Where economic development goes now

After Hurricane Helene crashed through North Carolina in fall 2024, Ginger Frank pledged $100,000 to other entrepreneurs. Its effects will be difficult to quantify.

The Poppy Popcorn founder wanted to make direct grants, not equity investments, and Jeff Kaplan, who leads entrepreneur support organization Venture Asheville, was put in charge.

Their efforts grew into Optimist Ventures, a venture-philanthropy fund that blends hometown cheerleading with entrepreneur-led economic development. It also says something about what we know, and don’t, about how to boost prosperity anywhere from urban innovation districts to rural mountain communities. 

“Impact always follows founders,” Kaplan told me on Builders Live this summer.

This week several thousand economic developers gather in New Orleans for the annual conference of the International Economic Development Council, celebrating the 100th year of their profession’s organizing body. Insiders say it marks a transformation within the way Americans administer their state and local economies. 

“The field is moving to systems stewardship,” IEDC chief Nathan Ohle wrote this week. “Effective leadership in this context requires vision, self-awareness, patience, and a willingness to listen as much as to lead.”

In contrast, the commerce directors, place-based marketers and site selectors that work across the country are more commonly risk-averse, politically-responsive and narrowly-focused. Will that change? 

This is the third in a three-part series marking IEDC’s 100th anniversary by charting how this quietly influential trade is changing. Part one argued that the math behind “buying jobs” from established businesses no longer holds. Part two laid out what the research actually supports about the alternative: supporting homegrown entrepreneurs. This one is about what comes next, and about how much of it nobody can answer yet.

The research shifted. The money didn’t.

This spring, the World Bank, which lends and advises to reduce global poverty, issued a report that turned heads. 

For decades, the institution led what was called the “Washington consensus,” which advised against government intervention in favored industries. The new report, however, put “industrial policy” in its title. To insiders, it was something like your Sunday school teacher flipping from abstinence sermons to handing out condoms. 

Its globe-spanning research teaches a lot about what helps communities become more prosperous for more residents. Among the clearest divisions is separating “market incentives” from “public inputs.” 

• Market incentives are subsidies and tax abatements — the kinds of firm-specific inducements criticized in the first story of this series. 
• Public inputs are shared resources, such as workforce systems, regulations and physical and social infrastructure. Many of the pro-entrepreneurship priorities outlined in the second story of this series are examples.

Public inputs should come first, advised the World Bank, because they are cheaper and better matched to core growth obstacles. A big OECD report last year said much of the same.

Yet most of American economic development takes the other approach. Of more than $40 billion in place-based authorizations that Brookings counted in September 2024, close to 95% went to company-level incentives.

Economist William Baumol sorted entrepreneurship into three categories: the productive, the unproductive and the destructive — and put coddled incumbents in the unproductive column. In 2023, influential researchers argued further: Subsidizing incumbents lets them pay workers above what those workers produce, which raises the bar a new entrant has to clear. Incentivizing established firms to relocate is not merely inefficient. It may make it harder for homegrown companies to grow.

As last week’s story documented, states that offer the most in business incentives have the fewest homegrown companies built to grow. A new direction has emerged for economic developers:

Develop shared capacity that many firms can use, not customized packages for a single prize.

Live experiments in entrepreneur-led economic development

States across the political spectrum are inching this direction. 

On the Republican side, Gov. Kevin Stitt of Oklahoma used his National Governors Association chairmanship to center entrepreneurship, and North Dakota has folded new-firm support into a portfolio dominated by big-firm energy and small-firm agriculture. 

Homegrown growth “is bigger now than attraction,” Rich Garman, who directs economic development and finance at North Dakota Department of Commerce, told me this month.

This March, West Virginia launched an Office of Entrepreneurship charged with supporting new firms under Secretary of State Kris Warner. Warner is also the state’s chief business registration officer, and he boasts that registering a business went from as long as ten days to under two hours.

“We’ll continue taking the big shiny new projects that hire a thousand or more people,” Warner told me, reflecting on West Virginia’s needs as one of the country’s poorest states. But “we’re going to have to do it ourselves, and it’s going to be the people in West Virginia that make that difference.”

On the other half of the political spectrum is largely-Democratic Maryland, which has one of the country’s highest shares of PhDs powering a R&D and technology economy and using lots of state-backed amenities. That comes with a cost: relatively high taxes and expensive living. 

Maryland Lt. Gov. Aruna Miller, a transportation engineer by training, told me her administration asked business owners what drives location decisions. Talent, quality of life and transit access came first. Asked to choose between simplifying regulations and cutting taxes, she said, “every one of them said modernizing the regulatory process.” 

In North Carolina’s Research Triangle, recently-retired regional leader Scott Levitan told me: “We win the first battle with the workforce.” 

From West Virginia and North Dakota to Maryland and North Carolina, formal economic development strategies also include a distributed coalition of entrepreneur resources and network-building tools — what practitioners commonly call “entrepreneurial ecosystem building.” That coalition approach is to asset-light entrepreneurs what a port or a rail link might be to heavy industry: a public input, like those this year’s World Bank report argued should be global standards for economic development.

The US government does have its own deployment of this newly-sanctioned industrial policy. A miraculously bipartisan slate of federally funded coalitions — the EDA Tech Hubs and the NSF Engines — carries a previously unseen imperative to take an ecosystem approach. They include not just university research and established firms but also startup engagement. Montana’s Headwaters Tech Hub hosts an annual multi-state summit. North Dakota’s NSF AgTech Engine runs coalition calls and testbed facilities rather than cutting relocation deals. Northeast Ohio’s Engine followed four years of work and $120 million raised inside the region first.

