by Terry L. Besser
Assistant professor and extension sociologist
Iowa State University Extension to Communities
We live in a global economy. Multinational corporations and national governments are powerful economic actors. Financial transactions and communication networks cross national boundaries traversing the world in nanoseconds. Nevertheless, there still is value in considering the economy of local communities.
For one thing, a significant amount of economic activity is not global. Service providers, such as nursing assistants, plumbers, hair dressers, child care workers, tax preparers, lawyers, computer consultants and dentists represent the most rapidly growing component of the economy, and operate primarily in the local community economy. Other elements of the economy, including retail businesses, educational providers, and finance, real estate and construction industries, have both local and global orientations.
Further, concentrating on the global economy to the exclusion of the local, tends to direct attention to economic factors that local cities and towns can do little about and away from the community economy where local action can make a difference. The point is not that the global economy is unimportant, but that it is a mistake to ignore the local community economy.
The Rocky Mountain Institute (a non-profit organization committed to sustainable community development) focuses on the local economy in its community economic renewal programs. With the local perspective as a guide, the Institute has developed four principles of economic renewal. They are: 1) plug the leaks, 2) support existing businesses, 3) encourage new local enterprises, and 4) recruit compatible new businesses. The order of these principles is important, and it is what makes this program different from many other economic development strategies.
Plugging the leaks refers to strategies intended to decrease the amount of money that leaves a community. Every community can find ways to spend more money locally for energy, food, water, entertainment, and so on. The impact of more local spending can be impressive. Consider that the amount of money a typical town now spends on energy purchased from non-local sources is about the same as the payroll of 10 percent of its population.
The Institute frequently cites the city of Osage, Iowa, as a sterling example of the effects of plugging energy leaks. The local utility in Osage sponsored a series of weatherization and energy efficiency programs that have saved $1.2 million per year ($750 per household, $315 per resident). This allowed the utility to lower its rates by a third, which in turn helped to make local businesses more profitable. In addition, the lower rate means that householders can spend more of their income on local services and products, causing the money that would have gone to an outside energy company to circulate in the local community economy, thus generating more income for local plumbers and hairdressers, among others.
The second principle of community economic renewal is to support existing businesses. Mistakenly, existing businesses get less credit for generating new economic activity than do new businesses. The truth is that the expansion of existing businesses accounts for 70 to 80 percent of job growth in urban areas, and there is no reason to suspect that it is less in rural areas. In addition, existing businesses may be more stable and more likely to remain in the community than are new businesses or recently attracted branch operations of established businesses.
Help for existing businesses usually consists of assistance with management skills and financing. Business retention and expansion programs and Small Business Development Center programs specialize in offering management and financial assistance. Some communities sponsor or encourage creative business assistance programs consisting of networks to link local suppliers to local businesses, networks to pool purchasing power for supplies or products to sell, and cooperative programs for employee training, consulting services, office support, employee child care, and so on. "Buy Local" campaigns are another frequently used way for communities to support existing businesses.
The Rocky Mountain Institute's third principle, encouraging new local enterprises, recognizes that inevitably some firms will die. Therefore, new businesses must be continuously created to take their place. The Institute recommends that communities focus their attention on assisting start-up businesses that build on local strengths, e.g., the local labor force, infrastructure and resources. Strengths that many Iowa communities provide for entrepreneurial opportunities are an educated labor force, access to transportation, communication networks, historic interest, agricultural resources and scenic landscape. Business incubators are one way to encourage new economic activity.
Finally, only after vigorously pursuing the other strategies, the Institute recommends that communities attempt to recruit businesses from the outside. Even then, communities should ensure that targeted enterprises are compatible with local resources, community goals and existing businesses. Important questions to ask are, "Will the new company bring in its own employees, use up community resources and export the profits? Will it impose a burden of polluted air or water?"
More information about The Rocky Mountain Institute's Guide for Economic Renewal is available at (303) 927-3851. Another program offering a similar approach (called Take Charge: Economic Development in Small Communities) is available through Iowa State University Extension to Communities and the North Central Regional Center for Rural Development. Your local county extension education director can provide assistance in contacting the appropriate personnel.
Contacts:
Terry L. Besser, ISU
Extension Sociology, (515) 294-6508
Del Marks, ISU Extension
Communication Systems, (515) 294-9807
