Economic Gardening – Solving Spokane’s Economic Challenges
November 2, 2010 2 Comments
“Economic Gardening” is a topic I have wanted to cover since I began this blog – finally! And it’s fall and the seeds on this Douglas Maple are getting set to drop and start new seedlings next spring …
The concept of “economic gardening” began in Littleton, Colorado and lays out the background to why Spokane’s economic situation has (as documented by the data on this web site) fallen behind the income growth of Washington and the nation. “Economic gardening” is about growing your own business community by harnessing local innovation – and not being dependent on recruiting companies (or big government programs) from some where else.
The following also leads to general ideas towards a solution … read on!
Does this first paragraph quote sound familiar?
At the time, the entire state was in a recession and Martin Marietta, the community’s major employer, had laid off several thousand employees. There were nearly a million square feet of vacant retail space and downtown vacancies were approaching thirty percent. The Littleton city council expressed displeasure at having our future being dictated by out-of-state corporations and directed staff “to work with local businesses to develop good jobs.”
via Economic Gardening. All of the following quotes are from the Economic Gardening page at the Littletongov.org web site.
If an outlying area was successful at attracting new industry, it seemed to be a certain type of business activity: the branch plant of industries that competed primarily on low price and thus needed low cost factors of production. Rural towns with cheap land, free buildings, tax abatements, and especially low wage labor would “win” these relocating businesses. Our experience indicated that these types of expansions stayed around as long as costs stayed low. If the standard of living started to rise, the company pulled up stakes and headed for locations where the costs were even lower, often Third World countries.
we launched economic gardening with the simple concept that small, local companies were the source of jobs and wealth and that the job of economic developers should be to create nurturing environments for these companies.
…. it became clear that only three to five percent of all companies were high growth and these were creating the great majority of new jobs. Birch coined the term “gazelles” to describe these nimble, fast growing companies, a term which has since come into widespread usage. This small percentage number turned out to be true for Littleton and seems to be generally true for most communities (company towns being the obvious exception).
What we did notice in fast growing companies was a high correlation between growth and innovation. New products and processes seemed to be their lifeblood. At about the same time, we discovered works by economists Paul Romer, Paul Krugman, Brian Arthur, Annalee Saxenian and others that seemed to reinforce this point. It’s really ideas that drive companies and economies. Based on this, we proceeded to develop a full blown 13-part seminar series to bring state-of-the-art business practices to Littleton companies with a focus on innovation. We ran these for four years trying to make dramatic differences in the revenues and employment levels of our target companies. …. Instead, we ran head on into what most Small Business Development Center directors know in their heart of hearts—this activity is mostly a waste of time.
They found that creating a fast growth, innovation-based company depended entirely on the “temperament” of the CEO. No amount of government programs to “create innovation businesses” will succeed – until you change the culture.
in trying to understand why we weren’t having any more success than we were, we always came back to the same fact: Temperament is not very amenable to change, at least over short periods of time.
We read a study out of Dallas that indicated the most vibrant economies (in terms of producing jobs and wealth) were highly unstable in the sense that they had the highest rate of business start ups and business deaths. This turbulence also looked like an economy operating at the edge of chaos.
temperaments in organizations are much like regimes. Guardians are stable tending toward frozen ice while intuitives are chaotic like fire. Organizations that adapt and survive over the long run are neither ice nor fire, they are both. Intuitives provide the ideas, push for the changes. The Guardians provide the stability and the order that allow ideas to come to fruition
Bu the local planners came to realize they cannot make innovation happen. It takes a major culture change:
Even though we knew the tools and techniques that helped make entrepreneurs successful, there was another intangible (but very real) factor keeping local economies from improving. For the lack of a better word, I initially called it the “culture” of a community. By this, I meant the way that entrepreneurial activity and risk and innovation and even diversity and newness are viewed by local people.
The Morgan Leigh Group 2003 report documented that in Spokane “We frown on risk-taking”.
The next paragraph applies to where Spokane has come from – and to a fair extent, still is:
The Commodity Trap
In particular, I began to see a distinct pattern in “resource production” towns – communities that existed primarily to produce natural resources (farming, ranching, mining, timber, fishing). Because natural resources tend to be commodities – that is there is no difference between them – the consumer makes a decision based on the lowest price. Thus commodity producers are in a race to the bottom to provide ever cheaper prices which puts extreme pressure on employee wages.
Commodity production is not only the major reason for widespread poverty in these types of communities, but it also affects mind set about entrepreneurial activity. When profit margins are razor thin, a single mistake can send a farm, a ranch, a saw mill, a mine, a fishing boat into bankruptcy. Fear of mistakes and failure becomes paralyzing to innovation and risk.
Consequently, this type of environment – survival – reduces risk taking entrepreneurial activity. Then, like Spokane,
commodity towns tried to improve their situation by recruiting commodity industries. These towns billed themselves as low cost environments for business—low labor costs, low land costs, low utilities, low taxes.
Recruiting “successes” brought in commodity businesses who stayed as long as costs were low. When the standard of living started to rise, the commodity companies left for Mexico or southeast Asia where costs were even lower.
The linked web page where these quotes originate does not entirely solve the culture problem. The description of the commodity-based economies in smaller isolated towns – like Spokane – fits well. The description, above, applies to Spokane’s loss of many large companies (Kaiser Mead Smelter, parts of Kaiser Trentwood Rolling operations, Agilent, Itronix, ISC/Getronics, and others) – which as I documented have largely gone overseas for locations even cheaper than Spokane.
The question left unanswered is – “How do we change the culture here from risk aversion status quo to risk-taking entrepreneurship and innovation?”
The immediate problem is not the lack of resources to help support Spokane area entrepreneurship – the problem is the lack of a culture that fosters rule breaking, mind bending, risk taking innovation.
The key then is to determine:
- Step 1 is to accept that our current plans have not gone far (go read the history of Spokane area economic plans linked at right of this page). The chart I have drawn of a decades long drop in per capita income relative to the nation points to the general failure of current plans.
- Step 2 is changing the area culture to one that fosters and accepts risk taking as is done in Seattle or Silicon Valley. I have no idea how this is done or how to proceed. Suggestions wanted! This takes an entire community to change its outlook.
- Step 3 is to provide the necessary support structures – this means a combination of government, education and business initiatives.
Jumping to Step 3 without addressing the culture issue will not lead to the results we want. We must address Step 2 first.
At Step 3 we have SIRTI (provided your business idea fits their template model). We then need to add StartupWeekend and similar ideas to create new businesses, preferably those that are in tradable clusters, delivering products and services to outside the area to generate and bring income from elsewhere, into to Spokane. We need other kinds of business support too.
SIRTI ought to be the local sponsor of StartupWeekend.
But let’s not put the cart in front of the horse – we need to figure out Step 2 first!