Building Economically Viable Communities: A Role for Community Developers

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Building Economically ViableCommunities: A Role forCommunity DevelopersRon Shaffer aa Department of Agricultural Economics , Universityof Wisconsin–Madison/ExtensionPublished online: 10 Dec 2009.

To cite this article: Ron Shaffer (1990) Building Economically Viable Communities:A Role for Community Developers, Journal of the Community Development Society,21:2, 74-87, DOI: 10.1080/15575339009489962

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Journal of the Community Development Society Vol. 21 No. 2 1990

BUILDING ECONOMICALLY VIABLE COMMUNITIES:

A ROLE FOR COMMUNITY DEVELOPERS

By Ron Shaffer

ABSTRACT

This paper uses three fundamental elements of economic theory to explain the options available to localities that want to alter their economic destiny. The three elements are demand, supply, and institutional forces. An understanding of these forces will increase a community developer's ability to work with community residents attempting to manipulate these same forces to their community's advantage. Demand forces relate to external (export) and internal (consumer) markets. Supply forces incorporate the access to and mobility of capital, labor, and technology for use by the community to produce the economic output desired Institutional forces represent the "rules of the economic game" and the decision-making capacity of the community. Both are subject to local manipulation but are too often the forgotten elements of a comprehensive community economic development strategy. These elements operate within a context of preconditions or values that influence the extent to which the community chooses to exercise its options. While an understanding of demand and supply forces is a necessity, the involvement of community developers in the institutional component is often the critical difference.

INTRODUCTION

The issue of community economic development has been of interest to community developers for many years. Numerous articles or com-munity economic development, industrial development, main street development, and related training have appeared in the Journal of the Community Development Society since its first issue over twenty years ago. In the 1980s, the impetus was the adjustments forced on com-munities by an international recession and the decline of the "insular" national economy. These factors stimulated public policy initiatives for individuals and groups who were not gaining as rapidly as other groups or were bearing a disproportionate share of the change. This concern focused not only on geographically defined groups (regions)

Ron Shaffer is a professor in the Department of Agricultural Economics at the Uni-versity of Wisconsin—Madison/Extension.

© 1990, The Community Development Society

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Shaffer 75

but also on sectorally (e.g., farmers and coal miners) and socially defined groups (e.g., blacks and single mothers). The pervasive theme was improving the economic welfare of the targeted individuals and groups relatively as well as absolutely. That same theme needs to be present in our policy objectives for community economic develop-ment—improving relative economic status.

Building economically viable communities requires two major in-gredients in varying proportions. The first, which is the focus of this paper, is an understanding of how small, open economies work and change through time. The second is referenced in various ways but common labels include leadership, community cohesion, and deci-sion-making capacity. The author's preference for the term decision-making capacity rests on the belief that it conveys the importance of reaching and implementing decisions as a distinguishing feature be-tween viable and nonviable communities.

This paper explores two major questions linked to the economic viability of communities. First, what are the qualities and character-istics of communities that demonstrate a capacity to improve their relative economic status? Second, what is the economic rationale sup-porting the elements of a comprehensive economic development strategy? A significant aspect of viable communities is that they do not limit their economic development efforts to the latest fad or to a single effort. For many community developers, then, an important role is communicating to community residents the fullness of possible choices and approaches available to them. Here, the community de-veloper needs to blend insights from community economic devel-opment theory with the specifics of local conditions.

CHARACTERISTICS ASSOCIATED WITH ECONOMICALLY VIABLE COMMUNITIES

Community viability is the ability to survive and to persist in gen-erating desired outcomes (Shaffer & Summers, 1988). Community economic viability is the capacity of local socioeconomic systems to generate the necessary employment and income to maintain, if not improve, a community's relative economic position. Economically vi-able communities possess the capacity to perceive and respond ap-propriately to changing socioeconomic circumstances. Community viability has political, social, physical, and economic dimensions. Vi-able communities possess a political economy and other social con-structs that permit the orderly and efficient maintenance and use of community resources and facilitate the adaptation of communities to changes in the larger society.

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76 Journal of the Community Development Society

An important element of this definition is a recognition of the changing circumstances in which communities function. These can include the depletion or revaluation of a resource (e.g., coal deposits, forests, and scenic vistas), technological changes (e.g., genetic engi-neering and telecommunications), demographic factors (e.g., aging populations, single-parent families, and working couples), or changes in economic structure (e.g., the role of transnational corporations and the relative decline of manufacturing employment). These chang-ing economic circumstances alter a community's economic develop-ment options.

