Today's headlines report cities going bankrupt, states running large deficits, and nations stuck in high debt and stagnation. Philip Kotler, Donald Haider, and Irving Rein argue that thousands of "places" -- cities, states, and nations -- are in crisis, and can no longer rely on national industrial policies, such as federal matching funds, as a promise of jobs and protection. When trouble strikes, places resort to various palliatives such as chasing grants from state or federal sources, bidding for smokestack industries, or building convention centers and exotic attractions. The authors show instead that places must, like any market-driven business, become attractive "products" by improving their industrial base and communicating their special qualities more effectively to their target markets.
From studies of cities and nations throughout the world, Kotler, Haider, and Rein offer a systematic analysis of why so many places have fallen on hard times, and make recommendations on what can be done to revitalize a place's economy. They show how "place wars" -- battles for Japanese factories, government projects, Olympic Games, baseball team franchises, convention business, and other economic prizes -- are often misguided and end in wasted money and effort. The hidden key to vigorous economic development, the authors argue, is strategic marketing of places by rebuilding infrastructure, creating a skilled labor force, stimulating local business entrepreneurship and expansion, developing strong public/private partnerships, identifying and attracting "place compatible" companies and industries, creating distinctive local attractions, building a service-friendly culture, and promoting these advantages effectively.
Strategic marketing of places requires a deep understanding of how "place buyers" -- tourists, new residents, factories, corporate headquarters, investors -- make their place decisions. With this understanding, "place sellers" -- economic development agencies, tourist promotion agencies, mayor's offices -- can take the necessary steps to compete aggressively for place buyers. This straightforward guide for effectively marketing places will be the framework for economic development in the 1990s and beyond.
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Philip Kotler is the S.C. Johnson & Son Distinguished Professor of International Marketing at Northwestern University.Excerpt. © Reprinted by permission. All rights reserved.:
Places in Trouble
At any moment, a large and growing number of places -- cities, regions, and entire nations -- are on the sick list. According to Standard & Poor's, the investment credit rating agency, "almost two-thirds of the 50 states and nearly three-quarters of America's more than 5,000 cities are confronted by a financing gap." In its 1991 annual financial survey of U.S. cities, the National League of Cities found most places to be suffering from an imbalance between revenues and expenditures, which has resulted in layoffs and service reductions.
Bankruptcy may be the ultimate test of a place's sickness. In mid1975 New York flirted dangerously with bankruptcy only to experience enormous recovery following federal assistance and adoption of tough fiscal medicine. Its turnaround from huge deficits to budget surpluses ended in the late 1980s. Then, once again, it experienced a collapse of its core financial service and real estate industries, an out-migration of major employers, rising crime levels, and service reductions.
In 1978 Cleveland defaulted on its debt obligations. Philadelphia had to be refinanced in the early 1990s, while Connecticut's largest city, Bridgeport, sought the refuge of federal bankruptcy laws in 1991. In 1992 California, the nation's largest and most prosperous state, encountered a massive $10 billion budgetary shortfall whose resolution required that public employees be paid with scrip and vendors with IOUs until a vastly reduced state budget was enacted. Place sickness is by no means restricted to the United States. In 1988 the Mayor of Rio de Janeiro declared his city bankrupt. Dating from the late 1950s and the construction of Brazil's new federal capitol, Brasilia, and the shift of financial services and businesses to Sao Paulo, Rio experienced a loss of jobs and tax revenues. Betting recovery on increased U.S. and European tourism, its revival faltered when disillusioned tourists encountered Rio's reputation as a hotbed of pickpockets and assailants.
Sickness includes not only a place's fiscal health but also its economic condition. Nations experience both cyclical and even prolonged periods of poor health -- trade imbalances, rising debt, high inflation and unemployment, and unstable currencies. Entire regions can be chronically depressed -- northern England, western France, southern Italy, and Appalachia here in the United States. Economic weaknesses, commonly measured by loss of population, high unemployment, and falling income and investment, are associated with the fate of a place's particular industries or industry clusters, resources, and products -- oil in the Southwest, autos and machinery in the Midwest, and agriculture in the Farm Belt. In some cases, the fate of regions and places rises and falls with specific industries, while in others industry declines may be more permanently wedded to changes in technology and competition. The East and West coasts experienced the latter in computer, semiconductor, and aerospace-defense industries.
