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ANN ARBOR, MI – Local Economy vs. Big Box Ideas

November 30, 2009

Column: Balanced Offense for Local Economy

Why the big play isn’t always the best one

BY MARY MORGAN NOVEMBER 27, 2009 – Published in The Ann Arbor Chronicle & Disseminated by The Erie Wire
A little over 13 years ago, I started work as a business reporter at The Ann Arbor News. And exactly 13 years ago today, as I hoisted myself out of a warm bed at four o’clock in the morning, I was beginning to grasp why the other business reporters might have welcomed me so warmly.

They knew that as the newest hire, I’d be the one assigned to the morning-after-Thanksgiving Black Friday shopping story. Later that dark, frigid morning, I watched as a stream of cars disgorged expectant, even festive shoppers to stand in line waiting for the doors at Walmart to open.

My initial reaction: These people are slightly nuts.

Then: Downtown retailers would kill for this kind of crowd.

The dichotomy of large and small businesses is perhaps most visible on days like Black Friday, when more customers on a single morning might flow through Walmart than would shop at a Main Street merchant all year. But the tension between large and small is also reflected in our local public policy priorities for economic development.

Currently, those priorities are weighted in favor of a strategy to develop high-tech companies with the potential to grow to employ several hundred, if not thousands, of people.

There’s nothing wrong with heaving the ball down the field and hoping for a quick touchdown. But sometimes all you need is two yards for a first down – a simple running play that will never wind up on the highlight reel for Sports Center.

Economic Development: Big E and Small E

Last year I attended two events on two consecutive evenings – both focused intently on local economic development. I figured there’d be a lot of overlap, with respect to attendees and to themes. It turned out that wasn’t the case – not by a long shot.

The first event I attended was the annual meeting for Think Local First, a network of local independent businesses. Most businesses in this group, but not all, are fairly small. Many are retailers. All are passionate about their desire to build a community where their businesses thrive, but also where they live, play, and learn. They are typically businesses very much grounded in a sense of place – that is, they are unlikely to pick up and leave.

The second event was a working session for Washtenaw County commissioners. They received three main briefings, all related to economic development: Wayne County administrator Bob Ficano talked about the Detroit Region Aerotropolis project; Tony VanDerworp gave an update on a Community Success initiative; and Rick Snyder, Rich Sheridan and Mike Finney briefed the board on the status of Ann Arbor SPARK, this region’s main economic development agency.

The presentations to the commissioners were couched in the language of “Big E” economic development. There’s a certain level of abstraction in that kind of “Big E” talk. People tend to describe programs and marketing brochures and strategic plans, case studies and committees and reports. The data presented typically includes metrics like “number of jobs created” – figures that are, at best, somewhat speculative. You’re likely to hear phrases like “building the tax base” and “knowledge workers.” You probably won’t hear them say, “How the hell are we going to make payroll this week?”

In Ann Arbor, much of this abstraction is focused on the tech sector, defined broadly to include life sciences, software, auto research, defense-related projects – the kinds of enterprises that tend to emerge from University of Michigan research labs.

This kind of discussion often gives at least a nod to other parts of the business community, mainly in references to the great quality of life here and the need for more “third places” (i.e. bars and restaurants and clubs where young professionals can hang out). But those aspects of the economy are generally acknowledged in the context of their value in “attracting and retaining talent.”

And on this view of economic development, it’s C-Level talent that’s crucial to attract and retain – “C” not in terms of the grades these people might have earned in school, but rather in the first letter of six-figure titles they’re accustomed holding – CEO, COO, CFO, and the like. On this model, talent is as important as intellectual capital to fuel these tech businesses, which in turn attracts venture capitalists and others who are interested in creating companies and scaling them up, to get a maximum return on their investments. On this view of economic development, a key question about any interesting idea is this: Can it scale?

Acquisition by some even larger company is seen as a success on this model. But that larger company might not be tied geographically to the Ann Arbor area. And it might be more efficient from that larger company’s point of view to move operations out of the state.

Thinking Small

Let’s go back to the November night a year ago and the Think Local First gathering. Judy Wicks was the featured speaker – she’d been flown in from Philadelphia, where she runs White Dog Café. She’s a leader in what’s called the local living economy, a movement aimed at redefining how communities sustain themselves. They don’t do it by luring large corporations to town with the promise of tax breaks. Nor is it by growing a business until it’s attractive enough to be acquired by a larger company with headquarters in, say, New Jersey. They don’t ask whether it can scale.

