Volume X | Issue 2 | Fall 2010
The rising concern about the environment is providing opportunities for industries such as solar power. This focus could drive a new wave of economic development.

A historical perspective

Economic development has evolved through three major waves

By Mallory Rahe, Extension Community Economist, Western Oregon, OSU

Our knowledge about what drives economic change continues to evolve, but knowing where we’ve been is essential to figuring out where we are going. Economic development practice in the United States has seen three fundamental waves of policies, each one creating new tools for communities to use in their quest to build thriving local economies.  

First wave: industrial attraction or “smokestack chasing”

For many years, economic development strategies focused solely on business attraction. The theory was that economies grew by exporting goods to bring money into a local economy. Large manufacturing firms were seen as the most desirable community employers. However, this attraction strategy can often be a “zero-sum” game, pitting one region against another and creating rivals between neighboring towns. The argument is that often no new jobs are created nationally; jobs are simply shifted around geographically. This strategy was particularly useful in the American South, which captured manufacturing jobs from the Northern states with non-unionized workforces. Over time, businesses have become increasingly adept at exacting higher subsidies from state and local governments. However, these subsidies are only secondary factors in business location decisions, which are still driven by the factor costs of inputs, transportation and available labor. 

Second wave: technology and existing businesses

As it became harder and more expensive to recruit large manufacturers, economic developers started to devote resources to growing and retaining existing firms. They also began to focus on the benefits of technology to increase local productivity. Second-wave strategies included a policy shift supporting the use of enterprise zones, entrepreneurship programs, minority business programs and small business development. Local economic developers began to incorporate more partnerships and new knowledge into their local economies, as evidenced by small business development ties to community colleges. Closer partnerships were also formed with local universities to increase technology transfer as the U.S. economy began to produce high-tech employment opportunities. Second-wave strategies do not replace first-wave strategies, but they do complement them. Still seeking to increase exports, overseas trade missions became popular as a strategy to support the growth of an economy’s exports by focusing on creating new demand.

Third wave: government and capacity

The third wave has emphasized two things: a role for government in economic development and building local capacity. State and federal governments began investing in job training, education and other second-wave strategies. Economic theory focused on the importance of industrial modernization and expanded thoughts about growth and innovation to emphasize the role of human capital and interrelated businesses. Cluster strategies and building value chains became popular business growth strategies. Local community-development corporations also began to be involved in economic development as more people saw the advantages of creating an economic system ready for employment. This wave has focused attention on using leadership and collaboration to make the most of a town’s resources encouraging the development and marketing of local amenities. Human capital and social capital are also now considered important contributors to the innovation potential and business efficiency in a local region.

A fourth wave?

Today we are still in the third wave, although the rising concern with the environment could become the distinct focus of a fourth wave. Each successive wave has created new tools for developers, but despite the many strategies, the recruitment of large manufacturing businesses still remains a dominant strategy in many regions. Local practitioners should strive for a balanced approach and a diversified strategy that considers economic, social and environmental impacts. Regardless of which strategy a local community pursues, relevant data and indicators can provide the type of information that, when combined with open communication between businesses, local leaders, workforce development and educational systems, can help communities make well-informed decisions.


Information is the key to success when it comes to making good decisions about economic development. The websites below offer a rich and varied assortment of resources.

Superior California Economic Development: From business start-up assistance to success stories, this site has Northern California covered.

Siskiyou County Economic Development: Specific statistics and information on Siskiyou County, Calif.

Rural Communities Explorer: This site, developed by Oregon State University’s Rural Studies Program, features data from many sources for all communities in Oregon (and eventually Siskiyou County). The information is helpful for assessing the vitality of communities and for pursuing grants and other resources. 

Oregon Regional Economic Analysis Project: Interactive regional economic tools of analysis allow visitors to conduct their own research.  

Oregon State Employment Department: The slogan for the Employment Department’s home page is “Quality information, Informed Choices,” and it’s chock full of county and town-specific data. 

Oregon Agriculture and County Information System: Check out agricultural data and select monthly indicators.

Northwest Area Foundation Indicators: The site offers practical guides, case studies, public policy papers, interactive tools and resources for sustainable prosperity.

Oregon’s Economic Development Districts: Everything you want to know about Oregon’s 12 economic development districts, which cover the state’s 36 counties.

Small Business Administration: The site offers a wealth of online resources to help the small business owner grow and succeed.

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