Remarks by Susan V. Berresford at the Humboldt State University Forum Series – Economic Development Lessons
Arcata, CA, March 1, 2005
I was asked to talk tonight about what the Ford Foundation has learned from its economic development work in rural areas around the world. I hope that Ford’s experience will be helpful for people here. I should say at the outset that the Ford Foundation’s experience comes from support of nonprofit economic development organizations, which represent only one type of economic development actor. Others, such as private developers or government, work in somewhat different ways but all are important and often interrelated. I hope the core ideas will be useful, but you will want to adapt any good ideas to this particular reality.
The first message is one you are probably familiar with. Much of the economic development work in the United States and other countries’ has focused on urban areas. And, when people from cities turn to rural needs, they assume that rural economic development is just a smaller-scale extension of urban strategies. That assumption is very wrong. Rural economic development faces some unique challenges.
For example, in rural communities compared to urban areas:
• Many people patch together various jobs rather than holding one full-time job. This reflects the seasonal nature of some rural work. So rural job development often needs to be thought about differently;
• Rural economic development often costs more than urban because costs such as transport and communication are higher;
• Rural banks likely to invest in rural economic development are more thinly capitalized. Further, there is less organized pressure on them than their urban counterparts to loan to local entrepreneurs;
• There are fewer “development” banks and nonprofit development funds dedicated to poor communities in rural areas than in urban locations;
• In some areas, educational attainment of the rural workforce tends to be lower than in urban areas.
But these differences are not insurmountable.
Ford and other donors have worked in rural economic development over many years. And as we reflect on that work, four lessons stand out. While not surprising, the core lessons are worth stating because, despite their familiarity, they are too often overlooked.
Lesson #1: The best rural development opportunities are in what people call rural service centers. These are places where you find a critical mass of people, amenities and activities that attract tourists, and at least a few significant institutions such as community colleges, universities, creative nonprofit organizations and citizen-voice organizations. The more remote and less populated the rural area, the greater the likelihood of troubled economic development projects. This first lesson seems obvious, but as you may know, the landscape is littered with failed economic development projects in remote areas.
Lesson #2: Rural development depends on a network of organizations working together in varying arrangements or, in some cases, on one organization driving and catalyzing innovation on multiple fronts. The most successful rural development strategies involve multiple, simultaneous and interlinked initiatives in such areas as business financing, education keyed to employer needs, cultural and social activity that draws community and outside people together, and policy research and advocacy focused on rural development issues for a specific location. Leaders must seize new opportunities as they emerge, experiment, capture funds and be good partners. Mostly, leaders have to figure things out as they go along – and, very importantly, they must reflect the values and aspirations of the community.
Lesson #3: To attract grants and loans from socially conscious donors like foundations, rural economic development strategies must simultaneously take into account the three “E’s”- economic concerns, ecological protection and equity goals. In other words, community strategies for economic development are most likely to get funded when they focus on income earning that reduces gaps between lower and higher income groups, and when they avoid harm to the natural environment. Simple business development strategies without attention to the other two “E’s” simply won’t attract socially conscious grant money or loans with concessionary rates.
Lesson #4: The final crucial element in success is a creative, driving, determined leader who understands community values. Rural development is difficult. It involves raising money, supporting entrepreneurs’ new ideas, forging links between institutions, fostering service programs, building trust and amassing political and social capital. Nothing falls into place automatically. Development programs need skilled and dynamic leaders on boards of trustees and, most importantly, in senior executive roles and teams.
This is particularly important because it’s not an easy task for a community to form a guiding vision of its future. Consensus is hard to achieve and formal planning processes often become rigid, bureaucratic and quickly out of date. They also fail to anticipate or provoke creative new ideas. Consensus is also particularly hard to achieve when groups in the larger community have different needs and resources. Nevertheless, skilled leaders, with roots in and respect for community history and values, can work through these challenges.
I would like to introduce you to several organizations that illustrate these principles.
Coastal Enterprises, located in Wiscasset, Maine, is one of the U.S.’s most interesting and effective rural development organizations. Its region also has some similarities to Humboldt. Wiscasset and its surrounding area used to have healthy logging, fishing, textile and shipbuilding industries. Over time these industries, with their high-value jobs, declined and low-paid service jobs increased. And finally, the supply of affordable housing shrank when well-off retirees and vacation home buyers began favoring the Wiscasset area, often squeezing out moderate- and low-income working families.