The characteristics of economically viable communitites listed be-low represent a summary of observations over a number of years in Australia, Europe, Scandinavia, and the United States. They are of-fered here, without systematic empirical verification, fully realizing that other terminology and factors may exist.

There are four characteristics associated with what appear to be economically viable communities. They are, in no order of impor-tance: (1) a slight level of dissatisfaction, (2) a positive attitude toward experimentation, (3) a high level of intracommunity discussion, and (4) a history of implementation. These characteristics are similar to those associated with the "self-help approach" to community devel-opment (Littrell, 1980). Previous work by Lackey et al. (1987), Pulver (1970), and Warren (1970) uses similar ideas. In a few words, communities' that demonstrate the qualities of viability believe that they, and they alone, make and/or control their own destinies. This recognizes that while individual communities face different economic circumstances—resources, economic structure, access to markets, and growth of local markets—the viable community will capture the eco-nomic possibilities available.

A slight level of dissatisfaction may seem an unusual quality for an economically viable community, but it identifies the unwillingness of economic actors in the community to accept current economic con-ditions as immutable. 2 Significant economic actors in the community, regardless of a perceived high level of satisfaction, are asking "what if?" and anticipating how the community might respond to possible

1 Obviously, communities are aggregations of individuals. Yet, when one examines the collective image of individuals sharing a common interest, there generally is a dominant theme. It is this aggregate that is referred to as community in this paper. The implementation of community change may very well be by one person, but it presumably reflects the actions of several.

2 The work by Sundet and Mermelstein (1988) clearly points out the difficulty in creating viability in communities experiencing continued outmigration.

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Shaffer 77

changes (Ayres et al., 1990; John et al., 1988). These changes can be international and national (e.g., exchange rates, interest rates, in-dustrial awards, taxing policies, and training policies) or local (e.g., zoning variances, labor supply, and the closure or expansion of local firms) in scope. The term slight level of dissatisfaction acknowledges that until people are sufficiently dissatisfied with current conditions they are not likely to respond or act (i.e., apathy or complacency). But just as importantly, "slight" means that the community has not resigned itself to a situation of being unable to mount a positive response to current conditions (i.e., a sense of hopelessness or ano-mie). There remains a belief that the community can and should mount some response to meet both actual and anticipated threats. This anticipatory response need not involve wide public participation.

A positive attitude towards experimentation appears in two forms. First, the willingness to experiment with solutions to existing and emerging problems means that the community does not limit its re-sponse to actions that worked either in the past or under different conditions (John et al., 1988; Vaughan et al., 1985). It is not trapped by traditional thinking and actively seeks to convert perceived obsta-cles into springboards for action. For example, the community that thinks of itself as isolated and rustic may actually be able to use those same characteristics as an attraction for visitors. Second, the com-munity supports and nurtures those individuals who generate non-traditional ideas and solutions. The real purpose here is to retest ideas previously considered infeasible or uncover ideas not even con-sidered. Many of these ideas may offer no real solutions, but if one or two offer potential, the community gains. These alternatives must demonstrate their potential—adopting a strategy just because it is new and different is disruptive; yet, the community cannot discard a "new" solution too quickly. An often-ignored dimension of experi-mentation is that the community needs to learn from its own past mistakes and failures as well as from those made by others to avoid repetition and to improve future responses.

A high level of discussion is important because economically viable communities are constantly seeking allies (internally and externally) to address economic development issues. While local economic de-velopment often depends on one or two individuals for its spirit, careful examination demonstrates that they are able to involve others (Ayres et al., 1990; John et al., 1988). Generally, they do this by sharing a perspective that either captures the imagination or enthu-siasm of others or offers them some tangible benefits (e.g., employ-ment and profits). A second aspect of this characteristic is that the major actors in community decision making are conversing through

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numerous channels across a wide range of topics and not through third parties (e.g., newspaper headlines).

