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The Regional Divide and the Future of Small Towns

Paul Collits

Manager Regional Policy, New South Wales Department of State and Regional Development
Adjunct Senior Lecturer, Faculty of the Built Environment, University of New South Wales

Presentation to the "From Strength to Strength" Regional Development Conference, Timaru, New Zealand, September 2003

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Background Paper

Practitioners in regional development have added considerably to our knowledge of the drivers of regional economic development. Typically, practitioners eschew theoretical explanations of what drives regional success, or perhaps are not familiar with them. In any case, they prefer to deal with "what works" and the "practitioner conversation" consists of shared experiences and learning from one another's good practice. Practitioners often do not have the resources to undertake rigorous evaluations, to determine deadweight or displacement effects, to measure the largely non-quantifiable social capital benefits of local economic development or to determine what overall impact their activities have had on the places they serve. Nor do practitioners typically address the theoretical implications of their work. Evaluation often means providing case studies of "happy endings", of interventions that can be shown to have contributed to positive outcomes for communities.

Hence we do not generally have a clear idea of the relative impacts on economic outcomes of their own cumulative efforts as opposed to exogenous influences on their regions. Nevertheless, the practitioner literature is of relevance to the discussion to the extent that it provides anecdotal evidence of regional development drivers.

The fundamental conviction of community economic development is that communities can make a difference to local and regional economic outcomes, whether the "cavalry" from Canberra or Macquarie Street (the location of the New South Wales Parliament) arrives or not. As the case for more regional policy intervention is very much a case of "calling in the cavalry", and it explicitly rejects the notion that communities be told to "find their own solutions", it is therefore relevant to ask whether there is truth in the claim that communities can improve regional development outcomes on their own, and which factors inherent in communities make them successful.

A literature has developed in which a number of regional development experts have addressed the issue of what it takes for regional communities to be successful. There are two important points here. First, while there is no one single recipe for success, there are a number of recurring themes developed in the literature and among development practitioners. Second, while many of these "success lists" do not address the question as to whether the "local" factors that they describe are the only factors affecting growth and decline, their authors clearly believe them to be, collectively, generally responsible for whether locations do well or not.

A number of commentators have noted the changing nature of the local economic development challenge over the last decade or more, and the imperatives of the "new economy".

These changes have important implications for local leaders, economic developers and for smaller communities. The impact of globalisation has been pervasive, and has been discussed above.

One commentator, John Sanzone, has contrasted the requirements of old-style local economic development with the new economy and spoke of the pitfalls of economic development.

The nature of the local leadership task has changed.

Luke et al have talked about "catalytic leadership" as the key to successful economic development, and the need for new skills to meet the very different requirements of the new economic development game. Strategic thinking is at the core of the economic development task in the new economy. Luke et al focus on human skills, conceptual skills and technical skills, and argue that:

The experience and working knowledge of the seasoned economic development manager are increasingly ineffective and, in many ways, even detrimental when applied to the new interconnected economic context.

... Managing economic development strategically in an interconnected web of community stakeholders, business managers, non profit agencies, government departments, and multinational corporations requires catalytic leadership skills.

... The relevant skills are primarily interpersonal and cognitive and secondarily technical in nature.

Human skills include collaborating, negotiating and networking. Conceptual skills are primarily about strategic thinking, and technical skills involve understanding available financing tools for development. Strategic thinking in the economic development context is about understanding "... the broad relationships between the historically separate and distinct policy areas of transportation, commerce, land use planning, and post-secondary education". Strategic thinking embraces policy linkages, information needs, considering all stakeholders, developing a mix of strategies, and preparing for unintended consequences.

Further consideration has been given to the new catalytic leadership in the concept of "civic entrepreneurship". In their book, Grassroots Leaders for a New Economy, Henton et al focus on the benefits of collaboration among key regional leaders and stakeholders. Their focus is on a number of regions in the USA which have revitalised their economic fortunes by what the authors regard as a fundamentally new type of leadership.

According to Henton et al, the world has changed and this requires new economic development skills. For example, they see the new economy - which is global, complex and fast-changing - demanding more collective leadership skills than the old individual charismatic leadership model.

Civic entrepreneurs, according to Henton et al, are risk takers who are not afraid of failure, and have vision, courage and energy. Civic entrepreneurs have five common traits:

• they see opportunity in the new economy;
• they possess an entrepreneurial personality;
• they provide collaborative leadership to connect the economy and the community;
• they are motivated by broad, enlightened, long-term interests; and
• they work in teams, playing complementary roles.

Civic entrepreneurs come from many fields, including business, government, education and the community sector. They need not have formal power or authority, and achieve influence through their credibility.

Civic entrepreneurs are essentially community change agents and this requires "multiple talents".  It is leadership for the long haul. "They lead their communities through fundamental change and improvement processes that have no quick fixes".

