Exploring Economic Development Opportunities for Rural Areas: It’s Not More of the Same Bo Beaulieu Southern Rural Development Center Mississippi State University CARET/AHS Southern Region Meeting August 8, 2005 Clemson University

Focus of this Session The changing face of the rural economy What are the options for capturing rural jobs? Is industrial attraction/recruitment the only game in town? Economic development strategies that make sense for rural areas Some concluding comments on the key opportunities for the South’s Land-Grant Universities

Reality Check ! The Changing Rural Economy

Type of Industries Classified by Each Sector Goods Producing Farm Agricultural Services Mining Manufacturing Construction Service Producing Transportation and Public Utilities Wholesale Trade Retail Trade Finance, Insurance and Real Estate Services Government and Government Enterprises

Employment Composition in the Nonmetro U.S., Source: Bureau of Economic Analysis, Regional Economic Information Systems

Defining metro-nonmetro Metropolitan area: a county or a group of counties having at least one central city of 50,000 or more inhabitants, or containing a census- bureau defined urbanized area of at least 50,000 residents with a total metro population of at least 100,000 Nonmetropolitan: everything else

Percent of Jobs Generated by Each Sector in the Nonmetro U.S., % 10.1%

Nonmetro Job Growth in the U.S. Between Net employment up by 127,753 jobs (full and part-time) The goods producing sector lost 375,869 jobs, most in the manufacturing sector The service producing sector created nearly 504,000 jobs Thus, over this period of time, virtually every net job gain in rural America was linked to the service producing sector

According to Michael Porter... “Not only is the performance of rural areas lagging, but the gap in performance levels between rural and urban areas seems to be widening.” Competitiveness in Rural U.S. Regions: Learning and Research Agenda, February 2004

Average Earnings Per Job in the Goods Producing Sector NM: 66.5% of Metro NM: 60.8% of Metro NM Metro

Average Earnings Per Job in the Service Producing Sector NM: 70.7% of Metro NM: 65% of Metro NM Metro

Why the Increasing Gap in Average Earnings? $21,1677,067,4175,164,340Services $15,4274,828,5133,959,799Retail Trade $35,1844,324,0574,206,182Manufacturing 2000 Ave. Earnings No. Employed 2000 No. Employed 1990 NM Industry Type 60% of employment growth in the nonmetro U.S. between was linked to the Retail Trade and Services industries

Source: Porter et al., February

Finding Work: An Increasing Headache for Rural Areas The Rural South as a Case in Point

Place of Work in the South of the Expanded Workforce over the Period MetropolitanNonmetropolitan Net new workers 4,807,4741,058,892 Work in county of residence 55.4 %20.6 % Work in state, outside county 42.0 %72.4 % Outside state2.6 %6.9 %

There’s A Need to Find New Ways to Build the Rural Economy

Old Habits are Hard to Break... Our nation continues with policies, organizational structures, and investment strategies built for a past era. Report of the Strengthening America’s Communities Advisory Committee, July 2005

Changing our Economic Development Orientation Source: Brian Dabson, RUPRI Recruitment/ Attraction Retention Entrepreneurship TODAY THE FUTURE

Keys to Rural Economic Development Success Building and strengthening regional capacity and competitiveness Promoting and harnessing innovation Expanding the knowledge economy Expanding e-commerce capacity Building the creative economy Fueling the engines of entrepreneurship

Building and Strengthening Regional Capacity and Competitiveness

Strengthening America’s Communities Report... In the 21 st century, America’s communities will derive economic strength by acting and partnering regionally to compete globally. To reach their full potential, communities must collaborate with other communities and with private and public partners.

Determining Regional Competitiveness Regions must determine their unique regional assets Figure out ways to strengthen and expand on these assets Work to remove barriers that facilitate multi-jurisdictional and inter- institutional regional cooperation

Source: Porter et al., February 2004

Important elements of regional success Regional partnerships involving: Private Public Philanthropic Higher education institutions Non-government organizations Bottom line... Multiple voices Source: Report of the Strengthening America’s Communities Advisory Committee, July 2005

Higher Education is at the Table... Source: Report of the Strengthening America’s Communities Advisory Committee, July 2005

2005 Report on the Future of the South  Calls for the establishment of Regional Prosperity Alliances  Key role of these alliances? Convene Plan Help fund Coordinate Measure progress (benchmarks, impacts)

