Finance

Economic Gardening Is Growing, But What Is It?

Instead of trying to lure big companies with tax incentives, more and more places are trying to increase the number of local businesses to boost their economies.
by | June 27, 2014
Downtown Littleton, Colo.
Downtown Littleton, Colo. FlickrCC/Jeffrey Beall
 

Nearly 30 years ago, city officials in Littleton, Colo., put a novel theory to test: Could a small group of local businesses, with assistance from the city, boost Littleton out of its downward spiral?

The Denver suburb was reeling in 1987 after its then-major employer, missile manufacturer Martin Marietta (today Lockheed Martin) left town, laying off about 7,800 people over an 18-month period. The company also left about 1 million square feet of industrial and office space. That year, the city council directed its economic team to figure out how to not just fill the hole but to make sure Littleton was never that vulnerable again.

“As good a citizen as Martin Marietta was, they were headquartered out east,” says Chris Gibbons, Littleton’s business director at the time. “Our future was being determined by people far, far away. They didn’t have to see the people in the grocery store on Saturday that they laid off.”

Soon after, Gibbons and his team connected with a Denver think tank, the Center for the New West, that was anxious to test a theory developed by a Massachusetts Institute of Technology economist economist David Burch. That theory was that so-called Stage 2 companies, employing between 10 and 100 people and with annual revenue of at least $1 million, create the best kind of jobs that will improve an economy. As opposed to small shops that create mostly minimum wage jobs, these mid-sized companies were growing the middle class workforce. Nationally speaking, Stage 2 businesses make up 10 percent of the business population -- but they create 35 percent of the jobs. The thinking was that if such companies had the proper push they could drive a local economy upward.

Gibbons called it economic gardening and began trying it out in Littleton in the late 1980s by identifying local Stage 2 companies and offering them more resources to help expand their business. Over the next 25 years, Littleton’s population increased by one-quarter but the number of jobs tripled and the city’s sales tax revenue went from $6 million to $21 million. “When Martin Marietta was there, we were a rocket town,” says Gibbons. “Now that economy is so diverse, there is no one industry that could fail and bring down Littleton like it could 25 years ago.”

Gibbons left Littleton to help set up the National Center for Economic Gardening, which is hosted by the Michigan-based Edward Lowe Foundation. The center helps other cities and states replicate what Littleton was able to do and has helped established programs across the country in varying economies including in Kansas, Florida and Michigan. Economic gardening now is catching on in states across the country as some shy away from the political unpopularity of tax incentives.

Andrew Ratner, public relations manager for the Maryland Department of Business & Economic Development, says the idea is appealing in part because it takes the focus away from competing with other states. “That’s economic hunting -- everybody’s trying to land that enormous auto plant to move halfway across the country,” Ratner says. “And the amount of incentives that often have to be given to lure those kind of things, there’s often a lot of debate if that’s even worth it.”

Maryland’s program, called Advance Maryland, launched last year and accepted five companies into the program. The cost to the state per business is roughly $5,000. Web hosting firm Unleashed Technologies, for example, got detailed market research that’s often not affordable for companies. But Unleashed’s CEO has said it helped the firm narrow its focus and identified areas where it can grow. As a result, the company is adding 10 jobs, which increases its workforce by one-third, and it expects to increase revenues.

The state is wrapping up its process for its second round of applications and this year is hoping to add some manufacturers to the program. Ratner says the success stories in more rural areas of the country show him the same principles can be applied to any industry. “Particularly in a state like Maryland, where bio- and cyber-technology industries have been successful,” he says, “sometimes getting economic development in the eastern and western rural parts of the state has been sort of a challenge.”

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