CHAPTER 7

Strategy: Rethinking Economic Growth

Local First

In recent decades—in the heyday of globalization—there was a tidy simplicity to describing the momentum of economic development around the world. A host of countries that had been struggling and were often isolated—mired in poverty with large swaths of their population in need of a first, relatively decent paying job—offered something that companies in the developed world could not resist. Under this arrangement, Japan, Korea, China, and other so-called Asian Tigers held out the prospect of cheap labor and few workplace regulations or environmental rules in exchange for becoming the world’s manufacturer or back office. At least in theory, both sides won. The middle class in emerging nations swelled with hundreds of millions more people as GDP growth ballooned. Profits soared and export markets expanded in the dominant economies, where consumers enjoyed low-cost goods and highly skilled workers could take their pick of attractive jobs.

But sometime in the past decade or so, the threads of that orderly formula began to unravel—so much so that now the globalization model no longer works as a reliable framework for economic development for countries already on the development ladder or those still trying to climb onto a lower rung. At the core of this change, the countries that outsourced labor and consumed the products of China, Japan, and Korea are slowly pulling in the reins on that approach as they encourage their companies—often through public and political pressure—to repatriate manufacturing and services to shore up domestic economies.

Simultaneously, multinational companies have begun to lean away from broad international footprints extending deep into low-wage countries, because the surge of populist governments everywhere has added layers of risk and difficulty to creating global supply chains. In addition, labor arbitrage isn’t as important as it used to be. The competition is no longer over inexpensive labor in other countries, but increasingly to implement even less costly, smarter, and more capable robots and artificial intelligence tools and programs.

The undermining of globalization has left a vacuum for a new economic development model to emerge. In my view the optimal option for filling this void is a strategy called Local First. That is, self-sustaining, self-contained, continuously improving local economic ecosystems. Perhaps the best argument for choosing a Local First strategy as an improvement on the predominant internationalist framework we’ve grown accustomed to is the observation that even when globalization appeared to benefit everyone, it didn’t. Certainly, the middle class expanded globally along with corporate profits, operational efficiency gains were real, the net prices of most manufactured goods were held in check, and more people participated in the personal technology and communications revolution. But these improvements—primarily captured by GDP growth—only masked the paralyzing negative effects of globalization.

For one thing, individuals who slipped through the jobs market—and there were large blocks of people in every country who could not compete—were invisible; they were the great underemployed and as globalization took hold, they slipped deeper into the shadows. More broadly, GDP figures testified to global prosperity on average, while broad portions of the employed population were experiencing years of income stagnation and decline. GDP results also papered over intangible factors such as environmental degradation, the lack of benefits and the insecurity associated with many jobs, and the diminished quality of life in some communities.

In our 2017 article Colm Kelly and I discussed the chief elements of globalization’s dark side—in particular we expressed concern that business gains and social progress were no longer aligned and not even measured or discussed in the same breath anymore.¹ As we noted, this is a relatively new phenomenon. Before globalization became dominant, and even in its earliest stages, business success was intrinsically linked to the success of the community or society within which it operated. Capital was created and primarily remained in the area that its employees and many of its customers came from, even if a portion of it was generated by sales outside the area. Think of the world Adam Smith occupied when he wrote Wealth of Nations (1776): if business leaders didn’t pay attention to people’s needs in their own backyard, they would be lambasted on Sunday in church, they would be ostracized at local town meetings, and they would be shamed into reinvesting their profits into the area, and its people.

In some fashion, everyone from Henry Ford to Andrew Carnegie to Warner von Siemens to Kiichiro Toyoda to Jamsetji Tata began their ultimately vast business empires locally and maintained an intimate connection with their local communities even as their markets grew further and further away. Small- and medium-sized businesses have been even more essential to the economic development in their midst. Indeed, it could be said that without small- and medium-sized companies bolstering jobs expansion and innovation in one circumscribed region after another, countries like Germany, the UK, and the United States would never have enjoyed their leadership position in global markets.

