Economic developers have long used tax incentives to attract companies to their communities. By some estimates, 95% of U.S. municipalities use these incentives in one form or another, spending upwards of $50-80 billion annually.
At that same time, mounting evidence seems to be showing these tax incentives produce only marginal results, leading to a growing call to change the way we think about local economic development.
Here at JumpStart, we believe the first step to attracting new companies from outside your region is to turn your economic development dollars inward, where they can help existing entrepreneurs and small business owners create jobs and economic growth.
On its face, this method may seem counterintuitive. But I assure you, a dollar spent helping entrepreneurs and small businesses in your community will almost always outperform a dollar spent trying to lure a large company from somewhere else.
Ah, To Be Young.
The vast majority of U.S. businesses are small operations with fewer than 20 employees, limiting their potential as massive job creators. Big corporations, while small in number, account for the lion’s share of U.S. employment. But did you know that neither group is the primary contributor of new jobs?
That distinction goes to young firms who are less than 10 years old. These companies, often called scaleups or gazelles, have the highest rates of new job creation, yet many communities lack a unified strategy to help them grow. In fact, many communities are still focusing most of their time and resources serving well-established businesses who are not major creators of new jobs.
Entrepreneurship Is Vital.
It’s important to understand that local entrepreneurs represent the next generation of economic growth. They will create the young firms discussed above, so nourishing them is critically important to the long-term health of your community.
One of the best ways to do this is by helping local entrepreneurs connect with each other, find mentors, secure funding and locate talent. In nearby Central Ohio, community leaders have organized the SunDown RunDown, a program that gives entrepreneurs a forum to connect, pitch and learn from one another. Building these connections seems like a simple step, but it greatly increases the probability that more local entrepreneurs will succeed.
Build on What You Got.
There have been innumerable studies that show the majority of a community’s job growth comes from existing businesses, rather than the attraction of an outside business. More and more, economic developers are realizing that relocating a large business to your community may generate headlines, but dollar for dollar, it costs less to invest in programs that retain and expand what already exists in a community, or to study the industry cluster(s) that already exist in a community and find ways to make them more competitive.
Moreover, existing businesses tend to have a greater stake in the community and therefore are more apt to contribute to a community’s economic and social vitality than an outside company who only came to your community because of the tax breaks.
There are, of course, many other ways to rethink incentives and turn them inward to build stronger communities. Rehabilitating historic and abandoned buildings, brownfield remediation, human capital development, export promotion—these are just a few.
The point is to see the value of focusing on the people, businesses and resources you already have. You may not attract the next Google, but you will make it easier for existing entrepreneurs and small businesses to create new jobs, which will have a direct impact on the economic vitality of your community.