The Economic Development of Society

Production and economic structure have a level of association when attempting to develop stronger economic growth. According to a paper by Tvaronaviciene & Lankauskiene (2013), a review of economic history finds that many of the main theories associated with economic growth are about platform growth. They propose in their literary study that economic growth often puts pressure to change the economic structure of society. 

Most researchers measure economic growth through GDP. As a benchmark, a large percentage of countries use natural resources to create wealth. Yet this approach is not sustainable in the end. The development of knowledge based societies and innovative sectors are more likely to maintain growth into the future. This growth improves upon the livelihoods of those within the workforce. 

Adam Smith produced the famous book An Inquiry into the Nature and Causes of Wealth of Nations (1776). Market forces are seen as the invisible hand and are generally better regulators than government (Willis, 2005). Societies that seek to gain wealth begin to improve upon their production and then export that production to other areas of the world. 

 John Maynard Keynes published the General Theory of Employment, Interest and Money (1936).  In Keynes argument, the free market could be a positive or a negative force and that investment was the real key to overall growth (Willis, 2005). Continually investing in newer infrastructure projects helps adjust the structure and maintain higher levels of growth. 

One method of increasing development was the mobilization of domestic and foreign savings in order to generate sufficient investment to accelerate economic growth (Todaro & Smith, 2011). Economies move from subsistence agriculture, to modern urbanized centers and into more industrial diverse manufacturing and services.  In order for an economy to develop, it must move transit from one economic structure to a higher structural platform. 

The paper discusses the movement from a primarily agricultural society to one an urban society with products and services. It does not really move beyond this point but does hint how social structure can advance through advancements in technology. If we look at the pace of technology development as seen in portable computers, social media, micro manufacturing, etc. the next level of development is not yet clearly defined. True sustainability is based in the high capacity development generated from the advanced technologies of modern times. These technologies create a higher platform where various entities can help form profound new products and services through the contribution of interconnected societal elements. 

Willis, (2005). Theories and practices of development. Routledge, Taylor & Fracis group: London and New York. 

Todaro, M. & Smith (2011). Economic development (Eleventh edition). Pearson Education limited: England.

Tvaronaviciene, M. & Lankauskiene, T. (2013). The impact of production factors and economic structures on economic development. Business Theory and Practice, 14 (1).

Organizational Development Presentation

Organizational Development: Finding Focus from Daniel Jordan

Synergy Development in Economic Hubs

Successful development in Southeast Asia often rests partly in foreign direct investment and multinational firms. The author studied the investments between Malaysia and Singapore to determine that two-way investments embedded within business networks fostered synergy for economic growth (Yeung, 1998). It is a process of creating linkages between two economies, or entities, to ensure they develop from each other to create products for the market. 

What makes this process possible is that Malaysia and Singapore invest in each other’s economies. For example, Singapore invests primarily in services within Malaysia’s primary manufacturing base. Malaysia becomes an exporter of finished products and returns investment profits back to companies in Singapore. 

As the cross regional investments increase so does the business connection between the areas. The use of these connections and cross-capital investments creates a type of synergy based upon the varying skill sets embedded within each economy. Together they are able to provide stronger and better products and services that have more appeal on the market. 

When countries develop they change from importers to exporters (Dunning, 1998). This happens when the environment is conducive to local offerings; competitive strategy effectively reflects that need and the organizations are aligned to provide adequate products/services (Porter, 1990).  The area must align its business operations and offerings to the market need to effectively grow. 

Firms do not need to be owned by the exporting locality but the region should be the home location where investments turn into exports (Porter, 1986). The firms were the primary source of success in creating synergy. At a firm level it was these personal and business connections between companies that helped to create greater investment and cooperation for economic growth (Chandler, 1990). 

Most of the major firms from each country have cross operations. These cross operations connect to other networks within the countries and begin to share resources and knowledge. Significant competitive advantages can arise when companies from different countries and firms work together (Yeung, 1998). These are a result of:

-       Long-term relationships that reduce business uncertainty. 

-       Shared resources and information that offer “first mover” advantages.

-       Increased credit worthiness that improves financial flow.

-       Once established the system protects itself. 

Chandler, A. (1990) Scale and Scope: The Dynamics of Industrial Capitalism. Harvard University Press, Cambridge, MA.

