The Objective of Government Investment in Economic Development
For the private sector, the objectives are clearly defined as profit maximization and
organizational survival. For government, articulating a vision and meeting a set of broad
objectives is more difficult as a result of competing interests, the need to consider diverse
perspectives, and the inability to divest mandated but unprofitable and sometimes unpopular
activities. In the absence of an accepted consensus vision for government, it is too easy to give in
to competing short term demands or become diverted to serve other purposes. An articulated
vision for government is crucial to following an effective long-run course.
From a societal point of view, increasing in quality of life, which includes long-term
prosperity, is the ultimate benchmark of economic development for democratic governments.
Prosperity and quality of life are often synonymous with the concept of the good life, which
encompasses a sense of material comfort as well as psychological satisfaction and health (Lane
1994). Indeed, the concept of the American Dream is an ideal of a good life based on a classless
society with meritocratic advancement and continual progress (Cullen 2003)
. High quality of life
is an integral outcome for government policy (OECD 2014: Chapter 2). It would be difficult to
argue for the opposite as an articulated objective for government in any democracy.
Economic development is the means to achieve the objective of high quality of life and
prosperity. The notion behind greater prosperity and better quality of life is that they are earned
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by working hard and realizing potential. Employers reward professional success and
innovativeness with higher wages or more prestigious jobs, which then translates into higher
income. But underlying this ideal is the reality that individuals are educated and prepared for
gainful employment, and that high quality jobs are available, with opportunities for
advancement. Reaching this objective requires the public and private sector work together for
their mutual gain and the greater good of society.
Prosperity and high quality of life are laudable long-term goals. More intermediate
realized outcomes, however, may be used to measure more tangible progress, such as, the quality
and quantity of jobs created, the earnings and wealth of individuals, the types of new innovative
goods and services introduced to the market and investments made and the growth and exporting
of firms. These intermediate outcomes are only realized through the actions of the private sector
and require that firms have incentives to take risk and are actively engaged in the production and
distribution of goods and services. Economic development requires effective institutions
grounded in norms of openness, tolerance for risk, appreciation for diversity, and confidence in
the realization of mutual gain for the public and the private sector. These are the ideal goals for a
better functioning economy.
The result of economic development is greater prosperity and higher quality of life, but
this is realized through increases in four dimensions of capacity outcomes:
Community Capacity: The physical, social, and environmental assets that influence the
context for economic development;
Firm and Industry Capacity: The assets relevant to firms and industry, including
workforce, facilities and equipment, organization, and supply chain;
Entrepreneurial Capacity: The potential for generating new small businesses, including
a risk-taking culture, networks, and access to financial capital and a skilled workforce;
and,
Innovative Infrastructure: The capacity to support new products, processes, and
organizations, in terms of facilities, support services, and willingness to take risks.
These capacities are overlapping and mutually reinforcing. Other categorizations are certainly
possible but such categorizations are needed to measure progress. Measuring capacities permits
an overview of the status of a regional economy and measures the direction of change. These
categories represent broad constructs that governments could use as benchmarks for making
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progress toward economic development. The capacities provide a diagnosis of the prospects for
future prosperity and economic wellbeing. They indicate where capacity is strong or increasing
and highlight where additional investigation is required to understand roadblocks, stumbling
blocks, and information gaps.
Measurement of changes in a region’s capacities – that is, the quantification of specific
attributes associated with these capacities capture progress in building resources associated with
generating a stream of outcomes, such as jobs and earnings, over time: if capacities are
increasing then economic development follows. If capacities are underdeveloped then
government is the entity that can provide the programs and policies to move towards economic
development.
