Some development pros are recommending that small towns go back to recruiting outside companies. Tim Collins argues that a strong base of local entrepreneurs has to be the first order of business.
An article in Economic Development Journal (Winter, 2009) poses a challenge for those of us working on rural sustainability. “Coming Full Circle: The End of the Small Business Era?” analyzes data from the Small Business Administration to show that the share of small business jobs in the economy has not changed since 1980.
Its conclusion? According to author Ed Bee, president of Taimerica Management Company in Mandeville, Louisiana, we’ve come full circle. He recommends going back to community promotion and industrial recruiting. And, most importantly, he writes we have to give up on “one-size-fits-all” approaches to economic development.
I don’t want to argue with the numbers about small businesses and job creation. But I will enter into a debate about the article’s policy implications. To the best of my knowledge, states never abandoned industrial recruitment policies after the 1980s, but they have deemphasized them to some extent.
There are good reasons why. The business attraction strategy wasn’t working all that well, especially in rural areas and inner cities. In fact, entrepreneurship-development was an effort to get away from one-size-fits-all policies, from practices that had accommodated big businesses seeking lower operating costs at the expense of local economies and their middle classes.
Now some straws in the wind — such as Bee’s article — suggest that states indeed may need to look more at recruitment of branch operations to attract new capital and create jobs. But other straws, like recent governors’ addresses, indicate that several states — Mississippi, Missouri, and Michigan, to name three — are looking more toward developing entrepreneurship.
State leaders are clutching at straws in these tough economic times, especially because over the past fifty years, states increasingly have had to assume the duties of job creation and retention. Competition among states to attract businesses intensfied during the 1960s and 1970s. With the economic shocks of energy markets in the 1970s and a new phase of globalization, the competition became even more complicated and riskier.
In the race to attact new businesses, the costs of incentives and tax breaks ballooned; meanwhile, companies were better equipped to shop around for the best site.
No matter where they are located, most companies are able to move their operations to take advantage of lower labor costs and other production considerations. Rural areas in the United States continue to suffer after three decades’ widespread loss of manufacturing jobs to producers overseas. On the other hand, Kentucky, with its relatively low wages, benefitted when Toyota decided to build its first U.S. plant there in 1985 — because of both the car factory itself and the related parts plants that followed.
Bureau of Economic Analysis data show that the overall results of Kentucky’s economic development policies have been mixed over the past five decades. The poverty rate declined markedly, and there is now more economic activity. But the state’s policy of business attraction built chiefly on low wages and incentives and tax breaks for businesses has not spread social and economic benefits evenly among individuals, communities, or regions. Rural and Appalachian counties still tend to lag behind their metropolitan counterparts.
The push for entrepreneurial development emerged in the 1980s as both a reaction to protracted recession and an alternative to faulty business attraction strategies that were not meeting the needs of states and their inner cities, smaller towns, and citizens. The loss of manufacturing jobs and the rapid growth of low-end service jobs left many places poorer, with lower standards of living that made them unsuitable for attracting businesses.
For rural areas, building entrepreneurship has been a bootstrap approach because failing global and national markets have left their residents no alternatives for development other than their own grit and determination. Given the risks of rural business start ups, I would argue that anyone who sets up a business – whether it’s a barbershop, a welding or repair operation, or something more high tech – is an entrepreneur of sorts because the risk of failure is so high in an unstable local economy.
To promote entrepreneurship is to move toward a more balanced economy and stronger communities based on a business-owning middle class. This is particularly true in rural areas, where communities needed to look at their assets and the impacts of geographic discrimination that limit their economic opportunities.
Maybe rural entrepreneurship cannot create the rate of economic growth that some communities and economists want. But what are the alternatives? Locally owned and oriented businesses can provide job security and a higher quality of life in marginalized rural communities. With a little bit of luck and a local culture that supports small businesses and community life, towns and cities can build a foundation for rural sustainability.
With such a foundation, they will decide whether they want to compete in the global economy. If they are going to be more globally oriented, they need a good local quality of life, quality goods and services, high-quality broadband, and an effective local and regional marketing strategy that can garner worldwide attention and dollars.
Rural communities can open the way for the development of local, innovative talent and the attraction of small and large businesses that fit the needs of the place and its region. In my view, towns need the amenities of limited-growth, local entrepreneurs before they can even dream of attracting new firms of any size.
Whatever the longer-run job count and growth rate, entrepreneurship is in the best tradition of small-scale, more-or-less independent American businesses. Rural entrepreneurship is more than grasping at straws. A business-owning middle class is essential to rural sustainability.
Timothy Collins is assistant director of the Illinois Institute for Rural Affairs at Western Illinois University in Macomb. Opinions expressed here are his and his alone.