Thoughts on the nature of our economic transformation
The staff of the National Broadband Task Force asked for some thoughts on how broadband could accelerate economic growth. Part of the answer lies in understanding the nature of the shift taking place in our national economy.
- The national economy is undergoing a long-term shift in the way in which wealth is being created. In the past, wealth was created through the activities of large, hierarchical corporations. To meet the needs of these businesses, economic development organizations focused primarily on providing low-cost business climates. Recruitment of these firms became the main focus of most local economic development efforts. The Southern states pioneered these recruitment strategies, beginning in the 1950s and 1960s. Most economic development organizations are still following this traditional path.
- Starting in the 1980s, businesses began shifting to new models of wealth creation. These new models emphasize the development of networks. The process started with multinational corporations building global production networks and integrating their supply chains.
- Beginning in the 1990s, the Internet accelerated the shift toward a network-based economy. Manufacturing companies are continuing to build global production networks, as they “outsource” production in the United States.
- Traditional companies continue to modify their business models to expand reliance on networks through supply chain integration, customer relations management, global production networks, and an expanded emphasis on “collaborating to compete”. Traditional businesses that have been slow to move toward networks -- for example, newspaper publishing and US automakers -- are facing major restructuring pressures.
- At the same time, pure network-based business models have emerged to generate new wealth. Examples include Google and eBay.
- To compete in markets dominated by networks, companies recognize that their capacity to innovate drives their long-term competitive position. New network-based approaches to innovation -- open innovation -- are emerging.
- The shift toward network based business models changes the demands on regional economic and workforce development. Organizations charged with economic and workforce development can no longer be effective by following traditional strategies that emphasize business recruitment.
- Data indicates that most income and job growth within a regional economy takes place among a relatively small number of high-growth, innovative companies.
- These high-growth companies are looking for regional resources to support their strategies to innovate. These resources include talent with 21st-century skills; extensive regional networks to support innovation and entrepreneurship; and close connections with a region’s colleges and universities.
More at this interview with Mike Mortell of the Milwaukee 7 Region.
