We write often here about economic development, and in this vein, John Lawrence, a longtime friend and someone who understands the factors that make Memphis and Shelby County successful, is authoring nine posts for us in the next three weeks about economic growth. He’s written more than 30 posts for us in the past, and we’ve always found him provocative and thoughtful. Most of all, he enjoys having a real conversation, so if you have comments and questions, we hope you will post them.
Here’s his third post:
By John Lawrence
In the last post, we laid out the rationale for securing the global logistics brand. Equally as important as logistics infrastructure, we must take advantage of the opportunity to leverage logistics to diversify the economy. Medical device manufacturing, electronics assembly & repair and chemical processing are existing examples. High-value products, products that are time-to-market critical and products that need easy access to river and rail, in addition to road and runway, should be targets.
Production for Global Trade is Our Future
Almost half of all metro Memphis job growth since 1980 has come from local serving industries that lack significant future expansion potential because their products are not traded outside of the local area. If the Memphis metro area is to prosper, it must take a new approach to regional economic development. Consumption-driven growth such as retail and housing is not sustainable.
The focus must shift to the creation of a production-driven economy that competes by adding value and building on specialized assets. Exposing opportunities and increasing the productivity of unique strengths will be the key ingredients.
The Memphis region will compete, not only by storing and transporting products, but by producing products that fit in with regional advantages.
Strong Clusters of Opportunity
The growth of logistics in this region has accompanied a decrease in the region’s overall industrial diversity. Local employment has become nearly twice as concentrated in a narrow set of industries since 1980, putting the region in the precarious position of being tied to the logistics sector’s future, for better or worse.
However, the region specializes in some historic strengths like tradable commodities processing and regional materials processing.
Approximately $6 billion of regional output is from manufacturing. Metro-Memphis has over 44,000 manufacturing workers. However over 23% of these workers are in materials-moving making manufacturing largely logistics dependent and the total sector is half the size it was in 1980.
Healthcare and biomedical provides 74,000 jobs. Specialized medicine and medical technologies provide 44,000 jobs and $3.4 billion in output. Medical technologies alone have grown from 2,000 jobs in 1980 to 8,000 today.
Specialized medicine has grown 238%, outpacing the growth of the national specialized medicine industries, which doubled employment between 1980 and 2011. The local medical technologies industry, which includes medical device manufacturing and the research and development of such technologies, grew by 300% over the same period, compared to 32% nationwide.
Start Building on Strengths
We could grow manufacturing of medical devices, surgical instruments and hospital supplies. We could build on emerging chemical, fuel and polymer production. We could expand the array of high-value product assembly. And we could develop medical diagnostic and research support businesses.
Specific initiatives to help fill industry-specific workforce needs or link agriculture to biotechnology or develop the biologistics infrastructure may be the first steps toward diversifying our economy beyond logistics.
The Series:
Part One: Creating a Process on Economic Development
Part Two: Securing the Global Logistics Brand
Part Four: Leveraging Assets for International Trade – Tuesday (10/1/13)
Part Five: Building a New Manufacturing Economy Workforce – Thursday (10/3/13)
Part Six: Organizing for Innovative Entrepreneurial Growth – Monday (10/7/13)
Part Seven: Connecting Jobs, Workers, Institutions & Activity Centers – Wednesday (10/9/13)
Part Eight: Tracking the Market to Understand Emerging Opportunities – Monday (10/14/13)
Part Nine: Prioritizing First-Step Initiatives – Wednesday (10/16/13)
This is an interesting monograph and it’s like apple pie. Who wouldn’t like it? But now what? What should be done to get this done? We spend a lot of time talking like this, years and years, and saying a lot of the same things. The next to the last paragraph says we could do this and we could do that. So, let’s hear some real ideas for accomplishing this rather than what we could do. What should we do?
Metropolitan Business Planning generally and this Regional Economic Development Plan specifically is designed to answer Shelley’s question. This is different. It is researched based. It is big, cutting across multiple market drivers and involving many stakeholders.
But most importantly… it forces us to drill what we find down to lead initiative concepts. Then, we WILL build a business plan for one or more of them. That is the “now what” piece. Implementation plans, accountability structures, costs & benefits, etc… will all be determined now that the base research phase is complete and when the prioritization is thoroughly debated.
