- May 3, 2021
- Posted by: Erik
- Category: Newsletter
Welcome to the latest edition of EntreWorks Insights, a quarterly newsletter that reports on business trends, policy developments, and other issues affecting the business of economic and workforce development. You’re receiving this note because you’ve asked to subscribe or because you have some previous interest in the work of EntreWorks Consulting. If you wish to subscribe or be removed from this list, please send an email to info (at) entreworks.net. If you’re interested in the newsletter, please read on. Please feel free to share with friends, family, colleagues, and other loved ones. Comments and constructive criticism (and praise) are also welcome. You are also encouraged to visit the EntreWorks blog at http://entreworks.net/blog. Thanks for your interest.
Erik R. Pages
President, EntreWorks Consulting
Volume 18, Number 1: May 2021
HIGHLIGHTS: The Foundational Economy
What’s New at EntreWorks Consulting?
The Foundational Economy
The post COVID-19 economic recovery appears to be in full steam, but, as many observers have noted, it’s something of a K-shaped recovery. Instead of a rising tide lifting all boats, we’re instead seeing two competing trends at work. Some sectors and communities are booming. Meanwhile, there’s a long and growing list of those on the wrong-end of the K-shaped recovery: it includes microenterprises, Main Street businesses and downtown districts, tourism and hospitality, and minority-owned businesses in general. Sadly, the challenges facing many of these folks are not driven by a K-shaped recovery. They were facing a K-shaped economy before COVID-19 hit.
Like many people, my hope is that we all strive to fix this mess. We build back better, as we’ve heard the politicians say. Building back better means many things—investing in infrastructure, building a stronger safety net, building more resilient communities, and so on. I believe that it also requires some new thinking from those of us working in the economic development profession. Our mission can no longer simply be about job creation. We need to embrace a broader mission of community building.
Many promising things are already underway. COVID-19 has triggered some excellent work on this front, so I’m feeling optimistic. Groups like the International Development Council and others are revising their programs and practices to embrace new approaches and ideas. Meanwhile, the COVID-19 pandemic spurred a host of innovations, especially in areas like small business finance, that are likely to inform current and future programs. And Washington is back in the game, making needed investments in critical Federal programs.
Beyond improved and expanded programs, we may also need to rethink or update some of our fundamental ideas about what we do as economic developers. Specifically, let’s think about what is the industry target for many economic development programs. For many of us, it is the traded sector company. Traded sector firms are those that sell outside of local market, and thus bring in new wealth resources. Along the way, they help to build a larger economic pie and create more prosperity.
This is a very good thing, and that’s why many—if not most—economic development programs focus on traded sectors. But, at the same time, that also means that the local sector—firms that only do business in the local market—don’t get much attention.
COVID-19 showed that many of these Main Street firms operate with tight margins, and are at high risk in the event of major shocks like a pandemic or economic downturn. But, COVID-19 also showed that these firms matter in terms of economics, culture, and well-being. Local serving firms may not grow fast, but they are a strong and steady supplier of jobs. At the same time, they anchor our communities and create a distinctive sense of place. Who among us would prefer to go to McDonalds’ or Applebee’s when we could hit a great local restaurant or watering hole? Finally, there is emerging evidence that vibrant Main Streets benefit our mental and physical health as well. In her new book, Main Street: How a City’s Heart Connects Us All, Mindy Thompson Fullilove shows how Main Street districts serve as community gathering spaces and how they actually enhance the health of local residents.
So, if these local anchors offer so much, why are we ignoring them? I’d argue that our economic development focus on traded sectors is one factor. I’d like to see us broaden this focus to support both traded sectors and what some researchers refer to as the “foundational economy.” The foundational economy is a concept that has emerged in European community development discussions. It refers to the parts of our economy that provide basic goods and services, such as food, housing, retail stores, doctors, dentists, car repairs, and so on. This mundane set of activities is obviously important in our daily lives, but it also has big economic impacts as it accounts for as much as 40% of all employment. Using our current language, the foundational economy refers to those who are deemed “essential workers.”
