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The Role of Local Development Organizations in Rural America

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Title: The Role of Local Development Organizations in Rural America
Language: English
Authors: Green, Gary Paul, Haines, Anna, Dunn, Adam
Source: Rural Sociology. Sep 2002 67(3):394-415.
Availability: Rural Sociological Society. 104 Gentry Hall, University of Missouri, Columbia, MO 65211-7040. Tel: 573-882-9065; Fax: 573-882-1473; e-mail: ruralsoc@missouri.edu; Web site: http://www.ruralsociology.org
Peer Reviewed: Y
Physical Description: PDF
Page Count: 22
Publication Date: 2002
Document Type: Journal Articles
Reports - Research
Descriptors: Economic Development, Rural Areas, Local Government, Recruitment, Labor Turnover, Urban Areas, Surveys, Response Rates (Questionnaires), Regression (Statistics)
ISSN: 0036-0112
Abstract: Rural communities rely increasingly on local development organizations (LDOs) to promote economic development. The rise of LDOs has been the source of much debate. Using a national data set that links local governments with development organizations, we contrast the economic development activities, and their outcomes, of local governments and development organizations in rural America. We find that LDOs are involved in more economic development activities than are local governments. They are more successful at business recruitment and more effective at retention/expansion, both in number of firms and in jobs. The organizational networks of LDOs and local governments consistently influence their effectiveness. Finally, we examine the effects of an LDOs' presence on the outcomes of business recruitment and of retention and expansion activities. The results suggest that the LDOs' success may be due in part to the networks in which they are embedded and to the amount of effort they make to promote growth. (Contains 8 tables.)
Abstractor: Author
Number of References: 35
Entry Date: 2008
Access URL: https://www.ruralsociology.org/pubs/RuralSociology/
Accession Number: EJ784298
Database: ERIC
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  Value: <anid>AN0007709401;rus01sep.02;2002Dec12.14:57;v1.9</anid> <title id="AN0007709401-1">The role of Local Development Organizations in Rural America </title> <p>Rural communities rely increasingly on local development organizations (LDOs) to promote economic development. The rise of LDOs has been the source of much debate. Using a national data set that links local governments with development organizations, we contrast the economic development activities, and their outcomes, of local governments and development organizations in rural America. We find that LDOs are involved in more economic development activities than are local governments. They are more successful at business recruitment and more effective at retention/expansion, both in number of firms and in jobs. The organizational networks of LDOs and local governments consistently influence their effectiveness. Finally, we examine the effects of an LDO's presence on the outcomes of business recruitment and of retention and expansion activities. The results suggest that the LDO's success may be due in part to the networks in which they are embedded and to the amount of effort they make to promote growth.</p> <p>Local economic development policy has become a central issue for most rural communities. Economic restructuring, new federalism, and deregulation have placed pressures on local officials to promote their communities' economic and fiscal health. Two major questions dominate the social science literature on this topic: (<reflink idref="bib1" id="ref1">1</reflink>) What factors contribute to the adoption of economic development policies by local governments? and (<reflink idref="bib2" id="ref2">2</reflink>) Do economic development policies and activities affect job and income growth, and ultimately poverty and unemployment? In this paper we examine a third question: How does the organization of local economic development activities shape communities' growth efforts and the outcomes of those efforts?</p> <p>There is evidence that localities vary in the way they organize their economic development activities within the government bureaucracy. Fleischmann and Green (1991), for example, examined the social, political, and economic factors associated with the site of local governments' economic development activities: primarily in a separate department, in the executive branch, in an agency, or some hybrid. Their principal finding was that centralizing economic development activities in either a separate department or in the mayor's office was associated with greater effort at growth.</p> <p>An alternative to organizing economic development activities within the local government is to delegate these activities to local development organizations (LDOs). LDOs have been the subject of much debate. Steinacker (1991) contends that public officials are motivated by political concerns and that economic development policies will reflect the community's interests more accurately if independent agencies are responsible for these activities. Critics, however, view LDOs as an institutional mechanism that removes economic development decisions from the public realm and primarily benefits realtors, landowners, and developers (Logan and Molotch 1987).</p> <p>Few studies of LDOs have been conducted, especially in rural areas. In one of these studies of LDOs' effectiveness, Humphrey, Erickson, and McCluskey (1989) and Humphrey, Erickson, and Ottensmeyer (1988) found that large organizations and those with more ties to other organizations tend to make a greater effort to promote growth, although the overall impact of these efforts had little or no effect on either manufacturing or nonmanufacturing job growth over the period from 1977 to 1982. Rubin (1986) found that the presence of an economic development group increased incrementally the number of economic development activities in which communities were engaged. Wood (1993) examined the networks of 78 urban LDOs in Ohio; his study suggested that many LDOs occupy a unique niche in the local development network and play a much different role than do local governments. These three studies offer conflicting evidence about the effects of economic development organizations in their service area, but all suggest that LDOs are usually part of a larger development network and that their activities and effectiveness must be understood in this context.</p> <p>In this paper we ask three separate but related questions. First, do LDOs and local governments differ in their efforts to promote growth and in the outcomes of their activities? Most studies of local economic development have examined either local governments or development organizations. These studies may present a biased view of the process because a complementary relationship between these organizations and local governments is likely: local governments may refrain from some activities so as not to duplicate the efforts of LDOs. We use a data set that links development organizations with local governments to examine the activities of these matched organizations.