An Huffington Post piece on 10 Local American Economies That Have Change Forever was pointed out to me. I was asked to provide a strategic context. Here is my take.
Cities have traditionally been opportunistic. Some entrepreneur select a city as a site for something, a railroad headquarters, a large government facility, aerospace manufacturing or a software company. The city then grows up around that industry. That has happened in Detroit. It has happened in Pittsburg. It has happened in New York. These core businesses create an ecosystem of specialists to support them. It is not that other businesses don’t co-exist, but a single business becomes the dominant player in the ecosystem. Many businesses exist to support the big one. If technology shifts, or if the economic context changes, the core business may leave, sometimes abruptly. The steel industry went through this. The auto industry has gone through this. Aerospace, in more than one area, has gone through this. In management theory, these are known as clusters (explore here at Harvard).
Two threads run this Huffington Post slideshow: cities overly dependent on a single industry and in a couple of cases, complications of a natural disaster. On the later point, think about some theories of dinosaur extinction that say they were already retreating and had become ecologically less diverse before the big asteroid hit. The asteroid sealed the deal, but it wasn’t the only cause. Same with cities.
So what should cities do, knowing that this could happen.
They need, like all good businesses, to diversify. They should not put all of the economic eggs in one basket. That means being aggressively, but responsibly pro-business. They need to attract a number of small and medium firms that can create more resilient, complementary industries. They need to encourage services to be generalists rather than specialists so that as industries go through cycles of boom and bust, the support industries can align with what is currently working.
I am not. AM NOT, suggesting an industrial policy of picking winners and losers. I am suggesting that cities not go after one large company to replace a previously large company, but that they encourage an organic development of a number of industries, even considering non-industrial, but complementary activities, like artist colonies and incubation centers. They need to make long term policy decisions that will allow organizations to ensure that some things are fixed in their budgets, like low cost rentals and certain tax advantages. Because these are all discretionary, as soon as a city hits a financial wall, it starts retreating from incentives. I believe some incentives need to be multi-year, perhaps 10 years or more, so that the small and medium businesses can count on certain aspects of their environment while other parts rapidly change. If everything rapidly changes together, businesses may not be able to cope. And like the business of the past that turned once thriving areas into near ghost towns, they either collapse or flee.
Scenario planning is a great tool for imagining what an area can be based on current competencies, and what competencies the area might attract through either natural attraction (such as oceans, mountains, isolation, etc.) or policy-based incentives.
If we think about the future in a robust way, we need not see future cities suffer as these examples clearly have. If Microsoft ever leaves Redmond, what would Redmond become? Bellevue? What if Wall Street left New York? Cities need to consider how influential their large industries are, and start creating policy that attracts complementary small and medium businesses. They need to use strategic imagination to understand what they could be, not extrapolation thinking that wishes them toward a place they have already been.