Southwestern Pennsylvania’s $62.7 million New Economy Collaborative, itself part of an earlier federal funding wave, stitched together existing workforce programs, startup support and business modernization. The coalition, of which Technical.ly was a small part, navigated the politics of a diverse coalition and a presidential administration change. 

State money is moving too. Louisiana redirected federal SSBCI capital toward a portfolio of early-stage funders, and Nexus Louisiana has loudly pronounced that high-growth founders are its priority. State-backed investment firms In Pennsylvania and Maryland, Ben Franklin Technology Partners and TEDCO, have a strengthening case that they should be the center of their states’ strategies rather than an adjunct to business attraction.

States lay the road and the utility lines before any developer builds a house, reminds TEDCO CEO Troy LeMaile-Stovall, because that first cost is high-risk and private money will not carry it. In an interview with me, he said of ecosystem approaches: “You can’t build a highway unless you have an on-ramp.”

The measurement problem, and someone selling an answer to it

If economic development’s big goal is to raise standards for more residents, there is urgency. Overshadowed by joyfully high rates of new firm creation, storm clouds are forming.

Nationwide business applications nearly doubled between 2006 and 2024, from 2.6 million to 5.2 million. But the share the Census Bureau flags as likely to ever hire an employee collapsed from close to two-thirds down to 1 in 3. In 2005, Americans started almost 1.5 million businesses that were likely to hire. Twenty years later, despite population growth and economic change, the total crawled to just over 1.7 million.

It’s our k-shaped economy in entrepreneurship too. We’ve taught Americans how to start companies but not how to grow them. As the AI winds pick up, economic developers should be sprinting toward homegrown business growth. Why aren’t they?

No agreed-upon metric of success, argues Heidi Knoblauch, who chaired Troy, New York’s industrial development agency. Elected officials vote on budgets, and they like photo opps about jobs: preferably in a hard hat breaking ground on a new facility or back-slapping a big-employer CEO who is moving employees from one jurisdiction to another. Economic developers deliver, with complex spreadsheets tracking programs and incentives to sell a particular site, Knoblauch said.

In contrast, startup guru Brad Feld’s Boulder Thesis advises meaningful economic signals from cultivating homegrown entrepreneurship won’t come for 20 years.

In response, Knoblauch has founded Homefield, which just launched what it calls impact units: a company’s measured local economic impact converted into a standardized, registry-tracked unit that can be bought, sold and retired. 

“Homefield quantifies what entrepreneurs do for a community,” she told me over Zoom. “We measure direct, indirect and induced impact.” 

That jargon refers to well-trod “multiplier effect” research, in which one new company and its employees buy stuff from other companies, which in turn induces other demand. Big corporations already run this math to extract subsidies for their own expansions. Knoblauch wants to offer it for entire ecosystems.

Unlike a port authority or a redevelopment agency, no one single person or organization leads a more distributed network of entrepreneurs and their supporters. In response, providers like Homefield intend to address key gaps in this new style of economic development – or what ESHIP Alliance founder Andy Stoll calls “national ecosystem resource providers.” 

Together local organizers, traditional service providers and their emerging peers form an “ecosystem braid,” as consultant-organizer Amy Beaird puts it. Whole books have been written on the importance of trust for distributing responsibility, and on the role played by coalition-building storytelling.

Unexpectedly, Technical.ly itself has become one of these providers, serving as a distributed communications strategy for evolving innovation ecosystems to self-describe and organize.

What nobody can answer yet

All this early solutions haven’t played out long enough to suggest decisive best practices. Among the issues still up in the air:

Whether the federal experiments outlive the appropriation. Tech Hubs and Engines mark the first time the federal government is funding coalitions rather than institutions. Most are led by academics and economic developers trained on top-down execution. Which of them becomes a genuine network, and which becomes a grant administered the old way, is unknown.

Whether a transition can outrun a budget cycle. Louisiana may have the clearest path from heavy incentives to a modern replacement, with SSBCI capital spread across early-stage investors and startup-focused state leadership.They’re long “culture change” bets. Legislators vote annually.

Whether dismantling on purpose is possible. California dissolved roughly 400 redevelopment agencies in 2012, the only time an American state has taken apart its own incentive apparatus. It took a budget crisis, a Supreme Court ruling and a governor who needed property tax revenue for schools. The one successful teardown in a century happened for reasons unrelated to any argument in this series. Will other states follow intentionally?

And who can sustain the transition. In 2014 the University of Delaware terminated its lease for a $1.8 billion data center, owing to organized opposition, and a flurry of pro-entrepreneurship activity sparked in the tiny state. State dollars backed startup programming inside a coworking space on a downtown corridor and a cohesive statewide innovation strategy emerged. Despite early excitement, that work has faded, and state economic developers have returned to collecting incorporation revenue and attracting retirees with low taxes. 

If founders aren’t at the center, ‘you’re guessing’

“Economic development looks different in every community, shaped by local history, geography, politics and culture,” said IEDC chief Ohle. “Yet across those differences, common leadership challenges emerge.”

In North Carolina’s rural mountains, economic developer Kaplan needed his own approach.

“When I started Venture Asheville I had never raised a venture round, so I’m there giving tips on term sheets and negotiating and how to pitch, but I didn’t really have the credibility,” Kaplan said. “While in this role, I started a dating site and raised venture funds on that. Lost it all. And I think that made me much better at my job.”

With hard-won experience, Kaplan has focused on what his entrepreneurs need: real-world training and a network of relationships with the rest of bustling North Carolina. Dispersing small startup grants from a hometown hero to other new entrepreneurs has been another much-needed tool.

“Our job is to get the most from and, really, for the people in our community,” Kaplan said. “It has to be led by founders every time. If your founders are not at the center of it, you’re guessing.”

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