decsion making and strategies

Decision-making translates into how the community goes about setting and implementing policies that affect development. Underlying these policies or programs are community values. When it comes to economics, how are values translated into decision-making? Does the community integrate sound and objective analysis with community perspectives and desires? Does the community involve a broad spectrum of interests or just a select few?

Community Economics: Decision-Making

Does the community really address the underlying problem(s) or is it just treating the symptoms? Indeed, can the community make a distinction between the underlying problem and symptoms that appear on the surface? What types of strategies can a community implement to attain economic growth? Why are some communities better equipped for making economic decisions when conditions change?


The quality of local decision-making is strongly influenced by community residents' ability to distinguish between problems and symptoms, and to build coherent responses to real issues. The continued pursuit of solutions to symptoms rather than real problems seldom results in community satisfaction.


There remains no real substitute for well-informed local leadership. Successful development requires local leaders with strong analytical skills, and with access to the information, data, tools, and techniques necessary for the full redress of root problems. Inadequate access to current and accurate information is a serious stumbling block to local decision-making.


Widespread citizen participation and support is critical to most decisions affecting a large segment of the community. Local residents control an array of resources that affect community life. These are controlled either as individual residents, businesses, or through collective institutions including local governments and citizen groups.


What we are talking about in decision-making is civic engagement derived through activities such as community organizing, citizen participation, and community-based decision-making. Community-based organizations can bring residents together to learn decision skills reflecting a more entrepreneurial style that is conducive to strategic planning for local economic revitalization including social capital.


The difference among communities in terms of civic engagement is due largely to the level of social capital. Social capital refers to features of social organization such as networks, norms, and social trust that facilitate coordination and cooperation for mutual benefit. Networks of civic engagement foster norms of general reciprocity and encourage the emergence of social trust. Social capital consists of the social networks in a community, the level of trust between community members, and local norms.


First, the role of decision-making by individuals and communities, and the capacity of the community to make choices, is a primary characteristic. This to a large extent depends on the quality of information available and the ability to decipher that information, specifically the capacity to learn.

Second is the negotiation on process within the community to determine the collective good, including the capacity to work together.


The Floras talk about entrepreneurial infrastructure, rather than social capital, and how that might relate to community economic development. Essentially they offer up three dimensions that defines entrepreneurial infrastructure. The first is symbolic diversity or the community level orientation towards inclusiveness rather than exclusiveness. There is an acceptance of controversy in the community so that disagreements are not perceived as conflicts. People accept controversy and deal with it in a positive fashion. One way of looking at this is to think in terms of win-win outcomes versus win-lose outcomes. This is a comprehensive means of thinking of civic engagement.


The depersonalization of politics means disagreements are seen as honest differences to alternative solutions, and those offering alternatives are not seen as inherently evil. What to do in this type of situation is to focus on the process rather than winning. The community also thinks in terms of a broad definition of who should be involved in the decision and that there are permeable boundaries as to whom should be involved. In other words, you draw your boundaries as inclusively as possible and reduce the perception of “we versus them.”


Second, resource mobilization is when the community learns to rely on its own resources first rather than looking elsewhere. Looking elsewhere might include senior levels of government, non-local businesses or foundations. But again, sustainability of local policies almost mandates that those policies be determined by local dialogue and decisions.



The final quality of entrepreneurial infrastructure is quality of networks. This includes such things as network diversity including but not limited to ethnic, class and gender. We worry about what the Floras’ call horizontal networks because we learn best from people like ourselves. But at the same time there has to be an appreciation of vertical networks because a community needs to be linked to the world outside. For example, a rural community may learn from the experiences of similar near-by communities (horizontal), but at the same time is willing to draw on the experiences of larger and distant places (vertical).


We saw that a market economy, given some fairly restrictive assumptions, will yield a Pareto optimal allocation of resources; a state of affairs where no one can be made better off without at the same time making at least one other person worse off. Adam Smith’s invisible hand of market forces works. We also discussed that the presence of externalities results in market failures competitive markets may not result in a Pareto efficient allocation. Also at issue is that Pareto optimality says nothing about the total welfare of that allocation.


it possible to derive an aggregate measure of social welfare so that alternative allocations might be compared, including allocations that are not comparable using the Pareto criterion? The name of such an aggregate measure is called a social welfare function. A social welfare function is just some function of the individual utility functions:

W(u1(x),…,un(x))


W(u1(x),…,un(x))

Figure 12.1 Social welfare functions

U1

U2

utilitarian

maximin


Utilitarianism. This alternative classical economic philosophy relies on early concepts as described by Jeremy Bentham in England during the 1700s. The classical utilitarian or Benthamite welfare function is a simple the sum of the individual utility functions:

W(u1,…,un) = Σi=1…nui.

