Regional Economic Development

Ethics and the deal: When disaster creates an opportunity

  1. Brent Willett, CEcD, is executive director of the Cultivation Corridor

In 2008, the International Economic Development Council [IEDC] established a practitioner Code of Ethics "to ensure a high ethical standard for those involved in economic development."  Several years later, IEDC moved to require ethics training as a condition for all candidates for its industry certification and re-certification program, where it still stands as a certification condition.

It was an industry first. Modern professional economic development is a fairly young industry -- most point to the founding of local industrial recruitment organizations in response to a contraction of manufacturing expansion in the 1970s and the rolling bank savings and loan crises of the mid-1980s as the industry’s jumping off points. For a couple of decades, economic development was defined almost exclusively as a cutthroat industrial recruitment endeavor -- the aggressive courting of external capital and jobs into a defined local or regional jurisdiction. From where that capital and those jobs came -- whether from across the globe or in a neighboring community, and the corresponding ethical underpinnings of how the deal was done -- was less a topic of concern than today.

Today, most states, Iowa included, maintain policies for access to state economic development financial assistance which typically require that a project originate from outside the state or be an expansion of an existing facility in the company's current community. In other words, the state is fundamentally not interested in providing financial incentives for relocations from one Iowa community to another. This is extremely sound and extremely necessary policy. 

The state’s policy position has begun to trickle down to local incentives policy. A handful of regions, including the Des Moines region, maintain some level of anti-piracy protocol which typically requires the sign-off of the home community prior to any other community in the region's economic development organization approving of local assistance to a company considering a relocation from one regional community to another. The One Corridor Agreement by and between Cerro Gordo County, City of Clear Lake and City of Mason City -- the latter two communities which once considered themselves deep rivals for economic development projects despite their immediate geographic proximity, now provides for a clear and cooperative project management process for any project considering both communities or one involving a potential relocation from one community to the other. In another instance, leaders in Iowa’s Creative Corridor are working to craft an agreement by and between the communities in the Cedar Rapids-Iowa City region.

But while intra-state competition is often governed by cooperative piracy policy in Iowa, at any level outside that, you had better believe competition is as fierce and ruthless as ever; and it should be. 

But where does an economic development organization or practitioner draw the competitive line, particularly as it relates to preying on weakened game?  The IEDC ethics code conspicuously avoids any mention of competitive behavior between local organizations or states, and probably for good reason. The dynamics and decision-making triggers for any multi-site project are so varied so as to be virtually infinite. Accounting for them all and providing behavior guidance would be virtually impossible. The closest IEDC gets to wading into competition ethics is a disclaimer attached to its ethics code: “There may be circumstances where the board may choose to interpret and apply this code to a particular event such as a man-made or natural disaster.” 

So where is the line? 

Am I within the boundaries of professional decorum if I make an inquiry to pitch my region to a company in a state currently under natural duress, like a hurricane, based on the impact such trauma has created on that state or region’s near- and mid-term competitiveness? No, probably not; acts of God affecting a competitive community are generally treated with a great deal of forbearance by economic developers.

Am I within those same boundaries of decorum if I embark on such an inquiry with a company in a state under man-made duress, like a debt or political crisis?  Yes, usually. 

Our friends in Illinois, Indiana, Michigan, Arkansas and South Carolina, to name a few, have created for themselves a handful of major man-made disasters of late. They have managed them in both effective and ineffective ways as it relates to the eventual impact on a state’s reputation for business-friendliness for the job creation projects and investments every state in the union is chasing. 

Illinois? A fiscal basket case with a dash of corruption. States like Iowa and regions like Central Iowa love to compete with Illinois. It is perfectly within the boundaries of professional competition to demonstrate to our clients considering the Land of Lincoln that the crushing debt load the state currently acknowledges, and the unfunded liability load it doesn't acknowledge, as a pronounced competitive disadvantage. More debt means more taxes, particularly corporate taxes, in the future. That ought to be considered a tremendous competitive disadvantage when compared to Iowa’s historically sound fiscal [and low, low debt per capita ranking] position.  And that’s before we even start talking about political corruption [four of the last seven [!] Illinois governors have gone to prison]. Oh, and a couple of weeks ago Illinois eliminated all economic development incentives for businesses as part of a plan to address a $3 billion budget deficit.

But what to do when the man-made disaster isn’t as cut and dried, from an ethical perspective, as a preventable state budget calamity?

Indiana, Michigan and Arkansas all have come under intense criticism from their own state’s businesses for social policies and policy proposals related how same-sex couples may or may not be treated both by the state tax code and by their fellow citizens [IEDC Ethics Code item #9: Professional economic developers shall assure that all economic development activities are conducted with equality of opportunity for all segments of the community without regard to race, religion, sex, sexual orientation, national origin, political affiliation, disability, age, marital status, or socioeconomic status].

In perhaps the most high-profile move, e-commerce giant Angie’s List announced in March it would shelve plans for a major expansion in Indianapolis over its opposition to an Indiana ‘religious freedom’ law which many interpreted to permit discrimination against LGBT individuals and couples. [After a national uproar, the law has been largely repealed, but Angie’s List has maintained that it will not expand in Indianapolis.]

