Commentary: Coping with Adversity and regional economic resilience

One of this year’s most important books on economic development tells a story that those involved in the field need to know and might not necessarily want to hear. In Coping with Adversity: Regional Economic Resilience and Public Policy, authors Harold Wolman, Howard Wial, Travis St. Clair, and Ned Hill seek to understand why some metropolitan areas are resilient in the face of economic hardship, while others are not. This commentary will summarize the authors’ findings and provide insight into what their findings might mean for the broader economic development community.

To understand regional economic resilience, the authors of Coping with Adversity employ both quantitative and qualitative analyses through the lens of product portfolio theory. This theory offers that, just as businesses have a portfolio of services and products with their own distinct life cycles, so do regional economies. The traded sector of a regional economy is a mix of infant, rapidly growing, mature, and declining products. Some regions — particularly high-skill, high-income places — may have success in innovating around these product cycles, allowing new products or industries to take hold. However, if a region’s product portfolio becomes too dominated by a small number of products (or products that are in the later stages of their cycles), then they run the risk of decline.

The authors’ quantitative analysis examines two types of economic adversity – economic shocks, which have immediate impacts on a regional economy, and longer-term economic stagnation, which they label as chronic economic distress. The authors find that in most cases, regardless of whether any economic development policies are explicitly implemented, most regional economies tend to recover from shocks within a relatively short period. However, less than half of the regions experiencing chronic economic distress eventually recovered. Almost all of those chronically distressed regions that proved resilient experienced economic restructuring, where the region’s industrial structure changed so that the portfolio was better positioned for growth.

Regions with small populations that were far away from major metros were more likely to be distressed, while factors associated with chronic economic distress include income inequality and low educational attainment. Factors such as export diversity and the presence of right to work laws are generally associated with enhancing regional resilience, though these relationships are multifaceted and complicated.

The qualitative portion of Coping with Adversity uses both case studies and literature reviews, but decidedly finds that there is no silver bullet to explain resilience. When it comes to the strategies and policies present in distressed regions (Cleveland, Detroit and Hartford) and regions that have bounced back from economic adversity (Seattle, Charlotte and Grand Forks), the authors find little differences between the two groups.

In the literature review, the authors look at the multitude of policies and practices that might, in theory, encourage economic resilience and product portfolio restructuring. Longer-term strategies around human capital (e.g., quality pre-K, improvements in K-12 education, community colleges, and to a lesser extent, workforce development programs) may help regions avoid or recover from stagnation and decline, they find. With the exception of public works infrastructure spending as a means to provide construction and related employment, the authors suggest that most strategies designed to help regions emerge from economic distress – such as improving place-based amenities, improving leadership, or changing the economic development organizational structure –  are unlikely to have sufficient short-term impacts.

In the end, the authors note that state and local governments are limited in what they can do to alter the trajectory of a regional economy in the short-term. There are no easy fixes; the best approach to overcoming economic adversity is through long-term investments in human capital and competitive infrastructure.

For economic development practitioners, the book’s conclusion offers one area for potential action: the importance of innovating and targeting the regional industry product portfolio. Through incremental investments on the margins of the economy, economic developers can help “diversify the region’s portfolio of traded products through attraction and expansion activities, addressing management failures in the areas of process and product innovation, and advocating for improvements in the quality and quantity of labor and infrastructure.” This second category includes activities common in technology-based economic development, such as manufacturing extension and entrepreneurial support services. In the long term, quality investments in human capital, competitive infrastructure, and capacity for innovation and entrepreneurship may provide a clearer path toward resilience. 

Product portfolio theory helps illuminate the role that economic developers can play in overcoming adversity. Successful regions, according to the authors, have diversified economies and are able to regenerate their product portfolio through the continuous development of new products and industries. Investments in innovation and entrepreneurship through customized services like manufacturing extension or business assistance programs may be able to help shift the regional product portfolio, but only to a certain extent and mostly in the long-term. The ability for regions to alter their portfolio is a matter of considerable time, resources, and a good amount of luck. While some regions have these factors in spades, others seem less equipped.

For chronically distressed regions like Cleveland and Detroit (and many of the other older industrial cities in the United States), the process of economic restructuring has been drawn out for decades with little end in sight. Large-scale economic development initiatives mentioned in the book (and last week’s Digest) such as Detroit’s New Economy Initiative or Northeast Ohio’s Fund for Our Economic Future have made significant attempts to alter their respective regional product portfolios through innovation and entrepreneurship. However, the continued struggles of these regions in the face of relative successes speaks to the enormity of the economic restructuring challenge.

Ultimately, Coping with Adversity offers an opportunity for economic developers to assess the factors affecting the resiliency of their region’s economy.  In a world where we are continuously captivated by the next big thing and quick to celebrate the groundbreaking of stadiums or factories as transformational, the findings of this book are humbling. While there is no simple path to overcoming economic shocks, resilience should be thought of as a dynamic process, not a final goal.