|Updated: 5/23/2007; 7:58:13 PM|
Dispatches from the Frontier
Musings on Entrepreneurship and Innovation
Why Rural Communities Can't Succeed Economically...
...and Why Some Will Anyway
Entrepreneurship, Growth & Change
According to research conducted by the National Commission on Entrepreneurship (NCOE) and, subsequently, by Erik Pages at EntreWorks Consulting, the 5% or so of all companies that are classified as entrepreneurial growth companies (EGCs) account for two-thirds of net new jobs, one-third of economic growth differentials, and one-half of technological innovation in the U.S. So, it’s not surprising that the economic vitality of a community is correlated with the relative ability to give birth to EGCs.
Although EGCs can be found in every single labor market area (LMA) in the country, there is clearly an urban advantage when it comes to the creation of EGCs. To borrow from the NCOE, the growth company index (GCI) measures the relative number of entrepreneurial growth companies in a labor market area. By definition, the national average is 100. Large communities having from 1 to 3 million in population have, on average, a GCI that is 40% greater than the national average, while the smallest labor market areas have a GCI of some 20% less than the national average.
Why would that be? What is the source of the urban advantage when it comes to this crucial form of entrepreneurship? Are smaller, more rural regions doomed to be chronic underperformers?
It’s fundamental that in a competitive world, economic growth opportunities arise from change. It’s occasionally true that new needs are discovered; more frequently, established needs are met in new ways. In other words, the “what” of business changes fairly slowly, while the “how” of business can, and does, change with increasing rapidity. For example, Amazon.com exploited a new way to meet an old demand. It’s equally fundamental that for an entrepreneurial growth company to emerge, its founders need to perceive, embrace, and act upon change. Furthermore, the competitive cycle time is diminishing.
I live in a town of 28,000 people that is hundreds of miles from the nearest city of any size. I’ve also lived and worked in—and traveled to—some of the world’s major cities. In my (admittedly limited) experience, small town folks aren’t genetically less innovative or more parochial than their city cousins. However, when in a city, it takes a concerted act of will to shield oneself from a constant barrage of new and conflicting ideas. On the other hand, when in a rural place, it takes conscious effort to seek out differences and the sources of change. Time and distance can reduce noise, but can also mute perception.
Although we Americans aren’t quite as mobile as we think we are, location—for most of us—is a matter of unprecedented choice. Consequently, over time, there is probably a self-sorting process that occurs between rural and urban areas. People who seek change tend to move to the city, while people who are averse to change tend to choose pastoral places.
So what of the globalizing effects of the Internet, satellite television, and cheap phone calls? The very existence of this page is evidence of the opportunities for enhanced communication that exist using these new technologies. On the other hand, perception, learning, and communications remain matters of human choice and skill. I can choose to expand my horizons, or I can use my Replay TV to view nothing but Law & Order reruns. In the end, our capacity to learn is determined by our willingness to confront our own ignorance. Our tools can help us build bridges—or walls.
So, it’s really not surprising that rural areas tend to be less entrepreneurial and, as a consequence, tend to lag economically. It’s easier for us out in the boonyack to be parochial; it’s harder for us to perceive the subtle changes that gives birth to niche opportunities in a timely way; and we may, in any event, be less inclined to view the change we do perceive as being beneficial.
There are Inequities in Life—Move On
Pursuing economic success in the hinterlands is hard. So what? It’s a hard problem—not an impossible one.
The correlation between community size and the growth company index is indicative, not deterministic. The GCI of my hometown, Bozeman, Montana, is greater than that of Seattle. The labor market areas of Pullman and Moses Lake, Washington are approximately the same. However, the GCI in Pullman is 40% higher than the national average and twice that of Moses Lake. Entrepreneurship can, and does, happen in small places—particularly those that by inclination or accident tend to be relatively open and outward looking.
The existence of an urban advantage doesn’t mean that urban life is easy. It is true that cities can benefit from reinforcing feedback. In other words, the rich can, and often do, get richer as a matter of course. But there are limits to all growing things. Housing costs, pollution, commuting, and crime can ultimately constrain the economic urban advantage. In fact, the NCOE data shows that the growth company index tends to peak for cities with populations of less than 3 million, but it declines for the largest cities.
It’s also excruciatingly difficult to affect a big city’s economy. The challenges faced by, for instance, Cleveland—notwithstanding that city’s considerable resources and advantages—appear daunting. It seems a heck of a lot easier to change the environment in, say, Livingston, Montana, where a single entrepreneur and a single company can make a real difference.
The requisite effort to inject entrepreneurial vitality into a rural place is high but can still be worthwhile. If not, the city awaits.
Think in Terms of Generational Change
Over the last decade, Chris Gibbons at the City of Littleton, Colorado has seen growing interest in the practice of economic gardening, which Chris and his colleagues pioneered. Many who inquire are responsible for economic development in rural communities. In fact, Chris jokes that economic gardening is the economic development practice of last resort. People tend to turn to economic gardening after they’ve tried—and failed—with everything else. However, Chris warns the desperate that economic gardening is not a program—it’s a mindset that requires a lifelong commitment to yield results.
Desperation can be a powerful motivator, as the economic miracles of post-war Germany, Japan, and Korea attest. When life is bleak and options few, people often discover an amazing capacity to devote themselves to future generations. In the process, they often find unexpected benefits in their own lifetimes. That said, desperation can also lead to lotto fever characterized by wishful thinking and irrational behavior. People do win the lotto—but your community won’t. The hard news is that significant economic change occurs as the result of sustained effort over a generation or more—not the next election cycle.
What to Do?
To have an economically successful rural community, you should first resign yourself to the fact that you may to work twice as hard for twice as long as your urban cousins. If that doesn’t send you to the closet looking for your suitcase, you might consider some of the suggestions made by Erik Pages on his barnstorming trips ‘round the country:
Repeat after me: “I don’t know, but I can learn. Over time, I can ask better questions and get better answers. I’m going to learn something today, and I’m going to help someone else learn how to be a better entrepreneur.” Burdened by a modestly successful past, I say this invocation every day. Slowly, steadily, I’m starting to make progress toward my personal entrepreneurial goal. If I can make headway, so can those in your rural community. Most of us aren’t gifted entrepreneurs, but all of us can learn to be better. Collectively, we’ll have greater impact than the geniuses.
A Caveat: OPM Addiction
Change is painful. Learning is essential to adaptation, but it is not always fun. The fruits—and burdens—of progress are rarely distributed equally or even equitably. Compassion for those left behind is much too scarce.
Programs aimed at relieving economic hardship are, I believe, essential to a healthy society. But, we should be wary of the prolonged prescription of economic painkillers. Narcotics are addictive; they skew our perceptions of the world; and they inhibit our motivation and ability to adapt.
Out here in rural America, we are addicted to Other Peoples’ Money. We even adopt the posture and language of addicts. Our problems are externalized. Mad Cow disease, foreign barriers to trade, Washington bureaucrats, environmentalists, and years of drought. Californians! We are victims of circumstances beyond our control. So, we feel justified in our mastery of the transfer payment game. We trumpet our success in receiving more in Federal spending per capita than we pay in taxes.
I’m optimistic, because eyes-open optimism pays. That said, I believe it’s important that we confess that we here in the countryside are OPM junkies. Without a reduction in anesthesia, our best efforts to succeed entrepreneurially and economically are likely to fail. I’m not sure that going cold turkey is the best policy, but we do need to get sober, if we’re going to progress.
|Copyright 2007 © W. David Bayless.|