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Economic Success in Kalamazoo County
Recognizing Linkages...Forming Partnerships

Presentation to Kalamazoo Rotary May 5, 1997
Randall W. Eberts
Executive DirectorW.E. Upjohn Institute for Employment Research


I would like to thank Rotary for the opportunity to speak to you this afternoon. I also want to commend the program committee for putting together this very important series of presentations on the Kalamazoo economy, and I am honored to be asked to participate in this series of programs.

 This opportunity to share my reflections on the Kalamazoo economy comes at a good time for me. I am completing my fourth year in Kalamazoo. I have been here long enough now to appreciate Kalamazoo's great strengths as well as its many challenges, but not too long to forget the lessons and insights I have gained from living in other parts of the country. During my professional career, I have lived in places that share with Kalamazoo many of the same visions and challenges. I started my career on the faculty at the University of Oregon in Eugene, Oregon, a town which then and now has been grappling with what to do with a downtown pedestrian mall that they copied from Kalamazoo. I spent time in Texas, which was trying to cope with unbridled growth and Texas-sized optimism. Contrast that experience with the 8 years I spent in Cleveland, which when I arrived was trying to find the bottom of its downward spiraling economy so they could establish a foundation for future growth. Now, they have a winning baseball team and a revitalized downtown. I have also gained considerable insight from participating in the various projects that the Institute has conducted analyzing different aspects of the local and regional economy.

 This brings me to my topic this afternoon. I would like to pull together some of the lessons that I have learned from the Institute's work here and my experiences elsewhere to offer insights and perspective on our current situation here in Kalamazoo and how we can promote economic successin this region.

 By economic success, I mean more than simply job growth or population growth. Rather, I mean generating real value added within the community, such as creating higher paying jobs, nurturing innovative businesses and institutions that allow us to be at the forefront of new ideas and progressive changes, and to nurture the institutions and businesses that will help promote future growth.

 To borrow from Tim Light's presentation a few months ago, economic success is to be a world classcity, that is, a city that sees itself in a broader context, not as an insular city, but as one that is collaborative, not only by opening connections with the world but also by forming partnerships locally.

 To illustrate his point, Tim described his experiences in Singapore and other exotic places. I would like to add to that perspective by comparing Kalamazoo with another exotic place--Cleveland, Ohio. Now, I am sure no one in this room questions my description of Cleveland as exotic, rather you are probably wondering what lessons Cleveland has for Kalamazoo. I hope that these lessons will be obvious by the end of my presentation.

 My eight years in Cleveland, working closely with economic development initiatives, and my research and experience elsewhere, has led me to two key concepts in my thinking about successful economic development--theimportance of linkages within and between regional economies and the forming and nurturing of partnerships among businesses, organizations, political units, and neighborhoods and obviously among people.

 Before we look at these concepts more closely, let us examine how the Kalamazoo economy has fared during the past several years, by comparing ourselves with other Midwest cities of similar size. We have constructed a comparison set of 49 metropolitan areas with populations between 120,000 and 1 million, and have estimated the growth of several performance indicators between 1989 and 1994, the most recent data for these metro areas.

 With respect to:

 1) Total employment growth: Kalamazoo is ranked 17th at 9.8 percent, above the average;

 2) Real per capital income growth: Kalamazoo is below average and ranked 28th at 5.4 percent;

 3) We have lost 2 percent of our manufacturing employment, during this period, placing us 19th;

 4) Population has grown slightly, by 3.7 percent, placing us above the average growth rate but still in 22nd place, although it should be pointed out that we have lost 5,000 people due to out migration.

 Some people might look at Kalamazoo's ranking and say that we have a fairly stable and balanced economy; others might respond by saying that we are treading water, and not moving in any purposeful direction.

 Two weeks ago, Ley Smith offered two scenarios for the Kalamazoo economy: the first one was based on the status quo, which showed that continuing to do what we are doing now would leave us with lackluster performance in the next several years, and probably keep us in the middle of the pack, if at that. The second scenario, based on progressive leadership within the community, could put us on a new path of purposeful growth.

 What are the ingredients for putting Kalamazoo on a path of greater economic success? To address this question, we first must look at the building blocks of economic success.

 Rosabeth Ross Kantor has written a very interesting and important book on world class communities, entitled World Class: Thriving Locally in the Global Economy (Simon & Schuster). The concepts that she presents are not new, but what is new and enlightening is the way in which she has strung together these simple but fundamental building blocks for economic success. Since I share many of her views on the determinants of regional growth, I would like to borrow some of her terminology to illustrate some fundamental points about regional growth.

