Bacon's Rebellion

Democracy Thrives in Sunlight

A Surprising Source of Resilience in SW, Southside Virginia

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by

James A. Bacon
in ,

start-ups

Back on the subject of entrepreneurship and business start-ups in Virginia… The Virginia Performs website provides a useful overview of data that describes the climate for business growth in the state. With the caveat that the data is subject to reporting lags, hence a little of out date, the picture is a modestly favorable one. The Old Dominion excels in the percentage of technology firms and the percentage of fast-growth firms, and fares in line with national averages for patents per capita, venture capital, business start-ups and university spin-offs.

Perhaps the most surprising finding emerges from the regional breakdown of business start-ups per 10,000 population broken down by region, as seen in the chart above. After years of lagging statewide averages, Southside Virginia has come on strong in recent years, surpassing even Northern Virginia in 2012. Southwest Virginia has out-performed the state average in several recent years, although it dipped in 2012.

With the perception of “Virginiagal2,” who has been touting the entrepreneurial potential for areas outside Virginia’s urban crescent in the comments section of this blog, not many observers would have predicted this trend. Of course, one must be careful with the data. We don’t know, for instance, what proportion of these new businesses are comprised of home-based businesses and micro-businesses with limited growth prospects, and what number might have fast-growth potential. Regardless, the rate of business formation suggests a hidden resilience in the Southside and Southwest Virginia economies that may keep those regions economically afloat in the face of labor-market economies that favor the major metros.

— JAB

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17 responses to “A Surprising Source of Resilience in SW, Southside Virginia”

  1. larryg Avatar
    larryg

    I had to go back a ways in this prolific blog engorged further with the Bob Maureen Saga but I found it:

    The One Graph that Answers the Central Economic Issues of Our Time

    https://www.baconsrebellion.com/2014/08/the-one-graph-that-answers-the-central-economic-issues-of-our-time.html

    excerpt:

    ” If you want to understand the intertwined phenomena of lackluster economic growth, persistent unemployment, stagnant wages and the income gap, I present to you the Rosetta Stone, a graph that explains all. It comes from a new paper written by Ian Hathaway and Robert Litan and published by the Brookings Institution: “The Other Aging of America: The Increasing Dominance of Older Firms.” The graph charts the long-term decline in entrepreneurship, as measured by firm formation, in the American economy. Firm formation traditionally has been one of the great strengths of the American economy but as can be seen above, the spread between firm creation and firm death has been narrowing since 1978 when the data series originated. Then in the mid-2000s, the two lines crossed. In the Great Recession and its aftermath, more firms expired than were born.

    A decline in business formation is directly responsible for the weakness of the job market. The weakness of the job market is directly responsible for wage stagnation. And wage stagnation, which affects the 99% who depend upon wages/salaries for the livelihood far more than it does the 1% whose income comes from returns on capital, is directly responsible for the increasing income gap.”

    so how come these two posts seem to be in conflict? or am I mucking up the understanding?

    oh by the way – I’m not in opposition to what Virginiagal2 is claiming but concerned that of all the economic development strategies we can engage in – especially for the areas of the state that are challenged.. is an education system that is more like Massachusetts (1) than Mississippi (46) and that in addition to a better performing K-12 that in rural areas with weaker economic performance – we increase the presence of Community Colleges and encourage dual-enrollment with a guaranteed path to years 3 and 4 in our state 4 year institutions OR significant Career/Tech certificate programs for those not bound for college .

    I think simply that every kid from RoVa that gets a decent job is the best economic development – result – we could have because that’s one more taxpayer and one less person – in his family – getting entitlements – and it breaks the cycle of Mom/Dad losing their defunct factory job and marooned where they live – and needing entitlements to survive.

    I’d rather see NoVa taxes INVEST in the kids escaping doomed economic geography than – continue the generational dependence on entitlements.

    I LIKE New Yorks tax-free start-up zones but suspect existing businesses won’t care for it unless the start-ups complement rather that directly compete.

    but I simply believe the best economic development is a better education system that graduates more kids – and the ones that graduate actually do qualify for an available/needed job.

    and I’m not opposed to the private sector being involved in this – but they must meet performance standards if state or local money is involved. We’re not going to do what the govt does with the GI bills .. that allows GIs to be cheated out of their benefits by predatory for-profit business that do not deliver a marketable education.

