Testimony of
David A. Sampson
Assistant Secretary of Commerce
For Economic Development
Economic Development Administration
United States Department of Commerce
Hearing on
Attracting Economic Growth for the Rural Economy
Committee on Small Business
Chairman
Manzullo, Ranking Member Velazquez, and Members of the Committee, thank you for
this opportunity to appear before the Committee on Small Business to discuss
the
Federal government’s role in addressing the challenges in
the rural economy and, specifically, the Economic Development Administration’s
focus on addressing the critical needs of rural
Background on EDA
The
mission of the Economic Development Administration (EDA) is to help our
partners across the nation (states, regions and communities) create wealth and
minimize poverty by promoting a favorable business environment to attract
private capital investment and higher-skill, higher-wage jobs through world
class capacity building, planning, infrastructure, research grants, and
strategic initiatives.
EDA was
created in 1965 to help communities generate new jobs, retain existing jobs,
and stimulate industrial and commercial growth in economically distressed areas
of the
In
fulfilling its mission, EDA is guided by the basic principle that distressed
communities, rural or otherwise, must be empowered to develop and implement
their own economic development and revitalization strategies through close
collaboration with the private sector, local governments, and other local
resources such as universities and non-profit organizations.
Based on
locally and regionally-developed priorities, EDA partners with state or local
governments, regional economic development districts, public and private
non-profit organizations, and Indian tribes to help provide pro-active strategies
to confront long-term economic distress, sudden and severe economic
dislocations due to natural disasters, the closure of military or other
installations, changing trade patterns, or the depletion of natural resources.
Since its
creation nearly forty years ago, EDA has invested over $12 billion to help
distressed communities create an environment conducive to job growth and
economic opportunity. This is a small fraction of the overall federal
investment in economic development activities over the same period. According
to a General Accounting Office study of federal economic development programs
conducted in 2000, there were at least 30 federal economic development programs
which provided approximately $7 billion to support economic development activities. (GAO: Economic Development:
Multiple Federal Programs Fund Similar Economic Development Activities, Letter
Report,
EDA has
worked with Rural Development at the USDA and nearly every other agency to
advance economic development in rural
Regions Compete Globally with Innovation
and Competitiveness
To compete globally, every
region in
Private sector companies drive
competitiveness through effective, innovative business strategies. While the private sector is the primary agent
in economic development, good government policies and regulations can provide a
business environment that supports investment, innovation, development, and job
creation. Competitiveness arises from a
region’s economic, political, and institutional environment in which the
private sector does business.
Coordinated actions of
corporate and governmental entities can improve a region’s
competitiveness. In any economy,
government alone cannot create sustainable competitive advantages. As President Bush has said, “the role of
government is to create conditions in which jobs are created in which people
can find work.”
Innovation - the Real Competitive Advantage
In the past, the federal
government too often relied solely on transfer payments, i.e. subsidies, to
bolster under performing economies. We
have learned first hand that ongoing subsidies do not create a competitive
advantage, but, instead, they thwart innovation. To put it another way, if the basic premise
is that innovation is a key driver of competitiveness, those actions that
diminish innovation also, in turn, diminish competitiveness. In many instances, past policy had the effect
of thwarting innovation and stifling the ability of rural communities to gain
regional competitive advantage.
Subsidies not only fail to create competitive advantage, but subsidies
also act as a force that slows innovation, degrades competitiveness, and stunts
economic growth.
Research confirms that one
major difference in regional economic performance lies in a region’s capacity
to innovate, transforming new ideas and new knowledge into high-quality
products or services. Additionally, it
is vitally important to understand that innovative activity is not limited to
“high tech” sectors.
Although some regions have
targeted high technology sectors as a means to increase productivity and
economic performance, any industry can innovate to become more productive. Even low-tech companies can apply technology
more efficiently.
Cluster
Theory
EDA’s work with such leading
researchers as Professor Michael Porter of
Clusters significantly enhance
the ability of regional economies to build prosperity because they act as the
incubators for innovation. Clusters possess
the primary elements needed to transform ideas into prosperity, for example, –
universities or research centers churning out new knowledge; companies
transforming knowledge into new services or products; suppliers providing
critical components or equipment; and marketing and distribution firms
delivering the product to customers. By
developing several diverse clusters, regions can inoculate themselves against
cyclical industries and market trends.
Regions with successful clusters enjoy innovation, higher average wages,
increased productivity, and expanding rates of business formation.
The case for clusters is clear
and compelling. Government policy-makers
must now ask the question: “What’s next?”
The answer is that individually and collectively, we must move from
policy to practice, especially for rural
Culture
of Investments and Results
At the Economic Development
Administration, we are moving forward.
We are modeling ourselves much like a venture capital firm. We are seeking to create a culture of
investment and results. We are focusing
our limited public dollars on those partners that understand that simply
subsidizing outdated practices is not conducive to meaningful and robust
economic growth.
The pace of innovative activity
and competitiveness must be driven by the private sector at the regional level,
but public sector policies can play a supporting role.
Economic success, particularly
in distressed regions, can be supported by active and flexible partnerships
between federal, state and local governments and private sector leaders, which
support the research infrastructure, talent pool, and environment for small
business growth. National leaders, such
as those in the room today, can serve as a catalyst by bringing key stakeholders
together.
What Makes Rural Economics Tick?
A focus on cluster-based development is more easily applied to urban or suburban settings. When it comes to rural economies, we must realize their challenges are different. At EDA, we are responding to these challenges by focusing our research and collaborative efforts on the question: “What makes rural economics tick?”