Governors and legislative leaders in Michigan and Arkansas have also in recent months taken up controversial legislation relating to the treatment of same-sex individuals and couples, have been lambasted by their business lobbies for it, and largely have retreated with plenty of damage done to their states' relationships with some of their largest employers.  

What’s an economic developer in another state to do in a case like this?  [Hypothetically] Pick up the phone to Angie’s List and those businesses like it?  Probably so. Political disasters are by definition man-made, and almost always by definition avoidable. While in most cases it is largely unproductive to craft a pitch to a company focused on a narrow piece of state social policy, controversy over such a policy could create an opening for a broader conversation calling into question one state’s responsiveness to the needs of its business community and its ability to manage its national and global reputation as a place to live and work when compared to my state. 

Occasionally, man-made political disasters which hold the potential to affect investment and job creation decision-making in another state demand a measured approach. Take, for example, the controversy leaders in South Carolina are currently embroiled in over the display of the Confederate battle flag on the grounds of that state’s Capitol.  Certainly, were this a confined issue founded on a purely political grounds, it would be ripe for inclusion in a state-to-state social/cultural comparison.  But it isn’t; while controversy has swirled around South Carolina’s Confederate flag for years [in 2000, the was moved from flying atop the Capitol to a war memorial on its grounds- something only a superlegislative majority can compel], the current controversy has at its basis the unthinkable mass shooting at Emmanuel AME Church in Charleston.  Any decent economic developer- or human being- wouldn’t fathom exploiting a controversy with such a tragedy at its nexus. 

And so, as in most industries, gray area abounds for economic developers all over the country and the world as it relates to capitalizing on the competition’s weakness.  With so much at stake -- jobs, capital, tax base, community pride -- the actions of a local, regional or state-level economic developer in navigating complex ethical challenges are pronounced and are broadly relevant to the community he or she represents.

One is the loneliest number

Brent Willett, CEcD is Executive Director of the Cultivation Corridor.

Last month Iowa’s economic development community gathered for the SMART Economic Development Conference in Des Moines, an annual event organized by Iowa’s investor-owned utilities which attracts economic development, government, business and political leaders to discuss job creation and retention efforts in our state.

So what? Every industry has a must-attend annual conference or two. What makes SMART unique are the collegial dynamics which comprise the industry it represents. 

It’s a small industry, economic development. That claim may seem far-fetched at face value, considering that estimates suggest there are between 7,500 and 10,000 economic development organizations operating in the US today- but broken down, that’s 150 to 200 groups per state before adjusting for population – and Iowa is 30th at 3,090,016 [2013 US Census]. 

The 99-county math is easy: there are, on average, just a handful of economic development professionals for miles around in most parts of Iowa. Join this weak density of practitioners with the transient nature of many rural economic development jobs - figures are hard to come by, but in many small communities the local economic development job is turned over regularly as qualified practitioners find better hours and better money in the private sector - and you’ve got a perfect storm of conditions conducive to a challenging sense of isolation felt by many in the industry. 

Economic development in Iowa is a field in which many practitioners are one of only a small handful [or, in very small communities, the only] person administering professional job attraction and retention services in a city, county, or even cluster of counties. 

What if you were the only person doing your job for 50 miles? Who would you lean on, learn from and engage with to assuage the challenges of a project or stresses of time management? Who would you contact in times of crisis and celebrate with in times of achievement? How would you find your industry mentor? For economic developers throughout the state and across the country, the answer is often counterintuitive: with a competitor.

The field’s diminutive size requires that not only must small community economic developers often function without benefit of an industry colleague nearby, but all practitioners must rely on complex mutual relationships which involve at-times intense competition as well as collegial dynamics. In order to engage in true peer-to-peer exchanges of ideas and challenges, economic developers must often look to an industry colleague elsewhere who, at the end of the day, is fundamentally a professional competitor. It all adds up to a profoundly complicated yet exceedingly tight-knit professional network for Iowa’s economic developers.   

Many of us report to or serve on boards and commissions comprised of competitors, and we know it works. Board ethics [not to mention common courtesy] suggests that you check your competitive fire for your board colleague at the door and find common ground to work together on, relative to the organization or project at hand.

Economic developers are forced to simply accelerate this dynamic. Take, for example, the Professional Developers of Iowa board of directors, a group I was privileged to lead as president in 2012. PDI is a consortium of more than 300 economic developers throughout Iowa and its board is comprised of practitioners from throughout the state- all of whom, on one level or another, are fierce competitors for the same prize: investment and jobs in Iowa. Despite such a unique board room dynamic, PDI has been the premier issues, education and networking organization for economic developers in Iowa thanks to effective volunteer leadership for decades. 

Central Iowa practitioners are a bit more fortunate in terms of colleague access. Concentrated population dynamics make collegial density much higher in the Cultivation Corridor region.  For example, the Greater Des Moines Partnership’s Metro Practioners Group meets six times a year and routinely has 40-50 economic developers in attendance from throughout the region discussing issues and generally commiserating with each other about resources, opportunities and projects. While many in the room are technically competitors, the convergence of government, higher education, workforce and other practitioners who are a part of a larger economic development ecosystem in the Corridor helps produce a well-rounded discussion and group resource.