Dunning, J. (1998)  Explaining International Production. Unwin Hyman, London.

Porter, M. (1986) Competition in global industries: a conceptual framework, in PO RT ER M. E. (Ed) Competition in Global Industries, pp. 15± 60. Harvard Business School Press, Boston.

Porter, M. (1980). The Competitive Advantage of Nations. Macmillan, London.

Yeung, H. (1998). Transnational economic synergy and business networks. Regional studies, 22 (8). 

Yeung, H. (1998a) The political economy of transnational corporations: a study of the regionalisation of Singaporean firms, Pol. Geogr., 17, 389± 416.

Principle-Agent Theory in Economic Development

Economic development is seen as a business and government partnership. The author’s Lombard and Morris (2012) analyze how the principle-agent theory can foster public-private partnerships and privatization to foster growth. They use a specific case example to help highlight their overall concept of cross-pollination. It is this cross-pollination that should help develop other projects within the area.

Local entities seek to increase their economic activity as well as the potential spill over benefits of additional employment. They look for and solicit businesses to move into their areas and develop productive capacity. In many cases using approaches such as an advantageous business environment and lower taxes helps nudge businesses to consider local investment. 

The authors use Virginia Beach, Virginia as their case study. The historically suburban city was struggling to create a vibrant business downtown business district. As the project started as a single government entity and a single private entity it was a simplistic way of studying the factors of development. The principle-agent theory appeared to be the most appropriate scientific lens. 

In the development of a public-private partnership the values and goals of the public become more important than individual goals. The principle-agent theory implies that one entity wishes for the task to be completed and the other agree to complete the task (Eisenhardt, 1989).That process can exist between government and company, doctor and patient, or contractor and subcontractor. 

When there is a partnership between government and business it is through an alignment of goals. Governments do not necessarily seek a profit but do seek to minimize costs and increase effectiveness through privatization. Companies that seek profits do so within the defined prices set by the government. A general bidding process can be used to determine interested parties. 

In the case of Virginia Beach the merging of two entities found that there was no core business district. Local decision-makers rezoned the downtown area and used an effective slogan such as “live, work, play” to sum up the genre of their location. Furthermore, they developed the downtown district by having the principle (i.e. government) using an agent (private business) to develop available parking other projects. The bidding process helps to ensure that competent companies compete to reduce the overall price. 

A number of key concepts fold into each other. Using a marketing slogan that sums up the goals of the area may be effective in pitching to future investors. The development of a downtown district helps in sparking increased investment and interrelated projects of growth. More importantly, government can encourage investments in particular areas by being both data rich and offer appropriate guidance in areas of necessary improvement. The principle-agent theory need not apply only to government funded construction but could also apply to potential promotion of areas where outside investment will likely be successful within the economic hub. 

Eisenhardt, K.M. (1989). Agency theory: An assessment and review. Academy of Management

Review, 14(1), 57–74.

Lombard, J. & Morris, J. (2012). Using privatization theory to analyze economic development projects. Public Performance & Management Review, 35 (4).

Book Review: The New Middle Class by Steve Gunderson

The New Middle Class Creating Wealth, Wages and Opportunity in the 21^st Century by Steve Gunderson delves into the problems faced by middle class Americans. He expresses concern over the mismatch of American values, education, economic policy and American competitiveness. The middle class is slipping away and policy makers should consider new ways of encouraging a 4-5% growth rate and higher levels of educational attainment to maintain prosperity. 

National development should be based on those values that made America great. It is the desire to continue to move up the economic ranks while not ignoring wider responsibilities. Yet without improving upon the education system the grasps of middle class are sifting through the hands of those who desire it the most. The system needs to change and improve if the U.S. will maintain its competitive stance. 

The far majority of jobs today (85%) need some secondary education beyond high school.   The path to maintaining the middle class is through education. It is a process of learning the skills, trades, theories, processes, technology, and values that will help individual families grow so that the nation may continue to lead. The quality of education, way in which government views education and economic policies should be reviewed. 

Students will need to continue to learn throughout their lives and become the life-long learner. As the environment changes they will need to ensure that their skills are updated to match current needs. To graduate and never update one’s understandings doesn’t fulfill either individual or national needs. Those with less than a high school education earned approximately $21K per year while those with a bachelor’s degree earned approximately $58K per year creating a wide disparity. Income and life-long learning go together.

