Amazon’s search for its second headquarters has shown the length to which politicians will go to land what’s perceived as the most important headquarters opportunity in a long time. And what a chase it has been, to the point where Saturday Night Live parodied cities’ obsequious efforts to attract Bezos’ interest. As explained in a recent Brookings report, the chase for Amazon’s HQ2 has also shown what bad economic development is.

Brookings’ author Amy Liu recognizes the temptation that Amazon HQ2 offers. Since economic development is a policy priority for most mayors, recruiting a large company to their region results in sound bites about job growth, improved wages, increased tax revenues and reimaged neighborhoods. However, as Liu notes, the impact in hindsight rarely matches the cost of the incentives, often leaving cities to dig out for decades.

Liu suggests that cities should understand what really drives job creation and allow that insight to shape a different approach to economic development. Citing numerous studies, she underscores the importance of “’sustained growth’ companies of all sizes, which add jobs steadily over several years, rather than in a single massive explosion.” “In short, the bulk of job growth comes from empowering existing people and businesses in a community to grow, innovate and start new ventures.” Attracting businesses and talent which complement and reinforce existing industry clusters should be the focus.

• Liu proffers three ways to “grow jobs from within”:
• Invest in the startup ecosystem – through financial incentives, mentoring, accelerators, placemaking…
• Help small and mid-market firms scale – enabling these companies to grow and hire, whether through supply chains, new partners, staffing, financing or other resources
• Deepen industry specializations – there are immense competitive advantages to those cities which double down on the industry clusters they have, driving university, industry and talent interactions and collaborations, and investing in ways designed to accelerate the growth of these clusters
• It’s not a sexy as an incentive laden ribbon cutting, but in the long run cities are better off focusing on the assets they have and using their economic development efforts to fully realize the latent potential of their existing businesses and people. Liu concludes, “since economic development incentives will not be going away anytime soon, local leaders should at least use them to reward firms that create quality jobs, locate in underserved neighborhoods, or commit to community benefits.” As I’ve suggested before, research increasingly shows that those cities which focus on what they have and on driving growth in an equitable and inclusive manner are outgrowing cities which don’t. We should be asking whether the dividends from each economic development dollar spent are building an inclusive and sustainable economy for the citizens who already live here, and not underwriting a fool’s errand.

With more than 30 years’ experience in law and business, Newt Fowler, a partner in Womble Bond Dickinson’s business practice, advises many investors, entrepreneurs and technology companies, guiding them through all aspects of business planning, financing transactions, technology commercialization and M&A. He’s the pastboard chair ofTEDCO and serves on the Board of the Economic Alliance of Greater Baltimore. Newt can be reached at newt.fowler@wbd-us.com.