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Column: Local economic development trend questionable in Indiana

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Local economic development organizations have been challenged severely in the past few years.

Some have been absorbed by the local chamber of commerce. Others have joined forces with their counterparts in other counties to become regional agencies. A local economic development organization can continue to exist, but it becomes less visible as part of a larger organization.

The chief problem is no one knows how to measure the efficacy of a local economic development organization, but boards of directors want performance metrics so they (the board) will appear to be responsible. When such metrics are not forthcoming, it becomes hard to justify a local economic development organization’s expenditures of public and private funding.

Some local economic development organizations are funded only by local governments.

They receive annual appropriations from the county and/or the city. The source of funds may be a county Economic Development Income Tax or part thereof, since the county council and commissioners may have other ideas about what constitutes economic development. Elected officials on a local economic development organization board get very nervous if they do not know and understand what a local economic development organization does.

Private sector funding often comes from large national firms that want to support a local effort beyond youth softball, and from local firms with skin in the game of local prosperity (newspapers, banks, Realtors, developers and even hospitals and colleges). They often view the local economic development organization as a business that “should be run as a business.”

Since a local economic development organization does not sell a product or charge for its services, it’s hard to use the business model. What a local economic development organization does is help firms make location-related decisions that are ultimately good for its community.

This means increasing the number and value of jobs in the area, augmenting the assessed value of property, and not deteriorating the environment through added pollution and congestion.

Changes in these conditions, however, are hard to attribute to the local economic development organization which typically can provide only as much guidance to a firm as the firm is willing to accept. In a bad year, positive outcomes may be virtually impossible to find while a good year may have had little help from the local economic development organization.

What a local economic development organization does is pass information on to existing and prospective employers about the physical and economic infrastructure of a community.

It is a task that requires extensive knowledge and familiarity with the institutions and personalities that matter to the potential expanding firm. A good handshake and a bottle of bourbon might help in selected cases.

Some local economic development organizations are attempting to reshape their images. They do not wish to be seen as a variant of the welcome wagon. Nor do they want their financial supporters to misunderstand why regular use of the country club golf course can be an integral part of keeping and attracting good businesses.

The trend today is to say our economic development depends on the quality of our labor force which in turn depends on our education system. Hence, we find local economic development organizations positioning themselves as work force training experts.

I find this trend questionable since our labor force is highly mobile. The problem simply may be that well-trained people do not want to raise their families in Indiana.

Morton Marcus is an economist, formerly with the Indiana University Kelley School of Business.

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