Rural GA in the Global Economic Olympics Center for the Study of Rural America, FRBKC Mark Drabenstott Vice President & Director Center for the Study of.

Rural GA in Rural GA in the Global Economic the Global Economic

OlympicsOlympics

Center for the Study of Rural America, FRBKC

Mark DrabenstottMark Drabenstott

Vice President & DirectorVice President & Director

Center for the Study of Rural AmericaCenter for the Study of Rural America

Federal Reserve Bank of Kansas CityFederal Reserve Bank of Kansas City

www.kansascityfed.orgwww.kansascityfed.org

Globalization is turning Globalization is turning economic development into economic development into

an Olympic eventan Olympic event

• Globalizing markets leave an uneven Globalizing markets leave an uneven economic landscape…economic landscape…

• Where every region must compete in Where every region must compete in global markets.global markets.

• Commodity-driven regions areCommodity-driven regions areconsolidating…consolidating…

• And the edge goes to regions that And the edge goes to regions that innovateinnovate. . Center for the Study of Rural America, FRBKC

How can rural GA How can rural GA compete in the global compete in the global

economic race?economic race?

• How is rural GA doing?How is rural GA doing?

• What must rural GA do to take gold?What must rural GA do to take gold?

• What can you do to help?What can you do to help?

Tracking Tracking CompetitivenessCompetitiveness

Whether a region is…Whether a region is…

losing…losing…

holding its own…orholding its own…or

gaining…gaining…

in its share of national economic in its share of national economic measures. measures.

Checking the ScoreboardChecking the Scoreboard

A few bright spots, but much of the A few bright spots, but much of the South is falling behind the rest of the South is falling behind the rest of the nation.nation.

There is plenty of work to do.There is plenty of work to do.

Income

Top 310Counties

Remaining Counties

74%

26%

Population

76%

24%

Top 310Counties

Remaining Counties

Employment

74%

26%

Top 310Counties

Remaining Counties

Top 10% of Counties Dominate Top 10% of Counties Dominate U.S. Economic GainsU.S. Economic Gains

Source: BEA, REIS

Top 310 Counties for Income GrowthTop 310 Counties for Income Growth

Source: BEA, REIS

Top 310 Counties for Employment Top 310 Counties for Employment GrowthGrowth

Source: BEA, REIS

Top 310 Counties for Population Top 310 Counties for Population GrowthGrowth

Source: BEA, REIS

Up 1.022 to .037

Up 0.0 to 0.037

Down 0.027 to 0.0

Down 0.028 to 0.543

Change in Share of State Income1994 to 2004

Source: BEA, REIS

Change in percentage points

Up 1.278 to .033

Up 0.0 to 0.032

Down 0.028 to 0.0

Down 0.029 to 0.690

Change in Share of State Employment1994 to 2004

Source: BEA, REIS

Change in percentage points

Up 1.687 to .059

Up 0.0 to 0.058

Down 0.024 to 0.0

Down 0.025 to 0.852

Change in Share of State Population1994 to 2004

Source: BEA, REIS

Change in percentage points

Why are the scores so Why are the scores so uneven?uneven?

Globalization has made Globalization has made regions the unit the unit of development…of development…

It takes critical mass to It takes critical mass to muster a muster a team.team.

Globalization has changed the drivers Globalization has changed the drivers of success…of success…

The era of cheap cost is past, The era of cheap cost is past,

the era of innovation and the era of innovation and entrepreneurship has entrepreneurship has

begun.begun.

What must rural GAWhat must rural GA do to compete do to compete

better?better?

Today’s Economic Today’s Economic Development ChallengeDevelopment Challenge

The vigorous pursuit of a region’s The vigorous pursuit of a region’s

competitive edge in rapidly competitive edge in rapidly

changing global markets.changing global markets.

Center for the Study of Rural America, FRBKC

Economic regions matter Economic regions matter more than political ones.more than political ones.

• Business alliancesBusiness alliances — to build market presence — to build market presence and adopt new technologies.and adopt new technologies.

• Community collaborationsCommunity collaborations — to build critical — to build critical mass and pool capital for development.mass and pool capital for development.

• Public-private partnershipsPublic-private partnerships – to ensure public – to ensure public and philanthropic investment aligns with private and philanthropic investment aligns with private investment.investment.

Governance is Governance is critical.critical.

• Governance is about how regions think and act Governance is about how regions think and act

as a regionas a region. It is NOT government.. It is NOT government.

• Who will encourage regional partnerships?Who will encourage regional partnerships?

