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The Power of Knowledge in Building A Strong Wyandot County

Presented at

Wyandot County Economic Development Conference.

Upper Sandusky, OH

November 3, 2011___________

Mark PartridgeSwank Professor in Rural-Urban Policy

The Ohio State Universityhttp://aede.osu.edu/programs/Swank/

Outline Knowledge is KingI will give an economic outlook then a strategic discussion of local economic development1. Today’s moral is that the best strategy is

using the assets inside your community.2. Two community assets I will stress:

• Your people and your businesses.• Provide the right incentives, knowledge and

skills for them to thrive.3. Leverage your colleges and existing

institutions such community organizations to create the right local environment.

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Outline: Knowledge is King4. Focus on attracting the right people and less

on attracting (“bribing”) outside firms.• “Bribing” outside firms is offering them a better deal

than local businesses who don’t threaten to leave.• Trying to lure outside firms with incentives and

subsidies is typically ineffective. (Partridge and Olfert, 2011; Goetz et al., 2011).

• Make it that outside firms want to come to your great environment for people and businesses.

• I am not ruling out good marketing.

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State employment growth (2006-07) on announced per capita million-dollar facilities (2005)

4Source: Partridge and Olfert, 2011.

Outline: Knowledge is King• People worry that rural areas are doomed. • However, nonfarm rural population is quite stable.

Rural areas can prosper even if agriculture or manufacturing is smaller.

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Outline: Knowledge is King

5. With this good foundation, your community will have the best chance to thrive.

• SIMPLE STRATEGY! Be patient and build from within while leveraging local and regional assets.

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Today’s Environment is Tough

• National economy and state economies are weak.

• Wyandot county has survived some fairly severe blows since 2003.

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Manufacturing Employment Shares

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1972 1980 1990 2000 2006 20100.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

0.40

US Employment Share in manufacturingOH Employment Share in manufacturing

Wyandot County is not alone in facing severe manufacturing contraction but this is helping to promote long-term recovery.

U.S. Forecast• I use the NABE September Forecast. It

reflects the average of 52 economists and does not have an agenda. – http://www.nabe.com/publib/macsum.html

• NABE forecasts 1.7% GDP growth in 2011 and 2.3% in 2012 (about 1% lower than their May 2011 forecast.)– A reasonable economic expansion should have

> 4% growth for 2 years or so.– IMF’s U.S. forecast is 1.5% and 1.8%.

• Also revised down by about 1% since June.10

US Forecast• NABE sees a very weak labor market• Monthly Nonfarm payrolls are expected to

rise 124,100 per month in 2011 and 162,100 per month in 2012.– At sustained monthly rate of at least 200,000+ is

needed for a few years. – UR rate will still be 8.5% at end of 2012

• US still 1 million jobs below 2000 level.– Most panelists don’t see labor market recovery to

pre-recession levels until 2015 and some don’t see it until 2017.

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U.S. Forecast• On the positive side, NABE sees

– Expansionary monetary policy (?)– Growth in the rest of the world (?) – Business investment and pent-up consumer

demand (?) • On the negative side:

– Low consumer and business confidence– Uncertainty about future gov’t policies (?)

• I add uncertainty whether ‘Washington’ can do anything of consequence.

– Tepid housing market (2013 recovery?)

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U.S. Forecast• Negative Factors continued:

– Financial headwinds caused by tight credit conditions and balance sheet restructuring

– High federal deficits and the European debt (Greek) crisis weigh on the world economy

• In this economic environment, while I do not see a recession, I have difficulties seeing how a President could be reelected.

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Ohio Context Ohio has added 1.6% jobs in the last

year (as of August) US added 1%. Ohio Unemployment rate 9.1% in Aug 2011,

9.9% Aug 2010, and 8.6% in May 2011.

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Wyandot County’s Forecast• County has fared well in the face of major

shocks 10 years ago.• Place of work and place of resident

employment data took a major fall 2003-2009. • Place of resident employment growth is up

about 3.5% between August 2009 and August 2011 (source, BLS.gov, Local Unemployment Data). Illustrates commuting in the region.– Bear in mind, the data source is a rough estimate.

