licidumErdREsumEED 324 154RC 017 744AUTHORJohnson Thomas GTITLESucces - PDF document

1 licidumErd-REsumEED 324 154RC 017 744AUT
licidumErd-REsumEED 324 154RC 017 744AUTHORJohnson, Thomas G.TITLESuccessful Community Development Strategies.PUB DATESep 89NOTE18p.PUB TYPE.Information Analyses (070) -- Reports - Descriptive(141)EDRS PRICEMF01/PC01 Plus Postage.DESCRIPTORSCase Studies; Community Characteristics; *CommunityDevelopment; *Cooperative Programs; CorporateSupport; *Economic Development; Entrepreneurship;Leadership; On the Job Training; Rural Development;*School Business Relationship; Technical Assistance;*Work Experience ProgramsABSTRACTThis paper sketches several successful communityeconomic development programs that have implications for ruraleducation. Case studies are used to discuss community characteristicsthat contribute to development success. In Virginia, a CommunityCertification Program offers statewide business recruitment servicesto communities that meet program standards. A $500,000 economicdevelopment fund in northern Vermont makes loans to promisingbusinesses which cannot get bank funding. In many areas, venturecapital clubs and business incubators increase the range of resourcesavailable to entrepreneurs. Nash Technical College in Rocky Mount,North Carolina, created thousands of jobs by drawing a firm to thatstate with the offer of specialized training for its employees.Hocking Technical College in Ohio offers on-the-job training byoperating its own businesses, including a sawmill, a hotel, and aretail business. In Canton, Illinois, a library developed a databaseon the city's resources that eventually served a local businessincubator project. In Virginia,

2 businesses donated goods and servicesto
businesses donated goods and servicesto build an industrial park. Public-private partnerships allowbusinesses to contribute to educa4ion in other ways. The RuralEntrepreneurship through Action Learning program in several Southernstates helps students start their own small businesses. The papersuggests that successful community development cases are usuallyinnovative, offer real advantages to the firms involved, and ofteninvolve an individual leader who serves as a catalyst. These factorsare very difficult to replicate but they suggest that good ruraldevelopment efforts start with leadership, entrepreneurship, and----ingenuity. 1TEaY_************************************************* ***** *****************Reproductions supplied by EDRS are the best that can be madefrom the original document.*********************************************************************** \aSUCCESSFUL COMMUNITY DEVELOPMENT STRATEGIESThomas G. JohnsonDepartment of Agricultural EconomicsVirginia Polytechnic Institute and State UniversitySeptember 1989ABSTRACTThis paper documents several cases in which ruralcommuni-ties have had success in chnging their econoiniccircumstances.The paper, by analyzing case studies, has determinedhow certainessential characteristics of the communities, theeconomic andsocial circumstances, and the rural development effortsthem-selves have contributed to the iuccessed."The successfulcases-I)usually offer something fresh and innovative 2) offer realadvan-tages to the firms involved, 3) usually involve aninstitutionalinnovation, and 4) involve an individua

3 l who serves as a cata-lyst. These facto
l who serves as a cata-lyst. These factors are very difficult to replicate but.suggestthat good rural development efforts will start bkencouraging thedevelopment of such things as leadership, entrepreneurship,ingenuity.INTRODUCTIONThis paper documents a siMple of cases in Whibh tural Commul.nities have had success in changing their economic circumstances.There is no guarantee that any of these stories can bereplicatedin other rural communities.But it should be possible, by care-ful analysis of the case studies, to determine whatessentialcharacteristics of the communities, the circumstances, andthe-deArempterit- èfforts-thehigsIves might-have contributedtorthe successes.These cases are not limited to thosefocusingupon education, although the role ofeducation, educators, andeducated residents is stressed.Are there under lying regularities among successfulrural"PERMISSION TO REPRODUCE THISMATERIAL HAS BEEN GRANTED BYTO THE EDUCATIONAL RESOURCESINFORMATION CENTER (ERIC)."OERI Motion or policyU.S. DEPARTMENT OF EDUCATIONOffice of Edwina:mat Research and ImprommentEDUCATIONAL RESOURCES INFORMATIONCENTER (ERIC)/This document has been reproduced asreceived from the person or organizationonginating it.0 Minor changes have been made to improvereproduction IMMIIIPPoints My** or opinions stated in this dopy-ment do not neoesunly represent official economic development efforts?There are a few but no clear"formula for success" emerges.In fact, it is easier to general-ize about strategies which tend to fail.Many economic development efforts havefailed because theywe

