Notes from Coal Country: Now for Some Good News
As readers of this e-newsletter or the EntreWorks Blog know, weâ€™ve been spending a lot time working on engagements in Americaâ€™s coal-dependent regions in Appalachia, the Mountain West and elsewhere. We took a closer look at economic transitions in coal country in our last e-newsletter. This was a somewhat depressing read, as many coal-dependent communities face serious troubles. But, itâ€™s not all bad news. While transition to new economic drivers is proving challenging, coal-dependent communities are making important progress and pioneering new and innovative approaches to community development. This issue of EntreWorks Insights highlights some of these inspirations and innovations. In this election season, we all need some good news!
As we noted in our last e-newsletter, the coal industry transition is brutal. Many coal-dependent communities have relied on coal as an economic driver for more than a century. In many regions, coal is the primary provider of good high-paying jobs. The average coal miner can make as much as $75,000-$85,000 per yearâ€”nearly three times the average income. The loss of these livelihoods has serious economic, social, and cultural consequences.
New paths to prosperity are being plowed, but the process takes time. As they develop new strategies, coal-dependent regions must address three sets of issues at one time: 1) Helping coal miners and other workers retrain and find new careers, 2) Identifying and capturing new business and economic growth opportunities, and 3) Addressing larger structural challenges facing their communities. This is a tough juggling act, but, as weâ€™ll see below, some good news is emerging.
Retraining and Reskilling
When mines and other facilities close, Job One is to help miners and displaced workers retrain and find new gainful employment. In many ways, miners face retraining challenges similar to long-tenured manufacturing workers. They have extensive and specialized technical skills, but they may lack needed credentials or may have trouble transferring those skills to new industries.
Fortunately, miners have many skills that are in high demand if appropriate transition services are in place. A recent Virginia Tech study assessed relevant workforce skills in Southwest Virginia. This analysis found that many coal industry occupations, such as roof bolters and machine operators, require STEM-related skills and competencies that directly translate to high level production positions in growing manufacturing sectors.
Many successful programs help miners transfer these STEM skills to new sectors. Efforts to help miners move from â€œcoal to codeâ€ have received loads of media attention, including a recent shout-out from President Obama. Pikeville, KYâ€™s Bit Source, a web development firm, has been the subject of more than a dozen national and global news stories. The success of these IT efforts is a reminder that, even though located in rural areas, many coal-impacted communities do have excellent broadband infrastructure in place.
In Southwest Virginia, regional leaders are hoping to position the area as a center for unmanned aerial vehicle (UAV) testing and research. In 2015, Wise, VA was the site of the first ever remote drone delivery of pharmaceuticals and medical supplies. More recently, regional leaders have created the Fly Wisely Accelerator Corporation to serve as a regional advocate for UAV development. Finally, Mountain Empire Community College, based in Abingdon, VA, has become the stateâ€™s first provider of credit-based courses on UAV technologies.
Coal workers are also well-situated to obtain new employment in the growing solar industry. A recent study found that the solar industry could conceivably absorb nearly all of the workers projected to lose jobs in the coal sector. More importantly, the researchers found that technical workers could actually earn more in the solar sector. (In contrast, managerial level workers would earn less.)
Identifying New Economic Engines
When it comes to community economic adjustment, itâ€™s always better to â€œhit for singles, not home runs.â€ It is near impossible to find a single replacement for the jobs and revenue provided by the coal industry. And, itâ€™s probably not a good idea anyway as dependence on any one single industry is a risky proposition. A more promising approach involves a mix of strategies that nurture and support a diverse set of new economic drivers.
A number of communities are responding to the coal transition challenge by building up their own internal capacities. Many regions had made little or no historical investments in economic development because they had always been able to rely on revenue and jobs from coal. With the loss of these resources, theyâ€™re now developing new visions for their economic futures. Moffat County in Northwest Colorado is a good example. This small community has a large share of its employment and tax base tied to a local mine and power plantâ€”more than 500 workers in a community of only 9,000 people. The region is now embarking on its first effort to craft a countywide economic diversification strategy.
Each community and region will likely embrace a different mix of economic targets but some promising ideas are already sprouting up. New approaches to tourism are especially promising, and some interesting models are emerging. Southwest Virginiaâ€™s Crooked Road trailâ€”following key locations tied to the birth of country musicâ€”is gaining lots of attention. Other strategies also seek to link multiple destinations and activitiesâ€”all as part of an approach to encourage longer visits and create more local business opportunities. Examples include the Trail Towns program (linking Pennsylvania and Maryland towns along the Great Allegheny Passage) and the regional Bon Appetit Appalachia website promoting culinary tourism.
In addition to its work supporting UAVs, Southwest Virginia is also touting its potential as a center for information technology firms and data centers. The region has good broadband infrastructure, ample water, and a secure safe location. It is also home to the University of Virginia at Wise which operates Virginiaâ€™s only undergraduate software engineering program. The university has also recently inked a partnership with the Mach 37 Cyber Accelerator program to create closer linkages to the technology community in Northern Virginia.
Addressing Long-Term ChallengesItâ€™s tough to retrain workers and identify new economic engines to replace lost coal jobs. But, thatâ€™s not the only challenge facing coal dependent regions. Typically, they also face a nasty mix of more long-term structural challenges as well. At the top of the list is the need to develop a skilled and ready workforce. This effort has at least two componentsâ€”addressing the health of current residents and increasing their skill base.
Many coal-dependent communities are in the midst of a health crisis. The opioid epidemic is centered in Appalachia, and more general health challenges of high obesity and diabetes rates and limited access to basic health services, also abound. You can see some of the latest data at the Appalachian Community Data Portal. There are lots of excellent local experiments underway, including a major effort by the Appalachian Funders Network to engage foundations to supporting a culture of health in the region. Another cool event occurred earlier this month in Somerset KY. The Health Hack-a-Thon engaged hundreds of local residents, along with experts from MIT and other researchers, to brainstorm and develop action plans to address the regionâ€™s drug epidemic and the challenges related to obesity and diabetes.
Workforce development is a core part of economic diversification efforts across Americaâ€™s coal-dependent regions. In nearly all cases, these efforts include investments to help coal miners and related workers find new jobs and careers. But, they can and should include a more long-term perspective that seeks to create better career option for all local residents. Many of these efforts are being funded via the Obama Administrationâ€™s Partnerships for Opportunity and Workforce and Economic Revitalization initiative. Most of these POWER projects are just getting underway, but it is likely that a similar effort would also be continued if Hillary Clinton becomes President. Donald Trumpâ€™s energy plan does not include community programs of this type.
New workforce development investments will help, but coal regions, like much of rural America, may need to think even bigger and consider what they can do to encourage more in-migration. These regions have faced decades of population loss, and a return to prosperity likely requires a reversal of this pattern. Attracting new residents can bring new talent, new skills, new perspectives, and economic growth. For example, recent research shows that immigration is a key factor in determining whether a rural regionâ€™s economy grew over the past decade. (Note: You can find lots of excellent ideas on this topic in a recent report from Welcoming America.)
For this reason, coal-dependent communities should consider combining their ongoing diversification strategies with programs that encourage new residents. The actual policy mix will differ by community but nothing should be off the table. This could include encouraging local settlement of new immigrants, retiree attraction strategies, provision of subsidized housing (for artists or others), and the provision of free or subsidized land. These efforts to support â€œbrain gainâ€ have received lot of attention in the Great Plains and the Midwest. They deserve similar attention in coal country.
As we noted in the last edition of this e-newsletter, the coal transition challenge is â€œnot as bad it looks.â€Â Â Coal communities face a tough transition, but as this edition of EntreWorks Insights hopefully shows, thereâ€™s great cause for hope and optimism.Â Â A series of interesting and inspiring experiments are now underway, and their potential for building stronger communities is enormous.
Whatâ€™s New at EntreWorks Consulting?
The summer has been busy as we finished up several projects in Pennsylvania, including work in Monroe and Somerset Counties. In addition, we are kicking off a major research project (on behalf of the Appalachian Regional Commission) assessing the development of entrepreneurial ecosystems in Appalachia and some new work for the Kansas City-based PIPELINE entrepreneurial fellowship program. Finally, we are continuing a long-running project supporting the Office of Economic Adjustmentâ€™s Defense Industry Adjustment program.
We also have numerous upcoming speaking engagements. In the next month, Erik Pages will be presenting at the annual meetings of the Pennsylvania Economic Developers Association and the Northeast Regional Employment and Training Association. In addition, he will be the keynote speaker at the Roanoke-Blacksburg Technology Councilâ€™s Fall Gala. Hope to see you on the road.
We also continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Â Â Recent posts have discussed new big data resources, the evolution of the gig economy, and weâ€™ve also offered some comparisons of the Clinton and Trump platforms on key economic issues.Â You can also access blog updates at our Facebook and LinkedIn pages and on Google Plus.ÂOctober 8, 2016
Transition Time in Coal Country: What Have We Learned?
Coal is in trouble. There a few industries facing the storm of dislocation and pain that is now roiling coal country. Major corporations like Peabody Energy are declaring bankruptcy, mines and related facilities are shutting down, and families that have mined for generations are facing unprecedented dislocation. This is a challenging time for coal-reliant communities.
For the past several years, Iâ€™ve had an up close look at how coal-reliant communities are faring as they weather a very challenging transitionâ€”thanks to work for the Appalachian Regional Commission, the National Association of Counties, and many state and local economic developers. Iâ€™ve seen some wonderful examples of community solidarity and innovation, and Iâ€™ve also seen some depressing trends as well. The coal transition is underway, but it still has a long way to go. Iâ€™ve decided to devote this issue of EntreWorks Insights to providing my own personal mid-term assessment based on what Iâ€™ve experienced over the past 12-18 months. Some of my thoughts can be found below where I look at some of the broader trends in the coal industry transition. Iâ€™ll dig into specific community strategies in a future newsletter.
Itâ€™s Not As Bad As It Looks
News stories from coal country paint a pretty bleak economic picture. However, if you dig deep into the numbers, youâ€™ll be surprised. In some ways, the economic impacts of the coal industryâ€™s collapse can and should be manageable. Letâ€™s take a look at Kentucky, often viewed as ground zero for the coal economy. According to Kentucky Coal Facts, the coal industry employed about 11,500 workers in 2014â€”roughly 0.5% of total state employment.
Coalâ€™s direct employment footprint is relatively small and it has been shrinking for some time. In fact, the Appalachian coal industry has been shedding jobs since the 1990sâ€”mainly due to mechanization and competition from other coal and energy resources. The more recent downturn is the most severe ever, but it is simply an acceleration of a twenty year trend.
Given the relatively small size of the economic impacts, we would hope that the coal community transition would be a manageable challenge. However, read on . . .
Itâ€™s Worse than It Looks
The numbers tell us one story, but reality on the ground tells another. The coal transition challenge is occurring alongside a whole host of other social, environmental and economic challenges that greatly complicate our ability to help affected workers, businesses, and community. For many coal communities, especially in Appalachia, coal industry jobs were the last â€œgoodâ€ local jobs. Nationally, the average annual wage for US coal miners is about $82,000. In West Virginia, average coal mining salaries are nearly $85,000, more than twice the statewide salary average of $39,519. So, when a coal miner is displaced, his or her prospects of finding comparable work at comparable pay are miniscule.
Meanwhile, coal communities face even bigger challengesâ€”none bigger than the opioid epidemic now roiling rural America. Sadly, many coal regions are also ground zero for opioid use. In fact, seven Appalachian states account for 1/5 of all US opioid related deaths since 1999. These public health challenges are growing just as the region is facing a whole host of other economic shocks. Retraining or upskilling the local workforce is a challenge when residents are simultaneously dealing with drug issues and host of other social problems.
Environmental contamination further complicates the economic transition. Various coal mining techniques, especially mountaintop removal, have generated grave environmental consequences for neighboring communities. These towns face problems with water and air pollution, as well as major contamination on abandoned mine lands. Efforts at economic recovery will need to begin with major investments in environmental remediation. The current Federal Abandoned Mine Lanes (AML) fund contains a pool of about $2.8 billion and several Congressional proposals, like the current Reclaim Act, seek to speed the release of these funds. This could help, but challenges will still remain. The US Office of Surface Mining Reclamation and Enforcement estimates that it has more than $4 billion worth of high-risk abandoned mine sites in its current inventory, and this figure is expected to grow in coming years.
Thus, while the overall economic impacts of the coal transition may seem manageable at first glance, the reality is much more sobering. Coal regions must pursue economic recovery while also coping with an unprecedented mix of other public health, economic and environmental challenges.
Beyond Mining: Economic Ripple Effects
Because of all the problems cited above, most media reports have focused on how coal mining communities are faring. Yet, the coal industry means much more than mining. It also involves coal-powered utilities, transportation and logistics, and the many suppliersâ€”especially manufacturersâ€”who provide goods and services to the coal industry.
The economic ripple effects linked to coalâ€™s decline will be quite significant. After all, the primary use of coal is to drive power generation. Today, coal accounts for 33% of US electricity generation but this figure is dropping fast. Coal powered facilities accounted for 80% of power plant retirements in 2015. Experts project that as many as 379 coal-fired power plants will close between 2012 and 2020.
The shutdown of these power plants is already having big community impacts. Some of the plants are located in rural areas, but a large number are located in dense urban communities. In all locations, the plants provide good jobs and often serve as major taxpayers. Affected towns lose good jobs and a large chunk of revenues for schools and other public services. Cuts in coal production are already affecting many local and state budgets. For example, West Virginia is now facing a $270 million budget shortfall due to major declines in coal severance tax revenues. Finally, most of these plants have generated environmental contamination, so extensive brownfields redevelopment will be required.
Redevelopment is moving slowly if at all. A recent Delta Institute study of closed plants found that the redevelopment process has taken an average of 27 years. As the pace of closures increases, that timeline has to change.
Power plant closures are not the only challenge related to the coal industry downturn. Transportation and logistics related sectors are also hurting, with railroads and port facilities among the hardest hit. For example, Norfolk Southern (-23%) and CSX (-19%) both reported major losses of coal revenue in 2015. Coal transport accounts for a large share of rail revenue, so future projections remain gloomy as well.
A War on Coal? . . . or on Working Americans?
Itâ€™s election season, so weâ€™ve been hearing a lot about the War on Coal on the campaign trail. While I donâ€™t see extensive evidence for a war on coal, there does appear to be some kind of war on working American families. Americaâ€™s coal regions face unique circumstances, but their economic adjustment challenge is quite similar to that facing other American regions such as New Englandâ€™s paper mill communities or regions facing lower revenues from the oil and gas industries. The challenge is not just about coal; itâ€™s about making it easier for working people to pursue new careers and economic options in the face of economic dislocations.
We need to rethink how we help workers, businesses and communities as they response to economic shocks like the coal economy transition. First, we need to provide more generous financial support to help people retrain and pursue new career options.
We may also need to provide financial support for relocation. While it may be preferable to help people obtain new jobs and careers close to home, that goal may not always be feasible. In some cases, the best strategy may involve relocating to a new region with better job prospects.
Lastly, we may have to consider some form of wage insurance for displaced workers. Many workers fail to take advantage of new training options because they cannot afford the time and expense required to pursue additional education. Short-term wage insurance would provide them with a more substantial basic income, perhaps allowing them to pursue more rigorous retraining options.
Many of these basic ideas already existâ€”albeit in limited form—in our current Trade Adjustment Assistance (TAA) programs. Yet, as numerous studies show, these programs are grossly underfundedâ€”especially when compared to similar programs in other advanced economies. The economic adjustment challenges now facing the coal industry are not going away, and we can expect similar economic shocks for other sectors as well. If this is the â€œnew normal,â€ we need to prepare for regular economic adjustment in a more serious manner.
While this summary paints a somewhat bleak picture of the state of the coal industry transition, Iâ€™m actually heartened by what Iâ€™ve witnessed the community level. People are coming together and developing new and interesting strategies to rebuild long-neglected communities. The process of change will not be easy, but the current transition offers tremendous opportunities to rebuild communities that have suffered from decades of neglect and disinvestment. These efforts can serve as future models for how to do economic adjustment right.
RESOURCES ON THE COAL TRANSITION
There is a huge literature on the coal economy transition. I canâ€™t cover the landscape, but here are a few resources that I have found helpful.
Appalachian Coal Industry, Power Generation and Supply Chain: This Appalachian Regional Commission-backed study takes a deep look at the wider coal industry supply chain.
Coal Reliant Communities Innovation Challenge: This project, sponsored by the National Association of Counties and the National Association of Development Organizations, provided technical assistance and coaching to 23 coal-reliant regions. The project also developed an excellent clearinghouse on economic diversification and you can also access a brief podcast on lessons learned from the project teams.
Mountain Association for Economic Development: Based in Eastern Kentucky, MACED has been a major force in thinking about new directions for Appalachiaâ€™s economy. Their work on the Appalachian Transition may be of particular interest. On that front, also check out the work of the Central Appalachian Network.
Planning for Montanaâ€™s Energy Transition: Coal is not just about Appalachia. Many Western states are also affected. This Headwaters Economics report examines the coal transition in Montana.
Transforming Coal Plants into Productive Community Assets: This 2014 Delta Institute report analyzes the challenges and opportunities around coal plant reuse.
Whatâ€™s New at EntreWorks Consulting?
Weâ€™ve been lax in updating the EntreWorks on-line library with materials from recent projects. Weâ€™ve remedied that oversight and you can now find materials from projects for the Appalachian Regional Commission, Wisconsinâ€™s Progress Lakeshore, and others.
Apropos of this edition of the newsletter, weâ€™re also in the midst of developing a coal diversification strategy in Somerset County, PA. And, as always, you can find Erik Pages on the road with upcoming speaking engagements in Minneapolis, Baltimore, and Chapel Hill, NC.
We also continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent posts have discussed new big data resources, new trends in entrepreneurship, and the evolution of the gig economy. You can also access blog updates at our Facebook and LinkedIn pages and on Google Plus.May 8, 2016
Community Leadership: Time for a Youth Infusion
As my creaky knees often remind me, I am getting olderâ€”whether I like it or not. Yet, I find that Iâ€™m still a relative youngster in a large swath of my day jobâ€”interacting with community economic development leaders around the U.S. The business of economic development skews older, and we need to engage younger folks. Basically, we need a youth infusion in community decision-making. This issue of EntreWorks Insights looks at how some U.S. communities are tackling this challenge.
Why do should we care about youth involvement in economic development decision-making? Ideally, we should seek to engage all local residentsâ€”from diverse ethnicities, age cohorts, and economic circumstances—in these discussions. But, engaging young people should be especially important. Why? First off, youth generally have lower community participation rates. So they are more heavily under-represented already. In many rural communities, youth engagement is a key tool in addressing problems of brain drain. Youth engaged in community decision making are more likely to stay in a community or return later in life. Finally, and most importantly, youth engagement is good for all involved. Youth gain key leadership and career skills, and economic developers benefit from a source of new ideas and new energy.
I suspect that few people would quibble with this case for youth engagement, but then why is real youth engagement so rare in community economic development? Typically, we become consumed with the short term: â€œWe need to create jobs now,â€ or â€œWe need to focus on helping adult workersâ€ or â€œI donâ€™t have time to engage youth too.â€ But, all of these perhaps reasonable excuses should not obscure this basic fact: our current practices restrict opportunities to engage young people and often produce decisions that may not effectively represent the needs and aspirations of our communityâ€™s future residents and leaders. To give a sense of the problem, a survey of rural youth in Kansas, Missouri, and Nebraska found that 72% of surveyed young people had never been asked for their opinion on how to make their community more attractive to youth.
Youth engagement can take many forms, and some of them are more show that reality. But, we do know that effective youth engagement efforts have several characteristics as noted by the Orton Foundation and others. Ultimately, communities should have an expectation that young people are engaged in discussions of all community issues and have a chance to be heard and take part in crafting and implementing solutions.
There is a huge body of resources related to youth engagement, some of which are noted below. Here are some highlights and tips, along with some local examples that might guide you in improving your own youth outreach efforts.
Create venues for youth engagementYoung people wonâ€™t get engaged unless they are asked or persuaded to participate.Â This requires venues for such participation.Â They can take many forms.Â Some communities have a youth council that can advise local government or advocate on key issues like education or encouraging greater civic participation.Â Â These youth councils are quite common and can be found across the US.Â (You can access a National League of Cities clearinghouse on this topic here. Â Â Â NLC has also published an excellent guide to authentic youth engagement that is full of useful how-to tips.)Â Other communities opt to engage youth via their direct involvement on local decision-making bodies or via participation in town hall meetings or kinds of planning sessions.Create opportunities for real engagementEffective youth engagement needs to â€œkeep it real,â€ i.e. provide young people with genuine opportunities to do something or to make change happen.Â This is often easier said than done when it comes to sometimes complicated economic development discussions.Â It may tough for teenagers to comment on zoning rules, but there are countless other opportunities for them to engage in other activities.Â Â This could include leading research projects, such as mapping local assets, identifying local needs, or surveying local youth attitudes.Â It might also entail working on initiatives of special interest to young people.Â Entrepreneurship is one issue area that often resonates with young people, and has proved to be a great unifier, especially in rural communities.Â My colleagues at the Center Rural Entrepreneurship sponsor a whole series of local initiatives, known as New Generation Partnerships, that place entrepreneurship at the center of community youth engagement strategies.Â Â These efforts have been quite successful in Nebraska, where they are integrated with a wider set of economic development strategies, known as Hometown Competitiveness.Â For example, in Holt County, NE, young people helped develop a countywide strategy that has helped spawn the creation/retention of more than 200 jobs and attracted more than 100 new households to the small rural community. \Similar approaches are being used across the globe.Â Data from the Global Entrepreneurship Monitor and the Organization for Economic Cooperation and Development (OECD) show high levels of youth interest in entrepreneurship combined with lagging rates of actual business start-up.Â Â The cause?Â A shortage of support, training, and mentoring/coaching to help young people take the leap from entrepreneurial aspiration to start-up.Â Â Around the globe, young people are primed for business start-up, and will benefit greatly from community engagement and encouragement.Act on the inputs provided by area youthFinally, itâ€™s not enough to give voice to young people.Â We need to act on their ideas and recommendations.Â Â This is the real key to making youth engagement into a meaningful exercise.Â Â The Orton Foundation, via its Heart and Soul Community strategic planning model, has been especially effective on this front.Â Â This approach has been deployed in numerous small towns where you can find great models and case studies.Â For example, in Manchester, VT, young people sit on all of the community major decision making bodies.Â In Biddeford, ME, high school students helped lead the community visioning process that culminated in the townâ€™s new master plan.
In North Carolina, the NC Rural Center engaged young people in the creation of a new initiative, New Generation Ventures, that provides rural NC youth with business coaching/mentoring and business finance support.Â This strategy emerged directly from the stateâ€™s rural youth, who were engaged via surveys and focus groups to discuss what they wanted from their communities and what would help them stay in their rural hometowns.Â New Generation Ventures is a direct result of this effort.Â The message from young people was very clear:Â â€œChange begins with engagement.â€Â Â 80% of them noted that they were ready and willing to volunteer on community projects, but had never been asked to help.Â Now, itâ€™s up to us to ask!
Whatâ€™s New at EntreWorks Consulting?
After a lovely holiday season, weâ€™re back at itâ€”continuing our work on, among other things, interesting regional projects in Alabama and Pennsylvania. Erik Pages of EntreWorks is also devoting a good amount of his free time to the start-up of WERA-LP FM, a new community radio station based in Arlington, VA. Locals can listen at 96.7 FM or all can join us online at www.wera.fm. We also continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent posts have discussed the state of onshoring, innovation in legacy industries, new tools for rural outreach, and programs to assist coal-dependent regions. You can also access blog updates at our Facebook and LinkedIn pages and on Google Plus.January 8, 2016
Business Incentives: What do We Know? What Should We Know?
When you talk to the average informed person about economic development, itâ€™s not unusual for them to equate business incentives with the business of economic development. Thereâ€™s a reason for this—most news stories about economic development tend to be about business incentives. It might be a funding package for a new sports stadium or a multi-state competition to woo the next big automotive plant.
Practitioners know that the economic development tool kit is much more diverse and multi-faceted than just doing business incentives. But, that doesnâ€™t mean that business incentives donâ€™t matter. In fact, they still matter a lot and still represent the largest share of state and local spending on economic development. Some studies have estimated that states and localities spend as much as $80 billion per year on various business incentives.
My personal preference would be to eliminate business incentives—perhaps by getting all states to agree to a â€œmutual cease fireâ€ on their use. Since this wish is probably not feasible over the near term, weâ€™re likely to see the continued and perhaps expanded use of business incentives in coming years. If this is indeed the case, itâ€™s important that we â€œdo incentives rightâ€ and ensure that they are used in limited circumstances and are deployed in a cost-effective manner. Supporting this mission has been the focus of an ongoing project sponsored by the Pew Trusts, the Center for Regional Economic Competitiveness, and a host of other outside consultants, including EntreWorks Consulting.* The Business Incentives Initiative is designed to help states develop and share leading practices for managing economic development incentives and to test new ideas for improving the use and management of business incentives. The project includes six partner states (Indiana, Maryland, Michigan, Oklahoma, Tennessee, and Virginia) and has provided technical assistance to officials from dozens of other states. These states are pioneering of host of new and interesting approaches to managing their incentive programs.
This type of work is much needed as more states and localities are using incentives nowadays. Every state now provides incentives and most states operate dozens of such programs. In fact, the C2ER State Incentives Database profiles nearly 2,000 incentive programs now operating across the U.S.
So, if incentives are here to stay, how can we ensure that they are managed effectively? Our work on the Business Incentives Initiative has yielded a number of important insights which we highlight below:
Due Diligence: Do Your Homework Early
Lots of companies seek out economic development incentives, and lots of companies donâ€™t deserve them. Many incentive deals blow up later because firms and economic developers get caught up in the rush of the deal and fail to do adequate homework on a company or a project.
We need to do better due diligence of potential projects. This is not just about putting in more hours of research; itâ€™s about building a system for reviewing potential deals. Standard procedures and timelines should be put into place to assess both the company (e.g. its major customers, markets, management team, track record, etc.) and the deal itself (i.e., the â€œpitchâ€ vs. the â€œrealityâ€). Tennessee has been a national leader on this front, instituting a rigorous review process before any incentives are considered or provided. In addition to tracking company performance, this assessment examines the firmâ€™s use of incentives (and subsequent performance) in other states and localities.
Transparency and Openness: Share Everything
Many incentive deals are shrouded in secrecy. When negotiations are underway, some secrecy is required. But, there is no need for secrecy once an initial incentive agreement has been reached. Smart communities and smart states are committed to transparency. Transparency makes sense for many reasons. Primarily, it makes sense because incentives use taxpayer dollars and taxpayers need to know how their funds are spent. But, transparency will now matter even more because of new guidance from the Governmental Accounting Standards Board (GASB) which now requires that state/local governments must now disclose information about tax abatements on their financial statements.
What do effective transparency efforts look like? Indiana and Maryland offer useful models here. Both states manage databases that provide information on all government grants and investments—the Indiana Economic Development Corporation Transparency Portal and the Maryland Finance Tracker. Marylandâ€™s tax credit programs are also undergoing extensive outside review by a newly created Tax Credit Evaluation Committee that is undertaking a systematic review of major state tax credit programs.
Performance and Clawbacks: Get Your Moneyâ€™s Worth
Youâ€™ve done your due diligence and shared information. Now comes the hard partâ€”ensuring that you get your moneyâ€™s worth for your incentives. Finding ways to effectively track company or project performance is likely the major challenge facing incentive program managers.
States and especially localities could still improve their data collection capacities. The C2ER incentives database shows that about 70% of programs regularly or occasionally capture data for program evaluation. Meanwhile, about 1/3 have no such data. When capturing data, program managers generally seek to track jobs, new investments, revenue growth, and the quality of new jobs.
Collecting and using performance data sounds much easier than it is in practice. In many states, multiple agencies are involved in incentives and much of the data (such as tax returns) is confidential. Thus, issues about handling and sharing data can get quite complicated. Most of the states involved in the Business Incentives Initiative are working on these issues. Oklahoma has enjoyed substantial success. It has a robust evaluation system in place, and all of the key agencies have signed agreements that allow full data sharing along with effective protections for confidential information. It is now in the process of setting up additional systems for regular outside evaluation of its incentives and for better projection of future costs of various tax incentive programs.
Effective incentives use a both the carrot and the stick. Incentives are carrots. The stick comes in the form of clawbacks, i.e. requirements that firms repay money if they fail to perform as advertised. Fortunately, clawbacks are now a common practice in smart incentive policies.
Ensure Return on Investment: Track and Assess Outcomes
Assessing performance is required over the short term; evaluating outcomes matters for the long-term. In other words, how can we be sure that incentives are generating a positive return on investment to the taxpayer? More states and localities are doing evaluation now, and thatâ€™s a good thing. C2ERâ€™s research shows that 92% of U.S. programs are doing some kind of post-investment evaluation.
Many of these assessments are not really evaluation, but are instead simply reporting program data. Thatâ€™s good, but itâ€™s not enough to effectively track outcomes and ensure that the programs are worth doing. More sophisticated states are developing tools and approaches that help them do rigorous assessment of the ROI from their incentive programs. Floridaâ€™s Office of Economic and Demographic Research has published an interesting study on incentive ROI. Meanwhile, Virginia, via the Virginia Economic Development Partnership, has been developing an interesting ROI model of this own. Virginia operated dozens of incentive programs managed by a diverse mix of agencies, so this task can get quite complex. The Virginia approach, which is begin improved and updated every year. It tracks the stateâ€™s return on invested capital and seeks to ensure that incentives generate a payback to Virginia within 2-3 years. (The Pew Trusts published an excellent guide to incentives evaluation in 2012).
Other Resources: In addition to the items and organizations noted in this essay, you can learn more about effective business incentive programs at the following sites:
Smart Incentives: My colleague, Ellen Harpel, has an excellent blog and newsletter with the lasted on â€œsmart incentives.â€
International Economic Development Council: The IEDC, the worldâ€™s largest economic development trade association, has published a number of research guides on new directions in incentives policy. These reports require a fee, but they are free to IEDC members and the executive summaries are also available at no charge. You can obtain the reports at http://www.iedconline.org/web-pages/resources-publications/edrp-publications/
Good Jobs First: This labor-backed watchdog is not the favorite of many incentive advocates, but they do a very good job of tracking new program directions and making the case for why transparency and accountability matter.
*The views expressed here are solely those of Erik R. Pages and EntreWorks Consulting and do not represent the opinions or positions of the Pew Trusts, CREC, or any other party.
Whatâ€™s New at EntreWorks Consulting?
With the return of fall, many go back to school. We seem to go back to new projects. In the past several weeks, we have kicked off new projects in the following locations: the Poconos region of Pennsylvania (Monroe County), Northern Alabama, and the state of Maryland. In addition, weâ€™ve just embarked on large-multi-year project to evaluate the Defense Industry Adjustment program supported by the Pentagonâ€™s Office of Economic Adjustment. When time permits, we also continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. You can also access blog updates at our Facebook and LinkedIn pages and on Google Plus.October 8, 2015
Americaâ€™s Start-Up Slump: What the $X&?! Is Going On?
Americaâ€™s start-up engine is ailing. As the chart below (from a recent Brookings Institution analysis shows, start-up rates in America are declining and have been for some time. Even worse, new firms are closing more quickly and generating fewer jobs and economic benefits than in the past. And, around 2008, the US economy hit a fateful crossroads where the number of firm exits (i.e. closings) exceeded the number of firm births (i.e. start-ups.)
These trends make for sobering readingâ€”especially for folks, like us at EntreWorks Consulting, who have long advocated for greater local investment in supporting entrepreneurs. Thus, it is especially important to understand what is happening and why. Thatâ€™s what weâ€™re seeking to do in this edition of EntreWorks Insight.
Thereâ€™s not much doubt about the veracity of the data on the entrepreneurial slowdownâ€”itâ€™s pretty clear that a big shift occurred in the mid-2000s. But, there is much debate about the causes of this shift. Here are a few potential explanations.
The Great Recession
Clearly, the Great Recession played a role in driving down business start-up rates. When the economy is in the tank and opportunities are lacking, itâ€™s no surprise that fewer people start businesses. This pattern occurs in all downturns, but, as numerous studies suggest, the Great Recession was different. The downturn in new business starts was faster and deeper, and the recovery has been much slower. So, the Great Recession is clearly an important factor, but not the sole cause of these trends.
A number of demographic factors appear to be at work First, overall US population growth rates are declining, and the declines are biggest in many once fast growing regions of the South and the West. Research from Brookingsâ€™ Robert Litan and Ian Hathaway finds that fast population growth was a primary driver of faster start-up activity in the 1970s in these regions. As population growth has slowed, these areas have seen start-up rates decline and regress to look more like the rest of the US.
Age demographics matter too. Today, American society is dominated by two age cohorts: Boomers and Millennials. Boomers are actually booming when it comes to start ups, starting firms at twice the rate of Millennials. People aged 55-64 started 1/3 of all new US businesses in 2013, up from only 14% in 1996. However, boomers tend to start firms for lifestyle reasons, and, while these can be exciting business opportunities, they are less likely to blossom into fast-growing job creators. At the same time, we should not expect or plan on boomers continuing the same levels of start-up activity as they move into their 70s and 80s.
Meanwhile, Millennials have not been particularly entrepreneurial when compared to other age cohorts. This is understandable given that they grew up in the midst of the Great Recession, while also facing many other impediments such as large student loan debt burdens. Nonetheless, many observers hold out hope for Millennial entrepreneurship. This age cohort is the best educated in US history, and has also been widely exposed to entrepreneurship, via specialized education programs and popular culture (in TV shows like Shark Tank). Given the size of the Millennial cohort, an uptick in their business startup rates would have large ripple effects.
Recent research using Census Bureau data suggests that the collapse of housing prices might play a role in slowing start-up rates. Studies have found that states with the most severe housing price drops, such as California and Florida, also faced the biggest slowdowns in new business activity. States with stable housing prices, like North Dakota, saw more limited impacts. The specific causal pattern of this impact remains unclear, but a couple of factors may be at work Lower housing prices will put pressure on consumer spending and on the availability of finance for new business starts. They likely also put a big hit on the construction sector, traditionally an important source of new business starts.
The Rise of Big Firms
Some analysts point to the emergence of Walmart, Home Depot, Best Buy, and other large corporations as another factor at work in the start-up slump. These large players have decimated the ranks of traditional â€œMom and Pops,â€ such as hardware stores, local restaurants and other retailers. Here again, we probably have a partial answer. The startup slump is strongest in the retail and service sectors, but it has also occurred in manufacturing and technology industries. Walmart may hurt Mom and Pops, but other things are affecting startups too.
Some casual observers have claimed that burdensome regulations might be at work in the startup slump. In particular, many are pointing to the rise of occupational licensing as an undue burden on start-ups. (We previously discussed that topic here.) While regulations can be a hassle, the evidence for a more significant economy-wide impact is pretty weak. As a new study from George Mason University researchers finds, â€œFederal regulation has had little to no effect on declining (business) dynamism.â€
New Ways of Working
The factors listed above are the most likely issues driving the decline in US business dynamism, but I also believe that one other factor might be at work: new ways of working. As more people move into independent work (the 1099 economy) and the distinction between an employee and an entrepreneur becomes fuzzier, our old categories of tracking business dynamism may need updating. Many things that we once labeled a business startup may now be labeled as a freelancer or an independent worker. Similarly, the business activities that once occurred almost exclusively inside the firm may now be occurring in less well defined and poorly measured networks or partnerships. So, some share of the â€œmissing startupsâ€ might be found in the 1099 economy.
Itâ€™s likely that this final factor is a minor cause at best. And, if these new work entities arenâ€™t growing or generating new opportunities, we still have a business dynamism problem on our hands.
So Now What?
As in some many complex public policy issues, the startup slump lacks a single cause. In fact, it seems like there are almost too many causes at work here. However, this analysis does suggest that doing just one thing, such as enacting startup visas or changing regulations, is really going make a huge difference. Instead, solutions will require sustained focus and continued support for the building of regional and local entrepreneurial ecosystems. And, it may require a re-examination of some issues, such as growing student debt burdens, through the lens of how they affect entrepreneurship rates. The good news is that the most recent data suggest that startup rates are now heading up. While these â€œgreen shootsâ€ are encouraging, a continued focus on stoking Americaâ€™s economic engines will be needed.
