Responding to Industry 4.0: A Global Policy Look

The Paris-based Organization for Economic Cooperation and Development is out with a useful compendium of what’s happening in innovation policy across OECD member economies.  This is a look at what’s next in innovation policy, i.e. how are policies evolving to account for the massive changes underway as part of Industry 4.0.   The policy brief offers a quick introduction to the history of industrial policy, noting that we are in the midst of a major shift in focus.   In the 1990s and early 2000s, these policies focused on improving collaboration between government and business, and in creating improved conditions (e.g. via regulatory shifts and investment programs) for business start-up and growth. The “new” approaches are more focused on transformation as opposed to supporting incremental improvements in policy regimes and business support.  What does this mean in practice?   I see a few common trends in this OECD review.  First, many countries, but not the US, are creating programs that offer a steady and stable funding/support stream for business customers.  Instead of receiving a grant or a one-time intervention, firms are engaged in a multi-year collaborative process focused on business development and process improvements.  Germany’s Central Innovation Program (ZIM) is an example.  Second, industry cluster strategies are becoming more ambitious, focused on transforming an entire industry or tackling big societal problems like climate change.  Examples include Austria’s Virtual Vehicle program and the US’s Manufacturing USA programs.  Finally, governments are creating large-scale national platforms to manage multiple initiatives, such training and R&D, and to help firms respond to the challenges of Industry 4.0.  Examples include Denmark’s MADE program and Germany’s Industrie 4.0 programs.   With the exception of Manufacturing USA, efforts here in the US are still pretty limited and not yet providing the depth and range of investments needed to address the big industrial transformations now underway.

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Investing in Capacity Building: The Overhead Pledge

Folks in the business of community building know the story when it comes to outside funders. They fund projects, not organizations.  This policy has meant that many local organizations are starved for funds. They can raise money for specific projects, but can’t invest in their people or in building up their organizations.  In practice, this means that community building organizations operate with insufficient funds to pay people, to build organizations, and to do the job right.  Organizations scale up to deliver new projects, and close when program funding ceases.  There are many reasons why these practices are short-sighted, but the most important relates to capacity building.  Starved for funds, grantees can’t invest in retaining talent, training people, developing new skills, and maintaining an experience base about what works in the field.  We constantly claim that leadership matters in economic development, yet we often fail to invest in the building blocks for effective leadership.  Capacity building—and community building—take money!

I’m now feeling a bit optimistic that this tired funding model is starting to change.  Last month, a group of major foundations, including household names like Ford and MacArthur, signed an “overhead pledge,” i.e. a commitment to do more to help their grantees pay basic business costs, such as rent, overhead, technology and other operating expenses.  This move is long overdue, and the market is ready.  A recent study by the major foundations found that 42% of grantees had less than three months cash on hand.  Thus, it’s not surprising that non-profits may close if faced with lost grants or other shocks.

The overhead pledge is an important first step, and we’ll need to see what happens next. Foundations are now looking at new approaches, such as more flexible funding tools and investment funds for organizational growth and development.  These moves are a critical recognition that community building requires new and good ideas, but it requires capable local leaders and organizations too.  Let’s hope that other foundations and other funders embrace this message as well.

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Small Business Impacts at Global Scale

The US Small Business Administration (SBA), and other small business advocates (including EntreWorks Consulting!), can regularly regale you with tons of data and statistics on the power and impact of small business for the US economy.  Now, we can tap into similar data for the global economy thanks to a new data report from the International Labor Organization (ILO), which has not normally focused on the small business-related issues.  In this study, ILO researchers tracked employment surveys from 99 countries over a period between 2009 and 2018. (Note:  the data set does not include the US and North America).  The study looked at business in various size classes, but all had less than fifty employees.  This is one of the first studies that accounts for the global impact of the self-employed and the informal sector (i.e. unlicensed businesses).  These activities may account for anywhere from five percent of the economy in developed regions to more than 90 percent of the local economy in some countries. Among the 99 studies countries, the informal sector accounted for an average of 64 percent of total economic activity.