4 re "too little, too late."Examples inclu
re "too little, too late."Examples include such economicdevelopment concepts as the industrial park,speculative shellbuildings, tax holidays, and almost all formsof industrialrecruitment.Today, however,industrial recruitment is highlycompetitive.According to a recent publication, Shadows ontheSun Belt, "the buffalo hunt is over."There are very few majorfirm locations and relocations each year,and the number ofcommunities competing for these firm's attentionis large andgrowing.There are a number of other strategies which arecurrentlyenjoying relative success, but perhaps only in thosecommunitieswhich take advantage of them before too many others "get ontheband wagon."Included in this group are such strategies asresearch parks, business incubators, and enterprise zones.Oncenew economic development technologies becomewidely adopted, theytend to become a necessity for any community that wantsto staycompetitive.over time, then the overall effectis that no onecommunity is any better off.Many struggling communities haveinvested heavily in industrial parks, and shell buildingsonly to_____find them lying empty for many years--a liability ratherthan anasset because of the forgone opportunities.There are some regularities among the successfulruraldevelopment cases, however.The successful cases seem to havethefollowirigcharacteristics.3 1)They usually offer somethingdifferent--something freshand innovative or at least avariation on the oldtheme;2) They offer real, long-term,advantaged to the firmsinvolved.They are more than justcompetitive induce-_ments.They offe

5 r the firms somethingthat they can'tget
r the firms somethingthat they can'tget elsewhere;3) They usually involve aninstitutional innovation whichmakes a nonmarginal transformationin the community;and4) They frequently involve anindividual, or a small groupof individuals, who serve as aCatalyst to effectuatethe transformation noted above.These four factors, particularly thelast, are very diffi-cult to replicate.They suggest, however, that goodrural devel-opment efforts will start by encouragingthe development of suchthings as leadership, entrepreneurship,ingenuity.A TAXONOMY OF RURAL DEVELOPMENT SUCCESSESThe success of any effort should bemeasured against itsgoals, and the goals of rual developmentefforts are not allalike.While most are concerned with developingjobs, and in-creasing income levels, some areinterested in more directlyimproving economic quality of life.Economic quality of life,while difficult to define precisely,includes housing, healthcare, education, and publicservices.Efforts to create jobs andincrease income can be further classified bytheir focus--whetheron the recruitment ofindustry, the support of existingindustry,or the nurturing of new, "homegrown" industries.Industrial recruitment, existingindustry development, andsupport for new "home grown" businesses, areusually job orient-4 ed.Other goals, such as improvement in averageincome, oreconomic diversification receive much less consideration.Taxholidays, industrial parks, speculative shellbuildings, andpromotional campaigns are usually associated withindustrialrecruitment.They are designed to reduce firm costsand/orexpe

6 dite their relocation.It is this author'
dite their relocation.It is this author's hypothesis thatsuch strategies have little if any effectin the most underde-veloped communities.At a minimum, they are "ante" in ahighstake "poker game" in which less developedcommunities are newplayers, with few chips, and a "stacked deck" against them.Whenthey win the occasional "big pot" it has probablynothing to dowith their "poker skills.°In Virginia, we have a Community CertifLeationProgram,sometimes called community preparedness programs elsewhere.Thecertification programrequires communities to meet certainminimum standards before they can benefit fully from the state'srecruitment promotion program.For those communities thatworktoward certification, the program has benefits even if they neverland a major firm, because they learn much about economic devel-opment and their community's strengths and weaknesses.for those communities which havefied, the program leaves them at-the state's marketing efforts arecommunities.A number of successful development finance programshaveemerged recently.Ihe Small Business Administration's 501, 502,503, and now 504 programs have injected significant amountsofHowever,not, or cannot, become certi-a distinct disadvantage sincechanneled towardthe certifi',d-\5 Federal money into new and expanding businesses.The programs'leverage money from local banks for the financing offixed assetsuch as land and buildings.The programs have been less success-ful in rural areas where the size of loans aresmaller and the"red tape" raises the effective cost of the loansto a level toohigh for m

