Building Ohio’s Communities From WithinCounty Commissioners Association of Ohio Annual

ConferenceColumbus, OHJune 25, 2015

Presented by: Mark D. PartridgeSwank Chair in Rural-Urban Policy

Partridge.27@osu.edu

Introduction/OutlineComment 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

DevelopmentSIMPLE STRATEGY! Be patient and build from within

while leveraging local and regional assets.2

Hoping someone else saves your community is somewhat unrealistic.

3

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.

Oil and Gas

4

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.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother.]

5

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2004

2004

2004

2004

2004

2004 2004 2004

2010

2010

20102010

2010

20102010 2010

2014

2014

2014

2014 2014

2014 2014 2014

Employment in Direct and Key Indirect Oil and Gas Sectors in Ohio (2004, 2010,

and 2014)

Em

plo

yees

Source: 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 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% - is extrapolated to obtain the 2014 estimate for the remaining sectors.

6

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

0

5

10

15

20

25

30

35

Employment in Mining (1,000s)

(2004 - 2014)

OH (Mining and Logging) PA (Mining - Coal Mining)

Source: U.S. BLS Current Economics Statistics, not seasonally adjusted. 2015 for Ohio is estimated by averaging seasonally ad-justed data from January to April, whereas the not seasonally adjusted datais used for Pennsylvania.

Building Smart Communities

7

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 richii. Urban adjacent, low density suburb in many waysiii. 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.

Building Smart Communities

8

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 regulationTaxation that is fair to all businessesHelp 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.

Building Smart Communities

9

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.

Building Smart Communities

10

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.

11

U.S. Census Bureau, Statistic Abstract of United States, 2012, Table 232, http://www.census.gov/compendia/statab/cats/education.html

Not a high school

graduate

High school

graduate only

Some col-lege, no degree

Assoc. Degree

Bachelor's Master's Prof Degree

Ph.D. or equal

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

US Mean Earnings by Educational Attainment, 2009

Building Smart Communities

12

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.

Leveraging your region’s potential

13

• 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

Leveraging your region’s potential

14

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.

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

98.921.060.02

83.1616.630.22

42.5356.121.34

86.1613.590.25

Columbus % Urban % Nonfarm Rural % Rural Farm

98.161.780.06

61.1636.752.08

49.5147.403.09

84.1115.010.88

Des Moines % Urban % Nonfarm Rural % Rural Farm

94.205.350.45

58.5536.395.06

39.8352.757.42

83.7214.491.80

Source: U.S. Census Bureau.

19

• 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.

20

Suboptimal, Counter-productive, Backward-looking 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.

• Glaeser and Gottlieb, 2008.

21

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.

22

Reality CheckNo 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

Conclusions

23

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.

24

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

25

Department of Agricultural, Environmental, and Development Economics (AEDE)

Thank You!Partridge.27@osu.edu

26

Figure 3: Percentage of Farm Employment as a share of the Labor Force: 1900-2010

27

Figure 4: Percentage of Total Jobs in Farming, BEA Definition: (1969 - 2012)

Beginning of 1980s Farm Crisis

28

US Share of Agricultural Inputs Employment as a Percentage of Total Employment

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Total Metro Nonmetro

%

2002 1981Agricultural inputs comprises of agricultural chemicals, farm machinery and equipment, farm supply and machinery wholesale trade, and commodity contract brokers

Taken from Partridge (2008a)

29

US Agricultural Processing and Marketing Employment as a Percent of Total Employment

0

1

2

3

4

5

6

7

Total Metro Nonmetro

%

2002 1981

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 warehousing

Taken from Partridge (2008a)

30

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.

31

32

Figure 5: Number of Farms: 1990-1997*

Rural Economy and a farm crisis

33

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.

Rural Economy and a farm crisis

34

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.