Chapter 4: Economic Development

Downtown Vancouver

All local governments spend money on infrastructure, facilities, human resources and services. These investments can help propel economic development if they are part of a coordinated plan to attract, retain and grow businesses. A high priority should be assigned to investments proven to make local communities stronger and more resilient.

While the previous chapters have looked at how to find additional revenue sources within the existing economy, this chapter will consider strategies to help grow the economy and expand the economic base of communities with resulting long-term benefits in terms of a larger and more diversified tax base for local governments. The strategies outlined will help to improve the employment prospects and quality of life for residents, and create growth opportunities and a fertile environment for business. By implementing such measures, local governments can help foster growth in their main bases of revenue.

These strategies can effectively complement other economic development initiatives and be pursued in collaboration with local residents, businesses and other levels of government.

i. Housing Affordability

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The housing affordability crisis is a problem for many communities in British Columbia, especially those in the rapidly growing large urban centres. The economic and social costs of an unaffordable housing market are becoming more apparent as housing costs continue to outpace growth in incomes.

For lower-income earners, the cost of the housing often exceeds 30 per cent of household income in many communities. For instance, in the 2006 census, 21 per cent of Greater Vancouver’s renters – 57,000 households – reported that rent consumes more than 30 per cent of their income. These numbers are certainly larger now. In 2009, average rents in the Greater Vancouver area increased ten times faster than the cost of living, as measured by Statistics Canada’s consumer price index.

Many families face growing economic insecurity and lack the discretionary income to support consumer spending, education and personal development, or take advantage of investment opportunities. Although the affordability crisis is most acute in Metro Vancouver, recent CMHC data reveals it is by no means just a big city problem.

High housing costs also place a burden on employers in many parts of British Columbia. As housing has become less affordable, many public and private sector employers have had a harder time attracting and retaining qualified staff. Wage demands are driven by the high cost of living, particularly in Metro Vancouver. The lack of affordable housing is therefore a key factor that reduces our economic competitiveness and makes it more difficult for companies to grow and keep skilled staff.

Policies that help make housing more affordable benefit the broader local economy, as employers are able to find qualified staff while maintaining reasonable labour costs. Employees also benefit from lower housing costs with greater disposable income and the ability to participate in a growing economy with expanding career opportunities.

Local governments should carefully examine their zoning and land-use policies, as well as their development regulations and permitting practices. Ineffective, overlapping or outdated municipal regulations contribute to unnecessary increases in housing costs.

Specific exemptions and equivalencies can often reduce the cost of housing by thousands of dollars. For example, is it necessary to require a parking spot for each housing unit in dense urban areas that are well served by transit?

Local governments need to view affordable housing policies as a key component of their economic development strategy. For example, the City of Salmon Arm has successfully attracted new business and employment on the strength of its relatively lower cost-of-living, and its proximity to major centres and transportation corridors. The city has prioritized affordable housing and densification as part of their downtown revitalization plan, which focuses on townhouses and multi-family buildings located near shops and services.

Salmon Arm understands that high housing costs are passed on to business in the form of higher labour costs or labour shortages. The city understands its relative affordability is a competitive advantage for local business.

The Salmon Arm Economic Development Society (SAEDS) launched a creative marketing campaign around the idea that locating in Salmon Arm leaves you “with more money in your jeans.” The campaign targeted businesses in areas with labour shortages and rising cost-of-living such as Calgary, Edmonton, Red Deer and Vancouver. They focused on firms in light manufacturing because of their economic spin-off benefits. SAEDS estimated over 200 new jobs and millions in investment were attracted to the community through this campaign.

Richard Florida, in his book The Rise of the Creative Class (2004), argues low housing costs are one of the critical factors that make cities attractive to creative class professionals. High housing costs drive away young people, artists, intellectuals, and others on the cutting edge of technological, social and artistic innovation.

Like other professions, creative professionals are often burdened by student debts and low incomes at the beginning of their careers. High housing costs are therefore crippling to creative class professionals at the point in their career when they are most likely to be producing cutting edge work, and before they have families and become more settled. Unaffordable housing drives away the next generation of innovators, artists, entrepreneurs, and professionals – exactly the people necessary to maintain a creative, knowledge-based economy.

