The Impact of Artificial Intelligence (AI) on Local and State Economic Development: A Futuristic Perspective

I. Dedicated to Dean F. Whittaker

I have dedicated this article to Dean Whittaker, my good friend and a true pioneer in advancing computers, data, information technology, and artificial intelligence in local and state economic development.

II. Introduction

This article explores AI's current and expected future role in state and local economic development. Artificial intelligence (AI) is poised to revolutionize local and state economic development, presenting both unprecedented opportunities and formidable challenges. As we peer into the near future, it becomes evident that AI's influence will reshape state and local economies, economic development organizations, economic development professionals, and economic development policies and strategies.

III. AI in the Context of Economic Development

State and local economic development refers to the strategic efforts by government entities, private nonprofit organizations, and private companies, including economic development and site selection consultants, to improve economic well-being and quality of life within geographic areas. This involves attracting and retaining businesses, fostering job creation, and enhancing the overall economic environment through infrastructure improvements, workforce development, and policy initiatives. The goal is to stimulate quality business and economic growth, increase employment opportunities, and ensure sustainable community development.

Artificial intelligence (AI) in economic development refers to using advanced computer systems to perform tasks that require human intelligence. These tasks include learning from data (machine learning), understanding natural language (natural language processing), recognizing patterns (pattern recognition), and making decisions (decision-making algorithms).

In economic development, AI can analyze vast amounts of economic and business data, predict trends, optimize resource allocation, and automate routine processes. For example, AI can help identify the best locations for new businesses by analyzing demographic, economic, and geographic data, or it can streamline the permitting process for new developments by automating document review and compliance checks. AI's ability to provide insights and efficiencies enhances the capacity of economic development organizations to make informed decisions, attract investments, and foster sustainable economic growth.

IV. Business Site Selection

AI is revolutionizing business site selection by leveraging big data and machine learning algorithms to analyze demographics, market potential, and logistical considerations. For instance, IBM Watson provides detailed insights into optimal site locations based on various parameters, helping businesses like CBRE's Dimension platform offer comprehensive site analysis. This technology is utilized in cities like New York and San Francisco to optimize site selection based on labor availability, transportation networks, and market potential (IBM, 2024).

We are talking about a development called location intelligence. According to ESRI, "Location intelligence is the insight gained from visualizing and analyzing geospatial data. Layering location-specific data—such as demographics, traffic, environment, economics, and weather—on a smart map or dashboard reveals unique insights. Leaders use location intelligence to better understand where and why things are happening and plan what to do next."

Businesses increasingly leverage artificial intelligence (AI) in their site selection and expansion processes to enhance decision-making, optimize resources, and gain a competitive edge. Here are the significant ways AI is being used:

Evaluation of Potential Locations

1. Data Analysis:?AI tools analyze large datasets, including demographics, real estate trends, labor market statistics, and economic indicators, to identify optimal locations. This provides a more comprehensive view of potential sites compared to traditional methods. Example: IBM Watson assists businesses by providing insights into demographic trends and labor markets to pinpoint the best locations for new facilities.
2. Predictive Analytics: AI can forecast future trends such as population growth, economic development, and infrastructure improvements, helping businesses choose sites that will remain advantageous over the long term. Example: SiteZeus uses predictive analytics to help retail chains identify high-potential locations by forecasting future sales performance based on various factors.
3. Supply Chain Optimization: AI evaluates logistics and supply chain efficiency, identifying locations that minimize transportation costs and improve delivery times. Example: Amazon employs AI to optimize warehouse locations, ensuring proximity to key markets and efficient supply chain management.

Assessment of Site Selection Needs

1. Real-Time Data Integration: AI integrates real-time traffic patterns, environmental conditions, and socio-economic changes to provide an up-to-date site suitability assessment. Example: CBRE's Dimension platform uses real-time data integration to offer a dynamic view of potential sites, helping businesses make informed decisions.
2. Competitive Analysis: AI compares potential sites against competitor locations to identify areas where businesses can gain a strategic advantage. Example: Companies like JLL (Jones, Lang, Lasalle) use AI to analyze competitor presence and market saturation, guiding businesses to less competitive and high-opportunity areas.
3. Cost-Benefit Analysis: AI conducts comprehensive cost-benefit analyses, factoring in construction costs, tax incentives, and operational expenses to identify the most cost-effective sites. Example: Economic development agencies, such as those using AI tools from SiteZeus, provide detailed cost-benefit analyses to attract businesses to their regions.