Whatâ€™s New at EntreWorks Consulting?
Spring has sprung with lots of time on the road in the coming months. If youâ€™re based In Appalachia, youâ€™ll have the best chance of sighting Erik Pages this Spring. Thanks to two large projects focused on Appalachia, weâ€™ll be spending lots of time there. This work includes the development of a new strategic plan for the Appalachian Regional Commission and the provision of technical assistance to communities facing job loss in coal mining and related industries. This latter project is supported by the National Association of Counties and the National Association of Development Organizations. In June, you can also find Erik teaching a course on measuring innovation and entrepreneurship at the Council for Community Economic Researchersâ€™ (C2ER) annual conference in Portland, OR. We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. You can also access blog updates at our Facebook and LinkedIn pages and on Google Plus.April 8, 2015
The Future Commercial Office Market
1812 North Moore Street is an impressive building. Located in Arlington, VA, it is the tallest building in the Washington DC metro area and has achieved the prestigious LEED platinum rating for green buildings. It is also completely empty and has been so since it formally opened in 2013.
The problems facing this building and the overall high vacancy rates in Northern Virginia are creating major challenges for economic developers and real estate professionals. Why is the local commercial office market so challenged? Some of the causes are unique to the DC areaâ€”namely the impact of federal budget cuts and, in the Arlingtonâ€™s case, the lingering effects of defense base closure decisions from a decade ago. However, larger forces also appear to be at work and a major change in the commercial office marketâ€”with big implications for local economic development–may be underway. (NOTE: According to a recent report from Deloitte, the national 2015 prospects for commercial real estate are pretty solid. However, the report does note that â€œnew (office) development activity is likely to remain low.â€)
In an effort to better understand these trends, Arlington officials created a Future Office Market Study Task Force to examine these issues. I was fortunate to participate in this task force and we have spent the past year immersing ourselves in the brave new world (for me, at least) of commercial real estate We also had the opportunity to visit some very cool work spaces in and around the DC metro area. Our Task Force has completed our preliminary workâ€”thatâ€™s the focus for this issue of EntreWorks Insights.
The Current Office Market in Arlington
Our task force was created to address a new and pressing challenge for Arlington County. Located across the Potomac River from DC, Arlington has traditionally been among the USâ€™s best performing county economies—in good times and bad. Even at the height of the Great Recession, unemployment rates never exceeded 4.5 percent. Much of this economic strength was built on a strong commercial office market which benefited from proximity to DC and to the local presence of the Pentagon and other government agencies.Today, that once robust commercial office market is reeling. Countywide office vacancy rates are at 21.4% and are even higher in certain submarkets. (National vacancy rates were roughly 14.5% in late 2014). In the view of county leaders, a government spending downturn was only part of the story. Something bigger was underway and our task force sought to figure it out.
The Changing Demand for Office Space
As we began our work, the task force quickly recognized that the market demand for commercial office space was changing. New kinds of companies—technology and high growth entrepreneur-driven ventures—are seeking to locate in denser urban and suburban markets. Similarly, traditional anchor tenants, like law firms or government agencies, are downsizing. Meanwhile, new ways of working, such as telecommuting and hoteling, are affecting all kinds of companies. The bottom line is that potential tenants want less space and they want new kinds of workspace.
The impact of these new preferences is quite pronounced. In 2000, the average office in the DC Metro area provided nearly 200 square feet (sf) per employee. Today, that average is about 185 sf per worker. Certain tenants, like law firms and many government agencies, are cutting even further, reducing their space needs by nearly fifty percent. A recent study of New York City commercial real estate identified similar trends. To put it clearly: commercial demand for office space per worker is expected to drop by anywhere from 1/3 to 1/2 in coming years.
Companies want less space; they also want different space. Flexibility is their most pressing demandâ€”they abhor long term leases that lock them into large spaces. They want shorter leases, more flexible work space, and the ability to expand or reduce space demands as needed. The anchor tenants who sign a long term lease for large swaths of space are becoming rarer and much more desirable. They are being replaced by more and smaller clients that want it allâ€”flexible leases, cool spaces, lots of amenities, and the like. But, they may not be able to pay a lot for itâ€”at least for a long and extended period of time.
Implications of Changing Demand
All of these trends are getting a lot of public attention in stories about the growing use of open offices, the end of cubicles, and the growing demand for cool and hip co-working spaces. They are also spurring something of a backlash and a cottage industry of articles on topics like how open offices ruin the workplace or â€œThe Open Office Trap.â€
Even with some griping, these new office structures look like theyâ€™re here to stay. They save energy, they reduce costs, and a good share of employees, especially millennials, like them. So, a period of adjustment is upon us. First up is the commercial real estate sector that is scrambling to adjust to the new realities. As the Deloitte analysis predicts, 2015 and beyond will be focused on redevelopment, where key players allocate â€œresources to newer formats and design for redeveloping existing propertiesâ€ in response to lower levels of tenant demand.
Economic developers will also need to adjust. Adjustment number one focuses on the broader question of tax revenues. Jurisdictions that rely heavily on property taxes to finance local government must pay close attention. Nationwide, property taxes account for 35% of state and local government revenue. This represents the largest source of local revenue so large scale declines will be felt.
Second, economic developers and real estate professionals will need to help support a new â€œproduct mixâ€ when it comes to commercial office space. Aligning available space to various business life cycles may make sense. Traditional anchor tenants may still seek out prestigious class A space, but new and growing ventures may need access to more flexible class B and C space. This shifting market demand may open up new opportunities. For example, in New York City, boroughs outside of Manhattan, such as Brooklyn and Queens, may enjoy opportunities to develop stronger local office markets. In San Francisco, new office markets have emerged in new neighborhoods like the Mission and SoMa.
Finally, big anchor tenants will likely find themselves in prime negotiating positions, able to demand incentives or other kinds of sweeteners as they consider new or expanded leases. The competition for these kinds of deals may get even more intense than it is today.
Principles for Moving Forward
While our Task Force generated lots of insights, we recognized that our future crystal ball remains cloudy. Instead of making hard (and perhaps misguided) predictions on the nature of the future office market, we opted to develop some basic principles that are likely to guide the evolution of our office market. Some of the principles are unique to the DC Metro area (e.g. â€œReframe the Federal Presenceâ€), but a number of them have relevance for all communities. A few highlights worth considering:
A New Paradigm: As tenants begin to prefer mixed use over traditional single-use office settings, economic developers must actively assess previously set aside space for office development and consider other uses or mixed uses (e.g. entertainment, live-work space) as well.Grow the Pie: Office space initiatives should be linked to entrepreneurial development efforts. Develop â€œstep out spaceâ€ for firms that have the potential for growth.Activity Attracts Investment: A nice building is no longer sufficient. Firms and workers want amenity rich urban environments, so effective place making goes hand-in-hand with successful commercial office development. Mixed Use Inside and Out: Mixed use needs to occur in neighborhoods and inside buildings themselves. Desirable office spaces combine workspace with play space and even living space. Expect to see more live-work spaces in the future.Connect Everything: Successful markets will have interconnections across all forms of infrastructure, with special focus on multi-modal transportation options and world class broadband connections.
This shifting office market is not just about real estateâ€”itâ€™s part of a wider transformation of work now underway and part of a larger constellation of forces that also includes the rise of the 1099 or freelance economy and the emergence of new on-demand ventures like Uber and AirBnB. How we work, where we work, and what companies look like are now in flux. This will create many challenges, but also more opportunities for communities, firms, and individuals that effectively handle the transition.
Whatâ€™s New at EntreWorks Consulting?
2015 is starting off as a busy year—no complaints here. We are kicking off new projects in Northeast Wisconsin and for the Pentagonâ€™s Office of Economic Adjustment, and heading out to numerous conferences and workshops. Erik Pages of EntreWorks continues to hit the road and is set to do a number of presentations this Spring. Heâ€™s slated to be a keynote speaker at Washingtonâ€™s Rural Pathways to Prosperity conference in April. During April, heâ€™ll also be teaching IEDCâ€™s Entrepreneurship and Small Business Development course in Atlanta and presenting on manufacturing supply chain mapping to the Pennsylvania Economic Development Association in Harrisburg. We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. You can also access blog updates at our Facebook and LinkedIn pages and on Google Plus.January 8, 2015
Can Shale Energy be an Economic Game Changer?
Game changer is getting to be an overused word nowadays. In sports, RGIII, the zone-read offense, and moneyball were all going to be game changers. In politics, I can remember when Sarah Palin was one of the first so-called game changers. My point is that â€œrealâ€ game changers are pretty rare. After all, the game doesnâ€™t change every day.
In economic policy discussions, the emergence of shale gas is a top contender for â€œgame changerâ€ status. This designation makes some sense. The discovery of new shale gas and oil resources here in the U.S. is having a massive impact. Globally, our reduced dependence on foreign oil is helping our balance of payments and changing trade patterns. At home, new jobs are flowing into new energy boom towns in North Dakotaâ€™s Bakken shale region and elsewhere. The potential for even more extensive economic transformationsâ€”thanks to cheap and abundant domestic energy—are regular topics in reports by think tanks and consulting groups.
These trends are quite exciting, but do they represent â€œa game change?â€ This topic has been foremost in my mind as Iâ€™ve been wrapping up a U.S. Small Business Administration-backed supply chain mapping project (along with my colleagues at the Center for Regional Economic Competitiveness, the Northwest Pennsylvania Commission, and the Northwest PA Partnership for Regional Economic Performance). Our study examined regional supply chains in an eight county region of Northwest Pennsylvania. Our work assessed two sectorsâ€”rail and transportation equipment manufacturing and manufacturing sectors related to shale energy. This essay only discusses our findings related to shale energy. Will shale energy be a game changer in Northwest Pennsylvania and elsewhere? The short answer is â€œmaybe.â€
Northwest Pennsylvania was a good candidate for this study. The region is located in the heart of both the Marcellus and Utica shale gas plays, but has not yet seen large scale energy development. To date, most of this activity has occurred elsewhere in Pennsylvania. Moreover, the region has a large manufacturing base that could benefit from the regionâ€™s proximity to shale energy resources. It is also home to a strong base of economic development organizations who actively collaborate on regional projects.
While our project focused on NW Pennsylvania, its findings are relevant for many regions. Our research suggests that we canâ€™t really speak about one single shale energy supply chain. Instead, it is composed of at least four different supply chains and sets of activities:
Site Preparation: Identifying and preparing sites for drilling.Drilling and Extraction: The controversial processes of drilling and fracking for oil and gas.Midstream: Storage and distribution of energy resources.Downstream: The use of energy inputs in multiple industries, especially manufacturing.
To date, most public attention has focused on the first two of these supply chain opportunities, i.e. those activities associated with the processes of exploration, drilling, fracking, and extraction of shale oil and gas. These activities have helped to create boomtowns across the U.S., but the jury is still out on whether these activities are sustainable or subject to the traditional boom and bust cycles of new energy developments. (I recently blogged about this issue here.)
In terms of economic development, the real action is likely to occur in midstream and downstream activities. Midstream activities are about the transportation, storage, and distribution of oil and gas products. If you canâ€™t get these new energy resources to market, they canâ€™t be game changers. As a result, thereâ€™s a big boom in the midstream as new opportunities emerge in the storage and distribution of new energy resources. For example, in Virginia, a coalition of utilities has just unveiled plans for a massive $5 billion Atlantic Coast Pipeline project to move shale gas from West Virginia and down into Virginia and North Carolina.
Similar projects are underway across the U.S. and we can expect the midstream investment boom to continue for some time. Deloitte researchers project that new shale energy related infrastructure investments could reach more than $200 billion by 2035. These numbers will climb even higher if the U.S. begins exporting liquid natural gas.
The potential for downstream economic benefits may be even more compelling. Downstream refers to the myriad activities that can benefit from cheaper and more readily available energy inputs. In this case, we are typically referring to manufacturing sectors and especially to heavy or energy-intensive manufacturing sectors. Examples include the chemical, plastics, glass, and mineral industries. Increased shale energy investments are also expected to increase employment in the cutting and machine tool, steel, and oil and gas machinery manufacturing sectors.
These energy intensive manufacturing sectors are already undergoing a major transformation. In February 2014, the American Chemistry Council pegged new chemical industry investments triggered by the shale gas revolution at over $100 billion, with more than 637,000 potential new jobs tied to these investments. These investments are already having big impacts in states like Texas and Louisiana. According to Southern Business and Development, between 2011 and 2014, these two states were home to 28 different petrochemical related projects where new investments will exceed $1 billion per project.
These types of projects are now starting to crop up elsewhere as well. Both West Virginia and Pennsylvania are now being considered as sites for new ethane cracker facilities. These facilities, which require billions of dollars in new capital investment, have been projected to have massive economic impacts on the region, creating thousands of construction jobs while also stimulating a wide range of downstream industries. (A West Virginia study on these potential impacts can be accessed here.) Polyethylene, a prime product of this process, is used in a diverse array of industries, including plastics, textiles, packaging, automobile components, industrial machinery, and many more.
Based on these studies and other data, the case for a shale energy revolution is pretty strong for the petrochemical sector and some other related industries. But what about changing the game for other manufacturers? Here the evidence is murkier. A recent Peterson Institute study, Fueling Up, takes a deep dive into how new shale energy investments will affect American manufacturing. The researchers find large scale impacts in some key sectors, such as fertilizer and chemical manufacturing. Overall, nine manufacturing sectors will likely see double digit gains in employment and output thanks to new shale energy developments. However, these sectors collectively account for only 2.5 percent of total U.S. manufacturing employment.
These results suggest that shale energy can be a game changer, but only for a few industries and for a few states and regions. The beneficiaries are no surpriseâ€”they include states and regions that are home to shale energy resources or that are already host large industry clusters focused on petrochemicals or other energy-intensive sectors. And, in these sectors, lots of new opportunities for new business and for supplier contracts are going to emerge. For the rest of us, the benefits are going to be important but perhaps not directly visible. Theyâ€™ll come in the form of cheaper energy for home owners and large energy users. Cheaper oil prices are especially important for cold weather states and regions that use greater amounts of oil to heat homes. Ensuring that your community can tap into cheaper sources of energyâ€”like shale gasâ€”will become an important mission for economic developers.
So, the bottom lineâ€”assuming we can manage the environmental issues related to shale energy developmentâ€”is pretty good. Americaâ€™s shale energy revolution may not be a tangible â€œgame changerâ€ for all Americans, but it should contribute to a more competitive and productive economy for many individuals, companies, and communities.
Whatâ€™s New at EntreWorks Consulting?
We added one new documentâ€”our report on regional supply chains in Pennsylvania–to the EntreWorks library page.
Erik Pages of EntreWorks continues to hit the road with recent visits to Rutland, VT, Richmond, VA, Reading, PA, Queenstown, MD, and Fort Worth, TX on the itinerary. We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent posts have looked at Americaâ€™s wealth gaps, the reshoring of manufacturing jobs, and our changing labor markets. You can also access blog updates at our Facebook and LinkedIn pages and on Google Plus.October 8, 2014
Regional Data and Benchmarking: Whatâ€™s the Latest?
Iâ€™ve recently been spending some time in Central Virginia, developing a web based regional economic indicator dashboard for the Region 2000 Partnership, a regional economic development organization based in Lynchburg, VA. This work has prompted me to re-immerse myself in the latest trends around regional benchmarking, effective strategies for data visualization, and, to use plain English, the art of telling a story of regional economic development. This edition of EntreWorks Insights gives me an opportunity to share some of what Iâ€™ve been studying and reading.
Dashboards have a fairly extensive history in both business and government circles. In business, the Balanced Scorecard is one of the most well-known of these tools. In government, leaders at all levels have embraced this tool. The Obama Administration seems to have a crush on dashboards as they have truly proliferated under their watch. The Office of Management and Budget manages many of these including dashboards on regulation, open government, and information technology. State and local governments are in on the act too. Examples include Marylandâ€™s StateStat site or Kansas Cityâ€™s KCStat.
The use of dashboards to track economic development performance is less is extensive. My research efforts suggest that Northeast Ohio was one of the first regions to embrace this modelâ€”back in 2006. (An interesting review of this experience can be found here.) Today, the use of these tools is pretty commonplace. If you search the web for terms like â€œeconomic development dashboard,â€ you will face a dashboard tsunami, with dozens of state, regional , and local dashboards. (For a good summary of lessons learned from this experience, click here.) This is good thing.
Dashboards and Big Data
The growing use of economic dashboards is driven primarily by the emergence of new data tools and new visualization technologies, i.e. the rise of big data. I donâ€™t need to tell readers that big data is hot today, and is often touted as one of the next big changers for the 21st century economy. In the field of economic development, the use of big data to build economic dashboards and other tools offers many potential benefits. Its role in â€œdemocratizingâ€ economic development discussions is benefit #1. Thanks to new data visualization tools and presentation techniques, we can better communicate about often complicated economic development issues with the general public. A picture is worth a thousand words, especially when itâ€™s compared to reams of government data tables! These new tools also help us do a better job in terms of tracking our own performance. Better data and better visualization toolsâ€”via dashboards and other approaches-should help funders and elected officials better understand and improve the business of economic development. Hereâ€™s one example. We know that shared data on entrepreneur support networks helps improve the overall performance of all partners. By tracking referrals within the business service provider network along with performance outcomes, we can identify strong and weak performers (based on the no. of referrals) and also take action to support the top performers and invest in improving the laggards.
Finally, we should be able to use these tools for both diagnostic and predictive purposes. Just as retailers use big data to predict whether youâ€™ll buy diapers, hummus, or a new dress, we should be able to use these tools in our work to determine, for example, which businesses use and benefit from our services or which kinds of workers benefit most from customized training programs. Over time, we might be able to predict how other more large scale policy changes (e.g. changes in tax rules) affect local business performance. Obviously, weâ€™re not quite there yet. New data tools are being used to improve customer services, but we havenâ€™t yet reached the point where we are doing these kinds of more sophisticated analyses. (A very interesting recent National Bureau of Economic Research paper looks at the potential and challenges of big data end economic analysis.)
All of these speculations come with some cautions. We need to aggressively embrace these tools and use dashboards and other user-friendly techniques to share what and how weâ€™re doing. Most importantly, we need to improve data quality. A beautifully designed community dashboard isnâ€™t very helpful if its data is dated or irrelevant. Unfortunately, too many public data sources fail to meet the requisite quality standards. Some of this is due to government privacy and confidentiality rules, but a lot stems from lack of funds. Data quality is not the most exciting topic, and weâ€™re not going to find many politicians running on a platform of â€œWe need better data.â€
But this job is essential and we all need to engage in efforts to expand funding for public data agencies. At the same time, these agencies need to continue their ongoing efforts to make more data available and to provide economic development data in more user-friendly formats. We also need to embrace the emergence of many exciting new private or non-profit data sources. For example, I would find it very difficult to do my job without access to excellent data sources like the National Establishment Times Series (NETS) and Youreconomy.org, real-time labor market data, and other private data sources. If you are interested in these issues, I would highly recommend learning more about the Council for Community Economic Research, the Labor Market Information Institute, and the Association of Public Data Users. These groups all advocate for better public data and provide excellent technical assistance. (Disclosure: I serve as a Senior Fellow at the Center for Regional Economic Competitiveness, a partner to these three organizations).
Back to Economic Dashboards
Let us know return to the specific issue of economic dashboards. Whatâ€™s happening in the field today? For a good sampling of projects from across the US, I highly recommend visiting the Community Indicators Consortium, where you can find an invaluable library of resources and data along with a large inventory of indicator projects from around the world. As youâ€™ll see, this is a blossoming field with lots of interesting work underway.
Within this field, a couple of interesting trends stand out. More communities are moving to the next level and integrating community indicator projects and performance measurement. This is the essential first step if weâ€™re truly serious about democratizing decision-making and improving our own performance as economic developers.
A second exciting trend is the emergence of specialized dashboards and data projects. These efforts typically target a specific set of issues or focus areas, such as locally-owned businesses, the impact of anchor institutions, or regional equity. These efforts all suggest that we are on the cusp of some exciting new directions that should help us all do better work and do a better job of engaging our communities.
Whatâ€™s New at EntreWorks Consulting?
We have added one new document and some related links to the EntreWorks library page. These materials all stem from a very interesting project sponsored by the Appalachian Regional Commission (ARC) that examines connections between regional economic diversity and regional prosperity. The full report, Economic Diversity in Appalachia: Statistics, Strategies, and Guides for Actions, is posted in the EntreWorks Library. Other project materials, including an excellent web tool for tracking regional economic diversity, can be accessed at the ARC website.
Erik Pages of EntreWorks will on the road this summer, working on projects for the state of Maryland, the Northwest Pennsylvania Commission, Berks County (PA), and the American Farm Bureau Federation. He will be teaching the North Carolina Basic Course in Chapel Hill on July 31 and participating in an interesting event in Clarion, PA , on July 15. This latter event will examine how the emergence of new shale energy resources can help create new opportunities for small manufacturers. If youâ€™d like to attend or learn more, send an email to info (at) entreworks.net. Registration details are available here.
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent posts have looked at new metrics and performance measures, recent data on business start-up rates, and new approaches to attracting foreign direct investment. You can also access blog updates at our Facebook and LinkedIn pages.June 8, 2014
Innovation & Entrepreneurship with a Latin Flavor
For the past six months or so, Iâ€™ve been engaged in a couple of projects examining innovation and entrepreneurship policies in Latin America. This is a relatively new region of study for me, so Iâ€™ve been on quite an intensive research tour. Iâ€™ve been impressed with what Iâ€™ve foundâ€”the majority of national, and many regional, governments are actively embracing new development strategies with a heavy emphasis on technology, creativity, innovation, and entrepreneurship. Below, I share some of my impressions about these exciting developments. While itâ€™s difficult to generalize across Central and South America, it is safe to say that most national governments are seeking to support more innovation-friendly development strategies. Some national governments, such as Bolivia, Nicaragua, Venezuela, are more pro-statist than pro-business. But, even in some of these cases, interesting innovations are happening at the region or city level. For example, Argentinaâ€™s national government operates with a fairly limited set of tools to support entrepreneurs and innovators, but the City of Buenos Aires has been quite active with a variety of programs to support high growth companies and recently released its own citywide entrepreneurship Master Plan. Meanwhile, the regionâ€™s largest economies, such as Brazil, Chile, and Colombia are aggressively embracing new development strategies.
Hereâ€™s my take on some of the big picture trends underway:
Start-Up Chile gets a lot of public attention here, with its offer of a temporary visa and funding to any start-up that relocates to Chile. But, Chile is not alone in embracing start-ups. As a recent OECD report, Start-Up Latin America, notes, Brazil, Colombia, Mexico, and Peru, have also introduced new start-up support efforts. These efforts are much needed, as Latin American start-ups face a tough road. Access to capital is highly constrained, as new firms have limited access to loans or equity investments. To give one example, anywhere from 15-30% of all US start-up capital comes from bank loans. The average share in Brazil is 7%, and near zero in both Mexico and Chile. Administrative and regulatory burdens are also higher, with most Latin American economies ranking below OECD averages on the annual Doing Business assessments from the World Bank.
Local leaders and entrepreneurs recognize that they must nurture start-ups and create fast-growing ventures as well. So, like in many other regions of the world, business accelerator programs are hot in Latin America. These programs differ slightly from their counterparts, such as TechStars and Y Combinator, in the US. They are more likely to have government funding and other support; they tend to serve a more diverse mix of companies from different sectors and different stages of growth, and they tend to have a heavy emphasis on building stronger regional innovation ecosystems. They embrace a dual mission: nurture a small group of world class ventures, but seed other activities along the way.
Colombiaâ€™s Apps.co program, which focuses on information and communications technology (ICT) startups, is an interesting example. Apps.co concludes with a business development and acceleration program that looks similar to programs in the US and elsewhere. But, it begins with a massive effort to build a strong ICT innovation ecosystem and to spawn hundreds, if not thousands, of new ICT programmers, technicians, and entrepreneurs. In its first year of activity, Apps.co provided workshops, boot camps, and training to 35,000 people. Of this group, 1,500 people received formal Microsoft programming certifications, and 6,000 completed other graduation requirements. More than 1500 business ideas were vetted via these activities, leading to further development on more than 500 projects. This in turn produced 196 businesses, and, of this group, 26 firms were formally â€œenrolledâ€ in the formal Apps.co business acceleration program. As these numbers suggest, Colombia and its neighbors are seeking to develop on a massive scale. While they want to help groom high quality global businesses, they also want to seed ideas, fuel new business concepts, and create more ICT talent at home.
Regional Development Strategies
A number of regions have also embraced innovation and entrepreneurship as core parts of their region-wide development strategies. Mexicoâ€™s Jalisco state is a good case in point. The region, centered on the city of Guadalajara, had long been a center for manufacturing, and is home to the foreign operations of many major multinationals. In late 1990s and early 2000s, like many parts of the US, Jalisco was hard hit by the forces of globalization, and began to lose many jobs to overseas competitors.
Regional leaders responded by embracing MexicoFirst, a national partnership of business leaders, universities, and government agencies focused on training local workers in ICT skills, innovation, and other key competencies. Jalisco has developed regional expertise in key sectors such as microelectronic design, multimedia, and embedded systems. Local firms also support ICT developments in logistics, which ties into Jaliscoâ€™s still strong manufacturing clusters. With its strong base of both talent and company connections, Jalisco is now considered one of Mexicoâ€™s leading centers of innovation.
Smart Cities and Beyond
Latin America might be considered ground zero for the Smart Cities movement. Numerous communities across the region have developed global recognition for the effective use of ICT to better manage cities and to provide needed services to local residents. In fact, Medellin, Colombia, was selected as the 2013 Citi/Wall Street Journal/Urban Land Instituteâ€™s â€œMost Innovative City of the Year.â€ This award recognizes good urban planning, smart, environmental policies, and effective innovation policies, such as Medellinâ€™s Ruta N business accelerator.
When it comes to being smart, Rio de Janeiro is not to be outdone and can boast its own award as the World Smart Cities Awardâ€™s â€œ2013 Best Smart City.â€ Rio has been among the most aggressive adopters of the smart city concept. Rio is probably best known for its central command operations center which receives data from sensors around the city and is used to deal with a mix of issues including crime control and emergency response. The center is likely to receive some tough tests at this summerâ€™s World Cup and the upcoming Summer Olympics.
While Latin American governments are pushing state of the art approaches to innovation, they are also seeking to combat poverty and promote economic development for their poorest citizens. Most of these countries still face persistent digital divides, and continued investment in access programs are needed. The old concept of â€œOne Laptop per Childâ€ is now evolving to mean â€œOne Tablet per Childâ€ or even â€œOne Smartphone per Child.â€ Argentina, Brazil, Colombia, Peru and Uruguay have all made massive investments to ensure that students have access to new technologies.
Uruguayâ€™s Plan CEIBAL has received perhaps the most attention outside of the region. The project has been highly successful, as nearly every Uruguayan student, teacher, and school now has access to ICT. Some important economic development ripple effects, such as the emergence of a strong local electronic game design sector, have also occurred. The next phase of Plan CEIBAL is moving beyond access, and other national initiatives are pursuing a similar shift in direction. It is no longer sufficient to provide access to ICT. This access must be accompanied by other supports, such as training in programming and Spanish/English proficiency, to help ensure that youth can use their ICT skills to pursue attractive careers or business opportunities.
This is just a brief personal take on exciting new developments. If youâ€™re interested in tracking future trends, the OECDâ€™s Development Center, the Inter-American Development Bank, the World Bank, and the U.N.â€™s Economic Commission for Latin America and the Caribbean are regularly publishing updates on new economic trends in the region.
Whatâ€™s New at EntreWorks Consulting?
We have added one new document to the EntreWorks library page. The report below is a mini-guide version of a similar report we posted to the Library last year.
Â Business Transitions:Â A Local Officials Guide to Defense Industry Adjustment, OEA Quick Guide — Prepared for the U.S. Department of Defense, Office of Economic Adjustment, 2013.Â
Erik Pages of EntreWorks will be hitting the road again this spring. He will be teaching the International Economic Development Councilâ€™s (IEDC) Small Business and Entrepreneurship course in Madison, WI, on May 8, and will also be participating in the Global Entrepreneurship Congress in Moscow in March. EntreWorks Consulting has also kicked off new consulting engagements in early 2014 in Vermont, and on behalf of the Pew Trusts and the OECD.
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have discussed the prospects for reshoring of manufacturing, small business credit programs, and state of economic security in America. You can also access blog updates at our Facebook page.February 8, 2014
Shale Energy Boom = Manufacturing Boom?
The emergence of new shale gas and oil resources has been one of the most important economic trends of the past several years. The shale energy boom has generated a new dynamic, reducing energy costs, creating new wealth, and opening up many new business opportunities. Long neglected regions, such as the Dakotas and Appalachia, are now dotted with boom towns, and the local economic development mission has shifted from managing decline to coping with massive growth.
While debates rage on the environmental impacts of fracking, economic debates are more muted. Nearly everyone seems to agree that shale energy development is helping nearby economies. With a short term focus, that appears to be the case as new jobs and new businesses. But, many of these regions have enjoyed short term booms before. After all, the original oil rush occurred in same region where the Marcelllus/Utica Shale boom is happening today and many shale gas regions have a legacy of coal mining as well. Unfortunately, the long term benefits of past resource extraction booms have been limited. Once the oil (or coal or gas) was depleted, the local economic engines also sputtered. Finding a way to turn the short term shale energy boom into a long-term driver of prosperity is the key challenge for shale energy communities today.
In their search for longer-term economic drivers, many shale energy-impacted communities are hoping to link local energy sources to new opportunities in manufacturing. This focus makes great sense. Manufacturing may offer one promising target area on this front. Numerous recent research studies suggest that cheap shale gas will help spur a manufacturing renaissance. For example, a recent PWC report projects that, thanks to cheaper energy sources, U.S. manufacturers will save up to $11 billion per year between now and 2025.
As communities and businesses look to capitalize on the shale energy boom, where can they find the best long-term market opportunities? The past few years of experience suggest that upstream industries that are directly related to drilling (e.g. construction related to drilling, drilling support operations) will not be big long term job creators. (For a critical assessment of shale gas job impact studies, click here.) But, exciting manufacturing-related opportunities do exist in various downstream industries that benefit from low-cost energy or in the midstream sectors that support the industry. This latter market includes transmission, storage facilities, and processing facilities. These market opportunities are not directly tied to shale gas exploration, yet they offer the greatest potential for long-term economic benefits in shale energy communities.
In manufacturing, the prospects for benefit from cheap energy inputs are enticing. Nationally, analysts are also pointing to very promising trends. The American Chemistry Council reports that, since June 2013, 134 new heavy industry projects or expansions have been announced. Collectively, these projects represent nearly $90 billion in new capital investment. The projects cover a broad range of industries. Some are directly related to the natural gas industry; these include new liquefied natural gas terminals in Louisiana and elsewhere. Other industries, such as tire manufacturing and steel production, are capitalizing on cheap energy. Finally, many projects are in the transportation sector where many fleet operators, such as FedEx or Waste Management, are investing to convert their fleets to compressed or liquefied natural gas.
Many of these major manufacturing projects are located in or near major energy facilities in Louisiana and Texas. In particular, Louisiana is greatly benefiting from the boom. Statewide GDP growth is fifty percent faster than the national average, and the state has attracted more than $50 billion in new capital investments since 2008. Some of the biggest projects in the country, such as Dowâ€™s $1 billion polyolefins plants and Sasolâ€™s new ethane cracker, are now breaking ground in Louisiana. Officials in the Northeast hope that similar facilities will be located near the Marcellus and Utica shale plays, and they have placed high hopes in Shellâ€™s plans to locate an ethane cracker in Southwest Pennsylvania. While Shell has expressed some recent reservations about moving forward, the facility currently remains in its future plans.
Regions in the Northeast may gain further benefits by focusing on developing the midstream infrastructure of gathering lines, pipelines, storage facilities, and transportation infrastructure that is needed to bring gas and gas liquids to market. This infrastructure is in place on the Gulf Coast, but is just emerging in Pennsylvania, Ohio, and West Virginia. Midstream development is becoming a major issue that includes difficult environmental, regulatory and economic subcomponents. (For background on midstream development issues in Pennsylvania, click here.)
A number of analysts predict major growth in these midstream markets. According to the Deloitte Center for Energy Solutions, the boom in midstream markets has just begun as nearly $200 billion in new capital investment (up to 2035) will be needed to build out essential shale gas-related infrastructure. This growth will stimulate a host of industries, including rail and barge transportation, pipeline development, and gas gathering and processing systems. All of these sectors include tantalizing business opportunities for manufacturers and other local firms.
As the shale gas boom proceeds, community leaders need to embrace the art of the long view. The real long-term economic benefits of shale gas are not going to be related to shale gas drilling and expansion. Instead, they will result from downstream industries, especially manufacturers,that benefit from cheaper energy inputs or from the development of new midstream resources related to the processing and transmission of gas and related products.
If these predictions are correct, smart local policies will focus on how best to nurture and encourage local manufacturers via policies such as enhanced workforce training, supply chain development, specialized consulting services, innovation engineering, and other such tools. These approaches offer the best means to avoid the boom and bust cycles that have historically affected the business of resource extraction.
Whatâ€™s New at EntreWorks Consulting?
We have added several documents to the EntreWorks library page. They include the following:
A Local Officials Guide to Defense Industry Adjustment, Report Prepared for the U.S. Department of Defense, Office of Economic Adjustment, 2013. Ride to Prosperity 2013: An Economic Development Strategy for Greater Reading and Berks County (PA). June 2013.The Emerging U.S. Rail Industry: Opportunities to Support Manufacturing and Spur Regional Development. Report prepared for the National Institute of Standards and Technologyâ€™s Manufacturing Extension Partnership, October 2013.
Erik Pages of EntreWorks has taken on a few new leadership roles in the past months. He is now serving on the Board of Directors for the International Economic Development Council (IEDC) and has also joined a new Advisory Committee for Virginiaâ€™s Small Business Development Center Network.
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have taken a look at manufacturing support policies, the power of microbusiness, and the impact of the New Markets Tax Credit. You can also access blog updates at our Facebook page.December 8, 2013
Letter from Mid-Coast Maine
Last month, my family made our annual vacation pilgrimage up to mid-coast Maine. Maine is a beautiful and fascinating place, but it faces a daunting host of economic development challenges. According to research from Maineâ€™s Economic Growth Council, statewide GDP has been declining for years and Maineâ€™s performance in supporting research and development and in building new technology-related sectors lags far behind national and regional benchmarks.
While much of the state faces economic challenges, there are many pockets of innovation and prosperity. Portland, Maine is booming and gaining a reputation as a mecca for foodies, hipsters, and assorted others. Many small towns are also thriving. During last monthâ€™s visit, I was particularly struck by the vibrancy and dynamism of the mid-coast town of Belfast. I think Belfastâ€™s recent experience offers many useful lessons for other small town leaders striving to build prosperous and sustainable local economies.Belfast is located smack in the middle of mid-coast Maine; it is located roughly 2 hours north of Portland, and one hour south of Bangor. It was first incorporated in 1773, and it has remained quite small. The latest Census puts the townâ€™s population at 6,668. This is a jump from 2000, and part of a wider trend in the mid-coast region. Belfastâ€™s home county, Waldo, grew by 6.9 percent over the course of the 2000s. This growth rate topped all counties in Maine and far outpaced average growth rates for Maine (4.3%) and New England (3.6%). Belfastâ€™s success is being recognized with awards such as selection as one of Budget Travel magazineâ€™s â€œCoolest Small Townsâ€ and one of Americaâ€™s best small arts towns.