He provides the following strategies:

Strategy 1: Create a system for lifelong learning by engaging public-sector-private-sector partnerships.

Strategy 2: Create a growth economy in the U.S., enabling most Americans to work, succeed, and build a future.

Strategy 3: Create a new era of income security for individuals and families. 

Steven Gunderson was raised in rural Wisconsin and made his way into both Wisconsin and national politics.  He spent eight years in the house and was appointed to the White House Fellows program in 2010. The White House Fellows program was developed by President Johnson in 1964 and outlined its objective as, "to give the Fellows first hand, high-level experience with the workings of the federal government and to increase their sense of participation in national affairs."  He is currently the President of and CEO of the  Association of Private Sector Colleges and Universities.  You may learn more about him at Career.org                

                        

Using Business Incubators for Economic Development

The United States, Europe and Asia are trying to spark their economies by encouraging national development. A paper by Al-Mubaraki and Busler (2013) explores the concept of how business incubation supports diverse economies, commercialization of new technologies, improves the job market, and creates local wealth. They further discuss how local decision-makers can foster new economic activity in their regions to develop future sustainable wealth. 

Business incubation is part economic and part social. The goal is to encourage start-up businesses to find economic and social footing among like minded individuals to leave them free standing and viable. It is a seeding process that eventually leads to higher levels of local innovation and growth oriented companies that further the economic and social needs of the area. It is through local development that national interests can be secured.

Economic development is a process of wealth generation that takes into consideration the human, capital, financial, physical resources, and natural resources of an area. It uses these resources in combination to spur economic buzz that manifests into new products, services, and jobs. The secondary benefits can include improved social living, better communities, and viable government. As areas become financial secure they can impact the economic vines around them.

Business incubation centers for sponsoring organizations. Helping to develop small businesses that produce new products and services for their sponsor can create higher levels of corporate growth. It provides the freedom and resources for small companies to develop ideas but also allows larger companies to turn those ideas into mass products and services. To do this well will require the buy in of local stakeholders including local parties, government and corporations.  

The author contends that to develop these economic incubation hubs it is necessary to have power to create action. This power can come through money, force, persuasion or information. Secondly it is beneficial to have theory which understands the cause and effect of economic events while simplifying reality for shared understanding. Third it is beneficial to integrate theory into human understanding and perception in order to encourage people to see those things beyond their narrow perception. Fourth, it is required that people have mediation which pushes them to act upon the environment through specific beneficial behaviors. 

Another way of viewing these concepts is to say that there must be force to act through power, a clear path of cause and effect, a new awareness of community members, and finally beneficial action. The economic and social sides work together to create economic synergy. As environment forces encourage people to seek change, people look to their leaders who can propose solutions, create new understandings, and motivate others to act in their best interest along new lines of thinking. During a time of crisis they are most open to solutions. 

How incubators lead to further economic growth can be seen in its three stages of incubators stage, post incubators stage, and extension stage. In the incubators stage start-up concepts are supported by the incubator and this helps to create new jobs. In the post incubators stage new companies move into self-reliance and grow the job market. In the extension stage the graduated companies use their business knowledge, entrepreneurship, and job growth to contribute to local economic development.

Countries have found that the development and use of incubators encourages economic growth. With over 7,000 incubators in the world China leads the world in its implementation. This may be associated with China’s higher level of growth and new businesses that enter the market every year. As a nation seeking to expand and grow the U.S. should also consider their benefit in economic suppressed areas. The report doesn’t indicate this concept but one must build new economic and social platforms based on the foundations of the past. Where manufacturing of equipment was once plentiful the manufacturing of new technology products becomes possible. Reaching too far beyond the culture of a location may limit the successful social adaptation of people.

We could further postulate that urban cores are natural places to develop business incubation programs. Buildings are plentiful and city centers naturally draw the bohemian crowd of artists and the creative class. The nation appears to be suffering from a declining urban core and incubators may be one possible solution to regenerating these core areas. We can wonder what the 5 to 10 year impact would be on a nation that fostered such incubators throughout major cities and offered help in connecting small to large and local to international investors to the ideas and businesses they incubators produce. Would there be synergistic growth in national revenue?

Al-Mubaraki, H. and Busler, M. (2013). Business incubation as an economic development strategy: a literature review. International Journal of Management, 2 (30).