With the rise of multinational corporations, hoisted to the pinnacle by globalization, resources increasingly became concentrated in organizations that didn’t have a “home” to which they felt morally obligated to protect and sustain. Their employment base was everywhere and nowhere; their allegiance to their headquarter communities went only as far as the best tax and incentives deals they could wrangle. As Kelly and I observed, their responsibility to deliver a public good and support local development was barely acknowledged.

In fact, many globalization-oriented corporations have not only failed to provide basic tangible benefits for communities they do business in, they also played a troubling role in worsening elements of ADAPT (primarily asymmetry, technological disruption, and lack of trust in institutions). As we wrote, expressing the urgency to establish Local First programs for economic development, “We need to devote more energy to creating thriving communities. Human needs are best identified and managed at a local level. Cities, towns, and villages are the places where social progress and economic success most naturally meet. We need to create conditions for these communities to thrive, with business as a key part of the ecosystem.”²

Of course, this is not to say that being a global competitor is a losing strategy in all instances. Cities like Barcelona, Moscow, or New York, which uniquely have concentrated educated workforces, excellent universities, deep investment channels, global infrastructure, and governments that support business development, are still in a good position to enjoy gains for the people and cultures of their communities from many facets of globalization. But midtier cities have no chance to beat these larger urban areas at their own game and must begin to be more self-conscious about their economic development strategies, looking inward more than they have for many decades. In fact, when giant cities use their existing competitiveness to absorb global resources, they often ruin smaller cities in their countries by pulling more attention, investment, and human capital away from those places.

To provide a blueprint for what a locally focused economic development program might look like—although significant social and cultural distinctions will, virtually by definition, separate one local program from another—a set of projects in Armenia is a suitable place to start.

A Local First Model

Ruben Vardanyan is an Armenian-born philanthropist, entrepreneur, and investment banker who, along with cosponsors Veronika Zonabend, Noubar Afeyan, Pierre Gurdjian, and Arman Jilavian, has initiated a number of locally oriented projects across Armenia designed to, as Vardanyan puts it, “create great places, develop thriving people and promote uplifting values, hence our work in social and economic development, education and leadership, and humanitarian values.” Perhaps the most apt distillation of Vardanyan’s work is captured in Figure 7.1, which my team and I put together with Vardanyan’s philanthropic organization IDeA (Initiatives for Development of Armenia).

This model is best suited for locations with an identifiable, collective past—core traditions that can be embraced and modernized to foster an environment for change and growth. Each element in the figure contains a set of components that should be addressed simultaneously and work together to form a system of local development. The left side of the figure targets the physical, institutional, and economic infrastructure of a place. It calls for holistic education to prepare talent for the future; a self-renewing economic ecosystem that stimulates job creation through entrepreneurial activity; and programs to promote well-being in its broadest sense, including healthcare, recreational activity, the environment, a sense of justice, transparency, and fairness (the factors that make people want to claim a place as home).

The right side of the figure focuses on the development of a positive cultural narrative, building on a shared sense of identity and capturing the mind, soul, and heart of the locale. It is about celebrating the area’s unique qualities and successes but also does not shy away from the negative narrative that likely exists in a place that is not thriving. There is a need to transform the grief of a place’s history or economic and social dynamics into hope and positive renewal. The two sides are joined by the bridge in the center—a bridge made up of people, the broad talent base required to implement both sides. These are people with rare capabilities to understand how systems function and are interconnected, who can promote and catalyze change within and across these systems. These people must have the imagination to envision the possibilities for the area, despite existing constraints.

FIGURE 7.1 Making locales work. SOURCE: Created by the authors, based on IDeA (Initiatives for Development of Armenia).

To illustrate how this works, let’s look at a team project that IDeA calls the Tatev Revival.³ At the heart of this project is the restoration of the Tatev Мonastery, a medieval center of religion, culture, and learning in southern Armenia. This has been a monumental effort because most of the buildings on the Tatev grounds were in serious disrepair, neglected for centuries. During the reconstruction the central social role of the monastery has been reemphasized as one that knits together the local community under the banner of university-level education that attracts students interested in humanities, religious study, or the sciences.

