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Nov 23, 2016

Revisiting the Role of Small in Economic Development

In this post-election period of uncertainty about the national and global economy, we can remain confident that we are all better off when our local economy thrives.  I have written extensively about the role nonprofits and social enterprises play in making our community more vibrant and resilient.  All businesses have the potential to make similar contributions.  Our Cincinnati social enterprise colleagues have a good tag line for this: “Business Where Society Profits.”

There is increasing research that demonstrates that a business focused on the well-being of its community, suppliers, employees, customers, and owners will ultimately be more profitable.  This has prompted the “Conscious Capitalism” movement as well as the concept of “purpose-driven” management.  Nonprofits and social enterprises certainly fit into both categories.

These concepts merit revisiting the question of which types of businesses economic development programs should encourage.  The common focus of the start-up community is to focus on rapid growth culminating in an “exit” that is a sale to a larger company.  Businesses that do not follow that path are sometimes labelled “lifestyle businesses”, implying that comfort is the motive for lacking the desire to grow and exit.

The recent visit to Columbus of economist Michael Shuman challenges us to revisit this view of “lifestyle” businesses.  In his book Local Dollars, Local Sense he provides data that show that a purchase from a locally-owned business creates two to five times more jobs than a similar purchase from a non-locally-owned business.

He pointed me to research done at the Federal Reserve Bank of Atlanta.   Its nationwide study of local county data concluded that local ownership produces more jobs and higher per capital incomes, and impacts poverty more effectively. The study also demonstrates that local businesses with fewer than 100 employees are better at growing income and employment than are larger local businesses.  This is particularly true for non-metropolitan areas.  Their findings on the income and employment impacts of medium and large locally-owned businesses were inconclusive.  In particular, their study showed “no clear effects of medium and large establishments [in reducing poverty].”

Thus, while the “home run” of helping to found the next “google” is a worthy goal,  it is more probable that a series of “singles” to found and support small, local “lifestyle” businesses may contribute more to increasing prosperity and reducing poverty in our community.  All of our social enterprises are locally-owned, and most also have fewer than 100 employees.  To the economic potential these studies underscore, social enterprises create an additional, positive social impact on our community.

These holidays, consider steering your purchases to local nonprofits and social enterprises.  Your purchase will help create both jobs and social good.  To help you, the Center for Social Enterprise Development has a directory of local social enterprises which, along with our Facebook page and twitter feeds, will link you to our Holiday Gift Guide with special offers from many local social businesses.

Allen Proctor, President & CEO

Center for Social Enterprise Development