Adding Microenterprise to the Development Mix
Economic development policy wonks like to play “smoke stack chaser” and ignore microenterprise in their strategies (article reprinted from national micro journal).

One of the issues this presidential campaign year has brought out of the shadows is the challenge of bringing economic development to ailing rural communities around the country. Recently, the Progressive Policy Institute, a somewhat left-of-center think tank affiliated with the Democratic Leadership Council, weighed in on the issue with a policy paper entitled “Reversing America’s Rural Economic Decline.”

Arguing that our traditional economic development policies favor areas of the country with denser population centers that cause rural communities to be left behind, the paper makes the case for a plan to ease farm subsidies (contingent on persuading our international trading partners to do the same) and using the savings to fund a plan to use information technology to spur growth out in the countryside.

The paper is subtitled “The Case for a National Balanced Growth Strategy,” but the plan is not exactly balanced. It still depends on the rural version of population centers, small cities with population densities (when combined with the surrounding counties) of between 20,000 and 100,000. It still focuses its attention on fast-growth entrepreneurial companies that will generate a lot of jobs to which rural residents can commute. And it does not offer any balance between having a few growing companies creating a lot of jobs and having a lot of little companies creating a few jobs each.

That kind of balance is often the true key to success in rural economic development, according to the folks on the ground. “It’s easy to say those kinds of things but, in the real world, it isn’t logical,” says Jeff Reynolds, program director of the Rural Enterprise Assistance Program in Plymouth, Nebraska.

When you stop and think about it, there is really very little difference between today’s entrepreneur-bait development philosophy and the “smoke stack chasers” of yore. In general, there is an assumption on the part of many economists who tackle the issue of economic development that one needs to entice large companies or rapidly growing companies to operate in a struggling community and create a lot of jobs there.

But that assumption, which ignores what Reynolds calls “the micro side of things,” does not take a number of factors into account. For one thing, many larger companies considering a new home in a smaller community will often base their decision on the health of the small business sector in that community. The Main Street microbusinesses are often the most significant contributors to creating an attractive lifestyle that would entice the workforce that large company is looking for.

In addition, the “growth pole” strategy favored by the Progressive Policy Institute would still result in rural communities being left in the economic development dust if they did not happen to have population density or geography on their side. For example, in Delaware County, New York (where WPI is headquartered), economic development is hampered by a range of issues, from unreachable areas in the middle of the Catskill Mountains State Park to environmental concerns about New York City’s drinking water.

In Nebraska, where Jeff Reynolds is doing his microenterprise development thing, there are some 540 communities, most of which are “very small and very spread out,” where businesses are all very small and people are creating their own jobs. Logistically speaking, growth pole economic development is not practical for those communities.

In places like that, microenterprise development is the only game in town. So why is microenterprise development so routinely ignored by the wise old owls with the economist label hats? Perhaps it is difficult for those economists to see the forest for the trees. Microbusinesses generally earn relatively little in revenues and generate only a few jobs each, at best. Many of those economists seem unable to treat the impact of thousands of such little businesses on the health of a local economy with the respect it deserves.

Another possible reason why members of the nation’s community of economic policy analysts seem inclined to ignore the micro side of things has to do with their perception of what microenterprise development is. Many microenterprise development professionals have a background in social work; that’s one reason why the Association for Enterprise Opportunity focuses so much of their resources on offering training for its member organizations.

In fact, microenterprise development is public policy multitasking, addressing a fairly wide range of public needs with just a few activities. It is community development and job training and infrastructure building and asset building and civil rights activism and leadership training and educational enhancement and more, all rolled into one.
Because of that, economists seem to mentally focus on the social service and ignore the economic development aspect of microenterprise development. And that is almost certainly a very big mistake. “Micro drives the economy,” as Mr. Reynolds puts it. “Micro makes up most of the businesses in the country, they need the most help and they have the fewest people to help them.”

It is certainly short-sighted, at best, to focus so exclusively on figuring out how to get big companies or fast-growth companies to locate in rural communities to the exclusion of the microbusiness backbone of the community. “More traditional businesses, the so-called ‘Mom and Pop’ businesses, will always be the heart and soul of America,” says Reynolds. And it is folly to imagine that it might be possible to rebuild rural economies without them.