The EDA Center | at the University of Minnesota  
Commentaries on Greater Minnesota

Periodically we will present commentaries on topics of interest to community and economic developers across rural Minnesota. Below is a list of all commentaries with the most recent listed first.

 

Commentaries
Lessons from Recessions Past
January 2009
Jack M. Geller, Ph.D.
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It's not an easy time to be in the economic development game. Like the rest of the nation, Minnesota companies continue to shed jobs as the recession of 2008/2009 continues to deepen. The latest report from the Department of Employment and Economic Development reporting another 7,500 jobs lost suggests that maybe the "bottom" of this economic cycle still may be a ways away.

Unfortunately, the inter-related effects of a global recession, a housing bust and a banking crisis also spells trouble for state budgets like Minnesota's; which are disproportionately dependent upon income tax revenue. With businesses continuing to shed jobs you can be assured that tax revenues from wages will certainly be down; and with stock market valuations well off their 12-month highs it is unlikely that anyone will be paying significant capital gains taxes this year. So while the November budget forecast was discouraging, look for the forecast to actually worsen in February.

So with the economy in the dumper, what's an economic developer to do? Well a quick look back at previous recessions might be instructive. A quick review of jobs lost and jobs gained over the past 20 years clearly document that with a few exceptions, large companies in Minnesota tend to reflect the national economy. In other words, when the national economy expands Minnesota's large companies add jobs; and when the economy contracts, these same companies tend to quickly shed jobs. Bucking this trend however are very small businesses and start-up firms that seem to create jobs in both expanding and contracting economies.

This observation was confirmed during the last major recession at the turn of the 21st century. Recall that during this time the national economy took a severe downturn with the dual effects of the Internet bubble bursting and the initial after-effects of the terrorist attacks of September 11. In a published analysis examining jobs gained and lost in Minnesota between 1999 and 2002, Schaffhauser (2005) found that during this period of economic contraction Minnesota's larger firms with 100 or more employees shed 51,866 jobs, however small firms and start-ups with 10 or fewer employees actually gained 60,179 jobs!

Given this reality it is clear that more and more economic developers are beginning to understand that focusing on small businesses is "big business;" or at least it should be. Not long ago DEED Commissioner Dan McElroy suggested that the continual pursuit of recruiting large companies to rural areas in the hope that they bring hundreds of jobs may not be the most effective economic development strategy. Simultaneously, he also noted that there are thousands and thousands of very small businesses throughout rural Minnesota; and if only 10 percent of them added 1 new employee each, the collective result would be the addition of hundreds and hundreds of new jobs across rural Minnesota!

So where do we go from here? Well in spite of the difficult road ahead economic developers can't just fold their tent, go home and wait for better days. Rather, during times like these economic developers are needed more than ever. However, the traditional tools in their economic toolbox may not be as effective as we would like. On the other hand this "one job at a time" strategy tied to an enhanced focus on entrepreneurship and small business start-ups just may be the most productive approach during times of economic contraction.

Unfortunately, many of our rural economic development agencies may not be as focused on or have as many tools dedicated to small business development and entrepreneurship as they should. For those agencies a discussion with their regional Small Business Development Center would certainly be in order. But don't count out business programs at local colleges and universities. Increasingly business schools and programs are focusing on entrepreneurship and business development and can be a great partner to help economic developers to put these much needed new tools in their toolbox.

Geller is professor & head of the Arts, Humanities & Social Sciences at the University of Minnesota, Crookston. He also serves as the director of the federally-funded EDA Center at UMC. He can be reached at gelle045@umn.edu

This document was prepared by the University of Minnesota, Crookston under award number 06-66-05709 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.

The University of Minnesota is an equal opportunity educator and employer.

 
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