During the last month, the Sierra Business Council and the Sonoran Institute published reports addressing the opportunities and challenges of their respective corners of the economic frontier [1]:

•  Investing for Prosperity: Building Successful Communities and Economies in the Sierra Nevada
•  Getting Ahead in Greater Yellowstone: Making the Most of Our Competitive Advantage

As I studied these reports, the following thoughts ran through my mind:

• The similarities between the Sierra Nevada and the Greater Yellowstone regions are striking.
• Though I should know better, the variability within each region is surprising.
• The authors of each report offer some excellent starting points for productively discussing economic development priorities and strategies in these regions.
• Business success is a function of many factors that even the best regional analysis will fail to capture.  Critical factors are often subtle, local, and highly contextual.  More specifically, the actions and interactions of individual economic agents have to be taken into account.  The stage and the actors are important.

Geographic Siblings

 Even a cursory analysis of the Greater Yellowstone and Sierra Nevada regions reveals a number of parallels:

• The Sierra Nevada stretches 400 miles down the backbone of the Sierra Nevada mountain range and encompasses parts of 21 counties in California and Nevada.  Lake Tahoe and Yosemite National Park are the region’s crown jewels.  The Greater Yellowstone is centered on Yellowstone and Teton National Parks, stretches some 340 miles along the Rocky Mountains, and is composed of 20 counties in Montana, Idaho, and Wyoming.
• The economies of both regions are marked by the relative decline of forestry, mining, and agriculture and the ascendancy of the services sector, broadly defined.
• The populations of the Sierra Nevada and the Greater Yellowstone have grown much more rapidly than the national average.  According to the Sonoran Institute’s report, in 2000, 50% of the residents in the Greater Yellowstone were born in a different state.  I would imagine the statistics are similar in the Sierra Nevada [2].
• Population and economic growth have often proved a mixed blessing in both regions.  Growth has spurred investment in transportation and communications infrastructure as well as cultural amenities.  On the other hand, sprawl has put pressure on the very environment that attracted residents in the first place.
• Small businesses (fewer than 10 employees) predominate and have also been the primary source of job growth.
• Truckee, California (the home of the Sierra Business Council) is within a few hours drive of Sacramento, San Francisco, Reno, and Las Vegas.  Bozeman, Montana (which is where the Sonoran Institute report was authored) is a direct regional jet flight away from Seattle, Salt Lake City, Los Angeles, Denver, and Minneapolis.

Notwithstanding the similarities, there are some obvious differences between the two regions.  The population of the Greater Yellowstone is just 370,000 (spread across an area the size of Florida).  Even excluding Fresno, Kern, and Tulare counties, the population of the Sierra Nevada is about 1,150,000.  While the Greater Yellowstone’s population is among the least ethnically diverse in the country – 93% of its residents consider themselves white – California’s is the nation’s most diverse.

Intra-regional Differences

Some of the most interesting differences, however, exist within each region:

• The three counties nearest Lake Tahoe account for almost 50% of the Sierra Nevada region’s population.  Just two counties account for a similar proportion of the population of the Greater Yellowstone region.  There is rural…and then there is RURAL.  Alpine County, California has just 1,200 residents, while Clark County, Idaho has 1,000.
• The authors of both reports point to the proportionately high number of small businesses in their regions as a source of entrepreneurial potential.  However, not all small businesses are equal in their ability to create wealth.  The vast majority of small businesses stay small.  Roughly two-thirds of net job creation, differentials in economic growth, and innovation are attributable to the 3% to 5% of all businesses known as entrepreneurial growth companies [3].  The growth company index (GCI) measures a region’s relative creation of growth companies, the national average being 100.  The GCI of the labor market areas that correspond most closely to the Greater Yellowstone region range from 80 to 133.  The range for the Sierra Nevada is 29 to 89 [4].
• Of course, there is a subjective, qualitative nature to job growth.  The Milken Institute recently introduced the “brains to brawn” ratio, which compares the number of college graduates in a region to the number of high school dropouts [5].  The brains-to-brawn ratio in the U.S. is about 0.9.  “Knowledge economy” cities such as Austin, Seattle, San Francisco, and Minneapolis have ratios ranging from 2.5 to 3.5, while Las Vegas has a ratio of 0.8 (and a lot of new jobs for those of us without a PhD).  The ratio in the counties that comprise the Sierra Nevada region varies from 0.3 to 1.9, while the ratio varies from 0.5 to 3.7 in the Greater Yellowstone.

