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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.
6
0
2
4
6
8
10
12
14
16Jan 2006-April 2012 Unemployment Rate
U.S. Illinois Indiana Michigan Ohio Wisconsin
Per
cent
Unemployment has been falling since mid 2009
7
Jan-8
1
Jan-8
3
Jan-8
5
Jan-8
7
Jan-8
9
Jan-9
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Jan-9
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Jan-9
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Jan-9
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Jan-9
9
Jan-0
1
Jan-0
3
Jan-0
5
Jan-0
7
Jan-0
9
Jan-1
150
55
60
65
70
75Employment-Population Ra-
tio
U.S. Illinois Indiana Michigan OhioWisconsin
Employment Population Rate has been falling since 2000 and flat since mid 2009
8
National Employment
9
60 months after the onset of recession, seasonally adjusted, Month 0 =100
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1981.7-1982.11 1990.7-1991.3 2001.3-2001.11 2007.12-2011.8
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60 months after the onset of recession, seasonally adjusted—initial month = 100
0
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115 Illinois Employment
1981.7-1982.11 1990.7-1991.3 2001.3-2001.112007.12-2009.6 U.S. 2007.12-2009.6
Months after Recession First Hits
10
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115Indiana Employment
1981.7-1982.11 1990.7-1991.3 2001.3-2001.112007.12-2009.6 U.S. 2007.12-2009.6
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115Michigan Employment
1981.7-1982.11 1990.7-1991.3 2001.3-2001.112007.12-2009.6 U.S. 2007.12-2009.6
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1981.7-1982.11 1990.7-1991.3 2001.3-2001.112007.12-2009.6 U.S. 2007.12-2009.6
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115Wisconsin Employment
1981.7-1982.11 1990.7-1991.3 2001.3-2001.112007.12-2009.6 U.S. 2007.12-2009.6
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
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
10
12
14
16
18
20
22 Non-farm Self-Employment Share
U.S. Illinois Indiana IowaKansas Michigan Minnesota OhioWisconsin Missouri
Pe
rce
nt
SMEs can be therebirth of Michigan
19
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
-5
-3
-1
1
3
5
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
1973
1975
1977
1979
1981
1983
1985
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)
22
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
70
75
80
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
23
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1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
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2009
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0
2
4
6
8
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12
14
Wyandot OH
OH and Wyandot County Annual Unemployment Rate
Source: Bureau of Economic Analysis: www.bea.gov
Beginning of economic re-covery
25
1990
1991
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1998
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10
13
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19
22
25
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.
28
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?
31
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US OH Wyandot
2009 % Educational Attainment: US, OH and Wyandot County
Percent
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.
37
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!
38
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.
39
4040
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.
42
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.
43
No Silver Bullet
44
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.
46
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.
47
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)
49
Appendix Slides
National Employment
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1981.7-1982.11 1990.7-1991.3 2001.3-2001.112007.12-2009.6 U.S. 2007.12-2009.6
Months after Recession First Hits
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115Indiana Employment
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1981.7-1982.11 1990.7-1991.3 2001.3-2001.112007.12-2009.6 U.S. 2007.12-2009.6
55
Jan-
81
Jan-
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Jan-
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Jan-
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1150
55
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75Employment:Population Ra-
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Jan-
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May
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Sep-0
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Jan-
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May
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Sep-0
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Jan-
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May
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16Unemployment Rate
U.S. Illinois Indiana Michigan Ohio
Pe
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57
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
98
100
102
104
106
108
110
112Population Growth
U.S. Illinois Indiana Michigan Ohio Wisconsin58
100
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112 Population Change
U.S. Illinois Indiana Michigan OhioWisconsin
59
Manufacturing Employment Shares
72
1972 1980 1990 2000 2006 20100.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
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.
7373
Great diversity in rural America:
74
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