However, the first lead initiatives are on track to be developed over the next few months.
So, let us know which of the seven guiding strategies you think is best. And, please, let us know which specific initiative ideas you think could be launched to support the general strategy.
More on this to be posted tomorrow and a list of possible initiatives to be posted on the 15th.
If we assume that Memphis is among the nation’s top logistics centers, then why has this not translated into growth as a production center specifically when one considers that such a goal was the original intent of the drive to become “America’s Distribution Center”?
But, didn’t we already know these things? Did anyone ask the people at Sparks Center at U of M? It seems like they’ve been talking about a lot of this for a long time. I[m sure it’s no surprise to you that you’ve got a cynical audience because it feels like we’ve been here so many times before.
Let’s just quit talking and do somethning.
A major part of the entire illogic regarding Memphis as a Shipping Center is that we have a lot of cargo going thru our airport because of Fed Ex, Yes. However, that cargo all starts somewhere else and just comes here to get sorted. We do not originate cargo. We are not a manufacturing center. And one will not spring forth because Fed Ex is here.
Another question to ask is one this blog raises frequently, when will we quit doing the same thing and expecting different results. Since the author of this series works with Edge I believe he should answer this question. Specifically regarding PILOTS. Will Fed Ex’s Pilot be renewed when it expires soon. Will the EDGE board cave to that request as it does every other request?
Repeating what was said on this blog last week, this suggests that there is a real belief at EDGE that capitalism, and specifically markets, just don’t work anymore. Is that the case?
Urbanut: in many ways it has. Our Medical Device manufacturing started with roots here but has remained here due to logistics advantages. Electronics assembly and repair is an interesting market that has grown here because of distribution.
An emerging diagnostic and laboratory sector is driven by inbound logistics for tissue samples. This is a VERY interesting new twist on how we can use our infrastructure to benefit global research and as personalized medicine takes hold.
We, like many other metros, have to leverage this activity and uncover new hurdles specific to many sectors that could be successfull here.
An issue we will touch on Thursday is workforce. Filling low to mid skill production job openings is a continuing challenge. Higher skill openings go unfilled for very long periods of time.
An issue we will touch on October 9th is the spatial distribution of business and residents. Connecting business to business, to employes and to investors (as you know) is a particular challenge.
Growing from within through innovative entrepreneurialism is also harder here than in some other markets. Even our best business start-up efforts have been most successful when we have created opportunities for innovators from other cities willing to relocate here.
Our logistics market grew when US manufacturing was in decline. Today, production is reshoring for many reasons. It would be nice to attempt having a role in that. But the opportunity will take more than logistics alone.
Shelley: many, many people share your frustration. I often have to remind myself that just because we have done some of this before, that is no excuse for giving up or not trying again. Situations change. Personalities change. New ideas sneak in. Old ones’ time arrives.
We have an interesting chance here to do more than talk. It will be up to you to keep pushing the right buttons making sure there is implementation.
As expected, no answer. Sigh……
Anon: I can’t believe I’ve been baited into this with a “sigh” but here goes.
A) This regional economic development planning process is about identifying our unique assets and improving productivity. It is intended to provide a shared roadmap for ongoing economic development precisely so we can make logical, informed decisions about the interventions we pursue and, yes, incentives that we offer… however, incentives are not the starting place… understanding opportunities to participate in global commerce to build our economy is where we have begun along with looking hard at the problems that keep us from taking advantage of those opportunities.
B) Yes, this region’s economy is based largely on sorting cargo. If that is all we aspire to do, we should all be very afraid. The global freight industry is changing. We need to be prepared for that. We also need to do figure out how to shift from seeing logistics as an industry to using logistics as a tool to move more product manufactured here. There are hurdles but this is an extraordinary opportunity. Civic leadership sees this, corporate leadership sees this, economic developers see this and FedEx (who has solely driven our economy for over 30 years) sees this. But we have A BUNCH of moves to make for this to happen. If swinging the doors open were all it takes, we wouldn’t be talking about this.
C) I am not about to speak to what the EDGE Board, County Commission, City Council or any other body is going to do regarding PILOTS. I can say that EDGE has made very strategic moves and created very purposeful partnerships in order to offer new loans, incentives and programs beyond PILOTS that target different types of businesses and particular areas.
