Small Town Strategy in A Global Economic Recession

A significant amount of my profession involves working with small towns to examine economic issues. These are issues that are probably familiar to all of you because they are the same for every small resort town:

• Youth leave because there are few economic opportunities and the big cities are more exciting, or to attend college in the big city.
• Real estate is priced far beyond anything that is affordable to local residents. Only wealthy immigrants can buy houses.
• Costs are extremely high.
• Arts and tourism are a significant, if not the main, source of income for residents.

The result of these issues can generally be described in terms of two major trends. First is the demographic shift brought on by the emigration of youth and the immigration of aged populations.

With the median age getting older, the towns focus naturally shifts to fulfilling the desires of older population and away from providing a better and more enticing environment for the younger up and coming generations.

The second major trend is the gentrification of the community. As the median income increases, low wage earners become more and more marginal, and end up relegated to the role of providing services for wealthier tourists and residents. These are jobs almost exclusively located in food services, accommodations and retail. The problem of residents not being able to buy real estate only intensifies.

The parallels with so-called “third world” countries are alarming.

Pursuit of Economic Growth

The strategies for economic growth are not qualitatively different except in minor aspects: pursue tourist-funded and export-led growth.

Depending on tourist spending as an economic engine has worked out fantastically for some countries and towns, but never without the problems mentioned above and what amounts to the institutionalization of a very poor working class that serves very rich tourists. I’ll leave it for others to argue whether this is an improvement over their earlier lifestyle.

A tourist-based economy is undesirable for at least two reasons: tourism is extremely fickle and dependent on economic fluctuations, and it locks the town’s economy into a single track that cannot be left without significant consequences.

As the world approaches a recession, small resort towns are clamoring to find out why their real estate sales are slowing and their tourist numbers are down. They think that it is a problem they can fix if they just market themselves more, or make the town prettier and more friendly, or (insert random improvement here).

What they don’t realize is that the last 8 years of tourism have been funded by first a tech bubble and second a housing bubble caused by extremely low interest rates financed by our tax dollars.

In essence, much of tourists’ perceived wealth was imaginary, and now it is leaving (I’m talking about house and stock-based wealth here, not true wealth).

Few small US towns export anything of significance except their youth. Export led growth usually makes people think of China. In some areas crops are a major export, and in others arts and crafts may be somewhat important.

The real truth being, of course, that America itself isn’t a net exporter of anything but marketing and design. It hasn’t been more than this for years, though the severely weakening dollar will likely change that somewhat.

But the real problem with tourism or export-led growth is that they are based on the same thing: inequality.

A Simple Sustainable Strategy for Growth

There is really only one way to sustainably increase the economic well-being of a community, and that is to increase the productive capability of the area.

I don’t mean this in the industrial sense of destroying the surrounding environment to build manufacturing ability, but rather to take steps to develop both the infrastructure and the productive ability of the workforce.

This is a slow process in which a community must consume less than it produces and invest the excess in greater capacity. In the US this is a completely foreign concept. Instead we focus on getting people to spend as much as they can.

In other words, we have unequivocally adopted a strategy of short term growth at the expense of long term sustainable gains.

This is the tragedy of democracies in general, but especially strongly pro-corporate democracies. Politicians are under pressure to produce immediate gains, and so sacrifice future gains to do so. Bush has pursued this strategy to perfection by both cutting taxes and spending an outrageous amount of money, ensuring that the economy stays afloat for a while, but the consequences when the party is over will be that much more painful.

Those of you who work in sustainable community development in small towns, I’d be interested in hearing your thoughts about how communities can pursue a general strategy of sustainable development. I’ll post your responses next week.

-zot