Is a Flurry of Fads Shaping Economic Development Policy?

Chasing the latest flurry of fads may not help business leaders or the communities in which they locate achieve long-term success.

By Ben Worrell, Credits and Incentives Consultant, McGuire Sponsel

“Would you be willing to try this new diet with me?” The question came from my wife one early spring day in March a couple of years ago. “It’s a thing that keeps popping up on my social media and it is supposed to help you get healthy in two weeks!”

I asked her what sort of “diet” we were talking about and she showed me the vegetable soup diet. I later learned that this diet surfaces every 9–12 months on social media and becomes popular for a few months before fading away again. The diet consists of a makeahead and portion-out-for-the-week vegetable soup that is supplemented by a protein option. Feeling supportive, I agreed to give it a try. She lasted three days; I lasted five.

What is it about fad diets that generate so much interest, only to be abandoned so quickly by so many? Further, how are Americans lassoed back in by another fad just a short time later? Fads are created when hype is generated by people getting in on the action and ease of outcome is presented in a persuasive way. In other words, “everyone is doing it” and they “see the results instantly!” These classic marketing strategies capture the attention of consumers and generate a lot of money in a short amount of time.

With a challenging economy and a flurry of activity across levels of government, business growth in 2023 remains uncertain. As business leaders and economic developers strategize for success, fads or trends in economic development are rising and falling across industries and communities across the country. Leaders may be wondering if chasing after the next big trend is all that it is cracked up to be as they strive to build communities of the future. Throughout the first quarter of this year, we have seen returns of fads in economic development from the past, regional influences in trends, and trends influenced by economic shifts in regional and federal governments. These trends have strengths and weaknesses to be considered when building a sustainable plan for the future. Let’s first look at a few historic economic development trends and their outcomes.

Regional Trends or “Fads”

Do we see “fads” in economic development through history? While potentially unfairly named, regions of the country are still known as “Rust Belt,” “Steel Country,” or “Coal Country.” During the times of economic surge in the 1930s through the 1950s, many Midwestern cities were known for these industries, and populations flocked for the jobs that needed to be filled. The same could be said for historic 1800s gold and silver towns or even river towns that sprang up in early American history to support the movement of goods and trades.

One of the earliest economic development plans was the “BAWI plan” or “Columbia Plan” from Columbia, MS, in the mid-1930s. The Balance Agriculture with Industry Program (BAWI) promoted by then Mayor Hugh White, raised money to buy land and factory buildings to offer to companies that would locate manufacturing operations within the community. The first com- pany to accept this offer was a pajama manufacturing business, Reliance Manufacturing Company, that eventually employed 700 workers in the Depression-hit city. The program would later be used by then Gov. White to attract more than 12 manufacturing companies to the state of Mississippi, all of which were in search of cheap labor and investment costs.1

California is credited with the invention of Tax Increment Financing (TIF) in the mid-1940s, which focused on the creation of financial tools to stimulate redevelopment in “blighted” areas. TIF dollars supported affordable housing, infrastructure needs, and transit-oriented developments in areas particularly hard hit by the shifting economy. By mitigating the “risk” of an investment in a blighted area through financial support from the taxing entities, areas that had been overlooked and continued to deteriorate began to see reinvestment and improvements in their

When economic forces changed across regions, due to domestic economics or external global factors, the industry could not adapt, and large facilities shuttered,

STRONG LOCATIONS & jobs moved on, and towns and cities struggled. Many old industrial facilities lingered for years, even decades before some sort of redevelopment project could reclaim or repurpose them. And, some remain today. Does this make these boom-bust industries a fad? I would say no, because of the longevity of the industries while the industry was thriving.

At a risk of oversimplifying a complex system like the economy, history, and society at large, we can look at a couple of cautionary fact patterns though: Quick action or snap decisions to wholesale support or “give away the farm” for the promise of large-scale development and/ or job creation for a “new” industry may set up a community for long-term struggle later. On the other hand, diversifying the economic base and a planned, measured approach to economic development policy can help with the weathering of economic changes and challenges that are inevitable to come.

It is important to measure the speed at which decisions are made for outcomes that may be unclear or uncertain. This level of risk tolerance is important for communities across the country to consider.

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Economic Trends or “Fads”

If the regional steel and manufacturing industries were not “fads” due to their longevity and continued adaptation, have we seen other industries pop-up more frequently in recent history due to economic shifts in consumer behavior and workforce development preferences within communities? Let’s look at the e-commerce moves in the early 21st century.

