I am often asked the seemingly simple question “just what is economic development?” For those of us who study economic growth in developed countries the answer is surprisingly clear. (As an aside, this research is viewed as a bit self indulgent given that one in four of our fellow souls worldwide exists on less than a dollar a day.)

Growth in per capita living standards is the classic definition. This is the simple ability to consume more goods and services. What these goods might be (Hummers, eco-tourism or publicly funded biodiversity) is beside the point. Adding to the value of our environment is also helpful. But in truth, most folks care about economic development as a verb, not a noun. It is how to do it that most people, economists included, struggle to understand.

We do two things in states and regions to spawn economic development. The most visible are our business attraction and retention efforts. Indiana is, by all accounts, quite good at this. But here’s the kicker, business attraction and retention efforts account for fewer than five percent of all jobs created in Indiana. That said, job attraction entities are important far beyond their numbers. Our IEDC serves as a hugely critical information clearinghouse, and most importantly perhaps, it is a window into what we do both well and badly in the areas that truly matter to our economic wellbeing. And, in truth, Indiana spends very little on business attraction.

A far less visible, but far more important part of economic development in is in the creation of places where people want to live. This is harder, more time consuming, but far more fruitful and lasting than relying solely on business attraction. The folks in business attraction know this and work hard to get communities involved in self improvement.

I like to say that in the short run, workers follow jobs, but in the long run, jobs follow workers. This is to say that while individuals and families migrate to find the right job, businesses inevitably relocate to places where their single largest costs – people – want to live. It simply reduces their cost of doing business.

What type of communities do people like to live in? They need to be clean, safe, with good schools, functional local government and a whole suite of amenities from nice restaurants and grocery stores to sidewalks and walking trails. There is an extensive and highly scientific body of research on the matter. Communities that fail to focus on amenities fail.

There is an interesting irony to the issue of job attraction versus amenities. The higher the costs of labor the more likely firms are to be solicitous of worker interests. Human capital intensive industries must locate in places where amenities are best. It is simply a matter of minimizing costs. Interestingly those jobs, in industries that are human capital intensive, are the highest paying jobs, in the industries that are fastest growing. Just like the ones we want to attract.