Expanding the Knowledge Economy

Knowledge Economy in Rural America Knowledge powers the U.S. economy by generating new ideas and innovations that boost productivity and create new products Derives from people’s ability to combine education, experience and ingenuity to power growth Proxy measure is the number of people in occupations requiring high levels of knowledge to perform their tasks. Defined as management, professional and technical occupations Source: Henderson and Abraham, May 2005

What the data are saying Metro areas have a higher concentration of knowledge-based activities In 2000, knowledge-based jobs as percent of all jobs: Metro: 20.2% Nonmetro: 14.8% Source: Henderson and Abraham, May 2005

Expanding the Rural Knowledge Economy Create high quality workforce Tap the capabilities of higher education institutions Attract knowledge workers through scenic amenities Build 21 st century infrastructure Build partnerships Source: Henderson and Abraham, May 2005

Source: Rural Education at a Glance, Economic Research Service, November 2003

E-Commerce: A New Piece of the Economic Development Puzzle

Growing Importance of e-Commerce Online buying on the part of consumers nearly tripled over the 2001 to 2004 period (Digital Future Report 2004). Recent Census Bureau (2005) report revealed that e-commerce retail sales for the first quarter of 2005 were in excess of $19 billion, a 24 percent increase from that recorded the year earlier.

U.S. Retail E-commerce Sales,

e-Stats for 2003 Over 94 percent of all e-commerce activities are associated with B2B transactions Only 5.7 percent linked to B2C Over one-fifth of the value of manufacturing shipments in 2003 due to e-commerce ($843 billion) activities, a 12 percent expansion in just one year. E-commerce sales only 1.7 percent of all retail trade activities; barely 1 percent of selected service industry revenues

e-Commerce: Not a Downfall for Local Businesses "2005 Web2Store Benchmark Survey" found that for every dollar spent online, the average W2S shopper spends $1.60 offline at local stores. Among affluent shoppers, the disparity is even more acute, with W2S shoppers spending $1.98 offline at locals stores for every dollar spent online. Web-to-Store Consumers Spend, Shop More at Local, by Rob McGann, January 19, 2005;

Four Factors that Will Impact Use of E-Commerce in Rural Areas Do rural areas have the technological infrastructure in place? Do local governments understand the vital role that e-commerce can play for local firms? Do rural small businesses understand how e- commerce can improve their business and customer activities? Are resources and education support systems in place to help rural businesses?

Building the Creative Economy

Building a Creative Economy Richard Florida’s, Rise of the Creative Class, has been instrumental in alerting us to the importance of building creative communities and regions The focus is on workers who produce artistic or designer goods and services The intent is to nurture the arts, cultural, historical and other creative activities. Why? Attracts tourists Builds on local cultural/historical resources and amenities Serves as a magnet for other talented people and creative enterprises Source: Rosenfeld, March 2005

Fueling the Engines of Entrepreneurship

Developing Entrepreneurs A key determinant of a region’s economic vitality is the quantity and quality of its entrepreneurs Dynamic communities don’t focus only on attracting entrepreneurs – they develop them !! Must focus our energies on developing entrepreneurs. Source: The Entrepreneurial Development System, by G.A. Lichtenstein and T.S. Lyons, Economic Development Quarterly (February), 2001.

Firms with payrolls (in 2002) Nearly 65 percent of all firms in the U.S. employ less than 10 persons If you include firms with no employees, the figure exceeds 78% Source: Small Business Administration

Examining the Breadth of Entrepreneurship in Rural America Taps how extensive entrepreneurs are found in an area Good measure is ratio of self- employment to total employment in an area Results show that the breadth of entrepreneurs is widest in rural America This is less so in the South !!

The Breadth of Rural Entrepreneurship Source: Regional Asset Indicators, by Sarah Law, The Main Street Economist; Center for the Study of Rural America (September 2004)

The Depth of Rural America’s Entrepreneurship It examines the value of entrepreneurial activities rather than the number of entrepreneurs (as is the case with the measure of breadth) One measure is the ratio of self- employment income to the number of self-employed workers Average self-employment annual incomes are lower in rural areas; higher in metro areas

The Depth of Entrepreneurship Source: Regional Asset Indicators, by Sarah Law, The Main Street Economist; Center for the Study of Rural America (September 2004)

Nonfarm Proprietor Jobs and Income as a Percent of All Jobs and Income in Nonmetro Areas, Source: Goetz, 2005