</p> <p>Second, are the factors influencing success (in terms of jobs, firms, and wages) the same for LDOs and for local governments?</p> <p>Finally, how does the presence of an LDO affect the economic development in communities?</p> <hd id="AN0007709401-2">History of Local Development Organizations</hd> <p>The character of public-private partnerships in economic development has evolved over time. Early on, the federal government financed transportation-related investments—canals, roads, interstate highways—to induce economic development (Eisinger 1988; Levine 1989). In addition, state governments financed various kinds of projects to promote economic development. Local governments also became involved in financing local infrastructure, especially in urban communities (Tarr 1984).</p> <p>In the United States, economic development at the local government level has frequently been equated with land development (Tarr 1984). Local officials have assumed that land development would be followed by economic development. Local governments were not in the business of actively attracting or recruiting firms; they operated on the adage “If we build it, they will come.” Frequently they used industrial parks as a means to promote economic development (Loveridge 1996; Peddle 1993). Not until the 1930s did states and localities begin offering incentives to businesses as a means of attracting investments (Eisinger 1988).</p> <p>During the 1960s, many local governments formed public-private partnerships that focused on redevelopment in downtown areas. These partnerships were stimulated by federal dollars through urban renewal programs and their successors, such as Model Cities. Generally they were governed by local corporate committees, and were largely autonomous. Municipalities accorded them public powers, such as eminent domain; they were shielded from public participation and from municipal oversight by an elected body (Levine 1989).</p> <p>In the 1970s and 1980s, economic restructuring, especially in the Northeast and the Midwest, gave many localities an incentive to establish economic development organizations as a means of institutionalizing their economic development efforts. These organizations, separate from local governments, began to appear at the local level during the 1970s (Levy 1984). Often they were created as nonprofit corporations. Although there are no official counts, estimates suggest that the number of LDOs has grown rapidly over the past 20 years.</p> <p>Eisinger (1988) argued that LDOs were a socially and culturally acceptable way to conduct economic development. Generally in the United States, mobilization of private capital is widely accepted, but there is resistance to public-sector planning and investments to achieve economic development goals. One of the chief claims made by supporters during the 1980s was that these development organizations provided a “one-stop” shop. This was regarded as more efficient than local governments, which tend to spread their economic development activities across several agencies. Below we briefly review the literature on local economic development activities and discuss their effectiveness.</p> <hd id="AN0007709401-3">Economic Development Activities and Outcomes</hd> <p>We examine the literature on economic development from the vantage point of two types of organizations: local governments and economic development organizations. Only a few empirical studies have examined development organizations; the great majority have focused on local governments (for a recent review, see Wolman and Spitzley 1996).</p> <p>In regard to local governments' adoption of economic development policy, we find a growing consensus on the factors that matter. Approximately 20 studies have examined the factors influencing policy adoption. The most common variables used to explain such adoption include local governments' institutional structure, fiscal stress, need or deprivation, economic distress, access by citizens, city size, and regional competition (see Clarke and Gaile 1992; Clingermayer and Feiock 1990; Donovan 1993; Elkins 1995; Feiock and Clingermayer 1986, 1993; Fleischmann, Green, and Kwong 1992; Goetz 1994; Green and Fleischmann 1989, 1991; Hammer and Green 1996; Reese 1993, 1997; Reese and Fasenfest 1996; Robinson 1989; Sharp 1991). This literature suggests that structural forces influence what localities do to promote growth, but the activities still vary widely, even with controls for these factors.</p> <p>Several studies have examined political institutions (i.e., institutional arrangements) and their relationship to economic development policies (Clingermayer and Feiock 1990; Feiock and Clingermayer 1986, 1993; Green and Fleischmann 1989; Hammer and Green 1996; Reese 1993; Sharp 1991). Still other studies focus on the structure of government: for example, a ward system, a mayoral-council form, or a manager-council form (Clingermayer and Feiock 1990; Feiock and Clingermayer 1986, 1993). The insights gained from this research suggest that the way a local government organizes its economic development activities may affect what it does, and how effectively. Specifically, reformed governments are less likely than other local governments to promote growth. That is, professionalization of economic development policy may lead to more closely targeted (fewer) activities but to greater success.</p> <p>Each way of organizing economic development activities within a local government has its own advantages and disadvantages. Centralizing these activities in the office of the mayor, city manager, or chief administrative officer may result in higher priority than if they are decentralized to departments. Centralization, however, may overpoliticize these activities.</p> <p>On the other hand, a separate department responsible for economic development could be more efficient because of its ability to specialize. Such an agency could provide greater coordination by linking economic development activities with zoning, inspections, housing, and similar programs. This arrangement, however, may dilute the economic development effort. In addition, such a department may be more visible and more subject to pressure by citizen groups, and may be inefficient because of added start-up costs, resource constraints, and vagueness of goals (Montjoy and O'Toole 1979).</p> <p>Another option is to delegate economic development activities to line departments such as planning or public works; this arrangement has the advantage of linking businesses with agencies that directly affect local services. The disadvantage is that economic development efforts may lack coordination and may be relegated to lower priority than other goals.</p> <p>Finally, many local governments organize these efforts by assigning some economic development activities to separate departments and others to line departments.