 First, every local economy must have core capabilities, which include among other community assets, the industry clusters, or dominant industries, in the region.

 For Kalamazoo, they are

 Chemicals (Pharmaceuticals) 7.4

 Paper 6.0

 Fabricated metals 3.5

 Rubber and Plastics 2.6

 Credit and Finance 1.9

 Medical 1.2.

 The numbers indicate the concentration of these industries in our economy. For example, pharmaceuticals are 7.4 times more prevalent in Kalamazoo than for the comparison group as a whole.

 How did these industries come to locate and flourish in Kalamazoo? Each one has its own story, and I am always fascinated by the circumstances behind the location of successful businesses in various parts of the country: The story of Dr. Upjohn or Dr. Stryker here in Kalamazoo, W. K. Kellogg and C.W. Post in Battle Creek, and in Cleveland it's the success story of J. D. Rockefeller, which is one of the success stories of American entrepreneurship.

 How do these success stories come to pass, and what can we do as a community, if anything, to make successful business ventures happen more often in our community? Successful entrepreneurship results from a sequence of events:

 1) An historical accident, in which someone with an idea moves to a community or a local resident pursues his or her dream;

 2) Independent actions of business entrepreneurs, in which the dream develops into a viable business; and when

 3) Civic leadership steps in to support the private efforts by helping to build the necessary institutions to support it.

 At first glance, it would appear that at least the first two steps are out of our control. How often does a Dr. Upjohn move to Kalamazoo, or a J.D. Rockefeller to Cleveland? The answer is that it happens probably more often than we may realize. And it is within the power of a community to nurture business ventures. Because, in many ways, these individuals were attracted to and nurtured by a community that was open to new ideas and new ways of thinking. It has been said that the auto and tire industry got started here in the Midwest because the east coast was too tied up with textiles and commerce at the time to have the open mind and to devote the necessary resources to a new industry.

 In order to sustain a local economy and ensure future success, core industries must keep up with changing consumer demands and technological advances. Far too often cities and their industries turn inward and ignore what is happening in the rest of the world. As Kantor points out: "Core capabilities can also bring about core rigidities--an over reliance on known technologies and an inability to change." (p. 359)

 Signs of this insular attitude is not always obvious. For example, Detroit's downhill slide started in the mid-1970s, when Detroit's auto industry was at the pinnacle of its success and dominance of the auto industry. Because of its strength and the fact that all its suppliers were clustered around Detroit, Detroit's automakers ignored what was happening outside the region and quickly found that they had fallen behind consumer preferences and technological advances.

 Cleveland followed a similar path. Cleveland's manufacturing was more diversified, with tool and die makers, steel and fabricated metals the dominant activities. Yet, these businesses too ignored changes in technology, and foreign competition, and found themselves at the back of the boat, instead of at the helm, and by 1982, the city had hit rock bottom.

 To ensure that core capabilities do not turn into core rigidities, a city must be attractive and open to new ideas. Kantor, in her book I mentioned earlier, states that "Creativity and innovation in companies are facilitated by cross-fertilization, by flexible organizations encouraging people to think across boundaries and combine ideas across fields."

 Creativity and innovations happen only if the same openness is found in the community as a whole. Kantor makes the further point that "Cities need to be places that help people in an industry gain strength not just by talking to each other, but by talking to those who think differently, challenge assumptions, and bring ideas and resources from outside the industry or locality."

 One measure of this dynamic process is the level of activity, or churning, within a local economy due to the openings, closings, expansions, and contractions of businesses. Our research has shown that what drives regional economic growth, what defines a growing region from a declining region is the number of openings of new firms.

 This driving force is easily seen by comparing the number of jobs gained and lost by business startups and failures. Take a look at the fastest and slowest growing metropolitan areas in the country during 1989-92, the most recent data of this kind that we have for all metropolitan areas.

 Employment in Austin, TX grew 17.1 percent during this three-year period, while Worcester, MA's employment declined 12.4 percent. What accounts for the difference? Notice the large difference in the percentage of jobs gained due to openings of new firms, but virtually no difference in the jobs lost from business closings. Therefore, business creation, to a large extent, separates the growing from the declining regions.

 Looking at how Kalamazoo compares with other metro areas, we see that the percentage of jobs created from business openings lags behind the average, and is even slightly below the level of business openings in Benton Harbor during that time period.

