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In December of 2015, 195 countries convened in Paris for the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change. To the surprise and delight of most of the participants, the conference ended in consensus among all the participants on a document, the Paris Agreement, that will be opened for signature on April 22, 2016. The Paris Agreement contains specific requirements for monitoring, reporting and verification; those were authorized when the Senate ratified the original climate treaty in 1992. Beyond that, however, it is mostly aspirational. It has many declarations of intent and ambition, and it establishes procedures for future actions to achieve those ambitions. It does not on its face have binding, country-specific commitments to reduce emissions or provide financing. This was no accident; the U.S insisted that such commitments be left out, lest the agreement require Senate ratification, which would be impossible in the current political climate. The Paris Agreement nonetheless has significant legal and operational ramifications for many U.S. businesses. Those are the subject of this column.
While big businesses dominate global markets, command the entrenched financial and banking powers and are incentivized by misguided government policy, emerging startups can disrupt the status quo and prove that local economies can compete successfully if they connect with their customer base and build capacity through local networks. The challenge for Lean Urbanism is to take charge at the association and neighborhood levels: to monitor, harness and replicate emerging local business successes and through bottom-up vigilance to influence top-down policy to change not just the economic dynamics of a region, but strengthen its cultural, social and built landscape.
Small businesses are the lifeblood of the economy in the United States. Based on data from the U.S. Census Bureau, the Office of Advocacy at the U.S. Small Business Administration documented that small businesses accounted for over 92% of the net new jobs creation between 1989 and 2003. The smallest among the small businesses (those employing fewer than 20 employees) accounted for 85% of the net new job creation over the same period. In essence, the vast majority of the new jobs created in the economy come from the very small businesses. Of the total 21.8 million jobs created between 1989 and 2003, small businesses under 20 employees created 18.6 million jobs, small businesses with between 20 and 500 employees created 1.5 million jobs, and large businesses and companies (with over 500 employees) created only 1.7 million jobs. Similarly, while small businesses created net new jobs in 12 of those 14 years, large businesses eliminated more jobs than they created in 5 of those 14 years.
The Maine Center for Economic Policy (MECEP) was retained by the Portland Independent Business and Community Alliance to collect and analyze data related to the economic impact of businesses in Portland, Maine. The primary purpose of the study was to quantify the impact of locally owned businesses compared to national chains on the local economy. MECEP's analysis found that in general every $100 spent at locally owned businesses generates an additional $58 in local impact. By comparison, $100 spent at a representative national chain store generates $33 in local impact. Stated differently, MECEP found that money spent at local businesses generates as much as a 76% greater return to the local economy than money spent at national chains. These findings are consistent with similar studies conducted in other states and can vary by business type.
We document a negative correlation, at business cycle frequencies, between the net job creation rate of large employers and the level of aggregate unemployment that is much stronger than for small employers. The differential growth rate of employment between initially large and small employers has an unconditional correlation of -0.5 with the unemployment rate, and varies by about 5 percent over the business cycle.
Economic development is the process of building strong, adaptive economies. Strategies driven by local assets and realities, a diverse industry base and a commitment to equality of opportunity and sustainable practices have emerged as those that will ensure a strong foundation for long-term stability and growth. Even within the parameters of these principles, what constitutes success in economic development and the specific strategies to accomplish it will look different from place to place. Despite these differences, leadership is consistently identified as a critical factor in effective economic development. Dedicated leadership is needed to raise awareness, help develop and communicate a common vision, and motivate stakeholders into action.
An analysis of more than 4,200 economic development incentive awards in 14 states finds that large companies received dominant shares, ranging between 80 and 96 percent of their dollar values. The deals, worth more than $3.2 billion, were granted in recent years by programs that, on their faces, are equally accessible to small and large companies. Yet big businesses overall were awarded 90 percent of the dollars from the programs analyzed, indicating a profound bias against small businesses.
The cost of leasing commercial space is soaring in many U.S. cities, threatening the future of independent businesses. In cities as diverse as Oakland and Nashville, Milwaukee and Portland, Maine, retail rents have shot up by double-digit percentages over the last year alone. As the cost of space rises, urban neighborhoods that have long provided the kind of dense and varied environment in which entrepreneurs thrive are becoming increasingly inhospitable to them.
Local leaders recognize and often publicly tout the importance of a strong, growing entrepreneurial and small business community. Yet, when it comes to supporting entrepreneurs in practice, many local leaders are unsure how they can make a real impact. Experts suggest that one essential element for entrepreneurial growth is the presence of an "eco system" or "culture." Given the various dimensions and actors that can create eco systems - including universities, large and small businesses and their leadership, entrepreneurial support programs, workforce skills, financing, and probably a bit of luck - do local governments really have a role to play? Research by the National League of Cities' Center for Research and Innovation suggests that they do.
Businesses owned by people of color create jobs and build wealth in communities of color. Yet despite rapid growth of entrepreneurship among people of color - and women of color in particular - these businesses face significant barriers to growth and success. Government spending on construction, goods, and services is a potential opportunity to advance economic inclusion, but municipalities often under-contract with businesses owned by people of color.