    1. virginiagal2 Avatar
      virginiagal2

      Hi Larry –

      At a guess, it would be because, if I read it right, the Brookings numbers excludes companies that don’t have employees.

      So, if I understand it correctly, say you have a small startup, set it up as an LLC, have 5 co-founders who are all members of the LLC, say three programmers, a sysadmin/security person, maybe someone to do management and help with marketing. They go in together, all with ownership interest, and are paying the co-owners out of any profits without hiring non-owner employees. No employees, but five people working on it.

      For this report, per Brookings, they don’t count. Given that programmers are often expensive, it’s not exactly unknown for them to be paid in equity rather than being actual employees.

      Contractors also aren’t employees. For anything you don’t need a full time person to do, it’s often a good idea to hire a contractor at first.

      Brookings also commented that they applied their own formula to the census data, but I haven’t seen the formula so I don’t know offhand what else might get excluded.

      My guess is a lot of nascent startups got left out of the count that way, and I’m wondering if part of the reported slump is an effect of the formula and the exclusion of non-employee startups.

      In fairness to Brookings, non-employer startups also includes companies that are essentially hobbies or that are real self-employed jobs, but never intend to get employees. The latter might be companies that are, essentially, a one person shop – contract programmer, freelancers, artisans, that sort of thing. I think the ability to do that is a good thing, and it provides a job, but it’s a different economic dynamic than an employer of others.

      Finally, of course, a contrarian finding is more likely to make news, rather than something saying, wow, there’s a lot of small owner-only startups. Cynical thought, but I had it.

      1. larryg Avatar
        larryg

        thanks for the explanation and what it seems to say is that these studies are judging business formation using 20th century business configurations instead of recognizing the evolution.

        worse – they, as you point out, tend to synthesize data and not infrequently not only not disclose what they did but their results tend to serve their philosophical beliefs – often end up becoming “cites” for partisan political purposes.

        such studies also tend to encourage the “believers” to jump to cause and effect conclusions which are – as you see in this case – 180 degrees contradictory.

        No surprisingly – these organizations also seem to have views on what govt should be doing or not doing, regulation, and .. surprise, surprise – how to go about economic development – even though they clearly are incapable of competently documenting the current business environment with regard to start-up formation, business failures, and business longevity.

    2. virginiagal2 Avatar
      virginiagal2

      Hi Larry –

      I actually agree with you about getting better education for kids. Where I disagree is on what to emphasize and how to emphasize it.

      If I had to summarize, I’d say what I want to see is a bit more breadth, including programming, statistics, probability, biology and genetics, physics, electronics for more kids – more lab work and practical use of math and science for real problems, which BTW helps both with word problems and real life use of knowledge – an emphasis on reading for enjoyment and reading to learn about current events to set the stage for better reading fluency and comprehension.

      I really don’t worry about things like linear algebra and diff eq in high school. I’m all for both in college, but even a math major can do perfectly well waiting to take linear algebra and differential equations in college.

      I like the idea of kids taking AP, if it’s done well – it isn’t always, and rote memorization is not a helpful learning technique. Teaching to the test is the worst. I think there’s much benefit in getting exposed to a higher level of material – even if they don’t pass the AP test. Schools that let kids stretch and are willing to challenge kids whose parents didn’t go to college are going to have lower AP pass rates. To me, that’s okay, not a sign of the apocalypse.

      I also would like to see more use of blended MOOCs and online resources to allow kids to take college level work in high school, so gifted kids in rural schools can stretch and have options that aren’t available in the local HS curriculum. I’d like to see more individualized curricula in general.

      No disagreement re community college and no disagreement re technical training availability.

      I do think that greater availability of high speed Internet to the whole state is vital to optimize economic growth. It enables free and low-cost continuing education, it lets local public schools enrich their curriculum, it’s a platform to start a business, and it’s a platform for businesses to thrive. It’s the equivalent of interstates for this century.

