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Rural Response to the Economic Crisis

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The purpose of this paper is to describe one Appalachian community's approach to developing a rural economic development strategy for creating jobs through new and expanding businesses in the context of the current recessionary times. This paper was submitted for the 14th Academy of Business Disciplines Annual Meeting in Fort Myers, FL on November 8th-10th, 2012.

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Rural Response to the Economic Crisis

  1. 1. Rural Response to the Economic Crisis14th Academy of Business Disciplines Annual Meeting Fort Myers, FL November 8-10, 2012 Peter Hackbert Berea College
  2. 2. Introduction3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 2
  3. 3. The Appalachian Region3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 3
  4. 4. 3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 4
  5. 5. 3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 5
  6. 6. Problem Statement How do rural communities hit hard by the 2008 economic recession approach economic development?3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 6
  7. 7. Review of the Literature• Scholars Lambe, 2008; Drabenstott & Moore, 2009; Morgan, Lambe, & Freyer, 2011• Rural local economic development writers (Shuman, 2012; Cortese, 2011; Moltz & McCray, 2012)• Both advance strategies for homegrown prosperity3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 7
  8. 8. Small Rural Appalachian Community Economic Development (CED)Traditional ED Strategy / Tool Direct, Short-term • Industrial development Economic • Business retention / expansion Outcomes • Workforce development • jobs • Tourism • firms Economic Development • prosperity • wealth ApproachesAlternative ED Strategy / Tool • Entrepreneurship 1. Recruit firms from the outside • Downtown development 2. Strengthen/expand existing firms • Arts / Creative economy 3. Promote development of new firms • Cluster-based development Other • Residential development Outcomes • social • civic • environmentalCD Capacity Building Strategy /Tool Indirect, Long-term • Transportation • Broadband / Internet / Social Media • ED finance • Philanthropy • Strategic planning • Leadership development • Organizational development
  9. 9. Localization3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 9
  10. 10. Local Ownership Matters1. Higher multipliers2. Great community wealth: Fleming and Goetz (2011)3. More dynamic4. Healthier residents: Blanchard, (2012)5. Better community planning6. Greater creativity7. Greater political participation3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 10
  11. 11. How do you “localize”?3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 11
  12. 12. Methods• County Business patterns from the Census Bureau• Nonemployer Statistics from the US Census Bureau• Zip code analysis indicated that all but two of the 392 establishments in Berea have fewer than 500 employees and therefore qualify as small businesses.• The Census Bureau’s Nonemployer Statistics, revealed an estimated 1,548 individuals have their own businesses in Berea, with sales of $47 million per year.3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 12
  13. 13. Methods (continued)• The IMPLAN Input-Output model unifies various federal databases and fill in the gaps• Berea’s economy is to compare its composition to the United States as a whole.3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 13
  14. 14. Berea’s Profile• 329 Establishments• 1,534 Self employed• 294 Farmers• 2,500 Public employees• $413M in wages• $25M in state and local taxes• $1.9B GDP3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 14
  15. 15. Compared to the USA• 23% of the workforce is in manufacturing—more than 2 X the national average.• Berea also has much greater numbers of people in education, health, and social services.• 1/3 less than the national average of its workforce in the arts, entertainment, and tourism.• Finance sector is about 1/2 the national average, which suggests how little capital is available for business growth.3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 15
  16. 16. Shuman argues in Going Local (1998); The Small-Mart Revolution (2006)“ economic development performs best when itis focused, laser-like, on businesses “ that arelocally owned and import substituting. Localownership means that working control of acompany is held within a small geographic area.Import-substituting means that the company isfocused first and foremost (though notexclusively) on cost effective production for localmarkets.3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 16
  17. 17. Leakage analysis• Identifies all those sectors in the economy where a community is unnecessarily importing outside goods and services. Every unnecessary import represents a loss of dollars and a loss of the "multiplier" impacts those dollars could generate locally.• It also represents a loss of other documented benefits that local businesses bring, like knowledge, skills, tax payments, charitable giving, revitalized downtowns, tourists, stronger civil society, and more political participation.3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 17
  18. 18. BALLE Job Leakage Calculator 5,739 additional jobs3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 18
  19. 19. 40 Export Industries• Manufacturing parts for automobile supplying the assembly plant in Georgetown, KY.• Role of Berea College, and many nonprofits promoting human rights and environmental protection;• Presence of a largely retirement population, nursing homes, funeral parlors, and cemeteries• Major services sector providing residents throughout the region (some of whom may be coming to work in Berea) with child care, taxis, limited restaurants3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 19
  20. 20. 40 Local businesses that could meet demand1. Global companies (no headquarters)2. Professional services (outsourcing pros)3. Intermediaries (outsourcing warehousing)4. Tourism (lacks critical mass)5. Food and retail (not capturing shopper fair share)6. Finance (no local insurance, securities brokers)7. Health Care (need for full-service mental-health- care facilities)3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 20
  21. 21. What If 25% of Berea businesses could meet 25% of local demand? INPLAN MODEL – 1,398 jobs BALLE Calculator – 1,435 jobs3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 21
  22. 22. Some Not Possible3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 22
  23. 23. 3 Largest sectors Professional services (317) Wholesale trade (198), and Tourism (168)•3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 23
  24. 24. Five Clusters – 1,300 jobs• Goods distribution, warehousing, and trucking (232 direct jobs);• Professional services (247)• Finance, insurance, and real estate (167)• Local food (103)• Tourism (60) 3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 24
  25. 25. Advisory Board Constructs 6 Working Groups • Large businesses • Small businesses • Entrepreneurial ventures – Food Sector – Energy sector – Finance3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 27
  26. 26. Next Steps3/2/2013 Hackbert, P.H. “Rural Response to the Economic Crisis” ABDC, Fort Myers, FL. November 8-10, 2012 28

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