Other critical factors in attracting creative professionals include cultural diversity and tolerance, leading universities and educational institutions, quality public services and amenities, and environmental and recreational amenities.

ii. Local Procurement Policies

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Local governments are powerful consumers, purchasing many products and services required to maintain their operations. Many local governments are exploring local procurement policies to ensure their dollars are supporting local business wherever possible. As an added benefit, local procurement helps to avoid the economic and environmental costs of shipping products and services that can be sourced locally.

The preference for local sourcing supports the multiplier effect, allowing more money to circulate in the community longer. When buy-local policies accompany ethical purchasing policies, the benefits are more visible in the community. Even if you do not include the benefit of sustaining employment and income contributing to the local tax base in the equation, the use of local suppliers is often competitive with outside suppliers.

In October 2009, Toronto adopted a local food procurement policy after more than 2,000 Toronto residents told their politicians to avoid jet-lagged food and buy local first. The city set a target of 50 per cent local food for civic facilities such as daycares, shelters and seniors’ homes. Their local food policy will result in fresher, healthier food, with less associated greenhouse gas emissions. Further, the policy helps to support Ontario farmers by providing a market for their products.

Another example is the University of Waterloo’s procurement policy, which establishes the public institution as a Canadian leader when it comes to local procurement policies. Their policy includes a preference for “…products that are produced or located locally or regionally to reduce shipping and packaging requirements (storage, chemical treatment for freshness).” Selecting preferred origins of products, as a means to reduce shipping and packaging, does not contravene trade agreements because the policy is connected to reducing impacts on the environment.

The St. Catherines–Thorold Chamber of Commerce applauded Waterloo’s move and called upon “all public institutions – including  but not limited to hospitals, post-secondary institutions, school boards, and agencies to produce green procurement standards that are modelled after leading green standards in Canada … and that all green procurement standards include proximity to product clauses to reduce transportation impacts.”

When Think City surveyed local government leaders in British Columbia, 60 per cent reported their local government’s economic development strategy incorporates tools such as local procurement, local hiring and/or community economic development.

In the US, there is widespread use of local procurement as an economic development tool. A 2007 survey by the National Association of State Procurement Officials found that 39 states use the location of a firm as a tiebreaker, if all other aspects of a bid are equal. In fact, half of the 50 states, half of the 26 largest cities and five of the 18 largest counties offer between a four and ten per cent uplift to local businesses on local government contracts.

Unfortunately, while other nations see the benefits of fostering their own economies with local procurement policies, the Canadian government is currently pursuing trade policies that could inhibit our own ability to do so. Until now the federal government has never bound sub-national governments under the World Trade Organization’s agreement on government procurement. However, the proposed “Buy American” agreement would for the first time include provincial and territorial governments, and municipalities with a population over 50,000.

Similarly, the draft Canada-European Union trade agreement (CETA) text would, if enacted, undermine the ability of local governments to implement local procurement policies. According to research published by the Canadian Centre for Policy Alternatives and the Centre for Civic Governance, there are serious concerns that the language in the draft CETA text would effectively prohibit local procurement policies and would facilitate the privatization of public services, such as waste management, drinking water, and public transit.

iii. Working with First Nations

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In the 21st century, the rights of First Nations must be accommodated. There is a growing body of case law that establishes the obligations for all parties, including local government. Some local governments have concerns about how they will be affected by treaty settlements, and it is important that these concerns be addressed by senior levels of government. While negotiating treaties is clearly the responsibility of senior levels of government, local governments could be affected. However, many local governments have also realized that treaties have the potential to bring real economic benefits to communities throughout the province.

A November 2009 study titled “Financial and Economic Impacts of Treaty Settlements in British Columbia” by PriceWaterhouseCoopers concluded that if all 60 First Nations currently in the BC treaty process complete treaties by 2025, they could receive a net benefit of $10.28-billion. BC could receive $6.4-billion in economic benefits after deducting settlement costs. As part of these treaty settlements, federal money that otherwise would not be spent in BC will be available to First Nations
in BC.