</p> <p>Most of the research on this topic has been conducted in urban areas; we wish to assess whether LDOs are more effective than local governments in creating jobs and new businesses in rural communities. First, however, we briefly discuss some of the theoretical issues associated with the rise of LDOs and their effects on local development.</p> <hd id="AN0007709401-4">Growth Promotion and Local Development Organizations</hd> <p>Are LDOs more effective than local governments in creating jobs? On the one hand, some political economists have been critical of LDOs (Squires 1989). Kantor (1988), for example, contends that independently developed organizations typically are captured by the local elite and that they formulate policies which benefit businesses rather than the public interest. LDOs provide several benefits, including access to public resources and the ability to acquire private business support for economic development projects. Yet they are probably less open to influence by minorities and the poor. When local development organizations are established, professional development practitioners are hired, financial resources are secured, and the organization becomes the voice for economic development in the community. Professionalization of these activities takes economic development decisions out of the local citizens' hands, thus decreasing public access, even when substantial public resources are invested in the organization. LDOs may limit the policy options considered by communities, especially because they conduct most of their business outside the public view (Green et al. 1993).</p> <p>On the other hand, proponents regard LDOs as a form of social capital that connects citizens with public officials across the public-private divide. LDOs create this capital by increasing social interaction and information that facilitate the development process. By increasing the private sector's participation in policy decisions, local government officials gain more support for their activities and improve the effectiveness of their policies. Peter Evans's (1996) concept of state-society synergy is especially useful for understanding the importance of efforts to bridge the public and the private sectors. Although Evans uses this concept to explain the development activities of nation-states, it also can be applied, with some caution, to local states.</p> <p>According to Evans, strong cooperation between the state and civil society, which he calls “embedded autonomy,” tends to promote development. Evans argues that this synergy between the state and civil society must be accompanied by high levels of organizational integrity, marked (for example) by low corruption, transparency, and professionalization. LDOs may contribute to elements that are necessary for the developmental state because they professionalize local governments' economic development activities and increase the links between officials and the private sector. Although the critics of LDOs suggest that these arrangements permit economic policy to be controlled by a small elite, especially realtors and developers, the social capital argument contends that LDOs permit a wider input into the policymaking process. LDOs should lead to a broader set of economic development activities, beyond the narrow focus of industrial recruitment, for two reasons.</p> <p>First, because LDOs typically hire professionals who receive training and are involved in professional organizations, they are likely to promote a wider variety of economic development strategies, especially recruitment and retention activities, than do most local government officials. Wood (1993:1650), for example, suggests that “although business attraction was once hegemonic as an LED (local economic development) strategy it is now supplemented by a vast and expanding array of additional economic development activities.”</p> <p>Second, LDOs are likely to be better insulated than local government officials from political pressures to attract new businesses to the community. Politicians frequently must demonstrate that they have contributed to growth; the best way to accomplish this feat is to attract a large firm to the community. In addition, because LDOs are better able to generate social capital and support for local economic development policies, we hypothesize that their efforts to create new jobs will be more effective than those of local governments. The social capital, however, is built by working with local businesses and other economic development actors in the region.</p> <p>The two positions thus hold competing views regarding the local governments' and LDOs' economic development activities. The social capital argument, which favors LDOs, suggests that LDOs will facilitate many kinds of development efforts on the part of localities. Thus they should be involved in a broader set of economic development activities than local governments. In addition, they can be more selective about the kinds of firms, jobs, and wages that are attracted or retained in a locality. Also, LDOs should have more extensive ties within the local business sector, and should try more vigorously to promote growth from within the community than from outside. We hypothesize that LDOs will be involved in a broad range of development activities, not merely in industrial recruitment, and that they will create better jobs than local government officials, who simply wish to create more jobs so as to ensure political support.</p> <p>The political economy position, held by critics of LDOs, assumes that LDOs will focus on industrial recruitment rather than on a broad-based economic development strategy because development corporations allegedly will be captured primarily by a narrow set of economic interests promoting growth. In addition, the jobs will be of lower quality than those generated through the activities of local governments. The emphasis on industrial/business recruitment, it is assumed, means that the development organizations are interested in creating any jobs, with little concern for the quality of those jobs. As Logan and Molotch (1987) argue, the primary motivation for the local development process is increasing land values, not providing good jobs for residents.</p> <hd id="AN0007709401-5">Methodology</hd> <p>This paper is drawn from a study of the organization of local economic development in rural America. In our research we seek to examine how local economic development activities are organized in localities, to learn the effects of these organizational arrangements on economic development activities and effort, and to discover the outcomes of these efforts. We collected data from both local governments and development organizations to assess how these activities are coordinated in localities, and whether local governments differ from development organizations in the effectiveness of their economic development activities.