1

The Power of Entrepreneurship and Knowledge in Rebranding the

MidwestPresented at

Midwest Governors AssociationColumbus, OH

June 27, 2012___________

Mark PartridgeSwank Professor in Rural-Urban Policy

The Ohio State Universityhttp://aede.osu.edu/programs/Swank/

Why does the Midwest need to get it right?

• In a globalizing world and factors are more mobile, regional policy takes on added importance (Thisse, 2010).

• In a global setting, small competitiveness gaps lead to magnified factor movements, creating big winners and big losers.

• US migration rates have greatly declined after 2000, meaning unemployed workers are more likely to remain in their home (Partridge et al., 2012).

2

Outline Entrepreneurship & Knowledge is King

1. Today’s moral is that the best strategy is using our region’s own assets.

2. Two assets I will stress:• Our people and our businesses. We already

have what it takes in the Midwest!• Provide the right incentives, knowledge and

skills for them to thrive.3. Leverage our universities and existing

business resources to create the right environment.

3

Entrepreneurship & Knowledge 4. Focus on attracting the right people and less

on attracting outside firms.• Make it that outside firms want to come to your

great environment for people and businesses.

5. With this good foundation, the Midwest will have the best chance to thrive.

4

Entrepreneurship & Knowledge

• Now is the Time.• Coming out of recession is the best

time to make a move as thing become unfrozen.

• SIMPLE STRATEGY! Be patient and build from within while leveraging local and regional assets.

5

Today’s Environment is Tough

• We are in a national jobs crisis that dates to 2000. The seven years before the Great Recession had the lowest job growth of any seven years dating to the 1930s.

• People are dropping out the labor force rather than searching for work and being counted as unemployed.

• All of this and there is still an underlying concern about workforce quality.

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16Jan 2006-April 2012 Unemployment Rate

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75Employment-Population Ra-

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U.S. Illinois Indiana Michigan OhioWisconsin

Employment Population Rate has been falling since 2000 and flat since mid 2009

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National Employment

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Months after Recession First Hits

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14

How can the Midwest successfully compete globally?

• 1. Education and entrepreneurship are local forces that promote prosperity.

• 2. Midwest need to become more resilient to shocks.– Ongoing global economic sluggishness. – The Midwest’s manufacturing legacy has produced

wealth, but creates risk and variability. • As manufacturing has declined in employment, this

reduces variability and creates opportunities for other sectors.

15

Entrepreneurship

• Business retention and expansion is better than tax incentives for outside investment.

• Focus on small and medium enterprises or proprietorships.

• On the negative side, small businesses lay off more workers.

• But, on net, they create more jobs than large businesses.

16

Entrepreneurship• Faggian et al. (2011) find SMEs play an

important role in increasing job growth.• In lagging or remote regions, Stephens

and Partridge (2011) find proprietorship raise job growth.– Small businesses and self employment are

strongly associated rural growth.(Goetz and Raupasingha, 2009; Stephans and Partridge, forthcoming 2011 Growth and Change)

• SMEs buy locally and they are less likely to move or outsource.

17

Entrepreneurship• SMEs are an internal engine of

entrepreneurship.• They support a more diverse economy that is

resilient to shocks (Partridge and Olfert, 2011).

• Innovation occurs in small firms (Brewen et al 2009) • Their importance is rising nationally and

in the Midwest and are countercyclical in their effect.• Growing in MI & IL and lagging in IN & KS.

Al.

1980

1982

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1990

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1994

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10

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22 Non-farm Self-Employment Share

U.S. Illinois Indiana IowaKansas Michigan Minnesota OhioWisconsin Missouri

Pe

rce

nt

SMEs can be therebirth of Michigan

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1981

1983

1985

1987

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1991

1993

1995

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1999

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-5

-3

-1

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7 W&S and Proprietor Percent Growth in Employment

U.S. Wage and Salary Midwest Wage and SalaryU.S. Proprietor Midwest Proprietor

Pe

rce

nt

Gro

wth

20

Case study the Rebirth of Wyandot County, OH

• Wyandot County is a rural county that was greatly prospered in the latter 1990s due to the auto industry. It began to suffer after 2000 with plant closings. Now it is regaining its strength on home-based entrepreneurship.

• Amanda can you add pictures of the place• Amanda Self Employ graph• Amanda State employ graphs

21

1969

1971

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1977

1979

1981

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1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

2009

1,0002,0003,0004,0005,0006,0007,0008,0009,000

10,00011,00012,00013,00014,000

Total Manufacturing

Total and Manufacturing Employment: Wyandot County

Source: Bureau of Economic Analysis: www.bea.gov

2003-2009: 2,634 lost man-ufacturing jobs and 3,002 lost total jobs (about a 1.14 multiplier)

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1990

1991

1992

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1998

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70

75

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85

90

95

100

OH/US Wyandot/US

Ohio and Wyandot County Per Capita Income Rela-tive to the US: US = 100

Source: Bureau of Economic Analysis: www.bea.gov

Bust

Recovery

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Wyandot OH

OH and Wyandot County Annual Unemployment Rate

Source: Bureau of Economic Analysis: www.bea.gov

Beginning of economic re-covery

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Wyandot OH USSource: Bureau of Economic Analysis: www.bea.gov

Percent Nonfarm Proprietor Employ: US, OH & Wyandot County

Declining Small Business Capacity

Revival of Small Business Ca-pacity

Good Strategies--cont• Promote small business entrepreneurship by:

•Business, Retention, and Expansion• Build networks and identifies strengths and weaknesses in

a community. University extension is a good source.

•Treat all businesses alike.•Government can help build larger lending pools to reduce credit risk.

• If you build a good climate for investment, your own businesses will thrive and STAY!

