The Latest in Economic Development
This week’s blog highlights the results of a new small business survey, identifies how occupational licenses potentially hurt job growth, explores Oregon’s economic gardening strategy, and looks at the “Whole Foods Effect” and the implications of its new store in Detroit. Comment below or send to common@nlc.org.
Get the last edition of “The Latest in Economic Development” here.
This week, Thumbtack.com and the Kauffman Foundation released a small business survey that ranks cities’ and states’ small business environments. A look into the findings reveals:
- Licensing requirements were nearly twice as important as tax-related regulations in determining their state or city government’s overall business-friendliness.
- An important predictor of small business friendliness was whether small business owners are aware of the state of local government offering training programs for small businesses.
- Women were 9% more likely than men to feel supported by their state governments
Get the press release here, or the full report here.
The survey above finds that licensing requirements are important in determining business-friendliness; one example is occupational license requirements, which are a low-hanging regulatory fruit that could potentially boost employment if picked. Dick Carpenter and Lisa Knepper write that “Since the 1950s, the number of US workers needing an occupational license… has grown from one in 20 to nearly one in three.” What these requirements do is restrict supply by increasing barriers to entry for a whole host of jobs and professions, including barbers, interior designers, and message therapists. Carpenter and Knepper explain that the barriers “make it harder for people – particularly minorities and those of lesser means and with less education – to find jobs and build new businesses.” (Wall Street Journal)
The Grow Oregon Council is formally supporting an “economic gardening” strategy, launching its pilot program this past March. Originating in Littleton, Colorado, and featured in NLC’s recent small business and entrepreneurship publication, economic gardening focuses on developing home-grown, second-stage companies, rather than allocating resources to attract large businesses from outside the community. In Portland, where local “companies grew by 63.6 percent while nonresidents (headquartered outside of Portland) declined by 8.9 percent” from 1999 to 2009, pursuing and economic gardening strategy seems like a natural fit. One of the key factors of the strategy involves firms gaining playing field leveling market intelligence which Christine Hamilton-Pennell defines as “a process that enables growth-oriented companies to access and use high-level technical expertise and strategic market information to explore new markets and growth strategies.” (neighborhoodnotes.com)
Recent history has been kind to communities where Whole Foods has planted roots. This transformation, known as the “Whole Foods Effect,” has made its mark on communities in New Orleans, Washington DC, and Boston; can it happen in Detroit? Will Doig details why the grocer seems to have a knack for being a catalyst for economic and community development. First is the “seal of approval” Whole Foods brings to the neighborhood. Now known as a symbol of gentrification, when the retailer moves in, people take notice. Second is the “evidence of success that (Whole Foods) generates” by computing tangible metrics (foot traffic, consumer data, etc.) when it enters a market. Developers are able to access this data since Whole Foods is a public company, enabling them to justify further development of the area to potential investors. And third is the retailer’s knack for choosing neighborhoods that are already on their way up. In Midtown, where it plans to open its Detroit store, the average household income of new home buyers is the highest in the city; it is also where the College for Creative Studies is located, which is “packed with free-range foodies.” (Salon)
Cybersecurity: A Crucial Issue for Local Governments
Right now, Congress is considering a myriad of bills on cybersecurity. The most pitched public debate has surrounded the private sector, civil liberty, and privacy concerns. However, state and local government participation is crucial to securing our citizens’ safety. That’s why NLC and other state and local organizations sent leading stakeholders in Congress a letter with “key principles and values” to consider in any cybersecurity legislation.
While the Administration has taken many steps on its own, new legislation is necessary to codify how federal, state, and local actors share information, and what steps the federal government can take to secure cyberspace. That is why NLC passed a resolution at its 2011 Congress of Cities urging further federal action and intergovernmental collaboration to improve our defense against cyber threat at all levels.
The internet was built as an open resource sharing platform to foster innovation. Forty years removed from its humble roots as an academic curiosity on a few university campuses and government labs, the internet has infested every facet of our lives. With more than half of wireless phone subscribers now on a “smartphone,” the only place it did not impact lives – when we walked out the front door – has officially been removed.
State and local governments are as reliant on the internet as their citizens. Municipalities utilize the internet to ease access to city services such as driver’s licenses, manage employee affairs, help first responders communicate, and implement efficiencies in the delivery of everything from unemployment services to water and electricity. While the internet has afforded us astounding conveniences and efficiencies, it also has forced us into a compromising situation. If the services we rely on to control traffic lights and send colleagues and loved ones crucial information is built on an open platform built for sharing information, how do governments protect sensitive data and crucial systems from bad actors?
It’s an issue all those who provide services are coping with, and because of this dilemma, municipal governments are at risk.
