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Market-Based Solutions to Vital Economic Issues


Kenan Institute 2022 Annual Theme: Stakeholder Capitalism
Market-Based Solutions to Vital Economic Issues
News & Media
Oct 12, 2018

Researchers Challenge Status Quo on Economic Development

What’s best for a local economy—recruiting big, established companies, or nurturing home-grown startups? It’s a question economic developers and researchers have grappled with for decades. In a new white paper and Economic Development Quarterly article, Kenan Institute Senior Faculty Fellow Maryann Feldman and University of North Carolina at Chapel Hill Professor Nichola Lowe offer a new tack: Try both.

From competing to coordinating
While both industrial recruitment and entrepreneurship can be beneficial, economic developers have tended to pursue one at the expense of the other. The two approaches, seen as opposite arms of the field of economic development, generally involve different assumptions, goals, resources and expertise. Interest in each approach has waxed and waned over the decades as researchers have learned more about the factors that drive growth.

Feldman and Lowe posit that by employing both approaches in a strategic mix, developers can create an integrated portfolio that is greater than the sum of its parts.

It’s not just about diversification, the researchers say, but actually interlacing strategies so they build on each other. For example, economic developers can take practices that have been traditionally used to lure established industry and reorient them toward anchoring and supporting high-growth entrepreneurial firms. This can help to not only foster startups, but keep them from heading for greener pastures as they mature.

Startups and established firms also have a lot to gain from each other, and economic developers can play the role of matchmaker in helping to connect companies with strategic partners or suppliers in their area. Combining development expertise from both arms of the field can also help the recruitment of mid-stage firms that don’t fit the mold of either a traditional startup or established industry.

No time like the present, no place like here
In some ways, federal agencies already take a portfolio approach in their support for technology innovation. But the state and local level is where the rubber hits the road when it comes to shepherding federally-funded technologies from inception to market. As a result, the need for policy experimentation to support economic activity is often greatest and most immediate at the local level.

The local level is also where experimentation can reap the greatest rewards, according to Feldman and Lowe. By considering a more integrated, multifaceted approach, they suggest state and local governments can potentially increase their regional innovative capacity and enhance the public return from federal and state investment in technology development.

In addition, the researchers argue that now is an opportune time to consider a blended strategy. In the wake of the Great Recession and in the midst of ongoing economic restructuring, economic developers are often expected to solve complex problems with fewer resources at their disposal. Strategy mixing offers a means for practitioners to do more with less by working together to better coordinate and sequence economic support.

Of course, economic development strategies are not limited to industrial recruitment and entrepreneurial support. Another strength of a portfolio approach is that it offers a way to address evolving objectives—addressing rising income inequality or adapting to climate change, for example—or to incorporate novel economic development strategies.

White Paper

Journal Article

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