As we all know, rural
wages are typically about 70% of urban wages and many rural communities are
losing their most productive workers to urban areas with greater
opportunities. In many rural
communities, the boom of the 1990’s completely passed them by and their
situation grows more dire with each passing year.
EDA is pleased to
be working with fellow panelist Mark Drabenstott and the Center for the Study
of Rural America on this question of what makes rural economies tick. Our partnership has resulted in a growing
appreciation of the critical role entrepreneurship plays in sustaining healthy
rural economies. While Mr. Drabenstott
will address this issue in more detail in his presentation, EDA is currently
funding significant research on this subject and is in the process of
evaluating research options for Fiscal Year 2004 that we believe will help us
bolster entrepreneurship in the nation’s rural areas.
EDA also is expanding our work with Professor Michael Porter to more specifically address the question of rural economies. We asked Dr. Porter and his team to look at rural regions through his competitiveness lens. Although Dr. Porter’s work is still underway, I am pleased to be able to preview some of his findings today.
What is evident
in Dr. Porter’s research is that there is no overall strategic approach or
consensus among leading practitioners and policy-makers on how to approach
rural economic development. To make the
challenge even more complex, rural regions are very heterogeneous groups that
differ in performance, proximity to other economic areas, and business
environment. As a result, it is
necessary to look at the “true economic region” to design a customized economic
development strategy. We expect that the
research by Dr. Porter and other groups, such as the Council on
Competitiveness, supported by the US Department of Commerce, will help all
branches of the federal government identify common themes and opportunities to
move forward together, implementing the appropriate strategies to
improve the economic well-being of rural communities.
No Overall Strategic Approach to Rural Economic Development
Coordination of institutional
networks serving rural regions is extremely complex. Through Dr. Porter’s research, his team
identified nine federal agencies, six regional organizations, six independent
agencies and numerous state and local-level organizations serving rural regions. Although it is difficult to estimate the
billions of dollars invested in rural areas annually by government and other
organizations, suffice it to say that investments in rural communities are not
made with an emphasis on maximum return on a collaborative investment
strategy. Essentially, federal agencies
have been described by experts as “silos” of rural development activity and
attempts at coordinating the institutional network have largely failed. The lack of a cohesive conceptual framework
and strategy is widely recognized among leading practitioners and policy
makers. While it is difficult to
quantify the effect on rural
True “Economic Regions”--Necessary
Collaboration between “Urban” and “Rural” Areas
Dr. Porter’s
research shows that U.S. Government policies and activities have targeted rural
areas primarily as entities separate from urban areas. As a result, purely "rural"
strategies may be missing an important dimension of regional
competitiveness. Rural areas are linked
to urban areas and distinguishing between "rural" regions and
"urban" regions misses the true "economic region."
What one
traditionally thinks of as a rural region, in fact, obtains products and
services from, and sells outputs to, adjacent regions. In other words, industry clusters regularly
cross over traditional rural-urban boundaries.
If a strategy is developed for the rural region alone, it may overlook
the very industry clusters that can drive the regional economy.
Instead, we can
think about developing strategies for rural areas around "regional
hubs" and "rural spokes".
Every rural region needs a regional hub to which to connect. This hub does not have to be a major city but
simply a hub with a greater level of activity than that of the rural
region.
Connections to
the hub, however, are critical.
Therefore, in addition to building a strong local business environment,
the rural "spoke" also requires efficient business linkages with a
regional "hub,” including highways, airports, water ports, and of course,
telecommunications.
Professor
Porter’s research demonstrates that to increase the prosperity in rural
communities, we need to move away from thinking about purely "rural
strategies" and focus on the economic regions in which entire competitive
clusters are found and rural strategies and activities are linked to centers of
economic activity.
Supporting
Groundbreaking Research
The Department of Commerce is
pursuing and fostering this innovation-based approach to building regional
competitiveness through its policies and strategic initiatives. The old model of transfer payments to
distressed regions, uncoordinated and without a comprehensive economic development
strategy, is an obsolete paradigm that cannot drive higher-wages and increased
standards of living.
Cluster development, strategic linkages, targeted investments in support of innovation, and the embedding of technology are among the factors that, when mixed properly, can set the economic development stage for regions to be competitive in our ever more dynamic global economy.
I am pleased to comment, with
regard to EDA’s Fiscal Year 2004 appropriation, that President Bush
demonstrated his support for EDA’s efforts with a request to increase EDA’s
appropriation by roughly $46 million over the Fiscal Year 2003 appropriation,
providing a total of $364.4 million. I
strongly urge all members of this Committee to support the President’s request
of $364.4 million. The House
Appropriation Committee has included $318,680,000 for programs and
administrative expenses in the bill they reported to the House. I urge the Congress to fund EDA at the
President’s requested level so that EDA can provide economic development
investments at the level so critically needed in distressed communities across
America, particularly in rural communities.
In conclusion, The Economic
Development Administration is focused on catalyzing the networks and
infrastructure for innovation and providing the analytical tools regions
require in order to improve their economic performance. We cannot afford to leave any distressed
region behind or perpetuate ineffective models, and as the President has said,
we are committed to leave no geographic or demographic sector of America behind
when it comes to participating more fully in the American dream.
Thank you, Mr. Chairman, for the opportunity to address this distinguished committee. I appreciate your time and look forward to answering your questions.