Four waves of economic development

Economic development research has currently identified five phases, or "waves" of economic development practice. The differences between these waves are shaped by historical factors, the economic climate during historical periods, and leaders' response to these forces, which over time have created five strategies that differ from their predecessors. The five waves have all been designed to accomplish the same goal: to help entrepreneurs and businesses discover and expand markets for their services. Often these waves operate concurrently (thus, overlapping), or within a single economic development plan.

First-wave economic development, or the Growth Promotion Approach, is characterized by a focus on industrial recruitment through financial incentives such as tax abatement and loans in order to lower costs associated with land, infrastructure, and labor. This method of business attraction was first used in the United States in the 1930s as a response to the Great Depression. The economic development activities in this phase are sometimes called "smokestack-chasing."

This approach to economic development has its foundation in the "boosterism" of small towns in early North America. Typically in this wave, local economic developers focus attention on attracting one major employer to the region - be it a factory, mine, college, or prison. The first step in smokestack-chasing is to promote the location to the potential employer. Next, the economic developer seeks to improve the likelihood of the employer locating within the area by providing incentives (e.g., cheap land or labor, lax environmental regulations). Detractors of this form of economic development have labeled it haphazard and suggested that smokestack-chasing is "likely to prove ineffective," while others have said the result of smokestack-chasing is likely mixed, with increases in short-term job growth and per capita income as well as political support.

Second-wave development strategies have their roots in the increase of worldwide competition, the descent of American manufacturing, and the critical evaluations of first-wave techniques of the late 1960s. These critiques labeled first-wave development as a zero-sum game between elites that instead of creating jobs merely transferred opportunities from one area to another at the benefit of "land-based" elites. The first use of second-wave strategies was in the late 1960s and early 70s. In second-wave economic development, practitioners began to use strategies to retain and expand existing firms. They also included a focus on small business development through entrepreneurial tools like loans and enterprise zones.

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