We’re all familiar with how anchor stores work in a mall.
They’re the marquee stores that make all of the rest of the stores
in the mall viable by attracting the critical mass of consumers to
the mall whose spending overflows into smaller stores in addition
to benefitting the main attractions themselves. It’s a proven
model, but in all likelihood, most readers probably have not
considered how the concept of the anchor store might apply to the
US economy at large. Yet, it does!
In the broader economy, anchor stores are the industries
that create higher paying jobs, which in turn generate additional
jobs as small and medium businesses position themselves to service
the needs of the marquee companies in those industries as well as
their workers who are typically well-off enough to have some extra
spending money. Economists have long recognized the “anchor store
industry” principle though they haven’t necessarily used that
metaphor to describe it. What’s more, economic history has proven
out that the principle works.
For example, automotive manufacturing was a longstanding
anchor of the economy before its cataclysmic meltdown in late 2008.
In its heyday, it was well understood that any substantial
expansion of capacity in this sector would not only result in
direct jobs for people in the industry but also result in byproduct
jobs for people in related industries as well as in metropolitan
areas surrounding plants. Typically the byproduct impact has been
estimated at 2:1, with two byproduct jobs being created for each
additional manufacturing job.
During the '90s, the Information Technology (i.e., Y2K,
Internet/Dot Com, and Telecom) sector anchored the economy.
Analyses conducted at that time indicate that the byproduct impact
of Information Technology as an anchor store industry was sometimes
as high as 7:1. By calendar year 2000, the Internet Economy, just
one of these three anchors, was generating around $830 billion in
revenue. And, as bad as it eventually turned out to be, in the
middle years of the Y2K decade, real estate was the anchor store in
the economy. It fueled construction, home improvement, building
materials, home furnishings and a host of other related industries.
A more in-depth discussion of the anchor store concept can be found
in my book,
The Clinton Economic Boom (and Other Myths of the Clinton
Presidency) released by Xulon
Press.
Ever since the collapse of the real estate market, one
component that has been conspicuously absent from the U.S. economic
landscape is an anchor store industry. Government has attempted to
fill the gap, but most would agree that this is outside the scope
of government’s core mission and that fundamentally it represents a
sub-optimum allocation of resources. What’s more, the results have
demonstrated that government isn’t very good at the anchor store
role. That’s because it doesn’t introduce new value-added goods and
services into the economy. It only consumes what has already been
created. As such, once government steps into the primary anchor
store role, it signals that the economy is in
decline.
The best thing government can do is to rapidly exit this
role by creating conditions that are conducive for the creation of
new anchor industries or revival of previously stalwart ones. And,
there are proven practices that can be referenced for how this is
done. For example, during the '90s, government left the Internet
Revolution to evolve on its own. That allowed creativity to
flourish, and a whole wave of new goods, services, and business
models was created as well as jobs. Similarly, we can learn from
what cities and states do when they want to expand their tax base
and attract new anchor industries. They put together packages of
incentives including tax breaks and other inducements that minimize
the risk to investors of locating their businesses
there.
Ostensibly, the recent job growth numbers represent good
news, and in this economy, any job growth is good news! Meanwhile,
the fundamentals are still wrong, and the Obama Administration’s
mindset is to double down on positioning government as the primary
anchor store in the economy. Sooner or later fundamentals catch up
with conditions on the ground so we are likely to see flashes of
promise here and there, but over the long haul the country won’t
achieve its desired results as far as the economy is
concerned.