Read more…
Does it Pay to Charge?
No one wants to pay to travel. But if it means less traffic and quicker travel times, I could get on board with the idea. In fact, I am on board. I live in Montgomery County, Maryland where I have access to the recently opened MD 200, the Intercounty Connector, or ICC as it’s more commonly called. This newly created highway connects various parts of Montgomery County to the northwestern parts of Prince George’s County in addition to several other highways, including Interstate 95. Prior to the opening of ICC, these areas were only connected by busy major roads, complete with rush hour, traffic lights, school buses, Metro buses and accidents which, at times, would shut down roads. The ICC is convenient to access and easy to use. Fares, which vary based on the time of day, are paid via E-ZPass, which makes getting on and off the ICC virtually seamless.
MnPass, a very similar but slightly different system, offers for-pay travel for solo drivers on high occupancy vehicle lanes on two highway systems in the Minneapolis, Minnesota region. Like the ICC, MnPass has a variable toll rate based on current traffic conditions and where trips start and end. The lanes are free during off peak hours and for cars with more than one person and transit vehicles. While fares are collected electronically, it is not via a nationally-used system such as E-ZPass. The transponder for the MnPass system is available from the Minnesota Department of Transportation and costs drivers $1.50 a month to lease. Still, the region is seeing a favorable response to the MnPass system in its usage and impact on congestion.
Charging for car travel – whether it is by tolling or congestion pricing – is fast becoming a way to manage traffic and generate revenues to operate and maintain transportation systems. Drivers who do not want to pay to use the more congested routes can choose other modes of travel, such as transit or other roads, as is being demonstrated in Maryland and Minnesota.
But it doesn’t always work or have the desired implications.
Look at the floating bridges in the Seattle region, two bridges connecting similar areas, one free and one fee-based. Once the toll was instituted on one of the bridges, traffic on that bridge dropped 40%. However, traffic on the other bridge rose 10%. Perhaps not the desired outcome? As the author in this article about the Seattle bridges points out, charging for driving isn’t a burdensome tax, it’s an at-will fee for the use of a premium service. The benefits of this method can impact the user, the collector of the fee (to use that to reinvest in the transportation system) and non-users who would presumably be traveling on less congested roads because there are people willing to pay to use other roads with the same access. But in Seattle, this wasn’t the case, as the toll bridge just pushed traffic from one bridge to another.
It comes down to an argument of effectiveness – is tolling always a good option for managing traffic? You would think so. But when a cheaper (free!) option is so readily available (like the competing Seattle bridge), who would agree to pay? And when it’s so blatantly in your face, it raises the issue of equity. Is it fair to provide people who can afford to pay a toll with a reduction in congestion and punish those who can’t with more traffic?
There is no universal answer, and the effectiveness and equity of tolling options must be evaluated on a case-by-case basis. This video clip, for example, makes the argument that while it is seemingly an unfair system, the generated revenues from the toll go back into the system to create benefits across the board for all users in the form of road repairs and improved maintenance to name a few.
But at the end of the day users will ultimately go with whatever option is most convenient for them – whether it is in the form of time or cost savings.
The Latest in Economic Development
This week’s blog highlights the rapidly changing world of manufacturing, a new social-enterprise-focused class at the University of Virginia, a closer look at China’s trade surplus, and the opening of a Chinese Import-Export Bank in Baltimore. Comment below or send to common@nlc.org.
Get the last edition of “The Latest in Economic Development” here.