The legal uncertainty surrounding title to the land base of the province is a significant barrier to private sector investment in the province. The settling of treaties establishes a more favourable climate for investment and development.

First Nations governments are important partners in the development of local economies. Once they are empowered with legislative authority and resources, they will be able to actively promote economic development within their territories. This economic activity will ultimately benefit all British Columbians, particularly some smaller communities throughout rural BC that are struggling with severe economic challenges.

Many First Nations have already started to take on some of the revenue instruments and service delivery responsibilities traditionally associated with local governments. For example, in 2006 Terasen and the Westbank First Nation reached an operating agreement that resulted in Terasen paying a 3.09 per cent franchise fee to the Westbank First Nation, and collecting it from gas customers on band lands.

Local governments around the province have started to build relationships with local First Nations by partnering on local projects and initiatives. Such ventures include local hiring and training, partnering on local-revenue generation projects, sharing infrastructure for municipal services, and other joint projects. When treaties are settled, many local governments will have built alliances with First Nations at the local level. These intergovernmental partnerships will have very important implications for local economic development.

An example of such a partnership is when, in 2008, the City of Penticton signed an agreement with the Penticton Indian Band to provide sanitary sewage treatment for band lands on the west side of the Okanagan River. The band will pay the city for the capital and operating costs in an agreement amortized over a 20-year period. The agreement will benefit the environment and help to diversify the area’s economy by allowing the band to develop the land for industrial purposes.

In 1988, in the same part of the province, the Osoyoos Indian Band established the Osoyoos Indian Band Development Corporation (OIBDC) to undertake economic development projects. Over the last 20 years, the OIBDC has been highly successful in establishing business partnerships and joint ventures with investors and governments. The OIBDC works with local municipal and regional authorities on synchronized planning, such as the regional marketing and promotion plan. A 2006 agreement between the OIBDC, the provincial government and the Mount Baldy Ski Corporation has resulted in the band purchasing an ownership stake in the resort.

Over 90 agreements have been signed between local governments and First Nations, covering matters such as general cooperation and protocol agreements, transit service, water and wastewater treatment, fire protection, and other local services. Treaty negotiations may be the responsibility of senior levels of government, but formal treaties are not necessary for local governments to explore partnerships with First Nations. Together, the two parties can strengthen local economies.

iv. Columbia Basin Trust

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The Columbia Basin Trust (CBT) was created in 1995 to benefit the southeastern part of British Columbia (the Columbia basin), which was severely affected by the 1964 Columbia River treaty. This treaty led to the construction of three storage dams in the basin (the Duncan, Keenleyside and Mica dams), and the Libby Dam in Montana. Without public consultation, the government of the day displaced 2300 residents – who lost their communities and farms to flooding.

In the 1990s, people and communities in the basin approached the provincial government seeking justice. The government responded and began the negotiations toward the creation of the Columbia Basin Trust. The provincial government agreed to invest $276-million to install hydroelectric generation facilities in the three Columbia basin dams, and a further $250-million for various community development projects. The revenue from the CBT dams goes toward an endowment that funds a wide range of community programs, social services, affordable housing, scholarships and youth programs, small business loans and venture capital investments. This money is re-circulated in the economy of the region and directly benefits local businesses and residents.

When the province set up the CBT, it also transferred funds to CBT’s joint-venture partner in power project development, the Columbia Power Corporation (CPC). To date, the joint venture partners have invested in three hydroelectric power projects, with a fourth in the advanced stages of feasibility planning.

The CBT private placements include all investments the CBT makes in businesses located in the Columbia basin region. The investments take different forms, but they generally fit into three categories:

Real Estate: CBT has an ownership interest in a number of seniors’ care facilities located in the basin. Collectively, these properties contain more than 800 living suites and offer a range of services depending on the needs of the resident.

Direct Lending: On a select basis, CBT invests directly in basin-based businesses. The investment risks and financial returns accrue fully to CBT, as they exclusively manage the investments.

