MML #1: From Pork to Pollination, Best Ways to Support Local Development
(Crystal A. Proxmire, Sept. 15, 2016)
Mackinac Island, MI – Development professionals often use the phrase “attract and retain businesses” as their main job functions. But economist and author Michael Shuman is determined to change that.
“You cannot attract a local business,” Shuman said. By definition a local business starts in the community, not from outside.
“And if you have to retain a local business by giving them money, how deep are their roots in the community anyway?”
Shuman was a featured presenter at the Michigan Municipal League’s 2016 Annual Convention, speaking on the need for municipalities to put local business development ahead of “attracting and retaining” larger ones.
The studies are clear. Dollars spent in local businesses help the economy significantly more than those spent in chains. A presentation slide showed the rates of re-spending in the local economy ranged from 1.5 times up to 4 times. Though the numbers varied by area, Shuman noted that “there is not a single study that disproves this.”
And as far as charitable donations, local businesses are 2.6 times more likely to contribute to the causes that matter to themselves and the community.
Small businesses are also the way most big businesses start out, particularly those with innovative ideas, products and services.
“We should be focusing laser-like small business,” he said.
Yet when it comes to economic development, much of the effort goes to big business and often is done with tax breaks. Often the results of tax breaks fall short of expectations, and the “mom and pop” kinds of businesses suffer or fail in their wake.
Also, spending resources to compete with each other over corporations leaves cities with less money in their coffers and inevitably for some, nothing to show for it.
“Incentive competition is on the rise. It is costly, generally ineffective, and often ineffective for winning regions,” Shuman said. “I’m a bit of a policy minimalist, so I have one – stop subsidizing non-local businesses and pretending this does not hurt your local economy.”
He noted that across the country over $80 billion is spent each year in incentives for larger companies. If this money were focused on growing local business it could make a big difference in the country.
Recognizing the need to prioritize local businesses is the first step. The next is figuring out how.
“Their first inclination is to underwrite local development,” Shuman said of elected officials and city administrators. This, he contends, is not the best way. “We don’t need to spend money.”
“Pork,” for those who don’t know, is the spending of government money on special projects. Shuman likes the idea of “pollinators” better. He talked about the way a honeybee goes from plant to plant gathering pollen – so much so that the pollen from many flowers all gets mixed together, creating a sweetly concocted honey that helps to feed the entire hive. That mix is what makes a community of bees – and one of humans – thrive.
Essentially the task is to find the people who are naturally passionate about connecting people and to foster an environment where entrepreneurship, collaboration and efficiency thrive. This can be the way cities focus their resources, as well as by identifying community partners that can take on those tasks.
Imagining that a community is hive, different kinds of bees can do their part to create the buzz of vibrancy that successful hometowns enjoy. Shuman gave examples of each type of pollinator, but has yet to see a community have all of them working well at one time – and that he looks forward to when that happens.
The six pollinator types are:
Planning and Policy
Planning pollinators look to plug leaks in the systems that business owners navigate, to make communities more business-friendly. This isn’t just about giving incentives or even reducing fees, but about making sure that small business owners are easily able to navigate the process of dealing with local governance. Someone who can see the questions and encourage solutions is a great asset in creating a fostering environment. Are forms available online? Is the building permit process streamlined? Do entrepreneurs know who they can call if they have questions? Locally-focused planning and policies can make sure that changes in communities are strategic and that opportunities are considered as part of a community’s development plan.
People and Partners
Making connections makes business happen. Having someone who knows how to network and how to connect people is often more effective than having staff focus their efforts on trying to appeal to just one firm or company. There are stories of major attraction efforts that failed. And there are stories where great things happened because someone had an idea or a need, and someone else knew who to pair them up with.
Taking that a step further are those pollinators who can create a buzz around collaborations. Businesses within a community can work together instead of competing. Shuman gave an example of restaurants in the same city teaming up to get more purchasing power. Even just sharing information can have a significant impact.
Main Street Genome is an example of private citizens creating a system of collaboration that uses data analysis to improve business decisions and foster collaborations. They began by partnering with 30 restaurants in Washington DC and looking at their business practices to identify opportunities. One thing they found was that restaurants were paying widely varying prices for produce. Knowing this gave restaurant owners a tool to negotiate better prices. They now have a team of researchers and business owners and they are working on exploring profitability for doctors and dentists as well as builders and contractors. Shuman said the effort led to a 15% reduction in costs for the businesses that have participated.
Purse and Purchasing
The flow of money is essential in economies, yet often communities and business do not have the big picture in mind when making decisions about banking and purchasing. “Local banks and credit unions are three times more likely to reinvest the dollars you put into accounts into loans to local businesses,” Shuman said. He suggested that if local governments want to do something simple to help bolster the local economy they should switch their banking to someplace local.
Additionally instituting policies that give local preference or that consider the impact of dollars being spent locally when considering contracts can help. “Procure locally – not as a favor to local businesses, but to save money and help the local economy.”
One example of a policy Shuman likes is that of New Brunswick, where companies must include in their bid what percentage of the money awarded in local contracts will be spent in the local community.
Shuman’s book The Local Economy Solution: How Innovative, Self-Financing “Pollinator” Enterprises Can Grow Jobs and Prosperity looks at 25 innovative examples of ideas that help support entrepreneurship that are self-sufficient or even profitable without municipal funding. Among the examples are businesses set up for co-working shared space, maker space, shop local programs, businesses that help local food producers get into commercial production, and a business that helps others save money and create place with eco-friendly, energy-saving “green” features.
Learn more about Shuman’s work at http://michaelhshuman.com.
The Michigan Municipal League is dedicated to making Michigan’s communities better by thoughtfully innovating programs, energetically connecting ideas and people, actively serving members with resources and services, and passionately inspiring positive change for Michigan’s greatest centers of potential: its communities. The MML has supported the oc115 with a scholarship to the conference. Learn more about MML www.mml.org.
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