The final characteristic is a history of implementation. Economi-cally viable communities have a history of "delivering" results (John et al., 1988) such as a new firm in the industrial estate, an increased rate of new business formation, the active involvement of the un-employed in economic decision making, a housing project, a successful school referendum, or a highway improvement. Viable communities not only discuss and plan ways to solve local development problems, they actually implement the solutions (Vaughan et al., 1985). A cor-ollary is a willingness of community residents to work at implementing the solution. People do not operate under the perception that some-one else is responsible for solving the problem. Their first response is not to ask what state or federal grant can be used or whether XYZ corporation will donate time and funds. These are legitimate avenues but not the first response.

These four characteristics represent preconditions (or values as suggested in the next section) that affect the success of any locally initiated economic development strategy. Community developers of all persuasions find themselves operating on these qualities daily. An additional precondition is understanding and incorporating the prin-ciples of economic development theory.

THE ECONOMICS OF COMMUNITY ECONOMIC DEVELOPMENT'

Figure 1 displays the major economic forces involved in the eco-nomic change of communities (i.e., smaller, open, semi-independent operating units). The economic actors involved and their related activities are the following: households and their spending and labor supply decisions; firms and their marketing, purchasing, and invest-ment decisions; and local groups (e.g., governmental units, unions, merchant associations, and historic preservation committees) and their ability to generate collective responses.

While not explicitly recognized in Figure 1, space plays a very important role in the dynamics of community change. Changing spa-tial relationships among economic factors are often the first external stimuli. Examples of spatial changes are the movement of firms to more rapidly expanding markets, changes in transportation technol-ogy, inadequate room for local expansion, and the depletion of local

' This section draws heavily on previous work by Kemp (1987), Pulver (1979), and Shaffer (1989).

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Shaffer 79

Figure 1. The critical variables in community economic development policy.

resources. To a large extent, traditional local economic development activities (e.g., industrial attraction, highway improvements, and air-ports) attempt to alter the spatial configuration of the economy.

Community economic development efforts take place within a so-cial-political-economic context (i.e., values). Values establish the pa-rameters for local development efforts. The preconditions outlined in the preceding section—a slight level of dissatisfaction, a positive attitude towards experimentation, a history of implementation, and a high level of intracommunity discussion—are manifestations of the community's value system. It is this value system that establishes the perceived legitimacy for the community itself to become involved in economic development rather than just aggregating individual ef-forts.

The remaining three elements shown in Figure 1 are commonly found in most economic models, although the institutional aspect generally tends to be hidden in the underlying assumptions of these models. A major limitation of many current theories of community economic development is the implicit assumption that only one of the factors displayed in Figure 1 is subject to manipulation and there-fore critical to economic change. The most obvious manifestation of this is the traditional policy of simply attracting a new manufacturing

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plant to achieve local economic development and implicitly assuming that the other necessary factors will automatically appear. Econom-ically viable communities do not limit their economic development strategies to the precepts of one set of theories.

Demand-Oriented Approach

The demand-oriented approach to community economic devel-opment is generally represented by export base theory (North, 1955; Pfister, 1976; Tiebout, 1956). In simplest fashion, export base theory argues that local economic change is stimulated by external (nonlocal) markets. A community stimulates its economy by having firms (i.e., the export base) sell to external markets. The key is less the nonlocal market and more the external source of funds (Andrews, 1970). This means that tourism, regional shopping centers, and nonlocal govern-ment installations are part of the community's export base just as are manufacturing and agriculture. Changes in the export base are trans-lated into local multiplier effects. The overwhelming theoretical and empirical evidence, however, is that internal (local) markets do not just naturally follow the export base. The multiplier effects often occur elsewhere.

Comprehensive economic development efforts also recognize in-ternal markets. This explicitly acknowledges that changes in the ex-port base need not always lead to accompanying changes in local markets. Internal markets and their functioning are generally mod-eled in accordance with central place theory (Berry, 1967; Parr & Denike, 1970) and retail marketing theory (Dawson, 1980; Potter, 1982). Central place theory relates the cost of providing a retail or service function to the size of the market in order to judge the chance of that function surviving at the location in question. This theory also incorporates spatial relationships among sellers and buyers. It rec-ognizes that there is a system or hierarchy of economic functions provided by different-sized places. Retail marketing theory links prod-uct characteristics with characteristics of the market. When matches occur, the prospect of that type of activity occurring locally is in-creased.

The analytical questions raised by the demand perspective relate to knowing what markets exist for community output. These can be consumer, industrial, local, or nonlocal markets. What is the location of these markets? Who is the competition? How are these markets changing? What is the composition of these markets?