Loan Syndication: In partnership with regional credit unions, CBT invests in basin-based businesses. These investments are managed on a joint basis with the credit unions and both parties share the risk, as well as the return.

The CBT’s priority is investment opportunities located in the Columbia basin. However, given the limitations of investing in a small region, there is a balance of funds that is available for investment in a portfolio of market securities, such as short-term deposits, bonds and equities.

The CBT also funds the basin business advisors program (BBA) to build economic capacity in basin communities by strengthening and supporting existing businesses. The BBA program assists small- and medium-sized independent business operators in the Columbia basin by providing free, one-to-one confidential business counselling and assessment services. The BBA program also arranges and shares the costs of specialized consulting services, if they are recommended by BBA staff.

The Columbia Basin Trust provides local communities with the control and financial resources to shape their own economic future. It will ensure that the region receives a fair share of the ongoing downstream benefits of the Columbia River treaty. The Columbia Basin Trust is a good model for how resource-based communities throughout BC can be empowered with the capacity, mandate and resources to engage in economic development at the local level.

v. Community Bonds

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Community bonds are a form of borrowing from within the local community and a mechanism for local government to raise funds for capital projects. These bonds are issued by the local government and are administered through the BC Municipal Finance Authority (BCMFA). All community bonds are guaranteed by BCMFA and carry the same AAA credit rating as other BCMFA services.

The local government issuing the bond is responsible for promoting and selling the bonds.

The local government must receive the assent of electors, either through referendum or the alternate approval process. Two chief advantages of community bonds are that they create a strong sense of community ownership, by encouraging buy-in to local projects, and interest is paid to local residents, thus keeping the cost of interest within the community.

Typically these bonds have been used for small-scale local infrastructure projects. For example, the Village of New Denver raised $220,000 in 2005 for the paving of local roads, and the Village of Montrose raised $200,000 in 2004 for electrical system upgrades and power line installation.

One reason why community bonds are not more widely used is the difficulty local governments often have in offering commercially competitive interest rates. Local governments are usually able to borrow at lower rates through BCMFA. In 2008, the City of Kelowna examined the feasibility of using community bonds to partially finance their new $46 million Mission Recreation Park Aquatic Centre. At the time the city had concerns about their ability to sell community bonds given the other products available to investors. Ultimately, Kelowna decided to use more traditional financing methods.

In an attempt to make community bonds a more attractive investment vehicle, Senator Jerry Grafstein introduced a bill (S-203) in 2009 which would have made the interest earnings on community bonds tax-exempt, among other changes. However, the bill has been criticized because most institutional investors are already tax-exempt or enjoy special tax status, and most individual investors earn investment and interest income tax-free in their registered retirement savings plans and tax-free savings accounts.

In 2003 the Ontario Municipal Economic Infrastructure Financing Authority (now Infrastructure Ontario) introduced a more centralized model of community bonds called Ontario opportunity bonds. These bonds were exempt from provincial income tax and were used to finance local infrastructure projects throughout Ontario. Infrastructure Ontario concluded the bonds “may not be the most efficient products to use to raise funds for a broader infrastructure loan program” and the program was discontinued.

In the early 1990s, the government of Saskatchewan developed a community bonds program to mobilize local people, local capital and local resources for new, diversified business and manufacturing development. These community bonds originated in response to the provincial need to diversify the rural economy and create jobs to offset the effects of massive structural adjustment in Saskatchewan agriculture and an extremely limited government fiscal position.

NatWest, a large British bank, sells community bonds over the counter as an investment product. The bonds are guaranteed by the government and the purchaser can choose to direct how much interest they want to contribute to community projects, and which communities they wish to invest in.
With the support of the BC government, local governments could partner with banks and credit unions to market similar investment products, raise money for local projects and keep the interest payments in our communities. The policy challenge would be to develop the legal and taxation framework where this kind of program would make financial sense, both for investors and for local governments.

