Our colleagues over the in UK have come up with some useful terms for what we Americans have been calling the gig economy workforce. Some folks use the “precariat” and a new term, the “liquid workforce” is also gaining traction. A new Demos study, The Liquidity Trap, examines the precarious experience of Britain’s liquid workforce, with a focus on improving the social safety net for independent workers. Work life for Britain’s liquid workforce can be challenging. These workers are much more likely to be poorly paid than their fully employed counterparts. In fact, while a segment of these workers are well-paid, 22% of the UK liquid workforce makes less than $13,000 per year. Not surprisingly, these workers also tend to have spotty benefits, and are also more likely to use non-traditional financial tools like pay-day lending. Liquid workers like the flexibility of this work style, but nearly half would be willing to trade flexibility for a more secure work experience.
The report makes a number of recommendations to improve services for the liquid workforce. These include the development of new financial services for independent workers, and new schemes that allow workers to move with benefits as they transition to new work. This latter provision might work something like our current COBRA laws which allow for extended health care coverage. The report also calls for bigger solutions, such as a national funding pool that could provide portable benefits to this workforce. Several European economies, including Belgium, use a benefit model of this sort, which is often referred to as the Ghent system (named after the city of Ghent, Belgium). While the report is UK-focused, it contains some interesting ideas—big and small—for how we can better support the growing independent or “liquid” workforce.
Washington is pretty consumed with big issues of impeachment and government budgets nowadays, but lots of interesting and important debates on other issues are also underway. One big one concerns reform of the Community Reinvestment Act (CRA), the 1977 law that reviews and assesses bank performance in terms of lending and other activities focused on low-income communities. Among other things, the CRA was originally designed to combat “red-lining” and to encourage more bank investment in distressed communities. (For background on CRA’s impacts, check out this 2019 Urban Institute report.)
Federal agencies have been debating CRA modernization and receiving community and industry input for some time. Last week, the Office of the Comptroller of the Currency (OCC) released its draft proposals for CRA modernization. There’s a lot in this plan, which weighs in at 240 pages in length. One primary focus is to clarify what activities and investments count for CRA credit. Nearly all observers agree that banks need more clarity and guidance on CRA-related investments, but many advocates for distressed and under-capitalized communities are worried about the current draft. They argue that the new rules are too “loose” and will encourage investments in projects, such as sports stadiums or higher-priced real estate, that do little to help low income communities and residents. Big changes in CRA rules could have especially strong impacts on sectors like the Community Development Financial Institutions (CDFI) industry, which relies heavily on CRA-related investments.
We will soon be in the midst of a 60 day comment period on the OCC’s proposal. If you have ideas and inputs, please share them so that they can be considered before a final rule is promulgated in spring 2020. You can also learn more about positions on all sides of the debate from the American Bankers Association to the Opportunity Finance Network to the National Alliance of Community Economic Development Associations. CRA has been, and will continue to be an important tool in our community development toolbox. Thus, it’s essential that we find ways to ensure that these dollars are invested in a manner that best supports economic and community development.
Today, I attended a Capitol Hill briefing on a new Brookings/ITIF report on The Case for Growth Centers: How to Spread Tech Innovation across America. The report and its recommendations build on the uncomfortable fact that America’s innovation and technology economy is highly concentrated, with most activity centered in a few states and metro areas. In fact, only five metro areas account for 90% of America’s innovation sector growth since 2005. If you’re in Seattle, Boston, or the Bay Area, you’re reaping the benefits of major technology investments. If you live elsewhere, you might see some limited trickle down impacts. The report recommends a series of new investments in regional growth centers (in mid-sized to larger cities like Birmingham, Boise, Indianapolis, or Pittsburgh), with an emphasis on strong innovation inputs—in the form of R&D funds, workforce training dollars, and other incentives. In many ways, this proposal echoes similar efforts such as the Economic Development Administration’s I6 program or the WIRED program of the 1990s. (As we noted in our recent newsletter, the new book, Jumpstarting America, includes a similar proposal.) The difference here is that this plan calls for real money–$100 billion over ten years—and the funds are targeted to high-potential larger metros (over 500,000 in population) that have many of the essential innovation building blocks already in place. Not surprisingly, I like this basic concept as I strongly believe that we have been underfunding place-based economic development for decades. I can quibble with some parts of the plan. For example, it may place too much emphasis on innovation and technology inputs and not enough attention on talent development. I’d also like to see a similar focus on smaller metro areas as well. But, it’s a good start and a good place to begin a much-needed debate, and hopefully conclude with some equally much-needed new policy directions too.
