Saturday, April 22, 2006

"Commodities' Economic Development" Limits Memphis' Future

There are times when it just seems that Memphis can’t get its economic development strategies into the 21st century. It’s as if we just don't want to compete in a knowledge economy in a global marketplace.

Our economic development strategies are caught in the commodity trap, stemming from our background as an agricultural center and continuing with our pride in being a distribution center. Our experience is in selling products that tend to be seen as commodities, to a consumer making a decision based on the lowest price.

Commodity economic development is premised on the same thing – appealing to companies who make their decisions based on the lowest prices. This kind of economic development is forever in a race to the bottom to offer the cheapest land, and the cheapest workers.

Selling Cheapness

Because our tradition is in businesses with thin profit margins, our economic development culture is one with an aversion to risk-taking, which in turns undercuts innovation and entrepreneurship. Cities with commodity mentalities think they can grow their economies with low wages, low land costs, low utilities, low taxes.

In a commodities world, these are seen as the factors that must be controlled to keep prices down. They are often cited as justification for the tax abatements that we hand out to any company that can complete the forms.

Unfortunately, when we are competing with workers in Southeast Asia, Mexico and Bangladesh, commodities economic development is doomed to failure.
Most devastating of all is that cities that are accustomed to a commodity approach to economic development are at a huge disadvantage in attracting and retaining knowledge economy workers. It is not merely a coincidence that companies like FedEx report constant problems in attracting young, mobile, highly-educated workers to Memphis and convincing executives of International Paper to move from the Northeast to Memphis has met with similar hurdles.

Rather than make the investments in the intellectual infrastructure that we need to complete for knowledge-based companies, Memphis continues to sell the infrastructure of the industrial age, at the same time that its last remnants are vanishing before our very eyes.

New Approaches

What is needed are new approaches to economic growth – approaches like economic gardening which focuses on existing entrepreneurs rather than corporate relocations, on biological models of business and entrepreneurial policy and new economic theories and philosophies.

The words of a specialist in economic gardening seem especially especially pertinent to Memphis:

“There was another, darker side of recruiting that bothered us. It seemed to be a certain type of business activity – the branch plant of industries that competed primarily on low price and thus needed low cost factors of production…cheap land, free buildings, tax abatements and especially low wage labor. Our experience indicated that these types of expansions stayed around as long as costs stayed low. If the standard of living started to rise, the company pulled up stakes and headed for locations where the costs were even lower. This was the world when we proposed another approach to economic develompent: building the economy from inside out, relying primarily on entrepreneurs.”

Survey after survey concludes that tax incentives are far down on the list of critical elements that influence companies’ decisions on locations and expansions. Much higher is the presence of a high quality of life – vibrant downtown, outdoor recreational options, rich cultural and intellectual scene and research universities.

For Memphis to succeed in today’s economy (and more importantly, tomorrow’s), it needs to base its economic development strategies on quality rather than cheapness. After all, in selling our city for its cheapness only cheapens what we have to offer in the first place.


Anonymous said...

Our decision-making structure is also backward. Decisions are made in an isolated and fragmented manner. For example, decisions about Shelby Farms, the Fairgrounds and the Riverfront are compartmentalized. There is no consideration of the synergy that could be created if these assets were planned together. The question should be - How can these attractions work together, support one another in creating the quality of life economy? Is there a way to unify these attractions, to be better than a sum of the parts, to be something the creative class would embrace?

Anonymous said...

I'm not from Memphis, and your comments resonate far beyond your metro area.

If we strive for cheap, we'll deliver cheap better than anyone else.

Except for the Pacific Rim, where their labor costs are lower than we'll ever be. And Africa, where they make less in a day than we do in an hour and think they're well off. And probably a host of other parts of the world that I haven't thought of.

We need to move past commodity-based economic development. We need to strive for something higher than delivering the next Wal-Mart Supercenter to our people. And, to do that, we might have to actually make an investment in our futures.