When Think City surveyed local government leaders in British Columbia, 48.2 per cent said they would be interested in exploring the use of community bonds and municipal revenue bonds as tools for financing capital projects. 30 per cent said they were not interested in this option, and 21.8 per cent said they didn’t know.

vi. Caisse de dépôt et placement du Québec

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One of the key weaknesses in the BC economy concerns the availability of investment capital in the province. Studies have shown that small- and medium-sized businesses in BC and Canada have more difficulty finding investment capital than their competitors in other countries. The relatively small size of our economy, structure of the banking industry, government tax policies, the role of institutional investors and the risk-tolerance level of investors are all factors limiting the availability of investment capital in British Columbia.

The province’s tax subsidy for labour sponsored investment funds (LSIFs), such as the Working Opportunity Fund, has proved beneficial for business investment in the province. Another winning strategy could be to follow Quebec’s example of how public-sector pension funds can be used as an important source of investment capital. Created by the Quebec government in 1965, the Caisse de dépôt et placement du Québec is one of the largest institutional fund managers in Canada and North America. It manages public and private pension and insurance plans, and invests primarily in fixed income securities, equity markets, private equity and real estate. It is the largest pension fund in Canada, with $220.4-billion in assets under management.

British Columbia has a similar institution to manage public-sector pension funds in this province, the BC Investment Management Corporation (BCIMC). The BCIMC has $74.5-billion in assets under management, and also invests in bonds, Canadian and international equities, private equity and real estate. The main difference between the two organizations is that the Caisse de dépôt et placement du Québec has always had, as part of its mandate, an explicit commitment to invest in the economic development of Quebec. The BCIMC has no such mandate to invest in British Columbia, with the result that this capital is managed no differently than it would be if it were based outside the province.

In 1967, Caisse chairman Claude Prieur stated their philosophy as follows:

“Between two investments of similar quality and price, the one that seems most susceptible of favouring the economic development of the province is preferred, even if, in doing so, it is necessary to sacrifice somewhat the diversification of the portfolio.”

Even today, despite some changes in policy over the years, the organization’s mission statement reflects that goal as a key principle guiding the Caisse: “The mission of the fund is to receive moneys on deposit as provided by law and manage them with a view to achieving optimal return within the framework of depositors’ investment policies while at the same time contributing to Quebec’s economic development.”

This policy has proved to be a very effective economic development tool, providing necessary capital for business investment and expansion in Quebec. Over the past 45 years, since its inception, the Caisse de dépôt et placement du Québec has provided investors with returns comparable to other similar pension funds and investment vehicles. Importantly, it has also played a significant role in developing Quebec’s economy.
Exploring the use of Caisse de dépôt et placement du Québec’s mandate, as a model for the BCIMC, is an economic development option that could prove beneficial. Implementation would require that the provincial government amend the legislation governing the BCIMC and appoint a board of directors willing to oversee such a shift in policy.

When Think City surveyed local government leaders in British Columbia, 43.5 per cent agreed or strongly agreed that British Columbia should coordinate its public sector pension plans to provide a pool of investment capital for business development and provide for local and provincial government financing.  31.1 per cent said they disagreed with this option, and 25.4 per cent said they didn’t know.

vii. Encouraging Clusters

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One of the most powerful concepts in regional economic development over the past 20 years is the development of industrial clusters as a central economic development strategy. Harvard economist Michael Porter has written extensively about clusters, and other economists have furthered his research with more detailed studies on how and why clusters are so economically competitive. The cluster concept details that firms realize significant economic benefits by locating near other firms in the same industry or related industries. Networks of related suppliers and sub-contractors grow, developing expertise. Specialized, industry-specific tertiary services such as law, finance, and marketing also spring up to serve the cluster.

Some well-known historical clusters include Silicon Valley in California, the watch-making cluster in Switzerland, the fashion/design cluster around Milan, Montreal’s aerospace industry, and Finland’s telecommunications industry.

