Building Ohio’s Communities From Within
County Commissioners Association of Ohio Annual
Conference
Columbus, OH
June 25, 2015
Presented by: Mark D. Partridge
Swank Chair in Rural-Urban Policy
Partridge.27@osu.edu
Introduction/Outline
 Comment on some Ohio examples to motivate my point.
 Best successful economic development strategy is to “build
from within.” Each community and its broader region
have sufficient assets for prosperity—namely its people.
 Three assets I will stress:
•
•
•
Working collaboratively as a region.
Your people and your businesses.
Provide the right incentives, knowledge and skills for them to thrive.
 Smart, Collaborative, Entrepreneurial Development
 SIMPLE STRATEGY! Be patient and build from within
while leveraging local and regional assets.
2
Hoping someone else saves your community is
somewhat unrealistic.
 It is akin to going to Vegas and betting on black in roulette
(though the odds are better in Vegas).
 Let’s take a recent example of what many people thought
was a sure thing, oil and gas and the “shale revolution.”
 Commenting on shale energy development: “This will be the
biggest thing in the state of Ohio since the plow…This is
truly extraordinary.” Aubrey McClendon Then CEO of
Chesapeake Energy of Oklahoma.
 Quoted in the Columbus Dispatch “Realism on Renewable Energy.” September 22, 2011, Pp.
B1-B2.
 Actually this is a good example of how an unforeseen technological
event can disrupt “sure things.” e.g. shale technology has greatly
squeezed the oil sands in Alberta, which was illustrated by the recent
election of the very liberal New Democrats.
3
Oil and Gas
 Reports that America is the #1 gas producer in the world
and perhaps will be the #1 oil producer.
 Implications for energy independence, though oil prices are
determined on global markets.
 Struggling communities gain a badly needed economic
boost! But how much and at what cost?
 Kleinhenz and Associates (2011) predicted 200,000 jobs by 2015;
Weinstein and Partridge (2011) predicted 20,000. Actual
numbers are around 10,000-12,000…..
 Boom-bust cycle makes it challenging for communities to thrive
and attract investment outside of energy. Energy development can
crowd out other sectors and reduce entrepreneurship.
 As of June 19, Baker Hughes reports that drilling rigs in Ohio are
down to 20 from 48 in mid-January 2015. [http://phx.corporateir.net/phoenix.zhtml?c=79687&p=irol-reportsother.]
4
Employment in Direct and Key Indirect Oil and Gas
Sectors in Ohio (2004, 2010, and 2014)
9,000
8,000
2004
7,000
2014
2014
6,000
Employees
2010
5,000
4,000
3,000
2014
2010
2004 2014
2,000
2004
2010
2014
1,000
20042010
20042010
2014
20042010
-
200420102014
2004 2014
2010
21111 - Oil and 213111 - Drilling 213112 - Support 237120 - Oil and
238912 333132 - Oil and 486210 - Pipeline
541360 Gas Extraction Oil and Gas Wells Activities for Oil
Gas Pipeline
Nonresidential
Gas Field
Transportation of Geophysical
and Gas
Construction
Site Preparation Machinery and
Natural Gas
Surveying and
Operations
Contractors
Equipment
Mapping Services
Manufacturing
5 Bureau of Labor Statistics Quarterly Census of Employment and Wages (http://www.bls.gov/data/), NAICS codes listed for each sector. Employees for 2014 were
Source:
estimated by averaging the 9-month average for Oil and Gas Extraction (21111). The increase in the 9-month average from 2013 to 2014 for Oil and Gas Extraction - about 17%
Employment in Mining (1,000s)
(2004 - 2014)
35
30
25
20
15
10
5
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
OH (Mining and Logging)
6
PA (Mining - Coal Mining)
Source: U.S. BLS Current Economics Statistics, not seasonally adjusted. 2015 for Ohio is estimated by averaging seasonally adjusted data from January to April, whereas the
not seasonally adjusted datais used for Pennsylvania.
Building Smart Communities
 Urban communities are very diverse from global cities to
small cities. Cities can have different industry compositions
and different competitive and natural advantages.
 Rural communities are also very diverse:
 i. Amenity rich
 ii. Urban adjacent, low density suburb in many ways
 iii. Remote rural, often resource or agriculture dependent.
 So I need to be a little humble in giving advice.
 Most jobs are created by existing businesses having job births
and fewer job deaths (retention and expansion). Then
business start-ups.
 Few jobs are created by new businesses moving in. One reason why
economists don’t like special incentives but rather favor lower taxes for
all businesses.
7
Building Smart Communities
 Small business and new business development by building
entrepreneurship.
 New and small businesses create a disproportionate share of new
jobs.
 They help create a diverse economy that is resilient.
 They help foster an entrepreneurial spirit for themselves and their
elected officials.
 Fast growing firms can come from any industry in any place.
