Economic Development News & Insight


From Red Flags to Green (Part 1): BR+E in the Emerging Economy

/ October 11, 2012 /

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From Red Flags to Green (Part 1): BR+E in the Emerging Economy

On October 2, I had the chance to speak at the annual conference of the International Economic Development Council (IEDC) in Houston, Texas, with a focus on the question of how and why Business Retention and Expansion (BR+E) is evolving to be more effective in the new economy.  I’ve had a lot of requests for transcripts and copies of the speech but I generally don’t speak from notes, so I promised I’d provide an overview of my thoughts on this blog.  Here’s the first of three blog posts that will cover off the main ideas and themes of that presentation…

BR+E has been around for a couple of decades now, and is a primary focus for many economic development organizations.  This makes sense, because study after study shows that most new job creation at the local level is driven by companies already located within a community, rather than from external sources.  But – as we rush headfirst into the knowledge-focused economy of the 21st Century – some of our traditional BR+E approaches are looking a little tired.

Take the idea of “red flags” for example.  Many of our BR+E programs aggressively target and identify companies facing negative constraints and challenges, and make these the focus of our BR+E efforts.  We look for companies facing rising labour costs, intensifying global competition, challenging tax situations, aging production systems, shrinking markets, and so on, all in attempt to identify companies that need help.  When we find these red flags – these companies with obvious danger signs – we spring into action and try to work around whatever problem or threat has been identified.

But have we stopped to consider that sometimes – to build a dynamic and successful economy – we’ve got things backwards?  Are we spending all our time bailing out and propping up corporate dinosaurs and marginal enterprises?  Instead of looking for positive opportunities, are we focused too much on the wrong end of the economy?

The great Austrian economist Joseph Schumpeter talked about the idea of “creative destruction” way back in the 1930’s.  In a healthy economy, he suggested, some companies are always failing – and that’s OK.  Old companies with outmoded operating models and stale technologies give way to new entrepreneurial ventures that can grow and expand.  By interfering in this process of creative destruction, by trying to save the fading players, economic developers may sometimes block opportunities for new entrepreneurs and new ventures, negating the positive effects of what Schumpeter called “economic churn.”  Those new ventures don’t usually disappear completely – but they do tend to go elsewhere, and benefit some other place.

The message here is that we should spend at least as much time focused on identifying the new players – on looking for the “green flags” of new opportunity – as we do on the red flags of fading industries.  The problem for economic developers is that this is far easier to say than to do.  Seeing where the next innovative opportunity is coming from is not easy…

The famous architect Buckminster Fuller helped give us some insight into why this is in one of the last speeches he gave before he died, back in the early 1980’s.  He suggested that “We are entering the world of the invisible.”  Economic change has always whirled about us… but in the past, this change was always visible.  When the automobile replaced the horse and buggy, we could physically see this change taking place in the streets.  In the emerging economy of the 21st Century, the changes that drive our economy are often invisible.  They take place in the imaginary world of virtual spaces and online communities, via nanotechnologies too small to see with the naked eye, and through biotechnologies where the processes of industry occur inside plants, inside animals, or even inside our own human bodies.  And because these sweeping economic and industrial changes are invisible to the naked eye, they sneak up on us and catch us unaware.  We are not good at spotting the green flags and opportunities of this invisible economy, and so we spend too much time putting Band-Aids on dying business models, and not enough time nurturing the next dynamic generation of emerging growth firms.

Of course, seeing into this invisible economy is difficult – but it’s not impossible.  The filmmaker George Lucas once said of Apple founder Steve Jobs that “…Jobs had a vision.  He could see things that no one else could see.”  In a sense, Jobs’ great talent was that he could look into the invisible economy, and see what was coming next.  And while Jobs may have been more of a visionary than most of us can aspire to, he also showed us that peering into the invisible economy is possible.  He showed that it can be done…

Next: How to Look into the Invisible Economy to Find Green Flags

3 responses to “From Red Flags to Green (Part 1): BR+E in the Emerging Economy”

  1. I completely agree, but before we cast aside the red flags, we need to look at the reasons for that lack of success. Most manufacturers are struggling, but there are good solid tactics that those businesses can employ to address some of the issues and that can allow struggling companies to adapt and thrive. Every community wants to support their software developers, new entrepreneurs, and innovation enterprises… but at the end of the day 40+% of your employment comes from some kind manufacturing. BR&E can’t dismiss that and needs to provide businesses with the ideas and knowledge to help them with the rise of the Canadian dollar, low cost manufacturers from abroad, and the increased price of energy. Anyways – I know there is more to come and your argument is still making its way there so I look forward to the next two pieces!

  2. Brock Dickinson says:

    Thanks Alex – much appreciated!  I know the innovation agenda often gets hijcaked by “sexy” idnustries like IT and biotech, but the red flag/green flag issue is just a real in traditional economic sectors, including manufactuirng.  As I said in Houston, working to save your sword factory while the next community over is building fighter jets is a losing proposition…