Belfast is thriving today, but it wasnâ€™t always that way. Belfastâ€™s economy has evolved through a series of boom and bust cycles, or perhaps boomlet and bust-let are better terms. Shipbuilding was the areaâ€™s first industry, and in the 20th century, Belfast was a base for shoe manufacturing, food processing, and the poultry industry. For a long time, Belfast billed itself as the â€œBroiler Capital of the World.â€
In the mid-1990s, Belfast seemed poised to enter the â€œnew economyâ€ when MBNA (now Bank of America) opted to set up a local customer service center, along with nearly 2,000 new jobs. This boomlet was short-lived as MBNA closed operations in the mid-2000s, shedding jobs and abandoning its massive regional headquarters complex.
Like so many other small town leaders, Belfastâ€™s leadership was forced to scramble and come up with new plans for a new future. They ultimately arrived, not always by design, at a formula that seems to be paying dividends. Their current community development strategies are centered on several key planks:
Become a Destination
Belfastâ€™s downtown, chock full of funky stores and good restaurants, has become a destination. But, it wasnâ€™t always that way and it didnâ€™t happen automatically. It was part of conscious strategy, first kicked off in the mid-2000s, by the Belfast Vibrancy Project. This strategy was part of a wider community effort to build a more attractive downtown that would bring in more visitors and more people from the surrounding region.
Today, Belfast has become a town of festivals and it seems like there is a local event almost every weekend. Sponsored by diverse groups like Our Town Belfast and the Belfast Creative Coalition, Belfast hosts regular art fairs, concerts, and its well-known annual Celtic Festival. The town has long been a supporter of local foods, and is now capitalizing on its role as an early adopter of local food production. These events are fun, but they also brand the town and bring in new customers who stay in local lodgings, eat at local restaurants, and shop downtown.
Anchor the Anchors
Traditional anchor institutions, such as a community bank or a major employer, donâ€™t really exist in many small towns anymore. But, smart communities are seeking to build on new anchors. In some cases, a major employer might opt to move into town. Thatâ€™s what happened in Belfast with MBNA, but that economic anchor had a short shelf life. More sustainable anchors are needed.
Today, like many service centers, Belfast relies on its role as a health care and retail center. In health care, Belfast is home to a local hospital and has also attracted a branch office of Athena Health, a health IT firm.
Belfastâ€™s role as a regional retail center is somewhat unique as the community is well-known for its antipathy to big box retailers. Belfast has a few large stores, but, unlike neighboring service center towns like Rockland or Ellsworth, it is not home to large big box stores like Walmart or Home Depot. Nonetheless, the unique mix of downtown stores and a small handful of larger retailers, such as large grocery stores, seems to be working for Belfast.
Belfast is not home to another common anchor, a local college or university. The University of Maineâ€™s Hutchinson Center offers local classes, but it is not a major driver of economic activity.
Diversify where and when possible
In recent years, Belfast has also taken steps to further diversity the local economy. While attracting a major new employer with hundreds of new jobs seems unlikely, the City is working to become more business and entrepreneur friendly. In fact, Belfast was recently designated by Maineâ€™s Governor as a certified â€œbusiness friendlyâ€ city.
The community is also striving to build a real â€œworking waterfront,â€ a goal for many communities across Maine. Back in 2007, real estate developers proposed a major condominium development on Belfastâ€™s beautiful downtown harbor. While this project collapsed, an interesting mix of new uses has emerged. These include several restaurants, a brewery, a boat builder and the Front Street Shipyard, a growing ship repair and maintenance facility.
None of these new activities replace the thousand jobs that arrived with MBNA, but, by creating a more diverse base of employers, these firms help create a more resilient and hopefully more prosperous local economy.
The Belfast story aligns well with the findings of an ongoing research project that weâ€™ve been undertaking for the Appalachian Regional Commission (along with colleagues at the University of Illinois, the Center for Regional Economic Competitiveness and the Center for Rural Entrepreneurship). This study, examining economic diversity in Appalachia, finds that successful communities tend to follow approaches similar to those pursued in Belfast. Successful strategies engage a wide swath of the local community, focus on unique local assets that tie into a wider regional economy, and embrace multiple tactics and approaches. There is no one best way to build a prosperous small town economy.
Belfastâ€™s recent experiences are instructive because the City is really not that unique. It is scenic and beautiful, but so are thousands of communities across the U.S. Instead, Belfast succeeded because local leaders were committed to enhancing their competitive assets while also maintaining a distinctive and desirable sense of placeâ€”the â€œsoulâ€ of Belfast. If youâ€™re ever lucky enough to make a visit up to Maine, put Belfast on your itinerary.
Whatâ€™s New at EntreWorks Consulting?
Besides visiting Maine, our summer has been spent kicking off a new project forColombiaâ€™s Ministry of Information and Communications Technologies and putting the finishing touches on projects for the Pentagonâ€™s Office of Economic Adjustment, the Alexandria LA-based Rapides Foundation and the Appalachian Regional Commission. We also have many upcoming speaking engagements over the new few months, including training for the International Economic Development Council (IEDC) and participation in annual conferences for the IEDC (Philadelphia) and for SSTI (Portland, OR). Hope to see you on the road!
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have taken a manufacturing support policies, community economic diversity, and new trends in coworking spaces. You can also access blog updates at our Facebook page.September 8, 2013
Connecting Town and Gown
For the past few months, Iâ€™ve been on something of a Spring College Town Tour. Work and family events have taken me on the road to Chapel Hill (University of North Carolina), Charlottesville (University of Virginia), College Park (University of Maryland), Manhattan (Kansas State), Starkville (Mississippi State), and Tuscaloosa (University of Alabama). As such, Iâ€™ve been thinking a lot about how communities, especially smaller towns, can best capture the benefits of their dominant, and often dominating, university neighbors.
Living in a college town has its upsides and downsides. You get better cultural events and restaurants, but you might also have a frat boy urinating on your lawn at 2AM. But, like it or not, college towns are pretty much yoked to their local universities. Smart communities are recognizing this fact and developing some smart new approaches to building better town-gown connections for economic development. They are seeking to tap into what some analysts are calling the â€œHidden College Town Economy.â€
Until recently, most university economic development focused strategies have been somewhat one-dimensional with a heavy focus on technology transfer and commercialization. Under this vision, dubbed the Magic Beanstalk Vision by some critics, economic development would â€œmagicallyâ€ occur as good ideas, patents, and technologies flow off campus into the community. Newer concepts like the Triple Helix Model recognize the important role of business and government partners, but still remain tightly focused on the universityâ€™s role as an R&D engine.
Fortunately, many University leaders are moving in the right direction, and embracing a more holistic view of their roles in supporting local development. Groups like the University Economic Development Association and the Association of Public and Land-Grant Universities are leading the charge to better local engagement. An International Town-Gown Association also exists to build closer connections.
But, what about the community side of things? What are college towns doing to strengthen their side of the town-gown partnership? There is no one single way to capitalize on being a college town. In fact, a primary take-away from my recent college town tour is that smart communities seek to create an array of linkages to their local university. The university is an economic anchor and driver in many ways. Researchers generate new ideas and business concepts, college offices purchase local goods and services, students and faculty want retail and entertainment options, and tourists want to visit for sporting events and other activities. Why not connect to all of these activities?
All of these roles generate great economic opportunities. Research, technology, and new ideas are a critical and long understood spin-off benefit from universities. This field has been well-covered elsewhereâ€”lots of new innovations are being tested. For example, exciting work is underway to develop proof of concept centers, new models for university research parks, and new approaches to entrepreneurship education.
University campuses are major anchor institutions with massive buying power. In urban areas, it is not unusual to see comprehensive anchor institution strategies tapping into this buying power. (A good compendium is here.) These approaches are rare in smaller towns, but could be easily adopted and, more importantly, generate some exciting new business opportunities. In particular, the potential for linking emerging local food networks to college purchasing offices is exciting. Lots of smaller colleges are already on board. (Hereâ€™s a look at initiatives in Central Appalachia), and larger land-grant schools are getting in the mix too. Cornell University has been a leader on this front, but more universities need to get on board. These local food connections help strengthen the local economy, while also providing another in-demand amenity to students.
Students and university staff and faculty also want extensive retail optionsâ€”something beyond cheap beer and fast food. Today, many college towns lack high quality retail outlets even though local students and residents often have extensive buying power. According to Divaris Real Estate, $200 billion is spent each year in US college town retail markets. Smart communities are tapping this market. For example, in Rock Hill, SC, the community and Winthrop College have come together to develop an innovative â€œCollege Town Action Plan.â€ In Starkville, the development of the Cotton District has led to a boom in new restaurants and clubs that attract numerous Mississippi State students. Finally, college towns are becoming highly desirable designations. Sporting events are huge draws. In communities like Starkville, community fairs and arts festivals are closely tied to home games and other events like the spring football game. Other communities have built hotels and convention centers to attract visitors for business meetings and the like. For example, in Manhattan, KS, a local conference center has just opened for business. In Lincoln, NE, events and meetings can be held at the iconic Memorial Stadium, home of the Nebraska Cornhuskers. In addition to attracting tourists, college towns are often quite desirable for retirees as well. Iâ€™ve written in the past about retiree attraction strategiesâ€”few communities are better situated than college towns to capitalize on the migration of well-off and well-educated retirees. . In fact, college towns typically dominate the annual lists of the â€œBest Places to Retire.â€ And, specific college town projects targeting retirees are increasingly common. In State College, PA, residents of the Village at Penn State can attend classes and root on the Nittany Lions. In Lawrence, KS (home of the University of Kansas), a city-backed Retiree Attraction and Retention Task Force has developed a multi-pronged plan to develop new amenities for retirees.
Thereâ€™s a lot of exciting things happening in Americaâ€™s college towns. Forward thinking college presidents are embracing their home communities; itâ€™s time for local leaders to return the embrace.
Whatâ€™s New at EntreWorks Consulting?
Weâ€™ve added some new items to the EntreWorks Library. These include a recent report for the North Carolina Rural Economic Development Center entitled â€œOur Manufacturing Future: Toward a more Prosperous Rural North Carolina.â€
Over the past month, we have kicked off new projects for the Northeast Pennsylvania Alliance and for the Alexandria LA-based Rapides Foundation. We also have many upcoming speaking engagements over the new few months, including training for the North Carolina Basic Economic Development course and the International Economic Development Council, the Association for Defense Communities annual conference in Washington, and an address to the Community Development Societyâ€™s annual conference in Charleston, SC. Hope to see you on the road!
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have taken a deeper look at labor mobility in the US, the global accelerator boom, and the role of Obamacare in spurring new business starts. You can also access blog updates at our Facebook page.June 8, 2013
New Directions in Business Development: Rethinking Customer Service
Remember Reinventing Government? Then-Vice President Al Goreâ€™s plan to transform the public sector never fully lived up to its hype, but it did help generate an important and ongoing movement to make government agencies work better and more efficiently. In many cases, the impacts on the ground are palpable. For example, I recently made a visit to my local Department of Motor Vehicles (DMV) office. While it was no day at the beach, it was a decent customer service experience—far removed from the Kafkaesque ordeal that the DMV presented in early years. Many of these everyday government service experiences—paying taxes, reporting potholes, or even voting have been markedly improved thanks to new ideas and strategies for reinventing government.
While progress has been made, some parts of the public sector remain largely untouched and unreformed. Business services are one primary example. In most communities, it is still quite a burden to obtain a business or professional license, to build or renovate business space, or to learn about how to access needed services or support. The subtitle of a recent Slate article, â€œStarting a Business is a Huge Pain,â€ captures the reality in many communities: â€œIâ€™ve been to three offices, filed five forms, spent $200, wasted a day of work—and Iâ€™m not even close to getting the license I need.â€
This lack of progress in the customer service experience for small business is frustrating, but at least policy makers are starting to recognize and respond to the problem. At the Federal level, an interagency task force, the Interagency Network of Enterprise Assistance Providers (INEAP), has been meeting for years to discuss better ways to serve business More importantly, local governments are waking up and realizing that the real customer service problems are closer to home in their agencies and offices.
The challenges of providing effective customer service to businesses are myriad. A recent study from GovLoop and Oracle makes for sobering reading. The report analyzes customer service challenges and also reports on a related survey of program managers. The research finds that government agencies do a poor job of identifying customers, and in using data to better understand and serve their customers. Then, the situation is further worsened as technology shortcomings and organizational roadblocks make it hard to implement any far-reaching program reforms or service improvements. In a nutshell, itâ€™s often a big mess that has its origins in poor data collection, weak technology capabilities, and dysfunctional organizational structures and management practices.
While the challenges are daunting, many communities are stepping up to the plate. The creation of state and city Chief Innovation Officers is one promising trend. These new CIOs focused on a host of different issues, but improving customer service is generally one of their core focus areas. For example, in San Francisco, the Office of Civic Innovation, is heavily focused on open data initiatives, but is also supporting a program to streamline business permitting.
Two other promising models can be found in New York City and Kansas City. In New York, Mayor Michael Bloomberg is six months into a new Business Customer Service initiative with the laudable goals of making rules easier, clearer and faster. The first stages of the effort have produced a series of ten NYC Starter Guides that offer step-by-step guides to starting common businesses like restaurants, professional offices, or salons. The guides are further supported by by a Business Acceleration Team with a focus on speeding up the business start-up process. Future plans for this initiative include allowing more online payments and the ability to get online updates of the status of various license and other regulatory requests.Kansas City (MO) is also in the midst of a promising initiative based around its KC BizCare Center. KC BIzCare is a powerful web portal that not only provides access to information on regulations and procedures, but also links business owners to other kinds of development resources, such as loan funds, technical assistance, and the like. It is also linked to the Cityâ€™s 311 Call Center where residents can access public services from all city agencies.
When Iâ€™m looking at promising new initiatives like those in NYC and KC, my initial reaction is: itâ€™s about time. But, Iâ€™d also add that â€œitâ€™s better late than never.â€ Itâ€™s taken awhile, but all levels of government seem to be getting the message that small business customers deserve quality customer service. Watch this space for future updates on these important trends!
Whatâ€™s New at EntreWorks Consulting?
Weâ€™ve got some upcoming speaking engagements over the new few months, including the North Carolina Economic Developers Association in March and the IEDC Federal Forum event in April. Hope to see you on the road!
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have taken a deeper look at the Creative Class and profiled success stories like economic gardening and the Community Development Financial Institutions program. You can also access blog updates at our Facebook page.February 8, 2013
Whatâ€™s Next for Cleantech
Americaâ€™s cleantech industriesâ€”those that help improve performance while reducing environmental impacts or using natural resources more efficiently—have been on a bit of roller coaster ride in recent years. Five years ago, cleantech was the next big thing, touted by leading venture capitalists and industry experts. Today, the media is filled with stories of company bankruptcies and major facility closures. What happened and whatâ€™s the near future for cleantech? This issue of EntreWorks Insights takes a brief look at what might lie ahead.
If we go back to 2008, barely five years ago, cleantech was hot. In that year, venture capitalists (VC) invested $4.1 billion in cleantech firms-up from a few hundred millions dollars in 2005. Investments via Federal programs were even larger, accounting for nearly $45 billion between 2009 and 2011.
Unfortunately, the boom has been very short-lived. Bankruptcies of major industry players like Solyndra and A123 Systems along with major job cuts from established players like Siemens and Vestas are in the news every day. Investments are similarly down. 2012 VC funding for cleantech is also declining, and Federal dollars, many of which came from the 2009 Stimulus bill, are also drying up.
For cleantech advocates, it feels a bit like something of a perfect storm. After slogging through the Great Recession, these companies face an environment where:
Potential investment dollars, particularly from Washington, are drying up.Many key policy supports, particularly the renewable energy production tax credit (PTC), are at risk of expiring at the end of the year.The boom in natural gas production places increased price pressure on other energy sources.Some communities are finding that the benefits of past cleantech projects were overhyped and overstated. (See this story on issues related to new solar plants in California).This challenging market situation has led many observers to over-react and declare that cleantech is dead. On Capitol Hill, conservative advocates are pushing a new effort, the Electricity Freedom Act, are seeking to repeal state renewable energy mandates. Critical industry supports, such as the PTC, are being derided as unnecessary pork.
These short-sighted moves are dangerous, because cleantech is not dead. In fact, itâ€™s probably more accurate to say that, as one blog post recently put it, â€œCleantech is dead like the Internet was in 2000.â€ Today, the Internet and related industries are key drivers of our economy. In fact, a recent industry study found that direct employment in the Internet ecosystem has doubled over the past four yearsâ€”at the height of the Great Recession. These jobs are not just in big players like Google and Facebook. The fastest job growth is actually occurring in less glamorous sectors like advertising and data analytics.
A similar prospect is likely for many cleantech sectors. How can this more positive set of outcomes be supported? Here are a few guidelines:
Foster Market Stability: Many cleantech sectors have suffered from considerable market instability. Wind power is a classic example. Because the PTC has been allowed to expire on numerous occasions, the industry has developed via a risky boom and bust cycle. Long term investments will not occur in an environment where market instability looms. Renewing the PTC for an extended period of time will help counter these trends.Capitalize on the Energy Boom: While the boom in shale gas production creates major pressures on many cleantech firms, it also creates opportunities. Innovations that improve the efficiency of gas extraction or that aid in the development of new gas-based power plants will likely see a boom market in coming years.Not all Cleantech is Created Equal: Cleantech is a catch-all term that includes a vast array of industries. Declining Sectors like solar and wind get a lot of public attention, but the exciting trends in cleantech are in the less sexy areas like smart grid, LED lighting, and energy efficiency are booming. These sectors face bright growth prospects in the future. Smart Policies Matter: While itâ€™s unlikely that the large scale investments tied to Federal stimulus are going to resurface, Washington still has a critical role to play by investing in energy innovation and by supporting the commercialization of new cleantech technologies. A highly recommended April 2012 report (from researchers at the Brookings Institution and the Breakthrough Institute), Beyond Boom and Bust: Putting Cleantech on a Path to Subsidy Independence, offers an excellent series of recommendations on this front.
Despite some recent hiccups, the prospects for cleantech are bright. A combination of smart policies, patience, and a continued commitment to cleantech innovation, can help ensure that the long-touted benefits of cleantech will come to pass.
A Note of Thanks
At the end of this year, EntreWorks Consulting will be celebrating ten years in business. Over the past decade, weâ€™ve gotten older, grayer, wiser (maybe), but certainly more grateful than ever for the good friends, partners, and supporters weâ€™ve found along the way. Thanks to all and we hope to see you soon as we move into our 2nd decade!!
Whatâ€™s New at EntreWorks Consulting?
Weâ€™ve added some new materials to the EntreWorks Library. They include:
â€œThe Forgotten Fifth? Understanding and Supporting your Communityâ€™s Independent Workforce.â€ IEDC Economic Development Journal, Summer 2012.â€œCareer Pathway and Cluster Skill Development: Promising Models from the US.â€ Organization for Economic Cooperation and Development Report, 2012.
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have covered the rise of Silicon Prairie, the latest on community indicators, and new resources for veteran entrepreneurs. You can also access blog updates at our Facebook page.December 8, 2012
Social Impact Bonds and their Potential in the US
In August, New York Mayor Michael Bloomberg announced the first large US experiment with the use of social impact bonds (SIBs). Under the New York pilot project, investment bankers Goldman Sachs and others have agreed to invest $9.6 million in programs to reduce juvenile recidivism at the Rikers Island jail facility. If this project succeeds, the investors earn a profit and New York benefits by reintegrating more at-risk youth into the community.
Since this deal was first announced, social impact bonds have been getting a lot of public attention, with several other states also lining up with their own pilot SIB projects. This issue of EntreWorks Insights takes a brief look at the world of SIBs, and assesses whether the current hype is justified. And, if SIBs are going to become part of the public finance landscape, can and should they be deployed to support community, workforce, and economic development projects? At this point, we can conclude with a somewhat tentative yes. SIBs appear to have potential, but their applicability to supporting economic development programs likely warrants further research and analysisâ€”as well as some re-thinking about how to manage economic and workforce development programs.
A (Very) Brief History of Social Impact Bonds
SIBs are a very recent British import, developed and pioneered by the non-profit Social Finance Ltd. The first SIB dates all the way back to 2010 when the UK government opted to test the SIB model to cut recidivism rates at Peterborough prison. Since then, the field has grown rapidly and attracted massive investments from foundations and leading philanthropists, including NY Mayor Bloomberg.
In the US, a US social finance entity, Social Finance Inc., is now open for business and is aggressively pushing for the expanded use of SIBs across the country. You can read an excellent summary of SIBs and Social Financeâ€™s vision here. (In addition, a detailed McKinsey and Co. study on SIBs can be accessed here.) At present, US SIB backers are focused on opportunities to provide assistance to the chronically homeless, juvenile and adult offenders, and low income senior citizens. But, they acknowledge that a wider range of focus areas is feasible. The US is not alone in this work, as Australia, Canada, and host of other nations are also investigating SIBs as an investment model.
SIBs work in a straightforward manner. 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 donâ€™t occur, the investor receives no payout. At Rikers Island, the plan is structured as follows: If the programs succeed in reducing recidivism rates by ten percent, investors are repaid their entire up-front investment. If rates are cut even further, they have access to as much as $2.1 million in profits. If more teens become repeat offenders, investors take a haircut, and can lose as much $2.4 million.
SIBs are gaining great interest, because they offer the potential of a win-win-win situation, helping government agencies, their customers, and investors along the way. The potential benefits include:
Increased resources for non-profits, government programs, and social service agenciesIncentives to innovate as new players and new investors enter the market and test new approaches to long-standing social problemsImproved efficiency as investors press service providers to provide value for moneyIncreased transparency and accountability as service providers and investors must agree on clear and measure performance outcomes and impact measures.
From Social Impact Bonds to Development Impact Bonds
At present, most existing SIB projects are focused on social service programs that target highly vulnerable populations. Meanwhile, a number of promising research efforts are examining the potential of development impact bonds (DIBs), which apply the SIB concept to international development programs. While the work is ongoing, the current consensus appears to be that DIBs could help attract new private investors to the international development field and build on promising approaches such as the current commitments to results-based aid and emerging funding platforms like Kiva and Global Giving.
As these efforts go forward, we need a parallel effort to examine the potential for SIBs to support US economic, community, and workforce development programs. This effort will require much more than just a simple assessment of whether DIBs are a good thing. It will also require that US program managers rethink how they work and commit to some major changes in how we do businesses. While not an exhaustive list, the following steps are among those that would be required.
Commit to real transparency about program operations and budgets so that investors can monitor funds and their use.Commit to real public-private partnerships where outside investors share in program management and implementation as opposed to operating as passive investors.Commit to clear and consistent performance measurements so that program outcomes can be effectively assessed. This will require strong baseline data on whatâ€™s happening now so that investors can assess how future investments will fare in relation to past performance.Commit to rigorous outside evaluation of these performance measures to ensure accountability and impact.
Not all programs or types of programs are ready for this kind of in-depth scrutiny and rigorous assessment. But, many parts of the workforce and economic development world could get there very soon. For example, in the fields of workforce development and small business development, relatively clear and transparent metrics (such as job placements or new firm creation) are in place and could be used as part of an impact bond model.
Regardless of what happens with the November elections, the prospects for major new funding of economic development from traditional sources, such as Federal agencies, are not bright. We need to look for new tools and new financing models. Social impact bonds can and should be part of this ongoing discussion.
Whatâ€™s New at EntreWorks Consulting?
Weâ€™ve had a busy and productive summer which has included kicking off several new projects. Many of these efforts will be managed with our long-time collaborators at the Center for Regional Economic Competitiveness. This fall, weâ€™re jumping in to new work for the Northeast Pennsylvania Alliance, the Northwest Pennsylvania Regional Planning and Development Commission, the Appalachian Regional Commission, and the MIT Enterprise Forum.
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have included updates on the Farm bill, new data on younger workers, and discussions on how to measure the intangible economy. You can also access blog updates at our Facebook page.
In addition, weâ€™ve got several speaking opportunities lined up this fall. In October, Erik Pages will be speaking at the Northeastern Economic Developers Association annual meeting in Hartford, and at the annual Global Consortium of Entrepreneurship Centers conference at Washington DCâ€™s Georgetown University. Hope to see you on the road!September 8, 2012
Buy American and Regional Development: Emerging Opportunities in Rail Transportation
When President Obama entered office and subsequently devoted a large share of federal stimulus funds to high speed rail (HSR), long-time transportation advocates were ecstatic. Many projected a rail renaissance, where Americans would travel seamlessly and rapidly on high-speed bullet trains like those already operating in Europe and Asia. Fast forward to 2012, and many of those hopes seem far-fetched. Today, only one large high-speed rail projectâ€”in California—is moving forward, and even that plan faces huge obstacles and opposition.
While these high profile HSR projects face some hiccups, the overall prospects for the rail industry are quite promising. The US freight rail industry Is booming, and is still the worldâ€™s largest freight market. Equally exciting is the emergence of new opportunities in the passenger rail industry. Several exciting trends are coalescing. Ridership numbers are rapidly rising. Between 1995 and 2008, ridership on commuter, light and heavy rail jumped 72 percent. Demographic trends suggest these patterns will accelerate. New USPIRG research shows that younger Americans have strong preferences for alternative transportation, including rail. Finally, new resources are being deployed to upgrade and expand rail infrastructure across the US.
The emergence of a revitalized rail industry is a good thing for residents and for business as it ensures that people and goods can move more easily. But, the benefits go further. The emergence of new demand for rail creates new opportunities for American manufacturing. After years of neglect, the prospects for US passenger rail suppliers are looking up.
Until the 1970s, the US was a leader in rail manufacturing, with world class firms producing locomotives, rail cars, rails, and other components. As US passenger rail investment dried up, US firms closed shop. Today, nearly every major rail manufacturerâ€”with the exception of GEâ€”is based overseas. These original equipment manufacturers (OEMs), such as Siemens, Bombardier, and Alstom, often operate large facilities in the US but they understandably focus more attention and resources on overseas markets.
Thanks to years of neglect, itâ€™s difficult to speak of a cohesive US rail manufacturing industry. Firms bid on individual jobs, especially for light rail and other transit vehicles, but sustained opportunities have been lacking. Fortunately, change appears to be in the air. The states of California and Illinois have just announced a major joint rail car procurement that is valued at more than $550 million. Meanwhile, Amtrak is in the midst of a modernization program that is expected to invest several hundred million dollars per year in new and upgraded locomotives and rail cars.
These projects offer an unprecedented opportunity to help rebuild a strong American rail manufacturing capacity. The new procurements include provisions that require 100% domestic content. In other words, the cars and their components must be made in America. Some of this content is unique to the rail sector, but OEMs also purchase much that could be considered â€œdual useâ€ (i.e. items like castings, wiring, lighting, and other fixtures). Many firms in other sectors, such as automotive or aerospace, could supply the rail market.
Rail procurements have long included strong domestic content rules. In fact, these rules are a primary reason why many foreign OEMs have located facilities in the US. Most US rail cars and locomotives now contain a minimum (if not higher) of 60% domestic content. Thanks to new rules, OEMs will now be expected to reach 100% domestic content. Getting to 100% domestic content is no simple task, and, when pressed, OEMs have previously requested Buy American waivers that allow them to use foreign suppliers when US suppliers arenâ€™t available. However, these waivers are no longer available as the Federal Rail Administration has vowed to reject any such requests.
This is where new opportunities emerge. Leading global OEMs are pursuing huge new procurement opportunities but must develop a domestic supplier base for thousands of components, parts and supplies. Meanwhile, thousands of smaller American manufacturers are hungry for new business opportunities. The policy challenge? How to connect them!!
This is where a new initiative from the National Institute of Standards and Technology Hollings Manufacturing Extension Partnership (MEP) comes in. Its new Supplier Scouting effort builds connections between OEMs and new US-based suppliers. OEMs may lack the resources and capacity to find new suppliers, especially at lower tiers of their supply chains. MEP is in the business of working with these firms, and its national network worked with nearly 34,000 manufacturers last year.
This effort is just underway, with a number of regional Rail Connectivity Forums held in recent months. These events match OEMs with hundreds of potential suppliers around the US. Important new business linkages are being built. The Next Generation Rail effort was based on a successful pilot program with the Department of Energy where MEP succeed in finding new US suppliers for more than half of the requested products or services. Similar positive outcomes for rail are envisioned.
Supplier scouting and related programs are already creating new business connections, but they have also long term implications in terms of revitalizing American manufacturing. The rail industry in the US is already sizable. According to the Railway Supply Institute, it presently employs 90,000 workers in 650 companies, with $23 billion in revenues. But, it could grow even bigger. In 2010, Northeastern University researchers estimated that new investments in passenger rail could help create anywhere from 21,000 to more than 50,000 new manufacturing jobs.
These efforts also mean lucrative opportunities at the regional level as well. National groups, such as the Blue Green Alliance, monitor this industry, but few local efforts are underway. Regions with manufacturing clusters can and should seek to link local firms to these emerging rail opportunities. At present, only one such regional effort appears to be operating in the US. In New York, the Long Island Forum for Technology has created the Long Island Rail Suppliers Alliance. Meanwhile, in Europe and Asia, dozens of cluster organizations support rail and related manufacturing.
What else needs to happen to create a vibrant US rail manufacturing capacity? At the most basic level, sustained demand is essential. Suppliers wonâ€™t retool if each new procurement is an isolated one-time opportunity. New R&D funds and the development of new testing facilities are also needed so that suppliers can introduce new innovations into the industry. In addition, FRA and other key players should continue to support the work of the Next Generation Rail Corridor Equipment Committee which is developing new standards for new rail infrastructure. Finally, efforts to promote Buy American and Supplier Scouting must continue.
Supplier scouting and related efforts represent new types of demand-side innovation policies where governments use procurement, regulation, and standards setting as tools to nurture innovation. (To see a recent OECD compendium on demand-side innovation, click here.) These approaches are gaining traction around the world, and also have great interest across the Obama Administration as part of its broader advanced manufacturing strategy. The emerging partnerships around rail manufacturing will be an important test bed for these new innovation policy approaches.
(NOTE: EntreWorks Consulting is presently engaged in a rail manufacturing-related research project for NIST-MEP. We will provide further updates on this work in future newsletters and on the EntreWorks Blog.)
Whatâ€™s New at EntreWorks Consulting?
Spring is a time for new beginnings, and itâ€™s also meant kicking off some new projects for us. These include an evaluation effort for Harvest Foundation of the Piedmont (VA); an impact assessment of the Pipeline Entrepreneurship Program (KS/MO/NE), and strategic planning assistance for the National Association of Community College Entrepreneurship.
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have included some mini-book reviews, a look at economic mobility patterns, and assessments of several new entrepreneurial development programs. You can also access blog updates at our Facebook page.
In addition, weâ€™ve updated our website library with some new reports from our annual research and development evaluations in Maine. You will also be able to find us at upcoming speaking and training engagements in North Carolina, Virginia, and Connecticut. Look to our blog for these updates. Hope to see you on the road!May 8, 2012
The Return of Defense Downsizing: So, Now What?
Itâ€™s been a pretty long time since many American communities have had to deal with the issues of defense downsizing, i.e. the ripple effects that hit communities when the Pentagon opts to reduce spending or cut military bases and facilities. But, it seems like responding to defense downsizing is going to be on the agenda for many communities in the near futureâ€”for better or worse. While itâ€™s a good thing that we can cut defense spending and bring some troops home, these moves can also mean tough times for workers who build or support weapons systems and the communities where they work and live.
In announcements last month and in the upcoming FY2013 budget, President Obama, and Defense Secretary Panetta have called for major defense cuts. At the same time, they have requested Congressional authority for two more rounds of the dreaded Defense Base Realignment and Closure (BRAC) process to shut down or realign unneeded military bases.
These budget decisions are going to be felt in regions across the US—plants will close, bases will be shuttered, workers will lose their jobs, and returning veterans will have to readjust to civilian life. The transition process is going to be challenging.
For those of us of a certain age, this whole thing may sound familiar. Some of my first extended work in economic development occurred during the debates about defense conversion in the late 1980s and early 1990s. At that time, we assumed (wrongly, alas) that the need for large military presence would be permanently lessened with the end of the Cold War. Workers, communities, and businesses also assumed that defense business opportunities were not coming back. It was restructure, transition, diversity, convert or else.
The stakes were high and that resulted in some heated political debates. But it also generated some serious conversations and thinking about how to respond to defense budget cuts. Some of this experience has colored community responses to military base closings which now proceed via a well-understood process. It has not been as well used to aid community responses to other kinds of economic shocks, such as non-defense plant closings.
Iâ€™ve been recently revisiting these post-Cold War discussions in relation to several current projects at EntreWorks Consulting. This effort has required some good old fashioned paper shuffling, as many of the materials and research were produced in the pre-Internet and pre-PDF era of the 1980s and early 1990s. So, much of the material is not easily found on-line. However, the Pentagonâ€™s Office of Economic Adjustmentâ€™s website is still a treasure trove of useful tips and case studies.
If you look back at the history of past defense downsizing experiences, there are lots of good ideas and smart advice for communities, workers, and businesses on how to effectively respond to defense downsizing. Here are some highlights:
Donâ€™t Sweat the Big Stuff: Defense is a notoriously cyclical industry, and large defense contractors recognize this reality. While they donâ€™t relish big defense budget cuts or program cancellations, they also recognize that these cycles are a regular part of the defense business. As such, they are generally prepared and able to adjust to a smaller market through strategies that mix cutbacks, mergers and acquisitions, and more aggressive moves into other markets, especially overseas. The process is not pain-free, but the big contractors can and will adjust accordinglyâ€”and generally, will not require a whole lot of public support or subsidy during the adjustment process.
Focus on the Supply Chain: The above statement is likely not true for the thousands of smaller and medium sized firms who form the supply chains for large military contracts. These firms may be very hard hit by a large contract cancellation or plant shutdown. But, even here, their situations vary wildly. Many suppliers have a variety of customers, and serve both defense and civilian customers. They can adjust to a new customer mix. But, others may be less diversified. In the early 1990s, small suppliers, such as machine shops, or local retailers, like dry cleaners or restaurants, took the hardest hits when local plants closed. These companies can benefit from business development training and other kinds of assistance to identify and capture new markets. However, the 1990s experience also suggests that diversification (defense conversion) is a very difficult process and will only succeed if the firmâ€™s owners and employees are completely committed to new directions.
Worry about the Industrial Base: As the Pentagon cuts back, military leaders must be conscious about preserving key defense industrial base capabilities. Officials cannot simply be hands-off during the downsizing process. They must act when necessary to preserve critical design and engineering capabilities that could be permanently lost. This does not imply that every military contract is essential, but there are key sectors that will not survive without support via Pentagon contracts. Many of these competencies, such as robotics or specialized manufacturing capabilities, are critical for both defense and commercial industry needs. (For an excellent review of these issues from the Center for Strategic and Budgetary Assessments, click here.)
Support Worker Transition: Helping affected workers make the transition to new jobs and careers should be your communityâ€™s top priority. Past experience with defense worker transition produced mixed results as programs were slow to start up and often not well suited to defense worker needs. Worker retraining and support programs have progressed since that time, but the makeup of the current defense workforce will create some challenging circumstances. These workers are long-tenured, well-paid and older than average. The Aerospace Industry Association of America and the Aerospace Industry Association have both highlighted these workforce issues, noting that, in 2007, 65% of the aerospace workforce was over the age of 45. As a recent Brookings Institution-sponsored study notes, current workforce and retraining programs are not well-suited to support these high tenured workers. New approaches will be needed.
Most Communities Recover: Community defense transitions are never easy, but, in the end, most places recover and build new economic engines to replace lost defense business. There is no one best way to proceed, but there are hundreds of success stories and plenty of community leaders willing to share their experiences. In fact, the Association of Defense Communities exists for this very purposeâ€”to help share lessons learned and effective practices for defense transitions.
Whatâ€™s the bottom line from these experiences? I would highlight two important messages: 1) Donâ€™t reinvent the wheel, and 2) Hope is an option. Lots of communities have responded to and recovered successfully from past defense downturns. While the upcoming defense downsizing will be challenging, most communities are going to see a similar positive outcome in the end.
Whatâ€™s New at EntreWorks Consulting?
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have analyzed Obamaâ€™s government reorganization plans, some cool business plan competition ideas, and mini-reviews of several new books on economic sustainability. You can also access blog updates at our Facebook page.