This has elevated the Tatev region community in numerous ways. Social scientists and other researchers have moved into the area to study feudal conditions and mores; the Tatev Monastery Children’s Choir, composed of dozens of local children, is gaining in renown via its performances throughout Armenia; local schools are being rebuilt; and the first environmental preservation projects in the area are underway. Before this project, Tatev was a forgotten region, slipping further and further away from modernity and prosperity and largely unknown to tourists. Today, it is an open, outward-looking, and economically well-positioned area, connected to the greater world around it through a tramway, part of the Tatev Revival, which transformed the journey to the monastery from a one-hour ride along zigzagging roads into a twelve-minute extraordinary excursion that travels high over the mountains and gorges of the Tatev region. These elements of the project exemplify the right-hand portion of Figure 7.1—the positive cultural narrative.

The left side of the figure is evidenced by the advancement of educational opportunities in the area and the monastery itself as well as the evolving economic ecosystem growing up around the Tatev project. High-quality jobs were created to manage and run the tramway, and more than twenty bed-and-breakfasts and Airbnbs as well as restaurants and cafes have opened. Beyond that, entrepreneurs have flocked into the area to receive business and legal advice from IDeA and set up a range of small service operations—many involving well-being activities such as healthcare and recreational pursuits—for the local community and tourists. The large numbers of people involved in this spurt of economic opportunities as well as the leadership that IDeA is bringing to this project populate the center of the figure.

One essential facet of the Tatev campaign that should not be over-looked—primarily because it is critical to the Local First model—is that the most effective first step is often to find a centerpiece project out of which a much larger ecosystem of economic development and community coherence can emerge. In the context of Tatev that centerpiece was the tramway, appropriately called the Wings of Tatev, which served as the conduit to “fly” people and modernity into the region that had been lost to time, forging a climate in which growth and change built upon the traditions of the past can thrive.

As we examined the way Vardanyan’s approach to the Local First model works in practice, we pinpointed four principles that are essential to success:

1. Building a local economy is not for the impatient—it takes focus, preparation, and time—and is not an inexpensive proposition. Vardanyan and his team view their projects through twenty-year time horizons.
2. Outside investors in Local First projects must show by example that they care about the community they are investing in.
3. Any Local First effort must begin with a real understanding of what makes the locale unique and what the underlying positive or negative narrative is that will serve as the foundation for the project. Innovation not placed atop a locale’s history, social customs, and culture will not be sustainable. Negative narratives, such as the Armenian genocide (which IDeA is taking up through its Aurora Humanitarian Initiative), should not be ignored; if they are, they could become a whispered source of failure that continues to burden rather than elevate and cohere a community.⁴
4. Local First ideas should be pioneering, borrowing from the past but addressing the needs of a community today and into the future.

My Adopted Home: Durham, North Carolina

Although it isn’t often viewed this way, Local First projects have saved communities in developed countries as well—some call it gentrification, others urban renewal—and they have been responsible for phoenix-like revivals that are in many ways remarkable. Take, for example, Durham, North Carolina. When my wife and I arrived in Durham as newly minted professors some thirty-eight years ago, the city of 162,000 residents had one real hotel, one bar, a hollowed-out downtown, and boarded-up tobacco warehouses ringed by razor wire. It also had a gerrymandered educational system that sent the children of wealthy (mostly white) parents to decent county schools, while poorer kids went to barely functioning city facilities. Durham once had a thriving black commercial and cultural area, home to the largest collection of African American businesses per capita in the United States, but when we arrived, it had been paved over to make room for a highway. I remember talking with a city renewal expert who believed Durham would never be a city in which people would want to live again.

