Home Sweet Home: The Power of Local Retail

Since most of you are unlikely to regularly read Hardware Retailing (the North American Retail Hardware Association’s journal), I know that I’m doing a real service by sharing a new report that compares the impact of local hardware stores vs. big box retailers.  The study, “Home Sweet Home,” compares local economic impacts across several categories:  labor costs, profits, procurement, and local charitable giving.  The study was undertaken by independent business advocates so the results should not be totally surprising.  Nonetheless, the differences between the impacts of big box vs. local retailers are quite pronounced.

The core analysis focuses on a hypothetical but large home renovation project, valued at $10,000.  If all of the products and materials for this project are purchased from local retailers, they can recirculate as much as $2,298 in the local economy.  This total is nearly double the spin off benefits from purchases at large retailers (averaging about $1,164).   The study also reminds readers—and shoppers—that stores like Ace and True Value are locally owned franchises, even though they often supported by national ad campaigns. This is yet more fuel to support the power of local retail as an important economic engine.

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The Sharing Economy in Europe and the US

With the rise of Uber and other sharing economy ventures, policy makers in Europe and here in the US are assessing how best to respond to the disruption and innovation generated by these new companies.   I’m seeing an interesting dichotomy between what’s happening in Europe and what’s happening here at home. Interestingly, these differing approaches reflect larger perspectives on innovation and what constitutes a good society.   Let’s start in Europe where much of the current discussion concerns protection of incumbents—especially in the taxi industry.  This includes violent protests in Paris and the recent arrest of Paris-based Uber executives.  Beyond these intra-industry squabbles (also present here in the US, of course), European regulators are primarily consumed with how these new innovations can be rolled out in heavily fragmented set of distinct national markets.   It’s all about removing regulatory barriers so innovations can scale up.

Here in the US, regulatory bottlenecks do exist, but they don’t seem to be the biggest challenge around the sharing economy.  Here, the big challenge concerns fairness and equity for workers and entrepreneurs operating in the sharing economy.   What kind of benefits or safety net will be available for this new and growing share of the workforce?  This has been the dominant theme coming from recent interviews with Sen. Mark Warner (D-VA), who, as we have noted in earlier blogs, has been a leader in starting policy debates on the gig economy and its implications.

If the sharing economy is going to work for everyone, both Americans and Europeans need to get it right.  We need to open new market opportunities, but we also need to be sure that this new workforce can find career options that are exciting, rewarding, and more secure.

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Some Good News on Business Incentives

While I am not a huge of fan of business attraction incentives, I also recognize that they are often a necessary evil in today’s economic development landscape.   But, if we’re going to do incentives, let’s do them right—in a transparent fashion that allows taxpayer dollars to be tracked and assessed and which requires firms to meet clear performance targets.   This position used to be something of an outlier, largely found in vigilant watchdog groups like Good Jobs First.  More recently, this focus on accountability and transparency is becoming more mainstream.  Last week, the International Economic Development Council released the third report in a series on 21st century incentives—in addition to describing the current state of the art, the studies place great emphasis on how best to evaluate incentives to ensure a maximum return on investment to the taxpayer. (Note:  the report is free to IEDC members, but requires purchase for others).   Meanwhile, the Council for Community Economic Research continues to do a yeoman’s job in tracking the extent and impact of state incentive programs via its State Business Incentives Database.  The database’s newest feature is a series of deeper dives into various states, with a focus on how program impacts are tracked and evaluated.  At present, seven state reports have been completed and more are on the way.  Last but not least, the Pew Business Incentives Initiative is continuing its work to share leading practices and to provide technical assistance and training to state and local officials around the country. (Disclosure:  I am a consultant to this project.)  One other good source on smart incentives comes from my colleague Ellen Harpel and her aptly named blog:  Smart Incentives.   All of these efforts suggest that the incentives business will (hopefully) continue to become more accountable to taxpayers and better linked to real and sustainable economic development outcomes.

