Economic Development Today

Just what rural America needs—another resource on “how to do economic development.” So many resources have been produced over the years and still so many rural communities are struggling and lacking economic opportunity.

We all know well that our world is changing rapidly. What made sense yesterday may not make sense today and clearly will be irrelevant tomorrow. Think about this reality for just one minute. The lifespan on the Fortune 500 (list of the United States largest corporations) is constantly shortening. Erik Pages with EntreWorks Consulting shares the numbers:

• In 1960 it took 35 years to replace 35% of the Fortune 500.
• In 1999 it took 3 to 4 years to do so!

If the largest corporations can’t figure out how to stay on top, how can small rural communities even begin to compete? Ensuring our communities’ success into the future is challenging. The alternative is failure and decline. Understanding economic development today is critically important. For rural communities to compete, they must adopt a development strategy that is in tune with economic and social realities that are driving change in the early part of the 21st century.

Elements of Successful Development

Every farmer knows that you cannot reap what you do not sow. The same is true with economic development. Development will occur organically, but the nature, extent and equity of the development will likely vary widely. In today’s rapidly changing world where uncertainty reigns, being intentional, yet flexible in economic development is critically important. Successful development efforts are rooted in five core elements:

• Vision
• Opportunity
• Asset-Based
• Investment
• Sustainability

Let’s explore each of these five core elements central to successful community economic development in the 21st century.

Vision
Our world is full of challenges and uncertainties. We cannot begin to control all the trends and issues that affect the success of our communities. However, field research is clear—communities that have strong and relevant visions for the future do better than ones that do not. Vision is about being intentional. It implies that a community takes the time and makes the effort to understand its context, its strengths and its weaknesses, and that it is willing to invest in its own perceived future. This same trait is a hallmark of entrepreneurs. The path to the future is not straight, but a clear and powerful vision moves a community into its future within an environment of challenges, unforeseen opportunities and undeserved crises.

Opportunity
Another hallmark of successful entrepreneurs is the ability to perceive and assess opportunities. We believe this is also the hallmark of successful communities. Such communities not only have eyes open for new opportunities, but they also are actively scouting for them. Just as with entrepreneurs, successful communities do not pursue all opportunities. They acquire the collective skill for assessing perceived opportunities and pursuing those that make sense. Most successful communities rely on civic leaders to do this organically. However, in the 21st century, communities must step up one level and create an organized capacity to identify and assess opportunity.

Asset-Based
Every community has its challenges and its assets. Larger communities that are well positioned in the world seem to have all the advantages. Smaller, more isolated and rural communities might be perceived as having no assets. John McKnight at Northwestern University helped reinvent community development thinking with his research about asset-based development. He demonstrated that even the most distressed, poverty stricken and crime riddled urban neighborhoods have development assets. Successful communities in the 21st century are those that can map their assets and build a development strategy through an asset-based approach. Simply put, these communities build on what they have today, creating additional capacity to do more tomorrow.

Investment
To understand community investment, let’s compare communities to successful corporations that annually reinvest in their own companies. Imagine a community of 5,000 people with a $750 million annual economy whose residents are willing to reinvest just five percent each year ($37.5 million annually) to renovate their homes, improve their streets and parks, build better schools, and invest in their local businesses.

Successful communities have always been willing to invest. Communities where public and private investments renew institutions also provide the best infrastructure and ever-competitive businesses. These are communities that learn to invest smartly in those things that will ensure future development and competitive advantage. Implied here are communities that strategically plan and are externally connected. Such communities are in a stronger position to know where to invest and how to make the case that supports necessary investment.

Sustainability
There are several constants, including the fact that our world and our position in the world are continually changing. Successful communities are entrepreneurial in reinventing themselves to ensure economic relevance. Successful communities are able to sustain development efforts in both good and bad times, thereby renewing themselves.

Sustainability has many facets, including leadership, civic capacity, health of public institutions, adequacy of infrastructure and private investment in business competitiveness. Many rural communities come up short because they cannot sustain development efforts. In times of crisis, they gear up and invest heavily, but they slack off when times improve. President Dwight D. Eisenhower, in his 1958 State of the Union address, said it best:

“Our real problem, then, is not our strength today;
it is rather the vital necessity of action today to ensure
our strength tomorrow.”

