DECEMBER 2007: ECONOMIX
Searching for the recipe for success
BY TOM
POTIOWSKY
|
With the holidays rapidly upon us, my wife and I are reviewing
recipes. We have our favorite standbys for turkey, stuffing,
appetizers and desserts. We are always on the prowl for new
dishes to try out on unsuspecting guests.
The world, too, is always searching for the best recipes for
economic development. Literally hundreds of local economic
development departments throughout the country start each day
trying to figure out the right recipe for success. On the
Economic Development Directory website, Oregon has 19 listings
that cover the state and represent only a handful of the
agencies devoted to economic development.
Many attempts to find the right economic development plan have
been met with mixed success, but the focus today is quite
clear. With the likes of Richard Florida and Michael Porter as
champions, we have the creative class and economic clusters.
These two ingredients dominate the plans of economic
development offices across the United States and in Oregon. And
the hot economic cluster of the day for Oregon is
sustainability. To this we add innovation and measurement tools
like indicators, benchmarks and dashboards to gauge the
progress over time. But have we finally found the perfect
recipe?
Economists generally acknowledge the efficiencies of the
market system. Any talk of economic clusters and creative class
is fine as long as government is not trying to direct the
action. Markets will find their most efficient use of
resources. Let the markets do the cooking; no recipe is
needed.
So what is Oregon to do? Are economic clusters and the
creative class the right ingredients for economic development?
Should the market be left on its own to move resources to their
greatest return?
Porter describes economic clusters as:
“…geographic concentrations of interconnected
companies, specialized suppliers, service providers, firms in
related industries, and associated institutions (for example,
universities, standards agreements, and trade associations) in
particular fields that compete but also cooperate.”
It’s an obfuscated sentence that would make Alan
Greenspan proud, but dig underneath it and you find some
truth.
There is much to like about leveraging what an area already
has in terms of clusters and avoiding the costly and risky
route of forming a new one. For Oregon, the sustainability
cluster seems like a natural fit. The state is attracting
people to move here, including the “creative
class.” Highly educated and talented individuals are the
seeds for future entrepreneurs and civic leaders.
What about the market forces that are efficient in moving
around scarce resources? This is where the proponents of
economic development need to keep in mind the powers of the
market. Policies need to be aligned with market returns in
mind. We may want more green building industries in Oregon, but
we need to document that they are economically viable and then
direct policies that complement the market forces. Top on my
list would be investment tax credits to support the
expenditures in capital infrastructure for continued growth of
firms in this industry. In the end, if the economic returns are
not there, you’ll have a tough time creating them through
government policy.
Which economic clusters to pursue? No one has the crystal ball
to see the next breakthrough. But by having a region where
people want to live, attracting a creative class and having
policies that work with the market forces to support the growth
of clusters, you have a fighting chance that economic growth
will continue to happen here in Oregon.
Former Gov. Tom McCall proclaimed that people should come
visit but not stay — probably the greatest marketing
slogan to promote the state. And who knows, “Keep
Portland Weird” may be an economic marketing magnet. We
don’t know the perfect recipe, and the search will
continue. We have to be aware of market forces and work them
into policy.
For now, in a large bowl, put 2 cups economic clusters, add 3
tablespoons creative class, a dash of innovation
incentives…
Tom Potiowsky is an economics
professor at Portland State University. In January, he returns
to his post as state economist, a position he held for six
years until 2006, when he returned to PSU.
Have an opinion? E-mail feedback@oregonbusiness.com
