Ideas in Development

What Is Economic Development?

To start, there is the nature and significance of economic development. (The following is based on CFED’s design of its Development Report Card for the States.  Lots of cooks—both CFED and its friends had their mitts in the broth.) At its most basic, economic development is the process by which wealth is created—or how a society increases its level of material and social well-being over time. In a developing economy, employment increases, incomes rise, innovation occurs and the rate of economic growth rises.

Economic development is typically equated with economic growth, but in our view, the terms refer to different things. First, development is both a prerequisite to and a result of growth. Development, moreover, is a qualitative change, which entails changes in the structure of the economy including innovations in institutions, behavior and technology. Growth, on the other hand, is a quantitative change in the scale of the economy—in terms of measures of investment, output, jobs, consumption, income and others. Hence, development is prior to growth in the sense that growth cannot continue long without the sort of innovations and structural changes implicit in development. But growth, in turn, will drive new changes in the economy, causing new products and firms to be created as well as countless small incremental innovations. Together, these advances allow an economy to increase its productivity, thereby enabling the production of more outputs with fewer inputs over the long haul.

Economic development should be concerned with how all the people are faring in this development process, not just the most wealthy, or the most educated, or those with the longest family tree as American citizens. It is for this reason that the Corporation for Enterprise Development (CFED) has always argued that economic development should help to achieve a more widely shared and sustainable standard of living. This overall goal may be broken down roughly into three elements:

• Development entails the enrichment of material and social well-being, which can be measured in the flow of money and goods to individuals over time; increases in the quality and quantity of public goods (such as clean air and water, freedom from fear of crime, better schools, etc.); and access to good jobs (e.g., with wages and benefits sufficient for supporting a family, and opportunities for advancement).
• Shared growth means that there is broad distribution of opportunities for meaningful participation in the economy and enjoyment of the benefits of an increased standard of living.
• Sustained growth means that the above goals are achieved in a manner that does not detract from—but rather enhances—the economy’s ability to achieve the same goals in the future.

Why Is Economic Development So Important?

Continued development is very important for a number of reasons. First, it is necessary for sustaining the competitiveness of the United States economy and raising overall productivity and incomes.  Second, it can maintain a high level of employment and job quality for all Americans.  Third, it can help to create the jobs necessary for providing middle class opportunities for the jobless and working poor. Fourth, it can provide the earnings needed to make further investments in education, government services, amenities, infrastructure and quality of life.  Lastly, economic development must be increasingly environmentally compatible, if it is to play its part in dealing with climate change, habitat loss and so forth.

Why Should Nontraditional Constituencies Care About Economic Development?

All political institutions and major social institutions, ranging from universities to schools, from social service agencies to banks, from business associations to unions have a stake in economic development.  However, some key stakeholders have not had places at the development policymaking table.

First, let us consider human services professionals.  Access to decent jobs, after all,  makes a real difference in the lives of children, families and communities.  Even the most flexible, highly integrated, community controlled and culturally sensitive human service systems would not achieve their intended quality of life goals without the availability of expanding employment opportunities.  And low levels of job creation create a vicious circle of effects that lock children, youth and adults in a self-reinforcing spiral of concentrated poverty, social isolation, increasing crime rates, community decline, middle-class flight and falling tax revenues.

Moreover, spending too many public dollars on ineffective development strategies will limit resources for either adequate income maintenance and quality social services or for new types of anti-poverty oriented development strategies that creatively link economic development, employment training and human services efforts. 

Or, take labor unions.  They are the only organized constituency group whose business is help their members and other working people secure good jobs.  And our approaches to economic development can make this goal either more or less probable.

Educators are dependent on tax revenues for providing quality educational services.  And these funds will only be forthcoming if job creation and income growth is occurring.  In addition, a high quality educational “product” is a critical component in establishing a good climate for business investment and growth.

That’s all for now!  The next article in this series will address economic development principles for design and strategizing.