Examples

• Siemens: Utilizes AI to predict equipment failures and optimize manufacturing site locations, ensuring minimal downtime and operational efficiency.
• Amazon: Leverages AI-driven warehouse management systems to select optimal warehouse locations, enhancing supply chain efficiency and reducing logistics costs.

By integrating these AI capabilities, businesses can make more informed, strategic decisions about site selection and expansion, ultimately driving growth and competitiveness.

V. Business Retention and Expansion

AI can play a crucial role in business retention and expansion by providing predictive analytics to identify businesses at risk of relocation or closure. By analyzing patterns in financial performance, market conditions, and customer feedback, AI can offer early warnings to economic development professionals, enabling proactive interventions. Salesforce's Einstein Analytics is an example of a platform used to monitor business health and suggest tailored support strategies to retain and grow local businesses. Cities like Austin, Texas, and Raleigh, North Carolina, have begun integrating these AI tools to maintain and expand their business ecosystems (IBM, 2024).

VI. Business Attraction

AI enhances business attraction efforts by targeting potential investors with precision. Through sophisticated data mining techniques, AI can identify businesses looking to expand or relocate, matching them with suitable locations based on specific criteria. Economic development agencies, such as those using AI tools from SiteZeus, create personalized pitches to attract high-value businesses, boosting local economies. For example, the Greater Houston Partnership utilizes AI to analyze global business trends and attract companies to the Houston area, tailoring their outreach to specific industry needs (IBM, 2024).

VII. Entrepreneurial Development

AI will transform entrepreneurial development by providing access to advanced resources and mentorship. AI-driven platforms offer startups personalized advice, market analysis, and financial planning, helping them navigate the complexities of business development. Organizations like Y Combinator leverage AI to evaluate startup potential and offer targeted support, fostering a thriving entrepreneurial ecosystem. AI can also assist in identifying funding opportunities and connecting entrepreneurs with investors, as seen with platforms like Gust (IBM, 2024).

VIII. Area or Business Climate Improvement

AI can improve area or business climate by optimizing urban planning and infrastructure development. Smart city initiatives, such as those implemented in Singapore, utilize AI to manage traffic flow, energy use, and public safety, creating a more conducive environment for businesses. Additionally, AI can analyze environmental data to recommend sustainable practices, enhancing the overall business climate and attracting eco-conscious companies. AI-powered platforms like UrbanFootprint provide detailed data and analytics to help city planners create more livable and sustainable urban environments (IBM, 2024).

IX. Workforce Training and Development

Artificial intelligence (AI) can significantly advance workforce training in economic development by providing personalized learning experiences and real-time feedback. AI-powered platforms can analyze individual skills and learning patterns to tailor training programs that address specific knowledge gaps and career objectives. Through simulations and virtual reality, AI can create immersive, hands-on training environments replicating real-world economic development scenarios, enhancing practical skills and decision-making abilities. Additionally, AI can continuously update training content based on the latest industry trends and data, ensuring that the workforce remains adaptable and prepared for emerging challenges in economic development. This approach enhances the efficiency and effectiveness of training programs and helps build a more skilled and resilient workforce.

X. Lessons from Other Professions about the Future Role of AI in the Future Academic Education and Professional Training of Economic Developers

Artificial intelligence (AI) is revolutionizing the education of professionals in many fields by providing personalized learning experiences, enhancing access to resources, and improving the effectiveness of training programs. In fields like healthcare, AI-powered platforms such as IBM Watson are used to tailor medical education, offering customized modules based on individual learning paces and knowledge gaps.

