Economic Development: taking a lesson from Moneyball

Back in the end of 2012, as most of you reading this know, the New York Times kicked off a firestorm in the economic development world by digging deeply into the question of whether economic development incentives provide benefits worth their significant costs.  Debate over this issue has raged across the economic development, planning and government worlds for several weeks, with valid points emerging both in support of and against incentives.

I walked into that debate with my own pretty strong opinions on the topic, but I tried to listen to both sides – and since my ability to wade deep into controversies in December is generally overwhelmed by the across-the-board-chaos of the season, I kept pretty quiet – something that I don’t come by naturally.  But now it’s time to wade back into the fray.

I’m going to present a few different perspectives on economic development and incentives over the course of this week,  – and my game plan is to wrap up with my own perspective on Friday.  I’ll start with the observations of one of my regular contributors, William Lutz, the Community Development Director for the City of Piqua, Ohio.  I can always count on Bill to connect the dots in a way that makes for great insights.  Here’s what Bill sent me a couple of weeks after the NYT article hit:

_________________

A few weeks ago, my wife came home with a copy of the movie “Moneyball” that she had rented from the video store.  I was surprised — a sports film is not exactly something my wife would choose to watch.  I ended up being surprised that the movie was about much more than baseball.  In reality, the movie is the story of an organization that needed to change.  It didn’t want to change, but in the face of a new reality, it had no choice.

For the uninitiated, “Moneyball” is the story of the Oakland Athletics.  In 2001, the Athletics couldn’t get past the first round of the playoffs.  To make matters worse, the team was in a position where it couldn’t build on its past success.  The A’s were going to lose three of its top players to free agency, and the team’s finances were not strong.

After the last game of the 2001, the team’s general manager, played by Brad Pitt, convenes a meeting of his scouts and proclaims, “Here are the rich teams, then here is the poor team, then there is fifty feet of crap, and here we are.”

Meandering through the 2001 off-season, the general manager meets a staffer for a rival team while trying to work a trade.  The general manager is immediately interested in what this quiet, studious guy knows.  The next day the general manager hires him, and the new employee teaches him one valuable lesson: wins can be built on the quantitative data a player builds, not on the qualitative data the scouts talk about.  The outputs of the player’s data leads to the team’s outcome, either as a win or a loss.

Data is a big topic these days in economic development.  A few weeks ago, the New York Times came out with analysis that indicated that government incentives designed to spur economic development looked like a poor investment.  The reason for the incentives programs’ poor track records?   It wasn’t that the dollars weren’t used correctly.  Rather, the article asserted that the data documenting how those dollars were used was very seldom examined after the fact – that agencies weren’t using the data their programs generated to determine whether the programs were having a worthwhile effect.  In economic development, just as in sports, we can’t tell whether we are winning or losing if we don’t have data about our results — or don’t bother to try to learn from it.

So how can we find if we are successful in economic development or not?  In its simplest terms, we need to focus on three basic facts:

  1. We need to understand that there is very little we in economic development can directly, perfectly control.  We can use zoning to control where development takes place and we can control the pace of development, depending on what we are able to provide to a deal.  We cannot control who develops, how much is developed or how it is developed. We facilitate and guide development, and because we don’t control it, we have to pay close attention to whether our efforts are generating the results we seek.
  2. We must be very clear about what we want to incentivize.  Too many times,  economic development becomes an attempt to attract anything — commercial or industrial, big box or tech firm, without any serious consideration for what that development will mean for the community as a whole.  We need to understand that when we incentivize everything, we really incentivize nothing.
  3. Once we know what we want to incentivize and align our incentives with those priorities, we can begin to measure whether or not our incentives are having the impact we want.  When this is the case, policy makers can do their job  — setting the large outcomes — and the economic developers can focus on meeting and measuring those outputs.  Once those outputs are known, we can now go back and try to determine the level of our success

_______________________

I think there’s one more point that Bill probably would have added if given the chance:

We have to actually measure, actually evaluate the results of our incentives.  Regularly, and critically.  Reporting a bunch of happy job creation numbers isn’t enough anymore – it should not have been enough in years past, either, but it’s definitely not enough now.  We need to be evaluating not only the volume of deals, but the quality of our economic development – the value of the benefits to our community. Not just wages or job numbers, although those are important.  We need to understand how our incentives are, or are not, facilitating meaningful improvement for the entire community – from net fiscal revenue to downtown vibrancy.

That will take a higher level of rigor than our usual Annual Report Happy Talk.  But we have to start doing it.  Like the A’s, we don’t have the resources to hire infinite numbers of scouts.  And like the A’s, we have some pretty steep challenges in front of us.

We might not want to change, but in the face of a new reality, we have no choice.

Leave a Reply

Your email address will not be published. Required fields are marked *