The policy initiatives associated with this approach revolve around

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Shaffer 81

Table 1. Demand-Oriented Local Development Initiatives

Attracting New Basic Employers

Construct industrial estates and buildings Provide public services (e.g., roads, airports, and telecommunications) Provide local tax or financial incentives Provide transportation incentives for inputs and/or outputs Create information program on advantages of locating in a community Form local development organizations to contact or meet potential firms

Capturing Existing Markets

Identify existing consumer and business customers through periodic surveys and personal contacts

Improve the physical appearance of the shopping district (e.g., spruce-up cam-paign)

Improve the merchandising and customer relations of existing retailers and ser-vice establishments

Provide facilities and amenities to attract consumers (e.g., parking, store hours, store credit policies, and attractions to draw shoppers)

Coordinate advertising of special events aimed at attracting nonlocal shoppers (e.g., tourists)

Improve knowledge of input needs and production capabilities among local busi-nesses through an active visitation program

Form a merchants association Form a tourism development association

Sources: Pulver (1979) and Kemp (1987).

such efforts as those listed in Table 1. 4 Pulver (1979) categorizes these efforts as attracting new basic industries to the community and cap-turing existing markets. The first effort adds to the inflow of basic income while the second one 'reduces the spending leakage.

While a cursory review of many of the attracting-new-basic-em-ployers activities reveals that they are cost reducing in nature, their purpose is to make the community cost competitive in terms of de-livering to distant markets. The second dimension is improved in-formation flow. The efforts to capture existing markets also incor-porate improved information about consumers and businesses and what is or could be provided locally. This also includes an improved understanding about how to market to existing customers. The final theme in capturing existing markets is collective action that captures some of the externalities.

The implicit idea in the demand-oriented approach to local eco-

4 The categories in Tables 1, 2, and 3 are artificial in that many efforts could equally fit into several of the categories.

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nomic development is that producing what is needed is not the prob-lem; instead, the problem is to identify markets and be competitive in producing the desired output. It is also important to remember both local and nonlocal markets.

Supply-Oriented Approach

Another alternative is the supply-oriented approach to local eco-nomic development (Borts & Stein, 1964; Leven, 1985; Richardson, 1969). This approach argues that a lack of demand does not motivate most communities, rather, it is unemployed resources (e.g., workers, buildings, and natural resources) that do. The analytical questions become: What to produce? How to produce more of it? Do we have appropriate capital, labor, or technology? The policy issues focus on identifying the existing supplies of capital, labor, and technology and whether they are available for alternative uses (i.e., mobility) or in sufficient quantities to support expanded production. Thus, policy initiatives to increase the access to and mobility of labor, capital, or technology are supply-oriented economic development efforts. Table 2 details some specific initiatives. These initiatives are often associated with improving the efficiencies of existing firms and encouraging new business start-ups.

Efforts to encourage business start-ups attempt to reduce start-up costs, provide counseling or mentoring to entrepreneurs, and over-come capital and labor access problems caused by poor information and high transaction costs. The activities for improving efficiency are similar. Both sets of initiatives presume market availability; it is just necessary to increase the movement of resources into and around the community to facilitate development.

Institutional Approach

The third general approach to local economic development is la-belled institutional. It is concerned with two general aspects of local economic development: the rules of the economic development game (Davis & North, 1971) and the decision-making capacity of the com-munity (Ruttan, 1984; Vaughan et al., 1985). This is the nexus where community developers most often find themselves (Ayres et al., 1990; Christenson & Robinson, 1989).

The rules of the economic game include nationwide labor contracts, tariffs and quotas, public programs to finance businesses or train employees, local zoning regulations, and tax liabilities on different forms of income (e.g., wages, profits, and fringe benefits). These rules are artificial and change from time to time. The crucial point to remember is that institutional changes both create new avenues of

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Shaffer 83

Table 2. Supply-Oriented Local Development Initiatives

Starting New Businesses

Encourage and mentor new enterprises Provide low-cost small business counseling Provide incubator space Initiate new business financial support (e.g., low interest, long-term loans with

minimal collateral requirements, guarantees, and identification of equity sources)

Provide assisted labor training Compile list of potential retail and service needs for prospective entrepreneurs Create business advisory group

Improving the Efficiency of Existing Firms

Provide business management counseling Accelerate the dissemination of technology Assist in labor training efforts Identify and organize capital sources Increase sensitivity of local government departments to business needs Contact small business development centers, extension, and vocational schools

about management and workers education and training programs Assemble a public/private response team to mediate problems between local gov-

ernment and businesses Establish group apprenticeship schemes Work with expanding local businesses to find workers, sites, or buildings


development as well as close existing avenues and often have unan-ticipated consequences on different segments of the community.