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1969

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

1,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00011,00012,00013,00014,000

Total Manufacturing

Total and Manufacturing Employment: Wyandot County

Source: Bureau of Economic Analysis: www.bea.gov

2003-2009: 2,634 lost manu-facturing jobs and 3,002 lost total jobs (about a 1.14 mul-tiplier)

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

60

70

80

90

100

110

120

Wyandot OH US

2000=100

Source: Bureau of Economic Analysis: www.bea.gov

Total Employment Wyandot County, Ohio, and US

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

70

75

80

85

90

95

100

OH/US Wyandot/US

Ohio and Wyandot County Per Capita Income Rela-tive to the US: US = 100

Source: Bureau of Economic Analysis: www.bea.gov

Bust

Recovery

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1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

0

2

4

6

8

10

12

14

Wyandot OH

OH and Wyandot County Annual Unemployment Rate

Source: Bureau of Economic Analysis: www.bea.gov

Beginning of economic recovery

How can Wyandot County successfully compete globally?

• 1. Education and entrepreneurship are local forces that promote prosperity.

• 2. Become more resilient to shocks.– Ongoing global economic sluggishness. – Wyandot’s manufacturing legacy has produced

wealth, but creates huge risk and variability. • As manufacturing has declined in size, this reduces

variability and creates opportunities.

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Why the Race for Knowledge?

1. Individual earnings significantly rise with knowledge, skills, and education.

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22U.S. Census Bureau, Statistic Abstract of United States, 2012, Table 232, http://www.census.gov/compendia/statab/cats/education.html

Not a high school

graduate

High school

graduate only

Some col-lege, no degree

Assoc. Degree

Bache-lor's

Master's Prof Degree

Ph.D. or equal

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000US Mean Earnings by Educational Attainment, 2009

Why the Race for Knowledge?

2. This understates an individual’s gain to education as employment rates rise and unemployment rates fall with education. Source: OECD, 2010.

– September 2011 UR 25+ ≥ College Grad: 4.2%; UR no high school completion, 14.0%, Source, U.S. BLS, September 2011 Employment Situation Report.

– So they are more likely to work, and among those working, they are more likely to earn more.

– Educated workers suffer less in downturns in terms of unemployment—more resilient.

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Why the Race for Knowledge?• Good for people, but what about communities?3. There are ‘social’ gains from greater education.

People who work in areas with more education have higher earnings themselves

– (Source: Moretti, 2004).

– Knowledge spillovers.4. Places with a more educated population grow

faster in terms of jobs and people. – (Source: Simon and Nardinelli, 2002; Glaeser and Shapiro, 2003)

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Why the Race for Knowledge?• Summary: Communities with a more

educated population are richer, grow faster, have lower unemployment, and have greater resilience to withstand shocks.

• What about Wyandot County?– Okay at the high school and Associate’s level, but

not above.

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05

1015202530354045505560

US OH Wyandot

2009 % Educational Attainment: US, OH and Wyandot County

Percent

How Can Wyandot County Win the Race for Knowledge.

• Colleges and universities are key for rural economic development, especially community colleges because Associate Degree is underutilized.

• Business can count on a capable workforce.

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How can Wyandot County win race for Knowledge.

• Ohio’s colleges and universities can be the clearing house for local rural economic development. – Why—rural communities often lack the critical

mass to coordinate their economic development.– Community colleges already work on the

regional scale that is necessary for coherent rural economic development. They unify regions.

– OSU Extension increasing works in regions.28

How Wyandot County can win race for Knowledge?

• Colleges are also the institutions that create ‘public-private’ partnerships for economic development.

• They can spearhead business training and provide incubators.

• Ohio’s colleges and universities can coordinate training workshops for local officials from teaching best practice to teaching finance and tax policy. • Coordinate with OSU Extension. 29

How Wyandot County can win race for Knowledge?

21th Century will belong to places that use their knowledge to leverage their assets. • Rural communities should be attractive to

knowledge workers • Quality of life, pleasant environment, sustainable

development—this is good economics!• Attract return migrants in their 30s after they have

seen bright lights.

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Good Strategies--contBusiness retention and expansion is better than tax incentives for outside investment. Building Entrepreneurship• Small businesses and self employment are

strongly associated with growth in rural regions. (Goetz and Raupasingha, 2009; Stephans and Partridge, forthcoming 2011 Growth and Change)

• They are an internal engine of entrepreneurship.• Small businesses buy locally and they are less

likely to move or outsource.• Build a more diverse economy that is resilient to

shocks (Partridge and Olfert, 2011).• Innovation comes from small firms. 31

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1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

10

13

16

19

22

25

Wyandot OH USSource: Bureau of Economic Analysis: www.bea.gov

Percent Nonfarm Proprietor Employ: US, OH & Wyandot County

Declining Small Business Ca-pacity

Revival of Small Business Capacity

Good Strategies--cont• Promote small business entrepreneurship by:

•Business, Retention, and Expansion• Build networks and identifies strengths and weaknesses in

a community. OSU Extension is a good source.•Treat all businesses alike.•Government can help build larger lending pools to reduce credit risk.