In addition, weâ€™ve updated our website with new engagements from across the US. You will also be able to find us at upcoming speaking and training engagements in Virginia, Vermont, and in Maine. Hope to see you on the road!February 8, 2012
More Resources on the 1099 Economy
Our last newsletter and a series of recent blog postings have focused on whatâ€™s happening in the 1099 Economy. This term refers to the growing number of American workers who work in â€œnon-coveredâ€ jobs, i.e. they work via individual contracts as freelancers or independent consultants. At tax time, these individuals file a 1099 form as opposed to the W2 form typically filed by full time employees. While the numbers vary depending on how and what you count, data suggest that a minimum of 20 million Americans now fit this description.
As weâ€™ve been following this topic, weâ€™ve received lots of feedback and suggestions of resources and organizations focused on supporting these workers and entrepreneurs. In an effort to share what weâ€™ve learned, this edition of EntreWorks Insights highlights some of these promising initiatives. While policymakers continue to ignore and neglect this important part of the US workforce, lots of other organizations are trying to help. Here are a few of the most promising:
Freelancers Union: The New York City-based Freelancers Union is the granddaddy of advocates for freelancers and independent workers. Started in 1995 as Working Today, the Freelancers Union now represents more than 100,000 members across the US. It offers a host of services, including health insurance, retirement benefits, a jobs board, and a host of networking and community building activities. The Freelancers Union views itself as leading a national movement to change how independent work is viewed and treated. Itâ€™s founder, Sara Horowitz, refers to the rise of the independent workforce as â€œthe industrial revolution of our time.â€
National Association for the Self-Employed: NASE operates like a more traditional trade association or advocacy organization. It provides many member benefits, but also places great emphasis on educating policymakers in Washington. It does a great job of tracking legislative activity on a host of issues related to the self-employed and to small business more generally.
CFEDâ€™s Self-Employment Tax Initiative (SETI): SETI targets tax preparation and support services to the self-employed and to the owners of small microenterprises. It is based on the recognition that tax preparation poses a big challenge to many 1099 workers. Many of these workers file an annual Schedule C form, which can be a daunting proposition for those new to the business world. By focusing on aiding new business owners with tax preparation, SETI also hopes to introduce microenterprise owners to other services, such as training and consulting, and to help them quality for other benefits and support, such as the Earned Income Tax Credit. The IRS already helps people apply for the EITC via its Volunteer Income Tax Assistance (VITA) program that trains volunteers to provide tax preparation assistance. But, this program does not support the self-employed or new start-up businesses. SETI can help close this gap.
MBO Partners: MBO Partners is a consulting firm focused on providing support to independent consultants. I include them in this listing, because, in addition to their consulting practice, MBO is also producing some useful guides on the 1099 Economy. The latest is their 2011 Independent Workforce Index which provides some useful background on whatâ€™s happening with independent workers. The Index finds that most independent workers are very happy with their current work status, and that most of them (55%) proactively chose to become freelancers. Here are some other interesting data points from the Index:
Gender differences are minor with women accounting for 53% of the independent workforce, and men comprising 47 percent.Gen X (48% of those surveyed) and Boomers (30%) make up the largest age cohorts. The numbers of independent workers will continue to grow. MBO projects a net increase of 4.3 million more independent workers in the US by 2013.
There are a lot of for-profit web sites and services that focus on helping freelancers and 1099ers. Well-known examples include guru.com or Freelancers Outpost or the International Freelancers Academy. Many of these services provide excellent support and tools. However, Iâ€™ve tried to focus here on groups that are both helping and advocating for the needs of these workers. Each of these efforts offers great promise, but all of them are scratching the surface of a bigger set of issues and challenges. Letâ€™s hope for more similar efforts and for a more extensive national conversation about what the world of work really looks like in the 21st century.
Whatâ€™s New at EntreWorks Consulting?
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have analyzed new approaches to youth entrepreneurship, the power of crowdfunding, and innovative approaches to regionalism.
Over the next few months, look for the EntreWorks team on the regular speaking circuit with upcoming speeches and training programs in Florida, Maine, Rhode Island, and Virginia. Hope to see you on the road!December 1, 2011
Living and Working in the 1099 Economy
We used to call it â€œFree Agent Nation.â€ Now, it seems like the new term of art will be â€œThe 1099 Economy.â€ While the names may change, they all point to a phenomenon of rising importance—the growing number of Americans who donâ€™t have a â€œregular jobâ€ but instead work on individual contracts with employers or customers. These folks donâ€™t get the traditional W-2 paystub at the end of the year; they report their taxes with the IRSâ€™ form 1099.
The 1099erâ€™s are a growing part of our economy. There are a number of ways to slice the data. If you look at US Census Bureau figures on the self-employed, we find 21.4 million self-employed Americans in 2008. Recent data from EMSI suggests that the figures might be even higher. Tracking workers who are not covered by unemployment insurance, the EMSI researchers suggest that more than 40 million Americans operate in the 1099 economy. This represents about 1/5 of the total US workforce.
As someone who has operated in the 1099 Economy for a decade, I can state that there are many benefits to this status: more flexibility, more opportunities for unique and creative work, and more control over oneâ€™s work circumstances. And, 1099 status can be profitable. Many fast growing ventures operate as sole proprietorships. For example, in 2008, the Inc. 500 list looked at the ownership structures of firms on this list of USâ€™s fast growing companies. The largest sole proprietorship, Milwaukeeâ€™s Service Financial, had $11 million in revenue, but only one employeeâ€”its owner.
While the freedom of operating in Free Agent Nation can be tempting, there are downsides. The data suggests that, for many people, operating in the 1099 Economy may not be their first choice. The EMSI research cited above found that the number of non-covered jobs in the US grew by 4 million between 2005 and 2009. The fastest growth occurred in the mining, quarrying, and oil/gas extraction sectors where more than half of all workers are now non-covered. Other areas with high concentrations of 1099 workers are in real estate (74% of workers are non-covered) and agriculture/forestry (74%). This non-covered status creates a more flexible labor market, but it also creates potential challenges for these workers operating in notoriously unstable industries.
The 1099 Economy has emerged somewhat below the radar over the past decade. Few economic development organizations have devoted much thought or research to the needs of this segment of the economy. And, thatâ€™s not a good thing if 20% of the local workforce is invisible to community leaders. Based on my experience, I see several segments within the broad category of the 1099 economy: the reluctant 1099ers, the entrepreneurial 1099ers, and the â€œgig economyâ€ work force.
The Reluctant 1099ers: This group includes those who operate in the 1099 economy because they have no choice. This group includes those sectors that have previously operated with traditional employment contracts, but have now shifted to the new structures. Examples include mining, utilities, finance and insurance, and some administrative fields. While individuals in these specific jobs may be happy with their circumstances, the workers, in a collective sense, face a more uncertain, and probably less profitable, work situation as 1099 contractors.
The Entrepreneurial 1099ers: Many budding entrepreneurs operate in the 1099 economy. Sole proprietorships and LLCs/LLPs may have numerous workers under contract, yet appear in government statistics as a self-employment venture. While most sole proprietorships are quite small and generate limited revenue, a sizable portion does generate significant incomes and may be poised for rapid revenue and job growth. These individuals and their firms are the invisible portion of many local entrepreneurial ecosystems.
The â€œGig Economyâ€ Workforce: Last but not least, the gig economy workforce refers to those who operate in industries that traditionally operate on a project or â€œgigâ€ basis. Perhaps the best known example is film-making where crews come together for a film and then break up for other projects. Other examples include the arts, theatre, writing, web design, and construction. These sectors have a long history of operating via these structures. It is clear that more industries are moving in this direction as well. In response, a host of new kinds of support organizations, such as New Yorkâ€™s Freelancerâ€™s Union, are emerging. If current trends continue, we can expect to see similar groups arising across the US.
Regardless of how one classifies these workers, they remain largely invisible to policy makers and to economic and workforce developers.Â Â That needs to change.Â In addition to recognizing the importance of this part of the workforce, we also need to develop a more nuanced understanding of their concerns and needs.Â Â At a minimum, providing a stronger safety netâ€”as suggested by the Freelancerâ€™s Union and othersâ€”makes sense.Â Â It also makes sense to develop work spaces that support the 1099ers.Â Â Here, the recent growth in co-work spaces is a positive trend.Â Â (NOTE:Â we covered this topic in a previous newsletter which can be accessedÂ here).Â Finally, we need new kinds of support and services for the 1099ers.Â These might include traditional training in business development, but other supports, such as networking or peer-to-peer lending or on-line tools to find customers and partners should also be part of the mix. Â Â Â Itâ€™s time to recognize that the 1099 economy is here to stay and will be an important part of every communityâ€™s workforce for decades to come.
Whatâ€™s New at EntreWorks Consulting?
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Recent postings have analyzed the latest data on business dynamics, examined how small firms can build strong supply chain linkages, and assessed how to use social media to promote regional economic development initiatives.
Over the next few months, look for the EntreWorks team on new projects with Maryland Capital Enterprises on Marylandâ€™s Eastern Shore, and in ongoing projects in Maine, Mississippi, North Carolina, and Virginia. Weâ€™ll also be out on the regular speaking circuit with upcoming speeches and training programs in Chapel Hill, Charlotte, Roanoke VA, and Portland, Oregon. Hope to see you on the road!July 1, 2011
From Business Development to Market Expansion: The Export Imperative
Over the past several years, we have been involved with an ongoing evaluation project in Maine that examines the impact and effectiveness of the stateâ€™s investments in various research and development and innovation activities. (You can access project reports here.)
This research effort has generated many insights about what works in technology-based economic development. But, personally, I have been more struck by a consistent set of results that has emerged every year from the evaluation process. Mainers are extremely entrepreneurial. In most measures of business start-up activity or entrepreneurial intensity, Maine tends to rank very high. In other words, Mainers start many businesses and they start them at a healthy clip. However, most of these businesses start small and stay small. Maine does not have impressive results when we look at fast-growing gazelle businesses or other measures that track high value-added entrepreneurial activities.
These points are not designed to pick on Maine. In fact, nearly every state in the US faces an identical dilemma. The overall US economy is also feeling the pinch. A March 2011 Kauffman Foundation study shows that job creation from new firms is greatly lagging across the entire US economy.
What explains these trends? Clearly, the economic downturn is the biggest culprit. But, in Maine, and similarly situated states, this problem of lagging firm growth rates has persisted for some timeâ€”in both bad times and good. Our research evaluation work in Maine has examined many potential causal factors, and we have found one importantâ€”and pretty simple—-pattern at work. If small businesses want to grow, they need more customers. And, if they want more customers, they need to enter new markets. And, if they want to enter new markets, they have to get out of their comfort zones and be aggressive about expansion at both the national and global level.
Consider the numbers from our research in Maine. Maine lags on many indicators of state export performance, but further insights come from our surveys of firms (primarily very small technology ventures) that have received state assistance. Of this group, 88% report that they receive less than ten percent of revenue from foreign customers. Sixty percent of these firms get less than half of their sales from outside of Maine (both US and overseas sales). The picture is fairly stark. Without successful new market development, these businesses face significant growth constraints driven by the small size of their current markets. If they want to grow, they must do business outside of Maine, outside of New England, and outside of the US.
How can firms break out of these constraints and succeed in national and global markets? The primary onus is on the business owner; he (or she) needs to develop a strategy for market expansion. Our interviews with Maineâ€™s successful exporters suggest that, while success is not guaranteed, this process is not particularly complicated. As we were regularly told, â€œItâ€™s not rocket science; you have to just get out there and do it!â€ â€œDoing itâ€ means taking steps like participating in trade shows, getting active in state and national industry associations, and, when needed, reaching out to export promotion agencies for assistance.
Economic developers and other community-based organizations can also help. Export support agencies can provide critical tools like market assessments and small stipends to attend trade shows. Business support providers need to place greater emphasis on export success as well. The good news is that Washington and many states are starting to recognize the importance of placing market expansion at the core of small business support programs. At the Federal level, the National Export Initiative is generating lots of interest. Many states, such as Washington, Utah and Maine, operate excellent, though often underfunded, export promotion programs.
All of these efforts will be critical to strengthening the global market potential of Americaâ€™s small businesses. In the end, a new mindset is required. All new businesses need to view themselves as global from Day One. While the first sale may be close to home, itâ€™s never too early to be â€œexport-ready.â€
NOTE:Â Much of the analysis in this essay comes from a report produced by EntreWorks Consulting in partnership with PolicyOne Research and Scruggs & Associates,Â From Business Development to Market Expansion:Â Helping Maine Firms Succeed in National and Global Markets.Â Report prepared for the Maine Office of Innovation, January 2011.Â The report can be accessedÂ here.
Whatâ€™s New at EntreWorks Consulting?
We continue to provide more regular news and updates at the EntreWorks blog at http://entreworks.net/blog. Please note that this is a new address. Weâ€™ve upgraded the blog site and these improvements also entailed a new blog address. Recent postings have focused on the state of manufacturing, recent trends among state economic development organizations, and a review of the new book from Steven Johnson, Where Good Ideas Come From.
We have also added some new material to the EntreWorks Library. These include several reports related to the 2010-2011 Maine R&D Evaluation project, recent Senate Testimony on the future of SCORE, and a new Local Economy article on the Obama Administrationâ€™s approach to industrial policy.
This spring will be very Virginia-centric at EntreWorks as we are kicking off a new project for the Region 2000 Partnership (based in Lynchburg, VA) and supporting a regional innovation initiative in the Roanoke/Blacksburg region. We are also providing support to the Blueprint Mississippi 2011 strategic planning initiative in cooperation with the University of Mississippi and the Mississippi Economic Council.
Over the coming weeks, EntreWorks Consultingâ€™s Erik Pages will also be on the road doing many speeches and public presentations. These include appearances in Roanoke, VA, Reading, PA, Asheville, NC, and Battle Creek, MI. Hope to see you on the road!April 1, 2011
The Promise of Innovation Vouchers
As Federal, state, and local economic development entities face tough budget challenges, they need to find ways to â€œdo more with less.â€ Many agencies express a commitment to partnering with the private sector, but they regularly miss good opportunities to capitalize on the talents of these potential partners. This is especially the case when we look at the provision of technical assistance and other services to small and medium-sized businesses. Management and staff at Small Business Development Centers, microenterprise organizations, and other business support groups regularly (and correctly) complain that they are â€œswampedâ€ with work. They have too many customers and cannot devote the needed time and attention to many deserving businesses and aspiring entrepreneurs.
When asked for solutions to this challenge, business service providers plead for more money. While I personally agree that more funds should be provided, thatâ€™s not a likely scenario in the current budget environment. Other strategies are needed.One promising modelâ€”the innovation voucher– is already being used overseas on a regular basis. Innovation vouchers operate via a fairly simple process. A small business receives a voucher, generally backed with public funds that it can cash in with pre-approved consultants or research centers who help the firm address a pressing technical or business issue.
Each voucher has a relatively low value (e.g. below $10,000), and the process for receiving vouchers is fairly simple. Firms must file a short application, and describe their intended activities. In cases where larger dollar amounts are expended, so form of matching investments are often required.
Innovation voucher programs have become hugely popular in Europe where there are at least 25 different programs underway. The concept was first tested in 2000 in the Netherlands and now has spread throughout Europe. In September 2010, the European Union announced the Riga Declaration which sets out guidance for the expansion of innovation voucher programs across the region. More recently, numerous other governments, including Singapore, Taiwan, and Alberta, have announced their own voucher programs.
A 2009 evaluation of European innovation voucher programs found that most of the programs are still very new. Vouchers could typically be used for wide variety of activities, including research and development, product development, management consulting, and training. This diversity of uses is a real added benefit of the voucher system. They allow businesses to obtain support services specifically tailored to their most pressing needs.
Early evaluations of these projects are quite positive. The voucher programs are quite popular, but, even more importantly, they are generating bottom line benefitsâ€”in the form of new business and new jobs—for business customers. The programs also seem to generate a host of other spin-off benefits, such as:
Programs are more flexible, allowing firms to tackle a host of different issues and problems.The use of vouchers helps create a stronger base of local consultants and business service providers.The vouchers encourage firms to get more involved in local business support networks.The system can operate with limited funds and administrative capacity.
This positive early experience with innovation vouchers in Europe has reached a point where the use of vouchers is now considered a regular â€œbest practiceâ€ for business support within the EU. They offer a tool to provide a wide variety of support services at a relatively low cost.
As a US-based economic developer, the real mystery to me is why this model has not taken hold here at home.Â It is ideally suited to the US system where we have limited public dollars to fund programs or personnel, yet we are also home to a highly-skilled marketplace of private consultants and non-profit business service providers.Â Voucher programs have been used for business training purposes.Â Why not use them for business innovation support as well?Â Â Letâ€™s hope that this concept will soon be imported here to the US.Â
Whatâ€™s New at EntreWorks Consulting?
We continue to provide more regular news and updates at the EntreWorks blog (http://blog.entreworks.net). Recent postings have focused on the 2011 Capitol Hill outlook, the new movement to turn redfields into greenfields, and new economic development proposals being advanced by Virginiaâ€™s Governor Bob McDonnell.
Over the coming weeks, EntreWorks Consultingâ€™s Erik Pages will be on the road doing many speeches and public presentations. These include appearances in Washington, DC, Augusta, ME, Moses Lake, WA, and Phoenix. Hope to see you on the road!February 1, 2011
Musings on the Green Economy
Over the past year, Iâ€™ve had the opportunity to work on several projects examining opportunities in the emerging green economy. As is often the case, deeper immersion into this sector of the economy seems to raise more, not fewer, questions for me. While I am up to speed on the latest trends and research, I still have lots of questions about some big issues related to the green economy. Here are a few with which Iâ€™m currently wrestling:
Is there really a distinctive green economy?
When we think about the green economy, we often turn to new technologies like advanced batteries, clean cars, or new solar energy solutions. Yet, when you examine various studies of green jobs or trends in the green economy, most of the identified occupations do not reside in what we might call the â€œpure-playâ€ green economy. Instead, they tend to be involved in developing sustainable products or services within an existing industry. For example, many statewide studies of green jobs, such as recent research in Oregon and California, have found that the highest numbers of green jobs are found in occupations such as carpenters, farmers, truck drivers, and landscapers.
These patterns may shift as the green economy matures, but they may also suggest another conclusion: many green economy industries may not represent unique industry clusters. Instead, green or sustainable practices are more likely to be nestled within all industries. If this is the case, green or sustainable practices will become much like information technology is today—a core part of every business.
Where do good green jobs exist?
Depending on how you count, the green economy generates significant numbers of jobs. The Commerce Department has estimated that green jobs account for anywhere from 1-2% of total US employment, and, in some states, such as California, this figure is much higher. While these are impressive figures for a relatively new industry, they donâ€™t indicate another important fact about the current state of the green economy. Few of these jobs are what most consider to be â€œgoodâ€ jobs, i.e. positions that provide relatively high wages, benefits, and a strong career ladder.
Most recent studies suggest that green jobs tend to pay below average wages and have limited training and education pre-requisites. Lots of interesting work is underway to improve training programs, and to build career ladders in green occupations. This is all very laudable, and needs to continue. Yet, at the same time, we need to do a better job of identifying and developing green economy sectors that have the capacity to create large numbers of high-paying good jobs. There are number of approaches that could help on this front. At a minimum, policymakers should focus on helping American manufacturers, a traditional source of good jobs, succeed in entering green economy markets.
What about water?
It seems that the real â€œplaysâ€ in the green economy all relate to energy, food, or water. We hear a lot about green energy and sustainable food, but we donâ€™t seem to hear as much about water. Water conservation and management is a huge market. In 2008, the global water sector market generated $500 billion in sales. We can expect this market to grow, as water scarcity increases and as older water infrastructure systems need repairs, upgrades, and replacements.
A few states and regions are focused on the water market as part of a broader cluster strategy. For example, Michiganâ€™s Green Jobs for Blue Waters initiative is targeting this sector based on Michiganâ€™s location at the worldâ€™s largest source of freshwaterâ€”the Great Lakes. Other states and regions should also consider targeting this sector as it offers huge opportunities in the development of new technologies, new products, and services.
Whatâ€™s the play for communities and regions?
Ten years ago, every state and region seemed to have a biotechnology strategy. Today, they all seek to develop a green economy strategy. In many cases, this makes sense. When a region has relevant natural assets, they can be used to competitive advantage. Wind energy makes sense in Kansas and Texas; solar makes sense in Arizona; and tidal power is good option for Maine. But what about regions and communities that lack some kind of competitive advantage, either based on natural assets, technologies, or industry strengths? Should these communities simply focus their resources and attention elsewhere? The jury is still out on this one. But, what if I am correct in my suggestion that green and sustainable practices will become infused in all industries? If thatâ€™s the case, few regions are going to prosper by ignoring the emerging green economy.
As you can see, this note contains more questions than answers.Â What do you think?Â Iâ€™m sure others are struggling with understanding these and other issues related to the green economy.Â Â The green economy presents many tremendous opportunities and many challenges as well.Â But, itâ€™s time that we move beyond the simple claim that the green economy is our future.Â Letâ€™s roll up our sleeves and figure out what that claim really means. I look forward to continuing the dialogue.
Whatâ€™s New at EntreWorks Consulting?
We continue to provide more regular news and updates at the EntreWorks blog (http://blog.entreworks.net). Recent postings have focused on the recent blue ribbon panel reports on deficit reduction, sustainable community design, and new trends in on microfinance.December 1, 2010
Clusters Going Global
For the past few weeks, policy advocates here in Washington DC have been pontificating on â€œThe New Cluster Moment.â€ While itâ€™s been more than ten years since most economic development professionals began talking about clusters, it now looks like the Federal government is starting to listen. Both the Economic Development Administration and the Small Business Administration have recently announced new grants to regional innovation clusters located across the US.
My basic response to the latest flurry of activity is: â€œItâ€™s about time.â€ Itâ€™s great to see that Federal policy makers and local leaders are recognizing that clusters can be an important tool for organizing and promoting local economic development. In a speech last month, Commerce Secretary Gary Locke talked about the importance of regional innovation ecosystems that contain:
A talent pool that connects across disciplines;An â€œinnovation infrastructureâ€ with physical facilities,A skilled workforce,Access to capital; andA support system that can shepherd promising innovations through the so-called â€œvalley of death.â€
I canâ€™t quibble with this list, but would suggest that we think more holistically about the role of clusters in driving regional economic prosperity. Specifically, we need to think more deeply about why and how individual firms get involved in these clusters and networks. They donâ€™t do it because they want access to an â€œinnovation infrastructure.â€ They do it because they believe that participation brings tangible benefits to their company. These can take the form of money, specialized information, or new partners and customers.
The new cluster policies can help on many of these fronts. New Federal dollars and new access to capital efforts can help on the money front. By their very nature, clusters provide access to specialized information and tacit knowledge about a given industry or sector. Yet, we could do a better job of linking firms within clusters to new customers and business opportunities, especially overseas customers.
Thanks to my recent participation in a conference sponsored by the Technopolicy Network, Iâ€™ve had an interesting update on how European cluster organizations are linking member firms into a global customer base. Because most European nations lack a large domestic market, their firms and their clusters must almost always look overseas to build their markets. Finland has been especially aggressive on this front. Its China-Finland Golden Bridge Soft Landing program provides facilities and business services to Chinese firms looking to locate in Finland or to use Finland as a hub for entering European markets. Finnish companies are also engaged in a regional cluster effort known as Baltic Sea Region (BSR) Stars. This joint initiative, which links clusters from ten Baltic Sea countries, builds cross national clusters in target sectors such as cleantech, well-being and health, digital business services, and future transport.
Many American communities get the importance of building these international connections. Sister city programs, export promotion, and business incubator soft landings programs all seek to build stronger global trading links. Yet, it seems that connections between industry cluster development and export promotion are weak. Robust export and investment promotion agencies exist across the US, but very few cluster or innovation-focused networks consider export promotion to be a core part of their missions.
Finding ways to remedy these shortcomings should not be too difficult. As a first step, cluster organizations should place higher priority on building global alliances. This can involve closer partnerships with local export and investment promotion programs as well as the development of bilateral and multilateral partnerships with non-US based cluster organizations.
In addition, Federal agencies in Washington should do a better job of linking their commitments to regional innovation clusters and to export promotion programs. The recent While HouseÂ reportÂ on the National Export Initiative, which envisions a doubling of US exports over five years, contains only one brief reference to clusters—despite the fact that the plan places heavy reliance on increasing exports from smaller firms.Â One of the best means for reaching these firms is via their involvement in local cluster organizations or entrepreneurial networks.Â Â The result should be stronger regional cluster, more prosperous firms, and improved export performance.
Whatâ€™s New at EntreWorks Consulting?
We continue to provide more regular news and updates at the EntreWorks blog (http://blog.entreworks.net). Recent postings have focused on the National Infrastructure Bank, complexity theory, manufacturing support programs, and current debates over industrial policy.
In addition, weâ€™ve added lots of new reports to the EntreWorksâ€™ on-line library. They include:
SEVA-PORT Innovation Index 2010, Report prepared for the Southeastern Virginia Partnership for Regional Transformation, 2010.Renewing the US Commitment to a Strong Manufacturing Base: Expanding the Reach of the Manufacturing Extension Partnership, Prepared in collaboration with Stone & Associates and the Center for Regional Economic Competitiveness, 2010.
Finally, Erik Pages of EntreWorks continues to hit the public speaking circuit. In the coming months, weâ€™ll be doing presentations in Washington DC, Waterville ME, and Shelby NC. Hope to see you on the road.October 1, 2010
While many may not admit it, most economic developers are still fixated with manufacturing. Many of the sexiest and most desirable projects, such as the recruitment of large auto plants, tend to be manufacturing focused, and the most-used support programs, such as tax incentives and customized technical training, are also manufacturing-centric. Meanwhile, lots of interesting activity is occurring elsewhereâ€”within the service sector. As weâ€™ll see below, itâ€™s time to rethink how we think about services and their role in our local economies.
Itâ€™s no secret that the service sector is the most important part of most regional economies. Many communities acknowledge this reality by focusing on supporting â€œEds and Meds,â€ capitalizing on local strengths in higher education and health care. Others recognize that service jobs are the bulk of local employment, but that other sectors, like manufacturing or technology, drive local prosperity and create most high-quality jobs. A new McKinsey Global Institute study suggests this view is outdated. The study found that the service sector is the key driver of job creation. In fact, service sector productivity improvements account for all net job growth in developed economies between 1995 and 2005.
The McKinsey study further suggests that national economies cannot maintain high growth without continued improvements in service sector productivity. New sectors such as cleantech or life sciences are simply too small to drive an economy. Instead, large established sectors, like retail trade, are more important factors in promoting prosperity.
So, it makes sense to pay more attention to service sector productivity. By itself, that is not very useful policy guidance. After all, the service sector is huge, and includes the cashier at McDonaldâ€™s, the hair stylist, and the globe-trotting IBM consultant. This process is further complicated by the ongoing revolution in servicesâ€”the subject of an interesting new study from researchers at the Berkeley Roundtable on the International Economy (BRIE).
The BRIE researchers assess the impact of the information technology revolution on services. The basic story is one of unbundling—where activities and processes can be separated with ever finer degrees of granularity. The emergence of cloud computing is instructive. In the past, firms sold computers or software as products. Today, they offer â€œsoftware as a serviceâ€ where customers purchase computing power, applications, or other support on a â€œpay as you goâ€ basis. An analogous process has occurred with the decomposition of manufacturing into complex integrated supply chains.
What are the implications of this unbundling and deconstruction? At the most basic level, it means that traditional distinctions between manufacturing and services are irrelevant. It also means that the nature of business innovation will also change. Some innovations will come in the form of new products, services, and technologies, but major innovations will now come via transformations in business models themselves where individuals and firms combine these unbundled activities in new and distinctive ways. People, firms, and communities who can continuously develop and adapt new business models will enjoy significant competitive advantages.
What does this mean from a policy perspective? At the most basic level, workers, managers and entrepreneurs will need to be more flexible, creative, and adaptive. A capacity to absorb and adapt new ideas will become more important than a specific skill set or body of knowledge. New business models for education and training institutions must emerge in the process.
Economic development efforts will also need to place greater focus on business model innovations. Current business support programs focus on helping entrepreneurs do their business more efficiently, effectively or profitably. New approaches will encourage them to do business in a new way—to totally rethink how they operate and to be willing to blow up old business models that are no longer relevant. How might this work in practice? While itâ€™s far too early to identify â€œbest practices,â€ some interesting models are in place. In Rhode Island, the Business Innovation Factory operates a series of learning labs where teams collaborate to rethink how to they do business and to experiment with new approaches. Current learning labs are focused on the elder experience, the student experience, and green energy. In the UK, 100% Open is a new agency focused on open innovation and the development of new business models. Larger consulting firms, like the Boston Consulting Group, are also beginning to place greater emphasis on business model innovation. Meanwhile, many business training programs, like the Eureka Ranch, are also focused on this topic.
Finally, the use of innovation competitions is yet another potentially useful means to spur business model innovation. These competitions and prizes work best when they pay less attention to the best business plan, and more focus on providing the best solution to a pressing challenge, such as X Prize focus on space flight. The growing interest in innovation prizes is but one indicator of booming market demand for new business models. In fact, one website, Innovation Prize Central, has compiled a partial list that includes dozens of innovation prize competitions with potential awards totaling more than $150 million.
As we move forward, local leaders should maintain a healthy bias in support of any initiative that spurs experimentation, triggers new thinking, and encourages the development of new skills and talents. Creating this environment for transformation will be the most important function for future economic development efforts. Success in services is going to depend less on our ability to develop new programs that target these sectors, and more on our ability to create an environment where business model innovations can develop and thrive.
Boston Consulting Group, â€œBusiness Model Innovation: When the Game Gets Tough, Change the Game,â€ December 2009: Available at: http://www.bcg.com/documents/file36456.pdfMcKinsey Global Institute, â€œHow to Compete and Grow: A Sector Guide to Policy,â€ March 2010. Available at: http://www.mckinsey.com/mgi/reports/freepass_pdfs/competitiveness/Full_Report_Competitiveness.pdf
John Zysman, Stuart Feldman, Jonathan Murray, Niels Christian Nielsen, and Kenji Kushida, â€œThe Digital Transformation of Services:Â From Economic Sinkhole to Productivity Driver,â€ BRIE Working Paper, April 6, 2010.Â Available atÂ http://brie.berkeley.edu/
Whatâ€™s New at EntreWorks Consulting?
We continue to provide more regular news and updates at the EntreWorks blog (http://blog.entreworks.net). Recent postings have focused on youth entrepreneurship, business finance programs, and suggestions for interesting reads. Weâ€™re in the process of finishing up projects in Reading, Pennsylvania and Southeast Virginia. Weâ€™re also looking forward to a busy and productive summer, which will include new projects and engagements with the City of Racine, Wisconsin, the North Carolina Rural Development Center, and Carroll Community College, located in Westminster, MD. Hope to see you soon.June 1, 2010
Transforming Urban Economies: What Could You Do With $100 Million?
I recently had the pleasure of sitting in on an interesting discussion sponsored by Living Cities (www.livingcities.org), a collaborative of major foundations and financial institutions focused on investing to support healthy and prosperous urban communities. Held in Detroit, the session brought together some of the nationâ€™s leading experts to address the question of what can be done to change the trajectory of an urban economy.
Our discussions were triggered by a desire to assess lessons learned from two fascinating experiments underway in Cleveland and Detroit. In Cleveland, the Fund for our Economic Future (http://www.futurefundneo.org) has been investing for many years in a whole series of projects designed to revitalize Northeast Ohioâ€™s economy. Detroitâ€™s efforts, under the auspices of the New Economy Initiative (http://neweconomyinitiative.cfsem.org), are somewhat newerâ€”having been in place for about 18 months.
The experiences of these two projects offer a number of enlightening lessons for how to move challenged urban economies in new directions and for how foundations can play a catalytic role in supporting effective economic and workforce development efforts. A couple of important themes emerged from our discussions earlier this month.
Think Big: The common practice for many foundations is to provide one-time grants to worthy projects with the assumption that these pilot efforts will then evolve and generate their own outside funds. This project focus is well-meaning, but has led to too many promising projects that soon fade away after foundation investments end. In Detroit and Cleveland, investors have instead stressed their engagement over the long haul. While they are still making project-specific investments, they have committed to supporting programs with significant dollars over an extended period.
Convene:Many distressed urban economies suffer from a leadership vacuum as elected officials lack credibility, or, in the case of Detroitâ€™s former mayor, have faced criminal prosecution. To a certain extent, foundations can fill this vacuum by using their â€œcivic powerâ€ to convene key stakeholders around the goals of economic transformation. Foundations cannot do it alone, but they can start critical conversations.
Connect:In both Cleveland and Detroit, investments focused on building connections across regions, across organizations, and across disciplines. Seeding networks has emerged as a critical part of this process. For example, Northeast Ohioâ€™s Jumpstart (www.jumpstartinc.org) has emerged as the regionâ€™s pre-eminent entrepreneurship network. Jumpstart operates its own finance and mentoring programs, but it also operates to connect all of the regionâ€™s entrepreneurs to one another and to opportunities and assets that exist elsewhere.
Seed Talent: Itâ€™s often said that access to talent is the key success differentiator for companies and for regions. The places that attract and retain talent are more likely to be competitive in the 21st century economy. Recognizing this reality, both Cleveland and Detroit are making big investments to grow their local talent pools. In Detroit, for example, NEI hopes to fund a number of efforts to help improve workforce training in key clusters (e.g. health care, energy). It has also backed the establishment of a creative economy incubator, focused on arts and design-related entrepreneurs, located in downtown Detroit.Keep Score: Both initiatives have placed great emphasis on effective performance measurement, benchmarking, and program evaluation. Many economic developers pay lip service to research and analysis, recognizing its importance but investing few resources in the effort. Both Cleveland and Detroit are â€œwalking the walk,â€ using this research to drive investment decisions and to make the public case for change. Leaders in both regions believe that their ability to make a compelling case with hard data has been a critical component of their success to date.
Very few communities are blessed with the large scale philanthropic resources found in Cleveland and Detroit.Â Thus, it may be difficult to put together a $100 million fund in many cities.Â But, nearly all urban areas do have access to foundation leadershipâ€”in the form of community foundations and other philanthropic organization.Â Â Where possible, these resources need to be better connected to the critical mission of opening up economic opportunities for the residents, families, and the entrepreneurs working in urban communities.
Whatâ€™s New at EntreWorks Consulting?
Weâ€™ve been remiss in updating the EntreWorks newsletter and website as a result of a new web design. We encourage you to visit the new and improved EntreWorks website at www.entreworks.net. In addition to a new and brighter look and feel, weâ€™ve also introduced the EntreWorks blog (http://blog.entreworks.net). We expect to continue our quarterly e-newsletter that will allow for a deeper dive into the issues affecting the worlds of economic and workforce development. Our blog is designed as a supplement, allowing us to provide more regular commentary, to post useful items, and, hopefully, to start conversations about how to transform local economies. Watch this space in future weeks and months. And, in the meantime, we welcome your thoughts and ideas.
In addition to a newly designed website, weâ€™ve also added several reports to the EntreWorks library. They include two reports produced on behalf of the Maine Office of Innovation. These studies were developed in conjunction with PolicyOne Research and Scruggs & Associates.
Maine Comprehensive Research and Development Evaluation 2009. A Report to the Maine Office of Innovation, Department of Economic and Community Development. February 2010.The Innovation Landscape in Maine: Strengthening the Role of Maineâ€™s Technology Associations in Supporting the Maine Innovation Economy. Report to the Maine Office of Innovation, Department of Economic and Community Development, February 2010.
Finally, Erik Pages of EntreWorks will be hitting the road for a number of speaking engagements in the coming months. Look for Erik at the following events and locations:
March 22: Economic Development Administration Regional Meeting, Philadelphia, PAMarch 25: Georgia Basic Economic Development Course, Atlanta, GAApril 15: Iowa Association of Regional Councils, Des Moines, IAApril 28: Berks County Economic Summit, Reading, PAMay 11: Pacific Mountain Alliance for Innovation, Olympia, WAMarch 1, 2010
Partnering with Politicians: A How-To Guide
With the new economic recovery package and investment dollars flowing out of Washington, lots of economic development organizations have geared up to access new sources of Federal funds. For a while, it seemed like I was getting daily calls with the same basic request: â€œWho do I talk to on Capitol Hill if I want to access stimulus money?â€ While I try to be helpful, itâ€™s also true that if youâ€™re asking that question, you may already be too late in terms of developing an effective strategy for accessing funds.