      1. larryg Avatar
        larryg

        They need core academics not “breadth” in K-5. “Breadth” is causing huge harm because it’s making core academics compete with it – and we have kids who are failing SOLs in the 5th grade – and basically doomed from then on because everything in MS/HS is layered on top of core academics.

        we have too many kids going to MS and HS that do not have the basics and have no real hope of learning things that are based on foundational academics.

        Once they HAVE robust academics – they can widen out to whatever they want to – and then re-focus but with crippled academics.. they’re screwed – and so are we -because we’re going to pay for their entitlements or incarceration .. not only for them – for their kids..

        but if you do not have those core academics, you are screwed and we see it in AP which has a 50-75% failure rate in a lot of schools and we see it in the graduation rates and a serious lack of a real career and tech learning paths for kids who are not bound for college.

        As a society – we are most concerned with what our own needs are – while not being very concerned with what society’s needs are in terms of kids growing up to become gainfully employed taxpayers who do not need entitlements.

        I think the “mile wide” curricula is an indication of that – and it instrumental in our failures. core academics should be the focus and if there is anything left over, let kids pursue it outside of the core academic time – not taking away from it.

        Kids who grow up knowing history and social science but not how to solve a simple real-world math problem are not going to do well in the 21st century employment world.

        1. virginiagal2 Avatar
          virginiagal2

          I wasn’t talking about K-5 – for K-5, you need to set a foundation – which should include reading for pleasure, learning basic math concepts, and understanding, at a kids level, what math is for.

          Reading should not be turned into the academic equivalent of eating your spinach. Neither should math.

          I don’t actually think that AP pass rates are the be all and end all. One way to get your AP pass rate up is to have a lot of kids whose parents have advanced degrees.

          If you are teaching kids from less educated backgrounds, more of your kids won’t pass. But getting them to take the courses is a good thing and they learn. IMHO the motivation should be to teach kids things, not maximize the pass rate.

          For real world jobs, you use probability and statistics in more math-literate jobs than you do linear algebra. It’s an important concept and it’s actually part of Common Core.

          A kid who’s exposed – doesn’t even have to mean a full semester, but exposed – to physics and electronics has a chance of becoming an engineer, if that takes their interest. Otherwise, you’re narrowing what a kid may choose to become, because they don’t know it exists.

          Biology, and molecular genetics, is a huge part of our economy, and that’s growing rapidly – again, kids need some exposure to this – to know it exists.

          Programming – at a very elementary level – can be integrated into other topics, particularly math and science – and learning a little about it can help you pick a career and get a job. Not just in programming – lots of jobs.

          In twelve years, covering these topics isn’t a mile wide and an inch deep. Kids already take science classes to graduate. From what I understand, the math I mentioned is in the standards already.

  2. larryg Avatar
    larryg

    when I say “doomed geography” – I simply mean areas where the textile and furniture factories and coal mines are in serious decline – that puts people out of work and onto entitlements – and an environment where their kids have no realistic economic future.

    It does not mean that these areas cannot regenerate with other industry – but right now, it’s hard to see how that happens as employers basically want to locate where there are large pools of well-educated young folks – not isolate themselves somewhere where the workforce is aging and even the younger generation is not well educated.

    We get highly educated, well qualified teachers in Spotsylvania – regularly from West Va and the economically depressed areas of Pennsylvania.. why not from SW Va? We are desperate for trained EMA and Fire Service entry level personnel. Why not professionally qualified kids from SW Va?

    1. virginiagal2 Avatar
      virginiagal2

      Hi Larry –

      What I’m talking about is more people starting businesses in RoVA places where they want to live – not so much enticing established businesses to move.

      BTW, for SW VA, a lot of the economic change has not been about coal but rather things like the mergers and loss of headquarters of various companies and industries (ex Norfolk and Western, Colonial American National Bank) and the move away from family farms. I think things like that almost certainly affected Southside Virginia as well- thinking of Leggetts.

      What I’m seeing now are startups in hometowns or where founders went to school. For RoVA, I’ve noticed this most around or near a university, which has the happy side effect of being near plenty of well-educated young folks (and older folks). That includes Charlottesville, Blacksburg, Harrisonburg, Roanoke, etc.

