This is the latest in a series of economic development primers by Maury Forman. In a profession that sorely needs more training, more clarity, and a better sense of humor, Maury provides a service not available anywhere else. Following a format that typically includes the cartoon artwork of David Horsey (a well-known figure in the Seattle print media), Maury sums up volumes of work with a series of pithy admonitions. Leadership – at the community level – begins with vision and ends with a commitment to develop future leaders. While we may quibble about what was left out, or what was redundant, the fact remains that we have precious little to draw upon when we want to educate our politicians and our agency heads about the importance of leadership.

It is no surprise to anyone in economic development that leadership is the sticking point of most plans and most initiatives. When you have it, things work. When you don’t have it, things fall apart. A primer on leadership is a reminder that planning alone is not enough, even when it meets budget and management tests, garners community support, and selects worthwhile goals. The ability to drive the process forward, that’s leadership.

Hats off to Maury for another well-executed guidebook.

“The Ten Commandments of Community Leadership is available through the State of Washington Department of Community, Trade, and Economic Development or the Association of Washington Cities.

This tool gains its real value in making transparent what has long been the private domain of dozens of fragmented, smaller sites. We badly need accurate information about workforce, transportation, and infrastructure. Businesses can no longer fly by the seat of their pants. Volatile fuel prices and a tightening labor market have put many companies in a precarious situation. In this context, ZoomProspector is also invaluable for economic development organizations and site selectors. To know what makes a place competitive is absolutely essential. The website accomplishes this through a number of innovative features, including a community ranking wizard, demographics of every city in the US, in-depth property info, and a Google Maps interface – with the useful Street View option and access to the local map layers of data you can’t even find on the regular version of Google Maps. Having this much data on one application makes it immensely easier to benchmark progress, identify weaknesses, and to think strategically about one’s community.

ZoomProspector’s challenge will be to take this cutting-edge tool and keep it that way. If it pulls that off, it will help revolutionize the industry.

Is the Sky Falling?

It is extraordinarily difficult to keep abreast of our current economic woes. Just as IEDC schedules a web seminar on “The Future of Economic Development at $5 Gallon,” oil prices fall to under $90 a barrel and prices at the pump drop to $3. Just as sustainability conferences are announced, a large contingent of developers now speak of survivability instead. And just as we were sure that a $700 billion “rescue package” would bolster the economy, the Dow dropped further.

If you had heard someone make these predictions a year ago, you would have looked askance at the speaker. Things are bad, you would have said, but please don’t exaggerate. They are not that bad. But now we are facing unprecedented volatility in our financial markets. Whether we are economists, city officials, or economic developers, we are equally beset by uncertainty. What follows is a brief primer on why we find ourselves in the current situation, and what it might mean for economic development.

Let’s consider what lies at the root of the problem. Is it right to call this a “credit crisis?” No, it is not. What we have, and have had for a very long time, is a debt crisis. Bad credit is a consequence of too much debt backed by too few (or declining) assets. In short, we’ve been spending beyond our means – individually and as a nation. We’ve done that because banks and credit card companies and mortgage lenders have allowed us to do it. We are all complicit in this. We wanted things we could not afford and should not have bought. Lenders enabled us to do this because they were making enormous sums of money by doing so – even as they knew perfectly well that the risk was growing. They were willfully blind to the fact that the only tangible asset we could offer as collateral was our homes. As long as the value of homes was going up, the house of cards could be built higher. And was. Deregulation enacted in 1999 allowed banks to bundle and trade those loans. You noticed it as your mortgage was sold, and resold. And each time that happened, some firm made a lot of money. That money fueled a desire to make more, and lenders began offering loans at below market rates while only vaguely addressing the long-term debt burden being assumed by borrowers. This is how the crisis expanded to Freddie Mac and Fannie Mae, and beyond that to credit markets in general.

At the same time, the federal government was also sinking further into debt. Foreign wars and unprecedented domestic spending pushed the deficit steadily higher. It is difficult to comprehend just how onerous the burden has become. And we’re part of it. With a total national debt upwards of $10 trillion, we have a per capita debt for every man, woman, and child in this country of $33,333. These obligations must, eventually, be discharged. It is money owed by the government to, among other things, foreign countries – especially China and Japan. To recite further statistics at this juncture is to cast a deep gloom: Fully 10 percent of the nations 51 million mortgages are at least 90 days in arrears. Perhaps as many as 6 million homeowners may lose their homes by this time next year, and individual credit card debt stands at $8,500 per household. With the primary asset backing that debt (our homes) also in decline, it is highly unlikely that consumer spending will stimulate the economy. Meanwhile, credit for even the most successful small businesses is tightening and venture-backed IPOs have dropped precipitously. In short, we cannot spend our way out of this crisis.

This situation has been a long time coming. While this may not be cause for despair, it does require us to rethink how we do economic development. We have taken for granted that our unemployment rate will remain low, that we can borrow cheaply and freely, that consumer spending will continue unabated. Funding for our economic development organizations was predicated on these assumptions as well. Here in Texas, sales tax receipts fund most of our communities. Those receipts will almost certainly decline. Contributions from the city (or economic development departments within city governments) are already in decline. This is due in part to reduced tax revenues (including property and sales) and will have an effect on capital projects – which we are already seeing with the tightening of municipal credit. Corporate contributions can hardly be expected to remain at their current levels. At the same time that budgets decline, expectations for what economic development organizations can do will increase. Here, then, are assumptions that follow ineluctably from an economy in decline:

• Business expansions will slow dramatically – making business recruitment efforts extraordinarily difficult.
• Credit for start-up and small businesses will be difficult to secure – forcing entrepreneurial programs to change expectations.
• Unemployment will rise even as requirements for skilled workers will increase – placing increased demands on workforce programs.
• Commercial real estate activity will decline – putting a damper on professional service growth.

So is the sky falling?

No. Markets are adjusting downwards but are not in free-fall. Aggressive intervention by the U.S. and Europe will help support an admittedly strained economy. But even if the sky doesn’t fall, can we expect a rapid return to a vibrant economy? The answer, unfortunately, is that we are likely to face a prolonged period of uncertainty and market volatility. The challenge at the local level is to return to fundamentals. And what are those fundamentals? A diversified economy, a trained and flexible workforce, and a forward-looking public sector that can itself act as a stimulus for growth. Each of these fundamentals, however, must be viewed creatively. Diversification must occur not only by sector, but by size of business, by access to international markets, and by finding a way to maintain R&D spending. A skilled workforce will mean a fresh look at apprenticeship and the engagement of technical and community colleges. The involvement of local governments is, however, one of the most critical and underappreciated elements of a responsible approach to a recession. A clear understanding of what infrastructure projects can be undertaken with reduced revenues, how contracts are awarded, and how economic development at the public-sector level can stimulate future private investment is the immediate challenge.

These are frightening circumstances. It may be too trite by half to suggest that the time has come to pay the piper. It has become clear, however, that deficit spending (whether by individuals or by government) is not a substitute for a sound economy.