These episodes are symptomatic of a larger pattern that I often see among economic development organizations. They only reach out to elected officialsâ€”especially state and Federal legislators—when they want something: passage of a bill, a grant, or other forms of support. While most politicians do try to help their constituents in these cases, economic development organizations would be more successful if they approached politicians less as a customer or constituent and more like a partner.
Becoming a partner requires a different approach. It involves regular interaction with Senators, Representatives, and their staffs. You should invite them to key meetings, to tour local facilities and organizations, and to participate in your activities. Provide them with updates, via press releases, blogs, and other means, on whatâ€™s happening with your organization.
At the same time, effective partnering requires that your organization provide something of value to elected officials. Economic developers have particular strengths in two areas of interest to politicians: access to supporters and access to information. Your connections with local businesses provide you with unique insights on whatâ€™s happening with your local economy. Elected officials, especially those in Washington, are hungry for this kind of detailed, real-life information on whatâ€™s happening with local business owners.
You can tap these resources in several ways. You might consider convening regular meetings of local business owners with elected officials and their staffs. These sessions, which might resemble Presidential â€œlistening tours,â€ offer a tool for officials to test the â€œpulseâ€ of local business owners.
A second approach utilizes regular mini-polls of your members, partners, or business customers. Thanks to web survey tools like Survey Monkey and Zoomerang, itâ€™s easy and inexpensive to set up short surveys that address key issues like business satisfaction with the local business climate, or even whether local firms plan to hire in the coming year.
Finally, you might consider producing our own â€œState of Regionâ€ reports that track the performance of the local economy. This type of research is invaluable to elected officials, and it also helps brand you and your organization as an expert on whatâ€™s happening with the local economy. The analysis can range from a simple review of existing economic data to a more full-blown benchmarking exercise.
When you embrace this partnering approach, you need to be in it for the long haul.Â But, the benefits can be significant.Â You will be able to build strong alliances with key officials, improve your access to outside support, and also help build better name recognition for your organization.Â
Whatâ€™s New at EntreWorks Consulting?
Itâ€™s been a busy few months on the report-writing front. New articles and reports in the EntreWorks Library are listed below.
EntreWorks has been involved in a major evaluation effort for the State of Maine, and has helped produce two reports that offer a comprehensive look at how Maineâ€™s economic development program are faring.
Maine Comprehensive R&D Evaluation: 2008, Report Prepared for Maine Office of Innovation, January 2009.Maine Comprehensive Economic Development Evaluation: 2008, Report Prepared for Maine Office of Innovation, March 2009.
In addition to these research reports, Erik Pages has published several articles in past few months. They include:
“Benchmarking Innovation: How to Build a Regional Innovation Index,â€ IEDC Economic Development Journal, Vol. 8, No. 1, Winter 2009.â€œPolicymaking in a Time of Transition: Economic Development in the New Obama Administration,â€ Local Economy (UK), Vol. 24, No. 2, March 2009.â€œWhat Do We Know about Retiree Attraction Strategies?â€ Applied Research in Economic Development, Vol. 5, No. 3, December 2008.November 1, 2009
Building Resilient Communities: Some Initial Thoughts
For many American communities, the past few years have been filled with almost constant change. Unfortunately, most of the change has been unwelcomed. Communities like New Orleans and Galveston have been devastated by natural disasters. Meanwhile, places like Detroit have been hit by equally devastating economic disasters. Few places have been spared by the current economic downturn.
Whenever disaster strikes or business cycles go south, community leaders vow â€œNever Again!â€ Yet, as they turn to rebuilding and restructuring, they never really commit to that vow. The understandable desire for quick results tends to trump more long-term thinking about how to build a resilient community for the long haul.
If thereâ€™s one silver lining from the current downturn, itâ€™s this: communities appear to have more interest in resiliency. Much of the thinking on this topic originates in research on how communities can better anticipate and react to natural or man-made disasters. More recent writings have more an economic or business focus, as leaders grapple with responses to the economic downturn.
There is a lot of activity around these issues—in the US and across the globe. For example, in 2000, the World Bank set up the Provention Consortium, which has subsequently published dozens of helpful resource guides on disaster prevention and recovery. In Canada, the Center for Community Renewal has been promoting its concept of community resilience since 1998. Similar efforts have been underway for some time in Australia and New Zealand.
The US is something of a late-comer to these discussions, but a number of interesting projects are underway. Oak Ridge National Laboratory is operating a Community and Regional Resilience Institute. In addition, many research centers focused on issues of homeland security are also developing new approaches to promoting community resilience. Finally, many organizations committed to localism and â€œbuying localâ€ also seek to better understand community resilience concepts.
While thereâ€™s lots of interest in the concept of community resilience, thereâ€™s no single agreed upon definition. And , thereâ€™s no consensus on all the steps required to achieve resilience. However, a couple of things do appear to matter. Experts in fields as diverse as disaster prevention and recovery, homeland security, and economic development seem to generally agree that resilient communities share the characteristics of being participative, connected, and adaptive. These types of communities will be better positioned to adapt to changing economic circumstances, or to more immediate natural or man-made disasters.
What do these terms mean in practice? And, specifically, how can or should they relate to economic development activities? Participative communities are those with healthy social networks where citizens can easily and effective engage in community decision-making. If we want to build more resilient communities, we need to get more people involved in local decision-making. In fact, researchers with British think-tank, Demos (www.demos.co.uk), have argued that governments should set a goal of having at least 1% of the population directly involved in decision-making.
Connected refers to the presence of strong networks where citizens and businesses can regularly interact with peers, learn from one another, and do business together. From an economic development perspective, the growth of new types of business networks, such as San Diegoâ€™s CONNECT or North Carolinaâ€™s Council for Entrepreneurial Development, are examples of cases where these connections have made invaluable contributions to local prosperity. New models of open innovation also capitalize on the growing importance of these network-based organizational models.
Finally, resilient communities are adaptive. Communities with more open participation and strong connected networks are better able to adapt to change. From a pure economics standpoint, Californiaâ€™s Silicon Valley would likely rank high on any measures of adaptability. Over the past several decades, the region has faced numerous downturnsâ€”from defense downsizing to the dot-com crash to our current downturn. Yet, it has always been able to â€œreinventâ€ itself in response. The reinvention process is underway again, and itâ€™s taking an interesting form with the region becoming more focused on environmental sustainability and resilience. For example, the most recent benchmarking reports produced by Joint Venture Silicon Valley (www.jointventure.org) place special emphasis on the regionâ€™s ability to manage workforce transitions and to respond to the impacts of climate change. We can expect other communities to follow suit with their approaches to climate prosperity.
As this brief review likely suggests, there is a lot of interesting thinking and research underway on the broad topic of community resilience. Some of the ideas are half-baked, some are still emerging, and some contain real insight and inspiration. While future directions are somewhat unclear, it is clear that community resilience is going to become a more important part of the economic development profession. The question is: will we grapple with these issues now or wait for another disaster or economic downturn?
Community and Regional Resilience Institute:Â http://www.resilientus.orgWorld Bank Provention Consortium:Â http://www.provention.orgCanadian Center for Community Renewal:Â Â http://www.cedworks.com/University of California-Berkeley, Building Resilient Regions Project:Â Â http://brr.berkeley.edu/Assist Social Capital:Â Â http://www.social-capital.net
Whatâ€™s New at EntreWorks Consulting?
On June 16, 2009, EntreWorksâ€™ Erik Pages testified on â€œEquity Capital in Rural Americaâ€ before a meeting of the US House of Representatives Rural Caucus.This Fall, you can find Erik speaking at several other venues:Pennsylvania Council for International Education, Harrisburg, PA: October 2Virginia Business Incubation Association, Staunton, VA: October 27Economic Development Institute, Indianapolis, IN: November 11International Economic Development Council Training, â€œTechnology-Led Economic Development,â€ Baltimore, MD: November 1September 1, 2009
The Rise of Co-Working Spaces
If you think back a few years, you might recall a flurry of articles and books that heralded the rise of the â€œFree Agent Nationâ€ and the development of a â€œBrand Called You.â€ These studies were reflecting on the emergence of freelance and project-based work as a more important part of local economies. The economic downturn has actually helped spawn (not always by choice) a new generation of free lancers, and they are responding by developing many new interesting ways of working and collaborating. The rise of co-working spaces is one of the more interesting innovations now emerging in communities across the US.
Co-working spaces are exactly what they sound like—-locations where individual entrepreneurs or free-lancers can come together for work. They can build collaborations at the sites or simply use the co-working space as another place to do business. Co-working spaces take multiple forms, but they generally emerge from an entrepreneur or group of entrepreneurs who seek an alternative to working in coffee shops or other public spaces. They desire a location where they can regularly do business, and, most importantly, interact with other talented people and businesses. And, in keeping with the â€œalternativeâ€ ethos of many co-working spaces, most of them seem to have cool or funky names, like the Gangplank (Arizona), the Treehouse (New York City), or the Indoor Playground (Toronto).
Some working spaces are just that: an open space where people can plug in a computer and work. Many spaces allow users to rent a desk, while others have an open drop-in option. Others try to serve as a local hub for other free lancers and entrepreneurs. For example, the Gangplank in Chandler, Arizona, provides free work space, but it also tries to link local professionals with other sources of business support and technical assistance. It also hosts social events, as well as workshops with experts on various topics related to business development and information technology trends.
These co-working spaces differ from earlier models, such as business incubators, because building collaboration is their primary function. Many of the tools and resources provided by incubators are now digitized and can be stored on servers or individual computers. The need for dedicated office spaceâ€”a primary benefit of traditional incubators—thus becomes less pressing for many budding entrepreneurs.
Because of the informal nature of co-working, these locations are also much less expensive to create and manage. In many cases, itâ€™s as simple as finding an empty space, filling it with desks, and ensuring good broadband access. As such, the development of co-working spaces makes great sense for communities seeking to nurture new business owners and to build strong local collaborative networks.
In some ways, co-working spaces can be viewed as one physical embodiment of the open source movement. Changing patterns of work mean that much of our current work is project-based. In what some observers have called the â€œgig economy,â€ teams of people come together to collaborate on a project. Once they complete the project, they build new collaborations to take on new projects. These collaborations help improve the quality of the final end product, while also providing a community for free lancers and entrepreneurs.
The first co-working spaces began emerging in the early part of this decade. For example, Washington DCâ€™s Affinity Lab, one of the earliest sites, first opened in 2000. But, they have blossomed in the past couple of years, and you can now find co-working spaces in most major cities. The next step appears to be emerging now in the form of services being provided across co-working spaces. For example, interested individuals can get a â€œco-working visaâ€ that allows them to use approved co-working spaces in other cities. Co-working advocates are also discussing creation of their own credit union. Finally, efforts to provide health care and other benefits are further along thanks to the pioneering work of groups like New York Cityâ€™s Freelancerâ€™s Union.
Itâ€™s pretty clear from current economic trends that these patterns of project-based work will be with us for some time. Thus, we can expect to see growing demand for co-working spaces, and, at the same time, greater sophistication in how these spaces are managed and utilized. As a result, co-working spaces are likely to become important parts of every regionâ€™s entrepreneurial ecosystem.
Resources on Co-Working Spaces
-Affinity Lab:Â Â http://www.affinitylab.com/-Cool Town Studios:Â Â www.cooltownstudios.com-Co-Working Wiki:Â Â http://coworking.pbworks.com/-Freelancerâ€™s Union:Â Â www.freelancersunion.org-Gangplank:Â Â www.gangplankhq.com-â€œWork and the Open Source City,â€ article by Laura Forlano for the Urban Omnibus, June 3, 2000:Â Â http://urbanomnibus.net
Whatâ€™s New at EntreWorks Consulting?
Council for Community Economic Research Award
The Maine Department of Economic and Community Development was selected as the 2009 recipient of the Council for Community Economic Researchâ€™s Award for Excellence in Project Impact Analysis and Program Evaluation. DECD was selected for its Comprehensive Research and Development and Comprehensive Economic Development Evaluation programs. EntreWorks has served as a lead partner with DECD on these important initiatives. To learn more, visit www.econdevmaine.com
E-Book on the Stimulus and SBA
EntreWorksâ€™ Erik Pages recently contributed to an E-book that examined how the stimulus package and other Obama Administration initiatives will affect the marketplace for small businesses. To access the book, click here:June 1, 2009
Regional Innovation Benchmarking 101, Part 2
This issue of EntreWorks Insights is the second installment of our review of how regions can set up a system to benchmark their innovation performance in relation to other similar communities. The first part of this series, which appeared in October, introduced the concept of regional innovation benchmarking. It can be accessed here. In Part 2, we offer some guidance on how to do it right. This work is based on ongoing research and consulting engagements in partnership with Growth Economics, Inc., and its President, Graham Toft.
Youâ€™ve decided to embark on an effort to benchmark your communityâ€™s economic performance and the strength of your local innovation ecosystem. Maybe you read our last newsletter or maybe you just know that you need to do the right thing. Regardless of your motives, here are few things to keep in mind.
Getting started is often the hardest part as many economic developers (rightly) fear having to dive through reams of data and economic statistics.
While benchmarking can be a complicated process, there is some good news. In most cases, economic developers donâ€™t need to create their own Innovation Index from scratch. Each year, states, communities, media organizations, and think tanks create hundreds of â€œreport cardsâ€ and benchmarking reports. These report cards cover nearly every topic under the sun. For instance, you can find listings of the best places to own pets, to be a father, to work in the Federal government, to reinvent your life, to launch your career, and to retire.
As you begin the benchmarking process, you should review other similar reports and indexes. These reports will help provide lots of ideas on what to do and what not to do in terms of measures to use and in terms of how to do the analytics, qualitative investigations and communicate your results.
Assessing Other Products
As you review various lists, a couple of general rules of thumb can help to separate serious benchmarking reports from more frivolous â€œbest ofâ€ lists designed to sell magazines or newspapers. First, an effective report is transparent. It provides citations for all of its measures, and also explains how it calculates various scores or rankings.
Second, an effective report explains how and why each of its specific metrics matters. For example, if a region tracks patenting activity as part of an innovation index, it should also explain why patents are an important innovation indicator. Understanding this underlying â€œtheory of changeâ€ becomes especially important when working with indexes produced by national organizations or think tanks. Most of these reports promote a particular perspective or approach to economic development, and may thus contain explicit or implicit biases.
Finally, an effective report reflects the unique innovation environment of a given state, region, or locality. You should measure what matters to you, and what is relevant to your own communityâ€™s economic development vision. This may require specific measures tied to a leading industrial sector or cluster, or unique local quality of life assets or challenges.
Communicating the Results
When it comes to producing a Regional Innovation Index and publicizing its results, good data is not enough. Remember, benchmarking is a process. You need to follow-on with examination of what the best in class are doing well, to engage leaders in creative adaptation of best practices to the local context and to tell a â€œgood story.â€ Effective communication of your findings requires that you also develop a comprehensive communications strategy to accompany report and action plan release.
A particular challenge relates to the question of â€œwhy should they care?â€ An effective communications strategy engages local residents. It clearly explains why key measures matter to the average citizen. It makes the case that regional innovation is not just about high technology industries: it is about building more a prosperous region on a wide variety of fronts.
Integrating the Results
Beyond the basics of effective communications, world-class development organizations also bring another unique perspective to the benchmarking process. They view benchmarking as a core activity that becomes embedded in the organization. They do not view a Regional Innovation Index as a one-time exercise to produce a glossy report. For them, benchmarking is a tool to foster continuous improvement, identify new trends, and address growing challenges.
Innovation is a cross-cutting theme that overlaps with a number of leading approaches to economic development. Nearly every aspect of local, regional, or state economic growth is now affected by the innovation climate and innovation strategies. Consequently, innovation benchmarking is moving up the priority list for competitive economic development organizations. The task of innovation benchmarking can begin simply, perhaps by tracking metrics already published in scorecards from state or national think tanks. More sophisticated efforts can follow. But, in the end, the important point is to get started, and begin a process that tracks progress not just once but on an ongoing basis.
While there are hundreds of economic development benchmarking reports produced each year, here are a few national efforts that may be especially helpful.
Beacon Hill Institute for Public Policy Research,Â Metro Area Competitiveness Report 2007.Â Available atÂ www.beaconhill.org.Corporation for Enterprise Development,Â Development Report Card of the States.Â Available atÂ www.cfed.org.Information Technology and Innovation Foundation and the Kauffman Foundation,Â State New Economy Index 2008.Â Available atÂ www.itif.org.Milken Institute,Â State Technology and Science Index 2008.Â Available atÂ www.milkeninstitute.org.
Whatâ€™s New at EntreWorks Consulting?
New reports in the EntreWorks Library are listed below.
Erik R. Pages reviewed A Future of Good Jobs: Americaâ€™s Challenge in the Global Economy in the October 2008 issue of Applied Research in Economic Development. You can access the review here.
The Aspen Instituteâ€™s Youth Entrepreneurship Strategy Group recently released the report, Youth Entrepreneurship Education in America: A Policymakerâ€™s Action Guide. EntreWorks Consulting supported the development of this report, and it can be accessed here.December 1, 2008
Regional Innovation Benchmarking 101
This issue of EntreWorks Insights, and our next issue (coming in December), examines how regions can set up a system to benchmark their innovation performance in relation to other similar communities. The first part of this review introduces the concept of regional innovation benchmarking. Part 2 will offer some guidance on how to do it right. This work is based on ongoing research and consulting engagements in partnership with Growth Economics, Inc., and its President, Graham Toft.
When it comes to 21st century economic development, innovation is the name of the game. States and localities recognize that their future prosperity depends on their ability to nurture innovation in local communities, local businesses, and in local residents. Hundreds, if not thousands, of economic development programs seek to foster innovation. These take numerous forms ranging from cluster development strategies to technology commercialization programs to business incubators to youth entrepreneurship programs and so on.
States and localities want to support and nurture innovation, but how can they be sure that they are succeeding in the process? Benchmarking regional innovation offers one approach to keeping score and tracking a regionâ€™s innovation trajectory. Regions across the US and across the globe are creating local report cards or innovation indices that track how they, and their economic development programs, are performing.
Savvy economic developers have always benchmarked themselves against competitors and the â€œbest in classâ€ programs and regions. Yet, the importance of this process has grown in recent years as innovation-based economic development strategies have become more prevalent. While the pace of change has quickened, innovation strategies require a sustained long-term effort. Big job gains do not usually materialize over night. Instead, innovation manifests itself as gradual improvements in local business productivity, new product launches here and there, new business starts buttressed by fewer business failures, gradual relocations of young companies into the area, and other often barely perceptible shifts in the economic landscape.
All of these transformational improvements are seldom apparent on a day-to-day basis. Big changes may be underway, but may not be recognized until after the fact. In contrast, a new plant opening is readily apparent and likely to generate immediate and measurable local impacts.
Since innovation strategies operate according to a different pattern and timeline, they similarly call for better and different ways to measure progress and to continuously assess the strengths and weaknesses of a local innovation economy. That is where benchmarking comes in. In short, to do innovation right, you need to keep score.
Communities seeking to assess their innovation performance or potential must find surrogate metrics and using comparisons with competitors to know if you are achieving and sustaining it. That is where benchmarking comes in.
The basic concepts of benchmarking originated in business as a tool to evaluate various business processes in relation to industry â€œbest practices.â€ For example, many manufacturers seek to benchmark their processes vis-a-vis the vaunted Toyota Production System, or retail firms might benchmark their distribution systems against industry leaders like Wal-Mart.
When these concepts are moved to a non-business setting, they can sometimes be misapplied. Many communities simply assess how they are performing on certain key measures, such as job growth or new business starts, and consider the benchmarking job done. But, benchmarking is not just an analytical exercise. It is a process that begins with analysis, and hopefully ends with a diagnosis of business shortcomings and solutions to help fix them.
In many cases, economic development organizations will go through the rigor of the analytics, but they may fail to follow through with the examination of the best practices of the leading competitors or the engagement of key local actors to ensure steps for constructive change.
Benchmarking is often confused with performance measurement, which seeks to assess how a particular program or organization is operating. Benchmarking is more of a comparative exercise that assesses performance in relation to the best in class. Ultimately, benchmarking helps you to identify the smartest ideas and practices, and then creatively adapt them then to your situation.
Benchmarking is a strategic function â€“it must be driven by broader goals and strategies that can be either explicit or implicit. For example, a community might be developing a new strategic plan that seeks to position the region as a leader in the life sciences industry. In this case, the region should seek to assess its performance on key measures of life sciences strength, and compare this performance to regions already identified as strong biotech hubs.
As the process unfolds, remember that the analytics of benchmarking are a means to an end. The primary outcome is change –becoming more like â€œbest in class.â€ The analysis helps communities figure out how to get there. There is no â€œone best wayâ€ to undertake a benchmarking analysis. As we will see in Part 2 of this report, the analytics will require qualitative investigation (interviews, roundtables, collective explorations) as well as quantitative measures.
NOTE:Â The next edition of EntreWorks Insights will review potential measures and techniques that can be used in a regional innovation benchmarking exercise.
Whatâ€™s New at EntreWorks Consulting?
A big event for supporters of innovation and entrepreneurship will get underway next month when Global Entrepreneurship Week is celebrated during the week of November 17-23, 2008. Seventy-five countries will be involved in a global celebration and exploration of what it means to be innovative, creative, and entrepreneurial. To learn more, visit www.unleashingideas.org.
New reports in the EntreWorks Library are listed below.
â€œCreating an Entrepreneurial Appalachian Region: Findings and Lessons from an Evaluation of the Appalachian Regional Commissionâ€™s Entrepreneurship Initiative, 1997-2005.â€ Prepared for the Appalachian Regional Commission. The full report will soon be published, but a detailed executive summary is now available. To access the report, click here.
Erik Pages recently summarized the finding of a major evaluation project undertaken for the Appalachian Regional Commission. His presentation is available here.
FUTURE TRAVEL SCHEDULE
Erik Pages of EntreWorks will be making presentations and leading training sessions at several locations this Fall. We hope to see you on the road!
October 20: International Economic Development Council (IEDC) Annual Conference, Atlanta, GANovember 6: IEDC Entrepreneurship and Small Business Development Training Course, Baltimore, MDNovember 19: Michigan Entrepreneurship Summit, Lansing, MIDecember 10: Economic Development Institute, Indianapolis, INOctober 1, 2008
Slow Food and Economic Development
If you have any interest in food or the culinary arts, or even if youâ€™re just a regular Food Network viewer, youâ€™ve probably heard of the Slow Food movement. Begun in Italy, the Slow Food movement (www.slowfood.com) seeks to counter the influence of fast food and the â€œfast life.â€ In Europe, the movement sometimes reflects anti-Americanism. The French farmers who bulldozed a local McDonaldâ€™s were certainly sympathetic to slow food themes. But, slow food—especially here in the US—is about more than simply replacing the Big Mac with artisanal cheese or heirloom tomatoes. In fact, a very exciting movement to preserve local food traditions is underway across America. And, by preserving these traditions, we can also make important contributions to local economic development.
When it comes to the links between local food and economic development, the term regional foodways is probably a better descriptor than slow food. Regional foodways refer to the connections between food preparation and consumption, local heritage, and the natural resource amenities of a region. It is this complex mix of people, products, and nature that matters. The wheat industry in the Great Plains or Floridaâ€™s lettuce industry do not constitute regional foodways, but lobsters in Maine, barbecue in North Carolina, and wine in Napa Valley do meet this test.
Most communities have distinctive food, products, and practices. Traditionally, they havenâ€™t really meant much in terms of economic development. After all, whatâ€™s the spin-off effect of the Philadelphia Cheese steak? Yet, a number of factors are changing this equation. First, the Slow Food movement and concerns about food safety and high energy costs are fueling â€œeat localâ€ movements around the US. Farmers markets and Community-Supported Agriculture are booming. Second, many Americans now appear to be craving â€œauthenticity.â€ Books like The Experience Economy and Authenticity: What Consumers Want tell us that many Americans are seeking products and experiences that are â€œrealâ€ and that have deep community connections. Finally, tourism has been booming over the past decade. Many Americans have funds to travel and want to experience â€œrealâ€ places with real heritage, and, yes, real local foods.
All of these factors combine to create a real opportunity for economic development, especially in rural areas. Local residents want to buy local food, and are willing to pay a premium for it. Outsiders want â€œrealâ€ experiences where they can sample local products with a distinct regional flavor. Smart communities have begun to tap into this market. In Appalachian Ohio, local leaders have developed â€œThe Food We Loveâ€ marketing campaign to promote local food products and producers. Missouri has been experimenting with the creation of regional appellations—food districts based on the model of Franceâ€™s wine appellations such as Bordeaux and Burgundy. The Missouri Regional Cuisines Project has recently unveiled its first appellationâ€”the Mississippi River Hills region. Several other states, such as Georgia, Louisiana, Michigan, are also funding efforts to promote regional foodways.
The development of the Regional Foodways movement is an exciting opportunity.Â Â Â It offers a means to create new wealth for rural communities, while also preserving an important cultural heritage.Â Â And, in the process, we get some tremendous food, too!
Appalachian Center for Regional Networks, â€œEntrepreneurship with a Regional Flavor,â€ (Athens, OH: ACENET, 2007). This report is probably the best single resource for thinking about where food fits into a distinctive regional rural development strategy.
Association for Enterprise Opportunity, Regional Flavor: Marketing Rural Americaâ€™s Unique Assets, (Arlington, VA: AEO, 2007). A hands-on guide for promoting regional flavor.
Good Regional Foodway Sites: Georgia Mountain Foodway Alliance: http://www.georgiafoodways.org/Michigan Foodways: http://www.michiganfoodways.orgMissouri Regional Cuisines: http://extension.missouri.edu/cuisines/Slow Food USA: www.slowfoodusa.org
Good Regional Food Resources: While itâ€™s nice to know about local economic development efforts, itâ€™s also nice to know where to get good local food. Here are three sites that we like:
Chowhound: www.chowhound.com. Probably the most popular site for finding good eats—itâ€™s heavy on urban areas, but covers the whole US.
Holly Eats: www.hollyeats.com. Started by a Philadelphia-based gourmand, this site is heavy on East Coast locales, but offers some great reviews and tips.
Roadfood:Â Â http://www.roadfood.com/.Â Â Started by food critics Jane and Michael Stern, this site focuses on â€œthe most memorable local eateries along the highways and back roads of America.â€
Whatâ€™s New at EntreWorks Consulting?
Weâ€™ve got some new goodies that have been posted to the EntreWorks Library. To access the reports, click here.
â€œCreating an Entrepreneurial Appalachian Region: Findings and Lessons from an Evaluation of the Appalachian Regional Commissionâ€™s Entrepreneurship Initiative, 1997-2005.â€ Prepared for the Appalachian Regional Commission. The full report will soon be published, but a detailed executive summary is now available. To access the report, click here.
â€œFederal Policies that Need Attentionâ€ by EntreWorksâ€™ Erik R. Pages appeared in the Spring/Summer 2008 issue of Community College Entrepreneur. You can access the journal here.June 1, 2008
New Metrics for New Programs: How to Measure the Impact of Entrepreneurial Development Investments
One of the hardest parts of supporting new entrepreneurial development strategies is finding good measures of progress and impact. Economic developers have traditionally measured their progress by counting jobs. This approach makes sense when applied to traditional economic development efforts that emphasize business recruitment. When a new plant opens in town, you can count the jobs pretty easily.
Itâ€™s not quite so easy with supporting entrepreneurs. These companies create jobs, but they do it slowly. An entrepreneurial business might create hundreds of jobs, but they do it over years. Meanwhile, the newly opened branch plant creates lots of new jobs at one point in time.
So, if your region is introducing new entrepreneurial development programs, you might also think about new ways to measure their impact. Thatâ€™s one important lesson from a forthcoming evaluation of the Appalachian Regional Commissionâ€™s (ARC) Entrepreneurship Initiative. This program, which began in 1997, was the first Federally sponsored economic development program with an explicit focus on nurturing local entrepreneurs.
The program operated until 2005, and ARC continues to fund similar efforts through other ARC initiatives. The Entrepreneurship Initiative ended doing pretty well when assessed using traditional job creation measures. More specifically, over 12,000 jobs have been created or retained and over 1,700 new businesses were created, at a cost that suggests an efficient allocation of resources relative to other similar types of economic development programs.
However, these measures tell only part of the story of impacts. Entrepreneurship Initiative investments helped to train teachers and expose students to entrepreneurship concepts, almost 12,000 throughout the region. They supported incubators that served at least 475 emerging businesses and helped spark the development of sectors such as the sustainable wood products industry. These public investments have been instrumental in attracting almost $73 million in private capital injection to support entrepreneurship development in the region. Through its educational investments and the demonstration effect of ongoing projects, ARC also helped make entrepreneurship a legitimate and desirable economic development activity in local communities while raising awareness about the importance of the entrepreneurial and small business sector to the regionâ€™s economy.
ARC has not been able to tell this complete story in the past, because, like many Federal programs, ARCâ€™s current performance metrics focus almost exclusively on tracking short-term job creation. ARCâ€™s experience is not unique, and other economic development agencies face similar dilemmas. As we move ahead, program managers should heed two lessons from ARCâ€™s experience:
Replace old, overused metrics with a comprehensive â€œentrepreneurship development metrics portfolioâ€. â€œJob creationâ€ is an overused metric. It paints an incomplete picture of the outcomes of entrepreneurship development investments, and should be replaced by a more encompassing â€œentrepreneurship development metrics portfolio.â€ While job creation should be reported as an outcome of program investments, a much richer understanding of impacts can come through efforts to define and capture outcomes as measured by a broad set of performance metrics. In addition to jobs created/retained and new business starts, this system should include other outcome measures such as the following:
Changes in business profitability following a capital investmentNumber of incubator tenants who graduate from a facility and stay in the regionNumber of business owners still in business after receiving counseling or technical assistanceChanges in sales after receiving outside technical supportChanges in attitudes following completion of training programs.
A â€œbest in classâ€ metrics system requires investment in a â€œbest in classâ€ evaluation system. Performance measurement should be viewed as an integral part of program development â€“ from the perspective of funding agencies like ARC and project leaders. Federal and state economic development agencies should support the creation of a performance measurement system for future investments by developing a participatory evaluation system in partnership with grantees. This measurement system would be developed by grantees and their customers, i.e., the entrepreneurs, with outside funding, and would be designed to provide project leaders with useful information that can be used to adapt programs to changing circumstances as well as to report to funders on project performance.
If program managers want to â€œtell a better story,â€ they will need to invest resources and energy into this process. Effective program measurement will require that evaluation becomes a core part of program design and implementation, and not an afterthought.
Much of this essay is based on a forthcoming report: â€œCreating an Entrepreneurial Appalachian Region: Findings and Lessons from an Evaluation of the Appalachian Regional Commissionâ€™s Entrepreneurship Initiative, 1997-2005.â€ Prepared for the Appalachian Regional Commission by Deborah Markley, Erik R. Pages, Brian Dabson, Thomas Johnson, Sara Lawrence, Sara Yanosy, and Karen Dabson. The full report and executive summary will soon be published and will be available on the EntreWorks Consulting website.
Other excellent recent reports on program evaluation in the fields of small business development and entrepreneurship include the following:
Pennsylvania Department of Community and Economic Development, â€œMeasuring Up: Enhanced Metrics for a New Economy,â€ Harrisburg: Pennsylvania DCED, 2007. Available at: http://www.newpa.com/default.aspx?id=55
Urban Institute Evaluations of US Small Business Administration (SBA) programs.Â Â The Urban Institute has recently completed a series of excellent evaluations of various credit and support programs operated by the SBA. The studies csan be found atÂ http://www.urban.org.
Whatâ€™s New at EntreWorks Consulting?
Weâ€™ve got some new goodies that have been posted to the EntreWorks Library. To access the reports, click here.
â€œFueling Your Business in North Carolina: A Guide to Financing for Small Business.â€ Prepared for the North Carolina Rural Entrepreneurship Development Systems Project. While this guide contains a lot of North Carolina-specific materials, it will be helpful for anyone working with small business owners who are seeking capital to start or grow business.
â€œLessons in Self-Made Success,â€ co-authored by Erik Pages and Stuart Rosenfeld, appeared in December 2007/January 2008 edition of Community College Journal.
UPCOMING SPEAKING ENGAGEMENTS:
Erik R. Pages of EntreWorks Consulting will be on the road for lots of speaking engagements this Spring. Hereâ€™s a sampling:
April 3: Rural Development Conference, Cookeville, TNApril 13: IEDC Federal Forum, Washington, DCApril 29-30: Advantage West Development Group, Boone, NCMay 7: Small Business Center Network, Chapel Hill, NCJune 6: Professional Developers of Iowa, Spencer, IA
We hope to see you on the road!March 1, 2008
THE CANDIDATES SPEAK: ON ECONOMIC DEVELOPMENT AND THE INNOVATION ECONOMY
If youâ€™re like us and you donâ€™t live in Iowa or New Hampshire, youâ€™re probably not yet fully engaged in the 2008 Presidential campaign. It just seems too early to heavily delve into the candidateâ€™s position papers and views on myriad issues. Well, things are going to heat up in 2008 so itâ€™s probably time to start getting a little more focused. After all, this is a consequential election and it would be good to know where the candidateâ€™s stand on issues other than the cost of John Edwardsâ€™ haircuts, Hillaryâ€™s clothing choices or whether or not Fred Thompson is lazy. Weâ€™re trying to help in this issue of EntreWorks Insights. Weâ€™ve dug through the various candidateâ€™s web sites and position papers and tried to give a sense of how they might govern in issue areas such as regional economic development, science and technology, innovation, and the like. Itâ€™s still a little early for extremely detailed policy proposals, but you can get a sense of how candidates might govern if elected to our nationâ€™s highest office.
You can find our results below. Weâ€™ve tried to briefly present where each of the major Democratic and Republican candidates stand on these issues. Weâ€™ve focused on the most prominent contenders (sorry Kucinich or Paul supporters!) and have tried our best to tell the straight story. These write-ups should not be construed as endorsements or support for any of the candidates as EntreWorks Consulting is a strictly non-partisan operation. We welcome your feedback and opinions.
Hillary Clinton (www.hillaryclinton.com)Not surprisingly, Hillary Clinton is one of the few candidates (Democrat or Republican) to have a detailed innovation agenda. She unveiled â€œVersion 1.0â€ of her innovation agenda in May and is still requesting comments on her campaign web page. She has developed a nine-point plan that, in many ways, sounds a lot like the COMPETES Act which sailed through Congress this year. She proposes to increase spending on key research agencies (like the National Institutes of Health) and to expand investments in science, technology, engineering, and math (STEM) education. She has also proposed a new $50 billion Strategic Energy Fund to increase investments in cutting-edge energy related research. This fund is also part of her energy and climate change plan announced in November.
As a Senator, Clinton was rightly lauded for her commitment to rural economic development. She has long championed development in upstate New York, and she introduced several bills seeking to expand Federal investments in rural development. The Rural Investments to Strengthen our Economy (Rural RISE) Act of 2007 exemplifies her approach. It would create a new National Board on Rural America that would oversee rural development planning and investments. It would also create new programs to support small business owners and entrepreneurs located in rural regions.
John Edwards (www.johnedwards.com)Former North Carolina Senator John Edwards has based his economic strategies around a message of helping working Americans. Many of his ideas can be found in â€œThe Plan to Build One America,â€ an 80-page campaign booklet that details the Edwards economic and foreign policy programs. Edwardsâ€™ focus on working families means that his economic platform contains lots of ideas for boosting wages, strengthening labor laws, and encouraging family savings. Edwardsâ€™ innovation agenda includes support for expanded STEM education and increased funding for civilian R&D agencies such as the Energy Department and the National Science Foundation.
Edwards has also presented a plan for supporting American manufacturing that includes an expansion of skills-based training programs (Training Works), new investments (up to $1 billion) in energy research, expanded benefits for displaced workers, and aggressive efforts to fight offshoring. Like other Democratic candidates, Edwardsâ€™ rightly notes that his plans to expand health insurance coverage can also help improve American manufacturersâ€™ competitive position.
