State Development Tools

What they could be . . . 

Southern state officials need to broaden their working definition of economic development. Over time, the term economic development has become virtually synonymous with industrial recruitment. Today, however, economic trends are decreasing the value of recruitment — especially for rural communities. At the same time, promising alternative strategies for economic development are not being widely utilized. 

The South must reduce its emphasis on the hunt for outside industry and begin to plant the seeds for local business development. Most states in New England, for instance, have implemented programs to support local development organizations and spur entrepreneurship. Minnesota and California have also had innovative development programs, while Oklahoma has taken the lead in actively seeking out high school dropouts and providing remedial education as a basis for economic development. 

If Southern states are to make an impact in combatting the decline of their rural communities, they must follow this lead and diversify their efforts in economic development in these ways: by establishing a supportive environment for alternative development activities; by providing direct assistance and support for local development efforts in rural areas; and by reexamining other state policies and programs which affect the rural economy. 

 

A Positive Climate 

Perhaps the greatest barrier to the use of alternative economic development strategies is the perception of local leaders that such strategies cannot have a significant impact on their communities. Therefore, the most crucial role for state governments in the coming years will be to broaden these attitudes and create a climate which is favorable to alternative development. 

The states should educate civic leaders, local government officials, and the general public about the opportunities for locally based development strategies. In addition, states could 

• emphasize and coordinate the many scattered programs currently promoting alternative development strategies, such as minority business assistance, small business development, etc.; 

• help develop local leadership and local organizations which might sponsor alternative development activities; 

• offer awards to state employees and to local developers who are successful in implementing alternative development strategies. 

Southern states should also develop broader indicators for success in economic development — indicators which go beyond the number of jobs created by new plant locations and lost by plant closings. Additional measures could include the rate of new business formation; median per capita income; growth in the number of self-employed; levels of educational attainment and adult illiteracy; investment in local infrastructure development; and value of new loans to local enterprises. 

 

Direct Assistance 

While leadership and general support can go a long way toward encouraging alternative economic development activities, the states can also play a valuable role by providing direct assistance for rural economic development. These programs are most needed in three key areas: 

• Governors and legislators should promote state programs to encourage entrepreneurship and small business development with at least the same vigor that they promote industrial recruitment. For instance, state universities and technical colleges could become centers of small business development, providing market research, technical assistance, and leadership training to local entrepreneurs, especially in areas with a high minority population. States could also finance or facilitate the formation of revolving loan funds to provide seed money for promising rural business activities. 

• States should offer regional councils of government, local development organizations, and other economic planning agencies technical and financial assistance in order to promote alternative development activities like those described above. 

• Each state should establish a comprehensive program for responding to imminent plant closings. For instance, states should strengthen programs to coordinate federal funds for displaced workers, to develop an informal system of early warning for possible plant closings, and to provide technical assistance to employees or outside investors who might buy out the owners and keep the plants in operation. They should also utilize public employment services, postsecondary training institutions, and local development organizations to assist displaced workers not only in searching for jobs but also in starting their own businesses, becoming self-employed, or finding employment in nearby cities. 

 

Related Programs 

States must recognize that programs and policies outside the traditional realm of economic development can also be of great value or detriment to rural areas. Most important are those which concern education, transportation, and agriculture. 

In an era when educational attainment levels are becoming ever more crucial to development potential, Southern states must begin to view education not only as a public service but also as an investment in economic development. For instance, 

• adult illiteracy should be attacked as a matter of economic urgency. Illiterate adults should be reached and trained — to improve their job potential, to break the cycle of illiteracy, and to enhance the area's long-term growth potential. 

• dropouts should be vigorously recruited in rural communities and trained by alternative high schools or technical colleges to improve basic competencies, communication skills, job readiness, and entrepreneurial awareness. 

• secondary vocational education, designed for the manufacturing economy, should be restructured to emphasize thinking and problem solving, basic math and literacy, and basic entrepreneurial skills which might enable rural residents to respond flexibly to market opportunities. 

States must recognize the importance of adequate transportation to the economic development prospects of rural areas. This includes allocating funds for maintenance and repair of rural roads and bridges, for highways to depressed rural areas, and for innovative methods to provide public transportation services to rural areas, such as using school buses for other public needs. 

States should promote programs and policies to minimize the effect of the current crisis in agriculture on Southern farmers. Specifically, states could broaden the mandate of the agricultural extension service to ease the transition of most-at-risk farmers to employment in the larger economy and to assist local development organizations with technical advice and market research. States should also seek a regional consensus on federal agriculture policy. Southern agriculture is currently at the mercy of federal policy decisions and the national economy. A regional position should be hammered out by Southern governors on trade, economic policy, and federal farm programs. 

These recommendations represent the types of changes and initiatives which might prove beneficial to states in combatting the ominous trends facing their rural areas. More important than any specific recommendation, however, is a new philosophy and way of thinking. Southern policymakers must recognize the gravity of the problems facing the rural economy, and they must respond by broadening their approach to economic development. 

This set of recommendations is drawn from "Shadows in the Sunbelt," one of several reports on the rural economy and alternative development strategies prepared by MDC, PO. Box 2226, Chapel Hill, NC 27514. 

 

But what they are now 

To persuade new business to come in and to dissuade the old ones from leaving, development agencies use a variety of tools. An overview of these tools is described by Tom Schlesinger and George Ogle in a Southern Neighborhoods Network pamphlet, "A Look Into Our Community's Economy." 

 

Financing 

Development agencies may serve as the grantee for a myriad of federal programs. Some agencies may also be tied to public or quasi-public funds that make loans to new and expanding industry. Recently a number of states have established special venture capital funds to bankroll high technology ventures. And nearly all local development agencies issue tax-free industrial revenue bonds to finance the start-up of new industries. 

 

Taxes 

Many areas offer property and state tax abatements and exemptions as part of their incentive package. These can include the creation of Foreign Trade Zones; exemptions on business inventory, "goods in transit," pollution control equipment, industrial fuels, and raw materials; and tax credits for job creation or capital investments. 

 

Education & Training 

Nearly all areas offer customized job training to industrial recruits. Typically the development agency assumes the entire cost of preparing a work force for the company if its employees are used during the training process. Though these programs are publicly financed, they rarely guarantee that trainees will actually be hired; the company gets to choose. 

 

Weak Labor Laws 

In the South, many local and state policymakers have long considered "right to work" laws, low wages, weak worker compensation laws, and the absence of unions their strongest card in industrial recruiting. Some development agencies play an active role in stymying unionization of existing businesses and in training plant managers how to minimize worker compensation expenses or avoid suits for racial or sexual discrimination. 

 

Regulation 

Development agencies frequently promise to waive environmental, land-use, or building code standards for industrial recruits or to expedite the process of permit gathering with "one-step" mechanisms. They also offer monitoring services, such as for air quality, to save industrial prospects the costs of doing their own monitoring. 

 

Infrastructure, Physical Plant, and Process Subsidies 

In addition to industrial revenue bond financing, development agencies offer a variety of other subsidies that aid a company's purchase or use of land, buildings, equipment, transportation facilities (roads, rail lines, waterways, air fields), energy and waste treatment, and waste dump sites. In many cases, state governments have encouraged communities to make these types of investments — particularly road and plant construction — on a speculative basis in order to attract industry.