars going out than coming in.
But back to the main question: What's a mother to do about the chilling job losses?
Standard Economic Development Approaches First let's look at two typical recommendations. These examples are pretty much the same (you can skip down to standard approach summary and not lose much):
Standard approach summary: The focus is on "primary employers". It's pretty much standard economic development policy.
These are positive steps, but they're astoundingly incomplete. They focus on the "bring dollars in" front end, but ignore the circulation middle and the "limit dollars out" back end. When I say these are positive approaches, I should add the caveat that in general competition among regions with subsidies to attract companies is a zero sum game. That's because it does not "create jobs", it moves jobs from one region to another. It either steals existing jobs from another region or it gets jobs that would have gone to another region if that region had larger subsidies. See The Growth Facts of Life. Businesses die that focus on gaining new customers and not enough on why they're losing the ones they have ... their best ones. The same concept applies to an economy.
Going beyond standard economic development approaches So what else can be done to improve an economy? Here's the diagram again.
Here's what can be done. The standard approaches above are colored. Export Companies (Primary Employers)
Primary employers are often attracted with tax incentives and other subsidies. These include investment tax credits, job traning credits, jobs credits, vacant building rehabilitation tax credits, ... it goes on and on, including support incentives, economic development "enterprise zone" and other subsidies. Here's are lists of business incentives and "enterprise zone" tax encentives for El Paso County. Companies that can take advantage of these incentives bear a lighter tax load than other companies. Local Service & Retail Companies (including government & local non-profits)
Import Companies Now here's the "politically incorrect" part: it's improper to talk about the damage these companies do. Export companies, those primary employers, get a lot of attention for their positive impact (even though we're losing them like crazy). Import companies do not get much attention for their negative impact. So what are they? Import companies are the "big box" stores, with Wal-Mart being the quintessential example. Import companies are the polar opposite of primary employers. It's illogical and destructive to have companies like this and even more so to encourage them with incentives. Why?
One of Rocky Scott's slides had this: "Without primary employers, we only export our wealth, get poorer." This should be extended to say, "With only import companies, we only export our wealth, get poorer." And that's exactly what's happening ... and we wonder what to do? So what would be done, if policies were logical?
Incentive examples for Wal-Mart:
Doing anything about import companies is, of course, controversial. That would, of course, violate "free market" ideology. You'd hear: "You can't do that, let the 'free market' take care of it. If people don't like having Wal-Marts here, all they have to do is stop shopping there! Everyone should act in their own self interest and everything will work out for the best." Well, that's perfectly logical for individuals. Unfortunately, it's collectively irrational; it's a perfect example of the "fallacy of composition." In this case, it goes like this:
It's individually logical, but collectively irrational. We can't blame individuals for being logical, it's the structure of the system that's responsible. The typical, "If you don't like Wal-Mart, don't shop there", response ignores this logic and relies instead on simplistic ideology. Another likely complaint: "We can't discriminate against big-box stores, that would be interfering in the 'free market' and unfair. That's social engineering." The fact is, though, we already discriminate by providing incentives for some companies and not others ... now that's social engineering, too. This is really beside the point because what we must care about is whether regions and the nation will fail or not. You'll hear little in the corporate media about the downside of import companies. Retail and wholesale import companies are the corporate media's advertisers. It's not in the media's financial interest to antagonize them. As I document in The Tangle of Growth overview (p. 12), the media are part of what's known as the "growth machine" ... entities that are naturally organized by the profit motives they share. So there are things the region can do locally to improve the economy. Alas, they'll not do enough to overcome the "free trade", anti-stimulus background that's undermined the U.S. economy.
What to do about National Policy? The query at the beginning states: "Don't think that EDC or the City will be in a position to impact US trade or the stimulus policy." Well, we'd better try because the same logic that applies to the region applies to the nation as a whole. The U.S. economy has only been kept afloat by massive borrowing from countries like Japan and China. The cumulative U.S. trade deficit is $8.1 Trillion from 1960 through 2010. $6.2 Trillion of that is from 2000 through 2010. Much of this has been used to buy U.S. companies, buildings, roads, and ports so U.S. Net International Investment is only somewhere around $2.5T. [See Redux: Who owns America? How is foreign ownership of U.S. Treasuries and other securities trending? and Warren Buffett's Chart of growing foreign holdings of U.S. assets at The Trade Deficit and the Fallacy of Composition.] Then again, it may now be more:
We Must Have Balanced Trade Policies, not "Free Trade". Here's how: There are so many factors affecting trade that achieving a "level playing field" is extremely difficult. Trying to adjust the many factors is just too complicated. There's currency manipulation, competitor countries having national health insurance (removing the cost from industry), tax policies, capital subsidies, transfer pricing manipulation of profits, theft of intellectual property, tax deductions for moving manufacturing and research to China, and lack of labor & environmental standards. Trying to adjust for each of these by means of import tariffs will mean political battles with virtually every special interest in America, battles which will mostly be lost. Therefore, focus on outcomes by promoting "even trade" or "balanced trade," not "free trade." Warren Buffett is also concerned with the long-term problems caused by international trade that's "out of balance." He described the problem and what to do in his article in Fortune: America's Growing Trade Deficit Is Selling The Nation Out From Under Us. Here's A Way To Fix The Problem--And We Need To Do It Now. By Warren E. Buffett Carol J. Loomis, 11/10/03 (alternate link here). To deal with this out of control situation, he's proposed an Import Certificates mechanism to create balanced trade to deal with what he describes as "a shifting maze of punitive tariffs, export subsidies, quotas, dollar-locked currencies, and the like."
