Community Development Opportunities Exist During Hard Times

AMES, Iowa --- How does an economist speak about community economic development strategies for growth, wealth, retention and attracting young people during tough economic times? Mark Edelman, Iowa State University Extension economist, was unfazed by the task – in fact his comments recently in Osage gave hope to some in the audience.

“When you look at the rest of the country, Iowa has been in relatively good shape,” Edelman said. “Nationally, the unemployment rate was 8.5 percent in April, while the Iowa unemployment rate was 5.2 percent. The state economy benefits from having less of a housing bubble, a diversified economy and the influence of an agricultural economy that has been fairly robust until last year.” 

Edelman hears many people comparing today’s recession to the Great Depression. But he says that the two periods are on a different order of magnitude and marks these differences.

·                    Between 1928 and 1933, the Gross National Product dropped 50 percent and unemployment was at 25 percent. While we made progress every year after that, it was 1940 before our GNP rose above the pre-Depression peak.

·                    At the depths of the Great Depression, one in every four people was out of work.  In today’s recession, we still have less than one in 10 who are unemployed. 

·                    During the 1981 recession, the unemployment rate was 12 percent. So the current recession is not the worst recession since the Great Depression, yet. 

“The economic recession impacts in Iowa vary by community and economic base,” Edelman said. “While some communities are having a harder time than others, periods of economic change often represent an opportunity to consider becoming more entrepreneurial.”

Back during the Depression era, more of the national population lived in rural America and on farms.  Many farmers who were successful in the 1940s and 1950s were farmers who bought land and equipment at the right price near the end of the Great Depression.

During a recession or depression, new entrepreneurial business opportunities arise from dislocations in the economy. Promoting products through advertising that informs people how to save on the family or business budget becomes effective, according to Edelman. Entrepreneurs often find opportunities to buy used equipment at a discounted price relative to the original cost, take advantage of low interest rates and remain competitive for years to come.

Edelman points to history and companies that got their start or saw dramatic growth during a recession or the Great Depression to make his point.  

General Electric Company was established in the middle of the Panic of 1873, a six-year recession, by Thomas Edison, who created one of the best-known inventions of all time — the incandescent light bulb. In terms of market capitalization, GE is now the third largest company in the world. The enterprise has evolved from a manufacturing-strong business to an enterprise earning more than 50 percent of its revenue from its financial services division.

Hewlett-Packard was inauspiciously born in a Palo Alto, Calif., garage at the end of the Great Depression. The electronic company, initially supported by a mere $538 investment, has grown into the first technology business to exceed $100 billion in revenue, earning $104 billion in 2007. It now operates in nearly every country in the world.

Proctor and Gamble had a philosophy of NOT reducing advertising budgets during times of recession and they certainly did not make any reductions during the Great Depression. When competitors were swinging the budget axe, P&G actually increased spending. 

Edelman also points to Chevrolet’s advertising during the 1920s; Burger King Corporation’s introduction of its flame-broiled burgers during a recession period in 1954; the start of Microsoft Corporation in 1975 and CNN, a little-known station called The Cable Network News in recession-plagued 1980.

In addition to a recession, Edelman lists six other situations in a community that create dynamic changes and opportunity for entrepreneurs.

·                    Losing a large employer is one. Similar to Newton, this often means that a number of former employees and suppliers will start new enterprises because they want to stay in the community. 

·                    Gaining a major new company also means that new supply chains may open up in a region and provide opportunity for entrepreneurs. 

·                    Natural disasters, like in Parkersburg, show that a lot of economic dislocation can eventually be turned into new entrepreneurial rebuilding opportunities.

·                    Experiencing an influx of cultural diversity creates new markets in some communities for new and different goods and services that may be culturally specific.

·                    Experiencing a demographic retirement bubble can create opportunities for business succession and retirement centers in many rural communities.

·                    Changes in national policy can create opportunities for new enterprises. Recent global climate change discussions may lead to carbon tax and carbon credit trading systems that may provide new income streams for anaerobic digesters, renewable fuels and no-till farming practices. 

Edelman believes there are opportunities within the current global recession – which is encouraging to people in a position to be entrepreneurial and a thread of hope for those watching for a sign of recovery.