They do it by building relationships – with the customers who walk through their doors, with their fellow business owners down the block, with their local bankers and landlords and others in the community. They see every day how their decisions affect the people around them. They donate money and time and products to local nonprofits. And they don’t count on the city or county government or economic development agencies to help. They just hope those institutions don’t make their tasks more difficult – by, for example, giving away coveted parking spots to attract a high-profile tech company downtown.

More concretely, what are these smaller, non-tech businesses doing? Everyday Wines is an interesting example. Owner Mary Campbell has made space in her Kerrytown shop for other businesses – including Pot & Box, A Knife’s Work and Alfajor Maitelates – to sell their flowers, take-out food and homemade cookies, respectively. It’s an informal business incubator of sorts, formed from relationships of mutual benefit. The smaller ventures get a storefront with low overhead costs, and Campbell gets a more diverse offering for her customers.

A higher-profile example is Zingerman’s, which might be a poster child for the local living economy. They’ve built a marquee brand that’s internationally known. They’ve had the opportunity to franchise – a model of scalability that would make even veteran investors drool. But they chose not to, in part because they felt the franchise approach would dilute the quality of their offerings.

Instead, over the years they’ve built a “community of businesses,” all with the Zingerman’s name, all in the Ann Arbor region, all somehow related to their food service focus. There’s the original deli, a bakehouse, creamery, restaurant, coffee supplier, mail order business, publishing unit and training/consulting service. These businesses are operated by managing partners, who in some cases are new entrepreneurs being given the support they need via the Zingerman’s network. Zingerman’s co-founders Paul Saginaw and Ari Weinzweig also started and support the nonprofit Food Gatherers, which has become a national model for food rescue.

I should add that the idea isn’t to build a high fence around this region and not spend money anywhere else, ever. In fact, Zingerman’s mail order business is a good example. The premise behind Zingerman’s mail order is that people in other parts of the country put a high enough value on Zingerman’s products that they’re willing to pay to ship it from Ann Arbor, instead of buying whatever alternative might be available to them locally. Yet these mail order customers are still supporting a locally owned business – even if it isn’t in their community.

Beyond the Tech Sector

Of course, plenty of technology companies fall into the small, locally owned category as well. And when economic development officials talk about branding and marketing the Ann Arbor area, they usually mean establishing the Ann Arbor region on the national map as a tech hub.

Yet what “brands” come to mind when Ann Arbor’s business community is measured in terms of locally based companies that are already known beyond the confines of this area? Zingerman’s. Borders. Domino’s Pizza.

Each of these businesses employ several hundred people locally. And each started small: A couple of guys and a deli, a couple of brothers and a bookstore, a couple of brothers and a pizza shop. None of them would have caught the attention of an economic development agency. None would have been eligible for tax breaks.

It’s interesting that two of those businesses are in the food industry. In fact, there’s a vibrant food economy in Washtenaw County – it was on display in September at the second annual Homegrown Festival, or every week at local farmers markets.

And there are signs that policymakers are starting to recognize that sector as a way to strengthen the local economy. They needed a push, but they’re getting there.

Here’s one example. When the Washtenaw County Board of Commissioners first began considering an economic development tax, the original proposal was to raise $250,000 to fund SPARK and its Ypsilanti business incubator, SPARK East. During the public comment portion of the board’s August meeting, Jennifer Fike, executive director of the Food System Economic Partnership, made a case for allotting a portion of proceeds from the tax to support farmers and other local agricultural businesses.

Ultimately, commissioners did vote to use the tax to raise funds for agricultural-related groups – not by reducing the amount given to Ann Arbor SPARK and SPARK East, but by raising the millage rate from the originally proposed 0.017 mills to 0.04 mills. The tax will now raise $603,000. Of that, $116,000 is earmarked for agricultural programs, including the Food System Economic Partnership and programs run by the local Michigan State University Extension.

Separately, the Ann Arbor Greenbelt Advisory Commission has recognized the role of small farms in the local economy – the newest version of its strategic plan puts emphasis on land that produces food sold locally. From the plan:

This year, the Greenbelt Advisory Commission has identified locally produced foods, agritourism, and other agricultural specialty products sold directly to local markets as an emerging issue. Our local markets, restaurants, non-profits, and most recently, the Homegrown Festival have all focused on the environmental, health, economic and community benefits of buying and selling local foods and other agricultural specialty products. In addition, we feel that a visible connection to our Greenbelt through the foods and other products that we buy and eat provides a tangible reminder of our preservation efforts. Local foods and other crops can find their way in to our Ann Arbor economy in a number of diverse ways: the Ann Arbor Farmers Market, local food stores, direct restaurant purchases from farms, U-pick farms, and even at larger chain groceries through regional food distributors.

