Creating Economic Opportunities (Static Model)
Imagine that money flows in and out of a local economy like water flows into and out of a rain barrel and prosperity depends on activities that keep dollars local and those that bring new dollars into the community.
MONEY FLOWS INTO A LOCAL ECONOMY IN THE FOLLOWING WAYS.
1. Products sold to consumers outside the local economy bring new dollars to the community as do commuting locals who bring their wages back into the community. Selling more goods and services to those outside the community (exporting) is considered one way to stimulate a local economy and is defined as economic base theory. Almost any firm can be an exporter.
2. Captured dollars flow into the community (paid to the government and residents) from outside sources. These are unearned dollars that may come from social security and retirement payments; interest, rent, and dividend from outside investments; and grants from higher governmental agencies and foundations.
Bringing in outside dollars
Construction (Building a new highway when the investment capital comes from outside sources) Transportation (A truck terminal which services cross-country traffic) Utilities (An electric power plant which sells to a regional market) Wholesale (A firm which buys locally produced crops, warehouses it and sells it to retailers all over the country) Retail (A regional shopping center) Finance (A concentration of banks serving a large region) Insurance (A regional or national headquarters of a large insurance company) Government (All federal, state, and regional offices) Business and Personal Services (A convention center) Professional Services such as Medical and Education (A university or a medical center which attracts people from multi-county area) Entertainment Services (An amusement park which attracts people from other states)
MONEY FLOWS OUT FROM A LOCAL ECONOMY AS FOLLOWS.
1. Firms buy goods and services from outside vendors.
2. Households shop for goods and services outside the community
3. Firm and employee taxes and social security payments.
4. Assets such as land, buildings, and human skills that are underutilized and investment in ventures that do not pay off.
5. Individuals invest in stocks, bonds, and federal governmental securities
6. Estate settlements made to relatives who leave the community
7. Property taxes collected and spent on educating k-12 students, who leave the community
Stopping the flow of monies that leak out of a local economy can increase the level of prosperity in a community. This can be done by:-Providing locally those goods and services that are purchased outside the community. (Import substitution)
-Having residents invest their savings locally.
-Starting or expanding a local foundation that improves the community’s quality of life.
-Efficient and full utilization of local resources.
-Offsetting the loss of high school graduates (tax investment) by attracting young families.
The greater the number of dollars within the community the more likely businesses are to create jobs. What can Northeast Florida do to bring more money into the local economy? What more can be done to stop the flow of monies leaving the community?
For more information go to Understanding your local economy, Kansas State University http://www.ksre.ksu.edu/library/agec2/L775.pdf
The blog entry ends with questions regarding what can be done to bring more outside money into the region and what can be done to stem the flow of money out of the region. Historically, efforts have been made to retain money in the region, yet more effort seems to have been devoted to bringing money in from outside. The effectiveness of both of these efforts has been questionable and has been complicated by the economic recession. Efforts to bring in money from the outside should continue, but be refined to increase its effectiveness. The national and world economies have changed and methods must change to reflect that reality. Keeping money locally requires a change in mindset and increased emphasis on promoting regional business development. Efforts are needed to create conditions that are conducive to starting and/or expanding businesses. Though access to capital and streamlined permitting are frequently cited as needed elements, mechanisms for promoting creativity and innovation are frequently overlooked. Whether it is think-tanks, university research centers, or business-education partnerships, there is a need for fresh thinking. New businesses need to be viable in a complex economic environment and provide services or products that others want even though it costs a bit more. If local businesses well-founded and generate appealing products, locals will be more inclined to invest and purchase locally.
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