• If you build a good climate for investment, your own businesses will thrive and STAY!

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Business Retention and Expansion• Take advantage of farm entrepreneurship.

Research has found a greater farm share is positively linked to nonfarm entrepreneurship. (Source: Stephens and Partridge, 2011, in print).

• Today, farmers are great role models• 1. Tied to land—not outsourcing to China.• 2. Has experience managing medium sized

business and has developed entrepreneurship.• 3. Understands futures markets, global markets,

exchange rates, knows how to manage capital.• 4. Has financial wealth to invest.

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Good Strategy: Leverage Regional Strength?

Recognize rural-urban interdependencies• In 1950, communities detached from neighbors• 21st Century communities are linked in webs

– Growth spreads out a hundred of miles from a city as small as 30,000.– Source: Partridge et al., 2007

• If someone can commute, they shop, utilize health care, participate in service organizations, etc.

• Regions share common interests and the gains should be exploited regionally.

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Rural Depends on Urban for:

Urban Depends on Rural for:

Employment Labor Force

Private and Public Services Market for Private and Public Goods and Services

Urban Amenities Market for Urban Amenities

Market for recreation activities

Recreation

Market for agriculture products

Food Safety and Security

Demand for Environmental Stewardship

Natural Environment

Property taxes/land market Land for Residential and Industrial Expansion

Rural-Urban Shared Fates--cont• Economists contend gov’t jurisdictions

should reflect common interests.• Economic development• Tax sharing of common economic gain to share

costs• Environmental costs and sprawl• Infrastructure is inherently regional

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Example of Action• Regions that realize they are linked will have a

competitive advantage in the global economy.– Lower taxes, better infrastructure, better public

services, stronger economic development– Just being a little more competitive will shift capital

from around the world at the click of a mouse.• Regionalism is the real sleeping giant for rural

communities for sustainability.• Again, a linking force is extension, colleges and

universities.

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What you don’t want to do!• Don’t try to pick the next hot industry. Be

sure hot industries/firms want to be in your community. e.g., Seattle 1978 and Microsoft. – Economists say that governments can’t pick

winners but losers know how to pick governments.

• Don’t follow the latest fads—e.g., green jobs, innovation clusters, biotech, high-tech, alternative energy, etc etc….– Solar Energy and Wyandot County 39

Reality Check•No Guarantees!! Not all regions will succeed!•Even doing the right things is insufficient when conditions are unfavorable.•Consequences of pursuing bad policies are high costs and it may prolong the ‘misery’ because people will be less likely to adjust by finding better opportunities.

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No Silver Bullet

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Future Challenges for Regions- Globalization is likely to increase

- Good: more market opportunities successful- Bad: more competition and threat of

outsourcing, for which rural areas are vulnerable.

- Technological innovations can change a region’s competitive advantage for good and bad—by definition hard to predict.

- Budget realities, austerity, and prolonged global sluggishness. 42

Future Challenges for Regions– Energy prices—the specter of high oil prices remain

—costs of transportation and production would fundamentally change.

– Climate change will alter regional attractiveness for households and firms.• Attractive climates as places to live will shift• Agricultural production patterns will shift

–Goal is to make your community a safe haven for these emerging challenges.

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Conclusions• Build from within your community as the best

strategy for success.• Leverage your colleges as a source of

educating your populace, retaining and expanding your local businesses, training entrepreneurs, and to be the focal point of regional efforts to promote growth.

• Leverage your broader regions to do things you can’t effectively do alone.

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Conclusions• Fostering local entrepreneurship is much

better than hoping an outsider will ‘save’ your community.

• Your community has a wealth of good business ideas, including the agriculture community.

• No sure plan!• Future challenges are immense—but wise

communities can make these manageable or turn them into opportunities.

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4646

Thank you

Presentation will be posted at The Ohio State University, AED Economics, Swank Program website:

http://aede.osu.edu/programs/Swank/ (under presentations)

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Appendix Slides

4848

Great diversity in rural America:

494949

1990/91-2006 North American Population Growth

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Context for Firm Strategy

and Rivalry

Demand Condition

s

Related and

Supporting

Industries

Factor Condition

s

Conceptualizations of Competitiveness

The Porter Diamond Framework (Porter, 1998)

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NCC Competitiveness Pyramid

Source: National Competitiveness Council

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Wyoming: Alberta on Steroids!

14.43%

3%

7.13%

39.6%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

WY 1981 mining share

WY 1981-2004 population growth

AB 1981 mining share

AB 1981-2004 population growth

WY’s greater natural resource intensity did not produce faster growth