It's The Economy, Stupid

Every once in a while I find myself explaining what is a fundamental concept in economic development but one that is so hard to grasp for a lot of folks – many of whom are in positions of influence.  There should be a little primer book on economic development that everyone in a position of influence should have to read.

The issue in question today was around the incremental economic impact of certain industries.  The best way to explain this is with an example (I was dealing with a different, but similar industry today and I don’t want to annoy a potential client).

Not that long ago the national association of convenience stores prepared an economic impact report on their industry claiming it created thousands of jobs and hundreds of millions in economic activity for the country.  They had a multiplier in there and tax revenues generated -as I recall – the whole enchilada.

Now, I have no problem with this type of analysis – in fact, I have done this for certain industries – but I prefer the term economic footprint (I stole this from the Conference Board) rather than economic impact because the latter implies the convenience store industry’s share (footprint) of the economy while economic impact implies there would be a negative impact if the industry disappeared or downsized.

The truth is for the convenience store industry and most local service type industries if they disappeared people would just shift their spending elsewhere.  If there were no bowling alleys, people would just go to the movies more.  If there were no restaurants, people would just buy more groceries, etc.   There are some exceptions and other issues but, in general, this is the case.

To be more clear, differentiate the convenience stores from auto manufacturing, or software development, or wood products manufacturing, or a large IT support centre servicing a national market, etc.  If those industries close down, the community loses all the economic activity – it gets shifted outside the jurisdiction altogether.

This matters on wide variety of fronts from tax policy to access to capital programs.

Industries that service local markets are wiser to make the case for the importance of the service per se rather than trying to make the case that if they were not around, there would be an economic loss.  We need convenience stores, and architects, and local consultants, and plumbers, etc. etc.  They are important to the functioning of a local economy.   The car manufacturer, or the paper mill or the software developer is not vital as a service to the local economy but are critical to economic development.

We need the right mix of both – industries that service local markets and those that export their products/services and bring the money in.

So the final point I was making to the potential client was is there a way to make this specific local industry – an export industry too?  Then you get a double whammy.  For example, if we had a strong, vibrant local engineering industry where a number of companies built up enough expertise to export their knowledge and technology outside the region.  Then we have an industry that is carving out its economic footprint locally but also having a broader economic impact.