For over a century, cheap energy prices have allowed materials to be transported vast distances to highly-capitalized manufacturing plants located near major consumer markets. The automobile industry is the classic model of this structure. But, as energy costs seem set to increase dramatically in the next few decades, the costs of transporting materials vast distances to manufacturing centres will become – and are already becoming – less viable. Since transportation and inventory costs add no value to the final product, industrial companies will seek ways to shorten their supply lines by bringing their suppliers and sub-contractors closer together.

It is likely that this century will witness a transformation whereby the formation and development of industrial clusters will become more intense and critical. In such a situation, universities and research institutes are very important as incubators and “growth poles” in a knowledge-based economy. Government support for research and development, linkages between academics and industry, and ease of commercialization are critical factors in building up highly competitive technology clusters. Again, the value of investment in education and training for a knowledge-based economy cannot be overstated. Carly Fiorina, former CEO of Hewlett Packard, told a group of US governors in 2002, “Keep your tax incentives and highway interchanges; we will go where the highly skilled people are.”

Local governments must appreciate the significance of clusters. Other economic development strategies rely on attracting investment with low taxes or other public subsidies and incentives. Cluster-based economic development, on the other hand, is very stable. Being part of the cluster is the competitive advantage for firms. As a result, host communities are shielded from the negative impacts of tax competition. Of course, a reasonable business tax environment is important, but it is by no means a critical factor in the location of industrial clusters.

Research on locational decision-making by leaders of small- and medium-sized enterprises (SMEs) suggests that predominant factors include: presence of suppliers, access to capital and skilled labour, advanced local research institutes, quality transportation infrastructure, and quality public services.

Historically, government economic development agencies in Canada have attempted to create clusters by attracting large “anchor firms” with subsidies, tax breaks and other incentives. Smaller firms, so it was thought, would be attracted to set up near these large firms. Attempts in this vein have not often proven successful, as they are often far too dependent on the success of one large anchor firm rather than the broader cluster.

The case of Nortel, once Canada’s great hope in telecommunications, illustrates the perils of this approach. Given the potential problems of mismanagement, market competition, mergers and takeovers, it seems unwise to place all of our economic development eggs in one basket. The history of regional economic development in Canada, through agencies such as Western Economic Diversification (WED) and the Atlantic Canada Opportunities Agency (ACOA), is not particularly encouraging.

Research on successful cluster initiatives around the world shows that usually the impetus and leadership for the cluster comes from within the industry – not from government. Attempts by governments to create clusters in advanced capitalist economies have not been successful. However, government support for, and involvement in, cluster initiatives is very important in aligning public policies in ways that support the clusters’ growth and diversification.

How then does the state encourage the development of cluster formation? Investment in research and development and universities is obviously a key means of channeling public resources into areas where there is likelihood of commercial spin-offs. Other polices, such as quality public education and skills-training programs, modern transportation infrastructure, and a supply of inexpensive property zoned for commercial and industrial use, all help to lay the foundation for dynamic companies.

Communities can also work to help bolster their existing businesses. This may or may not eventually lead to cluster formation, but it does help to nurture existing companies and jobs. One option is to strengthen the competitiveness of existing industrial firms by attempting to attract suppliers to locate near the companies who are already operating in the community. Some business leaders in British Columbia have suggested they would be open to such approaches from their local government, if they were asked to participate. Not all firms would participate in such initiatives, but those that do are more likely to maintain and expand their operations in the community.

One approach to encourage this type of cluster formation is for economic development officers and local government officials to meet with every significant manufacturing company in the municipality and ask if they would like to see their largest suppliers brought closer. If the answer is affirmative, representatives of both the local company and the local government could jointly approach the supplier firm. When local officials work together with local business leaders – to identify opportunities and sell the benefits of their community – they have an advantage because they are building on existing relationships rather than trying to attract companies with whom they lack any connection.

viii. Import Substitution

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Cluster development tends to be most successful in larger, more economically diversified communities. In contrast, smaller rural communities are often dependent on a single industry or large employer. The challenge facing these communities is economic diversification. As Michael Shuman, research and public policy director of the Business Alliance for Local Living Economies (BALLE), has written:

A rural community needs to avoid dependence on large firms. Instead, it should focus their efforts on developing multiple new business sectors that expand the local skill base, increase entrepreneurship, and reduce a town’s vulnerability to global commodity markets. It needs, in short, to develop new clusters.