</p> <p>One obstacle to collecting information on LDOs in the United States is that there is no comprehensive list of these organizations. To develop a sampling frame, we first conducted a mail survey of all municipalities with a population greater than 2,500. We believe that it is very unlikely that the smallest municipalities (<2,500) will engage in many economic development activities or have a formal development organization. This paper includes data only on municipalities located in nonmetropolitan areas.</p> <p>In the fall of 1998, we mailed a total of 5,295 surveys to local governments in the United States in locales with populations between 2,500 and 50,000. If local government officials did not respond to the first mailing, we sent a replacement questionnaire three weeks later. A total of 2,051 surveys were returned, representing a 38.7 percent response rate. Although the rate was not as high as we would have liked, it was higher than is normally obtained by the International City Management Association (ICMA), which regularly conducts such surveys of local government officials. With the questionnaire we sent a letter asking the person in the local government most responsible for economic development activities to fill out the questionnaire. Usually the questionnaires were completed by community development directors, economic development administrators, or some local government officials.</p> <p>This analysis includes 788 local governments, which are located in nonmetropolitan areas. Other respondents are in metropolitan areas, and are not included in this analysis. We asked officials to identify all development organizations operating in their municipality or region, and to provide us with contact information. Because the list of development organizations was obtained from the population of municipalities responding, the sample should be representative. Many of the local governments, however, did not provide sufficient information to allow us to identify a development organization, or they simply gave inaccurate information.</p> <p>In the fall of 1999, we mailed surveys to more than 1,330 development organizations. Some communities had listed multiple organizations, so we mailed a survey to every organization identified in the survey of local governments. A total of 666 surveys were returned, for a 50 percent response rate. In this survey we obtained much the same information as we had collected from municipal officials, plus some additional information on how the organization was formed, the board of directors, and financing. We asked the director or administrator to complete the survey. Approximately one-half (<reflink idref="bib328" id="ref3">328</reflink>) of these organizations were located in nonmetropolitan areas.</p> <p>Part of this analysis is based on a merged data set that links local governments with LDOs. This data set includes only municipalities with a development organization operating in their area. Our primary rationale for omitting municipalities without a development organization is that we wish to compare both organizations' activities in similar contexts. We assume that the development organizations and the local governments are matched on local social, economic, and demographic conditions. Therefore the local governments and the development organizations should be faced with the same level of fiscal and economic pressure to promote growth.</p> <p>The data set includes 273 matched cases. In some cases, more than one development organization was operating in a region: for example, a citywide and a countywide organization. In these instances, we chose the development organization at the lowest level that most closely approximated the service area of the municipality.</p> <p>In the last part of the analysis, we compare municipalities with and without an LDO, using the full data set of municipalities for this analysis (N = 788). Our assumption is that if we have established the presence of differences in LDOs' and local governments' activities and outcomes, we should find differences in the activities, and possibly the outcomes, of municipalities that do and do not have an LDO.</p> <p>Seventy percent of economic development organizations operated at a level higher than the city. To avoid resting on our assumption that there were no differences between levels of economic development organizations, we compared means between place- and county-level development organizations. We found only one significant difference: county organizations are more active than those at the place level. In addition, we ran the same regression models for county and for city LDOs, and found essentially no differences in the results. The variable for community size explains much of the variation because larger communities are more likely to have their own LDO, while smaller communities may contribute financially to a regional LDO. Also, to make the analysis clearer, we excluded any organizations that is largely part of a local/county government department, office, or agency.</p> <p>Our strategy is to compare LDOs with local governments in regard to their economic development activities and the outcomes (e.g., number of firms attracted, jobs created, wages of jobs). Next, we examine separately the relationships between the economic development activities and economic outcomes for local governments and for LDOs. The objective of this analysis is to examine whether LDOs and local governments differ in the effectiveness of their economic development activities. We then conduct a similar analysis to assess the effects of an LDO's existence on a locality's economic development.</p> <hd id="AN0007709401-6">Variables</hd> <p>All of the independent and dependent variables are drawn from the surveys that were administered to local government officials and LDOs. The only exception is the variable for population size, which we obtained from the Census Bureau. We asked respondents to indicate whether they were involved in a variety of activities related to business creation, retention and expansion, and recruitment. In the regression analysis, we constructed two indices measuring the level of effort made by communities in the areas of business attraction and retention/expansion.</p> <p>The measure of business recruitment effort includes seven items: whether the local government or LDO has a written business attraction plan, offers incentives to attract firms, maintains a site map, has a community economic profile, uses promotional brochures/media advertising, conducts direct mailings to prospective businesses, and calls on prospective businesses. The index ranges from 0 to 7. When we conducted a reliability check on this index, the Cronbach's alpha was .79 for local governments and .73 for LDOs.</p> <p>The business retention/expansion measure includes four items: has a written business retention/expansion plan, provides incentives to local businesses to remain or expand in their geographic area, calls periodically on local businesses, and periodically surveys local businesses about their needs. The index ranges from 0 to 4; the Cronbach's alpha is .72 for local governments and .66 for LDOs.