Like Senator Clinton, Edwards has also proposed a big push to support rural development. His Rural Recovery Act would provide new investment in rural equity capital sources, rural broadband development, as well as efforts to support rural schools and health care institutions.
Barack Obama (www.barackobama.com)Illinois Senator Barack Obama may have the â€œfreshestâ€ innovation plan as he recently unveiled his Innovation Agenda in a speech at Google headquarters on November 14th. Obama points out that his campaign has the strongest â€œnet-rootsâ€ and thus offers an example of how he would use technology to transform government and politics. In general, his technology plan is heavy on efforts to make government processes more transparent and open. He supports creating a new government Chief Technology Officer (CTO) to oversee these efforts and to help deploy next-generation broadband across the US. Obamaâ€™s energy plan calls for investing $150 billion (over ten years), and includes a $10 billion Clean Technologies Deployment Venture Capital Fund to spur technology commercialization.
Obama also supports new investments in training (up to $1 billion for a new career pathways program), an expansion of SBAâ€™s capital access programs, and new efforts to spur STEM education, especially for underserved minority students. Finally, he has called for a national network of business incubators, to be backed with $250 million of Federal money that will be located in disadvantaged communities across the US.
Bill Richardson (www.richardsonforpresident.com)As New Mexicoâ€™s Governor, Bill Richardson has built a reputation as a strong advocate for his stateâ€™s economic development. He has been especially aggressive in recruiting new industriesâ€”like film and space—to New Mexico. His work as Governor is reflected in his economic plan: â€œCreating a New American Century of Prosperity.â€ His plan is based on three main planks: fiscal responsibility, investing in technology and innovation, and investing in the American workforce. On the fiscal responsibility front, Richardson has a strong gubernatorial record as a tax cutter. As President, Richardson would seek to cut wasteful government spending and also roll back many of the Bush Administration tax cuts. He hopes to support innovation by more investments in R&D, expanded small business capital programs, and the creation of regional innovation clusters around the US. Finally, Richardson will seek to strengthen the workforce through a series of tax incentives for firms who provide good paying, high-skill jobs, and who provide benefits and training to their workers.
Rudy Giuliani (www.joinrudy2008.com)Former New York Mayor Giuliani is emphasizing other issues in his campaign, but he is making a strong case based on his economic record as New Yorkâ€™s mayor. Portraying himself as a tax-cutting fiscal conservative, Giuliani can point to a significant improvement in New Yorkâ€™s financial situation during his tenure. He backed numerous tax cuts, and also kept a tight lid on the Cityâ€™s public spending. He also sought to aggressively privatize many of New York Cityâ€™s government services and agencies. He has promised to bring a similar brand of fiscal discipline to the White House through his â€œTwelve Commitmentsâ€ plan which includes calls for major tax reform, tax cuts and fiscal discipline.
While Giuliani has not staked out formal economic development positions as part of his current platform, he was an aggressive development advocate while serving as New Yorkâ€™s Mayor. He is best known for his work in reducing crime as means to improve city life. Indeed, he is on record stating that the number one principle of economic development is controlling crime. At the same time, he was a strong advocate for efforts to retain key financial industries in Manhattan, and to attract other sectors (such as film) to the City.
Mike Huckabee (www.mikehuckabee.com)Huckabeeâ€™s rise in the polls largely results from his appeal to social conservatives, and his campaign is focusing heavily on these issues. Huckabeeâ€™s record as Governor has been criticized by groups like the Club For Growth who contend that Huckabee did not do enough to cut taxes and to restrain government spending during his tenure.
Huckabeeâ€™s economic platform differs from that of other Republicans. Like them, Huckabee supports efforts to reduce the size of government and to promote free trade and open markets. But, many of his specific proposals are unique when compared to those of his competitors. Huckabeeâ€™s most far-reaching program calls for a complete elimination of the current tax regime to be replaced by a consumption-based FairTax. He contends that the new FairTax will reduce administrative burdens and also provide a strong competitive stimulus to American business. On the education front, Huckabee is a strong advocate for music and arts education as a means to nurture creativity and innovation among American youth.
John McCain (www.johnmccain.com)As a long-serving Senator from Arizona, John McCain has a long voting record that allows us to get a good sense of where he stands on the issues. McCain is best known for his work on issues like national security, campaign finance reform, and cutting wasteful government spending, but he does have strong opinions on key economic issues. McCainâ€™s straight talk was in evidence in recent remarks to ethanol advocates in Iowa when he stated: â€œI oppose subsidies. Not just ethanol subsidies. All subsidies. . . . Entrepreneurs should not be disadvantaged by earmarking and pork-barrel spending that favors politically connected competitors.â€
Like most Republican candidates, McCain supports tax cuts and efforts to rein in government spending. But McCain has expressed support for new efforts to help train and support displaced workers, through community colleges and other support vehicles. McCain is also something of a Republican outlier on immigration issues. Unlike his competitors, he has supported effortsâ€”including the 2007 McCain-Kennedy immigration plan—that seeks to support immigration as part of a pro-growth economic strategy.
Mitt Romney (www.mittromney.com)Romney is the one Republican candidate with an extensive business background—as a consultant and venture capitalist. Among Republicans, he has staked out the most detailed positions on innovation and technology policy. He has expressed support for expanding the H1-B visa program as a means to strengthen the technology sector. As a former venture capitalist, heâ€™s also on record opposing efforts to impose new taxes on carried interest proceeds from VC investments. While serving as Massachusettsâ€™ Governor, Romneyâ€™s signature economic development program was the creation of Regional Competitive Councils and cluster groups designed to stimulate development of specific regions or industry clusters. A number of these councils were established, but most have been in operation for a relatively short period.
In his broad economic platform, he points to tax cuts and reduced regulations as primary tools for stimulating the economy. In particular, Romney has been a strong advocate for â€œpro-growthâ€ tax policies. For example, as Massachusetts Governor, he fought a tough battle oppose capital gain tax increases proposed by the State Legislature. Romney also expects to bring his consulting expertise to improving the business of government, and he has specifically mentioned Federal economic development programs as one area worthy of reform and streamlining.
Fred Thompson (www.fred08.com)At this point in the campaign, former Senator Fred Thompson has not yet presented a detailed economic agenda. However, he is portraying himself as a traditional conservative who will support tax cuts, tighter limits on Federal spending, and a limited role for government. These commitments generally reflect his voting record in the Senate, where he regularly supported the Bush Administrationâ€™s tax cuts and efforts to cut Federal programs unpopular with the White House and Congressional Republicans. As one might expect with a Senator from Tennessee, Thompson was a strong advocate for the Tennessee Valley Authority and supported multiple efforts to increase TVA funds. It still remains uncertain how Thompson would specifically govern on issues related to the innovation economy.December 1, 2007
LETTER FROM MAINE
My family recently returned from our annual summer vacation in Stockton Springs, Maine. Like so many Americans, we love Maine for its scenic beauty, outdoor activities, and great food (read: LOBSTER!). Thereâ€™s a good reason why many Maine license plates refer to it as â€œVacationland.â€
While Maine is a wonderful vacation spot, itâ€™s also an interesting microcosm of the vexing economic development challenges facing many American states and communities. With the exception of Portland (Maineâ€™s primary metro area), most Maine communities face a depressing mix of slowing growth, outmigration, and limited new economic development opportunities. Business leaders regularly bemoan the governmentâ€™s attitudes toward business growth, and the state tends to perform poorly in annual report cards on how state are responding to the new innovation economy. Obviously, this mix is not unique to Maine. Similar descriptions would fit rural and urban communities across the US.
A 2006 Brookings Institution report, Charting Maineâ€™s Future, highlighted several important challenges facing the Maine economy. First, much of Maineâ€™s workforce lacks the necessary skills and talents to thrive in the 21st century economy. Second, the state is generating momentum in many leading economic clusters. Yet, these innovation clusters remain small and cannot achieve sufficient scale to have a transformational effect on regional economies. Finally, Maineâ€™s policy environment is not sufficiently supportive of innovation or business growth. More resources and a more business friendly perspective are needed. Somewhat similar findings can be gleaned from the 2007 Maine Innovation Index, produced by Maineâ€™s Office of Innovation (www.maineinnovation.com).
While Maine suffers from somewhat common economic development challenges, the stateâ€™s leaders (both public and private) are attempting to develop some uncommon solutions to these issues. Maine operates a number of initiatives, such as the Pine Tree Development Zones, that seek to attract new firms and support existing businesses. But, the government is also experimenting with some new approaches. Opportunity Maine is probably the most exciting such effort. This newly enacted initiative is designed to help Maineâ€™s young people obtain a college education and remain in Maine after they graduate. It provides a tax credit of up to $2,100 per year to offset the cost of higher education at the University of Maine system or at the stateâ€™s community colleges. This program should help contribute to improving workforce quality and stemming the brain drain of Maineâ€™s young people.
In November, Maine voters will determine the fate of another effort designed to further jump-start local development. In April, the Maine Legislature approved a $295 million bond referendum, half of which is focused on transportation with the other half focused on a variety of economic development related activities. Within this latter portion of funds are the following line items:
$50 million for the Maine Technology Fund to invest in research and commercialization activities in key industries such as biotechnology, marine technology and information technology.$48.5 million for enhancements to the University of Maine system and the state community college system.$2 million for various broadband access initiatives.$6.5 million to support existing revolving loan funds such as those operated by the Finance Authority of Maine.
If approved, these new resources could have a significant impact in supporting economic development activity across the state.
These activities and initiatives in Maine are not the last word in how to promote local economic development.Â Â We donâ€™t yet know how they will operate in practice, and, in the case of the November bond issue, we still donâ€™t know whether the new funding will be approved.Â Â However, we can point to Maine as a state that is thinking and thinking big.Â Â Long-standing and persistent economic development challenges cannot be addressed by small-scale tinkering with existing efforts.Â Â Â They require major investments, major commitments, and a recognition that business as usual no longer applies.Â Â The state of Maine is moving in this positive direction.Â
Whatâ€™s New at EntreWorks Consulting? (And Beyond?)
Instead of shamelessly plugging ourselves, this edition of â€œwhatâ€™s newâ€ highlights some recent accomplishments of EntreWorks Consultingâ€™s friends and customers.
The Pacific Mountain Workforce Development Council (Olympia, WA) was recently awarded a $5 million Department of Labor WIRED (Workforce Innovation in Regional Economic Development) grant to support the creation and implementation of the Pacific Mountain Alliance for Innovation, a new initiative to promote economic and workforce development in the five-county South Puget Sound region. The Fort Smith (AR) Innovation and Entrepreneurship Center (www.iecfs.org) officially opened its doors on August 31, 2007. The center will serve as a major catalyst for innovation in the Ft. Smith region and throughout Arkansas.The Georgia Department of Economic Development recently designated its 52nd county as an â€œEntrepreneur Friendly Community.â€ These counties are recognized for their outstanding work in building a supportive climate for new and existing business owners. To learn more, visit http://www.georgia.org/Business/Entrepreneur+Friendly+Communities.htm
Erik R. Pages of EntreWorks Consulting will be making presentations at the following locations this Fall:
September 6: Paducah (KY) Chamber of CommerceSeptember 28: Governorâ€™s Economic Summit, Albuquerque, NMOctober 18: SSTI Annual Conference, Baltimore, MDDecember 13: Economic Development Institute, Oklahoma City, OKAugust 1, 2007
The Power of Scenario Building: The Future of Futurism
If youâ€™ve ever read or created an economic development strategy, the basic template is pretty straightforward. Assess your regionâ€™s strengths, weaknesses, opportunities, and threats (SWOT), align this analysis with your desired vision for the communityâ€™s future, and design a work plan for getting there. This basic barebones approach remains popular because it works. It helps a community think through its current situation and identify ways to improve upon it.
Because it works so well, we should expect the classic economic development strategy process to remain the norm. But, weâ€™re also beginning to see some regions consider alternative ways to envision their economic futures. Scenario buildingâ€”using our imaginations to envision alternative economic futures—is among the most interesting and promising of these new methods.
Scenario building is not rocket science. Itâ€™s really just a slightly more sophisticated way of asking â€œWhat If?â€ Scenarios arenâ€™t used to predict the future. Instead, they serve as a vehicle for scoping various pathways to the future. Typically, scenario-building exercises build a series of future scenarios (generally looking out 20-30 years into the future) that build upon some existing trends that seem likely to affect future economic patterns. In his classic book on scenario building, The Art of the Long View, Peter Schwartz depicts how Royal Dutch/Shell used various scenarios to better understand future energy supply options.
Economic developers can fruitfully use the same tools to think about their regionâ€™s future. The first step involves assessing key trends and then extrapolating from these patterns. Depending on oneâ€™s location, you can build future economic scenarios around a variety of pressing economic trends: continued youth out-migration, continued influx of new immigrants, the impact of global warming, and so on. At this point, you can let your imagination run a little wild. However, effective scenario building should be based on plausible scenarios. For example, you might study the impact of declining water supplies on Las Vegasâ€™ economy. You might rethink assessing the impact of an alien invasion there.
If youâ€™re interested in learning more, two recent initiatives are worth examining. In the Great Plains, Fargoâ€™s Northern Great Plains Inc. has created and led the Meadowlark Project (www.meadowlarkproject.com). This initiative presents four scenarios for the future (in 2050) of the Great Plains region. They are:
Thereâ€™s No Place Like Home: Climate change sparks an economic collapse and subsequent rebirth of the region.The Good Lands: Thanks to far-sighted leadership, the region becomes a global leader in renewable energy and sustainable communities.The Big Empty: Thanks to industry consolidation and other factors, the region continues on a path of depopulation and brain drain.A Tech-No-Color World: Technology plays a greater role in driving economic decisions. Some parts of the region become global technology leaders. Other communities remain focused on preserving traditional rural amenities and lifestyles.
These scenarios are designed to stimulate new thinking about the regionâ€™s future, but, more importantly, to help encourage new approaches to that can help stimulate systemic change. Through public forums, blogs, and other discussions, the Project leaders hope to â€œstart a conversationâ€ and get people thinking differently about their hopes and dreams for their communities.
The New England Futures Project (www.newenglandfutures.org) uses a somewhat different approach to its scenario building exercise. The project has a clear objective of promoting regional cooperation among the six New England states. As they put it, will New England be â€œsix teams â€“ or one?â€ Instead of presenting alternative scenariosâ€”as in the Meadowlark Projectâ€”the New England Futures Projects examines how the region can collaboratively address pressing challenges (e.g. rising energy costs, sprawl) by reviewing the potential impact of various alternative futures such as â€œa perilously warm New England.â€ Again, this method seeks to stimulate thought and force the regionâ€™s citizens to recognize that maintaining the status quo is not an option.
These scenario-building tools will likely become common methods in the near future.Â Â They enjoy the advantage of spurring people to think big and to think systemically.Â Today, economic development requires a systems based approach that taps a range of players and interestsâ€”from business to education to non-profits to average citizens.Â This is a complex and messy process without easy answers or solutions.Â Scenario building is one effective means to model this complexity and to help chart a path for dealing with it in the real world.
Miscellaneous Plugs: Understanding Open Innovation
Open Innovationâ€ is a hot topic in business and management circles nowadays. What is open innovation? Exact definitions often vary by author, and some authors use different terms to depict a similar process. Generally, open innovation refers to a process that seeks to tap into the new world of multiple knowledge streams. In this paradigm, companies, organizations, and even individuals can no longer count only on their own know-how to move ahead. Instead, they must embrace a more open process where a variety of players—customers, partners, and outsiders of all stripesâ€”can engage in the innovation process. Embracing open innovation has worked well for big corporate players like Procter & Gamble, but itâ€™s can also be an effective approach for all kinds of organizations seeking to do things differently and better. If youâ€™d like to learn more, hereâ€™s a few books that might intrigue you:
Ori Brafman and Rod Beckstrom, The Starfish and the Spider: The Unstoppable Power of Leaderless Organizations, (Portfolio Hardcover 2006). The authorsâ€™ primary argument is that decentralized organizations are more likely to survive and prosper in todayâ€™s economy. Decentralization confers two main advantages: it allows organizations to tap multiple sources of expertise and ideas, and it also makes it difficult for competitors to control or defeat them. This perspective can help explain the persistence of organizations as diverse as eBay, al Qaeda, and Alcoholics Anonymous.
Henry Chesbrough,Â Â OpenÂ Business Models:Â Â How to Thrive in the New Innovation Landscape,Â (HarvardÂ BusinessÂ SchoolÂ Press 2006).Â Â Chesbrough is widely cited for coining the term â€œOpen Innovationâ€ in his eponymous 2005 book.Â Â This follow-up is focused on how major corporations are embracing open innovation.Â Â Chesbrough describes how managers can develop a business model that embraces open innovation and creates a marketplace of new ideas that they can tap.Don Tapscott and Anthony Williams,Â Â Wikinomics:Â Â How Mass Collaboration Changes Everything, (Portfolio Hardcover 2006).Â Â Inspired by the success of Wikipedia and the Open Source movement, Tapscott and Williams examine how companies and organizations can build global collaborative alliances to develop new products, services, and technologies.Â Â Â The book is a little heavy on the consultantâ€™s jargon, but itâ€™s still a good introduction.Â Â If it piques your interest, you might also check out the website (www.wikinomics.com) which includes the Wikinomics Playbook, a summary of how to apply many principles from the book.Â Â This new book chapter is a wiki itself, so you can add your own ideas too.Â
Whatâ€™s New at EntreWorks Consulting?
NEW TO THE ENTREWORKS LIBRARY: â€œNavigating Business Services in North Carolina,â€ This February 2007 report was developed on behalf of the North Carolina Business Resource Alliance as means to make it easier for North Carolinians to get help in starting or growing new businesses. If youâ€™re looking to start a business in
North Carolina, this one is a â€œmust read.â€ If you live in our other 49 states (or Washington DC), you might still be interested in this guide as a sample of a easily readable and user-friendly guide to business services. Erik Pages of EntreWorks Consulting has been appointed to the Editorial Board of Applied Research in Economic Development (ARED). ARED is hungry for interesting articles that combine real-life experience with analytical rigor. If youâ€™re interested in submitting articles for consideration in future issues of ARED, you can find out more here: http://www.c2er.org/downloads/publications/journal/AREDguidelines.pdfMay 1, 2007
Opportunities for Innovation Policy in 2007Volume 2: Beyond STEM Education
Readerâ€™s Note: In our last edition, we began examining areas where interesting changes in innovation policy might occur in 2007. Volume 1 of this series looked at the 2007 Farm Bill; this note examines the growing interesting in STEM education reforms. If you think STEM refers to plant biology, please read on!
If thereâ€™s one place where Washington excels, itâ€™s in the creation of new acronyms. The latest for innovation policy mavens is STEM, which refers to science, technology, engineering and math education. For a host of reasons, business and academic leaders have grown increasingly worried about the quality of STEM education in the US, and theyâ€™re trying to do something about it. Theyâ€™ve published literally dozens of studies on the topic, and Congress is full of proposals to â€œfixâ€ STEM education.
So, first off: whatâ€™s the problem? Why worry about STEM education now? Has Sputnik blasted off again? While there might not be an immediate crisis ala Sputnik, there is a slowly growing sense of unease about Americaâ€™s economic position and its ability to foster future scientific and technological innovations. Combine this unease with decades of complaints about the quality of K-12 education and youâ€™ve got something of a groundswell around fixing STEM education. When President Bush and Congressional Democrats both agree on the need for action, we know something unusual is happening.
The range of STEM-related proposals is pretty astounding. Dozens of bills have already been introduced in Congress, and this yearâ€™s session is only two months old. Congressional leaders have also formed a STEM Education Caucus to focus on the issue. Meanwhile, President Bush continues to push for his American Competitiveness Initiative, which contains a major expansion of funding for STEM education efforts. While each of these proposals contains some distinctive features, the general outlines of a consensus view appear to developing. Among the suggested remedies are the following:
Increase the number of high school students who take rigorous math and science courses.Improve the quality of science and math teaching via recruitment of new teachers and improved training for existing educators.Increase the number of undergraduates who receive STEM-related degrees.Increase graduate study in key STEM-related areas.Improve Federal agency coordination and support in these areas.
The basic concept of these well-meaning proposals is pretty simple: we need more Americans to be exposed to and to excel in science, math, and engineering. The best way to achieve this goal is to prime the pump. By providing various incentives to both students and teachers, we will be able to trigger more interest in STEM fields, and thus address many lingering education and competitiveness challenges.
This is a pretty compelling argument, but is it really enough to simply add more on the input side? Are more spending and more incentives really going to change how young people view these fields? The jury is still out. In fact, itâ€™s not really clear that the customer (i.e. students, parents, graduate students) is really clamoring for â€œmoreâ€ math and science. For example, a recent poll from Public Agenda asked parents whether their children took enough math and science courses in high school. Fifty seven percent felt the current course structure was sufficient, while 32% wanted more math and science. Students are similarly lukewarm. When asked to identify the biggest problems facing the education system, the shortage of math and science courses ranked number 11 on the student list of concerns.
We present this caution not to say that these proposals are a bad thing. The US should invest more to support STEM education. But, we should make these investments with eyes wide open. Itâ€™s not going to be enough to simply prime the pump by spending more on teachers, fellowships, and curriculum. More is not enough. Weâ€™ll need to do things better and differently too.
When employers are surveyed about desired skills in the future workforce, they regularly mention creativity, innovation, an ability to work in teams, and an ability to work with diverse people and environments. Better science and math education will help hone these skills, but they canâ€™t do it alone. We will also need to introduce new education techniques and technologies that foster creative thinking and innovative behaviors. Some of these new approaches are being pioneered in the teaching of math and science. For example, the FIRST Robotics competition engages youth in science via a national competition to build robots. Other initiatives will come from the burgeoning field of entrepreneurship education. And, traditional arts education must also be part of the mix.
The solution is to consider to something like a â€œSTEM plusâ€ initiative. If we simply want more scientists and mathematicians, the current STEM education proposals may be enough. If we want more innovators, entrepreneurs, and creative workers, we should consider STEM plus. After all, good ideas, innovations, and new technologies donâ€™t come only from scientists and engineers.
Miscellaneous Plugs: Entrepreneurship Week USA and its Aftermath
In case you missed it, the last week of February (February 27-March 3, to be exact) was the first annual celebration of Entrepreneurship Week USA. The event was a huge success with more than 1,300 partner organizations sponsoring thousands of events in all fifty states. Look for an even bigger and better celebration next year, but, in the meantime, lots of useful research studies and reports were released in conjunction with Entrepreneurship Week USA. Hereâ€™s a sampling:
Council on Competitiveness, Where America Stands: Entrepreneurship (http://www.compete.org/pdf/ew_deeper_dive.pdf): This report assesses Americaâ€™s capacity to support new and high growth businesses. The verdict? The US continues to lead the world in spawning high-growth entrepreneurs, and this capacity is becoming a more critical component in regional development strategies.
Education Commission of the Statesâ€™ February 2007 report, â€œEntrepreneurship Education Laws in the States,â€ by Kyle Zinth, (http://www.ecs.org/clearinghouse/73/08/7308.pdf). This report presents a pretty depressing picture of the state of entrepreneurship education in the US. To date, only 9 states have legislation specifically addressing entrepreneurship at the K-12 level, and only 14 states have laws to support entrepreneurship at the post-secondary level
Kauffman Foundation and the Information Technology and Innovation Foundation, The State New Economy Index (http://www.kauffman.org/pdf/2007_State_Index.pdf): This assessment ranks states on their ability to support innovation, entrepreneurship and technology development. Top performers include California, Maryland, Massachusetts, New Jersey, and Washington.
Whatâ€™s New at EntreWorks Consulting?
Erik R. Pages of EntreWorks recently testified before a House of Representatives Transportation and Infrastructure Subcommittee on â€œThe State of Economic Development.â€ You can view his testimony at www.entreworks.net/library.Erik R. Pages of EntreWorks was recently appointed to the Arlington County (VA) Economic Development Commission.Upcoming Training Opportunities: Erik Pages of EntreWorks will be leading several training sessions in the coming months.May 1, 2007: â€œDesigning an Index of Your Innovation Economy,â€ Des Moines, Iowa (To learn more, visit www.c2er.org)June 6, 2007: Small Business and Entrepreneurial Development Strategies,â€ Atlanta, Georgia (To learn more, visit www.iedconline.org)March 1, 2007
Opportunities for Innovation Policy in 2007Volume 1: The Farm Bill
As a new Congress gets set to convene next month, there are high expectations for big changes from Washington. Tight domestic budgets and an consuming (and appropriate) focus on Iraq will likely mean that, while many new ideas may get a public airing, it will still be difficult to generate significant changes in Federal policy. Nonetheless, there are a few areas where we might see major changes affecting efforts to foster innovation and regional competitiveness. Weâ€™re going to take a look at these opportunities in the next 2 editions of EntreWorks Insights. Here in Volume 1, weâ€™ll take a look at the upcoming debate on the 2007 Farm Bill. Our next edition will examine new proposals to support technology development, and to promote science and engineering education.
When it comes to Federal policy toward rural America, the Farm Bill is the big kahuna. Pretty much every federal program targeting agriculture and rural development is authorized by the Farm Bill, which is considered by Congress every five years. This debate will begin anew in 2007, and this yearâ€™s decisions will greatly affect not only how Washington deals with rural America but also how Washington deals with larger questions of regional development for all kinds of communities. So, this yearâ€™s Farm Bill debate will not just be of interest to farmers. It will affect all of us.
So, whatâ€™s at stake? At the most basic level, weâ€™re talking about how Washington plans to invest tens of billions of dollars in programs affecting crop supports, conservation, food stamps, nutrition, and the like. Also at stake is how Washington can best support the development of a strong business climate and livable communities in rural America. Rural development is not a big-ticket item when compared to, say, crop supports, but it will be an important component in this yearâ€™s debate.
Fortunately, there has been a good level of debate about how the Farm Bill can and should affect rural development. The House and Senate Agriculture Committees have held numerous field hearings, and Secretary of Agriculture Mike Johanns deserves credit for holding a comprehensive series of â€œFarm Bill Forumsâ€ across the US (see www.usda.gov/farmbill) to solicit public input. In a paper (available at http://futureofinnovation.org) designed to summarize these discussions as they relate to rural development, US Department of Agriculture (USDA) researchers presented three generic options:
Maintain current rural development programs but alter their targeting so they are more relevant to pressing needs or sustainability.Revise programs to focus more on generating more new business formation and more private investment in rural communities.Provide more funds on a regional basis.
These three generic options are not really mutually exclusive. In reality, we ought to try to pursue all three approaches at once. While rural development programs need updating and revising, we should also avoid throwing out the baby with the bathwater. We need to retain existing programs that address critical needs, such as ongoing investments in broadband and affordable housing. But, rural development policies do need to be updated so that they are both more entrepreneurial and more regional in focus.By â€œmore entrepreneurial,â€ we mean that USDA needs to recognize a critical reality. In many places, the rural economy is no longer driven by agriculture. Instead, the rural economy looks a lot like the economy elsewhere—driven by a mix of businesses, large and small, that operate across many sectors. How do you help support such an economy? By helping individuals and businesses built wealth and prosperity. This can occur through several kinds of initiatives:
Increasing the availability of investment capital by expanding microenterprise programs and other business finance efforts in rural communities.Helping individuals build assets through targeted individual development accounts. This concept, at least as it pertains to rural areas, comes from the New Homestead Act, legislation introduced in the last Congress by a bipartisan coalition of Senators from the Great Plains region.Diversifying the farm economy by supporting efforts to promote value-added agriculture production, help develop alternative industries (e.g. agri-tourism, organic farming, alternative energy), and to invest in product and process innovations at existing farm operations.
By â€œmore regional,â€ we mean that rural development policies must find ways to build scale so that rural communities can compete in the global economy. Individual towns and counties do not compete in the world economy; regions do. Yet, federal policies still tend to provide targeted assistance to individuals towns and other political jurisdictions. While this support can be helpful, it fails to help small towns prepare for competition on a global scale. Regional strategies help generate economies of scale, help improve the quality and breadth of support services, and also help encourage collaboration. Recent research (available at http://www.kc.frb.org) from the Federal Reserve Bank of Kansas City indicates that regional partnerships can contribute to improved economic development outcomes.
Other federal agencies are already moving in this direction. The Department of Laborâ€™s WIRED (Workforce Innovation in Regional Economic Development) program offers one example of such a regional approach (see www.doleta.gov). Regional partnerships need not be limited to economic development. Regional approaches also yield benefits in areas such as border security, water conservation, and environmental stewardship.
So, whatâ€™s next?Â Â The Farm Bill is going to stimulate some fascinating and critical policy debates.Â Â Itâ€™s not just going to be about soil conservation or support prices for cotton.Â Â If you have an interest in how Washington supports and invests in regional economic development, you should closely monitor – and, if possible, get engaged —in this debate.Â
Whatâ€™s New at EntreWorks Consulting?
EntreWorks Consulting has had a busy and productive year. Thanks to all of our friends, colleagues, and customers who have supported and promoted our work. Hereâ€™s a sampling of some of our recent and upcoming projects:
Arkansas Capital Corporation: Assisting ACC with the creation of the Arkansas Economic Acceleration Corporation, a privately led initiative to support Arkansasâ€™s small business owners and entrepreneurs. (www.arcapital.com)
Appalachian Regional Commission: Along with the RUPRI Center for Rural Entrepreneurship, EntreWorks is evaluating the impact of ARCâ€™s Entrepreneurship Initiative, a multi-year investment in local initiatives across the 13 state ARC region. (www.arc.gov)
North Carolina Department of Commerce: EntreWorks is assisting the Department in a new effort to update its website and other materials designed to support new and growing businesses in the state. (www.nccommerce.com)
Northern Virginia Workforce Investment Board/Skill Source Group: Along with the Center for Regional Economic Competitiveness, EntreWorks is assisting key workforce leaders in Northern Virginia to assess the impact of upcoming military base expansions at Fort Belvoir and Quantico Marine Base. (www.myskillsource.org)
Pacific Mountain Workforce Development Council: Working with the National Center for Education and the Economy, EntreWorks is aiding the Olympia, Washington-based Council in its efforts to craft a regional workforce development strategy.December 1, 2006
Keeping Score: Lessons from Europe
If thereâ€™s one thing that business, non-profit, and public sector managers agree on, itâ€™s this: we need to do a better job of keeping score. Managers need effective tools to assess how their organizations (and their workers) are performing, and a means to use this information both to report progress and to improve subsequent performance.
When it comes to performance measurement, business seems to be doing a fairly decent job. The job is somewhat easier when financial metrics dominate, but itâ€™s also easier when lots of money is thrown at the problem. Businesses spend hundreds of millions, if not billions, of dollars each year on measurement efforts such as the balanced scorecard, six sigma, and the like. Government agencies similarly plow significant resources into these efforts.
Despite all of these investments, we still donâ€™t seem to do a very good job of tracking the outcomes and outputs of various economic development efforts. This is particularly true with some of the newer approaches that seek to foster innovation, promote entrepreneurship, nurture the creative class, and so on. As these new strategies have been put into place, we have thought a lot about how to implement the programs, but less about how to measure them. In many cases, weâ€™ve simply imported old metricsâ€”jobs created or retained or investment dollars stimulated—-that have typically been used in traditional infrastructure or business relocation projects. These traditional measures worked well when used for traditional purposes, but what if youâ€™re trying to do more. You not only want to create jobs, you want to create quality jobs, a friendly business climate, a culture that embraces innovation, and a quality of life that attracts talented workers and their families. As our economic development objectives have been transformed, our efforts at measurement havenâ€™t kept up. We donâ€™t really have a good consensus set of tools for measuring our ability to build regional innovation systems.
We are not the first observers to recognize this disconnect—many organizations are trying to intervene. Leading organizations, such at the Council on Competitiveness, ACCRA, and SSTI, are all promoting initiatives to develop better innovation metrics and better performance measurement systems. Washington is even getting into the act. The US Department of Commerce is now setting up its own â€œMeasuring Innovation in the 21st Century Economy Advisory Committee.â€
These initiatives are very exciting, but the real action appears to be overseas where the European Union, the OECD, and many national and regional programs are developing interesting new ways to measure progress in innovation policy. Theyâ€™ve also made major efforts to go beyond studies and to get practitioners to use these tools in the field. For example, the OECD has produced the very detailed Oslo Manual for collecting and interpreting innovation data. Not to be outdone, the European Union has its own PAXIS Manual, a 400-page behemoth that profiles hundreds of effective measurement tools and practices. Lots of national governments are also doing good work in this area. For example, Britainâ€™s Department of Trade and Industry has recently published a useful study of UK innovation indicators.
Why is Europe so engaged in this exercise? The simplest answer is that they actually invest in performance measurement instead of simply mouthing the appropriate rhetoric. Perhaps a more compelling reason is that Europeâ€™s leaders believe that this matters. Europeâ€™s performance on a variety of innovation measures continues to lag, so â€œgetting innovation policy rightâ€ is a national and European-wide priority. As a result, European policy makers are investing in new innovation policies and in new approaches to measuring their effects.
Weâ€™re not advocating that the US adopt a European-style innovation policy, but we are advocating that federal, state, and local officials adopt a European-style innovation measurement policy. What would this look like? At a minimum, it requires increased investments in performance measurementâ€”not just to track program performance, but also to assess community outcomes in terms of regional economic competitiveness. It also requires that performance measurement become a critical part of various professional development activities. All economic development professionals should receive some level of basic training in how to do performance measurement right. This job is too important to leave to researchers and consultants alone. Finally, the many interesting experiments now underway need to be continued. New efforts like the Labor Departmentâ€™s WIRED Initiative are emphasizing the importance of performance measurement. These efforts, and others, need and deserve more resources and more public support.
Note to Readers:Â Â The â€œOsloÂ Manualâ€ can be found on-line at the Eurostat website at:Â Â http://epp.eurostat.ec.europa.eu.Â Â The PAXIS Manual is available at:Â Â http://cordis.europa.eu/paxis/src/home.htm.Â Â Finally, the British DTI Innovation Indicators report is available at:Â Â www.dti.gov.uk/files/file31569.pdf.
Innovation Policy Resources
Europeans arenâ€™t the only ones trying to think in an innovative way about tracking innovation policies. Many American researchers are also on the case. Here are a few good places to learn more:
Council of Competitiveness, Measuring Regional Innovation, 2006. A very useful guide to various measures for tracking the innovation economy. Available at: http://www.compete.org/nri/regional_innovation_guide.asp.
Edward Lowe Foundation, Michigan: Toward an Entrepreneurial Economy, 2005-2006. Prepared by Graham Toft of Growth Economics. An excellent state level example of using indicators related to entrepreneurship and innovation. Available at: http://edwardlowe.org/index.peer?page=ENTscorecard
Fund for our Economic Future, Dashboard Indicators forÂ Northeast OhioÂ Economy, 2006.Â Â Prepared by Randall Eberts, George Erickcek, and Jack Kleinhenz.Â An excellent example of an effective regional indicators initiative.Â Â Â Available atÂ http://www.futurefundneo.org/page10474.cfm
Whatâ€™s New At Entreworks?
EntreWorks Consulting has been part of the team helping to develop a nationwide series of celebrations to coincide with Entrepreneurship Week USA, to be held between February 24 and March 3, 2007. The week will help us recognize the critical importance that innovation, creativity and entrepreneurship play, not just for the national economy, but also for the individual lives of all of our citizens. If youâ€™re not already involved with this effort, we need your help. To learn more, visit www.entrepreneurshipweekusa.com.
New Articles and Presentations in the EntreWorks Library: The following article has been added to the EntreWorks library. You can access it at: www.entreworks.net/library.â€œHello, My Business Name Is . . .:â€ A Guide to Building Entrepreneurial Networks in North Carolina. (Research Triangle Park, NC: Council for Entrepreneurial Development, September 2006).September 1, 2006
Housing: Why Economic Developers Must Engage
If youâ€™re like me, the terms â€œaffordable housingâ€ and â€œhousing policyâ€ call up a series of strong images: huge urban housing blocks, implosions of decayed buildings, and a whole range of images around urban poverty. The result is that many economic developers (if youâ€™re like me) tend to think of housing policy as something for housing or anti-poverty advocates to worry about. While these policy discussions are important, they donâ€™t have a lot to do with our traditional focus on job and wealth creation.