7 any purposes.Overall, the program has pr
any purposes.Overall, the program has probablyfi-nanced a lot of businesses which would havelocated anyway, andhas had a minimal effect on overall levels ofinvestment.More recently, states and local governmentshave gotteninvolved in venture capital programs (United StatesSmall Busi-ness Administration, June 1985; Deatonand Johnson; Florida andKenney).The private venture capital industry hasbeen a phe-nomenal success, earning rates of return of upto 50 percent.Venture capital provides equity financing forbusinesses whichhave an insufficient working capital base toachieve their poten-tial.These are relatively high risk businesses(those whichbanks won't finance), which the venture capitalistmakes lessrisky by combining careful management, and technicalassistancewith pie equity capital.Firms financed by venture capitalistsare several times more likely to succeedthan the average newbusiness.Private venture capitalists, rarely invest in compa-nies which are not located close by or in firmswith productlines with which they are unaccustomed.This almost completelyprecludes rural America.Not only are rural communitiestooremote, but the types of industry which areappropriate in ruralareas are quite different from thoseappropriate to urban areas.Furthermore, venture capita14sts usually invest infirms whichhave proven the marketability of their productand are in the6 rapid-growth stale, as opposed to start-up stagewhich tends tobe higher risk and have unknown growthpotential.Many statesnow have state-sponsored, orsupported venture capital programsof some type.Thes

8 e programs involve direct orindirect (us
e programs involve direct orindirect (usuallytax credit) financial support, and/orpublic pension plan invest-ment.The programs are usually for-profitand involve privatecapital as well as public funds.This approach allows thepublicfunds to leverage more private funds thanwould otherwise bepossible (Weinberg; Deaton, Johnson, Farmer, andSchwartz).The revolving loan fund is asimilar financing alternativewhich provides growing firms with criticalworking capital.Itdiffers from venture capital investmentin that the fund seldomtakes ownership in the industry involved andusually does notearn significant profits.For these reasons, these fundsdo notleverage as much private funds as the venturecapital programsdo.Consider the case of the Economic DevelopmentFund of North-ern Vermont.This $500,000 fund is used to make loans topromis-ing businesses in the Northern VermOnt Regionwhich cannot getfunding from banks.The fund has been able to leveragepri7atefunds at a rateof about 7:1.About 13 percent of the funds arefor start up businesses and the remaining 87percent for expan-iions.In the firdt tlikee yers of-Optration7,Ithe-fund-wasc-re&--ited with creating and retaining over 650 jobs,directly.Theaverage public investment per job hasbeen just over $1000.Anunexpected by-product has been the increasedwillingness ofbankers in the area to lend money to growingindustries for7 working capital.An interesting variation on the venturecapital theme isthat of venture capital clubs.These clubs are really not clubsat all, but rather forums designed tobring investors and entre-pre

9 neurs together..Communities facilitate t
neurs together..Communities facilitate these encountersbyarranging, promoting,-and holding club meetings.Entrepreneursare invited to make a 15minute presentation of their ideasbefore the crowd of venture;capitalists.After all the entrepre-neurs have had an opportunity to speak,they disperse themselvesabout the room and the venture capitalistsmeet with those thathave ideas that interest them.The approach has been very suc-cessful in bringing ideas and moneytogether in urban areas.Interestingly,ithasresultedinagreatdealofco-venturing--that is, where two or more venturecapitalistscontribute to a simple investment.This tends to increase therange of technical and managementskills that the entrepreneurcan draw upon.The business incubator is a relatively newidea that has hadconsiderable success (Small Business Administration).The basicidea here is that start-up businesses lack a wide rangeof essen-tial ingredients.Ideally, they should start smalluntil theyperfect their process, yet the costsinvolved in a small scaleoperation may doom the business from the beginning.The busi-___nesses require space; equipment;management, accounting, andtechnical assistance; working capital; back officesupport suchas computers, copying, etc.; andtraining.The business incuba-tor provides all of these more efficiently thanthe firms couldprovi4e them independently.The incubator company may even take ownership interest in the firm in return forthe services provid-ed to it.In 1986 there were anestimated 155 incubators and itis expected that by 1990 there willbe between 750 and 1000