The ILO team found that global small business is indeed a big business.  Globally, they find that 70 percent of total global employment is concentrated in small economic units.  They also found that, in low income countries, 54 percent of global workers are self-employed.  The self-employed account for 11 percent of employment in higher-income countries.   Meanwhile, the share of workers employed in small businesses (with 10-49 employees) ranges from 3% in low income countries to 25% in higher income countries.

There are countless implications related to this data, and many are well addressed in the report’s conclusions.  My one take-away is that we need to pay more attention to small business’ impact on a global scale—not simply in terms of helping people start new companies, but also in understanding and improving the work environment and career potential for the millions of people who work in small businesses every day.   We know a lot about management structures and work practices in large organizations; we need similar knowledge about what happens and what improves performance in smaller business units as well.

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The Gig Economy Workforce: 45 Million and Counting

There’s lots of competing takes on the size and scale of the gig economy.  As in some many policy areas, it depends on who’s counting and what they’re counting.  But, regardless of the various disputes, we know that the gig economy workforce is big and growing.  I’ve long referred to the gig workforce as the “Forgotten Fifth,” i.e., the one-fifth of American workers who operate in the gig economy, without a real safety net or other labor protections.  A new MetLife census of the gig economy (Note:  Registration required for full report) makes a similar estimate, arguing that 30 million Americans make their primary income from gig or part-time work.  An additional 15 million Americans use gig work as an income supplement.   Most of these workers (85%) like gig work, and intend to continue in this mode.   And, folks with “real jobs” are jealous, as nearly 49% of them report that they are considering taking on gig work or careers in the next five years.

MetLife is interested in this topic because gig workers are understandably interested in receiving benefits while retaining their independent status. At present, less than 5% of gig economy workers receive benefits from their employer(s).  If firms and insurance providers can find a way to offer this new type of flexible benefit package, it would greatly reduce the risks of gig work and help firms better attract and retain talent.  From a policy perspective, creation of gig benefits may offer a decent solution to the problem of building a safety net for freelance workers.  We can’t keep ignoring the pressing needs of 45 million American workers who want jobs and careers that provide meaningful work and a real safety net.

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Nebraska Thriving: Market Intelligence for the Rest of Us

Over the years, I’ve worked in many communities that don’t really have a good understanding of how their local economies work.  They operate with limited and/or outdated information on who’s hiring, who’s growing, and who’s doing innovative things in business and elsewhere.  Many places need better market intelligence capabilities, but some community leaders are reluctant to spend money and time on gathering and sharing data.  That’s work for academics, not for economic developers!   This mindset seems to be changing (thankfully) as more places recognize that good data can lead to better planning for community and economic development.  And, the good news is that all communities, even heavily distressed or isolated rural places, can do this work.  There are lots of great resources out there—I highly recommend networks like the Community Indicators Consortium and free data sites like StatsAmerica.  But, there are also hundreds of places that are out doing it, gathering important insights about what’s happening in their local economies.  A great example can be found at Nebraska Thriving, a new effort from the Rural Futures Institute.  The Index is an easy to use data tool that allows folks across Nebraska to track how their region compares in areas such as economic opportunity, human capital, social capital, and quality of life.  Thanks to Nebraska Thriving, local leaders now have the capacity to benchmark their performance and invest to close gaps and capture new opportunities.  This is an excellent research tool that can easily be applied to others states and regions.  With better data comes better informed—and better overall (we hope!)—decision making.

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Maine’s Coworking Development Fund

Our latest edition of EntreWorks Insights examined the power of place, i.e., how community gathering places can help build social capital and promote economic development.  These powerful places can take many forms, including business offices, libraries and coworking spaces, among others.  I’m pleased to now see that a handful of state and local governments are seeking to encourage the creation and nurturing of these “third places.” The latest example comes from Maine where the Maine Coworking Development Fund has just kicked off.  The Fund provides small grants (of up to $20,000) to help communities set up and run local coworking spaces.  It’s also creating a statewide network so that space managers and developers can learn from one another and share ideas.  This program has existed on the books since 2015, but was finally funded by Maine’s new governor, Janet Mills.  While $20,000 is not a major amount of money, this small amount can trigger lots of outside investment and make a big difference in rural Maine, where the need for new coworking spaces is strongest.  This excellent pilot program should be emulated elsewhere, as it is a straightforward, and relatively low-cost, means to build communities and networks to spur entrepreneurship and innovation, and to build community as well.

