Wealth Creation

A New Framework for Rural Economic and Community Development

Shanna E. Ratner

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781000750867
• Edition: 1
• Topic: Arquitectura
• Subtopic: Planificación urbana y paisajismo

A new approach to rural development is emerging. Instead of being about attracting companies that might create jobs over which communities have no control, the emerging paradigm is about connecting the unique underutilized assets of place with market opportunity to grow assets that are owned and controlled by and for the benefit of low-wealth people and places. But asset development is about more than bricks and mortar or narrowly defined financial assets. There are many kinds of assets that communities require to thrive – such as social capital, natural capital, political capital, and intellectual capital. The emerging new approach to rural development is, then about broadening the definition of "wealth, " engaging underutilized assets, and a key third element: harnessing the power of the market – rather than relying solely on philanthropy and government. Wealth Creation provides a conceptual guide with practical examples for policymakers, practitioners of economic and community development, community organizers, environmentalists, funders, investors, and corporations seeking a values-based framework for identifying self-interests across sectors that can lead to opportunities to transform existing systems for the collective good.

1 Introduction

Epigraph

Pete Kelly, former economic developer for the City of Ansonia, wrote:

I work as the economic development director for a small community in south central Connecticut. The community, in my opinion, suffers from an identity crisis: it was once a thriving mill town, part of the nation’s industrial heartland many years ago, and is looking to reclaim this vitality through reconstituting industry or serving as a bedroom community to the Gold Coast, which has reached a critical mass of sorts. Unfortunately, in my estimation neither of these approaches holds much potential for revitalizing the community at the current time. A great deal of foundation building, e.g., brownfield remediation and elimination of slum and blight, would need to occur before Ansonia could effectively pursue these strategies. Ansonia can improve its condition, but likely not through the conventional (i.e., chasing smokestacks) methods of economic development. The community has not made a conscious effort to integrate as part of a broader regional economy, and so has many of the characteristics of an isolated rural community, despite being only 20–30 minutes from Bridgeport, the state’s largest city, or New Haven, the state’s most successful example of economic development based on “Eds and Meds.” So I’m struggling mightily to determine how best to approach my job as economic development director and what model(s) to apply.

We hope this book will begin to provide that alternative model by introducing a way of thinking about community and economic development that is fundamentally different from the conventional wisdom.

Building a Bridge between Community Development and Economic Development

The wealth creation approach provides a bridge between community development, which is generally focused on single communities and their issues and emphasizes community organizing, vision and “voice,” and economic development, which has become too narrowly focused on “creating” jobs, usually by offering tax breaks and other incentives to attract businesses from one location to another.

The focus on business attraction is actually a symptom of the way we have come to think about development. In America, development equals jobs. It is a lot easier to “create” jobs by attracting a large company that brings jobs with it than by nurturing the underlying assets required to sustain a vibrant local economy. Of course, the jobs that come with attraction are not really “created;” they simply leave one place and arrive at another. The net job change from domestic relocation is negligible. Nationally, the range of net job change from gains and losses due to business relocation from 1999 to 2008 was +3% to −1.4%. For 38 states, the net change was less than plus or minus 1%. ¹

Even so, the incentive system we have created is such that an economic developer who can claim to have “created” a lot of jobs at one time through business attraction and re-location is rewarded, regardless of the cost associated with attracting them. The tools used to attract businesses generally amount to some combination of tax, wage, or real estate subsidy, and/or regulatory relief that generates externalities. Yet, the data suggests there is no correlation between wages and domestic job relocation.² Nor is there a correlation between state taxes and decisions to relocate overseas. States without income taxes were just as likely to lose jobs overseas between 1994 and 2008 as those with income taxes.³ Businesses that relocate simply to take advantage of subsidies often leave once those subsidies have run out.

By focusing on development as jobs many important societal considerations are overlooked. Little or no attention is paid to who gets those jobs, what the working conditions and wages are, and whether or not the business offering the jobs is likely to increase the failure rates of locally-owned businesses or reduce locally driven entrepreneurial activity. One negative consequence of jobs that pay unliveable wages is an increase in worker dependency on public assistance for food, shelter, transportation, health care, and more. Other potential negative impacts that are often overlooked might include, but are not necessarily limited to, a rise in crime rates during construction or operation, increases in property values that push out longtime residents including business owners, increased pollution and natural resource degradation, increased traffic congestion and reduced traffic safety, and loss of neighborhood cohesion. Similarly, little or no attention is given to how long the jobs last, and whether the people who get the jobs are able to save and invest enough to make themselves more secure over the long term.

The narrow belief that development equals jobs has not served us well. The percentage of the US working-age population, 16 and over, that is in the labor force was just 63% as of January 1, 2014, and is virutally unchanged in 2019 at the height of an economic expansion. The labor force is the actual number of people available for work. The percentage of the US working-age population that was actually employed was even lower—only 58.8% (down from nearly 65% in 2000) and only around 60% in January, 2019.⁴ Not only are we not providing employment for those in the labor force, but more and more of the population is being excluded from the mainstream economy. The result is increasing inequality of income and financial wealth.

As Angela Glover Blackwell, founder and president of PolicyLink, a national research and action institute that works to develop and implement policies at the local, state, and federal level to achieve economic and social equity says, “Having a job doesn’t get you out of poverty or keep you out of poverty.”

Income is the flow of dollars earned over a period of time. Wealth is the stock of assets owned and controlled by households. Income may be invested in assets that become wealth, such as education, health care, social activities that build trusted networks, and financial savings. Wealth may generate income and increase a family’s capacity to survive economic shocks such as sudden illness or unemployment.