Decision-making capacity relates to how well the community dis-tinguishes between problems and symptoms and to the inventiveness of its responses. An obvious form of decision-making capacity is public and private entrepreneurship (Coffey & Polese, 1984; Schumpeter, 1961; Thompson, 1965; Vaughan et al., 1985). A second form of institutional initiatives occurs when local citizens monitor and/or stimulate programs from broader levels of government. These can either provide resources, reduce costs, or create markets. When com-munity residents engage in some form of collective analysis and de-cision making they are addressing institutional dimensions of com-munity economic development. Table 3 lists some community initiatives that fall under the auspices of an institutional approach.

THE ROLE FOR COMMUNITY DEVELOPERS

A community developer's imprint on community economic vitality occurs in two significant fashions in the preceding model. First, com-munity developers are and can be heavily involved in the creation of

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Table 3. Institutional-Oriented Local Development Initiatives

Starting New Businesses

Have Small Business Development Centers and related entities spend time in the community discussing start-up possibilities and counseling prospective new busi-ness people

Prepare a guide on steps, permits, and offices that need to be contacted in the community to start a new business

Encourage new businesses via a mentoring program Relax collateral requirements on business loans Identify capital sources (public and private) Compile lists, through research, of potential retail and service needs for new busi-

ness operators Hold contest for best new business plan and offer cash reward

Monitoring Public Sector Activities

Keep informed about state and federal programs (e.g., local employment initia-tives)

Inform organizations and individuals about their potential eligibility Increase sensitivity and responsiveness of local government to needs of local busi-

nesses Compile business assistance directory of government programs Identify and become familiar with state and federal agencies that might help

Other

Create a strategic economic development plan Conduct a regional/community strength, weakness, opportunities, and threats

(SWOT) analysis Maintain current data base on local workers, skills, business types, and capabilities Keep updated list of industrial and commercial business sites and buildings Start a business-of-the-year award See if the Small Town Self-Help/Small Town Revitalization Program might be

appropriate Start a radio call-in/talk-back program to solicit ideas on potential needs and solu-

tions


the preconditions or values necessary for economic vitality to exist. The dimensions of anticipation, experimentation, implementation, and communication are frequently associated with evaluations of com-munity development efforts. Second, community developers perform a crucial role in helping community residents understand the full range of economic development options available. In particular, a community developer's obvious entry point into the preceding model is through the institutional (decision-making capacity) avenue. Again, many community development efforts are essentially efforts to help community residents understand what is happening and recognize some of the choices they may face in order to achieve the future

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Shaffer 85

community they desire. The importance of community developers being as fully aware of economic development principles as they are of preconditions and group processes cannot be underestimated.

SUMMARY

An economically viable community possesses the capacity to gen-erate the income and employment necessary to maintain or improve the community's relative economic well-being. A viable community's political economy and social system permit the orderly and efficient maintenance and use of community resources and facilitate the adap-tion of the community to both changes in larger society as well as to changing indigenous goals.

Communities that remain economically viable recognize that in-ternational and national changes will continue. These changes not only force adjustments but create opportunities for communities pre-pared to respond. Community developers play a critical role in work-ing with community citizens and groups to interpret internal and external changes and review possible responses.

The greatest asset communities have in their struggle to maintain economic viability is not distance, natural resource base, or current economic structure but their own creativity and insight. This is easier to manipulate than most of the more traditional assets. Economically viable communities believe that they, and they alone, control or make their own destiny regardless of local and national circumstances.

Economically viable communities possess a value system that en-courages experimentation, maintains a slight dissatisfaction with cur-rent conditions, produces a history of implementing solutions, and facilitates frank and open communications across all segments of the community. Additionally, there exists an awareness and application of sound economic development principles in a comprehensive com-munity economic development strategy that incorporates demand, supply, and institutional elements.

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Documents

Building Economically Viable Communities: A Role for Community Developers