We admire city government for put up $5 million in capital funds to fight for jobs and business investment, but we’re worried that we’re still fighting the wrong battles in Memphis.

Quality workers and companies today are looking for cities that sell themselves on their quality, not for their cheapness, or how big their corporate bribes are.

It’s like we’re trapped in a time warp here.  Decades pass, but we still think it’s about paying for infrastructure and giving away taxpayers’ money.

The $5 million for business incentives is a good enough idea, but the biggest risk is that it chases all the wrong goals again.   Already, we’re talking about building roads, public garages and the like with the money.  From where we sit, if the investments aren’t being built to inspire entrepreneurs and start-up companies, we’re just deluding ourselves (and we’ve gotten really good at that).

The Wrong Road

We’ve tried for decades giving companies enough money to make them love us and what do we have?  A company town and a workforce that are predominately low-wage and low-skill, and a perpetual stream of excuses for our noncompetitiveness, a problem that is intensifying and God help us, it’s not because we’re not building roads.

All the jobs created in the past 20 years in the U.S. have come from start-ups, and if we’re not concentrating on them, we’re investing in old school economic development that’s falling apart in front of our eyes but apparently, we’re so trapped in our addiction to PILOTs that we can’t see a better way.

We’re told that from in the last four years, we’ve had a net loss of almost 40,000 jobs (the equivalent of losing FedEx), which indicates to us that our problem is more structural and attitudinal.  Despite adopting the language about talent, minority business and quality of life and sprinkling the terms in all of our economic development rhetoric, we’re doing precious little about any of them.

Finding a Different Path

There are hopeful signs that changes are stirring, but we don’t have time to keep investing in the same old formulaic economic development and the same old incentives.  Despite the Greek chorus from economic development types about the need for more incentives and more to give away to companies, the problem runs much deeper than that.

The problem is that we have spent 20 years walking down the wrong path, and even when it’s clear that we’re lost, we blithely march on rather than understand that we need to find a better, new way to the future, because simply put, this one isn’t working.

As a result, we urge Mayor Wharton to listen to new voices and new ideas as he tries to decide where to invest the $5 million set aside to prime the economic development pump.  We hope he’ll listen to people like Eric Matthews at Launch Matthews, ask his minority business transition committee to deepen its recommendations and to assemble young entrepreneurs whose big ideas fail for lack of tens of thousands while we throw million-dollar hail Mary passes at corporate executives.

The Right Targets

Harvard University economist and commentator Ed Glaeser recently had this view, which should inform us about a better way:   “With job growth continuing to lag even as the economy picks up, local communities will be tempted to resume “smokestack chasing”—using tax breaks to attract big employers. That’s a misguided approach.

“Our research shows that regional economic growth is highly correlated with the presence of many small, entrepreneurial employers—not a few big ones. In fact, a study of U.S. metro regions showed that cities whose number of “firms per worker” was 10% higher than the average in 1977 experienced 9% faster employment growth between 1977 and 2000.

“Data can be misleading, of course, so it’s reasonable to wonder whether industry structure, tax policy, or some other special circumstance skewed the results. The answer is no: Even adjusting for such variables, the relationship between small firms and job-growth rate stands.

“Politicians enjoy announcing a big company’s arrival because people tend to think that will mean lots of job openings. But in a rapidly evolving economy, politicians are all too likely to guess wrong about which industries are worth attracting. What’s more, large corporations often generate little employment growth even if they are doing well.  Instead of trying to buy their way out of the recession with one big break to one big employer, politicians should reduce costs for start-up companies and small businesses.

“And a little work in that direction goes a long way. Research shows that once entrepreneurship gets established, it tends to be self-perpetuating.”

Back to the Future

In other words, our city needs to abandon its lip service to entrepreneurs and put them at the center of our economic strategies.  Other cities are already ahead of us, and this should have been an area that we pioneered, building on the legacies of Clarence Saunders, Kemmons Wilson, Pitt Hyde and Fred Smith, to name a few.

It is in creating a culture of entrepreneurship that Memphis contributes to one of its most important business opportunities – to improve our dismal record on African-American businesses, which account for about 1% of total business revenues in a 50% black region.

Dr. Glaeser’s overriding advice given to Leadership Memphis earlier this year: “Focus on quality and smart people. “There is much to be said for the strategy of focusing on the quality of life policies that can attract smart, entrepreneurial people,” he said.  “The best economic policy may be to attract smart people and get out of their way.  This approach is particularly appealing because the downside is so low. What community ever screwed up by providing too much quality of life?”

Mayor Wharton is smart to be looking for ways to shake up economic development for Memphis, but we hope he realizes that the city we have created is exactly the one we set out to create with our economic policies.  Progress depends on changing and changing depends on thinking about a different city and then creating the policies to make it happen.

Most of all, we hope that this discussion about how to use the $5 million will include much more than the usual suspects if we are serious about finding more than the usual answers.