CDCs as Sectoral Economic Development Pioneers

MACED formed a subsidiary to buy, agglomerate, process, and resell the lumber of these small mills, differentiating between high grade and low grade product. It also attempted to develop the industry in other ways, including promoting joint ventures and making financial analysis software available to the larger mills.³¹

MACED's experience with sectoral strategies was not unique among CDCs. In the mid-1970s, Community Enterprise Development Corporation of Alaska (later Alaska Village Initiatives) focused its business development efforts in three industries: fisheries, consumer cooperatives for retail trade, and native arts and crafts. Similarly, Coastal Enterprises, Inc. in Maine targeted three natural resource industries: fisheries, forest products and small firms. Jane Addams Resource Corporation in Chicago selected metal fabrication firms in North Chicago's Ravenswood industrial manufacturing corridor. CDC-initiated sectoral programs share approaches and strategies with mainstream economic development agencies. The critical difference is that the CDC's fundamental goal is using economic development to alleviate poverty.

Flexible Manufacturing

Cluster-Based Analysis

Cluster-based economic analysis has become popular with local governments, business associations, regional councils of governments, and economic development agencies. The Initiative for Competitive Inner-Cities in Boston has explored these issues in greater depth. Unfortunately, the cluster concept can be difficult to operationalize into a set of programmatic activities. In fact, at this time, the greatest value of cluster strategies has been as an analytic approach to understanding a local or regional economy, rather than as a distinct body of strategies, program designs and practice.

Lessons from the Strategy

• The overall experience of nonprofit organizations in sectoral economic development has been that achieving large scale impact is difficult. Consequently, funder expectations should be relatively modest.

One of the most important challenges in sectoral economic development is achieving scale. In most cases, the number of jobs created by the above development efforts is small compared to the number of low-income people who need jobs. For example, the Appalachian Center for Economic Networks (ACENet) in Athens, Ohio, runs one of the nation's most respected flexible manufacturing network projects. It targets two industries: "accessible" housing (products which increase accessibility for people with disabilities, such as adjustable counters and cabinets); and specialty food products.

Since 1989, it has assisted over 200 firms, including catalyzing the start-up of over 50 new companies, and helped create over 200 jobs. This is a significant achievement, but the impact is still small compared to the economy and population of the target region. Successful sectoral economic development programs create jobs, but they have not yet transformed a local or regional economy.

• Foundations appear to be moving away from support for sectoral economic development strategies.

Foundation support for sectoral economic development programs probably peaked in the early to mid-1990s. In the late 1980s and early 1990s, flexible manufacturing networks generated a great amount of interest, as the European networks became more widely known in the United States. Consequently, a number of flexible networks were funded at that time.

Although statistical evidence is lacking, it appears that support for sectoral economic development programs has declined. There are several reasons why. First, some funders see that flexible manufacturing networks (and sectoral economic development strategies generally) have not achieved the quantitative impacts (frequently measured in terms of number of jobs created or retained) initially expected. A more accurate interpretation might be that sectoral economic development requires a long incubation time and significant funder investment to achieve impact; it is a high cost/high risk strategy. But to be fair, most, if not all, economic development activity is high cost and high risk.

Second, economic development practitioners are increasingly focusing on the region (which often encompasses several counties) as the fundamental economic unit, rather than on neighborhoods which seem too small a geographic setting for sectoral strategies. Consequently, sectoral strategies initiated by neighborhood-based organizations or targeted at neighborhoods can be seen as insignificant within a broader, regional economic picture.

• Sectoral economic development strategies appear to be more applicable to rural areas.

With the rapid job growth of the mid-1990s, most urban areas have experienced positive job growth. Conversely, economic growth continues to bypass certain chronically poor rural areas, such as Appalachia, the lower Mississippi Delta, and Indian reservations. In such rural areas, where jobs are scarce and job creation a bigger issue, sectoral economic development strategies may be more appropriate. Urban areas typically have sophisticated business support infrastructures (research, marketing, product development, management consulting, accounting/financial systems, finance, legal, etc.) which reduce the need for sectoral economic development programs.

