Thursday, February 16, 2012

All Economics Is Local

For those of you who don't recognize the reference, it was former Speaker of the House Tip O'Neill who famously said, "All politics is local."

Today, if you take a minute and look around, you'll see that despite all the rhetoric of globalization, all economics is local.

Take Santa Fe, New Mexico, my home town. Not even a town, at roughly 70,000 people, a village really.

The economic base of Santa Fe has been a three-legged stool: it's the capital of the state, so there are government jobs; it is a tourist destination; and it has had a booming real estate business for people looking for second homes or a place to retire. Cutting across these categories is the art market: Santa Fe boasts a large community of artists and a concentration of art galleries and artistic events, from the Indian Market to the Santa Fe Opera.

But the last couple of years have been tough.

State government has been starved for funds; tourists aren't coming to visit, and if they do come, they've curtailed their spending; and real estate, well, you know that story--that's the cause of much of the pain in the first place. That leaves the art community. And while it's an asset and a boon to the town, it has yet to become an economic force on its own terms: It takes tourists to come to buy the art, new home owners to need art to decorate their walls, collectors to feel flush enough to add to their art holdings.

The town is suffering. Help isn't going to come from the federal government. The state government doesn't have a strategy for state-wide economic development, never mind local economic development. Even if the economy starts to recover, tourism and real estate aren't going to return to pre-crash levels any time soon, if they ever do.

So it's time for serious reflection: What does a local economic development strategy for Santa Fe look like?

Most economists agree that there are two kinds of investments that can promote economic growth: investment in infrastructure and investment in human capital. Infrastructure investment can help put people back to work, and, if it's truly strategic, can add to a community's productivity and attractiveness--whether the investment builds a light rail line, adds new parks, or puts in place a city-wide Internet network. Investment in human capital is the smarter play, but requires longer-term thinking: better public schools produce a generation of well-educated kids who are capable of working smarter and generating more income; job retraining takes people out of unproductive, dead-end careers and outfits them to adapt to the changing demands of a changing economy, public-private partnerships provide mentors and markets to teach aspiring business leaders how to play the game and win.

But Santa Fe's problem--as is true for the small towns across the country--is different. It needs a new way to think about and look at an economic strategy. Public schools aren't going to get better any time soon; and there isn't the money or the political intelligence or will to create an infrastructure investment strategy. As the economy recovers on its own, the town may get a little healthier around the edges, and maybe complacency will return.

But the question is, what can and should Santa Fe do--right now--to craft a strategy for a better economic future?

I don't think the answer is to do more of what is already there, or even to do it a little better. Better marketing, better messaging, better packaging--that won't change the game.

Santa Fe--and the Santa Fe's of America--need to think different, not about what assets the town has, but about what's missing.

In Santa Fe's case, what's missing are talented, entrepreneurial young people. Santa Fe suffers from "the case of the missing middle"--young people in their 20s and 30s who can start businesses, grow enterprises, take entrepreneurial risks, look beyond government and tourism and real estate and art and see a much bigger picture.

It could be that this all-important cohort is missing from Santa Fe's demographic profile because there isn't anything meaningful, productive, or exciting for them to do in town. Or it could be that there isn't anything meaningful, productive, or exciting for them to do, because they're missing.

Cause and effect aren't the issue here, however. What's at issue is the need for an explicit strategy, targeted, not at jobs, or reviving tourism, or helping promote art.

Santa Fe needs to ask a different question if it hopes to get a different answer. The right question is all about a population cohort, not an economic category.

Santa Fe needs a population strategy that aims explicitly at keeping the young people who come to school in Santa Fe and New Mexico, attracting more young people to the mix, and giving them the tools, the incentives, the technology, the entrepreneurial opportunities that will make Santa Fe a vibrant place for creativity and innovation to flourish.

The right question for Santa Fe to ask is, "How do we attract, retain, develop, promote, and reward a missing demographic group--well-educated, technologically sophisticated, entrepreneurial young people?"

That's the right question, and asking it can lead to the right answers.

There are examples all over America of communities attempting just this strategy, creating incubators, partnering with academic institutions, offering technological incentives, pooling venture capital funds, sponsoring conferences and gatherings that bring young people together and give them a feeling that there is a community of like-minded individuals ready to work together to do really cool things. But it's not enough to know that there are lots of pieces lying around loose on the ground. Someone has to assemble them into a real strategy, so the pieces fit together and reinforce each other. They have to be particular to Santa Fe--or any other community looking for its population strategy--to the place, the history, the culture, and the context. And it takes work--real work--to execute a strategy. It won't just happen on its own.

In the end, all economics is local. And that means it's up to the people at the local level to articulate their own economic strategy, and then create their own economic future.

All Rights Reserved 2009 (c) Alan Webber, Rules Of Thumb