Accelerate Success in Your Place with Economic Gardening
This article is part five in a new in-depth series we’re launching on the economic challenges facing resource-based communities, and strategies that can help build lasting prosperity. Read part four here. Part six will be published next week.
Image via Flickr.
Conventional economic development practice focuses on recruiting new businesses to relocate to the community. Like transplanting a tree out of its native habitat, sometimes the new business takes, but oftentimes it doesn’t, with the many variables for success not aligning in the new location. Even when it works, the expense to the community in direct payments and indirect subsidies—not to mention the cost in time and energy—can hardly be justified, based on the track record.
And when those subsidies end, there’s always another community ready to “do what it takes” to steal that fickle catch away. This is economic hunting, and it’s part of the resource trap mentality.
Economic gardening recognizes that the most stable and prosperous businesses are those that are homegrown. Generally, those enterprises start with solving a local problem with local resources. They are embedded in the community, relying on local services (accountants, lawyers, marketers, etc.) and local talent.
They put a float in the local parade. They sponsor a youth softball team. They have loyalty to the community and are inclined to stay, especially if their success is part of the community’s identity.
Economic gardening focuses on second stage companies, those that are in the best position to accelerate job creation.
Stage 1: Startups, sole proprietors, and non-scaleable local businesses.
Stage 2: Businesses with between 10 and 100 employees, generating $1 million to $50 million in annual revenue, with the potential to sell goods or services outside of the local community.
Stage 3: Fully mature business with more than 100 employees.
Almost 80% of companies are Stage 1 and will never grow beyond that, but Stage 2 companies already have. They have proof of concept, are reaching viable markets, and their management has passed the initial tests of competency. They are primed to grow.
Most economic development programs focus on Stage 1 or Stage 3 companies, but an economic gardening approach recognizes that Stage 2 companies create more jobs, more quickly, than either of the other two stages of business maturing. And these Stage 2 jobs tend to pay more and provide greater options for advancement than similar positions in other organizations.
Most importantly for resource-based communities looking to build wealth, Stage 2 businesses generally don’t need costly handouts, public subsidies, or expensive infrastructure investments. An economic gardening program provides these businesses with corporate-level tools on markets, trends, and marketing, along with a framework for handling common problems associated with growth, all affordable within a local program.
A successful economic gardening program not only accelerates job creation in Stage 2 companies, it brings outside capital into the community, providing more natural demand and support for Stage 1 enterprises. Economic gardening is a low risk, high reward approach.
A Necessary Mental Shift for Economic Gardening
Committing to an economic gardening strategy requires resource-focused communities to think differently about some things.
The best jobs are locally grown. We too often discount local job creation in favor of the business from outside of the community we attract to move in. The “grass is always greener” mentality places less value on the local job, even though it is generally more stable and a better fit for the local workforce than a new, transplanted job.
Flashy is not automatically better. Ribbon cuttings and grand openings are flashy and feel like progress while growing local businesses is a humbler, and often unnoticed, undertaking. Recruiting that one business with 50 new jobs is the same number of jobs as adding one new job to 50 local businesses. The former will garner attention while the latter builds community wealth.
Public subsidies for business attraction is a sign of failure. Just like successful people do not need to pay their friends to like them, successful communities do not need to subsidize businesses to choose their place over another. The best business attraction strategy is to become a place others want to be, starting where you are and improving over time. Public subsidies for business relocation feels like a shortcut, but it is a trap that needs to be avoided.
Economic development is about the public’s risk and reward. All economic development initiatives need to be measured in terms of the public’s downside risk and the realized gain. It is not enough to measure success in terms of jobs created or new tax base added without also accounting for the risk and liability assumed.
Image via Flickr.
Implementing an Economic Gardening Program
The National Center for Economic Gardening (www.economicgardening.org) is the premier organization to work with in establishing an economic gardening program. They have the knowledge, experience, training, and support services to help most communities build a successful program. Their approach is particularly effective when paired with the other strategies in this guide.
To prepare your community for an economic gardening program, start with the following:
Introduce the Idea to Key Officials. The people who need to vote on a program, allocate money to support it, and commit to the long-term strategy need to be brought into the conversation as early as possible. Ideally, the idea quickly becomes theirs.
Identify Partners and Key Supporters. To be successful, people working in economic development in both the public and private sectors will need to be partners and supporters of the approach. Briefing them, getting their input, and developing a shared vision is important for early momentum and long-term success.
Create an Economic Gardening Steering Committee. There needs to be a group of stakeholders dedicated to seeing a strategy through to initial launch and ongoing implementation. These people will become the local experts, so it’s important they are committed to the best interests of the community.
Identify Target Business Partners. Economic gardening programs are a voluntary gift of support to Stage 2 enterprises. To participate, the ownership of these enterprises will need to see the potential benefit of the program without experiencing a disproportionate amount of burden. Start identifying enterprises that are a good fit for the program and do initial outreach to understand their business, their competitors, and their areas of struggle.
Develop a Service Delivery Approach. Each economic gardening program will be different based on the needs of the participants and the resources of the program. Develop a delivery approach as well as a process for evaluating effectiveness and refining the approach over time.
Commit to Ongoing Communication, Transparency, and Fiscal Rigor. Economic hunting is all about the next big score, but economic gardening requires an ongoing, rigorous commitment to an approach. Communicating the strategy, being transparent about successes and failures, and holding the program to a high standard will build credibility and sustain support for the effort.
When to Use Public Subsidies for Business Creation
Handing out subsidies for business growth and relocation is a strategy encouraged by the high-flow economy. It’s not a wealth-building strategy, but it can create the illusion of wealth when a new business opens or changes locations. There is a lot of pressure in resource-based communities to appear “business friendly” by handing out subsidies. This rarely—rarely—works out well for the community in the long run.
Even so, there are instances where it makes sense to provide public subsidies to businesses. Those cases look a lot more like repairing damage or addressing past failures than welcoming something shiny and new.
For example, a strategic location that has some type of environmental contamination requiring remediation is a good candidate for tax subsidies. A significant historic building that requires extra care to restore instead of demolish is another. Tearing down a mistake, such as a building that should not have been built but hasn’t reached the end of its useful life, is a third example.
In each of these instances, the tax subsidy fixes a problem with an important site. So long as the terms of the deal are reasonable (e.g., nothing that would extend terms beyond a decade), this is not a bad use of public subsidy.
Public subsidies are generally not the best way to address blight, which requires a more systematic response. There is also rarely a compelling reason—and even less often, a financial benefit—to either expand public infrastructure or develop a greenfield site using subsidies.
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