The analysis by Henton et al is important because it highlights the ways in which the leadership and economic development task has changed. This has important implications for the nature of the skills development challenge.

Governments, local leaders and development practitioners face a number of important choices in formulating development strategies, particularly in smaller communities. Communities have finite resources at their disposal for economic development projects and some difficult choices.

One of the important choices is whether to pursue outside investment and business relocations ("hunting") or indigenous investment and new local start-ups ("gardening"). The McKinsey report (1994) stated that up to 70% of new regional investment comes from existing local enterprises. While many economic development agencies recognise this, most still pursue outside industries in order to create new investment.

A second key issue is whether to diversify the local economy or to build on existing competitive strengths. The former approach seeks to protect the community by broadening its economic base, thereby insulating the economy from external shocks. The latter strategy focuses on expanding indigenous enterprises, plugging gaps in "value chains" in the economy, adding value to existing production processes, and creating clusters within the locality's already strongly performed industries. While both approaches have obvious merits, they can only be pursued simultaneously to a limited degree due to a lack of resources.

Those involved professionally in local economic development have daunting challenges in the attempts to drive local development.

Practitioners in regional development face a wide range of challenges - working in isolation, working in a relatively new and still emerging field, the almost universal shortage of resources, lack of support, funding uncertainty, lack of tenure, political instability, and the need to possess a very broad range of skills.

There is legitimate debate - perhaps at the heart of local and regional economic development efforts - about how much difference local leadership and practitioner effort can actually make to the development success of a region in view of the very large global challenges which shape regional development outcomes. Beer has dealt with this issue of whether practitioners make a difference.

The study of RDOs by Fulop and Brennan discovered a number of specific difficulties faced by RDO executives:

• funding cuts;
• the politics of regional development;
• different agendas of stakeholders;
• membership problems on boards;
• being spread too thinly - the lack of funds and resources in relation to the size of the task;
• bureaucratic processes of governments;
• problems with stakeholder commitment in the light of funding cuts;
• the loss of credibility following funding cuts;
• high expectations of members; and
• parochialism at local and regional levels.

As Fulop and Brennan point out, many of these difficulties are common to all regional development bodies, hence to all practitioners. The study also details many of the mistakes that practitioners thought they had made in the RDO program.

The challenges for local leaders are equally daunting. The Department of Commerce and Trade (Western Australia) has identified a number of problems for regional leaders:

• the small pool of leaders who continue to be pressed to be involved with multiple groups, and hence suffer dissipation of effort;
• demands of full-time work and time commitments;
• changes in attitude for young people and others regarding community service;
• apathy and a lack of interest in becoming involved;
• the aging of leaders; and
• the lack of diversity in leaders.

The question is raised - is it getting harder for regional leaders just at the time where, seemingly, their contributions and skills are needed most? There are a number of factors which militate against the development of regional leaders at this time:

• the out-migration of youth, particularly from small, inland centres, who take with them energy and fresh ideas, and the relative non-involvement of some groups in economic development (it is noticeable that regional leaders are often white-haired males, even if many "practitioners" are relatively young);
• the absence of new ideas coming into declining communities;
• the apparent inherent conservatism of small rural communities which militates against new and different ideas;
• there is less support for leaders in communities that are in decline;
• regional people who are doing it tough in their own lives and businesses have less time to devote to community projects;
• the political instability inherent at Commonwealth level where the two sides of politics have fundamentally different agendas in relation to regional development organisations - this has led to uncertainty of funding and a primary focus on attracting money (or "chook raffles to pay the rent" as the McKinsey report states), the termination of many RDOs before they had a chance to prove themselves, and the possible alienation of leaders and potential leaders who may well refuse to become involved in regional development because of the uncertain political climate; and
• the removal of government and other services from declining communities, whether justified or not on other grounds, has the effect of removing professional skills from communities. Often it is the professionals who work for government agencies, banks, and so on, who provide some of the ideas and drive in the community.

A number of regional development experts have addressed the issue of what it takes for regional communities to be successful. While there is no one single recipe for success, there are a number of recurring themes developed in the literature and among development practitioners.

According to Peter Kenyon, the following are important to building economically successful communities:

• focusing on healthy and sustainable community behaviours;
• investing in local leadership development;
• fostering diverse but inclusive citizen involvement;
• encouraging youth participation; and
• committing.

Strategic planning and the development of a community agenda are critical. Kenyon sees the following elements as central to the strategic planning process:

• shared vision;
• realistic objectives;
• regular achievements;
• short, medium and long term plans;
• a clear marketable identity; and
• an appropriate development organisation / group.

