Economic Development Without the Fantasy

Economic base activity is defined as a business in which your community has a specialty. The percentage of people employed in that activity is larger than the average percentage employed in that activity across the nation. Your most important goal should be to grow your base, because that brings outside money into your community.

Strategically, a good approach to economic development programs is to know where your economic base lies through calculation and study of a measure called the location quotient, retain the contributing businesses, and expand by even greater specialization in that general sector, if possible.

Business retention programs are easily the best economic development investment. Rather than producing colorful and expensive brochures, your chamber of commerce should be concentrating on serving the economic base businesses (called "basic businesses") that are there already. The link tells how to set up such a program.

Keeping Business Attraction in Perspective

Generally you are much better off thinking about business retention, improving quality of life measures that are relevant to businesses within the general sphere of your economic base, and encouraging individuals who are laid off, approaching retirement, tired of the commute, or stay-at-home moms to start businesses. Then the non-basic (not part of the economic base) activities will find you.

One important exception to the rule of leaving business attraction to the market is when you are lacking in essential services. This may happen because you live in a distressed neighborhood, rural area, small city, or a somehow-overlooked rapidly growing community. Markets aren't perfect, so they don't always notice sufficient demand the instant it arises. It's your job to point out that demand, if you lack a grocery store, dry cleaner, restaurant attractive to management and workers in your economic base activity, or health care provider.

If you need retailers and you are living in a metropolitan area, look around for a successful locally-owned operation in the general retail category of your need. Then approach those owners directly and personally to see if they would work with your community. It's amazing how many neighborhoods want a store "just like Smith's," but never approach Smith to see if he is interested in a new location. If you're interested, here are retail recruitment details.

Entrepreneurship

Small business creates as many as 90% of the jobs in some years.

Too few neighborhood associations have teamed up with other groups in their city to find a good entrepreneur training program and offer it frequently. This is your best chance if your economic base is gone. Unleash the creativity of your people, and don’t be shy about offering training and support groups as a community organization or local government activity.

Also in support of entrepreneurs, even small cities can manage a high-quality business incubator. Take the four to eight people in town who are considering starting a business, screen those ideas, and put the ones with promise together in one run-down building that your community association paints and repairs to an acceptable level on Saturdays.

Provide them with a secretary and a knowledgeable resource person who understands business and accounting, perhaps a retired business person. Get them a quality copier and perhaps a decent phone system if your cellular service is irregular, charging appropriate rent. Find subsidies from government programs, of course. Then simply incubate the baby businesses.

Usually business incubators are public sector activities or public-private partnerships with groups such as chambers of commerce.

Of course the other thing entrepreneurs need is a source of capital. If your neighborhood lacks lenders for very small enterprises, you might want to sponsor a microloan program. The Grameen Bank in Bangladesh pioneered this approach, in which women were organized into small accountability groups that decided who would receive a very small loan first. This approach, while less successful in the "developed" world, is available in the U.S. through the Small Business Administration.

Tourism

If scenery is your stock in trade, how can you differentiate yourself from all those other beautiful mountain communities? What do you do better? What could you do better? Do you need to add work-intensive festivals? Or should you add a spa? Or do you need to find your backbone, and say no to those fast-food places that would ruin your gorgeous view?

If you really talk with your visitors about why they come to the mountains, you can perhaps find a compatible economic activity and thus have a focus to your business attraction efforts.

Some Current Related Topics

Another idea is to do your own mini-public works program. Reinvestment in your downtown area, using any available state programs or tax credits, has value in and of itself because it helps prevent expensive sprawl. It also gives civic pride a lift, because now your residents will be happy to claim that wonderful mix of vibrant human activity in a block or two, or 100 blocks.

But even more importantly, perhaps you can bolster locally owned businesses, so that the return on investment remains in your community. You can encourage new businesses and artists to locate on the side streets.

2. Dead Malls and Shopping Center Blues

Even if downtown makes a comeback, you can find severe shopping mall issues in most metropolitan areas. The dead mall happens because malls tend to overbuild until one or more are devastated by the others. In the absence of strong regional governance or planning structures, malls will continue to try to out-do one another in glitz, glamour, and tenants new to the area. Do not allow this problem to go unaddressed, as a downward spiral almost never interrupts itself. You are not powerless when compared to mall ownership; your local government has power, and your job is to convince them to use it.

3. Education at All Levels

Education and economic development are natural partners. First, business needs a workforce that is literate, not only in reading, but in math and technology. Second, an educated citizenry may well be a more creative citizenry, and more likely therefore to start successful and interesting businesses.

So if your school system needs improvement, that should be considered a crisis for a local development agency. If the schools still have a high dropout rate, demand better.

If you live in a community where there are institutions of higher education, cultivate their interest at every opportunity. See if the science and technology faculty are of sufficient quality and research capability to add to the entrepreneurship effort you should be making anyway. And interest is a two-way street, so attend their big events as well. Chances are, your higher education institution is a big contributor to your economic base.

4. Rural Economic Development

Economic development offers some unique challenges in rural areas. Most businesses want to locate near good transportation, so if you were bypassed by the interstate system and are not near a good airport, you are going to have a frustrating time in the economic development arena. So it's doubly important for the rural, no-transportation crowd to foster creativity among its residents. Now the Internet offers much economic opportunity, but only to those with broadband.

So consider broadband like electricity, and bring it to your community. Also bring every creative person, idea, speaker, festival, and reinvestment you can think of into the equation. If you have any hook for tourism, history, scenery, or currently present economic base activity going for you, exploit it by a sideways exploration into an immediately adjacent prospective activity.

You can develop an economic base, but not by the "build an industrial park and they will come" model. And not through corn ethanol either. But wind, solar, and geothermal energy could be possibilities, as could biofuels that are more efficient than corn. And by all means, get your farmers into farming broccoli and your retirees into growing basil.

5. Another Usage of the Term in Low Income Areas

In lower income communities, it's common to speak of economic development as raising income levels of individuals. While meeting community poverty directly and openly is very important, getting people jobs or better jobs really doesn't do justice to the idea of economic development either.

6. Government Financial Incentives

Lastly, for communities of all sizes and types, yes, economic development is an important goal because it provides jobs and supports the local population. But you need not hand giant corporations large subsidies to come to your town unless you are where it's twenty below zero outside and there is genuinely no place for people to buy coats, not even the Internet. That's a joke. But on another page we discuss TIF (tax increment financing) and other financial incentives. Too often those aren’t funny at all.

Return from Economic Development to useful-community-development.org Home