Prosperity is not something communities attract. It is something they create.

For decades, communities across America have pursued a similar economic development playbook. They compete to attract companies from somewhere else and invest in entrepreneurial programming. They celebrate ribbon cuttings, announce incentive packages, recruit employers, and measure success by jobs announced, buildings constructed, and capital invested.

Yet despite billions of dollars spent each year, too many regions continue to struggle with stagnant wages, declining labor force participation, slowing business formation, and the steady migration of talent. Communities compete fiercely against one another for a limited number of corporate relocations, invest heavily in programs, and work tirelessly to build relationships with employers, always seeking to help where possible. Clearly, the problem is not a lack of effort. 

We believe that their frustrations might stem from a misunderstanding of where prosperity actually comes from. The conventional model assumes that economic growth is something a community attracts. In reality, lasting prosperity is something a community creates.

The overwhelming majority of new jobs are not created by relocating large corporations. They are created by young, growing companies. Those companies rarely emerge from entrepreneurship programs alone. Instead, they emerge when people recognize valuable problems worth solving, assemble the right capabilities around those opportunities, and build businesses that deliver new value to the marketplace.

That fact potentially changes everything, because if prosperity is created through the continuous generation of innovation, then the purpose of economic development is no longer simply to recruit employers or support entrepreneurs, but to build a community capable of continuously identifying important problems, developing innovative solutions, creating new companies, strengthening existing employers, and translating innovation into broadly shared economic opportunity.

That requires a fundamentally different way of thinking about economic development, one that places employers, entrepreneurs, universities, investors, workforce organizations, civic leaders, and philanthropy into a single innovation community rather than treating them as separate sectors pursuing independent goals.

We argue that traditional economic development may have mistaken allocation for creation. We propose an alternative framework, centered on continuous innovation, employer demand, and entrepreneurial action, that better reflects how prosperous communities are actually built in the twenty-first century.

The Old-School Attraction Economy

For much of the twentieth century, traditional economic development worked remarkably well. Competitive advantage was built around physical assets like factories, rail lines, ports, highways, inexpensive land, energy, and access to labor. Communities that could assemble these assets more effectively than others attracted employers, and employers created jobs.

As a result, an entire profession emerged around helping communities compete for investment. Business attraction, tax incentives, industrial parks, infrastructure development, and workforce recruitment became the defining tools of economic development. These strategies were rational responses to the economy they served.

But the economy has changed. Today, competitive advantage is determined less by physical assets than by the ability to generate, absorb, and commercialize innovation. Companies succeed not because they found cheaper land or lower taxes, but because they solve problems faster than their competitors, create new value for customers, and continuously adapt to changing markets.

Yet many communities continue to operate with an economic development model designed for a different era. The result is an increasingly expensive competition for existing economic activity rather than the creation of new economic value.

Over time, economic development has become remarkably capable at influencing the allocation of resources, such as incentives to companies, grants to organizations, capital to founders, training to workers, and support to programs. Allocation is necessary, but it is not the same as creation. A region can distribute more resources every year without becoming any better at generating new economic opportunity.

A Negative-Sum Game

When one community successfully recruits a company from another, the winning community celebrates while the losing community laments. Yet, from a broader economic perspective, little has fundamentally changed. Few new products have been invented, or industries emerged, or wealth created, as existing jobs, investment, and tax revenue have simply been redistributed from one geography to another. This is the defining characteristic of a zero-sum game: one participant’s gain comes largely at another participant’s expense. 

But even that may overstate its value. Once the public resources devoted to incentives, marketing, recruitment, and retention are taken into account, traditional business attraction has increasingly become a negative-sum game, consuming more collective resources than the economic value it creates when taken on the whole.

To be clear, business attraction still has an important role to play. Communities benefit from attracting companies that complement existing industries, introduce new capabilities, or fill strategic gaps in the regional economy vs. empowering new competitors. The issue is that it has become the centerpiece of economic development with low regard to impact on the existing employer base, when it should increasingly revert to being one tool among many.

The greatest opportunities for long-term prosperity rarely come from convincing someone else’s company to relocate. They come from helping existing employers innovate, enabling entrepreneurs to build new ventures, commercializing new technologies, and developing products and services that did not previously exist. Those activities expand the economy rather than merely rearranging it.

Creation vs. Redistribution

Additionally, modern economic development often treats wealth creation and wealth redistribution as though they are the same thing. They are not. When a manufacturer develops a breakthrough product, when a software company creates a new platform, when a medical device company commercializes a life-changing treatment, or when an existing employer launches an entirely new business, wealth is created. New value enters the economy. New markets emerge. New jobs follow.

By contrast, when that same company relocates from one community to another, one region may benefit, but no fundamentally new value has been created. The company, its products, its employees, and its customers already existed. The wealth has simply changed locations.