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You Can Go Home Again, Especially with Kids

“Brain drain” remains one of the biggest concerns facing America’s rural regions.  For decades, the “best and brightest” of rural America have left their homes for the bright lights of the big city.  In response, many small towns and states have pursued strategies to stem brain drain and encourage rural residents to consider remaining in their hometowns.   A new study from the US Department of Agriculture’s Economic Research Service takes a new look at the “brain drain” issue and offers a more nuanced look at the challenges facing depopulating rural regions.

The researchers sought to understand what made people leave and/or return to their rural hometowns.  They undertook the research by attending high school reunions where they could interview people who had stayed, left, or returned to their home communities.  The results aren’t totally surprising—very few single and footloose twenty-somethings have strong interest in returning to their rural roots.  However, when they marry and start to raise a family, this calculus changes and return is more likely.

The basic calculus for potential return rural migrants is simple:  they know that they will benefit from closer connections to family and long-time friends, but also expect that they will make career and income sacrifices.  As they say, there is no free lunch.  Returnees typically waited until a good job opened up, or just decided to “bite the bullet” and create their own career or employment opportunities.

One final interesting finding underlines the importance of returnees to the health of rural America.   When they leave for the city, “the best and the brightest” leave a void in their hometowns.  But, when they return, they bring families who fill schools, purchase local goods and services, and invest in their regions.  They also bring new skills and talents developed in the early parts of their careers, assuming community leadership positions and helping to build a better place.  This further suggests that rural regions should move to a more sophisticated strategy that moves beyond bemoaning brain drain and instead focuses on how best to sell their regions to the large base of potential thirty-something returnees.

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Benchmarking Innovation Training in Portland, OR

If you’re interested in benchmarking your region’s innovation capacities, you should consider joining me next week in Portland, OR, where I’ll be teaching a class on Benchmarking Innovation and Entrepreneurship.  The course, which I’m offering with my colleagues, Brian Kelsey of Civic Analytics and Arnobio Morelix of the Kauffman Foundation, is being sponsored by the Council for Community Economic Research (C2ER) and is being held on Tuesday June 9 in conjunction with their annual conference.  We’ll be covering a host of topics from Benchmarking 101 to a review of the latest data and metrics on how to understand your community’s innovation economy.  We’ll be looking at data but also examining the real world challenges of turning that data into a compelling story that motivates people to take action.   If you’re interested in learning more, you can contact me or sign up at C2ER’s website.  Hope you can join us!

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The State of Small Business in Iowa

Last week, Hillary Clinton participated in a widely-covered photo op with Iowa small business owners.   She, and her fellow Presidential hopefuls, would have benefited from a read of a new report from the University of Northern Iowa’s Center on Business Growth and Innovation.  The 2015 Iowa Small Business Report reports on a statewide survey of entrepreneurs who were asked to share trends on how their firms were faring and to report on key issues they face in today’s marketplace.   In general, business is pretty good in Iowa.  Thirty-seven percent of surveyed firms grew last year, while only 15% downsized.  The remainder of firms held steady.  Most of the firms remain quite small—almost half had revenues of under $100,000.  One potential reason for this small size is that the firms aren’t hitting new markets—54% of surveyed firms don’t do business outside of Iowa.

When asked to identify pressing business problems, surveyed entrepreneurs highlighted the following as top concerns:

  1. Cost of Health Insurance and Other Benefits
  2. Finding Qualified Employees
  3. Taxes
  4. Growing Sales
  5. Market Competition

Despite ranking costs and taxes as pressing issues, respondents also tended to see Iowa as a good place to do business.   While this report is focused on Iowa, this useful report is a great guide on issues facing small entrepreneurs.  The survey and report also serve a great model that could be emulated in other states

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A Start-Up New York State of Mind

Last week, we saw a flurry of news stories marking the first anniversary of New York’s Start-Up New York incentive program.   The program has received loads of local, regional and national publicity—including an aggressive TV ad campaign running in many regions across the country.  Overall, costs for the program’s marketing have exceeded $46 million.  But, the advertising buzz isn’t the only reason for the public attention.  Start-Up New York is also one of the more extensive and aggressive incentive programs now available in the US—it offers up to ten years of tax abatements to companies that opt to start up or expand operations near New York’s many colleges and universities.

