Future lies in small business, not economic theft

However, we are fortunate in this region to have the academic leadership of the Federal Reserve Bank of Kansas City. Through its Center for the Study of Rural America and the focused research on these topics, the Federal Reserve Bank is providing rural areas with the road map to future sustained development.

At the Small Business Administration we share that vision, and I want to highlight the latest findings that help us better understand how we should approach the future.

The director of the Center for the Study of Rural America, Mark Drabenstott, Ph.D., recently wrote a report titled “A Review of the Federal Role in Regional Economic Development.” In his report, he clearly articulates how the past model for rural development is no longer applicable in the current context of globalization.

As he explains, the post-World War II universal economic development model focused on industrial recruiting. Local governments provided financial incentives to persuade companies to relocate to their areas. I often refer to this “smokestack chasing” as economic theft, when one area basically steals an industry from another to boost their local economy.

Drabenstott describes that a shift occurred in the 1980s as federal involvement in local development was scaled back. The focus for these communities became “cost competition,” as regions tried to cut costs in any way possible. Financial and tax incentives continued to be thrown toward companies in the hope that regions could be made as attractive as possible, with the competition constantly escalating. A “race to the bottom” ensued, and the opening of our country to globalization made it impossible for American communities to provide the lowest cost to firms.

Although these policies of industrial recruitment are outdated, many rural communities continue to focus on them.

Drabenstott makes it clear; it is time to update our rural strategy to reflect the realities of the 21st century and make entrepreneurship the foundation of the future for rural communities. Drabenstott writes, “Entrepreneurs are the engines – turning ideas and knowledge into jobs, income and wealth. Whereas past development strategies often aimed at big firms, small entrepreneurial companies are the pack mules for economic development in the 21st century.”

He illustrates the contrast between the current policy and the new policy as pyramids.

As rural America continues to search for sources of economic development, we would be wise to consider Drabenstott’s research. Rather than looking externally as communities did when chasing smokestacks, he advocates they begin looking internally. Drabenstott explains that “regions can develop only by exploiting their distinct economic assets, seizing unique opportunities in rapidly shifting markets, and fostering the entrepreneurs that make both happen at once.”

Supporting entrepreneurship is an important function of the SBA, and the future of rural economic development will be greatly aided by these efforts. I hope to convince rural communities in our region to look beyond economic theft and empower their own entrepreneurs to become a foundation of sustainable and substantial growth.

Sam Jones is the Region VII SBA Administrator.

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