</p> <p>Previous research has shown that the budget for economic development is related more closely to the community's structural characteristics than is the number of activities in which the community is involved (Hammer and Green 1996). In the analysis of municipalities only, we include population estimates for 1997, which are based on data from the 1990 census and previous growth rates in these municipalities. Both variables are included in the models.</p> <p>We asked respondents to state their amount of interaction (none, yearly, quarterly, monthly, and weekly) with 15 different organizations and actors regarding economic development. Using a comparison of means, we found significant differences in the amount of interaction between LDOs and local governments with 10 different organizations: private lending institutions, utility companies, private consultants, real estate or property developers, universities and colleges, the Cooperative Extension Service, community colleges and technical institutes, county government officials and agencies, state government officials and agencies, and federal government officials and agencies. The index has a Cronbach's alpha of .86 for local governments and .85 for LDOs.</p> <p>To examine the outcomes of their activities, we asked local government officials and development organizations whether they had succeeded in their efforts to recruit new businesses or to retain and expand local businesses in their community. If they had been successful, we asked them to estimate the number of firms recruited, retained, or expanded, the number of jobs, and the average entry-level wages for jobs resulting from those activities.</p> <p>This strategy of asking respondents to estimate the number of firms, jobs, and wages can be questioned from several vantage points. One concern is whether respondents will know enough about the outcomes of their activities to provide an accurate estimate. Our pretests, however, suggested that most local government officials and LDOs keep track of their outcomes for funding purposes and for accountability. Another concern is that respondents may overestimate these figures to present a more positive image of their efforts. The primary reason for using these self-assessments is that there are no secondary data that would permit us to examine these issues. Overestimation may not be an issue if there is no systematic difference between reports of local government officials and of respondents from development organizations. In addition, the use of census data to examine employment change is not foolproof. The change could be attributed to several factors: business closings and openings, and business expansions or retractions. Thus we use the most direct strategy.</p> <p>There is some risk that respondents for the two entities may have claimed credit for the same jobs. We tried to minimize this problem by asking respondents to indicate whether these outcomes were the direct result of their organization's activities. Thus, for example, respondents were asked to identify jobs created through recruitment, expansion, and the like for their specific organization. To check the possibility of double claiming, we examined the relationships between these outcome variables for local governments and for development organizations. The only variables that were highly correlated were entry-level wages (r = .5); this makes sense, given the wage pressure in an area that would cause entry-level wages to be very similar. The correlations for the other outcome variables (reported success, number of firms, and number of jobs) were very low: all fell below .2, and most below .1.</p> <p>Because all of the outcome variables were highly skewed, we used the natural logarithm of the value to create a normal distribution. The skewed distribution of these variables is not surprising, especially in the case of the number of jobs, because the location of a few large plants in a community can have a major impact. Population size and budget (for both local governments and LDOs) also were highly skewed; we transformed them to create a normal distribution. When we checked for multicollinearity among the independent variables, all of the correlations fell within a reasonable range.</p> <hd id="AN0007709401-7">Findings</hd> <p>Most localities have been involved in promoting economic development only over the past two decades. Seventy-five percent of the local governments report that they began their economic development activities after 1980; almost 35 percent initiated these activities after 1990 (Table 1). LDOs began operating during the same period. Seventy-one percent of the nonmetropolitan municipalities reported that their community contained either a local or a regional development organization.</p> <p>LDOs operate at several different levels. Fifty-two percent of these organizations represented a county; 15 percent operated in a multicounty region. Approximately one-fourth (23 percent) operated in a city, town, or village. Very few focused their activities on neighborhoods (3 percent) or on more than one city (6 percent). A few of the organizations concentrated on other geographical units: these included regional agencies, metropolitan planning organizations, downtown business organizations, community foundations, confederations of nonprofit organizations, university endowment corporations, and electric cooperatives.</p> <p>LDOs are most often nonprofit organizations, declaring either 501c3, 501c4, or 501c6 tax-exempt status. The average LDO has about one full-time equivalent (FTE) paid professional, .5 FTE paid support staff members, and a budget of $267,553 (median = $115,000). Almost two-thirds of their funding comes from public sources and one-third from private sources. The most important public sources of funding are local and county government revenues. Private sources are more widely distributed: the most important are membership dues and contributions from individuals, firms, and utility companies.</p> <p>Why are LDOs created? Respondents were most likely to report that their LDO was established to facilitate coordination between businesses and local government (36 percent) and with county government (56 percent). The second most important reason, reported by one-third of the LDOs, was to provide a “one-stop shop” for economic development activities.</p> <p>Below we briefly contrast the economic development activities of local governments and LDOs. We focus on two areas: business recruitment and retention/expansion.</p> <hd id="AN0007709401-8">Economic Development Activities of LDOs and Local Governments</hd> <p>Business recruitment activities. We find consistent differences between economic development organizations and local governments regarding business recruitment activities (Table 2). For every item considered, LDOs make greater efforts than local governments. In particular, economic development organizations are much more likely to call on prospective businesses, conduct direct mailings, and develop promotional brochures. These activities appear to be part of the basic mission of most economic development organizations; local governments are less heavily involved in these activities.