 Manufacturing? Agriculture? Rural and Urban…..
 Sensible regulation
 Taxation that is fair to all businesses
 Help support lending to small businesses by reducing risk.
 Business standards in lending.
 Reduce uncertainty in regulation and fiscal policy.
 Keep in mind owners’ most scarce resource is time.
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Building Smart Communities
 Using farming as part of the engine for growth.
• Take advantage of farm entrepreneurship. Research has found a
greater farm share is positively linked to nonfarm
entrepreneurship. (Source: Stephens and Partridge, 2011).
• Today, farmers are good role models
• 1. Tied to land—not outsourcing to China.
• 2. Have experience managing medium-sized business and has
developed entrepreneurship.
• 3. Understand futures markets, global markets, exchange
rates, know how to manage capital.
• 4. Have financial wealth to invest.
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Building Smart Communities
 Education and workforce training.
 Businesses fret about labor force quality.
 Knowledge spillovers from the workforce
increase local growth.
 Probably the most robust predictor of growth is having
high educational attainment or creative occupations.
 More educated people earn more and have greater participation in the
labor market.
 May 2015 UR 25+ ≥ College Grad: 2.7% (75.0% LFPR); UR no high
school completion, 8.6% (44.6% LFPR), Source, U.S. BLS, May 2015 Employment Situation Report.
 Educated workers suffer less in downturns in terms of
unemployment—more resilient.
10
US Mean Earnings by Educational Attainment, 2009
140,000
120,000
100,000
80,000
60,000
40,000
20,000
0
Not a high High school
Some
school
graduate college, no
graduate
only
degree
Assoc.
Degree
Bachelor's
Master's Prof Degree Ph.D. or
equal
11
U.S. Census Bureau, Statistic Abstract of United States, 2012, Table 232, http://www.census.gov/compendia/statab/cats/education.html
Building Smart Communities
 Rural communities are unlikely to retain many young educated
people. But in their 30s, rural communities have a lot to offer
these families.
 In particular, quality of life and good schools are an economic
development engine. Only rural areas can offer that variety of
life, with the opposite applying for some urban areas.
 Good schools attract the people you want to your community.
 At the very least, they prepare your children for a prosperous future.
 Build a strong community/technical college network. Make K-14 the
norm.
‾ Summary: Communities with a more educated population are
richer, grow faster, have less unemployment, and are more
resilient to shocks.
‾ Community colleges become the best feasible alternative.
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Leveraging your region’s potential
• 21st Century communities are linked in webs
– Growth spreads out 100 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 which should be exploited
regionally.
• Regions compete globally—households and firms have fewer mobility
costs in location choices. Competition is more fierce than ever.
• Economists contend that gov’t jurisdictions should reflect
common interests. Functional Economic Regions.
•
•
•
•
Economic development
Tax sharing of common economic gain to share costs
Environmental costs and sprawl
Infrastructure is inherently regional
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Leveraging your region’s potential
 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.
14
The 1950-2003 Expansion of the Des Moines
Metropolitan Statistical Area, Iowa
The 1950-2003
Expansion of the
Columbus
Metropolitan
Statistical Area,
Ohio
Source: U.S. Census Bureau.
The 1950-2003
Expansion of the
Atlanta
Metropolitan
Statistical Area,
Georgia
Source: U.S. Census Bureau.
The Urbanization Intensity in Four MSAs, Evolution 1950-2009
Urban, Nonfarm Rural
and Rural Farm
Population Shares
MSA in
1950
Counties
added
1950-73
Counties
added
1974-2003
Total
MSA in
2003
Atlanta, 2000
% Urban
% Nonfarm Rural
% Rural Farm
98.92
1.06
0.02
83.16
16.63
0.22
42.53
56.12
1.34
86.16
13.59
0.25
Columbus
% Urban
% Nonfarm Rural
% Rural Farm
98.16
1.78
0.06
61.16
36.75
2.08
49.51
47.40
3.09
84.11
15.01
0.88
Des Moines
% Urban
% Nonfarm Rural
% Rural Farm
94.20
5.35
0.45
58.55
36.39
5.06
39.83
52.75
7.42
83.72
14.49
1.80
Source: U.S. Census Bureau.
• Standard Government Provision of Public Goods,
Mitigating Negative Externalities, providing Good
Governance (not glamorous)
• Efficient provision of Government Services
•
•
Region size appropriate to internalizing externalities
(FEA)
Economies of size and scale
• Shared prosperity and inclusive development is more
sustainable and promotes better governance.
19
Suboptimal, Counter-productive, Backwardlooking Policies
• Policies directed at regional inequalities inherently vulnerable to
rent-seeking in geographically-based democracies—sectors,
lobbyists, politicians
• Reliance on Fad-Based and Inefficient Policy
•
•
•
Local economic development craze (replicating Silicon Valley,
biotechnology, attracting immigrants to declining areas, Bohemians,
Green Jobs) develops around a kernel of truth.
