The Good Oil by Rod Brown *
In 1989, the City of Littleton, Colorado USA (population 45,000) pioneered an entrepreneurial alternative to attracting industries. Called the New Economy Program, it is implemented by Littleton Business Development Group, under the wing of the local Council, and has some absolutely fascinating dimensions. The story is as follows.
Economic gardening
The project began with the idea that ‘economic gardening’ was a better approach for Littleton and perhaps other communities than ‘economic hunting’. The intention was to grow jobs based on research findings that most jobs in local economies were generated by small, local businesses. While recruiting coups drew major newspaper headlines, they were a minor part of most local economies.
It was also believed that where outlying areas were successful in attracting new industry, it was often a branch plant that competed primarily on low price and thus needed low cost factors of production. Rural towns with cheap land, free buildings, tax abatements, and especially low wage labour would ‘win’ these relocating businesses, but the Littleton group figured that if costs and living standards rose, the company pulled up stakes and relocated where the costs were even lower – often in Third World countries. It was therefore decided to build the economy from the inside out, relying primarily on entrepreneurs – not glamorous and not worthy of 40 point type headlines.
Correlation between growth and innovation
In the early 1990s the data showed about 80 per cent of jobs were created by about three per cent of the companies – and on closer inspection it was just a few small, fast growing businesses. There was a high correlation between growth and innovation. New products and processes seemed to be their lifeblood.
Around the same time, they discovered works by economists Paul Romer, Paul Krugman, Brian Arthur and Annalee Saxenian that reinforced the point that it’s really ideas that drive companies and economies. They ran a full blown 13 part seminar series to bring state of the art business and innovation practices to Littleton companies.
The goal was to make them all high performance ‘new economy’ companies. It was assumed that superior business people would be nurtured. Instead, they ran head on into what most Small Business Development Centre directors know in their heart of hearts – this activity is mostly a waste of time. As they state: ‘anyone who has ever dealt with trying to make superstars out of small business people knows the truth of this statement’.
After a couple of years of miserable failure trying to create high performance companies, they lowered their sights. But they continued to be puzzled why ‘a few companies grew at sky rocket rates while most languished with low or no growth’.
Temperament
At this point the Littleton folk discovered something profound, namely, that temperament is a major factor in a company’s growth rate, but is not very amenable to change in the short term. They identified with Myers-Briggs temperament styles, such as the difficulty in getting Artisans (SP) to be good bookkeepers, introverted Guardians (SJ) to be sales people, Rationals (NT) to move away from their precious views, and Idealists (NF) to deal with financial issues.
The second implication was the strong correlation between the fast growing companies and two temperament types – the Sensing-Thinking-Judging (STJ) and even the Intuitive-Thinking-Judging (NTJ). They discovered that these two types headed up gazelle companies at rates far beyond their statistical presence in the population. This discovery ended their seminar and training program. They decided business growth could not be influenced much beyond what temperament types, and a few other factors, determined. They also explored the existence of increasing returns as opposed to the classical idea of decreasing returns.
Brian Arthur’s contention is that winners continue to win because they have won in the past. His prime example is VHS versus Beta tapes, where although Beta was generally acknowledged to be the better technology, a critical mass of people opted for VHS early on which created a large installed base, and the supporting technology decided to move to where customers were concentrated.
Increasing returns operate in college athletics – good players go to Notre Dame because it wins, which is because good players go there; people use Microsoft operating systems – because it has the most software written for it, which is because most people use it; and companies move to hot urban areas – because of the large specialised labour pool, which exists because of the large number of companies.
Basins of attraction
Littleton’s New Economy program found that investment funds move like a marble rolling around a basin. Although the path of the marble may never repeat, it doesn’t leave the basin. Similarly, economies can be thought of as basins of attractions for companies – to visualise, think of the landscape as dimpled like a golf ball with different sized basins – large cities have wide, deep basins that attract and keep many companies. Small towns have very shallow basins where a business can easily roll out and into a larger basin.
This principle is very relevant to the economic development efforts of many small towns. Continuous growth increases the size and strength of the ‘basin’ but strong industry clusters in an area may create deep basins, regardless of the size of the population. Furniture making in North Carolina, carpets in Georgia, art in Santa Fe, airplanes in Wichita, are examples of regions attracting specific types of related businesses.
Refinements
As a result of its discoveries about how local economies work, the New Economy Program has been refined as follows.
- The focus is now on a few, high growth companies with unique leadership temperaments that thrive in environments of high information flows and innovation. These gazelles are the most receptive to new information and best practices.
- A community may need to move toward the edge of chaos in order to survive. Chaos is defined by how fast information flows – thus any action that increases the flow of information will have a beneficial effect in the long run. This is the ‘sweet spot’ of the economic development business.
- Businesses thrive when they have many connections – Littleton focuses on establishing those ties, such as industry centres like the Colorado Center for Information Technology.
- Emphasis is placed on three levels of infrastructure. Basic infrastructure is still streets, water and sewers, fire protection and so forth. Quality of life infrastructure includes parks and trails, landscaping and public art, while intellectual infrastructure includes schools, training programs, telecommunications and best practices.
Lessons for Australia
The Littleton experience strikes strong chords with the Australian experience. Four areas suggest themselves.
- Companies do indeed have temperaments. You have little chance of lifting certain types of companies – best to focus on facilitating the gazelles, and some will follow.
- Some non-metropolitan regions in Australia are undoubtedly losing their marbles. Their basins are not as deep as they should be. The three spheres of government have consistently failed to nurture the competitive strengths of many regions – so the marbles are spinning out to deeper basins. Rising property prices in the capital cities are perhaps a countervailing force.
- The level of interaction between businesses and research poles seems to be a good indicator of a region’s dynamism. This is a great field of enquiry for a budding PhD student! If that’s you, please contact me.
- Increasing returns do exist – this is why Essendon must win the AFL this year. Similarly, as the Littleton folk concluded ‘once you become a centre for an industry, everything works for you instead of against you’. I am indebted to Graeme Apthorpe of Cowra Council (gja@cowra.nsw.gov.au) who unearthed Chris Gibbons in Littleton (cgibbons@ littletongov.org).
* Rod Brown’s Canberra based consultancy group, Australian Project Developments Pty Ltd, specialises in industry/regional development and government liaison. For further information telephone (02) 6231 7261 or email apd@orac.net.au
