Economic Development for Everyone

Creating Jobs, Growing Businesses, and Building Resilience in Low-Income Communities

Mark M. Miller

• Publisher: Routledge
• Year: 2017
• ISBN:
  9781317237440
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

How do we create employment, grow businesses, and build greater economic resilience in our low-income communities? How do we create economic development for everyone, everywhere – including rural towns, inner-city neighborhoods, aging suburbs, and regions such as Appalachia, American Indian reservations, the Mexican border, and the Mississippi Delta – and not just in elite communities?

Economic Development for Everyone collects, organizes, and reviews much of the current research available on creating economic development in low-income communities. Part I offers an overview of the harsh realities facing low-income communities in the US today; their many economic and social challenges; debates on whether to try reviving local economies vs. relocating residents; and current trends in economic development that emphasize high-tech industry and high levels of human capital. Part II organizes the sprawling literature of applied economic development research into a practical framework of five dynamic dimensions: empower your residents: begin with basic education; enhance your community: build on existing assets; encourage your entrepreneurs; diversify your economy; and sustain your development.

This book, assembled and presented in a unified framework, will be invaluable for students and new researchers of economic development in low-income communities, and will offer new perspectives for established researchers, professional economic developers and planners, and public officials. Development practitioners and community leaders will also find new ideas and opportunities, along with a broad view on how the many complex parts of economic development interconnect.

PART I

Foundations of economic development and low-income communities

1

Who cares? What are the realities facing low-income populations and communities in the US today?

Where to start? What, even, to title this book and call the communities that are the concern of this book? What terminology would be meaningful, reasonably objective, but not demeaning to the residents of such communities? If possible, what terminology might even offer a hint of hope for the future?

Terms such as “poor,” “poverty,” and “impoverished” are powerful and continue to be used widely both in general discourse and in research (Beaulieu & Diebel 2016). However, there are many communities that would take exception to these labels for a variety of reasons. Some people may find these terms demeaning or limiting; they may see themselves as poor in income but not “poor in spirit.” The terms “poverty” and “poor” have come to be associated with powerful negative images, from the downtrodden in the US (Evans & Agee 2011 [1941]), to those who are struggling simply to survive in the world’s developing countries (Boo 2012), to the US War on Poverty, to infamous “welfare queens.” The term “poor” also tends to sound static and perhaps even hopeless in nature: “You will always have the poor among you” (Matthew 26:11). Meanwhile, even the poorest communities may include residents who are comfortably middle-class, quite well off, or even wealthy: owners of local businesses, landowners, public officials, or perhaps some church and other civic leaders.

There are plenty of alternative academic terms from which to choose, but those terms are likely unfamiliar to residents of such communities or even to many practitioners of economic development (ED): “lagging regions,” “marginalized” or “disadvantaged communities,” “developing places” (as in the “Developing World”), “periphery” and “semi-periphery,” “places with persistent poverty,” “emerging domestic markets” (Milken Institute 2007), “economically distressed communities or neighborhoods” (Tyler-Mackey et al. 2016; Jennings 2012). The most inclusive term would be “economic development for everyone,” ideally with some degree of equity, in each and every place in the US.

Ultimately, I settled on the basic term “low-income community” to designate the primary focus of this book. The term “low-income community” is not dramatic, but I believe it would sound reasonable, objective, and realistic to the leaders and residents of the sorts of communities that I had in mind as I wrote this book. A comparable term is used by the World Bank to classify countries, as in low-income countries, middle-income countries, etc. (United Nations Development Policy & Analysis Division 2016). I adopted this term for this book, including the hyphenation, albeit not the technical definition of $1,005 per capita gross national income, which would seem absurdly low in a US context. (In reality, sadly, that measure is not entirely absurd in a US context, as Edin & Shaeffer [2015] make clear in their book $2.00 a Day: Living on Almost Nothing in America.)

While I emphasize the term “low-income” throughout this book, I also use the terms “poor” and “poverty,” especially throughout the remainder of this chapter. Those are technical terms that are used by both government agencies and scholarly researchers, so they are often unavoidable. In general, for the purposes of this book, I will reserve terms such as “poor” and “poverty” to refer to individuals, and “low-income” to refer to communities.

