Posted on February 19, 2008

Long before Oregon’s economic developers started to go global—a strategy that has wound up increasing the rate of poverty in the state—they prototyped a homegrown approach that is well worth reviving.

In 1983 the city of Eugene, Oregon, teamed up with a private bank and the Lane County Private Industry Council to help in-state purchasers and contractors find competitive in-state bidders. The operation came close to paying for itself by assessing a small finders' fee on every new regional contract. The initiative was so successful that in 1985 the state legislature appropriated a grant to a neighborhood-development corporation to find and train people to run 12 more offices in the state and link them by computer network. Known as the Oregon Marketplace, this effort peaked during a two-year period ending in 1991, when it brokered an estimated $68 million worth of in-state deals.

Two characteristics of the old Oregon Marketplace were especially impressive. First, its overall strategy was to focus on local businesses. Second, it held the potential of becoming a revenue generator (had the Marketplace not been prematurely dismantled). Both elements are key to rethinking economic development in the state.

A focus on local business is smart, not because nonlocal companies are immoral, bad, or unproductive. In fact, a sound economic development policy should welcome all businesses. But scarce public dollars need to invested, laser-like, in those businesses most beneficial to Oregonians. And we know that local businesses carry far more such benefits than nonlocal ones. A 2003 investigation by the Register-Guard of several years of economic development in Lane County found that nurturing home-grown businesses was more than thirty times more effective at create new jobs than attracting or retaining outside corporations.

It makes no sense to waste a penny of public money on nonlocal business. They are simple too unreliable. Every hour and dollar spent on recruitment or retention of nonlocal business is an hour and a dollar unavailable to developing local business.

So how can local businesses best be supported?

• Through "leakage studies" that identify unnecessary imports into the state that can be met through a new generation of homegrown businesses, as the Portland Development Commission recently has done with green buildings.
• Through entrepreneurship programs, like the Umpqua CDC’s Micro-Enterprise Development and Learning (MEDAL) Program, that support local businesspeople with classes and mentorship networks.
• Through local business alliances, like the Sustainable Business Network of Portland, that provide otherwise isolated local businesspeople with more affordable finance, inputs, marketing, and strategic planning, and mobilize local purchasing power for them via "local first" campaigns.
• And through local investment efforts that target not only lending institutions but also begin to create mechanisms for the creation, sale, and exchange of local stock.

Reconceiving economic development in this way not only can increase the impact of every dollar invested. It also can transform economic development from cost items in public budgets to profit centers. Which brings us to the second revolutionary characteristic of the Oregon Marketplace—revenue generation.

Consider a simple project—a directory of local businesses, with coupons, sold for $10-20. In Bellingham, Washington, this kind of directory has been published for almost a decade. Hundreds of local businesses are listed, and the total worth of coupons inside is nearly $10,000. This directory, called “Where the Locals Go,” is the best selling book in the local bookstore, and actually makes money for Sustainable Connections, the sponsoring business alliance.

Other buy local tools also hold enormous profit potential: The local business alliance in Santa Fe has a local debit card, which rewards users who buy local with further discounts on local goods and services. In just one year the Locals Care Card has propelled the sponsoring bank from fourth to first place in the local market. Neighborhoods in Boston and Puget Sound have been experimenting with local credit and loyalty cards, sponsored by a community-minded nonprofit called Interra.

Why stop there? Why not set up local venture funds, local stock issuing companies, and local stock exchanges? Why not bring together local businesses to bring down input costs through collective purchasing (as food businesses do in Tucson Originals), to compete against malls on convenience through 24/7 local delivery, or to create a local business destination (like Pike’s Market in Seattle)? Why not create business incubators that take a 10 percent ownership stake in all sponsored businesses, so that profitable graduates can support the next generation of resident firms?

All these ideas constitute what I call meta-businesses—businesses that support all kinds of local business businesses. And they represent the best conceivable strategy for public dollars in economic development. Why gamble ten million dollars on a risky globe-trotting company when a public investment less than one-hundredth that size could launch a meta-business boosting the competitiveness of, literally, hundreds of local firms?

What Bill Clinton once said about welfare should be true for businesses benefitting from public dollars: Economic development should be seen as a second chance, not a way of life. And it’s time for economic developers in the state to be as entrepreneurial as the businesses they are trying to support.

By Michael H. Shuman

Editor's Note: This piece was originally published in the Spring 2008 newsletter of the Ford Institute, Community Vitality.