      That proximity to a university means better shopping, more interesting things to do, greater variety of restaurants, and a chance for continuing education.

      1. larryg Avatar
        larryg

        Virginia gal –

        what is the predominate industry in RoVa now?

        If you went to the 10 largest places in Sw Va and looked for each one of them the 10 largest employers – what would you see once you subtracted the local, state and Fed jobs?

        It used to be textiles, furniture, coal , etc.. you could travel around SW Va and that would be a common theme.. Roanoke has always been a rail transport hub even before I-81 and probably will remain that way.

        If a kid lives in a place in SW Va with a 20% unemployment rate – what strategy would you use – to get him/her a job when they graduated?

        My view is that he/she has to move – to go where the jobs are but if they have a sub-standard education – they’re going to be competing against kids in NoVa with far superior Fairfax County educations .

        how do we fix this? The only answer I see is more robust academics in SW Va and better access to more education resources so that when they leave to go were the jobs are – they can compete.

        1. virginiagal2 Avatar
          virginiagal2

          Hi Larry –
          I can’t speak to the entire rest of Virginia, but the largest employers for each city I mentioned are as follows, from Wikipedia and harrisonburghousing.com – I have left in government as well so you can see what shows up –

          Roanoke
          # Employer # of Employees
          1 Carilion Roanoke Memorial Hospital 1,000+
          2 Roanoke City Public Schools 1,000+
          3 City of Roanoke 1,000+
          4 Carilion Professional Service 1,000+
          5 United Parcel Service 500 to 999
          6 Healthmarc 500 to 999
          7 Walmart 500 to 999
          8 Virginia Western Community College 500 to 999
          9 Anthem Blue Cross Blue Shield 500 to 999
          10 United States Postal Service 500 to 999

          Blacksburg
          # Employer # of Employees
          1 Virginia Tech 14,688
          2 Virginia Tech Corporate Research Center 2,200
          3 Moog 1,168
          4 Montgomery Regional Hospital 537
          5 Federal-Mogul 330
          6 United Pet Group 240
          7 Wolverine Advanced Materials 175
          8 Luna Innovations 92
          9 NanoSonic 69
          10 VTLS 60

          Harrisonburg
          1 James Madison University
          2 The Rockingham Memorial Hospital
          3 Rockingham County School Board
          4 Cargill Meat Solutions
          5 Wal Mart
          6 R.R. Donnelley and Sons Company
          7 Harrisonburg City Public Schools
          8 Great Eastern Resort Management (Massanutten Resort)
          9 Merck & Company, Inc.
          10 Aramark Campus LLC (JMU Dining)

          Charlottesville
          # Employer # of Employees
          1 University of Virginia Medical Center 1,000+
          2 Martha Jefferson Hospital 1,000+
          3 City of Charlottesville 1,000+
          4 Charlottesville City School Board 500-999
          5 Aramark Campus 250-499
          6 SNL Financial LP (HQ) 250-499
          7 Rmc Events 250-499
          8 Fresh Fields Whole Food Market 250-499
          9 Pharmaceutical Research Association 250-499
          10 Kroger 250-499

          Actually, when I was growing up, the largest source of non-government employment in SW Va, by far, that I knew about was agriculture – family farms. I would guess after that would be Norfolk and Western before the merger.

          Today, none of these places have a 20% unemployment rate. Charlottesville is at 3.9%, Harrisonburg is at 4.7%, Roanoke is at 5.6%, Blacksburg is at 4.4%.

          Blacksburg isn’t exactly Grundy. Which, BTW, is currently at 9.9%, not 20%.

          1. larryg Avatar
            larryg

            how about this:

            http://vaperforms.virginia.gov/images/graphs/economy/UnemploymentRate-byRegion.png

            and true – not 20% for the entire region – you are correct.

            another one to try is GOOGLE: “employment by industry in south west virginia”

            you’re looking at particular areas that are good –

            I’m looking at the rural areas that surround them that are out of their commuting range.

            We can incubate/help these “good” areas to economically develop – but if we don’t have a native rural highly educated, highly skilled workforce:

            1. continued failure to improve employment of rural citizens

            2. continued entitlement burden to provide for those in RoVa who can’t find work because their education and skills are lacking.