Finally, and importantly for this book, I believe that using the term “low-income communities” implies a call to fairly specific and focused action: to raise the incomes of the community’s residents, as well as increase the tax revenues of the community’s coffers. The typical low-income community faces an enormous number and variety of needs: education, housing, healthcare, security, leadership, political transparency, and more. Economic development – loosely defined for the purposes of this book as creating jobs, growing businesses, and building economic resilience (more on definitions of ED in Chapter 3) – won’t solve all of society’s problems. However, thoughtful, sustainable ED can help a community finance better schools, enable residents to afford better housing, retain local medical facilities and professionals, allow residents to lead healthier and lower-stress lives, and support a better-trained team of professional public officials.

Sidebar: What creates employment in US communities?

In order to survive and thrive, every community must have some form of industry that brings in money from outside the community, which is the fundamental assumption of economic base theory. A basic industry is one that brings money into the community from outside: whether from another country or the community next door, the effect is largely the same. We tend to think of industry as synonymous with manufacturing, and indeed the ED profession traditionally is highly focused on attracting manufacturing industry. Internationally, the economically developed countries of the world are often referred to as the “industrialized” countries, meaning those that have advanced beyond a dependence on basic raw materials and have established a robust manufacturing sector of their economy. In economic base theory, however, “industry” refers to a very wide variety of activities and investments that generate a flow of money from outside the community.

The primary sector of an economy – “extractive” industries, or the production of raw materials – represents a critical source of income and employment for many communities, especially in rural areas (Alexander & Gibson 1979). Those industries consist of extracting or harvesting natural resource-based products for sale: grain, fiber, forage, and horticultural crops; petroleum products; and products from fishing and aquaculture, forestry, and animal husbandry.

The secondary sector of the US economy – manufacturing industries – consists of those activities that convert raw materials into something more useful for human needs: cotton into cloth, for example, or petroleum into plastics. Manufacturing may also include combining simpler manufactured goods into more complex products: e.g., cotton thread into cloth into fashion, copper tubing into an air conditioner. In any case, the manufacturing process adds value to the initial product and creates employment for local labor. Manufacturing industries encompass a broad spectrum of skill and salary levels: from rote assembly to specialized crafts to robotic engineering.

Many primary sector jobs have disappeared over the past century due, in part, to farm mechanization. As we are well aware, both our primary and secondary sector jobs have been lost to international competitors offering lower labor costs. Another very important reason for job loss in the secondary sector, though, is mechanization and other technological advancements: advanced tools, machinery, and robots that have made manufacturing much more productive per worker in developed countries such as the US (Cochrane et al. 2014).

Meanwhile, the tertiary economic sector is the fastest growing share of the US economy, and is the preferred source of employment for most US workers. The tertiary sector may simplistically be defined as sales and services: white-collar, air-conditioned office jobs. Tertiary sector employers can include schools, hotels, restaurants, accounting firms, and a wide range of government offices. As a comprehensive category, tourism is often said to be the world’s largest “industry” (more in Chapter 7). The tertiary sector also covers a wide range of skill and salary levels, from the proverbial burger flipper to high-level management positions.

Some economic geographers refer to a quaternary (an academic way of saying “fourth”) economic sector to convey the idea of industries that don’t exactly produce anything tangible, but instead create information and exercise control. Examples include research and development centers, universities and colleges, and corporate headquarters. The quaternary sector of the economy is poorly represented in low-income communities, which highlights the lack of control that those communities generally hold over their own economies. Absentee corporate headquarters hold the decision-making power over many of the industries on which low-income communities depend – including the power over whether those local subsidiaries stay active in the community, close up shop, or leave town.

There are a number of nearly invisible “industries” in many communities. Much of the economic activity in a low-income community may be found in the “informal” economy, or black market: e.g., day laborers, shade tree mechanics, bartered transactions, labor paid in cash without reporting or withholding (more in Chapter 6). “Transfer payments” include a number of largely unrecognized flows of money into many communities, including social security payments, various forms of welfare, Medicaid, and Medicare. The federal and state governments typically represent the major sources of employment and income for many low-income communities: e.g., teachers and school administrators, post office workers, other government employees. Pensions, retirement savings, and returns from other investments can provide other quiet but important sources of income for some communities (Chapter 7).