Recognizing that the Greenbelt’s mission and direction is solely the protection of land, the Greenbelt program will make a priority to protect those farms that are producing foods for local markets. Even without this priority in our previous strategic plans, the Greenbelt program has actually preserved several farms that provide local food or other crops to the Ann Arbor area.

Greenbelt purchases are funded by a 30-year millage of 0.5 mills annually that Ann Arbor voters approved in 2003. Since then, the city has spent just over $10 million on 1,321 acres in Washtenaw County, both farmland and open space. Several other deals are in the works. As of June 30, 2009, the program had a fund balance of $11.847 million.


Looking Ahead: A Balanced Economic Offense

On Monday, I attended this year’s annual meeting of Think Local First. It was heartening to see about double the crowd as last year, and inspiring to hear the presentation by Paul Saginaw of Zingerman’s. Paul spoke eloquently about the powerful potential of small local businesses, and how important these locally-owned firms are to building a sustainable economy.

Listening to him, I wondered how his message would resonate with those who like to send their wide receivers deep, hoping for a completed touchdown pass – like the recent acquisition of HandyLab, an Ann Arbor tech firm bought by a North Carolina company, or last year’s purchase of Ann Arbor-based HealthMedia by the conglomerate Johnson & Johnson.

These deals are lauded as success stories, and by some standards they certainly are – money is made by investors, jobs are (in some cases) preserved or created, the reputation of Ann Arbor as a tech hub is enhanced.

But if the departure of Pfizer and the folding of The Ann Arbor News taught us anything, it’s that considerations well outside our community are at play when corporate owners move the pieces on their chessboard. From a vantage point hundreds of miles away, they have no particular reason to consider the parochial concerns of residents here. Large corporations can market their community ties as much as they like, but they’re only of, by and for the community until … they aren’t.

I’m not suggesting that we abandon or even significantly diminish support of the tech sector. I realize that the companies being cultivated by groups like Ann Arbor SPARK will employ people who can become customers for the smaller local retailers, restaurants and other non-tech businesses.

I also understand the importance of the local tech industry – I covered those businesses for several years as a business reporter, and respect the world-class work that many of them are doing. While I wonder whether this would happen anyway – even without the various programs that SPARK orchestrates – let’s assume that the net result is a stronger economy because of SPARK’s efforts.

Still, at the very least, we need to recognize that letting fly with a deep pass on every play has to be complemented by a good short ground game. There are multiple kinds of efforts needed to strengthen the local economy, and we need to be mindful we’re allocating our public dollars in ways that reflect the multiplicity of those efforts.

As a community, we also need to see a stronger connection and coordination of all economic development initiatives, and to develop strong voices to represent these different sectors. The tech sector has its voice in SPARK, which has been successful in securing significant public funding from UM, the state and local governments. But beyond that, other groups don’t yet have clear advocates – and certainly not any with the kind of funding that SPARK garners.

There are some likely candidates: Think Local First might eventually play a stronger role for local independent businesses, and Slow Food Huron Valley – a nonprofit that supports the local food movement – has already shown leadership for that sector. Merchant groups like the Main Street Area Association are also playing an advocacy role – but again, they need to be at the table with everyone else. Ditto the arts community, via the Arts Alliance., which has made a case for the role that the arts play in economic development.

I’d also like to see a heightened awareness by local governments – both elected officials and employees at all levels – about how their actions directly affect the health of the small businesses here. Two of the businesses I mentioned earlier – Everyday Wines and Zingerman’s – provide examples of that.

Everyday Wines owner Mary Campbell fought for a liquor license for her other business, a restaurant called Everyday Cook – a license that city council ultimately awarded to the city-owned Leslie Park Golf Course. Everyday Cook was later awarded a more limited liquor license, but Campbell ended up closing the restaurant last year. (Her wine business remains open.)

As for Zingerman’s, the city’s Historic District Commission rejected the company’s request to tear down a burned-out house next to its popular Detroit Street deli, a roadblock for plans to expand at that location.

In the time since the The Chronicle was launched over a year ago, I’ve become acutely aware of how ephemeral a business can be, and of how much effort it takes to keep it going. If we’re serious as a community about strengthening the local economy, then we need more than individual actions – more than the exhortation to “buy local” during the holiday season – to really make a difference.

We need to think about how we’re allocating our economic development resources, and whether – in an effort to make the big play – we’re undervaluing the impact of the very small.

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