Kenyon's general advice to communities is as follows:

• develop a comprehensive strategic community economic development agenda;
• recognise the importance of local business vitality through actions of appreciation and support;
• become a best practice culture;
• be opportunity obsessive;
• forge partnerships with neighbouring communities for collaboration and peer learning; and
• maintain enthusiasm, passion, hope, involvement, belief and expectation.

According to Philip Burgess, there are seven action strategies for the creation of what he has termed "high performance communities" (see section below). These are:

• ensure the rapid deployment of modern telecomputing capacity;
• promote entrepreneurship;
• promote job growth from within;
• promote awareness, interest and participation in the global market place;
• focus on industry clusters that combine producers and suppliers and encourage local competition among producers and among suppliers;
• foster interfirm collaboration: and
• cultivate civic institutions and regional collaboration.

One of the keys to local success in economic development in the 1990s is to avoid the pitfalls of traditional approaches that are no longer applicable. According to US expert John Sanzone, these include the following:

• not taking enough time to "envision" limits regional opportunities;
• expecting immediate results will produce unrealistic plans that are designed for unrealistic expectations;
• local economic development capacity on the cheap does not work;
• not realistically inventorying your regional assets and liabilities misdirects good intentions;
• targeting jobs and not human resources misses the point;
• following economic development "folklore" will lead to regional disappointment;
• thinking that new jobs will necessarily lead to employment of local people;
• plans that do not have clear, measurable and agreed upon goals usually fail;
• not fully knowing your economic base leads to faulty assumptions and poor planning;
• overlooking development capacity.

One of Sanzone's 10 pitfalls relates to the differences between local economic development folklore and the realities of the new economy. For example, Sanzone disputes the assumption that local governments can greatly influence private sector local decisions. This is largely not the case. The assumption that tax and financial incentives attract business, is also misplaced.  The availability of land, a skilled labour force, infrastructure, quality of life and public services are argued by Sanzone to much more important. Large firms do not create most new employment opportunities. Existing small firms create most new opportunities. Financial assistance is much more important for small firms than for large firms.

Sanzone argues that:

• retaining and cultivating small local businesses are the two keys to economic health;
• outbidding the competition is not an effective economic development strategy;
• investing in the existing workforce is critical;
• quality of life factors are more important than marketing incentives or recruiting; and
• developing the capacity to attract and nurture advanced technology jobs and investments will pay off in the long run.

Finally, according to Sanzone:

- the success of a local development strategy will rest on a long-term commitment by a sustained coalition of local public officials, the private sector, and citizen groups.

Sanzone's analysis conforms to the standard current thinking (and the NSW Government's approach) on local economic development, in that partnerships and community involvement are critical to success.

Analyses of DSRD's Main Street/Small Towns Program have also uncovered success factors in local economic development that have relevance for many smaller communities in regional New South Wales. Particular success factors have been found to be:

• community ownership of the planning process;
• commitment to working in partnership with other local organisations;
• commitment to funding the program locally;
• local council support and involvement;
• an active committee with broad representation from local government, business and community groups;
• local leadership;
• broad community support for the local program;
• knowing the local economy;
• focusing on the retention and expansion of existing businesses rather than attempting to attract large employers;
• a realistic strategic plan developed through a public consultation process;
• detailed action plans;
• a human resource commitment to implementing the strategic plan;
• monitoring progress and ongoing evaluation;
• keeping people informed, particularly through positive media coverage;
• acknowledging and celebrating successes.
• Anderson (1997) has also commented on lessons to be learned from the Main Street/Small Towns Program. She concludes:
• community empowerment and ownership are at the heart of these programs;
• committees need to have a high profile in their community;
• there must be strong leadership;
• shared leadership is extremely successful;
• communities need to start to plan, right at the beginning, for long term sustainability of their programs;
• coordinators are there to do the coordinating, not all the doing;
• coordinators are traditionally underpaid for an extremely complex task, they perform better if they are properly remunerated;
• businesses must contribute financially to the program, otherwise they do not value what they get for nothing;
• the best long term sustainable strategy appears to be a local levy;
• the Strategic Plan needs to be working document that is constantly referred to and reviewed;
• participants need to be recognised for their contributions;
• the most successful programs are those that retain a sense of fun.

While these success factors directly relate to particular programs, they are clealy relevant for many community economic development efforts across the State.

According to Vicki Dickman, a Queensland rural leader, the following are the key ingredients to success in community economic development:

• a commitment to the future and the dedication to be involved in developing that future;
• the involvement of the community in the generation of the vision and in the development of projects;
• a team of leaders to drive the projects and to act as mentors for less experienced project group members;
• the establishment of a community based group which coordinates project activities and acts as a legal entity for the project groups;
• develop a culture of information sharing and develop the activity of networking as a priority for project groups;
• the establishment of a support structure for project group members to allow them to access training, information and encouragement.

