In my continuing efforts to share economic development programs that work, I give you the Small Business Innovation Research (SBIR) program.  SBIR is a national initiative that requires Federal research and development agencies, such as the Pentagon or National Institutes of Health, to devote at least 2% of R&D spending to support mission-critical research by small businesses.

A comprehensive new study from researchers at the University of North Carolina-Greensboro Economics Department confirms what many of us have known for some time:  SBIR works and it works extremely well!  The researchers reviewed years of research, by themselves and others, on how SBIR funds have been deployed since the program first began in 1982.  They find that SBIR funds are a critical lifeline for small technology firms.  The funds are clearly used to support high risk research that would not have occurred otherwise–a critical impact as public funds should be deployed only in cases where private support is not available.  These R&D dollars bring new technologies to support public needs and also engage firms, often run by technologists or minority entrepreneurs, who may not have otherwise had easy access to R&D investments.  Finally, SBIR funds appear to help these firms create new jobs and to grow faster than firms without SBIR dollars.   SBIR is a good investment for Federal agencies, for small business, and for the taxpayer.

Americans have traditionally been among the world’s most mobile people.  We think very little of picking up and moving to a new community for work or to start over in life.  But, over the past decade, Americans seem to moving less than in the past.   Researchers have suggested many potential causal factors for this shift.   As the population ages, people become less mobile.  The housing bust and Great Recession may also play a role as people become locked into mortgages or lack the funds to finance a move.

A new Federal Reserve research paper suggests some other factors may be at work.  The study finds that changes in labor markets may be the primary cause for lower mobility of the US workforce.   Labor markets have become more efficient in the past two decades, meaning that workers have fewer “workforce transitions” than in the past.  In  other words, they are finding it easer–thanks to the internet and other new tools–to find jobs that fit their needs and their skill sets.  People are less likely to change jobs or to transfer to new positions for career advancement purposes.  The researchers also find that the financial  benefits of switching jobs is less than in the past.  Similarly, the downsides of leaving a current job–due to the loss of health insurance, for example—are becoming more pronounced.  All of these factors seem to be making Americans less mobile and less willing to hit the road for opportunities.

A number of recent studies, from the Kauffman Foundation and others, have been making the sensible case that not all entrepreneurs are alike.  Certain kinds of entrepreneurs, termed “gazelles,” high-growth companies, or innovation-driven enterprises, are the real drivers of economic prosperity and should be the core focus of local economic development initiatives.

I can’t quibble with these basic arguments, but I also fear that we may throw the baby out with the bathwater.  In our zeal to embrace gazelle businesses, we may forget that entrepreneurship can also serve as a lifeline for low income residents, who use their business to build wealth, support their families, and build a better life.  That’s why a new study from New York’s Center for an Urban Future, “Launching Low Income Entrepreneurs,” is so timely.

The study assesses New York City’s current “golden age of entrepreneurship,” and finds that it’s not very golden for many of the city’s low-income residents, particularly native-born minority residents.  The detailed analysis assesses neighborhoods across the city and finds very close correlations between income levels, self-employment and place of birth.  In wealthier Manhattan neighborhoods, native born levels of self employment quite high.   In outer boroughs, where incomes are lower and more native-born minority citizens reside, foreign born residents have much higher rates of self-employment.   In some poorer neighborhoods, self-employment among foreign born residents is 2-3 times higher than among native-born residents.

The report suggests that a number of barriers are slowing rates of self-employment in New York.   At the most basic level, many native-born New Yorkers are not aware that entrepreneurship is a career option.  They see few entrepreneurial models in their daily lives, and have little exposure at school or at home.    They may have limited financial literacy, along with limited access to capital.   A host of other social safety net problems also enters the mix.

The report suggests that concerted efforts be made to introduce entrepreneurship training into local schools and other social service and job training programs.  The importance of youth entrepreneurship education has been known for years, yet New York City has actually been moving in the wrong direction on this front.  To give one example, the Network for Teaching Entrepreneurship, a New York based global leader in youth entrepreneurship, serves significantly fewer schools and kids than it did five years ago.  The study concludes with a host of sensible recommendations for how New York, and other communities, can broaden their base of local entrepreneurs.  While entrepreneurship is not for everybody, it can and should be an option for low income residents with the interest, dreams, and passion to own their own businesses.