Or, a slightly more generalized form, the weighted-sum-of-utilities social welfare function:

W(u1,…,un) = Σi=1…n αiui

Here the weights α1,…, αn are weights indicating how important each individual’s utility is to the overall social welfare. The Benthamian concept centers on the rightness or wrongness of actions that are determined by the goodness or badness of their consequences for society as a whole. Utilitarians consider maximization of social utility as the basic criterion of morality. In essence, the phrase “greatest good for the greatest number in the long-run” represents the basic decision-making criteria as espoused by the utilitarianist perspective.


Libertarianism. This classical liberal philosophy advocates an individual’s entitlement to freedom from the interference from others.[i] With respect to “just-ness” of an economic decision, libertarian thinking believes that holding, using, and transferring resource endowments is just if it is beneficial to an individual and if it doesn’t impinge on the liberty of others. Thus, libertarians hold to Pareto optimality as a key decision rule.

[i] Milton Friedman (1912 - ) – a leading proponent of the libertarian approach to economic philosophy. Libertarianism is characterized by much of the contemporary economic thought as espoused by the “Chicago School” and rests on the notion of Pareto optimality as a key decision rule for just economic decisions.


Contractarianism. This extension of utilitiarianism rests on the assumption that individuals are willing to accept constraints on their actions because they agree that if everyone accepts, all will benefit. It differs from utilitarianism in that the greatest good for the greatest number is often unjust because it comes at the expense of the weakest. This contemporary philosophy is often identified as Rawlsian named after John Rawls, a Harvard philosopher who wrote extensively on liberalism. Rawls forwarded a philosophy of social justice based on two principles. First, individuals have a right to the most extensive system of basic liberties and inequalities are based on differences in initial endowments. Second, inequalities are prioritized to provide the greatest benefit to the least advantaged.


Contractarianism. As a decision rule, contractarianists rely on the maxi-mim criterion which holds that decisions should attempt to maximize the welfare of the minimum group in society. This rule can be formalized as:

W(u1,…,un) = min{u1,…, un}

At the local level this philosophy emphasizes policies that address people living in poverty first and foremost.


Arrow’s Impossibility Theorem. While in theory the ability to design a social welfare function to assess the alternative policy options is appealing, can it be put into practice? The classic work which addresses this question, and upon which most of the literature is built, is by Arrow (1951). Arrow set down certain properties or value judgments that a social welfare function should possess. These include:

Pareto Principal: if all individuals prefer one allocation to another, society should do the same.

Unrestricted Domain: the social welfare function should allow all possible ordering of individual preferences. In other words, the same welfare function should apply regardless of the particular preference orderings of individuals.

Independence of Irrelevant Alternatives: the social ordering of any two allocations should not depend on the ordering of any other two allocations. That is the social welfare function reflects all possible pair-wise comparisons.


Arrow’s Impossibility Theorem. Arrow found that, indeed, a social welfare function could be constructed that satisfied these minimal characteristics, but the only admissible one would be an unattractive, specifically a dictatorship: all social rankings are the ranking of one individual. Perhaps the most surprising part of Arrow’s Impossibility Theorem is that three plausible and desirable features of a social decision mechanism are inconsistent with democracy. The implication here is that there is no perfect way to make social decisions. There is no perfect way to aggregate individual preferences to form social welfare function.


Arrow’s Impossibility Theorem. For the community economic development practitioner the implications of the Impossibility Theorem is that our ability to measures social welfare is far short of our ability to theorize and think about social welfare. In the end, these philosophies are just that, ways to think about and approach economic development.


Jeep suggests there are four traps we must be alert to in local decisions about community economic development. First is failure to develop vision that is shared with the larger community, and failure to achieve consensus on core values that are connected with that vision. A misunderstanding by community leadership of what form of leadership is required is a second issue raised by Jeep. The leadership required is not control, nor top-down, but best understood and defined as group learning process in which no single person has “the answer,” but all have something to contribute. Third is the failure to appreciate the process, not events, as an important part of the substance (the ends does not justify the means). Fourth is the failure to go to the roots of a problem and address it.

