**Remarks of Erik R. Pages**

**President, EntreWorks Consulting**

**Before the U.S. House of Representatives Transportation and
Infrastructure Subcommittee on Economic Development, Public Buildings**

**and Emergency Management**

**"The State of Economic Development"**

## January 23, 2007

Madam Chair, Members of the Subcommittee, Thank you for inviting me to
appear before you today. My name is Erik R. Pages, and I presently serve
as President of EntreWorks Consulting, an economic development
consulting firm based in Arlington, Virginia. I appear before you today
to offer my perspective on the state of economic development, and the
appropriate role of the federal government in supporting this critical
mission. I hope that my comments will offer a unique perspective on this
important topic. I have been involved in the field of economic
development for more than twenty years, and have worked in a variety of
settings. EntreWorks Consulting has worked with customers in
twenty-eight states across the US. I have also worked on these issues
while serving in positions at the US Economic Development Administration
and as a staff member here in the US House of Representatives. In all of
these settings, I have seen how Federal interest and investments can
help catalyze regional economic development and transform communities.

My remarks today will focus on the Federal role in supporting economic
development in rural America. My comments reflect my own experience
working in rural regions, but also include insights from my colleagues
at the RUPRI Center for Rural Entrepreneurship, where I serve as a
Senior Fellow.

# *Rural America's Economic Development* 

# *Challenges and Opportunities*

As Subcommittee members certainly know, rural America faces a profound
set of economic development challenges. The last few decades have seen
an unprecedented flowering of wealth, innovation and entrepreneurship in
the American economy. While there are some pockets of good news, much of
this prosperity has bypassed rural America. Recent research shows that
only 10% of American counties accounted for ¾ of the nation's job growth
between 1993 and 2003.[^1] Of those 310 high-growth counties, only eight
are rural.

Rural regions also lag in their ability to generate new innovations and
high growth entrepreneurial companies. These communities have large
numbers of sole proprietors, but lag metro areas in terms of creating
world-class companies that grow fast and generate major new innovations
in products, services and technologies.[^2] This small group of
fast-growing firms creates the majority of new jobs and is the real
engines of economic prosperity.

The basic contours of the rural economic story have been well covered in
the press and in various studies. First, the key anchors of the rural
economy---manufacturing, mining, and agriculture---have suffered
declines in recent decades. These sectors have enjoyed productivity
improvements, but technological change and offshoring have had the
effect of reducing jobs here at home.

As economic anchors have crumbled, other community institutions have
also been challenged. Leading institutions such as local banks,
hospitals, and telecommunications providers have all been swept up in
waves of consolidation. These institutions served as community anchors,
often providing the people and the talent to lead community economic
development work. Thus, the loss of a local bank or hospital is not just
an economic loss. It contributes to a further erosion of civic
leadership and capacity.

These trends coalesce and contribute to the continued brain drain, i.e.
the exodus of talented young people who depart rural communities for
better job and career opportunities in cities and suburban communities.
Young people continue to form the largest cohort of individuals who
migrate away from rural communities.

But not all of the news is bad. In fact, many rural regions appear to be
on something of a comeback. While it is too early to "declare victory,"
some positive signs include the following:

-   Population loss in rural communities appears to be slowing. Indeed,
    there appears to be something of a reverse migration occurring. For
    example, almost 71% of rural counties gained population during the
    1990s.[^3]

-   Many rural communities are poised to succeed in emerging sectors
    such as biofuels, recreation, alternative energy, and niche and
    organic agriculture.

-   Rural communities still retain many competitive advantages, such as
    lower housing costs and strong quality of life that appear to be
    assuming greater importance in the location decisions of many
    entrepreneurs, workers, and their families.

When we look at the rural economy, the bottom line is this: we face many
significant challenges, but we also face a tremendous opportunity to
improve the quality of life and to stimulate prosperity for millions of
Americans who reside in small towns and rural communities.