This is a market-based mechanism that would produce the desired outcome: balanced trade.This is necessary because anything out of balance will be, WILL BE, brought back into balance.The more out of balance it's allowed to become, the more severe will be the correction. When I wrote this article in May 2005, I suggested it would be wise to phase in this policy over a decade or so to mitigate the economic shock. Going "cold turkey" would be ugly; "warm turkey" will be painful, but less so than "cold turkey" and much less than will be the consequences of current policies. That was then; it's too late now (Sept 2010). There's no time left for warm turkey. Also see: Buffett's Import Certificates Plan Could Pilot the Economy to a Safe Landing By Howard Richman, 1/18/09. This article echoes my view that
The U.S. has borrowed so much that it's going to be unable to pay it back. The result can only be hyperinflation to devalue the debt. See The 9/22/08 Economic Crisis.
What can be done to influence the national agenda?
As Professor Peter Navarro explained, in a presentation on "The Wealth of Manufacturing Nations in the 21st Century" at the Coalition for a Prosperous America's 4/7/09 Issues Forum on why free trade is not working... and cannot work today:
So far, the U.S. has done a pretty good job of getting out of business. I've also written on economic development at
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Operation 6035 Press Release on Initial Findings Subject: Press Release: Operation 6035, April 14, 2009 __________________________ According to the "Operation 60THIRTYFIVE" site, these are the objectives listed on the site of the project:
Below are some thoughts on each of these objectives: 1. Create a shared vision for the economic future of the Pikes Peak region Here's some heresy for you: The idea should not be to create a shared vision of what the economic future of the Pikes Peak region should be. The focus should not be on the qualities that would make the region attractive. The shared vision should be about how we will allow the region to become unattractive ... an unorthodox assertion. Huh? What's that? How the region will become unattractive? Who wants that? Nobody. But that's what is happening and what will continue to happen. To understand why this is true, one must understand the nature of urban dynamics and understand what's called the "Attractiveness Principle." Applied to businesses, it's the well-known principle that no business can be all things to all people (lowest prices, best service, best quality). The same goes for regions. And a fact of life is, given free migration, that no place can long remain more attractive than any other place (where "attractive" means the composite of factors that attract). As Colorado Springs will eventually become as unattractive overall as any other place, we must develop a shared vision of what will be allowed to make us unattractive so as to allow us to maintain a region with the many qualities we desire. This is known as practicing "strategic unattractiveness." For example. Will we become unattractive by having low taxes along with potholes and dying grass and closed restrooms in parks? Or will we maintain quality of life with impact fees on growth to offset implicit and explicit growth subsidies. If not ending growth subsidies, will we redistribute costs onto the public with higher taxes to pay for the long-term costs of growth? It's apparent we are following the first path. A main reason to try to arrive at how we'll become unattractive is that everyone tends to want to be attractive on all dimensions and we're largely unaware that becoming more unattractive in some way(s) is inevitable. For an understanding of urban dynamics, strategic thinking, and the attractiveness principle, see
2. Assess the region's current competitiveness As noted above, use IMPLAN to determine current clusters. Consider the inevitable higher fuel costs (including the coming hyperinflation) and the need to stay local. 3. Identify specific high impact target industries As noted above, attract export companies (primary employers) and companies that will "buy local. This means attract manufacturing, promoting local agriculture, and industries in clusters that will grow locally as transportation costs increase. Given the inevitable increase in energy costs, attract companies that improve energy efficiency and develop renewable energy. Promote reuse. Also, as noted above, there should be consideration of which industries should NOT be targeted and subsidized ... e.g., import companies. 4. Recommend organizational, programmatic and structural improvements to support the mission of the Colorado Springs Economic Development Corporation of high quality job growth In 2003 Colorado Springs eliminated its Office of Economic Development. This was short-sighted and a mistake. Economic development should look out for the whole of Colorado Springs and not favor those who can, thanks to growth subsidies, contribute to financing a private endeavor to increase already-subsidized profits. 5. Outline a specific implementation plan Including tracking performance against plan. 6. Establish tangible performance metrics These should be publicly available for companies courted and attracted. Individual company and summary statistics should be included. Projected and historical data should be tracked, compared, and reported. Metrics:
Story on Operation 6035 Chapter 2: target industry opportunities The Colorado Springs Independent had an article on 5/28/09: Operation 6035: No surprises yet by J. Adrian Stanley. I should preface and soften any criticism on this page by saying that it's extremely difficult to go beyond standard economic development recommendations; it goes against powerful ideological beliefs and would alienate almost all clients. That said, here goes: It reports the selections for "target industry opportunities" to be ... my comments are in italics:
How about manufacturing? Agriculture? Buy Colorado Springs? Import company impact? It appears this $160,000 study by an expert-from-afar reports the conventially obvious, but the conventional is going to be wrong given the changing economic conditions that I've noted. The suggestion that the region pursue IT is ... is ... well, simply amazing. See the devastation in the graph below: Colorado Springs has lost a greater percentage of IT jobs (49%. 7,100 lost) than manufacturing jobs (46%, 12,300 lost). U.S. Employed Foreign Guest Workers Outnumber Unemployed Techies 5/28/09
Seriously now, this H-1B policy would be laughable, if it weren't so destructive and despicable. Why is it U.S. policy to systematically undermine the educational investment of its citizens by causing them to lose their jobs and depressing the pay of those who do have a job? Answer: to depress wages and increase profits ... to increase return-to-capital and reduce return-to-labor. Added 7/8/09: And they want even more. Incredible!
The Council on Foreign Relations, Republicans, the U.S. Chamber of Commerce ... the usual suspects ... supporters of "free trade" and undermining wages. Excellent! Many of those who lost their jobs in manufacturing retrained in IT, but those jobs are going, too. What are they going to retrain for now? Note that Advanced Technology Products jobs are being lost, too? (... see the ATP graphs ...) The truth? They'll be expected to get jobs at WalMart.
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