Coastal Enterprise’s leader, Ron Phillips, is someone I admire greatly. Nearly 30 years ago, Ron moved to Wiscasset where his wife’s family lived and where he expected to serve as a minister. He had graduated from Union Theological Seminary in New York City, and then worked on economic development for two church- affiliated organizations. He experienced at first hand how building a better economic future contributed to both his family’s and Maine’s well-being. While he had anticipated a more traditional parish ministry as part of his life’s work, economic development work became his ministry. He began working with a small group of colleagues to build a set of programs that Coastal itself would run.
Step by step over many years, he and others built an extraordinarily successful engine of economic improvement in and beyond rural Maine. He did so by assembling pools of money, with more than half from governmental sources and 85 percent from out of state. Coastal then provided grant and loan money for various types of rural development activity. Ron and his colleagues linked these efforts to local and nearby community institutions, ensuring that these efforts embodied community values and needs.
Linking Coastal’s vision and mission, they envisioned a sustainable community that included workers with adequate housing, affordable day care and jobs that paid livable wages as well as industries that were compatible with the state’s environment, natural resources and traditions.
Today, after faltering first steps that focused on the problems of local fisheries, Coastal, still in rural Wiscasset with a population of 3,603, is a holding company with $110 million capital under management and $54 million in assets. It administers these funds for economic development, builds services to equip the work force, supports research that guides Coastal work, and advocates for rural concerns with public and private sector decision makers. Coastal has brought into the surrounding area approximately $400 million in debt and equity financing that has supported 1,200 local businesses, services and affordable housing projects. Coastal’s components now include such entities as:
• a fund for investments of up to $500,000 in good-sized job-generating businesses;
• a fund for investments of up to $50,000 in small, usually family-scale businesses;
• a venture capital fund making equity investments of up to $500,000 in rural Maine companies that seem likely to both generate jobs and bring above-average returns;
• a housing fund to support predevelopment and construction costs of rehabilitating or building low- and moderate-income housing and;
• several funds to loan money for environmental and marine businesses and for start up of child-care and assisted- living organizations.
On the work force and community development side, Coastal:
• sets up training for workers, usually in cooperation with nonprofit organizations, colleges, community colleges in the state, all geared to local community employer and business needs;
• runs a matched savings system that enables low-income people who save money to draw a dollar-for-dollar match up to $4,000 of savings over 36 months. The savings and match must remain in place during the three years; at the end, the $8,000 may only be withdrawn for education, buying a home or investing in a business.
One of Coastal’s most important projects was helping to revamp and re-equip a local fishing pier that had fallen into such disrepair that area fishermen were no longer able to use it to process or sell their fish competitively. When developers came in and threatened to make the pier area into a marina with condos, Coastal met with the fishing families and began discussions of how to protect and restart the fishing industry. Over a decade, a project was developed that included rebuilding the pier, and bringing the local fish auction facility up to hi-tech, competitive standards. As a result, greater income stability and economic growth came to fishing families. The town ultimately took over ownership of the pier, runs it well and protects it from gentrification.
Another of Coastal’s early activities was spurred by the 1977 decommissioning of a nuclear power facility. Here, too, there are similarities between Wiscasset and this area in Northern California. Now, nearly 30 years later, the facility is being converted to a mixed-use, environmentally friendly development for technology, retail, commercial and residential use. It is to open in the spring of 2006.
Coastal embodies the principles I spoke of at the start: Its headquarters are in Wiscasset but its programs build on the service center activities and density generated in Bath, Boothbay, even Portland, Maine, and the surrounding region. Coastal’s leaders insist that all their businesses, social services and research and advocacy are designed to raise local resident’s income and avoid harm to the environment. Coastal operates on multiple fronts: work-force training, business investment, and child- and elder-care service development.
This powerful economic and social model of community improvement is one others can follow. From its modest beginnings to Ron Phillips’ need for meaningful work that embraced his practical idealism, its success is no mystery.
BASIX in India is a second rural development organization I would like to describe. Established in 1996, it now serves 190,000 poor households in eight states in rural India. Its leader, Vijay Mahajan, has degrees from two of India’s premier business institutions--the Indian Institute of Technology and the Indian Institute of Management. Earlier in his life, Mahajan founded and led a rural development organization called Pradan. But he saw a need for a bank-like structure to foster rural economic development for low-income people. He therefore created BASIX, whose motto is “Equity for Equity.”
Like Coastal, BASIX is an intermediary between mainstream capital held by people unfamiliar with rural development on one side and low-income rural entrepreneurs in poor areas. BASIX makes loans to rural businesses in poor areas and also provides assistance in solving business problems.
BASIX’s component parts, some of which Ford supports, include:
• a for-profit loan fund and a local bank that offers micro-credit loans;
• a nonprofit research unit continually providing R&D for new enterprises;
• a loan fund for women;
• experimental work with insurance retailing to very low-income people.
