1. 1 The Power of Entrepreneurship and Knowledge in Rebranding the Midwest Midwest Governors Association The Power of Entrepreneurship and Knowledge in Rebranding the Midwest Presented at Midwest Governors Association Columbus, OH June 27, 2012 ___________ Mark Partridge Swank Professor in Rural-Urban Policy The Ohio State University http://aede.osu.edu/programs/Swank/

2. 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

3. 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

4. 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

5. 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

6. 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

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9. National Employment 9 60 months after the onset of recession, seasonally adjusted, Month 0 =100

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15. 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

16. 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

17. 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

18. 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.

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21. 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

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26. 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

27. 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

28. Why the Race for Knowledge? 1.Individual earnings significantly rise with knowledge, skills, and education. 28

29. 29 U.S. Census Bureau, Statistic Abstract of United States, 2012, Table 232, http://www.census.gov/compendia/statab/cats/education.html US Mean Earnings by Educational Attainment, 2009

30. 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

31. 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

32. 32 Ohio and Midwest is good at the bottom but weak at the top

37. 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

38. How Wyandot County can win race for Knowledge? 21 th 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

39. Good Strategy: Leverage Regional Strength? Recognize rural-urban interdependencies In 1950, communities detached from neighbors 21 st 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

40. 40 Rural Depends on Urban for: Urban Depends on Rural for: EmploymentLabor Force Private and Public ServicesMarket for Private and Public Goods and Services Urban AmenitiesMarket 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 marketLand for Residential and Industrial Expansion

41. 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

42. 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

43. 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

44. No Silver Bullet 44

45. 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

46. 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

47. 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

48. 48 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. 49 Appendix Slides

50. National Employment 50 60 months after the onset of recession, seasonally adjusted, Month 0 =100

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72. Manufacturing Employment Shares 72 Wyandot County is not alone in facing severe manufacturing contraction but this is helping to promote long-term recovery.

73. 73 Great diversity in rural America :

74. 74 WY’s greater natural resource intensity did not produce faster growth