While these workers may be essential, they haven’t received much attention from those of us in the economic development profession. We have various small business and Main Street programs, but moat traditional economic developers are focused on supporting traded sectors, technology firms, or the next sexy cluster
From an economic development standpoint, the foundational economy matters in several ways. Most importantly, these jobs and industries are non-cyclical. Thus, they provide jobs in good times and bad. As we saw, even in the midst of raging pandemic, these jobs provide something of an economic buffer in times of economic crisis. Many foundational economy firms are locally owned, and thus provide many benefits associated with local ownership. Finally, the goods and services provided by foundational economy firms may exhibit unique local attributes, and thus contribute to creating distinctive and attractive places.
These benefits are profound, but we should also recognize that the foundational economy may not necessarily drive major innovations or rapid economic growth. Its role is likely most important in helping to diversify the local economy, to stabilize economies in crisis, to provide local sources of employment, and to support local placemaking. These “services” are needed in every region.
A few European regions have embraced foundational economy strategies. Programs are now underway in Austria, Catalonia, and Scandinavia, among others. Wales has been an early adopter, and thus offers some guidance on what foundational economy strategies might look like. Beginning in 2019, Wales introduced a new set of foundational economy initiatives as part of a broader effort “to reverse the deterioration of employment conditions, reduce the leakage of money from communities and address the environmental cost of extended supply chains.” The project’s centerpiece was a Foundational Economy Challenge Fund designed to make small investments in pilot projects to test new approaches. The Fund supported dozens of ideas, like child care collaboratives, using local microenterprises to deliver home care services, an online portal connecting renters to repair contractors, and programs to upskill social care workers. Another set of strategies focuses on the use of procurement to support local firms, somewhat akin to anchor institution programs here in the US.
This was a small grant program (around $6.5 million in total funds), and the pilots operated during the pandemic. So, we can’t expect big impacts yet. But the Welsh Government has been pleased, and recently agreed to invest in an additional grant round with funds totaling approximately $4 million. In addition, discussions about a Foundational Economy 2.0 strategy are examining new ideas such as additional backing for firms in the social care sector and expanded support for food systems development. So, this is an experiment worth watching.
We may not have called it a foundational economy strategy, but much of our immediate economic response to COVID-19 certainly looks like one. We’ve made investments in restaurants, shuttered arts venues, ailing Mom and Pop businesses, you name it. And these investments are paying dividends—not only in preventing business closure and saving jobs, but also in maintain community vibrancy and in ensuring that essential services, like child care and transportation, are available even in the midst of a pandemic.
As we come out of the COVID-19 crisis, let’s not view those programs as one-off pandemic responses. Let’s make them part of our everyday toolkit in economic and community development.
This discussion of the foundational economy is not intended as an argument to neglect traded sectors or to no longer focus on industries that offer higher-paying jobs. However, I am arguing that we can walk and chew gum at the same time. We can support traded sectors, and the foundational economy. By doing so, we not only help to create new jobs. We also build better places that provide desirable goods and services and support better careers and lives for those working the foundational economy.
What’s New at EntreWorks Consulting?
With COVID-19 subsiding, business is picking up and we’re ready to hit the road again. We’re engaged in a number of interesting projects at the moment. These include a region-wide workforce analysis for the Delta Regional Authority, support for development of a new innovation park at Penn State Harrisburg, and support for inclusive entrepreneurship ecosystem development in Rhode Island.
During 2020, we upgraded our website and we encourage you to check it out. The new website also includes new platforms for the EntreWorks Insights newsletter and the EntreWorks blog at http://entreworks.net/blog. Let us know if the new tools are working—we always welcome your ideas and inputs. In addition, you can still access blog updates at our Facebook and LinkedIn pages.
We’re still not yet out on the road for work, but we hope to be out there soon. We look forward to meeting in person at some point in 2021!