            3. an influx of highly-skilled workers from out of state to fill areas that are economically expanding.

            I assert that the best thing for Virginia is – to better educate the folks who lack sufficient 21st century education and skills – and find work in Va OR – even go outside of Va – we are relieved of the entitlement burden.

            but if we don’t do that and we – instead attract outside workers – we need to ask ourselves what the original purpose of economic development policy – was/is ?

            if we still end up with significant rural regions inside of Va with more people than there are jobs.. what KIND of economic development should we be pursuing? One path is to attract more companies that want less educated, lower skilled , cheaper, workers – perhaps like the recent Volvo plant?

            I opine here that the best economic development for Virginia is a well-educated, highly-skilled native workforce and while we’ve sometimes had our eye on that ball – we seem to regularly forget what we want to do about economic development. It ought not to be just for NoVa and the “good” “pods” that have alluded to. In fact, in that becomes our focus – we still are rotting from inside. We’ll still have an increased entitlement burden.

            Every working person – whether they get a W2 or a 1099misc independent contractor statement – should pay attention to the state tax withheld – because a good portion of it – goes to provide entitlements .. MedicAid is second only to education..

            Out of a 17 billion budget – we spend 17 billion for education and 13 billion for entitlements. All the other things in the budget (not counting Transportation which comes from earmarked taxes) barely equal what we pay for entitlements.

          2. virginiagal2 Avatar
            virginiagal2

            Hi Larry –

            Employment by Industry in Southwest Virginia brings up an article from VEC about the far western part of SW Va. The area discussed is less than half of what I have usually heard described as Southwest Virginia, excludes most of the population centers, and includes all of the 4 counties in Virginia that, per Tech, do any notable amount of coal mining.

            The entire population discussed in that article is just over 200,000. Southwest Virginia as I’m used to hearing it defined includes Roanoke and Blacksburg, and has a population of over a million.

            Which regional definition you use does make a huge difference. Otherwise we’re not talking about the same thing.

            In skimming the article, I noticed it looks only at employers – as I keep trying to get across, historically, most workers in rural Virginia have been farmers, not people working for other employers.

            You cannot understand what is going on here unless you understand the impact of changes in the farming industry. You have to allow for many people in rural areas who work, because farming is work, but do not work for an employer.

            Yes, I am looking at particular areas that are good, because I was talking about those particular areas.

            The interesting thing is, if you take a map of Virginia, and mark it up for all official metropolitan areas, then add in the “micropolitan” areas, and then add in places like King George that are not in a MSA but can easily commute, you mark up most of the state.

            Strengthening Virginia’s smaller cities and large towns would have a huge ripple effect across a large area of the state. Each of those smaller cities and towns – think Roanoke, Salem, Charlottesville, Blacksburg, Waynesboro, Staunton, Bristol, Lynchburg, Winchester, Danville, Martinsville, even Bluefield and Lexington and Farmville – has people that commute distances in to work or to buy and sell things. Each of those cities and towns radiates out economic benefits when they do well.

            When you look beyond those commuting areas, what is left are basically a scattering of rural counties – some in far SW Va, a strip along the WVA border from Alleghany to Highland, a couple on the Eastern Shore, some across the bay from there, and a group in Southside Virginia.

            Most are very lightly populated, and what’s going on with each of them varies significantly. There isn’t “one rural county” profile – even at a quick look, each one has different issues and strengths. Some have surprisingly good schools – not top ranked, but fully accredited – showing a good use of resources given the very small size of some of these counties.

            About the only universal presciption I could possibly make for all of them is that good access to broadband is pretty much always helpful, in particular with developing local industry and with making additional education more affordable and accessible via distance education.

            Development efforts in many of these rural counties appear to currently center on tourism, art and artisan creative work, and agriculture, including looking at specialty and niche agricultural markets and agri-tourism. Agriculture can be economically important even for people who are not solely farming – in rural areas, it’s not rare for people to farm in addition to a regular job, in order to keep income at an adequate level. It’s also not rare for people to grow a significant portion of their own food.

            FYI, the number – not the percentage, but the number – of students you’re worrying about in these rural areas is probably far smaller than the number of students affected by poor quality urban schools.

