A BOOTSTRAP MODEL FOR MICROENTERPRISE DEVELOPMENT OF A DISTRESSED COMMUNITY

INTRODUCTION

The success of any economic development strategy can be measured by evidence of increase in personal income, corporate profitability and higher public revenues. The latter usually results from an increase in the economy's taxable base, due to an expansion in national productive capacity. For most economically distressed communities, recovery efforts generally fall into two major categories, which can be described by (1) the promotion model; and (2) the inducement model.1 These two strategies usually include the provision of special inducement packages to entrepreneurs to invest in the affected communities. In addition to financial incentives, the community would make an effort to provide prospective investors with what it considers to be its comparative advantages (e.g., plenty of highly educated and skilled labor resources; competitive wages; abundance of raw materials; good schools; efficient and well-developed communication systems, etc.). The overall goal of any viable economic development strategy is to retain existing business investments and attract new ones. Unfortunately, many development strategies often fail to achieve their desired goals and as a consequence, the community may not be able to attract new investments and create jobs, or raise the level of public revenues.

The promotion and inducement approaches have failed to revitalize many economically depressed areas in the U.S. (e.g., Benton Harbor, Detroit, and St. Louis in the 1970s and 1980s).2 Failure was due primarily to (1) rapidly changing business environment due to increased global competition; (2) inadequate local resources to restructure, for example, the infrastructure and make it more attractive to prospective investors and enhance its ability to compete with other communities for investment; (3) the myth that in most distressed areas recovery can only be achieved through the successful recruitment of large manufacturing businesses into the community. As a consequence of this approach or belief, many distressed communities often squander their meager resources on efforts to recruit large manufacturing concerns, instead of enhancing the ability of local entrepreneurs to create wealth. Even when communities succeed to secure investments from large businesses, there is no guarantee that the incoming or new manufacturing enterprises would create many jobs or operate profitably enough to significantly increase the local tax base. Quite often, the businesses recruited are unable to provide enough benefits to the local community to make up for the resources expended in the recruitment process.

Finally, many distressed communities often lack the institutional infrastructures to provide the support systems that are needed to channel internal and external resources into priority development areas? In many developing countries, where most of the world's economically distressed areas can be found, political instability (including violent ethnic mobilization), unmanageable external debts, corruption, financial mismanagement, and other politically induced problems, have been responsible for the failure of economic development strategies.

THEORETICAL ISSUES

There are two fundamental issues that do not often receive adequate attention from policymakers or other government agents in the drive for economic vitalization of distressed communities. First, there are the long-term economic, social, and political costs to a community arising from excessive reliance on economic development through promotion. second, the granting of generous tax incentives to prospective investors does not necessarily guarantee comparable returns in jobs created and tax revenue generated. Unfortunately, throughout most of the developing world or distressed local communities, many policymakers often equate successful promotion with increased jobs and revenue collections. The attraction of foreign manufacturing enterprises into the community is often equated with sustained economic growth and development or considered insurance against future downturns in the macro economy. Many of the politicians who pursue incentive-driven community development strategies tend to expend public resources aggressively to attract foreign businesses without any guarantee that the presence of these enterprises would have any significant positive impact on the alleviation of poverty.4

POTENTIAL CONSEQUENCES OF OVER-RELIANCE ON INCENTIVE-DRIVEN RECRUITMENT OF LARGE BUSINESS ENTERPRISES

While, in theory, offering generous incentives to foreign businesses to invest in depressed communities may first appear to be sound public policy, such an approach to development can impose severe costs on society. Policymakers in many developing countries and depressed communities in developed countries have often failed to take into consideration the competition posed by other communities for foreign investment. In fact, many African policymakers, who pursue similar approaches to attracting foreign investment, often behave as if theirs is the only country seeking foreign investment, and as a consequence, usually fail to transform their economies well enough to successfully attract and retain investment. For example, while their embassies abroad squander scarce resources to encourage foreign businesses to establish subsidiaries in their home countries, domestic politicians and civil servants in many African countries refuse to implement institutional reforms necessary to create the appropriate environment for such investment. As a result, these countries continue to suffer from relatively high levels of corruption and continue to maintain highly inefficient bureaucracies.5 In other words, these African countries maintain governmental structures that are hostile to entrepreneurship but while at the same time going around the world squandering scarce resources on investment promotion schemes.6 Many countries in Africa have now come to realize that the large expenditures devoted to attracting investment to their economies have often generated very few, if any, benefits for the people. First, if they are successful in convincing a foreign business to invest in their country, chances are many of them would not succeed because of the government's unwillingness to restructure domestic critical domains (e.g., the civil service) to make them more receptive to entrepreneurial effort and thus, wealth creation. second, many foreign businesses, especially those located in the industrial North, have very little interest in establishing viable manufacturing facilities in the African countries, given the risk associated with financial, economic and political instability, corruption, poorly educated and highly unskilled labor force, etc. Third, most of the interest expressed by transnational companies in Africa and other economically depressed areas of the world is for raw materials and cheap labor, and as a consequence, many of these firms tend to bring to the poor countries (or communities) only temporary structures, those that can easily be dismantled and relocated, once other more attractive arenas become available. In fact, in times of economic downturns, many foreign companies may exacerbate the economic malaise by pulling out and leaving for greener pastures, making it more difficult for local policymakers to successfully implement recovery programs.