Yesterday in Harrisburg, PA, the Pennsylvania Economic Developers Association (PEDA) heard a report on an excellent workforce training demonstration project now underway in Reading and Berks County, PA.  This effort, known as “Careers in Two Years,” can and should be a national model for engaging young people–and their parents–in considering careers in growing middle skill jobs (i.e., technical occupations that require post high school training short of a four bachelor’s degree).

“Careers in Two Years” was started by the Greater Reading Economic Partnership (a long-time EntreWorks Consulting client) and is based on key alliances with Reading Area Community College and two local career-technical education centers (Berks and Reading-Muhlenberg CTCs).   It is based on an important fact about the so-called technical worker shortage now seen across the US.  It’s not primarily about youth being “not ready to work;” it also results from parents and kids not understanding the potential and the payoff of careers in growing fields like welding, machining, mechatronics, and information technology.

The project targets youth and parents with excellent information on the benefits of careers in these fields.  For kids, the messages emphasize high pay and interesting work.  For parents, they emphasize low (or zero) tuition costs and the ability of their kids to continue onto college if they so desire.  “Careers in Two Years” is about public relations, and the project is focused on developing videos, TV commercials and other outreach tools to engage the community. You can access excellent promotional videos here.

The program is fairly new, but it’s succeeding beyond expectations so far.   More and better prepared youth are enrolling and completing school, area schools are seeing more and better students, employers have a better trained workforce, and Berks County is becoming known as place with a talented and committed workforce.   GREP has developed tools and packages so that other communities can replicate this model, and its expansion across Pennsylvania is now being considered.  A further expansion across the US makes sense too.

A new European Central Bank survey released yesterday shows that small businesses in Europe continue to face daunting conditions when it comes to accessing outside financing.   The survey, which covers conditions from October 2012 to March 2013, finds that a majority of European small and medium sized enterprises (SMEs) report a decline in profits, increases in costs, and a decline in sales.   To add to the perfect storm, large numbers of firms report a significant need for outside financing while they find that the availability of such financing is limited.  Financing conditions are improved from the previous survey (October 2012), but SMEs still report a 10% decline in the availability of bank loans and other kinds of credit.

Not surprisingly, the difficulty of these conditions varies widely across the Eurozone.  German SMEs appear to be performing quite well, while large shares of firms in Greece (77%), Spain (60%) and Italy (58%) report declining profits.   Clearly, Europe’s ability to recover from the current downturn will require a much more robust performance from its small business sector.

While the US’ economic performance far outpaces that of the Eurozone, we face our own challenges related to small business finance, especially for women and minority business owners.  A new SBA Office of Advocacy-backed study from Alicia Robb, one of the top US researchers on SME finance, paints a stark picture of the capital access challenges facing women and minority entrepreneurs.   She finds that women and minority entrepreneurs start and operate their firms with significantly less capital than their male counterparts.  They are also more likely to rely on owner equity as opposed to outside sources of debt or equity capital.   These disparities are even wider in technology industries, where outside investors appear to be even more reluctant than traditional lenders to invest in women or minority owned businesses.   Robb notes that these trends have multiple causes, but concludes by noting that these differences in capital access are significant and warrant policy maker’s attention and focus.

There is no shortage of excellent reports and articles that tout the importance of entrepreneurship to regional development, so I do my best to avoid simply jumping on the bandwagon for every interesting new report or study.   However, I’m going to make an exception today and encourage you to take a look at an ongoing series that is appearing in the Milwaukee Journal-Sentinel.   Called “A Time to Build,” the series (by reporter Rick Romell) digs deep into Milwaukee’s (and Wisconsin’s) current economic challenges and the role of entrepreneurship in spurring its rebirth.   This is a five part series and two parts are already published.  Part 2 can be accessed here and the next round in the series comes out this Sunday.  (Thanks to the excellent Lipper Current for this reference!).

The series is an impressive piece of public journalism that tells great stories while also trying to move the public debate.   Even if you have no connection to Milwaukee, the series is relevant for anyone trying to support a region’s evolution from industrial economy roots to the new transformed and globalized economy of the 21st century.

Last year, we published one of our quarterly newsletters, EntreWorks Insights, with a focus on social impact bonds (SIBs).  SIBs, first pioneered in the UK are a tool to encourage greater private investment in key social sector activities.  They work as follows:  A private investor invests funds  in a non-profit which in turn provides a service that generates social  benefits.  If the promised social benefits  occur, the government repays the investors (hopefully with interest and/or  profit).  If the benefits don’t occur,  the investor receives no payout.