</p> <p>Retention/expansion activities. LDOs are more involved than local governments in retention and expansion activities. In particular, they are more likely to survey and call on local businesses. Development organizations and local governments are equally likely to offer incentives to retain and expand businesses.</p> <hd id="AN0007709401-9">Organizational Contacts</hd> <p>Next we compare the organizational contacts of LDOs and local governments (Table 3). The social capital thesis suggests that LDOs will be more successful at promoting growth than local governments, partially because the two types of organization differ as to the level of organizational ties.</p> <p>Overall we find that LDOs have more contacts with other development actors in the community than do local governments. In particular, LDOs have more frequent contact with lending institutions, educational institutions, and government officials. These organizational networks of LDOs appear to be somewhat wider than growth machine theory would suggest. Of course our data do not indicate who influences the LDOs' decision making, but they suggest a wide set of contacts.</p> <hd id="AN0007709401-10">Outcomes</hd> <p>In comparing the outcomes of local governments' and LDOs' economic development activities, we focus on (<reflink idref="bib1" id="ref4">1</reflink>) whether the locality has succeeded in recruiting/retaining/expanding any business in its community during the past three years, (<reflink idref="bib2" id="ref5">2</reflink>) the number of firms that have been recruited/retained/expanded as a result of these activities, (<reflink idref="bib3" id="ref6">3</reflink>) the number of jobs recruited/retained/expanded, and (<reflink idref="bib4" id="ref7">4</reflink>) the average entry-level wages for the jobs recruited/retained/expanded.</p> <p>Business recruitment. LDOs are more likely to report that they have succeeded in recruiting a business to their community as a result of their efforts over the past three years (Table 4). More than three-fourths (76 percent) of the LDOs recruited a firm during that period, while only about 59 percent of the local governments did so.</p> <p>Among the communities that are successful at business recruitment, LDOs attract more firms and create more jobs than do local governments: on average, successful LDOs created more than twice as many jobs through recruitment. We found no statistical differences, however, in the quality of jobs recruited (as measured by entry-level wages).</p> <p>Business expansion. LDOs also are more likely than local governments to be successful at business expansion. Almost three-fourths (74 percent) of the LDOs but only 56 percent of the local governments reported such success in the past three years.</p> <p>Among localities that have been successful, LDOs help businesses create almost 50 percent more jobs, and the entry-level wages are almost $1.00 per hour more than in the jobs created by local government activities.</p> <p>Business retention. Both LDOs and local governments report that they are less successful at business retention than at some of their other economic development activities. Only about 38 percent of the LDOs and 25 percent of the local governments succeeded in retaining existing businesses during the past three years. As in the other economic development categories, LDOs save more jobs, and better jobs, than do local governments. Economic development organizations report saving three times as many jobs, and the entry-level wages of these jobs were almost $1.00 higher than in jobs saved by local governments.</p> <hd id="AN0007709401-11">Regression Analysis of Outcomes of Economic Development Activities</hd> <p>Next we regress the outcomes (number of firms, number of jobs, and entry-level wages for the jobs) on the economic development activities of local governments and LDOs (Table 5). This analysis will help us understand whether the factors influencing successful outcomes are different for LDOs than for local governments. In each model we include four independent variables that may directly influence the outcomes: the number of activities in which they are involved, their economic development budget, the community's population size, and the number of contacts with other economic development actors.</p> <p>In examining the outcomes for business recruitment efforts, we find that LDOs' organizational ties are strongly related to the number of firms and jobs that result from their business recruitment effort. For local governments, the number of business recruitment activities is strongly correlated with the outcomes. Economic development budget and organizational network also are related positively to the number of jobs and firms attracted by local governments.</p> <p>We find that the business retention and expansion index is strongly related to the outcomes for both LDOs and local governments (Table 6). Business retention and expansion activities are more strongly related to the outcomes for LDOs than for local governments. Thus LDOs apparently generate a higher payoff for these activities. Again, we find that organizational contacts are strongly related to the number of jobs and firms created through business retention and expansion activities. In addition, the economic development budget is related positively to the outcomes.</p> <p>To test for differences in the processes of attracting and retaining firms and jobs in rural communities, we conducted a contrast Hest, which indicates whether the regression coefficients for LDOs differ significantly from those of local governments (see Appendix Table Al). We found that the independent variables operate similarly in LDOs and in local governments, with only two exceptions: recruitment activities exert a much stronger effect for local governments than for LDOs, and the economic budget is more strongly related to the number of jobs for LDOs than for local governments.</p> <p>Finally, we assess whether the presence of an LDO in the community affects the outcomes of economic development activities. We analyze the activities and their outcomes for all local governments, including those with and without an LDO. Independent variables are the same as in the previous models, plus an additional dummy variable: whether an LDO is present in the community/region. The dummy variable captures variance that is unexplained by the organizational structure and is not explained by the other independent variables. As in the previous models, the dependent variables are linked to the business activity variable; thus in the business recruitment model we are looking only at jobs, firms, and wages that result from business recruitment activities.