# *The Way Ahead for Rural America*

There is no one-size-fits-all solution for promoting economic
development in rural America. In fact, it's pretty hard to develop a
single monolithic definition of "rural America." After all, Jackson
Hole, Wyoming, the Pine Ridge Indian Reservation, the Mississippi Delta,
and the Iowa cornfields are all rural, yet they face widely differing
economic, political and cultural circumstances.

So each community's solutions will be unique. But, they will share some
common themes. First, solutions must be locally derived and locally
driven. Local residents must be engaged in the process of designing and
implementing new approaches to community transformation.

Second, solutions must focus on community transformation. Transforming a
rural community will not occur via a single project or a new facility.
This effort requires a holistic, comprehensive and long-term commitment
to building a vibrant and livable community. Comprehensive solutions
must include traditional economic development approaches, such as the
development of infrastructure (such as broadband deployment or new water
and sewer facilities) along with efforts to engage youth and develop
civic leadership. And, new ideas do not always need to come from
professional economic developers or elected officials. We need to engage
a wider network of participants in this discussion. Social service
providers, non-profits, educators, and average citizens must all be
engaged in developing new ideas for rural development.

Third, solutions should seek to foster a spirit of innovation and
entrepreneurship. Our objective must be not to simply create jobs, but
to build a base for rural prosperity. Building prosperity requires that
we support rural entrepreneurs who are seeking to build world-class
businesses that will succeed in the global marketplace. These home-grown
businesses are more likely to remain in the community, providing
business leadership and generating wealth for the surrounding region.

Finally, proposed solutions must recognize the importance of regional
approaches to economic development. While local grass-roots commitment
is needed, this does not mean that each community must design its own
unique economic development strategy. Cities and counties can no longer
go it alone in terms of competing in the global economy. They need to
compete as part of a larger region that can develop the scale, assets,
and economic diversity needed to build prosperity.

# *Where Does the Federal Government Fit In?*

No rural economic development strategy can be successful without strong,
innovative grassroots leadership. Local leaders are the ones who must
recognize the need for change and build partnerships that bring
creativity and innovation to the heartland. However, given the
challenges faced by most rural communities and regions, they need the
federal government as a strong partner, investing in innovative and
creative new strategies that are taking root in rural places.

Congress needs to assume a prominent leadership role in this effort. The
past decade has witnessed a serious erosion of the federal government's
ability to support innovative local economic development strategies. We
must reverse these patterns and begin making real and sustained
investments that help empower local communities. Specifically, the
Subcommittee should consider the following recommendations:

1)  Support Federal Investments in Economic Development

2)  Support New Rural Development Strategies via the Farm Bill

3)  Promote Regional Approaches

4)  Support Open Immigration Policies

5)  Expand Energy R&D Spending

6)  Invest in Broadband Infrastructure

Let me now address each of these recommendations in greater detail:

1)  *Support Federal Investments in Economic Development*

Many key federal agencies, such as the Economic Development
Administration (EDA) and the Small Business Administration (SBA), have
faced a decade of budget cutting. The Committee should reverse this
trend and renew the Congress' commitment to these critical programs. The
Committee should support efforts to maintain EDA's budget at the current
level of \$284 million and perhaps even support an expansion of EDA
spending in Fiscal Year 2008. Committee members should also support
legislation that that seeks to expand Federal investments in science,
technology, and math (STEM) education. Finally, many critical SBA
programs, such as the Small Business Development Centers and the
Microloan program, provide invaluable help to rural entrepreneurs. These
laudable initiatives should be expanded.

1)  *Support New Rural Development Strategies via the Farm Bill*

Congress is now in the midst of reauthorizing the Farm Bill. This effort
offers one of the best opportunities to support innovative approaches to
rural development. Committee members should support creation of a new
Rural Strategic Investment Program at the US Department of Agriculture.
This program would provide support for the development of new regional
rural development strategies and partnership across regions and sectors.
Other initiatives worth consideration include proposals to enhance
support for rural microenterprise and to create new individual
development accounts (IDAs) targeted to residents of distressed rural
regions.