According to the Pew Research Center, income inequality has been increasing steadily since the 1970s and has now reached levels not seen since 1928 when the top 1% of families received 23.9% of all income and the bottom 90% received 50.7%. Income is defined as pre-tax cash market income and does not include government subsidies. As of the end of 2012, the top 1% received nearly 22.5% (during a period of economic recession) and the bottom 90% fell below 50% for the first time ever.⁵ Interestingly, there are almost as many households in the top 1% in the poorest places in rural America as in the highest amenity rural communities.⁶

Defining wealth as “marketable wealth (or net worth), equal to the current value of all marketable or fungible assets less the current value of debts,” Edward Wolff finds that the top 1% saw their average wealth (in 2007 dollars) rise by over $9 million or by 103% between 1983 and 2007. The remaining part of the top quintile experienced increases from 81% to 142% and the fourth quintile by 71%. While the middle quintile gained 50%, the poorest 40% lost 63%! By 2007, their average wealth had fallen to $2,200.⁷

The problem of inequality is not getting better; it is getting worse. In fact, it is so scary to a number of Silicon Valley tycoons that they are becoming survivalists, investing in their own security rather than the institutions that require rebuilding to serve us all.⁸

In contrast to trickle-down theory, recent research has discovered that, when we look at economic growth across countries over time, “equality appears to be an important ingredient in promoting and sustaining growth.”⁹ So, how do we begin to reverse course? What if the equation were broadened from development equals jobs to development equals sustainable livelihoods and widely shared prosperity for current and future generations? How can we get from here to there?

One place to begin is by recognizing the underlying causes of poverty. The root of poverty is isolation. In some regions, like the American South, that isolation is chronic and interwoven with the legacy and continuation of racism; in others, like the Rust Belt, regions that were once productive contributors to the larger economy became isolated as the market for what they had to offer changed and they failed to adjust. There are many dimensions to the isolation that results in poverty, including isolation from economic opportunity, from new ways of thinking, from access to resources to make a change, from the corridors of power, from people whose life experiences are different than one’s own.¹⁰

A number of forces have come together that exacerbate this isolation, including policies like redlining that forced poorer minority families into certain neighborhoods that were cut off from surrounding, more prosperous areas by lack of transportation and other services; underinvestment in education that allowed the quality of teaching and learning to deteriorate unevenly across the country; underinvestment in health care, wellness, and prevention nationwide; underinvestment in physical infrastructure including broadband, and more.

The liberal “solution,” which has been to throw money into programs targeted at poor people (defined by income level) has not worked. One reason for this is that people fundamentally do not want to be treated as “needy.” We do not want to be the objects of charity. It makes us feel less than. It also contributes to social and economic isolation. In order to feel better, recipients of what amounts to societal charity begin to see this as an entitlement. Seeing it as an entitlement makes it feel more acceptable. If they are entitled, then everyone is entitled and there is no need to feel less than. Now we have come to a point where many blame the victims (those who feel entitled) for their sense of entitlement, failing to recognize that the systems we have developed through the patterns of our disinvestments have left too many with no other alternative. It is more and more difficult for people born into circumstances of limited resources to become productive contributors to society. Transformation can come from connecting people and places that have been economically marginalized with a larger economy by building the relationships that allow larger economic forces to combine with local ownership in ways that produce lasting and profound change. This is the goal of WealthWorks—to rebuild our economic system one value chain at a time to include economically marginalized people and places as productive contributors to our economy and society.

This requires a radically different approach to “job creation” from the traditional one in which economic developers attempt to use local incentives to attract new businesses into what are essentially isolated and economically depressed areas. Incentives, such as tax breaks and related concessions, are weak ties that decline and expire over time. They are offered in return for economic performance (i.e. job creation) that often fails to materialize and is expensive and difficult for any locality to enforce, especially after the incentives have been used. What happens if, instead of asking how we can pull economic activity into a local vortex, we turn that paradigm on its head and ask how the assets of a local place can contribute to a larger economy? How does a market-based approach to development provide place-based practitioners with the perspectives they need to transform entire systems for the benefit of poor people and places?

The WealthWorks approach recognizes that jobs are not “created” in a vacuum. Jobs result from investments in innovation, infrastructure, skills, human and environmental health, and the capacity to change regulations and resource allocation to respond to a changing world. Jobs result from new relationships that create new economic opportunities. WealthWorks aims for inclusive, sustainable development based on the following assumptions:

• Wealth, not just income, is the foundation of prosperity.
• Economically marginalized places and people will stay poor unless they are connected to larger economies.
• Economically marginalized people and places have assets, which, if properly developed, can contribute to larger regional economies.
• The economy does better as a whole when more of us are doing better.

We assume that the root cause of poverty is isolation from all or many of the forms of wealth required to be able to contribute productively to the mainstream economy. As Angela Glover Blackwell, founder and president of PolicyLink, a national research and action institute that works collaboratively to develop and implement local, state, and federal policies to achieve economic and social equity, says:

If we solve problems for the most vulnerable, if we solve problems of poverty, we solve problems for everybody … We need to help people be able to contribute. What sense does it make if we lock people out of the resources they need to be able to contribute? ¹¹

Lack of income is a consequence, not a cause, of poverty. If we fail to invest in the forms of wealth required to enable productive contributions to the mainstream economy, no amount of subsidy or income redistribution will, in and of itself, reduce poverty in the long run. Similarly, “jobs” are not the answer without the targeted investments required to connect jobs and workers and ensure that production processes themselves are life-affirming. We offer the concept of a wealth creation value chain as one mechanism to connect underutilized resources to the mainstream economy for the benefit of bot...