The first US-based social impact bond began last year and focuses on reducing youth recidivism rates at New York City’s Rikers Island.  In recent months, this model has been moving across the US.   Dozens of states are considering this approach and two new efforts recently got underway.

In Fresno, CA, the City of Fresno has unveiled a “Health Impact Bond” designed to attract new private investments in programs focused on reducing Fresno’s skyrocketing asthma rates.  And, earlier this week, the state of Illinois announced a new program that will use SIBs to help address a mix of pressing issues such as homelessness and recidivism.

The jury is still out on whether these experiments will work, and many skeptics remain.  We need to keep a close eye on how these projects proceed, but they are a very interesting and promising new approach that could help bring much needed resources to address long-neglected social problems.

I attended an interesting Farm Foundation forum in DC today on the topic of natural gas extraction and its impacts on rural America.  The panel included researchers, industry representatives, and a farmer/elected official from Tioga County, PA, ground zero for the Marcellus Shale gas boom.   While the panel tilted slightly pro-fracking, it was an unbiased and open discussion on the state of play in how shale gas exploration is affecting rural communities.

Instead of simply recapping the discussion, I thought I would share some new resources that should be helpful for anyone seeking to get a handle on what’s happening today in Pennsylvania, New York, Texas,  and many other regions where the natural gas boom in underway and soon on its way.

-Natural Gas Extraction:  Issues and Policy Options:  This white paper for the National Agricultural and Rural Development Policy Center is probably the best single source to see what’s happening in the field.  An accompanying–and longer–technical report includes lots of great data that will be helpful for real policy wonks.

-The New York State Water Resources Institute:  Based at Cornell University, the WRI has done significant research on the environmental impacts of gas wells.  Their online bibliography page seems to include almost everything ever published on the Marcellus Shale.   WRI has also released an in-depth new paper looking at trends in wastewater treatment and water recycling in the Marcellus Shale.   Recent trends appear to be promising as major increases in wastewater reuse are underway, and similar trends appear to be happening on the safety front as well.   Nonetheless, the jury is still out on long-term impacts, and as today’s panelists noted, it is imperative that we continue research and analysis on these environmental impacts.

Next week (April 9), I’ll be up in Boston participating in a panel discussion at the National Business Incubation Association’s (NBIA) International Conference on Business Incubation.  Our panel will be discussing the do’s and don’ts of political advocacy, which can be a challenge for many economic developers, whether they are public, private, or non-profit.

If I had to turn my remarks into an elevator pitch, they might go something like this:  Too many program managers view advocacy in isolation.  It’s something to do if you want public money or want to see a bill passed or blocked.   But, smart folks see advocacy as part of a  wider and more sustained communications and outreach strategy, and use their outreach efforts to help turn elected officials into partners, not funding targets.   Don’t just reach out to elected officials when you want something; make them a regular part of your outreach efforts.

You can learn more about this topic later in April as well as the International Economic Development Council’s (IEDC) Federal Forum, which will be held in Alexandria, VA from April 14-16.   This event will also include representatives from key Federal agencies, who will be providing updates on how they’re dealing with the current Federal budget mess and about new programs to be unveiled in coming months.

Back in 2011, the Georgia State Legislature passed HB 87, a bill that empowered police to check the immigration status of anyone stopped for minor offenses, such as traffic violations.   This new law, which remains under judicial review, has wreaked havoc with many industries in the state, especially the large agri-business sector.

In response to this debate, several former state legislators created the Essential Economy Council to reframe the public discussion and to better understand the economic importance of the “essential economy,” which they define as “an occupational cluster that includes restaurant kitchen staff, janitors, landscape crews, farm workers, nurse aides, stock clerks and other non-managerial positions.  The cluster spans six major economic sectors from agriculture and construction to hospitality and personal care.”

The Council has recently released a new study that assess Georgia’s “essential economy.”  It finds that these occupations account for 25% of all jobs in Georgia, and, of course, these jobs include a large share of both documented and undocumented immigrants.  Overall, the group accounts for about 12% of the state’s GDP.

While I’m not yet 100% convinced about the essential economy concept, this is an interesting look at the state’s economy and a new way to capture the importance of these entry-level job opportunities.  The Council report includes a number of recommendations for how to better understand this part of the workforce–for the most part, these ideas remain limited to data and research.   In the future, it would also be helpful to see more commitment to how we can best help this workforce gain new skills and better career opportunities.   The essential economy is only essential if it offers a boost to living wages and good career options.