As within many industries, commonalities abound in the economic development peer-to-peer relationship - common public policy priorities, infrastructure needs, community college workforce development programming and much more binds the industry together.  But it is where natural ties that bind begin to break down that the industry finds a way to support its own- even from a county or two over.

Why Iowa needs to think like an oil company

- Brent Willett, CEcD is Executive Director of the Cultivation Corridor.

In its first quarter earnings rollout on April 30, oil giant Exxon Mobil Corp. revealed that its refining and chemicals units- think lubricants and chemical compounds used to produce things like plastic- together represented 48% of its profits in the first three months of 2015.

In 2014 those units represented just 19 percent of profits [oil and gas production made up the rest]. Across the pond, France’s Total SA, Europe’s largest refiner, said its first quarter refining and chemicals income improved three-fold while production earnings plummeted 56%. Similar trends jumped off earnings pages of oil companies across the globe. 

What’s going on here?  And what does it have to do with economic development in Iowa?

As oil production earnings continue a not-so-slow-motion collapse- oil prices have lost half their value since August- an emerging bright spot for the industry has been the durability of its higher-margin refining and chemicals units. 

How big of a shift is this?  In 2012 ConocoPhillips, amid an industry rush to decommission a refinery inventory thought to be over capacity, decoupled its chemicals and refining businesses from its drilling businesses in a loud-and-clear bet on long-term profitability in the business of oil and gas production. 

It was a bad bet; the derivative business, Phillips 66, is now throwing off higher profits.  For decades, the petroleum industry has honed a refining/chemicals product diversification strategy which not only offers a hedge against intense commodity market pressures like it’s experiencing today, but one which has produced a expansion and diversification model that biofuel-producing states like Iowa have begun to take notice of.

Currently, less than 10% of the world’s chemical industry is bio-based, but estimates suggest that could adjust upwards to close to 25% by the end of the next decade [creating as many as 20,000 new jobs in the US in the process] as rapid biochemical innovation and commercialization begins to create cost parity with petroleum-based solutions. 

Iowa’s vast biofuels industry- and the biomass supply chain, physical infrastructure and research and human capital which has cropped up as a result- positions the state to capitalize on this growth industry more competitively than virtually any domestic peer. 

Iowa’s more than 40 ethanol and biodiesel facilities- many in rural communities- in many cases represent potential buyer/supplier opportunities for a biochemical industry which has been rapidly developing in Europe for years and is poised to grow its relatively small position in the North American market.  

In short, we’ve got a window to leverage Iowa’s dominant biofuels position to diversify into chemicals and materials derived from Iowa biomass.

That’s why economic development and industry groups like the Iowa Biotechnology Association, Iowa Chamber Alliance and the Cultivation Corridor are supporting a bill currently before the Iowa General Assembly to create a first-in-the-world economic development incentive specifically targeted at this nascent industry. 

House File 656 would create a tax credit program administered by the Iowa Economic Development Authority to help support the growth of biochemical investment in Iowa over the coming years. 

The bill would create a tax incentive for the production of a prescribed set ‘building block’ biochemicals which are derived from biomass feedstock abundant in Iowa as either raw materials or co-products of a bioproduction fuel or other process like starch, sugar and lignin.

As the legislature debates the merits of a bill, research and economic development efforts to firmly establish Central Iowa as a global center of excellence in biochemical and biomaterial research and, ultimately, production are well underway. 

Take, for example, the Center for Biorenewable Chemicals [CBiRC] at Iowa State University in Ames, one of the nation’s largest multi-disciplinary and industry-led biochemical research installations, and the new Center for Bioplastics and Biocomposites [CB2] at Iowa State, a pioneering research partnership with Washington State University and private industry.  Indexing these two superb research assets with the physical and supply chain assets already in place in Iowa and, potentially, a global first economic development incentive produces a compelling argument for Iowa to a new and important industry poised to expand.  

  

What would be the 'coolest' economic development investment?

Note: Kyle Oppenhuizen is a reporter for the Business Record. 

Yesterday, Gov. Branstad's office told us they would announce the "largest-ever economic development investment in Iowa." The announcement was to be made at 4 p.m., giving us about five hours worth of speculation in the newsroom.

It made us wonder: What would be the COOLEST project the governor might announce? My vote was for a pro sports team - which I knew, of course, was highly unlikely.

Turns out, the MidAmerican Energy wind energy expansion that was announced IS pretty cool. Approximately 40 percent of the company's electricity will come from wind energy by the end of 2015.

But pretend for a second you didn't know about MidAmerican's plans. If someone told you that a company was about to make the largest-ever economic development investment in the state, what would you hope for?

Let me know. Comment on this post, on the Business Record's Facebook page, or with the hashtag #IAdreamproject on Twitter.

-Kyle Oppenhuizen

Reporter, Business Record

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