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What do you get when two Economists spend 7 years roaming Rural Counties?

No seriously…

Researchers at Pennsylvania State University have found that counties with more small, locally owned businesses have stronger economic growth than communities with larger businesses owned by outsiders. “Local ownership matters in important ways,” said economist Stephan Goetz of his research with co-author David Fleming. “Smaller, locally owned businesses, it turns out, provide higher, long-term economic growth.”

Goetz and Fleming looked to see if per capita income growth in the benchmark counties were affected by the size and ownership of local businesses. (The pair studied different U.S. counties from 2000 to 2007) The effect of having locally-owned, small firms (with between 10 and 99 employees) on a county’s economy was significant. There was a strong, positive relationship between the presence of smaller, locally-owned firms and faster growth in incomes.

It should be noted as well that larger firms  owned by people outside a county depresses growth, the researchers found——-Why? The presence of larger firms owned by those outside the county had the opposite impact. Those counties had slower growth in incomes. Goetz and Fleming found that this impact extended to big box retail stores, such as Walmart and Home Depot. “Although these types of (larger, non-local) firms may offer opportunities for subsistence jobs, as well as job growth over time, they do so at the cost of reduced local economic growth, as measured by income,” Goetz and Fleming wrote. “Small-sized firms owned by residents are optimal if the policy objective is to maximize income growth rates.” Last time I checked  all of us would  like some income growth. Right?

One of the reasons locally owned firms are better for county economies than big box stores and larger, out-of-town corporations is that these larger firms outsource many services that the smaller companies buy within the community. MEANING: More business to business (B2B) relationships are formed. Or as we say in Huron County “neighbours acting neighbourly”….They use local accountants, wholesalers and contractors to get the job done while big firms do this work in centralized locations elsewhere.

Furthermore, Small businesses and local start-ups not only buy locally, but they tend to spur innovation and productivity within the county. Local problems are always identified by locals, most of the time the get solved by them too..the same is true in Business.

This is really a post about start-ups and the income of  you and your neighbours. Many communities try to bring in outside firms and large factories, but the lesson here  is that while there may be short-term employment gains with recruiting larger businesses, they don’t trigger long-term economic growth like start-ups do. “We can’t look outside of the community for our economic salvation.” Goetz said. “The best strategy is to help people start new businesses and firms locally and help them grow and be successful.”

I could not have said it better myself..

2012 is going to be a good year…

Your Neighbour,

Douglas

 

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