10 facilities. Currently about 14 percent o
facilities. Currently about 14 percent ofthese incubators arebeing developed in non-metropolitancounties (Weinberg).Thereare many ekamples ofsuccessful rural incubators--Monmouth,Illinois; Bennington, Vermont; and Girard,Warren, Meadville, andRidgeway, Pennsylvania are just a sample.The Girard incubatorhad 18 tenants as of June 1986employing about 250 arearesi-dents.An interesting aspect of incubatorsis that the tenantstend to learn by observing each otherand sharing problemsandsolutions.The major hurdles experienced by ruralincubators, relativeto their urban counterparts, includeinadequate infrastructure, alack of experience in business developmentof this nature, a lackof access to specialized services,and a paucity of venturecapital and other grants and funds (Weinberg).Retention and expansion is a term used todescribe effortsto support existing industryrather.than create or attract newindustries.The primary tool of retention andexpansion programsis the industry visitation (Lee).Volunteers are trained tosurvey local businesses andto detect problems andopportunities.When surveyors diScover-an opportunityto -aid an existing-indus-try, economic development specialists arebrought in to help out.Consider the case of Washington County,Ohio.During visita-tions, a chemical company indicated thatit intended to go out-side the county to find employees tofill 40 job vacancies be- cause all the local applicants failed ascreeningstest,..,Thelocal college intervened and set up a training programto trainthe potential employees.Following completion of the first cla

11 ssthe company began hiring from the pool
ssthe company began hiring from the pool of trained labor.Job training is an increasingly important aspect otruraleconomic ,development because the emerging era of rapid technolog-ical charige will cause frequent obsolescence of skills.It isestimated that of todays students,1 in 12 will change careerseach year (Inc., Sept. 1989).A well trained productive laborforce not only is attractive to new industry, but it alsoin-creases the probability that a business willsucceed, and itimproves the community's quality of life (Currin).Rural job training must be combined with otherconditions inorder to succeed (DeLellis).At least one of the following mustbe present: successful job placement, simultaneous jobcreation,or job upgrading.Furthermoi.e, many types of job training aredifficult to provide in a college setting (because of the needfor hands on experience and access to specializedequipment) eventhough the involvement of a college is essential.Nash Technical College, in Rocky Mount, NC is creditedwithcontributing to 15,000 jobs in a 14 year period.The processbegan when the college convinced a firm to locate in Rocky Mountarea by offering a specialized trainingpackage for its employ-ees.Since then thi: relationship between the college andbusi-nesses, has led-to the attraction of severalother firms.,Similarly, Rowan Technical College was instrumentalinattracting Philip Morris USA to North Carolina.The collegehelped the company inventory its skills requirement,and design10 training programs.A common attribute of successfultraining programs is effec-tive on-the-

12 job training.Such rural ventures as Kent
job training.Such rural ventures as Kentucky'sAppalshop, which produces video tapes,films,recordings,andphotographs, have taken a nucleus of skills, andthrough on-the-job training and apprenticeships developed a ratherlarge pool ofskilled labors.The critic'al issue in this andsimilar cases isthat the greatest training needs occur when thecompany has theleast ability to provide them.A majority of these ventureshavesucceeded only because of the efforts of localcolleges andsubsidized training programs such as the Jobs TrainingPartner-ship Act.Another interesting example of on-the-jobtraining is of-fered by Hocking Technical College of Nelsonville,Ohio.Hockingoperates profit oriented businesses whiletraining students invarious skill related to the operation of thebusinesses.Thebusinesses include a sawmill,a hotel, and a ceramicproductswholesaling and retailing business.Hocking serves a rural areawhere students would not otherwise have accessto extensiveinternships and apprenticeships.In addition, Hocking attracts amajority of its students from outside the area it wasdesigned toserve.The combination of the jobs and incomecreated by itsbusiness ventures and the jobs and income created by theactivitygenerated by the school itself make HockingTechnical College thearea's second largest employer and one ofits most importanteconomic bases.Alblic-Private Partnerships include various ventures in1 1 which the interests of private firms in thewellbeing of thecommunity is exploited to improve localconditions.There arenumerous examples of successfulpartnerships (and p

