You might have heard the term in an introductory class to economics, or maybe you’ve seen it in passing on the doors of offices around town: economic development.
It sounds like an area of economics meant for business people or investors, related to growing profits. But economic development is actually something more, requiring input from social workers just as much as business leaders.
What does economic development really mean, and why is it important?
Economic development is not economic growth
It’s easy to confuse development with growth, considering they have similar meanings and are often used interchangeably. Add the fact that economic growth is an important part of economic development, and you might feel like the room is spinning trying to understand it all.
Economic growth is all about numbers. As the aptly named Keydifferences.com points out: “Economic Growth is the positive change in the real output of the country in a particular span of time.”
Economic growth is a straightforward measurement of actual economic output — things like gross domestic product (GDP) fall into this measurement. It’s a pure numbers game.
But economic development is much broader in scope and includes elements that you might not normally associate with economics, like social welfare, early childhood education, and criminal justice reform.
The goal of economic development
Economic development is defined by Wikipedia as “the process by which a nation improves the economic, political, and social well-being of its people.” Like we said, it’s a broad scope.
But this definition doesn’t tell us much about the nuts and bolts of economic development and how it can effect change in a positive way on a big scale.
Because the scope is so broad, it can be difficult to discern what the tangible goals of economic development are. Amy Liu, writing for the Brookings Institute, argues that the goal for economic development should be “to put a region on a path to higher growth by improving the productivity of firms and people in ways that leads to better incomes and living standards for all.”
The end game of economic development is not just growing the economy, but growing it in a way that improves the quality of life for everyone in the region.
Rather than projects benefitting a few investors, a successful economic development project would benefit investors, companies and people in need of economic relief. By doing so, there is also a positive effect on the region and indirectly business and citizens who live there.
This means a focus on innovation, skills and infrastructure, as well as overall economic growth.
How economic development works
Now we know that the goal of economic development is to improve the well-being of everyone, regardless of race, background or class, but how does it actually work?
As Britannica.com points out, there is no single definition of what constitutes the process of economic development. But there are key indicators and learnings that have shown success.
It might sound like a pretty big project to try to improve the social and political well-being of a country through economic strategies, and it is. That’s why it’s important to not try to solve it all at a national or international level, but at the local and regional levels.
As Michael Porter, a professor at the Harvard Business School, puts it: “While macro policies and regulatory reforms set important conditions for growth and access to opportunity, it is ultimately the role of local and regional actors and institutions to address the unique market failures and opportunities in their community.”
This is why local and regional economic development organizations are so vital. Every metropolitan area has its own unique set of circumstances, and there’s no blanket approach that will work across the diverse economic landscape of a country like the United States (or anywhere else, for that matter).
Denver’s challenges in providing affordable housing, for example, are going to be much different than in New York City. Construction costs are different, timelines will vary based on weather, and managing relationships between private and public sectors will be subject to unique regional policies.
The hidden economic benefit of investing in quality of life
Economic development takes many forms, and it’s not always obvious which project will provide the biggest benefit. For example, a 2016 report to the then president Obama cited early childhood education as an important factor in stabilizing the economy. How can something like early childhood education improve the economy?
In the U.S. it’s anticipated that as many as 2 million manufacturing jobs will go unfilled by 2025. Children are graduating into the workforce without the skills needed to fill these often lucrative and stable jobs. If business and educational leaders can build partnerships and create pathways early on for students to pick up much-needed skills, the workforce gets a big boost.
That’s economic development at work. It might not have a clear impact on economic growth in the short term, but it will provide a meaningful solution to a widespread problem, and one that will improve the quality of life for many students who otherwise may have ended up struggling to find a stable career.
One for all, and all for one
It’s difficult to unwrap all of the compelling and intricate facets of economic development without writing an entire book, or several books — which several scholars have already done.
Building up economies around processes and strategies that benefit the entire population, and not just a single segment of it, has wide-reaching and long-term economic benefits. At its core, this is what economic development is all about, whether it’s part of government, private business or anywhere in between.
Like the Three Musketeers, it’s a philosophy of working together to benefit one another — but unlike the Three Musketeers, there is no candy bar named after it.