2)  *Promote Regional Approaches*

As noted above, regions are the key building blocks of a competitive
economy. Subcommittee members should support approaches that encourage
rural communities to collaborate at the regional level. This support can
take several forms. First, all existing and new program investments
should include incentives for the development of regional strategies.
The Department of Labor's WIRED (Workforce Innovation in Regional
Economic Development) offers one good example of efforts to promote
regional approaches. EDA's Economic Development District (EDD) program
also promotes a regional approach via support for the creation of
Comprehensive Economic Development Strategies (CEDS).

Second, the Committee should further explore various proposals to create
new regional development authorities (RDAs), based on the model of the
Appalachian Regional Commission (ARC). Since its founding in the 1960s,
the ARC has played a central role in alleviating poverty and economic
distress in Appalachia. This success has spawned the creation of other
RDAs such as the Delta Authority and the Denali Commission. More
recently, Representative Michaud has proposed the creation of the
Northeast Regional Economic Development Commission, and other Members
have proposed RDAs for distressed regions of the Southeast and the
Southwest Border region.

These RDAs make sense if they meet several criteria. They must serve
areas of contiguous and consistent economic distress. Also, they must
include creation of a strong staff capacity along with a relatively
powerful role for the Federal co-chair. An effective RDA seeks to
promote innovative approaches to regional development, and a strong
staff capacity helps ensure that new ideas and creativity are introduced
into the process. RDAs should not simply serve as another means for
transferring Federal resources to state control. Successful RDAs are
based on a real partnership between federal, state, and local officials.

3)  *Support Open Immigration Policies*

The move of new immigrants to rural America is one of the bright spots
on the rural economic landscape. In particular, more Latinos are moving
to rural towns, especially in the Southeast and the Midwest. During the
1990s, Hispanics accounted for ¼ of job growth in rural America.[^4] In
some states, the demographic shift has been quite profound. For example,
North Carolina's Hispanic population grew by 394% over the course of the
1990s. Forty-five percent of these new immigrants reside in rural
counties. While this influx of new residents has created some challenges
(such as school overcrowding), their predominant impact is positive.
These new immigrants are starting exciting entrepreneurial ventures that
will help strengthen rural economies.

4)  *Expand Energy Research and Development Spending*

From a national policy perspective, it makes great sense to expand
investments in alternative energy research such as biomass and hydrogen.
These investments will also have a positive effect on rural communities
who are well situated to benefit from such investments.

5)  *Invest in Broadband Infrastructure*

Because they must often operate with substandard digital infrastructure,
many rural businesses and entrepreneurs are competing as if they have
one arm tied behind their backs. Congress should support efforts to
invest in rural broadband infrastructure through existing programs at
the EDA, the Department of Agriculture, and so on. Congress should also
consider more expansive financing approaches such as the American
Heartland Development Bank,[^5] a \$10 billion development bank devoted
to investing in a host of infrastructure projects across rural America.

Madam Chair and Members of the Subcommittee, thank you for the
opportunity to share my views with you today. I look forward to your
questions and, if you need additional materials and information, I would
be happy to provide them to the Subcommittee.

[^1]: Mark Drabenstott and Jason Henderson, "A New Rural Economy: A New
    Role for Public Policy," *The Main Street Economist*, Federal
    Reserve Bank of Kansas City. (Vol.1, Issue IV, 2006).

[^2]: Sarah Low, "Regional Asset Indicators: Entrepreneurial Breadth and
    Depth," *The Main Street Economist*, Federal Reserve Bank of Kansas
    City. (September 2004).

[^3]: Kenneth Johnson, "Demographic Trends in Rural America." Carsey
    Institute Reports on Rural America. Vol. 1, No. 1. University of New
    Hampshire, 2006.

[^4]: Leif Jensen, "New Immigrant Settlements in Rural America," Carsey
    Institute Reports on Rural America. Vol. 1, No. 3. University of New
    Hampshire, 2006.

[^5]: This concept has been proposed in Joel Kotkin and Delore
    Zimmerman. *Rebuilding America's Economy: A Heartland Development
    Strategy*. Washington, DC: New America Foundation, 2006.