Two Key Systems for Supporting Entrepreneurs (Lichtenstein and Lyons, 2001) Developing Entrepreneurs Scout: identifies and recruits entrepreneurs Diagnostician: assesses needs and skill levels of entrepreneurs Mentor/Coach: provides guidance on skills and performance improvements Team manager: helps build ties and coordination among a cluster of entrepreneurs Alliance broker: identifies market opportunities General manager: integrates these activities into a cohesive entrepreneurship system Providing Assistance Organize providers to avoid duplication of efforts Help providers identify their unique niche – what they can do better than other providers Determine which providers can serve particular needs of entrepreneurs That is, match assistance with the level that the entrepreneur is located

Lichtenstein and Lyons’ Entrepreneurship Ladder: Skill Levels LevelTechnicalManagerialEntrepreneurial Personal Maturity Majors Outstanding Triple A High Double A HighMedium Single A High or medium Low Rookie Limited

Four Dimensions of Entrepreneurial Skills Technical: can perform key operations of the business Managerial: ability to organize and manage the operations Entrepreneurial: ability to identify market opportunities and create solutions Personal Maturity: self-awareness, maturity, accountability, creative/emotional development Source: Lichtenstein and Lyons, 2001

Lichtenstein and Lyons’ Entrepreneurship Ladder: Skill Levels LevelTechnicalManagerialEntrepreneurial Personal Maturity Majors Outstanding Triple A High Double A HighMedium Single A High or medium Low Rookie Limited

Entrepreneurship Development Ladder: Assistance Needed (Lichtenstein and Lyons, 2001) LevelType of Assistance Providers Majors Venture capitalists, professional consulting practices, investment bankers Triple A Angel investors, emerging business consulting practices, university tech transfer offices Double A Manufacturing/Cooperative Extension programs, SBDCs, small specialized venture funds, high tech incubation programs Single A Micro-enterprise programs, SBDCs, business incubation programs, Cooperative Extension Service programs Rookie Micro-enterprise programs, youth entrepreneurship programs, Cooperative Extension Service programs

Where are rural areas on the entrepreneurship ladder? In most cases, rural areas place at the lower end of the entrepreneurship ladder (Double A, Single A, Rookies) Thus, developing and delivering entrepreneurship activities that best address the unique needs of rural people and communities are critical

Creating an Entrepreneurial Environment: Key Ingredients A Seamless Educational/Information System for Rural Entrepreneurs Access to Key Institutional Resources Networks that Support Entrepreneurs Entrepreneurial Friendly Communities Supportive Entrepreneurship Policies

Opportunities for The South’s Land-Grant Universities

Challenges are Greatest in the Rural South The recent “Strengthening America’s Communities” Report states: Federal economic and community development resources should be focused on communities/regions of greatest need The rural South is the “headliner” when it comes to the challenges facing its communities and people

The Rural South: LGU Rural/Economic Development Capacity is Critical Essential that we expand our energies and resources to build a strong rural/economic development presence in our LGUs. Why? Because... Rural residents represent 25% of the South’s population million persons Over 45% of our nation’s rural population are Southerners The health of the farm sector cannot be decoupled from the well-being of the rural South

Address Regional Competitiveness The “SAC” report notes that higher education must be a full partner in formulating and implementing regional competitiveness strategies LGUs in the South can: Generate the research needed to identify current and emerging areas of regional opportunities; measure impacts of regional clusters Serve as the conduit for building regional dialogues with key regional players Provide unbiased input on public policy strategies Work hand in hand with rural communities to help build inter-jurisdictional partnerships

Help Turn the Pyramid Upside Down Too many of our states and rural communities remain focused on economic development strategies of the past (i.e., recruitment/attraction) LGUs – through their teaching, research, and extension activities – can help rural communities (their leaders, organizations, and citizens) build sustainable community & economic development strategies

Some Specifics ? Work with community colleges and other educational institutions to strengthen the human capital needs of rural areas Assist communities in uncovering their unique assets (creative economy opportunities) Improve the e-commerce capacity of farmers, rural small businesses, and rural communities Build an effective entrepreneurship system for the rural South

Entrepreneurship Development System: LGUs Are Key Players Build an integrated outreach education program that address the various levels of entrepreneurs Conduct applied research on the economic and social impacts of entrepreneurship Inform the policy communities on strategies for creating entrepreneur friendly communities Help create entrepreneurship support networks (along the lines of farmer cooperatives)

Thank You ! !