Cultivating Community Wealth: Strategies for Building Rural Wealth, Part 1

This post is part of an eight-week series on Cultivating Community Wealth.

Why a community “does what it does” is really a statement about the values the community or organization possesses.
–Steve Deller in Rural Wealth Creation (p. 161)

Wow. Read that one more time. A deceptively simple, intensely powerful sentence. Actions matter. Intentions matter. A community that allows its poor to be further marginalized is making a statement. A community that supports entrepreneurs, volunteers, or youth is also making a statement. Why your community chooses certain wealth creation strategies makes a statement about your assets, your dreams, and your values.

The wealth creation strategies described in this post and the one to follow next week are options explored by various communities and include many of the strategies described by authors of Rural Wealth Creation, one of the catalysts for this blog series. Particular strategies may be suited to the assets, goals, and values of some communities but not others. Discussion of a strategy does not imply endorsement, and leaders are encouraged to evaluate strategies based on the needs and assets of their community and region.

Strategies summarized in this post include industrial recruitment and financial incentives, clusters, value-chain development, community business matching, entrepreneurship including youth entrepreneurship, and regionalism. Strategies to be discussed in next week’s post include business retention & expansion, tourism, retiree attraction, workforce education, shop/eat local campaigns, and fundraising campaigns. Of course, multiple strategies are often employed, and strategies can reinforce each other. Email me at rmdudensing@tamu.edu if you have questions about implementing wealth creation strategies in your community.

Industrial recruitment and financial incentives. Recruiting industry to promote jobs in a region is perhaps the oldest economic development strategy in the books. Pender and Dinterman (2014) characterize industrial recruitment as low-input, cost-based strategy. In the classic sense, a community promises tax breaks, infrastructure, and/or other incentives to lure a company to provide jobs, income, and tax base. Traditionally, this strategy was based on the low-cost land and labor in rural communities, and there was little concern for the quality of jobs or the “fit” of the firm to the local region. Almost any economic developer will tell you that industrial recruitment is still an important development strategy today. Sometimes, jobs are all a community seeks, but increasingly communities are looking for commitments to schools and job training as well as other aspects of community life. A drawback of recruitment is that footloose firms are more likely to leave town if they can find lower costs or better incentives elsewhere, and the community can find itself is a race to the bottom. Some communities, particularly those with low skilled labor and few amenities, find that there is high turnover in management as company leaders “do their time” and move on to a more desirable location. The incentives provided to new businesses can seem unfair to established businesses owners, who are often not eligible for such perks (and who may face increased competition—and higher wages—for scarce labor resources). Some communities have been able to create incentives that benefit a wide array of existing and new businesses.

Cluster-based development. The national Stronger Economies Together curriculum (Davis 2013) defines a cluster as “a geographic concentration of interconnected businesses, suppliers, and associated institutions in a particular area. Specifically, industry clusters are groups of similar and related firms in a defined geographic area that share common markets, technologies, worker skill needs, and that are often linked by buyer-seller relationships” (p. 5.14). Economic clusters have long been a tool to promote local wealth. Michael Porter’s work on competitive advantage made clusters a key strategy beginning in the 1990s. Markusen (1996) provides a clear and concise overview of different types of clusters, including those made up of small- and medium-sized local firms, those that rely on a large firm and its suppliers, and those that rely on governmental institutions such as colleges or prisons. Clusters can be linked either vertically along a supply chain (for example, a region, say the U.S. South in the 1960s, produces cotton, fabric, buttons, and clothing made from the fabric) or horizontally, sharing resources and benefitting from the interaction of people within the industry (for example, toys and computers share a good deal of technology and human capital needs).

A cluster strategy requires the region to identify where it has competitive advantages, to capitalize on those advantages, and to try to fill in missing pieces to further support the cluster. Competitive advantages are region-specific and difficult to replicate elsewhere, although various regions may have similar advantages and produce similar goods or services. Pitfalls of a clustering strategy include the difficulty of picking industries capable of succeeding both locally and in the global market (Barkley and Henry 2001). Rural areas are often disadvantaged by being late to identify competitive clusters. Rather than leading with an innovative competitive advantage, many regions seek to emulate successes elsewhere. Many rural areas perceive a lack of assets and thus find themselves chasing the same clusters in common rural industries. In fact, a colleague in Colorado describes “The Big 3” clusters that most rural regions target: agriculture, energy, and tourism. These are industries rural areas understand and excel in, but they may excel in those industries for cost and natural resource purposes. It may be a challenge to cultivate the unique competitive advantages implicit in clusters.