This essay argues that our stereotypes are flat out wrong, and potentially dangerous. Economic developers should always have been concerned about housing policy, but now more so than ever.
Why should we care about housing? Like some many things, it all comes down to a changed economy. Back in the day, we worried about buildings and physical infrastructure because those things mattered. Business needed affordable infrastructure if it hoped to succeed. Thatâ€™s still true today, but, as nearly all entrepreneurs and corporate chieftains will tell you, talent is now the key ingredient in a firmâ€™s success. All else being equal, the firm with the most talented people will win. Thereâ€™s a reason why Google makes new recruits take grueling intelligence tests. They want to hire and retain the best workforce in the world.
Whatâ€™s true of firms is also true of regions. Places with the most talent generate the most innovations and the most prosperity. Recent data show that, over the course of the 1990s, education levels were the single most important driver of economic growth. Highly educated metro areas significantly outperformed low-education metros in the most critical areas of wealth generation and job creation. Similar results occur at the international level where nations, such as Denmark, Sweden, and Singapore, with strong education performance and significant investments in education regularly rank at or near the top of global competitiveness assessments.
This is where housing comes in. Affordable housing—or â€œworkforce housingâ€—is important because it helps attract and retain talent. Like all of us, talented and creative people want a place of their own that they can afford. Unfortunately, many placesâ€”particularly on the East and West Coasts—no longer provide that option as well as they did in the past. The national picture is very scary. Between 2000 and 2004, the median house price rose 54%. Meanwhile, median family income dropped 3.5% over the same period. Itâ€™s even worse in many major metro areas.
Recent Census data on domestic migration patterns are telling. The three biggest recent gainers are suburban and exurban locations: Riverside, CA, Clark County, NV, and Maricopa, AZ. Meanwhile, high-cost urban regionsâ€”like San Francisco—are losing people, especially middle class families. Thereâ€™s a reason why the exurbs are growing and middle and working class people are leaving urban areas. Itâ€™s not crime; itâ€™s the absence of affordable housing. As people spread out, commute times rise and quality of life suffers. At some point, a breaking point is reached. The workforce votes with its feet and moves to locations with a wider range of housing options.
The plight of teachers and many public servants, such as police and fire fighters, may offer a taste of things to come. Many of these workers can no longer afford to live and work in major metro areas. They face a difficult choice: accept a horrific commute or move elsewhere.
As more communities approach this breaking point, there will be a growing interesting in finding solutions to the â€œworkforce housingâ€ challenge. The fix isnâ€™t there yet, but lots of interesting experiments are underway. Hereâ€™s a few things that offer some promise:
Enhance Housing Supply: Making it easier to build more housing by cutting red tape and providing incentives for employers to provide housing support as a workplace benefit. In Austin, Texas, the S.M.A.R.T. Housing initiative (http://www.ci.austin.tx.us/ahfc/) provides expedited review and other specialized support for developers who include affordable housing in their new construction plans. In an effort to promote employer housing support, both Connecticut and Illinois provide tax credits for employers who support affordable housing projects. In Illinois, the donation tax credit provides a credit of up to fifty cents for every $1 in investment (www.ihda.org).Build Incentives for Workforce Housing: More than 130 localities now use inclusionary zoning which requires all new developments to include some portion of affordable housing in all new projects.Foster Housing Innovation: A new initiative, Iâ€™M HOME (Innovations in Manufactured Homes (www.cfed.org), is seeking to back financing, construction and manufacturing innovations in the manufactured home sector. Initiatives of this sort can have a huge effect, as more ten million American families now live in a manufactured home.Embrace New Suburbanism: While we all should support efforts to make cities more livable, we must also recognize that most Americans live in the suburbs. Why not apply similar concepts to the suburbs? We need suburbs (and cities!) that mix commercial and residential uses, that are more dense, and that include a wide diversity of housing choices.
If we want to attract and retain talent in our communities, we have to provide what talent wants. And, while talent may appreciate active nightlife, bicycle trails, and the creative arts, they really appreciate a nice affordable home. Regions that get this message and act to support workforce housing needs will have a leg up on the competition.
Miscellaneous Plugs: Cool Blogs
Blogs are booming and theyâ€™re not just about politics or music or even the latest from American Idol. If you really want to keep up with the latest thinking in the field, you should dive into the blogosphere. Hereâ€™s a few places that deserve a visit along the way.
Accelerating Innovation (http://innovate.typepad.com/innovation/): The pundits and politicians are rightly getting concerned (again) about Americaâ€™s economic competitiveness. This blog, from the Center for Accelerating Innovationâ€™s Egils Milbergs, will keep you up to date on whatâ€™s happening in this field.
Network Weaving (http://www.networkweaving.com/blog/): A new blog that examines the power of networks. How do you weave networks? Who does it well? Why does it matter? If these questions concern you, check out this blog from June Holley (formerly of Ohioâ€™s ACENET) Jack Ricciuto, and Valdis Krebs.
The Entrepreneurial MindÂ (http://forum.belmont.edu/cornwall/): This blog comes to us from Jeff Cornwall, a professor at Tennesseeâ€™s Belmont University. It combines tips for entrepreneurs with analysis and research on the entrepreneurial economy.
Whatâ€™s Happening at EntreWorks Consulting?
For Academic Readers:EntreWorks President Erik R. Pages was recently appointed to a position as North American Editor for Local Economy, a British journal that covers a wide range of economic development related issues. Local Economy welcomes article submissions. To learn more, visit http://www.tandf.co.uk/journals/titles/02690942.asp. If you have ideas for an article, please send an email to info(at)entreworks.net.EntreWorks President Erik R. Pages will be serving as Program Chair for the US Association of Small Business and Entrepreneurshipâ€™s Entrepreneurial Support Organizations Division. In plain English, this means that he will be coordinating presentations at USASBEâ€™s annual conference in January 2006. We are looking for interesting proposals related to entrepreneurship and regional development. If you are interested in participating in this event, visit www.usasbe.org for more information.New Articles and Presentations in the EntreWorks Library: The following articles have been added to the EntreWorks library. You can access them at: www.entreworks.net/library.â€œSupporting Rural Entrepreneurship: What Can States Do?â€ Economic Development America, Winter 2006.â€œEntrepreneurship Education is Not Just about Business,â€ Trustee Quarterly, Winter 2006.â€œAttracting Retirees: What Do We Know? What Should We Know?â€ Presentation to the Georgia Retirement Workshop, Valdosta, GA, January 26, 2006.May 1, 2006
Recovering from Katrina: Beyond â€œNever Againâ€
Itâ€™s been about five months since Hurricane Katrina struck the Gulf Coast. While recovery and rebuilding are just getting under way, it makes sense for us to take hard look at what happened in the region, and what should be happening in the future. If the scientific predictions are right, we can expect more violent weather incidents in the future. Moreover, the unstable world situation means that we also need to be prepared for other potential man-made disasters, such as the 9/11 terrorist attacks. Itâ€™s too risky to view Hurricane Katrina as something like the proverbial â€œ100 Year Flood.â€ Similar disasters could strike again. While we canâ€™t always prevent the worst case scenario, we should ensure, at a minimum, that other communities hit by disaster receive better treatment than was accorded to New Orleans and the Gulf Coast.
The main take-away from Hurricane Katrina has to be â€œnever again.â€ We should never allow a disaster-affected community to feel neglected by public authorities. We should never permit a repeat of the stumbling disaster relief effort we saw in the immediate aftermath of Katrina.
Yet, beyond vowing â€œnever again,â€ what can economic development professionals do to ensure that relief and recovery is made easier in the unfortunate event of future disasters like Katrina? Lots of public attention will focus on â€œfixingâ€ FEMA, the Red Cross, and other programs linked to immediate disaster recovery. But, we must also introduce a longer-term perspective that looks at a one to five year time frame for economic recovery and development. What happens after FEMA leaves? How does a community rebuild and prepare itself for â€œre-entryâ€ into the economy? This is a job for economic developers. In this arena, a couple of important â€œlessons learnedâ€ from the Katrina response are instructive.
Housing IS Economic Development: We often hear economic developers proclaim that attracting and retaining talent is the key to prosperity. In New Orleans and the entire Gulf Coast, this is also true. Yet, you canâ€™t attract talent (or workers in general) if they lack a place to live. And, without employees, business canâ€™t re-build. And, if business doesnâ€™t rebuild, there is no economic development. You get the picture. Housing must be economic development job one!
The recovery package passed by Congress in December 2005 is clearly insufficient. In Louisiana, more than 217,000 homes were destroyed. In Mississippi, more than 68,000 were lost, and in the Texas regions affected by Hurricane Rita, 4,600 homes were destroyed. The traditional disaster recovery models wonâ€™t work fast enough to restore these homes in a timely manner. At the current pace, Louisiana officials predict that the rebuilding will take 8-10 years.
A new approach is needed—perhaps along the lines of the Louisiana Recovery Corporation proposed by Rep. Richard Baker (R-LA). Operating like the Resolution Trust Corporation (used to bail out failing savings and loans, the Corporation would buy out the regionâ€™s homeowners and help finance and expedite reconstruction. This step is essential—without adequate housing, no other recovery plan can move ahead.
Tax Credits are Nice, but Cash is King: The recently passed Gulf Opportunity Zone Act has been among the most widely applauded recovery initiatives. This grab bag of tax credits is pretty impressive—nearly every tool in the Federal tax incentive arsenal has been deployed in support of the cause. These powerful incentives, designed to stimulate housing construction and business development, should go a long way toward aiding recovery after basic infrastructure has been restored. But, rebuilding takes time. In the immediate future, cash has to take priority. A tax credit doesnâ€™t build a building or a house or a FEMA trailer. Tax credits canâ€™t replace direct investment, but they can supplement it.
Rebuild, but Rebuild Better: Here the news is better. In Katrinaâ€™s immediate aftermath, Mississippi Governor Haley Barbour made this eloquent statement:
I am a seventh generation Mississippian. My family has seen us survive disasters before. The worst disaster, man made not natural, was the Civil War. We were devastated, and back then there was no one to help us. It took till after World War II to get back to recover. After the great flood of 1927, the federal government tried to help us. The Hoover Commission’s work got lost in the Depression, and we stayed on the bottom. After Camille in 1969, another opportunity was lost. Nothing changed. After two months they were building service stations on the beach. I’m determined we will not miss this fourth chance. We must not fail our citizens.
Barbourâ€™s determination to rebuild and rebuild better has been taken up throughout the region. Most affected communities are seeking to introduce state-of-art planning and zoning procedures, and, in some cases, they are developing world-class innovative rebuilding strategies. For example, the Urban Land Institute (www.uli.org) has been instrumental in devising a plan for rebuilding New Orleans. In Mississippi, the Congress for New Urbanism (www.cnu.org) has organized hundreds of volunteers to run planning charettes in eleven affected towns. In addition to community rebuilding plans, this work has resulted in publication of A Pattern Book for Gulf Coast Communities, a guide for homebuilders that offers tips on how to build or rebuild in a manner that respects the Gulf Coastâ€™s vernacular architecture. All of these efforts are positive signs that the region will not only rebuild, but that it will rebuild better.
Honor Local Prerogatives: These experiences in Mississippi are a positive sign that local concerns and desires must remain a critical component of decision- making about recovery. Recent debates about rebuilding New Orleans offer less cause for optimism. Because so many residents are still residing elsewhere, they cannot readily participate in community decisions about rebuilding. As housing is restored and environmental damage addressed, more residents can return. As they return, they must be given regular opportunities to participate in the process, and the means to act upon these desires. In this area, the decision to authorize an additional $1 billion in New Markets Tax Credits (via the Gulf Opportunity Zone Act) is promising. These funds can be invested in qualified entities that engage in community development endeavors. Hopefully, these players will remain responsive to the needs of residents.
Use a Professional: Weâ€™ve all heard the adage: â€œIf you want something done right, hire a professional.â€ This will be true when it comes to rebuilding the economies of the Gulf and for areas affected by future disasters. Many local economic developers are top notch, but they canâ€™t do it alone. Fortunately, many national players have geared up to help. For example, the International Economic Development Council (IEDC) has done yeomanâ€™s work in this area. IEDC volunteers have chipped in to help with recovery, and the association has also played a major role in pushing Federal agencies to respond more effectively.
We canâ€™t really quibble with these activities, but wouldnâ€™t it be nice if we were better prepared in the future? Why not prepare in advance as opposed to reacting after disaster strikes? Groups such as the IEDC might consider creating something like a disaster-recovery â€œready reserve,â€ i.e., a group of individuals who have agreed to donate their time (say, from a week up to a month) to assist in disaster recovery. Unlike the Red Cross or Salvation Army, these individuals would focus on long-term recovery, not immediate disaster response. For economic developers, this might involve assisting with recovery planning, dealing with local regulations, community marketing, or even assisting with the implementation of federal programs (such as FEMA or SBA loan efforts).
Creating this â€œready reserveâ€ need not require a massive bureaucracy. Individuals could simply volunteer, agree to take a couple of professional development courses, and be ready in the event of an emergency. We can hope that their services will never be required, but ominous long-range weather forecasts and continued terrorist threats suggest that itâ€™s better to be safe than sorry. This type of response wonâ€™t prevent a disaster. But, it may ensure that we donâ€™t compound a disaster as we have through our initial bumbling response to Hurricane Katrina.
The number of websites and information sources on Hurricanes Katrina and Rita is enormous. Here are a few that may be of particular interest to the economic development community:
GulfÂ CoastÂ Business Investment Forum:Â In late November, the IEDC and US Chamber of Commerce sponsored this forum to examine next steps for rebuilding.Â Their report is available at:Â http://www.iedconline.org/Downloads/GCBRF_Report.pdfÂ LouisianaÂ Recovery Authority:Â (www.lra.louisiana.gov)Â Mississippi Governorâ€™s Commission on Recovery, Rebuilding, and Renewal:Â (www.mississippirenewal.com)White House Homepage on Hurricane Recovery:Â Â (http://www.whitehouse.gov/infocus/hurricane/)
Miscellaneous Plugs: Great Plains Edition
In our travels around the world and around the web, we regularly find some very cool stuff that might interest our readers. This edition of EntreWorks Insights reports on some interesting activities in the Great Plains states.
Hometown Competitiveness (http://www.htcnebraska.org/): For many small towns, scaling up resources can be a problem. They may have innovative ideas for development, but they lack the money to implement them. How to move ahead? Fortunately, thereâ€™s a tried and true methodâ€”community foundations that can tap the extensive wealth often found in rural regions. The Nebraska-based Hometown Competitiveness (HTC) program offers guidelines for communities seeking to stem rural decline. Itâ€™s not just about community foundations. HTC also helps communities develop strategies for youth engagement, entrepreneurship support and leadership development.
Johnson County Community College, Overland Park, Kansas (http://www.jccc.net/home/depts/1247): Johnson County CCâ€™s entrepreneurship programs are among the nationâ€™s best. At JCCC, they donâ€™t just teach a basic course in entrepreneurship or small business management. Instead, they try to link such training to other career tracks within the college. Students who are learning professions such as tax preparation, medical records administration, and interior design, can also learn the basics of starting their own business. When they complete their degrees, they will be better prepared for life as an entrepreneur.
North Dakota State University Research Park (www.ndsuresearchpark.com):Â If you were asked to list theÂ USâ€™s nanotech hotspots, you probably wouldnâ€™t putÂ Fargo,Â North Dakota, on the list.Â But, that could be shortsighted as North Dakota officials have found a strong niche in the field:Â radio frequency identification tags (RFID) and their related technology.Â RFID is a hot technology in logistics and retailing circles, and the market is booming.Â Â Fargo, and the North Dakota State University Research Park, has succeeded in attracting Alien Technology to their community.Â Alien is locating a manufacturing facility on campus, and plans to train all of its technicians in the region.Â
Whatâ€™s Happening at EntreWorks Consulting?
NEW SEMINAR SERIES: EntreWorks and the Association of Community College Trustees (www.acct.org) are sponsoring a series of seminars that highlight community colleges that are undertaking interesting and innovative efforts to promote local economic development. The morning seminars will be held on a quarterly basis in Washington, DC. In December, we hosted the City University of New Yorkâ€™s Institute for Virtual Enterprise (www.ive.cuny.edu), a program that uses business simulation to teach entrepreneurial skills. If youâ€™re interested in joining us for future events, please send an email to info(at)entreworks.net and weâ€™ll add you to our distribution list.EntreWorks President Erik R. Pages was recently appointed to Arlington Countyâ€™s Base Realignment and Closure (BRAC) Task Force. The Task Force is tasked with assisting Arlington County (VA) in designing effective responses to major defense office closings in the county. The 2005 BRAC Commission recommended that the Pentagon relocate or close offices that now occupy more than four million square feet of office space in the County, potentially affecting up to 17,000 jobs. To view the press release, visit www.bracarlingtonva.us.January 1, 2006
The Coming Age Wave: What Does it Mean for Economic Development?
It seems like every day we get bombarded with new data about the profound economic effects of the aging baby boom generation. Beginning on January 1, the first baby boomers turn 60 and the economic, demographic and social effects of their retirement, work, and life decisions will reverberate among all of us. For those of us who were too young for Woodstock, itâ€™s just another thing to resent!
This essay is not going to review all the ways this demographic shift will affect America. If youâ€™re at all serious about economic development, youâ€™ve been tracking these trends. Yet, nearly all of this information focuses at either the individual level (e.g., how will career patterns evolve?) or the macroeconomic level (e.g. will the boomers bankrupt social security?). This note takes a different look: how can and should communities respond to the coming age wave. Canwe do things to help our regions prosper (or at least limit the downsides) in the face of these population shifts?
Many communities have been grappling with these issues for decades. In fact, many states and regions have programs devoted to the attraction of retirees. Southern states, such as Alabama and Mississippi, are particularly aggressive on this front. The programs take many forms. Most states do some sort of promotion via their tourism boards, and tout their quality of life, scenic beauty, health care quality, and other amenities. A number of states back this up with real money by providing income tax exemptions for seniors. In fact, more than half of states with broad-based income taxes offer some sort of exemption for seniors.
These efforts seem to be paying off. For example, a study of Mississippiâ€™s Mississippi Hometown Retirement program found that it generates a statewide annual economic impact of $194 million and 2,320 new jobs. Community level studies also indicate extremely positive economic effects from migrating seniors. These positive results have been generated prior to the coming age wave. If similar (or better) outcomes are generated by retiring boomers, the economic effects will be profound. At a minimum, we can expect a boom in new retiree attraction programs.
To date, retiree attraction advocates have viewed the process as something of an economic development â€œfree lunch.â€ The message seems to be: attract wealthy retirees, and count the proceeds. Migrating retirees spend money, pay taxes, but donâ€™t ask for much in return (especially in terms of spending on new schools and other amenities). As one recent newspaper article put it, thereâ€™s â€œgold in silver hair.â€
In our view, this rosy picture suffers from several shortcomings. At a minimum, it ignores potential negative economic effects, particularly the effect of in-migration on rising housing costs. Even worse, it assumes that seniors will always remain in the demographic often referred to as the â€œyoung elderly.â€ This group has access to financial resources, is new to retirement, and is anxious for new experiences. This cohort represents the â€œholy grailâ€ for economic developers and developers of golf courses, resort communities and the like.
But, the â€œyoung elderlyâ€ donâ€™t stay young forever. As they gradually become the â€œold elderly,â€ their health may decline along with their positive economic impact on the community. At this point, many retirees may depart a community to live closer to relatives. Or, they may remain in place but generate increased demand on local services. In effect, the economic â€œfree lunchâ€ generated by migrating retirees may only provide a short-term economic stimulus while they remain in good health.
This demographic evolution is natural. Our challenge is not to stop it, but to prepare for it in advance. Communities must take a long-term look at future infrastructure and amenity needs, as well as the economic implications of an aging population.
Preparing for this potential economic downside makes sense. It makes even better sense for regions to think more deeply about how to get â€œthe most bang for the buckâ€ from migrating retirees. Too many communities attract retirees who remain isolated in a newcomerâ€™s enclave, and often fail to become fully integrated in the communityâ€™s civic and economic life.
By failing to engage these newcomers in local economic activities, we do not fully capture the real benefits that could be generated by migrating retirees. The real strength that these retirees bring comes from their knowledge, career experiences, connections, and networks. Yet, economic developers often fail to tap into this important resource. We must stop simply viewing as migrating retirees as a cash machine that spends money and pays taxes. We must instead find a way to integrate new residents into the center of a communityâ€™s economic life.
How can this happen? Such integration could take many forms. Groups like the Service Corps of Retired Executives (SCORE) have long sought to tap retirees as mentors for new businesses. Local mentoring networks could be expanded as one means to encourage retirees to nurture local firms. In addition, retirees could be organized into mini-angel networks. By pooling resources, a new local source of start-up capital could be generated. Finally, retirees may opt to start their own businesses. According to the AARP, self-employment among those over the age of 50 is booming. This growing boomer entrepreneur market can help strengthen local economies in retirement havens.
While few communities are now focused on this challenge of integrating retirees into local civic life, some places are trying to get ahead of the game. For example, Wyomingâ€™s Governor Dave Freudenthal has recently led an initiative that examines not only how Wyoming can attract retirees, but also on how the state can assist those who want to start their own companies. At the national level, groups like the Experience Corps are developing best practices for engaging Americans over 55 in community service. These are all nascent programs that should offer some useful lessons in the future.
As our population ages, the real community challenge is not to simply to attract retirees. Instead, it is to find the tools that create a win-win situation where both sides are enriched. Retirees enjoy a fulfilling period of life, with access to desired services and amenities. Meanwhile, communities are enriched by the investment, knowledge and connections that retirees bring to the community.
Related Resources: Here are some useful websites for further information.
Aging in Place Initiative: A joint program of the National Association of Area Agencies on Aging and Partners for Livable Communities. It is designed to build communities that are good places to grow old. (http://aipi.n4a.org/)
American Association of Retirement Communities (www.the-aarc.org): A trade association focused on â€œpromoting economic development through retiree attraction.â€
Experience Corps (www.experiencecorps.org): Program was started by leadership guru, John Gardner, and seeks to encourage community service by those over the age of 55.
Georgia Retire: To view an impressive and comprehensive program to attract retirees, check out www.georgiaretire.com. This website and program were developed by Triple Crown Hometowns, a partnership of three south Georgia counties (Lowndes, Brooks, and Lanier).
Mississippi: To learn more about Mississippi Hometown Retirement, visit www.mississippi.org/retire
Wyoming:Â Ahead of the Curve: Economic Planning for Wyomingâ€™s Retirement Boom. A 2004 Report by Wyoming Governor Dave Freudenthal and AARP Wyoming, is available at:Â http://wyoming.gov/governor/policies/documents/AheadoftheCurveFINAL_000.pdf
Miscellaneous Plugs: Woe is Us Edition
In our travels around the world and around the web, we regularly find some very cool stuff that might interest our readers. This edition of EntreWorks Insights reports on the massive number of recent reports, books, and articles weâ€™ve seen that highlight the dangers facing Americaâ€™s competitive future. These things tend to run in cyclesâ€”weâ€™re still waiting for that Japanese economic â€œtake-overâ€ predicted in the 1980s. But, that doesnâ€™t mean that these reports donâ€™t contain solid data and analysis. The challenge is not to count the problems facing Americaâ€™s economy, but to find ways to fix them. If youâ€™re looking to get depressed about our economic future, hereâ€™s a few â€œmust reads:â€
American Electronics Association. Losing the Competitive Advantage? The Challenge for Science and Technology in the United States. (Washington, DC: AeA, Feb. 2005). http://www.aeanet.org/publications/idjj_CompetitivenessMain0205.asp
Council on Competitiveness. National Innovation Initiative, Innovate America. (Washington, DC: Council on Competitiveness, 2004). http://www.compete.org/nii/NII_EXEC_SUM.asp
Task Force on the Future of American Innovation.Â The Knowledge Economy: Is the United States Losing Its Competitive Advantage?Â Washington, DC: Task Force on the Future of American Innovation, February 2005).Â http://www.futureofinnovation.org/PDF/Benchmarks.pdf
Whatâ€™s Happening at EntreWorks Consulting?
Working with the RUPRI Center for Rural Entrepreneurship, EntreWorks has just completed a three-year evaluation of Kansasâ€™ Enterprise Facilitation program. This innovative effort was developed in cooperation with Sirolli Institute (www.sirolli.com) and seeks to stimulate new business development and growth in five rural regions of Kansas. Our report, Enterprise Facilitation in Kansas: Lessons and Recommendations, is now available in the EntreWorks Library at http://www.entreworks.net/library/reports/SirolliReport.pdf
Also new in the EntreWorks Library is a September 2005 Conference Report, Knowledge Clusters and Entrepreneurship as Keys to Regional Economic Development, published by the State and Local Policy Program of the University of Minnesota’s Humphrey Institute of Public Affairs.To view the report, please click here.October 1, 2005
Notes from a Small Island: Enterprise Culture in the British Isles
We Americans can be somewhat smug when it comes to entrepreneurship. Many of us tend to think that entrepreneurship is an inherent trait that just exists â€œnaturallyâ€ in the U.S. While policy actions (such as taxes or regulation) can affect levels of entrepreneurial activity, when it comes to entrepreneurial culture, you either have it or you donâ€™t.
This perspective can work when you do indeed â€œhave it.â€ For a variety of reasons, Americaâ€™s business culture is quite entrepreneurial. But, what if this entrepreneurial (or enterprise) culture is not thriving? This is the situation that faced and is facing Great Britainâ€™s economic leaders over the past decade or so. To their credit, they have not simply bemoaned their fate. They are aggressively working to instill a new enterprise culture among Britons, and their experience offers many lessons for the rest of us.
British interest in enterprise and enterprise culture first began bubbling up about ten years ago. Much of this interest was generated by Britainâ€™s poor performance on various measures of entrepreneurship and innovation. It was further accelerated by the strong interest of Prime Minister Tony Blair, and even more importantly, Gordon Brown, Chancellor of the Exchequer and Blairâ€™s heir apparent. This high level support has made enterprise and enterprise support a key part of Labourâ€™s economic plans and strategy.
These Labour Government actions follow even more ambitious and aggressive programs started in Scotland, Wales, and Northern Ireland. Scotlandâ€™s enterprise strategy dates back to 1991 and was recently revised in 2002.
In Britain, policy makers have implemented a number of different initiatives to support and encourage enterprise. Small business support services are now part of a Small Business Service (SBS) modeled on Americaâ€™s Small Business Administration (SBA). New financing schemes have been announced, and special outreach programs for youth, minority and women entrepreneurs have been developed.
All of these activities are exciting, but they are mainly focused on government programs. A more exciting and perhaps more important set of efforts concerns the wide range of media, cultural and educational activities now underway to foster an enterprise culture. Through a variety of tools, the British government, regional development agencies, business and community leaders, and other stakeholders are engaged in a multi-pronged effort to encourage entrepreneurship and to generate public interest and support for entrepreneurs.
Three interesting sets of activities warrant further mention:
The use of competitions to stimulate activity and interestAggressive outreach to youthEffective use of popular media
Use of Competitions
Competition helps improve the competitiveness of businesses and nations; it also helps generate interest and enthusiasm. As in many nations, hundreds, if not thousands, of business plan competitions are regularly occurring across Britain. But, the UK government has tried to take this effort one step further with its annual Enterprising Britain competition. This effort is designed to stimulate regional interest in enterprise. It requires communities to compete according to three criteria: the quality of local efforts to promote entrepreneurship, the use of innovative partnerships in this effort, and the outcome of such efforts in terms of generating new and growing firms. Competition for the 2005 award was intense, with the eventual winner being announced in February. Ollerton, a village in North Nottinghamshire, took the prize thanks to its Sherwood Energy Village (SEV). SEV is a social enterprise that re-developed a former coalfield into a mixed-use development, employing sustainable energy technology that is expected to create up to 1,000 jobs in a previously distressed community.
Aggressive Outreach to Youth
Effective long-term enterprise development requires that youth become engaged and interested in entrepreneurship as a career option. Youth have been a prime target for Britainâ€™s efforts to date. A great example is the Make Your Mark-Start Talking Ideas campaign developed by Enterprise Insight, a coalition of twelve business support organizations. The coalition developed an excellent website (www.starttalkingideas.org) that is designed to get young people interested and excited about enterprise and new ventures. The effort was timed to coincide with the 2004 Enterprise Week (held in November 2004), a major initiative that included participation by 481 organizations that held 1,172 events with 158,000 participants. Enterprise Week 2005 is now slated to happen during the week of November 14, 2005.
Effective Use of Popular Media
The Make Your Mark-Start Talking Ideas campaign and its well-designed web page are but one part of a media blitz around enterprise. The BBC has gotten into the game as well with a popular show entitled Dragonâ€™s Den (http://www.bbc.co.uk/dragonsden/). Unlike Donald Trumpâ€™s The Apprentice, which may be entertaining but not very informative, Dragonâ€™s Den can be both. It is fun to watch, and it reveals some interesting lessons about the process of developing a new venture. In Wales, the BBC produced another excellent show, The Biz (http://www.bbc.co.uk/wales/thebiz/) where viewers voted on business ideas in a manner like FOX TVâ€™s American Idol.
Strategies in Wales, Scotland, and Northern Ireland were even more aggressive in terms of media outreach. Each region created a powerful brand around the promotion of enterprise, and used this brand to encourage interest and support for entrepreneurs. In Wales, the brand was â€œBecause You Can.â€ In Northern Ireland, residents are urged to â€œGo For It,â€ and Scots are pushed to â€œThink, Plan, Do.â€ In all cases, these media campaigns had a significant impact on interest in starting a business and attitudes toward entrepreneurship as a career option.
All of these efforts recognize a critical reality: you canâ€™t have enterprise without an enterprise culture. While itâ€™s true that exceptional entrepreneurs can arise anywhere, their emergence is more likely in places that respect and support such activities. While business culture cannot be changed overnight, it can be affected by serious and sustained public education campaigns. These efforts, while still in their early stages, show that fostering such transformations is both desirable and doable.
To learn more about whatâ€™s happening in Britain, Northern Ireland, Scotland and Wales, visit these websites:
Enterprise Insight:Â www.enterpriseinsight.co.ukEnterprise Nation:Â www.enterprisenation.comInvest Northern Ireland:Â www.investni.comScottish Enterprise:Â www.scottish-enterprise.comSmall Business Service (United Kingdom)Â www.sbs.co.ukStart Talking Ideas:Â www.starttalkingideas.orgWelsh Development Agency:Â www.wda.co.uk
Miscellaneous Plugs: Books and Articles
In our travels around the world and around the web, we regularly find some very cool stuff that might interest our readers. This edition of EntreWorks Insights examines recent books and articles that might interest our readers. Look for more â€œplugsâ€ in future editions:
In our last newsletter, we noted emerging trends that are changing how economic development organizations operate. Networks and closer cooperation between the public and private sectors are becoming the norm. Since then, weâ€™ve been swamped with interesting books and articles covering similar themes. Some of the more interesting items include:
Accenture, Leadership in Customer Service: New Experiences, New Expectations, 2005. Each year, Accentureâ€™s government consulting division examines the state of e-government to note progress and identify future challenges. This yearâ€™s assessment is especially interesting because it highlights a crisis in e-government. It is no longer enough to simply move services on-line; government needs to provide services in a different way. The report calls for new types of â€œcitizen-centeredâ€ services that break down organizational boundaries and reach out proactively to customers.
Sylvain Giguere, New Forms of Governance for Economic Development, (Paris: OECD, 2004). This report, written for the Organization for Economic Cooperation and Development (OECD) looks at new organizational models emerging in a diverse set of countries including Belgium, Mexico, Norway, and Spain.
John M. Kamensky and Thomas J. Burlin (eds.), Collaboration: Using Networks and Partnerships, (Lanham, MD: Rowman & Littlefield, 2004). This book was produced under the auspices of the IBM Center for the Business of Government. Itâ€™s got a heavy focus on federal agencies, but offers some unique insights into how federal managers can more effectively operate via networks. It also includes case studies of such practices at agencies like the Department of Homeland Security and the Federal Emergency Management Agency.
Luke Pittaway, Maxine Robertson, Kamal Munir, and David Denyer,Â Networking and Innovation: A Systematic Review of the Evidence, University of Lancaster Institute for Entrepreneurship and Enterprise Development, Working Paper 016, 2004. Available atÂ www.lums.lancs.ac.uk. This academic paper can be heavy going, but it is a truly systematic look at what current research tells us about the links between business networking and innovation. Very comprehensive.
Whatâ€™s Happening at EntreWorks Consulting?
EntreWorks President Erik Pages has been hitting the road with numerous speaking engagements. Recent and upcoming presentations include the following:
Federal Reserve Bank of St. Louis Conference, Memphis, TennesseeGovernorâ€™s Rural Policy Forum, Idaho Falls, IdahoInternational Council on Small Business, Arlington, VirginiaInternational Rural Network Conference, Abingdon, VirginiaLondon Development Agency, London, England
For new articles posted in the EntreWorks Library, visit www.entreworks.net/library. The latest offerings include:
“Building Systems for Entrepreneur Support,â€ Economic Development America, Winter 2005.July 1, 2005
Networking: A Look at the Current Market Return
Successful 21 st century businesses will be led by people who have the skills and capabilities to network and collaborate with others. As the importance of networking becomes more widely understood, an interesting market of networking organizations has developed. Most communities have local networking groups, like the Chamber of Commerce or the Rotary Club, but a whole series of new national groups has emerged in the past decade. These groups are designed to help entrepreneurs network with one another, and to use these peer networks for both personal development and to grow their company. Hereâ€™s thumbnail guide to some of these national organizations. We have simply tried to list some of the leading players in the marketplace for entrepreneurial networking; these descriptions not endorsements of any specific organization.
All of the groups listed below operate on a national basis and help manage small peer networks, sometimes referred to as â€œmastermind groups.â€ This term derives from the writings of Napoleon Hill, one of the first motivational writers. Working in the early 1900s, he was a â€œStephen Coveyâ€ of his day and advised major business leaders like Andrew Carnegie. These groups united a small group of peers in a learning and support network; this basic model can be easily adapted to working with networks of entrepreneurs.
Many communities have strong local networking organizations, like North Carolinaâ€™s Council for Entrepreneurial Development (www.cednc.org) or San Diegoâ€™s CONNECT program (www.connect.org). However, if your community lacks such groups or needs to supplement them, these national organizations might be right for you.
In addition, there are numerous groups that promote networking among specific types of businesses or different types of entrepreneurs. Examples would include the National Association of Womenâ€™s Business Owners (www.nawbo.org), the Indus Entrepreneurs (www.tie.org) or the National Association for American Indian Economic Development (www.ncaied.org). The groups listed below are open to all types of business owners.
The Alternative Board (www.tabboards.com): Founded in 1990, TAB helps create small â€œboardsâ€ of up to 12 individuals, who are supported by a TAB-trained facilitator. The board meets monthly, and the facilitator also leads monthly one-on-one coaching sessions with each member. Board members are in business themselves (in large and small firms), and each presents a pressing business problem for discussion at the monthly meeting. TAB operates on a franchise model.
Inner Circle International (www.innercircle.com): Inner Circle was founded by a former entrepreneur who started a local network in Minnesota. He was so pleased with the results that he started a national version that operates according to a franchise model. Each group consists of 10-12 entrepreneurs (with annual revenues between $500,000 and $50 million), and meetings operate with a focus on pressing real-life business issues.
Peerspectives (www.peerspectives.org): Peerspectives is a new initiative developed by the Michigan-based Edward Lowe Foundation. Second-stage entrepreneursâ€”those that generate at least $750,000 in annual revenue—are its target market. These firms are best poised for growth opportunities according to the programâ€™s designers. The program has been piloted in Wisconsin and is now being marketed nationwide.