“Picking Winners” requires oracle-level knowledge of supply-chain
linkages, future demand/supply, technological change, global
conditions/policies, an understanding of where an industry will be
competitive, and the local agglomeration economies.
20
Glaeser and Gottlieb, 2008.
Reliance on Fad-Based and Inefficient Policy
• Tax incentives and subsidies to recruit businesses
costly, unfair, very low probability of success
(Holmes 1995; Goetz et al. 2011).
• Governments either have to cut services or raise taxes
on households and businesses in order to pay for the
incentives. This will offset growth.
• Displacement costs or relabeling what people do: e.g.,
incentivize a Mexican restaurant may cause an
existing one to go out of business.
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Reality Check
No Guarantees !!
Many necessary conditions for regional development,
none individually sufficient
- large set of exogenous factors
Not all regions will succeed
Consequences of pursuing suboptimal policies are worse,
high cost and destructive
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Conclusions
 Work from within your communities to build them.
 Leverage entrepreneurship, education, and regional
collaboration to build strong rural and urban
communities.
 “Smart, collaborative, entrepreneurial” development.
 Avoid fads and the temptation to pick winners.
 No sure policy will work.
 Let me add, think long term! Be aware of long-term
challenges such as climate change.
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Links to other slides:
1. Rural economic resiliency and a potential farm recession:
Partridge, Mark D. (2014) “Farmland Bubbles and Risks to the Rural Economy” 2014
Federal Reserve Bank of Kansas City Agriculture Symposium. Available at:
http://www.kc.frb.org/publications/research/rscp/rscp-2014.cfm under “Session
3.”
2. “The Winners' Choice: Sustainable Economic Strategies for Successful 21st Century
Regions.” North Central Regional Center for Rural Development, Michigan State
University, Lansing, MI, Nov. 1, 2011. Recorded Presentation and Power Point Slides:
http://ncrcrd.msu.edu/ncrcrd/chronological_archive (go to 2011 presentations).
3. “Building Prosperous Regions: What Works.” Plenary Breakfast Address,
Presented at the Regional Planning Growth Conference: The Economic Case
for Regional Cooperation, Regina, Saskatchewan. Slides available at:
http://aede.osu.edu/about-us/publications/regional-growth
24
Department of Agricultural, Environmental,
and Development Economics (AEDE)
Thank You!
Partridge.27@osu.edu
25
Figure 3: Percentage of Farm Employment as a share of the Labor Force: 19002010
26
Figure 4: Percentage of Total Jobs in Farming, BEA Definition:
(1969 - 2012)
Beginning of 1980s Farm Crisis
27
US Share of Agricultural Inputs Employment
as a Percentage of Total Employment
%1.4
1.2
1
0.8
0.6
0.4
0.2
0
Total
Taken from Partridge (2008a)
Metro
Nonmetro
2002
1981
Agricultural inputs comprises of agricultural chemicals, farm machinery and equipment, farm supply and machinery wholesale trade,
and commodity contract brokers
28
US Agricultural Processing and Marketing
Employment as a Percent of Total Employment
%
7
6
5
4
3
2
1
0
Total
2002
1981
Metro
Nonmetro
Agricultural processing and marketing comprises of meat products, dairy products, canned, frozen and preserved fruits and vegetables, grain mill
products, bakery products, sugar and confectionery products, fats and oils products, beverages, miscellaneous food preperation and kindred products,
tobacco products, apparel and textiles, leather products and footwear, packaging, farm-related raw materials and wholesale trade, and warehousing29
Taken from Partridge (2008a)
Figure 1: Nonmetropolitan Farming-Dependent Counties
1950
Source: U.S. Dept. of Agriculture, Economic Research Service, 2007 Farm Bill Theme Papers, Rural
Development July 2006. See the notes to Figure 2 for the definition of Farm Dependent.
30
31
Figure 5: Number of Farms: 1990-1997*
32
Rural Economy and a farm crisis
 Scenario is that the farm economy is due for a
recession/correction which will also pressure farmland
values that have soared in the last decade.
 Direct effects of spillovers from declining demand in the
farm sector including its supply chain.
 Indirect effects if decreases in farmland valuation affect
banks’ balance sheets and they curtail lending.
33
Rural Economy and a farm crisis
 I don’t think a broad-scale farm crisis like the 1980s is
likely to happen in the near future.
 The direct size of the farm economy and its upstream input
suppliers is about one-half the size of the 1980s.
 Farmland prices and farm finances seem to have a stronger
economic foundation than other “bubbles” or crises.
 Higher commodity prices than a decade ago.
 Lower long-term interest rates than a decade ago.
 Rents have moved nearly in tandem with land prices.
 Farm household debt/asset ratio is at historic lows—11%.
 Rural economy is much more diverse and resilient than a
generation ago.
34