Innovation expands the economy by creating new value. Business attraction reallocates existing value. Both have a place, but only one consistently increases the size of the economic pie.

Communities that consistently generate new ideas, new products, new companies, and new industries do more than improve their own prospects. Instead, they expand opportunity for everyone. The benefits ripple outward through higher wages, stronger local businesses, increased tax revenues, greater philanthropic capacity, and a more resilient economy.

This suggests a fundamentally different role for economic development. Rather than asking, “How do we convince more companies to come here?” communities should increasingly ask, “How do we become the kind of place where valuable companies are created?” That question shifts the focus from attraction to creation, from transactions to capability, and from competing over today’s economy to building tomorrow’s economy.

In short, economic development should no longer be measured primarily by how successfully a community competes for existing economic activity, but by how effectively it creates new economic value. To grow your economy means exactly that – you must work to grow your economy, not reallocate someone else’s.

The Hidden Source of Job Creation

If business attraction is not the primary engine of long-term prosperity, then where do new jobs actually come from? The answer has been hiding in plain sight.

For decades, research has consistently shown that the overwhelming majority of net new jobs are created by young, growing companies, not by large, mature corporations. In fact, longitudinal research from the Kauffman Foundation shows that, on average since 1977, all net new job creation in the United States has come from firms less than five years old¹, with only a handful of short-term exceptions during economic shocks.

While companies are critically important to regional economies, as they provide stability, investment, supply chains, and career opportunities, as a group they tend to create and eliminate jobs at roughly the same rate over time. The sustained growth in employment comes from companies that are new, expanding rapidly, and bringing new products and services to market.

This observation fundamentally changes the objective of economic development, because if young companies are responsible for creating most new jobs, then communities should be asking a different question. Instead of focusing primarily on attracting existing employers, they should ask how more innovation-driven companies can be created right here.

For many communities, that has been answered by the other primary historic economic development activity: support for entrepreneurship. Over the past two decades, billions of dollars have been invested in incubators, accelerators, pitch competitions, startup grants, coworking spaces, venture funds, mentoring programs, and entrepreneurial education. These initiatives have undoubtedly helped many founders succeed and have become valuable components of regional innovation ecosystems. Yet, despite this investment, relatively few communities have produced innovation economies at the scale they hoped for. 

Why? Because entrepreneurship is not the source of innovation.

Entrepreneurship is a mechanism through which innovation is commercialized, a subtle but profound distinction. Entrepreneurs do not create opportunity out of thin air. They recognize unmet needs, identify valuable problems, discover new technologies, or envision better ways of serving customers. Entrepreneurship transforms those opportunities into products, companies, and ultimately jobs, but the opportunity itself exists before the entrepreneur acts. Entrepreneurs are innovators, but innovation doesn’t come exclusively from entrepreneurs.

The real question, then, is not, “How do we create more entrepreneurs?” It is, “Where do valuable opportunities come from?”

Traditional entrepreneurship ecosystems have tended to look first to universities, research laboratories, or the entrepreneurs themselves for the answer. While each can produce important innovations, they represent only a fraction of the opportunity available within a regional economy.

The largest, most continuous source of opportunity already exists inside the companies that make up every community. Every day, employers encounter production bottlenecks, unmet customer needs, supply chain disruptions, workforce shortages, regulatory challenges, quality issues, emerging technologies, and countless other problems that limit their growth. Most are treated simply as operational challenges to overcome. But viewed differently, they represent something far more valuable: they are signals of unmet demand.

Every significant problem that prevents a company from creating more value represents an opportunity for innovation. Some will lead to process improvements inside the company. Others will create demand for new technologies, new products, or new services. Still others will become entirely new businesses built specifically to solve those problems, not just for one employer, but for thousands facing the same challenge. In other words, the hidden source of job creation is not entrepreneurship itself. It is the continuous stream of valuable, unsolved problems that already exist within the employers of every community.

The challenge for modern economic development is no longer simply to support entrepreneurs. It is to systematically discover, validate, prioritize, and translate those problems into opportunities for innovation. This is where regional economic prosperity begins.

From Problems to Prosperity

If opportunity is the true starting point for economic growth, the next question is where communities should look for it. The answer, as we have argued, is not primarily in another city, a national site-selection database, or a founder’s untested idea. The most reliable source of valuable opportunity is the continuous stream of problems already being experienced by employers, customers, workers, and institutions inside the region.

Existing companies sit at the intersection of real markets. They have customers, revenue, production systems, supply chains, technologies, and employees. Every day they encounter friction that prevents them from creating more value: a production constraint, an unmet customer need, a capability they cannot find, a technology they cannot absorb, or a market they can see but cannot yet reach. These problems are not merely obstacles. They are evidence of demand.