26

Business Retention and Expansion• Take advantage of farm entrepreneurship.

Research has found a greater farm share is positively linked to nonfarm entrepreneurship. (Source: Stephens and Partridge, 2011, in print).

• Today, farmers are great role models• 1. Tied to land—not outsourcing to China.• 2. Has experience managing medium sized

business and has developed entrepreneurship.• 3. Understands futures markets, global markets,

exchange rates, knows how to manage capital.• 4. Has financial wealth to invest.

27

Why the Race for Knowledge?

1. Individual earnings significantly rise with knowledge, skills, and education.

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29U.S. Census Bureau, Statistic Abstract of United States, 2012, Table 232, http://www.census.gov/compendia/statab/cats/education.html

Not a high school

graduate

High school

graduate only

Some col-lege, no degree

Assoc. Degree

Bache-lor's

Master's Prof Degree

Ph.D. or equal

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

US Mean Earnings by Educational Attainment, 2009

Why the Race for Knowledge?

2. This understates an individual’s gain to education as employment rates rise and unemployment rates fall with education. Source:

OECD, 2010.

– May 2012 UR 25+ ≥ College Grad: 3.9%; UR no high school completion, 13.0%, Source, U.S. BLS, May 2012 Employment

Situation Report.

– So they are more likely to work, and among those working, they are more likely to earn more.

– Educated workers suffer less in downturns in terms of unemployment—more resilient.

30

Why the Race for Knowledge?• Good for people, but what about communities?

3. There are ‘social’ gains from greater education. People who work in areas with more education have higher earnings themselves

– (Source: Moretti, 2004).

– Knowledge spillovers.

4. Places with a more educated population grow faster in terms of jobs and people.

– (Source: Simon and Nardinelli, 2002; Glaeser and Shapiro, 2003; confirmed in our research using post 2000 data)

• What about the Midwest?

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US OH Wyandot

2009 % Educational Attainment: US, OH and Wyandot County

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Ohio and Midwest is good at the bottom but weak at the top

How Can the Midwest Win the Race for Knowledge.

• Colleges and universities are a key for economic development, especially community colleges because Associate Degree is underutilized.

• Spearhead business training and provide incubators.

• Business can count on a capable workforce.

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How Wyandot County can win race for Knowledge?

21th Century will belong to places that use their knowledge to leverage their assets. • Midwest communities should be attractive to

knowledge workers – Quality of life, pleasant environment, sustainable

development—this is good economics!

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Good Strategy: Leverage Regional Strength?

Recognize rural-urban interdependencies• In 1950, communities detached from neighbors• 21st Century communities are linked in webs

– Growth spreads out a hundred of miles from a city as small as 30,000.– Source: Partridge et al., 2007

• If someone can commute, they shop, utilize health care, participate in service organizations, etc.

• Regions share common interests and the gains should be exploited regionally.

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Rural Depends on Urban for:

Urban Depends on Rural for:

Employment Labor Force

Private and Public Services Market for Private and Public Goods and Services

Urban Amenities Market for Urban Amenities

Market for recreation activities

Recreation

Market for agriculture products

Food Safety and Security

Demand for Environmental Stewardship

Natural Environment

Property taxes/land market Land for Residential and Industrial Expansion

Rural-Urban Shared Fates--cont• Economists contend gov’t jurisdictions

should reflect common interests.• Economic development• Tax sharing of common economic gain to share

costs• Environmental costs and sprawl• Infrastructure is inherently regional

41

Example of Action• Regions that realize they are linked will have a

competitive advantage in the global economy.– Lower taxes, better infrastructure, better public

services, stronger economic development– Just being a little more competitive will shift capital

from around the world at the click of a mouse.• Regionalism is the real sleeping giant for rural

communities for sustainability.

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Reality Check•No Guarantees!! Not all regions will succeed!•Even doing the right things is insufficient when conditions are unfavorable.•Consequences of pursuing bad policies are high costs and it may prolong the ‘misery’ because people will be less likely to adjust by finding better opportunities.

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No Silver Bullet

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Future Challenges- Globalization is likely to increase

- Good: more market opportunities successful- Bad: more competition and threat of

outsourcing. Midwest is vulnerable.- Technological innovations can change a

region’s competitive advantage for good and bad—by definition hard to predict.

- Austerity and prolonged global sluggishness.- Goal is to make your community a safe haven

for these emerging challenges.- 45

Conclusions• Build from within the Midwest as the best

strategy for success. Trust our people!• Fostering local entrepreneurship is much

better than hoping outsiders will ‘save’ our region.

• Our communities have a wealth of good business ideas, including agriculture.

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Conclusions• Leverage our universities and other

resources as a source of workforce development, retaining and expanding our local businesses, and training entrepreneurs.

• Leverage broader regions to do things individual communities can’t effectively do alone.

• No sure plan!• Future challenges are immense—but wise

communities can make these manageable or turn them into opportunities.

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4848

Thank you

Presentation will be posted at The Ohio State University, AED Economics, Swank Program website:

http://aede.osu.edu/programs/Swank/ (under presentations)

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Appendix Slides

National Employment

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16Unemployment Rate

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Manufacturing Employment Shares

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1972 1980 1990 2000 2006 20100.00

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US Employment Share in manufacturingOH Employment Share in manufacturing

Wyandot County is not alone in facing severe manufacturing contraction but this is helping to promote long-term recovery.

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Great diversity in rural America:

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Wyoming: Alberta on Steroids!

14.43%

3%

7.13%

39.6%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

WY 1981 mining share

WY 1981-2004 population growth

AB 1981 mining share

AB 1981-2004 population growth

WY’s greater natural resource intensity did not produce faster growth