Local business the best way to boost job growth

by Michael Short on September 28, 2010

By Michael Short

It’s time to abandon our old ideas about creating  jobs.

That was the message from Michael Shuman, a keynote speaker at the Maryland-Delaware Downtown Revitalization Conference held in Rehoboth Beach.

Shuman told the audience  that we need to think locally.  “Local businesses are the best source of economic development,” he said.

“All of us are choosing poorly right now,” he said.

Standard thinking calls for states and communities to reach out to businesses, offering them incentives to build here. Tax credits and other incentives entice business in an attempt to bring jobs and growth.

The idea is to attract and retain businesses and jobs, especially big businesses.

But Shuman, who spoke on Tuesday, Sept. 28, said that isn’t the best way to grow the economy. He said that we can get more bang for our buck by encouraging local businesses and local entrepreneurs and by leveling the playing field to help local businesses become success stories.

He said that local businesses spend more money in the local economy and are more likely to produce jobs. A local bookstore, for example, may keep three times more income in the local economy than does a national chain, he said.

He told the audience that most economic development money and incentives are spent to attract those large businesses.

Local businesses, however, spend more money locally because they hire local attorneys, advertise in local publications and hire local accountants. They are more likely to contribute to local charities, he said.

Studies show that local businesses are more likely to mean there is a sense of ownership in the community. That often translates to less crime and more equality, he said. It helps the environment because goods and services don’t have to travel as far, thus reducing our carbon footprint.

He gave several examples of towns and businesses that are growing. Often they do so by becoming more self-reliant and thinking locally, Shuman said. He said one Michigan deli grew steadily, but did not want to open up a string of delicatessens because of the loss of quality control.

The Ann Arbor based deli decided to open a bakery, instead of buying bread. Instead of buying ice cream, they opened a creamery. A restaurant, mail order business and consulting firm followed, until there are now nine businesses employing 530 people, he said.

In Austria, he said one farming and logging town was slowly dying. The town began investing in green energy, which saved money. The savings were invested and after 15 years, Shuman said there were 50 new energy businesses employing 1,000 people.

In Hardwick, Vermont, local business people decided to promote local food and self-reliant farming. So, they started to emphasize organic farming, local restaurants, local cheese making, food exports and similar businesses.  They supported each other and while other towns were losing jobs, they grew and added jobs.

“What attracts tourists?” he asked.

“Unique businesses,” he answered.

Shuman conceded that big businesses do drive some “mom and pop stores” out of business, but he said that is only a small part of the economy. With a few exceptions, he said small business can compete in almost every business category.

He drew laughs when he listed a few categories where that wasn’t true. They included, among others, nuclear power plants, printing money and producing rockets and missiles.

He said trends like the growth of the service industry actually favor local businesses being able to compete well in the future.

He said states need to consider costs they don’t normally consider. That could be things like importing energy instead of using local or  renewable resources. He said that Vermont residents, for example, spend $250 million in credit card interest and that money flows to out-of-state banks because there are no in-state credit cards.

“How many of you use local banks?” he asked. Almost every hand shot up.

But few of those in the room said they invest for example, their pension funds,  in local businesses. Instead, their portfolio is heavy with Fortune 500 or other non-local business investments, he said.

Some argue that we need to try to do everything to promote economic development, including spending to attract non-local businesses, Shuman said. But he said that we don’t have unlimited resources. “Does it make sense to have a Prius and a Model T?” he asked. “One works and the other doesn’t.”

At one point, he drew laughs when he drew a picture of a gun with a barrel reversed so it pointed back at the person with the gun. He called it our current “investment strategy.”

While investing in local business can be expensive, he offered a few suggestions to help cut the costs. He suggested that local businesses work together to do their purchasing, thus cutting the costs for each individual business. He said that another way for small businesses to compete is to provide direct delivery. While that may be too expensive for one business, it isn’t if they pool their resources.

“As for me,” he paraphrased Patrick Henry. “ . . . Give me community or give me death.”

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