Community Economics: Development Strategies

Any community economic development strategy begins with a discussion of community economic development goals (outcomes) and objectives (output). Goals are general qualitative statements that suggest some attempted achievement that is largely immeasurable. Community economic development goals are often intangible, abstract, and definitely are value laden. Such as making the downtown the heart of the community from our example above. Objectives are more specific statements that typically can be quantified and measured, such as downtown business profitability. Goals and objectives are intimately related. Objectives are derived from goals and are indicators of goal achievement. Goals and objectives represent the juncture of facts, values, and hierarchy of importance.


Goals and objectives should possess the following qualities:

1. Goals and objectives should be consistent with respect to expectations.

2. Goals and objectives should be comprehensive and include all major dimensions of the problem(s).

3. Goals and objectives should be precise to assure effective action and response.

4. Goals and objectives should be internally consistent and not redundant.

5. Goals and objectives should recognize resource constraints relative to any action program to be initiated.


Implicit in the discussion of community economic development goals and objectives is the belief that once the goals and objectives are identified and the relationships (links) among goals are understood, there will be agreement on how to achieve those goals and objectives.

We have presented three conceptual philosophies from an economist’s perspective; libertarianism, utilitarianism, and contractarianism. Each of these three philosophies can provide insights into each of the following perspectives. There are no “right” or “wrong” ways to answer the questions raised by the different philosophies.


Old Logic New Logic

Focus on cost of doing businessFocus on innovation, productivity,

fl exibility, quality

Attraction of branch plants Emphasis on retention & expansion

Bigger businesses get attentionAttentive to smaller businesses and

entrepreneurs

Any job creation is acceptableAttention to wages, benefi ts, skills

required, etc (quality of job)

Manufacturing & agriculture engines of

growth

Service producing industries broadly

defi ned are the engines of growth

Capital is cheap and availableFunding f or training, market

development and R&D

Domestic market suffi cient and

protected

Global markets sources of growth and

competition


Five Basic Strategies (Glen Pulver)

• Attract new basic employers (Old Logic)

• Improve efficiency of existing firms

• Improve ability to capture dollars

• Encourage new business formation

• Increase aids/transfers received.


The Shaffer approach

1. Increasing the flow of dollars into the community

2. Increasing the re-circulation of dollars in the community

3. Increasing the amount of resources available

4. Using existing resources differently

5. Changing the rules

6. Acting smarter


Increasing the flow of dollars into the community……

means that the community is essentially injecting new money into the local economy by attracting new basic employers; by existing basic employers increasing their sales outside the community; by the community increasing its visitors; or by the community increasing its inter-governmental aids. In each case the community is bringing more money into the community.


Increasing the flow of dollars into the community……

1. Develop local industrial sites, public services, and potential employee information.

2. Develop community and regional facilities necessary to attract new employers.

a. Transportation (e.g., airports, railways, highways)b. Recreational facilities (e.g., parks, hunting grounds, restaurants, hotels, convention centers)c. Communications (e.g., newspaper, telephone)

d. Business Services (e.g., banking, computers, legal assistance, accounting)

3. Expand purchases by nonlocal people (e.g., tourists, neighboring citizens) through appropriate advertising and promotions.

4. Ensure that key public services (e.g., fire and police, water and sewer, general administration) are more than satisfactory.

5. Recognizing the important role of transfers such as retirement benefits, and unemployment compensation as a flow of funds into the community.


Increasing the re-circulation of dollars in the community…..

means that the community is plugging leakages of money out of the local community's economy. In other words, the community is actively seeking ways to get people and businesses to spend more locally. It could be altering store hours, encouraging new or different store types, physically renovating down towns or even talking to businesses about buying inputs locally rather than from non-local sources. The end result is that dollars re-circulate at least one more time locally.


Increasing the re-circulation of dollars in the community…..

1.Identify market potential of retail outlets through surveys of consumer needs and buying habits.

Improve share of retail market captured through downtown analysis and renewal through: a. Use of consumer and merchant surveysb. Providing convenient parking or public transitc. Reviewing store hours and merchandising

2. Aid businesses in developing employee-training programs to improve quality of service.

3. Through information programs, encourage local citizens and businesses to buy locally.

4. Encourage collective action through the formation of organizations such as Chamber of Commerce or Merchants Association.


