What is “Economic Gardening”

The following is work specific to research by Girdwood and Girdwood (2011). See here.

Economic Gardening

A salient cleavage with respect to economic development activity by city officials is attraction versus gardening. Briefly, attraction employs the following: use of incentives, tax credits, clawbacks, advertising, a focus on large transplants, site selection, trade missions, and trade shows. On the other side, economic gardening engages: no incentives, no tax credits, no clawbacks, development from within, business intelligence, GIS, database research, network-building, and web marketing.  Whereas attraction brings a new business into The City, economic gardening grows local businesses (Girdwood 2011).

Economic gardening employs database research which includes, but is not limited to: marketing lists (e.g., target consumers), financial information (e.g., capitalizing in emerging markets), competitors (e.g., product differentiation), market research (e.g., supply-chain management), industry trends (e.g., consumer preferences), and legislative issues database (e.g. regulation) (Girdwood 2011). This enables local businesses and potential businesses (i.e. entrepreneurs) to discover areas of growth, decay, needs, preferences, laws, et cetera. Thus, database research provides the tools required by serious small business professionals planning to expand.

Economic gardening may maximize resource utilization via an economic development organization (EDO). An EDO could utilize the following: technical assistance providers (e.g., SBTDCs), investment funds (e.g., Angels), philanthropic organizations (e.g., Edward Lowe), higher education (e.g., rural extension programs), workforce agencies (e.g. one-stops), regional networks (e.g., Chambers, technology councils), and community stakeholders (e.g., retired executives) (Girdwood 2011). Like a botanical garden needs a gardener: proper growth may not be achieved without regular maintenance.

Economic gardening requires time investment in order to leverage resources for the long term. Geographic Information Systems (GIS) plot the business community growth and decay. GIS should do the following: plot customer locations, plot consumer expenditure variables, create density maps to find clusters, help target marketing messages, understand retail leakages, compare land uses, and locate efficient smart / enterprise zones (Girdwood 2011). If The City enables the use of this information, then entrepreneurs may design an apposite business plan.

Economic development that creates jobs, such as economic gardening, is more efficient for The City than a transplant of jobs from location F to location G (i.e. attraction). For example, the City of Warren, Michigan, offered General Motors incentives (i.e. 30 year tax abatement) to move its headquarters toWarren—from the Renaissance Center in Detroit, Michigan. This is a leading trait of attraction. In this case, General Motors would simply move workers from Detroit to Warren because of tax incentives (Josar 2011). With respect to job creation, this is a zero-sum game. It actually created no job growth because the employees in Detroit would have simply had a different employment destination. Second, in this case, Detroit ended up offering more incentives than it otherwise would have in order to retain General Motors. This caused decrease tax revenue for Detroit (Josar 2011). It follows that this zero-sum game of attraction leads to reduced municipal revenue. Hence, local officials are reducing their own revenue via attraction.

Attraction can create jobs under certain circumstances. For example, after Hurricane Katrina, many small businesses needed to relocate to Texas or surrounding states in order to remain in business. In fact, The Missouri Economic Research and Information Center (MERIC) analyzed the business data on employers and employees from the “storm-ravaged areas” (Spell, 2005). MERIC found that, “Approximately 43 percent of transportation and warehousing establishments in Louisiana and Mississippi were in the potential impact zone. Likewise, 45 percent of business establishments and 46 percent of all employees were in a corridor of influence from the storm’s path…” (Spell, 2005). After Hurricane Katrina, Texas created an attraction campaign. Post-positivists may argue about the ethical structures therein; however, rational choice theorists may show that Katrina impacted businesses did indeed stay in business because of Texas’ attraction policy. The dilemma here is whether the small businesses located in Louisiana would have closed permanently if not but for the help of the State of Texas’ attraction program.  Current research has not indicated whether or not this is the case.

Economic Gardening is a mechanism to grow existing businesses in a community, region or state. The City should pay equal attention to second stage companies and Gazelles (high impact companies). According to edwardlowe.org, second stage companies have “grown past the startup stage but has not grown to maturity. They have enough employees to exceed the comfortable control span of one owner/CEO and benefit from adding professional managers, but they do not yet have a full-scale professional management team.” (2011). Gazelles, frequently, materialize in business-to-business markets. Gazelles typically form in deregulated or newly emerging industries, where they are able to capitalize on niche opportunities. Of particular salience, gazelles experience a rapid stage of expansion (edwardlowe.org 2011).

Economic gardening increases jobs and is not a zero-sum game. The City of Littleton, Colorado, according to Gibbons (2000), shuns attraction and embraces economic gardening. Fundamentally, Gibbons finds that “Local entrepreneurs are just as good as those in some other state” (2000). Instead of giving “scarce public resources like tax dollars and infrastructure budgets to footloose companies,” Littleton “works to provide connections between industry and academia” (Ibid). For example, Gibbons engaged economic gardening to create the Colorado Center for Information Technologies, development of graduate level engineering courses via microwave, and a telecommunications curriculum and E-commerce courses through the local community college (Ibid).