Similarly, AI tools like ROSS Intelligence assist with legal research and continuing education by providing real-time, relevant case law updates and analysis. These advancements can be applied to economic developers' academic education and professional training by leveraging AI to create personalized learning paths. For instance, AI can analyze an economic developer's previous experiences and current skill levels to recommend specific courses or training modules that address their unique needs.

How can AI educate and train economic developers? AI can simulate real-world economic development scenarios, allowing professionals to practice decision-making in a high-learning environment. Certification processes can also benefit, with AI-driven assessments providing immediate feedback and identifying areas for improvement. Overall, AI offers the potential to enhance the competency and adaptability of economic developers, ensuring they are well-equipped to handle the complexities of modern economic challenges.

XI. Dean Whittaker's AI Thought Leadership

Dean Whittaker, based in Holland, Michigan, has provided significant thought leadership on AI's role in economic development. He has published several articles in his newsletter, the Whittaker Report, discussing AI's impact on business site selection, retention, attraction, and overall economic climate improvement. Because he pioneered the advancement of computers and data, and now AI is in economic development, I have always considered Dean the "Father of Computer and Information Technology in Economic Development." His insights highlight how AI tools can aid in making more informed decisions, improving efficiency, and fostering growth in local economies. For more information, visit Whittaker Associates.

According to Dean Whittaker, "Artificial intelligence has become a crucial driver of innovation, competitiveness, and transformation across sectors. As a result, economic development organizations have a vital role to play in steering their region’s approach to AI adoption. By creating and executing a robust AI strategy, they can ensure local industries intelligently capitalize on AI while mitigating disruption."

XII. McKinsey's Insights on AI and Economic Development

According to McKinsey (2024), AI can transform economic development on a larger scale by enhancing globally competitive value chains, attracting investments, supporting labor market transitions, enabling real-time economic forecasting, and improving public services with geographic information systems. However, challenges such as securing high-quality data, attracting technical talent, and gaining public trust must be addressed. McKinsey suggests seven strategies for AI adoption: utilizing AI to simplify complexity, ensuring seamless data access, building confidence, pursuing partnerships, establishing centers of excellence, and creating a solid value proposition to attract diverse talent (McKinsey, 2024).

XIII. AI in Action: Economic Impacts and Opportunities Across Key Sectors

In an era where artificial intelligence (AI) and machine learning have transcended buzzwords to become robust drivers of transformation, comprehending their far-reaching economic impact across various sectors is imperative for economic development organizations (EDOs).

Manufacturing: AI is revolutionizing manufacturing by improving predictive maintenance, optimizing supply chains, and enhancing production processes. For example, Siemens uses AI to predict equipment failures, reducing downtime by 30%. Amazon's AI-driven warehouse management optimizes the supply chain (Roberts, 2024).

Agriculture: AI's role in agriculture is pivotal. Precision agriculture uses data analytics, satellite imagery, and sensors to improve crop yields by 30% while reducing water usage by 25%. This technology addresses climate change and inefficient water use (Roberts, 2024).

Automotive: AI transforms automotive manufacturing through autonomous vehicles and AI-integrated robotics for tasks like assembly and welding. AI-driven predictive maintenance can reduce downtime by up to 50%, extending machinery life (Roberts, 2024).

Aerospace: AI improves efficiency and safety in aviation through predictive maintenance and optimized flight routes. Generative AI and digital twins revolutionize aircraft development and maintenance. Space exploration benefits from AI's data processing capabilities, as seen in NASA's Mars Rover missions (Roberts, 2024).

Life Sciences: AI accelerates drug discovery and genetic data analysis, contributing to personalized medicine and reducing research timelines. Platforms like Atomwise use deep learning to predict chemical compound behavior, fostering innovation and job creation in biotech (Roberts, 2024).

XIV. The Economist Intelligence Unit's Insights on AI

The Economist Intelligence Unit (EIU), sponsored by Microsoft, explores AI's transformative potential on markets and societies across developed and developing worlds. Key findings include the widespread optimism about AI's economic benefits, with expectations for AI to significantly impact growth, productivity, innovation, and job creation. However, challenges such as cost, execution risk, workforce adaptation, and security concerns remain. EIU emphasizes the importance of governance models and ethical frameworks, particularly in ensuring AI's decisions are transparent and equitable.