One of BASIX’s most interesting and unusual projects is this last effort: the creation of new insurance products, in partnership with mainstream insurance companies. This kind of work by BASIX illustrates the point I made earlier about nonprofit rural development leaders having to invest in products for their areas because urban providers will not. BASIX saw that poor, rural Indian households have no insurance, slender earnings with little cushion, and their income is exposed to all sorts of natural and human risks, so they need help.
BASIX has worked with insurance companies to design insurance for very poor families’ needs—for example, insurance on livestock holdings, against rainfall problems, and against loss of income due to poor health. BASIX’s microcredit outreach system also provides insurance to local people. This ensures low transaction and operating costs, something mainstream insurance companies can’t achieve on their own. And BASIX is efficient and non-bureaucratic. It settles claims on life insurance in 15 days, livestock claims within a month and rainfall claims before the end of the harvest. All of this is done in partnership with mainstream insurance companies.
Another organization in India that Ford supports – the Self-Employed Women’s Association (SEWA) – is also experimenting with these kinds of insurance products, offering them principally to poor women who earn very small amounts of money, often from street vending. Both SEWA and BASIX are trying to bring to the poor and their households a degree of insurance coverage that better off people can take for granted. This is the kind of innovation for greater rural equality that attracts the investment capital of the Ford Foundation and other socially conscious institutions.
There are many nonprofit organizations like Coastal and BASIX around the world. Increasingly, they are recognized as defining a field called “development finance” or CDFI’s – community development finance institutions. This refers to their emphasis on finance for development and their creation of bank-like structures to serve low-income communities. The development finance field now includes community development venture capital funds (like the one at Coastal) that look for very high- return businesses serving the poor. Development banks have become a powerful force in rural development.
What I find particularly interesting about development finance institutions are not only their rural success stories but also their “rural product innovation.” BASIX and SEWA are creating new insurance products for poor families, while other development banks are creating other new kinds of projects keyed to local needs. I will end with the story of another CDFI in the United States--the New Hampshire Community Loan Fund. It benefits the large number of modest-income families living in manufactured housing (formerly called mobile homes).
We all know that homeownership is the primary way Americans build wealth that they can pass along to others and that serves as a cushion in tough times. But people living in manufactured housing have a very hard time building equity in their homes. Many of the homes were poorly constructed (before HUD standards were put in place in 1977) and require early and expensive repairs. Also, manufactured houses most often rest on a rented plot of land in which the homeowner has a limited lease and therefore limited control of the site. Rents can rise sharply and unpredictably, parks can be closed with little warning, and the so-called “mobile home” often can’t be moved away because the area’s other manufactured housing communities are full or have restrictions against older or used structures. In these circumstances, homeowners are often forced to sell their homes to park owners at very low prices.
The New Hampshire Loan Fund assists manufactured housing owners in several ways. First, it helps park residents purchase the park itself in a cooperative form of ownership – combining borrowing based on the land value from conventional lenders, with subordinate debt from socially conscious lenders at concessionary rates. The homeowners’ associations run the park as a cooperative, stabilizing rental fees and improving basic services. The New Hampshire Loan Fund now helps owners of manufactured housing recapitalize their mortgages to get lower interest rates, since too many have very high-interest loans from sub-prime lenders. The New Hampshire Loan Fund has now converted 15 percent of the state’s manufactured housing parks to co-ops.
The Ford Foundation has several national manufactured- housing experiments like this under way in partnership with the Corporation for Enterprise Development, the Manufactured Housing Institute and the Neighborhood Reinvestment Corporation. I mention this kind of project because like the insurance products of BASIX and SEWA, it shows the imaginative work done by rural economic development groups. Rural development practitioners look at the entire community and see if they can help people traditional finance systems seem not to serve well. This illustrates the “equity” banking principle I mentioned earlier.
To wrap up – let me note that the nonprofit community development finance organizations around the world are linked together for learning and exchange around rural development and other related work. The lessons I’ve described are increasingly understood and applied worldwide. More and more nonprofit organizations like Coastal, BASIX, SEWA and the New Hampshire Community Loan Fund are helping rural people build tangible assets, raise incomes, protect the environment and sustain community values. They are helping bring mainstream capital to rural communities and fostering rural people’s innovative ideas about equity and economic development. It is truly an exciting time for people doing this work and for communities benefiting from it.
The Ford Foundation is an independent, nonprofit grant-making organization. For more than half a century it has been a resource for innovative people and institutions worldwide, guided by its goals of strengthening democratic values, reducing poverty and injustice, promoting international cooperation and advancing human achievement. With headquarters in New York, the foundation has offices in Africa, the Middle East, Asia, Latin America, and Russia.