Spotlight on partnerships, networks and innovation
While the significance and activities of economic development have changed a great deal [1] over the Federal Republic of Germany’s lifetime, its fundamental objectives remain the same to this day. The use of instruments and measures to promote businesses and the economy with the economic policy goal of making the structures and overall framework of local, regional and national economies more independent and competitive is hardly a recent idea. Steinbeiser Professor Dr. Norbert Zdrowomyslaw and Christian Wulf (Assecor GmbH) provide an overview of economic development today and the challenges it faces going forward.
The dimensions of economic development.
Source: Lahner, J.: Entwicklung der Wirtschafts- förderung, in: Stember, J./Vogelgesang, M./ Pongratz, P./Fink. A.: Handbuch innovative Wirtschaftsförderung – Moderne Konzepte kommunaler Struktur- und Entwicklungspolitik, Wiesbaden 2020, p. 10.
Legislation and funding programs are important instruments for regional and local development and for building competitive business structures that promote enterprise (companies locating to the area, startups, business succession) and enabling general infrastructure projects. In 1994, the “magic square” introduced in the 1967 Stability Act as a guideline for economic policy measures was expanded into a “magic hexagon”. The two qualitative objectives of environmental sustainability and fair income and wealth distribution were added to the Stability Act’s four quantitative targets of price stability, full employment, a stable foreign trade balance and stable economic growth. The concept of creating “equivalent living conditions” throughout Germany, as referred to in Art. 72(2) of the current version of the Basic Law, was first adopted in the Basic Law in 1994.
The Act to Strengthen Growth Opportunities, Investment and Innovation as well as Tax Simplification and Fairness (Growth Opportunities Act) of March 27, 2024, is a more recent example of legislation intended to support and stabilize the German economy. In recent years, there has also been a growing focus on supporting regionality. The German funding system supports the endeavors of economic development agencies and other regional actors to strengthen the appeal of the areas they are responsible for, recognizing that regions, locations, towns, cities and businesses face international, national and regional competition for investors, labor, tourists, students, immigrants and new residents. In this environment, economic and enterprise development initiatives are more than just an umbrella that offers protection during difficult economic times – they are a fundamental source of stability for those who invest, work and live in structurally weak regions. The principle of thinking globally and acting locally and regionally [2] is thus crucial in today’s world. The federal government’s “Zukunft Region” (Future Region) competition is one example of support for regional structural policy.
Local implementation of measures to create an attractive location and support SMEs
A location’s appeal as a place to live and do business depends on both hard location factors such as transport links, space availability and research institutions, and on soft factors like an innovative regional scene, what it’s like to live there and the quality of the environment. The location’s appeal is also influenced by the strategic and targeted measures taken by economic development agencies and regional actors. The new, specific role of economic development is that it increasingly needs to understand regional policy as local policy by and for regions. [3]
The EU, federal government and the federal states create the overall framework for economic, financial and fiscal policy and implementation of funding systems. The state governments and development banks provide funding programs and other instruments to create the framework for local implementation. Regional and local economic development agencies, on the other hand, have a predominantly local focus that includes activities like information, consulting, recruiting businesses to locate to the area, networking, etc.
There are no hard and fast rules for an economic development body’s organizational and legal structure or funding. The decision to set up as a limited liability company (GmbH), registered association (e.V.) or local development agency will depend on various factors, including the supporting regional actors, areas of activity and available funding sources. [4] But regardless of which option is chosen, it will be coordinated, cooperative, strategic and targeted measures to create an attractive location and support SMEs that are key to enabling a location’s balanced development as a place to live and do business.
The activities involved in modern economic development
The activities involved in economic development have changed significantly over the past few decades. Modern economic development professionals place a lot of emphasis on a location’s soft factors and on information, communication, networking, support and consulting. But regardless of whether an economic development organization’s activities are more strategically or more operationally focused, it can’t operate without taking the existing framework into account and involving regional actors. It is vital to bear the relevant decision-making constraints in mind and to make absolutely sure that the relevant stakeholders are included in the decision-making processes. Active relationship management between economic development players and regional actors is thus absolutely essential. [5]
Economic development in a dynamic environment Source: Adapted from Kost, Klaus: Belegschaften als Frühwarnsysteme, in: Kost, Klaus (ed.): Wir retten, was zu retten ist. Arbeitsplatzerhalt durch Belegschaftsinitiativen, Marburg 2004, p. 76.
Current environmental and European-level developments are also reflected in the regional, local, urban, industry and business development processes and in SME funding programs. Modern economic development in a dynamic environment encompasses an enormous range of different activities and calls for a professional approach. The role of economic development professionals and regional managers includes recruiting businesses to locate to the area, cultivating and developing the relevant industries (clustering), cultivating existing companies, supporting startups, assisting businesses with succession planning, employee retention and “human potential development”, and support with obtaining project funding for urban and regional development and with location marketing measures. As such, economic development agencies play an important role in developing and marketing the relevant locations and providing valuable guidance for investors and business founders.
The funding system’s role in driving regional economic and structural development
Economic and structural development projects are applied for and implemented with the involvement of actors such as chambers of commerce, research institutions and universities, and in partnership with companies. The money from the German funding system’s various funding programs strengthens the economic structures of the regions and federal states. With 22 federal government funding programs for structurally weak regions in the six priority areas of enterprise development, research and innovation, skilled labor, broadband rollout and digitalization, infrastructure and public services, and sustainability and transformation, the German funding system is more than just a financial safety net. [6] The level of funding for completed and future projects in the state of Mecklenburg-Western Pomerania illustrates the huge importance of these funding programs for urban and regional development. The document setting out the key points of the federal government’s strategy for small and medium-sized enterprises shows that it regards government funding programs as a key pillar of successful regional and SME policy. Policymakers attach particular importance to regional structural development through the programs for promoting an innovative SME sector and active startup and business succession scene. [7]
These are supplemented by funding from various EU programs. As a structurally weak region, the state of Mecklenburg-Western Pomerania is one of the main beneficiaries of EU structural fund payments.
No networks, no success
Government funding programs, diverse initiatives, relationship management, networks, partnerships, clusters and knowledge transfer are thus the drivers of positive economic and structural development. However, the establishment of a successful, long-term startup and business succession ecosystem focused on a “new SME sector” [8] is heavily dependent on the actors’ ability and willingness to innovate when it comes to creating networks and forming partnerships. These provide a knowledge and resource sharing platform that strengthens the region’s ability to innovate and compete. Partnerships between research institutions, universities, other higher education institutions and businesses play a particularly important role by promoting the transfer of research into practice and helping business founders and successors translate their ideas into marketable products and services.
The future of economic development
Regions and businesses will continue to face challenges and pressure to change in years to come, and economic development agencies will thus need to keep refining the services they provide, especially in relation to the energy transition, sustainability and digitalization. They will also continue to act as a guide and provider of services between businesses, all the regional actors in their location, and the local authorities. The importance of local economic development agencies for regional, business-centered value creation will continue to grow, because coordinated, cooperative location and SME strategies and joint projects supported by economic development agencies are key instruments for the future of entrepreneurship. [9]