</p> <p>As we found in the previous models, organizational network exerts a consistent positive effect on the number of firms and jobs that result from both business retention/expansion and recruitment efforts (Table 7). Economic development budget and activities consistently have a positive effect on the number of jobs and firms, but do not affect wages. The only variable to exert an effect on wages is population size. The LDO dummy variable is not significant in any of the models.</p> <hd id="AN0007709401-12">Discussion and Conclusions</hd> <p>In their effort to promote economic development, many rural communities have established LDOs. These organizations have been controversial because they take many economic development activities out of the public realm, although they receive public financial support. The comparison of local governments with LDOs reveals that LDOs are involved in more economic development activities and that they create or save more jobs and businesses than do local governments in the same communities. On the basis of these limited criteria, LDOs have several advantages over local governments for communities seeking to provide more jobs.</p> <p>We also considered another possibility: that these findings mean that local governments in rural areas simply were turning over their economic development role to LDOs; thus it would be only logical that they were less active and less successful. The evidence, however, does not fully support this argument. In addition, we found no significant differences between the success of local governments with an LDO operating in their community and those without an LDO.</p> <p>LDOs are more heavily involved than local governments in retention/expansion activities, are much more successful in these efforts, and help to expand businesses that pay higher entry-level wages. LDOs actually may be more selective than the local governments that they assist. The political pressure faced by local government officials may push them to create new jobs, no matter how much or how little they pay or how much they help all businesses in the community. This evidence tends to support the social capital argument more strongly than the political economy critique regarding the benefits of LDOs' efforts. LDOs have more extensive organizational networks, which facilitate their economic development effort. It is difficult, however, to separate the effects of LDOs on synergy from the effects of organizational capacity. Are LDOs more successful because of their links to the public sector or because of their resources? LDOs tend to allocate more funds directly to economic development and to have more professional staff members who are trained in this area.</p> <p>[*] This material is based on work supported by the Cooperative State Research, Education and Extension Service, U.S. Department of Agriculture, National Research Initiative, under Agreement 97-35401-4353. Any opinions, findings, conclusions, or recommendations expressed here are those of the authors and do not necessarily reflect the view of the U.S. Department of Agriculture. Direct all correspondence to Gary Green; gpgreen@facstaff.wisc.edu.</p> <ct id="AN0007709401-13"> Table 1. Year When Local Governments Began Promoting Economic Development and LDOs Were Established in Nonmetropolitan Areas (Percentages) Year Local Governments LDOs Before 1949 2.8 2.0 1950–1959 4.2 6.2 1960–1969 4.2 13.1 1970–1979 11.1 10.7 1980–1989 45.1 36.9 1990–1999 32.6 31.1 N 788 328</ct> <ct id="AN0007709401-14"> Table 2. LDOs and Local Governments Involved in Specific Economic Development Activities Activity LDO (%) Local Government Chi-Square Business Recruitment Activity Has a community economic profile 85 73 12.4[***] Maintains a site map 79 65 12.5[***] Promotional brochure/media advertising 75 60 14.5[***] Calls on prospective businesses 67 42 32.3[***] Provides business incentives to attract firms 51 51 .0 Direct mailing to prospective businesses 46 33 9.6[*] Has a written business attraction plan 40 17 33.1[***] Business Retention /Expansion Activities Calls on local businesses 78 58 23.5[***] Surveys local businesses 68 44 31.4[***] Provides incentives to local businesses 48 49 .2 Has a written retention/expansion plan 37 21 17.7[***] Note: N = 273 pairs. [*]p < .05; [***]p < .001.</ct> <ct id="AN0007709401-15"> Legend for Chart: A-LDO B-Local Government C-Organizations D-Mean E-SD F-t-value Table 3. Organizational Contacts Among Local Governments and LDOs A B C D E D E F County government officials 4.06 1.27 3.42 1.19 5.536[***] Private lending institutions 3.75 1.16 3.01 1.34 6.017[***] Utility company 3.70 1.21 3.40 1.30 2.614[*] State government 3.65 1.12 3.01 1.08 6.187[***] Community/technical colleges 3.58 1.19 2.87 1.28 5.517[***] University/four-year colleges 3.52 1.14 3.01 1.20 3.543[**] Real estate developers 3.36 1.22 3.09 1.31 2.344[*] Cooperative extension service 2.89 1.28 2.52 1.28 2.380[*] Private consultants 2.67 1.22 2.64 1.29 .167 Federal government 2.56 1.19 2.13 1.07 4.089[***] Organizational network index 29.56 10.05 21.05 8.14 10.221[***] Notes: N = 273 pairs. Code: l, no contact; 2, yearly contact; 3, quarterly contact; 4, monthly contact; 5, weekly contact. [*]p < .05; [**]p < .01; [***]p < .001.</ct> <ct id="AN0007709401-16"> Legend for Chart: A-LDO B-Local Government C-Organizations D-Mean E-SD F-Mean G-SD H-t-value Table 4. Descriptive Analysis, Economic Development Organizations and Local Governments, Outcomes A C D E B F G H Business Recruitment Report success (%) .76 .43 .59 .49 4.090[***] # firms 3.26 6.03 1.70 2.56 3.213[**] # jobs 157.82 347.21 63.33 117.19 3.310[**] Entry-level wages ($) 8.88 2.42 8.51 3.34 .918 Business Expansion Report success (%) .74 .44 .56 .50 3.791[***] # firms 3.35 6.03 2.08 5.07 2.128[*] # jobs 90.89 152.85 48.81 120.15 3.218[**] Entry-level wages ($) 8.97 2.40 7.83 1.81 3.679[**] Business Retention Report success (%) .38 .49 .25 .43 2.885[**] # firms .69 3.35 .37 .90 1.129 # jobs 76.05 317.38 24.38 111.94 2.003[*] Entry-level wages ($) 8.97 2.45 8.11 1.71 .835 Economic Development Budget ($) 228,306 395,188 89,029 178,833 4.395[***] Index of Business Recruitment 4.34 2.01 4.07 2.42 1.300 Index of Retention/ Expansion 2.31 1.30 1.69 1.37 5.148[***] Note: N = 273 pairs. [*]p <; .05; [**]p < .01; [***]p < .001.</ct> <ct id="AN0007709401-17"> Legend for Chart: A-LDOs B-Local Governments C-Independent Variables D-# Firms E-#Jobs F-Wages G-# Firms H-#Jobs I-Wages Table 5. Ordinary Least Squares Regression Analysis of Number of Firms, Jobs, and Average Wages Resulting from Business Recruitment Activities of LDOs and Local Governments A C D E F B G H I Index of business recruitment effort -.062 -.009 -.089 .248[**] .269[***] -.039 Economic development budget .031 .131 .037 .170[*] .165[*] -.117 Organizational network index .234[*] .266[**] -.077 .149[*] .146 .162 Population size .117 .211[*] .210[*] -.030 -.032 .260[*] R² .074 .190 .050 .170 .179 .092 Note: N = 273 pairs. Standardized partial coefficient (beta). [*]p <.05; [**]p < .01; [***]p < .001.