In the early 2000s, the Internet brought overnight demand for consumer online ordering needs to the forefront of the American household and, suddenly, fulfillment centers became a huge accelerator of access and speed to possession by the consumer as the economy’s growth supported this type of spending and investment. Quickly, online marketplaces needed massive fulfillment centers and warehouses to meet demand. Large-scale bulk distribution buildings went up, seemingly overnight, in cities across the United States. Then came the demand for hundreds of jobs to work those facilities.

Property tax abatement or exemptions have been a well-used tool to attract development of new real property investment. In many areas, maximizing property tax abatement was a critical tool for attracting a new Amazon-like facility (one million square feet and hundreds of workers). While some of these facilities remain, other facilities may sit vacant for long periods of time, as the leasing companies come and go or move to more of an automated process due to a struggling economy and lack of an available workforce for a low hourly rate. Since the original “boom,” many communities have scaled back their economic development support programs for these types of uses, citing a desire to see higher wage jobs, not just quantity of jobs and largescale development of industrial buildings. Demand may still be strong for these facilities from an industry standpoint; however, community interest in supporting them with valuable economic credits and incentives continues to decline.

Another hype and fervor around economic development fads related to economic growth was the Amazon HQ2 project that introduced “economic development” to the everyday household. News stations and publications displayed the astronomical numbers and lengths to which many towns and cities across the United States would try to woo the tech giant’s investment and job growth. Economic development offers (that we know of) reached into the tens of millions if not hundreds of millions of dollars in direct and indirect benefit, including free land, property tax abatement, cash for investments and new jobs, even the renaming of the community!

With all of the proposals and potential incentives on the line, even the “winners” in this race for HQ2 struggled to close on the deal with the tech giant, ultimately leading to New York bowing out of its offer and the project slated for Virginia scaled back from its original aspirations. In mid-March of 2023, Amazon announced a further layoff of 9,000+ jobs in their tech and administrative capacities as the company further streamlines due to the uncertainty of the future economy.

The ripple effect created by the short turnaround demand from the e-commerce boom ballooned into adjacent industries. Automotive manufacturers continue to announce and open new manufacturing plants and add onto others as demand skyrocketed in the pre- and post-pandemic years. Consumer demand has driven previously shuttered lumber mills in the United States to come back online, as foreign imports were less reliably shipped due to exporting countries experiencing challenges or importing ports of call having issues in handling shipments. We hope demand remains high and that it encourages manufacturing to re-shore to the U.S., but will that happen? Increases in domestic manufacturing demand would likely see a resurgence in the logistics industry, but more on the driver/operator side rather than warehousing. With worker shortages, this could also drive the demand for more autonomous commercial vehicles.

How Communities Leverage Growth

As the weather turns and the economy attempts to find its footing, we are seeing the latest push for electronic components and the energy industry. Massive federal bills created incentive opportunities for companies considering growth in these targeted sectors. State legislatures subsequently jumped in to create programs that would reflect and support industry growth within their states. Some of the largest economic incentive deals seen to date have occurred to support these types of industries, such as the Intel microchip facility slated for Ohio or the electric vehicle opportunities in Michigan, Ohio, Tennessee, Kentucky, or Texas. With changes in the economy, we have started to see initial deals pulled back, such as the LG-GM batter y facility slated for northern Indiana.

Communities have always had to keep up with the ever-increasing speed of a global economy. Economic development offices have the challenge of watching for and maintaining sustainable policy despite these rapid changes. If the global pandemic taught us anything, it is that nothing is certain, and circumstances can change in the blink of an eye. It is important for communities to build a long-term plan that includes diverse industries and flexibility in scope to weather regional, economic, and potential trends. Proactive economic development practices, such as business retention and expansion (BR&E) visits, can help communities remain healthy and growing while economic development groups continue to consider new investments within their communities.

Much like the fad diets that we see pop up with regularity, true weight loss or healthy living comes from discipline and a long-term goal for a successful and healthy lifestyle. Building an economic plan that incorporates a variety of industries and supports a diverse population provides a foundation for development. Then, having the proper leadership and teams in place to stick with the plan yields long-term benefits and outcomes that will lead to successful outcomes for businesses and communities alike.

Short-term solutions typically don’t stick, and the yo-yo effect can put businesses and economic developers in a worse position. The same can be said of economic development policy. Yes, it can be exciting to chase after the next big industry; however, most of the time, this does not work out for those who jump into the fray without considering the long-term opportunity or impact to their current and future business landscape. If leaders have an honest understanding of who the community is today and where they, as the leaders, want the community to be long term, this vision will help shape their economic development policy and temper the snap decisions to jump onto the latest band wagon.

1 https://www.atlantafed.org/economy-matters/regionaleconomics/2018/11/20/from-garments-to-amazon-economicincentive-programs-started-in-mississippi

2 https://opr.ca.gov/docs/20210203-TIF_Tools_Final_Report.pdf

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