Taken together, vision, opportunity, assets, investment and sustainability are the keys to successful long-term development in rural communities today as in the past. Of course, there is actually another factor—luck. A bit of good luck can go a long way toward moving a development agenda forward. The key is the ability to perceive good luck when it strikes.

Other resources explore the history of development in far greater depth than we will here. However, we think it is important to share some history in order to provide a context for successful development today.

Historical Perspective

The history of rural economic development is one of change. It is a history of how people react and adapt to the different ways wealth is created in rural places. A clear pattern of development waves has shaped rural America through four distinct economic periods:

• Subsistence Economies
• Natural Resources
• Business Attraction
• Urban Outsourcing

Subsistence Economies
The first Americans were well suited to subsistence economies tied to the natural resources of their regions. Hundreds of Native American tribes populated the North American continent, and their economies were rooted in hunting, gathering and small-scale farming. The majority of these communities gave way as European American settlements closed the frontier. Many tribes were relocated and some even brought to the point of extinction through genocide and cultural assimilation.

Natural Resources
Historically, European American development and wealth creation in rural America was directly and powerfully connected to natural resources. To illustrate this economic period, consider one agricultural state, Nebraska, from 1860 to 1890. In 1860, Nebraska’s landscape was controlled and dominated by subsistence-based Native American communities. Roughly 29,000 European American settlers hugged the southeastern shores of the Missouri River. By 1890, the European American population of Nebraska had skyrocketed to over one million, 37 times its 1860 population. During these three decades, more than 800 new communities were established and over one-half million new farms and businesses created.

The driving force was natural resources. In Nebraska’s case it was farm and ranch land. In other parts of rural America, the natural resources driving development were energy, minerals, timber, fisheries and eventually tourism. Natural resources formed the foundation of the economies and societies of most of rural America into the later decades of the 20th century. As we move into the early decades of the 21st century, the economic rationale of rural communities created by natural resource utilization is eroding rapidly (with the clear exception of tourism).

Even as the last farms and ranches were being established in Nebraska, community leaders understood that economic diversification through industrial development was critically important. The same was true in other landscapes as communities sought to develop local industries (often tied to adding value to local natural resources) or through the attraction of branch plants and industries.

Business Attraction
World War II was one of those events that fundamentally changed America—particularly rural America. Rural Americans by the millions left their isolated and secure rural communities and discovered the larger world. These rural Americans gained new insights, perspectives and connections. World War II also greatly increased the industrial capacity of the United States. Following World II three trends greatly changed America and particularly rural America. First, the baby boom drove U.S. demographic growth. Second, pent-up consumer demand during World War II drove consumer spending following the war. Third, American corporations sought cheaper labor and land and began relocating America’s factories to rural locations. Branch plant relocation brought economic diversification and growth to thousands of rural communities between the mid-1940s and contemporary times.

While industry continues to be important to rural America, the expansion of industrial output and the location of branch plants into rural America is a declining trend today. Industries that once would have located in rural America now are being built in Mexico, India and China. Business attraction opportunities still exist, but the development opportunity is a shadow of itself as compared to 20 or even 10 years ago.

As with all development waves, a new wave overlays the old wave. Natural resources and branch plants continue to be important, but they are largely unable to drive new wealth creation in the 21st century for most rural communities.

Urban Outsourcing
The most recent development wave might be referred to as “urban outsourcing.” Its central theme is the location of economic activities in rural areas that urban areas do not want in their backyards. Here are some examples of urban outsourcing:

• Waste Management and Processing Facilities
• Energy Farms (e.g., wind farms)
• Prisons
• Food Processing (e.g., livestock slaughter)
• Back Office Shops (e.g., telemarketing)

Urban outsourcing can create economic opportunities, but such development also creates challenges for rural areas. Such facilities can often overwhelm the social fabric of smaller rural places, create huge tax obligations without expanded tax bases and provide short-term economic benefits. Urban outsourcing is unlikely to create the kind of long-term wealth creation and development that natural resource based industries and branch plant relocation offered rural America.