A local basic industry, in whatever sector of the economy, not only brings outside money into the community, but that money then also multiplies within the local economy. Basic industries may buy supplies, and their employees may spend their incomes within the local community by shopping with non-basic industries, that is, local businesses that exchange money within the local economy. Examples of non-basic companies include locally owned banks, car dealerships, gas stations, restaurants, stores, and legal services. These non-basic industries, in turn, create additional employment with that revenue: bank tellers, car salespersons, lawyers, clerks, and so on.

The magnitude of the multiplier depends on a number of different factors (Gibson & Worden 1981), including the type of basic industry involved. In general, manufacturing plants tend to result in a bigger local multiplier than, say, a hotel. That’s one reason why economic developers tend to focus on “bagging the buffalo,” or trying to attract an auto plant or other major manufacturing facility. Typically, the biggest factor determining the size of the economic multiplier, though, is the size of the community involved. A small community offers its local businesses and residents fewer opportunities to spend their money locally than does a big city: fewer local banks, local stores, etc. That is likely to be true especially of many low-income communities, which are typically underserved by retail, banking, and other commercial services. As a result, the earnings from local basic industries “leak” out of the community almost immediately without creating many additional, non-basic jobs. Basic industries are critical, but local non-basic businesses are also important contributors to local jobs and tax revenue by helping to slow the “leakage” of local money. More ahead in Chapter 7.

How do we define a poor person, a household in poverty, or a low-income community?

What does it mean to be poor or low-income in the US today? The US Census Bureau’s technical definition of individual and household poverty employs a weighting system based on the number of household members and their ages. As of 2015, the poverty income threshold for an individual under the age of 65, living alone, was $12,331 per year, or a little under $34 per day (US Census Bureau: Poverty Definitions). For a family of four including two children under the age of 18, the poverty income threshold would be $24,036. Income calculations include all cash earnings – before taxes – including “unemployment compensation, workers’ compensation, Social Security, Supplemental Security Income, public assistance, veterans’ payments, survivor benefits, pension or retirement income… educational assistance, alimony, [and] child support” (US Census Bureau: Poverty Definitions). Census calculations do not include non-cash benefits such as food stamps or housing subsidies.

The Census Bureau’s poverty income threshold figures are updated versions of calculations and assumptions made in the 1960s (Orshansky 1965), so not surprisingly those thresholds have been criticized as simplistic, outdated, and overly narrow in scope. Internationally, the United Nations (UN) has published the Human Development Index since 1990, a broader measurement intended to emphasize policies that affect human lives directly instead of paying simple attention to financial accounts (United Nations Development Policy & Analysis Division 2016). Since 2010, the Human Development Index has also included an “Inequality-Adjusted Human Development Index” to reflect the significance of inequalities within countries and societies.

Angus Deaton (2015 Nobel Prize in Economics winner) helped develop a Human Needs Index (HNI) in a US context. Based on data provided by the Salvation Army, this HNI emphasizes the consumption of basic human needs, rather than income: in particular, the consumption of meals, groceries, clothing, furniture, housing, medical care, and energy (Jeffrey & Pasic 2015; Lilly Family School of Philanthropy 2015). Research by Christopher Wimer suggests that monetary measures of poverty alone do not tell the full extent of human suffering. Wimer suggests instead that we focus on concepts such as “hardship” or “deprivation”: for example, “How often do they have trouble getting food, paying bills or getting help for a serious medical problem?” (reported by Fessler 2016).

Many researchers also use the concept of “low-income” – often calculated as twice the official poverty threshold (Mishel et al. 2012; Roberts, Povich, & Mather 2012) – to capture the population that suffers many of the pernicious impacts of poverty without meeting the technical definition. Chen & Newman (2014: 91, 93) use the terms “near poor” and “missing class” to capture the same concept: families that

live on incomes between one and two times the poverty line….The near poor are a much larger group than the poor. More than 50 million Americans fall into this category, compared to 37 million who are poor. That means that nearly one out of three Americans is poor or near-poor.

[This category includes] 21 percent of the nation’s children….This “Missing Class” is composed of households earning roughly between $20,000 and $40,000 for a family of four.

The status of the “near poor” can place families in a precarious life situation. While they may be able to “get by” financially from month to month, a layoff, illness, car breakdown, or another unexpected circumstance can quickly relocate households from the category of near poor to the genuinely poor category – as well as place them deep into debt to credit cards or payday loan companies.

On the other side of the poverty ...