From Foresight, Vol. 11, No. 2
published 2004
Rural America is on a bold quest for a new economy in the 21st century. Although no stranger to economic change, rural regions throughout the nation have been pushed onto a new economic frontier by powerful forces. Productivity gains in traditional rural industries, including agriculture and manufacturing, have been one push for change. But the bigger force has been the world market. Relentless competition in the commodity markets that have long been the bread and butter of rural economies has led to widespread consolidation in agriculture, manufacturing and mining. The result has been more and more rural communities wondering how to build a new economic engine.
Thankfully, the same march of technology that is redrawing industries is also opening new rural opportunities. Pharmaceutical crops, precision products from advanced manufacturing, and freshly branded regional products marketed via the Internet are three of many markets that simply did not exist a few short years ago.
The push of new economic forces has resulted in a highly uneven rural economy today. Roughly six of every 10 rural areas are lagging behind the national economy in terms of adding new jobs. The nation’s vast heartland stands out as a region that is looking for new economic engines, though lagging rural regions can be found in many other pockets of the nation. It is no coincidence that lagging rural areas often are heavily dependent on agriculture and manufacturing, industries that have undergone rapid consolidation. Conversely, regions with significant scenic amenities, such as the Intermountain West and the North Woods lakes regions, appear to have a built-in strategy for growth.
How can rural regions tap into the power of the new economy? While technologies offer good reasons to be bullish, the new frontier will require a different map to guide economic development decisions. The new map features three new strategies for rural economic development: thinking and acting regionally; finding a new economic niche for a region; and putting a premium on entrepreneurs.
Map: Rural Employment Growth 1990-2000
Probably no single strategy has become more important to rural regions than thinking and acting regionally. Economic strategies are becoming more regional in scope as the realization deepens that regions are where the impacts of globalization are felt. Economists refer to this as the new economic geography, but the evidence is widely seen in budding efforts to think regionally.
Last year, nearly 20 new rural “regions” contacted our Center seeking help on new development efforts. These groups ranged in size from four to 20 counties. Representing every corner of the nation and yet very different cultures and economic assets, the regions had two things in common: They had concluded that they needed a new economic engine, and, communities within each region realized they could no longer have a “one water tower” development strategy. Despite the lively competition among communities that has long been a hallmark of the rural economic landscape, communities now understand they no longer have enough “water in the tower” to go it alone in the worldwide marketplace.
In scores of cases, regional thinking is driven by the realization that competing successfully in worldwide markets requires a critical mass that towns or counties can no longer muster on their own. Thinking regionally is, in fact, the transcending answer to the question of how regions reinvent their economies.
Finding a world-class niche is the next step in reinventing the economy of a rural region. A niche approach to regional economic development flies in the face of existing practice in many corners of the nation. Copycat development has been widespread, driven by the longstanding view that industrial recruitment can succeed at the expense of one’s neighbor.
But every region in America, rural or urban, must figure out its unique source of competitive advantage. That niche will be defined by pairing a region’s distinct economic assets with an insightful analysis of new market opportunities. The region’s competitiveness strategy then becomes the path from assets to opportunity.
For most rural regions, the competitiveness strategy will include exporting something beyond the region. Because few if any regions have the size and balance to be self-sufficient and simply sell things among their residents, it is especially crucial for rural regions to be able to sell products or services to other places, in the U.S. or beyond. To be sure, some rural regions will still focus on traditional natural resource-based products, such as agricultural commodities, timber, minerals, or energy, and others will stay focused on industrial commodities. But the fact remains that fewer and fewer rural regions will be successful in an overall commodity approach, simply due to the unyielding forces of consolidation at work in these sectors.
New economic niches to explore include industries such as product agriculture, advanced manufacturing and professional services. These and other new economic engines will be driven mainly by technology and knowledge, underscoring the importance of higher education in implementing new strategies.
Many regions will pursue more than one niche, but in most cases the new economic menu is not long. Being of world-class quality is a demanding challenge, and few regions will be able to succeed in several niches at once. At most, regions may discover a few niches that may suit their distinct economic assets.
In economic development, as in baseball, it often is easy to go after home run hitters. But buying free agents is an expensive strategy, and the strategy pays off most in the biggest markets – the Yankees syndrome. Smaller markets, like Kansas City, are finding new success in growing the “farm system,” an approach that can pay off but takes a lot more patience.
In economic development, industrial recruitment is the free agent model. It remains the most pervasive economic development strategy in America. More and more regions, however, are beginning to recognize its shortcomings. In an increasingly worldwide market, where costs are compared not between parts of the nation but between parts of the globe, industrial recruitment has become both high-cost and high-risk.
In 2003, Maytag closed its refrigerator plant in Galesburg, Illinois. The Quad City Times put this headline above its lead editorial the following Sunday: “Maytag Delivers Costly Lesson.” The lesson was costly because the region gave Maytag sizable financial incentives a few years earlier to keep the company in Galesburg. The editorial urged the region to “aim higher in its economic development strategy,” with a clearer focus on local companies, local jobs, and local wealth. Many other regions are reaching similar conclusions, although the inertia behind existing recruitment strategies remains powerful and persistent.
Especially in rural regions, the future lies in growing more entrepreneurs – particularly those who can start high-growth businesses that create jobs and wealth. Such businesses will be the real key to growing new economic engines. The good news is that rural areas appear to be much more likely to spawn small businesses than are metro areas (Figure 1). The bad news is that rural areas are much less successful in turning a business start into a high-growth business, the kind that produces lots of new jobs (Figure 2).
Figure 1: Percent of Labor Force Employed in Small Firms, 2001
Figure 2: High-Growth Company Index, 1991-1997
As in farm club baseball teams, rural entrepreneurs need great coaches in order to grow. Rural entrepreneurs often have one strong skill but need help rounding out the competencies that make businesses successful. In many cases, the coaches needed to mentor rural business owners and move them into the major leagues are missing.
Thus, rural regions actually face two big challenges as they reinvent their regional economies. The first is deciding to give up on industrial recruiting and move more resources to supporting entrepreneurs in the region. That is not an easy switch, since growing the farm system takes patience. The second is beefing up the region’s business coaching ranks, an issue that places new demands on public and private institutions.
Put simply, rural America can no longer build its economic future on cheap labor, land, and taxes. It must put a premium on the entrepreneurs that can harness the power of innovation and technology and, in the process, transform rural regions into major league teams in the knowledge-based economy.
To succeed, communities must think and act regionally to assemble the critical mass that worldwide markets now demand. Every region must also select an economic niche that leverages its distinct assets to capture new opportunity. There is no longer one economic tide to lift all rural regions; the future belongs to regions that have a world-class strategy and execute it with distinction. Finally, regions must find ways to support a new generation of entrepreneurs. Locally grown companies – the ones that create local jobs and grow local wealth – offer much more economic return than the “big game hunting” of industrial recruitment, a hunt that has become far more expensive and far less rewarding than in the past.
The world market has put rural America on a quest for new economic engines. Fortunately, technology is opening the door to new opportunities at exactly the same time, and the economic promise is great. Harnessing that promise, however, requires rural communities to think very differently about their economic development strategies.
Reprinted with permission from Economic Development America, Summer 2004.