            The issue to me is not about entitlement burdens – because in absolute numbers rather than percentages, the entitlement burden is not all that large – but rather that this part of the state is not being well-served to allow it to thrive economically.

            I don’t think a Volvo plant makes sense or would be feasible for a rural county like Highland with a total population a little over 2,000. Supporting their farming and tourism efforts, to me, makes far more sense. What would be most helpful requires looking at each individual situation.

          3. larryg Avatar
            larryg

            Virginiagal2 – you talk long and hard – with excellent effect! thank you!

            and I agree with you with respect to the comparison between rural and urban schools with some caveats that you can know about if you read this:

            http://www.propublica.org/article/opportunity-gap-schools-data

            I’d be curious to see if you think smaller district rural schools have less equity (resource) issues than big urban/suburban schools with a range of different kinds of neighborhoods with some schools in economically disadvantaged areas and others schools in upscale neighborhoods.

  3. TooManyTaxes Avatar
    TooManyTaxes

    Access to reliable, fast broadband is important to rural and more isolated areas. Couple this with some decent education, and lots of possibilities (customer service, clerical support, etc.) become possible. On-shore off-shoring can keep a community alive.

    1. larryg Avatar
      larryg

      TMT is dead on correct in my opinionated view!

      better educations IS economic development.

      Virginia ranks 11th and Massachusetts first.

      Massachusetts ranks high in PISA – in the top 5.

      Fairfax and a few other schools also rank up there with Massachusetts.

      that sounds good – until you realize that after you add in RoVa to the Fairfax scores – we end up not next to Massachusetts but in 11th.

      If you rated RoVa (and excluded NoVa and the other better schools) – Virginia would probably rank nearer to Mississippi and other Red rural southern states.

      RoVa is Virginia’s Achilles heel in our economy. If NoVa and Hampton lose ground from less military spending – it’s going to increase the negative effect of RoVa – with even harsher job penalties for prospective job seekers in RoVa.

      In other words – we could see a tipping point.. when Virginia not only degrades – it plummets…

      It’s imperative, again in my opinionated view, that we ramp up our education efforts – but especially so with the schools in Virginia – about a third of them now – failing to achieve minimal accreditation status.

      http://www.washingtonpost.com/local/education/one-third-of-virginias-schools-could-lack-full-accreditation-as-standards-toughen/2014/08/14/d3480746-23d3-11e4-86ca-6f03cbd15c1a_story.html

      1. virginiagal2 Avatar
        virginiagal2

        I agree that better education is extremely valuable for economic development.

        I’m not so concerned about rankings as I am about whether we are doing well or not. If we’re 11th and doing well, that’s great – if we’re 11th and not doing well, that’s bad. I really don’t see the importance of the ranking. Educating kids is not a competitive sport.

        It’s like the PISA rankings – some of our biggest competitors are below us, not above us – and some countries like China and India only list particular cities, which would be like us only listing Fairfax and Cambridge and New Haven. Rankings make an interesting article, but interpreting the meaning isn’t as simple as “higher means they will out-compete lower countries.”

        The article you quote notes that the standards were raised, and more schools won’t meet the new higher standards. That’s one of those, no kidding, type of news articles.

        The schools not meeting the higher standards are not just rural schools. Some very remote rural areas have schools that are fully accredited. Some urban areas, particularly in urban cores with poverty, have schools with serious problems.

        Thus, I’m not sure why this fixation on remote rural schools as the issue with our rankings, particularly as they tend to have very small numbers of students. A number of schools in RoVA are quite good, and at least some of the very remote counties have schools that are fully accredited.

        I haven’t checked all of them yet, but if I can make time, I’ll take a look at which schools have failed to get accredited.

  4. larryg Avatar
    larryg

    oops:

    “Out of a 47 billion (not 17) budget – we spend 17 billion for education and 13 billion for entitlements. All the other things in the budget COMBINED (not counting Transportation which comes from earmarked taxes) barely equal what we pay for entitlements.

    in other words if we subtract education and transportation – we spend as much on entitlements as the rest of govt.

    and if you INCLUDE the prisons – we spend MORE on entitlements and prisons than we do on government.

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