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NEW MODELS OF ECONOMIC DEVELOPMENT
WHITE PAPER VERSION 0.5Ed MorrisonMay 2006
I - O P E N
Institute for Open Economic Networks
4361 Euclid Ave, Cleveland, OH 44118•telephone: 216-650-7267•edmorrison@i-open.org
 
Where We Stand
For at least three decades, newspapers have shared stories of plant closings and lost jobs. By now, these dislocationshave touched every corner of our country. The notions of career and job security that we grew up with no longerseem to apply. The stories provide a steady drumbeat of discouraging news which still shapes our perceptions.At the same time, a new economy is emerging across the country. Unlike the older industrial economy, this neweconomy is embedded in smaller companies with unfamiliar names. These new companies share some commoncharacteristics, however. They are flexible, adaptive, and connected.The challenge for civic leaders across the country is to embrace this new economy and understand it. In the comingyears, we will continue to struggle with plant downsizing and closings. In most cases, these changes are unavoid-able, as millions of new consumers and producers enter the flow of global commerce every year. At the same time,globally competitive regions continue to attract talent and create new pathways to prosperity.
Changes in our economy hit home
If this all sounds a little at abstract, it should not. For example, in rural counties, the shifting dynamics of globalcompetition mean that old strategies of business recruitment will not be as successful in the future as they may have been in the past. At the same time, our rural communities have new and unprecedented opportunities. Renewableenergy, innovative manufacturing, and cultural tourism provide opportunities to create wealth among even oursmallest communities.Like other living organisms, economies and markets go through cycles of rapid growth, maturity and decline. Weexperienced dramatic growth during the early decades of the Industrial Age one hundred years ago. During thisperiod of rapid growth, entrepreneurs from across the country planted seeds. Many of the seeds withered, but somedid not. The successful ones grew into large and prosperous companies that built our communities with high income jobs and deep wellsprings of philanthropy.Our strong industrial growth continued in the years after World War II, but the economic climate began shifting. Bythe early 1960s, we started seeing shifts within the country as Northern states -- where industrial growth initially took root -- faced stiff competition from Southern states. The South emerged from World War II with a new economic dy-namism. The growth of the Interstate highway system made it easier for manufacturing plants to move from theNorth to the South.Beginning in the 1970s, we faced another dynamic. New competition sprung from abroad, principally from Japan. Inthe 1970s, large industrial corporations faced stiff competition, as Japanese companies began moving into US mar-kets. We commonly refer to these changes in the global economy as “globalization.” We are really talking about theintegration of global markets. Changes in trade law, new efficiencies in logistics, and dramatic improvements incommunications have driven this integration.
Changes in civic leadership
The increasing competition faced by U.S. businesses have also altered dramatically the nature of civic leadership inour communities. In the past, most communities relied on business leadership from stable, established corporationsto help guide our civic life. We could easily identify our business leadership. We drew our civic leaders from ourlargest industrial enterprises and financial institutions. With the relentless changes in our economic landscape, thepatterns of civic leadership are no longer so clear.
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New Models of Economic Development2
 
In the Industrial Age, change took place at a relatively slow pace. We understood where we started and where wewere heading. Strategic planning, a management discipline of drawing logical links between two points, providedthe tools that most managers and civic leaders needed in the chart the future.Now, however, the road to the future of leads away from strategic planning and toward new concepts of “strategicdoing.” In a stable world, a strategic plan can be more or less permanent. In an unstable world, the increased speedof change renders many strategic plans quickly obsolete.To meet the challenges of more rapidly shifting markets, we need new patterns of thinking and doing. Strategies stillvitally important. Strategy provides a beacon to guide us. Strategic thinking is vital to our future and a core respon-sibility of leadership. Yet how we develop strategy and how we implement strategic activities must change.So, for example, we can no longer rely on a handful of civic leaders to sit in a closed room and make decisions aboutthe future of our communities and regions. First of all, many communities don’t have a strong civic leadership thatguided them in the past. Locally owned banks have been purchased. Many established industrial enterprises arenow guided by plant managers who are only located in the community for a relatively short period of time. Moreo-ver, the world has gotten more complex as markets have become more fluid and dynamic. No small group of people,no matter how gifted, can hope to manage the complexity within our communities.Our prosperity will be built on new patterns of civic leadership. These patterns will be more open and networkedthan they have in the past. We will find collaborations stretching across both organizational and political boundaries.The communities and regions that embrace this new approach to civic leadership will prosper. Those that do not willlikely fall farther behind. Here’s why.
Moving from a First Curve to a Second Curve economy 
In the old industrial economy, business firms and their communities prospered by transforming and moving largevolumes of material efficiently. So, for example, in the Great Lakes states, we became very skilled at producing steel.In other communities, we became very skilled at producing automobile parts and assembling these parts.In the beginning, these skills were relatively rare, and they were highly compensated. So, our communities pros-pered. We built and managed large industrial enterprises that were vertically integrated. We generated wealth withhierarchical organizations and efficient command-and-control management practices.Now this First Curve, industrial economy is giving way to a Second Curve economy based on knowledge and net-works. The Internet provides a powerful metaphor to explain how this new economy works. Wealth comes from ourability to generate and apply new knowledge. By applying new knowledge to new products and services we gener-ate new wealth.So, for example, we generate new wealth in our rural counties when we take agricultural products and transformthem into renewable energy sources, like bio-diesel. Or, we generate new wealth when we transform an idea into anew software package that makes computations easier. Or, we generate new wealth when we attract visitors to aunique experience in one of our historic downtowns.
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New Models of Economic Development3
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