Increasing the amount of resources available…..

simply means that the community has increased the amount of labor and capital, including both public and social capital, available for producing output. This could be local financial institutions making more loans available locally, or an outside business making a local investment, forming a credit union, or establishing a local branch of a community college. It could be people moving or commuting into the community, or working more hours.


Increasing the amount of resources available…..

1. Organizing community capital resources to assist new business formation or to assist in attracting new business

a. Encourage investment of private funds locally through formation of capital groups.b. Encourage the use of secondary capital markets and public financing programs.c. Encourage the use of industrial revenue bonding, bank loans.

2. Organize training programs for youth, in-migrants, and resident population.

3. Encourage population in-migration.

4. Provide the same services to start‑up businesses as provided to businesses being sought from outside the community.

5. Create an encouraging community attitude towards entrepreneurship.


Using existing resources differently….

means that you have applied new technologies. You have found new ways to combine existing capital and labor to produce greater output per worker. It could also mean that you have used existing capital and labor to produce a new good or service that previously had not been produced locally. It could also mean that you have now have local jobs for workers who previously commuted out for work. Or it could mean that workers have received training and are now able to do different tasks than before.


Using existing resources differently….

1. Strengthen management capacities of existing firms through educational programs (e.g., personnel, finance, organization).

2. Encourage business growth through identification of equity and loan capital sources.

3. Develop training programs for workers using new and different technology.

4. Increase knowledge of new technology through educational programs in science and engineering.

5. Aid employers in improving work force quality through educational programs, employment counseling, and social services (e.g., day care, health services).

6. Develop community and regional facilities that improve local business efficiency and access to nonlocal markets (e.g., transportation, services, communications).


Changing the rules…..

means that the community seeks a change in rules that would benefit the community or seeks a change in interpretation of rules. For example, a land use plan might encourage further development on some land by ensuring that incompatible uses do not occur next door. On the other hand changes into some land use regulation can impose major costs on some firms. Or maybe the community gets the state to re-interpret eligibility rules on some type of manpower training fund. Thus making some community residents eligible. Remember that rules are societal constraints that govern how we either use resources or exploit markets.


Changing the rules…..

1.Ensuring correct use of public assistance programs for the elderly, handicapped, and others who cannot work.

2.Supporting political activities to ensure fair treatment of community concerns by broader governmental units.

3. Review how retirees and handicapped people might find services, access, housing, volunteer organizations, and community attitudes.

4. Minimize contradictory regulations and regulatory barriers, including uncertainty.


Acting smarter….

translates into how the community goes about making decisions and sets up and implements strategies. Does it involve a broad spectrum of interests or just a select few? Does the community really get at the problems or treat just symptoms? Does the community integrate sound analysis with community perspectives and desires? This is what it means when a community is acting smarter, almost in an entrepreneurial manner.


Acting smarter….

1. Identify market potential for new retail, wholesale, and input-providing businesses.

2. Organize to provide individual counsel and intensive education for those interested in forming a new business.

3. Utilizing aids from broader government whenever possible (e.g., streets, parks, lake improvements, emergency employment) through active monitoring and support of the activities of local officials.

4. Identify specific public programs, projects, offices, and/or services that could be located in the community and organize politically to secure them.


Acting smarter….

5. Encourage collective action through formation of organizations such as economic/industrial development corporations.

6. Ensure that quality and access and appropriateness of local school systems, including vocational-technical.

7. Identify through research the most desired type of basic employer with greatest potential.

8. Organize business-networking forums.

9. Sponsor business appreciation events.

10. Create organizations (including high school programs) to stimulate entrepreneurial thinking and action.


Getting lucky….

may seem like an unusual item, but think about it for a second. A small rural community could be located within the commuting shed of a growing metro area or fifty years ago could have been the birthplace of a budding entrepreneur. While we like to think more than luck is involved, and it is, it also explains a lot of current economic activity.

A community could: 1. Examine old high school yearbooks

for previous graduates who might like to return to the community.

2. Promote to outside visitors locally available natural resources and amenities.

3. Design vacant residential sites for development.

decsion making and strategies

Technology

community economics

community values

community perspectives

community members

community satisfaction

community life

communitybased organizations

role of decisionmaking