Lately, I’ve been thinking a lot about the things we need to make regional economies competitive and successful. During my frequent conversations with regional economic and political leaders, the thing that gets top billing more than any of the others is the need for capital. They are faced with multiple problems, trying to juggle a myriad of conflicting priorities. So one of the first things they want to know, when we start talking and agreeing about the need for technology infrastructure to improve regional service delivery, cooperation, and cluster advancement, is “Where’s the money going to come from?”

When I hear that, I encourage my colleagues to take a step back. Sure, capital is crucial and accessing it will take new approaches to old problems. But regions need to start by thinking about their capacity to get a collection of regional interests working together as a team. Some brainy folks at Pepperdine University, W. Scott Sherman and Miriam Lacey, have published a great article (Link to Article) about employing one of my favorite subjects – tacit knowledge – to facilitate innovation and problem solving through effective team leadership.

Regions and their leaders need to realize that the capital exists. It’s available. Getting it is a matter of regional interests working together toward a common purpose, sharing knowledge, and making choices that mitigate risks. Teambuilding is the way to go, because as Sherman and Lacey say:

• Teams are more effective than individuals at generating new answers to difficult or novel problems.

• Teams generate new knowledge by combining the explicit and tacit knowledge of individual team members.

• Teambuilding techniques that improve the ability of team members to transfer, capture, and combine tacit knowledge into new knowledge may be a source of sustained competitive advantage. (Another one of my subjects!)

So, let’s look in-depth at what I see as the three major trends that are impacting regions’ ability to access capital, and how teambuilding could help them overcome their challenges. These three trends are:

1. Increasing globalization: Competition between regions globally now means that regions require quality infrastructure in order to attract and retain much-needed investment

2. Decentralization of responsibilities across regional stakeholders: This is often not matched to delegation of authority or accountability or resources

3. An increasing number of low-income residents and low wage jobs: Their contribution to the regional economy and tax base rarely matches their use of regional services

I suspect you’ll agree that to respond to these challenges, regions need to be transformed. They need to become proactive infrastructure developers, rather than passive service providers. And to do that, I think stakeholders and leaders in each and every region that wants to remain competitive need to develop a culture of cooperation and collaboration based on structured mechanisms for performance management and measurement. They need to start thinking of themselves as a team, with a team’s understanding of the strategies, roles and responsibilities they’ll employ to win the economic game based on the mutual respect of each player.

As a first step, they need a winning strategy: a regional economic development strategy that incorporates the means of financing a given region’s long-term infrastructure objectives. The strategy must clearly articulate how a region will prioritize their investments relative to their current and future revenue streams. Even so, current tax revenue, use charges, or ad-hoc external grants alone cannot bridge a region’s infrastructure deficits in any reasonable manner. Clearly, for virtually all regions, the backlog in necessary infrastructure creates funding challenges for local leadership.

So as a team, they’ll need to establish a task force that includes experts and practitioners from the private sector, financial institutions, banks, and development agencies. The task force’s job would be to analyze and share knowledge of regions which have successfully mobilized long-term private capital and the governance frameworks needed to facilitate infrastructure development. Their main objective is to leverage the financial and non-financial assets of the region so as to access resources from both the public and private sectors.

What that task force will find and have to grapple with, of course, is the fact that region’s have been dealing with some significant challenges and limitations when it comes to financing infrastructure. But I am convinced that these challenges and limitations are surmountable. Let’s delve into them for a moment.

Long-term debt is clearly required because most infrastructure assets -- especially technology infrastructure investments, such as communication, information and transaction management -- provide benefits over time and across city, county, and state boundaries. For the required sustainability of infrastructure investments, the link between a region’s technology infrastructure needs and private capital has to be strengthened. Policies to strengthen this link need to be based on the region’s decentralization systems and the region’s specific stage of financial market development.

For most regions, the sources of municipal debt have been limited usually to governments, government-owned financial institutions, or finance raised on the basis of guarantees issued by the city, county, or state. However, larger regions can raise debt for infrastructure by accessing capital markets based on credit ratings through issuing various debt instruments on a non-guarantee basis. Small and medium regions have been pooling financing needs, a practice to which markets have responded.

Financial institutions that lend to regions are making efforts to become more market- oriented by mobilizing private capital for public infrastructure. These developments have yet to be institutionalized in most regional economies, and are not mainstreamed into the regions’ investment process.

To facilitate more market-based financing, concrete actions from the regions are needed:

• From the lenders’ perspective, constraints include the lack of a transparent accounting system, near absence of collateral, and project revenue streams which rarely match commercial debt obligations or costs.
• From the standpoint of regions, significant impediments include the high transaction costs of commercial finance, the absence of a level playing field in terms of fiscal incentives for municipal debt, and limited experience of lenders/rating agencies in structuring security mechanisms that are not based on traditional instruments such as collateral or guarantees.

Regional-level policy actions include establishing a governance framework for debt administration; rule-based and predictable revenue transfers; and a deepening of the capital markets by encouraging liquidity. These must be predicated upon responsibilities for modern accounting systems, specified cost recovery mechanisms (grounded in the contracts with stakeholders), and regional benchmarks for measured performance. Identifying an economic strategy comprised of agreed-to regional internal actions and demonstration of a clear revenue stream provides the capital access for regions to negotiate with private capital and commercial finance.

Obviously, there is a clear need for defining governance frameworks for regions and their development partners in formalizing finance strategies relevant to infrastructure investments, especially technology infrastructure.

Key to this approach is the application of team-building principles and the pursuit of self-interests. These attributes are based upon local demand and local capacity relevant to the region’s industry clusters, occupational clusters, communities, and networks that have the capacity to manage money and pursue profits through their commercial activities. A regional approach to help communities manage and mitigate the risks of their development projects, including political and financial risks, allows for the achievement of greater scale and economic impact. The outcome of this approach would be precedent-setting for most regions when it comes to the management of economic development policies and practices for the public, academic, and private sectors.