The world of manufacturing is changing… rapidly. What are the implications of these fast-paced changes? The Economist is calling it the “third industrial revolution,” a paradigm shifting transformation into a manufacturing environment dominated by “clever software, novel materials, more dexterous robots, new processes (notably three-dimensional printing) and a whole range of web-based services.” Consumers will obviously benefit – who doesn’t like cheaper, more customized products? – and production will continue to be in-sourced back into home markets. For governments, they should “stick to the basics: better schools to build a skilled workforce, clear rules and a level playing field for enterprises of all kinds.” (The Economist) via (Daily Digest from Seattle’s Office of Economic Development)
An innovative new class at the University of Virginia’s Darden School of Business teaches students about social entrepreneurship and its impacts on low-income communities. Focused on Charlottesville’s local economy, the class broke up into groups and visited “innovative social enterprises in Washington, Richmond, and Yonkers, NY, looking for lessons and models that could be applied” locally. The class is a good example of a university taking advantage of the intersection between higher education and local economic development, which can foster important partnerships and shared and mutually beneficial goals. (UVa Today)
China’s current-account surplus, long a thorn in the side of US policy makers, is declining. Eduardo Porter writes that “China’s vast takeover of world markets may be running out of steam.” The factors that led to China’s rise – cheap labor, impressive productivity, and rapid outsourcing from multinationals – have dampened in recent years. The recession also took its toll on international demand for the country’s exports. This has led China to embark on a path toward a more balanced economic environment. Porter explains, “(China’s) 12th five-year plan… is centered on the goal of raising family incomes, shifting to an economy more reliant on the production of services and building the kind of safety net that gives the Chinese people the confidence to spend some of their vast savings.” (New York Times)
While the US Export-Import bank has been a political firecracker lately, the Chinese opened its own Exim Bank in Baltimore’s World Trade Center. Maryland Governor Martin O’Malley has been aggressively pursuing international trade relationships and it seems as if these efforts are starting to pay off. Steve Kilar writes that the Chinese Exim Bank is seasoned in the art of construction financing and “O’Malley’s administration hopes the institution will help bankroll infrastructure and development projects in Maryland” as well as provide an avenue for Chinese companies to invest in the US. O’Malley has also courted Indian delegations touting Maryland’s “good transportation, friendly people and easy access to Washington and a major port.” (Baltimore Sun)
Kids Living in Combat Zones…in U.S. Cities
Which group do you think has higher rates of post-traumatic stress disorder (PTSD): American soldiers deployed to combat in Iraq and Afghanistan, or American children living in high-crime urban neighborhoods who are exposed to community violence? At a Congressional briefing held a week ago, Dr. Howard Spivak, Director of the U.S. Centers for Disease Control and Prevention’s Division of Violence Prevention, discussed research showing higher prevalence of PTSD among the latter group, observing that many of our kids are essentially “living in combat zones.”
Dr. Spivak was one of five panelists at a briefing sponsored by the Congressional Tri-Caucus and the Prevention Institute’s Urban Networks to Increase Thriving Youth (UNITY). Among other troubling research findings shared at the briefing were:
- Children’s exposure to violence not only has serious mental health consequences, but is also linked with a range of chronic illnesses, including heart and lung diseases and diabetes. Neuroscientists have found that this type of trauma changes how chromosomes form, hinders brain development, and may shorten a person’s life expectancy by 7-10 years.
- The 2009 National Survey of Children Exposed to Violence – conducted as part of the U.S. Department of Justice’s Defending Childhood Initiative – found that 60 percent of children were exposed to violence within the previous year.
- Homicide is the second leading cause of death for youth ages 10-24. In many cities, it is the leading cause.
The good news is that some cities are making substantial progress in reducing youth violence – and they are doing so by redefining violence as an issue of public health. What does that mean in practice? In Minneapolis, this approach involves assessing the source of the problem; identifying risk and protective factors that affect the likelihood that youth will resort to violence as well as trends that influence those factors; developing and evaluating evidence-based interventions to reduce risk factors and enhance protective factors; scaling up what works; and using public education to raise awareness about effective solutions. In essence, local leaders are treating and combating violence as a preventable disease.
Under Mayor R.T. Rybak’s leadership, Minneapolis formed a multidisciplinary collaboration in 2007 to develop and implement a public health approach, resulting in the Blueprint for Action: Preventing Youth Violence in Minneapolis. NLC highlighted this as an innovation in its 2009 report on The State of City Leadership for Children and Families. At the briefing, Alyssa Banks, Youth Violence Prevention Coordinator in the Minneapolis Department of Health and Family Support, provided an update on the Blueprint’s progress.
Between 2006 and 2010, juvenile crime fell by 56 percent. Juvenile incidents involving guns were down 58 percent, and there was a 36 percent reduction in injuries from firearms among youth and young adults. At a more granular level, the city tracks 18 indicators related to four key Blueprint goals:
There have been several reports recently connecting local and state tax environments to small business and entrepreneurial growth. In Business Tax Index 2012, the Small Business and Entrepreneurship Council created state scores based on 18 different tax measures that indicate the cost of their tax system on entrepreneurs and small businesses. Similarly, the Tax Foundation and KPMG published a slightly more nuanced analysis, Location Matters: A Comparative Analysis of State Tax Costs on Business.
There is no denying that tax systems impact business location decisions and their ability to grow, but can or should we still be determining a place’s “business friendliness” based entirely on tax burdens? This paradigm dominated economic development policy during the era of smokestack chasing, but is it appropriate when instead of trying to lure the next big company, a community is seeking to support existing small businesses and grow new ones from within? It just seems like we’re having the wrong conversation.
Bloomberg BusinessWeek analysis reveals, in fact, that small businesses do not choose low-tax states. States with the lowest tax burdens are not those with the most new business starts. Entrepreneurs generally do not relocate to start their business, they do it locally (another reason small business development and entrepreneurial support are favorable strategies to jumpstart local economies).
