Tuesday, November 19, 2013

The “Low Hanging Fruit” Communities Overlook

In college I took only two courses labeled economics, one micro and one macro, even though I subsequently spent a forty-year career in economic development.

Let me explain why I think that when it comes to the former, so many communities and states overlook the “low hanging fruit.”

Of course, I also took a few other related courses that may now be labeled economics or at least business-related including those dealing with  behavioral economics (both consumer and organizational,) moral foundations theory and ethical systems design, which I found even more useful during my career.

Ironically, most economic developers from either the supply-side (traditional business or developer recruitment) or the demand-side (visitor-centric) don’t think much about economics, including the more relevant microeconomics. 

Humorously, Dr. Yoram Bauman, an environmental economist turned comedian, jokes that experts in microeconomics are “people who are wrong about specific (or little) things,” while experts about macroeconomics are “wrong about things in general.”

Seriously, the “low hanging fruit” of economic development involves simply plugging leaks.  A visual explanation of leaks is shown in this blog post from an ImPlan analysis of the visitor-related economy in Durham, North Carolina where I live.2010 Durham Visitor Economy

Repeated every other year since the late 1990s , it documents that in 2010, visitors to Durham spent $903 million including spending en route with $704.7 actually spent in Durham.

But $202.7 million, or nearly 30% of that visitor spending here, leaks out of the economy when businesses hire non-residents or purchase goods elsewhere that they could purchase here.

This is not just about visitor spending, either.

Even greater “leakage” occurs when government agencies, universities and other major employers purchase goods services from outside Durham that could be purchased here or the purchase of which here could empower entrepreneurs and small, independent businesses to provide them in Durham instead.

In 1989, when we set about to jumpstart a community marketing organization for Durham, as I had earlier, in part, for Spokane, Washington and Anchorage, Alaska, one of the first policies we adopted was one to address leakage.

To set an example, the organization hired only Durham residents or those who would relocate here.  We also purchased goods and services only from Durham vendors whenever possible, a principle of microeconomics.

The exceptions were forms of research where objectivity was essential.

Sound and comprehensive economic development involves not only seeking new spending and investment but optimizing circulation and minimizing leakage.

But “globalization” was taking hold and my peers in other areas of economic development brushed off the of idea of helping to plug leaks by parroting an eighty year old saying that “a rising tide floats all ships.”

We know how that turned out but back then I was labeled parochial, especially by some media outlets making hundreds of millions in advertising that encourages leakage by hoodwinking consumers into commuting elsewhere to buy what they could easily find in their own community.

Ironically, the first time that “ rising tide” saying appeared in print was on page 26 of the Charlotte Observer on September 26, 1915 during the “Progressive Era.”

It was being used in sermons to link Christianity with unions and other societal improvements and then before and after WWI to point to a “new and nobler social order.”

By 1950 it had been coopted by states working regionally to stimulate economic recovery and by 1962, it was popularized by President Kennedy in a speech.

By the time I arrived in Durham in 1989, it was being used by economic developers, including chamber of commerce executives, to brush aside microeconomic advantages from hiring and buying local.  Some had been lured to the notion because if freed from promoting their local business climate they could poach members from anywhere.

The North Carolina General Assembly has purportedly made it impossible for local governments to link economic development incentives to hiring and buying local and against the law for them to use it as internal purchasing policy.

But the answer has always been both/and.  Globalization took off in the 1990s but by 2005, even President Clinton’s economic advisor wrote in a Washington Post op-ed that some of the “boats” ran aground and by 2008, a Harvard Magazine analysis acknowledged the resulting disparity, now characterized by the 1%.

The importance of hiring and buying local as an economic development strategy has been renewed.  It has been revived in news magazines, and a white paper published by the New Economics Foundation included local purchasing in “Ten Steps to Save the Cities: The new economics agenda for thriving local economies.”

On November 30th, American Express will sponsor its third annual Small Business Saturday to encourage shoppers to “shop small” and support locally-owned establishments in their communities instead of big chain or formula retailers.

Last year, awareness of the campaign jumped to nearly 7-in-10 consumers and nearly half of them spent $5.5 billion in small, local businesses on that day alone.  Communities have a stake because dollars spent in local, independent business have more than twice the economic impact of those spent in chains.

Even without the backing, they should have.  “Buy local” initiatives such as “Sustain-A-Bull – Shop Independent Durham” where I live are shown to be an advantage for overall community economic performance.

Savvy communities are shifting their economic development resources from just business recruitment to retention to “buy local” as well as establishing “localist policy agendas.”

Duke University is arguably the most responsible for the rejuvenation of Downtown Durham by leasing millions of square feet of space that adaptive reuse developers took straight to the bank as backing for construction loans.

Beginning in the early 1980s, it has done the same to a much smaller extent to invigorate the Brightleaf and Ninth Street districts.

Just imagine the even greater community-wide influence it would have by redirecting all of it university and medical center purchasing to local, independent businesses or as incentive for entrepreneurs to develop the means to serve their needs.

The economic impact would be even greater.

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