Value-chain development. A value-chain is a vertically linked system of adding value to products within a region. Value-chain development is similar to some cluster strategies, such as the cotton cluster example above. Regions that consider “clusters” too faddish or that have been burned by an unsuccessful cluster strategy may be more receptive to a value chain concept. A value chain is not simply a direct A to Z supply chain; it doesn’t have to be just raw cotton to jeans. The value-chain or vertical cluster also includes universities doing cotton and manufacturing research, the Extension service, crop insurance agents, local cooperatives, and, yes, the manufacturers of buttons, zippers and other materials that could be made locally. Value-chain strategies can be appealing due to legitimate specialization and competitive advantages in production of products and/or services as well as the magnitude and political or social clout of established industries. In rural regions, there is often a perception that “We don’t have much so we should develop what we have.” Developing the value-chain assumes that the region’s specialization in the raw and/or finished products is profitable and sustainable. This is not always the case; the South has lost most of its cloth manufacturers as China and other regions gained competitive advantages. Still, a few have survived by finding niches and creating value.

Community Business Matching. The CBM model considers a region’s social and environmental goals as well as its economic goals and assets to assess the desirability of a given industry to the region. For example, one region with an abundance of trees may value job creation and the possibilities that logging can provide while another forested region strongly values the natural aesthetic of the trees and finds that certain types of nature tourism and selective harvesting of lumber and other forest products is a better fit. The desires of the community are matched to the needs of industries and firms within those industries. Businesses are surveyed to learn the qualities they seek when making location decisions. Thus, targeting is based on both desirability of the industry and compatibility of the region and industry/firm. The model forces the community or region to recognize trade-offs among its goals and values and to identify and quantify the assets it has available, which can result in stronger buy-in from a broad spectrum of community residents and a solid understanding of available assets. The model can also result in strong community/business matches. However, it is a fairly lengthy process.

Entrepreneurship and youth entrepreneurship. Entrepreneurship is a “grow your own” strategy. It can be an alternative to industrial recruitment. In some rural communities that have a hard time recruiting businesses, encouraging local residents to start businesses is a major development strategy. Local businesses tend to be less footloose, especially when they feel they are valued (see the business retention and expansion section of next week’s post). Small businesses make up a large share of employment growth, and these businesses and their owners are often keystones in community leadership and philanthropy. While entrepreneurship can be a survival strategy in response to a lack of other economic opportunities in the region, entrepreneurship is often more powerful when it responds to opportunity rather than lack-there-of. The Texas oil and gas industry has presented a host of opportunities to local entrepreneurs. Some small businesses respond to conventional needs in conventional ways (for example, someone buys a truck and starts hauling fracking fluids); other businesses create innovative solutions to new or even existing problems. We often think of innovation as high-tech, urban phenomenon, but rural areas are rich with innovation, starting with the steel plow (Low 2014) right down to high tech drilling equipment and services. In many cases, entrepreneurship is an important component of cluster or value-chain strategies.

Growing entrepreneurs means supporting them, even when they fail, and roughly half of new businesses do fail in the first three years. Linking entrepreneurs with businesses planning services and supportive lenders can help alleviate (but not eliminate) failures. Communities who value entrepreneurship encourage the owners who experience a business failure to evaluate what they learned and apply that knowledge to a new opportunity when the time is right.

Many rural communities encourage their youth to think about entrepreneurship early. Many of our rural business owners are at or nearing retirement age and wonder if they will have to close their doors. Youth entrepreneurship can link young people who want to come home with existing business owners. One of my favorite stories (I think from the HomeTown Competitiveness, which does great work in this area) is about a young woman who ran the online version of her hometown newspaper from her dorm room and came home after graduation to take over the whole paper. The La Feria, Texas, area did a youth entrepreneurship survey near the end of their Stronger Economies Together experience. It is truly surprising how many young people want to come home after their education, but many are uncertain about local economic opportunity. Clearly, youth entrepreneurship isn’t a quick strategy. It is best implemented in middle school or earlier. And, like their adult counterparts, young would-be entrepreneurs have to be assured it’s OK to fail. But entrepreneurship can be a path to grow young people and businesses in the community. Watch for a success story on this topic later in this series!

Regionalism. The importance of regionalism has already been discussed in the first post in this series. It is also discussed in many of The Role of Rural posts. In the context of a wealth creation strategy, it’s worth remembering that we increase both the breadth and depth of our assets when we work together across a region (particularly across a region with natural and functioning economic linkages). Competition is often a zero to negative sum game.

 

This has been a long post, but those wanting even more, Steve Deller writes in Rural Wealth Creation that to understand the strategies for wealth creation, one must “understand the progression of our thinking surrounding the enhancement of local well-being from economic growth, economic development and community development to community economic development and now to rural wealth creation” (page 153).

It is helpful to generally understand that over the past 80 years or so, there has been a progression from wanting “more” (more jobs, more money—economic growth) to wanting better quality of life (improved per capita outcomes—economic development) and from viewing the economy as separate from the community to embracing the interlinked role of a region’s economy, social and cultural heritage, infrastructure and so forth (its capitals). Today’s rural wealth creation paradigm focuses on forms of wealth beyond money (assets including natural and social capital) and focuses on the long-term livelihood of a region and its residents, including those on the margins.