XV. Insights from "Leveraging Technology for Economic Development Organizations"

A recent International Economic Development Council (IEDC) report emphasizes integrating technology into economic development organizations (EDOs). It highlights how AI and extended reality (XR) transform core EDO functions such as site selection, industry analysis, investment attraction, placemaking, workforce development, and smart infrastructure. The report also identifies common pitfalls in technology adoption, such as lack of stakeholder buy-in and insufficient scoping for long-term technology projects. Key recommendations include prioritizing needs, engaging stakeholders, starting small, and fostering continuous learning and upskilling. The report underscores that becoming AI-ready is crucial for EDOs to leverage AI effectively and enhance their strategic impact (International Economic Development Council, 2023).

XVI. Highpoints of "AI and Economic Development: Shaping the Future of Work" by Dell Gines

Dr. Dell Gines from the International Economic Development Council (IEDC) highlights the transformative impact of AI on the global economy, presenting both opportunities and challenges for economic developers. Key points include:

• Impact on Employment: AI often complements human workers and significantly changes job roles and skill requirements. Kai-Fu Lee predicts that AI could displace about 50% of jobs within three years, necessitating major workforce transitions (Gines, 2024).
• Theory of Compensation: Historically, new technologies create new jobs and economic growth despite initial job losses. However, AI's rapid development might lead to unprecedented disruption (Gines, 2024).
• Workforce Development: Emphasis on reskilling and continuous learning is crucial. Partnerships between educational institutions and businesses are vital to align curricula with future skill needs. Policies should support lifelong learning (Gines, 2024).
• Strategic Policy Development: Clear policies for AI integration are essential. Only a minority of employees are aware of AI policies at their workplaces. Policies should promote regional AI strategies, worker training incentives, AI innovation hubs, and ethical guidelines (Gines, 2024).
• Economic Growth Strategies: Fostering AI clusters, university-industry partnerships, targeted retraining programs, and digital infrastructure investments are recommended. Attracting and retaining AI talent and supporting small business AI adoption are also vital strategies (Gines, 2024).

Gines' article underscores the need for adaptability, foresight, and inclusive growth to ensure communities thrive in AI. Economic developers must proactively address workforce development, foster innovation, and implement strategic policies to harness AI's potential while mitigating its disruptive effects.

XVII. Recommendations for Economic Development Professionals and Leaders

1. Embrace Continuous Learning: Economic development professionals must stay abreast of AI advancements and their implications. Continuous education and professional development are crucial.
2. Foster Collaboration: Building partnerships between the public, private, non-profit, and higher education sectors can facilitate resource sharing and collective problem-solving. Collaborative initiatives can ensure that AI benefits are distributed equitably.
3. Promote Inclusive Growth: Policies and programs should focus on inclusive economic development, ensuring that AI-driven growth does not exacerbate inequalities. Investing in education, retraining, and upskilling programs will be essential to prepare the workforce for new job opportunities.
4. Develop Ethical Guidelines: Establishing clear ethical guidelines for AI use can help address concerns about privacy, bias, and transparency. Regulatory frameworks should be adaptable to keep pace with technological advancements.
5. Leverage Data-Driven Decision-Making: Economic development organizations should harness AI for data-driven insights, enhancing their strategic planning and impact assessment capabilities.
6. Engage Communities: Involving local communities in AI initiatives can build trust and ensure that technological solutions are aligned with local needs and values.

By proactively addressing these challenges and seizing the opportunities presented by AI, economic development professionals and leaders can guide their communities toward a prosperous and equitable future. As AI continues to evolve, its integration into local and state economic development will undoubtedly shape the socioeconomic landscape, demanding a forward-thinking and adaptive approach.

XVIII. AI's Potential and Challenges in Economic Development

The article from the Economic Development Journal highlights AI's potential to maximize efficiency for economic developers by automating tasks, improving intelligent decision-making, and aiding in social governance through IoT integration. It emphasizes AI's role in labor and capital management, enhancing quality of life, and supporting Industry 4.0 innovations. The article also acknowledges AI's limitations, such as data accuracy, confidentiality, and legal concerns, while stressing the importance of understanding AI's capabilities and integrating ESG considerations for comprehensive economic development planning (Jermance, 2024).

XIX. Proposed Future Game-Changers in Using AI in State and Local Economic Development

1. Major Grant for Sustainable and Ethical AI in Economic Development

A significant step forward in leveraging artificial intelligence for economic development is to secure a major grant from the federal government and national foundations. The project may be best approached through a coalition of economic development organizations, such as the International Economic Development Council, the U.S. EDA, multistate regional and state economic development associations, and other organizations (governmental, legal, and technology companies) with a role to play in advancing AI in economic development.

This funding would advance the use of AI in economic development sustainably and ethically. The grant would support research and development and demonstration projects focusing on integrating AI into economic development initiatives, ensuring that these technologies are used responsibly, protect privacy, and promote inclusive growth. Appropriately approached, best practice models could be developed for using AI in applications such as business retention and expansion and workforce development. This initiative aims to establish a strong foundation for the ethical deployment of AI, addressing potential risks while maximizing benefits for communities and regions.

2. Certification for AI in Economic Development

Professional associations and universities specializing in economic development should seek funding to create a new, certifiable practice area within economic development that focuses on AI. This certification would give economic developers the knowledge and skills to integrate AI effectively. By establishing standardized training programs, these institutions can ensure that economic developers are well-versed in the latest AI technologies and methodologies. This initiative would not only enhance the proficiency of individual practitioners but also elevate the overall capability of the economic development profession to harness AI for improved decision-making and strategic planning.

3. National and Global Standards for AI in Economic Development

Economic development leaders nationwide and globally should collaborate to develop and implement ethical use standards guiding the use of artificial intelligence in economic development. These standards would ensure that AI technologies are employed in ways that enhance community and regional economic development while maintaining business competitiveness. By working together, leaders can share best practices, address common challenges, and create a cohesive framework that promotes the responsible use of AI. This global effort would foster innovation, drive economic growth, and ensure that AI contributes positively to all communities' economic and social well-being.

Organized Game-Changing Strategies in Using AI in Economic Development should be advanced in the coming year: 1) Strategic investment in AI in economic development; 2) Professional certification in economic development practice; and 3) national and global standards for AI in economic development.

XX. Summary

This article calls attention to the need for an organized and systematic approach to advancing AI technology in achieving state and local economic development goals. It draws upon various articles and perspectives, and identifies three "game-changing strategies" to advance AI in economic development. Economic developers can learn from the many existing applications of AI in business, government, and other fields. The starting point is to spark conversations nationwide about the ideas contained here and others. No community should be left behind in AI's productive and ethical use in economic development.

References

CBRE Dimension. (2024). Retrieved from CBRE

Economist Intelligence Unit. (2018). Intelligent Economies: AI’s Transformation of Industries and Society. Retrieved from Economist Intelligence Unit.

Gines, Dell. AI and Economic Development: Shaping the Future of Work, LinkedIn article, July 11, 2024

IBM. (2024). IBM Watson. Retrieved from https://www.ibm.com/watson.

International Economic Development Council. (2023). Leveraging Technology for Economic Development Organizations. Retrieved from International Economic Development Council.

Jermance, S. (2024). The Next Chapter in ED. Economic Development Journal, 23(1), 63-67.

JLL. (2024). Retrieved from JLL

McKinsey. (2024). Using AI in economic development: Challenges and opportunities. Public Sector Practice

Roberts, Dillion, AI in Action Parts 1 and 2: Strategic Recommendations for Economic Developers, Camoin Associates, 2024.

SiteZeus. (2024). Retrieved from SiteZeus

About the Author

Don Iannone is a business professor at the European Union-based Transcontinental University, specializing in systems-based strategy and change. Don is the author of a brand new book, "America's Dream at a Crossroads, The 2024 Presidential Election and Beyond," which advances the American Dream as a focal issue in the upcoming election and beyond. He lives in the Greater Cleveland area.