By:Rich Lindsey, CSG-WEST Policy Consultant
Research cited in two reports put out recently by the National Governors Association Center for Best Practices give states some valuable guidance when looking at the effectiveness of current economic development efforts. There are five primary research points of note.
First, the majority of economic growth in state economies today comes from companies that are already doing business in the state. Data indicates that only 2% of growth comes from companies recruited to a state. These facts can help state leaders in determining how economic development budgets should be allocated between in-state assistance to businesses and out-of-state business recruitment.
Second, encouraging entrepreneurship plays a critical role in growing state economies. In particular, states need to encourage entrepreneurship at all education levels and targeted age groups. This is important because across the country data currently shows that more startup companies come from the 55-64 age groups than the 25-35 groups. This information can again assist in budget allocation of resources and can provide a blueprint for increasing program success by targeting and tailoring assistance.
Third, states need to focus their business assistance efforts on companies that are experiencing high growth today or that demonstrate potential growth in the near term. Meeting these targets will require solid evaluation metrics for development analysts. Metrics, for example, must account for differences in the age of a companies and what economic sectors they fall within, two characteristics that have proven to be key in finding potential success in assistance programs.
Finally, states that have been successful with their economic development programs have had more private sector participation from CEOs from startup and high growth companies. Involvement has not come from soliciting funding from companies to augment state efforts but from drawing upon CEO business expertise and experience. These states have also demonstrated the willingness to foster collaboration across state agencies, universities, states and even regions.
As state budgets become tighter, as with any budget expenditure, legislators need to know how resources can be spent to maximize program results. The findings above and others that can help state development agencies navigate efforts more efficiently can found in following two reports: Growing State Economies: Twelve Actions and Redesigning State Economic Development Agencies.