Many of the development strategies and tools available to today’s community leaders reflect this broader approach. Pender and Dinterman in Rural Wealth Creation (Pender et al. 2014, p. 273) propose a typology of rural economic development strategies. They provide information about the types of capitals (assets) required for successful implementation of the strategies they discuss. Readers interested in implementing the capitals as discussed in the first post of this series will find the Pender and Dinterman discussion helpful. Readers preferring a simpler typology might prefer the CARE (Creation, Attraction, Retention, and Expansion) model (Barta 2010).

Resources:

Barkley, David L., and Mark S. Henry. 2001. “Advantages and Disadvantages of Targeting Industry Clusters.” Regional Economic Development Research Laboratory Report 09-2001-01, Clemson University.

Barta, S., Frye, J., Nelson, J., Paterson, S., Ralstin, S., Wittman, P., & Woods, M. 2010. C.A.R.E. Model. Southern Rural Development Center. Retrieved from http://srdc.msstate.edu/care/

Borden, Buddy, and Tom Harris. 2013. Supplemental Module: Community Business Matching Model Overview and Applications. In Stronger Economies Together: Strategies for Building New Economic Opportunities, 4th edition. Beaulieu, Lionel J. and Rachel Welborn (Eds.). Mississippi State, MS: Southern Rural Development Center. This publication is the product of two Cooperative Agreements with USDA Rural Development, Award Numbers RBS-09-20 and RBS 10-39. http://srdc.msstate.edu/set/suppmodules.html

Davis, Alison F. 2013. Module Three: Focusing on Regional Competitive Advantage. In Stronger Economies Together: Strategies for Building New Economic Opportunities, 4th edition. Beaulieu, Lionel J. and Rachel Welborn (Eds.). Mississippi State, MS: Southern Rural Development Center. This publication is the product of two Cooperative Agreements with USDA Rural Development, Award Numbers RBS-09-20 and RBS 10-39. http://srdc.msstate.edu/set/curriculum4.html

Deller, Steven C. 2014. Strategies for rural wealth creation: A progression of thinking through ideas and concepts. In Rural Wealth Creation, John L. Pender, Bruce A. Weber, Thomas G. Johnson, and J. Matthew Fannin, eds. Routledge, New York, p.153-166.

HomeTown Competitiveness. http://htccommunity.org/

Low, Sarah A. 2014. Entrepreneurship and rural wealth creation. In Rural Wealth Creation, John L. Pender, Bruce A. Weber, Thomas G. Johnson, and J. Matthew Fannin, eds. Routledge, New York, p. 201-217.

Markusen, Ann R. 1996. “Sticky Places in Slippery Space: A Typology of Industrial Districts.” Economic Geography 72(3): 293-313.

Pender, John L., and Robert Dinterman. 2014. Developing a typology of wealth creation approaches and context: Hypotheses and an example for the case of attracting retirees. In Rural Wealth Creation, John L. Pender, Bruce A. Weber, Thomas G. Johnson, and J. Matthew Fannin, eds. Routledge, New York, p.269-290.

Porter, Michael E. 1990. The Competitive Advantage of Nations. London: MacMillan.

Porter, Michael E. 1998a. On Competition. (Michael Porter, ed.), Boston: Harvard Business School Press.

Porter, Michael E. 1998b. The Competitive Advantage of Nations, 2nd Edition. London: MacMillan.

Porter, Michael E. 2000. “Location, Competition and Economic Development: Local Clusters in a Global Economy.” Economic Development Quarterly 14(1): 15-34.

Rural Wealth Creation

www.rurdev.usda.gov/Reports/rd-ERR131.pdf – USDA-ERS report related to the book
http://www.choicesmagazine.org/choices-magazine/theme-articles/rural-wealth-creation/theme-overview-rural-wealth-creation – Choices Magazine issue on the subject of rural wealth, mostly by book authors

WealthWorks
http://www.wealthworks.org/

Wealth Creation and Rural Livelihoods
http://www.wealthworks.org/ – includes a forum and listserv

Pender, John, Alexander Marre, and Richard Reeder. 2012. Rural Wealth Creation: Concepts, Strategies, and Measures. U.S. Department of Agriculture, Economic Research Service. Economic Research Report Number 131. Washington, DC: March. www.rurdev.usda.gov/Reports/rd-ERR131.pdf

 

About Rebekka Dudensing

Dr. Rebekka Dudensing is an Associate Professor and Extension Economist - Community Economic Development with Texas AgriLife Extension and Research in the Department of Agricultural Economics at Texas A&M. Her research interests include the evaluation of economic development opportunities, taxation and public/private goods issues, entrepreneurship, and regional economic cooperation.
This entry was posted in Economic Development, Rural Wealth and tagged , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *