Rural Response to the Economic Crisis

14th Academy of Business Disciplines

Annual Meeting
Fort Myers, FL
November 8-10, 2012

Peter Hackbert
Berea College
 Introduction

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 The Appalachian Region

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 Problem Statement

How do rural communities hit hard by the 2008

economic recession approach economic
development?

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 Review of the Literature
• Scholars Lambe, 2008; Drabenstott & Moore,
2009; Morgan, Lambe, & Freyer, 2011

• Rural local economic development writers

(Shuman, 2012; Cortese, 2011; Moltz &
McCray, 2012)

• Both advance strategies for homegrown

prosperity
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 Small Rural Appalachian Community Economic
Development (CED)
Traditional ED Strategy / Tool Direct, Short-term
• Industrial development Economic
• Business retention / expansion Outcomes
• Workforce development • jobs
• Tourism • firms
Economic Development • prosperity
• wealth
Approaches
Alternative ED Strategy / Tool
• Entrepreneurship 1. Recruit firms from the outside
• Downtown development 2. Strengthen/expand existing firms
• Arts / Creative economy 3. Promote development of new firms
• Cluster-based development Other
• Residential development
Outcomes
• social
• civic
• environmental
CD Capacity Building Strategy /
Tool
Indirect, Long-term
• Transportation
• Broadband / Internet / Social Media
• ED finance
• Philanthropy
• Strategic planning
• Leadership development
• Organizational development
 Localization

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 Local Ownership Matters
1. Higher multipliers
2. Great community wealth: Fleming and Goetz
(2011)
3. More dynamic
4. Healthier residents: Blanchard, (2012)
5. Better community planning
6. Greater creativity
7. Greater political participation

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 How do you “localize”?

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 Methods
• County Business patterns from the Census Bureau

• Nonemployer Statistics from the US Census Bureau

• Zip code analysis indicated that all but two of the 392
establishments in Berea have fewer than 500
employees and therefore qualify as small businesses.

• The Census Bureau’s Nonemployer Statistics, revealed

an estimated 1,548 individuals have their own
businesses in Berea, with sales of $47 million per year.

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 Methods (continued)
• The IMPLAN Input-Output model unifies
various federal databases and fill in the gaps

• Berea’s economy is to compare its

composition to the United States as a whole.

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 Berea’s Profile
• 329 Establishments
• 1,534 Self employed
• 294 Farmers
• 2,500 Public employees
• $413M in wages
• $25M in state and local taxes
• $1.9B GDP

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 Compared to the USA
• 23% of the workforce is in manufacturing—more
than 2 X the national average.
• Berea also has much greater numbers of people
in education, health, and social services.
• 1/3 less than the national average of its
workforce in the arts, entertainment, and
tourism.
• Finance sector is about 1/2 the national average,
which suggests how little capital is available for
business growth.
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 Shuman argues in Going Local (1998);
The Small-Mart Revolution (2006)
“ economic development performs best when it
is focused, laser-like, on businesses “ that are
locally owned and import substituting. Local
ownership means that working control of a
company is held within a small geographic area.
Import-substituting means that the company is
focused first and foremost (though not
exclusively) on cost effective production for local
markets.
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 Leakage analysis
• Identifies all those sectors in the economy where a
community is unnecessarily importing outside goods
and services. Every unnecessary import represents a
loss of dollars and a loss of the "multiplier" impacts
those dollars could generate locally.

• It also represents a loss of other documented benefits

that local businesses bring, like knowledge, skills, tax
payments, charitable giving, revitalized downtowns,
tourists, stronger civil society, and more political
participation.

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 BALLE Job Leakage Calculator

5,739 additional jobs

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 40 Export Industries
• Manufacturing parts for automobile supplying
the assembly plant in Georgetown, KY.
• Role of Berea College, and many nonprofits
promoting human rights and environmental
protection;
• Presence of a largely retirement population,
nursing homes, funeral parlors, and cemeteries
• Major services sector providing residents
throughout the region (some of whom may be
coming to work in Berea) with child care, taxis,
limited restaurants

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 40 Local businesses that could meet
demand
1. Global companies (no headquarters)
2. Professional services (outsourcing pros)
3. Intermediaries (outsourcing warehousing)
4. Tourism (lacks critical mass)
5. Food and retail (not capturing shopper fair
share)
6. Finance (no local insurance, securities brokers)
7. Health Care (need for full-service mental-health-
care facilities)

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What If 25% of Berea businesses could
meet 25% of local demand?

INPLAN MODEL – 1,398 jobs

BALLE Calculator – 1,435 jobs

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 Some Not Possible

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 3 Largest sectors

Professional services (317)

Wholesale trade (198), and
Tourism (168)
•

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 Five Clusters – 1,300 jobs
• Goods distribution, warehousing, and trucking
(232 direct jobs);
• Professional services (247)
• Finance, insurance, and real estate (167)
• Local food (103)
• Tourism (60)

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 Advisory Board Constructs
6 Working Groups
• Large businesses
• Small businesses
• Entrepreneurial ventures
– Food Sector
– Energy sector
– Finance

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 Next Steps

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