</ct> <ct id="AN0007709401-18"> Legend for Chart: A-LDOs B-Local Governments C-Independent Variables D-# Firms E-#Jobs F-Wages G-# Firms H-#Jobs I-Wages Table 6. Ordinary Least Squares Regression Analysis of Number of Firms, Jobs, and Average Wages Resulting from Business Retention and Expansion Activities of LDOs and Local Governments A C D E F B G H I Index of business retention and expansion .168[*] .258[***] .203 .217[**] .182[*] -.162 Economic development .111[**] .132[*] .166 budget .128 .117 .135 Organizational network .207[**] .185[*] -.024 index .190[**] .209[**] .280 Population size .023 -.034 -.182 -.004 .036 .438[*] R² .149 .194 .086 .176 .169 .356 Note: N= 273 pairs. Standardized partial coefficient (beta). [*]p < .05; [**]p < .01; [***]p < .001.</ct> <ct id="AN0007709401-19"> Legend for Chart: A-Business Retention and Expansion B-Recruitment C-Independent Variables D-# Firms E-#Jobs F-Wages G-# Firms H-#Jobs I-Wages Table 7. Ordinary Least Squares Regression Analysis of Number of Firms and Jobs and Average Wages Resulting From Business Retention/Expansion and Recruitment Activities for Local Governments A C D E F B G H I LDO presence (1 = yes) .0231 .018 -.100 .007 -.005 .004 Index of business activity .302[***] .312[***] .190 .246[***] .277[***] .100 Economic development budget .068 .059 -.190 .141[**] .126[**] -.130 Organizational network index .219[***] .215[***] .045 .217[***] .214[***] .102 Population size .073 .097[*] .190[*] .018 .029 .259[***] R² .257 .268 .124 .230 .239 .103 Note: N = 788. Standardized partial coefficient (beta). We used the index of business recruitment effort for the recruitment outcomes, and the index of business retention and expansion effort for the business retention and expansion outcomes. [*]p < .05; [**]p < .01; [***]p < .001.</ct> <ref id="AN0007709401-20"> <title> References </title> <blist> <bibl id="bib1" idref="ref1" type="bt"></bibl> <bibtext>Clarke, S.E. and G.L. 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Spitzley. 1996. “The Politics of Local Economic Development.” Economic Development Quarterly 10:115–50.</bibtext> </blist> <blist> <bibl id="bib35" type="bt"></bibl> <bibtext>Wood, A. 1993. “Organizing for Local Economic Development: Local Economic Development Networks and Prospecting for Industry.” Environment and Planning A 25:1649–61.</bibtext> </blist> </ref> <p>© 2002 by the Rural Sociology Society</p> <aug> <p>By Gary Paul Green, University of Wisconsin-Madison/Extension; Anna Haines, University of Wisconsin-Stevens Point/Extension; Adam Dunn, University of Wisconsin-Madison and Daniel Monroe Sullivan, Portland State University</p> </aug> <nolink nlid="nl1" bibid="bib328" firstref="ref3"></nolink>
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  Data: The Role of Local Development Organizations in Rural America
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  Data: <searchLink fieldCode="SO" term="%22Rural+Sociology%22"><i>Rural Sociology</i></searchLink>. Sep 2002 67(3):394-415.
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  Data: Rural Sociological Society. 104 Gentry Hall, University of Missouri, Columbia, MO 65211-7040. Tel: 573-882-9065; Fax: 573-882-1473; e-mail: ruralsoc@missouri.edu; Web site: http://www.ruralsociology.org
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  Data: 22
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  Data: 2002
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  Data: <searchLink fieldCode="DE" term="%22Economic+Development%22">Economic Development</searchLink><br /><searchLink fieldCode="DE" term="%22Rural+Areas%22">Rural Areas</searchLink><br /><searchLink fieldCode="DE" term="%22Local+Government%22">Local Government</searchLink><br /><searchLink fieldCode="DE" term="%22Recruitment%22">Recruitment</searchLink><br /><searchLink fieldCode="DE" term="%22Labor+Turnover%22">Labor Turnover</searchLink><br /><searchLink fieldCode="DE" term="%22Urban+Areas%22">Urban Areas</searchLink><br /><searchLink fieldCode="DE" term="%22Surveys%22">Surveys</searchLink><br /><searchLink fieldCode="DE" term="%22Response+Rates+%28Questionnaires%29%22">Response Rates (Questionnaires)</searchLink><br /><searchLink fieldCode="DE" term="%22Regression+%28Statistics%29%22">Regression (Statistics)</searchLink>
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  Data: 0036-0112
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  Data: Rural communities rely increasingly on local development organizations (LDOs) to promote economic development. The rise of LDOs has been the source of much debate. Using a national data set that links local governments with development organizations, we contrast the economic development activities, and their outcomes, of local governments and development organizations in rural America. We find that LDOs are involved in more economic development activities than are local governments. They are more successful at business recruitment and more effective at retention/expansion, both in number of firms and in jobs. The organizational networks of LDOs and local governments consistently influence their effectiveness. Finally, we examine the effects of an LDOs' presence on the outcomes of business recruitment and of retention and expansion activities. The results suggest that the LDOs' success may be due in part to the networks in which they are embedded and to the amount of effort they make to promote growth. (Contains 8 tables.)
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  Data: 35
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  Data: 2008
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      – Text: English
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      Pagination:
        PageCount: 22
        StartPage: 394
    Subjects:
      – SubjectFull: Economic Development
        Type: general
      – SubjectFull: Rural Areas
        Type: general
      – SubjectFull: Local Government
        Type: general
      – SubjectFull: Recruitment
        Type: general
      – SubjectFull: Labor Turnover
        Type: general
      – SubjectFull: Urban Areas
        Type: general
      – SubjectFull: Surveys
        Type: general
      – SubjectFull: Response Rates (Questionnaires)
        Type: general
      – SubjectFull: Regression (Statistics)
        Type: general
    Titles:
      – TitleFull: The Role of Local Development Organizations in Rural America
        Type: main
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          Name:
            NameFull: Green, Gary Paul
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            NameFull: Haines, Anna
      – PersonEntity:
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            NameFull: Dunn, Adam
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          Dates:
            – D: 01
              M: 09
              Type: published
              Y: 2002
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              Value: 0036-0112
          Numbering:
            – Type: volume
              Value: 67
            – Type: issue
              Value: 3
          Titles:
            – TitleFull: Rural Sociology
              Type: main
ResultId 1