In today’s tight labor markets, communities around the US are starved for talent. Some places are so starved that they’ve created incentive programs to attract talented workers. Some years ago, several places in Kansas opted for free land as a potential talent magnet. Today’s incentives tend to be cash-based, either as direct payments or some form of alternative support such as student loan forgiveness in certain high-demand fields. New programs in Tulsa and Vermont, among others, have been recently introduced, and are focusing on attracting remote workers and free-lancers. Vermont’s program was unveiled in 2018, and offers up to $10,000 to support some expenses for incoming workers. In year one, the program attracted 300 new residents, but this effort is already sparking a heated public debate Last week, the state’s auditor raised questions about the program’s impact and value. In this report, his office argued that the program is providing incentives to people who would have moved to Vermont any way. This debate over the “but for” question is common: Would the desired action have occurred “but for” the incentive? The audit claims that Vermont’s new talent migrants are coming for quality of life and natural amenities, and don’t need the incentive. That may be true, but it’s also true that folks who move only because of a $10,000 incentive may not be the type of talent we want in our communities! There are no easy answers here, but this type of discussion is likely to become more common as communities around the US introduce more innovative—and more risky—strategies to close the talent gap.
They were playing Christmas music at my doctor’s office this week. That’s too early! But, it’s not too early for the EntreWorks Insights holiday recommended reads issue! Check out our takes on new and interesting books for those with wonky interest in community building, economic development, and what’s next in our profession. You can access other newsletter issues and subscribe here.
Mark your calendars for the week of November 18-24, 2019, the 12th annual celebration of Global Entrepreneurship Week. GEW is a big deal around the world. It currently engages 20,000 partners in 170 countries, who sponsor 35,000 events that engage more than 10 million people. All of this work is devoted to telling the story of how entrepreneurship can be a tool for personal enrichment, economic development, and community building. It’s an excuse to throw a great party, while learning something and doing good along the way! There are tons (actually 35,000) of great events going on during the week, and lots of cool activities here in the US as well. As home to the Kauffman Foundation, Kansas City always celebrates GEW in a big way, with several dozen great events planned for the week. I’m also pleased to see several current and former EntreWorks Consulting clients who are using GEW events and activities as part of their regional ecosystem building activities. For example, in Fort Worth, the local team is supporting a gala event at the Fort Worth Science Museum, a special Startup Weekend event, and workshops on a diverse set of topics including food-focused startups, doing business in Vietnam, real estate trends, and tips for effective marketing. Smaller towns can and do get in the mix too. In Monroe County Pennsylvania, Startup Pocono is sponsoring workshops and boot camps on coding, entrepreneurial finance, graphic design, and many other topics. Check out the GEW USA site for events in your area, and get out there and support your local entrepreneurs. If your region isn’t engaged with GEW 2019, make plans to participate in GEW 2020!
The US coal industry has been swamped with bad news lately, with the recent bankruptcies of Blackjewel and Murray Energy leading to major hardships for miners, their families and surrounding communities. As we attempt to address these immediate hardships, we need to also remember painful long-term legacies of coal such as rising black lung rates and the growing problems of abandoned mine lands (AML). This latter problem is especially thorny, as former coal regions face major environmental problems such as water contamination, land subsidence, and a dearth of funding for land reclamation. The Office of Surface Mining Reclamation and Enforcement manages a federal AML reclamation fund with a current funding pool valued at $2.3 billion. While this is a sizable sum, the estimated cost to remediate current AML sites exceeds $10 billion. (You can see a map of AML sites here.)
Remediating abandoned mine lands is essential if we truly want to revitalize coal-impacted communities in Appalachia and elsewhere. We will need additional funds to support reclamation and to build capacity in impact communities. Some interesting pilot projects are underway, thanks to the new AML Reclamation Economic Development Pilot program and other initiatives, such as the POWER program for coal-reliant regions. (See the latest edition of Appalachian Voices for nice summary of current issues.) There’s lots of work to do, but there are also lots of opportunities where strategic investments can have huge impacts. For a look at these opportunities, check out A New Horizon, an excellent new compendium of worthwhile and catalytic AML-related projects in Kentucky, Ohio, Virginia, and West Virginia. Investing in land reclamation can bring short and medium-term benefits in the form of new economic opportunities and new local capacity, while also remediating long term environmental damage from past mining activities. This is the right and fair thing to do for coal-impacted communities.
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.
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.
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.