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The COVID-19 pandemic dealt a heavy blow to small businesses, but a silver lining emerged amidst the shuttering of storefronts: a clearer understanding of the types of support small businesses need to survive, grow and compete in today’s digital economy

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Marcela Escobari

BROOKINGS SENIOR FELLOW

Building on strengths, aiming for more complexityThe Brookings’ research builds on a data-driven approach pioneered by Harvard economist&nbsp;<a href="https://www.mastercardcenter.org/our-fellows/ricardo-hausmann" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">Ricardo Hausmann</a>, whose work identified economic complexity and diversification in international development as factors key to growth. Historically, it was considered a strength for communities to specialize in one or two things—making rubber into tires, for example; however, Hausmann found that economies that grow and thrive are more diversified and complex. And complex industries, such as computer systems design or medical equipment manufacturing, concentrate only in cities that have the specialized inputs they need, including a workforce ready and able to work in these fields.Brookings Senior Fellow Marcela Escobari has applied Hausmann’s theories to metropolitan areas in the United States. The project assesses each city’s capabilities to host new industries and each industry’s propensity to spur growth. Ultimately, it provides a map for investing in keystone industries that are both viable and foster future growth.“We’re trying to help policymakers find solutions that are very specific to their place and help them realize that their growth strategy is inexorably linked to their people strategy,” said Escobari. “Why is it that two industries tend to co-locate? What kind of capabilities do they need in place to be successful? What is it that I need to have in my city to bring in industries that not only accelerate growth, but that also can provide upward mobility to the people?”A tale of two growing cities, two different pathsNot all growth benefits everyone equally. Some sectors are more likely to create jobs up and down supply chains, for example, while other sectors are more self-contained—like oil and gas and agriculture. Some industries demand both higher skills and higher wages, which helps families climb the economic ladder. How cities develop their industries shapes the region’s growth and prosperity.Both Boise and Nashville, for example, saw strong job and economic growth from 2007 to 2017; yet, while Nashville’s economy grew with more complexity, Boise’s became less complex and less inclusive. For Nashville, the authors recommend focusing not only on feasible growth paths, but strategic ones like manufacturing communications equipment. Nashville is one of the nation’s leading metro areas for automotive manufacturing and as automobiles become more information-enabled, communications equipment will be integral. The same equipment and services would also complement Nashville’s music recording industry. Information and communication technologies and services could also help unlock important new insights in clinical health, where Nashville is a leader.Boise, which experienced 40 years of growth following the arrival of HP in the 1970s, is facing challenges for the future. The city has lost high-tech jobs as employers have struggled to find talent, including Micron, which chose Manassas, Virginia, for a new expansion despite a long history in Boise. It also lost jobs in corporate headquarters while growing in less complex industries such as nursing homes and administrative services. Unlike sectors that export products and have more expansive trade, the latter sectors do not themselves drive growth. As a result, while Boise’s median earnings declined 6 percent, Nashville’s held steady between 2007 and 2017.To sustain high-tech sectors and grow more inclusively, the Brookings authors argue Boise must first focus on improving its education system to prepare workers for tomorrow’s jobs. In the meantime, it must focus on jobs that employ people at a living wage. The authors suggest two feasible avenues—beverage manufacturing and the dairy product industry.Boise may be able to follow the lead of its regional counterparts. For example, Chobani yogurt moved into neighboring Twin Falls to take advantage of the state’s long-standing dairy industry. They, in turn, motivated Fabri-Kal, a food packaging company to develop biodegradable yogurt containers. The two companies’ capabilities overlap with another international dairy company, Glanbia, which is also expanding its research facilities in Twin Falls.These tailored, data-driven case studies are just two examples of how the new Brookings’ insights can help cities adapt in a digital economy. The results, which the authors plan to publish online in an interactive dashboard, offer a nuanced picture of how state and local decision-makers can prioritize their investments by understanding which industries will thrive given a metropolitan economy’s existing capabilities.The country is fast sorting into places that are sprinting ahead and those falling behind. Some areas are booming while others are losing talent, struggling to grow and facing increasing hardship. Tools like these are examples of how the Center&nbsp;<a href="https://www.mastercardcenter.org/insights/leaving-no-place-behind-in-the-digital-economy" rel="noopener noreferrer" target="_blank" style="font-size: 16px;">is working with researchers to help local leaders</a>&nbsp;plan for the future and ensure that everyone can benefit from the digital economy.&nbsp;

New analysis can help cities and regions to simultaneously build on their strengths to diversify and grow more inclusively.

Amazon’s high-profile search for a second headquarters has brought renewed attention to how cities approach economic development in our increasingly digital economy. While New York’s proposal grabbed many of the headlines, experts say paying attention to Virginia’s approach can yield lessons for how cities can make deals that benefit companies and local residents.
At the center of Virginia’s proposal to Amazon was a promise to invest in higher education and build the region’s tech talent pipeline. The state also promised to strengthen its transportation infrastructure. The approach is the brainchild of Stephen Moret, Virginia’s CEO for economic development. A belief in fostering links between economic development, job training, higher education and key principles of urbanism like transit and strong neighborhoods has helped Moret win not only the Amazon megadeal, but also a $3 billion Micron Semiconductor deal. 
So how can other cities replicate Virginia’s success? A new Brookings project, <a href="https://www.brookings.edu/product/future-of-the-workforce-initiative/" target="_blank">the Workforce of the Future Initiative</a>, provides a data-driven blueprint for cities and regions looking to chart their own viable and effective path to inclusive economic growth. The tool can help transform the way regions approach economic development—with a focus on building on existing strengths to diversify and grow a region’s economy.

As one of the oldest, largest and most cited think tanks around the world, Brookings focuses on research, dialogue, and outreach.

Brookings

Brookings As one of the oldest, largest and most cited think tanks around the world, Brookings focuses on research, dialogue, and outreach.

Finding the Path to Inclusive Growth: A Data-Driven Blueprint for Cities