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Recent
articles in Bacon’s Rebellion continue to
point out the economic challenges to rural Virginia
and the need to rethink economic development
strategies. A
dominant theme is that rural communities need to rely
more on developing their own local resources for
economic growth and less on efforts to recruit
out-of-state branch plants.
This
theme is also the subject of a research brief from
the National Governors’ Association on rural
economic development: “States employing economic
development strategies that rely principally on
growing regional assets rather than on attracting
outside investment have been more successful in
creating dynamic rural economies.” Even a key economic development official in
Far Southwest Virginia
was recently quoted as saying, “No More Buffalo
Hunting.”
Far
Southwest Virginia, here defined as the region west of
Interstate 77, has its share of
economic challenges: from job losses in apparel and
furniture industries to the slow decline of the
region’s coal mining industry. Of course, no one
would suggest that recruiting plant
relocations is not an important economic development
strategy for rural Virginia. In
fact, Timothy Bartik in Who Benefits from State
and Local Economic Development Policies? demonstrates
that certain recruitment strategies make sense in
high-unemployment areas. Indeed,
call centers and other new investment announcements
have been welcome news in the region -- albeit, some
question the permanence and quality of these
recruited jobs.
However,
recruitment need not be an exclusive strategy. Virginia
communities need to do more to support existing
businesses, stimulate entrepreneurship and educate
a workforce -- preferably informed by awareness of
the region's most globally competitive industry
clusters.
There
are many reasons to make existing industry a base of
economic development in Far
Southwest Virginia. Statistics show that
between 60 percent and 70 percent of all new jobs
are created by start-ups, small businesses and
existing business expansions in the community. One
might then argue that 60 percent to 70 percent of
all economic development money should be spent on
existing industry support and development. It should
be noted that Gov. Mark R. Warner recently announced
a stepped-up business outreach program for existing
businesses in the Commonwealth through the Virginia
Department of Business Assistance.
Jobs
created by existing industry are more often secure.
Some businesses have operated in the region for
generations and would prefer to stay in Far
Southwest Virginia. By contrast, if a company is
lured to Far Southwest, it seems logical they might
subsequently be lured elsewhere by other communities
offering more incentives. For example, when the
Southern states recruited textile firms, many of
which have since moved to Latin America and then to
Asia, from the Northern states, a sagacious economic
developer pointed out that the South was only
"renting" these firms.
An
argument also can be made that home-grown industries
contribute more to the tax base. Because many
recruited companies are branch locations, their
high-paying administrative and management positions
may be located at company headquarters outside the
region. Further, multi-plant locations can allow
greater use of transfer pricing to avoid local
taxes. Recruited plants also may prefer to use
existing suppliers rather than local businesses they
do not know. Finally, there is the issue of the
financial incentives often given to companies as an
enticement to move.
Michael
Porter points out in The Competitive Advantage of
Nations that increasing productivity is the only
way to boost region’s standard of living over a
sustained period. The
so-called "productivity paradigm" requires
existing industries to engage in relentless improvement and
innovation. Government could deploy resources that
encourage entrepreneurship, enhanced productivity,
and continuous skill development for competition in
a global economy.
The
importance of existing industry is not a new
concept. However, as Margaret Dewar points out in a
1998 article in Economic Development Quarterly,
"Why State and Local Economic Development
Programs Cause so Little Economic Development,"
politics often drives economic development programs.
An announcement that a new company is moving to the
region makes a bigger splash in the local newspaper
than local companies hiring new workers.
Furthermore, economic developers are typically
evaluated on the new firms they recruit to the
region.
The
need for immediate results and the publicity
associated with out-of-state corporate-expansion
announcements outweigh the longer term, but less showy, results
from expansions by entrepreneurs and existing
businesses.
As one local economic developer in Southside Virginia
told us, "I do not have that time if I want to
keep my job." He also noted that he would need to educate
his County
Board, the IDA Board and similar groups,
which, again, he
does not have the time to do.
Although
economic development professionals are fully
cognizant of its limitations, “buffalo
hunting” remains the dominant economic-development
strategy for much of Virginia. However,
while communities have not shifted their economic
development priorities appreciably, some do seem
willing to consider other approaches.
We
would like to see Far Southwest Virginia devote more
effort to developing its strengths and using
industrial recruitment selectively. While infrastructure projects as E-58 and the
Coalfields Expressway are very important, we must
continue to focus on developing the human and social
capital that are so essential for us to remain
competitive in the new economy.
The
region may not have the critical mass of “creative
class” researchers and techies envisioned by
Richard Florida in The
Rise of the Creative Class. (Actually,
most folks here wouldn’t want to be the next Boston
or San
Francisco!) However, it does have a creative
“can do” spirit along with an active partnership
between higher education and existing industry.
The
Southwest
Higher
Education
Center
in Abingdon is actively involved in delivering
business support services for new and existing
industry, including e-commerce web development,
agribusiness promotion, and international business
assistance. Virginia
Tech, a Land Grant university, also offers graduate
degree programs in business, education, and
engineering at the Higher
Education
Center.
A
productivity- and innovation-driven approach to economic development
would focus on
industry clusters. For example, Harvard’s Institute for
Strategy and Competitiveness’s Cluster Mapping
project has identified a number of competitive
clusters for the Johnson
City-Kingsport-Bristol, TN-VA metropolitan area
including chemical products, automotive, and motor-driven products. The Appalachian Regional
Commission’s Export Trade Advisory Council, of
which the writers are members, also is finalizing a
new cluster analysis study for existing industry
development in Appalachia.
Recruitment
could be used to strengthen existing clusters, the
members of which would interact with each other and
Virginia's higher education system to achieve higher
levels of productivity and innovation. The ultimate
aim would be to create a business and educational
environment that allows entrepreneurs and clusters
in Far
Southwest Virginia to thrive in the global economy.
-- September
25, 2003
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