13 robably lotsof failures as well).It is v
robably lotsof failures as well).It is very difficult togenetalize aboutthese approaches, however, strong,visionary leadership is usual-.ly an element.In Canton, Illinios the locallibrary director, concernedabout the declining population andeconomic base, decided thatthe library had a responsibility to help(Wilson).iThe library,as a local source ofinformation, decided to develop a localdatabase on the city's resources, design andpublish promotionalmaterial, and make their reference sectionavailable for economicdevelopment activities.In order to provide these services,theyfound that their reference section had tobe expanded to includemore types of data and material.The library then helped raisemoney to hire an marketingdirector, organized a network offormer residents for fund raising,organized seminars, and of-\fered to provide an on siteresearch-collection for an incubatorthat it is promoting.In Montgomery County Vi:ginia, localbuilders, buildingsupply companies, and othz.1 businesses,donated their goods andservices to build a speculative shell building onthe county'sindustrial park.When the shell building was soldin spring of1989, the investors were repaid fortheir contributions.Theyare considering repeating theproject at another county site.Interestingly, before the shell building was sold,its piesencewas credited with attractingtwo new industries to the county.Industrial prospects which came to see theshell building eventu-12 ally purchased other industrialsites and located in the county.Education is, in general, a key elementin longterm economicde

14 velopment efforts.In particular,economic
velopment efforts.In particular,economic or entrepreneurialeducation is believed to have anumber of complementary effectson rural communitydevelopment.First, entrepreneurship educa-tion better prepares students forthe rigors of livingin underde-velope4 rural areas by helpingthem understand theissues in-volved in business location and success.In addition, entrepre-neurial education increases theopportunity for highschoolgradu-ates to become employed and forcommunities to have a strongereconomic base.Finally, it is beleived thateconomic education,because it is exciting and practical,will help keep the at-riskstudents in school. There are a numberof particularly interest-ing success stories related toentrepreneurial education.In Shelbyville, Tennessee theAmerican Can Foundation col-laborated with the Bedford CountyEducational Development Founda-tion to supplement the salaries ofschool teachers (McAndrew).They did this by underwritingtheir salary while they workedfornon-profit and public service jobsduring the summer.The effecthas been to enhance school teachersalaries, while putting somevery good resources to work oncommunity issues.In the longrun, the program should alsoattract and retain highqualityteachers, without straining localgovernment budgets as much.Another type of public-privateeducational partnership in-clude the adoption of schools bylocal industries oruniversi-ties.In this model, industries anduniversities donate the timeof their personnel to enrich theexperience of students,they13 .donate the use of equipment (computersfor examples) for ed

15 uca-tional purposes, or they arrange tem
uca-tional purposes, or they arrange temporarywork assignments forteachers in their firms to give them on thejob experience.The REAL programs(Rural Entrepreneurship throughActionLearning) in North Carolina, SouthCarolina, and Georgia, helps1students start an actual smallbusiness in their cdmmunity.Burinesses such as construction companies,day-care centers, andrestaurw's have been started and are nowowned and operated bystudents.They have created new jobs in theircommunity and pro-vided services and products that would nototherwise have beenavailable.Comprehensive Programs is the final type of programdis-cussed and, as its name suggests, itincludes programs whichcombine features of many of the others above.The typical com-prehensive program includes a range offinancial services (in-cluding fixed asset financing, operating lines ofcredit, grants,venture capital), a technical assistance program, atechnologicaltransfer program, and possibly an incubatorfacility.There arenumerous examples of such programs.Two will be described--RuralEnterprises Inc. (REI) of Oklahoma and The RuralVirginia Devel-opment Foundation (RVDF).The first is nonprofitindustrialdevelopment corporation which has functionedsince 1980, whilethe second is a nonprofit foundationwith for-profit subsidiarieswhich is just being established in Virginia.REI is an SBA 501(c) (3)industrial development corporationresponsible for job creation in Southeasternand South CentralOklahbma.Since 1983, it has been designated as anationaldemonstration model.The major component programsof REI in-14 clude; 1

