Headline: Economics 101: Understanding the Flow That Fuels Growth

By Jeff Hofaker, PCDC Executive Director

Our last discussion was about the definition of community development and the elements, or “hooks,” of a community to attract people and business. Now, we are shifting to economic development.  

Get ready. This will be a quick, crash course in economic development. Don’t worry; there won’t be a test … at least not today.  

A local economy is a geographic area (such as Phelps County) where people live and work, earn and spend. An economy can be as small as a portion of a city, a county, or as large as the entire nation, but the basic concept and working principles of an economy remain the same. Generally, local businesses can be measured by their consistency in both growth in size (quantity) and growth in quality of services/products provided.  

All economies are influenced by the quality and quantity of money flowing INTO the area by the activity of both primary and contributory industries in the area. Primary industries are those businesses providing a service/product to customers outside the immediate economy. Contributory industries are businesses providing a service/product to customers within the immediate economy. With the growth of the internet and advanced technology, the line between primary and contributory businesses has blurred, but the concept of money ‘flowing through’ or being ‘injected into’ the area’s economy by businesses is still the same.

In this way, economic development is broadly defined as projects or programs that help stimulate the growth of business so local area economies become more stable, and grow in size, strength, and quality. Every business has a role. Economic development is not a single event or project in time, but it is a continual process occurring over time.  

Consider a 5-gallon bucket with a one-inch hole in the bottom. If the bucket is filled with water, what happens? All the water poured into the bucket will eventually flow out, and the bucket is empty again. If the bucket is filled again, and then the water is stirred inside the bucket, the water coming out of the hole slows dramatically with the churning or ‘spinning’ of the water. But, eventually, the water still drains out of the bucket. If the bucket continues to be filled with new water, the level of water in the bucket can be maintained or lifted or ‘grown’ over time.

Similarly, consider the bucket as Phelps County’s economy. The water being poured into the bucket is the injection of money into the economy by our primary businesses, which includes agriculture. The hole in the bucket (which is in every economy) represents money ‘leaving’ the economy. The ‘spinning’ of the water (money) in the bucket (economy) are the “contributory businesses.” If an economy is strong, there is more flow coming into the bucket than leaving through the hole. This ‘planned flow’ eventually pushes the water level in the bucket to an overflow mark. At that time, the economy (bucket) must grow bigger.  

With a bigger bucket (economy) comes more businesses, more jobs, more services, more activities, more population; although with this bigger bucket comes more needs within the economy, such as upkeep, maintenance, housing, childcare, etc.  So, the bigger the bucket, the more there is a natural ‘expansion’ of an economy, but the hole does not go away. Quite simply, it takes more effort to lift one 10-gallon bucket than one 5-gallon bucket, but there are more businesses and citizens to help in the collaborative lifting effort.

With advanced planning, non-profit organizations can retain more water (money) through wealth retention from more citizens for long-term community projects, and local government can acquire more cumulative tax monies while reducing the overall burden on any one taxpayer because of the growth in new residents, new homes, and new businesses.  

In essence, the hole ‘leakage’ can be restricted or controlled better through community growth and expanding the maintenance costs across more people and businesses. In short, the growth cycle story of an economy is what every community strives to attain to ensure its sustainability. The empty bucket or near-empty bucket scenario is an economic story that no one wants to hear about, but it happens too often across rural America.  

So, how do we keep the ‘flow’ coming in for gains in the economy while reducing any ‘flow’ out to lower losses to ensure an economy keeps growing? This is a complex question that varies between communities, but there are several key aspects that growing communities possess for strong economies, including progressive leadership, innovative ideas to grow businesses and community, strong eye-appeal, continual strategic planning and action toward goals, shopping local, diverse financial support to provide short and long-term projects and programs, positive communication, collaboration between organizations and businesses, strong community involvement, on-going marketing of a welcoming culture toward new residents and business, and a common purpose toward cultivating the established foundation culture yet accepting change is part of the innovation process for community.  

In one word … VISION.  As one college professor always told our class, “That’s enough for the day of talking about it. Now go do it!”  

We, the people of Phelps County, have the knowledge, attitude, and ability to get things done. This culture is worth preserving and enhancing for future generations. Sharing your stories about the ‘why you live and/or work here’ has already positively impacted this area. Keep up the great work. I look forward to our next conversation.