Winter 2013 Editorial: Economic Gardening

Did you notice that big game hunting was on the ballot in South Dakota this year?

Well, it wasn’t worded exactly that way. Referred Law 14 would have established a Large Project Development Fund that would have transferred 22 percent of the funds paid through excise taxes toward significant economic development projects in the state. Projects would have to cost at least $5 million to be eligible—which sounds like hunting for pretty big game to me.

Proponents of Referred Law 14 made a good argument that the amount paid out in incentives from the fund would be more than balanced by increased jobs, revenue and a broadened tax base from the businesses that received funding.

“Businesses receiving grants will be paying construction taxes that will fund future grants,” according to the “pro” argument signed by South Dakota Economic Development Commissioner Pat Costello and others. “There is no net loss to the state.”

This wasn’t persuasive enough to voters, who rejected the proposal, 58 percent to 42 percent.

Apparently there were also some good arguments on the “con” side of the issue. For example, even if the projects eventually paid back the incentives they received, did they really need to have government support? Even in recent trying economic times, traditional financing for large businesses hasn’t dried up, and interest rates are about as low as they can be. If these corporations can find funding elsewhere, perhaps taxpayer money can also be used more effectively elsewhere.

Of course, it’s possible that incentives might be required to convince corporations to expand in South Dakota instead of other locations. But then we are gambling that these businesses will stay; they’ve been wooed by incentives once, and could be wooed by another state’s incentives at some point in the future. We might also ask why we need to bribe businesses to come to or stay in South Dakota. Many regions just naturally attract businesses because of their quality of life. It’s true that the Dakotas don’t have amenities that some other places can offer (we are just not going to have guaranteed pleasant winters). But what if, for example, we had the best graduation rates and ACT scores in the nation? That’s also something corporations consider. What if we just invested in quality-of-life enhancements and let those do the attracting?

In any case, those in more rural parts of the state would not have seen much direct benefit from the fund (even if rural contractors pay the same excise tax as their urban counterparts). Certainly it would have broadened the state’s tax base (no small thing), but few of those large projects would have been located in the smaller towns that are in most need of revitalization. Those corporations likely wouldn’t have wanted to locate in a small town, and we wouldn’t have wanted them to even if they did—rural businesses have trouble finding housing for one new employee, let alone 50 or 500, and expanding infrastructure to a large facility could overwhelm local budgets.

• • •

There’s a time and a place for “big game hunting,” but for our rural communities, there’s a strategy that is more appropriate: economic gardening. Instead of trying to bring in a trophy business, the best way for a small town to grow its economy is to tend to the businesses and entrepreneurs that are already there.

This strategy is a lot less risky for small towns. These businesses are already rooted in the community and are less likely to move their businesses on a whim. And even if one or two do relocate, or one or two businesses fail, it’s not likely that all will. Investing smaller amounts in several small businesses means not all the economic development eggs are in one basket—or, to continue the gardening metaphor, taxpayers have planted a variety of crops so that even if one fails there will still be a decent harvest.

Another advantage of this approach is that these businesses have already proven they are beneficial to their communities. Businesses that relocate from elsewhere may not be: What if the business is a boom-and-bust type of enterprise that’s likely to leave a mess behind? Will the profit stay in and benefit the community, or is it likely to go to distant shareholders? The answer may still favor recruiting an outside business, but in economic development as in other decisions we make, we need to ask if our actions will benefit the community.

In contrast, rooted businesses are far more likely to have business leaders that volunteer in the community, give financially, run for local office and so on. “The research is really clear: Locally owned businesses give back in time, talent and treasure far more than outside businesses do,” according to Don Macke, director of strategic engagement at the Center for Rural Entrepreneurship.

Economic gardening efforts are happening in a number of communities throughout the Dakotas where local leaders have decided this is the way to move their community forward. We’re highlighting Faulkton and the Dakota Rising program in which they take part in this issue. But just imagine if this approach were more widespread: In the first year of participating with Dakota Rising, two businesses in Faulkton went from six total employees to 10. If that happened to just a few businesses in our small towns each year, we could transform the rural economy.

Then, with a stronger entrepreneurial base, our communities might decide it’s time to go big game hunting again. But in the meantime, it’s time to put on our gardening gloves and get to work.

Editor Heidi Marttila-Losure can be reached at heidi@dakotafire.net.

 

Agree? Disagree? We want to know!

We have a question set up at Dakotafire Cafe to discuss the best ways to bring business to our rural communities. Share your thoughts! We will publish highlights from our discussions on Dakotafire.net and in participating newspapers, and send along ideas to people who could take action on them.