2. Build existing local businesses rather than trying to attract new ones.
The “economic gardening” approach to economic development was pioneered by the city of Littleton, Colorado, beginning in the late 1980s, and has since been adopted by communities nationwide. The concept grew out of a severe recession during which thousands of Littleton’s citizens were laid off by its principal employer, Martin Marietta. Fed up with being at the mercy of giant out-of-state corporations, the city council directed that Littleton’s economic development department should henceforth “work with local businesses to develop good jobs.” Between 1987 and 1989 members of the department searched, studied, experimented, learned, and eventually produced a wide variety of programs that are still supporting its gazelles today.
Among other things, it provides local companies with information on marketing, competitive intelligence, and industry trends. It offers training and seminars in advanced management techniques. It has developed a telecommunication curriculum and an e-commerce course with the local community college and helped local businesses connect with trade associations, academic institutions, and other companies in the same industry. The list goes on. Have such efforts paid off? In 20 years, the number of jobs in the city doubled, while sales tax revenue tripled, without a dime being spent on recruiting outside employers, according to Chris Gibbons, now with the National Center for Economic Gardening, who led the effort.
3. Help entrepreneurs negotiate the bureaucracy.
Kunkle notes that high-growth companies are four times more likely to relocate than other businesses, but that nine times out of 10 they relocate within the same area. They aren’t looking for tax havens or government perks. They simply run out of space. Yet their searches are often hit-or-miss because they aren’t plugged into local economic development agencies, which tend to be the best sources of information about available spaces. After moving a couple of times, a company’s owners may decide it’s easier to buy a facility and add space as needed—at which point they run into state and local ordinances about having adequate storm water drainage, or wide enough stairs, or sufficient parking space. The permitting process can take months, during which the company’s growth is put on hold and its hiring delayed. In the Pittsburgh region, an alliance of private- and public-sector leaders and economic development professionals recognized the problem and created the Pittsburgh Impact Initiative, which Kunkle describes as a “concierge service” for high-growth companies. “Someone from Impact can take them to the front of the line at the clerk’s office and say, ‘We need to expedite these permits now so that they can get busy hiring people.’”
4. Find new ways to get universities involved.
While a debate rages on the subject of technology transfer and the commercialization of federally funded university research, policy-makers and academic institutions alike are largely oblivious to the type of academic support that would be most likely to foster significant job generation. More than cutting-edge technology out of a university or government lab, gazelles need help with things like cost accounting, pricing, and product design. “One of the most problematic questions for a growing company is, How do you allocate costs so you can price accurately?” says Kunkle. “Or how do you do ergonomic design, which has made American manufacturers more competitive in the world? We have this knowledge in our academic institutions, and yet we don’t do anything to get it to the growing companies that need it the most—not even out of community colleges. It’s about process transfer, not technology transfer.”
5. Change the tax code to facilitate self-funding.
High-growth CEOs have an aversion to debt financing, preferring to grow with retained earnings, Kunkle has found. The problem is, if they wait beyond the end of the year to invest, their earnings are taxed, and the company is left with just 50 cents on the dollar to invest. As a result, gazelles tend to invest the earnings in small chunks before the year-end. Kunkle’s idea is to create tax-deferred savings accounts—corporate IRAs, he calls them—in which companies can collect retained earnings to be used for certain specified purposes, such as investing in capital equipment or making payroll during a market downturn. That idea is similar to the Bridge Act long championed by Tatum. It would address the capital gap by allowing companies to defer taxes, putting the money instead into a bank account they could borrow against to finance their growth. The bill currently languishes in Congress despite having strong bipartisan support.
And there, I suppose, can be found a silver lining. Kunkle says his efforts have also garnered strong bipartisan support in all the states where he has worked. “The Republicans like the emphasis on the power of the entrepreneur and the limited role government can play,” he says. “The Democrats like the social equity aspect. These companies are in all industries and all locations, and they’re bringing people in with all levels of experience. The benefits aren’t just for microbiologists in Philadelphia. They’re for people in all places, in all careers, in all levels of job training. It also helps that minority and women-owned businesses are slightly overrepresented among the higros. So both sides like what we’re doing. Hopefully that means it’s pragmatic.”
Given the tenor of the current Presidential campaign, that seems like very good news indeed.