This infrastructure may view a foundation-sponsored sectoral project as competition, particularly if it's initiated by a neighborhood nonprofit organization. Rural areas are more isolated from services and resources, making it easier for a sectoral economic development strategy to fill gaps and add value. Also, in rural areas, relatively simple services or small interventions can make large differences for struggling firms.

• The possibilities for successful interventions depend in great part on the structure of the sector.

Not all sectors are equally hospitable to sectoral economic development strategies. One consideration is the size of the businesses within the sector. As a general rule, large firms (200-500 employees) have sophisticated in-house expertise and access to resources which dwarf the capabilities most public or philanthropically supported sector projects can mount. Appropriate target firms for a sector strategy generally fall in the size range of 10-20 employees at the small end and 150-250 employees at the large end.

Generally, sectoral strategies appear to be most useful in sectors without a high degree of market concentration (i.e., the sector is not controlled by a handful of firms) and with many market "niches." And finally, the general trends of the sector (growing/declining; stable/changing) affect the potential of a sectoral strategy. For example, the most sophisticated sectoral development strategy would not have created many jobs in the horse-drawn carriage industry in the early 1900s. Similarly, sectors which are intrinsically mature and stable (slow rates of entrepreneurship; an absence of growth firms) are not good candidates for sectoral strategies.

• For any strategy emphasizing inter-firm cooperation (such as flexible networks), establishing credibility is imperative.

Some critics of flexible network strategies have argued that American firms are highly individualistic and lack the culture of cooperation that made flexible networks possible in Europe. It is especially difficult for many nonprofit organizations to establish credibility with businesses in a short period of time. Organizations have often under- estimated how long the basic process of organizing employers will take. The organizations most successful at winning buy-in and support had a history of working with a set of firms.

• Many cities and regions are developing their own sectoral, cluster or key industry strategies. Rather than creating a new sectoral program, neighborhoods can sometimes "piggy-back" onto an existing one.

The sectoral or key industry approach appears to have come into favor with many cities, metropolitan areas, and rural regions. Sectoral or cluster analysis are being sponsored by units of government, chambers of commerce, growth associations, councils of governments, and civic associations. Comprehensive, wide-reaching regional and metropolitan development strategies are being devised with the aid of highly sophisticated consulting companies. Rather than trying to replicate that type of analysis with limited resources, neighborhoods may be better served by trying to link into those efforts.

Neighborhoods can add value by helping develop a new source of workers for growing sectors. HART, a community organizing group in Hartford, Connecticut, has participated in a regional economic development process called the Millennium Project. This in turn has helped HART refine its own workforce development efforts. Similarly, the Delaware Valley Community Reinvestment Fund has been able to connect with the cluster development strategies of Greater Philadelphia First, a civic organization comprised of chief executive officers of Philadelphia's most prominent corporations.

• For sectoral strategies which target the demand side and principally intend to serve a business constituency, labor force supply is critical.

While sectoral economic development programs can employ many strategies, a surprising number of them ultimately focus on workforce development. A study of sectoral economic development programs conducted by Mt. Auburn Associates found that job training and related support services were "by far the most frequently used" programmatic tool of the sectoral programs it examined. The second most common program tool was "providing information or technical assistance directly to businesses in targeted sectors." This assistance usually involved technology modernization.³³

The experience of the Hosiery Technology Center (HTC) in North Carolina is illustrative here. HTC was created to address issues confronting North Carolina's hosiery industry: firm modernization, upgrading employee skills, and retaining good workers. All relate to workforce development. Although HTC had no explicit mission to aid low-income people, it partnered with the North Carolina Department of Labor and Lutheran Family Services to recruit welfare recipients, displaced workers, and recent Asian and Latino immigrants into its worker training and placement services. Employers, most of them desperate for workers, have been eager to participate in the program.

³¹ William A. Duncan. "An Economic Development Strategy" Social Policy. Spring 1986.

³² Carl Rist and Puchka Sahay. Community-Based Organizations and Business Networks: New Ideas for Creating Job Opportunities for Inner-City Residents. Washington, DC: Corporation for Enterprise Development. 1996.

³³ Siegel, Beth and Kwass, Peter. Jobs and the Urban Poor: Publicly Initiated Sectoral Strategies. Somerville, MA: Mount Auburn Associates, 1995.