The above analysts and practitioners provide a range of perspectives on local economic development that are relevant to small regional communities in New South Wales. In summary, the following elements appear to be critical to the success of local economic development:

• the creation and maintenance of a dynamic business environment that positively welcomes new investment;
• working to the centre's competitive strengths while broadening the economic base;
• developing and supporting local leadership;
• the development of a positive attitude to change;
• a willingness to be creative in securing new investment opportunities;
• the entrepreneurial flair of local businesses;
• the capacity to add value to existing products and services;
• critical mass achieved through networks and cooperation.

Many of these success factors are within the control of the local community, and are reliant on the mobilisation of existing community resources.

What are the economic development objectives of small regional communities? Typically, communities wish to sustain their populations, to prevent out-migration, particularly of their youth, to develop a diverse economy that will insure the community against decline, to have the capacity to provide decent jobs for those who wish to stay in the community, and to maintain an adequate level of services and quality of life for residents. Government shares these community aspirations.

Different terms have been used to describe the aspirations of small communities to survive and prosper in the face of both internally and externally generated pressures. Typically communities aspire to "sustainable" development, or growth that is built on solid foundations (businesses, industries) and that will last into the future.

The AHURI study talked about "communities of opportunity" and "communities of vulnerability", depending on a community's position in relation to a number of structural and socio-economic measures. A community of opportunity has the following characteristics:

• above average employment growth;
• decreasing unemployment;
• above average growth in high income households;
• a high percentage of people in growth occupations;
• a high percentage in growth industries;
• a high percentage of high income households;
• skills commensurate with the industry and occupational structure;
• low unemployment and a high participation rate;
• a low level of disadvantaged families;
• positive population change; and
• low incidence of public housing.

The AHURI list of characteristics is a good summary of the kinds of characteristics to which small communities aspire.

US analyst Ron Shaffer's notion of an economically viable community is helpful in clarifying the aspirations of communities. According to Shaffer:

Viability is the ability to survive and to pursue the face of changing circumstances. Community economic viability is the capacity of local socio-economic systems to generate employment and income to maintain, if not improve, the community's relative economic position. Economically viable communities possess the capacity to perceive changing socio-economic circumstances and to respond appropriately. Community viability has political, social, physical dimensions.

Shaffer has note four characteristics of economically viable communities:

• a slight level of dissatisfaction;
• a positive attitude towards experimentation;
• a high level of intra-community discussion;
• a history of implementation.

In other words, communities need to be aware of the dimensions of change in the new economy and the need to be pro-active, even in times of relative economic well-being.

Similarly, Phillip Burgess has talked about what he terms "high performance communities". These communities have a number of characteristics. They are, according to Burgess, "fast, flexible, customised, networked and global". As Burgess states:

... a high performance community is a place that provides business enterprises that have a future, more per capita wealth for the community, strong and healthy voluntary associations and a user-friendly government that responds and values citizen involvement. It is a community animated by a vision where per capita income increases (increasing wealth); enterprises become more productive (increasing competitiveness); and social, economic and political values are broadly shared (increasing equity).

Summary of Success Factors

What drives regional development, then? Is it the natural advantages of a region? Is it biophysical resources? Is it location? Is it proximity to a large market? Is it critical mass? In other words, is the size of the local economy important? Is it the presence of industries that are growing nationally? Is it economic diversity? Is it local leadership? Is it a welcoming business climate? Is it human capital, either in Putnam's version (social capital) or Florida's (creative capital)? Is it the passion of the community and its active involvement in local economic development? Is it being entrepreneurial? Is it collaboration among the key stakeholders? Is it having a positive attitude to change? Is it global connectedness? Is it having a local economic development agency? Is it having amenity and a high quality of life that appeals to "sea changers"? Is it being cosmopolitan? Is it a welcoming "people climate"? Is it infrastructure, such as the proximity to an international airport? Is it clusters of industries? Is it the existence of tacit knowledge shared among networks of connected firms and other regional players? Is it government assistance?

The anti-climactic, dissatisfying but profoundly important answer is that we don't really know. Theory doesn't tell us. Practice doesn't tell us either. And the evaluation of policy impacts has been an imperfect tool for a number of reasons as well.

It is tempting, and probably wise, to conclude that all of these elements are important to a region's success. I could show you a case study of every factor listed above at work in a given community. They are, at best, partial explanations.

The question then becomes, in what measure do they explain regional success? How do we know that a community's success was the result of three parts collaborative leadership and one part creative capital? Or the reverse.

Answering the "why" question is very important. It tells governments and communities what works, information which is critical in building strategy and devising regional program content. If we knew that leadership was very important, we would, surely, develop more leadership programs. If we knew that clusters were important, we would expend resources building clusters. And so on. Answering the "why" question is especially important since resources are limited, both in communities and in government. It also helps to determine where resources should be directed - to the enterprise, to the community, to the industry, or to the region.

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