Case Study: Hardwick, United States

Hardwick, Vermont has built a new economic cluster around local food. “Cutting-edge restaurants, artisan cheese makers, and organic orchardists turning fruit into pies are some of the new businesses that have added 75-100 jobs” in a community of approximately 3,000. Non-profits, such as the Center for an Agricultural Economy and institutions like the University of Vermont, have played a key role in working with organic farmers and small food producers on solutions to issues such as marketing, research and transportation.

By focusing on high-value, specialty organic agriculture and food processing, Hardwick’s farmers are building a market for quality local food that traditional economic models would not have predicted. As Andrew Meyer, who was instrumental in bringing farmers and entrepreneurs together noted, “… if Vermont is going to have a future in agriculture we need to look at what works in Vermont, and that is not commodity agriculture.”

A key factor in Hardwick’s success has been cooperation among the farmers and small-scale food processors in the cluster. The benefits of this cluster arrangement include: cross-promotion, marketing, and access to small-scale capital through local networks.

Case Study: Güssing, Austria

In the early 1990s, Güssing was a dying rural community of 4,000 people in Austria. Its traditional logging and farming industries were in steep decline. The mayor saw an opportunity to create a district heating system, fueled by local wood waste. His goal was to completely abandon fossil-fuel-based energy and to supply the town of Güssing – and subsequently the whole district – with regionally available renewable energy sources. First, all public buildings in the town were provided alternatives and required to stop using fossil fuels. As result of the energetic optimization of buildings in the town, expenditure on energy was reduced by almost 50 per cent. Subsequently, a wood-burning plant was built, providing heat for 27 houses. Later, a facility was constructed that turns rapeseed into car fuel.

In 1998, with Vienna’s Technical University, a pilot project to gasify wood chips under high temperatures was built in Güssing. The process had gas fueling a Jenbacher engine, which produces electricity. Its by-product, heat, is then used to produce warm water for the district heating system. Embracing these technological advances encouraged research and development to continue. Today, Güssing hosts a team of trained technicians and imported scientists.

The renewable-energy project did in fact expand to the region. Currently, there are 27 decentralized power plants within Güssing County. Güssing now has an annual energy turnover of about €14-million. The region has developed into an important location for industries with high-energy consumption, such as parquetry production or hardwood drying.

The highlight is Blue Chip Energy, the first high-efficiency solar cell production in Austria. The company is a joint venture with Solon AG, who came to Güssing only because they can power the plant with clean energy from the renewable resources.

Rural communities interested in pursuing import substitution strategies can look to examples such as Hardwick and Güssing, as well as those described in the source documents listed at the end of this paper. As Michael Shuman argues:

“Both the Hardwick and Güssing examples demonstrate that substituting homegrown business for imports does not mean de-linking from the global economy. In fact, it’s just the opposite. By focusing first and foremost on local demands for food and energy, and by creating cutting-edge businesses to meet these demands, both communities were naturally able to grow new, powerful export-oriented industries.”

Import substitution strategies are neither cheap nor easy for a struggling rural community. It takes time and resources to conduct “leakage” analysis, and to identify the most promising new clusters. There is also the further challenge of bringing together entrepreneurs, educational institutions and economic development programs to advance these new clusters. It’s always a challenge to sell new ideas to consumers, investors and policymakers. But it is less expensive and more valuable to do this rather than continuing with traditional economic development strategies, most of which attempt to lure big companies with massive subsidies and tax giveaways.

The economic development ideas presented in this chapter are promising economic development tools for local governments, and for the province as a whole. These ideas become even more powerful when they are combined with successful economic development initiatives already in place at the local level. Such strategies aim to diversify our economy, improve local multiplier effects with high-value industries, keep money circulating longer in our communities, and attract and retain business investment and human resource talent. Together, they provide a blueprint for a more self-sufficient, more entrepreneurial, and more sustainable economy.

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