An unlikely combination of three people came together to prove him wrong: Jim Goodmon, one of North Carolina’s richest businesspersons and the head of Capital Broadcasting Company, who is a prominent and respected owner of area TV stations as well as the Durham Bulls, a Triple-A minor league team made famous in the film Bull Durham; Bill Bell, Durham’s second African American mayor and the city’s longest serving top official, elected in 2001; and Tallman Trask, executive vice president of Duke University, who, among other things, had responsibility for the university’s real estate activities. Prior to their teaming up on the construction project that would run through the first decade of the 2000s and would remake Durham’s trajectory, there had been lots of investment in the city, but most of it was to the west of downtown near Duke University or in the very south of the city near the burgeoning Research Triangle Park. The problem was that Durham’s urban core would never revitalize if the investments continued to be isolated in the more upscale areas to the west or south of the city.

What Goodmon, Bell, and Trask saw that no others did before them was the potential of the dilapidated area just on the southern edge of downtown that had been the original home of the Duke family tobacco business. This fifteen-acre campus with more than a dozen buildings had been shuttered some years earlier as Duke’s venerable American Tobacco Company fell into decline before being acquired by Brown and Williamson. The ten-foot razor wire fence surrounding the facility dissuaded everyone but the drug dealers from entering the site. Next to the campus was vacant land, an automotive dealership, Durham’s single original hotel—now on its last legs—and more empty warehouses. Goodmon, Bell, and Trask felt that if they could turn this area around, it would be possible to connect it to the development in the west and bring downtown back to life.

The men linked their renewal program to two vital elements in the history of Durham, both of which had been seen as evidence that the city was declining: the tobacco plants and the Durham Bulls. Similar to the Wings of Tatev, these centerpiece projects would serve as the springboard for Durham’s renaissance. Around 2000, Goodmon risked his own money to purchase the American Tobacco campus as the start of an effort to remodel the site into a multiuse facility comprising office space, research centers, restaurants, places to walk or sit over long conversations, and entertainment. Trask reduced Goodmon’s financial exposure by preleasing significant space at the site for Duke administration to relocate and strongly encouraging other employers around the county to do the same. Bell ensured that the city government backed this effort by publicly speaking up for its completion, minimizing the red tape, and ginning up resident support. Goodmon’s decision to undertake the transformation of the tobacco plants came on the heels of Capitol City’s purchase of land adjacent to the American Tobacco site a few years earlier, where a new modern Bulls stadium was erected to replace a ramshackle, barely useable structure north of the city.

These construction projects changed Durham. Suddenly the downtown area seemed like a desirable investment again. The two miles or so between Duke’s campus and this new vibrant area attracted additional restaurateurs, entrepreneurs drawn in by the relatively inexpensive space in a cool area near the university campus, new developers, and young professionals wanting to live and raise their children in an area with funky character and so much to offer. Many of the early business and restaurant owners in the area were immigrants, giving Durham a more diverse and inclusive aspect than it had ever had. To accommodate the changing landscape, the County Commissioners and the city’s educational boards are working to integrate the two school systems. The once derided tobacco factories and the Durham Bulls are both celebrated with pride by city residents again. Of course, there is a lot more to do, but Durham is now a thriving, diverse city that people want to live in—a place to build lives, families, and careers. It’s a far cry from the city our children’s friends refused to visit because it was too frightening and there was nothing to see there anyway.

Local Entrepreneurs: The Building Blocks

This chapter has explored two very large Local First projects with lots of resources behind them, but Local First economic development need not be so imposing. Indeed, it can begin in less grandiose efforts—yet in many ways achieve an equally consequential outcome. I came across two remarkable Local First efforts that fit this de minimis category at an event called Slush in December 2018. Slush is the world’s leading start-up and tech conference. One of its highlights is a competition in which entrepreneurs developing businesses that serve social needs are invited to pitch their ideas to the attendees. I was a judge in 2018, when I met the two memorable winners, both from Zambia, with Local First projects: Muzalema Mwanza’s Safe Motherhood Alliance and Mwila Kangwa’s Agripredict.