16 ) an innovation evaluation programwhich
) an innovation evaluation programwhich relies on spe-cialists to evaluate ideas submitted to REI forconsideration;ideas which are considered sound are thensupported by REI; 2) aseries of arrangements with such agencies as NASAand the U.S. .Army Corps of Engineers, in which REItransfers technology de-veloped by the research agencies; 3)financial programs includinga fixed asset SBA program, UrbanDevelopment Action Grants (UDAG)from the Department of Housing and UrbanDevelopment (HUD), and arevolving loan program with funds from theEconomic DevelopmentAdministration (EDA); 4) technical assistance programs,such asone with HUD to package UDAGgrants and engineering consultingfor clients;5) a marketing program to promote theproducts ofit's clients; and 6) a business incubatorfacility.In 1984 REIwas credited with the creation and/orretention of 295 jobs.The RVDF differs from the REI in two primary ways.First,it involves venture capital, as well as moreconventional financ-1ing.Second, it is much more oriented toprivate investment.Itis developing a for-profit investment corporationcalled theVEDCORP which will be owned by private investors,and will co-venture with private venture capitalists whenappropriate.TheVEDCORP will be primarily funded by banks,utilities, and majorcorporations with an interest in the healthy rural economy.CONCLUSIONSThe stories above represent a smallfraction of the success-ful economic development efforts in ruralcommunities.However,even in this small sample thevariety and diversity of these1 5 efforts become obvious.They do have some b

17 asiccharacteristicsin common.In most cas
asiccharacteristicsin common.In most cases there is a pivottgindividual or groupthat envisions the program, and, a clear andmeaningful advantagecreated for employers.Many of the programs involve a newinsti-tution created to further the goals of the program.1 6 REP1(ENCESCurrin, Earl C. "Personal Correspondence", May1987.Deaton, Brady J., Thomas G. Johnson,Berkwood M. Farmer, andPatricia A. Schwartz."Rural Virginia DevelopmentFoundation:The Making of an Institution,"Extension Publication 302-002,Virginia Cooperative Extension Service,Department of Agricultur-al Economics, Virginia PolyteWtnicInstitute and State Universi-ty, Blacksburg, March 1985.Deaton, Brady J., and Thomas G. Johnson."Other State's Experi-ences in Promoting RuralEconomic Development UsingVentureCapital Funds,"Report prepared for theJoint Legislative Sub-committee on the Rural Virginia DevelopmentFoundation, August1983.DeLellis, Anthony J., ed.Rural Success:Case Studies of Suc-cessful Employment and Programs in theUnited States.Florida, Richard L. and Martin Kenney."Venture Capital, HighTechnology and Regional Development."Mimeo, Department of Cityand Regional Planning, Ohio StateUniversity, September, 1986.Curtis Hartman."Business School," in Inc. 11:9(Sept.89) :52-60.Lee, V. Wilson, and John Hawthorne.Existing Industry:Key toSuccess in Industrial Development, CRD-22.Alabama CooperativeExtension Service, Auburn University, March, 1983.McAndrew, Alice."Common Ground: ,The Marriage ofAmerica'sRural and Corporate Workplace."American City & County (August,1985), pp. 42-47.Miller, James P

18 .Recent Contributions of SmallBusinesses
.Recent Contributions of SmallBusinesses andCorporations to Rural Job Creation.United States Department ofAgriculture, Economic Research Service,Agriculture and RuralEconomic Development, February, 1987.Morse, George."Personal Correspondence."May, 1987.Rural Enterprises Inc.Annual Progress Report 84-85.Durant,Oklahoma, 1985.United States Small Business Administration.State Activities inCapital Formation:Venture Capital, Working Capital,and PublicPension Fund Investments. United States SmallBusiness Adminis-tration, Office of Private Sector Initiatives, June1985.United States Small Business Administration.Small BusinessIncubikttor:Perspectives. United States SmallBusiness Adminis-tration, Office of Private Sector Initiatives,1985.United States Small Business Administration.Small BusinessIncubator Directory. United States SmallBusiness Administration,1 7 Office of -Private Sector Initiatives,March 1986.United States Small BusinessAdministration.Small BusinessIncubator Handbook:A Guide for Start-up andManagement. UnitedStates Small Business Administration,Office of Private SectorIniiatives, March 1986.Weinberg, Mark L."Business Incubators Give NewFirms in RuralAreas A Head Start."Rural Development PerspectivesVol. 3, No.2 (February, 1987), pp. 6-10.Weinberg, Mark L."Opportunities and Constraintsin Rural Commu-nities for Small Business IncubatorDevelopment."Paper present-ed at the National Conference onBusiness Incubators, March 29-April 1, 1987, Philadelphia, PA.Wilson, W. Randall."Partners in Economic Development."LibraryJournal (March, 1986), pp. 32-34