Thursday, October 23, 2014

Small, Local Businesses Speed Income Growth

08/11/2011

Counties with more small, locally-owned businesses have faster growing incomes than those places with big box stores and large firms owned by those outside the community. Here is a picture of the main street in Red Lodge, Montana.

It does matter whether a business is locally owned.

Researchers at Pennsylvania State University have found that counties with more small, locally owned businesses have stronger economic growth than communities with larger businesses owned by outsiders. "Local ownership matters in important ways," said economist Stephan Goetz who was co-author of the study with David Fleming, a Penn State graduate student. "Smaller, locally owned businesses, it turns out, provide higher, long-term economic growth."

Larger firms owned by people outside a county depress growth, the researchers found.

Goetz and Fleming looked to see if per capita income growth in counties was affected by the size and ownership of local businesses. The two studied U.S. counties during the period from 2000 to 2007.

The effect of having locally-owned, small firms (with between 10 and 99 employees) on a county's economy was significant. There was a strong, positive relationship between the presence of smaller, locally-owned firms and faster growth in incomes.

The presence of larger firms owned by those outside the county had the opposite impact. Those counties had slower growth in incomes. Goetz and Fleming found that this impact extended to big box retail stores, such as Walmart and Home Depot.

"Although these types of (larger, non-local) firms may offer opportunities for jobs, as well as job growth over time, they do so at the cost of reduced local economic growth, as measured by income," Goetz and Fleming wrote. "Small-sized firms owned by residents are optimal if the policy objective is to maximize income growth rates." 

One of the reasons locally owned firms are better for county economies than big box stores and larger, out-of-town corporations is that these larger firms outsource many services that the smaller companies buy within the community, Goetz explained. They use local accountants and wholesalers while big firms do this work themselves.

Small businesses and local start-ups not only buy locally, but they tend to spur innovation and productivity within the county.

"This is really a story about start-ups," said Goetz. "Many communities try to bring in outside firms and large factories, but the lesson is that while there may be short-term employment gains with recruiting larger businesses, they don't trigger long-term economic growth like start-ups do."

Goetz said his findings might provide a better strategy for local economic development officials. Encouraging local businesses would be better for growth than recruiting larger firms from outside the county.

"We can't look outside of the community for our economic salvation." Goetz said. "The best strategy is to help people start new businesses and firms locally and help them grow and be successful."

Goetz is the director of the Northeast Regional Center for Rural Development. The Goetz and Fleming research appears in the Economic Development Quarterly.

 

Comments

Do Not Forget Education and Health Care Economic Impact

 

Losses of local education and losses of spending upon local education can be a huge problem. Rural communities must stay involved in these important decisions.This is even more important when federal funding designs bypass rural school districts noted by Marty Strange and when rural schools lose out as noted in Race to the Top by Caitland Howley.

In health care much is at stake as rural populations can individually choose to bypass local health care at 40 to 60% levels.  Local rural health care can be difficult when decisions are made outside of the local rural community in distant rural or urban locations. With more challenges likely from business and government decisions that are made outside of rural communities, it is important that more people inside of the community retain interest in local care and back up this interest with utilization of local care. Use it or lose it is more than just a slogan. 

For nearly all Americans to have the basic health access needed by nearly all ages of people in nearly all locations, nearly all Americans must use local health care.

Local schools, local health care, and local businesses are important for economics, jobs, health care coverage, better education, better employees, and retaining young professionals.

Robert C. Bowman, M.D.

 

 

local businesses

This is a great article.  Here in North Carolina, the state, counties, and municipalities are frequently giving large tax giveaways to big outside companies that promise jobs to the communities.  Of course, these companies also move away with changes in the market, or fail to provide even the jobs they promised.  

If our elected officials could understand the information here, perhaps our entire economic development goals could change.

Local Businesses are at a disadvantage

Majority of Local businesses are deprived of the benefits of online e-commerce. While online shopping allows "shipping" orders 24x7, it doesn't accommodate local orders for most. Local shopping MUST be made easier if local businesses are to compete effectively! SharedMall.com was launched to do just that, but it needs a community effort. Collaborating with non-profits that are actively promoting Buy Local in their communities is how we will make this happen and give small local businesses a competitive edge over the larger ones.