A modern economic development system should therefore be designed to move from problems to prosperity. It should help employers articulate consequential problems, determine which are shared across firms, identify the capabilities required to solve them, and connect those opportunities to entrepreneurs, technologists, researchers, investors, and workers who can act on them.

This represents a shift from organizing economic development around programs to organizing it around consequential problems. Similar ideas have emerged in the work of economist Mariana Mazzucato², who argues that innovation systems become most effective when they are organized around solving important societal and economic challenges rather than supporting isolated activities.

Some solutions will remain inside the originating company as process improvements, new products, or new business units. Others will become supplier opportunities. The most scalable may become entirely new companies serving a market far larger than the first employer that revealed the need. In each case, the economy grows because new value has been created, not because existing value has been moved from somewhere else.

This also reframes entrepreneurship. The objective is not simply to persuade more people to become entrepreneurs and then hope they discover something useful to build. It is to create a visible, credible pipeline of opportunities worth pursuing and equip a broader range of people to act on them. Entrepreneurship becomes connected to market demand rather than celebrated as an end in itself. This is an important reframing of the purpose of entrepreneurship-focused programming: it is a capability development effort focused on creating a pipeline of capable leaders who can take unmet problems and turn them into prosperous solutions.

Community Is Innovation Infrastructure

Most communities already possess many of the ingredients commonly associated with innovation: companies, universities, workforce organizations, investors, entrepreneurs, government agencies, philanthropies, and service providers. Yet the mere presence of these assets does not make an innovation ecosystem. A collection of institutions is not a system unless information, trust, opportunity, and action move effectively among them.

This observation aligns with recent work by Formation³, which argues that regional competitiveness depends not only on physical assets or organizational capacity, but also on the often invisible civic infrastructure of trust, coordination, and strategic relationships that allow institutions to act together. We would extend that argument further by suggesting that these relationships become most valuable when they are organized around the continuous discovery and translation of employer opportunities into innovation.

The essential infrastructure is therefore not only physical, but relational. It consists of trusted places and practices where employers can speak candidly about problems, entrepreneurs can encounter real demand, institutions can test their assumptions, and people with different capabilities can work together without first protecting their organizational turf.

This is why community matters. Innovation never follows a straight line from laboratory to startup to market. It develops through repeated collisions between people who see different parts of the same opportunity. A business leader may understand the customer problem but not the technology. A researcher may understand the technology but not the path to adoption. An entrepreneur may be able to assemble the solution but needs access, credibility, capital, and a first customer. Community is the infrastructure that allows those partial views to become collective opportunity.

The strongest regional innovation organizations will not define their value primarily by the number of programs they operate. They will define it by their ability to convene the right people around the right problems, sharpen vague concerns into precise opportunities, mobilize experiments, and help successful capabilities find a durable home. Building community may be less visible than a ribbon cutting, but it is far more consequential.

The Community Need for Employer Intelligence

Most economic development systems collect extensive information about companies, but surprisingly little of it reveals what those companies are trying to become. Employment counts, wages, square footage, capital investment, and industry codes describe the current economy, but do not reveal the unresolved constraints, emerging customer needs, technology shifts, or strategic opportunities that will shape the next one.

We propose an Employer Intelligence Economy as the operating system through which communities continuously discover and translate opportunity into prosperity, one that treats this deeper information as a regional innovation community asset. It develops trusted methods for learning from companies at multiple levels, not simply surveying chief executives or collecting requests for assistance. Leaders, managers, technical employees, frontline workers, customers, and suppliers often understand the same problem differently. Those contradictions are not “noise” but the evidence needed to identify the root cause.

This requires economic development practitioners to move beyond broad labels such as “skills gap,” “capital shortage,” or “innovation ecosystem.” Those phrases may describe symptoms, but they are too imprecise to guide action. The useful question is what specific behavior is not occurring, why it is not occurring, and what would have to change for firms, workers, investors, or institutions to act differently.

This emphasis on precise diagnosis reflects an emerging school of thought within regional economic development that favors observation, behavioral analysis, and carefully designed interventions over broad programmatic solutions. Formation has described this work as part of the craft of building regional economies through disciplined inquiry rather than assumption.

The resulting intelligence should not become another static report. It should form a living portfolio of validated opportunities that can be matched with regional capabilities and translated into focused experiments. Over time, this creates a compounding advantage. The region becomes better at reading its economy, quicker at recognizing emerging demand, and more capable of organizing action before opportunities disappear or migrate elsewhere. Economic development organizations should think less like service providers and more like market makers.

The Community Role for Civic and Philanthropic Leaders

Civic and philanthropic leaders have enormous influence over what economic development organizations are allowed to do. They shape incentives through funding, governance, expectations, and the metrics attached to grants and public investments. When they fund only predefined programs and demand certainty before experimentation begins, they unintentionally reinforce the very activity-based system they hope to improve.