Mwanza says she “came face to face with some of the challenges pregnant women face in rural areas” when she herself became pregnant. For one thing, it was too expensive for most mothers in rural Zambia to go to clinics; instead, they had self-managed births at home, often in squalid conditions. For another, when diagnostic tools were available, they were primitive and most of the time there was no one assisting in the births who actually understood how to operate the tools or how the birthing process should work. An engineer by training but now a social entrepreneur, Mwanza came up with a straightforward solution: a sanitary kit containing all the materials necessary to support the birthing process and a program to train local women to use this equipment for facilitating clean and successful home births. To maintain quality control and keep costs down, she sourced and manufactured these kits locally. As a result, she was able to price her first products at only 25 Euros.

Mwanza has expanded the Safe Motherhood Alliance to design a series of low-cost diagnostic tools that support maternal and newborn health, which can be used at mobile clinics and small hospitals with technologies like Doppler ultrasound readings via smartphone. She sees her efforts through the Safe Motherhood Alliance as a way to build economic development through the encouragement of a grassroots healthcare sector in even the smallest communities. Her ultimate goal is to scale the business so that it extends to nearly every rural village in Zambia, linking them to each other to share innovation and expertise, and over time introducing her work into the rest of Africa and beyond to other regions with similar challenges.

The other Zambian entrepreneur was Mwila Kangwa, the founder of Agripredict. A soft-spoken engineer, Kangwa focused directly on how the economic system lets down tens of thousands of Zambia’s farmers, many of whom live a subsistence existence from one growing season to the next. Rather than employing an economic model that attempts to ensure that farmers survive year to year if a crop fails, the Zambian government has mostly ignored the plight of the growers. As a result, a diseased crop can be disastrous, resulting in family starvation or loss of land. Most Zambian farmers have no tools or wherewithal to diagnose a failing crop or mitigate the problem before it becomes untreatable.

Kangwa’s solution is a smartphone-based program that allows a farmer to send to Agripredict a picture of the diseased plant and receive back a disease diagnosis, options for treatment, and the location of a dealer that has the necessary supplies to mitigate the problem. Agripredict has caught on; after only a year more than twenty-two thousand Zambian farmers have signed up for the service. Kangwa plans to use the success of this product to develop other programs that can help local farmers develop more efficient growing methods, expand their crop types, add value to their harvested crops, and, as a result, raise their economic strata well above a subsistence level. The effects of pest infestations and droughts on agricultural development have affected national and regional food security. Small-scale farmers do not have the tools to mitigate or prevent these diseases and predict weather conditions (most rely on natural seasonal conditions). Furthermore, the current method for information dissemination is costly, extremely slow, and at times ineffective. The control of agricultural pests is critical to sustainable agricultural development.

These Local First efforts are emblematic of the work of thousands of entrepreneurs across the globe who are trying to devise local solutions for local problems and in turn develop dynamic local economies. Stitched together, these campaigns exemplify a model that in nearly every important way differs from the far-flung industrial global supply chains of the late twentieth century. Of course, industrial multinationalism is not dead, but it is no longer the answer for economic development in many local regions. Indeed, most of the villages, towns, and cities that have yet to enjoy economic advantages or are being left behind will need to find ways to create a dynamic and thriving economic, educational, and cultural system with a compelling local storyline to provide opportunities for the billions of people that they are responsible for.

Having watched the emergence of Local First ideas, I have some optimism that human ingenuity in these less advantaged places throughout the world will capably unearth innovative answers to address this challenge. Moreover, it will happen more quickly if these local entrepreneurs can count on resources in the form of organizational, operational, and design expertise as well as financial support from the private sector and philanthropists in developed economies. Perhaps to our disappointment we have learned grudgingly that the axiom “a rising tide lifts all boats” is not quite the self-evident truth we once thought it was. Instead, today it may be more appropriate to view the embryonic flow of a local rivulet as the most reliable precursor of an economic waterfall for a local developing region.