The factors that determine economic development are changing and moving away from a sole focus on the cost of doing business. Today, economic development cannot rely on what worked in the past to make a community economically successful. It takes a host of factors, but a strong entrepreneurial ecosystem is critical.
Take, for instance, research universities. They are essential drivers to local economic growth. They have the task of creating human capital and can help a community focus on retaining those people to work in the local area. If a university is graduating students, but they are leaving to find jobs on the U.S. coasts, the local and statewide economy suffers.
Communities with thriving entrepreneurial ecosystems and a portfolio of young firms have been shown through research to generate growth in jobs and income at a faster pace.
In addition, the research conducted at these universities can be commercialized or transferred to the private sector for entrepreneurship. This is an important ingredient, especially for communities investing in the STEM (i.e., science, technology, engineering and math) fields, where technology clusters are created. These clusters can be like magnets for the economy of a community. Communities reap significant benefits when a local university engages in entrepreneurial activities and creates and retains graduates. These contributions to the business ecosystem propel economic vitality.
Another factor for a healthy economy is a community’s ability to start and scale young firms. At Heartland Forward, a young firm is defined as a business that is up to five years old.
Communities with thriving entrepreneurial ecosystems and a portfolio of young firms have been shown through research to generate growth in jobs and income at a faster pace. And if there is a university in the area, the knowledge intensiveness of employees at young firms – those who have a bachelor’s degree or above – is greater. This, in turn, leads to a higher rate of return for the community’s economy overall. Community colleges cannot be forgotten because, they too, are an important contributor. They play a role, especially in small communities, at adapting curriculum for students in order to meet the needs of local employers which is an essential to economic growth.
The private sector also plays a critical role. Young firms must have access to early stage risk capital. These entrepreneurs need more than just money to thrive. They need smart money that comes with knowledge, guidance and tools to help them grow.
Finally, quality of life is a critical component needed to create a robust economy for a community. COVID-19 has only amplified quality of life as an essential need of people. It is vital to attracting and retaining talent. A community must identify what it offers – arts, entertainment, outdoor activities or all of the above. Then, a community must collaborate across the public and private sectors to create a viable message – defining a brand that speaks to why their community is unique and a place where people want to live and play.
When it comes to the Heartland, there are great examples of communities that have been able to do this right, cities like Austin, Nashville, Minneapolis, Madison and Ann Arbor. Not surprisingly, all of these places have research universities embedded in their environment.
Overall, however, there is not enough of this kind of activity happening throughout the Heartland. This is because many places in the Heartland do not participate in the knowledge-based economy or technology-based economic development. It is partly about universities not being as engaged in economic development and commercialization. Intentionality is key. Looking at rates of entrepreneurship – young firms, and knowledge intensiveness, they are much lower in the Heartland. It requires changing some paradigms.
The source of job creation comes from newly started firms that begin to scale up. Attention should be focused on support to build these entrepreneurial ecosystems because this is where net job creation occurs in the US. economy. If a community is not engaged on making this happen, it is at risk of being left behind. It cannot be done alone. It requires collaboration between the public and private sectors.
Adapted from remarks at the Walton Family Foundation’s Learning & Leading Together conference on February 11, 2021.