All Creative, No Destruction: Confessions of an Economic Development Professional
I once watched a room full of promising young entrepreneurs pitch their ideas to a panel of gray-haired businessmen judging who had the best business idea. The judges were people whose family businesses those startups would never be allowed to compete with.
They selected a winner; everyone clapped. A success story was written about a promising new venture, but the community never felt long-term prosperity.
After 20 years in economic development, I've written a lot of those stories. I've run programs, picked "winning" industries, designed programs to help startups thrive, hit milestones, and moved on to the next contract. And I've always felt like I never completed the job: to create prosperity for generations.
The Economic Theory that Everyone Loves, but Only Half Of It
In 1942, economist Joseph Schumpeter described how regions find new growth: he argued that change is constant and that nations can find new economic growth by adapting. He famously wrote that entrepreneurs develop new products, new markets, or new processes to create new economic growth. But he also said that uncompetitive industries would be destroyed. He called it creative destruction.
It's natural for policymakers and politicians to love the creative part. It's difficult for society to love the destruction part. That question shaped my career of developing economic workarounds to find some new opporunity without disrupting the uncompetitive power bases in those regions:
Southeast Asia. Helped develop a "competitiveness strategy" workshop where new startups could enter the new technology industry without competing with large family conglomerates with close government ties.
The Middle East. I worked on a small-business program where you could not compete with military businesses that had nothing to do with national defense. A businessman told me that to get anything done, you need to hire your own general, someone to close deals and navigate regulations.
In Central Asia, you worried that if you helped ventures get too big, political leaders would notice and take a piece of every opportunity.
The details differed. The underlying problem didn't: power had captured a position in the economy, and it was too big to fail. It was easier to let it slow everyone down than to risk the disruption that renewal requires.
How to Build Around Power Instead of Challenging It
My experience in economic development isn't about supporting new ways of doing business that might challenge powerful players. It's about finding workarounds that generate enough activity to look innovative.
Can't touch the conglomerate that controls the banks? Launch a microfinance program.
Can't restructure the military, family, or state-owned industries? Hold a pitch competition, and let those in power judge it.
Can't challenge the patronage network? Build an incubator. Better yet, fund a venture capital fund and let powerful actors be a limited partner.
These programs create pockets of opportunity and nice stories that sit alongside concentrated power rather than allowing for new large enterprises and industries to take off.
By the time the results were clear, my colleagues and I were long gone. The power remained, and so did the blame: unfair trade practices, high input costs, overregulation, cheaper labor elsewhere. We never let an uncompetitive, powerful industry go through the painful slowdown or restructuring that Schumpeter said was the price of high growth.
The US version is to Double Down on the Power Base.
My examples are from other countries, but this also happens in the United States. Boeing, GM, and Ford ranked among the top five corporate recipients of public funding in the first 15 years of the 2000s, according to Good Jobs First. All three had been losing their competitive advantage and losing market share to foreign competitors since 2000.
Public money didn't buy economic growth. It slowed down the destructive process.
This is my confession: Long-term economic growth isn't driven by entrepreneurship or innovation plans and programs; something was missing.
A Tale of Two Cities
That is why I've spent so much time researching and writing a book with my colleague Pete Saunders that takes a 100-year look at two American cities, two industries, and three companies: Detroit vs. Seattle: Stories and Analysis of the Powerful and the Empowered.
On the surface, the 2 cities look like the same story. Regions built by industrial giants: the auto industry in Detroit, Boeing in Seattle. In fact, during the 1950s and 1960s, both the industries and cities boomed, in a way that seemed like it would last forever. But change is constant, and in the 1970s, economic and geopolitical shifts hit both industries hard.
But Seattle got its moment of creative destruction, and a digital industry emerged that became one of the world's largest. Detroit is still waiting for its creative moment of economic growth, as it continues to double down on the auto industry.
Why the difference? In Seattle, Boeing power structure was different before it merged with McDonald Douglas in the 1990's. Boeing's competitiveness came from an empowered workforce. That workforce helped build a livable community with a broad and durable base of economic participation, one that outlasted a single company's fortunes.
The auto industry power structure was centralized in its executives and the UAW. So, for decades, Detroit was built for the industry, not the citizens. And policymakers kept doubling down on the auto industry, slowing the destruction of an uncompetitive industry, which slowed the local economy and ensured the community could never build a city for itself.
The Real Lesson
It's not about economic development strategies. No incubator, public VC funds, or soft loan program can fix a place where a few players control the decisions about economic assets.
Long-term economic growth comes from empowering people to drive the success of the ventures they work on, which creates economic prosperity and control over the communities they live in.
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