posted on March 15, 2010 11:03
By Joe Borgstrom, Director
Specialized Technical Assistance
& Revitalization Strategy Division
Michigan State Housing Development Authority
Whenever I introduce myself to a crowd, I typically tell folks I’ve spent my entire thirteen-year career in economic development: half in downtown redevelopment, half in “traditional” economic development (i.e. “smoke stack chasing”). I’m always conscious of calling downtown redevelopment “economic development,” because it is often considered “real” economic development’s little brother. It’s cute, it makes everyone feel good, but it is usually stuck at the kid’s table when it comes to serious economic policy. It shouldn’t be. Here’s why:
How Local Economies Work
I’ve had the good fortune to work with economist Bill Fruth twice in my career. Bill has one of the best analogies of how local economies work: In essence, local economies are like big buckets of water. In this example, water is obviously a representation for money. Every time you purchase something not made and sold within your community you create a leak in the bucket. If you buy something made from somewhere else from a locally based retailer, the hole in the bucket isn’t as big as if you bought the same item from a chain based outside your economy. Why? As groups like Local First point out, locally owned business owners tend to live locally, paying local taxes on their homes and hire other locally owned businesses for needs like legal or accounting, whereas national chains typically do those things in the community in which they are headquartered. What you buy and where you buy it from determines the size of the holes in the bucket. In all practical terms, it is impossible to have a bucket that doesn’t leak.
So if all this water leaves, why isn’t our bucket empty? Well, putting water back in the bucket is the traditional role of economic development efforts. What your community makes, and where it sells it to, determines whether you are adding water to your bucket or plugging holes. Any time you sell a good or service outside your community, your local bucket adds more water. If you get more water than you let leak out, your bucket expands and your local economy grows.
This “refilling” of the bucket has traditionally been done, especially in Michigan, by the manufacturing sector. At its very core, manufacturing is making things to be sold elsewhere. For roughly a century, Michigan made more automobiles than anyone. We shipped these vehicles all over the globe. People bought the cars and a good chunk of that money came back to the communities they were made in the form of wages and property taxes. A LOT of water was added to the bucket. As a result, economic development efforts were focused on the easiest way to refill the bucket…help manufacturers. Over time, manufacturing became synonymous with economic development. In actuality, economic development efforts should help any local business that sells its goods or services outside the local economy. Furthermore, economic development should also look not to just add more water to the bucket, but also look to plug the holes as well.
The Role of Downtown Retail
For the sake of clarification, I use the term “downtown retail” as a synonym for “locally-owned retail” because a vast majority of downtown businesses in Michigan are locally-owned (far more so than businesses in strip development.)
So how does this all tie into downtown retail? For years, downtown retail has been seen strictly as holes in the bucket. At its best, even in Fruth’s example, it is seen as a mixer of money- nothing more, nothing less. However, I submit that ignoring downtown retail as an economic development engine is short-sighted in two ways.
First, the old, easy way of doing economic development is not so easy anymore. A lot of economic development strategies have done well in looking to find the next manufacturing “thing.” Our state has had some tremendous success in the green technology and advanced battery sectors. However, these manufacturers are just harder to come by and thanks to efficiencies, not many are hiring in the thousands as in decades past. Meanwhile, technology and aggressive tourism have allowed downtown retailers to move from economic “mixers” to contributors. The proliferation of websites and online retailing allows downtown retailers to sell their goods anywhere in the world. Also, tourists who come to a community and purchase a good or service while there also contribute and downtown shopping is a prime activity of tourists in Michigan. Remembering the original reference that as any business that sells its goods or services outside its local economy it adds water to the bucket. Downtown retailers move from mixer to contributor.
Second, plugging the holes (or making them smaller) leads to more water staying in the bucket, thus also growing the local economy. Not doing so is like turning up the thermostat with all the windows and doors open. It won’t matter how much water you pour in the bucket if it all rushes out at the same rate. In a time when economic contributors are harder and harder to come by, making sure the windows and doors are closed can a have as significant and profound impact on the local economy as a major new contributor.
Thankfully, our state is learning its lesson. Our partners over at the Michigan Economic Development Corporation continue to do great work at diversifying our economy on a large scale beyond traditional manufacturing. Among other efforts, their Travel Michigan division has established a national award-winning tourism brand in “Pure Michigan” to compete for tourism dollars. Our friends over at the Michigan Small Business & Technology Development Centers continue their outstanding work helping would-be entrepreneurs start their own small businesses. While we here at the Michigan Main Street Center @ MSHDA continue to help communities equip their downtowns to be welcoming & fertile environments for these small businesses to be successful.
Has your community’s thoughts on economic development evolved to include helping downtown retail? It should. Please share your thoughts below.