• Who provides the round table?Who provides the round table?

A special role for nonprofits & higher education!A special role for nonprofits & higher education!

Center for the Study of Rural America, FRBKC

The New Development The New Development ParadigmParadigm

AssetsAssets

MarketsMarkets

EntrepreneursEntrepreneurs

InnovationInnovationRegionalRegionalGrowthGrowth

DriversDrivers

Competitiveness Competitiveness StrategyStrategy

What must the rural What must the rural South South

do to win?do to win?1.1. Understand its economic assets.Understand its economic assets.

What does your region What does your region have have going for it?going for it?

Vision is required…not Vision is required…not the the rearview mirror!rearview mirror!

What must rural GA do What must rural GA do to win?to win?

2.2. Grow more entrepreneurs. Grow more entrepreneurs.

Entrepreneurs are the Entrepreneurs are the athletes on athletes on the economic the economic olympic squad. olympic squad.

Who are the athletes in your Who are the athletes in your region, and how can they become region, and how can they become world-class?world-class?

What must rural GA do What must rural GA do to win?to win?

Entrepreneurs are the new Entrepreneurs are the new engines of growth.engines of growth.

Need lots of them… Need lots of them…

But high-growth ones But high-growth ones especially. especially.

Why does entrepreneurship Why does entrepreneurship matter?matter?

• Places that grow more entrepreneurs have stronger economic growth.

• This occurs...

0

2

4

6

8

10

12

0 5 10 15 20 25 30 35

……at the national level,at the national level,

National Entrepreneurship Index and GDP Growth

Total Entrepreneurship Activity Index (2003)

Average GDP Growth (2004 to 2006)

U.S.

Russia

India

Source: Global Entrepreneurship Monitor, 2003 and International Monetary Fund

China Venezuela

European countries

Hong Kong

Japan

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

0 1 2 3 4 5 6 7 8 9State Non-farm Proprietor Growth (1970-1990)

Employment Growth (Wage and Salary: 1990-2004)

……at the state level,at the state level,State Entrepreneurial Growth and Employment Growth

South Dakota

Alaska

Nevada

D.C.

Colorado

Iowa

Arizona

MontanaND

MS

Idaho

California

Calculations based on BEA, Regional Economic Information System data

-10

-5

0

5

10

15

20

25

-15 -10 -5 0 5 10 15 20

County Proprietor Growth (1970-1990)

Employment Growth (Wage and Salary: 1990-2004)

……at the county level.at the county level.

County Entrepreneurial Growth and Employment Growth

Calculations based on BEA, Regional Economic Information System data

Center for the Study of Rural America, FRBKC

RecruitmentRecruitment

RetentionRetention

EntrepreneurshipEntrepreneurship

Policy for Regional Competitiveness

RecruitmentRecruitment

RetentionRetention

EntrepreneurshipEntrepreneurship

Current Policy

Source: Dabson

This requires a shift in This requires a shift in policy...policy...

And access to equity And access to equity capital…capital…

• Equity capital is the lifeblood of Equity capital is the lifeblood of entrepreneursentrepreneurs

……yet the public policy focus remains debtyet the public policy focus remains debt..

• The South has very limited access to equity The South has very limited access to equity capital.capital.

Center for the Study of Rural America, FRBKC

What must rural GA do to win?What must rural GA do to win?

3. Fuel more innovation.3. Fuel more innovation.

Innovation is what gives Innovation is what gives a region’s athletes an edge in a region’s athletes an edge in the global race…the global race…

It is the fuel that propels the It is the fuel that propels the entrepreneurs.entrepreneurs.

How to create more How to create more of this fuel? of this fuel?

• One part One part researchresearch—going —going beyond basic research to link beyond basic research to link research to regions….”spatial research to regions….”spatial linking.”linking.”

• One part One part innovation capacityinnovation capacity——the willingness and skill to the willingness and skill to be “change nimble.”be “change nimble.”

Center for the Study of Rural America, FRBKC

What must rural GA do to What must rural GA do to win?win?

4.4. Craft a great strategy.Craft a great strategy.

How to exploit assets How to exploit assets to seize to seize markets?markets?

““Competitiveness Competitiveness strategy” is the strategy” is the game plan game plan that puts the team on that puts the team on the court.the court.

A few suggestions on A few suggestions on helping the South compete.helping the South compete.

HowHow to create a competitiveness to create a competitiveness strategy?strategy?

WhatWhat might be the South’s key assets? might be the South’s key assets?

WhatWhat might be the South’s might be the South’s competitive advantage?competitive advantage?