 Entrepreneurship is not usually imported, but rather it is nurtured by the community. The Institute recently conducted a survey of small business owners in Kalamazoo, and found that of the 800 people who responded, 85 percent had lived in Kalamazoo for more than 10 years before starting their business. And 76 percent started a business in the same industry in which they had previously worked. Consequently, entrepreneurship is home grown and is based on experiences within the community.

 Unfortunately, successful entrepreneurship cannot be identified in the business's infancy, but only once it is successful. If we would have placed bets on which of the dozens of cereal companies in Battle Creek that were in operation around the time W.K. Kellogg or C.W. Post started theirs, or the many kerosene delivery companies competing for customers when Rockefeller began his company, how many of us would have placed our money on these gentlemen's ventures over others.

 The same uncertainty about who might be tomorrow's winners exists today. Our survey for Kalamazoo found that all the growth in this area's small business sector was generated by only five percent of small businesses. The same is true nationwide, as well.

 What kind of linkages (connections) have our businesses and institutions created for Kalamazoo? Two types of linkages are important: those outside the region and those inside the region. Kalamazoo appears to fare well with respect to connections outside the region. One indicator of these linkages is the percentage of industry workers dependent on out-of-county sales:

 Manufacturing 94.8

 Financial 47.3

 Wholesale 44.5

 Services 31.3

 Retail 31.0.

 It is evident that many of our connections with industries outside the region go beyond the traditional manufacturing sector and extend to many of the other sectors, not usually considered export sectors.

 The distances with which these connections are made can be seen by the market areas and purchasing areas of local businesses. According to a survey the Institute conducted of Kalamazoo area firms:

 1) 43% of sales are to areas more than 150 miles away

 2) 35% of purchases are from areas more than 150 miles away

 3) 21% of sales to foreign countries

 4) 12% of purchases from foreign countries.

 I should also mention that educational Institutions, such as WMU and Kalamazoo College, provide us with critical connections with the rest of the world, through the networks of students, faculty, and the cultural events and exchanges that they foster.

 In addition, Kalamazoo is part of a larger regional economy that has strong connections to other economies:

 1) Michigan is the 4th largest export state, behind California, Texas and New York;

 2) Michigan is the largest NAFTA trader;

 3) Michigan exports almost tripled in the past 8 years;

 4) Michigan's largest export market, Canada, is at our doorstep which offers additional; opportunities to expand our connections with that country.

 Economic Linkages within Kalamazoo County are alsoextensive. The greater Kalamazoo economy is a complex web of business relationships, that transcend jurisdictional boundaries. One indication of these linkages are the commuting patterns, which show where the residents of Portage and Kalamazoo work. Notice that more Portage residents work in the City of Kalamazoo than in the City of Portage: 7,958 of the 19,000 residents of Portage work in Portage, but 8,187 Portage residents work in the City of Kalamazoo. These commuting patterns indicate strong linkages within the local community.

 There is also a high degree of interdependencies in the assets we share as a community and the challenges we face, all of which transcend jurisdictional boundaries. No one city or township has a monopoly on economic success or economic challenges.

 For instance, consider the distribution of the Kalamazoo County's 8,400 children living below the poverty line (16% of the children in the county). The heaviest concentration is in the City of Kalamazoo, yet the City of Kalamazoo also has the highest concentration of people with four years of college or more, which is directly linked to high concentrations of income per capita.

[ Descriptive Maps ]

 Furthermore, economic relationships are changing. Kalamazoo and Portage are no longer the centers of growth in the county. While these cities still have the highest property values in the county, property values are increasing faster in the outlying townships, particularly in Oshtemo, Texas and Richland townships.

 How do we nurture, attract, and retain businesses, organizations, and people that will strengthen these connections and promote economic success? First, people and businesses are attracted to Kalamazoo because of our key institutions, which include the core industries and educational institutions. Second, people stay in Kalamazoo because of the quality of business and organizational connections, and social interactions (which is part of the area's quality of life).

 Factors important to the attraction and retention of businesses and people include:

 (1) quality of the labor force, (2) education, (3) business connections, and (4) transportation infrastructure. The Institute conducted a survey of CEOs within the Kalamazoo area not long ago and asked them to rate our area with respect to these various factors. This is how they responded:

 1) Quality of the labor force: a weakness;

 2) Education: a strength for most levels of education;

 3) Business connections: a strength in terms of proximity to customers and suppliers;

 4) Transportation infrastructure: strength in terms of access to transportation, particularly highways.

 All in all, except for labor, this is a pretty good report card on the fundamental attributes of the region. Yet, there are two other dimensions regarding the health of the area not included in the survey.