The alternative is not to abandon accountability. It is to fund a more disciplined kind of work. Communities need patient resources for observation, diagnosis, relationship building, experimentation, and learning. They need practitioners who have permission to begin with a problem rather than a program, to discover that the original diagnosis was wrong, and to redesign an intervention before scaling it.

Philanthropy is particularly well positioned to provide this flexibility. Public agencies often face statutory constraints and political demands for immediate, visible results. Philanthropic capital can absorb the early uncertainty required to discover what actually works, provided it measures learning and behavior change rather than merely counting participation.

Civic leaders can reinforce this shift by asking better questions. Instead of asking which organization will own a new initiative before the problem is understood, they can ask who is closest to the demand. Instead of requiring a broad coalition at the beginning, they can support a small group capable of honest diagnosis. Instead of treating every pilot as a permanent program, they can expect successful capabilities to migrate to the institution best equipped to sustain them.

The essential leadership move is to stop asking, “Which program should we fund?” and begin asking, “What important economic opportunity are we currently failing to see, and what capability would allow our community to act on it?” It is a form of focusing on the problem to be solved, not the solutions first, which is fundamental to how innovation succeeds or fails.

The New Metrics

Traditional economic development measurements are attractive because they are visible and easy to communicate, like jobs announced, capital invested, companies recruited, people trained, and events held, which all have value, to be sure. However, they primarily measure transactions and activity, revealing little about whether a region is becoming more capable of creating prosperity on its own.

Instead, a creation-oriented system would still track jobs, wages, investment, and business formation, but would also measure the development of the capabilities that produce those outcomes. Did employers identify consequential problems they had previously treated as isolated operational issues? Did the region convert those problems into validated market opportunities? Did firms, institutions, or workers change their behavior? Did an experiment reveal a repeatable capability? Did a new product, supplier, business unit, or company emerge? These are capability based questions, not inputs or output questions.

It would also ask whether the region is learning, perhaps the highest human capability. Are unsuccessful experiments producing sharper diagnoses rather than being buried as failures? Are employers remaining engaged because the work is specific and consequential? Are new people and organizations entering the opportunity pipeline, or does every initiative rely on the same familiar participants? Is the community building durable advantages that will make the next opportunity easier to recognize and pursue?

These measures are more demanding because they cannot be captured through announcements alone. They require continued relationships with companies and participants long after a grant period ends, though that is precisely the point: a region cannot know whether it is developing its economy unless it follows what changed in the economy.

Building a Continuous Innovation Community

The future of economic development is not a choice between business attraction, entrepreneurship, workforce development, university commercialization, or support for existing companies, because each remains important. The challenge is to connect them through a common community centered on opportunity creation.

A common operating logic begins with close observation of firms, workers, and markets. It turns general concerns into precise problems, identifies why existing systems are not resolving them, and designs focused interventions that require action from both institutions and market participants. It mobilizes small experimental cohorts rather than symbolic coalitions, tests whether behavior actually changes, and captures what was learned. When an approach works, the capability is placed in the organization best positioned to sustain it. When it does not, the learning becomes the starting point for the next effort.

This is a broader mandate for economic development, but it requires narrower and deeper practice. Regions do not become innovative by declaring grand ambitions. They become innovative by repeatedly doing the difficult work of identifying a real opportunity, assembling the right people, testing a response, learning honestly, and building the capacity to do it again.

Communities that master this capability gain an advantage that competitors cannot easily recruit away. They become known not because they offered the richest incentives, but because they consistently produce new ideas, new companies, new partnerships, and new opportunities. In an innovation economy, the most valuable competitive advantage is not attracting innovation. It is becoming a place where innovation naturally occurs.

Over time, these repeated cycles create something far more valuable than a collection of programs. They create a community capable of continuous innovation: one in which existing employers become sources of opportunity, entrepreneurs become mechanisms for action, universities and workforce institutions respond to validated demand, investors see a stronger pipeline, and civic and philanthropic leaders fund capability rather than activity.

This is the great misunderstanding at the center of economic development: prosperity is not something a community can purchase from elsewhere, distribute through programs, or summon through aspiration. It is created when a community develops the shared capability to recognize valuable problems and turn them into new value. The regions that thrive in the next generation will not be those that become better at competing for opportunity. They will be those that become better at creating it.

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1. “The Importance of Startups in Job Creation and Job Destruction,” Ewing Marion Kauffman Foundation, 9 September 2010 ↩︎
2. “Mission Economy: A Moonshot Guide to Changing Capitalism,” Mariana Mazzucato, 2021 ↩︎
3. “Why Ecosystem Building Matters (and What it’s So Hard),” Ryan Donahue and Francie Genz, Formation, 9 March 2026 ↩︎