So, what, then, does “business friendly” mean for small businesses, entrepreneurs and start-ups? Experts suggest that there is no one defining characteristic of a city or state supportive of small and new businesses. Instead, it is a collection of elements comprising an entrepreneurial “eco system” — universities, large and small businesses and their leadership, ease of doing business, entrepreneurial support programs, workforce skills, financing, and probably a bit of luck.
There have been recent conversations, particularly on Capitol Hill, about what government should be doing to support this eco system, suggesting new incentives to spur small business growth. But do we need more incentives? According to NLC’s recently released a toolkit on Supporting Small Businesses and Entrepreneurs, the most effective avenues of support from governments, particularly local governments, are not incentives, but tackling efforts within city hall and partnering with external stakeholders. This can include helping to prioritize issues and outwardly demonstrating that entrepreneurs and small businesses are important to a community to reviewing and improving permitting and regulatory functions to bringing together service providers and business groups to help identify gaps, encourage collaboration and be a centralized information source.
Changing the conversation about how to encourage local economic growth starts with an appreciation for the new drivers of this growth, thinking fresh about economic development, and leveraging existing capacities to support the entrepreneurial eco system.
The Latest in Economic Development – 4.26.2012
This week’s blog highlights the implications of an export-oriented US, explores the oft-ignored US service export sector, explains the implications of the SBA’s definition of “small business,” clarifies realistic expectations for microfinance, and links to a McKinsey report on factors contributing to trends in employment. Comment below or send to common@nlc.org.
Get the last edition of “The Latest in Economic Development” here.
If we are indeed headed for an export-oriented economy here in the US, what does that mean, and what will it look like? Tyler Cowen, of The Great Stagnation fame, is fairly optimistic about America’s future, but it’s not all daffodils and lollipops. He says there are three factors that, when combined, have the potential to make the US an “export powerhouse”: our expertise in artificial intelligence and computing, possession of traditional and renewable energy sources, and increasing demand from developing countries. Cowen states “the closer other nations come to our economic level, the more they will want to buy our stuff.” So there’s reason to be cheery, but Cowen also notes that the “new export-based prosperity may not translate into higher wages for everyone, or even most people, in the United States.” This isn’t much of a surprise, as we have seen declining wages and jobs in manufacturing over the last decade due to increased foreign competition and highly productive, machine-based production processes. (The American Interest)
When we talk about increasing exports, we usually think of putting tangible stuff on container ships and sending it across the pond, but since we have a primarily service-based economy, is the manufacturing focus wrong? Catherine Rampell, writing in the New York Times, mentions that “America already exports more services than any other country in the world… up 10.1 percent from 2009, and up 136 percent since 1991.” And while US manufacturing firms get lots of support from Washington in trade disputes, there isn’t much attention paid to service trade barriers. There are many reasons for the lack of progress in reducing service trade restrictions, including mutual protectionism, strict immigration policies, and interestingly enough, the United States’ federalist nature.
With small business tax cuts on the House agenda this week, it is instructive to define which small businesses will be helped by the impending legislation. As NPR’s Tamara Keith reports, the typical mom-and-pop store we think of when small business is mentioned is not exactly the type of small business that will be helped by the bill, mostly because of the generous definition “small business” receives by federal agencies. According to the Small Business Administration, a small business has less than 500 employees, which is around 99.9% of American businesses. So the tax cut may be targeted at job creating “small businesses,” but the majority of the benefits of the tax cut would go to larger companies at the high end of the distribution. (NPR)
Can microfinance spur entrepreneurial growth, or is it a temporary means to an end? With the emergence of alternative funding mechanisms for ambitious entrepreneurial ventures and small family businesses alike, it is useful to take a realistic approach to the virtues of some of these mechanisms, particularly microfinance. While some think that microfinance can be used to jumpstart the growth of small businesses that can evolve into large profitable operations, they are mostly used by “necessity entrepreneurs” who are sole proprietors because they have to be. Carlos Moreno, who is interviewed in the article, points out that “most people just want a job.” In distressed areas, where job prospects are dim, microfinance acts like a credit card, smoothing consumption and cash flow problems. (Reuters)
The McKinsey Global Institute recently released a report outlining “five trends that are influencing employment levels and shaping how work is done and jobs are created.” The five trends are: 1) Technology and the changing nature of work; 2) Skill mismatches; 3) Geographic mismatches; 4) Untapped Talent; and 5) Disparity in income growth.
McKinsey goes on to outline three options for policy makers to address these challenges:
- Enable growth in aggregate demand
- Make raising worker skills a national priority
- Unlock business-creating investment and innovation
Get the full report here.
