Increasingly, economic development experts are abandoning traditional approaches to economic development that rely on recruiting large enterprises with tax breaks, financial incentives, and other inducements. Instead, they are relying on building businesses from the ground up and supporting the growth of existing enterprises. This, according to a recent study by the Federal Reserve Bank of Kansas City entitled The Role of Small and Large Businesses in Economic Development, has a two-fold effect. The first is to develop and support entrepreneurs and small businesses. The second is to expand and improve infrastructure and to develop or recruit a highly skilled and educated workforce. Both efforts depend in large part on improving the quality of life in the community and creating an attractive business climate.
The study examined the economic development role of small businesses
compared to large businesses. The study concluded that while large firms
offer better jobs on average and contribute significantly to job creation
and innovation, research and experience suggests that attempts to recruit
large enterprises to a specific community are unlikely to be successful
(because of competition from competing communities). And they are not
likely to be cost- effective even if they are successful. In addition,
an economic development strategy that focuses on a particular business
or industry is very risky.
The study further concludes that concentrating on organic growth, or
the growth of existing or "home- grown" businesses, is likely
to be a much more successful strategy than the recruitment of new firms.
Given the role of small businesses in employment growth, supporting entrepreneurs
and budding businesses is also likely to be an effective strategy. The
hope is that some of these small businesses can grow to become the large
firms of tomorrow and offer the kinds of benefits that typically come
with employment in a large firm.
Evidence increasingly suggests that the right approach is usually to
focus on developing an attractive and supportive environment that might
enable any business, whether small or large, to flourish. Many communities
have had success in creating this environment. They have developed and
fostered a high-quality workforce through great schools, community colleges,
and universities. They have provided life-long learning opportunities;
built and maintained high-quality public infrastructure; created a business
climate with reasonable levels of taxation and regulation; and, through
good government and quality amenities, have created the kinds of communities
where highly educated and skilled people want to live and work.
So, it comes down, once again, to quality of life issues. Does your community have "an attractive and supportive environment that might enable any business, whether small or large, to flourish"?