The Role of Community Economic Analysis

This is the starting point in the economic development process. Community economic analysis is the process whereby a community examines the economic aspects of its structure in order to determine the further steps of the development process. In deciding that economic development should be pursued, policy makers should look at their local economy and answer the following questions:

• Where are we now?
• Where do we want to be?
• Why aren't we there now?
• What needs to be done to get us there?
• Who is going to get us there?
• When is it going to be done?
• How will we know when we get there?

The role of the economist in the economic development process is to provide technical expertise to the community in understanding the structure of the economy.

Strategies for Community Economic Development

In answering the above questions, the community will need to select a strategy (or strategies) on which to focus its efforts. The strategies a community selects for its economic development effort depends on the goals, values and resources available to the community. There are five general categories of strategies for local community economic development (Pulver).

• Improve Efficiency of Existing Firms: As firms become more efficient, they become more competitive in the regional, state and national markets. The greater their efficiency, the more revenue they can bring into the local economy. In addition, the ability to stay competitive is a firm's best guarantee of being able to stay in business and expand. Efficiency is just as important to firms industries with declining employment. The most efficient firm can survive the longest. An example of a community action to assist businesses in improving their efficiency would be organizing educational programs to strengthen the management capabilities of existing firms.
• Improve Ability to Retain and Capture Dollars: In every community, self employed individuals, workers, retirees and businesses of all types control substantial amounts of money with which they make purchases. Every one of these dollars spent in the community adds to the community's employment and income. At least some of these dollars will be re-spent in the community adding additional employment and income. In contrast, dollars spent outside the community do not add to the community's employment and income. From another perspective, thousands of people pass by most communities on highways or to visit nearby tourist attractions each year. The dollars spent locally by nonresidents can be as valuable to the local economy as those generated by the exports of raw materials or manufactured goods. Improving the community's ability to retain local expenditures and capture nonresident dollars will enhance the local economy. Examples of community actions to improve retention and capture dollars include: a) Surveying consumer needs and buying habits to identify market potential, and b) Developing appropriate promotion and advertising programs to generate more purchases by non-local people.
• Attract New Basic Employers: In order to initiate economic activity, a community needs to have some businesses that bring in outside revenues through the sale of their products or services outside of the local economy (basic employers). Attracting new basic employers will not only add employment and income directly to the local economy, but also indirectly through re-spending with other local businesses. Basic employers can include manufacturers, tourism attractions, financial firms, computer services, warehouses and state and federal government agencies. An example of a community action to assist in attracting new basic employers would be developing inventories of local industrial, office and commercial sites along with information on public services and available labor.
• Encourage Business Formation: There is a continuing need for new businesses to meet the changing demands resulting from population growth or evolving goods and services (video recorder, outpatient care or fast food for example). A new business start-up can mean new income and employment as well as expanded trade with other local businesses. It can also capture sales that might otherwise go to other communities. An example of a community action to assist in business formation is to provide counseling and intensive education for those interested in forming new businesses.
• Increase State and Local Funding: A community may want to strive to get back some of the dollars taxed away by the state and federal government and perhaps acquire tax dollars from other areas of the state or nation. State and federal agencies can be major employers providing good paying jobs. In addition, they have a variety of programs that provide funding to local governments and residents. Social security, Medicare and Medicaid payments are major sources of personal income in most communities. Communities may want to at least be aware of the importance of state and federal government funding to their local economy and consider the potential for expanding this funding. An example of a community action to increase state and federal government revenues is developing procedures to actively monitor government programs to obtain assistance whenever it is appropriate.

A Toolbox for Community Economic Development

In community economic development, the regional economist has at his/her disposal a set of tools to analyze the regional economy to determine the economic development needs of the community. These tools include:

• Impact models: Can be constructed on the county, regional, state or level national. Models show how dollars flow through the economy and the impact in a change in the level of economic activity.
• Budgeting for public services: Changes in the level of economic activity will result in changes in demand for public services. Budgeting can be used to forecast changes in costs.
• Business retention and expansion: These programs can target specific businesses to retained or expanded in a region.
• Industry targeting: Communities can select what types of businesses that they would like to attract and make the resources available to them.

Commonly Used Terms in Community Economic Development

• Community - A group of people in the same geographic location with specific geographic, demographic or social boundaries.
• Community Economic Analysis - "examines how a community is put together economically and how it responds to external and internal stimuli". (Shaffer)
• Development - is a fluid concept that incorporates the existing resources base of the local economy and its level of change over time. Another term, closely linked to development is "vitality" which is used to describe the ability of a communities level of development to adapt to outside change.
• Economic Development - "is the sustained, progressive attempt to attain individual and group interests through expanded, intensified and adjusted use of available resources." (Shaffer)
• Economic Growth - is more economic activity, but that does not always mean that the activity is sustainable. Economic growth can occur with less economic activity.
• Resources - Inputs or commodities used production to be transformed into outputs. Resources can be social, political, economic or physical.

References

Pulver, Glen C., "Community Economic Development Strategies" University of Wisconsin Extension, Cooperative Extension Service, Madison, Wisconsin, Bulletin G3366

Shaffer, Ron. "Community Economics, Economic Structure and Change in Smaller Communities", Iowa State University Press, Ames, Iowa, 1989

U.S. Dept. of Commerce, Bureau of Economic Analysis, Regional Economic Information System (REIS) 1969-1997 on CD-ROM.