So, what does this mean for communities and their development? For one, development is a lot easier if you are moving with the current instead of against it. Natural resource industries like farming, ranching, mining, energy production, fishing and forestry continue to be important, but they offer limited ability to increase economic relevance, let alone prosperity, in an age where knowledge is valued. Industrial development is fundamental, and key industries like manufacturing are likely to be with us for many years to come. However, industrial development is a maturing sector with limited growth potential.

The application of knowledge to these traditional and emerging industries is where opportunities for development, new wealth creation and economic justification are rooted for communities today and into the future.

The question remains, what kind of development offers inherent and long-term opportunities for rural America in the 21st century? Let’s explore the possibilities.

Where Our Future Rests

Kevin Phillips traces the creation of wealth over modern history in his book, Wealth and Democracy. A summary of this and other works suggests that new wealth is rooted in two sources—old wealth and innovation/creativity.

In market economies wealth tends to concentrate. We generally call this old wealth. Old wealth has the advantage of creating new wealth through passive investments in stocks, bonds, real estate and other opportunities. The vast majority of rural Americans who do not have the advantage of old wealth rely on hard work and smarts to create new wealth. The same is true with communities.

Every community has old wealth tied to the assets of current and former residents. Community foundations throughout rural America are helping their communities connect to donors who hold this old wealth by creating legacy endowments to support new wealth creation. Effectively mobilizing old wealth is a critical source of new investment for rural communities today. With diminishing government support systems, this may represent the most important future investment source available to rural communities.

However, for most communities, the key to success in the 21st century is to support innovation that offers the opportunity for new wealth creation. Entrepreneurs have been with us for a very long time. Entrepreneurs create new wealth for themselves and their communities by taking innovations to market and commercializing new ideas to meet consumer desires. In a very interesting study, From the Garage to the Boardroom: The Entrepreneurial Roots of America’s Largest Corporations, the National Commission on Entrepreneurship explored the origins of the Fortune 200 in the United States between 1917 and 1987. What they found is fascinating and informing. Entrepreneurs created over one-half of all the Fortune 200 corporations during this period. This finding illustrates the power of entrepreneurs to discover innovation and create successful ventures around it.

Helping local entrepreneurs succeed represents one of the more promising development strategies in the 21st century. You might ask—how do we get our heads around this new development opportunity? Our community understands farming, timber and business attraction. Where do we go to understand how helping local entrepreneurs can create development, economic opportunity and wealth for our community? Let’s explore some examples and stories.

Places to Watch

Jack Schultz, a developer from Effingham, Illinois, gives us a great place to begin our journey toward understanding the entrepreneurial opportunity for development. In his book, BoomTown USA, Jack identifies some of the most successful rural communities today. The vast majority of these communities share one key characteristic—they are entrepreneurial. Most have now discovered the importance of supporting local entrepreneurs.

The RUPRI Center for Rural Entrepreneurship has identified a number of communities throughout the country that are actively embracing entrepreneurship-based economic development strategies. Throughout this website, we’ll share stories of places as diverse as Littleton, Colorado, and Douglas, Georgia; Humboldt County, California, and North Central Kansas; Jefferson County, Washington, and Valley County, Nebraska; Fairfield, Iowa, and Appalachian Ohio.

We also encourage you to explore your own region and discover communities that are entrepreneurial and embracing entrepreneurship as a core development strategy.

Additional Resources

You can’t build a strategy without access to resources. Here are some suggested resources to help you continue your efforts to energize entrepreneurs in your communities.

Boom Town USA: The 71/2 Keys to Big Success in Small Towns is a must read for all small town leaders. Written by Jack Schultz, an economic developer with plenty of experience in small town America, this book provides not only great insight—it is inspirational as well. National Association of Industrial and Office Properties. 2004. www.naiop.org

Building Entrepreneurial Communities: The Appropriate Role of Enterprise Development Activities puts enterprise development into the broader context of community building. Written by Gregg Lichtenstein, Thomas Lyons, and Nailya Kutzhanova, this paper reflects the many years of experience that the authors have working in the field of enterprise development.

The Center has more resources and can provide additional assistance to you as you support entrepreneurs in your community. To access Center Resources, click on our logo.