However, a place's relative sickness or health transcends fiscal and economic measurement. Places are more than budgets and businesses. They are people, cultures, historical heritage, physical assets, and opportunities. Places are ranked, rated, and evaluated today on every conceivable dimension: where to start or locate a business or plan a retirement, where to raise a family or look for a spouse, where to plan a vacation, hold a convention, or have a meal. From quality of life considerations to charm, culture, and ambience, the quest for livable, investible, and visitable places is a perpetual search for the new and vibrant, an effort to stay clear of the sullen and depressed.
In this book, we deal with the problems that places face in seeking a better future. Like nations, places can reverse their decline, can experience a rebirth and revitalization through a process of strategic market planning. The Five Tigers of East Asia -- South Korea, Taiwan, Hong Kong, Singapore, and Thailand -- are examples of resurgence where the component parts of strategy, marketing, and planning are concentrated in specific nations. So, too, certain places have reversed their fortunes through concerted planning and skillful execution: St. Paul, Glasgow, Indianapolis, and Baltimore, to name a few cities. Take, for instance the case of St. Louis, which suffered severe decline through the mid-1970s that some thought to be fatal. Fifteen years later, St. Louis bills itself as an urban miracle, a renaissance city in which old commercial buildings have been rehabilitated, vacant houses restored, the downtown rebuilt and revitalized. Its ethnic vitality, historical culture, and architectural splendor have been preserved, and a spirit of rebirth permeates the city and county.
In this book, we draw examples of rebirth and recovery from places throughout the United States, Canada, Europe, and Asia. These include world-class cities and smaller communities, older manufacturing centers and rural backwaters. Places in trouble are not just those whose primary businesses or industries are declining, but all places that may think tomorrow will be much the same as today. The resources, assets, and advantages that certain places enjoy today may not be those that provide the same opportunities a decade from now. This is a book about change and response. It tells how strategic market planning can help prepare places for dealing with an uncertain future.
In this chapter, we set the stage by addressing the following four questions: (1) What is happening to places? (2) Why do places fall into trouble? (3) What are places doing to solve their problems? (4) What should places do to solve their problems?
WHAT IS HAPPENING TO PLACES?
Almost all places are in trouble, but some are in more trouble than others. Their situations fall along a continuum. At the most desperate extreme are places that are dying or chronically depressed.They lack the resources on which to launch a recovery. Some are small towns and cities that have lost their major industry or company and are plagued with unemployment, shuttered stores, and abandoned property. People and businesses out-migrate leaving a weakened tax base on which to fund schools, hospitals, and other public services. Crime and drugs take over the life of these places, and further accelerate the decline. East St. Louis, Illinois, and Newark, New Jersey, vividly illustrate these ravaged places. Ultimately, these cities persist only on grants from outside or eventually devolve into partial ghost towns.
There are also acutely depressed places that have some potential for revival. Places such as Detroit, Philadelphia, and New York have entered a period of hard times. The bad news is that their debt and problems keep worsening. The good news is that these places possess historical, cultural, and political assets that could support a turnaround if the right leadership and vision emerges.
Other places have boom and bust characteristics. These towns and cities are highly sensitive to business cycle movements as a result of their mix of industries and growth companies. In the post-World War II period, Boston lost its textile and shoe industries, both of which fled to the South in search of lower costs. Most of Boston's revival turned on regional service and financial centers surrounded by high-tech industries and growth companies. The Massachusetts Miracle turned into the Massachusetts Mirage as its computer industry collapsed, real estate faltered, and growing service industries experienced retrenchment and downsizing. Energy-exporting states and centers in the Southeast, Texas, and Oklahoma epitomize the boom and bust cycle.
On the brighter side are some places that have undergone healthy transformations. These places invested heavily to create new conditions to improve their attractiveness. Indianapolis billed itself as the amateur sports capital of the nation. Baltimore launched an ambitious waterfront development and cleanup program that greatly revived its prospects. Glasgow, Scotland, turned itself from a gritty manufacturing city into an exciting European art capital. And according to one observer of St. Paul, Minnesota, "Some fifty years ago a national magazine described St. Paul as having already 'grown up, prospered, and died.'" This report of St. Paul's death turned out to be greatly exaggerated.
Finally, some places deserve the title of the favored few. They enjoy strong financial health and continue to attract tourists, new residents and business people. Some places have done this for centuries: Venice, Florence, Paris, and Vienna. In the United States, such places as Santa Fe, New Mexico, and Santa Barbara, California, qualify, as well as San Francisco and San Diego. Still, even these favored few face problems: pollution, congestion, water shortages, and other modern scourges. Their problem is not to find new ways to grow but quite the opposite, to prevent unmanaged growth from destroying their assets.
WHY DO PLACES FALL INTO TROUBLE?