 First, physical infrastructure takes on another dimension that is not included in this list. The condition of our public infrastructure affects the outside world's perception of our community. What people see with regards to the condition of our public infrastructure, the entrances to our community, the attractiveness of our downtown, influences how they think about the entire community--its viability and liveability. It is similar to the impression one gets when walking into the headquarters of a large corporation: the condition of the lobby and building makes a statement about the prosperity of the company and pride of the ownership in their enterprise.

 In a recent study evaluating the success of urban success stories, the authors found that the perception of downtown redevelopment efforts greatly influences the perception of urban success. They state that "Redevelopment of the central business district in terms of both new office buildings and the presence of retail stores and boutiques, recreational opportunities and tourist attractions drives public perceptions of the well-being of the entire urban area." (Harold Wolman, Coit Cook Ford III, and Edward Hill, "Evaluating the Success of Urban Success Stories," Urban Studies, Vol. 31(6), 1994).

 In the early to mid-1980s, the physical appearance of Cleveland's downtown was a serious detriment to the community. David Hoag, Chairman and CEO of LTV Steel at the time, reflected on the transformation he saw in Cleveland's downtown by stating:

 The changes in Cleveland have been wonderful. The most obvious change is its physical well-being. When I moved here in the mid-1980s, the place was a wreck. It was about as depressing a place as I'd ever seen. Now the feeling downtown is the exact opposite. The stadium, the ball park, the basketball arena, the Great Lakes Science Museum and the Rock and Roll hall of fame really ended up being urban renewal as well as wonderful facilities. That is a major difference. (The Cleveland Turnaround, Harvard Business School, 1996)

 While physical infrastructure is the foundation for the physical operations of a city, that is, getting people and goods around efficiently, and it creates an image of the city's success and well-being, there is another type of infrastructure, of equal if not greater importance, that is the foundation for pulling together the human and financial resources necessary to make a city work-- the social infrastructure of collaboration.

 Margot Copeland, past Executive Director of the Greater Cleveland Growth Association, stated it aptly in describing the process of Cleveland's turnaround:

 The Story of Cleveland's turnaround is clearly not the Rock & Roll Hall of Fame or Jacob's Field. The story is how we cultivate the ground for leaders from different points of view to sit down and talk together, listen to each other, share information, and then agree on a common purpose. (The Cleveland Turnaround, Harvard Business School, 1996)

 During Cleveland's darkest hours, when unemployment hit the double digits, when the city defaulted, when the nation knew it as the place where the river burned, business leaders stepped forward and decided to provide the leadership that was woefully missing from their elected officials. While politicians were involved in battles over how to slice up whatever was left of the dwindling pie, the business leaders set forth to figure out how to expand the pie, how to grow the local economy.

 They knew from the beginning that they alone could not get Cleveland back on its feet. It would take coalitions that reached across many different groups. But the business leaders also believed that they could provide the leadership to forge the collaborations among people and groups in Cleveland so the community could move forward. The result has been a successful transformation of Cleveland's downtown and a renewed pride in the city. Cleveland truly believes that it is the midwest's renaissance city.

 Every city has its own personality, and thus its own way of providing leadership and forging partnerships. In Cleveland, the business leaders stepped forward. In other cities, elected officials or civic leaders have provided that leadership.

 Kalamazoo definitely has its own, strong personality, and it has a social infrastructure of various organizations that can provide the collaborative glue to bring and hold the community together. But like Cleveland did several years, Kalamazoo must ask itself whether its existing structure is enough to bring about significant and needed results. Does Kalamazoo have the ongoing collaborative infrastructure in which people and organizations can come together to exchange ideas, solve problems, or form partnerships? Does it have the mechanism that allows people to move across the barriers of localism, parochialism, or provincialism that at times divide us? Who among Kalamazoo's leaders will step forward to bring people together to agree on priorities that stimulate many diverse initiatives but then can link them together in order to make a significant impact on the community?

 These are questions that the community needs to answer and answer soon. From my experiences in Cleveland and other cities, I can assure you that there is no silver bullet for economic success. Rather, economic success is a continuous process, not an series of isolated outcomes. And cities must be vigilant in making sure that the collaborative infrastructure to carry out that process is in place, well greased, and working effectively.

 Much needs and can be done to move Kalamazoo from its middling position to a higher level of economic success. And I believe that together, by forming the necessary partnerships, we can become more of a world-class city.

 Thank you again for the opportunity to speak to you this afternoon.