Center for the Study of Rural America, FRBKC

Crafting a Regional StrategyCrafting a Regional Strategy

Job 1 in the South must be crafting a strong Job 1 in the South must be crafting a strong competitiveness strategy for the region.competitiveness strategy for the region.

This means investing in the “competitiveness” This means investing in the “competitiveness” skills of the region’s leaders first.skills of the region’s leaders first.

The Italian Mezzogiorno approach is a great The Italian Mezzogiorno approach is a great modelmodel—the 15% rule. —the 15% rule. In many cases, that means investing in a region’s In many cases, that means investing in a region’s

leaders first.leaders first.

Center for the Study of Rural America, FRBKC

Crafting a Regional StrategyCrafting a Regional Strategy

Who supplies the round table?Who supplies the round table?

Non-profits & higher education can play Non-profits & higher education can play especially useful roles. especially useful roles.

The case of “NEO.”The case of “NEO.”

Center for the Study of Rural America, FRBKC

Center for the Study of Rural America, FRBKC

Getting the Geography Getting the Geography RightRight

How many regions has rural How many regions has rural Georgia?Georgia?

Bottom-up, not top-down.Bottom-up, not top-down.

Who’s in the same economic boat?Who’s in the same economic boat?

What might be “advantage What might be “advantage assets?”assets?”

1.1. The Coast — the drive to the ocean.The Coast — the drive to the ocean.

2.2. Outdoor recreation—hunting worth more than crops?Outdoor recreation—hunting worth more than crops?

3.3. Heritage — civil war, civil rights.Heritage — civil war, civil rights.

4.4. Culture — blues, gospel, story-telling.Culture — blues, gospel, story-telling.

5.5. High-valueHigh-value cost of living — amenities relative to cost. cost of living — amenities relative to cost.

6.6. Central location — U.S. population within a day.Central location — U.S. population within a day.

7.7. Climate — Great 3-season living.Climate — Great 3-season living.

What might be competitive What might be competitive advantage strategies?advantage strategies?

1.1. Country music and craft. Country music and craft.

• Strong evidence that native craft is a powerful Strong evidence that native craft is a powerful asset in a world looking for unique experiences.asset in a world looking for unique experiences.

• Handmade in AmericaHandmade in America (NC) a textbook example. (NC) a textbook example.

• What to invest in?What to invest in?

• Regional collaboration and world-class Regional collaboration and world-class celebration (e.g., Edinburgh Festival).celebration (e.g., Edinburgh Festival).

• Arts and intellectual property educational Arts and intellectual property educational programs.programs.

• Internet and other marketing skills.Internet and other marketing skills.

What might be competitive What might be competitive advantage strategies?advantage strategies?

2.2. World-class elder care. World-class elder care.

• A huge market as the Greatest Generation and A huge market as the Greatest Generation and then Baby boomers seek care. then Baby boomers seek care.

• Faith community in the South could provide Faith community in the South could provide powerful leadership and add value. powerful leadership and add value.

• Big pluses—low cost of living + central location. Big pluses—low cost of living + central location.

• What to invest in?What to invest in?

• Health care system…Health care system…

This could produce a big This could produce a big “two-fer.”“two-fer.”

What might be competitive What might be competitive advantage strategies?advantage strategies?

3.3. The Wild Card — A World Class The Wild Card — A World Class Place for Entrepreneurs. Place for Entrepreneurs.

Entrepreneurship is the process by Entrepreneurship is the process by which regions discover what they do which regions discover what they do bestbest (Zoltan Acs). (Zoltan Acs).

• Once and for all, let the region seize its own Once and for all, let the region seize its own destiny. destiny.

• Tax policy a powerful lever. Tax policy a powerful lever.

• What to invest in?What to invest in?

• World class K-12 entrepreneurial World class K-12 entrepreneurial curriculum.curriculum.

• World-class entrepreneurial support system.World-class entrepreneurial support system.

• Equity funds for the region.Equity funds for the region.

What can rural Georgia do to What can rural Georgia do to win gold?win gold?

Center for the Study of Rural America, FRBKC

1.1. Help the region understand its assets.Help the region understand its assets.

2.2. Make the South a world-class home for Make the South a world-class home for entrepreneurs.entrepreneurs.

3.3. Spur innovation—linking research to Spur innovation—linking research to regions and boosting innovative regions and boosting innovative capacity.capacity.

4.4. Help the South put together a world-Help the South put together a world-class game plan.class game plan.

For further reading…

www.kansascityfed.org