The latest news flurry was sparked by a release of the program’s first annual report.   And, as the headlines note, the news isn’t really that good.  In Year One, Start-Up New York helped 54 businesses.  Of this group, 30 actually started operations, collectively creating 76 jobs and generating $1.7 million in investment.  For a program often touted as a potential supporter of thousands of jobs each year, this performance has to be sobering and powerful fodder for critics of NY Governor Andrew Cuomo.

While I have long held reservations about the generosity of this program, I would also caution that it’s too soon to pass final judgment on Start-Up New York, even with this first report.   Most start-ups and expansions take several years to gain traction, so counting jobs in Year One is always a risky proposition.   This experience suggests that smart program managers need to do a good job from the start in terms of highlighting other program impacts beyond job creation—this is the only way to paint a full picture of the program’s impact and potential to create new prosperity over the long term.   One program benefit clearly jumps out:  the initiative has sparked conversations about NY State as place for start-ups.  This is an important (albeit costly) benefit considering that New York is traditionally ranked among the least friendly states for business.  Finding ways to change that narrative has to be a top priority for any governor of New York.

Nonetheless, I’ll continue to reserve judgment on whether this expensive program generates a good return on investment.  As much research shows, entrepreneurs are not traditionally driven to make location decisions based on tax incentives.   Access to talent, customers, peers, and suppliers clearly matter more.   Thus, even very generous tax incentives may do little to motivate firms to locate or expand in New York.   The interesting Start-Up New York experiment has had a challenging first year.  Its future performance may improve, but it’s likely to face further challenges ahead.

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A Safety Net for the Freelance Economy?

As someone who has spent many years in Washington, I can get as cynical as anyone about the dysfunctions of our current political system.  But, sometimes, a guy has to have some hope.   And, some recent announcements  from Senator Mark Warner’s (D-VA) camp give me some cause for optimism that we may start to see some robust public discussion about one of my favorite topics:  the 1099 Economy (or Gig Economy).   Recent news stories have been filled with discussions about unstable work schedules, millennial dissatisfaction in the workplace, and the like.   Underlying all of these issues is a basic structural disconnect:   our work and career patterns have become much more flexible, complex, and unstable.  At the same time, our political/legal structures and business practices have not evolved to keep pace.  Flexibility can be a good thing if it helps people pursue entrepreneurial dreams and achieve greater work-life balance.  But, for many, these labor market shifts create great uncertainty and insecurity.

Sen. Warner has stated that he will soon release a series of proposals on how to create stronger safety net for what he calls the “gig economy.”   Among the issues he’ll consider is some form of safety net support for independent workers that operates akin to the private health exchanges under the Affordable Care Act.  Groups like the Freelancer’s Union are already testing small scale models of this approach.  The devil will be in the details, but Warner’s interest in this topic—and his history of bipartisanship—suggest that we may finally start to see some interesting public discussions about how to create a more flexible entrepreneurial economy that can work for everyone.    Watch this space for future discussions.

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Survey on Trends in Appalachia

I’ve written several recent blog posts on our ongoing work on the Appalachian Regional Commission’s new strategic plan.  ARC is working on multiple ways to gain input from local residents and stakeholders, including a new on-line survey which was released yesterday.  If you live or work in Appalachia, please take a few minutes to complete the survey.  You can access the survey here and it will be open until June 19.  It is short and can be completed in 5-10 minutes.  Your feedback is needed.

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Transitioning Economies: New Web Resources

I spent a good share of last week in Pikeville, Kentucky at the first meeting of the Coal-Reliant Communities Innovation Challenge, sponsored by the National Association of Counties and the National Association of Development Organizations.  During our session, seven community teams, hailing from Colorado, Kentucky, Virginia, and West Virginia, developed new regional strategies to help diversify their local economies away from their current heavy dependence on coal.   This is the first of three planning sessions, with later meetings planned for the fall in Colorado and West Virginia.  The project has also unveiled an excellent new web resource:  http://diversifyeconomies.org/.  This site contains a host of excellent resources for communities seeking to support local economic diversification.   It was designed to help project teams dealing with coal transitions, but the resources are relevant to any community seeking to become more resilient and to develop new local engines for economic prosperity.  Watch this space for more details on the Innovation Challenge project and new resources for economic transitions.

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