Economic gardening impacts the entire community as an economic development mechanism. The City of Littleton, for example, publishes a report on its economic development webpage (Littleton Economic Notes, 2011, 3):

Here are unemployment numbers for 2010:

  • National – 9.6%
  • Colorado – 8.2%
  • Littleton – 7.2%

And the home foreclosure rates for Jan 2011 (think property tax revenue):

  • National .20%
  • Colorado .23%
  • Arapahoe County .32%
  • Littleton .12%

The City of Littleton attributes their success to economic gardening. Economic gardening stabilized the economic revenue of Littleton (and increased it).

As with all economic development activities, performance measurements are required to benchmark success/failure and estimate community impact. The technical assistance services that embody an economic gardening program can be measured using a simple return on investment (ROI) calculation. ROI is typically used in corporate finance to describe earnings as a percentage on short-term investments. ROI can also be used to measure change in performance a specified amount of time, which is the methods adopted here. To begin with, the gardening program should have a technical assistance (T.A.) tracking system that measures:

  • Number and annual wage of jobs created or retained;
  • Increase in sales locally and abroad;
  • Number of new loans and total loan amount;
  • Equity capital invested;
  • Tax revenues generated from businesses assisted.

Once these measurements are codified, a reasonable total investment figure is required for the ROI calculation. Further, the initial investment in the gardening program (e.g., employee salary, fringe, technical assistance software programs, etc.) will need to be calculated. Once the researcher (or The City) has these two figures (i.e., technical assistance impact measurement and the initial investment in the gardening program) he or she may calculate the ROI.  The researcher or practitioner will achieve this by dividing the gain (i.e., technical assistance impact measurement minus the initial investment in the gardening program) by the cost of the gardening program. The result will yield the ROI as a percentage. We expect that if The City engages economic gardening, then they will find a positive ROI.

However, positive ROI regarding economic gardening is not limited to local governments. Economic gardening was formally engaged at the state level in 2009. Florida implemented GrowFL. The initial results are encouraging. For example, Economic Development Now (EDNow), published by the International Economic Development Council, explained (3):

At the end of the first year, GrowFL had helped 157 companies, which created 418 direct jobs—and 1,478 jobs total when induced and indirect jobs were added in, according to analysis conducted by an independent consulting firm. What’s more, the state’s $1.5 million investment for GrowFL produced a 6:1 return on investment. This prompted the state legislature to continue the program for a second year with $2 million in funding (2011).

Most importantly, the EDNow article, authored by Mark Lange, Executive Director of the Edward Lowe Foundation, argues that the Sate of Florida’s economic gardening program is a “replicable model” (1). Yet economic gardening is such a new mechanism for engaging economic growth that the standards of the mechanism have not been fully delineated at the time that this paper was published. In fact, Edward Lowe is currently establishing the “National Center for Economic Gardening” (5).

To conclude, there is a salient cleavage between attraction and gardening. Economic Gardening is a mechanism to grow existing businesses in a community, region or state. Gardening requires time investment in order to leverage resources for the long term and is a method to maximize resource utilization. Attraction is too often a zero-sum game, whereas no new net jobs are created. Attraction also, habitually, may negatively impact financial revenue for The City, because more and more incentives are offered in order to retain the business, as opposed to the increase of net jobs proffered by economic gardening. Thus, in general, The City should engage gardening and shun attraction. At this time, there is a clear lack of academic research regarding economic gardening as a mechanism for economic growth, even though published results are very positive.

When the City Considers Economic Gardening

Economic gardening actively advances first stage growth companies into second stage growth companies and beyond, since it provides “competitive business intelligence” (IEDC, 2011, 52). Most importantly, The City must align economic development policy with state and national efforts (GrowFL in Florida, MEDC in Michigan, etc). For example, if The City is in Florida, it should review the Economic Gardening Technical Assistance Program for the State of Florida (GrowFL), because local costs may be avoided in favor of state assistance (http://www.growfl.com, 2011).

GrowFL is an example of how a state may implement economic gardening for local governments. Again, economic gardening provides no incentives, no tax credits, no clawbacks, development from within, business intelligence, GIS, database research, network-building, and web marketing. GrowFL enables local governments to access market research/competitive intelligence for businesses in the financial services industry, internet and social media strategy/search engine optimization, Geographical Information Systems (spatial intelligence for marketing efforts by understanding the competitive environment), Core Strategy Review (transform the company from a niche player to a full-service marketing company), and referrals. Thus, The City should contact The State and incorporate/streamline/advertise the appropriate activities. It is likely that MEDC in Michigan, for example, could service local governments in Michigan—much like GrowFL services businesses in Florida.

Economic gardening requires at least one full-time skilled employee. The City of Littleton, for example, hired an Intelligence Specialist, a Geographic Information Systems Analyst, and an Economic Development Specialist. Their economic gardening program costs about $600,000 annually (IEDC, 2011, 52). However, the City of Littleton is a success story because many it its start-up and/or first stage companies quickly became second-stage companies as a result of economic gardening. In fact, the job growth rate, as reported on their website, is about 8 percent. Thus, we advise The City to implement an appropriate economic gardening program because it is very likely that the long term revenue will outweigh the overall costs. As written in the IEDC manual, Entrepreneurial and Small Business Development Strategies: “Gardening is more about developing a culture that embraces entrepreneurship and creates a thriving place to do business” (IEDC, 2011, 59).

For bibliography, see entire article here.

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