Whatever economic circumstances a place finds itself in, it inevitably evolves into new circumstances. Every place is subject to internal growth and decline cycles as well as to external shocks and forces beyond its control. We examine these two change forces next.
Internal Forces Leading Places into Trouble
Many places experience a period of growth followed by a period of decline, which might repeat itself several times. The growth period inevitably ends, because growth lays the seeds of its own destruction. The decline period may also end, but for a different set of reasons. The processes underlying growth and decline dynamics can occur independent of the state of the business cycle, although they may be accelerated by sudden changes in the economic climate.
Figure 1-1 illustrates a well-documented city growth dynamic. Imagine a city that is initially attractive. It might be blessed with expanding industries, have an exceptional climate or natural beauty, and might have a remarkable historical heritage. Assuming that job opportunities are strong and the quality of life is appealing, this city inevitably attracts new residents, visitors, business firms, and investment. The inward migration of people and resources raises housing and real estate prices and strains the existing infrastructure and social service budget. The city typically raises taxes on residents and businesses to pay for the needed expansion of transportation, communication, energy, and social resources. Some residents and businesses begin to move out of the city boundaries to lower their costs, thus reducing the tax base. Thus the very state of being an attractive place may unleash forces that ultimately unravel the place's attractiveness.
Orlando was a peaceful, sleepy city before the arrival of Disney. Today, the fastest growing city in America finds itself expanding at rates it cannot control. The downtown has never really developed, natural beauty is seriously curtailed by malls and developments, and traffic is snarled. The need for schools forces children into large classes and trailers. Another attractive city, Seattle, is now facing traffic gridlocks and pollution concerns. The city recently instituted strict downtown building regulations to stem the onslaught of new companies and new residents moving up from Los Angeles in search of a more affordable life-style.
As a place begins to lose its attractiveness, forces are released that worsen the situation (see city decay dynamics in figure 1-2). A major company or industry in the town might falter or exit due to business mismanagement, an eroding community infrastructure, the onset of a general recession, or lower costs elsewhere. Business profits and jobs decline. Real estate prices fall. Infrastructure deteriorates. These developments accelerate the outward migration of residents and businesses and cause a sharp drop in tourism and convention business. Banks tighten credit, causing an increase in bankruptcies. Joblessness leads to more crime and drugs, and social needs increase. The city's image becomes further tarnished. The government raises taxes to maintain or improve infrastructure and meet social needs. But the higher taxes only accelerate the out-migration of resources.
Philadelphia has passed through this decay dynamic. The city reached a high point in 1976 with the celebration of the Bicentennial of the Signing of the Declaration of Independence. The city freshened its historic district, its citizens had a positive attitude, and tourists flocked to Philadelphia. During the 1980s, a building boom further revitalized its downtown. At the same time, rising city taxes and inefficient city government led many middle-class residents to flee to the suburbs, leaving behind a lower tax base to support a growing disadvantaged population facing problems of crime, homelessness, drugs, and AIDS. Further tax increases only drove more residents and companies out of the city. The city's Moody credit rating fell, pushing the city into issuing lowerquality junk bonds and raising its borrowing costs. Meanwhile, Philadelphia spent energy trying to wrest more grant money from the state's treasury. Union contracts prevented the city administration from reducing the number of city workers. By 1990, Philadelphia faced a $229 million deficit and the prospect of bankruptcy, which simply meant that "the government may come to a standstill....Trash pickup, cops, fire -- all would stop.
Smaller cities and towns are also prone to decline. They often find themselves too dependent on one main source of revenue; when it dries up, so does the place. Young people move away after their high school graduation, and the place starts to resemble a retirement community.
The small town of New York Mills, Minnesota, (pop. 750) is in gradual decline. As early as the mid-fifties, the town leaders, seeing the loss of vital trade activity to larger towns, formed a boat company around an aluminum designer. The Lund Boat Company was a hit and the town population stabilized and began to grow. A large trailer park prospered and new homes were built on the outskirts. In the next two decades, the town began to slip in population again as the creamery closed and all but one car dealer moved out of town. In addition, a new highway now circled the town and residents found it easier to shop at the new Pamida discount store thirteen miles out of town. The town leaders wanted to remake the main street into a Finnish theme town, but years of argument never convinced the citizens. The town sits in a precarious position. A good place to live, but not unlike the ghost town of Heinola, a few miles to the west, New York Mills faces possible extinction.
External Forces Leading Places into Trouble
Places are also shaken by major forces in the external environment over which they have no control. The major forces upsetting the economic equilibrium of communities are rapid technological change, global competition, and political power shifts...
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