We’re reposting this from April 22, 2006, as a follow up to yesterday’s post about Memphis and Shelby County’s overreliance on tax freezes:

There are times when it seems that Memphis can’t get its economic development strategies into the 21st century.

It’s as if we just don’t want to compete in a knowledge economy in a global marketplace.  Our economic development strategies are caught in the commodity trap, stemming from our background as an agricultural center and continuing with our pride in being a distribution center.

Everything about our experience tells us that we’re about selling commodities, which is generally defined by a consumer making a decision based on the lowest price. Commodity economic development is premised on the same thing – appealing to companies who make their decisions based on the lowest prices.

This kind of economic development is forever in a race to the bottom to offer the cheapest land, and the cheapest workers.

Selling Cheapness

Because our tradition is in businesses with thin profit margins, our economic development culture is one with an aversion to risk-taking, which in turns undercuts innovation and entrepreneurship. Cities with commodity mentalities think they can grow their economies with low wages, low land costs, low utilities, low taxes. In a commodities world, these are seen as the factors that must be controlled to keep prices down. They are often cited as justification for the tax abatements that we hand out to any company that can complete the forms.

Unfortunately, when we are competing with workers in Southeast Asia, Mexico and Bangladesh, commodities economic development is doomed to failure. Most devastating of all is that cities accustomed to a commodity approach to economic development are at a huge disadvantage in attracting and retaining knowledge economy workers. It is not merely a coincidence that companies like FedEx report constant problems in attracting young, mobile, highly-educated workers to Memphis and convincing executives of International Paper to move from the Northeast to Memphis has met with similar hurdles.

Rather than make the investments in the intellectual infrastructure that we need to complete for knowledge-based companies, Memphis continues to sell the infrastructure of the industrial age, at the same time that its last remnants are vanishing before our very eyes.

New Approaches

What is needed are new approaches to economic growth – approaches like economic gardening which focuses on existing entrepreneurs rather than corporate relocations, on biological models of business and entrepreneurial policy and new economic theories and philosophies.

The words of a specialist in economic gardening seem especially especially pertinent to Memphis: “There was another, darker side of recruiting that bothered us. It seemed to be a certain type of business activity – the branch plant of industries that competed primarily on low price and thus needed low cost factors of production…cheap land, free buildings, tax abatements and especially low wage labor. Our experience indicated that these types of expansions stayed around as long as costs stayed low. If the standard of living started to rise, the company pulled up stakes and headed for locations where the costs were even lower. This was the world when we proposed another approach to economic develompent: building the economy from inside out, relying primarily on entrepreneurs.”

Survey after survey concludes that tax incentives are far down on the list of critical elements that influence companies’ decisions on locations and expansions. Much higher is the presence of a high quality of life – vibrant downtown, outdoor recreational options, rich cultural and intellectual scene and research universities.

For Memphis to succeed in today’s economy (and more importantly, tomorrow’s), we need to base our economic development strategies on quality rather than cheapness. After all, in selling our city for its cheapness only cheapens what we have to offer in the first place.