The Authors’ Recommendations

Notwithstanding the differences between, and within, the Sierra Nevada and Greater Yellowstone regions, the authors of these two reports make similar recommendations:

• Identify and trade upon existing, local sources of competitive advantage [6].
• Cultivate risk-taking entrepreneurs, who are key to innovation and wealth creation.
• Local businesses need to be able to access, and succeed in, larger regional, national, and global markets.
• Economic growth is necessary, but is not sufficient.  Concurrent investments need to be made in human, social, and natural capital.  In other words, good schools, health care systems, community infrastructure, community goodwill, and environmental amenities support, and can be supported by, economic vitality.
• Economic development is an iterative process that requires continuous action, assessment, and refinement.

Don’t Neglect the Individual Entrepreneur

It’s not that I don’t agree with the preceding recommendations.  I do, wholeheartedly.  An emphasis on environmental amenities and entrepreneurship is a great place to start.  Nevertheless, as two researchers wrote recently in a respected academic journal, “Economic actors and their action and interaction should be at the core of a theoretical framework of economic geography and not space and spatial categories [7].”  Regional analysis is an important tool for understanding context or the “field of action.”  However, to paraphrase historian Arnold Toynbee, the source of all action is in individuals.

Economy is what emerges from the activities of businesses, and business is just a word that describes the repeated act of helping customers get what they want.  We too often lose sight of the fact that in order to have a business, one has to (a) understand what customers want and (b) deliver the solution profitably.  That’s why access to markets, transportation systems, and telecommunications technologies are important.

It’s damned hard for an entrepreneur leading a promising venture in the boonyack to identify and understand customers who, by definition, are somewhere else.  Increasingly, geographic distance is a proxy for the real obstacle: social distance.  Before customers tell you what they want, they need to trust you.  That means that affinity needs to be made transparent.  Furthermore, in order to compete nationally or globally, a business needs to specialize.  That requires, however, that the business coordinate effectively with other specialists, who are likely to be located elsewhere.  Consequently, while an entrepreneur might well be attracted to a place because of the “bowling together” type of social capital, in order to be successful, he or she needs a very specific kind of social capital – a friends-of-friends network that is diverse enough to be useful [8].

That’s why we formed the Pioneer Entrepreneurs network.  Regions such as the Greater Yellowstone and the Sierra Nevada can give, and have given, birth to valuable entrepreneurial growth companies.  But, for the entrepreneurs, that’s when the challenge really begins.

__________ 

[1] To learn more, contact Ray Rasker, the SocioEconomics Director at the Sonoran Institute, and Amy Horne, Research Director at the Sierra Business Council.  You can reach Ray at ray@sonoran.org or 406-587-7331; Amy can be reached at ahorne@sbcouncil.org or 530-582-4800.

[2] Check out the Regional Economies Assessment Database System for data on regional economies throughout the West.

[3] As defined by the National Commission on Entrepreneurship, a growth company is one that grew its employment by at least 15% per year for five years to a total size of at least 20 employees.

[4] The Reno labor market area, however, has a growth company index of 157.

[5] See http://www.milkeninstitute.org/publications/review/2002_9/04-07.pdf.  (Registration may be required.)

[6] The Sonoran Institute offers its Economic Profile System for free.

[7] Bathelt, Harald and Johannes Glückler, “Toward a Relational Economic Geography,” Journal of Economic Geography, 3 (2003) pp. 117-144.

[8] See my previous posting on “xenoequity.”