November 19, 2020

Small Communities in the Heartland Must Alter their Economic Development Models

By Ross DeVol, President and CEO of Heartland Forward

Dotting the American landscape is a series of small towns that define the character and explorative drive of previous generations.

Dotting the American landscape is a series of small towns that define the character and explorative drive of previous generations. These “micropolitan” (micro) areas have a town with at least 10,000 in population, but no more than 50,000. As a class, these semi-rural communities have experienced weaker economic gains than its their larger metropolitan colleagues. More troubling, Heartland communities in the center of the nation have been among the nation’s slowest-growing micropolitans.

Many people in these communities feel they have been left behind by the forces of globalization, and rising import penetration of Chinese manufacturing in particular, and by a lack of attention to their concerns in Washington. However, there is much to be learned from successful smaller communities in the Heartland (and beyond) that are focusing on building entrepreneurial ecosystems, quality of place, talent creation and attraction, promotion of knowledge-intensive industries, advanced manufacturing and energy extraction to carve out a unique space for themselves. These lessons are particularly critical as communities large and small navigate COVID-19 and the economic recovery, which threaten to upend previously thriving communities.

Heartland Forward publishes an annual evaluation of U.S. micropolitans. This evaluation serves as a scorecard for the most successful communities’ underlying features. Texas dominated our rankings this year, with five micropolitans in the top 30 (more than any other state). Many of the best-performing communities, in Texas and beyond, owe their lofty rankings to the explosion in shale oil, and the Permian basin communities in West Texas and Southeast New Mexico have benefited most. For example, Pecos, Texas, was first in the nation for the last two years. It is the most productive shale-oil basin in the world. However, this route to economic success cannot be replicated by other micropolitans.

Broad measures of communities’ dynamism, such as the share of private sector employment at firms five-years old or less, serve as good predictors of long-term success. Most micros in the top 30 in our rankings score above average on this measure. However, another measure of entrepreneurial ecosystems—the percentage of employees at young firms with a bachelor’s degree or above—differentiates the top performers. Twenty of the top 30 in the ranking score substantially above average in this measure. This represents the entrepreneurial ecosystem’s knowledge-intensity where more firms being created and scaled are in technology or other industries with the need for creative talent.

These top performers with the most knowledge-intensive communities—Jackson, Wyo-Idaho; Summit Park, Utah; Heber, Utah; Bozeman, Mo.; Jefferson, Ga; Vineyard Haven, Mass; and Breckenridge, Colo.—score high on quality of place measures such as proximity to national parks, arts, recreation and other cultural amenities. In many cases, the high quality of life attracted entrepreneurial and other talents. In others, a self-directed form of entrepreneurship arose in these nurturing environments, with universities and colleges engaged in promoting economic development. Communities that become lifestyle destinations with a strong quality of place measures retain more residents who might otherwise seek career opportunities in other locations and attract migrants. Quality of place also includes good K-12 education, access to quality health care, low crime rates and various other factors. An expanding body of research demonstrates a correlation between arts and culture and economic success.

As professional, scientific and technical services are driving the U.S. economy, communities that can produce and attract this talent are experiencing better economic performance. Few micropolitan communities have a concentration of these industries above the national average, but they distinguish the top performers.

Some micropolitans have carved out niches in areas of advanced manufacturing. A great example is Jefferson, Ga., that attracted the SK Group, a Korean conglomerate, to build an electric vehicle battery manufacturing plant. Another example of success is Lewisburg, Tenn., where its advantageous location on the automotive supply chain and low costs facilitated investment.

Fairfield, Iowa, was among the top performers in the country on this year’s micropolitan list. Much can be learned from its success. Cultural and recreational amenities like the Jefferson County Trail System help create an attractive quality of life. Maharishi International University is based in Fairfield and contributes to the region’s sustainability approach by investing in a solar and storage plant on its campus. Priding itself on an entrepreneurial culture, the region has a group of start-ups with a relatively high knowledge intensity, ranking in the top tier among micropolitan areas evaluated. Another Heartland success story is Oxford, Miss., home of the University of Mississippi. Multiple knowledge-intensive firms spun out of the university have grown into job creators. Further, it creates the local talent to fuel this growth.

Outside of Texas, Tennessee had the highest number of Heartland micropolitans among the top 50 performers in the nation. In addition to Lewisburg, Tullahoma-Manchester and Sevierville fell into this group. Tennessee has focused more extensively on building entrepreneurial awareness, capacity and emphasis on more knowledge-intensive endeavors—a replicable playbook for micropolitan in Texas and elsewhere.

In the post-pandemic world, the battle for talent will intensify. More workers are expected to remain operating remotely most or some of the time. Remote work and relocation away from dense, high-cost major metropolitan areas may also change opportunities in many micropolitan areas. It will be necessary for communities to advertise the qualities that appeal to new footloose talent and develop a future plan. A close evaluation of the underlying characteristics and economic development strategies that were helping small communities thrive pre-pandemic offers an important playbook for Texas' and other Heartland states’ roads ahead.