Economic Planning

Six Key Questions

A planning process must address six very important questions. First, what are the past trends? For example, in the last twenty years, how has the local economy changed? Second, where is the economy now? What are its strengths and weaknesses; what opportunities are open to it, and what threats does it face? Third, where is the economy likely to go? Will existing firms expand or contract? How will the natural and environmental resource base impact the future? Fourth, what is a challenging vision for an exciting future? Fifth, what plan will let the community realize the vision? Sixth (to be asked once the plan is implemented), how is the community doing? Are the plan's objectives and benchmarks being met?

Two Parts of the Economy

Planners start by focusing on the economic base of the area. This is defined as the set of industrial sectors that export products from the community and bring in income. Thus, their earnings are essential to support the local economy. Historically, the natural-resource-based industries of agriculture, fishing, forestry, and mining were considered an important part of the economic base. Next, the value-added activities of manufacturing were emphasized. In reality, transportation, communication, government, and any other industry can be, in part or in whole, basic to the local economy.

In addition to the base industries, there are the non-base industries, which circulate dollars inside the local economy. Retail, health, and business services are part of the nonbasic economy. Also, local governments circulate money by taxing and spending. Dollars that circulate within the economy support businesses, households, and government. Therefore, one can envision a three-tiered model. The economic base is at the bottom. Next comes the nonbasic portion. At the top one can place local government activities.

Planners and economists model and measure the impact of this secondary effect of new dollars (that is, export-generated dollars) and estimate one or more multipliers. For example, for every new dollar of export sales, an additional 70 cents in sales might occur locally. In such a case, the sales multiplier would be $1.70.

Planners must take inventory of local employers and map the patterns of commuting to determine who works where. This helps define the boundaries of the economy. The healthiest economies have a diversified base that keeps the economy stable even when a large employer closes its doors. Within a community (as opposed to within a nation), the rate of job losses can vary dramatically from year to year because small systems are less stable than large ones. Ongoing planning keeps employment levels from shrinking.

[Page 422]Through the process of analyzing and modeling the economy, all sources of wealth, income, and employment are determined. Then it is time to set the overall vision and develop a plan to realize the vision. The vision gives direction and focus so that a manageable set of issues can be addressed in the plan. The plan should list goals, each of which will resolve an issue. Typically, the major goals are (1) the retention and expansion of existing firms, (2) the creation of new firms, and (3) the attraction of outside investors.

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