D) But while we are on PILOTS… they do deserve debate… especially in light of competition and markets. I don’t have the most recent numbers at my fingertips but I happen to have April’s big deal list.
Boeing to Expand in South Carolina
Aircraft Manufacturing – 2,000 Jobs
Public Incentive Package: $120 Million
Koch Foods to Expand in Georgia
Chicken Processing – 750 Jobs
Public Incentive Package: $18 Million
IBM to Locate in Baton Rouge, LA
New Service Center (Office Workers) – 800 Jobs
Public Incentive Package: $74 Million
If you think we are in a free market environment, we are not. We can debate how, what, when, where incentives are applicable. But we are not operating in an incentive free world and Memphis/Shelby County aren’t the poster children for these deals. Some places call them TIFs, others Grants, others Income Tax Rebates… our tool today is PILOTS and we are working to make sure we aren’t a one-trick-pony.
Beyond national competition, our region must figure out its assets to promote beyond incentives alone. Costs and benefits of public/private partnerships must be understood. But incentives cannot be completely ignored.
When Minneapolis was asked about luring Pinnacle from Memphis the response from MDEEP was, “This is the nature of economic development, Minnesota has to compete”.
When Olive Branch lured 125 Hamilton Beach employees, the standard DCEDC comment was, “By locating in Desoto County, businesses gain the advantages of Memphis’ transportation assets, while enjoying Northwest Mississippi’s tax advantages”.
My point is only that there is not a magic wand. This regional economic development planning process starts us down the road with real strategies that have honest action plans for real initiatives. Along the way we may build some regional vision and cooperation. Doing nothing is not an option.
We know that our favorite button’s being pushed, but we have to say it anyway.
No one is saying that we expect to live in an incentive free environment, but we are saying that tax waivers are being passed out here willy nilly, being given to companies who have already gotten a tax freeze (think IP) and who must assume they’ll never have to pay property taxes here again, and are being given to non-strategic targets.
Also, we appear to be overpaying often for the types of jobs that are being provided. If it were IBM or Boeing, everyone would be saying “close the deal and let’s make it happen” (in fact, we said it even for Misubishi and Electrolux), but there has not been a sense of where we are going and what kind of economy we are trying to create and that the end game is to increase our per capita income.
Hopefully, that will be the result of your process, because we can’t continue to waive $100 million a year in city-county taxes while public services are crumbling and commercial taxes are shifted to struggling residential taxpayers. Quality public services in other cities have been proven more of a lure than property tax holidays, but as long as we’re willing to pay companies to love us, we’re sure they’ll have their hands out. Why wouldn’t they rather contribute to quality public services and a high quality of life since the amount of tax freezes for these giant corporations amounts to what’s in their petty cash fund?
As much as anything, we have to change the conversation, we have to engage the business community in ways that it sees the value of investing their taxes into their home town, and we have to quit selling Memphis on the discount.
Also, as we have written, if there are incentives, we’d rather have TIFs than PILOTs. At least, the companies are paying taxes for their own improvements rather than taxpayers. We too hope that we can quit relying on the one trick pony of PILOTs, but it requires political and civic will. That’s the biggest challenge of all.
It’s always ironic for some business leaders to rail about government, socialism, etc., but step to the front of the line looking for a handout. We can’t stop that in Memphis, but we can make our PILOT program make more sense than it does presently.
Thank you SCM. Couldn’t have said it better.
To John,
I am sorry you felt that you were baited into responding to what I thought was a reasonable statement and question. Too often public officials do not respond to the most important questions. Or they push the aside and say what they wanted to say anyway. Congrats, I think you have done both.
I’ve been out of pocket during past week, and I can’t find the “seven guiding strategies” referenced in the answer to Shelley above. What is a “guiding strategy” and how is it important to successful economic development?
From Part One Post:
Securing the Global Logistics Brand – Wednesday (9/25/13)
Diversifying the Economy Beyond Logistics – Friday (9/27/13)
Leveraging Assets for International Trade – Tuesday (10/1/13)
Building a New Manufacturing Economy Workforce – Thursday (10/3/13)
Organizing for Innovative Entrepreneurial Growth – Monday (10/7/13)
Connecting Jobs, Workers, Institutions & Activity Centers – Wednesday (10/9/13)
Tracking the Market to Understand Emerging Opportunities – Friday (10/11/13)