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A Tale of Two Rural Places

An interesting new study from the University of New Hampshire’s Carsey Institute, entitled “My Advice . . . is Get out of Town,” takes a deep dive look into the development of two counties in rural New England.   The report offers an interesting take on the dynamic relationship between population trends and economic opportunities in rural places.  It profiles two counties, whose identities are made anonymous.  Clay County is a well-located and scenic locale, attracting many retirees and also serving as a destination service center for the surrounding region.  Union County is remote, and relies on a seasonal economy that is highly dependent on resource extraction sectors, such as forestry.

These places show quite different economic dynamics.  Tourism-focused Clay County faces a major challenge with job quality.  Many jobs are available, but they don’t pay very well. Union County has fewer jobs, but these positions—in health care and manufacturing, offer decent pay—especially when compared to the tourism sector.  For those without high quality jobs, working life is precarious and heavily reliant on part-time or seasonal work.  Both places suffer from brain drain, and a relatively lower level of local workforce talent among those remaining.  Retaining workers is a major challenge.  In Union County, the lack of local employment options pushes younger workers to leave.  In Clay County, high housing costs and lower paying jobs are the primary worker retention obstacles.

The experience of these counties suggests some basic economic development directions for rural places.  Effective strategies should include economic diversification, expanded efforts to spawn new locally-owned small businesses, and investments to improve local housing stock.  Efforts to attract new immigrants to the region also make sense—to attract new talent, to bring new families into the community, and to more generally support revitalization.

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New EntreWorks Insights Now Available

The latest issue of our e-newsletter, EntreWorks Insights, is now available. This issue examines the power of place in economic development, and discusses how we can use work spaces,such as our offices, business incubators, and coworking spaces, to help build social capital, build community, and advance the cause of economic development.  You can learn more and subscribe here.

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Entrepreneurship and Returning Citizens

As a Georgetown University alum, I’m very proud to see the first graduating class of the Pivot Program, Georgetown’s new program to help returning citizens learn the ins and outs of entrepreneurship.  The first cohort, who graduated in late June, included 15 participants, are already enjoying early success.  A good share have started profitable businesses, and others are working at full-time jobs.  In addition to accessing entrepreneurship training and other resources, Pivot participants can also access space at the Georgetown Venture Lab, co-located at a WeWork facility near the White House. The program is a partnership with the DC government and Georgetown.  More communities need to embrace these kinds of strategies to better integrate and support residents who are returning from prison—entrepreneurship is a great vehicle to take a job or make a job themselves.  Georgetown and DC are not only in this kind of effort.  You can learn more about similar programs and resources from groups like the Association for Enterprise Opportunity and the George Washington University Law School.

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Protect Land, Create Jobs: Economic Development and Land Conservation

I’m eagerly anticipating an upcoming vacation to Maine where we regularly hike, paddle, and just hang out on lands protected by groups such as the Maine Coast Heritage Trust and the Great Pond Mountain Conservation Trust.  I’ve always appreciated these protected lands for their natural beauty, but they’re also an important contributor to new job creation and economic development.  That’s the key finding of new study (reported in The Conversation) that assessed the impact of land trusts and land preservation across New England over the past 25 years.   Land trusts are a big deal in New England, and, over the past few decades, they have preserved more than five million acres.  But, they can be controversial and are often opposed due to their perceived limitations on resource use. But, this research finds that land preservation can often produce better economic outcomes, finding that communities with higher levels of land protection also had higher employment numbers. And, these impacts were even stronger in the most rural areas.  How does this work?  The protected lands support the creation of new jobs in recreational tourism and sustainable resource extraction, while also creating more attractive communities to live, work, and play.  Lots of groups around the US, such as the Northern Forest Center, the Conservation Fund, Pennsylvania Wilds and Heart of Appalachia are out spreading this message that land conservation and economic development can and do go hand in hand.

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