TEC (www.teconline.com): TEC has operated since 1957 with a focus on bringing chief executives together. Thus, TEC groups are not targeted to entrepreneurs only. They can also include corporate CEOs and other high-level managers whose firms generate revenues in the range between $1 million and $1 billion. TEC focuses on CEO leadership development and operates in 14 countries.
Young Entrepreneurs OrganizationÂ (www.yeo.org): As its name suggests, YEO targets entrepreneurs under the age of 40 whose firms have annual revenues exceeding $1 million. It is allied with the World Entrepreneurs Organization, which operates in forty countries. YEO operates peer networks via its local chapters in dozens of US cities. It also provides both national and international training and leadership development opportunities.
Mental Models and Economic Development
Whether we know it or not, our actions are often driven by unconscious mental models. Maybe we in the field of economic development suffer from our own stereotypes and mental models. It seems to me that, in some ways, we still operate according to mental models that first emerged in the industrial economies of the late 19 th and 20 th centuries. Under this mechanistic approach, we tend to view our local economy as something akin to a factory. Our job as economic developers is to improve the quality of the inputs (e.g., capital, labor) and to sometimes market the outputs (e.g export promotion, tourism).
This type of thinking first emerged in the writings of Frederick Winslow Taylor and others who sought to bring scientific discipline to the field of management. Their legacy persists today in things like organization charts, job descriptions, and performance standards. The Federal governmentâ€™s GS-system for employee rankings, which appears on its way out, may be the best-known example of such systems.
Yet the reality is that innovation no longer works in a mechanistic manner. We canâ€™t simply prime the pump (e.g., by spending more on R&D) and hope good things happen. In fact, innovation may have never worked in such a fashion. Innovation isnâ€™t linear, going from R&D to development to production. It works in a messier fashion, built around networks that tinker and constantly improve upon certain products, technologies, or services. Customers, users, designers, and manufacturers all interact in a process that yields new insights and learning.
The private sector has responded to this change, and now organizes itself in a much different manner. Instead of manning an org. chart of divisions, corporate leaders work within complex web of partners, competitors, suppliers, and support teams. Cisco Systems offers a classic example. Instead of operating its own internal R&D shop, it develops new technologies in partnership with the rich ecosystem of new start-up companies based in Silicon Valley and elsewhere. These networks are where innovation happens.
In economic development, we must begin to â€œgovern by networks.â€ At the broadest level, this means that agency managers must focus less on managing divisions of workers and the direct delivery of services. Their new role will involve orchestrating a network of organizations (both public and private) to deliver services. It will also mean closer cooperation with customers (i.e., local businesses). Learning about customers via surveys and focus groups is not true collaboration. Effective partnerships require a more sustained relationship where businesses have input on how programs are designed and delivered. They may even end up doing the program delivery themselves.
Economic development organizations will need to transform their own internal operations accordingly. Several changes are likely to result:
The line between public and private will further blur: More services will be provided by the private sector with support and cooperation from the public sector.We will need to adopt a â€œportfolio managementâ€ approach. Instead of simply raising funds and delivering programs, managers will need to focus on how they manage partnerships and relationships within their networks.The skill sets needed by successful economic developers will change. New skills, that are not currently taught in most training programs, include managing collaborative relationships and negotiating/managing contracts.
NOTE: We are just beginning to grapple with many of the issues raised in this essay, which is designed to stimulate discussion more than provide answers. We welcome your comments, feedback and ideas.
If you are interested in learning more on these topics, check out the following:Books and Articles:
Stephen Goldsmith and William D. Eggers, Governing by Network: The New Public Management Imperative, Washington, DC: Brookings Institution Press, 2004
Andrew Hargadon, How Breakthroughs Happen: The Surprising Truth about How Companies Innovate, Cambridge, MA: Harvard Business School, 2003.
Marco Iansiti and Roy Levien, The Keystone Advantage: What the New Dynamics of Business Ecosystems Mean for Strategy, Innovation, and Sustainability, Cambridge, MA: Harvard Business School, 2004.
Valdis Krebs and June Holley, Building Sustainable Communities through Network Building, Manuscript, 2002. Available at http://www.orgnet.com/BuildingNetworks.pdf
Helen McCarthy, Paul Miller and Paul Skidmore, Network Logic: Who Governs in an Interconnected World, London: Demos, 2004.
Paul Miller and Paul Skidmore, Disorganization: Why Future Organizations Should â€œLoosen Up,â€ London: Demos, 2004.
Plexus Institute: Plexus is a network of people interested in learning more about the science of complexity and how its concepts can be applied in practical settings. To learn more, visitÂ www.plexusinstitute.org
Miscellaneous Plugs: Southern Edition
In our travels around the world and around the web, we regularly find some very cool stuff that might interest our readers. In our last edition, we plugged a few resources from the Mid-Atlantic region. This time, weâ€™re trying some â€œsouthern cookingâ€ with an emphasis on innovative activities in the Southeast. Look for more â€œplugsâ€ in future editions:
Community Readiness/E-Net (http://www.georgia.org/esbd/community_based/index.asp): Developed by Georgia Techâ€™s Economic Development Institute and Georgiaâ€™s Department of Economic Development, E-Net focuses on training community leaders in effective strategies for supporting local entrepreneurs. Under the program, a team of experts provides a community assessment as well as a work plan for how a town or region can become more â€œentrepreneur friendly.â€ Five communities have already been certified: Valdosta-Lowndes County, Douglas-Coffee County, Blue Ridge-Fannin County, Ashburn-Turner County, and Adel-Cook County.
Kentucky Entrepreneurial Coaches Institute (http://www.uky.edu/Ag/KECI/): Many entrepreneurs in rural Kentucky lack the peer or mentor networks that were described above. The Coaches Institute seeks to build that kind of local support by training local leaders in how to be effective facilitators and business coaches for entrepreneurs. These facilitators donâ€™t directly provide business services, but instead help network business owners with other local and national resources. The program has operated since 2003. Thirty individuals have proceeded through the training, and a second class will be recruited soon.
Kerr-Tar Hub Project (www.kerrtarhub.org): While itâ€™s still too early to call this North Carolina-based project successful, it seeks to address a pressing problem for many rural communities. How to capitalize on a booming economy in a nearby metropolitan area? The Kerr-Tar region of central NC is hoping to tap into the skills, talent, and technology resident in the adjacent Research Triangle region. By offering specialized training and facilities, the regionâ€™s leaders hope to encourage NCâ€™s technology firms to set up branch or support operations in their communities. The project is avoiding the common trap of trying to build a local industry cluster from scratch. Instead, it is seeking to capitalize on strong technology clusters in the Research Triangle by tailoring its programs to the needs of firms focused on fields like biotechnology and information technology.
Whatâ€™s Happening at EntreWorks Consulting?
Over the past few years, more and more community colleges are starting to support local entrepreneurs. This is a promising trend that will likely continue thanks to a new support organization, the National Association of Community College Entrepreneurship (www.nacce.com). Working with EntreWorks Consulting, NACCE is developing a development and expansion plan designed to make community colleges among the nationâ€™s leading providers of entrepreneurship education. At present, less than 10% of the nationâ€™s 1,600 community colleges offer such training, so the market is greatly underserved. If youâ€™re interested in this topic, you might consider coming to NACCEâ€™s 3 rd annual conference to be held in Las Vegas from October 9-12, 2005. More details are available at www.nacce.com.
Several new articles are posted in the EntreWorks Library (www.entreworks.net/library). These include the following:
â€œBuilding Systems for Entrepreneur Support,â€ Economic Development America , forthcoming.
â€œThe New Demographics of Entrepreneurship,â€ Local Economy. Vol. 20, No. 1 (February 2005).March 1, 2005
The Return of BRAC
If youâ€™re working around the field of economic development in 2005, youâ€™ll likely be hearing a lot about BRAC. What is BRAC? BRAC is the Pentagonâ€™s acronym for the Defense Base Realignment and Closure process. Beginning in 1988, four independent commissions assisted the military in determining how and when it should close excess military bases. The last BRAC round was held in 1995, but a new round of military base closings—expected to be the biggest to date—begins in early 2005.
Restarting the base closure process has not been a popular decision in communities that host military facilities. In fact, base closure opponents were able to block this process for almost a decade. But, base closings are back on the table and hundreds of communities will now be forced to deal with the repercussions of upcoming base closing decisions.
Since the formal base closure process started in 1988, 97 major military bases have been closed, and hundreds of other facilities have been affected by base realignment and reorganization. The Pentagon reports that it is saving up to $7 billion per year thanks to these past base closings, and in todayâ€™s budget environment, the Department of Defenseâ€™s (DoD) leadership is hungry for more savings and a more efficient military base structure.
This desire for streamlining and efficiency ultimately clashes with community desires to â€œsave our base.â€ While a substantial base closing round will help enhance military effectiveness, it will also mean lost jobs and painful restructuring for many regions. While the loss of this community anchor is extremely painful, we also have a lot of experience with effective strategies for coping and recovering. Hereâ€™s a few things that we know going into this yearâ€™s process.
Beware of Chicken Little.
In their efforts to save their bases from closure, local boosters often sound a lot like Chicken Little. While base closings can be painful, the sky will not fall. Moreover, one should be extremely cautious in reviewing various economic impact studies about military facilities. If we trusted all of these studies, military bases would be something like the kids at Garrison Keillorâ€™s Lake Wobegon, i.e., where everyone is above average.
Economic impact studies invariably show millions (if not billions) of dollars generated by military base jobs and spillover effects. While military bases do generate jobs, base military impacts have some unique characteristics. First, many military base employees live, shop, and educate their children on the base. Thus, they spend few dollars (and even fewer tax dollars) in the local community. Second, few military bases do extensive business with local contractors. Instead, work is competed on a national or regional basis, and thus may not provide many special advantages to local businesses. Finally, many military facilities do not generate much local spin-off in terms of new business creation. In other words, the bases generally do not stimulate growing local business clusters that serve the base.
These caveats do not imply that base closings are painless–they do cause economic and psychological pain for affected communities. At the same time, however, we should remember that the primary function of a military facility is to support Americaâ€™s national military mission. If a facility is no longer needed for this purpose, it should not be kept operating simply out of fear of these often-overstated economic impacts.
In past base closure rounds, many shuttered bases were located in isolated rural areas. For example, many Strategic Air Command bases located in the Northern tier of the US have been closed. These bases, located in isolated regions like Northern Maine and Michiganâ€™s Upper Peninsula, hosted bomber squadrons targeting the former Soviet Union. Because they are hundreds of miles from major population centers, redevelopment of the bases has been challenging. Yet, even in these cases, interesting development opportunities have arisen.
Contrast this story with that of Cameron Station, located in Alexandria, Virginia. Closed in 1988, this former Army facility has simply been swept up in Northern Virginiaâ€™s development boom. It now hosts a planned community of houses, condominiums and apartments, and few traces of its military past can be seen.
The good news is that this yearâ€™s round of affected bases will likely look more like Cameron Station than Maineâ€™s Loring Air Force Base. Military planners have grown increasingly concerned about encroachment, i.e. the appearance of conflicts between military missions and neighboring non-military activities. In areas such as combat air training, such issues of military encroachment are becoming quite controversial. As a result, many military services have a strong preference for training facilities with lots of space and few close interactions with neighbors. Based on these criteria, we can expect that bases in or near growing population centers will face more scrutiny than those in isolated rural regions. The upside of this trend is that closed facilities may face fewer redevelopment challenges, as they will be able to capitalize on already positive local market activity.
Recovery will happen.
A base closing often triggers major trauma. Residents ask questions like: â€œWe were a Navy town. What will be now?â€ Such an initial reaction is expected, but a longer-term perspective is warranted. Recovery will not only happen; it is the most likely scenario. Most military base communities have recovered well after a base closure. In fact, many communities are better off as the former military base has been replaced by a more diverse, vibrant, and efficient mix of local business, residential, and recreational resources.
Research on base reuse strategies is fairly consistent and compelling. For example, in 2002, the Government Accountability Office (GAO) reviewed community experiences with base reuse. Its report (available here: http://www.gao.gov/new.items/d02433.pdf) found that 71% of surveyed communities had unemployment rates below national averages. Fifty-three percent had per-capita income growth rates above national averages. Similar findings were uncovered in research by the RAND Corporation (http://www.rand.org/publications/RB/RB7511/RB7511.html) and researchers at the Massachusetts Institute of Technology (http://www.eda.gov/ImageCache/EDAPublic/documents/pdfdocs/.)
While recovery will happen, that doesnâ€™t mean the process will be easy or painless. Lots of factors affect recovery rates and duration, but one extremely critical factor is the presence of committed leaders who start the reuse process early. Most military bases represent huge pieces of property, and will thus take years, if not decades, to fully develop. Community leaders should begin the process early, and take advantage of the substantial federal resources available for community planning and reuse. Funding is available to begin planning before a base closes, and, if possible, community leaders should tap into these resources as soon as possible.
Beware the Unexpected.
The real costs of base closings donâ€™t come from efforts to replace lost jobs. Instead, they result from environmental contamination and substandard or unsafe infrastructure at a facility. For example, DoD expects to spend more than $3.5 billion to clean up contamination at already closed bases.
Itâ€™s impossible to eliminate these problems, but it is possible to be prepared for them. Before considering any possible reuse plans, community leaders must be certain that they are fully aware of all liabilities associated with the base. If important infrastructure (e.g. roads, sewer) upgrades are essential for future development, these investments must receive the communityâ€™s priority attention.
Turf Wars and Business-Civic Leaders
In our last newsletter, we looked at several regional approaches to reduce turf war and other conflicts among various economic development agencies and small business support providers. Governments and economic development agencies arenâ€™t the only ones dealing with these challenges; foundations and private business leaders are also trying to improve regional collaboration. Lots of interesting activity is underway, and those with interest in learning more should check out an excellent new monograph from the Alliance for Regional Stewardship (ARS), entitled Regional Business Civic Organizations: Creating New Agendas for Metropolitan Competitiveness (available here: http://www.regionalstewardship.org/Documents/Monograph9.pdf)
The report reviews nine interesting projects from all parts of the US. These organizations were involved in a host of different missions, from bridging the digital divide (Floridaâ€™s Internet Coast) to traditional economic development (Detroit Renaissance) to promoting diversity (New Yorkâ€™s Long Island Business Association).
What did these organizations do differently to make regional cooperation happen? Hereâ€™s a few things that seem to matter:
The Door Is Open: Successful organizations donâ€™t hide behind closed doors. Instead, they involve all key stakeholders, including business, non-profits, foundations, citizens, and civic groups.They Recognize the Bottom Line: Tackling big regional challenges is hard work, and it takes money. Successful regional organizations recognize this challenge, and work to ensure that necessary funds are in place early. ARS researchers found that most of the successful organizations were able to maintain or grow their operating budgets over an extended period. Most groups also had one or several primary backers, often a large corporation or a foundation.They Think Big: These groups also want to fix big problems, such as the divide between rich or poor in booming economic regions like Austin or Northern Virginia. They are not trying to make minor changes. While this goal means that progress will occur over a long period, it does help motivate members and participants in the process.They Require Commitment: While the door is open to many participants, simple interest in the process is not enough. Members must actively participate and clarify their roles in advance, often in the form of explicit written commitments.
Miscellaneous Plugs: Mid-Atlantic Edition
In our travels around the world and around the web, we regularly find some very cool stuff that might interest our readers. In our last edition, we plugged a few resources from the Northern Great Plains and Mountain West. This time, we turn to the Mid-Atlantic region, with a special emphasis on Pennsylvania. Look for more â€œplugsâ€ in future editions:
Philadelphia Chamber of Commerce (www.philachamber.com): The Philadelphia Chamber of Commerce and its CEO Council have been making a big push to increase regional cooperation, and build on some of the ideas noted above. Governors of the three states (Delaware, New Jersey, and Pennsylvania) have recently agreed to collaborate in making Philadelphia a choice destination for business. What does this mean in practice? While the details are being ironed out, the governors have agreed to cooperate on infrastructure projects and refrain from battling to recruit outside businesses. This may not be the end of turf wars in Philadelphia, but it might be the start.
Yellowcakes (www.yellowcakes.net): Philadelphia is not the only place in Pennsylvania where exciting things are happening. Central Pennsylvania is also becoming a business hot spot. If you want to know the latest, check out Yellowcakes, an online source for news about the regionâ€™s tech firms. Another excellent source for such information comes from Business2Business Magazine (www.b2bezine.biz), which covers news from Berks, Chester, and Lancaster Counties as well as the Harrisburg metro area.
Ben Franklin Investment Partners (http://www.sep.benfranklin.org/capital/bfipfaq): As more regions recognize the importance of developing sources of early stage equity finance, interest in angel investing is growing. A new Angel Capital Association (www.angelcapitalassociation.org) has been created, and lots of interesting local programs are underway. Pennsylvania is pursuing an interesting model with its Ben Franklin Investment Partners Guarantee Fund. This fund, capitalized with $2 million of state funds, provides guarantees of up to 25% against any loss incurred by registered angel networks that fund technology firms located in southeastern Pennsylvania. This guarantee, which can reach up to $200,000, should help reduce risk and help stimulate further seed-stage investment in the region. The program is very new (its first guarantee was made in June 2004), but it offers a promising model that warrants a close look.
Whatâ€™s Happening at EntreWorks Consulting?
If youâ€™re interested in entrepreneurship, you should definitely get to know the National Dialogue on Entrepreneurship. The NDE is run by the Public Forum Institute (PFI), a non-partisan organization devoted to improving public discourse and understanding of complex policy issues. NDE publishes a weekly e-newsletter (produced under contract by EntreWorks Consulting), but it also does much more. The PFI website is chock full of great information about entrepreneurship, and the PFI staff specialize in managing public forums, such as town hall meetings, for elected officials and other community leaders. They have also pioneered use of e-forum technology, which allows conference attendees to actively participate and â€œvoteâ€ on key issues under consideration. If you or your communities are interested in learning more about these initiatives, contact PFI at:
The Public Forum Institute2300 M Street, N.W., Suite 900Washington, DC 20037Phone: 202.467.2774www.publicforuminstitute.org
Several new articles are posted in the EntreWorks Library (www.entreworks.net/library). These include the following:
â€œWhatâ€™s So New about New Entrepreneurship Policies?â€–a paper presented at the University of Minnesota Symposium on Knowledge Clusters and Entrepreneurship, held in September 2004.
Two new reports from the Cluster Hubs Project, a US Department of Education-backed project to enhance entrepreneurship training at community colleges. This project was developed with support from EntreWorks Consulting.December 1, 2004
Ending Turf Wars?
â€œWe have met the enemy and he is us.â€ That old line from the Pogo cartoon can certainly apply to us in the economic development profession. I am constantly amazed at the huge number of organizations that claim to â€œdo economic development.â€ In some sense, thatâ€™s a testament to our entrepreneurial drive. But, it also creates great challenges as money is frittered away on organizations that canâ€™t reach scale and in battles over turf.
Many regions struggle with this challenge, but fixing it is easier said than done. In Kansas City, more than 100 organizations have collaborated to create KCSourceLink (www.kcsourcelink.com), an excellent on-line source for local business development resources and information. In some ways, KCSourceLink is not much different from a typical â€œone-stop shopâ€ or web-based information clearinghouse. But, KCSourceLink is more than a static web page. It also provides referrals (with follow-ups) to local service providers so that the regionâ€™s entrepreneurs can get face-to-face help if they so desire.
The Entrepreneurial League System (ELS) is another model that seeks to reduce fragmentation among service providers. This system was developed by Gregg Lichtenstein, a private consultant, and Tom Lyons of the University of Louisville. It seeks to create a hierarchy of service providers who focus on different needs/levels of business assistance, from the start-up micro-entrepreneur to the high-growth venture capital-ready firm. This approach is being piloted in several locations (Asheville, NC; Huntington, WV). To learn more, visit http://www.ruraleship.org/content/pdf/Entrepreneurial_League_System.pdf
While the Kansas City and ELS examples are interesting, the Cleveland Ohio area may offer the most interesting model for consolidating and streamlining fragmented regional development efforts. The Cleveland approach is interesting because it recognizes one key reality. Some fragmentation is due to bureaucratic competition between economic development organizations, but the lack of collaboration among funders is a more important cause. So many economic development organizations exist because there are so many independent and uncoordinated funding streams. The federal governmentâ€™s economic development programs are instructive. Overall, more than 400 federal agencies â€œdoâ€ economic development and each agency has its own local networks of economic development districts, community development corporations, or small business centers. Throw in thousands of state, local, and privately-funded programs and the result is a mish mash of well-intentioned organizations doing important work without the funds and infrastructure needed to succeed.
A recent survey from Wisconsin is instructive (available here: http://www.uwex.edu/ces/cced/documents/econdev_survey_03.pdf). Nearly 900 organizations support local economic development in Wisconsin; their average budget is $235,000 with an average staff size of 2.8. Extrapolating from this data, the researchers project that local spending (excluding state and federal resources) on economic development in Wisconsin could exceed $200 million. If used effectively in a collaborative manner, $200 million could support a lot of economic development in the state.
Clevelandâ€™s leaders are seeking to address this problem through a new coalition called the Fund for our Economic Future (www.futurefundneo.org). The Fund was initiated by local philanthropists (led by the Cleveland Foundation) and it now includes 56 partners. Its mission is to support a common regional development agenda that will transform Clevelandâ€™s economy. It is pursuing many interesting strategies around entrepreneurship and cluster development, but its real innovation is the organization itself. In this case, the funders have created a single pool of funds (now at $26 million) to invest in a small group of organizations.
Northeast Ohio is a very fragmented place. Cuyahoga County alone has 57 cities (including Cleveland) within it. Thirty-one major economic development organizations serve the region. Instead of providing grants to all relevant players, the new Fund has opted to invest in four: BioEnterprise, JumpStart, NorTech, and Team NEO. Each of these grantees will receive roughly $2 million, a funding level that should allow them to develop sufficient scale to effectively serve the region.
Itâ€™s too soon to determine whether this experiment is going to work, but the Fund for our Economic Future team deserves credit for taking a direct approach to dealing with some of the primary flaws in our current economic development system: fragmentation and turf wars. Whatâ€™s the bottom line from this experience? Excellent economic development outcomes result when excellent economic development organizations focus on the mission. And, excellence will not occur in an environment where 1-2 person operations struggle simply to make ends meet. If we are to succeed, we must â€œscale upâ€ so that we can effectively tackle pressing development challenges. Preferably, we would scale up thanks to an influx of new investment from private and public sources. If this source is not available, consolidation, streamlining, and the elimination of ineffective organizations have to be considered. As Clevelandâ€™s leaders are finding, this is tough medicine. But, it is needed medicine if we are truly serious about promoting economic development. As the old saying goes, physician, heal thyself.
FORTHCOMING:Â Â This article discusses several regional strategies for dealing with â€œturf wars.â€Â Â In our next issue, weâ€™ll look at some other interesting approaches coming out of the philanthropic community.
The Curse of Scenic Beauty
I had the pleasure of visiting Jackson Hole, Wyoming this summer and I was awed by the beauty of that place.Â Â At the same time, I was depressed by the high cost of housing and the challenges that creates for us non-millionaires, some of whom may live and work in places like Jackson Hole or Aspen, Colorado.Â Â Call it rural gentrification.Â Â Iâ€™m in the process of compiling stories, best practices, and the like of how similar communities can effectively respond when they are â€œdiscoveredâ€ as a rich personâ€™s playground.Â Â If you have tips or suggestions, send them to me atÂ email@example.com. Look for more on this topic soon.Â
In our travels around the world and around the web, we regularly find some very cool stuff that might interest our readers. Weâ€™ve been spending a lot of time in the Northern Great Plains and Mountain West lately, so this edition of EntreWorks Insights includes some great resources from that region.
Montana Associated Technology Roundtables (www.matr.net): MATR is a network for entrepreneurs in Montana and the surrounding Inland Northwest Region. Itâ€™s an excellent local network, but, for those of us who donâ€™t reside in Montana, its electronic newsletter may be more interesting. We read dozens of these newsletters each week, and MATRâ€™s offering (developed by Russ Fletcher) is among the best. If you want to learn about whatâ€™s happening in the region (and the world), the MATR newsletter is a great resource.
Pioneer Entrepreneurs (www.pioneerentrepreneurs.com): We regularly plug Pioneer Entrepreneurs, but it never hurts to do it again. This organization, based in Bozeman, Montana, works with entrepreneurs across the country to help them make better business decisions and grow their companies. Its founder, Dave Bayless, is one of the more interesting thinkers about what makes entrepreneurs tick and how to help support them in growing new ventures.
Prairie BusinessÂ Magazine (www.prairiebizmag.com):Â Â Not all the good stuff is in Montana. The Dakotas also have some great resources.Â Â Weâ€™ve become big fans ofÂ Prairie BusinessÂ magazine, which covers business happenings in North Dakota, South Dakota, Minnesota, and Manitoba.Â Â Â If you want to understand the challenges of rural development and also learn about lots of innovative ideas and people, check outÂ Prairie Business.Â Â Â We can especially recommend the monthly column from editor Rick Killion.Â
Whatâ€™s Happening at EntreWorks Consulting
Besides hitting the beach and enjoying the summer, EntreWorks has recently been back to school with many community colleges. We have been facilitating an Education Department-funded project with 12 community colleges from across the US and overseas. The purpose? To get community colleges more engaged in supporting business and economic development. We are doing this through the development of new teaching tools that tie entrepreneurship training to targeted industry clusters. So, instead of teaching basic entrepreneurship class to community college students, we will now teach a class with a specific focus on entrepreneurship in the food business, or manufacturing, or creative arts. The purpose is two-fold: help students learn about how to start new ventures, and also link these ventures to a wider community development strategy. To learn more about the project, visit www.clusterhubs.org
Several new articles are posted in the EntreWorks Library (www.entreworks.net/library). These include the following:
â€œCommunicating Up: Selling New Development Strategies,â€ by Erik R. Pages, Agenda for Local Economic Development (UK), Issue No. 69, July 2004.
Understanding the Environment for Entrepreneurship in Rural North Carolina, by Erik R. Pages and Deborah Markley. North Carolina Rural Development Center, 2004.August 1, 2004
A Note to Our Readers
If youâ€™re like me, your email inbox fills up with lots of email newsletters. So, we hope youâ€™ll be willing to consider reading this one. We donâ€™t plan to simply mimic other newsletters or market our own work, but instead we hope to provide an interesting and readable guide to important and fascinating issues that will impact the business of economic development. The typical issue will be a couple of longer stories/analyses, followed by miscellaneous tidbits, such as book recommendations and the like. Weâ€™re not the last word on these topics, so we welcome your input, ideas, suggestions, and constructive criticism. If you have any of the above, send them to me atÂ firstname.lastname@example.org
Battle over the Creative Class
For the last several years, Richard Floridaâ€™s book, The Rise of the Creative Class, has been the â€œmust-readâ€ in economic development circles. To briefly summarize, the book argues that a new class of workers (â€œthe creative classâ€) will drive future economic growth. These workers are more mobile than previous generations, and are seeking communities that offer technology job opportunities, attractive amenities, and a diversity of both people and lifestyle activities. Cities that do well in attracting the creative class will do well in terms of future economic development.
Well, we knew it was going to happen sometime, but the backlash against Floridaâ€™s ideas is hitting its stride. Earlier this year, Steven Malanga penned a critical screed in City Journal that accused Florida of fudging the facts. Among other things, Malanga argued that Floridaâ€™s book gets it almost exactly wrong. Americaâ€™s booming cities (places like Las Vegas and Oklahoma City) lack many of the amenities cited by Florida as important. Hip places, like Boston and San Francisco, actually faced big job losses during the 1990s.
Other related criticisms of Floridaâ€™s arguments have appeared in The Baffler magazine (www.thebaffler.com) and from well-known columnist Joel Kotkin (www.joelkotkin.com). Kotkin agrees with Floridaâ€™s basic belief that talent has become the key economic development differentiator. But, he differs with Florida in his assessment of â€œwhat talent wants.â€ For Florida, talented workers seek out hip, gritty, â€œauthenticâ€ urban settings. For Kotkin, talented workers want good schools, affordable housing, and good job opportunities. Think San Francisco vs. Research Triangle Park.
This debate is interesting, but what does it really mean for those of us who want to build communities and support economic development. Hereâ€™s a couple of truths I take from these debates.
Quality of Life is Relative
One of the undercurrents of Rise of the Creative Class is that talent is seeking a new kind of â€œquality of lifeâ€ based on hip urban neighborhoods and freely available lattes. This depiction makes sense for the young (under 30), IT-obsessed workers that are the primary subject of Floridaâ€™s interviews. But, what happens when this cohort grows older? Their desire for lattes and late night clubbing is likely to be replaced with concerns about good schools and crabgrass removal.
And what about the nature of the talent itself? In the 1990s, the 20 year old software wiz was the desired talent, and she did want to find places like Austin that combined good jobs with great music and outdoor amenities. But, as other sectors grow in prominence, this place-based checklist changes. Take biotech, for example. In this sector, young talent is likely to be older (in their 30s) and more highly educated. Their desired amenities are unlikely to look much different than those found in places that Kotkin has called Nerdistans, i.e. upscale suburbs dominated by high-tech industries.
So what does this imply? It means that both Florida and Kotkin are right. Talent is looking for amenities, but these amenities differ for different age cohorts and industry profiles. It also means donâ€™t throw the baby out with the bathwater. Bike trails and coffee bars are great, but the basic quality of life amenities (good schools and affordable housing) will never go out of style.
Opportunities, not Amenities
Much of Floridaâ€™s thinking appears influenced by his belief that todayâ€™s college grads are â€œpickingâ€ cities. In other words, they donâ€™t move for a job. Instead, they choose a â€œcoolâ€ city, move there, and then find a job. We can debate whether this depiction is correct, but it begs the question whether this labor mobility occurs due to â€œcoolnessâ€ or opportunity. In his book, Florida talks about both factors, but the wider debate over his ideas has centered on the role of â€œcoolnessâ€ in attracting talent. Thatâ€™s unfortunate because job opportunities will trump cool every time. And, that also explains why such allegedly un-hip places as Oklahoma City and Tampa Bay rank high in terms of job creation. So, the bottom line is that itâ€™s great to be both hip and prosperous, but if you can only choose one—choose prosperous. So, if you have limited economic development dollars, think about business development first and bike trails second.
Urban vs. Rural
Floridaâ€™s vision is a decidedly urban one. Rural areas are largely discounted unless they are amazingly beautiful or near a major metro. Thatâ€™s too bad because many of Floridaâ€™s ideasâ€”especially his embrace of diversity—make great sense for small towns. The tight social ties found in small towns are something of a two-edged sword. They build community cohesion, but they also may lead to ostracism of those who donâ€™t obey community norms. Sometimes this is the entrepreneur; sometimes this is the troubled youth who is a skateboarder, a Goth, or gay. In big cities, these individuals can find support groups of like-minded persons. Such groups often donâ€™t exist in small towns. By preaching the economic benefits of diversity, Florida offers a lifeline to entrepreneurs and others in Americaâ€™s small towns. After all, as the old Nick Lowe/Elvis Costello song says, â€œWhatâ€™s so funny â€˜bout peace, love and understanding?â€
Steven Malangaâ€™s â€œThe Curse of the Creative Classâ€ appeared in the Winter 2004 edition ofÂ City JournalÂ (http://www.city-journal.org/html/14_1_the_curse.html).To read Richard Floridaâ€™s response to his critics, visitÂ http://www.creativeclass.org/baffler_response.shtml. Also see Floridaâ€™s article, â€œRevenge of the Squelchers,â€ in Issue #5 of The Next American City, available atÂ http://www.americancity.org/Archives/Issue5/florida.html
Indiaâ€™s Rise: Lessons for Us
Indiaâ€™s economic prowess is getting a lot of media attention lately. Lots of interesting articles are examining the factors behind Indiaâ€™s rise. One of the more interesting perspectives can be found in a recent Foreign Policy article that compared the economic prospects for India and China. The article, â€œCan India Overtake China?,â€ argues that India may be the real economic winner of the 21st century. The authors, Yasheng Huang and Tarun Khanna, claim that Chinaâ€™s rise is largely due to foreign direct investment (FDI) by various multinational corporations. There are many benefits from FDI—witness Chinaâ€™s amazing growth performance. However, FDI has also served to squeeze out homegrown Chinese businesses that are less able to compete with well-heeled foreign firms. Meanwhile, India has not been a hospitable environment for FDI. Yet, the absence of a strong multinational presence has created opportunities for Indian entrepreneurs who have created scores of world-class companies like Infosys Technologies and Dr. Reddyâ€™s Laboratories. Investment in these homegrown firms is now being supplemented by investments from the Indian diaspora in the US and elsewhere. These successful entrepreneurs are now investing funds earned overseas to help fuel the next generation of India-based entrepreneurs.
So what does this mean for us in the US? This interesting debate gives me an opportunity to plug what I think is one of the best books on Indiaâ€™s economic rise: India Unbound (2000) by Gurcharan Das. Das is a columnist for Times of India, but spent most of his career in various marketing positions for Procter & Gamble in India. His book bemoans Indian bureaucracy and lauds entrepreneurs, but, more importantly, he highlights the critical importance of economic reforms enacted by former Prime Minister Rao in 1991. These quickly-enacted and unanticipated reforms had the effect of opening up the Indian economy to the entrepreneurial spirit. A window of opportunity for reform opened quickly in 1991, and it shut just as quickly. But, critical reforms were passed and their impact has been huge.
What can we learn from this experience? One, windows of opportunity for policy change open and close quickly. Those of us who advocate new economic development policies may soon find such windows of opportunity open to usâ€”do we have the new policies ready to go? In the economic development world, such windows can be negative (a big plant closing) or positive (election of a new mayor). In either case, those of us looking to promote new economic development strategies need to be ready when such windows open.
Second, small changes can have big ripple effects, as we saw in India. In 1991, the Indian government changed its rules for trade and investment policies—a market-based boom followed. They did not seek to build a new entrepreneurial system; they simply ended the red tape of the old system. Small policy reforms led to big results. What small steps are you taking today that will help build future prosperity for your community? Will you be ready to act when the window of opportunity arrives?
The article, â€œCan India Overtake China,â€ by Yasheng Huang and Tarun Khanna appears in the July/August 2003 edition ofÂ Foreign PolicyÂ magazine (www.foreignpolicy.com). A version of the article is also available online atÂ http://www.hvk.org/articles/0703/6.html
Some Good Reads
Where to start with good books? Edward P. Jonesâ€™ Pulitzer Prize winner, The Known World, is the best book Iâ€™ve read in years, but it has nothing to do with economic development. However, I can recommend two other titles that should be of interest.
Douglas Raeâ€™s City: Urbanism and Its End (Yale Univ. Press, 2003) is a tremendous historical analysis of why Americaâ€™s urban centers have declined and why various urban renewal efforts have been doomed to failure. You will learn more about New Haven than you ever wanted to know, but youâ€™ll also get some great lessons in how cities evolve. Rae doubts that downtown areas will ever return to their heyday of the mid-20th century, but he is optimistic about many of the ideas coming from the New Urbanist movement.
Thomas Maloneâ€™sÂ The Future of WorkÂ (MIT Press, 2004) is hot off the presses. It examines the various implications of the decentralization of work, i.e. what it will mean for managers, career patterns, and the like. A good review of key issues.
Other Good Stuff
This recommendation doesnâ€™t really have any economic development-specific focus, but it may be helpful to those of you who like to listen to music in the office. I recently bit the bullet and bought an XM Satellite Radio (www.xmradio.com). While it galls me to pay for radio, XM is well worth the cost. If youâ€™re tired of commercial radio and want to hear new and different music, take a look at XM, where you can choose from more than 100 commercial free stations. Iâ€™ve become a huge fan of Ngoma (African music) and Bluesville (all blues), but there are plenty of options for those of you who prefer country, jazz, Christian, or even all-talk radio.
Whatâ€™s Happening at EntreWorks
We promised not to market, but I do want to introduce one project of which Iâ€™m especially proud. Check out the work of the North Carolina Rural Economic Development Center and especially its Institute for Rural Entrepreneurship. This effort offers an excellent model for anyone considering statewide programs to support entrepreneurial development in rural communities. Their website is http://www.ncruralcenter.org/entrepreneurship/index.aspMay 1, 2004